Target Marketing and Market Segmentation

What is Target Marketing?

Target marketing involves breaking a market into segments and then concentrating your marketing efforts on one or a few key segments consisting of the customers whose needs and desires most closely match your product or service offerings. It can be the key to attracting new business, increasing sales, and making your business a success.

The beauty of target marketing is that aiming your marketing efforts at specific groups of consumers makes the promotion, pricing, and distribution of your products and/or services easier and more cost effective and provides a focus to all of your marketing activities.

For instance, suppose a catering business offers catering services in the client’s home. Instead of advertising via a newspaper insert that goes out to everyone, the caterer would first identify the target market for its services. It could then target the desired market with a direct mail campaign, flyer delivery in a particular residential area, or a Facebook ad aimed at customers in a specific area, thereby increasing its return on investment in marketing and bringing in more customers.

Social media platforms, such as Facebook, LinkedIn, Twitter, and Instagram, have sophisticated options to allow businesses to target users based on market segments. A bed-and-breakfast business, for example, could target married Facebook followers with an ad for a romantic weekend getaway package. LinkedIn, on the other hand, is more B2B oriented, so you can target businesses using a variety of criteria such as number of employees, industry, geographic location, and so on.

Although you can approach market segmentation in many different ways, depending on how you want to slice up the pie, three of the most common types are demographic segmentation, geographic segmentation, and psychographic segmentation.

Demographic Segmentation

Demographic grouping is based on measurable statistics, such as:

• Gender
• Age
• Income level
• Marital status
• Education
• Race
• Religion  

Demographic segmentation is usually the most important criterion for identifying target markets, which means that knowledge of demographic information is crucial for many businesses. A liquor vendor, for instance, might want to target its marketing efforts based on the results of Gallup polls, which indicate that beer is the beverage of choice for people under the age of 54—particularly in the 18 to 34 range—whereas those aged 55 and older prefer wine.

Geographic Segmentation

Geographic segmentation involves segmenting the market based on location. Home addresses are one example, but depending on the scope of your business, you could also use:

• Neighborhood
• Postal or ZIP code
• Area code
• City
• Province or state
• Region
• Country (if your business is international)

Geographic segmentation relies on the notion that groups of consumers in a particular geographic area may have specific product or service needs. For example, a lawn care service may want to focus its marketing efforts on a particular town or subdivision inhabited by a high percentage of older residents.

Psychographic Segmentation

Psychographic segmentation divides the target market based on socioeconomic class or lifestyle preferences.

 The socioeconomic scale ranges from the affluent and highly educated at the top to the uneducated and unskilled at the bottom. The UK-based National Readership Survey segregates social class into six categories:

Social Grade	Social Status	Occupation
A	Upper class	Higher managerial, administrative, or professional
B	Middle class	Intermediate managerial, administrative, or professional
C1	Lower middle class	Supervisory, clerical, junior managerial, administrative, or professional
C2	Skilled working class	Skilled manual labor
D	Working class	Semi- and unskilled manual labor
E	Subsistence class	Unemployed, seasonal, or casual

The lifestyle-preferences classification involves values, beliefs, interests, and the like.  Examples include people who prefer an urban lifestyle as opposed to a rural or suburban lifestyle, people who are pet lovers, or people with a keen interest in environmental issues.

Psychographic segmentation is based on the premise that the choices people make when purchasing goods and services reflect their lifestyle preferences or socioeconomic class.

Target Marketing Case Study: McDonald's in USA and Dilmah Tea in Sri Lanka

According to QSR magazine's 2017 QRS 50, McDonald's is the largest fast-food chain in the U.S. ranked by sales. It's also one of the most successful examples of demographic target marketing, aiming its products at children, teenagers, and young urban-dwelling families by offering PlayPlaces & Parties, the Arch Card (reloadable cash card), free wifi, Happy Meals that include toys such as Marvel Studios characters, special promotions, and clever ad campaigns. Targeted advertising and aggressive pricing have enabled McDonald's to capture 17 percent of the fast-food market share in the U.S. as of 2015.

