The markets selected by an organization as the target for their marketing efforts (i.e., target markets) is critical since all subsequent marketing decisions will be directed toward satisfying the needs of these customers. But what approach should be taken to select markets the organization will target?
One approach is to target at a very broad level by identifying the market as consisting of qualified customers who have a basic need that must be satisfied. For example, one could consider the beverage market as consisting of all customers that want to purchase liquid refreshment products to solve a thirst need. While this may be the largest possible market a company could hope for (it would seem to contain just about everyone in the world!), in reality there are no manufactured products that would appeal to everyone in the world since individual nutritional needs, tastes, purchase situations, economic conditions, and many other issues lead to differences in what people seek to satisfy their thirst needs.
Because people are different and seek different ways to satisfy their needs, nearly all organizations, whether for-profits or not-for-profits, industrial or consumer, domestic or international, must use a market segmentation approach to target marketing. This approach divides broad markets, consisting of customers possessing different characteristics, into smaller market segments in which customers are grouped by characteristic shared by others in the segment.
To successfully target markets using a segmentation approach, organizations should engage in the following three-step process.