Targeting Guide #11

Don’t think that you are typical of your target customer.

You know far more about your product category than does your target customer.  You have become immersed in your product category.  You may look at three products in your category, and you see great differences between them.  Your target consumer may see those three products as being identical.  As a demonstration, shown below are three washing machines that are the top, middle, and bottom of a manufacturer’s front loading product line.

The Manufacturers Suggested Retail Prices for the three models are $1,600, $1,300, and $850.  You may be able to identify the low priced model as it appears to have fewer control buttons and a different door color.  Identifying the high priced model from the remaining two, however, is almost impossible.  The marketers in this category can probably see a great deal of difference in the three models because they are immersed in the product category, but it’s doubtful that the same is true for their target customers.

Also don’t believe that you know any “typical” buyers of your product category.  Your friends, relatives, and acquaintances probably all know for whom you work.  They too have heightened awareness of your product category because they know you.  Don’t ask for their opinions because they are not typical of your target customer.  The only person typical of your target customer is your target customer, and the only way to accurately assess the opinions of your target customers is through marketing research.

Targeting Guide #10

All competitors aren’t your brand’s competitors; only those brands that are targeting your target customers are your brand’s competitors.

Marketers sometime react to the actions of all other brands in a given product/service category.  This is often a mistake.  Only those brands which are targeting your brand’s target customers are your competitors.  The graphic to the left is a hypothesize segmentation set space.  The market is segmented along two unspecified dimensions.  The brands are positioned in the set space by consumers who bought the brand.  Your brand is the represented by the black diamond in the upper right quadrant of the set space.  Your only real competitive in this example is Competitor 1; it is the only brand purchased by consumers who are similar to your customers.

Over-focusing on competitor actions are sometimes a symptom of being sales oriented rather than marketing oriented.  The salesman often views the commercial process as a battle between his company and the competitors’ companies.  Walking into a dealer only to find a competitor’s salesman walking out the door only helps to foster this belief.  And the belief is deeply internalized if the salesman discovers that the competitor filled the dealer’s inventory.

However, the goal of marketing isn’t to defeat the competitors.  The goal of marketing is to create genuine customer value.  If the marketer is better at creating this genuine customer value than competitors, the competitors will be defeated.  The defeat is a by-product of marketing, not the goal of marketing.

Targeting Guide #9

Focus only on your current customers, and as your customers die so will your brand.

Even if you execute your marketing mix tactics perfectly so that all of your current customers are target end-users, it’s a mistake to focus only upon your current customers.  With the popularity of Customer Relationship Marketing (CRM) programs, this is an easy thinking trap to fall into.  Your current customers are going to age.  These changes don’t occur rapidly; it’s a slow evolution.  If you don’t continuously attract younger target end-users into your customer base, your customer base is going to grow older and die.  Your brand will die when its target customers die.

Some of the American automobile manufacturers’ more expensive brands were at one time aspirational brands.  A young Ford owner aspired to own a Mercury or a Lincoln.  As consumers aged and as their income increased with age, Mercury and Lincoln had no trouble replacing their dead customers.  The original General Motors family of brands – Chevrolet, Pontiac, Oldsmobile, Buick, and Cadillac – was assembled to cover every price point in the automobile market.  General Motors owners aspired to move up this ladder of brands.  However, when the aspirations of younger consumers shifted to Mercedes Benz, BMW, Lexus, Infiniti, etc., the Mercury, Lincoln, Oldsmobile, Buick, and Cadillac brands found themselves with aging and dying customer bases. 

There’s nothing wrong with having either an older target market or an older customer base.  One would naturally expect higher price point brands, such as Mercedes and Rolex, to have older customer bases as discretionary income tends to increase with age.  Marketers who are targeting older consumers need to ensure, however, that as consumers age, they age into prospects for the marketers’ brand.

Targeting Guide #8:

Don’t confuse your current customers with your target customers.

No one can execute a marketing plan perfectly.  Perhaps you have a product or service offering that appeals to customers who are not your target customers.  Possibly some of your distribution attracts customers who are not your target customers.  Or you have an offering that’s priced too high or too low for your target customers.  Regardless of the reason, your brand is going to attract buyers who are not your target customers. 

Consider this graphic, the set space represents all the buyers of a given product category.  The larger circle represents your brand’s target customers, the customers that you are after.  The smaller circle is your actual customers.  Note that only a portion of your target bought your brand.  And some of your customers are not your target end-users.  Think of these customers as being accidental buyers.  This is the result of real world imperfect execution of marketing tactics.  The extent to which your current customers are target customers is a function of how close you are to perfect tactical marketing execution. 

