Chapter 5 – Market Segmenting, Targeting, and Positioning
- Distinguish between targeted marketing and mass marketing and explain what led to the rise of each.
- Describe how targeted marketing can benefit firms.
- Explain why companies differentiate among their customers.
The segment(s) or group(s) of people and organizations you decide to sell to is called a target market. Targeted marketing, or differentiated marketing, means that you may differentiate some aspect of marketing (offering, promotion, price) for different groups of customers selected. Mass marketing, or undifferentiated marketing, came first. It evolved along with mass production and involves selling the same product, at the same price and using the same promotion and place channels to everybody. You can think of mass marketing as a popcorn approach: you blast out as many promotional messages as possible on every medium available as often as you can afford (Spellings, 2009). By contrast, targeted marketing is more like shooting a dart; you take careful aim at one type of customer by crafting a message that meets their needs.
Automaker Henry Ford was very successful at both mass production and mass marketing. Ford pioneered the modern-day assembly line early in the twentieth century, which helped him cost-effectively pump out huge numbers of identical Model T automobiles. They came in only one color: black. “Any customer can have a car painted any color he wants, so long as it is black,” Ford used to joke. He also advertised in every major newspaper and persuaded all kinds of publications to carry stories about the new, inexpensive cars. By 1918, half of all cars on America’s roads were Model Ts (Ford, 1922).
Then Alfred P. Sloan, the head of General Motors (GM), appeared on the scene. Sloan began to segment consumers in the automobile market—to divide them up by the prices they wanted to pay and the different cars they wanted to buy. The idea was to offer a car for every target market, which he differentiated based on potential customers’ income level. His efforts were successful, and in the 1950s, GM overtook Ford as the nation’s top automaker (Manzanedo, 2005). You might be interested to know that before GM declared bankruptcy in 2009, it was widely believed the automaker actually had too many car models. As a result of simplifying their product mix and other decisions, General Motors became profitable and in 2020 reported profits of $6.43 billion US (Krisher, 2021).
Benefits of Segmenting and Targeting Markets
The story of General Motors raises an important point, which is that segmenting and targeting markets doesn’t necessarily mean reducing the number of customers. In fact, it can help you enlarge your customer base by giving you information with which to successfully adjust some component of your marketing mix—the product itself, its price, the way you service and promote it. More specifically, the process can help you do the following:
- Avoid head-on competition with other firms trying to capture the same customer segments.
- Develop new offerings and expand profitable brands and products lines.
- Remarket older, less-profitable products and brands.
- Identify early adopters.
- Redistribute money and sales efforts to focus on your most profitable customers.
- Retain “at-risk” customers in danger of defecting to your competitors.
The trend today is toward more precise, targeted marketing. Figuring out “who’s who” in terms of your customers involves some detective work, though—often market research. A variety of tools and research techniques can be used to segment markets. Government agencies, such as Statistics Canada, collect and report vast amounts of population information and economic data that can reveal changing consumption trends. Technology is also making it easier for even small companies and entrepreneurs to gather more detailed information about potential customers. With the increased use of social media, companies are able to get information on consumers’ search behavior, which can tell us about their interests and needs. The use of promotional tools such as loyalty cards that consumers scan at many grocery and drug stores also provide an incredible amount of information on consumers’ buying behavior. When we combine this historical data with other information (e.g., time of year, current promotions, price discounts, etc.) we can identify patterns in their behavior to understand what factors into their choices, and predict how they might respond in the future.
Companies are now using the Internet to track people’s Web browsing patterns and segment them into target groups. Even small businesses are able to do this cost-effectively because they don’t need their own software and programs. They can simply sign up online for products like Google’s AdSense and AdWords programs. You can locate potential customers by looking at blog sites and discussion forums on the Web. Big-boards.com has thousands of discussion forums you can mine to find potential customers interested in your product. If you have a website, you can download an application onto your iPhone that will give you up-to-the-minute information and statistics on your site’s visitors for free, and if you want you can pay for more detailed information.
Getting a read on potential target markets doesn’t necessarily have to involve technology. Your own personal experience and talking to would-be buyers is an important way to start your investigation. Go where you think would-be buyers go, restaurants, malls, gyms, subways, grocery stores, daycare centers, and offices, and ask questions to find out what they do during the day, what they talk about, what products or services do you see them using, and do they seem to be having an enjoyable experience when using those products or are they frustrated?
