Playing To Win
Market Maps Make Me Nervous
In the past two weeks, I have been in the position of reviewing a market map that large consulting firms created, one each for three different clients. Market maps always make me nervous — but three-in-a-row caused me to want to share the reasons for my trepidation, which I will do in my 53rd Year III Playing to Win/Practitioner Insights piece: Market Maps Make Me Nervous: How They Encourage Weak Strategy Choices. You can find the previous 163 PTW/PI here. (BTW: There are 53 Year III PTW/PI pieces because I added one mid-week post to celebrate crossing the million-view mark.)
Market Maps in General
Market maps tend to all look something like the above. Product categories are often arrayed along the x-axis and geographies or price tiers along the y-axis (or vice versa). And the coloring is often growth rate or market share. There are, of course, numerous potential combinations, and I have probably seen them all! But the purpose is always the same. It is an attempt to portray the marketplace in a synoptic picture because, as the saying goes, a picture is worth a thousand words.
They are very popular in strategy because many folks in that realm think of strategy as primarily an analytical exercise. So, a chart embodying so much analysis is like candy to them. And strategy consultants are first and foremost among the fans. It takes heavy doses of consultant billable hours to pour through industry information to come up with the data for a market map. And then it takes great graphics expertise to create a compelling visual representation of the data. Both are things that the clients historically couldn’t do themselves.
I remember seeing innumerable market maps being created during my time at Monitor Company in the 1980s and 1990s. We spent a huge amount of (billable) time and effort making the most beautiful market map charts. One of my fellow Monitor directors in particular loved producing what are called Marimekko charts. Marimekko isn’t the name of some guy in McKinsey’s Tokyo office, it is the name of a Finnish fashion company whose colorful geometric patterns resemble the chart above — or, technically, vice versa. I will never forget how gleeful he was when he found a piece of software (in the ancient days of graphic production software) that created Marimekko charts directly from a data set. Prior to that, the charts had to be laboriously created, block-by-block. When I checked online, I was fascinated to see that the spirit of Marimekko charts is alive and well as evidenced by the numerous inexpensive apps that one can buy for creating them — e.g., here.
But consultants couldn’t charge for creating them if clients didn’t like them — and clients do. And historically, they didn’t have the data collection and analysis, nor graphic production skills to produce them. Now that the strategy departments of most companies are populated with ex-strategy consultants, the capability is ubiquitous — as is the habit of using them.
Net, we are at a point at which strategy consultants and company strategy managers all are adept at creating, have a habit of using, and generally love market maps. Hence, market maps are an almost universal part of every strategy effort.
The Three Dangers of Market Maps
Despite the nearly universal love of market maps, they make me nervous because they embody three dangers that encourage weak strategy choices.
1) The Map becomes the Territory
A danger of all maps is that the person using the map thinks it is the territory, not just one representation of the territory (a danger I discussed more generally in Chapter 2 of my book on economic policy When More is Not Better). A political map (featuring official country boundaries) is different than a topographic map, which is different from a roadmap, which is different from a climate map. They are all representations of the territory based on different desired insights.
A market map can have many variables. Usually there are two (x and y axes) or three (by adding color/shading). It can even be four if a number is put in each box to cover an additional variable — though at that point it ceases to be entirely a picture. But the important point is that those two-to-four variables are chosen from among the many variables available. Even if they are the best variables, it is still a selection. But once the market map exists and is shared, it tends to become ‘the truth.’ It is ‘the segmentation.’
It is not as though the initial conception is stupid. The chosen variables are usually sensible. But not infrequently, I look at them and think something else is more important. For example, for one client, it was clear to me that product mattered less than attitude of customers toward products across this category of products. And that wasn’t captured in the market map and wasn’t in the minds of the clients as it made its choices.
2) The Biggest Block Becomes an Inexorable Draw
This is in the ‘moth-to-the-flame’ category. A company exposed to the above market map would immediately gravitate to the lower left box and think (without thinking) “we have to invest there!” That is especially the case if that box is growing faster than average. The immediate thought is “all we have to do is get a modest share of that huge segment and we will be rich!”
That is very dangerous. Often bigger established players make that hard. You are not the only one that has drawn that market map and noticed the bright flashing light of the biggest segment.
But one reason that it is big is that the chosen variables make it appear to be homogeneously big. Companies make that mistake when one of the variables is ‘country’ — especially when it comes to the world’s two biggest economies, US and China. For most offerings, the US is not a market. The coastal states are dramatically different than the flyover states, New England different from Texas, the Great Lakes states different from the Gulf of Mexico border states, etc. Even LA is different from the Central Valley and New York City from upstate New York. And don’t get me (or any China expert) started on the ‘China market.’ Those 1.4 billion people don’t constitute ‘one segment.’
That is why so many US and China entry strategies by foreign companies are complete busts. US and China may be single blocks on somebody’s market map, but they aren’t actually uniform blocks.
3) The Focus is on What Is, not What Could Be
If in 1975, Jack Bogle had made a market map of the mutual fund industry, he wouldn’t have seen a box for index mutual funds. But his start-up, Vanguard Group, now manages over $7 trillion of them and index funds constitute a very large block on the 2023 mutual fund market map. But Vanguard already owns that block.
If in 2004, newly appointed CEO Jørgen Vig Knudstorp, would have done a market map of the toy market to guide his strategy for the turnaround of then near bankrupt Lego, it would have been clear to him that the construction toy segment was pretty tiny. He would have probably focused on bigger segments, like dolls, diecast cars, or board games. But because he didn’t focus on the current market map, he led Lego to become the biggest (and most profitable) toy company in the world, focusing singularly on construction toys.
In the presence of a market map, I have never seen the team viewing it consider anything that is not on their map. A market map draws the attention of those looking at it to the map itself. If something on the map is currently small, it tends to get ignored. The growth assumptions for small segments tend to be modest. If something isn’t even on the map — good luck!
If your attention in on a market map, someone else like Bogle or Knudstorp is likely to beat you from a base largely or entirely outside the map while you are focusing on what is on the map — especially the big blocks.
A market map can be a useful tool. A picture can indeed be worth a thousand words. But watch out. There are three real dangers that you must think carefully to overcome.
First, don’t be too proud of yourself, think ‘this is it,’ and lock on the map. Remember that it is a map. It is not the territory. Without my prodding, I have never seen a company shift from the initial market map that is circulated — the anchoring bias in action. Don’t let that happen to you. Do an exercise in which you redo your market map with at least one variable changed — preferably more. It might not turn out to be a better map. But at least give it a try. Don’t just accept the market map as the only one there is. You can go back to it — but only after trying a different one.
Second, before you choose to go after the biggest block on your market map, do a market map of that block. Figure out the two or three variables that split it into importantly distinctive pieces. That exercise will tell you how homogeneous or heterogeneous it really is. And it will help you avoid overinvesting as if the block is one segment when it is actually many.
Third, once you have a market map, go off it. Ask what might not be on the map but might respond to a customer need that isn’t being met by the suppliers to the various blocks on the map (the Vanguard story). And ask of each small block on the market map, what would have to be true for that block to grow at a rate far in excess of its current growth rate if you took actions targeted on it (the Lego story).
In summary, the best way to treat a market map is as a spur to more thinking — not the answer.