Question

a) Between segment 2 and 3, which one would you recommend the company to target an why? b) What other additional information may be required to guide your decision? Characteristics: Segment 1 Segment 2 Segment 3 Segment 4 Size Growth Competitors Fit Priority? $1m 5% $2m 3% $1m 3% Few,weak Ok $2m 1% Few Yes 1 big Ok Few, weak No

Answer 1

a) Market segmentation is required to identify and assess which segment the company should focus on. There are seberal factors such as
i) Segment size and growth
ii) Segment's attractiveness which focuses on Porter's model and
iii) Company's size, objectives and goal

When considering in choosing a segment it is very important to choose a segment which has high anticipated growth rate with fewer competition. Segment 3, ;looks more attractive than 2 even though the size is smaller. The growth rate is same and the segment has fewer weak competitors which would make it relatively easier for a new company to fit in.

b) As discussed above there are several factors which determines the target segment for a company. One of which is the attractiveness of the company. Some of the information required to judge between the two options would be the size of the company, its objective, if it wants to target a niche market or a broader segment and investment capability. A company with low investment capability entering a competitive market might face the risk of low profits or even losses. Along with a company's individual assessment segment attractiveness through Porter model is also required.

A segment which has fewer threat of new entrants and threat of sustitute products is considered to be more attractive. Also, when choosing the segment the company should have information regarding the bargaining power of both the suppliers and buyers. A segment with low bargaining power is considered to be more favourable and worth the target as both the suppliers and buyers would have lesser control on the prices.