This is the evaluation of the various segments identified during segmentation and deciding how many and which ones to serve.
Evaluating The Market Segments
In evaluating different market segments, the firm must look at the following factors:
1. Segment size and growth
• Marketing segment has to be ‘right size’. Size can be measured in terms of sales volume.
• Companies should not only concentrate on sales volume but also on the growth potential of the segment.
2. Segments structural attractiveness – Using Porter’s Five Forces Analysis.
A segment might have desirable size and growth characteristics and still not profitable.
The company should evaluate the long-run profitability of the market segment.
Michael Porter has identified five forces that determine the intensive long-run attractiveness of the whole market or any other segment within it. These five forces are:
i. Threat of intense segment rivalry -A segment is unattractive if it already contains strong or aggressive competitors.
ii. Threat of new entrants -A segment is unattractive if it is likely to attract new competitors who will bring in new capacity, substantial resources and a drive for market share growth.
iii. Threats of substitute products -A segment is unattractive if there exists actual or potential substitutes for the product.
iv.
Threats of growing bargaining powers of buyers -A segment is unattractive if the buyer’s posses strong or increasing bargaining power. Interested in low prices but high quality.
v. Threat of growing bargaining power and suppliers -A segment is unattractive if the suppliers posses a strong or increasing bargaining power. They can raise prices or reduce the quality and quantity of products and services offered.
Even if the segment has positive size and growth and it is attractive, the company has to consider its own objectives and resources.
The segment can be dismissed because it does not fit in the company’s long-run objectives.
Even if segments fit the company’s objectives, it must consider whether it has the required skills and resources to succeed in that segment.
3. Segment interrelationships
Segments selected should be inter-related in terms of costs, performance and technology for effectiveness.
Target Market Strategies
There are several different target-market strategies that may be followed. Targeting strategies usually can be categorized as one of the following:
1. Single-Segment Strategy: also known as a concentrated strategy. One market segment (not the entire market) is served with one marketing mix. A single-segment approach often is the strategy of choice for smaller companies with limited resources.
2. Selective Specialization: This is a multiple-segment strategy, also known as a differentiated strategy. Different marketing mixes are offered to different segments. The product itself may or may not be different - in many cases only the promotional message or distribution channels vary.
3. Product Specialization: The firm specializes in a particular product and tailors it to different market segments.
4. Market Specialization: The firm specializes in serving a particular market segment and offers that segment an array of different products.
5. Full Market Coverage: The firm attempts to serve the entire market. This coverage can be achieved by means of either a mass market strategy in which a single undifferentiated marketing mix is offered to the entire market, or by a differentiated strategy in which a separate marketing mix is offered to each segment.
Differentiated Marketing
With differentiated or multi-segment approach, the marketer targets a variety of different segments with a series of differentiated products. This is typical in the motor industry which has a variety of products such as diesel, four-wheel-drive, sports saloons, and so on.
A firm that is seeking to enter a market and grow should first target the most attractive segment that matches its capabilities. Once it gains a foothold, it can expand by pursuing a product specialization strategy, tailoring the product for different segments, or by pursuing a market specialization strategy and offering new products to its existing market segment.
Another strategy whose use is increasing is individual marketing, in which the marketing mix is tailored on an individual consumer basis. While in the past impractical, individual marketing is becoming more viable thanks to advances in technology.