Evaluating and Selecting Market Segments
In evaluating market segments, the firm must look at two factors: the segment’s overall attractiveness and the company’s objectives and resources. How well does a potential segment score on the five criteria? Does it have characteristics that make it generally attractive, such as size, growth, profitability, scale economies, and low risk? Does investing in it make sense given the firm’s objectives, competencies, and resources? Some attractive segments may not mesh with the company’s long-run objectives, or the company may lack one or more competencies necessary to offer superior value.
Marketers have a range or continuum of possible levels of segmentation that can guide their target market decisions. At one extreme is a mass market of essentially one segment; at the other extreme are individuals or segments of one person each. In between are multiple segments and single segments. We describe approaches to each of the four levels next.
Full Market Coverage Here a firm attempts to serve all customer groups with all the products they might need. Only very large firms such as Microsoft (software market) and Coca-Cola (nonalcoholic beverage market) can undertake a full market coverage strategy, through either differentiated or undifferentiated marketing.
In undifferentiated or mass marketing, the firm ignores segment differences and goes after the whole market with one offer. It designs a marketing program for a product with a superior image that can be sold to the broadest number of buyers via mass distribution and mass communications. Undifferentiated marketing is appropriate when all consumers have roughly the same preferences and the market shows no natural segments. The narrow product line keeps down the costs of research and development, production, inventory, transportation, marketing communication, and product management. However, many critics point to the increasing splintering of the market and the proliferation of marketing channels and communication, which make it difficult and increasingly expensive to reach a mass audience.
In differentiated marketing, the firm sells different products to all the different segments of the market. Differentiated marketing typically creates more total sales than undifferentiated marketing. However, it also increases the costs of doing business. Because differentiated marketing leads to both higher sales and higher costs, no generalizations about its profitability are valid.
Multiple Segment Specialization With selective specialization, a firm selects a subset of all the possible segments, each objectively attractive and appropriate. There may be little or no synergy among the segments, but each promises to be a moneymaker. The multisegment strategy also has the advantage of diversifying the firm’s risk. Keeping synergies in mind, companies can try to operate in supersegments rather than in isolated segments. A supersegment is a set of segments sharing some exploitable similarity. A firm can also attempt to achieve some synergy with product or market specialization.
- • With product specialization, the firm sells a certain product to several different market segments. A microscope manufacturer, for instance, sells to university, government, and commercial laboratories, making different instruments for each and building a strong reputation in the specific product area. The risk is that the product may be supplanted by an entirely new technology.
- • With market specialization, the firm concentrates on serving many needs of a particular customer group, such as by selling an assortment of products only to university laboratories. The firm gains a strong reputation among this customer group and becomes a channel for additional products its members can use. The risk is that the customer group may suffer budget cuts or shrink in size.
Single-Segment Concentration With single-segment concentration, the firm markets to only one particular segment. Through concentrated marketing, the firm gains deep knowledge of the segment’s needs and achieves a strong market presence. It also enjoys operating economies by specializing its production, distribution, and promotion. If it captures segment leadership, the firm can earn a high return on its investment.
A niche is a more narrowly defined customer group seeking a distinctive mix of benefits within a segment. Marketers usually identify niches by dividing a segment into subsegments. What does an attractive niche look like? Niche customers have a distinct set of needs; they will pay a premium to the firm that best satisfies them; the niche is fairly small but has size, profit, and growth potential and is unlikely to attract many competitors; and it gains certain economies through specialization. As marketing efficiency increases, niches that seemed too small may become more profitable. See “Marketing Insight: Chasing the Long Tail" marketing
