Evaluating Market Segments

In evaluating different market segments, a firm have to look at three factors: segment size and growth, company objectives, and segment structural attractiveness and resources. The company have to  first  collect  and  analyze  data  on  present  segment  sales,  growth  rates,  and  expected profitability for many segments. It shall be interested in segments that have the accurate size and growth characteristics. But "right size and growth" is a relative matter. The biggest, fastest-growing segments are not always the most attractive ones for each company. Smaller companies might lack the skills and resources requirement to serve the big segments or can find these segments too competitive.  Such  companies  can  select  segments  that  are  smaller  and  less  attractive,  in  an absolute sense, but that are potentially much more profitable for them.

The company also require examining major structural factors that influence long-run segment attractiveness. For instance, a segment is less attractive if already it contains many strong and aggressive competitors. The existence of various actual or potential substitute products can limit prices and the profits that may be earned in a segment. The relative power of buyers also influences segment attractiveness. Buyers having strong bargaining power relative to sellers will attempt to force prices down, demand more services, and set competitors against one another-all at the expense of seller profitability. At last, a segment can be less attractive if it consist powerful suppliers who may control prices or reduce the quality or quantity of ordered services and goods.

Even if segments contain the right size and growth and it is structurally attractive, the company have to consider its own resources and objectives in relation to that segment. Some attractive segments could be dismissed rapidly because they do not mesh among the company's long-run objectives. Even if segment fits the company's objectives, the company have to consider whether it possesses the skills and resources it requires succeeding in that segment. If the company lacks the strengths required to compete successfully in a segment and cannot readily get them, it should not enter the segment. Even if the company possesses the needed strengths, it requires employing skills and resources superior to those of the competition in order to actually win in a market segment. The company should enter just segments in which it may offer superior value and gain advantages over competitors.