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Once a firm has identified possible market segment prospects, it has to make a decision how many and which ones to target. The targeting approach revolves around two key decisions:
• How many segments to target?
• Which segments to target?
The detailed internal and external strategic analysis conducted by the company aids the targeting decision.
There are five different patterns of target market selection:
1. Single Segment Concentration
Also known as the “be a big fish in a small pound” strategy is, based on the generic competitive strategy-Focus. Through concentrated marketing, an industry achieves a strong understanding of the segment’s needs, develops competitive advantages to accomplish a strong presence in the given segment. Through segment leadership, it captures an elevated return on investment.
2. Selective Specialization
The company may decide to target several segments, but may be selective about the segments to target. This multi-segment strategy has the benefit of spreading a firm’s hazard and gives it larger presence in an industry.
3. Product Specialization
A firm specializes in a specific product and vends it to numerous segments. A firm may specialize in water purifiers and may decide to target homes, institutions, commercial research labs, and government establishments. For each market segment it targets the company would have to appropriately modify several elements of the marketing mix, but what it achieves is a strong repute in a particular product area. The disadvantage of this strategy is a technological revolution that may threaten the business of the company.
4. Market Specialization
A firm concentrates on serving the various requirements of a specific customer group. For example, an online seller of books, who having built up a large customer base, diversifies into selling other products like music, cameras and other such assortments to the customer group. The firm achieves a well-built status in serving this customer group and turns out to be a channel for extra products that the customer segment can utilize. The disadvantage of this strategy is major shift in the attractiveness of the given market segment, would threaten the entire business of the company.
5. Full Market Coverage
The company tries to cover all market segments through their products. Huge firms can take on a full market coverage approach. Firms can cover the market in two ways: through differentiated marketing or undifferentiated marketing.
In undifferentiated marketing, the firm practices mass marketing by going after the entire market with one marketing mix.
In differentiated marketing, the firm works in numerous markets, but designs an explicit marketing mix for each market segment, that it selects to target.
Which approach a company should take will depend on a company’s:
• Objectives in market place.
• Generic competitive strategy.
• Competitive Advantage
• Skills, assets, competencies
• Access to financial resources.