After segmenting the market, an organization focuses on or targets the most profitable segments to gain profit. Target market selection process involves the evaluation of the attractiveness of every market and selection of one or more profitable markets. An organization considers various factors, such as size and growth of a particular segment. It tries to understand the customers and competitive environment.
1. Evaluating the Market Segment:
An organization evaluates the potential of a selected segment and checks whether it has resources to cater to the needs of that segment. It ensures that the organizational objectives are also achieved while serving the segment. The estimation of sales volume also plays an important role to evaluate the relevant market segment.
The external factors are the factors that are not in the control of an organization; whereas, the factors that are within the control of an organization are called internal factors. A marketer designs sales strategies after identifying the factors that can be the hindrance for the growth of an organization.
The organization can estimate its sales volume by focusing on the following dimensions:
i. Market Potential:
It implies the amount of a product that is purchased by a customer. In this case, a marketer calculates the market potential of the targeted segment. The purchases by customers can be affected by various forces, such as price and quality of a product and income and expectations of customers.
ii. Organization’s Sales Potential:
It refers to the percentage of market potential that an organization expects to gain for a product.
Following are the two approaches for measuring the sales potential of an organization:
a. Breakdown Approach:
It involves developing the general forecast for an organization to derive market potential. Then, the sales potential is calculated from the estimated market potential. This approach is also called top-down analysis.
b. Build-Up Approach:
It involves estimating the purchases made by customers in a particular segment and then multiplying it with the number of potential customers. This helps to evaluate the total sales potential of a particular segment. This approach is also called bottom-up analysis.
Sales forecast is used to estimate the sales volume of an organization. A sales forecast can be defined as the amount of a product that an organization expects to sell during a specific period of time in future.
Following are the various sales forecasting techniques used by organizations:
i. Surveys:
It involves questioning customers regarding their future purchases. Surveys help marketers to know what quality and quantity of product is expected by the customers. The demerit of surveys is that they consume much time and money of an organization.
ii. Time Series Analysis:
It implies forecasting by using the past sales data. This method assumes that the past performance of sales continues in future. This method is appropriate only when the demand of a product is stable in nature.
iii. Regression Analysis:
It forms a relationship between dependent variable and independent variable. The dependent variable is the past sales data; whereas, independent variable can be per capita income, gross domestic product, or population.
An organization depends on either single or multiple methods of sales forecasting. For example, if an organization is targeting different segments then it requires utilizing different sales forecasting methods for every segment.
In addition to sales estimation, it is important for an organization to assess competitors in the targeted segment. An organization can evaluate competition in the targeted segment by assessing the strengths, weaknesses, market share, and marketing mix strategies of its competitors. The main task in evaluating competition is to know the differentiation strategies adopted by the competitors. This further helps in estimating the sales potential of an organization effectively.
The cost estimates also act as an important evaluation criterion for evaluating the market segment. Every segment involves different marketing mix as per the varying needs of customers. Thus, an organization should estimate the cost for every segment to compete successfully without any shortage of resources.
2. Selecting the Market Segment:
The evaluation of market segmentation is followed by the selection of the profitable segment of market. Selecting the market segment involves finding the target market to sell the products. The target market can be defined as a market in which an organization decides to utilize its marketing efforts. Targeting is not an easy process in this competitive world. The marketers have to design new and better ways of targeting market.
The organizations keep on changing their product line as per the requirement of customers while entering into a new market segment. A continuous research is required to select a target segment.
The basic techniques of selecting a market segment are as follows:
i. Single Segment Concentration:
It helps in selecting the most attractive segment by an organization. It is often known as concentrated segmentation. The small-scale organizations with limited resources often target a single segment. For example, Ginger Hotels targets only budget-conscious customers and provides only the basic facilities for its customers.
ii. Selective Specialization:
It focuses on multiple market segments. In this type of specialization, the organization utilizes expertise in fulfilling the needs of the selected segments. Selecting more than one segment helps an organization to minimize its risk because when one of the segments becomes less profitable, organization can divert its efforts towards more profitable segment. For example, Hyundai has different models, such as Santro, Sonata, and Accent, which cater to the customers having different levels of income.
iii. Productive Specialization:
It focuses on providing different products to different types of segments. The focus of an organization is more on products rather than the segments. An organization using such a strategy earns a substantial reputation in producing those specific products. For example, Nokia manufactures mobile phones for different customer segments. They have basic phones for low-income group and E-Series phones especially for business class customers.
iv. Market Specialization:
It refers to concentrating on the needs and wants of customers belonging to a specific market. It also involves some risks as the organization caters to only a specific market. For example, the profitability and sustainability of the organization is affected when there is recession in the market.
v. Full Market Coverage:
It emphasizes the importance of supplying products for all the segments of the market. Full market coverage helps an organization to expand its market and earn more revenue. For example, Tata Motors Limited manufactures cars for all the segments in the market. They launched Nano for lower middle class, Indica for higher middle class and Safari for upper class. They also bought Landrover and Jaguar from Ford for targeting the Sport Utility Vehicle (SUV) segments.
