Back in the 90s, I led the strategy and marketing department for a major regional discount department store chain. Our primary advertising approach was to mass-distribute “circulars” (mini-magazine-like ads) in the Sunday newspaper. At the time, these reached nearly everyone in our market area.
We knew we were “wasting money” on the people who had no interest in what we were selling. But as a massive convenience store with more than 60 categories of merchandise, not to mention having zero data about our customers (each transaction was effectively anonymous), there were no better options.
Fast forward 30 years and all that has changed. There are many tools and methodologies for capturing customer data and building direct relationships (even when selling from a retail shelf). Enlightened businesses do exactly that.
Targeting Is a Strategy Essential
Management guru Michael Porter said long ago that the key to strategy is not simply knowing what you do — you also need to know what you do not do. Having a clear understanding of the market you seek is not just cost effective (although it certainly is that). It also helps you determine how to focus both your offer and your communications.
For example, many years ago, when Toyota wanted to offer high-end luxury cars to the US market to compete for customers served by BMW and Mercedes, it formed a new company and brand: Lexus. They created a different buying experience, with dealerships that were much more luxuriously appointed, while offering add-ons like pick-up and drop-off support for their service department.
This approach would have been out of sync at a Toyota dealership, where economy and basic practicality are more valued by customers. The creation of Lexus allowed Toyota to serve a completely different customer segment without muddling their core brand positioning.
Segmentation Helps Support Differentiation
Your target audience can be segmented in several ways. For some organizations, “traditional” segmentation by demographic characteristics like income or age can work. Others may focus based on specific interests of the target segment.
With the increased use of Generative AI tools (and a lot of personalized data), some companies are working towards offering personalization down to the individual level, similar to the way Netflix suggests programming based on your prior search and viewing behavior.
Defining a clear target audience is worth giving a lot of thought to, as that choice drives everything your organization does: the benefits you offer, the features you emphasize, the level of personal contact or service you provide, and the way your staff is trained to deliver on these issues.
Keep in mind, however, that the more focus and differentiation you apply in order to meet the needs of a given segment, the more difficult it becomes to expand your market later. Southwest Airlines, once famous for targeting cost-conscious travelers who were open to settling for coach-class, unassigned seats, is now making moves to become like the other carriers, offering reserved seating and more. I suspect this move to give up their points of differentiation in search of additional revenue will cost them customers — and profits — in the future.
Identifying Your Target Market
While it can be challenging to pinpoint your best target audience, here are some guidelines that can help.
- The target must be identifiable and accessible. You need to be able to tell who’s in your audience — and who isn’t. That means your audience must be defined in a way that allows you to find and reach them.
It could be demographics, behavior, geography, or even where they show up in the world. If you can’t locate them, speak to them, or put your message in front of them, you’re not dealing with a useful segment. Think about who watches Wimbledon, for example: Rolex, Merrill Lynch, and pharma ads tell you a lot about who marketers believe is tuned in. It’s not just about defining the group, it’s about being able to get in front of them. - The target must be “differentiable.” A useful segment has sharp edges. You must be able to draw a line around it so you know who belongs and who doesn’t. Determining that you want to serve people who “care about the environment” doesn’t work — nearly everyone says they do. If everyone qualifies, then no one does.
- The target must be large enough to provide a sufficient market for your offer. Once you are clear on what problem you want to solve and for whom, you need to be sure there are enough members of that target segment to meet your needs for growth and scale.
Reflections
Just as strategy is focused on determining what you do — and what you do not do — identifying your target customer is equally important. You have to know who you are doing things for and who you are not if you are going to have a clear offering that differentiates you from others in your market.
