EVALUATION OF THE SEGMENTS
The popular segment is a bigger market compared to the premium segment. For example in terms of tonnage, of the total market the popular segment may account for 80% and the premium segment for the remaining 20%. If the firm wants a very large volume, it has to think of the popular segment. At the same time, it has to be noted that the premium segment too is sizeable as it accounts for in terms of value. The premium segment can even be more sizeable, forming a considerable part of the total market in terms of value. Clearly, the segment cannot be ruled out as lacking in size.
Growth rate and likely future position of the segment will be the next consideration in the evaluation process. Usually, business firms seek out the high growth segments. Analysis will readily indicate to the firm that in bath soaps, the premium segment happens to be the high-growth segment. Whereas the popular segment has been growing at 10% per annum, the premium segment has been growing at over 20% per annum. When this fact is taken into consideration, the firmâ€™s choice may tilt towards the premium segment. The tilt will be particularly pronounced if the firmâ€™s natural disposition is to strive for a position in the high-growth segment of the business.
Next consideration will be the extent of profitability. In the present example, the firm will quickly sense that the premium segment is the more profitable one. Even a relatively lower volume in the segment may bring in good returns. On the contrary, in the popular segment, a much larger volume will be necessary for the business to be viable, since prices and margins in the segment are low.
Another point is that costs of marketing, distribution and promotion in the business are quite high and are constantly on the increase. Costs of launching a new brand are particularly high. The market being very competitive, aggressive promotional support through expensive media like TV becomes essential. In this background, the firm may come to the conclusion that it may be worthwhile to gamble in the premium segment rather than the popular segment.
The firm has to now consider whether the segments are accessible to it. This may need further analysis. The market realities will have to be taken into consideration. The popular segment will be accessible only to firms with a cost advantage, since price is a major determinant in this segment. Premium segment will be accessible only to firms, which enjoy a differentiation advantage, and which are also marketing savvy. Liril of Hindustan Lever has a commanding position at present in the segment. At the upper end of the segment, HLLâ€™s Pears and Dove are well entrenched. Several other brands of different companies are competing in the segment. The firm has to take due note of this reality. At the same time, analysis also reveals that new brands do keep entering the segment every now and then, and some of them do manage to stay. So, the firm has no reason to believe that the premium segment is not accessible to it, unless it is convinced that it is very weak in marketing.
Compatibility with the firmâ€™s resources and capabilities:
Having reached the conclusion that the premium segment is sizeable, growth oriented, profitable and accessible the firm has to now find out if the segment matches its resources. For some firms, the popular segment may be the natural choice and for others, the premium segment. Some others may choose both. The premium segment is a highly competitive segment. Only firms endowed with strong resources and an aggressive marketing culture can fight and stay in it. The firm therefore has to assess whether the particular segments are compatible with its resources and capabilities.