How are target markets selected?
The selection of target markets is the second major phase of the STP process, as shown in the diagram below. (Where STP stands for segmentation, targeting and positioning.)
As shown, firms initially segment the market and, as part of this process, construct segment profiles for each segment. Included in a segment profile is a detailed description of the segment, along with various size and profit measures. Using this information in conjunction with the firm’s strategy, resources and goals organization appropriate target markets can then be selected.
The selection of a target market is a very important decision for a firm as it then requires significant effort and commitment to implement an appropriate and targeted marketing mix. Target market selection is a key part of marketing strategy and typically involves significant analysis, discussion and review throughout the firm.
There is a separate section in this study guide that outlines an example of target market selection, but as a quick introduction, some of the factors that are organization would consider are as follows:
What to consider?
|Segment size||What is the size of the segment (mainly in terms of unit and revenue sales)? And is this substantial enough for the firm to consider entering?|
|Segment growth rate||At what rate is the segment growing (or perhaps declining)? What is its future outlook?|
|Profit margins||Is this a high profit margin segment or one that is price competitive?|
|Competitors||How dominant are the established competitors? What degree of competitive rivalry exists? Are there significant indirect competitors (or close substitute products)?|
|Distribution channels||How easy would it be to gain access to the appropriate distribution channels? What level of new investment would be required in this regard?|
|Role of brand||Would the firm be required to create a new brand, or could an existing brand be leveraged into the new target market, or is brand relatively unimportant?|
|Strategy/goals||How well does the proposed target market fit with the firm’s strategic direction and growth goals?|
|Resources||Does the firm have the capability, in terms of financial and marketing resources, to successfully compete in this segment?|