Industry segmentation and competitive strategy of the firm

Industry segments differ in their attractiveness and the sources of competitive advantage for competing in them. The key strategic questions that arise out of segmentation are:

  • where in the industry a firm should compete (segment scope )
  • how its strategy should reflect this segmentation

A firm can adopt a broadly-targeted strategy that addresses many segments, or exclusively address a small number of segments in a focus strategy. A broadly-targeted firm must also be aware of the vulnerabilities it faces because segments have structural differences, just as a focused firm must recognize and deal with the threat of broadly-targeted firms competing in its segment or segments together with others. Segmentation is also dynamic and must change to reflect structural changes.

Source: Porter Michael E. (1998), Competitive Advantage: Creating and Sustaining Superior Performance, Free Press; Illustrated edition.

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