Patterns of Target Market Selection

Patterns of Target Market Selection

After evaluating the segments on the basis of segment potential, competitor’s position and potential goal and objective achievement, the firm can select the segment that will be the target market(s). The firm can consider five patterns of target market selection. They are as follows: 

1. Single segment concentration: In the simplest case, the firm selects a single segment. It is also called as concentrated marketing (see following figure)
Single Segment Concentration
Through single segment concentration strategy, the firm achieves a strong market position in the segment owing to its greater knowledge of the segment’s needs and the special reputation it gains. Furthermore, the firm enjoys operating economies through specializing its production, distribution and promotion. As it captures leadership in the segment, the firm can earn a high return on its investment. At the same time, concentrated marketing involves higher than normal risks. The particular market segment can turn bitter.

2. Selective specialization: In this strategy, the firm selects a number of segments (see following figure), each objectively attractive and appropriate, given the firm’s objectives and resources. There may be little or no synergy between segments but each segment promises to be a money maker.
Selective Specialization
This strategy has the advantage of diversifying the firm’s risk. Even if one segment becomes unattractive, the firm can continue to earn money in other segments.

3. Product specialization: The firm makes a certain product that it sells to several segments (see following figure). An example would be a microscope manufacturer who sells to university, government, and commercial laboratories. The firm makes different microscopes for the different customer groups and builds a strong reputation in the specific product area. The downside risk is that the product may be supplanted by an entirely new technology.
Product Specialization
4. Market specialization: The firm concentrates on serving many needs of particular customer group (see following figure). An example would be a firm that sells an assortment of products only to university laboratories. The firm gains a strong reputation in serving this customer group and becomes a channel for addition products the customer group can use. The downside risk is that the customer group may suffer budget cuts.
Market Specialization
5. Full market coverage: When a company decides to enter all or at least most segments, full coverage market segmentations is used. This is a high sales strategy, since greater penetration into each segment is combined with broad coverage of a total market (see following figure).
Full Market Coverage
Extensive resources are required to implement the strategy because it affords limited opportunity for economies of scale. Full coverage market segmentation is therefore most likely to be adopted by a large organization.

6. Niche marketing: The niches are the market segment that has been neglected by large organizations. Market niches are identified by dividing the market segments into sub-segments or by identifying customer groups whose needs have not been met by the large organizations.
Niche Marketing
Many companies succeed by producing a specialized product aimed at a much focused segment of market (or ‘niche’). In this pattern an organization concentrates on niche market segments to exploit market opportunities.

Organizational Buyer and Its Process

Organizational Buyer 

Organizations make purchase decision in order to satisfy their goods, as do the final consumers. But, the goals differ. Organizations have goals of producing goods or services. Organizational buying is the decisions making process by which organizations establish the need for purchase of product and services, and identify, evaluate and choose among alternative brands and suppliers. Thus, organizational buying behavior is a process by which company/organization establishes a need for purchasing products and chooses among competing brands and suppliers. 
According to Pride and Ferrell –“Organizational buying behavior refers to purchase behavior of producers, government units, institutions and resellers.”
According to Bennett, Webster and Wind –“Organizational buying behavior is the decision-making process by which a buying group establishes the need for goods and services and identifies, evaluates, and chooses among alternative brands and suppliers.” 
In conclusion, organizational buying behavior refers to the buying behavior of organizations that buy for business use, resell or to make other products. Organizations consist of business, industries, retailers, government and non-government organizations. Marketing management needs to understand the organizational buyer behavior.

Organizational Buying Process 

Organizational buying process involves six stages. They are as follows: 
  1. Problem recognition: The buying starts with problem recognition. In this stage, one or more individuals in the organization recognize that a problem or a need exists. Problem recognition may arise under several circumstances, such as when a new product is being introduced or an existing product is being modified or when a machine break down occurs. Individuals in the buying center, such as users, influencers and buyers may be involved in the problem recognition stage. 
  2. Developing product specifications: This stage consists of determining what will be required to solve the specific problem. In this stage, several individuals in the organization, such as technical personnel, users, deciders and buyers participate jointly in developing specifications about the product needs of the organization. 
  3. Search for products and suppliers: The third stage involves searching for possible products to solve the problem and locating possible suppliers of the product. Search activities may involve looking into company files and trade directories, contacting suppliers for information, inviting proposals for supply and so forth. 
  4. Evaluation: The fourth stage consists of evaluation of the products and the suppliers on the basis of price, service, quality, reliability and consistency of supply factors. 
  5. Selection: The fifth stage involves selecting of the product to be purchased and the supplier from whom to buy it. Specific details regarding terms credit arrangement, delivery dates and methods are worked out in this stage. 
  6. Evaluation of product and supplier performance: The final stage in the organizational buying process involves the product’s performance and also the performance of the supplier. This stage helps organization to take corrective actions. The results of such an evaluation are used as important feedback for further purchase decisions.

Buying Center and Its Types

Buying center is the decision making unit of a buying organization. It is composed of all the individuals and units that participate in the business decision-making process. The buying center includes all members of the organization who play a role in the purchase decision process. They share common goals and the risks arising from the decisions. The members includes the actual users of the product or service, those who make the buying decision, those who influence the buying decision, those who do the actual buying and those who control buying information.

The members of the buying center or decision-making unit of the organization fulfill various functions and often engage in complex interactions, both among themselves and with outsiders such as salespeople and suppliers.

