Target market refers to a specific and well-defined consumer segment within the business’s serviceable market which the business wants to sell its products and services and direct its marketing efforts to.
The purpose of evaluating market segments is to choose one or more segments to enter. Target market selection is the choice of which and how many market segments the company will compete in.
When selecting their target markets, companies have to make a choice of whether they are going to be focused on one or few segments or they are going to cater to the mass market. The choice that companies make at this stage will determine their marketing mix and positioning plank.
There are Four Generic Target Marketing Strategies.
1. Undifferentiated Marketing
There may be no strong differences in customer characteristics. Alternatively, the cost of developing a separate marketing mix for separate segments may outweigh the potential gains of meeting customer needs more exactly. Under these circumstances a company will decide to develop a single marketing mix for the whole market. There is absence of segmentation.
This strategy can occur by default. Companies which lack a marketing orientation may practice this strategy because of lack of customer knowledge. It is convenient since a single product has to be developed.
A company using an undifferentiated targeting strategy essentially adopts a mass-market philosophy. It views the market as one big market with no individual segments. The company uses one marketing mix for the entire market. The company assumes that individual customers have similar needs that can be met with a common marketing mix.
The first company in an industry normally uses an undifferentiated targeting strategy. There is no competition at this stage and the company does not feel the need to tailor marketing mixes to the needs of market segments.
Since there is no alternate offering, customers have to buy the pioneer’s product. Ford’s Model T is a classical example of an undifferentiated targeting strategy. Companies marketing commodity products like sugar also follow this strategy.
Companies following undifferentiated targeting strategies save on production and marketing costs. Since only one product is produced, the company achieves economies of mass production. Marketing costs are also lower as only one product has to be promoted and there is a single channel of distribution.
But undifferentiated targeting strategy is hardly ever a well considered strategy. Companies adopting this strategy have either been blissfully ignorant about differences among customers or have been arrogant enough to believe that their product will live up to the expectations of all customers, till focused competitors invade the market with more appropriate products for different segments.
Therefore companies following this strategy will be susceptible to incursions from competitors who design their marketing mixes specifically for smaller segments.
Finding out that customers have diverse needs that can only be met by products with different characteristics means that managers have to develop new products, design new promotional campaigns and develop new distribution channels. Moving into new segments means that salespeople have to start prospecting for new customers.
2. Differentiated marketing or multi-segment targeting
When market segmentation reveals several potential target segments that the company can serve profitably, specific marketing mixes can be developed to appeal to all or some of the segments. A differentiated marketing strategy exploits the differences between marketing segments by designing a specific marketing mix for each segment.
A company following multi-segment targeting strategy serves two or more well- defined segments and develops a distinct marketing mix for each one of them. Separate brands are developed to serve each of the segments.
It is the most sought after target market strategy because it has the potential to generate sales volume, higher profits, larger market share and economies of scale in manufacturing and marketing. But the strategy involves greater product design, production, and promotion, inventory, marketing research and management costs.
Another potential cost is cannibalization, which occurs when sales of a new product cut into sales of a firm’s existing products. Before deciding to use this strategy, a company should compare the benefits and costs of multi-segment targeting to those of undifferentiated and concentrated targeting.
The car market is most clearly segmented. There are segments for small cars, luxury cars, sports utility vehicles, etc. Most car makers like General Motors, Ford, Toyota, Honda and others offer cars for all the segments. Though Toyota entered the US market with small cars, it eventually chose to operate in most of the segments.
3. Focus or Concentrated Targeting
Several segments may be identified but a company may not serve all of them. Some may be unattractive or out of line with the company’s business strengths. A company may target just one segment with a single marketing mix. It understands the needs, and motives of the segment’s customers and designs a specialized marketing mix.
Companies have discovered that concentrating resources and meeting the needs of a narrowly defined market segment is more profitable than spreading resources over several different segments. Starbucks became successful by focusing exclusively on customers who wanted gourmet coffee products.
The strategy is suited for companies with limited resources as these resources may be too stretched if it competes in many segments. Focused marketing allows R&D expenditure to be concentrated on meeting needs of one set of customers and managerial activities are devoted to understanding and catering to their needs.
Large organizations may not be interested in serving the needs of this one segment or their energies may be so dissipated across the whole market that they pay insufficient attention to the requirements of this small segment. One danger that such niche marketers face is attracting competition from larger organizations in the industry if they are very successful.
Companies following concentrated targeting strategies are obviously putting all their eggs in one basket. If their chosen segments were to become unprofitable or shrink in size, the companies will be in problem. Such companies also face problems when they want to move to some other segments, especially when they have been serving a segment for a long time.
They become so strongly associated with serving a segment with a particular type of product or service, that the customers of other segments find it very difficult to associate with them. They believe that the company can serve only that particular segment.
Companies which start with concentrated targeting strategy but nurse ambitions to serve more segments should make early and periodic forays into other segments.
The idea is to avoid being labelled as the company which exclusively serves a particular segment. The association with one particular segment should not be allowed to become so strong that customers cannot imagine the company doing something else.
Mercedes offers premium cars for the upper segment of the market only. It does not offer cars for the middle and lower segments. But Mercedes segments the premium segment and offers different cars for its different premium segments.
Some companies are focused in another way. They focus on heavy users—the small percentage of customers that account for large share of a product’s sale.
The problem with such a strategy is that all the major players would be targeting this segment, and hence serving this segment will involve high marketing expenditure, price cutting and low profitability. A more sensible strategy is to target a small, less attractive segment rather than choose the same segment that every company is after.
4. Customized Marketing
In some markets, the requirements of individual customers are unique and their purchasing power is sufficient to make designing a separate marketing mix for each customer a viable option. Many service providers such as advertising, marketing research firms, architects and solicitors vary their offerings on a customer to customer basis.
They will discuss face to face with each customer their requirements and tailor their services accordingly. Customized marketing is also found within organizational markets because of high value of orders and special needs of customers.
Customized marketing is associated with close relationships between the supplier and customer because the high value of an order justifies large marketing and sales efforts being focused on each buyer.