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. The target marketing process involves the following steps:
Step 1: evaluating market segments: in evaluating different market segments, a firm must look at three factors:
a. Segment size and growth: estimating segment potential is essentially a forecasting task requiring one or more of the forecasting techniques. However, segmentation analysis requires predicting demand for the each component of a product market rather than for the product market as a whole. The profits of the various segments are needed to guide the forecasts. The sum of the estimates for each segment should be equal to the entire product.
b. Segment structural attractiveness: 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 competitions. 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 or buyers also affects segment attractiveness. Buyers needs with strong bargaining power relative to sellers will try to force price down, demand more services, and set competitions against one another all at the expense of seller profitability, finally, a segment may be less attractive if it contains powerful supplies that can control prices or reduce the quality or quantity of ordered goods and services.
c. Company objectives and resources: 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.
Step 2: selecting target market: after evaluating different segments, the company must now decide which and how many segments to serve. This is the problem of the target market selection. A target market consists of a set of the buyers who share common needs or characteristics that the company decides to serve.
Alternative segmentation strategies are:
1. Limited coverage market targeting
2. Full coverage market targeting
3. Additional considerations coverage market targeting
Limited coverage market targeting: when only one or few segments are selected as market targets it is called limited coverage market segmentation. This strategy requires fewer resources and therefore effective for small companies or in the introduction stage of a company trying to complete against the giants of the industry. Limited coverage market targeting can take any to the following forms:
Single segment concentration: company may select a single segment. Through concentrated marketing, the firm gains a strong knowledge of the segment's needs and achieves a strong presence. Furthermore, the firm enjoys operating economics through speculating its production, distribution, and the promotion. If it captures segment leadership the firm can return on its investment.