Types of Buying Center

The buying center includes all members of the organization who play any of seven roles in the purchase decision process.
  1. Initiators: Initiators are those people who request that something to be purchased. They may be users or others in the organization.
  2. Users: Users are those people who will use the product or services. They are so-called because the work they do in the organization is directly affected by the purchase under consideration. They can range from trainees to executives.
  3. Influencers: Influencers are the people who influence the buying decision. They help to shape criteria by providing useful information. In the complex world of modern business, technical and legal experts often influence buying decisions, although they may have no direct connection with the buying process itself.
  4. Deciders: Deciders are the people who decide on product requirements or on suppliers. They have the final authority over buying decisions. In some cases, they buyer may also be that decider, but in most cases the two roles are performed by separate individuals. For example, engineers have the final say in deciding with suppliers of raw materials to choose.
  5. Approvers: Approvers are the people who authorize the proposed actions of deciders or buyers.
  6. Buyers: Buyers are those people who have formal authority to select the supplier and arrange the purchase items. They can range from the chief of the company to its purchasing agent. They contact suppliers and negotiate business transactions. Buyers often have the power to choose suppliers or to develop lists of suitable suppliers.
  7. Gatekeepers: Gatekeepers are those people who have the power to prevent sellers or information from searching members of the buying center. They can be purchasing agents, salespersons, or secretaries. They control the information flowing into the buying center and they are often the members of the organization who contact suppliers or vendors to solicit a quote for their products.

Matrix Organization Structure

Matrix organization is a newly evolving organization structure which has received considerable attention in the developed as well as developing countries. This organization is formed to complete various types of project of specific and unique nature. This is also known as project management structure. It requires diverse technical and administrative experts to adjust efficiently with the dynamic and rapidly changing environment of the business.

The matrix organizational structure superimposes a divisional structure over a functional structure in order to combine the efficiency of the functional approach with the flexibility and responsiveness to change of the divisional approach. Each employee in a matrix unit reports to two bosses – a functional manager and a product or project manager. This means that there are dual lines of authority in the matrix organization.
Matrix Organization Structure
As seen in figure, there is a vertical chain of command for the functions of production, finance, marketing and research and development. There is a lateral chain of command for the three projects. An engineer who is assigned to work in project A will report to both project manager A and the production manager of production department.

A matrix structure is the most complex of all designs because it depends upon both vertical and horizontal flows of authority and communication (hence the term matrix). In contrast, functional and divisional structures depend primarily on vertical flows of authority and communication. A matrix structure can result in higher overhead because of more management positions. Other characteristics of a matrix structure that contribute to overall complexity include dual lines of budget authority (a violation of the unity command principle), dual sources of reward and punishment, shared authority, dual reporting channels, and a need for an extensive and effective communication system. Despite its complexity, the matrix structure is widely used in many industries, including construction, healthcare, research and defense.

Usefulness of Matrix Organization Structure

A matrix structure is useful when the following conditions exist:

  • When there is an external pressure for a dual focus, a matrix structure will be useful. The external pressure in the organization requires focusing organization’s efforts on responding to multiple external factors as well as on internal operations at the same time.
  • When there is pressure for a high information-processing capacity.
  • When there is pressure for sharing resources.

Advantages of Matrix Organization Structure

Some advantages of a matrix structure are as follows:

  1. Environmental Adaptation: Matrix organization has been designed to cope with the complexities of multi-product, multinational organizations. This structure is able to adapt to changes in the environment. Responses to environmental changes are quickly made in this structure.
  2. Sharing Resources: This structure facilitates the proper sharing and utilization of highly specialized staff, equipment and resources. Each project or product unit can share the specialized resource with other units, rather than duplicating it to provide independent service for each.
  3. Professional Identification: The matrix organization provides the professional identification of specialists and professionals based on their specialization and efficiency. Talented specialists can be utilized more efficiently under this structure.
  4. Flexibility: Matrix structure fosters flexibility throughout eh organization. Various skills can be brought together in this type of organization.
  5. Effective Control: The main responsibility of the project manager is to maintain coordination among interrelated factors of a particular project. He has to communicate both with the horizontal and vertical authorities so that the project work can be run smoothly. Similarly, functional managers are responsible for providing technical and administrative guidance to projects. This leads to a better and more effective control over regular operation.
  6. Strategic Thinking: This structure encourages delegation of authority to project managers. They are responsible for regular operation of the project. They have the authority to take decisions related to the day-to-day operation of projects. This provides sufficient time to the top management to strategic thinking such as to make strategic planning and policies rather than operational activities. The initiation and creativity of the top level management are necessary for further development of organizational activities.

Disadvantages of Matrix Organization Structure

Matrix structure has several disadvantages. They are as follows:

  1. Lack of Unity of Command: In matrix structure, subordinates have to follow instructions from more than one superior. Generally, they receive orders from functional managers as well as from project managers. In some cases, subordinates may receive instructions from both the superiors at a time. This structure violates the principle of unity of command.
  2. Costly: This structure increases administrative cost. In this structure, specialists from the project as well as functional authorities involve in project works. It increases paperwork and other information costs. Besides, it is essential to pay lump-sum remuneration to functional and project specialists. Hence, this structure is costly to implement and maintain.
  3. Power Struggle: One of the main problems with the matrix structure is that the project manager and functional manager may not agree on priorities or resource allocations, leading to conflict and power struggle.
  4. Difficulties: Matrix structure requires a high level of interpersonal relations and skill. It is essential to involve both functional and project specialists. Besides, it is essential to maintain a balance among these authorities to bring about uniformity in the organizational performance. In practical field, it is more difficult to maintain a balance among these authorities, especially if they have no positive attitude towards each other.
  5. Slowness in Decisions: Functional and project specialists can shift responsibility for decision making. This delays decisions. Likewise, all decisions may become group decisions, leading to gross inefficiency.