4_Easy_Identifying Market Segments and Target Customers

• Identifying and choosing which customers a company will serve when creating, communicating, and delivering its offerings aligns resources and capabilities with customer needs for profitability.

Essence of Targeting

• Mass marketing aims to sell a single offering to the broadest market.
• Targeted marketing develops different offerings for multiple segments with distinct needs.
• One-to-one marketing practices individually tailored products or services.

Importance of Targeting

• Efficiency: Targeting ensures each segment gets an offering closely aligned with its specific requirements, addressing diverse customer needs that a generic solution cannot.
• Competitive Advantage: By focusing on well-defined segments, a company can design better products, clearer pricing, and relevant communications, outperforming broad competitors.
• Resource Allocation: Targeting pinpoints the most worthwhile customers, helping managers decide where to invest in product development, advertising, and distribution.

Strategic vs. Tactical Targeting

• Strategic Targeting selects customers who generate the greatest mutual value, satisfying their needs and creating value (profits, loyalty, brand advocacy) for the firm, potentially excluding others.
• Tactical Targeting decides how to reach chosen customers effectively and efficiently, finding the most cost-efficient and persuasive way to communicate, distribute, and deliver the offering to high-priority customers.

Principles of Strategic Targeting

• Strategic targeting involves choosing which customers to serve (and exclude) to deliver a superior offering and maximize returns by pinpointing the core customer need.
• Key considerations include the ability to create superior value for customers and whether customers can create superior value for the company.

Target Compatibility

• Target compatibility is the company's ability to fulfill a group's needs better than the competition.
• A firm cannot profitably offer superior value without the right resources or competencies, even if the segment is attractive in theory.

Key Resources for Compatibility

• Business Infrastructure: Production facilities, call centers, supply-chain management, and company culture.
• Access to Scarce Resources: Unique materials, prime retail/online locations, and exclusive agreements.
• Skilled Employees: Technological, operational, and business expertise.
• Technological Expertise: Proprietary processes, patents, and specialized knowledge.
• Strong Brands: Meaningful associations that create added customer value.
• Collaborator Networks: Partners in R&D, supply chain, promotion, and distribution.

Core Competencies

• The resources/skills deliver significant perceived customer benefits, apply broadly across markets, and are hard to imitate, forming the essence of a company's advantage.

Target Attractiveness

• Target attractiveness is a segment's ability to bring value back to the company financially or strategically.
• Not all customer groups are equally profitable or helpful to the company's goals.

Types of Value

• Monetary Value:
  • Customer Revenues: Potential income (e.g., sales volume, price sensitivity).
  • Costs of Serving: Tailoring the offering, acquiring/retaining customers, loyalty incentives.
• Strategic Value:
  • Social Value: Influence on others, especially opinion leaders, to spread brand awareness or shape consumer preferences.
  • Scale Value: Economies of scale; low-margin customers can help cover fixed costs or build a base for future expansion.
• Information Value: Data or feedback from target customers that aids product development, early adoption insights, or marketing improvements.

Communicating and Delivering to Target Customers

• Identifying how to reach and serve customers effectively and cost-efficiently turns unobservable needs into observable characteristics for communication and distribution.

Defining Customer Profile

• Customer needs are often unobservable, so companies use demographic, geographic, behavioral, and psychographic descriptors to locate and engage the right individuals.
• Demographic Factors:
  • Age, gender, income, education, ethnicity, and for B2B (firmographics): size, industry, growth, and profitability.
• Geographic Factors:
  • Customers' physical or online location (e.g., city, region, country).
  • Dynamic geolocation is prominent with smartphones/apps that track real-time locations.
• Behavioral Factors:
  • Past purchase frequency, quantity, loyalty, decision-making role, online/offline habits, and price sensitivity.
  • Decision Journey Stage: Whether customers are becoming aware, evaluating options, or ready to buy.
• Psychographic Factors:
  • Values, attitudes, lifestyles, and interests, inferred from purchasing patterns, social media habits, content viewed, and brand interactions.

Aligning Observable Needs with Observable Profiles

• Start with a strategically chosen segment (e.g., travelers who want a rewards credit card) and identify observable indicators that correlate with these needs (e.g., purchase of luggage, visits to travel websites, high credit score).
• Use communication channels (e.g., travel blogs, social media travel groups, leisure magazines) that match the target's observable profile.
• Tailor messages that highlight travel perks and exclusive destinations to resonate with their interests and behaviors.
• For physical products, place them where target customers shop (stores in tourist-heavy areas, airport kiosks).
• For digital products or services, focus on platforms (mobile apps, e-commerce sites) that align with the segment's online behaviors.

