Target Marketing

Once the firm has identified its market-segment opportunities, it has to decide how many and which one to target.

Evaluating and selecting the market segments

In evaluating different market segments, the firm must look at two factors: the segment’s overall attractiveness and the company’s objective and resources. Having evaluated different segments, company can consider five patterns of target market selection.

Single-segment concentration

Suzuki concentrates on the small-call market and Honda on the family car market. Through concentrated  marketing, the firm gains a strong knowledge of the segment’s needs and achieves a strong market presence. Furthermore, the firm enjoys operating economies through specializing its production, distribution, and promotion. If it captures segment leadership, the firm can earn a high return on its investment.

Selective specialization

The firm selects a number of segments, each objectively attractive and appropriate. There may be little or no synergy among the segments, but each promises to be a moneymaker. This multisegment strategy has the advantage of diversifying the firm’s risk.

Product specialization

The firm makes a certain product that it sells to several segments. An example would be a microscope manufacturer who sells to university, government, and commercial laboratories. The firm makes different microscopes for the different customer groups and builds a strong reputation in the specific product area. The downside risk is that the product may be supplanted by an entirely new technology.

Market specialization

The firm concentrates on serving many needs of a particular customer group. An example would be a firm that sells an assortment of products only to university laboratories. The firm gains a strong reputation in serving this customer group and becomes a channel for additional products the customer group can use. The downside risk is that the customer group may suffer budget cuts.

Full market coverage

The firm attempts to serve all customer groups with all the products they might need. Only very large firms such as IBM (computer market), General Motors (vehicle market), and coca-cola (drink market) can undertake a full market coverage strategy. Large firms can cover a whole market in two broad ways: through undifferentiated marketing or differentiated marketing.

 In undifferentiated marketing, the firm ignores segment differences and goes after the whole market with one offer.

Differentiated marketing typically creates more total sales than undifferentiated marketing. However, is also increases the cost of doing business. The following costs are likely to be higher:

1. Product modification costs: Modification a product to meet different market-segment requirements usually involves R&D, engineering , and special tooling costs.
2. Manufacturing costs: it is usually more expensive to produce 10 units of 10 different products than 100 units of one product. The longer the production setup time and the smaller the sales volume each product, the more expensive the product becomes. However, if each model is sold in sufficiently large volume, the higher setup costs may be quite small per unit.
3. Administrative costs: The company has develop separate marketing plans for each market segment. This requires extra marketing research, forecasting, sales analysis, promotion, planning, and channel management.
4. Inventory costs:  it is more costly to manage inventories containing many products.
5. Promotion costs: The company has to reach different market segments with different promotion programs. The result is increased promotion-planning cost and media costs.

Because differentiated marketing leads to both higher sales and higher costs.