Identifying Target Markets (HSC SSCE Business Studies): Revision Notes
Identifying Target Markets
Understanding target markets
A target market refers to a specific group of existing and potential customers that a business aims to reach with its products or services. These customers typically share similar characteristics such as age, income level, lifestyle preferences, geographic location, and spending habits. By identifying a target market, businesses can focus their marketing efforts more effectively rather than trying to appeal to everyone.
When businesses analyse their customer base, they often distinguish between primary and secondary target markets. The primary target market represents the main customer segment where the business directs most of its marketing resources and from which it expects to generate the majority of revenue. For instance, a stationery retailer might target children and young teenagers aged 4-14 as their primary market, as these customers are most likely to purchase their colourful, trendy products.
The secondary target market is typically smaller and receives less marketing attention than the primary segment. However, this group still holds value for businesses. Using the stationery example, grandparents who purchase gifts for their grandchildren might form a secondary target market. While this segment generates less revenue, it provides an important alternative revenue stream and helps protect the business if the primary market experiences a downturn.
An important concept in target marketing is the 80/20 principle, which suggests that approximately 80% of a business's sales typically come from just 20% of its customer base. This principle highlights why identifying loyal, repeat customers within your target market is so crucial. These core customers are often responsible for the bulk of revenue and deserve particular attention in marketing strategies.
Case Example: The Teenage Market
The teenage and young adult market demonstrates the significance of effective target market identification. This demographic (ages 13-19) represents only 8% of the Australian population, yet influences over 70% of their parents' purchases in categories like clothing and fast food. With increased disposable income and willingness to spend on designer brands and electronics, teenagers represent a highly profitable target market despite their relatively small population size.
Why businesses identify target markets
Identifying and selecting a target market enables businesses to direct their marketing strategies towards a specific group of customers, allowing them to better satisfy the wants and needs of that group. This focused approach delivers several key advantages.
Firstly, businesses can use marketing resources more efficiently. Rather than spreading their budget thinly across the entire market, they can concentrate spending on reaching their ideal customers. This typically results in marketing campaigns that are more cost-effective and time-efficient, generating better returns on investment.
When you understand your target audience's specific needs, preferences, and pain points, you can craft messages that resonate with them. This relevance makes your promotions more likely to be noticed and acted upon by potential customers.
Secondly, businesses can create more relevant promotional materials. When you understand your target audience's specific needs, preferences, and pain points, you can craft messages that resonate with them. This relevance makes your promotions more likely to be noticed and acted upon by potential customers.
Thirdly, focused targeting enables businesses to better understand consumer buying behaviour within their chosen segment. By concentrating on a specific group, businesses can identify patterns in how these customers make purchasing decisions, what influences their choices, and what motivates them to buy.
Additionally, businesses can collect and analyse data more effectively. With a defined target market, it becomes easier to gather meaningful customer information and track changes over time. This allows businesses to spot trends, measure the success of marketing initiatives, and make informed strategic decisions.
Finally, targeting helps businesses refine their marketing strategies to better influence customer choice. As businesses learn more about their target market's responses to different approaches, they can continuously improve their tactics to achieve better results.
Three approaches to target market selection
Businesses can adopt one of three distinct approaches when identifying and selecting their target market: mass marketing, market segmentation, or niche marketing. Each approach suits different business situations and objectives.
Mass marketing approach
The mass marketing approach involves seeking to reach a large, broad range of customers with a single, standardised product offering. This traditional strategy assumes that customers throughout the target market have similar needs and wants.
Under mass marketing, a business develops one marketing mix—consisting of a single product type with minimal variation, one promotional programme aimed at everyone, one price point, and one distribution system to reach all customers. The classic example is the Model T Ford, which was mass-produced, mass-distributed, and mass-promoted as a single product to all potential car buyers.
Whilst mass marketing was common several decades ago, it has become less prevalent as markets have become more diverse and customer expectations more varied. However, it can still be effective for certain basic products where customer needs are genuinely uniform, such as essential commodities.
Market segmentation approach
Market segmentation occurs when businesses divide the total market into distinct groups of people who share one or more common characteristics. This approach recognises that different customer groups have different needs, and tries to address these variations.
For example, a business marketing motor vehicles wouldn't direct all its marketing efforts at every person in the total vehicle market. Some customers want sports cars, others need family-sized sedans, whilst others require commercial vans or four-wheel drives. By segmenting the market, the business can identify these different groups and then select one segment to focus on as its target market.
Once a segment is chosen, the business designs a marketing plan tailored to meet the needs of that relatively uniform group. This enables more precise product development, pricing, promotion, and distribution decisions. Market segmentation allows businesses to compete more effectively by specialising rather than trying to be everything to everyone.
Niche market approach
The niche market approach represents an extension of market segmentation, focusing on an even more narrowly defined target market segment. Essentially, it's a segment within a segment—sometimes called a 'micro-market'.
Niche marketing allows businesses to carve out a specialised position and avoid direct competition with larger businesses. For instance, an exclusive fashion boutique can create a niche market by offering unique, high-end clothing to a very specific customer base, thereby avoiding competition with large department stores. Similarly, some hotels have developed niche markets around their own 'boutique' beers brewed on premises, appealing to craft beer enthusiasts.
The advantage of niche marketing is that large businesses often neglect these small customer groups because it's not profitable for them to alter their marketing mix to cater for such limited segments. This creates opportunities for smaller, specialised businesses to serve these customers exceptionally well and build strong loyalty.
Business Example: Fila's Strategic Shift
Fila's rebranding demonstrates how changing target markets can revitalise a business. After experiencing declining sales in the 2000s, Fila made a strategic decision in 2018 to shift its target market from people in their 30s and 40s to younger consumers. The new brand positioning focused on young, stylish people who view sport as integral to their lifestyle and sportswear as performance-enhancing fashion.
To reach this new demographic, Fila developed truly sport-inspired products with superior lifestyle appeal. They also partnered with celebrities like Kendall Jenner and Rihanna, and collaborated with renowned fashion designers including Fendi and Jason Wu. This repositioning transformed Fila into a leading brand combining fashion and sports elements.
Results: In the first half of 2019, revenue increased by 79.9% and gross profit grew by 79.2%, demonstrating the power of strategic target market selection.
Key Points to Remember:
- A target market is a group of present and potential customers sharing similar characteristics to whom a business directs its products and marketing efforts.
- The primary target market generates most revenue and receives most marketing resources, whilst the secondary target market provides an alternative revenue stream.
- The 80/20 principle states that 80% of sales typically come from 20% of customers, emphasising the importance of identifying and retaining loyal customers.
- Businesses identify target markets to use resources efficiently, create relevant promotions, understand consumer behaviour, collect better data, and refine marketing strategies.
- The three approaches to target market selection are: mass marketing (one product for everyone), market segmentation (dividing the market into groups with common characteristics), and niche marketing (focusing on a very narrow, specialised segment).
- Effective target market identification allows businesses to design marketing plans that meet specific customer needs rather than attempting to appeal to everyone.