Market Targeting and Market Segmentation

Market targeting is about selecting a feasible target market from all available markets/market segments. First, the company breaks down the market through market segmentation and then determines the targeted market segments to work on.

Not all segments deserve to be served. However, they must be large enough to operate profitably in the long run. In addition, the market has prospects for continued growth and has an attractive structure – associated with competition in the market.

Differences between market segments and target markets

A market segment is part of the market where customers share similarities, including their wants and needs. Therefore, customers within a segment are homogeneous. However, customers across segments are heterogeneous and respond to the marketing mix differently.

The company divides the market into different segments. They then select a particular segment to serve.

A target market is the market segment that the company is trying to serve. Consumers in the target market have effective demand. They have the desire to use the product and the ability to pay.

In addition, consumers in the target market are also legally permitted to purchase and use the product. Some products may not be sold to specific age groups. Thus, they are not a target for marketing. For example, retailers can only sell tobacco products to those aged 21 and over. Individuals under 21 may share the same characteristics and have the desire and ability to purchase but are not legally permitted to consume.

Mass market and niche market

A mass market is a market with many consumers and with homogeneous consumer needs and tastes. In other words, all consumers are considered a single market, and their size is significant. Therefore, they are perceived as needing the product and responding to the marketing mix similarly.

Mass marketing requires companies to produce on a large scale. In addition, they also have to develop mass channels to reach as many consumers as possible, including related promotions and distribution channels.

Mass marketing has several advantages, including:

• Significant market size
• Allows to operate on a large scale
• High economies of scale
• Homogeneous tastes, making companies spend less on research and development

However, mass marketing also comes with limitations, including:

• Impossible direct marketing
• More competition because many players operate
• Margins may be low because the company sells at around the average market price
• High price competition can lead to price wars

A niche market is narrower, with more specific consumer needs than the main market. Niche marketing requires market segmentation to determine the most worthy of serving. Examples are the market for organic food and the market for celebrity clothing.

Niche marketing has several advantages, including:

• Little competition, as big players tend to be reluctant to serve
• Allows small businesses to avoid competition from larger companies
• Can focus on the customers’ unique needs and requirements 
• Allows direct marketing and, therefore, closer contact with customers

However, niche marketing also comes with limitations, such as:

• Small market size
• Low economies of scale
• Little profit potential
• Only suitable for small businesses
• Not ideal for businesses with many products

Market targeting benefits

Target marketing requires companies to develop market research to explore the consumers’ needs and wants in the target market. Then, they use the output to create an effective marketing mix and adapt it from time to time. For example, they modify product features to meet changes in consumer requirements.

Target marketing allows for greater customer satisfaction. This is because companies adjust their marketing mix accordingly. Finally, higher satisfaction leads to more sales.

In addition, market targeting allows companies to focus more on making marketing decisions. For example, they can also allocate resources and efforts more appropriately, preventing them from being wasted on ineffective marketing.

Market segmentation

Market segmentation divides the market into subgroups (segments) based on defined attributes. Consumers within a segment are homogeneous. They share similarities in identity, needs, and preferences. Moreover, they similarly respond to the marketing mix.

However, consumers in different segments are heterogeneous. Therefore, they need a different marketing mix to be successful.

Market segmentation allows companies to focus resources, efforts, and marketing strategies on the right consumer groups. It aims to facilitate companies in developing an effective marketing mix. They can tailor their products and marketing mix to the right consumer groups. Thus, there is a higher chance the marketing will be successful.

After obtaining several potential segments, the company selects the targeted market segments, creates customer profiles, and develops the appropriate marketing mix.

• A consumer profile is an information about consumers in the market. It describes consumers, including demographics, geography, psychographics, and behavior. Companies create consumer profiles to understand consumer details for marketing and research purposes.

Types of market segmentation

There are several alternatives to segment the market. The four typical types are:

• Demographic segmentation
• Psychographic segmentation
• Geographic segmentation
• Behavioral segmentation

Demographic segmentation is based on population structure or composition. It’s possible using variables like:

• Age
• Gender
• Marital status
• Income group
• Religion
• Ethnicity and race
• Social class
• Education
• Profession

Psychographic segmentation based on psychological characteristics and traits such as:

Mark

• Hobby
• Interest
• Attitude and belief
• Personality
• Lifestyle choices

Geographic segmentation based on variables where consumers are located, possibly related to their geographic location and environment, such as:

• Urban vs. rural
• Highlands vs. low
• Tropical vs. four season

Consumers in different locations require different goods and services. For example, air conditioners are popular in tropical countries with hot weather. On the other hand, in snowy areas, a heating machine is more necessary.

Behavioral segmentation is based on the buying behavior they exhibit. Therefore, they may be grouped by:

• Usage volume
• Brand loyalty
• Price sensitivity

Eligible market segment criteria

Even if consumers within a segment are similar, they may not be viable targets. There are several critical criteria for selecting a viable segment to serve, including:

• Distinguishable. Consumers are unique in their responses to different marketing mix elements. Thus, consumers within the segment will respond similarly. However, consumers are heterogeneous across segments.
• Actionable. Market segments are reasonable, legally permitted, and worthwhile to serve. For example, cigarettes and alcoholic beverages are only allowed by law to be marketed to a certain age.
• Measurable. There is detailed information about market and consumer characteristics, such as market size and consumer purchasing power. This information is also easy to find.
• Accessible. Market segments can be reached cost-effectively. For example, selling products to consumers in remote areas may not be commercially viable.
• Substantial. The segments are large enough to generate profits in the long term. It allows companies to lower costs through economies of scale.
• Prospective. The market segment continues to grow and has yet to reach a mature phase or decline. Thus, there is an opportunity for sales to grow in the long term.
• Structurally attractive. This is usually related to competition and Porter’s Five Forces model elements.

Advantages and disadvantages of market segmentation

Market segmentation provides benefits, including:

• Understand consumers better
• Increase sales because marketing is more focused
• Provide support for product differentiation by adjusting the marketing mix for several targeted market segments
• Allows small businesses to avoid competition by targeting niche market segments
• Increases revenue and profits because it allows companies to practice price discrimination
• Efficiency in allocating effort and resources than when trying to sell products to the entire market

However, market segmentation also has limitations:

• Requires expensive and intensive market research
• More limited market size than when targeting the mass market
• May be too small to service profitably in the long run
• Bias or errors in identifying consumer characteristics
• More limited scale because there are fewer consumers than in the mass market
• Higher costs because, for example, a company may need different promotions for different segments