2-Market Targeting
Market segmentation reveals the firm's market segment opportunities. The firm now has to evaluate the various segments and decide how many and which ones to target. We now look at how companies evaluate and select target segments.
Evaluating Market Segments
In evaluating different market segments, a firm must look at three factors: 1- segment size and growth, 2- segment structural attractiveness, and 3-company objectives and resources.
The company must first collect and analyze data on current segment sales, growth rates, and expected profitability for various segments. It will be interested in segments that have the right size and growth characteristics. (Appendix 1 discusses approaches for measuring and forecasting market demand.) But "right size and growth" is a relative matter.
The largest, fastest-growing segments are not always the most attractive ones for every company. Smaller companies may lack the skills and resources needed to serve the larger segments or may find these segments too competitive. Such companies may select segments that are smaller and less attractive, in an absolute sense, but that are potentially more profitable for them.
The company also needs to examine major structural factors that affect long-run segment attractiveness. For example, a segment is less attractive if it already contains many strong and aggressive competitors. The existence of many actual or potential substitute products may limit prices and the profits that can be earned in a segment. The relative power of buyers also affects segment attractiveness. Buyers with strong bargaining power relative to sellers will try to force prices down, demand more services, and set competitors against one another—all at the expense of seller profitability. Finally, a segment may be less attractive if it contains powerful suppliers who can control prices or reduce the quality or quantity of ordered goods and services.
Even if a segment has the right size and growth and is structurally attractive, the company must consider its own objectives and resources in relation to that segment. Some attractive segments could be dismissed quickly because they do not mesh with the company's long-run objectives. Even if a segment fits the company's objectives, the company must consider whether it possesses the skills and resources it needs to succeed in that segment. If the company lacks the strengths needed to compete successfully in a segment and cannot readily obtain them, it should not enter the segment. Even if the company possesses the required strengths, it needs to employ skills and resources superior to those of the competition in order to really win in a market segment. The company should enter only segments in which it can offer superior value and gain advantages over competitors.
Selecting Market Segments
After evaluating different segments, the company must now decide which and how many segments to serve. This is the problem of target market selection.
A target market consists of a set of buyers who share common needs or characteristics that the company decides to serve.
Choosing a Market-Coverage Strategy
“Principles of Marketing- Kotler &Armstrong”
Many factors need to be considered when choosing a market-coverage strategy. Which strategy is best depends on company resources. When the firm's resources are limited, concentrated marketing makes the most sense. The best strategy also depends on the degree of product variability. Undifferentiated marketing is more suited for uniform products such as grapefruit or steel. Products that can vary in design, such as cameras and automobiles, are more suited to differentiation or concentration. The product's life-cycle stage also must be considered.
When a firm introduces a new product, it is practical to launch only one version, and undifferentiated marketing or concentrated marketing makes the most sense. In the mature stage of the product life cycle, however, differentiated marketing begins to make more sense. Another factor is market variability. If most buyers have the same tastes, buy the same amounts, and react the same way to marketing efforts, undifferentiated marketing is appropriate. Finally, competitors' marketing strategies are important. When competitors use differentiated or concentrated marketing, undifferentiated marketing can be suicidal. Conversely, when competitors use undifferentiated marketing, a firm can gain an advantage by using differentiated or concentrated marketing.
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