Explain and discuss how companies identify attractive market segments and choose a target marketing strategy. Marketing can be defined as a way of identifying and satisfying consumer needs in such a way as to achieve the organisations objectives for profitability, survival or growth. When looking to develop a new marketing strategy for a certain segment there are a number of stages that are important, if the campaign is to be a success. Initially companies will analyse the current internal and external situation.
In the macro environment companies will study the political-legal, economic, socio-cultural and technological environment (abbreviated as PEST) to ensure there are no issues that might affect marketing and performance. In addition, it is crucial to examine resources, offerings and past results within the organisation to make sure the capabilities are there to create a successful marketing strategy. A market segment is a proportion of the total market that can be described as homogeneous. Meaning the people in the segment are similar to each other in their attitudes about certain variables.
Don’t waste your time!
Order your assignment!
Due to this similarity, they are likely to respond in the same way to a marketing strategy i. e. have similar feelings about the marketing mix (consisting of the product, price, place and promotion). How to identify these attractive market segments is attributable to the research and analysis of markets and customers. When beginning to investigate your markets and customers you must examine trends in market share, product demand, buying patterns, customer needs and perceptions, demographics, and customer satisfaction. By doing this hopefully questions such as: ‘who would buy the product and why? and ‘how are buying patterns changing and why? ‘ would be answered, along with many others. Gathering data about customer needs, interests and buying behaviour can be done in many ways. The easiest is with the use of technology; however companies may choose to conduct surveys and interviews to collect their data. It is considered that no organisation has the resources (people, money or time) in enough abundance to serve all the customers in every market. Therefore it is advantageous to group customers into segments based on distinct characteristics, behaviours, needs or wants.
This makes it easier to design a marketing strategy that will appeal to the group and hence make them want to purchase the product. This comes from the idea that not all customers want or are prepared to pay for the same things. For example in the watch market, the type of person who buys a Casio is very different from the type of person who buys a Rolex. Their reasons for purchase are different. The Rolex buyer is looking for status and high quality, whereas the Casio buyer is looking for practicality and reasonable pricing. This technique of breaking up a market into smaller proportions is known as market segmentation.
In the edition of ‘Principles and practice of marketing’, Jobber defines market segmentation as: The identification of individuals or organizations with similar characteristics that have significant implications for the determination or marketing strategy. (Jobber, 2001:185) Once market segmentation is achieved it is more commercially viable to serve these customers in their similar submarkets. It is now the task of the marketers to understand these markets and develop strategies for serving the customers and beating the competition.
Dibb and Simkin (2005:37) state that marketing strategy “articulates the best uses of a business’s resources and tactics to achieve its marketing objectives”. Basically saying that a company will use its resources to satisfy consumer needs and achieve its goals of profitability, survival or growth. When a company finds a segment of the market that it feels fits in with its own objectives and goals it will next decide on a coverage strategy. Targeting coverage strategies include undifferentiated marketing, differentiated marketing, concentrated marketing and customised marketing.
The first, undifferentiated marketing, is essentially a mass-marketing approach where the entire market is given the same marketing mix. This discards the fact that customers have differences in characteristics and behaviour. It can be considered irrelevant since market segmentation would have taken place. With differentiated marketing you target more than one segment and formulate a separate marketing mix for each one. With this strategy the customers benefit since their specific needs are being addressed and the volume of customers being served is greater.
The satisfaction customers feel is transformed into brand loyalty, which can be vital to a company if it wants to sustain growth in the long run. Concentrated marketing involves taking the companies resources and creating one marketing mix for only one segment of the market. The point of this strategy is to compete more effectively and efficiently in just one segment, rather than spreading resources across multiple segments. By concentrating all efforts on a single area you are more likely to understand your consumer base and therefore more prone to satisfy their needs.
Only concentrating on one segment will not necessarily reduce profits however there is always the possibility that new firms will enter (increasing competition) or customer needs will change making this strategy risky in the long term. Therfore it is crucial to stay in touch with the consumer and always ensure their wants are satisfied. Finally, customised marketing is a strategy where you tailor marketing mixes for specific individuals within certain targeted segments. Marketers identify all the potential buyers and develop ways in which to satisfy their wants. Dell (the computer manufacturers) are a good example of this.
