Chapter

Targeting Attractive
Market Segments

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Chapter Summary
This Chapter will introduce you to the
following:
Blue Ribbon Sports Targets Distance Runners
Fundamental Tools in Marketing Market
Segmentation and Target Marketing
How Market Segments Are Best Defined
Choosing Attractive Market Segments
Five Step Process
Different Targeting Strategies for Different
Opportunities

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Fundamental Tools in Marketing

Fundamental tools in the marketers tool

kit are market segmentation and target
marketing
These tools along with product
positioning, provide the platform on
which most effective marketing programs
are built

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Segmentation and Targeting

Market segmentation is the process by which a
market is divided into distinct subsets of
customers with similar needs and characteristics
that lead them to respond in similar ways to
product offerings and marketing programs
Target marketing requires evaluating the relative
attractiveness of various segments, and the firms
mission and capabilities, to determine what each
segment wants, in order to choose which
segments it will serve

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Most Markets are Heterogeneous

Variation among market segments in

Product preferences
Size and growth in demand
Media habits
Competitor activities

Hence markets are:

Complex entities that can be defined
(segmented) in a variety of ways

The critical issue is to find an appropriate

segmentation method that will facilitate
target marketing

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Market Realities Making

Segmentation Imperative
Key reasons:
Firstly, population growth has slowed and many
markets are maturing
Secondly, social and economic forces such as
expanding disposable incomes, employment
patterns, education levels, changing lifestyles
Thirdly, a shift toward micro-segmentation
Finally, firms are implementing sharply focused
marketing programs and targeting of their
services

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Objectives of Market
Segmentation

There are three important objectives

concerning the market segmentation
process
1. Identify a homogeneous segment that differs
from other segments
2. Specify characteristics that define the
segment
3. Determine segment size and potential

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How are Market Segments Best

Defined?
Segmentation decisions are based on:
Who the customers are?
Where they are?
How they behave?

Marketers divide segmentation descriptors

into four major categories:

Demographic
Geographic
Behavioural
Psychographic

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Demographic Segmentation

Finding out: Who they are and what they do

Common attributes:

Age
Gender
Income
Occupation
Education
Religious, cultural and ethnic background

Industrial market segmentation:

Macrosegmentation (such as age of firms, size)
Microsegmentation (characteristics of the individuals who
influence the purchasing decision, ex: age, sex, position within the
organization)

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Geographic Segmentation
Finding out: Where they are
Where consumers live, work and shop makes a
big difference to their buying characteristics

Trade area
Area within a geographically defined region

Geodemographic Segmentation
Involves both demographic and geographic
factors (wealthy people in a certain area, poor people in
other area)

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Behavioral Segmentation
Finding out: How they behave
There is a number of insightful ways in which
marketers have segmented markets in
behavioral terms

Behavior descriptors include:

Consumer needs (benefit sought)
Product-related (product usage, loyalty, purchase
influence)

Psychographic and lifestyle

Social class
Organizational or firm behavioral attributes

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Five Steps in Constructing a MarketAttractiveness/Competitive-Position Matrix

2. Weigh market attractiveness and competitive

position factors to reflect their relative importance.

3. Assess the current position of each potential

target market on each factor.

4. Project the future position of each market based on

expected environmental, customer, and competitive trends

5. Evaluate implications of possible future changes for

business strategies and resources requirements.
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Exhibit 6.7 (1 of 2)

Factors Underlying Market

Attractiveness and Competitive Position
Market-Attractiveness Factors

Competitive-Position Factors

Customer psychographic needs

and behaviour
Are there unmet or underserved
needs we can satisfy?

Opportunity for competitive

advantage
Can we differentiate?
Can we perform against critical
success factors?
Stage of competing products in
product life cycle: Is the timing right?

Market or market segment size

and growth rate
Market potential in units, revenue,
number of prospective customers
Growth rate in units, revenue,
number of prospective customers
Might the target segment
constitute a platform for later
expansion into related segments in
the market as a whole?

Firm and competitor capabilities

and resources
Management strength and depth
Financial and functional resources:
marketing, distribution,
manufacturing, R&D, etc.
Brand image
Relative market share

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Exhibit 6.7 ( 2 of 2)

Factors Underlying Market

Attractiveness and Competitive Position
Market-Attractiveness Factors
Macro trends: Are they favorable, or
balance?
Demographic
Socio-cultural and historical
Economic
Political/legal
Technological
Ecological

Competitive-Position Factors
Attractiveness of industry in which we
would compete
Threat of new entrants
Threat of substitutes
Buyer power
Supplier power
Competitive rivalry
Industry capacity

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Exhibit 6.9

Market Attractiveness
/Competitive-Position Matrix
Market
Attractiveness
High
(8-10)

Moderate
(4-7)
Low
(0-3)
Low
(0-3)

Moderate
(4-7)

High
(8-10)

Companys Competitive Position

= Market attractiveness and competitive position of distance

runners segment

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Exhibit 6.10

Implications of Alternative Positions within the MarketAttractiveness/Competitive-Position

Matrix
Competitive Position
High

Strong

Build selectively:
Specialise around limited
strengths
Seek ways to overcome
weaknesses
Withdraw if indications of
sustainable growth down

DESIRABLE POTENTIAL
TARGET

DESIRABLE POTENTIAL
TARGET

Invest to build:
Challenge for leadership
Build selectively on
strengths
Reinforce vulnerable areas

Protect position:
Invest to grow at maximum
digestible rate
Concentrate on
maintaining strength

Manage for earnings:

Protect existing strengths
Invest to improve position
only in areas where risk is
low

DESIRABLE POTENTIAL
TARGET

Med

Limited expansion or
harvest:
Look for ways to expand
without high risk;
otherwise, minimise
investment and focus
operations

Low

Divest:
Manage for earnings:
Sell when possible to
Protect position
Minimise investment
maximise cash value
Meantime, cut fixed costs
and avoid further investment

High

Market Attractiveness

Medium

Build selectively:
Emphasise profitability by
increasing productivity
Build up ability to counter
competition
Protect and refocus:
Defend strengths
Seek ways to increase
current earnings without
speeding markets decline

Sources: Adapted from George S. Day, Analysis for Strategic Market Decisions (St. Paul: West, 1986), p. 204; and S. J. Robinson,
R. E. Hitchens, and D. P. Wade, The Directional Policy Matrix: Tool for Strategic Planning, Long Range Planning 11 (1978), pp.
815.

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Three Common Targeting

Strategies
Most successful entrepreneurs target
narrowly defined market segments
But this is not necessarily the best
strategy, particularly for established firms
The three most common marketing
strategies include:
Niche-market
Mass-market
Growth-market

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Niche-market Strategy
Used to serve segments seeking
specialised benefits
Designed to avoid direct competition with
larger firms

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Mass-market Strategy
Objective:
Capture sufficient volume to gain economies of
scale and a cost advantage

Approach:
Design separate products and marketing
programs for differing segments

Requires substantial resources, including

production capacity, and good massmarketing capabilities

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Growth-market Strategy
Often target one or more fast-growth
segments
Often favored by smaller competitors to
avoid direct confrontations
Requires strong R&D and marketing
capabilities

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