Through environmental analysis and evaluation of business opportunities, the marketing manager will be able to identify his organization’s market segment opportunities. These alternatives need to be evaluated to take a decision on whether to enter into one market segment or a number of strategically significant segments for launching the marketing program.
In this stage, the marketing manager evaluates different market opportunities and decides how many and which ones to target. This method is called market targeting.
Table of Contents
- 1 Target Markets
- 2 Selecting Target Markets
- 3 Target Marketing Strategies
A target market is defined as a set of buyers sharing common needs or characteristics that the company decides to serve. It is very important to select the target market, which the company decides to serve because knowledge about how the consumers decide, what are the criteria for buying products, and what the characteristics and lifestyles of the targeted customers help marketers to develop a suitable marketing strategy.
Furthermore, every marketing program involves a certain level of marketing expenditure and the return on a marketing program can be calculated if the marketer is able to know to which target market the marketing program is aimed. It is a common observation that a large part of marketing expenditure is a waste of company resources as it is spent on buyers with lesser or no potential.
An understanding of the nature and characteristics of the target market helps the marketing planner to drive higher returns on marketing investments. Knowledge of the target market characteristics.
Its growth and changes in the attitude of consumers in the target market will help the planner to modify and design new marketing programs suited to changing needs of customers and which will in turn help in the long-term success of the organization.
Hence, understanding of target market and measuring the attractiveness of each target market is a key decision in marketing.
The firm needs to identify the target markets and then evaluate the potential of each of these markets in order to prioritize its resource investment intent. The marketing manager should look at five factors for evaluating each segment. They are segment size and worthiness, segment measurability, segment attractiveness, and accessibility of the segment.
These should match the available company resources and long-term goals of the organization. The company should first collect and analyze data on the size of the current segment, and growth rates in the past and estimate the likely rate of growth by analyzing various market indicators for both the short-term and long-term future.
This will help in estimating the expected profitability of each alternative segment. One of the best ways to calculate profitability is by estimating response elasticity.
Response elasticity is calculated by taking into consideration, past marketing expenditures as an independent variable and the returns from the said marketing program in different periods of time as the dependent variable.
We can develop a graph to explain response elasticity, where responses (sales) are on the Y-axis and the corresponding marketing expenditures are presented on the X-axis. This graph is a sufficient indicator of the profit growth potential in each of the segments.
From the Figure, it is evident that in Segment A, the company achieves sales of Y1 and Y2 at different points of time by spending X1 and X2 amounts in the form of marketing expenditure. Now the response elasticity can be calculated as:
[(Y2 – Y1)/Y1]/[(X2 – X1)/X1]= Ra
Similarly, we can calculate response elasticity for segment B and segment C with the same marketing expenditure (X1 and X2) and can take a decision on which market to enter. From the above graph, it is evident that Segment A is highly profitable compared to segment B and B is comparatively profitable compared to segment C.
This is purely based on the evaluation of incremental return from each of the market segments by estimating the response elasticity.
The myth of marketing says that both the fastest growing and the biggest market may not remain the same for a long period of time. Hence, future profitability will slow down, as more competitors will enter the business, looking at the marketing profits enjoyed by the most profitable firm.
So a marketer should be careful about such a phenomenon in the market and instead look for future, long-term profit potential than current short-term returns as a criterion for deciding on which market to enter.
The identified target segments should also be measurable for their size and composition. You cannot really manage something, which is not possible to measure.
The target segment should be accessible to the marketer so that he can develop a distribution network and use available media to reach potential customers. There is a possibility that there exists an attractive segment but the cost of reaching and serving the target segment is higher compared to segments with moderate potential.
Let us take an example of the Indian rural market where the growth potential and demand for many fast-moving consumer goods are very high but the cost to serve these markets is also very high which prevents many marketers from venturing into this market. The marketing manager should also evaluate the resources available for market coverage.
If the company lacks adequate skill and necessary resources, then it should target geographically concentrated markets and markets with a higher density of potential customers. Most niche marketers target geographically concentrated markets.
Selecting Target Markets
The selection of target markets helps the marketer to correctly identify the markets and the group of target customers for whom the products/ services are produced. In these days, market targeting is used for all types of markets including developing and emerging markets.
It helps in subdividing the market into many segments and then deciding to offer a suitable marketing offer to some selected segments. Market targeting is the act of evaluating and comparing the identified groups and then selecting one or more of them as the prospects with the highest potential.
A marketing program is developed which will provide the organization with the best return on sales, by correspondingly delivering the maximum value to customers. After analyzing different segments, the marketing manager must select one or many segments to serve. The firm can select one or more patterns from the following patterns.
From Figure 8.4 it is evident that a product can be targeted for a single segment through a single-segment concentration strategy. The company can also decide to select a few products and target each of these product alternatives for specific market segments.
An explanation of each type of market segmentation is given below:
One of the options available to the company is selecting the target market. Under this strategy, the company concentrates only on one segment with a specific marketing mix. From this strategy, the company gains strong knowledge of the segment’s needs and achieves a strong market presence.
The firm selects a number of segments, each objectively attractive and appropriate. This multi-segment coverage strategy has the advantage of diversifying the firm’s risk.
As per this approach, marketers specialize in making a certain product for several segments. A product specialization strategy allows a company to focus on its reputation for quality in brand development.
The firm concentrates on serving many needs of a particular customer group. Here, all products are designed to cater to only one segment of the market only.
Full Market Coverage
A firm attempts to serve all customer groups with all of the products they might need. Only very large firms can undertake a full market coverage strategy.
