in the short term may consider mature markets more favourable.
These markets are likely to require a more modest level of investment.
● Predictability: The potential value of a market will be easier to predict
if it is less prone to disturbance and the possibility of discontinuities.
In the long term a predictable market is likely to be more viable.
● Pattern of demand: The attractiveness of a segment will be affected by
any seasonal or other cyclical demand patterns it faces. A large per-
centage of sales in the gift and card market take place at Christmas in
western countries. An organisation has to be able to withstand the cash
flow implications of this skewed demand. The same problem occurs in
other industry sectors such as travel and tourism.
● Potential for substitution: In any market there is the potential for new
solutions to be developed that will address consumers’ needs.
An organisation should review markets to establish whether new
innovations could be used in the segment. Where substitutions are
likely an organisation may decide not to enter on the basis that it
makes the segment less attractive. If, however, the organisation has the
ability to deliver that innovatorary approach it may make the segment
a prime target as the company has the skills to change the nature of
competition to their advantage.
The strategic nature of making target segment choices
the underlying industry structure
● Quality of competition: Segments that have weak competition are more
attractive than segments where there are strong and aggressive com-
petitors. It is not the number of competitors operating but the nature of
their competition that is critical in judging an opportunity.
● Potential to create a differentiation position: A segment will be more attract-
ive if it contains unsatisfied customer needs that allow the company to
create a differentiated product or service and gain a higher margin by
charging a premium price. If it is a commodity market then competition
is likely to be driven by price and the segment will be less attractive.
● Likelihood of new entrants: Segments that currently have limited competi-
tion may appear attractive. However the potential for other companies
to enter this market has to be taken into account.
● Bargaining power of suppliers: An organisation will be in a stronger
negotiating position where there is a range of potential suppliers.
If, however, supply is in the hands of a few dominant companies the
balance of power in negotiations will lie with the suppliers making a
segment less attractive.
● Bargaining power of customers: Customers may be the end customer but
they can also be a customer in the channel of distribution (i.e. a major
supermarket). If customers are in a strong negotiating position they
will try and push suppliers’ prices down reducing margins. A market
segment will be less favourable when a few major customers dominate
it or the channels of distribution.
Targeting, positioning and brand strategy 181