Identification of Target Markets

Undifferentiated Targeting

Viewing the market as a homogeneous aggregate leads to undifferentiated targeting and mass marketing.

Learning Objectives

Evaluate the benefits and drawbacks of undifferentiated targeting in consumer marketing

Key Takeaways

Key Points

  • Undifferentiated targeting occurs when the marketer ignores the apparent segment differences that exist within the market and uses a marketing strategy that is intended to appeal to as many people as possible.
  • For certain types of widely consumed items (e.g., gasoline, soft drinks, white bread), the undifferentiated market approach makes the most sense.
  • The benefits to undifferentiated targeting include a wide audience, lower (relatively) research and marketing costs, and a higher potential for sales volume.

Key Terms

  • Mass Marketing: A market coverage strategy in which a firm decides to ignore market segment differences and appeal to the whole market with one offer or one strategy.

Undifferentiated targeting occurs when the marketer ignores the apparent segment differences that exist within the market and uses a marketing strategy that is intended to appeal to as many people as possible. In essence, the market is viewed as a homogeneous aggregate. Traditionally, undifferentiated marketing (also known as ” mass marketing “) has focused on radio, television, and newspapers as the medium used to reach this broad audience. By reaching the largest audience possible, exposure to the product is maximized. In theory, this would directly correlate with a larger number of sales or buy in to the product. It is the technique of trying to spread our marketing message to anyone and everyone who are willing to listen. A truckload of general advertising is done to the mass market in the hope that some of them will hit a target. It enables us to reach a wide range of services to take any job that comes on our way.

Products

For certain types of widely consumed items (e.g., gasoline, soft drinks, white bread), the undifferentiated market approach makes the most sense. For example, toothpaste (such as the brand Crest ) isn’t made specially for one consumer, and it is sold in huge quantities. A company or individual who manufactures toothpaste wishes to get more people to buy their particular brand over another. The goal is that when a consumer has the option to select a tube of toothpaste, he would remember the product that was marketed. Often, this type of general appeal is supported by positive, emotional settings, and a great many reinforcers at the point of purchase. Walk through any supermarket, and you will observe hundreds of food products that are perceived as nearly identical by the consumer and are treated as such by the producer, especially generic items. Many mass marketed items are considered staple items. These are items people are accustomed to buying new when their old ones wear out (or are used up).

Toothpaste being put on a toothbrush

Crest Toothpaste: Toothpaste is a widely consumed product. Toothpaste isn’t marketed to a particular market segment.

Identifying products that have a universal appeal is only one of many criteria to be met if an undifferentiated approach is to work. The number of consumers exhibiting a need for the identified product must be large enough to generate satisfactory profits. A product, such as milk, would probably have universal appeal and a large market, something like a set of dentures might not. However, adequate market size is not an absolute amount and must be evaluated for each product. Two other considerations are important: the per unit profit margin and the amount of competition. Bread has a very low profit margin and many competitors, thus requiring a very large customer base. A product such as men’s jockey shorts delivers a high profit but has few competitors. Success with an undifferentiated market approach is also contingent on the abilities of the marketer to correctly identify potential customers and design an effective and competitive strategy. Since the values, attitudes, and behaviors of people are constantly changing, it is crucial to monitor these changes.

Benefits

  • Wide audience: Since the target audience is broad, the number of successful hits is high despite of the low probability of a single person turning up.
  • Less risky: If all the efforts in one particular area goes in vain, still the eventual loss is less compared to a loss in the narrowly focused area.
  • Production cost per unit are low on account of having one production run for homogeneous product.
  • Marketing research cost and advertising cost are relatively low.
  • Higher potentials of sales volume and efficiency of scale in a much larger market.

Concentrated Targeting

Concentrated marketing is a strategy which targets very defined and specific segments of the consumer population.

Learning Objectives

Evaluate the advantages and disadvantages of adopting concentration strategies in consumer marketing

Key Takeaways

Key Points

  • An organization that adopts a concentration strategy gains an advantage by being able to analyze the needs and wants of only one segment and then focusing all its efforts on that segment.
  • Concentrated targeting is particularly effective for small companies with limited resources as it does not require the use of mass production, mass distribution, and mass advertising.
  • Since the company has focused all their efforts on one market (essentially putting all their eggs in one basket), the firm is at risk for failing if demand decreases.

Key Terms

  • market segment: Market segmentation is a marketing strategy that involves dividing a broad target market into subsets of consumers who have common needs and desires as well as common applications for the relevant goods and services.

An organization that adopts a concentration strategy chooses to focus its marketing efforts on only one very defined and specific market segment. Accordingly, only one marketing mix is developed. For example, the manufacturer of Rolex watches has chosen to concentrate on the luxury segment of the watch market.

