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.