Strategic Planning: Create Your Target Market Segments - dummies

Strategic Planning: Create Your Target Market Segments

By Erica Olsen

The goal of creating target markets in a strategic plan is to target specific customers who have similar needs and wants with the same message, products, and pricing and through the same distribution channels. When done correctly, your target market responds similarly to your marketing efforts.

Think about your market as though you’re someone who’s interested in buying your product or service. You may have some luck reaching some of your customers with a widespread approach, but a targeted approach is more effective. In order to use a targeted approach, you have to aim at a clear target — your ideal market.

To create a target, you need to take a sea of customers and group, or segment, them. You then create groups of customers based on similarities; each group becomes a target market. Look at the following two customers at the fictional 24-Hour Fitness gym as an example:

Tim is a health nut. Working out is his life. He typically uses the facilities five times a week. He’s on a program established by his personal trainer and has referred two people to the gym this year already.

Sheila, on the other hand, hasn’t set foot in the gym since she joined six months ago.

Membership renewal fees for both Tim and Sheila are due next month. If 24-Hour Fitness uses the same strategy to encourage Tim and Sheila to renew, their tactics may fail. Tim already understands the value and is a satisfied customer. However, Sheila needs substantially more communication to see the benefit. The company may likely lose her.

Clearly, utilizing the same marketing campaign in the preceding example causes a decrease in potential sales and profitability. The same is true with your approaches in the real world. Therefore, you need a more targeted approach to sales and marketing.

What’s the best way to divide your large customer base? Find a variable that splits the market into actionable groups.

Most companies first make a product then figure out who to sell it to. The focus is on the product and not the customer, or what the customer wants to buy. By flipping your thinking around, you first look at what customer needs you’re trying to satisfy and then which products fit that need. This process helps you isolate customer groups and make educated decisions on which segments offer the most attractive opportunities.

Choosing a variable is like selecting what type of knife to use when preparing dinner. A serrated knife is preferable for cutting bread, a paring knife for halving cherry tomatoes, and a chef’s knife for dicing an onion. Each knife has its own specialty. Different knives produce different results. The knife is analogous to the segmentation variable, not the segment itself.

You slice and dice markets by using different variables until you come up with the segmentation of your customers that makes the most sense. For example, you can segment a consumer market by product or service benefits sought, demographic variables, geographic variables, psychographic variables, or behavioral variables. But you can’t use all of them at the same time, or you’ll end up with a market of one.

Narrowing down options is difficult, especially when they all look good. The figure provides an excellent example to follow as you evaluate how well each group stacks up against the other. You can use this tool to eliminate markets as well as to prioritize them. To do your own evaluation, follow these steps:

  1. Write in the name of each segment across the top of the paper.

  2. Rate each segment on a scale of 1 (poor) to 3 (excellent) against the market attractiveness criteria on the left-hand side.

  3. Add up each column.

  4. Focus on the segments with the highest total score.

Take the segments with the highest total score and use to develop your strategic goals and priorities for the coming year or years.