However, as millennials surpassed baby boomers in 2016 to become the largest generation in the U.S. workforce, McDonald's sales have been in decline as fast-food style menu items, such as the ubiquitous Big Mac and fries, have less appeal to millennials. In response, McDonald's has altered its marketing strategy to target the millennial generation by advertising fresher, healthier menu options and upscale coffee products such as espressos.

Why is market segmentation strategy always not successful?

Refer the article on Divayina newspaper by By Sudam Chandima Kaluarachchi, Director – College of Banking & Finance Institute of Bankers of Sri Lanka (IBSL) Source: Link

Introduction

Market is the place where buyers meet the respective sellers. While a collection of sellers constitute the industry for a good or service, a collection of buyers constitute the market for that good or service. Neither markets nor buyers are homogeneous in nature (Alderson, 1983; Assael & Roscoe, 1976; Claycamp and Massy,1968; Smith, 1956; cited in Kara and Kaynak,1997). Therefore, it is important for marketers to segregate customers with similar needs and wants as well as similar characteristics from others to cater to that particular group’s requirements. A clear appreciation of customer needs and wants will ultimately lead to an effective segmentation (Grover and Srinivasan, 1987; Ranchhod et al., 2001: cited in Dibb, 2005).

Marketing can be defined, according to the Chartered Institute of Marketing (CIM), UK, as "the management process that identifies, anticipates and satisfies customer requirements (needs & wants) profitably". Depending on these needs and wants as well as the characteristics, the marketers set the most suitable marketing mix elements for that particular market segment. A marketer needs to identify which market segment/s could be served effectively and in turn which segment offers the greatest opportunity (Kotler, 2001; Kotler & Keller, 2006) for his marketing efforts.

According to Dibb and Simkin (1991) as cited in Kara and Kaynak (1997), the market segmentation exercise usually consists of three main stages; (1) segmentation (2) targeting and (3) positioning. All three stages are fully interrelated and equally important for a successful segmentation strategy.

 

Market Segmentation

If needs and characteristics of people in a market are similar, there is little point segmenting such a market. However, in general it is not easy to find a homogeneous market in nature. The first requirement for segmentation is that the market should be heterogeneous. The diversity in customer needs and buying behavior is the key prerequisite for segmentation. Once this requirement is recognized, the marketer can proceed with the segmentation strategy (Blois and Dibb, 2000). In this exercise the marketer attempts to aggregate customers with similar requirements, expectations and buying characteristics into a specific group. Once segmented, it becomes a large identifiable group within a market with similar wants, purchasing power, geographical location, buying attitudes or buying habits. Furthermore, Kotler (2001) has identified several criteria/ bases for segmenting a heterogeneous market.

Bases for Segmenting Consumer Markets

Various bases for segmenting consumer markets as well as industrial markets (B2B markets) can be identified in the literature. As explained in Kotler & Keller (2006), two broad classes of variables are used to segment consumer markets. Those are called descriptive characteristics and behavioral characteristics. Some of the researches have made efforts to segment the consumer markets based on descriptive factors such as geographic, demographic and psychographic characteristics. Some other researches have identified another category which is called behavioral characteristics. For better understanding, some researchers have combined demographic variables together with psychology of the customer and introduced psychographic segmentation.

Kotler (2001) have illustrated the segment variables in detail. In consumer markets, variables related to geography (Eg: country, region), demography (Eg: age, sex, income, occupation, nationality), psychography (Eg: lifestyle, personality) and behaviour (Eg: occasions, benefits, usage, loyalty, attitude) are commonly used for segmentation. In industrial markets or business to business (B2B) markets, the commonly used variables are linked to demography, operating factors, purchasing approach, situational factors and personal characteristics of buyers.

Market Targeting

Targeting means selecting the most appropriate segment or segments be served by the company. In this stage, relative importance and attractiveness of the identified segments are determined and assessed and resources are allocated accordingly.

