Author: Jim Riley Last updated: Sunday 23 September, 2012
After segmenting the market, businesses must select those segments that it aims to target.
Five main factors influence the attractiveness of a segment:
Segment size - It must be big enough to be worth targeting. Many larger businesses ignore small segments on the basis that, even if they were to dominate the market, it would have an insignificant effect on their overall sales and profits. This creates opportunities for smaller, more flexible businesses to exploit the segment. Don’t forget – it is not always easy to measure the size (and growth) of a segment. Often a business has to make a judgement based on estimates.]
Segment growth - Segments with good long-term growth prospects are, by definition, the most attractive. However, businesses should be aware that segment growth may vary – particularly if the segment is based on the “life-cycle” of one or a limited number of products. Also, faster growth segments are likely to attract more competition.
Segment profitability - The segment should be capable of delivering profits of the right value, assuming it can be marketed to effectively. Otherwise, why bother? The required “return on investment” will be a key factor in determining whether a business invests in the segment. It is important to work out which businesses are earning profits in the segment. It might be that there is a dominant market leader – who also dominates the segment profit - leaving little for existing operators or potential new market entrants.
Current and potential competition - The strength of existing and potential competition is a key issue in deciding whether to target and enter a segment.
Business capabilities - Does the business have the capabilities (e.g. brands, product knowledge) to succeed in a segment? Marketing history is littered with examples of businesses that entered segments with little or no knowledge or resources – and came unstuck!.