Target Marketing: Four Generic Target Marketing Strategies

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Target Marketing: Four Generic Target Marketing Strategies!

The purpose of evaluating market segments is to choose one or more segments to enter.
Target market selection is the choice of which and how many market segments the
company will compete in.
 Image Courtesy : richardscottdial.files.wordpress.com/2013/03/hires_marketseg.jpg

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When selecting their target markets, companies have to make a choice of whether they
are going to be focused on one or few segments or they are going to cater to the mass
market. The choice that companies make at this stage will determine their marketing
mix and positioning plank. There are four generic target marketing strategies.
1. Undifferentiated marketing:
There may be no strong differences in customer characteristics. Alternatively, the cost of
developing a separate marketing mix for separate segments may outweigh the potential
gains of meeting customer needs more exactly. Under these circumstances a company
will decide to develop a single marketing mix for the whole market. There is absence of
segmentation.

This strategy can occur by default. Companies which lack a marketing orientation may
practice this strategy because of lack of customer knowledge. It is convenient since a
single product has to be developed.

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A company using an undifferentiated targeting strategy essentially adopts a mass-

market philosophy. It views the market as one big market with no individual segments.
The company uses one marketing mix for the entire market. The company assumes that
individual customers have similar needs that can be met with a common marketing mix.

The first company in an industry normally uses an undifferentiated targeting strategy.

There is no competition at this stage and the company does not feel the need to tailor
marketing mixes to the needs of market segments.

Since there is no alternate offering, customers have to buy the pioneer’s product. Ford’s
Model T is a classical example of an undifferentiated targeting strategy. Companies
marketing commodity products like sugar also follow this strategy.

Companies following undifferentiated targeting strategies save on production and

marketing costs. Since only one product is produced, the company achieves economies
of mass production. Marketing costs are also lower as only one product has to be
promoted and there is a single channel of distribution.
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But undifferentiated targeting strategy is hardly ever a well considered strategy.

Companies adopting this strategy have either been blissfully ignorant about differences
among customers or have been arrogant enough to believe that their product will live up
to the expectations of all customers, till focused competitors invade the market with
more appropriate products for different segments.

Therefore companies following this strategy will be susceptible to incursions from

competitors who design their marketing mixes specifically for smaller segments.

Finding out that customers have diverse needs that can only be met by products with
different characteristics means that managers have to develop new products, design new
promotional campaigns and develop new distribution channels. Moving into new
segments means that salespeople have to start prospecting for new customers.

2. Differentiated marketing or multi-segment targeting:

When market segmentation reveals several potential target segments that the company
can serve profitably, specific marketing mixes can be developed to appeal to all or some
of the segments. A differentiated marketing strategy exploits the differences between
marketing segments by designing a specific marketing mix for each segment.

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A company following multi-segment targeting strategy serves two or more well- defined
segments and develops a distinct marketing mix for each one of them. Separate brands
are developed to serve each of the segments.

It is the most sought after target market strategy because it has the potential to generate
sales volume, higher profits, larger market share and economies of scale in
manufacturing and marketing. But the strategy involves greater product design,
production, promotion, inventory, marketing research and management costs.

Another potential cost is cannibalization, which occurs when sales of a new product cut
into sales of a firm’s existing products. Before deciding to use this strategy, a company
should compare the benefits and costs of multi-segment targeting to those of
undifferentiated and concentrated targeting.
The car market is most clearly segmented. There are segments for small cars, luxury
cars, sports utility vehicles, etc. Most car makers like General Motors, Ford, Toyota,
Honda and others offer cars for all the segments. Though Toyota entered the US market
with small cars, it eventually chose to operate in most of the segments.

3. Focus or concentrated targeting:

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Several segments may be identified but a company may not serve all of them. Some may
be unattractive or out of line with the company’s business strengths. A company may
target just one segment with a single marketing mix. It understands the needs, and
motives of the segment’s customers and designs a specialized marketing mix.

Companies have discovered that concentrating resources and meeting the needs of a
narrowly defined market segment is more profitable than spreading resources over
several different segments. Starbucks became successful by focusing exclusively on
customers who wanted gourmet coffee products.

The strategy is suited for companies with limited resources as these resources may be
too stretched if it competes in many segments. Focused marketing allows R&D
expenditure to be concentrated on meeting needs of one set of customers and
managerial activities are devoted to understanding and catering to their needs.

Large organizations may not be interested in serving the needs of this one segment or
their energies may be so dissipated across the whole market that they pay insufficient
attention to the requirements of this small segment. One danger that such niche
marketers face is attracting competition from larger organizations in the industry if they
are very successful.

Companies following concentrated targeting strategies are obviously putting all their
eggs in one basket. If their chosen segments were to become unprofitable or shrink in
size, the companies will be in problem. Such companies also face problems when they
want to move to some other segments, especially when they have been serving a
segment for a long time.
They become so strongly associated with serving a segment with a particular type of
product or service, that the customers of other segments find it very difficult to associate
with them. They believe that the company can serve only that particular segment.

Companies which start with concentrated targeting strategy but nurse ambitions to
serve more segments should make early and periodic forays into other segments.

The idea is to avoid being labelled as the company which exclusively serves a particular
segment. The association with one particular segment should not be allowed to become
so strong that customers cannot imagine the company doing something else.

Mercedes offers premium cars for the upper segment of the market only. It does not
offer cars for the middle and lower segments. But Mercedes segments the premium
segment and offers different cars for its different premium segments.

Some companies are focused in another way. They focus on heavy users—the small
percentage of customers that account for large share of a product’s sale.

The problem with such a strategy is that all the major players would be targeting this
segment, and hence serving this segment will involve high marketing expenditure, price
cutting and low profitability. A more sensible strategy is to target a small, less attractive
segment rather than choose the same segment that every company is after.

4. Customized marketing:
In some markets, the requirements of individual customers are unique and their
purchasing power is sufficient to make designing a separate marketing mix for each
customer a viable option. Many service providers such as advertising, marketing
research firms, architects and solicitors vary their offerings on a customer to customer
basis.

They will discuss face to face with each customer their requirements and tailor their
services accordingly. Customized marketing is also found within organizational markets
because of high value of orders and special needs of customers.

Customized marketing is associated with close relationships between the supplier and
customer because the high value of an order justifies large marketing and sales efforts
being focused on each buyer.