Marketing 101: Market Targeting

Recall that a customer driven marketing strategy consists of four distinct "steps".  Previously I focused on the first step: Segmentation.  I defined Market Segmentation as dividing a market into smaller groups that contain distinct needs, characteristics, or behaviors that may require distinct products, services and marketing mixes.  Because buyers have different wants, desires, needs, geographic locations, economic resources, buying attitudes, and buying practices, we use segmentation to divide markets into "pieces" that can be reached more effectively.  Market segmentation reveals our potential opportunities.  Once we have segmented the market, we must decide what parts of it to target.

Targeting the Market
We can define a Target Market as a set of buyers that share a set of common needs or characteristics that we can decide to serve.  When targeting a market segment we must look at three factors: a segment's size and growth trends, a segment's structural attractiveness, and our own company's long term objectives and available resources. The first factor consists of the type of research we have explored in the past when discussing Primary Data.  It is vitally important that we collect and analyze data on current segment sales, it's growth rates and potential profitability.  Once we have that data, we must compare it to the size and growth characteristics that our own company is seeking.

Next, we must investigate the segment's major structural factors that will determine how attractive our participation will be.  There are many reasons a segment may appear unattractive.  First, a segment is generally less attractive if it contains numerous strong and potentially aggressive competitors.  More competition usually results in many alternative products that create price competition and limit available profits.  Second, a segment is less attractive if buyers have more power, forcing participants to keep prices lower in order to increase market share, which also reduces  profits.  Third, a segment is less attractive if there are suppliers with strong influence in the micro-environments that actively try to hold material costs at a certain level, with increases our cost of goods, which also reduces potential profits.

Once we have produced a detailed evaluation of the target's structural factors, we must consider our own long term objectives and available resources.  Quite frankly, your company may not have the skills, knowledge, intellectual property and resources to succeed in a particular market segment.  A company should enter a segment only if they can offer outstanding value and can gain and retain competitive advantages over other companies in a given segment.

Choosing a Marketing Method
Once you have selected an attractive market segment, it's time to determine the marketing mix through a targeted marketing method.  Targeted Marketing is generally conducted at four distinct levels.  These levels are based on the relative size of the targeted segment.  In order of large to small, these levels are: Undifferentiated Mass Marketing > Differentiated Segmented Marketing > Concentrated Niche Marketing > Micro-marketing at a local or individual level.

Undifferentiated Mass Marketing
Undifferentiated Mass Marketing is a marketing strategy where a company chooses to ignore market segment differences (presented by their Primary and Secondary Data) and go after the whole market with one distinct product offering.  This type of strategy focuses on the most common needs of consumers, rather than on what is distinctly different between them.  This is a classic strategy from the early to mid-1900's, with the goal of appealing to the largest group of buyers possible in order to create as many sales as possible.  This is the classic volume-based tactic.  Product margins are low, and the value given to the customer is marginal as well.  Most modern marketers do not believe this strategy is very effective.  Today it is very difficult to make a product that appeals to mass-markets due to extreme competition from more focused niche products.

Differentiated Targeted Marketing
Differentiated Targeted Marketing is a strategy where we select several market segments, and design focused products and marketing mixes for each one, with the goal of higher sales and a relatively stronger position within each segment.  The advantage of Differentiated Targeted Marketing is that it typically gives a company higher gross sales across segments.  However increased sales also bring increased costs, because it can be more expensive to develop and produce 10 units of 10 different products (versions that are focused towards specific types of buyers) than 100 units of one product (for mass appeal or niche segments).  It also costs more to market for multiple segments, because each segment requires separate marketing research, analysis, planning, and channel management.  Due to these disadvantages, a marketer must weigh the prospects of increased sales versus the potential increased cost of business when choosing a differentiated marketing strategy.

