A differentiated marketing strategy is one in which the company decides to provide separate offerings to each different market segment that it targets. It is also called multisegment marketing. Each segment is targeted in a particular way, as the company provides unique benefits to different segments.
What is multisegment targeting strategy?
Multisegment targeting strategy, otherwise known as “differentiated marketing strategy”, involves the firm targeting several different market segments simultaneously, providing each segment with its own distinct benefits and marketing mix, as well as its own marketing strategies.
Firms employing multisegment marketing strategies are able to provide targeted services and products to a variety of different market segments.
There are four basic elements which differentiate this type of strategy from single segment marketing:
Segmentation: The firm identifies particular market segments (such as geographical groupings, demographic groupings, psychographic groupings) that it wishes to serve, and develops a separate marketing plan for each segment (whereas in a single segment strategy, the company would be targeting a single or narrow range of market segments)
Differentiation: The firm targets each market segment separately, so each market segment is provided with products and services designed especially for that segment
Focus: Due to the focussed nature of each sub-market, the firm is able to provide great attention to detail to each different market segment.
Maintenance: The firm maintains separate and distinct plans for each market segment, updating them as necessary. Each segment should be approached similarly as to how it would approach its single segment strategy.
A multisegment targeting strategy is usually only used by large companies. This is because small and medium-sized companies do not usually have the resources to provide separate marketing channels to multiple market segments.
It is important to note that the organisation may find it difficult to maintain several different marketing strategies simultaneously. It might end up distributing its resources ineffectively, and may cause more harm than good.
However, multisegment marketing is a strong strategy due to the amount of opportunities that it offers the organisation. Multisegment strategies provide a company with the opportunity to reach out to a larger market share. It also allows an organisation to improve its marketing efficiency and effectiveness, as the company has more means through which to convey a message to consumers. It is also beneficial for the company to diversify into several different market segments, a strategy known as horizontal diversification. The primary reasons for this is, firstly, consumers are more willing to pay higher prices for existing goods and services if they knew that the company was supporting other social entities with the revenue generated from their profits, and secondly, it gives the company a very high degree of flexibility. This is because if one market segment were to fail, the company would still have others that it can rely on. Due to these benefits, many companies derive a greater amount of profit from their multisegment targeting strategy.
Multisegment strategy is a beneficial strategy for all firms. Companies are able to improve their market share, increase their profits, as well as build social capital. Multisegment targeting is often used by some of the largest companies in the world.
There are several ways in which a company can determine which market segments it should aim at. There is no one particular method that would fit all companies, and the method will vary depending on the market that the firms operate under:
- Demographic variables (age, gender, marital status, education, etc.)
- Geographical variables (where people live and work in)
- Psychographic variables (occupations, social classes, lifestyles, media use, etc.)
- Quality variables (the actual quality of products or services offered)
- Price variables (the actual price of products or services offered)
- Promotional variables (the techniques used to promote a product or service)
Promotion variables usually have the greatest effect on the decisions of consumers, and so marketing strategies are often designed around the best possible strategies for promotion variables.
There are many benefits of multisegment targeting. It has been discussed before, but the benefits are as follows:
- Increased market share
- Increased profit
- Building social capital
An increased market share is achieved indirectly. Although a firm might be providing a separate offering to each segment, they are still working as a unified whole. As consumers become more familiar with a company’s multisegment campaign, they will become more familiar with the company’s products. As a result, the company’s reputation in the market increases, and its image becomes more appealing. This benefits the company because it increases its market share. Increases in market share is also achieved due to the particular needs for each market segment being addressed, as it would increase customer satisfaction.
