Market selection

Target Market Target Market SelectionSelection

Target marketing tailors a marketing Target marketing tailors a marketing mix for one or more segments identified mix for one or more segments identified by by market segmentation. Target . Target marketing contrasts with mass marketing contrasts with mass marketing, which offers a single product marketing, which offers a single product to the entire market.to the entire market.

Two important factors to consider when Two important factors to consider when selecting a target market segment are selecting a target market segment are the attractiveness of the segment and the attractiveness of the segment and the fit between the segment and the the fit between the segment and the firm's objectives, resources, and firm's objectives, resources, and capabilities.capabilities.

Attractiveness of Attractiveness of a Market a Market SegmentSegment

The following are some examples of The following are some examples of aspects that should be considered aspects that should be considered when evaluating the attractiveness when evaluating the attractiveness of a market segment:of a market segment:

Size of the segment (number of Size of the segment (number of customers and/or number of units)customers and/or number of units)

Growth rate of the segmentGrowth rate of the segment Competition in the segmentCompetition in the segment

Brand loyalty of existing customers in Brand loyalty of existing customers in the segmentthe segment

Attainable market share given Attainable market share given promotional budget and competitors' promotional budget and competitors' expendituresexpenditures

Required market share to break evenRequired market share to break even Sales potential for the firm in the Sales potential for the firm in the

segmentsegment Expected profit margins in the segmentExpected profit margins in the segment

Market research and analysis is Market research and analysis is instrumental in obtaining this instrumental in obtaining this information. For example, buyer information. For example, buyer intentions, sales force estimates, test intentions, sales force estimates, test marketing, and statistical demand marketing, and statistical demand analysis are useful for determining analysis are useful for determining sales potential. The impact of sales potential. The impact of applicable micro-environmental and applicable micro-environmental and macro-environmental variables on the macro-environmental variables on the market segment should be considered.market segment should be considered.

Note that larger segments are not Note that larger segments are not necessarily the most profitable to target necessarily the most profitable to target since they likely will have more since they likely will have more competition. It may be more profitable to competition. It may be more profitable to serve one or more smaller segments that serve one or more smaller segments that have little competition. On the other have little competition. On the other hand, if the firm can develop a hand, if the firm can develop a competitive advantage, for example, via competitive advantage, for example, via patent protection, it may find it profitable patent protection, it may find it profitable to pursue a larger market segment.to pursue a larger market segment.

Suitability of Market Suitability of Market Segments to the Firm Segments to the Firm

Market segments also should be Market segments also should be evaluated according to how they fit evaluated according to how they fit the firm's objectives, resources, and the firm's objectives, resources, and capabilities. Some aspects of fit capabilities. Some aspects of fit include:include:

Whether the firm can offer superior Whether the firm can offer superior value to the customers in the segmentvalue to the customers in the segment

The impact of serving the segment on The impact of serving the segment on the firm's imagethe firm's image

Access to distribution channels Access to distribution channels required to serve the segmentrequired to serve the segment

The firm's resources vs. capital The firm's resources vs. capital investment required to serve the investment required to serve the segmentsegment

The better the firm's fit to a market The better the firm's fit to a market segment, and the more attractive the segment, and the more attractive the market segment, the greater the market segment, the greater the profit potential to the firm.profit potential to the firm.

Target Market Target Market StrategiesStrategies

Single-segmentSingle-segment strategy - also known as a strategy - also known as a concentrated strategy. One market segment concentrated strategy. One market segment (not the entire market) is served with one (not the entire market) is served with one marketing mix. A single-segment approach marketing mix. A single-segment approach often is the strategy of choice for smaller often is the strategy of choice for smaller companies with limited resources.companies with limited resources.

Selective specializationSelective specialization- this is a multiple-- this is a multiple-segment strategy, also known as a segment strategy, also known as a differentiated strategy. Different marketing differentiated strategy. Different marketing mixes are offered to different segments. The mixes are offered to different segments. The product itself may or may not be different - product itself may or may not be different - in many cases only the promotional message in many cases only the promotional message or distribution channels vary.or distribution channels vary.

Product specializationProduct specialization- the firm specializes - the firm specializes in a particular product and tailors it to in a particular product and tailors it to different market segments.different market segments.

