At this point you must decide which and how many segments to target. To begin, consider various possible “coverage patterns.” These patterns are simply the ways a firm might choose and ultimately allocate products to the various segments. While various coverage patterns exist, they can usually be categorized into five possible patterns as shown below. (S refers to segments, P refers to products).
These five coverage patterns can be summarized as follows:
Single-segment concentration: With this approach, you select a single segment to concentrate on. With limited resources, this is a good approach.
Product specialization: With this approach, you concentrate on making a particular product and sell it to a variety of segments. This coverage pattern helps to build a strong reputation in a certain product/technology. Of course, there are downside risks if your product is made obsolete by another product.
Market specialization: In this coverage pattern, you concentrate on a specific segment and provide a variety of products or variations of a product which match the benefits that customers in that segment care about. This pattern also helps to build a strong reputation and provides you with specific experience benefits (e.g., channels of distribution) by serving a particular segment. Of course, you will be more dependent on this segment which may be costly if the segment's needs change.
Selective specialization: Here you select a number of segments and appeal to them with different products. This approach allows you to diversify your risk since if one segment becomse unattractive, you can continue to make money in other segments.
Full market coverage: Here you serve all segments with all products. This approach is viable for firms with a large amount of resources.
A firm needs to think clearly about their resources and the risks inherent in these different coverage patterns when making decisions about which and how may segments to choose. You have to resist the temptation to pursue a coverage pattern that requires resources you do not have. Read our article "The Importance of Saying No"
Source: Abell, Derek F. (1980), Defining the Business: The Starting Point of Strategic Planning, Englewood Cliffs, N.J.: Prentice Hall, Chap. 8, pp.192-196