Target Market Selection and Segmentation

A target market is a group of persons for whom a firm develops and maintains a marketing mix suitable for the specific needs and preferences of that group. In selecting a target market, marketing managers examine potential markets for their possible effects on the firm's sales, costs, and profits. The managers attempt to determine whether the organization has the resources to produce a marketing mix that meets the needs of a particular target market and whether satisfying those needs is consistent with the firm's overall objectives. They also analyze the strength and number of competitors already selling in a potential target market. Marketing managers generally take either the total market approach or the market segmentation approach in choosing a target market.

Total Market Approach When a company designs a single marketing mix and directs it at the entire market for a particular product, it is using a total market approach. This approach, also known as an undifferentiated approach, assumes that individual customers in the target market for a specific kind of product have similar needs and, therefore, that the organization can satisfy most customers with a single marketing mix. This single marketing mix consists of one type of product with little or no variation, one price, one promotional program aimed at everyone, and one distribution system to reach all customers in the total market. Products that can be marketed successfully with the total market approach include staple food items such as sugar and salt, and certain kinds of farm produce. A total market approach is useful only in a limited number of situations because for most product categories, buyers have different needs. When customers' needs vary, the market segmentation approach should be used

Market Segmentation Approach Theearly man who had a cow that he didn’t need would have had to keep the cow through her old age and death if he had been unable tofind someone else who wanted the cow. He had to identify his market target. That is, from among all the people he knew, he had to find out first which of them wanted a cow. But it is not the same to want something and to be able to exchange for it or buy it. He also had to select his market target, to choose his most likely customers. Then he had to plan and follow his marketing strategy according to the nature of his best potential market. The process now is called market segmentation. It recognizes that not everyone needs a certain product, and that a product cannot be expected to appeal to everyone. The marketing strategy is more efficient if it is aimed at those people the company can reasonably expect to serve. A firm that is marketing 40-foot yachts would not direct its marketing effort toward every person in the total boat market. Some might want a kayak or a canoe. Others might want a speedboat or an outboard-powered fishing boat. Still others might be looking for something resembling a small ocean liner. Any marketing effort directed toward such people would be wasted.

Instead the firm would direct its attention toward a particular portion, or segment, of the total market for boats. A market segment is a group of individuals or organizations, within a market, that share one or more common characteristics. The process of dividing a market into segments is called market segmentation. Marketers make use of a wide variety of segmentation bases. Planning a segmentation strategy involves four steps. The first is to determine the market segments. Second is to select the appropriate segment as a target market for the prduct. Third is to develop procedures to serve the selected the segment; and fourth, the program is carried out, consistently evaluated, and revised if necessary. One method of determining market segments is to use demographic data. These are physical attributes of a population. Different groups within a population have different characteristics.

1. Population. How many people are there all together?

2. Population growth. What is the rate of population growth? How many people will there be in ten, twenty, or thirty years?

3. Population density. In what areas is the population concentrated. How densely?

4. Mobility. Is the population shifting to or from cities, suburbs, and country?

5. Per capita income. What is the average personal income?

6. Spending patterns. Which group has most often bought which products?

7. Employment. What proportions of the population are working in what occupations?

8. Education. What proportion has had how much schooling?

9. Home ownership. How many people own their own homes? How many rent? How many live in rooms and apartments?

10. Age. What proportion of the population falls within each group? What are the buying patterns of each group? (See the table below)

11. Ethnic origin.

 

Family Life Cycle This concept identifies potential customers by age, marital status and number and ages of children. 1. Bachelor stage: young, single individuals 2. Full nest: young married couples with children a. youngest child under six b. youngest child six or over c. older married couples with dependent children 3. Empty nest: older married couples with no children at home 4. Solitary survivors: older single or widowed people

 

From studying demographic data, the marketing manager might decide to aim his strategy toward a very specific target, or segment of the population: young mothers of children under six who live in or near the urban centers of the northeastern part of the country and whose families have annual income in the low-middle range. This is a strategy of concentration. market segmentation based upon demographic information is an effective compromise with that impossible ideal.

