After analyzing a market’s segments, a company must decide which to serve. This selection follows the division of the broader market into smaller groups of buyers with distinct needs, characteristics, or behaviors. The choice of which customers to target will shape the company’s marketing mix and overall business strategy.
Undifferentiated Marketing Strategy
An undifferentiated marketing strategy, or mass marketing, disregards market segment differences and targets the entire market with a single offer. This strategy focuses on the common needs of consumers, creating a product and marketing program that will appeal to the largest number of buyers.
The primary advantage of this approach lies in cost savings. Offering one product and a single marketing mix leads to lower expenses in production, inventory, and transportation. Advertising costs can also be kept down, as the same message is broadcast to a wide audience. This standardization simplifies the marketing process and leads to economies of scale.
This approach has its challenges. Crafting a product or brand that satisfies every consumer is a difficult task. Companies using this strategy often face intense competition from firms that are more focused on satisfying the needs of specific segments. A classic example is the early production of the Ford Model T, offered in one variant to all consumers. Similarly, basic commodities like salt or sugar are often marketed with an undifferentiated approach, as their fundamental utility is consistent across all consumers.
Differentiated Marketing Strategy
A differentiated marketing strategy involves targeting multiple market segments and creating distinct offers for each one. The goal is to develop a stronger position within several segments, which can lead to higher total sales. By offering product and marketing variations to different segments, companies aim to increase customer satisfaction and build loyalty.
This strategy can lead to a more robust and widespread market presence. A company that successfully caters to different segments can achieve higher overall revenue and a more diversified business. For instance, a car manufacturer like Toyota produces a wide range of vehicles—including SUVs for families, sedans for commuters, and trucks for commercial use—to appeal to distinct customer groups. Gap Inc. operates several clothing brands, such as Gap, Old Navy, and Banana Republic, each designed to serve a different consumer segment.
The main drawback of a differentiated strategy is the increase in operational costs. Developing separate products and marketing plans for each segment requires investment in research, production, and promotion. The complexity of managing multiple campaigns and product lines can strain company resources and lead to higher administrative expenses. This approach requires a company to balance potential higher sales against the rise in costs.
Concentrated Marketing Strategy
Concentrated marketing, or niche marketing, is a strategy where a company directs its efforts toward capturing a large share of one or a few smaller segments. Instead of pursuing a small share of a large market, the firm aims to secure a significant portion of a smaller, specific market. This approach is effective for companies with limited resources, as it allows them to focus their efforts.
By concentrating on a specific niche, a company can gain a deep understanding of the needs and preferences of that segment’s consumers. This specialized knowledge allows the firm to build a strong reputation and a loyal customer base. For example, Rolex has established a dominant position in the luxury watch market by exclusively targeting high-end consumers. Another example is a company that specializes in producing high-performance running shoes for vegan athletes.
This strategy carries a higher level of risk. Since the company is heavily invested in a single segment, it becomes vulnerable if that segment’s preferences change or its purchasing power declines. A larger competitor could also decide to enter the same niche, creating a threat to the company’s market share. This “all eggs in one basket” approach means a negative turn in the chosen segment can have severe consequences.
How to Choose the Right Strategy
Selecting the appropriate targeting strategy depends on several internal and external factors.
- Company Resources: A business with limited financial and human resources may find that a concentrated strategy is the most logical choice, as it allows for a focused application of those resources. In contrast, larger, well-funded companies are better equipped to implement a more costly differentiated marketing strategy.
- Product Nature: For products that are highly uniform with little potential for variation, such as basic commodities like steel or grapefruit, an undifferentiated approach is suitable. Products that can be designed in various ways, such as automobiles or cameras, lend themselves more readily to differentiation or concentration.
- Market Variability: If the majority of buyers share similar tastes, buy in similar quantities, and react to marketing efforts in the same way, an undifferentiated strategy can be effective. If consumer needs and preferences vary significantly, a differentiated or concentrated strategy will likely yield better results.
- Competitor Strategies: If competitors are already effectively using a differentiated approach, a company might find it difficult to compete with an undifferentiated strategy. Conversely, if competitors are using an undifferentiated approach, a firm might find an opportunity to gain an advantage by focusing on the specific needs of a niche.