For geographic segmentation, the market is divided on the basis of such different geographical units as nations, states, regions, counties, cities or neighborhoods. A marketer can operate in one or a few geographic areas, or it can operate in all areas while paying attention to local variations.
In demographic segmentation, the market is divided on the basis of such quantifiable factors as age, sex, ethnicity, religion, occupation and income.
Behavioral segments are determined by variables such as purchase occasion, benefits sought, user status, user rate, loyalty status, readiness stage and attitude toward the product. And in psychographic segmentation, target markets are chosen on the basis of lifestyle or personality and values.
Most advertisers use a combination of these in targeting prospective customers.
To be meaningful, target segments should have four characteristics. First, they should be measurable—that is, characteristics such as purchasing power and size of the target markets can be estimated. Second, the target segments should be significantly large and profitable enough to warrant serving. Third, the target markets should be effectively accessed and served by appropriate media. Finally, the markets should be distinguishable—they should be conceptually differentiable and respond differently to various marketing mix elements and programs.
In evaluating assorted target markets, a company must consider two critical factors—the market's overall attractiveness and the marketer's objectives and resources.
There are four basic targeting strategy patterns of target market selection: offering a single product to a single market segment, offering a single product to several market segments, offering a differentiated product to a single market segment and offering either a single product or a differentiated product to all market segments.
After selecting the target market, advertisers have to consider who should receive and interpret messages sent through the mass media. Though several forms of target audiences are possible, five broad classes exist: household consumers, who are targeted primarily through advertising and consumer-oriented sales promotions; members of business organizations, targeted primarily through personal selling and advertising; members of trade channels, such as intermediaries and retailers, targeted through personal selling supplemented by advertising; professionals, such as doctors, lawyers, accountants and teachers, targeted by advertising in trade publications; and government officials, employees and organizations, targeted by direct mail.
Target marketing strategies can be tailored to meet the needs of local customer groups (trading areas, neighborhoods, even individual stores). Citibank, for example, offers customized banking services in its branches based on neighborhood demographics. Kraft Foods assists supermarkets in determining which cheeses to carry and where to position them on the shelf to maximize sales in low-, middle- and high-income stores, as well as in various ethnic neighborhoods. Mass advertising is less effective and wasteful in such cases, as it fails to distinguish variances in local needs.
Local marketing is likely to have potential pitfalls as well. Due to reduced economies of scale, manufacturing and marketing costs are likely to be higher. In trying to meet varying local needs, logistical problems also may be accentuated. In addition, the equity and image of a brand has the potential of being diluted as a result of inconsistencies in product and promotions.
In contrast to the mass form of communications, direct response marketing communicates directly with prospects or customers and they in turn respond directly to the offer. The message is delivered at the individual level and is highly measurable. Response rates vary considerably, although a response rate of 2% is often used as a benchmark in calculating profitability. It is estimated that various forms of direct marketing communication generate 10% of all consumer sales and 5% of all business-to-business sales.
Direct marketing is generally done in one of three ways: by mail, by telephone or in person. Technology has contributed greatly to direct marketing, offering such tools as advanced database marketing and the Internet. The major advantages of direct marketing are individualized communications, measurable response, database formation and customer feedback. Drawbacks include high cost, customer avoidance and small reach.
Although marketers argue the importance of successfully identifying, understanding and reaching specific groups, such practices have generated immense controversy when the groups being targeted were considered vulnerable. Sensitive or vulnerable groups are those whose members have limited chance of making informed choices. The elderly, the disabled, young children and racial and ethnic minorities are examples of such groups, although some have questioned whether categorizing some of these groups as "vulnerable" is itself problematic.
For example, the cereal industry has been criticized for targeting high-powered appeals at children, using engaging characters to encourage kids to eat sugary products of dubious nutritional value. R.J. Reynolds Tobacco Co. was criticized for targeting Uptown, a menthol cigarette, to low-income African-Americans.
In defense of targeted promotions, businesses have questioned the ethics of labeling certain groups incompetent to make sound decisions in the marketplace. They assert that customers make the ultimate decision by choosing not to consume something they dislike.
Critics of targeting argue that legal is not synonymous with ethical, claiming that companies must be socially responsible and must try to refrain from irresponsible targeting efforts that might have the potential to do harm.