Market targeting and positioning

A target market is the market or market segment which forms the focus of the firm’s marketing efforts. Once segments have been identified, decisions about how many and which customer groups to target must be made. The options include:

Mass marketing strategy’: offering one product/service concept to most of the market across many market segments. Although scale economies can be achieved, there is a risk that few customers will be adequately satisfied. The underlying assumption of this approach, referred to as undifferentiated marketing, is that all customers in the market have similar needs and wants. It is argued that they can therefore be satisfied with a single marketing mix - that is a standard product or service, similar price levels, one method of distribution and a promotional mix which is directed at everyone.

There are probably only two conditions under which a mass marketing approach is the most appropriate. The first reflects the demand side of the equation and is the position where there is little variation in the needs of consumers for a given product or service. This is a situation which is becoming increasingly rare, since in both consumer and industrial markets different individuals and organizations have widely varying characteristics, wants, needs and interests. The second condition reflects the supply side of the equation and refers to the ability of the enterprise to develop and sustain a single marketing mix that satisfies all. Where markets are large, this capability requires the availability of substantial resources.

More prevalent strategies are those which take account of the wide variation in customer wants, needs, characteristics and interests. For example:

Single segment strategy: concentrating on a single segment with a product/service concept. This is a relatively cheap option to use in terms of utilizing resources, but there is a risk of putting all the eggs in one basket - if the segment fails the company’s financial strength will decline rapidly. Rolex, for example, targets relatively high-income consumers with its prestigious wristwatches. When world economies are buoyant sales will be good, but in times of economic recession even the better off can change their spending patterns.

There is also a problem with regard to flexibility in changing the productmarket posture. High-quality image companies experience difficulty in terms of moving into product-market segments which have a lower-quality unage. On the other hand, a single segment strategy does permit a firm to specialize, and the firm can concentrate all its energies on satisfying the wants of a particular market segment.

Multi-segment strategy: targeting a different product or sendee concept at each of a number of segments and developing a marketing mix strategy for each of the selected segments. Although this approach can spread the risk of being over-committed in one area, it can be extremely resource demanding.

Which target segment strategy a company adopts will be dependent on a wide range of market, product and competitive factors. Each of these must be carefully considered before a decision is made about segments to be targeted.

Factors influencing choice of targeting strategy

Having looked at some of the ways of targeting, let us now consider the kind of factors which influence choice of strategy.

Stage of product-market maturity: Segmentation strategies are most critical during the maturity stage of the product market, because buyers’ needs are different. At the introductory stage of the life cycle there are few, if any, product-type competitors; however, competition can occur among alternative product types. If product-type substitution exists, the new market entrant may benefit from targeting one or more segments in the existing product markets. Where there are no product-type substitutes, a broad or relatively undifferentiated targeting strategy may be appropriate at the introductory stage of the life cycle. This may amount to attempting to identify a broad segment of potential buyers. The nature and intensity of competition at each stage of the product life cycle are important in guiding market targeting decisions.

Extent of buyer differentiation: When buyer wants are similar throughout the product market, there is less opportunity for extensive segmentation than there is in markets with buyers with different wants. A product market made up of a relatively small number of end-users is more suitable for a broad or relatively undifferentiated targeting strategy, particularly if the value of purchases of individual buyers is small. In addition, the more complex that the product-market structure is with respect to competing firms, variety of product-market offerings, variations in user needs and wants etc., the more likely it is that a useful method of segmentation can be found.

Market position: A firm’s market share in an existing product market plays an important role in determining the target market strategy that it uses. Low market share firms have to compete in segments where their strengths are most highly valued and where large competitors are unlikely to compete. The strength may be in the type and range of products that are offered, the method by which the product is produced, the cost and speed of distribution or the credit and service arrangements. In these firms, management has to spend time identifying and exploiting unique segments rather than attempting to serve entire industries.

Structure and intensity’ of competition : When several firms are competing in an industry, selective targeting is often an appropriate strategy. Such selectivity is often essential for small firms in fragmented, transitional and global industries. Large firms may be able to reap the benefits of extensive targeting using a multiple-segmentation strategy.

Adequate resources: The possession of considerable resomces can often place an organization in a position where it can consider various target market alternatives. Where resomces are limited, however, a company may be forced to adopt a single-segment targeting strategy. The ability to analyze market capabilities is a decided asset, particularly where the task of market segmentation is a complex one. Thus, possessing both resources and the capacity to undertake such complex analyses provides firms with flexibility in choosing market targets.

Production and marketing scale economies: Choice of target market strategy may be influenced by production and marketing scale economies. The production process, for example, may require large-scale output to achieve necessary cost advantages. The same may also apply to marketing and distribution programs. In such cases an extensive market coverage strategy may be required in order to gain the sales volume necessary to support large-volume production and distribution.

Choice of segment(s)

Five factors govern the attractiveness of a segment (Doyle, 1994):

• • segment size,
• • current and potential competition,
• • segment growth,
• • capabilities of the business and
• • profitability of the segment.

Deciding whether or not to enter a particular segment depends essentially on the match between the companies’ capabilities and the characteristics of the segment. Although a large, expanding and lucrative market segment must be intuitively appealing, it will attract considerable competition, so a firm must have the capabilities (resources) to compete effectively in such a market segment. Similarly, as segments contract, larger competitors may tend to withdraw, making the segment less competitive and more attractive to firms with lesser capabilities.

Having looked at market targeting, we will now move on to look at positioning.