In consumer goods product categories, accidental buyers usually don’t represent a problem for the marketer; they only represent that execution of marketing mix tactics could be improved.  In business to business product categories, accidental buyers may mean that an end-user has purchased and is using a product that is not suitable for their application.  This misapplication may lead to dissatisfaction with the brand, or worse, product liability issues.

Targeting Guide #7

When targeting multiple segments, specify their order of priority:  which is primary, secondary, and tertiary.

This game rule is related to the previous one and comes from practical experience.  In developing marketing mix tactics for multiple market segments, compromises will be made.  Specify which target market is primary, which is secondary, and which is tertiary.  Specification of the priority of market segments will allow you to make compromises in your marketing mix tactics in favor in of your higher priority segments.

Targeting Guide #6

Marketers make their job easier if they target one and only one market segment.

This ground rule is common sense.  If the marketer targets only one segment, the wants/needs of every customer in that segment are going to be the same.  In developing marketing mix tactics, all of the elements of the marketing mix can be optimized to satisfy those wants/needs thereby creating value for target customers.

If a second segment is targeted, then the wants/needs of end-users in the two segments differ to some degree.  In developing marketing mix tactics, what the marketer does for the first segment may be inappropriate for the second segment.  This adds complexity in tactical marketing mix planning.  The marketer must find compromises that are appropriate for both segments.  Often these compromises are not optimal for either segment.

Targeting Guide #5

Focus your scare marketing resources exclusively on your targeted market segment(s).

Once you have identified your targeted market segment(s), devote all of your marketing resources toward moving those target customers toward the purchase of your brand.  Do not waste your scarce marketing resources on end-users who are not your target customers. 

In the real world, marketers often are forced into redirecting marketing resources away from target end-users to non-target end-users.  As an example, there is the opportunity to open new distribution, but marketing research shows that target customers do not purchase at that new distribution.  If sales are going well, the marketer should decline the opportunity.  If sales are not going well, the marketer will probably be forced to accept the opportunity recognizing that it is contrary to the brand’s marketing strategy.  In the real world, one finds that it is impossible to execute a marketing strategy perfectly.  Good marketers will recognize that in accepting the opportunity that they are deviating from their marketing strategy.  Poor marketers will not.

Targeting Guide #4

Targeting is as much exclusionary as it is inclusionary.

Associated Quote:  I know when our businesses have done a good job of market segmentation and targeting when they can tell me who we should not sell to.  Dr. Charles Lillis, former CEO of MediaOne

By identifying the target end-users to whom you are going to direct your marketing efforts, you are consciously making the decision who you are not going after.  The unique brand benefit that you specify in the positioning step of marketing strategy development motivates your target customers to consider your brand.  It’s unlikely that your unique brand benefit would motivate end-users who are not members of your target segment.

Most marketing people sometimes have difficulty in following this marketing guide.  I’ve seen marketers who do have a segmentation scheme, but they target all of the segments identified in the scheme with a single brand.  This is not targeting; it is mass marketing.

Targeting Guide #3

To succeed in the segment, a company or brand must exhibit some strength in serving that segment.

Examples:  If a target market segment has a high degree of price sensitivity driven by low income, the marketer should have the strength of being a low cost producer so that they can offer low prices to their target customers.  If a target market segment is seeking the ego gratification that comes with exclusivity, the marketer needs to have brands that are associated with that attribute.  If the target market segment demands services associated with a physical product, the company needs to have the strength of being a service provider.

Targeting Guide #2

The rules for assessing the attractiveness of a market segment are common sense rules.

Associated Quote:  Common sense is not so common.  Voltaire

Common sense:  It’s better to target market segments that are large rather than small; segments that are growing rather than dying; segments where there are few competitors rather than many competitors; segments where you can make a profit rather than sustain a loss; etc.  Although market segmentation can be extremely complex, the rules of targeting are common sense rules.

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.

Mkt Segmentation Guide #8

Each product category has its own unique segmentation solution.

One can’t take a segmentation solution for automobiles and apply it to the soft drink category.  Nor can one take a segmentation solution for breakfast cereal and apply it to deodorants.  Each product category has its own uniqueness in terms of consumer behavior.

There are some research suppliers who have syndicated overall segmentation schemes for consumers across all product and service categories.  These research suppliers are competent; their overall segmentation schemes probably describe the aggregate behavior of consumers across all product and service categories.  The problem, however, is that consumer behavior varies by product or service category.  Thus, while this syndicated research may describe the aggregate behavior of consumers across all product and service categories, it fails to describe consumer behavior in any given product or service categories.  If you have access to such research, use it to assist you in your understanding of consumer behavior.  However, remember that it is not directly applicable to your product or service category.

