Having identified market opportunity, it is now important to carry out a product-market analysis for evolving a marketing plan. Some of the key issues that need to be addressed here are:
What markets need to be served?
Here the markets themselves need to address issues like whether they would want the firm to be in the national or regional market, youth or the grown-up market or the women market. In other words, the identification of the target market is important and becomes the starting point of any analysis.
What form should the product take?
For example, should the product be marketed as a commodity or as a branded product?
What should the product offer for use?
For example, conservation of energy resulting in low electricity bills is important for marketing of consumer appliances operated on electrical mains.
For whom is the product most important?
This decision would help in focusing market communications to a specific individual. For example the washing machine becomes an important product for the housewife; hence all communications from a firm marketing washing machine should be addressed to her.
Making Product/ Market Choices
Having considered issues pertaining to the market, the marketer now needs to turn his attention to making specific products-market choices. These relate to the following choices:
Horizontal Markets or Horizontal Diversification
Horizontally, markets can be segmented in terms of end-use. For example, an airline firm flying people from one destination to another in a region may also decide to diversify in the courier business and fly papers and cargo on its route. Like wise, a consumer appliances firm manufacturing toasters, mixers and geysers, targeted at middle income groups may decide to diversify into high-tech products like the microwave oven. This product will be used by upper middle and higher income group people.
Horizontal diversification generally starts with a technical innovation or up gradation and involves identification of market segments and product forms that will give the firm desired competitive advantage .One has seen a similar kind of diversification in electronic firms making entertainment products like radios, television sets and tape recorders. In the case of TV manufacturers, as soon as the government started color telecast in 1982 and allowed firms to import color TV kits on CKD (completely knocked down) basis, all of them diversified into the color TV market which was initially targeted at higher middle and higher income groups. But as technology developed, analog and digital color TVs were also added on by some of the firms in their product-mix. One does observe similar trends in service areas like banking, airlines, etc.
A decision to horizontally diversify is based on the following considerations:
1.Firm’s assessment of its strength and weakness
2.Market potential in the target market, or size of the target market.
3.Intensity of rivalry in the selected product-market.
4.Entry and exit barriers in the selected industry.
5.Value addition by manufacturers or conversely how is the ratio of the cost of materials and purchased parts to the selling price.
Vertical Product Market Choice
Vertical product—market choice refers to the market level at which the supplier sells. For example, a firm manufacturing and marketing gears may also start manufacturing and/or selling of gear-cutting tools and machines, as also fitment gauges that may be used by mechanics for enabling gear fitment in a systematic manner. This is exactly the case with Gajra Bevel Gears, which besides marketing differential and transmission gears, also markets fitment gauges. The Company believes that most mechanics in the country are not properly educated and do not follow a systematic method of gear fitment .Thus leading to product failure. In order to help them overcome this problem and also ensure lesser failures, the company decided to sell these gauges at subsidized prices to mechanics.
Like wise, cigarette companies realize that the quality of their product can get adversely affected if they use poor quality tobacco leaf or paper or even filter. Consequently they have diversified into these product groups also.