4. Target Marketing
What is Target Marketing?
As we have seen, research into buyer behaviour can help us to understand what
motivates customers to seek out a particular product or service, how he or she
decides which product or service to purchase, and what factors (many of them
under our control as marketers) may influence the buying decision. However,
few organisations can afford the luxury of applying marketing actions to each
customer individually. At the same time, though, it makes no strategic sense to
attempt to focus marketing actions on the entire potential market for product or
service. We therefore need some means of categorising those customers who will
become the focus of our marketing efforts.
Target Marketing is “the process of identifying market segments, selecting one
or more of them, and developing a marketing strategy to meet their needs” (Hill
& O’Sullivan, 1999). Consider your immediate friends and family for a moment.
Do you all buy exactly the same products? Or, do your own specific requirements
(and therefore purchases) differ from theirs in some way? Chances are, the
answer is the latter. No matter how much you have in common with even your
closest family members, you probably have quite different tastes in everything
from clothes and cars to holidays and fast food. Target marketing recognises
these differences. It seeks to identify particular sub-sets of customers in the total
market for a product or service (market segmentation), focus marketing activities
on a potentially profitable sub-set (market targeting), and develop a defendable
market presence (market positioning). We can therefore express the three
components of target marketing as follows:Target Marketing = market segmentation + market targeting + market
positioning
Most markets are made up of a number of segments of potential customers with
common characteristics and demand patterns. Target marketing is simply the
realisation by firms that they cannot hope to sell to every conceivable segment of
the market for their product/service profitably, so they must target their
marketing strategies on the most lucrative.
Market Segmentation
A market segment, then, is simply a distinct sub-set of customers in the total
market for a product, sharing very similar patterns of demand. But, how do we
arrive at these segments?
One of the first questions to ask concerns the number of bases to use. One
option would be to use a single base. For example, we might decide to segment
the market for a new personal computer on the basis of age groups. We could
then target our marketing activities on the particular group or groups our
consumer research has suggested may be most likely to buy a PC.
Of course, any particular age group will probably contain people who are very
different, so age alone may be a poor predictor of the likelihood to purchase a PC.
We therefore may decide to combine age with, say, income level and education to
form a multiple base segment using the three variables. This would allow us to
target a group of potential customers who are more likely to buy a PC because of
their age, income and level of education combined.
In an increasingly competitive environment, with ever more sophisticated and
diverse customers, multiple base segmentation has become the norm, often
involving incredibly large numbers of segmentation variables in order to optimise
the profitability potential of the resulting clusters. Sadly, however, there is no
single list of variables to use as our bases for every segmentation. Indeed, the
whole point of the proceeding marketing research is to serve as a guide as to the
most appropriate variables to use. We can, though, base the segmentation upon
particular types of variable, modifying the actual list of variables used with the
particular task in hand. In this session, we will consider the two main forms of
segmentation variable only.
Geodemographic Segmentation
One of the simplest techniques involves geographical segmentation. We may
choose areas in which to sell a new food product on the basis of regional
preferences, for example, or decide to avoid exporting beer to a country where
alcohol is prohibited. Spatial units such as these can be very easy to determine.
However, their suitability as the sole basis for market segmentation is likely to be
extremely rare.
Demographic segmentation, logically enough, is made on the basis of standard
demographic variables; i.e. age, sex, income, education, social status, family lifecycle stage, etc. This is one of the most commonly used segmentation bases,
useful for a variety of applications: e.g. targeting different models of car to
customers with different size families; marketing particular types of holiday to
specific age and income brackets; etc.
In reality, of course, many demographic variables have spatial characteristics.
For instance, low income families are often clustered in particular geographical
locations. Geodemographic segmentation thus seeks to combine the two,
identifying spatial clusters of potential customers who satisfy specified
demographic criteria. For example, a low-cost grocery retailer may choose to
locate a new store in an area where there is a cluster of high unemployment
and/or low income families.
There are many tools available for geodemographic profiling. For instance, the
ACORN system is A Classification Of Residential Neighbourhoods on the basis of
property type and householder type in census enumeration districts. In the UK,
there are some eleven different ACORN groups, which can be further sub-divided
into thirty-six ACORN neighbourhood types on the basis of factors such as
dominant landlord type, number of manual workers and level of immigration.
