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A target market is a set of buyers sharing common needs or characteristics that a company decides to serve. A company identifies a target market in order to organize its tasks and cope with the particular demands of the marketplace. Target marketing forms the foundation of a modern marketing strategy because doing it well helps a company be more efficient and effective by focusing on a certain segment of its market that it can best satisfy.

Targeting also benefits consumers because a company can reach specific groups of consumers with offers carefully tailored to satisfy their needs. To do so, a company has to evaluate the various segments and decide how many, and which one, to target. There is no single way to segment a market. A company needs to research different segmentation variables alone, and in combination with others, to find its target market. There are four main variables that can be used in segmenting consumer markets: geographic segmentation, demographic segmentation, psychographic segmentation, and behavioral segmentation.

Geographic segmentation calls for dividing the market into different geographic units, such as nations, regions, states, counties, cities, or neighborhoods. Many companies today are localizing their products—as well as their advertising, promotion, and sales efforts—to fit the needs of individual cities, regions, and neighborhoods. For example, clothing stores sell clothes targeted to their geographic markets. In January, the Gap clothing store sells winter clothing in Portland, Maine, such as mittens, scarves, and winter jackets. A Gap located in Clearwater, Florida, will sell more T-shirts, shorts, and bathing suits.

Demographic segmentation divides the market into groups based on such variables as age, gender, family size, family life cycle, income, occupation, education, religion, race, and nationality. Demographics is the most popular basis for segmenting customer groups because of consumer needs, wants, and usage rates often closely reflect demographic variables. Even when a market segment is first defined using other factors, such as psychographic or geographic segmentation, demographic characteristics must be known in order to assess the size of the target market and to reach it efficiently. This information is also the easiest and least expensive to retrieve because it is secondary data; that is, it comes from research that has already been conducted. An example of successful demographic target marketing is that of cosmetic companies that have responded to the special needs of minority market segments by adding products specifically designed for black, Hispanic, or Asian women. For example, Maybelline introduced a highly successful line, called Shades of You, targeted to black women, and other companies have followed with their own lines of multicultural products.

Psychographic segmentation is the process of dividing markets into groups based on values, social class, lifestyle, or personality characteristics. Individuals in the same demographic group may fall into very different psychographic segments. Psychographic segmentation involves qualitative aspects—the "why" component of consumer buying patterns. Therefore, a company must conduct its own research, which can become very time-consuming and expensive. Marketers, however, are increasingly focusing on psychographic characteristics. Redbook magazine, for example, targets a lifestyle segment it calls "Redbook jugglers," defined as 25 to 44-year-old women who must juggle family, husband, and job. According to a Redbook ad, "She's the product of the me generation, the thirty-something woman who balances home, family, and career— more than any generation before her, she refuses to put her pleasures aside. She's old enough to know what she wants. And young enough to get it." According to Redbook, this consumer makes an ideal target for marketers of health foods and fitness products. She wears out more exercise shoes, swallows more vitamins, drinks more diet soda, and works out more often than do consumers in other groups.

Behavioral segmentation divides a market into groups based on consumer knowledge, attitude, use, or response to a product. Many marketers believe that behavior variables are the best starting points for building market segments. Why does one consumer drink Coke, and another Pepsi, and a third iced tea? Demographics and psychographics can provide many clues, but it is often helpful to consider additional factors as well. Individuals act differently depending on their situation or the occasion for using the product. For example, a woman who shops only at discount stores for clothing may nonetheless think nothing of spending $100 on a bathing suit at a specialty shop for her Caribbean vacation. Some holidays, such as Father's Day and Mother's Day, were originally promoted partly to increase the sale of flowers, candy, cards, and other gifts. Many food marketers prepare special offers and ads for holidays. For example, Beatrice Foods runs special Thanksgiving and Christmas ads for Reddi-whip in November and December, months that account for 30 percent of all sales of whipped cream.

Companies often begin segmenting their markets by using a single base, then expand by adding other bases. Consider Paging Network, Inc. (PageNet), a small provider of paging ser vices. At first, PageNet used geographic segmentation, targeting easily accessible markets in Ohio and its own state of Texas. Once these markets were secure, the company introduced its product to thirteen additional geographically dispersed markets that represented the most growth potential. The small company next developed profiles of major users of paging services and targeted the most promising user groups, including salespeople, messengers, and service people. Flush with success, PageNet set out to capture more of their targeted markets. They used psychographic segmentation to target parents who leave their children with sitters, commuters who are out of reach of telephones while traveling to and from work or school, and elderly people living alone whose families want to keep an eye on them. Because of its successful use of target marketing, PageNet became the largest and most successful paging systems and services company in the nation. As of 2000, the company was expanding its target base once again with a service called VoiceNow, which transmits voice messages to customers' pagers, targeting customers who want "short bursts of information."

Many variables can be used to segment and select a target market. Practically any variable— such as age, sex, product usage, lifestyle, or de sired benefit—can be used to describe a target market. The number of target markets identified also depends on a marketing strategist's ability to be creative in identifying segments. Target marketing is especially important for specialty products and shops. Target marketing rests on the assumption that differences among customers are related to differences in the purchasing behavior.