A target market is a segment of customers in a company’s serviceable market toward whom the company devotes marketing efforts and financial resources. A target market is a subset of the overall market for a product or service. The firm would often customize the marketing mix (4 Ps) with the needs and expectations of the target in mind once the target market(s) have been determined. To acquire comprehensive insights into the motives, buying behaviors, and media usage patterns of the average customer, this may entail conducting extra consumer research.
One of the last steps in the market segmentation process is selecting an appropriate target market. The choice of a target market relies heavily on the marketer’s judgment, after carrying out basic research to identify those segments with the greatest potential for the business.
When a company decides to focus its efforts on more than one segment, it typically designates a primary and secondary target. Secondary markets are frequently smaller segments or less important to the success of a product, whereas primary target markets are those market segments to which marketing efforts are primarily directed and where the majority of the company’s resources are spent.
Choosing the “right” target market is a difficult and complex decision. Nonetheless, a number of heuristics have been developed to aid in this decision.
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DEFINITIONS
An organization develops, implements, and manages a marketing mix tailored to the needs and preferences of a target market, which is a group of customers (individuals, families, or organizations). Target marketing is ineffective when compared to bulk marketing. It entails locating and selecting specific segments to receive additional attention. Selecting a target market is just one of many decisions that business analysts and marketers must make during the segmentation process.
In the real world, the following target markets have been used:
- Rich people seeking the pinnacle of prestige and luxury drive Rolls-Royce automobiles.
- Teenage girls and women under 35 who carry Dooney and Bourke purses.
SELECTING THE TARGET MARKET
Markets are divided into two major categories: consumer markets and corporate markets. A consumer market is made up of individuals or families who purchase goods for their own use and do not intend to resell them for a profit. A business market consists of individuals or organizations that purchase products for one of three primary purposes: (a) resale, (b) use in the production of other goods or services, or (c) general use in routine business activities.
Different segmentation strategies will be used depending on whether the Total Available Market (TAM) is a consumer market or a business market. Each section created during the market segmentation process would have received detailed profiles from the marketing analyst. This profile frequently describes the similarities between customers within each segment as well as the differences between consumers across all categories.
The segment profile is primarily used to assess how well a company’s offerings meet the needs of different segments. A profile will include all relevant information for the product or service, such as basic demographic descriptors, purchasing habits, spending disposition, benefits sought, brand preferences, loyalty behavior, usage frequency, and any other information deemed relevant to the subject at hand.
The segment profile facilitates decision-making and provides the following benefits in particular:
- assists in identifying the most appealing company segments and provides quantitative information about segments for a more objective evaluation of segment attractiveness.
- allows the product or service offering to be tailored to different segments’ needs
- Provides fundamental data to aid in the proper allocation of the firm’s resources
- A detailed market analysis is performed after profiling all of the market segments formed during the segmentation process to identify one or more segments worthy of further investigation. At this point, additional research may be conducted to determine which segments require detailed analysis and have the potential to become target segments.
A key factor in determining target markets is whether customer needs differ sufficiently to warrant segmentation and targeting. If customer needs across the entire market are relatively similar, the company may choose an undifferentiated approach. When customer needs differ across segments, however, a differentiated (i.e. targeted) approach is required. In some cases, the segmentation analysis may reveal that none of the segments present genuine opportunities, in which case the firm may decide not to enter the market.
When a marketer enters more than one market, the segments are frequently referred to as the primary and secondary target markets. The primary market is the target market chosen as the primary focus of marketing activities, and it receives the majority of the firm’s resources. The secondary target market is likely to be a smaller segment than the primary market but with potential for growth. Alternatively, the secondary target group could be a small number of purchasers who account for a relatively high proportion of sales volume, possibly due to purchase value, frequency of purchase, or loyalty.
Three key considerations must be made when evaluating markets:
- Segment size and growth
- Segment structural attractiveness
- Compatibility with company objectives and resources.
These considerations, however, are somewhat subjective and necessitate high levels of managerial judgment. As a result, analysts have shifted their focus to more objective measures of segment attractiveness. Historically, a variety of methods have been used to select target markets. These include:
Distance Criterion: The business attempts to define the primary geographic catchment area for the business using this approach by identifying people who live within a predetermined distance of the business. For a retailer or service provider, the distance may be as little as 5 kilometers; for domestic tourist destinations, the distance may be as much as 300 kilometers. This method is widely used in retail.
Sales Criteria: The company uses this method to allocate resources to target markets based on historical sales patterns. This method is especially helpful when combined with sales conversion rates. This method is commonly used in retail. The method’s disadvantage is that it assumes past sales will remain constant and does not account for incremental market potential.
Interest Survey Methods: This method is used to find new business opportunities. Primary research, typically in the form of surveys, identifies people who have not purchased a product or service but have positive attitudes and a strong desire to do so in the near future. Even when syndicated research is used, this method overcomes some of the disadvantages of other methods.
Chain ratio and indexing methods: This technique is used in the marketing of branded goods as well as retail. It entails ranking different market segments based on current indices. The Category Index and Brand Index are popular indices. The Category Index measures overall patterns within a product category, whereas the Brand Index calculates the performance of a specific brand within the category. A measure of market potential can be obtained by dividing the Category Index by the Brand Index.
International Segmentation and Targeting
International market segmentation and targeting are critical success factors in international expansion. The diversity of foreign markets in terms of market attractiveness and risk profile, on the other hand, complicates the process of deciding which markets to enter and which consumers to target. Decisions about targeting in international markets are more complicated.
According to a well-established body of literature on International Market Segmentation (IMS), international segmentation and targeting decisions are made in two stages:
- Macro-segmentation (assesses countries for market attractiveness, i.e. market size, market potential)
- Micro-segmentation (i.e. consumer-level based on personal values and social values)
The first stage of analysis focuses on gathering comparative information about various countries in order to identify the most valuable markets to enter. This is made easier by the relatively wide availability of data for macro-variables. Most government agencies collect data for business censuses as well as a wide range of economic and social indicators that can be used to assess the attractiveness of various destinations.
Positioning is the final step in the S-T-P (Segmentation Targeting Positioning) planning approach. Positioning decisions are made about how to present the offer in a way that resonates with the target market. The marketer will have gained insights into what motivates consumers to purchase a product or brand as a result of the research and analysis conducted during the segmentation and targeting process. These insights can be used to help shape the positioning strategy.
Firms usually create a detailed positioning statement that includes the target market definition, market need, product name and category, key benefits delivered, and the basis for the product’s differentiation from any competing alternatives. The primary means by which businesses communicate their positioning statement to target audiences is through their communications strategy.
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