In determining the target market, companies must assess carefully the various segments to determine how the size of the segment and which segment to enter. Selection of segments that are too narrow / little will result in failure to achieve sales volume and profit desired.
However, if too large, will cause extra costs that exceed the increase in sales and profits. Therefore in determining the target market there are three factors to consider before setting the segment to be addressed. These factors are as follows;
Size Segment
Estimates of the amount / size of the segment to be addressed is an important factor to decide whether the market segment is worth to be followed up. Large companies will choose the segment with large sales volume and avoid or reject a small segment. Instead of small companies avoid large segment because they require too much resources
Growth Segment
Although the small size of the current segment is not likely to evolve or are expected to grow for the foreseeable future. It often happens that a small segment that does not glance it is basically a market segment that potensial.Sebagai example, the first level above the age of fifty years is not a concern of the company. But now a lot of products and services offered to them
Costs To Achieve Segment
A segment that does not fit with the company’s marketing activities should not be done. Identification of segments that must be addressed jelly. Many examples of segments that are expected to have great potential was not as expected. In this case the company has issued a high cost related to the degree of competition, there are basically five types of competitive threat that affects the ability of the company to make a profit.
The fifth is as follows;
a. Competitors existing segment
Segment becomes unattractive to enter if you have already a lot of competition, tight and aggressive. Moreover, if the segments are stable or declining, if the fixed costs (fixed cost) high and competitors have high resistance to remain in that segment. This condition will cause a price war and war pengembanmgan advertising and new product introductions will be costly for companies to compete.
b. Newcomers
A segment becomes unattractive if inviting some new competitors that have new capacities, better sources and means bagipertumbuhan market share. Although it is also not easy for newcomers to enter the segment of the many popular companies.
c. Analogs
A segment becomes unattractive if there is a replacement product (either actual or potential). Substitute the limit price and the potential profits to be gained from that segment. If competition in the technology or product substitutes increases, prices and profits in the segment will be down. For example, the students or other consumers become accustomed to not eating rice and side dishes (the traditional way), but it can be replaced with instant noodles, bread, milk, pizza, hamburgers and other food substitutes.
d. Increased ability of buyers to bid
If the bargaining ability of buyers increases, the segment becomes less attractive to enter. Buyers will press for the price could go down, and services requires better quality and lead to unhealthy competition among sellers.
The ability of consumers to bid increases when: adi sed consumers more concentrated or organized, the product does not match the price that must be borne by the consumer, the product is not differentiated, consumers are sensitive to price, or when consumers know the weaknesses of the seller company. Sellers need to have a strong self-defense.
e. Increased ability of providers to bid
A segment becomes unattractive when the provider of the price increase or decrease the quality. Providers are likely to berk uasa at the time: they are organized, there is little substitute goods, the goods are raw materials, changes in price very quickly. Way of overcoming this is to build a good relationship or using a variety of alternative sources and materials.
For example, a canteen is in need of cooking oil to run the business, because it had been a difficult economic situation of supply shortage of cooking oil in the market, prices change every day cause the trader does not want to let go of cooking oil (even hoard).