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There’s an acronym you can remember for the essential factors in effective and successful market segmentation—ADAMS. The acronym stands for five criteria: accessible, differentiable, actionable, measurable, substantial. First, a market segment should be accessible. Can you reach consumers in that segment at an affordable cost, given the strengths and abilities of your marketing department?
EXAMPLE
If you discover that certain segments respond more effectively to outdoor advertising, social media campaigns, TV infomercials, or print ads, does your organization have the capabilities (and budget) to reach that segment?Second, a market segment should be differentiable. In an ideal world, a market segment should be internally homogeneous (i.e., consumers within that segment have similar preferences and characteristics) but externally heterogeneous (i.e., different segments should be quite distinct and different from each other). You have to clearly define the differences between market segments so that the marketing programs directed at them can be implemented without overlap.
Third, a market segment should be actionable. Is it practical (or profitable) to execute a marketing strategy aimed at that segment? A market segment should be able to respond to a certain marketing strategy and have outcomes—e.g., awareness, interest, or purchase—that can be easily quantified.
Fourth, a market segment should be measurable. You should be able to accurately estimate the size of the market segment in terms of either sales value or number of customers so that you can decide whether, how, and to what extent you should focus your efforts on that segment. Finally, a market segment should be substantial. It doesn’t make sense to waste resources to market the product or service to a group too small to justify the expenditure of resources.
Ultimately, the purpose of segmenting a market is to highlight the differences between groups of customers so that you can determine which group(s) to focus your marketing efforts and resources on—that’s your target market. Think of your target market in terms of focusing your marketing resources on segments that are more likely to buy from you.
Keep in mind that the target market isn’t the same as the target audience. The target audience is narrower in that it refers to the group of consumers you expect to actually purchase the product. The audience may or may not overlap with the target market.
EXAMPLE
A children’s toy may have a target market of boys between the ages of 6 and 12, but it’s the boys’ parents (who actually purchase the toy) who are the target audience. Let’s take a look at how LEGO has mastered this concept.Thus far, we’ve discussed the “how” of segmenting a market and selecting target markets. At this point, it’s up to the marketer whether the company will focus its efforts and resources on one or more of the identified segments or instead cater to the mass market. That choice is the determining factor in the company’s marketing mix and its positioning. There are four generic target marketing strategies.
Sometimes there are no strong distinctions in customer characteristics. In cases like this, the cost involved in developing separate marketing mixes for separate target markets doesn’t make financial sense. Undifferentiated marketing is when a company may decide to use a single marketing mix for the entire market.
IN CONTEXT
Let’s imagine the entire market as one big apple pie. With undifferentiated marketing, the company doesn’t take just one slice or perhaps a few slices of the pie—it takes the whole thing. The concept of undifferentiated marketing is quite simple. You want to reach as many people as possible and hope they’ll jump on board with your product or service. Mass marketing is typically used when a brand has a product or service that has high market appeal, such as things that most (or maybe even all) people will always need or want. Consider a product that nearly everyone purchases, like soft drinks. Now think about all the advertising messages you get for a brand like Coca-Cola—you’ll see TV commercials, magazine ads, billboards, banner ads in search engines, and the list goes on. That’s the hallmark of mass marketing.
One of the biggest advantages of undifferentiated marketing is the scope and cost efficiency of advertising on a much larger scale. Every single marketing message can be deployed across a variety of media channels and can potentially reach millions of consumers. This is where economies of scale come into play. Economies of scale occurs when firms have high-volume sales and production, and each unit produced becomes less expensive because costs can be spread out over a larger amount of goods. That’s a huge advantage compared to companies that produce products for smaller, more precisely targeted audiences. It’s like buying in bulk at Sam’s Club or Costco—because you buy so much of a product, the cost is lower. Companies that use undifferentiated marketing experience the same thing.
Now let’s take that same apple pie (the entire market), but instead of taking the whole thing, we’re going to take only some of it. Perhaps we’ll take just a few slices, or maybe we’ll take more. It depends on how many target markets you want to serve. That’s the premise of differentiated marketing.
IN CONTEXT
This type of market targeting is one of the most common. A company identifies several target markets and designs separate, concentrated strategies for each. Separate brands are developed to serve each of the segments. Consider Nike, for example, which (like most apparel companies) offers different products for different segments. When Nike began its business, the founders were both competitive distance runners, so they targeted people like themselves as a segment of the running shoe market, and the brand took off. However, in order to grow the business, Nike now focuses on three segments—women, young athletes, and runners.
The automobile market is another good example of a clearly segmented market. Look around you on any given day, and you’ll clearly see that people want different types of vehicles—small cars, big cars, SUVs, trucks, hybrids, and luxury cars. Many of the car makers like GM, Ford, Toyota, Honda, and others generally offer cars for most or all of the segments. For example, Honda's lineup includes models like the CR-V compact SUV, the Civic compact car, the midsize Honda Accord sedan, larger SUVs, and even a minivan.
Concentrated marketing means that we’re going to take that same apple pie (remember, representing the entire market), and we’re only going to take a single slice, and perhaps a small one at that, to concentrate on a very specific market or niche segment. Concentrated marketing doesn’t mean that the company hasn’t identified other target markets; it simply means that it chooses not to serve all of them. Some markets may not be attractive; other markets may not align with the company’s business strengths. Therefore, the company focuses on just one target market with a single marketing mix. It channels all of its marketing efforts toward that specific segment with the aim of “owning” it over its competitors and creating strong brand loyalty. This is a smart strategy for smaller companies or companies with limited resources that might be stretched thin if they attempt to compete in too many market segments. It has the added benefit that R&D and marketing can concentrate on understanding and meeting the needs of one group of customers rather than a diverse base of customers.
A good example of concentrated marketing is the eco-friendly cosmetics retailer LUSH. LUSH advocates for ethical buying and purity of handmade products and doesn’t use animals in testing its products. As a matter of fact, at least half of its website is dedicated to fighting animal testing and overuse of plastic packaging and creating environmental awareness. The company also differentiates itself from its competitors with eco-friendly packaging and organic ingredients.
Micromarketing goes one step further than concentrated marketing and targets a specific group of individuals within a niche market based on specific information that has been collected about them. For a good example of micromarketing, consider the real estate industry. A realtor may specialize in commercial sales or residential sales. Within the scope of residential sales, that realtor may drill down further and specialize in new construction, luxury properties, land and development, over-55 communities, or farms/ranches/equestrian properties.
IN CONTEXT
Now let’s assume that you’re in the market for an expensive home in a particular area of the city. You’d likely contact a realtor who has developed a reputation for dealing with properties in a specific price range and knows the area where you’d like to move. That realtor is going to consider your specific needs and demands and will invest their efforts in finding a property that meets as many of your requirements as possible. That’s micromarketing. Stitch Fix is a good example of a company that uses micromarketing. Stitch Fix is an online personal styling service for men, women, and children that sends a selection of clothing and accessories to your door using a mix of machine learning, data, algorithms, and human stylists. The company uses “85 meaningful data points” about each customer, and based on those data points, it predicts clothing choices that the customer will want. If they don’t like the product, they can just send it back with a prepaid, printable label within 30 days.
Source: THIS TUTORIAL HAS BEEN ADAPTED FROM OPEN STAX’S PRINCIPLES OF MARKETING COURSE. ACCESS FOR FREE AT https://openstax.org/details/books/principles-marketing. LICENSE: CREATIVE COMMONS ATTRIBUTION 4.0 INTERNATIONAL.
