Selection of target markets

From CEOpedia | Management online

Selection of target markets (targeting) is the choice of target markets, which, with appropriate marketing expenditures, gives optimal results. This provides the opportunity to achieve higher turnover and thus gain a larger market share. Target market is a market where the company should focus, locate its activity. In order to be able to properly assess the effectiveness of the selection of target markets, the increase in effects should be multiplied in relation to the expenditure on marketing and therefore not related to turnover, but to the net effects (profits). Market segmentation is the basis for selecting target markets

Experimental plans, based on the use of appropriate marketing tools in selected market segment groups, precede the selection of target markets. Possibility of experimenting gives the market itself as well as the use of activation measures such as advertising, display, new sales form, price change, discount application, etc.

Bases of market segmentation

The choice of target markets can be made according to different criteria:

  • by main factors
  • according to side factors
  • according to the order of stimuli
  • by repeated measurements

Selection of markets according to main factors

Analysis of variance that best allows to compare main effects and interactions between different combinations of experimental factors is a method that allows selection of target markets.The factors here are marketing policy instruments in the form of promotions, advertising, discounts, bonuses, etc., and the effects of turnover achieved with the appropriate combination of these factors.By comparing these effects with each other one obtains a measurable picture of the effectiveness of the impact of individual factors on the size and structure of turnover. For the analysis to be correct, the number of objects from individual segments selected for experimental groups should be equal and the selection should be random.

Factor plans are helpful in the case of a larger number of independent variables, when there is a supposition that there is a phenomenon of interaction, i.e. when the simultaneous effect of two or more variables differs from the sum of their effects considered individually

Selection of markets according to side factors

By introducing a side factor in the form of so-called blocks next to the main factor, the results of experimenting are improved. Blocks are the appropriate subgroups of individual diversity of individuals, the introduction of which significantly reduces internal diversity within individual groups of entities within the main factor. Improving the reliability of the experiment as well as better control of the obtained results is possible thanks to the introduction of blocks, which are not a second factor, but a side effect. Blocks are not subject to random rules, they are selected first, and then the actual drawing of elements into appropriate groups takes place. In single-factor experimental plans with blocks, there should be no interaction between factor and blocks, whereas in two-factor plans, apart from the main factors, the influence of interaction is examined.

Selection of markets according to the order of stimuli

The order in which the stimuli representing the individual levels of the factor is given is also an important independent side variable. The effect of the stimulus series can be adjusted by balancing the order so that each stimulus is fed to every place in the series only once. This diversified sequence of appearing levels of the main factor is called the Latin square. Latin square plans allow statistically controlling two non-interactive external variables in relation to the independent variable. This control is achieved by the locking technique. The Latin square plan requires that each external variable or block be divided into an equal number of blocks or levels (e.g. stores, supermarkets). the same number of levels (e.g. high, low price) must be divided into an independent variable.A Latin square is a table with lines representing blocks by one external variable and columns representing blocks by a second external variable. The levels of the independent variable are assigned to the positions in the table so that each level appears only once in each row and each column.

Selection of markets according to repeated measurements

We deal with experimental plans with repeated measurements of a dependent variable when we are interested in reacting individual units to all levels of the main factor. This involves the need to repeat measurements in subsequent time intervals. Repetition of measurements means that individual groups of units are not independent of each other, which radically changes the nature of these plans. The analytical methods that enable selection of target markets are both experimental plans and methods of analysis of variance. By using covariance analysis, you can make a selective selection of target markets, which uses all the findings that market segmentation brings in its multidimensional layout. To conduct a selective selection of target markets, it is necessary to segment the market using analytical methods such as grouping analysis.

Examples of Selection of target markets

  • Geographical Segmentation: This is when a company divides its market based on geography. For instance, a clothing retailer may target customers in areas with higher temperatures and humidity, such as Florida or the Southwest United States, as opposed to colder climates such as the Northeast.
  • Demographic Segmentation: This type of segmentation divides customers based on demographic characteristics. Examples of demographic segmentation include gender, age, household income, education level, and marital status.
  • Psychographic Segmentation: This type of segmentation divides customers based on lifestyle, values, and interests. Examples of psychographic segmentation include personality traits, activities and interests, and opinions.
  • Behavioral Segmentation: This type of segmentation divides customers based on their behavior. Examples of behavioral segmentation include purchase behavior, usage rate, customer loyalty, and customer advocacy.
  • Benefit Segmentation: This type of segmentation divides customers based on the benefits they seek from a product or service. Examples of benefit segmentation include price, convenience, quality, and customization.

Advantages of Selection of target markets

  • Selection of target markets allows companies to focus their marketing efforts on the most profitable segments of the market. This can result in increased market share and higher profits.
  • Companies can tailor their product offering to specific target markets, allowing them to better meet the needs of that market and create a competitive advantage.
  • Companies can use market segmentation to better understand their customers and target their efforts more effectively. This can result in increased customer satisfaction and loyalty.
  • Targeting a specific market can help companies to better differentiate their product offering and create a unique identity. This can result in increased brand recognition and customer loyalty.
  • Companies can use the selection of target markets to optimize their marketing budget and maximize their return on investment. This can result in increased profitability and market share.

Limitations of Selection of target markets

  • Unclear customer needs: Without a clear understanding of customer needs, it is difficult to determine which markets to target.
  • Limited resources: Companies have limited resources and thus must be careful in selecting the markets they target.
  • Competition: Markets can be competitive, making it difficult to gain a foothold in them.
  • Market saturation: Markets can become saturated, making it difficult to gain a competitive advantage.
  • Misjudgment: Companies may misjudge the market size and potential, making it difficult to realize the desired return on investment.
  • Changing tastes: Consumer tastes change over time, making it difficult to maintain market share in certain segments.
  • Lack of information: Without adequate market research, it is difficult to identify target markets and develop effective strategies to target them.

Other approaches related to Selection of target markets

  • Psychographic Segmentation: This approach involves dividing the market into segments based on lifestyle, values, personalities and attitudes.
  • Behavioral Segmentation: This approach divides the market based on behaviors such as usage rates, loyalty, readiness to buy and purchase occasions.
  • Geographic Segmentation: This approach divides the market based on geographic variables such as region, city, zip code and even neighborhood.
  • Demographic Segmentation: This approach divides the market based on demographic variables such as age, gender, ethnicity, income and education.

In summary, selection of target markets involves dividing the market into segments based on lifestyle, values, personalities and attitudes, behaviors, geographic variables, and demographic variables. All of these approaches are important in order to identify the target market in order to maximize profits.


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