42. Target Market Strategies

In Section II, “Research,” you defined your primary and secondary target markets and learned why focusing on a specific target market is one of the most important strategies for your business. The information in this chapter will help you refine strategies to reach your target audience.

Rich, Niche Markets

Although mass marketers benefit from higher sales volume than niche marketers, there are many reasons to choose a strategy focused on penetrating niche markets. A company that delivers products or services to a niche market understands the needs of its customers in ways that a mass marketer can never achieve. A deeper understanding of customer needs enables a company to provide better products and services, and add additional value to fulfill these needs. Companies focused on mass markets also find it more difficult to create customer intimacy than niche players. As you learned in earlier chapters, building deeper customer relationships has many advantages, the biggest of which are customer retention, customer loyalty, and referrals. Marketing resources allocated to becoming a bigger player in a small market will also increase brand awareness.

Niches can be defined in several ways. It may be a specific type of customer defined by demographics, psychographics, geography, or industry. It can also represent a channel or a specific type of consumer. Or niche players can target an ideal customer such as a large retailer, government entity, or a manufacturer that will buy large volumes of a specific product. Another way to focus on a niche market is to produce or sell only one product. An example is a company that makes only one part but sells it to multiple car companies, or a specialty store that sells only one type of product, such as high-quality pens.

Niche marketers usually respond more quickly to trends and macro-environmental issues impacting their industry. The pet food industry reached $17 billion in U.S. sales in 2008 with 60 percent coming from dog food. Until very recently, the majority of dog owners purchased “mass market” dog food for their pets. Brands like Purina, Pedigree, and Iams were market leaders. Small, niche players such as Innova, Wellness, and Prairie entered the market appealing to pet owners’ need for organic or grain-free dog food options for their pets. While these niche players were only a small part of the pet food market, they quickly gained market attention and market share after the pet food recall of 2007. Natural pet food sales topped $1 billion that year and revenues are expected to more than double by 2012 to $2.5 billion.

When a company can deliver better products and superior service to a niche market than its competitors, it can usually charge higher prices, therefore realizing higher margins. The only real downside to a niche penetration strategy is the risk of other competitors entering the market, or potentially saturating the market. If you choose to pursue a niche strategy, your plan should identify and prioritize several target markets so you have a contingency plan in place to grow into other niche markets. When a particular niche strategy succeeds in one market, the same strategy can be applied to new niche markets you want to pursue over time. This continuous strategy of penetrating new markets is highly successful for companies.

Mass Market Penetration

The objective of a mass market penetration strategy is to create high-volume sales, capture market share, and build a large customer base. Can anyone remember what life was like without Post-its, the magical cubes of paper that can stick to almost anything without damaging its surface? The invention by 3M, rumored to be a mistake, is now seen on every employee’s desk, from entrepreneurs to CEOs of Fortune 500 companies. The product line has been expanded to include note pages as well as easel paper that can be stuck on conference room walls. This is truly one product that has mass market appeal.

To capture market share, the mass marketer will need to spend heavily in advertising and promotion, as well as invest in manufacturing to ramp production and inventory. Marketing, advertising, and sales programs should focus on capturing as many new customers as possible within a short period of time. Free trials, discounts, and other sales promotions will increase adoption quickly, resulting in a strong customer base and increased market share.

Penetrating the mass market requires significant investments to allocate internal resources across several departments to serve customers, as well as build multiple distribution channels. The good news is that as volume increases, production costs will be reduced.

A solid baseline of market share and customers may either deter other competitors from entering the market, or it may (and most likely) attract competitors who want a piece of a desirable, growing market. New product pioneers would be wise to have patent protection to bolster competitive entry barriers. But even this doesn’t deter some companies from trying. Crocs shoes took the market by storm, but several copycat manufacturers have tried to steal a piece of the lucrative “ugly shoe” market. Crocs, Inc. is now defending their position with 11 patent infringement suits.¹

Mass market strategies are not only for large companies—they are also often used by small companies that market products which appeal to a large customer base. Just think of the products that are marketed through infomercials, and you will recall many small companies that market to the masses. While businesses that deploy a mass market strategy do not usually focus on creating customer intimacy, there should be customer relationships management programs to build customer loyalty, stimulate re-orders, cross sell products, and help prevent defection when competitors do enter the market. When this happens, be prepared to extend product offerings through line extensions as quickly as possible in order to retain customers, or modify the product for new markets.

