Target-Market Strategy: Aggregation or Segmentation

In defining the market or markets it will sell to, an organization has its choice of two approaches. In one, the total market is viewed as a single unit—as one mass, aggregate market. This approach leads to the strategy of market aggrega­tion. In the other approach, the total market is seen as many smaller, homoge­neous segments. This approach leads to the strategy of market segmentation, in which one or more segments are selected as top target markets. Deciding which of the two strategies to adopt is a key step in selecting target markets. We shall discuss market aggregation and segmentation in more detail later in this chapter.

Measuring Selected Markets

When selecting target markets a company should make quantitative estimates of the potential sales volume of the market for its good or service. This pro­cess requires estimating, first, the total industry potential for the company's product in the target market and second, its share of this total market.

It is essential that management also prepare a sales forecast, usually for a 1-year period. A sales forecast is the foundation of all budgeting and short-term operational planning in all departments—marketing, production, and fi­nance. Sales forecasting will be discussed in more detail in Chapter 22, after we build a foundation in marketing fundamentals.