Segmenting and Targeting a Firm’s Current Customers
Finding and attracting new customers is generally far more difficult and costly than retaining your current customers. Think about how much time and energy you spend when you switch your business from one firm to another even when you’re buying something as simple as a haircut. If you aren’t happy with your hair stylist and want to find a new one, you first have to talk to people with haircuts you like, or read reviews of salons. Once you decide on a particular salon, you have to find it and explain to the new hairdresser how you want your hair cut and hope he or she gets it right. You also have to figure out what payment options are available (e.g., do they accept Apple Pay?) the new salon will accept and whether tips can be easily added.
Finding new customers, getting to know them, and figuring out what they really want is also a difficult process, one that’s fraught with trial and error. That’s why in many cases it’s so important to get to know, form close relationships with, and focus selling efforts on current customers (Birchall, 2009).
Many companies try to create and maintain a good relationship with their customers through a variety of routes, one of the more popular means being the social media. For example, Twitter is a popular outlet through which companies are keeping in touch with their customers and boosting their revenues. When the homemaking maven Martha Stewart, a food and lifestyle influencer schedules a book signing, she tweets to her followers, and many of them show up at the bookstore she’s appearing at to buy copies. Finding ways to interact with customers that they enjoy, whether it’s meeting or “tweeting” them, or putting on events and tradeshows they want to attend, is one of the keys to forming relationships with them.
Many firms, even small ones, are using Facebook to develop closer relationships with their customers. San Remo Bakery, a Toronto (Ontario) bakery, has about 15,000 customers who follow its Facebook page and 98,000 followers on Instagram. The bakery posts “cakes updates” and photos of the goodies they are working on to the site. Along with information about the cakes and other baked goods, they post their featured donuts.
Regardless of how well companies know their customers, it’s important to remember that some customers are highly profitable, others aren’t, and others actually end up costing your firm money to serve. Consequently, you will want to interact with some customers more than others. Believe it or not, some firms deliberately “untarget” unprofitable customers. Best Buy got a lot of attention (not all of it good) when it was discovered they had categorized its buyers into “personas,” or types of buyers, and created customized sales approaches for each.
The knife cuts both ways, though. Not all firms are equal in the minds of consumers who will choose to do business with some companies rather than others. To consumers, market segmentation means: meet my needs—give me what I want (“Market Segmentation,” n.d.).
The steps companies take to target their best customers, form close, personal relationships with them, and give them what they want is a process called one-to-one marketing. In terms of our popcorn versus dart board approach, you can think of one-to-one marketing as a dart board approach, but with an added advantage: now you have sharpened your dart.
One-to-one marketing is an idea proposed by Don Peppers and Martha Rogers in their 1994 book The One to One Future. The book described what life would be like after mass marketing. We would all be able to get exactly what we want from sellers, and our relationships with them would be collaborative, rather than adversarial. Are we there yet? Not quite, but it does seem to be the direction the trend toward highly targeted marketing is leading.
Steps in One-to-One Marketing
1. Establish short-term metrics to evaluate the consequences of your efforts
Determine how you will measure the consequences of your effort. Will you use higher customer satisfaction ratings, increased revenues earned per customer, number of products sold to customers, transaction costs, or another measure?
2. Identify your customers
Gather all the information you can about your current customers, including their buying patterns, likes, and dislikes. When conducting business with them, include an “opt in” question that allows you to legally gather and use their phone numbers and e-mail addresses so you can remain in contact with them.
3. Differentiate among your customers
Determine who your best customers are in terms of what they spend and will spend in the future (their customer lifetime value), and how easy or difficult they are to serve. Identify and target customers that spend only small amounts with you, but large amounts with your competitors.
4. Interact with your customers, targeting your best ones
Find ways and media in which to talk to customers about topics they’re interested in and enjoy. Spend the bulk of your resources interacting with your best (high-value) customers. Minimize the time and money you spend on low-value customers with low growth potential.
5. Customize your products and promotional messages to meet their needs
Try to customize your promotional messages and products in order to give your customers exactly what they want—whether it’s the product itself, its packaging, delivery, or the services associated with it (Harler, 2008; Peppers & Rogers, 1999; Peppers, et. al., 1999).