Small Business Usage of Target Marketing
Peterson, Robin T., Journal of Small Business Management
SMALL BUSINESS USAGE OF TARGET MARKETING
Target marketing, which has been adopted by a number of large producers, wholesalers, service institutions, and retailers in the United States, involves three basic steps. The first is market segmentation, where the total market is subdivided into distinct groups of buyers who might respond to separate products or marketing mixes. This has been described as a condition where "Heterogeneity in demand functions exists such that market demand can be disaggregated into segments with distinct demand functions" (Dickson and Ginter 1987). Then, each market segment is evaluated to determine its potential, and one or more of the segments are selected for penetration. Finally management designs a detailed marketing mix to appeal to the segment(s) chosen (Kotler and Armstrong 1990).
Increasingly, firms are discovering target marketing's potential for success. Particular classes of customers are targeted in an attempt to effectively satisfy their distinct needs, as opposed to attempting to appeal to the mass market through a compromise strategy. When target marketing is well-conceived, it can produce strong customer satisfaction and brand loyalty and give firms an edge against rivals. Many successful firms, including DuPont, RJR Nabisco, General Mills, and WalMart, have found this an effective strategy. In fact, most markets have become so fragmented that selling to the mass market is no longer feasible.
The value of target marketing is enhanced because identified market segments in one geographic location are often generalizable to other locales. One study discovered generalizable segments in 12 states that are in different regions of the United States (Lesser and Hughes 1990). Another study demonstrated that segments with similar attitudes and behavior can exist across international boundaries--in this case the United States, the Netherlands, France, and Norway (Bronislaw, Dahringer, and Cundiff 1989).
Because of the success of target marketing by larger enterprises, logic suggests that it would also be a popular strategy of small companies. But only limited evidence in the literature addresses the degree of target marketing by small firms. Also not available in the literature are data indicating how small firms employ target marketing. This article is based on a study that was designed to fill these voids.
The literature contains many studies relating to target marketing and market segmentation in a wide array of industries. A sample that illustrates the wide applicability of these techniques is examined here. For instance, the passenger airline industry has been the subject of considerable research into market segmentation, and findings suggest that personality, environmental, and demographic variables are useful for subdividing the market. According to one study, different segments of airline passengers have distinct consumer preferences regarding convenience, economy, and safety (Bruning, Kovacic, and Oberdick 1985).
Another industry where target marketing has been widely employed is the restaurant industry, which includes many small businesses. One study indicated considerable differences from one market segment to another in the basic desire for certain food attributes, such as nutrition and taste. Based upon the finding, the authors indicated that target marketing strategies had considerable potential in that industry (Bahn and Granzin 1985). In addition, researchers also have identified segments of health care consumers that differ considerably in the type and extent of health care benefits and facilities they prefer and utilize (Bonaguro and Miaoulis 1983).
Studies of target marketing have not been restricted to profit-seeking organizations, and the strategy has been shown to be useful for fund raising. Various segments have different reasons for donating (or not donating) funds or volunteer hours, so appeals for funds and volunteer recruitment efforts can be tailored to meet the needs of each segment (Harvey 1990, Yavas and Riecken 1985). Other inquiries have discovered opportunities for target marketing by museums (Andreason 1982), the performing arts (Steinberg, Miaoulis, and Lloyd 1982), and higher education (Traynor 1981). Clearly, research has shown that target marketing has been effective and used successfully in diverse applications. This study went one step further by specifically examining the extent to which small business uses target marketing and which types are most useful to managers.
Questionnaires were mailed to 50 directors of Small Business Institutes (SBIs) at 50 U.S. colleges and universities in 40 states. The institutions were selected at random from the U.S. Small Business Administration listing of SBIs. This method of sampling has been found to possess both validity and efficiency in previous studies (Peterson 1988). Each SBI director received 40 questionnaires and a request to distribute these to current and past clients. After completing the questionnaires, the clients returned them to the researcher in business reply envelopes. The total usable sample size was 519 (316 small retailers, 127 small service enterprises, 42 small manufacturers, 22 small wholesalers, and 12 other small firms). The questionnaire aimed to gather information about the following items: whether the respondents engaged in target marketing; what segmentation methods they used; how satisfied they were with the methods used; the return on invested capital; the industry; and the size of the firm.
Extent of Target Marketing
The questionnaire defined target marketing and then asked respondents if they were presently using this strategy. Sixty-two percent of the sample (320 respondents) replied affirmatively. This suggests that the target marketing strategy has penetrated the ranks of small business managers to an appreciable degree. Further insights can be gained by examining the reported return on invested capital by firms that pursue and do not pursue target marketing. A significant positive association would provide evidence of the possible effectiveness of the strategy.
