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MARKETING: Target Marketing and Segmentation
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altThe two extremes in marketing are either to market to the mass or to market to one individual. The first is called mass marketing and the firm basically decides to ignore market segment differences and go after the entire market with one offer, one message and one tactic. The latter is called one-to-one marketing or micro-marketing and is tailoring the marketing program according to individual customer needs and wants and so each offer and/or message is, to some extent, personalised. In between these two extremes – which are both widely used – we find a middle road called target marketing or differentiated marketing, which this article discusses. 

Target marketing

Target marketing involves breaking a market into segments then concentrating the marketing efforts on one or a few of these segments. This is also called target segments. A well-defined target market is often the first element of a marketing strategy. The beauty of target marketing is that it makes the product development, promotion, pricing and distribution (e.g. the entire marketing mix) easier and more cost-effective because it is focused towards one or several target segments.
Defining a target market requires market segmentation, which is the process of pulling apart the entire market as a whole and separating it into manageable, disparate units based on a chosen segmentation criteria. A market segment is a subgroup of people sharing one or more characteristics which cause them to have similar product needs.


Roughly speaking, the process of market segmentation includes three main activities: 
• Determining the characteristics of segments in the target market and then separating them based on their characteristics.
• Checking to see whether the market segments chosen are attractive enough to pursue.
• Once a target market is chosen, developing a strategy to target this market.

altAd. 1) Determining the segments

Market segmentation can be done in many ways. Four of the most common ways to segment a market are described here: 
Geographic segmentation: Market segmentation whereby the intended audience for a given product, is divided according to geographic units such as nations, states, regions, countries, cities or neighbourhoods. Zip codes, postal codes or area codes can also be used. The marketer will tailor marketing programs to fit the needs of individual geographic areas, localising the advertising, creating, products and / or sales efforts to insure that it appeals to the taste, needs and wants of a specific geographic market. 
Demographic segmentation: Market segmentation based on consumer statistics regarding socio-economic factors such as age, income, gender, occupation, education, family size and so on. Advertisers often define their target markets in terms of demographics. This is mainly because customer demands are closely linked to variables such as income and age, and also for practical reasons since there is often a lot of data available to help with the demographic segmentation approach.
Psychographic segmentation: Psychographics is the science of using psychology and demographics to better understand consumers. Market segmentation whereby the intended audience for a given product is divided according to attitudes, values, social class, personality, behavioural, lifestyle and sexuality. 
Behavioural segmentation: In behavioural segmentation, consumers are divided into groups according to their knowledge of, attitudes towards, degree of loyalty, use of or response to a product. This way of segmenting is based on the behaviour of the consumer.

Ad. 2) Checking the attractiveness of segments

An ideal market segment meets all of the following criteria:
• It is possible to measure it.
• It has to be large enough to be  profitable.
• It has to be stable enough that it does not vanish in the short term.
• It is possible to reach potential customers via the organisation's promotion and distribution channels.
• It is internally homogeneous (potential customers in the same segment prefer the same product qualities).
• It is externally heterogeneous (potential customers from different segments have different quality preferences).
• It responds similarly to a market stimulus.
• It can be cost-effectively reached by market intervention.
• It is useful in deciding the marketing mix.
It is very important that the potential segment has the right size and growth characteristics so that the future value of picking the potential segment is good. It is very important to access both the short and long term value of the segments being considered.
Furthermore, when accessing the attractiveness of a potential segment it is necessary to look at market threats as well, and not just at the isolated attractiveness of the given segment. One threat could be that intense segment rivalry, meaning a segment is unattractive if it already contains many strong or aggressive competitors targeting it. Also, a segment is unattractive if it is likely to attract new competitors who will bring in new capacity or substantial resources. This can be difficult to predict but sometimes it is possible to calculate this kind of risk. It is not just about competitor risk it is also about accessing the extent of buyers and suppliers' bargaining power. For example, a segment is unattractive if the buyers possess strong bargaining powers, if they are somehow organised, if the given product represents a significant fraction of the buyer’s cost, if the product is very undifferentiated, or finally, if buyers in the segment are highly price sensitive.  A segment is also unattractive if the company’s supplier of, for example, raw materials or equipment necessary to serve the segment is able to raise prices or reduce quality or quantity without much of a risk.

Ad. 3) Targeting of the segment

When targeting a segment it is all about analysing it, understanding the drivers and barriers, and based on that, choosing which segments to target and then responding with the appropriate marketing strategies and marketing mix (product, price, promotion and place). Revenues are very much in focus in this part of the process and also when targeting the segments identified by the company as their final prioritisation from all of the segments – very often based on a financial calculations.
Improved segmentation and targeting can lead to significantly improved marketing effectiveness with more value for money, better advertising results and more satisfied customers. 

altDigitalisation: a big advantage for target marketing

Digital media allows marketers to collect data on an individual level and, furthermore, in real time. Who is interacting with our company, how are they doing it, how often, at what time of day, what are they mainly searching for and how long do we interact before they place an order and so forth? This is very unique data to do segmentation upon and to use as useful consumer insights. Using real time data means that companies can act faster than in the offline world. This, however, requires some kind of web analysis skills and tools. More and more customers expect companies to respond immediately. 
Most online media is also so-called 'addressable media', which means that the company can specifically address and identify who is using the media. This will aid marketers in creating and refining targeted audience definitions. 
With digitalisation arose a new term called re-targeting. This is the practice of using targeted display ads and personalised email to re-engage visitors who left the company’s web site without converting into buyers. Re-targeting has emerged as an indispensable tool in the smart marketer’s online kit. Re-targeting is proving to be a high-performance and cost-effective solution that is generating impressive results in click-through rates, conversions and sales. 

Target marketing in China

As the interview with Carol Potter from BBDO in the August edition of Business Tianjin showed, doing good advertisement is all about consumer insights – everywhere in the world and also in China. The collection of consumer insights, at a sophisticated level, is still a big challenge in China and so segmentation can be difficult to conduct at a refined level, which will represent a risk for many companies operating in China. The better segmentation you have, the higher the likelihood of financial success is – if you are operating in a small scale market. However, more and more local and international companies are trying to seperate the massive Chinese market into segments. International companies such as McKinsey and Accenture are making great efforts to provide good segmentation on various topics and approaches in China. But no doubt about it, compared to more mature and simpler markets, not so much effort is given at the beginning with doing target marketing in China! A good idea is to start with simpler forms of segmentation, such as geographical or demographical - whereby more data is available, and then move into the more complex methods such as psychographic and behavioural segmentation.

By Heidi Skovhus 
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