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Know Your Audience: Market Segmentation and Customer Targeting

08.14.2012 / Posted in Articles, Strategy

Note: This is the second article in a series on marketing strategy from FrogDog. To begin from the beginning, click here.

Evaluating market segments is critical to marketing strategy development. By dividing the market into segments, businesses can better position products and services to target their specific customers’ needs and desires. Better targeting customers means better returns on marketing investment.

Who wouldn’t want that? Thing is, market segmentation sounds easier than it is.

Segmentation

Let’s look at some of the ways companies can evaluate their markets:

  • Geographic: region, area size, climate, urban/suburban/rural, and domestic/international
  • Demographic: age, gender, income, occupation, ethnicity, social class, family status, and education
  • Psychographic: attitudinal traits exhibited during the customer’s approach to life, including his or her activities, values, opinions, and interests
  • Behavioral: brand loyalty, benefits, and occasions

An automobile company may segment its market by buyers who are looking to purchase a vehicle for transportation, luxury and prestige, safety, or high-performance—or some combination of these factors. For example, the Toyota RAV4 may be an attractive option for buyers looking to purchase a sports utility vehicle with strong safety ratings at a lower price point; whereas the Toyota Land Cruiser offers a similar high-performance option with luxury and prestige.

For segments to be practical, they should be evaluated against the following criteria:

  • Identifiable: Is the company able to identify and measure the differentiating attributes of the segments?
  • Accessible: Are the segments reachable through various communication and distribution channels?
  • Substantial: Are the segment sizes large enough to justify needed resources?
  • Specialized needs: Are there valid justifications for having multiple segments? Does each segment address different needs?
  • Durable: Are the segments stable so that there is minimal restricting impact with each change to existing products or the introduction of new products?

After establishing market segments, companies should evaluate each one and decide the best way to market. This means determining how many and which segments to target.

Targeting

Smart companies don’t attempt to market everything to everyone. Trying to do so is not an efficient use of time or money—and it’s not effective. Defined market segments help companies define their target audiences.

To define target audiences, companies should evaluate their skills and expertise and also understand the key features and benefits of their products or services. Who has a need for these benefits? Who currently uses the company’s products and services? A company that sells to other companies will need to focus on the best businesses to target—and will need to understand who within these businesses is likely to be a buyer or a purchase influencer. Companies that sell to individual consumers need to understand the profiles of their ideal buyers—and, especially in the case of large purchases, their buyers’ influencers. Also, in developing targets, companies should consider who their competition targets. There may be a niche market still untargeted or a way to attract similar customers in slightly different ways.

Large retail corporations are great examples of segmenting and targeting audiences. Let’s look at Gap, which evaluates its markets by demographic (gender and income) and psychographic (activities and interests) traits. Each of Gap’s brands targets a different audience:

  • Old Navy targets families looking for affordable everyday wear.
  • Gap positions itself as an American brand specializing in classic basics.
  • Banana Republic offers reasonably priced luxury.
  • Piperlime aims for boutique shoppers who seek uncommon shopping products.

Let’s look at another example. American Express has segmented its market by brand loyalty and income and targets a higher-spending clientele who can regularly pay their monthly AmEx bills in full. It markets specialty cards to target specific key audiences that have key benefits tailored to each group:

  • The American Express Costco credit card targets an audience who shops at bulk warehouse retailer Costco. The card offers an annual rebate for redemption at Costco warehouses for cash or merchandise.
  • The American Express Mercedes-Benz credit card targets niche, high-income earners and spenders that are loyal to the Mercedes-Benz brand. Signing up for this American Express card option ties the user to both luxury, prestigious brands.

Keep in mind that companies may have multiple target audiences in each market segment. For example, Staples, the large retailer of office supplies and products, serves individual shoppers and business clientele. Staples must therefore focus on doing and saying something different but complementary for each audience, as individual shoppers have different needs than corporations. Toward this end, the company has created two e-commerce sites for the two audiences. Each site has tailored messaging, but none of the messaging on one site contradicts what’s said on the other site. (More on crafting messages for target audiences in our next article in this series. Sign up to get it!)

An example of market segmentation and audience targeting in a corporation that markets to other corporations is American Surgical Assistants. American Surgical Assistants provides surgical assistants for hospitals, surgeons, and health care facilities. Each audience has a different reason for needing certified and specialized surgical assistants. C-suite executives are concerned primarily with costs, while surgeons place greater importance on efficiency and specialized skills sets that complement their own abilities. The company markets to each audience differently by tailoring its messaging to each target audience’s specific need.

Yep, market segmentation and audience targeting are more complicated then they seem at the outset, and they’re critical for a successful marketing plan. And as with other elements of successful marketing plans, these elements evolve with a shifting marketplace. Smart companies continually consider their marketplace positioning, including their market segmentation and audience targeting.

And then what? Once a company has its market segmented and its targets defined, it’s time to figure out what to tell them and how to spread the word. Stay tuned for our article on messaging—the next in our marketing strategy series.

Note: This is the second article in a series on marketing strategy. Read our first article in the series on the value of marketing strategy by clicking here. To read the next article, on developing target marketing messages, click here.

Need help segmenting your target markets? FrogDog to the rescue!

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