180 Strategic Marketing: Planning and Control
of a market segment are qualitative rather than quantitative in nature.
This has implications for the manner in which the process is managed. We
will return to this topic later in the chapter. Firstly we need to review the
criteria themselves.Market factors
When assessing market attractiveness the particular features of a market
will affect any evaluation.
● Segment size: A large segment will generally have greater sales poten-
tial. This in itself will make it more attractive but it may also offer the
potential of gaining economies of scale because of the larger volumes
involved. Large segments with their potentially larger sales can justify
the higher investments that may be necessary for organisations wish-
ing to operate within them. However large segments may not always
be the most attractive. Large segments can be more competitive as
their very size will attract other companies into them. Smaller organ-
isations may not have the resources to address a large market
and therefore may find smaller segments more appropriate for their
attention.
● Segment’s rate of growth (measured in terms of real revenue growth after
inflation): Segments that are growing are normally seen as being more
attractive than segments where growth has peaked or even begun to
decline. Segments in growth are seen as having a longer-term potential
and therefore justify any investment necessary. Once again, however,
these segments are likely to be more competitive as other companies
also recognise their potential.
● Segment’s profitability: What is the total profitability of the segment.
If you are already operating in this segment it’s not your organisation’s
profitability alone that should be reviewed. In order that all segments
are evaluated on a consistent basis it is the profitability of all companies
operating in the segment that should be calculated. This will have to
be an estimate based on analysing competitors’ activities.
● Customers price sensitivity: Segments where consumers have low price
sensitivity are likely to be more attractive as higher profit margins can
be gained. Consumers will be more concerned about quality and service
rather than price alone. Price sensitive segments are more susceptible
to price competition, which leads to lower margins.
● Stage of industry life cycle: Entering a segment that is in the early stages
of an industries life cycle offers the advantages of potentially high
growth in the future. In the early stages there are also likely to be less
competitors. However, the early stages of the industry life cycle are
characterised by the need for high investment in new plant, promotional
activities and securing distribution channels. This occurs at a time
when there may only be modest sales revenue. There will be a drain on
cash into the new area of business that the company has to be able to
fund. Business’s that are more interested in cash generation or profits