Increased profit is one of the biggest benefits of multisegment targeting. With an increased market share, a firm will be able to increase its market penetration. Marketing costs will be spread throughout a much larger market- share. The firm will also be able to raise its prices, and increase its output. The income that a firm receives from sales is affected by the ability of the firm to lower its costs and increase output. These two factors will increase the amount of profit that the firm is able to receive. For example, Nestle is a company that mainly employs multisegment targeting. It produces different types of coffees targeted to different market segments. One particular type of coffee produced by Nestle is called Nescafe. Nescafe comes in many different flavours and types. Below is an example of a Nescafe marketing campaign:
These ‘ownership’ campaigns give Nestle greater control over Nescafe through extensive advertising, provide the company with more promotion variables (as the company would be able to advertise many different products in a brief span of time), and serve to increase its market share. There is a huge gap in the coffee market segment between Nestle and its competitors such as Maxwell House and Folgers, however, there is also a gap between Nestle coffee and the premium quality, organic coffee segment (Nespresso and Starbucks). This segmentation of the market is typical of the ‘jealousy’ model of segmentation, where consumers buy a particular brand of coffee because their peers are doing so.
A final benefit of multisegment targeting is that it improves the company’s social capital. Social capital is defined as being provided with opportunities due to positive relationships, such as the ability to obtain loans, partner with another company to provide greater service, and the ability to employ workers at a cheaper rate.
In a 2001 article titled ” The Success Strategies of Multinationals: A Comparative Analysis,” the author analysed the strategies that multinational corporations (MNC) use to achieve success in foreign markets. The author used a qualitative approach (where the researchers already knew what they were looking for) in order to analyse the reasons behind the strategies used by successful MNCs.
The author noted that the successful MNC’s had not employed a particular strategy to increase their success, explaining that they had reached success due to a variety of different strategies. What differentiated them was a variety of different “targeting” strategies. The author describes targeting strategies as follows:
“A targeting strategy refers to what market or markets the company aims at; it explains how it plans to enter those markets and where it hopes to compete effectively.”
The author recognised that all of these MNCs offered differences to the market, and so their success could be attributed to the variety of targeting strategies employed. This meant that the MNCs were able to target different market segments, which benefited them in the long term.
“Many companies derive a greater amount of profit from their multisegment targeting strategy. Multiple segments of consumers have different preferences and benefits derived from the specific segment that the company targets. Not only does this strategy allow companies to reach a greater portion of market that has the potential of giving them additional profit, but it also allows companies to avoid some of the negative involvement in a single segment. In the long run, companies benefit more from their multisegment targeting strategy.”
The author went on to discuss a number of successful MNCs, including Nestle (which is discussed above in the “Benefits of multisegment targeting” subsection) and Nokia, as well as the success derived from their targeting strategies. These MNCs differed due to the range of targeting strategies used. The author used Nokia’s targeting strategy as an example:
“Nokia’s targeting strategies can be best demonstrated through its mobile phones evolution. The company has strategically built its product line to delivery in the market. The market gap for Nokia was defined and its strategic position was decided by deciding what market segment it aimed at. Mobile phones, from the segmenting and targeting perspective, was divided into two segments.
- Portable phone (less technological advancement, cheaper)
- Mobiles with camera (high technological advancement)
Nokia therefore decided to target both segments by using two different strategies and it has been very successful. The company was able to attract customers from both segments through effective targeting strategies and its revenues diversified.
- Nokia Mobiles 9500 Communicator. The phone targeted people who needed high technological advancement in their phones. This product target audience would have been price sensitive, yet they wouldn’t be satisfied with the technological features of less expensive phones. By offering the communicator in this segment, Nokia was able to target a new group of customers by providing them with high technology at a reasonable price.
- Nokia N-Gage. The gaming system N-Gage was a good example of a portable phone that targeted people who needed portable phones that were technological advanced. The gaming system is functional in two modes, the first mode is the gaming mode which offers games with very high technological features that would be liked by people who needed a gaming phone. Secondly, the phone mode is functional for calling and providing service for other purposes. This is an example of a diversification strategy for Nokia, as the company has been able to diversify its products in order to increase its target audience.
Nokia’s handsets provided a good example of the concept of segmentation that was discussed earlier. By strategically targeting both segments; the company was able to generate more business and profit.
Further research is necessary in order to determine how segmentation and targeting can be applied to other successful MNCs, as this was a very preliminary study. However, the relationship between segmenting and targeting and success has been proved.