 

Creating a Marketing Mix

A business firm controls four important elements of marketing—elements that it must combine in such a way as to reach its target market. These are the product itself, the price of the product, the means chosen for its distribution, and the promotion of the product. When they are combined, these four elements form a marketing mix.

The firm can vary its marketing mix by changing any one or more of these ingredients. Thus a firm may use one marketing mix to reach one target market and a second, somewhat different marketing mix to reach another target market. For example, the Neiman Marcus Group's specialty retailing businesses—Neiman Marcus, Bergdorf Goodman, and Contempo Casuals—use one marketing mix for its most affluent and discriminating customers and another mix for younger, 17- to 24-year-old women who are interested in the most fashion-forward apparel available at moderate prices. Neiman Marcus and Bergdorf Goodman offer the highest possible levels of customer service to their most affluent customers, while moderate prices are emphasized at Contempo Casuals. Different products and prices immediately result in different marketing mixes.

The product ingredient of the marketing mix includes decisions about the design of the product, brand name, packaging, warranties, and the like. Thus, when McDonald's Corp. decides on brand names, package designs, sizes of orders, flavors of sauces, and recipes, these are all part of the product ingredient.

The pricing ingredient is concerned with both base prices and discounts of various kinds. Pricing decisions are intended to achieve particular goals, such as to maximize profit or even to make room for new models-The rebates offered by automobile manufacturers are a pricing strategy developed to boost low auto sales.

The distribution ingredient involves not only transportation and storage but also the selection of intermediaries. How many levels of intermediaries should be used in the distribution of a particular product. Should the product be distributed as widely as possible? Or should distribution be restricted to a few specialized outlets in each area.

The promotion ingredient focuses on providing information to target markets. The major forms of promotion include advertising, personal selling, sales promotion, and publicity.

The "ingredients" of the marketing mix are controllable elements. The firm can vary each of them to suit its organizational goals, marketing goals, and target markets. As we extend our discussion to the firm's overall marketing plan, we will see that the marketing environment also includes a number of uncontrollable elements.

Marketing Environment

The marketer makes decisions within the framework of that plan that explains how to market a product. His decisions depend upon many variables, of factors that are constantly changing. Some variables are internal. The marketer has some control over the variables that affect the product: its nature, promotion of it, and the path it will follow from producer to consumer, and its price. But when something is produced, it enters an existing external environment of law, economy and society or culture. Suppose a company has developed a new kind of light bulb, one that works better and lasts longer than any other. Laws might exist that regulate its packaging, labeling, distribution. There could be legal restrictions on safety, advertising, and price. Laws must discourage or encourage a competitive economy. Even if there are no legal limits, there may be too much competition from other producers of light bulbs. A company competes not only with other companies that make similar products, but with all other companies. The marketing mix consists of elements that the firm controls and uses to reach its target market. In addition, the firm has control over such organizational resources as finances and information. These resources, too, may be used to accomplish marketing goals. However, the firm's marketing activities are also affected by a number of external—and generally uncontrollable—forces.

Economic forces —the effects of economic conditions on customers'
ability and willingness to buy

Legal forces —the laws enacted either to protect consumers or to
preserve a competitive atmosphere in the marketplace

Societal forces —consumers' social and cultural values, the consumer
movement, and environmental concerns

Competitive forces —the actions of competitors, who are in the process
of implementing their own marketing plans

Political forces —government regulations and policies that affect marketing,
whether or not they are directed specifically at marketing

Technological forces —in particular, technological changes that can
cause a product (or an industry) to become obsolete almost overnight

These forces influence decisions about marketing-mix ingredients. Changes in the environment can have a major impact on existing marketing strategies. In addition, changes in environmental forces may lead to abrupt shifts in target-market needs. There are some questions to be answered before trying to enter a foreign market.