4.3: Selecting target markets

In ‘market-targeting’ a group of consumers become the focus of the marketing program. Another major decision in developing the segmentation strategy is the selection of market segments that will become the focus of special attention (known as target markets). The marketer faces a number of important decisions:

• What criteria should we use to evaluate markets?
• How many markets should we enter (one, two or more)?
• Which market segments are the most valuable?

When a marketer enters more than one market, they often labeled segments as the primary target market, and secondary target market. The primary market is the target market selected as the ‘main’ center of marketing activities. The secondary target market is likely to be a segment that is not as large as the primary market, but has growth potential. Alternatively, the secondary target group might consist of a small number of purchasers that account for a relatively high proportion of sales volume perhaps due to purchase value or purchase frequency.

In terms of evaluating markets, three core considerations are essential:

• Segment size and growth
• Segment structural attractiveness
• Company objectives and resources.

Criteria for evaluating segment attractiveness

There are no formulas for evaluating the attractiveness of market segments and a good deal of judgement is necessary. Nevertheless, one can utilize a number of considerations to assist in evaluating market segments for overall attractiveness. The following lists a series of appropriate questions to ask.

Segment size and growth

• How large is the market?
• Is the market segment substantial enough to be profitable? (Segment size can be measured in number of customers, but superior measures are likely to include sales value or volume)
• Is the market segment growing or contracting?
• What are the indications of sustainable growth in the long term?
• Is the segment stable over time? (Segment must have sufficient time to reach desired performance level)

Segment structural attractiveness

• To what extent are competitors targeting this market segment?
• Do buyers have bargaining power in the market?
• Are substitute products available?
• Can we carve out a viable position to differentiate from any competitors?
• How responsive are members of the market segment to the marketing program?
• Is this market segment reachable and accessible? (i.e., with respect to distribution and promotion)

Company objectives and resources

• Does this market segment align with our company's operating philosophy?
• Do we have the resources necessary to enter this market segment?
• Do we have prior experience with this market segment or similar market segments?
• Do we have the skills and/or knowledge to enter this market segment successfully?

The restauranteur should design the marketing program with the needs of the target market in mind. When the segments have been determined and separate offers developed for each of the core segments, the marketer's next task is to design a marketing program (also known as the marketing mix) that will resonate with the target market or markets. Developing the marketing program requires a deep knowledge of key market segment's purchasing habits, their preferred retail outlet, their media habits and their price sensitivity. The marketing program for each brand or product should be based on the understanding of the target market (or target markets) revealed in the market profile.

Developing the marketing program and positioning strategy involves:

Positioning is the final step in the S-T-P planning approach; Segmentation → Targeting → Positioning; a core framework for developing marketing plans and setting objectives. Positioning refers to decisions about how to present the offer in a way that resonates with the target market. During the research and analysis, that forms the central part of segmentation and targeting, the marketer will have gained insights into what motivates consumers to purchase a product or brand. These insights will form part of the positioning strategy.

According to advertising guru, David Ogilvy, "Positioning is the act of designing the company’s offering and image to occupy a distinctive place in the minds of the target market. The goal is to locate the brand in the minds of consumers to maximize the potential benefit to the firm. A good brand positioning helps guide marketing strategy by clarifying the brand’s essence, what goals it helps the consumer achieve, and how it does so in a unique way."

Perceptual mapping is often appropriate to understand consumers' mental representations of brands within a given category. Traditionally two variables (often, but not necessarily, price and quality) are used to construct the map. A sample of people in the target market polled to explain where they would place various brands in terms of the selected variables. Average results across all respondents are plot on a graph. The final map indicates how the average member of the population views the brand that make up a category and how each of the brands relates to other brands within the same category. While perceptual maps with two dimensions are common, multi-dimensional maps are also used.

Why is it desirable to break a trading area down into groups, or segments? Numerous owners and managers of foodservice operations ask this question because, from their perspective, it would always be better to approach all of the potential customers in a market. Many operators feel that they would effectively weaken their competitive position and ultimately their profits. It is not difficult to think that if an operator were to segment the market and target their marketing efforts only on a few segments, then the result might be a reduction in sales volume. However, as history has shown more often than not, this type of approach proves invariably shortsighted because it fails to consider the reasons underlying a market segmentation approach - reaching customers through similar wants and needs. The basic premise of market segmentation is to allocate what are usually limited resources so that a return on investment can occur.

Segmenting a marketplace, when done properly, is a very effective way to improve sales and profits because it allows the operation to target specific individuals in the trading area who are more likely to patronize the restaurant. Think of it this way, if you were going to market a mixed neighborhood, singles, young adults, and senior citizens, what would your message say that appeal to everyone in that area? The task becomes difficult. Each group of individuals has different wants and needs. Your operation may well have the ability to offer each group something of value, but how you communicate that 'value' to each group of potential customers is what segmentation considers among other things. Regarding promotion in a segmented trading area, a restauranteur can promote different product-services mixes to meet the needs of the different segments.