Most Fridays, I will answer a question or questions from Principles of Marketing students about marketing. This week's question: How do you determine the target market?
Several methods exist to segment a market beyond the simplistic (everyone wants my product) and the gut (young women are very interested in my market offering). More specific methods include using parametric analysis such as regression or ANOVA, and non-parametric analysis such as chi square and Spearman's rank rho. These methods are covered in the Marketing 3850 (Marketing Analytics) course.
Parametric and nonparametric provide critical region where the analysis can decide to reject, or fail to reject the null hypothesis. Typically, the null hypothesis is stated as there is no difference between groups, the means are equal, or the medians are equal depending on the analytical tool.
Beyond those approaches exist cluster analysis and factor analysis. We cover cluster analysis in both Principles of Marketing (MKTG3100) and Marketing Analytics (MKTG3850). The thought is to form groups based on distance, or loss of information, to determine how similar or dissimilar the observations appear. Statsoft provides a longer, more detailed explanation as well as an embedded video.
Similarly, factor analysis relies on the amount of error each group, or factor, shares. Through this approach, the number of observations or variables can be reduced to some type of groups, which allows for classification. We will most likely cover this approach in MKTG3850 for Autumn 2014. This entry from Statsoft provides additional discussion.
Please note that these responses appear brief.
After a segmenting the market, a target market should be selected based on several considerations, including:
- Size and growth of the market segment;
- Cost to service the market segment;
- Firm's ability to meet the demands of that market segment.
That is, the firm should evaluate the attractiveness of each segment before selecting the segment to target.