The most common targeting strategies are (1) undifferentiated strategy (2) concentrated strategy and (3) differentiated (multi-segment) strategy. The undifferentiated strategy involves targeting the entire market with one marketing mix. It has zero differentiation in the company’s market offerings. Businesses adopting a concentrated strategy direct their marketing effort towards a single segment separated from several other identified segments. The multi segment strategy, as explained its name itself, focuses on several segments with several marketing mixes depending on the characteristics of these differentiated market segments (Blois and Dibb, 2000).

Positioning

Positioning is the final stage of market segmentation which involves in the designing of marketing programs matching the requirements of customers in the segments chosen. It deals with the consumer perceptions, image building in the mind of consumers and designing appropriate marketing strategies to differentiate products or a company from its competitors. It involves in crafting and implementing the marketing mix programs which match the requirements of customers in the targeted segments (Ries and Trout, 1986; cited in Dibb, 2005). Customer will compare the product or services offered by the company with competitive offerings. Therefore, ultimately, the customer perception toward the product or service will link with the success of positioning (Blois and Dibb, 2000). Ries and Trout (1986); as cited in Blois and Dibb, 2000 confirms that customer perceptions about the product or service are central to its positioning. No doubts that perception is the reality.

Benefits of Market Segmentation

Many companies believe that marketing success is linked to how effectively their customer base is segmented. The benefits associated with a segmentation approach have been widely debated (Blattberg and Sen, 1976; Daneels, 1996; Piercy, 2001 and Henderson, 1981; cited in Dibb, 2005). Some authors argue that segmentation creates a differential advantage in the competitive market (Bonama and Shapiro, 1984 and Sharp, 1995: cited in Dibb, 2005). Others suggest that the result of a segmentation exercise would be greater customer satisfaction (Kara & Kayanak, 1997) and higher level of customer loyalty (Peppers and Rogers, 1997; cited in Dibb, 2005). As cited in Dibb (2005), Choffray and Liliem (1978) endorse the segmentation concept saying that segmentation allows business to deal with diverse customer needs by focusing resources on particular customer groups with relatively homogeneous requirements. Blattbery & Sen (1976); Beane & Ennis (1987) as cited in Blois & Dibb (2000) further support the segmentation concept mentioning that organizations that apply segmentation to their business are better able to fine tune their customer offerings than those adopting a mass marketing approach. Similarly, Sharp (1995) argues that segmentation approach has been in existence for a long time since it creates various business benefits to marketers.
Yet despite this clear-cut rationale, some marketers disagree with the concept. They argue that it is impossible to identify a direct link between segmentation and business success because of measurement difficulties (Esslemont, 1996; cited in Blois & Dibb, 2000). The debate about segmentation success and the extent to which segmentation benefits can be quantified is ongoing (Goller et al., 2002; cited in Dibb, 2005). The third group of researchers suggests that "segmentation benefits need to be weighed against the cost of the process and the scale of implementation difficulties" (Dibb and Simkin, 1997; Litter, 1992; McDonald and Dunbar, 1998; cited in Dibb, 2005) to measure the real benefit of segmentation. Similarly, Kotler (2001) argues that the market segmentation exercise creates favorable results only if the market segment is measurable, substantial, accessible, actionable and stable.

Implementation of Market Segmentation Strategy

The success of market segmentation depends upon many factors as mentioned below. When these factors are not in their optimum level, they are becoming issues and barriers in segmentation and affecting the success of the outcome.

As mentioned in Dibb (2005), the segmentation barriers can be classified into "hard" and "soft" categories depending on their tangibility. Hard barriers would be more tangible issues related to data, finance, personnel and time. On the other hand, soft barriers would be the intangible issues linked with corporate culture, structure in terms of inter functional or departmental coordination and leadership style. These hard and soft barriers can be identified in three areas of segmentation exercise such as (1) infrastructure (2) process and (3) implementation. The following table illustrates the factors affecting the successful segmentation strategy in detail.