Effectiveness and Cost-Efficiency Principles

• Effectiveness Principle: Aim to reach all strategically valuable customers, making them aware of the offering and giving them easy access.
• Cost-Efficiency Principle: Avoid wasting resources on those unlikely to buy or are unprofitable by using narrow targeting to reach the right segment.

Using Personas

• Personas are in-depth fictional profiles that represent key traits of a target segment, including a name, photo, short bio, behaviors, needs, and pain points.
• Personas simplify complex market data, making it easier for marketers to envision how best to communicate and deliver the offering.

Strategies to Target Multiple Market Segments

• Companies may discover additional, distinct customer groups beyond their initial niche as customer needs diversify, requiring multiple segments to match various customer requirements.

Identifying Viable Segments

• Like finding a single segment, use customer needs and company competencies to identify multiple sets of viable customers.
• Assess Profit Potential: Look at segment size, growth, competition, and synergy with existing strengths.
• Avoid Overlap: Ensure each segment differs in needs or value; otherwise, you may be developing multiple offerings for the same audience.

Multi-Segment Targeting Strategies

• Selective Specialization:
  • Choose a subset of all possible segments, each independently profitable, minimizing risk by diversifying across multiple segments.
  • Example: Crest Whitestrips targeted soon-to-be brides and gay males, both interested in teeth whitening.
• Product Specialization:
  • Focus on one product type sold to several segments, building a reputation as an expert (e.g., a microscope company selling different models to universities, government and commercial labs).
  • Risk: A single product might become obsolete if technology changes.
• Market Specialization:
  • Offer many products to one particular segment, serving their various needs and becoming a "go-to" provider (e.g., selling laboratory equipment exclusively to university labs).

Segmenting Consumer Markets

• Demographic Segmentation:
  • Based on easily measurable characteristics: age, generation, life cycle stage, and gender.
  • People born in different eras often share values, cultural references, and buying habits.

Gender Considerations

• Men and women differ in purchase motivations and decision-making styles.
• Some products now have gender-neutral positioning, while others tailor ads to changing household roles.

Income Considerations

• Income has long been a standard segmentation method, especially for autos, clothing, and financial services.
• Middle-market consumers increasingly buy both discounted and premium goods ("hourglass economy"), trapping undifferentiated brands in the middle.
• Race and Culture: Ethnic or cultural groups differ in norms, language, and media habits, prompting marketers to adapt accordingly.

Geographic Segmentation Details

• Geographic segmentation divides the market by location, prompting firms to use regional marketing to adapt products and promotions to local tastes.
• Mapping Software & Geoclustering combines location data with demographic/behavioral info to pinpoint current or potential customers.

Details on Behavioral Segmentation

• Behavioral segmentation groups consumers by observed actions or product usage patterns.
• User Status:
• Classifies nonusers, potential users, first-time users, regular users, and ex-users, distinguishing why nonusers don't buy and how to convert them.
• Usage Rate:
• Classifies as light, medium, or heavy users, noting that heavy users can be very profitable but may also be brand-loyal or always seek the lowest price.

Buyer Readiness Stage

• Consumers vary in awareness and willingness to purchase, prompting marketing efforts to match the readiness level.

Loyalty Status

• Loyalty classification includes hard-core loyal, split loyal, shifting loyal, and switchers.
• Efforts focus on retaining loyal fans and converting or increasing share among the less loyal.

Occasions

• Segmentation includes when or why consumers use a product, prompting tailored offerings and messages for specific occasions or contexts.

Psychographic Segmentation

• Employs lifestyle, personality, or values, because demographics alone rarely reveal underlying motivations.
• Lifestyle and Values: Psychographic insights explain why consumers behave as they do.

VALS Framework

• It classifies U.S. consumers by primary motivation and resources, helping uncover deeper emotional triggers.
• Sexual Orientation / Gender Identity: The LGBT market is an example, prompting some companies to create LGBT-friendly initiatives.

Segmenting Business Markets

• Segmentation includes demographic factors (industry, company size, location).

Operating Variables

Segment by targeting customers with tech platforms/requirements, serving heavy/moderate/light/nonusers, and accounting for customer capabilities (extensive services vs. in-house tasks).

Purchasing Approaches

• Segment by purchasing-function organization (centralized vs. decentralized), power structure, nature of existing relationship, and general policies.
• Purchasing Criteria: Segment to serve customers that are price-driven/quality-focused/service-oriented buyers.

Situational Factors

• Segmentation includes urgency, specific application, and order size.
• Personal Characteristics: Consider buyer-seller similarity, attitude toward risk, and loyalty.

Explore strategic and tactical targeting in marketing. Learn how to define customer profiles using demographics, psychographics, and behavioral factors. Understand translating unobservable needs and resource allocation.