Selecting the target market

A key consideration in selecting the target markets is whether customer needs are sufficiently different to warrant segmentation and targeting. In the event that customer needs across the entire market are relatively similar, then the business may decide to use an undifferentiated approach. On the other hand, when customer needs are different across segments, then a differentiated (i.e. targeted) approach is warranted. In certain circumstances, the segmentation analysis may reveal that none of the segments offer genuine opportunities and the firm may decide not to enter the market.

When a marketer enters more than one market, the segments are often labeled the primary target market and the secondary target market. The primary market is the target market selected as the main focus of marketing activities and most of the firm's resources are allocated to the primary target. The secondary target market is likely to be a segment that is not as large as the primary market, but may have 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, purchase frequency or loyalty.

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

• Segment size and growth
• Segment structural attractiveness
• Compatibility with company objectives and resources.

However, these considerations are somewhat subjective and call for high levels of managerial judgement. Accordingly, analysts have turned to more objective measures of segment attractiveness. Historically a number of different approaches have been used to select target markets. These include:

Distance Criterion: Under this approach, the business attempts to define the primary geographic catchment area for the business by identifying people who live within a predetermined distance of the business. For a retailer or service-provider the distance might be around 5 km; for domestic tourist destination, the distance might be 300km. This method is used extensively in retailing.

Sales Criterion: Using this method, the business allocates its resources to target markets based on historical sales patterns. This method is especially useful when used in conjunction with sales conversion rates. This method is used in retail. A disadvantage of the method is that it assumes past sales will remain constant and fails to account for incremental market potential.

Interest Survey Methods: This method is used to identify new business potential. Primary research, typically in the form of surveys, identifies people who have not purchased a product or service, but have positive attitudes and exhibit some interest in making a purchase in the short-term. Although this method overcomes some of the disadvantages of other methods, it is expensive even when syndicated research is used.

Chain ratio and indexing methods: This method is used in marketing of branded goods and retail. It involves ranking alternative market segments based on current indices. Widely used indices are the Category Index and Brand Index. The Category Index measures overall patterns within the product category while the Brand Index calculates a given brand's performance within the category. By dividing the Category Index by the Brand Index, a measure of market potential can be obtained.

International segmentation and targetingedit

Segmentation and targeting for international markets is a critical success factor in international expansion. Yet, the diversity of foreign markets in terms of their market attractiveness and risk profile, complicates the process of selecting which markets to enter and which consumers to target. Targeting decisions in international markets have an additional layer of complexity.

An established stream of literature focussing on International Market Segmentation (IMS) suggests that international segmentation and targeting decisions employ a two-stage process:

1. Macro-segmentation (assess countries for market attractiveness, i.e. market size, market potential)

2. Micro-segmentation (i.e. consumer-level based on personal values and social values)

Analysis carried out in the first stage focuses involves the collection of comparative information about different countries with a view to identifying the most valuable markets to enter. This is facilitated by the relatively wide data availability for macro-variables. Most government departments collect business census data as well as data for a broad range of economic and social indicators that can be used to gauge the attractiveness of various destinations.