Targeting Market

Process of Targeting

1. Segment Identification: Identify segments using criteria such as demographics, psychographics, geography, etc.
2. Segment Evaluation: Evaluate each segment based on relevance, characteristics, and alignment with organizational goals.
3. Segment Selection: Choose the segment(s) that align best with organizational resources and objectives.
4. Positioning Strategy:
   • Define the desired position of the product or service in the minds of the target market.
   • Base the positioning on:
     • Product characteristics or usage.
     • Emotional aspects (e.g., societal or cultural relevance).
     • Environmental or other specific factors.
   • Develop messaging that resonates with the chosen positioning.

---

Criteria for Selecting a Target Segment

There are three major parameters or blocks of criteria for selecting a target market:

1. Segment Size and Growth

• Size:
  • What is the current size of the market?
  • A larger market size is typically preferred for profitability.
• Growth:
  • Consider the future potential of the market.
  • Avoid markets with limited or short-term growth prospects.

2. Market Attractiveness

• Assess how attractive the market is based on its structure:
  • Competitive Landscape: Is there too much competition? Highly competitive markets may be less attractive despite their size.
  • Barriers to Entry: Are there barriers that can limit your ability to operate or grow in the segment?

3. Organizational Objectives and Resources

• Objectives:
  • What is the organization aiming for? Examples include:
    • Growth
    • Market share
    • Revenue
    • Profit
    • Customer satisfaction
• Resources:
  • Does the organization have the necessary resources to achieve its objectives in the chosen segment? Examples include:
    • Manpower
    • Financial power
    • Technology solutions
• Alignment: Even if a market is large and attractive, it is not viable if the organization's resources are insufficient to capture and serve the market effectively.

---

2.3.2 Segment Size and Attrativeness

Segment Size and Growth

1. Segment Size

• Definition: The current demand potential for a product or service within a specific market segment.
• Process:
  1. Take a sample from the geographical area of focus.
  2. Collect data on:
     • Purchase intention.
     • Willingness to pay.
     • Ability to pay.
  3. Extrapolate the sample data to estimate the demand potential for the entire population.
• Methods:
  • Surveys.
  • Statistical analysis.

2. Segment Growth

• Definition: The expected rate of growth of the market segment over a future period.
• Factors to Consider:
  • Demographic trends (e.g., age group growth in a region).
  • Data from government census, research papers, journals, or articles.
• Evaluation:
  • If the segment size remains stagnant over time, it indicates poor growth potential.
  • Measure growth rates (e.g., 2%, 5%, 10% over 5 years) to assess the viability of the segment.

---

Structural Attractiveness (External Analysis)

Structural attractiveness determines how conducive a market segment is for sustained profitability. It can be analyzed using Michael Porter’s Five Forces Model.

Michael Porter's Five Forces

1. Threat of New Entrants:
   • Definition: The ease with which new competitors can enter the market.
   • Implications:
     • High threat: Market becomes less attractive due to competition increasing and profits diminishing.
     • Low threat: Attractive market with limited new entrants.
   • Barriers to Entry:
     • High: Requires heavy regulations, investments, technology, or specialized manpower (e.g., pharmaceuticals, steel).
     • Low: Minimal requirements to enter (e.g., retail businesses).
2. Threat of Intense Segment Rivalry:
   • Definition: The degree of competition within the segment.
   • Entry vs. Exit Barriers:
     • Entry Barrier: How easy it is to start competing in the market.
     • Exit Barrier: How easy it is to leave the market.
   • Implications:
     • High rivalry and low exit barriers lead to overcapacity and reduced profitability.
     • Ideal: High entry barriers and low exit barriers.
   • Examples:
     • Retail businesses: Low exit barriers; easy to leave.
     • Established brands: High exit barriers due to existing investments (e.g., manufacturing plants, customer base).
3. Threat of Substitute Products:
   • Definition: The availability of alternative products that customers can switch to.
   • Implications:
     • High threat: Market becomes less attractive as customers can easily shift preferences (e.g., tea vs. coffee).
     • Low threat: Market becomes more attractive when substitutes are limited or non-existent.
4. Bargaining Power of Buyers:
   • Definition: The ability of customers to influence prices or terms.
   • Factors:
     • B2B (Business to Business): Buyers often have significant power due to bulk purchasing.
     • B2C (Business to Consumer): Individual buyers typically have less power, but this may change with social media influence.
   • Modern Context:
     • Individual consumers can influence businesses via viral social media campaigns, increasing their effective bargaining power.
5. Bargaining Power of Suppliers:
   • Definition: The ability of suppliers to influence costs or terms.
   • Factors:
     • Dependence on suppliers for critical resources (e.g., raw materials, logistics).
     • Consolidation of suppliers (e.g., unions or fleets in delivery services).
   • Implications:
     • High bargaining power of suppliers reduces market attractiveness as they can dictate terms (e.g., Zomato's dependence on delivery partners).