Essentially, the ACORN system is based on the idea that the type of area and
housing you live in is a fairly good predictor of the type of products and brands
you will buy.
Geodemographic segmentation has a variety of uses, ranging from retail store
location decision making to mailing list compilation and local advertising.
However, there are a number of problems also. In particular, whilst some
correlates are undeniable (e.g. most razor blades are bought by men), research
suggests that the vast majority of standard demographic variables are poor
predictors of purchasing patterns (Bieda & Kassarjian, 1969).
Many have
decreased in their predictive power over the years, in line with eroding
differentials in areas such as access to higher education and mean national
income. It is therefore advisable to, where possible, select variables which are
less susceptible to change over time.
Moreover, research suggests that
geodemographic segmentation is suitable mainly for very broad product-class
predictions only; e.g. houses, cars, etc.
Psychographic and Lifestyle Segmentation
The term psychographic literally means measurement (graphic) of the mind
(psycho-). Rather than relying on geodemographic variables, psychographic
segmentation classifies groups of potential customers on the basis of the ways
people think. For example, certain brand characteristics can appeal to particular
personality types, hence the number of germ-killing products advertised by
white-coated scientists in order to appeal to anxious or obsessive individuals!
Increasingly, psychometric factors such as personality are being augmented with
lifestyle characteristics also, incorporating variables which measure the way
people live their lives.
As an example of psychographic and lifestyle segmentation, Plummer (1974)
supplemented geodemographic measures with indices of Activities, Interests and
Opinions to develop the AIO system, profiling consumers on the basis of where
they live, how they live and what they aspire to. Similarly, the Stanford Research
Institute’s VALS system (Values And LifeStyles) postulates eight categories of
consumer, such as the “achiever”, who is career and work oriented and favours
prestige products, and the older “struggler”, who is more cautious, restrained and
brand-loyal.
Geodemographic, psychographic and lifestyle combinations such as these can be
extremely useful, though they suffer from the fundamental assumption that
particular factors are associative. For example, if older customers appear more
likely to purchase a particular type of shoe, does this necessarily mean that shoepurchasing behaviour changes as a function of age? It may just be a coincidence
or a fashion. Remember, a correlation does not necessarily indicate cause and
effect.
In order to address the problems of making such inferences, many marketers
now believe we should be developing better behavioural segmentation bases,
classifying consumers according to actual purchasing behaviour. For instance, we
might develop segments on the basis of purchasing occasions (e.g. ties
purchased for clubs, for work, etc.) or benefits sought (e.g. for economy, for
necessity, for status, etc.).
Market Targeting
Whenever a market segment is identified, the task facing the firm is to evaluate
its attractiveness as a viable sector of the market to target. Kotler (1997) notes
that, in general, firms use three main criteria in order to determine this.
Segment size and growth: Although larger segments are by no means always
the most attractive (particularly to a small company), any evaluation of a
segment must nevertheless begin with an assessment of both its current size and
its potential for future growth. The most attractive segments do not necessarily
represent those with the highest potential future growth rates. It is the potential
to the firm which is the crucial thing and it may well be that segments in decline
may prove a short-term option for the company because of lower levels of
competition. For example, in the automotive industry, many small firms do
excellent business by supplying parts for classic cars.
Segment structural attractiveness: Some segments are characterised by
intense and frequent rivalry, perhaps due to either high growth and high profit or
to decline and over-capacity. Clearly, a more competitive segment may prove
less attractive, particularly to the new market entrant. The environment in which
the firm will have to operate if it targets this segment will thus be an important
consideration (Five Forces Analysis!).
Company objectives and resources: The final element of segment evaluation
focuses on the company’s own long-term objectives, strategic plans, resources
and skills. If the segment does not match the company’s long-term strategy, or
cannot viably be targeted with existing or potential resources and skills, it should
be avoided.
Once a segment has been identified and judged to have satisfied the above
criteria, the company can begin to select a targeting strategy. One possible
strategy is that of undifferentiated marketing which, in fact, is an option which
ignores segmentation completely and goes for a “one size fits all”. A classic
example here is, once again, the Model T Ford. Henry Ford recognised the
potential of a huge gap in the market with no competition and relied upon mass
production, economies of scale and mass advertising to reach as many customers
as possible. Of course, in an increasingly competitive business environment,
opportunities such as this are few and far between.
