Decision 3 Target marketing strategy

Target marketing strategy

Evaluation and selection of appropriate segments and the development of appropriate offers.

Segmentation

Identification of different groups within a target market in order to develop different offerings for each group.

Deciding on which markets to target is a key strategic consideration for Internet marketing strategy in the same way it is key to marketing strategy. Target marketing strategy involves the four stages shown in Figure 4.12, but the most important decisions are:

• Segmentation/targeting strategy - a company's online customers have different demographic characteristics, needs and behaviours from its offline customers. It follows that different approaches to segmentation may be required and specific segments may need to be selectively targeted.

• Positioning/differentiation strategy - competitors' product and service offerings will often differ in the online environment. Developing an appropriate online value proposition as described below is an important aspect of this strategy.

In an Internet context, organisations need to target those customer groupings with the highest propensity to access, choose and buy online.

The first stage in Figure 4.12 is segmentation. Segmentation involves understanding the groupings of customers in the target market in order to understand their needs and potential as a revenue source so as to develop a strategy to satisfy these segments while maximising revenue. Dibb et al. (2001) say that:

Market segmentation is the key of robust marketing strategy development. . . it involves more than simply grouping customers into segments . . . identifying segments, targeting, positioning and developing a differential advantage over rivals is the foundation of marketing strategy.

In an Internet marketing planning context, market segments will be analysed to assess:

1 their current market size or value, future projections of size and the organisation's current and future market share within the segment;

2 competitor market shares within segment;

Informed by

Market research and analysis of customer data

Demand analysis

Stage of target marketing

Competitor analysis Internal analysis

Evaluation of resources

Stage of target marketing

Competitor analysis Internal analysis

Figure 4.12 Stages in target marketing strategy development

Informs

Market segment definition

Target segments Online revenue contribution for each segment

Online value proposition Online marketing mix

Online marketing mix Restructuring

Figure 4.12 Stages in target marketing strategy development

3 needs of each segment, in particular, unmet needs;

4 organisation and competitor offers and proposition for each segment across all aspects of the buying process.

Stage 2 in Figure 4.12 is target marketing. Here we select segments for targeting online that are most attractive in terms of growth and profitability. These may be similar or different compared with groups targeted offline. Some examples of customer segments that are targeted online include:

• the most profitable customers - using the Internet to provide tailored offers to the top 20 per cent of customers by profit may result in more repeat business and cross-sales;

• larger companies (B2B) - an extranet could be produced to service these customers, and increase their loyalty;

• smaller companies (B2B) - large companies are traditionally serviced through sales representatives and account managers, but smaller companies may not warrant the expense of account managers. However, the Internet can be used to reach smaller companies more cost-effectively. The number of smaller companies that can be reached in this way may be significant, so although the individual revenue of each one is relatively small, the collective revenue achieved through Internet servicing can be large;

• particular members of the buying unit (B2B) - the site should provide detailed information for different interests which supports the buying decision, for example technical documentation for users of products, information on savings from e-procurement for IS or purchasing managers, and information to establish the credibility of the company for decision makers;

• customers that are difficult to reach using other media - an insurance company looking to target younger drivers could use the web as a vehicle for this;

• customers that are brand-loyal - services to appeal to brand loyalists can be provided to support them in their role as advocates of a brand, as suggested by Aaker and Joachimsthaler (2000);

• customers that are not brand-loyal - conversely, incentives, promotion and a good level of service quality could be provided by the web site to try and retain such customers.

Such groupings can be targeted online by using navigation options to different content groupings such that visitors self-identify. This is the approach used as the main basis for navigation on the Dell site (Figure 4.13) and has potential for subsidiary navigation on other sites. Dell targets by geography and then tailors the types of consumers or businesses according to country, the US Dell site having the most options. Other alternatives are to set up separate sites for different audiences - for example, Dell Premier is targeted at purchasing and IT staff in larger organisations. Once customers are registered on a site, profiling information in a database can be used to send tailored e-mail messages to different segments, as we explain in the Euroffice example in Mini Case Study 4.2 below.

Figure 4.13 Dell Singapore site segmentation

Source: http://www.ap.dell.com/content/default.aspx?c=sg&1=en&s=gen

Figure 4.13 Dell Singapore site segmentation

Source: http://www.ap.dell.com/content/default.aspx?c=sg&1=en&s=gen

The most sophisticated segmentation and targeting schemes are often used by e-retailers, which have detailed customer profiling information and purchase history data and seek to increase customer lifetime value through encouraging increased use of online services through time. However, the general principles of this approach can also be used by other types of companies online. The segmentation and targeting approach used by e-retailers is based on five main elements which in effect are layered on top of each other. The number of options used, and so the sophistication of the approach will depend on resources available, technology capabilities and opportunities afforded by the list:

1 Identify customer lifecycle groups

Figure 4.14 illustrates this approach. As visitors use online services they can potentially pass through seven or more stages. Once companies have defined these groups and set up the customer relationship management infrastructure to categorise customers in this way, they can then deliver targeted messages, either by personalised on-site messaging or through emails that are triggered automatically by different rules. First-time visitors can be identified by whether they have a cookie placed on their PC. Once visitors have registered, they can be tracked through the remaining stages. Two particularly important groups are customers that have purchased one or more times. For many e-retailers, encouraging customers to move from the first purchase to the second purchase and then on to the third purchase is a key challenge. Specific promotions can be used to encourage further purchases. Similarly, once customers become inactive, i.e. they have not purchased for a defined period such as 3 months, they become inactive and further follow-ups are required.

7 ) Purchased active: e-responsive

Purchased inactive

5 ) Purchased once or n times

Registered visitor

Newly registered visitor

Return visitor

First-time visitor

Figure 4.14 Customer lifecycle segmentation

2 Identify customer profile characteristics

This is a traditional segmentation based on the type of customer. For B2C e-retailers this will include age, sex and geography. For B2B companies, it will include size of company and the industry sector or application they operate in.

3 Identify behaviour in response and purchase

As customers progress through the lifecycle shown in Figure 4.14, by analysis of their database, the marketer will be able to build up a detailed response and purchase history which considers the details of recency, frequency, monetary value and category of products purchased. This approach, which is known as RFM or FRAC analysis, is reviewed in more detail in Chapter 6. See Tesco.com Case Study 4 for how Tesco targets its online customers.

4 Identify multi-channel behaviour (channel preference)

Regardless of the enthusiasm of the company for online channels, some customers will prefer using online channels and others will prefer traditional channels. This will, to an extent be indicated by RFM and response analysis since customers with a preference for

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