Chapter Overview

Carving Up the Market

Some marketers believe that it is important to reach as many potential customers as possible with a marketing communication message; they don't want to pass up a single one. Although this might seem to make sense, it ignores the factor of cost efficiency. Reaching "everyone" costs money and sends lots of unwanted messages to people who aren't customers or prospects. It makes more sense to narrow the audience to people who are most likely to buy the brand.

Segmenting and targeting are used to identify those groups of customers and prospects for whom a brand can get the best return from its marketing communication efforts. Segmenting and targeting start with a brand's current customers, because current customers are a brand's best customers. It costs significantly less to create a transaction with a current customer than with a prospect.

Progress in market research and database technology has allowed companies to learn more about current customers and the differences among them. Now companies are able to track which consumers purchase what products, how often, and what quantities. Companies can often track which messages customers heard or saw, what else their customers are buying, and who they are (e.g., how old they are, where they live, and other profile information). But most important, companies can determine which customers are profitable and which are not.

Because different customers and prospects have different needs, wants, and desires, brand communications must differ accordingly. In other words, segmenting and targeting are interrelated strategic decisions. This chapter is organized around four main topics: reasons for segmenting and targeting, segmentation strategies, types of market segmentation, and how targeting works.