Vectia Study: Market definitions and views on growth among Finnish firms 2011
Author Nina Olin
Published on June 23rd in categories News.
Recent international research results show that 2/3 of firm growth is explained by market growth. The positive effect of the right market definition is thus notable. Hence, firms should increasingly engage in answering the question of ‘where to grow’ – as the traditional key question in competitive strategy of ‘how to grow’ explains only 1/3 of a firm’s turnover growth.
Vectia has, in co-operation with research company Add Value, carried out a pioneering study, within which 60 of Finland’s 100 largest firms interviewed. The interviews mapped out how the firms define their markets and how they try to influence market development.
The results show that many firms define their markets the same way as their competitors and they examine their markets primarily with the criteria product / service or geographical area. According to our view this approach can lead to a zero sum game, where firms aggressively compete for diminishing market shares without achieving any noteworthy benefit for the firm or its customers.
The study we conducted also indicates that progressive market segmentation models can build competitive advantage: the by far most commonly used market segmentation criteria among Finnish firms is customer segment and over 90% of the respondents use only one or two segmentation criteria. Some examples show, however, that more granular segmentation models are effective tools in order to find new growth opportunities.
The study also brought forward that Finnish firms primarily seek growth by increasing market share or through mergers and acquisitions. However, these growth logics cover only 1/3 of the average growth potential. Instead firms should engage in market design; to actively seek new growth markets and support developing these in the desired direction. Research results also indicate that market design can create new growth markets and improve profitability significantly.
When looking at growth pace, 63% of the firms interviewed reported that they grow faster than the markets they operate in. The results also conveyed that firms growing faster than their markets have a different approach to influencing markets. These firms, for example, more often influence their networks and legislation as well as create competition. Firms growing slower than the market, however, turn to more traditional strategies to shape their markets; such as influencing the media or by acting in industry associations.
The results from the study also show that even though market definitions clearly is a management group topic, almost half of the firms either leave market definition discussions outside their strategy process or discuss market definitions only in connection to strategy work. Some successful examples indicate, however, that an insightful market selection and being able to influence markets effectively require continuous discussions about markets.
Vectia is a pioneer of market design and the book ’Markkinamuotoilu – Johdatko markkinoita vai johtavatko markkinat sinua’, written by Vectia partners Suvi Nenonen and Kaj Storbacka has been acknowledged with e.g. SEFE’s (Finnish association of graduates in economics and business administration) award for best Finnish business book.
Study results in pdf-format: Vectia Market Design study 2011 – Results