3. Tools for Competitive Differentiation:
Competitive differentiation is defined as a process of formulating a list of differentiating factors to distinguish between the offerings of an organization and its competitors. The organization needs to differentiate its products from the existing substitutes available in the market to survive in the competitive environment.
The differentiation opportunities matrix of The Boston Consulting Group (BCG) is an important tool for studying the competitive differentiation in different industries.
Now, let us discuss the different types of industries in the BCG matrix:
i. Volume Industry:
It comprises of few organizations with very large competitive advantages. The growth in such type of industry is related to the size and market share of an organization. For example, Jaypee Group, a renowned Indian real estate organization, has invested a lot of money in setting up heavy infrastructure with best of the amenities in Noida, Uttar Pradesh. It has started a project called Jaypee Greens, which aims at building a luxurious complex in Noida.
ii. Stalemated Industry:
It provides lesser growth opportunities and the benefits derived from these opportunities are very less. In stalemated industry, it is difficult for the organization to differentiate the products. Therefore, it is not profitable for the organizations to enter into such type of industry. For example, in the steel and iron ore industry, it is very difficult to differentiate between the steel products manufactured by different organizations.
iii. Specialized Industry:
It provides a number of growth opportunities and the benefits derived from these opportunities are very high. It does not coincide with the organization’s size and its market share. For example, the demand for software products is based on the requirements of customers. Therefore, the growth opportunities for an organization are very high.
iv. Fragmented Industry:
It refers to a type of industry where the growth opportunities are high and the benefits derived from these opportunities are less. For example, there are a number of opportunities in the food industry but the benefits are very limited. India is a diversified country where people have different tastes. For example, the food habits of North Indian, South Indian, and Chinese people are different from each other. Therefore, the food industry of India is characterized by high diversity but the benefits are less.
An organization can achieve competitive differentiation based on the following five dimensions:
i. Product Differentiation:
It forms a very important tool for competitive differentiation. It is imperative for an organization to study the demand and performance of substitute products in the market.
The most important feature of a product is its quality that can be further classified as follows:
a. Performance:
It studies the prototype of a sample product in a market.
b. Conformance:
It helps in checking the attributes, such as durability, reliability, reparability, style, and design of every product.
ii. Service Differentiation:
It helps an organization to attract customers by imparting high quality standards in their service offerings. The essential attributes of a service are ordering ease, on time delivery, error proof installation, training, and consulting customers.
iii. Personnel Differentiation:
It determines various attributes required in the human resource for making an organization successful. These attributes can be the competency, accountability, and responsibility of an individual.
iv. Channel Differentiation:
It directs an organization to nurture and strengthen its distribution channel. The better distribution of goods and services can be done with the help of expert channel managers. A channel should be fast and flexible to adapt the changes.
v. Image Differentiation:
It defines the need of a unique identity for a product or organization to challenge its competitors. An organization should create communication channels to enhance and develop its image in the market. Making a product image is called brand image that implies how the characteristics of products are perceived by customers.
4. Developing a Positioning Strategy:
A positioning strategy can be defined as a process by which an organization creates an image or identity for its products in the mind of its target customers.
According to Steve Johnson, “How can we use one message to communicate to multiple buyers? Obviously we cannot. We’ll need different articulations of our message that resonate with each buyer type.”
The positioning strategy should create the first impression in the mind of customers. A product is positioned with the help of a punch line that carries the unique selling proposition of a product and a promotional message to create a different space in the mind of customers.
For example, Amul has positioned itself with the punch line “the taste of India”. Its promotion strategy focuses on the usage of hoardings that display creative messages to grab the attention of customers.
The positioning strategy should satisfy the following aspects:
a. Carries a value benefit for ample number of customers
b. Makes the product of an organization different from its competitors
c. Denies the possibility of imitation of product by other organizations
d. Generates profit for the organization.
A successful product positioning can be done by differentiating the products of an organization from its competitors.
Now, let us discuss the criteria for differentiation in brief:
i. Significance:
It implies that a product should give benefit to its target customers.
ii. Uniqueness:
It implies that a product should consist of distinctive features. Product uniqueness can be a new or add-on benefit in the existing product of an organization.
iii. Reasonable:
It checks the buying ability and budget of customers.
iv. Profitability:
It helps an organization to continue its operations for a longer period and differentiate with change in time.
Following are the various errors made by the organizations while positioning a product:
a. Targeting a limited part of the market due to the limited available information.
b. Targeting a very narrow group of customers who are not even profitable for the organization.
c. Misinforming the customers about the features, prices and benefits of products that in turn dissatisfy them and creates a bad image of the organization.