Welcome to Targeting Customers!
In this chapter, we are going to explore how businesses decide exactly who they want to sell to. Think of it like a game of darts: if you don’t aim at a specific part of the board, you’re just throwing things in the dark! By the end of these notes, you’ll understand how businesses measure their success in a market and how they divide people into groups to make their marketing more effective.
2.3.1 Market Analysis
Before a business starts selling, it needs to look at the "playing field." We call this Market Analysis. There are three main numbers a business needs to know: Market Size, Market Share, and Market Growth.
What do these terms mean?
• Market Size: This is the total value or volume of sales in the whole industry. It tells you how big the "pizza" is. For example, the total value of all smartphones sold in the UK in a year.
• Market Share: This is the percentage of the total market that one business owns. It’s "your slice" of that pizza.
• Market Growth: This is the percentage increase in the size of the market over time. It tells us if the "pizza" is getting bigger.
Calculating the Numbers
Don't worry if math isn't your favorite subject—these formulas are straightforward! Here is how you calculate Market Share:
\( \text{Market Share} \% = \frac{\text{Sales of one business}}{\text{Total sales in the market}} \times 100 \)
And here is how you calculate Market Growth:
\( \text{Market Growth} \% = \frac{\text{Change in market size}}{\text{Original market size}} \times 100 \)
Why does this matter?
If Market Size is huge, there’s lots of money to be made. If Market Share is high, the business is a leader (like Apple or Nike). If Market Growth is high, the business might want to invest more because there are more customers joining the market every day!
Quick Review:
• Size = Total market sales.
• Share = Your portion of those sales.
• Growth = How much the total market is expanding.
Common Mistake: Students often confuse Market Share with Profit. Remember: Market Share is about sales revenue compared to competitors, not how much money you keep after costs!
Key Takeaway: Analyzing the market helps a business understand its power compared to competitors and whether the industry is healthy enough to enter or stay in.
2.3.2 How Markets May Differ
Not all markets are the same. Some businesses sell to people like you and me, while others sell to other companies. Some sell to everyone, and some sell to a tiny, specific group.
B2C vs. B2B
• Business-to-Consumer (B2C): Selling directly to the end user. Example: You buying a pair of trainers from an online shop.
• Business-to-Business (B2B): Selling to another business. Example: A tire manufacturer selling 5,000 tires to Ford.
Mass Markets vs. Niche Markets
Mass Markets are where a business sells the same product to almost everyone.
• Characteristics: Huge number of customers, high Market Size, heavy branding, and lower prices.
• Example: Coca-Cola or basic white bread.
• Analogy: Fishing in the middle of the ocean with a giant net. You'll catch a lot of fish, but so will everyone else!
Niche Markets are small, specialized parts of a larger market.
• Characteristics: Fewer customers, specific needs, often higher prices (premium), and very high brand loyalty.
• Example: Gluten-free organic dog treats or luxury watches for deep-sea divers.
• Analogy: Fishing in a small, private pond with a specific type of bait for one specific type of rare fish.
Did you know? Many "Mass Market" brands actually started as "Niche" brands. For example, Under Armour started by only making specific moisture-wicking shirts for American Football players before becoming a massive global sports brand!
Key Takeaway: Mass markets offer high volume but high competition. Niche markets offer less competition and higher prices but fewer total customers.
2.3.3 Market Segmentation
Market Segmentation is the process of splitting a market into smaller groups of customers who have similar needs. It's like sorting your laundry so you can wash different fabrics the right way!
How do we segment?
Businesses usually use three main methods:
1. Demographic Segmentation: Dividing the market by "who" the person is. This includes age, gender, income, and social class. Example: A toy company targeting children aged 3–5.
2. Geographic Segmentation: Dividing by "where" people live. This includes neighborhood, city, country, or even climate. Example: A clothing brand selling heavy coats in Scotland but swimsuits in Dubai.
3. Psychographic Segmentation: Dividing by "why" people buy. This looks at lifestyle, personality, and values. Example: A brand targeting "environmentally conscious" people who only buy plastic-free products.
Memory Aid: The "GPD" Trick
To remember the types of segmentation, think of GPD:
• Geographic (Where)
• Psychographic (Why/Lifestyle)
• Demographic (Who)
The Impact of Segmentation
Why bother doing this? Because it allows a business to:
• Create products that perfectly fit a group.
• Avoid wasting money advertising to people who aren't interested.
• Charge a higher price because the product feels "made for them."
Don't worry if this seems tricky at first! Just ask yourself: "If I were selling a luxury electric car, would I market it to a 16-year-old with no job?" Of course not! That’s demographic segmentation (income) in action.
Quick Review:
• Demographic: Stats like age and money.
• Geographic: Location and climate.
• Psychographic: Personality and hobbies.
Key Takeaway: Segmentation helps a business focus its resources. By understanding the specific needs of a segment, they can build stronger brands and increase sales.