Market Segments and Targeting your Market
Market Segments are parts of a market that are different from one another. They should be identifiable, accessible, substantial, unique, and durable. Six common segmentation strategies are:
- Geographic segmentations, which divides the broad market into regional or local markets.
- Demographic segmentation, which classifies the broad market such as age, gender, income, and race with different advertising campaigns that can be used to target specific segments like males 18 to 34 years old or working mothers.
- Psychographic segmentation, which is social class from upper to lower, lifestyle, and personality.
- Behavioristic segmentation, which is loyalty status, user rate, type of occasion, or benefits sought such as quality, service, or price.
- Product segmentation, which divides the broad market by products like health food or junk food.
- Sales channel segmentation, which divides the way a product is sold such as a can of Coke in a grocery store, restaurant, or vending machine.
Most often, market segments are combined. An example would be combining the product segment, such as a health food, in the demographic segment like the state of California. By segmenting markets, targeting certain factors, behaviors, and needs, and developing specific advertising, products, or services for specific markets, is extremely effective.
In contrast to consumer markets, industrial markets have customers who are fewer in numbers, but purchase larger quantities. Most of the segmentation strategies for consumers should still apply, however, location, company type, and behavioral characteristics are the most important.
Market segmentation is a useful tool as long as the segmented markets are truly measurable for size, purchasing potential, accessible through some sort of sales method, substantial enough to make it worthwhile, and actionable to be able to develop effective programs to attract and serve the segment.
Targeting your market is the next step after you have grouped your potential markets into segments. There are three potential strategies to use:
- Undifferentiated marketing, which basically means your company ignores the segment differences and instead decides to develop one marketing program that would be attractive to the broadest number of buyers. The upside to this strategy is that it saves time and money as you would not need to modify the product for different markets, and need only one promotional plan and one set of promotional materials. The downside to this strategy is that it looks to attract the largest segments and ignores the smaller segments, which also attracts more competitors and thus will need more financial resources in order to compete. You also leave yourself open for niche competitors who will target the smaller markets you are ignoring.
- Differentiated marketing, which means you will focus on your target market segments and develop a marketing plan for each. The upside is, as long as the costs of differentiation results in higher sales and higher profits, it is well worth it. The downside is more time and costs are needed. You would need to modify the product for certain segments, need more than one promotional plan, and need more than one set of promotional materials.
- Concentrated marketing, which means a company with limited resources focuses on getting a large share of just one or two market segments. This is a good strategy for niche players to use because they are focusing on just one or two segments, which are normally ignored by the larger competitor.
Once your company has determined its target markets, research needs to be done to find out facts, such as projected sales growth rates, estimated profit margins, and comparing the strategies from your competitors. All of this information is needed in order to develop a strong marketing plan.
You need to know the market size such as what percentage of the market is already penetrated, and the percentage already taken by your competitors. Also, there might even be a possibility for a new product release based on your research. A good source for researching other businesses and estimating the targeted market size is through the IRS, Dun & Bradstreet, and the Census bureau.
The next step would be to try and measure the current market demand for the product by means of total market demand, area market demand, and actual sales and market shares. There are also techniques to use to forecast future demand such as surveys of buyer’s intentions, sales force opinions, and leading indicators.
The last step would be to determine your company’s strengths and weaknesses within the targeted market segment and customer base. You need to make sure you can truly market the product effectively and provide the needed support. There will be more on this subject in the 5 C’s and Marketing Strategy Basics later in this lesson.
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