Concentrated Marketing
Concentrated Marketing is a marketing strategy where a firm chooses to pursue a large share of one distinct segment or a few segments or niches.  Concentrated Marketing allows a company to achieve a stronger market position within a segment due to their greater knowledge of consumer needs and desires within that segment, fine tuning product features and prices over time in responsive to changing trends.  Concentrated Marketing is very appealing for companies that have relatively limited resources for product development and marketing.   Concentrated Marketing is also attractive, because segments are generally smaller and usually attract very few competitors, allowing for higher margins.  However Concentrated Marketing comes with higher than normal risks.  Because most of your business is focused within one or few segments, you may suffer large financial losses a segment turns sour at any time. 

Micro-Marketing
Micro-Marketing is a strategy where companies tailor products and marketing mixes to the needs and wants of specific individuals or local consumer groups.  Micro-Marketing generally involves consumers in all phases of product development, giving consumers opportunities to practice self-marketing during the buying decision process.  Micro-Marketing can give consumers extraordinary value, and can give the companies extraordinary value and consumer equity in return.  However Micro-Marketing tends to increase product development and marketing costs by reducing natural economies of scale inherent in manufacturing.  Micro-Marketing is also logistically complicated due to the numerous requirements of executing different regional and local marketing mixes.

Once you have evaluated and chosen a segment to target, we must work on Differentiation: differentiating the market offering (ie: the product) and thereby creating superior customer value.  I will explore this topic in my next post.

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Marketing 101: Market Segmentation

In my overview of Customer Driven Targeted Marketing, I stated that no human being is like another. Two people may be very similar, but they will always be different consumers, influenced by different attitudes and beliefs. As marketers we have to accept the fact that we can't appeal to all types of buyers in the marketplace, and there is just no way to appeal to any two buyers in the exact same way.  I also stated that in order to achieve maximum value from consumers according to our working definition of marketing, we need to focus on the right target customers that will give us the right relationships that achieve maximum customer value and equity.  To do this we use Customer Drive Targeted Marketing.

Segmentation
Recall that a customer driven marketing strategy consists of four distinct "steps".  Let's focus on the first step: Segmentation.  Market Segmentation is defined as dividing a market into smaller groups that contain distinct needs, characteristics, or behaviors that may require distinct products, services and marketing mixes.  Because buyers have different wants, desires, needs, geographic locations, economic resources, buying attitudes, and buying practices, we use segmentation to divide markets into "pieces" that can be reached more effectively.  However, there is no one standard way to segment a market.  Marketers have to segment using multiple combinations of variables in order to find the best way to view the target market.

Marketers use many variables to segment a market.  The major variables we use can be divided into standard categories such as:

1) Geographic - includes world region or country, city or metro size, density, climate
2) Demographic - includes age, gender, family size, famliy life cycle, income level, occupation, education, religion, race, generation, nationality
3) Psychographic - includes social class, lifestyle, personality
4) Behavioral - includes special occassions, benefits, user status, user rates, lotalty status, purchase readiness stage, attitude towards products and brands

With so many variables available to marketers for the purposes of segmentation, it would be so easy just to pick on or two variables and "call it a day".  However, what experienced marketers know is that we rarely limit our segmentation analysis to one, two, or even a few variables.  Marketers are using more segmentation bases today than in the past in an effort to identify more focused groups of consumers.

However, using more variables does NOT guarantee that our segmentation base is effective.  In order for a segmentation to be effective, it must meet the following criteria:

Be Measurable
Be Accessible - The targeted customers can be actively reached and served.
Be Substantial - The targeted group is large enough and profitable enough size-wise to serve.
Be Differentiable - The targeted group is conceptually distinguishable and responds differently to different markeing mix elements and programs.
Be Actionable - The targeted group can be designed for attracting and servicing the segments.

Once we have defined and chosen our market segment, we can work on targeting the segment.  My next post will discuss targeting.