The respondents who indicated that they employed target marketing reported a mean return on invested capital of 17.9 percent, and those who indicated they did not pursue this strategy reported a mean return of 9.3 percent. The difference between the two percentages is significant, according to a t-test, at the .05 level. This finding, of course, does not prove the efficacy of target marketing, given the many intervening variables that could account for the percentage difference. Still, the finding provides a presumption of effectiveness.
Table 1 presents the extent to which respondents' industries use target marketing. Two categories, retailing and manufacturing, manifest frequencies that are significantly greater than other types of firms in the sample. This is not an unexpected finding, given that many small retailers and manufacturers have emulated the marketing strategies of their larger rivals. In many cases the small retailers and manufacturers begin to engage in target marketing as their markets expand. The same conditions also affect the service and wholesaling industries, but to a considerably lesser extent.
Table 2 sets forth the number and percentage of firms employing target marketing, broken down by size (as measured by number of employees). It is apparent that the distribution is bimodal. The smallest and the largest firms reported using target marketing to a greater extent than did respondent firms in the mid-size range. There are several plausible explanations for this distribution.
A number of very small firms may have discovered opportunities in targeting limited volume markets--those that are not sufficiently large to attract the attention of larger companies. These small enterprises may have found niches that are protected by the common large firm practice of targeting larger groupings. Another possible explanation for substantial small firm attraction to target marketing is that some may be targeting by default. That is, they may be restricting their coverage to certain markets, such as local neighborhoods, because they lack the resources to serve larger markets.
A possible explanation for the substantial use of target marketing by larger firms in the sample is that they may be of adequate size to employ managers who are sufficiently educated and experienced to realize the potential of target marketing and the drawbacks of attempting to serve mass markets. In contrast, managers of medium-sized enterprises may still be in pursuit of mass markets, which have proved adequate in the past.
Strategic Use of Target Marketing
Those respondents who reported using target marketing were asked to specify on the questionnaire the method(s) of subdividing the market that most closely described the method(s) they employed. The methods listed in the questionnaire were obtained from eight consumer behavior and marketing research texts and are believed to be inclusive. Table 3 presents the questionnaire definitions of each method, which were included to ensure that respondents employed the correct categorization. Table 4 sets forth the numbers and percentages of respondents who reported using various methods to subdivide the market. The most widely employed methods were demographic, geographic, benefits sought, marketing attribute, extent of usage, and the time of use. In contrast, purchasing decisions, purchasing timing, buyer readiness, and personality characteristics were not widely used.
Satisfaction With the Various Methods
Respondents were asked to provide, on a five-point scale (1 = very satisfied; 5 = very dissatisfied) their evaluation of the segmentation method(s) they were currently using or had used in the past. "Satisfaction" was defined as the belief that the method used allowed the firm to develop more profitable strategies than would other methods. Table 5 sets forth the results of the analysis.
The mean scale value for all methods (overall mean for the total sample) is 3.6. This is significantly larger than the midpoint on the scale (3.0), according to a t-test at the .05 level, suggesting that the respondents tend to be satisfied with the methods they are using. Methods that received mean square values that were significantly larger than the overall mean, were benefits sought, time of use, purchasing time, attitude, geographic, and buyer readiness. The high evaluations for these methods suggest they may be useful to other small firms. On the other hand, some methods received relatively low satisfaction scores, including marketing attributes, personality characteristics, loyalty status, and lifestyles.
There is some correlation between the mean scale values in tables 4 and 5. Those methods that are widely used (as measured in table 4) and rated highly (table 5) are geographic, time of use, and benefits sought. This correspondence provides some degree of evidence for the potential value of these methods. Also, the satisfaction scores are useful, but cannot be interpreted as completely valid measures of how useful particular methods are to individual firms. The needs of small businesses differ, and a method useful to one company may not be useful to another. Also, satisfaction with a method is a product of the inherent value of the method--plus the manner in which it is used.
This article discussed a study that examined usage and strategic employment of target marketing by small businesses. Responses of a sample of small business managers provided data from which to form inferences about target marketing. Almost two-thirds indicated that they were employing this strategy at present, with the heaviest concentrations in manufacturing and retailing, reflecting industry practice and competition in those sectors.
Both the smallest and largest of the respondent firms reported extensive use of target marketing. Very small firms may be using the strategy to occupy small, local market niches that are relatively immune from competition with larger rival firms. Larger firms may be of adequate size to employ managers who are educated and experienced enough to realize the value of target marketing and the drawbacks of attempting to serve mass markets.