Market specializationMarket specialization- the firm specializes - the firm specializes in serving a particular market segment and in serving a particular market segment and offers that segment an array of different offers that segment an array of different products.products.

Full market coverageFull market coverage - the firm attempts to - the firm attempts to serve the entire market. This coverage can serve the entire market. This coverage can be achieved by means of either a mass be achieved by means of either a mass market strategy in which a single market strategy in which a single undifferentiated marketing mix is offered to undifferentiated marketing mix is offered to the entire market, or by a differentiated the entire market, or by a differentiated strategy in which a separate marketing mix strategy in which a separate marketing mix is offered to each segmentis offered to each segment

The following diagrams The following diagrams show examples of the five show examples of the five

market selection market selection patterns given three patterns given three

market segments Smarket segments S11, S, S22, , and Sand S33, and three , and three

products Pproducts P11, P, P22, and P, and P33..

A firm that is seeking to enter a A firm that is seeking to enter a market and grow should first target market and grow should first target the most attractive segment that the most attractive segment that matches its capabilities. Once it gains matches its capabilities. Once it gains a foothold, it can expand by pursuing a foothold, it can expand by pursuing a product specialization strategy, a product specialization strategy, tailoring the product for different tailoring the product for different segments, or by pursuing a market segments, or by pursuing a market specialization strategy and offering specialization strategy and offering new products to its existing market new products to its existing market segment.segment.

Another strategy whose use is Another strategy whose use is increasing is increasing is individual marketingindividual marketing, , in which the marketing mix is in which the marketing mix is tailored on an individual consumer tailored on an individual consumer basis. While in the past impractical, basis. While in the past impractical, individual marketing is becoming individual marketing is becoming more viable thanks to advances in more viable thanks to advances in technology.technology.

Market selectionMarket selection(Country (Country selection)selection)

Foreign market selectionForeign market selection

Screening potential Screening potential marketsmarkets

Step 1: Identify Basic Appeal

Step 2: Access national business environment

Step 3: Measure market size

Step 4: Select the market

DemandDemand

Determine basic demandDetermine basic demand Whether there is a basic demand for Whether there is a basic demand for

companycompany’’s products product

Religion constraint Religion constraint –– E.g. No pork in Islamic E.g. No pork in Islamic countriescountries

Climatic condition Climatic condition –– E.g. No hot-air E.g. No hot-air conditioner in tropical countriesconditioner in tropical countries


Resource availabilityResource availability Determine resource availabilityDetermine resource availability

Raw materialsRaw materials LaborLabor CapitalCapital LandLand


Cultural & local forcesCultural & local forces

Cultural forcesCultural forces Language, attitude toward business, Language, attitude toward business,

religious belief and customreligious belief and custom Product adaptationProduct adaptation

Some products can be sold worldwideSome products can be sold worldwide Some products need local customizationSome products need local customization

E.g. KFC, books and magazineE.g. KFC, books and magazine


Political & legal forcesPolitical & legal forces

Political and legal forcesPolitical and legal forces Political stability Political stability

Government regulationGovernment regulation GovernmentGovernment’’s attitude toward trade and s attitude toward trade and

investmentinvestment Types of restriction on import and exportTypes of restriction on import and export Investment barriersInvestment barriers Business ownershipBusiness ownership

E.g. 51% of local ownershipE.g. 51% of local ownership


Government regulationGovernment regulation Restrict remitting profit out of countryRestrict remitting profit out of country

Strict environmental regulation Strict environmental regulation –– Strict Strict pollution standard which may increase cost pollution standard which may increase cost of productionof production

Require that companies divulge ceratin Require that companies divulge ceratin trade information trade information –– E.g. Coca-cola left India E.g. Coca-cola left India because it refused to disclose its secret because it refused to disclose its secret Coke formulaCoke formula


Political & legal forcesPolitical & legal forces

Economic forcesEconomic forces

Economic forcesEconomic forces Fiscal and monetary policiesFiscal and monetary policies

Interest rate - Can cause high inflationInterest rate - Can cause high inflation Currency devaluation Currency devaluation –– Can affect export Can affect export

Other forcesOther forces TransportationTransportation InfrastructureInfrastructure


Data & InformationData & Information

InformationInformation Industrial market dataIndustrial market data Consumer dataConsumer data

Emerging marketEmerging market Data may not be readily availableData may not be readily available


