Target market


A target market is a group of customers within a business's serviceable available market at which a business aims its product features, marketing efforts and pricing. A target market is a subset of the total market for a product or service. The serviceable obtainable market is a subset of a target market.
The target market typically consists of consumers who exhibit similar characteristics and are considered most likely to buy a business's market offerings or are likely to be the most profitable segments for the business to service.
Once the target market have been identified, the business will normally tailor the marketing mix with the needs and expectations of the target in mind. This may involve carrying out additional consumer research in order to gain deep insights into the typical consumer's motivations, purchasing habits and media usage patterns.
The choice of a suitable target market is one of the final steps in the market segmentation process. The choice of a target market relies heavily on the marketer's judgement, after carrying out basic research to identify those segments with the greatest potential for the business.
Occasionally a business may select more than one segment as the focus of its activities, in which case, it would normally identify a primary target and a secondary target. Primary target markets are those market segments to which marketing efforts are primarily directed and where more of the business's resources are allocated, while secondary markets are often smaller segments or less vital to a product's success.
Selecting the "right" target market is a complex and difficult decision. However, a number of heuristics have been developed to assist with making this decision.

Definition

A target market is a group of customers, for which an organisation designs, implements and maintains a marketing mix suitable for the needs and preferences of that group.
Target marketing goes against the grain of mass marketing. It involves identifying and selecting specific segments for special attention. Targeting, or the selection of a target market, is just one of the many decisions made by marketers and business analysts during the segmentation process.
Examples of target markets used in practice include:
Selection of a target market is part of the overall process known as S-T-P. Before a business can develop a positioning strategy, it must first segment the market and identify the target for the positioning strategy. This allows the business to tailor its marketing activities with the needs, wants, aspirations and expectations of target customers in mind. This enables the business to use its marketing resources more efficiently, resulting in more cost and time efficient marketing efforts. It allows for a richer understanding of customers and therefore enables the creation of marketing strategies and tactics, such as product design, pricing and promotion, that will connect with customers' hearts and minds. Also, targeting makes it possible to collect more precise data about customer needs and behaviors and then analyze that information over time in order to refine market strategies effectively.
The first step in the S-T-P process is market segmentation. In this phase of the planning process, the business identifies the market potential or the total available market. This is the total number of existing customers plus potential customers, and may also include important influencers. For example, the potential market or TAM for feminine sanitary products might be defined as all women aged 14–50 years. Given that this is a very broad market in terms of both its demographic composition and its needs, this market can be segmented to ascertain whether internal groups with different product needs can be identified. In other words, the market is looking for market-based opportunities that are a good match its current product offerings or whether new product/service offerings need to be devised for specific segments within the overall market.
File:TAM-SAM-Market.jpg|thumb|300px|left|Euler diagram showing the relationship among Target Market, Served Available Market, and Total Available Market

Market segmentation

Markets generally fall into two broad types, namely consumer markets and business markets. A consumer market consists of individuals or households who purchase goods for private consumption and do not intend to resell those goods for a profit. A business market consists of individuals or organisations who purchase goods for one of three main purposes; for resale; for use in producing other goods or services and; for general use in daily business operations. Approaches to segmentation will vary depending on whether the total available market is a consumer market or a business market.
Market segmentation is the process of dividing a total available market, using one of a number of key bases for segmenting such as demographic, geographic, psychographic, behavioural or needs-based segments. For example, a demographic segmentation of the adult male population might yield the segments, Men 18-24; Men 25-39, Men 40-59 and Men 60+. Whereas a psychographic segmentation might yield segments such as Young Singles, Traditional Families, Socially Awares and Conservatives. Identifying consumer demand and opportunity within these segments should assist the marketer to identify the most profitable segments.
Although there are many different ways to segment a market, the most common bases used in practice are:
  • Geographic – Residential address, location, climate, region.
  • Demographic/socioeconomic segmentation – Gender, age, income, occupation, socio-economic status, educational-level, family status, marital status, ethnic group, religious affiliation.
  • Psychographic – Attitudes, values, beliefs, interests and lifestyles.
  • Behavioral – usage occasion, degree of loyalty, user status, purchase-readiness
  • Needs-based segmentation – relationship between the customer's needs for specific features and product or service benefits
During the market segmentation process, the marketing analyst will have developed detailed profiles for each segment formed. This profile typically describes the similarities between consumers within each segment and the differences between consumers across each of the segments. The primary use of the segment profile is to assess the extent to which a firm's offerings meet the needs of different segments. A profile will include all such information as is relevant for the product or service and may include basic demographic descriptors, purchasing habits, disposition to spend, benefits-sought, brand preferences, loyalty behavior, usage frequency and any other information deemed relevant to the subject at hand.
The segment profile assists in the decision-making process and has a number of specific benefits:
  • assists to determine those segments that are most attractive to the business
  • provides quantitative data about segments for a more objective assessment of segment attractiveness
  • assists in tailoring the product or service offering to the needs of various segments
  • provides basic information to assist with targeting
  • allocating the firm's resources effectively
After profiling all the market segments formed during the segmentation process, detailed market analysis is carried out to identify one or more segments that are worthy of further investigation. Additional research may be undertaken at this juncture to ascertain which segments require detailed analysis with the potential to become target segments.

Selecting the target market

A key consideration in selecting the target markets is whether customer needs are sufficiently different to warrant segmentation and targeting. In the event that customer needs across the entire market are relatively similar, then the business may decide to use an undifferentiated approach. On the other hand, when customer needs are different across segments, then a differentiated approach is warranted. In certain circumstances, the segmentation analysis may reveal that none of the segments offer genuine opportunities and the firm may decide not to enter the market.
When a marketer enters more than one market, the segments are often labeled the primary target market and the secondary target market. The primary market is the target market selected as the main focus of marketing activities and most of the firm's resources are allocated to the primary target. The secondary target market is likely to be a segment that is not as large as the primary market, but may have growth potential. Alternatively, the secondary target group might consist of a small number of purchasers that account for a relatively high proportion of sales volume perhaps due to purchase value, purchase frequency or loyalty.
In terms of evaluating markets, three core considerations are essential:
  • Segment size and growth
  • Segment structural attractiveness
  • Compatibility with company objectives and resources.
However, these considerations are somewhat subjective and call for high levels of managerial judgement. Accordingly, analysts have turned to more objective measures of segment attractiveness. Historically a number of different approaches have been used to select target markets. These include:

International segmentation and targeting

Segmentation and targeting for international markets is a critical success factor in international expansion. Yet, the diversity of foreign markets in terms of their market attractiveness and risk profile, complicates the process of selecting which markets to enter and which consumers to target. Targeting decisions in international markets have an additional layer of complexity.
An established stream of literature focussing on International Market Segmentation suggests that international segmentation and targeting decisions employ a two-stage process:
Analysis carried out in the first stage focuses involves the collection of comparative information about different countries with a view to identifying the most valuable markets to enter. This is facilitated by the relatively wide data availability for macro-variables. Most government departments collect business census data as well as data for a broad range of economic and social indicators that can be used to gauge the attractiveness of various destinations.