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Marketing 101: Overview of Customer Driven Marketing Strategies

One thing is for sure, no human being is like another. Two people may be very similar, but they will always be different consumers, influenced by different attitudes and beliefs. As marketers we have to accept the fact that we can't appeal to all types of buyers in the marketplace, and there is just no way to appeal to any two buyers in the exact same way.

In order to achieve maximum value from consumers according to our working definition of marketing, we need to focus on the right target customers that will give us the right relationships that achieve maximum customer value and equity. Stop for a moment and notice that I wrote the word "target". This was not a coincidence.

Decades ago, most marketing money was allocated towards mass marketing efforts. Products and services were created to attract and serve as many customers as possible. It was thought that the best way to make as much money as a possible was to sell as many products as possible to as many people as possible. The concept of customer equity wasn't even a part of the mindset of the marketer.

Mass Marketing (also known as undifferentiated marketing) is a marketing strategy that originated in the 1920's as a way of appealing to as many potential buyers in the marketplace as possible. Mass Marketers choose to ignore market segment differences and try to appeal to as large of a customer base as possible with a single product offering. The marketer is assuming that their product meets the needs of an entire population of consumers, and that they can appeal to those consumers in the same way. Mass Marketers aim to broadcast their messaging to as many people as possible, as often as possible. Traditionally mass marketing has focused on the mediums of radio, television and print due to their reach. The marketer assumes that by reaching the largest audience possible, exposure to the product is maximized and sales will be at their maximum.

However there are clear disadvantages to mass marketing practices.  First, we know now that consumers don’t all think alike; so what works well for one group of consumers does not always translate well for another. Second, consumers are becoming less and less interested in "standardized" products (think canned soup), and are very willing to pay higher prices for products that cater to their needs and desires.  Third, mass marketing usually involves much higher costs, especially for the corresponding media buys.  For smaller companies with smaller marketing budgets, mass marketing just isn't possible.  A more focused, budget-effective method of marketing is required: Customer Driven Targeted Marketing.

Customer Driven Targeted Marketing
Because of its advantages and the reality that all companies differ in their abilities to serve different market segments, most marketers have shifted over to customer driven targeted marketing.  In the process of creating a targeted marketing plan we identify one or more marketing segments, and then develop products and marketing programs that are "targeted" to each type of consumer we are pursuing.  A customer driven marketing strategy consists of four distinct "steps", typically grouped into two groups:

1) Selecting The Right Customers To Serve:
-Via segmentation: by dividing the total mass market into smaller segments
-Via targeting: by selecting the right segment or segments of the marketplace to enter

2) Deciding On a Unique Value Proposition:
- Via differentiation: differentiating the market offering (ie: the product) and thereby creating superior customer value
- Via positioning: placing the product offering in the minds of the target consumer with the right messaging

These four steps create value for the target consumer, and allow us to receive value from them.  Over the next few posts I will be diving in further to the Customer Drive Targeted Marketing process.

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Marketing 101: Post-Purchase Behavior

So far I've examined four of the five stages of the Buyer Decision Process: Need Recognition, Information Search, Evaluation of Alternatives, and the actual Purchase Decision.  We've discovered that each stage is complicated, and that marketers will need to understand their customer's journey as they construct meaningful campaigns and messaging.  These statements are even more important to reckon with in the last stage of the Buyer Decision Process: Post-Purchase Behavior.

What is Post-Purchase Behavior?
Simply defined, Post-Purchase Behavior is the stage of the Buyer Decision Process when a consumer will take additional action, based purely on their satisfaction or dissatisfaction.  The consumer's level of satisfaction or dissatisfaction is directly related to the varying relationship between their initial expectations of the product (pre-purchase), and their perception of the actual performance of the product (post-purchase) in their hands.

If after the purchase the consumer perceives the product's performance as matching their expectations, or even exceeding them, they will be "satisfied".  If their perception of the product's performance is less than their expectations, then the consumer will feel "dissatisfied".  The larger the gap between their expectations and the product's performance, the more dissatisfaction.  This dissatisfaction leads to Cognitive Dissonance.

