At a fundamental level, marketing strategy is about markets and products. Organisations are primarily making decisions about which markets to operate in and which products/services to offer to those markets. Once those essential decisions have been taken the company then has to decide on what basis it is going to compete in that chosen market.
Segmentation is therefore at the heart of strategic marketing decision making. In essence it is a strategic rather than an operational issue and has to be treated as such. Initially any organisation has to identify how it can, in general, gain competitive advantage. The stage that we will now explore is concerned with creating a specific competitive position
Evaluating market segments
To effectively evaluate different market segments it is necessary to systematically review two issues: the market attractiveness of the competing segments and the organisation’s comparative ability to address the needs of that segment. There are a number of criteria that can be used to judge the attractiveness of a market segment.
These fall under three broad headings: market factors, the nature of competition and the wider environmental factors. At this point it is important to stress that marketers need to recognise that many of the criteria that can be used to evaluate the attractiveness of a market segment are qualitative rather than quantitative in nature. This has implications for the manner in which the process is managed. We will return to this topic later in the chapter. Firstly we need to review the criteria themselves.
Social changes can lead to newly emerging segments that are not currently served by any organisation. There can be a significant advantage to companies that are the first to move into these areas. Organisations also need to review the impact that any likely changes in social trends will have on a particular segment.
Changes in the political environment can create new segments in a market. The deregulation of the utilities market created several new market segments that organisations could address. The political environment may also make certain segments less attractive. Segments that are located in particular geographic areas may be affected by political instability. There may also be regulatory changes that will affect a sector such as pharmaceuticals.
Economic trends may make segments more or less attractive. The growing affluence of older people in western economies is making them a much more attractive group than 20 years ago
Technological changes have to be taken into consideration when evaluating a segment. A judgement will have to be made as to whether new entrants will be able to enter a segment competing on a different basis by using technology to create innovative ways of delivering a product or service
Consumers and governments concerns about environmental issues have become much more important in recent years. Therefore an evaluation of the environmental issues that may affect an organisation’s ability to service a segment will have to be considered.
Companies will not be capable of supplying every attractive segment that is identified. Having analysed a segment’s market attractiveness it is then necessary to compare the needs of that group of consumers with the organisation’s capabilities. An organisation’s strengths can be judged by analysing its assets and competencies