Assessment of ventures into new market segments—a financial perspective

Market segmentation can be subdivided into the subprocesses of segmentation, target market selection, and product positioning. Decisions on ventures into new market segments require to identify such new segments; the targeting process should be assisted by an assessment of the financial consequences. In particular, the development of new segments may also affect the profitability of the activities in already existing segments. Therefore, this paper presents an approach to value such investments in two steps, considering that market segmentation implies dealing with market imperfections, in particular with interdependencies between the different segments, investment, marketing and production. Hence, by optimising the development of the current segments and calculating the highest affordable price for an expansion into a new segment, both steps of the presented approach provide important information for marketing planning and controlling as well. This will be underlined by deriving formulas for determining the highest affordable price as a sum of (corrected) net present values. In real-world environments this maximum payable price is likely to be lower than according to approaches discussed in literature. Generalising the concept of net present values also for the given imperfect markets, these (corrected) net present values allow the decision maker to analyse the effects of changes in important market conditions and relevant parameters and to interpret them in monetary terms. Further information may be obtained through sensitivity analyses.