The most widely employed methods respondents reported using were demographic, geographic, benefits sought, marketing attribute, extent of usage, and the time of usage. Overall satisfaction with methods was substantial; and the methods yielding the greatest satisfaction were benefits sought, time of use, purchasing time, attitude, geographic, and buyer readiness. Many of the methods used with high frequency also were given high satisfaction mean scores providing substantiation of their value.
Several dimensions of marketing were found to be effective in this study, and small firms that are involved in or contemplating target marketing can benefit from these findings. Still, each company must carefully analyze its individual objectives, constraints, strengths, weaknesses, and resources to determine its target marketing strategy.
EXTENT OF USE OF TARGET MARKETING BY INDUSTRY
Number Employing Percentage Employing Industry Target Marketing Target Marketing Retailing 212(*) 67.1 Service 61 48.0 Manufacturing 31(*) 73.8 Wholesaling 11 50.0 Other 5 41.7
(*)Denotes a frequency that is statistically larger than the expected frequency, according to a chi-square test at the .05 level.
EXTENT OF USE OF TARGET MARKETING BY SIZE OF FIRM
Number Employing Percentage Employing Number of Employees Target Marketing Target Marketing 0-99 76 81.3 100-199 65 71.5 200-299 68 42.8 300-399 43 38.5 400-499 30 77.4 500 and over 38 79.1
(*)Denotes a frequency that is significantly greater than expected frequency, according to a chi-square test at the .05 level.
DEFINITION OF SEGMENTATION METHODS 1. Geographic: into geographic areas (such as states, counties, census tracts, etc.). 2. Demographic: by age, income, occupation, and gender. 3. Social class: into social classes (such as upper, middle, and lower class). 4. Lifetyle: based on consumers' activities, interests, and opinions. (Examples of activities are
work, hobbiies, social, entertainment, and shopping. Examples of interests are familie, job,
community, fashion, and food. Examples of opinions are social issues, politics, products, and
the future.) 5. Personality characteristics: based on consumers' personality traits (such as masculinity,
femininity, optimism, pessimism, and aggressiveness.) 6. Purchasing decisions: based on when consumers get the idea to buy the product. 7. Purchasing timing: based on when consumers buy the product. 8. Time of use: based on when consumers use the product. 9. Benefits sought: based on what benefits consumers want from the product. 10. Extent of usage: based on consumer usage of the product (such as nonusers, ex-users,
potential users, first-tiime users, regular users). 11. Loyalty status: based on the degree to which consumers are loyal to the product (such as
completely loyal, somewhat loyal, not loyal). 12. Buyer readiness: based on the extent to which consumers are ready to buy the product (such
as unaware, aware, informed, interested in, want, and intend to buy the product). 13. Attitude: based on the attitudes of consumers toward the product or company (such as
enthusiastic, positive, indifferent, negative, and hostile). 14. Marketing attribute: based on whether consumers buy the product because of its characteristics,
its price, promotion accomplished, or because the product is conveniently available.
METHODS USED TO SUBDIVIDE THE MARKET BY RESPONDENTS
Percent- Method Number age Geographic 97(*) 13.6 Demographic 107(*) 15.5 Social class 35 4.9 Lifestyel 31 4.4
characteristics 29 4.1
decisions 17 2.4 Purchasing timing 22 3.1 Time of use 45(*) 6.3 Benefits sought 84(*) 11.8 Extent of usage 49(*) 6.9 Loyalty status 37 5.2 Buyer readiness 27 3.8 Attitude 40 5.6 Marketing attribute 61(*) 8.6 Total 711 100.0
(*)Denotes a frequency that is significantly greater than the expected frequency, according to a chi-square test at the .05 level.
RESPONDENT SATISFACTION WITH SEGMENTATION METHODS
Mean Method Scale Value Geographic 3.9(*) Demographic 3.0 Social class 3.8 Lifestyle 2.7 Personality characteristics 2.6 Purchasing decisions 3.7 Purchasing timing 4.2(*) Time of use 4.3(*) Benefits sought 4.6(*) Extent of usage 3.1 Loyalty status 2.7 Buyer readiness 3.9(*) Attitude 4.1(*) Marketing attribute 2.5 Mean for all methods 3.6
(*)Denotes a mean scale value that is significantly larger than the mean scale value for all methods, according to a Turkey-K test at the .05 level.
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Dr. Peterson is professor of marketiing at New Mexico State University in Las Cruces.…
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Publication information: Article title: Small Business Usage of Target Marketing. Contributors: Peterson, Robin T. - Author. Journal title: Journal of Small Business Management. Volume: 29. Issue: 4 Publication date: October 1991. Page number: 79+. © 2002 Journal of Small Business Management. COPYRIGHT 1991 Gale Group.
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