Target Market
Target Market
Target Market
May 2021
Authorised for educator review use only by Fayola Nicholas, Arthur Lok Jack Graduate School of Business. Expiry date 4-Apr-2024
Jorge González
Developing a marketing strategy starts with the analysis of two key elements of any market:
1 See Jorge González, “Defining the Marketing Strategy”, MN-410-E, IESE, IESE Publishing, 2021.
This technical note was prepared by Professor Jorge González. May 2021.
Copyright © 2021 IESE. This translation copyright © 2021 IESE. To order copies contact IESE Publishing via www.iesepublishing.com.
Alternatively, write to publishing@iese.edu or call +34 932 536 558.
No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form
or by any means - electronic, mechanical, photocopying, recording, or otherwise - without the permission of IESE.
other than that. In short, strategy implies setting bounds. And it is important to ask why we put
such restrictions on ourselves.
Clear targeting and positioning are useful because they help us decide what to prioritize.
Whenever we choose activities in which we are not successful, two things happen. First,
resources are allocated to activities that are not very productive. Second, the company ceases
to direct those resources towards activities that might have been essential to achieve or
maintain an advantage over competitors. Therefore, working with a well-defined market in mind
helps us focus on the right priorities when allocating resources. These priorities are reflected in
the way we define the features and functionalities of our product or service and in the
Authorised for educator review use only by Fayola Nicholas, Arthur Lok Jack Graduate School of Business. Expiry date 4-Apr-2024
commercial investments we make to bring our offering to market.
Another reason to define the target market precisely is that seeking to develop offerings that
satisfy everyone often forces us to make trade-offs. Such offerings also tend to be more
expensive and less usable than alternatives designed to perform specific tasks. To be successful
in a market, you have to aspire to do something very well. Otherwise, it is very difficult to end
suffered a serious setback when he was captured and imprisoned for the first time in 1952. In an
Copyright encoded A76HM-JUJ9K-PJMN9I
interview conducted during one of his stints in jail, a reporter asked him why he robbed banks.
“Because that’s where the money is,” he replied. Market selection could be summed up in a
similar way. In any case, it is worth examining a series of criteria that can help us assess the
attractiveness of different markets in a more precise way.
Authorised for educator review use only by Fayola Nicholas, Arthur Lok Jack Graduate School of Business. Expiry date 4-Apr-2024
Why You? A Value Proposition That Is Superior to Those of Competitors
The third criterion (which should always be considered together with the second) is the
superiority of our value proposition in relation to those of our competitors. There is no point in
customer’s needs and the superiority of the offering—is the key to high profitability in a target
Copyright encoded A76HM-JUJ9K-PJMN9I
market. Being the go-to alternative to satisfy a need that is highly valued by customers is the
best way to get a good selling price and achieve attractive contribution margins.
Access
In addition to a significant and differentiated value proposition, we need to gauge whether the
company is in a position to sell to the target customers identified. To do this, we must consider
what access we have to different market segments. In other words, do we have the financial and
human resources (salespeople, influencers, brand advocates, partners, distribution channels,
etc.) to present our value proposition to these customers? In fact, this analysis often starts with
the question, “With the resources I have available for marketing, what’s the most worthwhile
customer segment I can gain access to?” In any case, it is always good to include the cost of sales
and marketing when analyzing the profitability of various alternatives, and we should not
underestimate the time it takes to build market access capabilities.
2 Thispoint is based primarily on ideas developed by Geoffrey Moore in his books. See, for example, Geoffrey Moore and
Regis McKenna, Crossing the Chasm: Marketing and Selling Technology Projects (New York: HarperCollins, 2009).
3See the technical note: Jorge González, “Supply-Side Analysis: The Value Proposition and Evaluation of Competitors –
MN-411-E” (IESE Academic Material), IESE Publishing, 2021, in which two methods for analyzing value propositions are described.
Customers Who Are Not Budget-Constrained and Who Consider Switching Costs
Acceptable
Finally, in the process of selecting a target customer we need to consider which of the various
customer segments are in a position to buy. This involves two steps: first, we must assess whether
the target customer can afford the offering; and second, we must ask ourselves whether any
decisions they have made in the past might prevent them from making a new purchase.
Considering whether the target customer has the necessary budget is especially important when
the customer and the product user are not the same. This is always the case in industrial purchases
Authorised for educator review use only by Fayola Nicholas, Arthur Lok Jack Graduate School of Business. Expiry date 4-Apr-2024
(B2B), and sometimes in business-to-consumer markets (B2C). In B2B markets, you should always
consider whether the person you are talking to has the budget to make the purchase or not. If they
do not, we should ask ourselves whether they can “create it” (for example, because our
interlocutor is the CEO) or what we need to do to help that person make it happen.
Finally, we need to consider whether the various customer segments have switching costs,
Positioning
Some authors have defined positioning as “the battle for the consumer’s mind.”4 The main
recommendation for successful positioning is always “be the first.” If that is not possible,
positioning will always be in relation to competitors. Positioning is a long-term decision that
connects the marketing function with a company’s competitive strategy at a deep level.
