Businesses often confront the issue of market segmentation, or how to divide big categories into smaller, more manageable categories. Two terms that often crop up in the discussion of market segmentation are generic market and product market. While either term can refer to large groups of people, they convey distinct and very different concepts.

Generic Market

Generic markets typically contain groups of consumers that share a broad need that a wide variety of products or services can meet. For example, everyone needs food, and everything from grocery stores and restaurants to farming cooperatives can meet the need for food. In a generic market, the method of meeting the need takes second place to the simple capacity to meet the need. A cooperative that specializes in organic food holds no intrinsic advantage over a fast food joint in its capacity to serve the generic market of people that eat.

Product Market

Product markets typically contain groups of consumers that share a fairly specific need that only certain and closely related kinds of products or services can meet. In the case of smartphone users, for example, only phones with specific and more or less comparable capabilities can serve the needs of these consumers. In a product market, the capacity to serve the market is often predicated on the method. Only a company that produces smartphones can compete for this market, let alone hold an intrinsic advantage, because only that product suffices.

Pitfalls of Generic Markets

As a rule, pursuit of generic markets offers little value to businesses. The heterogeneous nature of the market in terms of both demographics and psychographics, as well as the wide range of competition, makes it extremely difficult to engage in effective marketing campaigns. In essence, the attempt to capture a significant share in a generic market amounts to attempting to please everyone and, consequently, pleasing no one. Even automobile manufacturers that serve a somewhat generic market do not attempt to market every vehicle to every consumer. General Motors, for example, owns the Cadillac and Chevrolet brands. Cadillac aims at affluent car buyers, while Chevy aims more at the middle and working class.

Advantages of Product Markets

Product markets offer businesses clear advantages over generic markets. The fact that only specific products can fill the market need limits competition to a much smaller group of other businesses. Product specificity also allows a business to look for a specific demographic or psychographic group to focus on within the larger product market and direct marketing and advertising at that subgroup. A cellular phone service provider might, for example, develop low-cost service plans and direct marketing efforts at low-income areas other service providers avoid. This allows the service provider to become the dominant force in those areas and make up in volume what it loses in higher-priced plans.