Determining a Market Strategy for New Target Markets
In This Essay
■ Marketing Strategy
■ Marketing Objectives
■ Target Marketing
■ Market Segmentation
Determining a Market Strategy for a New Target Market
Marketing is defined as “the process or technique of promoting, selling, and distributing a product or service” (“Marketing,” 2012). When a company is interested in its product or service reaching a broader audience, it “markets” the product. There are numerous ways to market goods and services. For example, target marketing divides a large market into smaller segments that are more easily accessed.
Before starting to market its product or service, a company must decide on the most effective appropriate marketing strategy. Marketing strategy defines a company's marketing objectives and describes the way it plans to distribute its goods and services to customers in a selected market. Marketing strategies are usually management approaches to increasing product distribution in order to generate greater profits.
A key factor in selecting an effective marketing strategy is for the company to understand its own capabilities and be able to match these capabilities to the opportunities present in the chosen market. In order to accomplish this effectively, a company will need to depend on several areas of information.
A company looking to enter a new market must use information concerning the size of the new market and its past growth rate compared with the rest of the market. Statistics regarding potential customers and their buying habits are important. Moreover, data on direct competitors and their products dispel the possibility of surprises after the product or service has been introduced and enable a company to act beforehand. It is also prudent for a business to analyze its strengths and weaknesses and to access its core capabilities. Even the best marketing strategy will not succeed if it cannot be implemented. After formulating its marketing strategy, a company should check whether its operational capacity and manufacturing processes are intact and can deliver orders on time, in addition to providing extra services and efficiently filling any required extra orders (“Business Advice,” 2011).
A marketing strategy incorporates marketing objectives and focuses on different available markets and possible customer bases. A marketing objective is one part of a broad business strategy that includes other business functions such as manufacturing, operations, purchasing, and communication technology. Business objectives differ from marketing objectives and are part of a broader category. Marketing objectives are usually integral parts of a firm's business objectives.
An example of a business objective would be to increase sales of its product. To achieve this objective, several marketing objectives could be called into play, such as reaching out to new customers or encouraging repeat business among existing customers. Effects of these efforts can be evaluated by analyzing the new product's market penetration. Market penetration measures the amount of sales or adoption of an existing product or service as compared to the total theoretical market for that product or service (“Market Penetration,” 2012).
Another important marketing objective is the launching of a new product, often referred to as product development. With product development, the company makes improvements or adjustments to existing products or develops new ones. Diversification and market development provide the opportunity for a company to expand its product into new markets as well as existing ones. Market development can also mean converting non-users of the product into users or increasing the usage of the product per user (“Market Development,” 2012). Diversification is both
costly and risk laden. It mandates that the company continually adopt new marketing strategies to accommodate development of new markets.
A marketing strategy is usually formulated as part of a larger marketing plan. The plan itself contains additional information and stipulations such as budgets and financial forecasts. A marketing plan will probably be revised several times since a company's market strategies will need to be modified as they take on new directions.
Target and Cohort Marketing
Target marketing highlights a specific range of consumers and focuses its marketing efforts on this group of people. Before making efforts to appeal to a target market, a company must first be totally familiar with its product and understand who will be interested in purchasing it. Which people will benefit from it? Where is the most profitable area to market it?
It is surprising to find that when asked, “Who are you marketing to?” businessmen frequently have difficulty answering the question. They often make the assumption that they are marketing to everyone. These conjectures often lead to bad decision making, incorrect product pricing, and choice of an erroneous marketing strategy and result in a business failure.
The most successful small businesses recognize that only a limited number of people will buy their product or service. The managers of these companies work toward identifying as closely as possible exactly who those people are. Once this target group has been identified, it is up to the business to focus its efforts and money in that direction. In addition, a company must categorize its product or service so that it is unique. Being a specialist in one particular area or with one specific product is an ideal situation for success.
A company can decide to investigate cohort marketing before choosing a target market. Cohort analysis, or cohort marketing, accesses the customer base in order to identify a common thread among customers. Cohort analysis is one of the most powerful tools for behavior measurement. It allows marketers and investors to evaluate groups of customers through a variety of similar characteristics such as where they came from or how long they have been living in a particular region. Age cohorts are especially effective in today's economy as the over-60 population has become a significant segment of the consumer market (“Introduction to Marketing: Cohort Analysis,” 2012).
Reasons for Target Marketing
There are several basic reasons that will lead a consumer to buy a product or service. People usually do not hesitate to spend money if the product satisfies their basic needs or solves their immediate problems. If they think the product will make them feel good about themselves, they will also buy it. When working out a strategy for target marketing, a business must determine which of these reasons is the one to which a consumer will most relate.
A product or service may fit into more than one of the above categories. A tour business, for example, may target local patrons who want to enjoy themselves on the water by offering them the opportunity to be in a fishing boat for a few hours. In addition, it can target foreign medical tourists who come to a local clinic for a specific health problem.
Once a company has identified its target market, it can focus on the selected group by using market segmentation. Before doing so, however, the company needs to decide if the product is more appropriate for local or international marketing. Often, the product will sell in both markets, where one will be the primary market and the other the secondary market. The primary market could be a client base of over-18-year-olds drinking a local beer at a neighborhood pub. Beer consumers from other regions of the world would then be considered the secondary market. After deciding on a primary region, the company must research the different target market segments of the community and select which area it wishes to target.
Target marketing can be divided into different groups. Demographic segmentation involves categorizing customers based on their income (low, medium, high), age (children, teens, young adults, middle-agers, elderly), gender (male or female), size of family, ethnic and/or religious background, marital status (single, married, divorced, one-parent, same sex), nationality, and education. Much of this information can be found at the local town hall, library, or Chamber of Commerce.
