What’s it: A target market is a part of the qualified available market in which the company seeks to direct its marketing efforts. The available market includes individuals who desire to buy a product and have the ability to pay. Qualified means being legally permitted to buy and use the product. For example, alcoholic drinks are only available for certain age individuals, not for other individuals.
Why is the target market important
There are several reasons why identifying and selecting target markets is important.
First, it helps companies to develop effective marketing strategies. Consumers in the targeted market share the same needs, at least in the eyes of the company. Thus, companies can focus on those most likely to buy the product and develop an appropriate marketing mix by defining target markets.
Second, the allocation of resources becomes more efficient. Companies allocate budgets to activities that have the most significant impact. For example, a company can develop the right promotion to reach the right audience. For mass marketing, companies can choose mass communication channels to advertise products. In contrast, for target marketing, companies prefer more selective channels rather than mass channels. The choice of communication channels ultimately has an impact on the cost and effectiveness of the advertising message.
Difference between the target market and the market segment
A target market is the part of the market on which the company focuses its marketing efforts. Under target marketing, it is a viable market segment chosen to be exploited profitably. For example, a clothing company divides the market into two segments according to gender: men’s clothing and women’s clothing. Of these, the company may decide to target only the women’s clothing segment.
Under mass marketing, it may be part of a potential market and consist of individuals who have the ability to buy legally. The company ignores the market segment, assuming consumers need a similar product. You can find this approach for mass products such as soaps, detergents, and fast-moving consumer goods (FMCGs).
How to identify your target market
Choosing a target market depends on the nature of the product and company strategy. When choosing a mass marketing strategy, a company ignores market segments. The company assumes consumers in the target market have similar needs and tastes. They develop a single marketing mix for all target customers.
Meanwhile, for target marketing, the company divides the market into small groups (called market segments). Three often-used approaches are geographic segmentation, demographic segmentation, and psychographic segmentation. Each group represents unique tastes, needs, and buying behavior. Also, consumers in the same segment need similar products and respond similarly to the marketing mix.
From these segments, companies then select target segments according to specific criteria. They then develop an appropriate marketing mix.
Whether it’s mass marketing or target marketing, companies don’t target all the individuals in the market. Individuals may have the desire to use the product, but it is not supported by purchasing power. Or, the government may prohibit companies from selling products to certain individuals. So, two necessary prerequisites for choosing a target market are:
- Have an effective demand. The market consists of individuals who want goods and have the ability to pay. They have money to buy.
- Legal. Cannabis cigars are banned in some countries. Likewise, cigarettes and cigars are illegal for certain ages.
Criteria for a valuable market segment
Not all target markets are worth exploiting. There are several critical criteria for choosing a target market, including:
- Market size
- Growth prospects
- Structural attraction
Market size. The market is not too big; thus, it is too expensive to exploit and beyond the company’s capabilities and resources. However, it is also not too small, so the company does not get cost savings, for example, through economies of scale.
Growth prospects. Choosing a growing market and having the potential for high demand in the future is essential to continue flowing money into the company.
In contrast, developing a market from scratch is an expensive investment. Companies must educate consumers to increase their awareness of the product.
Likewise, targeting mature markets will only be a waste of investment. The market is soon into a decline phase, making it difficult for companies to achieve adequate investment returns.
Profitable to work on. The market offers a higher income than the cost of marketing the product. That way, the company makes a profit. Consumers in the market may be quality conscious and thus willing to pay a high price. Or, they are price-conscious, but their size of purchase is relatively large, enabling the firm to increase sales and lower unit costs through higher economies of scale.
Measurable. The company is easy to get information about customer characteristics in a cost-effective manner. Such information is essential for developing the right marketing mix. Also, companies can measure the effectiveness of each marketing mix, evaluate, and improve it.
Structural attractiveness. Profitability in the market depends on factors such as the intensity of competition, barriers to entry, buyer’s bargaining power, supplier’s bargaining power, and availability of substitutes. For example, when entry barriers are low, it is easy for new players to enter the market, increasing supply, and lowering market prices. Apart from that, these factors also influence the way companies to develop strategic competitiveness.