A market is a place, real or virtual, where supply and demand are brought together. On the demand-side there is a group of potential buyers with a similar desire, while the supply-side consists of a group of potential sellers with a similar proposition. A market system is broader, encompassing all people and organizations who influence the buyer-seller interaction.
These people and organizations are the actors who jointly make up the market system. Their actions and interactions are shaped by a variety of factors, some structural (e.g. cost level, number of actors, cyclicality), others organization-specific (e.g. strategy, culture, resources).
The Market System Map outlines the 11 categories of actors who need to be analyzed to understand market dynamics. The 7 categories in dark blue are the market actors potentially involved in the exchange of goods and services, while the 4 categories in light blue are the contextual actors, who indirectly influence the conditions under which the market actors operate. The middle 3 market actors are called the industry column, the left 2 the shadow competitors and the right 2 the potential collaborators. For all 11 categories it is crucial to go beyond mapping the actors, to understand the factors driving their current and future behavior.
The 11 categories of actors shaping each market are the following:
- These potential proposition clients are often divided into segments (‘market segments’), depending on such factors as their differing needs, negotiation power, buying behavior, price sensitivity, purchase volume, geographic location, and brand loyalty.
- Industry Rivals. These direct competitors can also be divided into specific competitive groups, depending on such factors as cost structure, distinctive competencies, geographic focus, and type of differentiation, with competitive intensity varying between groups.
- Suppliers. All providers of tangible and intangible resources fall into this category, including the suppliers of materials, machines, buildings, semi-finished products, money, labor, data, and a variety of services. Each subcategory will be driven by different factors.
- Substitutes. If potential clients consider a different category of products or services as a viable alternative, the providers of these substitutes must be seen as indirect competitors. So, movie theaters compete with each other, but also with other forms of entertainment.
- New Entrants. Firms threatening market entry are potential competitors. Whether they actually step in typically depends on structural barriers to entry such as economies of scale and patents, but also on organizational factors such as strategy and available resources.
- Complementors. When firms offer their value proposition to buyers via, of together with, a collaborating firm, such a partner is called a complementor. Common subcategories of complementors include distributors, platforms, solution providers and consortium partners.
- Contractors. When firms outsource some of their value-adding activities to a collaborating firm, such a partner is called a contractor. Almost all activities can be contracted out to third parties, depending on such factors as cost, risk, speed, and flexibility.
- Social Actors. These include all actors shaping society such as the arts, sports clubs, religious organizations, charities, support groups, educational institutions, and the media.
- Economic Actors. These include all actors shaping the economy such as central banks, employer federations, industry associations, labor organizations and customs authorities.
- Political Actors. These include all actors involved in government policy, such as political parties, municipal governments, national ministries, international agencies, and the courts.
- Technological Actors. These include all actors shaping new technologies, such as research institutes, standard setting bodies, user organizations and incubators.
- Market systems are broader than markets. When some say “the market”, they mean buyers, but a market consists of buyers and sellers. The market system is broader, including all aspects that shape how buyers and sellers deal with each other.
- Market systems are driven by actors and factors. Every market system is shaped by who is in the game (the actors) and what determines how they behave (the factors).
- Market systems are driven by market and contextual actors. Every market system consists of 11 generic categories of actors. There are 7 categories potentially involved in economic transactions (the market actors) and 4 categories influencing the general circumstances (the contextual actors). Each category can be further subdivided.
- Market systems are driven by structural and organizational factors. Each actor’s behavior will be shaped by external rules of the game (structural conditions that are largely fixed) and internal dynamics (organizational conditions that are part fixed and part choice).
- Market systems are more complex than 5 forces. Porter’s Five Competitive Forces Model (1979) is a limited external analysis tool, focusing on 5 categories of structural factors that influence the level of profitability in a market. The Market System Map takes a broader perspective, encouraging analysts to also consider organization-specific factors, as well as to map the associated actors, in 11 instead of only 5 categories.