After identifying different market segments, the company selects one or more as target markets. To select effective market segments the company evaluate segments on three factors:
- Segment size and growth, i.e. number of consumers are sufficient in the segment and they will increase. The company should also judge the pace as per its capabilities.
- Segment structural attractiveness, i.e. influence of forces like suppliers bargaining power, customers bargaining powers, threat for competitors and substitute products. The company also needs to examine major structural factors that affect long-run segment attractiveness.
- Company objectives and resources, i.e. the firm should have resources to go for a segment (in case of up market stretch) and should match company's objective (in case of down stretch). A segment is less attractive if it already contains many strong and aggressive competitors. The existence of many actual or potential substitute products may limit prices and the profits.
Selecting Target Market Segments
A target market consists of a set of buyers who share common needs or characteristics that the company decides to serve. There are four levels of targeting.
Level I - Full Market Coverage
This is the highest level of segmentation. The firm targets all the identified segments. This type of targeting is more suitable for products that satisfies need for masses. The firms identifies needs and serve all the market segments. However, the firm may realize different types of needs per segment and targets them with different product. Such strategy is known as differentiation strategy. Alternatively, the firm may target whole market with one single product, called as undifferentiated marketing.
Undifferentiated Marketing
Using an undifferentiated marketing (or mass-marketing) strategy, a firm might decide to ignore market segment differences and target the whole market with one offer. This mass-marketing strategy focuses on what is common in the needs of consumers rather than on what is different. This strategy is more useful for generic products and brands. For example, Crocin.
Differentiated Marketing
Using a differentiated marketing (or segmented marketing) strategy, a firm decides to target several market segments and designs separate offers for each. Many companies like HUL, P&G, ITC have several product lines in the same category targeted for different markets.
Apparel company VF Corporation has number of brands under their umbrella targeted targeted to different segments like sports, casual and other segments.
Level II - Multiple Market Specialization
In this strategy, firms make a set of segments that they want to target, called superset. Unlike full market coverage, this strategy aims to target some specific market segments. For example, an apparel company may target formal wear for both men and women, and only target women for traditional wear.
There are two broad forms of multiple market specialization:
Product Specialization
In such arrangements, one firm targets one or more consumer groups for with one product. This strategy is more suitable for business markets. For example, a firm producing stationary items may supply writing pads to colleges, corporate offices and other businesses. They offer customized writing pad to different organizations like printing the logo.
The firms that expands from business markets to consumer markets, slowly gets into undifferentiated marketing. For example, JK Papers.
The advantages with this strategy is the firm enjoys strong reputation for the product and usually known for its quality. The limitations with this strategy is reliance on one single product may be dangerous. New technology may make the product obsolete and outdated.
Market Specialization
This strategy calls for targeting a market segment with multiple products. For example, Dove targets women markets with soaps, creams, shampoos and conditioners.
The advantages is having strong reputation in customer market segment. The brand equity earned in one market can always help firm diversify in related segments. Provouge could easily enter women semi formal wear.
Limitations of such strategy is the firm may suffer loses if the segment became unattractive or a substitute product enters the segment. For example, number of women colouring hair these days, may switch to a shampoo for coloured hair and may not prefer normal shampoo.
Level III - Concentrated Marketing
Many new firms use a concentrated marketing strategy. Instead of going after a small share of a large market, the firm goes after a large share of one or a few smaller segments.
The firm believes that it can market more effectively and efficiently by fine-tuning its products, prices, and communications programs to the needs of carefully defined segments.
Niche Marketing
This is the ultimate form of concentrated marketing. The firm focuses on a small profitable segment with a product highly demanded by the segment. It is very narrowly defined customer group desiring mix of benefits. The niche of identified by dividing a segment into sub-segment. The chosen set of segment consists of customers that have a distinct set of needs and they are ready to pay a premium to the firm that best satisfies their needs. For example, herbal products by Shehnaz Hussain.
This segment is not likely to attract other competitors as it serving needs with unique products. The niche has sufficient size, higher profit and growth potential.
Level IV - Micromarketing
Micromarketing is the practice of tailoring products and marketing programs to suit the tastes of specific individuals and locations. Micromarketing includes local marketing and individual marketing.
Local Marketing
Local marketing involves tailoring brands and promotions to the needs and wants of local customer groups—cities, neighborhoods, and even specific stores. For example, Kalaniketan Stores in Mumbai. The drawback of this strategy is it can drive up manufacturing and marketing costs by reducing economies of scale. It can also create logistics problems. The firm's overall efforts in varying the product and communication as per local markets may dilute it's image.
Individual Marketing
Individual marketing is the tailoring of products and marketing programs to the needs and preferences of individual customers. Individual marketing has also been labeled one-to-one marketing, mass customization, and markets-of-one marketing.
Choosing a Targeting Strategy
Which strategy is best depends on:
Company resources: All firm may want coverage but the company resources may constraints them to target few segments.
Product variability: The product may be suitable to few selected markets.
Product’s life-cycle stage: Firm may target few segments during introduction, and go into more segments during growth and maturity and again reduces segment in decline stage.
Market variability: Market in which the firm is functioning may not prefer number of products or may be highly fragmented.
Competitors’ marketing strategies: Presence of strong competitors in segment may inhibit firm's to enter in number of segments.
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