STP. Segmentation Targeting Positioning. In this session, we will discuss the T, target market selection. First, target markets are also segments. They're subsets of segments, which means that they are smaller than the total number of segments. It is the segment that is most attractive to the company, a target market is a segment that is most attracted to the company, or we can call it the best customers, and we will come to best in just a moment. If the size of the target market is relatively small, sometimes it is referred to as a niche market or a niche market, again depending upon whatever your preference is in terms of how you want to pronounce that word. But the most important link to establish that over here is that you first segment the market. From those segments you pick a subset of segments to determine what your target market will be. So, again, just like we asked ourselves in the segmentation session, why segmentation? We should ask ourselves a question why do we want to pick a target market? Very simple. On the previous slide we talked about best customers, we want to pick a target market because it's all about competitive advantage. And we want to gain a competitive advantage. Now the dynamics of target market selection really occur when three different influences interact. They first what I would like to call customer factors. How big is the market? What is its growth potential? What are their needs? The second is the company factor. What are our capabilities? What are our objectives? What are our strengths and weaknesses? And the last is competition. How intense is the competition? What are the entry barriers that exist to competition? Can the competition do some of the same things that we can do? When you juxtapose all these three things together, and then you apply them to the overall segmentation scheme that you have developed, it'll start giving you a very clear idea of who your target market or who your target markets can be. The key to effective target market selection lies in the following steps. First, we assess identified customer segments, competition's identified segments, and the company's ability to serve them simultaneously. We assess all these three things simultaneously, not singly. Second, we do a detailed analysis on the company and it's competitors ability to serve each of the segments. That is crucial. So simultaneously first we address the customer's segment, the competition's identified segments, and the company's ability to serve them. Next, we do a detailed analysis on the company and it's competitors to serve each of the segments. We develop attractiveness matrixes so that we can evaluate which entity, us or our competitor, is doing better in each segment, and then finally we select a target market where our company expects to have the strongest competitive advantage where we are consistently outperforming competition. Now, let me give you a very simple segment target map. So we have small businesses, medium businesses, and large businesses. That's one dimension, one way of segmenting a market. Another way of segmenting a market is whether or not that segment requires low touch, medium touch or high touch, and by that we mean human touch, not technology touch but human touch. Some people require a lot of hand-holding, some people require less hand-holding, and by people I also mean segments and companies. So, small, medium, large businesses, low touch, medium touch, high touch, it gives us nine cells. Now, imagine you are a very large company like Microsoft, like SAP, like IBM, and you look at this grid and you say, you know what? I really don't want to mess with putting people against small and medium size businesses I would rather focus my people on the large businesses that require high touch. That then becomes your target market. So small number of high priced deals, you pursue them. That's very attractive to you. You have a competitive advantage because you're a large company. You have a very large sales force. These businesses require a very high touch, and you can provide it to them, and therefore the intersection of the size of the business and the degree of touch that they require determines the target market for you. But now imagine that you're a small company. There may be small business and medium-sized businesses who also require high touch, but most, based on this diagram, a company like IBM or SAP, they've already said it's not worth it. Well it may not be worth it for them, given their size, but it may be worth it for you. And that is again a very interesting dynamic, how companies go about determining target markets. Because, if something is not attractive to a very large company, it maybe very attractive to a smaller company, why? Because very often it doesn't have the same fixed overheads and costs. So a small company may just say, you know what, I don't mind doing business with small businesses who require high touch because I feel I can give it to them. I have a cost advantage and I can build, in the process, a competitive advantage for myself. A word of caution, please. That very often we say we are going to target a, b, c customer or we are gonna target x, y, z customer. Targeting specific customers, for example purchase managers, or end users, or influencers, is not the same as target market selection. The former is about maximizing the effectiveness of a company's selling efforts. The latter is about identifying a subset of segments where a company stands the best chance of winning against competition. In summary, all segments, even if they can be served, are not equally attractive to a company. Consequently, following segmentation, a company needs to select where it stands the best chance of winning, which is going to be its target market. Segment characteristics and company/competitor competencies jointly determine which sub-segments a company should target. And targeting an individual buyer is not the same as target market selection. One is about maximizing sales effectiveness. The other is about maximizing chances of winning against competition.