Behavioral segmentation separates consumers by how they value quality and at what level they are loyal to one particular brand compared to all others. Some companies market their products exclusively to loyal buyers. Others target customers who value their purchases and are willing to pay extra money for the more valuable articles (“Target Marketing,” 2012a).
Geographical segmentation focuses on goods and services most applicable to a certain region. For example, a manufacturer of desert coolers would aim his or her efforts to consumers in Mexico or Arizona. Fur coats, snow blowers, and shovels are more easily marketed in Alaska or Iceland. Technological segmentation targets people based on which technology they use. With the rapid advance of technology in one's daily life, this differentiation is becoming more and more decisive. Psychographic segmentation considers customer's lifestyles (conservative, outgoing, economical, or housebound) and personalities. What are their beliefs and attitudes? Are they worried about the environment and strongly affiliated with national causes? Are they opinionated, or do they follow the crowd? Which activities do they engage in: sports, reading, jogging, shopping? (“Target Marketing,” 2012b).
In addition, a business-to-business (B2B) arrangement should strongly consider several other factors before forming a marketing strategy. Which types of industries are available for the company to consider? How many people are employed at the other company? What is the annual sales volume? Are the other companies stable? Where are these companies located?
A B2B company should also investigate how the other companies pay for their purchases. Do they transfer payment once a month or every quarter? Do they reconcile their accounts after each season or annually? Perhaps they use a combination of several different payment methods. Who makes the decisions regarding management, marketing, logistics? It is worth remembering that unlike individual buyers, businesses purchase goods and services for only three reasons: to keep the status quo, to increase profits, or to decrease expenses. These three motives are interconnected, and each one is directly influenced by the other two. By honing in on even one of these three corporate descriptions, a company can identify its target market efficiently.
It is important to keep in mind that often prospective customers do not know about a particular company or cannot differentiate between one company and another. Once a company has adequately defined its optimal consumer base and has determined which customers represent the ultimate “perfect” customer, it can safely conclude that its target market has been uncovered and it can move on to the next step in the marketing process.
Expanding Into Another Target Market
A company may decide to broaden its target market by expanding into another segment, either a different age group or a new geographic region. By reviewing the research on the various segments, the company can transfer its efforts to the new target market and succeed in capturing a larger share of that market.
Sometimes, after conducting the necessary research about the target market, a company will proceed to customize its product or service. This may prove unsuccessful, however, if only a handful of people purchase the product. In this case, the company must go back and devise a new marketing strategy plan geared to a wider target market (“Target Marketing,” 2012a).
Benchmarking a business is a means of measuring its performance against similar-sized businesses in the same industry. It provides vital information about how the company can improve its business. There are several methods to benchmark a business.
The first way to benchmark is to obtain sufficient financial data about the company in order to weigh its income, profitability, and expenses against the industry averages and to examine the financial information of similar companies. Another way to benchmark a business is to reach out to an appropriate industry or business association that can supply existing industry standards to measure company performance. Researching and comparing competitive business products and services is another means for benchmarking.
Benchmarking can help appraise the productivity of the business in comparison to the number of employees. Additionally, it can highlight product enhancement opportunities, pinpoint new ideas, or provide an outlet for additional innovative ideas for making the business more competitive. Moreover, benchmarking can forecast the impact of any changes being considered and prepare accordingly for additional growth.
By reviewing the results of benchmarking, a company can see where it should reduce costs and/or improve efficiency. Is it spending more on advertising and training than its competitors? Maybe it is paying too much for rent or inventory and needs to renegotiate these expenses with the relevant parties. Is the average income per employee below the industry average, and is this affecting company productivity and training? It Page 95 | Top of Articleis important to analyze each detail of the business when benchmarking. Once all the data are reviewed and understood, a company can move forward to a successful marketing plan (“Benchmarking,” 2012).
A Success Story
Although target marketing is used mostly for entries into new markets, it has proved successful in increasing the sales of existing businesses. An example of successful target marketing is Tesco, which owns and operates a chain of stores in South Korea called Homeplus. Homeplus is the second largest retail chain in the country (after E-mart), and Tesco decided it wanted its chain to take the top spot.
The first step was to formulate a marketing strategy. The usual method of increasing a company's sales is to boost the number of stores and outlet shops. This calls for an outlay of considerable funds. Tesco understood that it had to move in a different direction and chose a lesser-known option, online marketing. Tesco knew that a majority of South Koreans owned smartphones. Rather than having the customer shop in a Homeplus store, Tesco decided to bring the store to the consumer and developed an innovative method of online shopping. It initiated a “virtual store” on each of Seoul's subway platforms.
The next step was to execute the marketing plan. The subway station walls were plastered with life-size images of groceries available at the supermarket. The virtual items on display have QR codes that can be scanned using a smart phone's Homeplus App, and the selected items were delivered to the customer's home at any time he or she requested. A QR code is a trademark used to rapidly read and store information. It has more capacity than a standard UPC barcode (“QR Codes,” 2012). Commuters on their way home from work were able to order their groceries from the platform and have them waiting at their doorstep when they arrived home.
Within three months, Tesco reported an increase of more than 130% in sales. In addition, its customer base rose by 76%, and the company took first place in online grocery sales, outmaneuvering E-mart by a small margin. It succeeded in bringing more stores to the people without having to build them.
Why was Tesco so successful? Before deciding to expand, it did a cohort analysis of its customers and discovered that most of them were working-class people leading busy lives. They had adequate money but Page 96 | Top of Articlenot enough time to shop for groceries. In addition, Tesco also took into consideration technographic segmentation, noting that a majority of the South Korean population owned smartphones. Tesco chose this segment of the population as its target market (“Target Marketing,” 2012b).
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