Positioning describes how the value proposition, product or service is situated in relation to the
alternatives that competitors are offering for the target customer. This definition is often
aspirational: it is not what we are, but what we say we are, with the intention of achieving that
status in the consumer’s mind. It highlights the promise that makes us preferable to other
options and the reasons why we will be able to deliver on it. All of these factors are captured in
a company’s positioning statement.
4 For those interested in delving into this subject, the key book to read is Al Ries and Jack Trout, Positioning: The Battle for
Your Mind (New York: McGraw Hill Professional, 2001).
Unique selling proposition: the point of difference and associated key benefit that we
intend to highlight (i.e., the compelling reason to buy).
Reason to believe: why customers should believe we can deliver on the promise that our
USP embodies.
See Exhibit 1 for two templates that flesh out this general approach. The first is better suited to
business-to-consumer markets (B2C); the second is especially recommended for industrial
markets (B2B).
Authorised for educator review use only by Fayola Nicholas, Arthur Lok Jack Graduate School of Business. Expiry date 4-Apr-2024
Characteristics of Good Positioning
The characteristics of good positioning can be defined in terms of how it should relate to the
customer, the company and competitors.5
because you do not understand what the customer is looking for/needs or because it is not a
Copyright encoded A76HM-JUJ9K-PJMN9I
very significant need/opportunity. In many cases, this is the result of having wrongly identified
the target market or done a poor job of analyzing it.
Another way to diminish the importance of positioning is to communicate it in such a way that it fails
to resonate as it should. This happens when the message we convey is not clear—because it is not
well explained (too many things are spoken of in terms that are too general) or because what is
promised is not credible. The concept of a “reason to believe” focuses on preventing the latter issue.
5See the “Three C`s” model in: Jill Avery and Sunil Gupta, “Marketing Reading: Brand Positioning,” Core Curriculum
Readings Series, Harvard Business School Publishing 8197, 2014, 10-21.
Authorised for educator review use only by Fayola Nicholas, Arthur Lok Jack Graduate School of Business. Expiry date 4-Apr-2024
Sustainability of a Market Position
To speak of sustainable differentiation is to enter fully into the terrain of competitive strategy.
In this note, we will briefly outline the most important concepts that affect analysis of long-term
6 See
Michael Treacy and Fred Wiersema, The Discipline of Market Leaders: Choose Your Customers, Narrow Your Focus,
Dominate Your Market (Hachette UK, 2007).
Commercial Assets and Capabilities: What Do You Have and What Do You
Know How To Do?
A key aspect of strategic analysis is to understand what internal factors enable a company
to compete successfully. We will now consider two types of factors: commercial assets and
commercial capabilities.
Commercial assets: all the elements that a company owns and can harness to market its
value propositions.
Commercial capabilities: the knowledge and skills that people in the company have for
Authorised for educator review use only by Fayola Nicholas, Arthur Lok Jack Graduate School of Business. Expiry date 4-Apr-2024
development and marketing.
The following sections outline the commercial assets and capabilities that bolster product
leadership and customer intimacy. Other general assets—such as financial resources and
operational capabilities, which are also necessary—are not considered. Having an overflowing
know-how owned by the company that can be harnessed to develop differentiated value
propositions. The capabilities needed to generate assets of this kind are usually based on the
effectiveness of research, development and innovation within the company.
These assets and capabilities are reflected in a company’s portfolio of products/services and
brands and their relevance to target customers. Examples include superior products and brands
with high recognition (or those that are well regarded, such as brands that are prestigious or
have affinity with a particular audience).
Commodities
In the commodities arena, companies compete on the basis of operational excellence and the
Authorised for educator review use only by Fayola Nicholas, Arthur Lok Jack Graduate School of Business. Expiry date 4-Apr-2024
key factor is operations. The capabilities that have the most impact in this arena are those linked
to developing operational efficiency in marketing in order to lower sales costs. This operational
efficiency may be linked to the use of technology or to a position of market dominance that
allows fixed marketing costs to be absorbed within a larger scale of operations.
familiarity. This dominant market position is generally not for the market as a whole, but in specific
segments or submarkets. What establishes the value of a particular alternative is the fact that it is
the default option for customers in its target market. This is achieved by brands with clear
positioning. The other key commercial assets in this arena are privileged access to customers
through commercial networks and distributors that give visibility to the offering.
Precisely because customer intimacy is the key value discipline in the convenience arena, on this
terrain, companies compete with their marketing and sales capabilities, which they must deploy
to identify, develop, market and sustain the differentiating elements of their value proposition.
Likewise, companies with better sales teams are likely to gain better access to customers.
Premium
In the premium arena, competition is mainly based on product leadership. Therefore, the most
important commercial assets are those that make it possible to have a highly differentiated
offering supported by development capabilities, unique brands and other elements that are
difficult to copy and focus on product quality. Given that different segments may have their own
ideas about what constitutes “high quality,” it is also essential to understand their peculiarities
so that the offering can be adapted accordingly.
