The most natural step is performed after the segmentation is targeting. It can be stated as an act of estimating and comparing the earlier recognized segments so that one or more segments can be selected based on the best results obtained for the businesses.
The selected segment should facilitate the firm’s greatest profitability and should support the delivery of superior values to the selected customer segment.
One of the most fundamental parts of marketing is targeting. With its help, the different customers can be combined with identical requirements, and the firms can serve them individually.
In the past, there was a lot of criticism to the targeting based on ethics as the special focus was given to some certain customer groups without giving any due importance to the various dimensions such as consumer vulnerability and product harmfulness.
Customer portfolio refers to the different types of customers targeted by a particular service firm for ensuring that all the segments are necessary and well-matched with each other. It can be understood as a pool of mutually exclusive customer groups that collectively form the business’s entire customer base.
A service firm’s customer portfolio consists of different customers that are bunched according to one or more strategically critical factors.
Every single customer is assigned to only one particular cluster of the portfolio. At one end, every customer is treated as an individual with unique traits, while at another end, all customers are treated as the same or identical. Most of the organizations are positioned in the middle of these two ends.
In order to analyze the activities of customers, different types of portfolios can be used. Both the historical and present data are analyzed and can be implemented for forecasting future activities.
The main elements of these are customer acquisitions, classes of service purchased, service upgrades and downgrades, and terminations. The changes in pricing and costs, various risks associated with markets, and promotional efforts can also be examined.
Basis of Targeting
The evaluation of market segmentation for the purpose of targeting can be done by following number of methods. The various methods are discussed below:
1) Segment Size and Growth Potential: The present capacity and future potential should be the main factors to analyze and compare the various segments’ size.
For example, the data for full-time students, part-time students, and distance education students can be collected by an educational institute. They can be compared to analyze the potential of earning profits for the institutions for the selection of the target segments.
While on the other hand, if the segment’s size is not substantial or is not profitable, then more steps have to be taken by the institute to determine the high growth potential of the segments and decide which segment is beneficial for the future.
2) Structural Attractiveness: The structural factors influencing the segment’s attractiveness must be assessed along with its size and growth.
For example, if the segment already has many powerful competitors, then the market becomes less attractive. These competitors act as potential substitute products for the company and may also limit prices and profits that one can earn. Buyers with strong bargaining power also influence the attractiveness of the market segment.
They force the company to slash down their prices, demand for more products and services, and try to raise disputes among competitors, all at the expense of the seller’s profitability. Similarly, some strong and aggressive suppliers demand lowering of prices or compromise on the quality of the product. This again leads to the destruction of structural attractiveness.
3) Company Objectives and Resources: If a company is satisfied with its market size, growth, and structural attractiveness, then it must look up that the company is not compromising with its objectives and resources. Some segments of the market can be terminated if they are not appropriate for the long-term objectives of the company.
Even if a segment fits the company’s objectives, the skills and resources required for the company’s growth must be ensured.
For example, an airline company that targets to provide services to the business class and, especially to the business travelers, segment both internationally and nationally. It is important for this airline to have the required essential resources so that the business travelers’ needs can be satisfied.
For this, it becomes essential to know the requisite number of trips between business destinations and the capability of performing these operations without any interruptions during peak business hours.
Any one of the following three strategies can be used by service providers. The alternative targeting strategies can be described as follows:
1) Undifferentiated Marketing: Ln this, the firm does not consider different market segments and offers homogenous products to the entire market. The seller only focuses on the fundamental needs of the customers than the variations in customer choices.
The firm develops a product that captures a large number of customers using standard marketing mix strategies for product, price, place, and promotion. The major benefit of undifferentiated marketing is that it earns economies of scale through mass production and marketing activities.
2) Differentiated Marketing: In differentiated marketing, the firm produces and designs different product value propositions for different market segments. It, therefore, caters to the individual needs and wants of customers belonging to a particular segment.
For example, Maruti Suzuki serves various customer segments by offering them a variety of cars like level cars (800, Alto), Sedans (Esteem, SX4), Hatchbacks, and Vans. Differentiated marketing is also called selective marketing or multi-segment marketing.
Unlike undifferentiated marketing, the firm brings different products to address the different needs of customers in different segments. With this, the firm is able to find out consumer groups who are loyal towards their products.
Then the firm mainly focuses on those customers and creates good relations with them. The parameters like age, income, gender, economic status, and occupation are considered, which are commonly found in customer groups.
For example, Indian railways have different product offerings for different customers like a general coach, sleeper coach, AC coach, etc. In this, the socio-economic criterion for customers in each category is different. The price of each coach also varies accordingly.
3) Concentrated Marketing: This is the third market coverage strategy. This strategy is adopted by companies having limited resources. The firm targets a large share of one or more sub-markets instead of a small share in a large market. This strategy is a combination of standardization and differentiation and is also known as focus marketing.
Here, the core strategy used is alike for all segments, but differences occur in relation to the customers’ diverse requirements. This strategy also recognizes the customer groups who generate revenue and enable the firm to earn profits. In other words, focused marketing tries to find a profitable niche of customers and develops products and services that their competitors are not offering.
Guidelines for Selecting Target Market
The group of customers for whom a particular firm designs a specified marketing mix is known as the target market. While selecting a target market, the following guidelines can be considered:
1) There should be consistency in the target market. It must fulfill the organizational goals as well.
For example, a tourism firm that targets the group tourists and offers packages to families cannot immediately and effectively target solo travelers.
2) Service firms must analyze those markets that have consistent resources. The company’s products/services will not take-off if they are advertised to mass media through press campaigns or TV, and the expenses involved are unaffordable.
A service firm should not target a particular segment if such a market requires high sales expertise and knowledge, and the firm is not prepared to that level.
For example, a small service firm specialized in tourism services successfully targets the upper-class corporate customers who require a high level of assistance and care. Under these conditions, it will be expensive for smaller firms to compete with similar organizations targeting the same segment.
3) A service firm should target those markets that have the potential of generating adequate sales as well as sufficient profit.
For example, courier companies that target cost-oriented customers by providing huge discounts may find themselves in tough financial situations by mislaying their money on 80% of accounts. Thus, while targeting, companies should remember the concept of customer satisfaction without losing their percentage of profit.
4) Service firms should seek those target markets where there is less competition. Companies will have to attract and win the competitor’s customers if they decide to target a saturated market. Targeting a saturated market and making sales is a difficult task as the customers’ needs are already satisfied.
Hence, firms should identify those market segments that have a minimum or no competition.