The Competitive Factors of an Attractive Market Segment

For a market segment to be evaluated, the competitors in the market are a factor you cannot go past. This aspect of the analysis has various components to consider.

Intensity

The number of competitors you will face in the new market must be assessed carefully. If there are large competitors set in place, to enter this market you must bring a competitive advantage that can allow you to gain some of their market shares.

In the situation you are entering a market with many smaller competitors with similar products, the differentiation often comes down to price. To enter a segment like this you must be able to create a cost advantage that is superior to the competitors.

There can sometimes be a very attractive segment of a market where some major players are not able to follow a change in their consumers and leave an underserved gap. This situation becomes very attractive for a new entrant to serve this market segment.

Quality

A company that aims to constantly serve the market well and has the potential to adapt to changing market demands can be identified as a good competitor. This becomes a deterrent to entering a market segment with this type of competition. Over-ambitious competitors who ignore the consumer and focus on profit alone a would constitute a bad competitor and leave gaps in serving a market which is an opportunity for new entrants.

Threat of Substitution

A market becomes a lot more attractive if the threat of a substitute is reduced, this limits the risk of investing to enter a market only to have your product be made redundant by a new solution to a customer’s problem.
This same situation can also create the opportunity for your company to be that substitute in the market that gains the competitive edge over all other competitors.

Differentiation

If there is an opportunity for differentiation in a market this can create the opportunity for a company that can achieve the differentiation to dominate a market. If this is not possible the market is less attracted due to the inevitable race to the bottom of competitors with the same product.

References:

Hooley, G, Piercy, N, Nicoulaud, B & Rudd, J 2017, Marketing Strategy & Competitive Positioning, 6th Ed., Pearson, Harlow, UK.