Cognitive Dissonance is buyer discomfort caused by post-purchase conflict resulting from dissatisfaction.  The reality is that all purchases, big and small, will result in some degree of Cognitive Dissonance.  This is always the case, because every purchase a consumer makes involves some sort of compromise, however small or minute.  Since consumers form beliefs and attitudes early in the Buyer Decision Process, at some point they will be concerned about having a negative experience with the product they may chose, or potentially missing the perceived benefits of other competing brands.

The issue of Cognitive Dissonance raises an important question: Why is it so important to satisfy the consumer?  It all comes back to our basic definition of marketing: Managing profitable customer relationships.  The goal is to attract new customers through superior value, and to keep growing customers by delivering customer satisfaction.  If we are doing these things, then we will be able to capture value from customers to create profits and build customer equity.  So, if our customers are satisfied they will begin to develop brand loyalty.  This brand loyalty will help us develop profitable relationships.  Our satisfied customers will buy from us again. They will become influencers in their cultural and social groups.  They will pay less attention to competitors, and buy more of our products. 

Dissatisfaction breeds the opposite.  Consumers that perceive poor product performance will not create profits and will erode customer equity.  They will not be loyal, and they will become negative influencers in their cultural and social groups, leading others away from our brands.  What should we do with dissatisfied customers?  We should pursue them.  Even if they do not want to buy our products, we can still target them with dedicated messaging.  We can directly reach out to them, and we can figure out ways to repair the relationship.  These consumers can provide us with a wealth of primary data that can be used to improve our offerings and create focused marketing campaigns.  Dissatisfied consumers are just as valuable as satisfied ones.

The conclusion is clear: Our job is not done once the consumer buys our product.  Once a consumer buys a product they will enter some degree of post-purchase behavior.  These behaviors, based on their satisfaction or dissatisfaction, will either build customer equity and brand loyalty, or lead to eroding sales and brand image issues.  This all is related to their relationship between their expectations and the perceivced performance of the products in their hands.  As marketers, we must have messaging ready for this specific part of the Buyer Decision Process.  It is our job to encourage happy consumers to share their experiences and dive deeper into brand offerings.  It is also our job to be brand advocates by reaching out to dissatisfied consumers and transforming their experience into one that leads to a profitable relationship.


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Marketing 101: Purchase Decision

In my examination of the Buyer Decision Process I've explored the first three steps: Need Recognition, Information Search, and the Evaluation of Alternatives. Generally the completion of alternative evaluation will lead to our fourth step, the Purchase Decision.

The Purchase Decision
We can define the Purchase Decision simply as the consumer's choice of which brand to purchase.  Once the consumer forms their beliefs and attitudes about a product segment's brands, the consumer will usually purchase the most preferred brand.  Notice that I said usually.  Sometimes two factors can come between the purchase intention and the purchase decision: the attitudes of others, and unexpected situations.

Sometimes the attitudes of others can change our minds before the sales transaction. For example, someone in a family group or social group might think that you should get an Apple iPad instead of a comparable competitor's tablet device.  If this person is important enough in your life, they may exert enough "peer" pressure to cause you to suddenly alter your attitudes and beliefs, greatly reducing the chances of you buying another brand of tablet.

Your tablet purchasing decision may also be altered by our second factor: unexpected situations.  Consumers will usually form their purchase decisions based on factors such as their current income level, expected prices, and assumed product benefits.  However unexpected events often will change their original purchase intention.  Some examples of purchase altering situations are unexpected sales, competitors dropping their prices, a sudden economic downturn, or a sudden change in employment.

Marketers need to understand that their work is not done once a consumer reaches the point of making a purchase.  Because consumers can, and often will change their minds, consistent messaging needs to be placed in front of the consumer all the way up to the actual sales transaction.  Even then our job is not done.  In my next post I will explore Post-Purchase Behavior.

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