Essentials of Segmentation & Targeting

One of the most important marketing decision is to strategize and choose your target market. A pre-step to it is segmenting the market into heterogeneous groups of population basis gender, age, education, occupation & income. Once the marketer has identified the segments it must be decided how many and which customer groups/segments to target. With respect to the decision to which customer groups or segments to target the company may choose one or a combination of the following marketing strategies:

• Mass marketing strategy (Undifferentiated marketing)
• Single segment strategy (Differentiated marketing)
• Multi-segment strategy (Concentrated marketing)

Undifferentiated Marketing

Undifferentiated marketing is where a brand does not consider the differences between each segment and chooses to target the market with one offer. Hence, in doing so, the brand can only focus on the similar needs of the customers rather than the differences. However, when using undifferentiated marketing, it is not possible to meet every customer’s needs and thus it is not possible to satisfy all customers. Furthermore, such brands face tough competition from companies who serve specific needs of niche markets. For example, Pepsi plays on the similar need of the consumers i.e. taste for Cola flavour and markets the same product Pan India. While Bovonto, a brand available only in some South-India markets gives tough competition to Pepsi as it plays on the difference in needs of the consumer by adding a tangy grape twist to Cola flavour.       

Differentiated Marketing

Differentiated marketing is a marketing strategy where a company target many market segments with offers specially designed for each segment. Thereby the company may have a higher sale and thus stronger position within each market segment. Tata Sky, for example has various tweaks in its service offering as well as promotional offers across varied markets it serves.

However, differentiated marketing also means increased costs of doing business due to the separate additional management teams as well as marketing plans for each segment. Therefore, companies must consider increased sales against increased costs when using differentiated marketing strategy.

Concentrated Marketing

Concentrated marketing, also referred to as niche marketing, involves going after a larger share of one or a few segments. With niche marketing, the company has rich knowledge of customer’s needs and by fulfilling those needs appropriately, the company can take a strong position and market share. Although concentrated marketing can be highly profitable it also involves a high risk due to the fact that the company rely on one or a few segments for their whole business and will suffer greatly if the segment does not accept the product. Concentrated marketing is especially useful for companies with limited budgets.

 The choice of which segment target is dependent on a number of factors as follows:

1. Product related factors:
   • Product homogeneity: If the product is homogeneous, then undifferentiated marketing would attract a lot of competition. Hence, a company should consider competition intensity for each market.
   • Product pricing: The pricing of the product also clearly distinguishes whether a product is to be marketed to mass market or niche market(s).
   • Product Innovations: In case of product innovations, companies prefer to test the product in concentrated/niche markets first and then take resort to undifferentiated or differentiated marketing depending on price or other company-related factors.
2. Market related factors:
   • Competition Intensity: When competition intensity is high, then companies usually create differences in their product/pricing. For products where creating differentiation is not possible, like Carbonated soft drinks, brands invest hugely in building brand equity through promotional campaigns in order to create a positive brand image in consumer’s mind. Companies also take the route of investing more in markets with higher market share and divesting from low-performing markets.
3. Company related factors:
   • Brand Equity: When brand equity is high, companies prefer to serve in mass markets/undifferentiated marketing.
   • Company resources: Budgets and management expertise play a crucial role in defining marketing strategy of companies.