Target Marketing and Market Segmentation

Target marketing can be your key to increasing sales

Target marketing involves breaking a market into segments and then concentrating your marketing efforts on one or a few key segments consisting of the customers whose needs and desires most closely match your product or service offerings. It can be the key to attracting new business, increasing sales, and making your business a success.

The beauty of target marketing is that aiming your marketing efforts at specific groups of consumers makes the promotion, pricing, and distribution of your products and/or services easier and more cost effective and provides a focus to all of your marketing activities.

For instance, suppose a catering business offers catering services in the client’s home. Instead of advertising via a newspaper insert that goes out to everyone, the caterer would first identify the target market for its services. It could then target the desired market with a direct mail campaign, flyer delivery in a particular residential area, or a Facebook ad aimed at customers in a specific area, thereby increasing its return on investment in marketing and bringing in more customers.

Social media platforms, such as Facebook, LinkedIn, Twitter, and Instagram, have sophisticated options to allow businesses to target users based on market segments. A bed-and-breakfast business, for example, could target married Facebook followers with an ad for a romantic weekend getaway package. LinkedIn, on the other hand, is more B2B oriented, so you can target businesses using a variety of criteria such as number of employees, industry, geographic location, and so on.

Although you can approach market segmentation in many different ways, depending on how you want to slice up the pie, three of the most common types are demographic segmentation, geographic segmentation, and psychographic segmentation.

Demographic Segmentation

Demographic grouping is based on measurable statistics, such as:

  • Gender
  • Age
  • Income level
  • Marital status
  • Education
  • Race
  • Religion  

Demographic segmentation is usually the most important criterion for identifying target markets, which means that knowledge of demographic information is crucial for many businesses. A liquor vendor, for instance, might want to target its marketing efforts based on the results of Gallup polls, which indicate that beer is the beverage of choice for people under the age of 54—particularly in the 18 to 34 range—whereas those aged 55 and older prefer wine.

Geographic Segmentation

Geographic segmentation involves segmenting the market based on location. Home addresses are one example, but depending on the scope of your business, you could also use:

  • Neighborhood
  • Postal or ZIP code
  • Area code
  • City
  • Province or state
  • Region
  • Country (if your business is international)

Geographic segmentation relies on the notion that groups of consumers in a particular geographic area may have specific product or service needs. For example, a lawn care service may want to focus its marketing efforts on a particular town or subdivision inhabited by a high percentage of older residents.

Psychographic Segmentation

Psychographic segmentation divides the target market based on socioeconomic class or lifestyle preferences. The socioeconomic scale ranges from the affluent and highly educated at the top to the uneducated and unskilled at the bottom. The UK-based National Readership Survey segregates social class into six categories:

Social Grade Social Status Occupation
A Upper class Higher managerial, administrative, or professional
B Middle class Intermediate managerial, administrative, or professional
C1 Lower middle class Supervisory, clerical, junior managerial, administrative, or professional
C2 Skilled working class Skilled manual labor
D Working class Semi- and unskilled manual labor
E Subsistence class Unemployed, seasonal, or casual

The lifestyle-preferences classification involves values, beliefs, interests, and the like. Examples include people who prefer an urban lifestyle as opposed to a rural or suburban lifestyle, people who are pet lovers, or people with a keen interest in environmental issues.

Psychographic segmentation is based on the premise that the choices people make when purchasing goods and services reflect their lifestyle preferences or socioeconomic class.

Target Marketing Case Study: McDonald's

According to QSR magazine's 2019 QRS 50, McDonald's is the largest fast-food chain in the U.S. ranked by sales. It's also one of the most successful examples of demographic target marketing, aiming its products at children, teenagers, and young urban-dwelling families by offering PlayPlaces & Parties, the Arch Card (reloadable cash card), free wifi, Happy Meals that include toys such as Marvel Studios characters, special promotions, and clever ad campaigns. Targeted advertising and aggressive pricing have enabled McDonald's to capture over 18.5% percent of the fast-food market share in the U.S. as of 2020.

However, as millennials surpassed baby boomers in 2017 to become the largest generation in the U.S. workforce, McDonald's sales have been in decline as fast-food style menu items, such as the ubiquitous Big Mac and fries, have less appeal to millennials. In response, McDonald's has altered its marketing strategy to target the millennial generation by advertising fresher, healthier menu options and upscale coffee products such as espressos.