How to Identify Retail Target Market
A target is a group of existing or new
buyers of a product / service.
There exist three types of markets:
1. Consumers,
2. Industrial and
3. Re-seller.
But a retailer is concerned about only
consumers market and is usually known as retailer’s target market. While
identifying a target market, a retailer needs to look at the:
(a) ability of firm’s resources and
(b) the future potential of the segment.
Further, the kind of investment that
would be required and the kind of profits that could be earned are looked into.
After having divided the market into various segments, the retailers now need
to decide on dimensions for segmentation he is going to cater to.
Dimensions for segmentations:
The Dimensions
that are commonly used for segmenting the market are:
(1) Demographic,
(2) Geographic,
(3) Psychographic
and
(4)
Behavioural.
These
dimensions can be used individually to segment a market or the combination of
any two or more at a time, for example, a retailer may use a geographical
dimension to locate its trading area, a psychographic dimension to divide
buyers into different groups and behavioural dimension to understand their
buying practices (consumer behaviour).
These are discussed
as under:
(1)
Demographic segmentation involves dividing the market on the
basis of statistical differences in personal characteristics, such as age,
gender, customs, traditions, belief, income, life stage, occupation, and
education level. Clothing manufacturers, for example, segment on the basis of
age groups such as teenagers, young adults, and mature adults, college goings,
aged. Jewellers use gender to divide markets. Cosmetics and hair care companies
may use race as a factor; home builders, life stage; professional periodicals,
occupation; and so on.
These variables are listed as follows:
(i) Age
(ii) Gender
(iii) Family size
(iv) Family lifecycle
(v) Generation: baby-boomers, Generation
X, etc.
(vi) Income
(vii) Occupation
(viii) Education
(ix) Ethnicity
(x) language
(xi) Nationality
(xii) Religion
(xiii) Social
class
As people grow their needs and wants change, some organizations
develop specific products aimed at particular age groups for example nappies
for babies, toys for children, clothes for teenagers and so on. Such type of
gender segmentation is frequently used within the clothing, cosmetics, and
magazine industry.
(2)
Psychographic segmentation is based on traits, lifestyles,
attitudes, and interests of potential customer groups. Companies marketing new
products, for instance, seek to identify customer groups that are positively
disposed to new ideas. Firms marketing environmentally friendly products would
single out segments with environmental concerns.
Some financial institutions attempt to
segregate and tap into groups with a deep interest in supporting their college,
school, favorite sports team, or professional organization through credit
cards. Similarly, marketers of low-fat or low-calorie products try to identify
and match their products with portions of the market that are health or weight
conscious.
These psychographic variables include:
a. Activities
b. Attitudes
c. Interests
d. Opinions
e. Values
(3)
Geographic segmentation entails dividing the market on the basis
of where people live. Divisions may be in terms of neighbourhoods, cities,
countries, states, regions, or even countries. Considerations related to
geographic grouping may include the makeup of the areas, that is, urban,
suburban, or rural; size of the area; climate; or population.
For example, manufacturers of
snow-removal equipment focus on identifying potential user segments in areas of
heavy snow accumulation. Because many retail chains are dependent on
high-volume traffic, they search for, and will only locate in, areas with a
certain number of people per square mile.
(i) Climate: according to weather
patterns common to certain geographic regions
(ii) Population density: often classified
as urban, suburban, or rural
(iii) Region: by continent, country,
state, or even neighbourhood
(iv) Size of metropolitan area: segmented
according to size of population
(4)
Behavioural
segmentation is possibly the most useful of all
for e-commerce businesses. As with psychographic segmentation, it requires a
little data to be truly effective – but much of this can be gathered via your
website itself.
While demographic and psychographic segmentation focus on
who a customer is, behavioural segmentation focuses
on how the customer acts.
Here
we group customers with regards to their:
·
Spending
habits
·
Purchasing
habits
·
Browsing
habits
·
Interactions
with the brand
·
Loyalty to
brand
·
Previous
product ratings
All
of these are datasets that can be harvested from a customer’s usage of your
website. We utilize behavioural segmentation to
deliver highly relevant and targeted campaigns based on a number
of behavioural patterns:
·
Number of
sessions to your website
·
Number of pages visited
·
Time spent
on site
·
URLs
visited
·
Page types
visited
·
Shopping
cart value
·
Campaign
history
·
Inactivity,
and more.
For example, we can distinguish between a first-time
visitor and someone who’s already been on your site multiple times but haven’t
purchased. Based on this behavioural data, we can tailor our messaging
accordingly:
First
time visitor: Hey, learn about our latest
collection!
Returning
visitor: Join our loyalty program and start saving!
Behavioural Market Segmentation Examples
·
Purchasing habits
·
Spending habits
·
User status
·
Brand interactions
Behavioural segmentation requires you to know about your customer’s
actions. These activities may relate to how a customer interacts with your
brand or to other activities that happen away from your brand.
A B2C example in this segment may be the luxury car brand choosing to
target customers who have purchased a high-end vehicle in the past three years.
The B2B marketing platform may focus on leads who have signed up for one of
their free webinars.