Mkt Segmentation Guide #7

In business-to-business categories, segmentation can be accomplished by studying the different types of customers.

Unlike consumer markets, you can study customers in business-to-business product categories and determine what the segments are.  The motivation of businesses is economic in nature.  It isn’t difficult to understand.  A business wants to make money, and marketers satisfy that need by either assisting the customer in reducing their costs or increasing their revenue.

Moreover, businesses of the same size in a given industry tend to have very similar operating profile.  As an example, once you’ve documented the operating profile of a large, long-haul trucking operator, the operating profile of other large, long-haul trucking operators is going to be very similar.

Because of the lack of behavioral complexity in businesses, business markets tend to be segmented along easily understood characteristics such as application of the product, size, extent of usage, industry, etc.  Anderson and Narus, in their Business Market Management: Understanding, Creating, and Delivering Value, encourage business-to-business marketers to consider what they call “progressive bases of segmentation” in addition to the more conventional bases of segmentation.  These include customer sophistication regarding the marketer’s product category, the degree of vertical integration, contribution to the supplier’s profitability, etc.

Mkt Segmentation Guide #6

In consumer goods categories, segmentation can only be accomplished by rigorous marketing research.

Market segments are the result of differing wants/needs within different groups of consumers.  One can’t have a conversation with a few consumers and determine what wants/need motivate their behavior in a product category.  It takes research.  Consumer markets are large.  One would never be able to talk to enough consumers to generalize about the consumer market overall much less to generalize about the segments within that overall market.  It takes consumer research.

The typical consumer segmentation study probes all aspects of the consumer that may contribute to influencing their behavior – product or service category knowledge, attitudes and/or opinions toward the category and brands within the category, prior purchase behavior, personality characteristics, lifestyles, demographics, etc.

One cannot observe consumers in a given product category and determine what segments exist.  You need research.

Mkt Segmentation Guide #5

In business-to-business categories, customers’ wants/needs can change quickly so that segmentation needs to be reviewed periodically.

Demand in business-to-business product categories is “derived” demand.  Business demand is derived from the demand for consumer goods and services.  The automobile industry’s demand for steel and aluminum is derived from the consumer demand for automobiles.  Sometimes one will have to trace the demand for business products and services backwards through multiple suppliers before the demand for a consumer good or service will be evident, but eventually it can be found.

Business markets are smaller than consumer markets.  Thus in many industries, a shift in demand by a few businesses will greatly influence the demand for any given business-to-business product or service category.  This is why business-to-business markets tend to be more cyclical than consumer markets.  For most business-to-business marketers, when sales are good they are very good; but when sales are bad they are very bad.

Mkt Segmentation Guide #4

In consumer goods categories, good segmentation work can last for decades.

Segmentation is based upon differing wants/needs.  Good marketers are able to understand and appeal to the fundamental wants/needs of their target customers.  These fundamental consumer wants/needs do not change rapidly.  People have always wanted a full stomach, shelter, and clothing (physiological needs).  They’ve always wanted to be free of fear of the future (safety needs).  They’ve always wanted companionship (social needs).  People, especially men, have always had self image needs to be satisfied (ego needs).  These needs don’t change rapidly.

Consumers’ wants/needs are usually set early in life and greatly influenced by their parents.  Despite the fact that children tend to rebel in adolescence, consumers end up having wants/needs that are similar to their parents.  Thus, wants/needs can remain relatively constant over multiple generations. 

What changes with more rapidily than consumer wants/needs are marketers’ solutions to those wants/needs.  Using the automobile category as an example, Americans have always loved big vehicles.  There are a couple of explanations for this phenomenon.  Firstly, Americans usually think that bigger is better … in houses, in meals, and in automobiles.  Secondly, Americans tend to be materialistic; we judge ourselves and others by how much we own.  Think of the bumper sticker, “He who dies with the most toys wins.”  We need big vehicles in which to carry our possessions because we are materialistic.  In the 1950-60’s, the typical family vehicle was the big, full sized station wagon.  In the 1970’s, the station wagon was supplanted by the minivan.  Finally, in the 1990’s, the minivan was replaced by the sport utility vehicle.  The fundamental want/need remained the same over this 50 year period; it was the marketers’ solution to the want/need that changed.

Of course, there can be events in the marketing environment which cause rapid shifts in consumer demand.  The two gasoline shortages of the 1970’s caused a shift from the traditional large American car to smaller, more fuel efficient models.  The high gasoline prices of prices of 2008 also shifted consumer demand to smaller, more fuel efficient models.  Once the gasoline shortages of the 1970’s were over and the high prices of 2008 declined, consumers reverted back to larger vehicles which was really what they wanted in the first place.