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Market segmentation reveals the firm's market segment opportunities.For example, the economy segment of the automobile market is large and growing.But "right size and growth" is a relative matter. The largest, fastest-growing segments are not always the most attractive ones for every company. Smaller companies may lack the skills and resources needed to serve larger segments. Or they may find these segments too com- petitive. Such companies may target segments that are smaller and less attractive, in an absolute sense, but that are potentially more profitable for them. The company also needs to examine major structural factors that affect long-run seg- ment attractiveness."Buyers with strong bargaining power relative to sellers will try to force prices down, demand more services, and set competitors against one another-all at the expense of seller profitability.Evaluating Market Segments In evaluating different market segments, a firm must look at three factors: segment size and grow th, segment structural attractiveness, and company objectives and resources.The existence of many actual or potential substitute products may limit prices and the profits that can be earned in a segment.
Market segmentation reveals the firm's market segment opportunities. The firm now has to evaluate the various segments and decide how many and which segments it can serve best. We now look at how companies evaluate and select target segments. Evaluating Market Segments In evaluating different market segments, a firm must look at three factors: segment size and grow th, segment structural attractiveness, and company objectives and resources. First, a company wants to select segments that have the right size and growth characteristics. But "right size and growth" is a relative matter. The largest, fastest-growing segments are not always the most attractive ones for every company. Smaller companies may lack the skills and resources needed to serve larger segments. Or they may find these segments too com- petitive. Such companies may target segments that are smaller and less attractive, in an absolute sense, but that are potentially more profitable for them. The company also needs to examine major structural factors that affect long-run seg- ment attractiveness." For example, a segment is less attractive if it already contains many strong and aggressive competitors or if it is easy for new entrants to come into the segment. The existence of many actual or potential substitute products may limit prices and the profits that can be earned in a segment. The relative power of buyers also affects segment attractive- ness. Buyers with strong bargaining power relative to sellers will try to force prices down, demand more services, and set competitors against one another-all at the expense of seller profitability. Finally, a segment may be less attractive if it contains powerful suppliers that can control prices or reduce the quality or quantity of ordered goods and services. Even if a segment has the right size and growth and is structurally attractive, the com- pany must consider its own objectives and resources. Some attractive segments can be dis- missed quickly because they do not mesh with the company's long-run objectives. Or the company may lack the skills and resources needed to succeed in an attractive segment. For example, the economy segment of the automobile market is large and growing. But given its objectives and resources, it would make little sense for luxury-performance carmaker
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