Attract Early Adopters, Maximize Profits

Many businesses initiate a skimming strategy when launching new products. This is technically a pricing strategy, although it is also a target market strategy when directed toward a specific buyer profile. If your business incurred significant expenses in research and development, production, and commercialization, a skimming strategy may be part of your plan to recover some of these initial costs. The idea is to enter a target market with an initial high product price, and get out early as competition enters the market. You can then choose to enter a new market with the same product, introduce a “new and improved” product to the existing market, or exit completely if the market no longer looks attractive. If you have little or no patent protection, other competitors may have greater resources for quickly capturing market share.

If you choose to adopt this strategy, focus on attracting early adopters within target segments to penetrate the market more quickly. The sales force should focus on selling into the largest segments first. A skimming strategy does not typically involve sale promotions as the goal is to achieve sales at high margins; but limited-time free trials can encourage early adoption, and trials can convert to sales quickly. If selling through distributors, consider offering volume discounts to those willing to buy large volumes of product. Skimming can be an effective strategy in segmenting the market. A firm can divide the market into a number of segments and reduce the price at different stages in each, thus acquiring maximum profit from each segment.

A company adopting this strategy should define a transition or exit strategy in advance, and build this into the marketing plan. This will protect margins and eliminate a potentially difficult (and emotional) decision among product managers and other stakeholders. Perhaps most important, you will be prepared to execute the next set of strategies in your marketing plan.

Market Penetration Strategy Requires Innovation

A market penetration strategy stimulates a target market to increase the rate at which they use a product. This strategy is highly effective for products in a mature or growing life cycle phase. This shows customers new ways to use a product, encouraging them to either use a product more often or to buy it in larger quantities.

Educating customers about new ways to use products will drive increased usage. A few well-known examples with which you are probably familiar include the Fruit Growers Association, which stimulated sales of fruit with the “five times a day campaign.” Kodak increased sales by showing customers how any event is worth capturing in pictures. Kraft cheese is promoted as a snack, a topping, an ingredient in a recipe, or a dessert. Campbell’s soup was repackaged and marketed to show customers how soup can be a great snack in the late afternoon when energy is low and one’s thoughts drift to the nearest vending machine for relief. Campbell’s also promotes soup as a key ingredient in recipes for main-dish casseroles.

Premium products that were once purchased for special occasions can be marketed as an everyday indulgence. Godiva Chocolatier introduced specialty coffee to turn the everyday ritual of drinking coffee into a rich, indulgent experience. Four of the seven coffee varieties are infused with the rich indulgent flavors of Godiva truffles. Companies with products such as lingerie, beer, or specialty soaps and lotions often market their products as a special or luxury product for everyday use. If you want more examples of how companies stimulate the purchase of their products or extend the life of a product in a mature market, look no further than the aisles of your local grocery store. Consumer product companies will show you how it’s done—again and again.

Similar concepts can be applied to B2B markets. In B2B or industrial markets, volume purchase discounts will stimulate demand. This is done by bundling items, offering a “two for one” discount, and giving incentives to stimulate sales and move more products. Increased advertising and sales promotions can increase sales by offering discounts or incentives to stimulate purchases.

New target customers also increase product usage. Tums targets not only people with upset stomachs, but it also touts the additional benefits of being a calcium substitute for women who use the product. A Sprint family plan extends the benefits of individual mobile phone use to the entire family. Johnson’s baby oil, a product once reserved for babies, is now a perfect choice for anyone wanting softer, smoother skin.

Ingredient branding is another way to leverage and extend brand equity. Ingredient branding is leveraging the brand cachet in one product to develop a new product that has more value as a result of the ingredient brand. This can create new markets, channels, and products. Examples of ingredient brands include Intel, Gore-tex, and Nutrasweet.

In Chapter 43, “Positioning Strategy,” you will learn how to effectively communicate and position the value of your solutions to affect the behavior of the specific target market(s) you have selected.