Infrastructure

It is difficult to gauge the scale and scope of infrastructure barriers. The hard barriers are usually first to emerge, with shortfalls in data (Dibb, 2005). Weinstein (2004) as cited in Dibb (2005) has mentioned that the effectiveness of segmentation exercise can be hindered when the organization does not have access to appropriately skilled personnel. According to Dibb and Simkin (2001); Doyle (1995); Doyle et al., (1986): cited in Dibb (2005), insufficient staff, lack of seniority and shortage of the required skills or experience can all hamper the start of the process.

The soft factors such as leadership style, the degree of organizational flexibility and levels of internal communication also affect segmentation progress. Even though, an organization has relevant expertise, segmentation can suffer if strong senior management involvement and representation at Board level are not available (Berrigan and Finkbeiner, 1992).

Process

So many new challenges occur, once the segmentation process is underway (Dibb, 2005). Lack of data affects the effectiveness of segmentation process. Another factor is not availability of skilled personal sufficiently, especially with required analytical skills. Though the organization has some employees with the marketing background, lack of data analysis and statistical expertise can affect the process. Though there is a strong leadership enriched with marketing vision, lack of interdepartmental integration can hinder the segmentation process and hamper the progress of the segmentation.

Implementation

The next step after the segmentation analysis is implementation. To achieve proper implementation, required changes in the business system should be made. Implementing a segmentation strategy has ramifications for the organization, its sales force and the distribution network (Dibb, 2005). The prominent problems faced by organizations in the implementation stage are poor client network, lack of professional customer care at grass root level and inconsistent communication. The product knowledge of staff at operational level is very important for an effective implementation. Sufficient time should allocate for the implementation process. Some brands may not be successful at the implementation stage if proper bases are not chosen or not given attention to features of an attractive market segment such as measurability, sustainability, accessibility and stability at planning stage. Lack of delegated authority and repercussions for individual roles and responsibilities can be major setbacks at implementation stage. Poor demarcation of roles and responsibilities can also lead to bad implementation of segmentation strategy.

Overcoming the Difficulties

Creative and careful planning can resolve most of the problems (Bell and Vincze, 1988; Lin et al., 2004: cited in Dibb, 2005). Current data with good quality are central to the success of any segmentation process (Lin et al., 2004: cited in Dibb, 2005). A systematic review of existing data and marketing intelligence before starting collection of additional data is the starting point. It is important to introduce a proper system for recording and storing collected data for future use as well. The staff can be trained to collect relevant and proper data. It is vital to scope out the needs for relevant skills and expertise, especially the segmentation knowledge, from the highest level involved through to grass root level. "The progression of segmentation is contingent upon a sound understanding of the workings of the process and the required analytical/ statistical tools" (Dibb, 2005). Training designed by qualified professionals to demonstrate the principles and process of segmentation together with success factors and examples of organizations which have made successful segmentation exercises can be identified and presented details of them to the staff for their evaluation.

Studies have revealed that soft barriers are more difficult to be rectified and fixed (Dibb, 2005). Supportive and favourable culture and structure would always support the segmentation process. The leadership is vital to support the segmentation exercise because a strong leadership is instrumental in allocating roles and responsibilities (Meredity and Mantel, 1995) in planning and implementation stages. Organization should have a Management Information System (MIS) for an efficient idea sharing with lower levels in the organizational structure and motivating them. Data gaps can be identified and bridged by getting personnel involved from different functions and the same will improve the internal communication and fosters a greater sense of involvement in the segmentation process (Greenberg and McDonald, 1989; Weinstein, 1994: cited in Dibb, 2005). The organization may prepare a program to keep the staff involved in the distribution network and inform them about the progress and outcome of the segmentation exercise.

