Guidelines in Market Selection

Four general guidelines govern the selection of target markets. The first one is that target markets should be compatible with the organization's goals and image. A firm that is marketing high-priced personal computers should not sell through discount chain stores in an effort to reach a mass market.

A second guideline—consistent with our definition of strategic planning — is to match the market opportunity with the company's resources. Liggett & Myers followed this guideline when it entered the market for low-cost, un-branded cigarettes. Management decided not to spend the huge sums for advertising that would be necessary for a new cigarette brand to compete with established national brands. Instead the company introduced and mar­keted a nonadvertised, "no brand" generic cigarette through supermarkets at a lower price. Thus the company matched its limited marketing-mix resources with its intended market.

Over the long run a business must generate a profit if it is to survive. This rather obvious, third guideline translates into what is perhaps an obvious market selection guideline. That is, an organization should consciously seek markets that will generate sufficient sales volume at a low enough cost to result in a profit. Surprisingly, companies often have overlooked the profit factor in their quest for high-volume markets. The goal was sales volume alone, not profitable sales volume.

Finally, a company ordinarily should seek a market wherein the number of competitors and their size are minimal. An organization should not enter a market that is already saturated with competition unless it has some overrid­ing competitive advantage that will enable it to take customers from existing firms.

Market Opportunity Analysis

Theoretically a market opportunity exists any time and any place there is a person or an organization with an unfilled need or want. Realistically, of course, a company's market opportunity is much more restricted. Thus select­ing a target market requires an appraisal of market opportunities available to the organization. A market opportunity analysis begins with a study of the environmental forces (as discussed in Chapter 2) that affect a firm's marketing program. Then the organization must analyze the three components of a market—people or organizations, their buying power, and their willingness to spend. Analysis of the "people" component involves a study of the geo­graphic distribution and demographic composition of the population. The second component is analyzed through the distribution of consumer income and consumer expenditure patterns. Finally, to determine consumers' "will­ingness to spend," management must study their buying behavior. Popula­tion and buying power are discussed more fully later in this chapter. Buying behavior is covered in Chapter 5.