It is important to know the definitions of industry and a market to make better business decisions. There is some confusion in understanding the difference between these terms not least because they are interrelated.
This article attempts to put out the difference between an industry and a market with a structured approach for clarity.
What is a market ?
When we look around us, we may find some markets that are part of our daily lives, such as a vegetable market, wholesale food grains market, etc. What are the common patterns you may find in any market, despite different products being sold in each of the markets?
It’s easy, isn’t it? There are buyers and there are sellers. Then there are prices and different quality (may be indicated by brands or own experience or some other means). The buyers purchase based on their own preferences or perhaps influenced by the claims of the sellers.
Another feature of a market is that it can be defined as widely as possible. For example, the market for risk mitigation is the widest definition, while the market for insurance is narrower, and the market for life insurance is even narrower.
In summary, the market is defined by a place, physical or virtual, where buyers and sellers interact and maximise the value from their perspectives. For example, the buyer will attempt to obtain the best quality for a given price, or the seller will maximise its revenue and/or profitability.
One important concept to note is that price plays a significant role in the whole process. The price expected by a seller for a particular good or service of a given quality should always be equal to or less than the price expected by the buyer of that good or service. This is a necessary condition for a successful transaction. Although I will not go into the pricing topic again, which is another subject, it is important to know that price does not necessarily mean the actual price but can also be a promise.
What is an industry ?
An industry refers to a collection of enterprises, companies, or various businesses that offer similar or identical products or services to their targeted customers while competing among themselves. On the other hand, a market represents a commercial space where buyers and sellers convene to smoothly exchange goods and services.
The primary purpose of an industry is to cater to the needs of a market. However, if an industry fails to adjust to the evolving demands of the market, it can lose relevance and eventually face the risk of obsolescence.
- Market: A market represents a specific physical location or virtual space where buyers and sellers come together to exchange goods and services.
- Industry: An industry refers to a category or sector consisting of enterprises, companies, or businesses that produce and offer similar or related products or services.
Difference between market and industry
| Serial No. | Characteristics | Market | Industry |
| 1. | Definition | Market is defined by a place where buyers and sellers interact and transact. | Industry may be seen as a cluster of players offering same product or product group. |
| 2. | Features | Market is usually governed by the demand | Main features of an industry is competition or interaction between players in that industry. |
| 3. | Focus | A market can have many products satisfying a particular demand . For example , the entertainment market can be catered to by movies, games, malls etc. | The industry focus is on the players primary product |
| 4. | Scope | The scope of market can be both wide or narrow. For example, a market for entertainment can be defined with all the substitutes being a part of it such as movie, games, driving etc. It can also be defined narrowly as market for different genres of movie such as action, drama etc. | The scope of an industry is limited to a certain type of product or products. |
| 5. | Key drivers | Key driver of a market is demand or needs. The demand can be different products and is influenced by trends in income, society values, price, distribution channels, fashion, education, and advertising etc. | Industry structure is driven by forces like government policies, influence of suppliers, macroeconomic environment, technology ,competition within , threat of substitutes , new entrants etc. |
| 6. | What matters | Without the market or demand no industry can survive . There are examples abound that a superior product fails because there is no market. | |
| 7. | Examples | Life insurance market , internet market, e-commerce market | Insurance industry, telecom industry, Retail industry |
Summary
To summarize :
- Market: A market represents a specific location or virtual space where buyers and sellers come together to exchange goods and services.
- Industry: An industry refers to a broader category or sector consisting of enterprises, companies, or businesses that produce and offer similar or related products or services.
Note: The article is an excerpt from the up-and-coming book on strategy for practitioners by me. Please contact rohit@rccoadvisory for any pre-booking inquiries
Rohit Chaturvedi
