Selecting Market Segments

Royal Dutch Shell's directional policy matrix plots market attractiveness of segments against business strengths. We introduced the method, along with GE's matrix, in Chapter 3. Originally developed as a way of balancing business portfolios, it is also well suited to decision making about which markets to target.41 Figure 9.4 shows an application by an Austrian industrial engineering and construction company.42

Figure 9.4

Portfolio of customer segments

"When a segment fits the company's strengths, the company must then decide whether it has the skills and resources needed to succeed in that segment. Each segment has certain success requirements. If the company lacks and cannot readily obtain the strengths needed to compete successfully in a segment, it should not enter the segment. Even if the company possesses the required strengths, it needs to employ skills find resources superior to those of the competition to really win in a market segment. The company should enter segments only where it can offer superior value and gain advantages over competitors. The company in Figure 9.4 is not very strong in any of the most attractive segments. Segments 13 and 17 look most appealing because they are moderately attractive and fit the firm's strengths. Segment 3 is similar, hut the firm needs to build its strengths if it is to compete there. Segments 1, 6 and 9 are attractive, but do not fit the firm's strengths. The firm has to develop new strengths if it is to compote in them. Without the investment the segments are not worth entering, so the firm has to consider the investment needed to enter more than one. Although the firm's strengths are suitable for segments 2 and 12, they are not attractive.

target market A set of buyers sharing common needs or characteristics iliut the company decides to serve.

un differentiated marketing A market-coverage strategy in 'which a firm decides to ignore market segment differences and go after tlie whole marker 'with one offer.

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