Targeting Guide #1

Consider two factors when selecting market segments to target:  (a) the attractiveness of the segment and (b) your company’s and brand’s strengths and weaknesses.

The above guide is found in Philip Kotler and Kevin Keller’s classic MBA marketing text, Marketing Management, in much more formal prose than this guide.

From experience, most marketers focus on the attractiveness of the segment and minimize their company’s and brand’s weaknesses.  You need to focus equally on both.  It is very difficult – and sometimes beyond the ability of the marketing manager -- to eliminate the weaknesses of the company and/or brand.  For example, if a company has a poor supply chain which results in inconsistent customer delivery and low fill rates, much work is needed to correct this weakness.

A good way to assess which market segments to target is through is through a SWOT analysis.  A classic SWOT analysis consists of strengths and weaknesses and opportunities and threats.  Strengths and weaknesses are internal to the company or brand; whereas, opportunities and threats are external to the company or brand.  A SWOT analysis can be used as a thinking tool for targeting market segments.

The back side of the SWOT analysis -- opportunities and threats -- are, respectively, the attractive aspects of a market segment and the negative aspects of a market segment.  As an example, most marketers are under pressure to constantly increase category share.  Large market segments where increased category share can be more easily accomplished represent opportunities for those marketers.  Conversely, smaller market segments may represent a threat to the marketer who is after large category share.

The front side of the SWOT analysis -- strengths and weaknesses -- are the strengths and weaknesses of your company and/or brand.  Be careful in your analysis of strengths and weaknesses.  You are probably proud of your employer; and, unfortunately, this colors your judgment.  You may proudly point out that your company spends more on research and development than your competitors.  Spending more on research and development, in and of itself, is not a strength.  If your research and development expenditures result in marketable products that create value for your target customers, then the ability to create those products is a strength.  If not, your spending on research and development may be a contributor to a weakness – you may be the high cost producer in the category.  Similarly, a company’s  efforts to protect the environment are certainly admirable.  However, in selecting target market segments, they are not a company or brand strength unless they motivate the target customer to consider the purchase of the brand.

To aid you in your SWOT analyses, a SWOT Analysis template is available for the asking.  When you use this template, remember -- strengths and weaknesses are internal to the firm or brand; opportunities and threats are external to the firm or brand.

Mkt Segmentation Guide #12

Good segmentation produces segments that are homogeneous within and heterogeneous between.

This is an often repeated marketing guide.  It is sometimes misunderstood to mean that all of the members of a given segment will share similar demographic characteristics.  Remember that differing wants/needs define segments.  The members of a given segment should have the same wants/needs (to be homogeneous) and those wants/needs should differ (to be heterogeneous) from the wants/needs of members of other segments. 

If the market for dance lessons were segmented, a hypothesis would be that a high potential market segment would be comprised of people with higher social needs.  People with high social needs carry those needs with them throughout their lives, and those needs are relatively independent of economic status.  Thus, the members of the high potential market segment probably have very differing demographics.

As an example and presented as a cluster set space to the right, the fact that consumers are contained in one of the clusters indicates homogeneous wants/needs.  The lack of overlap among the clusters indicates the consumers in a given cluster have wants/needs that are different, or heterogeneous, from the wants/needs of consumers in other clusters.

Mkt Segmentation Guide #11

In consumer market segmentation there is a maximum number of segments, say about eight, which can be considered and executed against by the marketer.

Segmentation, taken to its logical conclusion, would yield segments of one end-user eac because each end-user is unique.  Obviously, marketers cannot afford to customize their marketing mix for each individual end-user.  Marketers tend to seek segments that are large enough for them to achieve some economies of scale in their marketing efforts.

From experience, segmentation schemes of over about eight segments generally reduce the segmentation sample size in any one segment to a point where the estimators become unstable.  Thus, the confidence interval around an estimator, such as age, for a given segment tends to overlap to other segments.  The distinctions between the segments become unclear.

If marketers don’t clearly understand the characteristics of the end-users in a given market segment, it is impossible to effectively proceed with the other steps in marketing planning -- targeting, positioning, and developing marketing mix tactics.

Mkt Segmentation Guide #10

Markets are segmented; if you don’t figure out what the segments are, your competitor will.

There are several examples in business history where a pioneering marketer in a product category tries to appeal to the entire market with their offering.  Eventually, a competitor recognizes that not everyone wants/needs the same thing.  The competitor develops an offering that successfully attracts a given segment of the market.  Another competitor develops an offering that appeals to another segment of the market.  One by one, the mass marketer find the various segments away from them.

One example is Henry Ford with his Model T.  General Motors and other competitors took Henry’s customers segment by segment with the creation of brands that appealed to separate segments.  Chevrolet was acquired by General Motors in 1917 and was positioned by Alfred Sloan to sell a lineup of mainstream vehicles to directly compete against the Model T.   General Motors first produced the Oakland and later the Pontiac to appeal to those consumers who sought something a little better than the Model T.  Oldsmobile and its companion brand, Viking, appealed the the next more affluent segment of the market.  Buick and Marquette represented the next step in product price points.  Finally, LaSalle and Cadillac appealed to the most affluent consumers.  Henry may have put American on wheels, but many of those Americans ended up driving General Motors' and other competitors' cars.

Another example is Holiday Inn which pioneered the modern hospitality category.  Holiday Inn had a target market in mind when it was created, the family traveler.  The original Holiday Inn facility was designed to appeal to families traveling by automobile.  The garden style layout of the facility allowed the family to park near their room eliminating the need for assistance in transporting their belongings from their car to their hotel room.  However, to attract business people, they began to also locate motels in heavily populated areas where the garden style layout which required a large lot size was not economically feasible.  Thus, they changed their layout to a high rise building.  Competitors learned that the sales person wants/needs hotel features which differ from those of the family.  Middle managers have different hotel wants/needs than either sales people or family travelers.  These competitors took Holiday Inn’s market away from them segment by segment.

Mkt Segmentation Guide #9

The marketer who intimately understand customers’ wants/needs will be the winner.

Knowledge is power.  If you understand something about consumer behavior in your product category that your competitors do not, you have a competitive advantage over them.  In recent years, much has been written about customer intimacy.  However, customer intimacy isn’t a marketing program; it isn’t customer relationship marketing.  Customers intimacy is deeply understanding your target customers.  In consumer product and service categories, that deep understanding of your target customers wants/needs can only be accomplished through legitimate marketing research.