Target Marketing and Market Segmentation

Advantages of Market Segmentation

1) Businesses can define their target market precisely and design and produce goods that are specifically aimed at these groups leading to increased sales. 2) It helps to identify gaps in the market -groups of consumers that are not currently being targeted - and these might then be successfully exploited. 3) Differentiated marketing strategies can be focused on target market groups. This avoids wasting money on trying to sell products to the whole market - some consumer groups will have no intention of buying the product. 4) Small firms unable to compete in the whole market are able to specialize in one or two market segments. 5) Price discrimination can be used to increase revenue and profits.

Limitations of Mass

1) Competition can be intense. A broader customer base can sustain a larger number of competitors. A business will still require a unique selling point and successful marketing strategies to support sales. To be competitive, marketing budgets need to be relatively large. 2) There are often high barriers to entry for mass markets. Often incumbent competition have invested in capital equipment, large scale factories, offshore centers, efficient supply chain management processes, etc. Experienced and efficient competition can make it extremely difficult to successfully compete in a mass market as a new firm. 3) Mass marketing tends to be less focused. Resources may be used inefficiently by reaching individuals who are never likely to purchase a firm's products.

Advantages of Mass

1) Economies of scale may be obtained in mass markets due to their relatively large size. Thus, the average cost of bringing the product to market will be lower and thus, profit margins higher. 2) Different marketing strategies do not need to be planned and implemented for different market segments. One marketing campaign can successfully target a whole market, facilitating marketing economies of scale. 3) Providing products for a mass market could enable a successful firm to establish a larger base of customers. This will generally increase profitability.

Advantages of Niche

1) Marketing tends to be more focused and likely to have greater appeal within the targeted segment. 2) With needs and wants being better met, customer loyalty can ensue. 3) Competitive rivalry within a niche market is less than that for broader markets. Less competition can translate into increased pricing power for a firm's differentiated products which, in turn, can lead to increased profitability.

Limitations of Market Segmentation

1) Research and development and production costs might be high as a result of marketing several different product variations. 2) Promotional costs might be high as different advertisements and promotions might be needed for different segments - marketing economies of scale may not be fully exploited. 3) Production and stock holding costs might be higher than for the option of just producing and stocking one undifferentiated product. 4) By focusing on one or two limited market segments there is a danger that excessive specialization could lead to problems if consumers in those segments change their purchasing habits significantly.

Limitations of Niche

1) The number of total potential customers in the market is limited. 2) Economies of scale may not be obtained in niche markets due to their limited size. Thus, the average cost of bringing the product to market will be higher, leading to higher prices and or lower profit margins. 3) Profitable niche markets with low barriers to entry are likely to attract new competitors into the industry. Niche markets are small and cannot sustain a relatively high number of competitors.

Examples of Demographic

Age, Religion, Gender, Language, Race, Ethnicity, Marital status, Income.

Psychographic

Factors that consider the emotions and lifestyle of the customer.

Examples of Geographic

Location, Climate, Culture.

Mass Marketing

Mass marketing is an attempt to appeal to an entire market with one basic marketing strategy using mass distribution and mass media. It is also called undifferentiated marketing because this is a strategy that ignores targeting individual market segments. Different market segments are targeted with the same blanket approach, usually to maximize sales volume.

Niche Marketing

Niche marketing targets specific and well-defined market segments. Concentrating all marketing efforts on a small but specific and well defined segment of the population. Niches do not 'exist' but are 'created' by identifying needs, wants, and requirements that are being addressed poorly or not at all by other firms, and developing and delivering goods or services to satisfy them.

Examples of Psychographic

Social and Economic status, Values, Morals, Ethics, Culture, Hobbies, Interests.

Geographic

The geographic location of customers can have implications for segmentation.

Target Marketing

The market segment that a particular product is aimed at.

Market Segmentation

The process of splitting a market into distinct groups of buyers in order to better meet their needs. The main methods of market segmentation are based on demographic, geographic and psychographic factors.

Demographic

The study of the characteristics of the human population within an area or region