This is mainly done by big companies with superior distribution system which has the capability to reach all the customers in the market.
More examples of marketers who are dealing in specific segment strategies are given below:
|Single Segment Concentration||Woodland Shoes|
|Selective Specialisation||DENTA Cream Tooth Power (Dabur)|
|Market Specialisation||Sultan Chand & Sons (Books|
covering all types of student needs,
schools, colleges & institutes)
|Product Specialisation||Mahindra & Mahindra Jeeps|
|Full Coverage||Pepsi, Titan, Bata|
Market segmentation helps marketing managers to understand consumer needs and behavior better so that a marketer can plan accordingly. Market segmentation helps in paying proper attention to the requirements of each market segment.
It also helps select channels of distribution and in understanding the competition. Segmentation helps in the effective use of resources and proper utilization of advertising and other promotion strategies for targeting selected markets.
Target Marketing Strategies
The targeting strategy largely depends on the kind of product market coverage that the firm plans for the future. The resources, capabilities, and intent of the respective firms also influence product market coverage decisions.
A firm may decide to enter into all the available market segments if it has adequate resources and marketing muscle power. In the case of a small or niche marketer, the firm may decide instead to concentrate on fewer markets to suit its capabilities.
Many marketers with surplus resources may alternatively decide in favor of entering into different segments at the same time, with differentiated product offerings. The product market coverage strategies are broadly classified as Undifferentiated Marketing, Concentrated Marketing, and Differentiated Marketing Strategies.
Undifferentiated Marketing Strategy or Mass Marketing Strategy
In the absence of a proper mechanism to classify the market into a number of market segments and analyze their potential, many firms decide on a mass marketing strategy. In this case, the marketer goes against the idea of a differentiated market and instead decides to sell the product to the whole market.
Here the marketing manager ignores the idea of segment characteristics and differences and develops a unified marketing program for the entire market. This strategy keeps the overall marketing costs low and makes it easier to manage and track the market forces uniformly.
The marketer tries to find out commonalities across various segments rather than focusing on the differences among segments. The marketing planner designs the marketing program in such a way that it will appeal to the largest number of buyers with a mass distribution and mass advertising program.
The problem with this strategy lies in finding a common product-marketing program catering to a large number of customers with different characteristics and interests.
Here the marketer finds it difficult to fight with focused players in the business. Marketers in commodity business often follow such a strategy, as there are not any significant differences between various brands available in the market.
Marketers in essential product markets like rice, and kerosene often follow an undifferentiated marketing strategy. Marketers entering into the market at a very late and mature stage of the product life cycle follow undifferentiated marketing strategies.
Concentrated Marketing Strategy
In the second alternative strategy, the marketing manager decides to enter into a select market segment instead of all of the available market segments. When resources, as well as market access, are limited and the company has to face intense competition, the marketing manager has to stretch the budget for market coverage. In this case, the company is likely to follow a concentrated marketing strategy.
The marketing manager decides to cover a large niche rather than fighting for a small share in a large market. It is an excellent strategy for small manufacturers that can serve the segments closely and cater to the emerging needs of closed-loop customers.
This strategy helps them gather market share in small markets against strong and large competitors. Through concentrated marketing firms can achieve strong market positions in the segments or niches they serve because of the greater knowledge of the target customers and the special reputation they acquire.
AV Thomas is a regional tea brand with a very strong South Indian presence that helped them to go for a national launch in subsequent periods. The same happened with the Jyothi laboratories brand of Ujala, which was sold in South India before it had a successful national launch.
The firms can enjoy operating economies because of the specialization in production, distribution, and promotion, which aid in giving a higher return on marketing investments. Concentrated marketing strategy has its own share of problems too.
Looking at the profit potential, large competitors may decide to enter this market, which may ultimately lead to takeover bids, mergers, and acquisitions by large players in the same business.
Differentiated Marketing Strategy
Many marketers chose to target several segments or niches with a differentiated marketing offer to suit each market segment. Maruti is the leading automobile company, which has the distinction of having products for different market segments. Maruti 800 is sold to the upcoming middle class.
Baleno and Swift are targeted at the upper rich class people and Maruti Omni is targeted at large families and taxi operators. The main objective of offering differentiated marketing offer is to cater to different segments and get higher sales with a dominant position in each of the segments.
Developing a stronger position within each segment leads to higher sales than sales from a mass marketing strategy aiming at all the market segments with the same product.
The risk involved in this kind of marketing strategy is in the form of extra costs in marketing research, product development, different forecasting models, varied sales analysis, and promotion planning and channel management. T
rying to reach different market segments with different promotion plans involve a higher promotion budget. The marketing manager needs to decide between higher marketing costs versus greater sales due to a differentiated marketing strategy.
The market coverage strategy depends on the company’s available resources and the firm’s ability to cater to the target market. The best strategy depends on product variability. Undifferentiated marketing best suits uniform products and commodities like petrol, steel, and sugar.
The product’s life cycle is another important factor taken into consideration while selecting a market coverage strategy. At the introductory stage of a product, the company will prefer a single product in an undifferentiated market or concentrated market.
In the maturity stage of the product life cycle, the same company may follow a differentiated marketing strategy. If all the customers have uniform tastes, buy the same amount, and respond to a marketing program in the same way then market variability is at a minimum and an undifferentiated marketing strategy becomes most suitable.
The marketing manager should look at the competitor’s marketing strategy. If the competitor is following a differentiated target marketing strategy with a specific offer for distinct segments then an undifferentiated marketing strategy will be fatal to follow in the market but vice versa is a suitable strategy for many marketers.