There advertising campaign of: “At Dell we don’t build desktops for anyone. We build them just for you” is a prime example of customised marketing. They design and build computers/laptops specifically for the individual and are available online or by telephone making them easily accessible. The market is not so large that it is impractical, since some consumers will still prefer to buy from shops (e. g. PC World). Yet the potential for profit is so vast since people require desktops/laptops for so many different tasks, that building your own computer will seem advantageous to most customers.
Once decided on your type of targeted marketing strategy, it is time to develop a marketing mix capable of achieving the objectives of the company (this could be profitability, growth or survival). Dibb and Simkin define marketing mix as: The tactical toolkit of the marketing programme; product, place/distribution, promotion, price and people variables that an organisation can control in order to appeal to the target market and facilitate satisfying exchange. (Dibb and Simkin, 2005:20)
This definition describes how an organisation has control over these four factors (the 4 P’s) and can manipulate them to gain buyers and also consumer satisfaction. The product being offered may be a tangible good such as a laptop or an intangible good such as an after-purchase support system. When planning product strategy it is important to consider whether the good will satisfy consumer wants and how it should be marketed to increase its popularity. It is essential to most customers that they feel valued by the company and believe its products are entirely relevant to them.
Pricing strategy is also key to whether a certain product will be a success, and whether profit will be made from it. First, you must establish whether customers want a low priced good that is practical, or a high priced good that has great quality and comes with a certain status. Pricing is crucial because it reflects the positioning of the product, brand and organisation. For example if Jaguar (the car manufacturer) started selling vehicles in a much lower price bracket they would not be as exclusive as before and therefore less people would want them.
This would also be very damaging to the brand as people would see Jaguar as cheap and average, rather than expensive and well built/designed. Therefore it is vital to match pricing with not just the good, but the brand as well, to ensure long term stability of the organisation. Placement strategy is concerned with how customers gain access to the product offering. Here, there are many different options to choose from. Products can be sold traditionally through shops, dealers, wholesalers etc, or they can be sold directly through the internet and telephone orders, like Dell mentioned previously.
No matter what method of distribution, it is important that management predict and meet demand for the product. Otherwise revenue and consumer base will suffer. Promotion strategy (also known as integrated marketing communication strategy) covers all forms of advertisement. Through advertising and promotions the aim is to connect with your targeted segments and make them desire your product more than the ones of your competitors. There are many tools used in promotion strategy; media (e. g. TV adverts, magazines), online advertising, sales promotion and direct marketing techniques (e. g. ffers via e-mail, mobile phone and post). With these implements at hand, it is the aim of the marketer to design an advertising campaign that will attract buyers, raise brand awareness, increase brand loyalty, and most importantly for the company increase profits and growth. There are many ways in which a company can identify attractive market segments, and then design a specific marketing strategy for them. Initially, research is required in many areas; micro and macro environmental factors, customer wants and characteristics, market analysis etc. Then it is important to determine segmentation, targeting and positioning.
With this complete and the segments the company want to serve identified, the marketing mix can now be put into action. With a combination of the tools product, price, place and promotion a marketing strategy can be created so that customer’s wants are anticipated and satisfied, and the company becomes profitable and efficient. Bibliography Dibb S and Simkin L (2005) Marketing: concepts and strategies. 5th edition, Boston: Hartford. Gilligan C and Wilson R (2003) Strategic marketing planning. Oxford: Butterworth-Heinemann. Jobber D (2001) Principles and practice of marketing. 3rd edition, Berkshire: McGraw-Hill.
Wood M (2004) Marketing planning: principles into practice. Essex: Pearson. Clerinx C and Mackenzie D (2001) Strategic market segmentation. Vol 17, pages 27-41. Accessible from WARC at: http://www. warc. com/marketing/wordsearch/results. asp Villante R (2000) The blueprint for marketing strategy. Vol 1, pages 64-65. Accessible from WARC at: http://www. warc. com/landingpages/generic/ marketing_%2526_brand_management/marketing_strategy/ NetMBA business knowledge centre (no date). Market segmentation. Available from: http://www. netmba. com/marketing/market/segmentation/ [Accessed 20 February 2007]