Product and brand development capabilities are key to generate value propositions that
can break free of the comparisons associated with value equations and operate in the premium
arena.
7 See Jorge González, “Supply-Side Analysis: The Value Proposition and Evaluation of Competitors – MN-411-E” (IESE Academic
Value
Finally, the value arena is where companies compete with an aggregate of all the others.
Operational efficiency is important, but you do not have to be the cheapest. Quality matters,
but you do not have to be the best. Sometimes it is enough to be a bit cheaper. Companies
competing in this domain say they understand their customers, even though they have been
unable to develop a truly differentiated offering for any of them. In this arena, everything has
an influence. As a result, market positions are more fluid. Once again, marketing assets and
capabilities are very important because the status quo of the market has a big effect. Each
competitor contends with others that occupy similar positions, and competition is based on
Authorised for educator review use only by Fayola Nicholas, Arthur Lok Jack Graduate School of Business. Expiry date 4-Apr-2024
product, pricing and marketing capabilities.
In dynamic markets, there are times when a competitor comes up with an alternative that
redefines the value equations applied by customers. This process is called disruption. An in-
depth discussion of this phenomenon is beyond the scope of this note, in which we will simply
point out the existence of two types of disruption.
First, there are disruptions at the high end of the market. These occur when a competitor
introduces a new, superior alternative that leads existing options to be perceived as inferior.
A clear example of a disruption of this kind is the way that the iPhone 1 forever changed how
we define quality when it comes to cell phones.
Second, there are so-called low-end disruptions.8 This type of disruption occurs when
a competitor launches an alternative of acceptable quality—at a significantly lower price—for a
segment of customers that is not particularly demanding. This option ends up appealing to
a significant number of customers who were not making purchases in the category and who are
drawn to the new alternative because of its price, ease of use, or similar factors. An example of
this is the way low-cost options have changed competition in the airline industry.
8 The concept of “low-end disruption” was introduced and described by C. M. Christensen. See: C. M. Christensen, The
Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail (Boston: Harvard Business Press, 1997).
Reintermediation can occur in situations where a new channel gains a dominant position relative
to others. Consider how Booking.com or e-commerce companies like Amazon.com have
impacted competitive dynamics—not only between channels, but in terms of their importance
to hotels and manufacturers of all types.
Disintermediation processes, on the other hand, occur in markets when a manufacturer
undertakes a process of integration to reach the end consumer directly. Companies like IKEA
and Inditex, for example, have redefined the furniture and fashion sectors respectively with their
integrated models.
Disruption processes such as disintermediation or reintermediation (particularly those at the
Authorised for educator review use only by Fayola Nicholas, Arthur Lok Jack Graduate School of Business. Expiry date 4-Apr-2024
low end of the market) tend to take a quite long time to play out—years, in fact. Decisions
related to these processes are therefore strategic, and there will undoubtedly be a tension
between their impact in the short and long term. A competitor or low-priced channel may have
little impact on an established company until, after a few years, that company discovers that
customers no longer value its more expensive offering, or that they no longer shop in the
select a market position and the factors that contribute to making such a position sustainable.
Copyright encoded A76HM-JUJ9K-PJMN9I
This note concludes with a series of reflections on why the selection of a target customer is often
left somewhat undefined and the dangers this poses when it comes to managing competitive
positioning.
The combination of these factors may lead us to want to broaden the way we define our target
market. Determining who constitutes that market is not always straightforward. The best way
to identify our target market is not to analyze buyers, but to ask, as Professor Nirmalya Kumar
suggested in one of his books: If your company disappeared, would anyone miss it?
Authorised for educator review use only by Fayola Nicholas, Arthur Lok Jack Graduate School of Business. Expiry date 4-Apr-2024
when we underreact.9
The first source of problems is that a company may overreact when it analyzes new consumer
trends or sees the merit of some of the things its competitors are doing. We overreact when we
blindly copy what competitors are doing or follow trends without fully assessing whether they
9 The ideas presented on this point were shaped by conversations with Professor José Antonio Segarra (1958–2019), who,
in his teachings, was able to forcefully convey the importance of consistency in business approaches, doing the job right,
and recognizing the value of what makes us different. May these lines serve as a grateful remembrance of his teachings
and example.
Exhibit 1
Templates for Developing a Positioning Statement
Authorised for educator review use only by Fayola Nicholas, Arthur Lok Jack Graduate School of Business. Expiry date 4-Apr-2024
(Frame of reference/category)
because __________________________ .
(Reason to believe)
Educational material supplied by The Case Centre
Copyright encoded A76HM-JUJ9K-PJMN9I
Notes:
B2B positioning statements are formulated in more competitive terms since they are made in
opposition to a defined market alternative. B2C positioning statements focus on the unique
selling proposition, stressing the point of difference and the key benefit that the target customer
is seeking.
Source: Geoffrey Moore, Crossing the Chasm: Marketing and Selling Technology Projects (HarperCollins: New York, 2009).