(5)
Product-benefit segmentation is based on the perceived value or
advantage consumers receive from goods or services over alternatives. Thus,
markets can be partitioned in terms of the quality, performance, image,
service, special features, or other benefits prospective consumers seek.
A wide spectrum of businesses—from camera
to shampoo to athletic footwear to automobile marketers—rely on this type of
segmentation to match up with customers. Many companies even market similar
products of different grades or different accompanying services to different
groups on the basis of product-benefit preference.
Some product variables include:
(i) Benefits sought
(ii) Brand loyalty
(iii) Occasions: holidays and events that
stimulate purchases
(iv) Readiness to buy
(v) Usage rate
(vi) User status: potential, first-time,
regular, etc.
The Seven Essential Segmentation Variables
1. Acquisition
Path: How a customer ended
up on your site to make the first purchase says a good deal about how he or she
is likely to shop over time. Do some digging on your own as the implications
fluctuate from retailer to retailer.
Example: A retailer could cut spending on Facebook
after discovering that subscribers acquired through that channel converted to
paying customers at a much lower rate than those acquired elsewhere.
2. First
Purchase: A shopper’s first
purchase says a lot about what type of customer he or she is likely to become.
Brand, category and sub-category can give you strong conclusions on things like
price sensitivity, shopping persona, and level of attachment to your store.
Example: A fashion retailer could change its retention
marketing program after learning that customers whose first purchase was a
sweater were over three times more likely to repeat in their first 90 days than
customers who started by buying in other categories.
3. Device
Type: For many retailers,
shoppers who come in on certain device types are inherently different from
those who arrive through the more conventional desktop route.
Example: A daily deal site might discover that its
iPhone customers are worth twice as much as desktop customers – and change the
way it targets and communicate with these customers accordingly.
4. Geography: Geography gives a surprising amount of
valuable info on your customers. Beyond the low-hanging fruit (e.g., cities
like New York and San Francisco tend to be both wealthier and more
fashion-forward), geography can also give insight into the density of
brick-and-mortar shopping options as well as regional shopping preferences.
Example: An apparel retailer might discover that its
Midwestern customers are worth far more than average because they tend to buy
pricey knits and outerwear during the cold winter months – so its acquisition
marketing team could begin targeting new customers from the region.
5. Income: Product preferences and even repeat rate can
vary widely with disposable income. Tip on finding this info: Many data
providers will provide you with their best guess on an individual’s income or
assets by looking at median income or median home price in particular ZIP+4’s.
Example: A retailer could use a customer’s
predicted income level to determine the right items to show him or her in
emails.
6. Gender: Gender can say a lot about a shopper’s
predicted spend. For example, a lifestyle retailer may be surprised to discover
that although its target demographic is male, its female customers are actually
more valuable.
Example: This luxury retailer’s marketing team could
use this insight to transform the messaging and creative of their display
advertisements.
7. Age: The relationship between age and lifetime
value tends to vary from retailer to retailer, but is almost always a source of
insight for lifetime value segmentation. Some retailers may find that their
younger customers skew more valuable because of a greater level of comfort with
e-commerce transactions. Other retailers may find that older customers tend to
be more affluent, more brand-loyal, and less prone to price comparison.
Example: A fashion retailer could start targeting an
older demographic after discovering that its older customers tend to be more
affluent, more brand-loyal, and less prone to comparison shopping.
How to Create
a Market Segmentation Strategy
Use the following market segmentation process to learn
about your audience and find new marketing and product opportunities.
1. Analyze your existing customers
If you have existing customers,
start your market segmentation process by performing an audience analysis. An audience analysis allows you to learn
about your customers and begin to identify trends that exist within your
current customer base. Use these market research questions to guide your research.
2.
Create a buyer persona for your ideal customer
Once you complete an audience
analysis, you’ll have a good idea about who your current customers are. In the
next step, take your data and use it to create a buyer persona that describes the exact type of customer
you’d like to attract.
A buyer persona is a
semi-fictional description of your ideal customer. It allows you to clearly
visualize the person that your brand is trying to attract. Knowing whom you
want to work with will make it easier to find the right market segment
opportunities.
If you need help with creating a
persona, use this free downloadable buyer persona template to walk you through the process.
3.
Identify market segment opportunities.
Once you have a buyer persona
that describes your ideal customer, start looking for market segment
opportunities.
A market segment opportunity is
a trend that can drive new marketing tactics or offerings. To find them, first
ask questions about your brand.
·
What problems does your brand solve?
·
What problems can you solve better than your competitors?
·
What do you know a lot about or excel at?
·
Who do you and your team like to serve?
Then, refer back to your
audience analysis and buyer persona and ask questions that uncover
opportunities.
·
What large segments stick out?
·
What customer characteristics or qualities are most common?
·
What segments are currently not being served?
·
What segments is your brand uniquely qualified to serve?
Identify a few potential market
segment opportunities, and then research to confirm that they are viable.
4. Research your potential segment.
Before you launch a marketing
campaign for a new segment of your market, verify that it is a good option.
Research to see what competition exists and if audiences are interested in your
new market.
5.
Test and iterate
Once you find a new market you want to explore, don’t go all in just yet. Create a few campaigns to test your idea.
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