Similarly, understanding and commitment towards the segmentation exercise are crucial in all 3 levels. Without the commitment in the corporate planning stage and the segmentation roll-out stage, the chances of segmentation success are considerably low (McDonald, 2001: cited in Dibb, 2005). Careful control of the implementation phase is vital to the success of any segmentation scheme (Dibb, 2005). Roles and responsibilities should be clearly and carefully defined and allocated among the staff involved. Delegation of authority with the responsibility and accountability is in paramount importance in the successful implementation of the segmentation strategy. These responsibilities should cover all marketing activities carried out in designing the marketing mix. Further, a performance measurement exercise should be designed and carried out to control the process and evaluate the success of the process.

Conclusion

Despite a well established conceptual basis and strong anecdotal evidence supporting market segmentation, practitioners of market segmentation strategy continue to report various implementation difficulties. However, researchers have found that many segmentation barriers can be successfully addressed before they become major impediments to the process. An early treatment may prevent post implementation knock-on effects and help keeping the implementation costs down.

Segmentation barriers are interlinked and if ignored, subsequently affect the next stage of the exercise. Process barriers can prop up due to total ignorance of infrastructure barriers. If ignored, process barriers can cause the total breakdown of the segmentation strategy.

Not only identification, it is also important to prioritize the problems. An early anticipation of these barriers will ease the subsequent correction. It is generally easier to tackle the hard barriers than the soft. The segmentation exercise would become a myth if not managed the implementation process effectively and efficiently in line with the set objectives.

 මනාව ස්ථාපිත සංකල්පීය පදනමක් සහ වෙළඳපල ඛණ්ඩනයට අනුබල දෙන ප්‍රබල කතන්දර සාක්ෂි තිබියදීත්, වෙළඳපල ඛණ්ඩනය කිරීමේ උපායමාර්ගයේ නියැලෙන්නන් විවිධ ක්‍රියාත්මක කිරීමේ දුෂ්කරතා වාර්තා කරයි. කෙසේ වෙතත්, පර්යේෂකයන් සොයාගෙන ඇත්තේ බොහෝ ඛණ්ඩනය කිරීමේ බාධක ක්‍රියාවලියට විශාල බාධාවක් වීමට පෙර ඒවා සාර්ථකව විසඳා ගත හැකි බවයි. ඉක්මන් ප්‍රතිකාරයක් මඟින් පශ්චාත් ක්‍රියාවට නැංවීමේ ප්‍රති effects ල වළක්වා ගත හැකි අතර ක්‍රියාත්මක කිරීමේ පිරිවැය අඩු කර ගැනීමට උපකාරී වේ.

ඛණ්ඩනය කිරීමේ බාධක එකිනෙකට සම්බන්ධ වී ඇති අතර නොසලකා හැරියහොත් පසුව ව්‍යායාමයේ ඊළඟ අදියර කෙරෙහි බලපායි. යටිතල පහසුකම් බාධක පිළිබඳ සම්පූර්ණ නොදැනුවත්කම හේතුවෙන් ක්‍රියාවලි බාධක මතු විය හැකිය. නොසලකා හරිනු ලැබුවහොත්, ක්‍රියාවලි බාධක මගින් ඛණ්ඩනය කිරීමේ උපාය මාර්ගයේ සම්පූර්ණ බිඳවැටීමට හේතු විය හැක.

හඳුනා ගැනීම පමණක් නොව, ගැටළු වලට ප්‍රමුඛතාවය දීම ද වැදගත් ය. මෙම බාධක පිළිබඳ පූර්ව අපේක්ෂාවක් පසුව නිවැරදි කිරීම ලිහිල් කරනු ඇත. මෘදුකමට වඩා දෘඩ බාධක ජය ගැනීම සාමාන්‍යයෙන් පහසුය. නියමිත අරමුණු වලට අනුකූලව ක්‍රියාත්මක කිරීමේ ක්‍රියාවලිය effectively ලදායී හා කාර්යක්ෂමව කළමනාකරණය නොකළ හොත් ඛණ්ඩනය කිරීමේ අභ්‍යාසය මිථ්‍යාවක් වනු ඇත.