What is Market Targeting?

The second step in the product promotion process, market targeting refers to picking a specific group or small set of groups to which a business will advertise. It is based on the idea that, because it's not really possible to make or do something that will please everyone, a business has to specialize. Companies select an advertising group to strengthen their brands, as well as to get an idea of potential sales for production or financing purposes. They can use three main approaches for this: universal, selective or concentrated. It is common for an organization to reevaluate its target groups and related campaigns over time because markets are always somewhat flexible.

Market targeting is the second of three steps in product promotion — the other two are segmentation and positioning. Together, these stages are sometimes called STP. Whereas segmentation breaks up an entire market into different groups, targeting is the process of selecting exactly which one of the groups will be the focus of advertising efforts. Once the company knows the customers it will concentrate on, it positions its products or services specifically for that group. People sometimes use this term to refer to the entire set of STP processes, however, which creates some confusion.

The guiding concept behind this stage of product promotion — and STP processes as a whole — is that a company can never sell to everyone successfully. The needs, wants, beliefs and habits of people around the world are so varied that it is virtually impossible to make a product or service that is truly universal to everybody. Focusing efforts on just one or a handful of groups, therefore, is necessary to connect with customers and complete sales.

The main reason an organization uses market targeting is to give more power to its brand. When a business knows exactly to whom it will sell and what compels those individuals to buy, it is better able to create advertising campaigns that communicate the brand message effectively. Ultimately, this typically ends up giving sales a boost, driving up revenue and profits.

Organizations also use these methods when they want to get an idea of how much of something they’ll sell. These predictions are especially important for purchase managers, who are responsible for buying whatever the company needs to operate, and inventory managers, who track what the organization has on hand so that it is able to meet consumer demands. They also matter to production supervisors, who have to schedule operations based on what purchase and inventory executives do.

Estimates related to sales sometimes are necessary in order for a business to get initial financing from banks or investors. By showing the selected group and how many transactions are likely to happen within that sector, the investors and banks have a better concept of how big the return on their investment might be. It also shows that the company has thought out its platform and advertising schemes thoroughly, and financiers take this as a good sign that the organization is serious enough to succeed.

One way of handling target group selection is with an undifferentiated approach. The underlying concept is that the product or service has broad appeal that transcends factors such as age, gender and location. Instead of trying to tailor strategies to generate sales within one or two groups of consumers, the company uses a campaign aimed at gathering customers from all walks of life. This approach keeps the number of potential buyers high, but the difficulty is figuring out how to make advertising appeal to many different kinds of people.

Market targeting may, alternatively, be selective or differentiated. With this approach, the business identifies two or more specific consumer groups that are highly likely to become loyal customers. Efforts focus primarily on creating rapport with those identified consumers. Selective methods often involve creating specific programs that speak to the needs of the targeted groups, although the goods and services provided are essentially the same for all programs.

A third approach is focused or concentrated marketing. Here, the business identifies just one specific group of consumers that is highly likely to generate enough revenue to produce a profit. It might involve finding a niche of consumers that is overlooked, or developing goods and services that appeal to a larger segment of consumers by offering something that the competition does not. This strategy has become less popular because companies have learned that having a presence with multiple groups usually generates more sales. Using a concentrated technique is risky because failure to sell to the single selected group can force the company to completely redefine itself or even shut down.

What people want, think and do shifts over time, so markets are never completely static. Additionally, once a company has done business in a segment for a long time, it reaches a point where there simply aren’t many more new customers available to attract. To keep revenue and profits up in these contexts, companies often modify the advertising campaigns they have for their current target groups over time, or if needed, they switch their target focus entirely. People, therefore, can see market targeting as a flexible process that requires periodic reevaluation.

Overall, picking a limited number of target groups provides a degree of focus that streamlines most of what a company does, making operations more cost-effective. That efficiency is not completely free, however. Segmenting and figuring out which group might produce the highest number of sales requires an enormous amount of research, which businesses have to spend money to complete.