In contrast to the undifferentiated approach, a differentiated marketing would
select two or more particular segments and develop separate marketing
programmes for each. This can be a costly approach to adopt, given that each
segment must be specifically catered for. Such a strategy will therefore only
prove viable where the company is sure that its sales and market share will
increase overall.
Finally, the firm may simply decide to engage in concentrated marketing,
focusing all efforts upon a single segment only. This has a distinct advantage in
that it yields economies of scale in both production and marketing, whilst at the
same time enabling the needs of the target group to be effectively met. Of
course, it is also an extremely risky strategy, leaving the company vulnerable
should anything threaten or destroy its selected segment.
Developing Positioning Strategies
For each segment a company elects to operate in, it must develop a clear
positioning strategy. This ensures that the market offering in each segment
occupies a predetermined place relative to competitors.
All products or brands have both objective and subjective attributes, which they
possess to varying degrees.
Objective attributes might include product
characteristics such as size weight or strength. Subjective attributes include
less quantifiable and customer-bound characteristics, such as value for money,
reliability and fashionability. When choosing between brand options in a given
segment, the customer will use both forms of attributes and will have his or her
own particular views on how the various competitive offerings rate.
Again, we fall back upon marketing research into buyer behaviour. The firm must
have knowledge of how important the customer perceives particular attributes to
be.
This allows the company to target a particular position relative to
competitors.
As an example, let’s suppose we have developed a new MBA programme and we
have three main competitors in the North East. We need to know what potential
students consider to be the salient attributes of our competitor’s offerings and the
perceived position of our competitors with respect to these attributes. Our
market research might lead us to believe that course fees and FT rankings are the
main dimensions considered during decision making. Competitor A may have a
high fee and a high ranking. Competitor B may have a low ranking and a high
fee. Competitor C may have a low fee and an above average ranking. If we were
to draw this schematically, the result might be something like this:-
FT ranking
(high)
Competitor A
Competitor C
Low fee
High fee
Competitor B
FT ranking
(low)
In the above positioning map, we can see the market locations of our three
competitors relative to the two dimensions hypothesised. As you can see by the
shaded circles, there are two possible positions where we might locate our new
MBA course to make it distinctive from our competitors. One option is to quickly
produce a low cost, low quality MBA course. The alternative is to go for the
medium price, medium quality option.
Both would give us a degree of
distinctiveness, without the need to position ourselves right next to another
university and have to fight intensively for market share.
To summarise, target marketing seeks to identify particular sub-units of the
overall market for a product or service, select a segment to form the focus of
marketing activities, and develop a positioning strategy for a firm’s product or
service relative to competitors. Once this process has been accomplished,
however, the marketing process is really only just beginning and there are
important decisions still to be taken in respect of subsequent marketing actions.
CASE STUDY – Independent Insurance
The case study for this lecture, “Targeting Sponsorship within a Specialist Niche
Market”, explores how the financial services company Independent Insurance
forged a strategic alliance with the Grosvenor House Art and Antiques Fair as a
way of establishing its brand name among high value home owners; a strategy
combining both target marketing and marketing communications. The study
poses five initial questions to assist in your analysis:1. Describe the role of an insurance broker.
2. What is a niche market? Explain why strategies for niche markets are
different from those used to target larger markets.
3. Describe the benefits that Independent Insurance gains from sponsorship.
4. Using an example, explain why Independent Insurance needs to measure
the success of its sponsorship.
5. Sponsorship is a key method of reaching customers within a niche market.
Evaluate how you could integrate this process of sponsorship with other
marketing activities.
A few further points to think about…

Using Five Forces Analysis, how would you describe the market
Independent Insurance was operating in which led it to seek a strategic
alliance?

What type of segmentation technique could Independent Insurance have
used to identify its target cluster?

Meeting customers at the Fair was a new experience for Independent
Insurance, a company which doesn’t deal direct with the public. Was this
just a “sales pitch”, or was it part of a broader strategy? If so, what
strategy and what were the other components?