An organization that adopts a concentration strategy gains an advantage by being able to analyze the needs and wants of only one segment and then focusing all its efforts on that segment. They can focus all of their efforts to satisfying the needs of one group and do it well. This can provide a differential advantage over other organizations that market to this segment but do not concentrate all their efforts on it. Concentrated targeting is particularly effective for small companies with limited resources as it does not require the use of mass production, mass distribution, and mass advertising. However, there is no increase in the total profits of the sales as it targets just one segment of the market.

a CVS Pharmacy

CVS : As a concentration strategy, CVS targets women because they make up 80% of the chain’s customer base.

The primary disadvantage of concentration strategy is related to the demand of the segment. As long as demand is strong, the organization’s financial position will be strong. If demand declines, the organization’s financial position will also decline. Since the company has focused all their efforts on one market (essentially putting all their eggs in one basket), the firm is at risk for failing. Moreover, if a firm has yet to establish its loyalty among customers, a small hit in population or consumer taste can greatly affect their position.

Measuring a Successful Segmentation

Segmentation is a central aspect of a marketing strategy, and must be constantly assessed, measured, validated, and refined through financial and statistical methods.

Learning Objectives

Recognize the variables involved in segmentation, and how different segments can be measured for profitability

Key Takeaways

Key Points

  • Selling to the entire market is often less efficient than identifying, filtering, and measuring the performance of various segments to find a preferred market segment, or target market.
  • Geographic, demographic, psychographic and behavioral factors are all valid and commonly used starting points for the division of a broader market into segments.
  • Once a segment is identified, organizations should consider the measurability, accessibility, sustainability, and actionability of that particular segment. This helps determine if the firm can maintain a strong position within the segment.
  • It is also useful to run iterative tests across other potential target markets as a benchmark, justifying (or not!) the decision to pursue a given segment.
  • From a practical point of view, all of this should allow the firm to determine if a given segment is profitable in the long term and optimal compared to other ways to segment the market.

Key Terms

  • segmentation: The process of identifying different consumer groups within a broader market, focusing on identifying the ideal segments for a marketing plan.

Segmentation

Strategically speaking, trying to sell to the entire market is often less efficient than identifying, filtering, and measuring the performance of various segments to find a preferred market segment, or target market. When pursuing the ideal target market(s), a key success factor is the ability to measure successful and unsuccessful segmentation attempts.

Measuring Market Segments

When measuring different market segments, there are countless variables organizations can consider when developing a marketing plan. Geographic, demographic, psychographic, and behavioral factors are all valid and common starting points for the division of a broader market into segments, based on variables like age, gender, buying behavior, culture, location, values, climate, spending power, marital status, profession, education, and religion.

Two tables that show market demographics. The first table shows market customers in three segments based on age. The second table shows market potential based on occupation (professional, semi-professional, trade, and unskilled).

Demographic Segmentation: When measuring market segments, variables can be utilized visually to identify specific target segments within a population.

By dividing the population based upon segments such as these, organizations can begin to consider how each variable impacts the likelihood of an initial purchase and/or repeat purchases over a given period of time. This allows the qualitative variables above to begin accumulating quantitative data points, which helps organizations look at trends in the past to predict or forecast future outcomes.

For example, a shoe manufacturer finds that the likelihood of turning an advertisement online into an online purchase is 50% higher with females between the ages of 18-30 than with males in the same age bracket. Similarly, the shoe manufacturer notices that specific cities with relatively mild climates convert 25% more often than cities with extreme climates. As a result, a segment is developed for young females in those cities. Instead of paying for advertising across an entire market, the organization can spend significantly less capital and procure a much better success rate on marketing efforts.

Determining Successful Segmentation

Once segments are identified, the organization should be investing enough into each segment to procure meaningful data on performance. As each segment is a small piece of a broader market, it’s useful to carefully consider if the organization is focusing on the ideal consumer group. There are four useful characteristics to consider when measuring segmentation:

  1. Measurability – First and foremost, the segment itself should be easily measured. This means that information is available on the overall market potential (size of the market), as well as the competitive position of the companies competing for market share.
  2. Accessibility – Firms must also be able to communicate directly with key consumers in order to understand their core segment and tell the brand story.
  3. Sustainability – Overall profitability must be proven in a given segment in order to successfully do business. Long-term potential sustainability can be measured based on past consumer behavior coupled with the organizational ability to produce products at the right price.
  4. Actionability – Finally, the firm should be able to produce a competitive advantage within this particular segment. There should be actionable opportunities for the organization to build a strong and differentiated position within the segment.

If each of these attributes are measurable, the firm can look at a few key statistics of the marketing plan to determine if a given segment is sustainable. Most notably, the organization should be able to generate a strong position within the segment, where the overall remaining profit after a sale exceeds the cost of production alongside the cost of the marketing expenses required to get the product in front of the target market.

The organization should also run careful, iterative tests across other potential target markets as a benchmark. This allows the organization to directly see the value of working with a given segment (compared to other potential segments).

A table that shows how a business plan integrates with the marketing strategy.

Marketing Strategy and Segmentation: A business plan integrates with the marketing strategy. The above table shows relevant metrics and considerations when identifying key segments.