---

Ideal Conditions for Attractive Segments

• Low Threat of New Entrants: High entry barriers protect profitability.
• Low Threat of Intense Segment Rivalry: Limited competition ensures sustainable margins.
• Low Threat of Substitutes: Unique value proposition reduces customer switching.
• Low Bargaining Power of Buyers: Limits customer influence on pricing.
• Low Bargaining Power of Suppliers: Ensures manageable input costs.

Note: A utopian market with all conditions perfectly favorable does not exist. Instead, compare segments to identify the one with the best overall balance across these parameters.

---

2.3.3 Targeting Strategies

Key Parameters for Target Segment Selection

1. Segment Size and Growth:
   • Evaluate the market's current size and future growth potential.
   • Allocate a weight to prioritize this factor based on its importance.
2. Structural Attractiveness:
   • Use Porter's Five Forces model to assess market competitiveness and profitability.
   • Weight this factor according to its relevance.
3. Organizational Objectives and Resources:
   • Align segment selection with business goals (e.g., revenue, growth, customer satisfaction).
   • Consider the available resources (manpower, capital, technology).
   • Weight this factor based on organizational readiness and capacity.

Weighted Average Scoring Method:

• Assign weights to the parameters (e.g., size, growth, attractiveness, resources).
• Score each potential segment on these parameters.
• Calculate the weighted average for each segment.
• Select the segment with the highest score for targeting.

---

Targeting Strategies

After selecting the target segment, marketers can adopt one of the following targeting strategies:

1. Single Segment Concentration

• Definition: Focus exclusively on one segment.
• Example: Offering cosmetics for adult women only.
• Benefits:
  • Deep understanding of the segment.
  • Tailored strategy for higher effectiveness.
• Drawback: High risk if the segment's demand decreases.

2. Selective Specialization

• Definition: Focus on multiple segments with distinct offerings for each.
• Example:
  • Shoes for teens.
  • Cosmetics for adult women.
  • Apparels for elder women.
• Benefits:
  • Spreads risk across segments.
  • Higher market reach.
• Drawback: Requires more resources to manage multiple segments.

3. Product Specialization

• Definition: Focus on one product type for all segments.
• Example: Selling cosmetics for teens, adults, and elders.
• Benefits:
  • Expertise in a specific product category.
  • Efficient production and marketing processes.
• Drawback: Risk if demand for the product decreases across segments.

4. Market Specialization

• Definition: Satisfy all the needs of one specific segment.
• Example: Offering cosmetics, apparels, and shoes for adult women.
• Benefits:
  • Strong loyalty from the target segment.
  • High market share in the chosen segment.
• Drawback: Vulnerable to shifts in the segment's preferences or size.

5. Full Market Coverage

• Definition: Serve all segments in the market.
• Types:
  • Differentiated Marketing:
    • Different offerings for different segments.
    • Example:
      • Cosmetics with varied pricing and promotions for teens, adults, and elders.
      • Apparels designed differently for each segment.
    • Benefit: Higher customization and relevance for each segment.
    • Drawback: High costs for production, marketing, and logistics.
  • Undifferentiated Marketing (Mass Marketing):
    • Same offering for all segments.
    • Example: One type of shampoo marketed to all age groups.
    • Benefit: Economies of scale.
    • Drawback: Limited relevance to individual segments, lower engagement.

---