Market variablesMarket variables Market sizeMarket size

Market growth rateMarket growth rate

Consumption capacityConsumption capacity E.g. % of middle class populationE.g. % of middle class population

Commercial infrastructureCommercial infrastructure E.g. Number of TVs, phones, PCs, cars etcE.g. Number of TVs, phones, PCs, cars etc


Market variablesMarket variables Economic freedomEconomic freedom

E.g GovernmentE.g Government’’s trade policiess trade policies

Market receptivityMarket receptivity Volume of international trade as a % of Volume of international trade as a % of

GDPGDP


Field tripField trip

Competitor analysisCompetitor analysis

Step 4: Select the market

Opportunities and risksOpportunities and risks

Evaluation

OpportunitiesOpportunitiesCHOOSING AND WEIGHTING VARIABLESCHOOSING AND WEIGHTING VARIABLES

Variables must be weighed against each other to effectively Variables must be weighed against each other to effectively evaluate the potential success of a particular venture and to evaluate the potential success of a particular venture and to compare various ventures.compare various ventures.

OpportunitiesOpportunities

Market SizeMarket SizeMarket size is determined by sales potential.Market size is determined by sales potential.Ease and Compatibility of OperationsEase and Compatibility of OperationsMarket located nearby, share the same language and offer similar Market located nearby, share the same language and offer similar market conditions.market conditions.Costs and Resource AvailabilityCosts and Resource AvailabilityThe cost of labor, the cost of inputs, tax rates, and available The cost of labor, the cost of inputs, tax rates, and available capital, utilities, real estate and transportation. capital, utilities, real estate and transportation. Red TapeRed TapeDifficulty of getting permission to operate the business.Difficulty of getting permission to operate the business.

Evaluation

OpportunitiesOpportunities Measure Weighting Rating (1-10) Attractiveness

France India Korea France India Korea

Market sizeBest 10 – worst 1

50% 8 9 6 4.0 4.5 3.0

Ease and compatibility of operationBest 10 – worst 1

30% 7 9 2 2.1 2.7 0.6

Costs and resource availabilityBest 10 – worst 1

10% 2 10 5 0.2 1.0 0.5

Red tapeLowest 10 - highest 1

10% 8 2 5 0.8 0.2 0.5

Total 100% 7.1 8.4 4.6

Evaluation

RisksRisksEconomic and political risk ratingsEconomic and political risk ratings

Risk and UncertaintyRisk and UncertaintyFirms usually experience higher risk and uncertainty when Firms usually experience higher risk and uncertainty when they operate abroad. they operate abroad.

Competitive RiskCompetitive RiskA firmA firm’’s innovative advantage may be short-lived.s innovative advantage may be short-lived. Monetary RiskMonetary RiskA firmA firm’’s expansion occurs through foreign-direct s expansion occurs through foreign-direct investment, foreign-exchange rates and access to investment, foreign-exchange rates and access to investment capital and earnings. investment capital and earnings.

Political RiskPolitical RiskLook for economic and social conditions that could lead to Look for economic and social conditions that could lead to political instability.political instability.

Evaluation

RisksRisks MeasureMeasure WeightingWeighting Rating (1-10)Rating (1-10) AttractivenessAttractiveness

FranceFrance IndiaIndia KoreaKorea FrancFrancee

IndiaIndia KoreaKorea

Risk & Risk & uncertaintyuncertaintyLowest 10 - highest 1Lowest 10 - highest 1

50%50% 99 88 55 4.54.5 4.04.0 2.52.5

Competitive riskCompetitive riskLowest 10 - highest 1Lowest 10 - highest 1

20%20% 33 99 55 0.60.6 1.81.8 1.01.0

Monetary riskMonetary riskLowest 10 - highest 1Lowest 10 - highest 1

10%10% 77 55 44 0.70.7 0.50.5 0.40.4

Political riskPolitical riskLowest 10 - highest 1Lowest 10 - highest 1

10%10% 88 99 55 0.80.8 0.90.9 0.50.5

TotalTotal 100%100% 6.66.6 7.27.2 4.44.4

Evaluation

Opportunity-risk matrixOpportunity-risk matrix

3.3

6.7

Low Med High

Opportunities

Low

Med

High

Risks

India

France

S Korea

6.73.3

Evaluation

Market selection

Education

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