Target Marketing: Meaning, Why It Matters, How It Works, Pros, Cons

What’s it: Target marketing is a marketing activity focused on a target segment. Consumers in these segments have similar needs and tastes and respond to the marketing mix in the same way.

To find a target segment, a company must divide the market into small groups based on psychographics, demographics, and geographic variables. They then map out the tastes and needs in each segment and select the right target segment. Then, they focus their marketing activities on satisfying the needs of consumers in that target segment.

Target marketing is the opposite of mass marketing. Under mass marketing, companies ignore variations in customer tastes and needs. They design the same product and marketing mix for all consumers.

Why is target marketing important

Target marketing enables the company to direct the right product to the right consumer. It’s hard to create a product that satisfies everyone. Children have different needs from adults. Likewise, wealthy households have different needs, interests, and perceptions from the middle to lower class households.

Through targeted marketing, companies develop a more focused marketing strategy. They have a more in-depth knowledge of their customers’ tastes and needs. Thus, they can develop strategies to reach target consumers most effectively. That way, they can satisfy consumers and allocate resources efficiently.

How the target marketing works

Broadly speaking, how target marketing works involves the following stages:

• Divide the market into several market segments through geographic, demographic, or psychographic segmentation
• Identify target segments based on aspects such as profit, size of demand, and potential for growth
• Developing the appropriate marketing mix and marketing strategy for customers in the target segment.

Target marketing requires companies to identify various segments in the market. They use demographic, geographic, or psychographic variables to explain buying needs, tastes, and behavior variations. Then, they divide consumers in the market into small groups (market segments) based on these variables.

Consumers in one segment have homogeneous characteristics. They exhibit similar needs, tastes, and buying behavior. They also respond to the company’s marketing mix in the same way.

However, these characteristics are quite heterogeneous for consumers between segments. Thus, consumers in different segments respond to marketing techniques and promotion schemes in different ways.

The company then selects one or more available market segments as a target to market the product or service. The main criteria in selecting target segments are:

• Segment size 
• Growth prospect
• Potential profit
• Structural attractiveness 

After selecting the target segment, the company then develops a strategy and marketing mix accordingly. The target segment comprises like-minded individuals whose companies can have concentrated marketing efforts to attract them and encourage them to buy products.

Target marketing advantages

Target marketing offers the following benefits:

A higher acceptance. Companies can focus more marketing efforts on specific consumer needs. Knowing better about consumers’ tastes and needs, they can develop more appropriate products, promotions, pricing, and distribution.

Increased sales. A high acceptance rate means that many consumers are likely to buy the product. In this case, the company’s first task has been completed.

Another task is to design a unique selling proposition. Companies must make sure their product satisfies customers more than any other product on the market. That way, consumers have reasons to continue buying their products.

Effective use of resources. By focusing on the marketing strategy, the company should map and allocate resources better. For example, they are selective in their choice of promotion and advertising methods and choose only those with the most significant impact.

Target marketing disadvantages

Target marketing also involves the following downsides:

Expensive and time-consuming. Companies may need primary research to study consumer needs and tastes. And it costs a lot of money.

In segmenting the market, companies may find it easy to obtain geographic and consumer demographic data, not psychographic data. They need more in-depth research to understand consumer psychology. They may have to survey or interview several people to get a deeper understanding.

To develop an appropriate marketing mix, they must also be involved in a long process. Companies have to study the characteristics of consumers, segment them, and select target segments.

Misdirected. Companies need accuracy in the process of selecting target segments. Selection errors result in a mismatch of strategy and marketing mix and, ultimately, sales failure.

Selection of target segments must also consider other aspects, not only customer needs and tastes. Companies should consider:

• Market segment profit potential. Targeting the quality conscious segment is more profitable than the price-conscious segment. They have relatively high purchasing power.
• Market segment size. A market segment must be sufficiently adequate to produce economies of scale. So, the company can improve profits along with increasing sales volume.
• Growth prospects. A growing market segment enables the company to continue to generate sales.
• Structural attractiveness. Factors such as competition intensity, buyers’ bargaining power, and availability of substitutes affect the company’s success in the target segment.

All of those affect the company’s success in selling products profitably and sustainably.

Say the company ignores segment size. Due to wrong targets, sales volumes are low, and the company cannot achieve high economies of scale to reduce costs. Thus, profits and returns are insufficient.