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Target Marketing
As we have seen, research into buyer behaviour can help us to understand what
motivates customers to seek out a particular product or service, how he or she
decides which product or service to purchase, and what factors (many of them
under our control as marketers) may influence the buying decision. However,
few organisations can afford the luxury of applying marketing actions to each
customer individually. At the same time, though, it makes no strategic sense to
attempt to focus marketing actions on the entire potential market for product or
service. We therefore need some means of categorising those customers who will
become the focus of our marketing efforts.
Market Segmentation
One of the first questions to ask concerns the number of bases to use. One
option would be to use a single base. For example, we might decide to segment
the market for a new personal computer on the basis of age groups. We could
then target our marketing activities on the particular group or groups our
consumer research has suggested may be most likely to buy a PC.
Of course, any particular age group will probably contain people who are very
different, so age alone may be a poor predictor of the likelihood to purchase a PC.
We therefore may decide to combine age with, say, income level and education to
form a multiple base segment using the three variables. This would allow us to
target a group of potential customers who are more likely to buy a PC because of
their age, income and level of education combined.
Geodemographic Segmentation
There are many tools available for geodemographic profiling. For instance, the
ACORN system is A Classification Of Residential Neighbourhoods on the basis of
property type and householder type in census enumeration districts. In the UK,
there are some eleven different ACORN groups, which can be further sub-divided
into thirty-six ACORN neighbourhood types on the basis of factors such as
dominant landlord type, number of manual workers and level of immigration.
Essentially, the ACORN system is based on the idea that the type of area and
housing you live in is a fairly good predictor of the type of products and brands
you will buy.
Market Targeting
Whenever a market segment is identified, the task facing the firm is to evaluate
its attractiveness as a viable sector of the market to target. Kotler (1997) notes
that, in general, firms use three main criteria in order to determine this.
Segment size and growth: Although larger segments are by no means always
the most attractive (particularly to a small company), any evaluation of a
segment must nevertheless begin with an assessment of both its current size and
its potential for future growth. The most attractive segments do not necessarily
represent those with the highest potential future growth rates. It is the potential
to the firm which is the crucial thing and it may well be that segments in decline
may prove a short-term option for the company because of lower levels of
competition. For example, in the automotive industry, many small firms do
excellent business by supplying parts for classic cars.
Once a segment has been identified and judged to have satisfied the above
criteria, the company can begin to select a targeting strategy. One possible
strategy is that of undifferentiated marketing which, in fact, is an option which
ignores segmentation completely and goes for a “one size fits all”. A classic
example here is, once again, the Model T Ford. Henry Ford recognised the
potential of a huge gap in the market with no competition and relied upon mass
production, economies of scale and mass advertising to reach as many customers
as possible. Of course, in an increasingly competitive business environment,
opportunities such as this are few and far between.
For each segment a company elects to operate in, it must develop a clear
positioning strategy. This ensures that the market offering in each segment
occupies a predetermined place relative to competitors.
All products or brands have both objective and subjective attributes, which they
possess to varying degrees. Objective attributes might include product
characteristics such as size weight or strength. Subjective attributes include
less quantifiable and customer-bound characteristics, such as value for money,
reliability and fashionability. When choosing between brand options in a given
segment, the customer will use both forms of attributes and will have his or her
own particular views on how the various competitive offerings rate.
Again, we fall back upon marketing research into buyer behaviour. The firm must
have knowledge of how important the customer perceives particular attributes to
be. This allows the company to target a particular position relative to
competitors.
FT ranking
(high)
Competitor A
Competitor C
Competitor B
FT ranking
(low)
In the above positioning map, we can see the market locations of our three
competitors relative to the two dimensions hypothesised. As you can see by the
shaded circles, there are two possible positions where we might locate our new
MBA course to make it distinctive from our competitors. One option is to quickly
produce a low cost, low quality MBA course. The alternative is to go for the
medium price, medium quality option. Both would give us a degree of
distinctiveness, without the need to position ourselves right next to another
university and have to fight intensively for market share.
The case study for this lecture, “Targeting Sponsorship within a Specialist Niche
Market”, explores how the financial services company Independent Insurance
forged a strategic alliance with the Grosvenor House Art and Antiques Fair as
a way of establishing its brand name among high value home owners; a
strategy combining both target marketing and marketing communications.
The study poses five initial questions to assist in your analysis:-
2. What is a niche market? Explain why strategies for niche markets are
different from those used to target larger markets.
Using Five Forces Analysis, how would you describe the market
Independent Insurance was operating in which led it to seek a strategic
alliance?