In this lesson, you will learn how to identify four different retail segments and gain an understanding of how producers of goods and services use different types of retailers to reach the different target markets that buy their products.
Reaching Target Markets
Big T Boots is a producer of cowboy boots that was founded in 1915 by ‘Two Ton’ Tex Pickett, a cowboy from the Old West. When Tex first started making cowboy boots, he made only high top leather cowboy boots with detachable spurs and sold them to only one target market: cowboys and ranchers who bought his cowboy boots to wear while they were working.
Tex’s cowboy boots were sought after by his customers because of their durability and comfort. Although Tex is no longer with us, his company lives on today and operates as Big T Boots.Today, Big T Boots makes over 40 types of cowboy boots and sells them to four target markets: premium boot buyers, fashion boot buyers, budget boot buyers, and convenience boot buyers. Different target markets have different buying habits, so Big T Boots must sell their cowboy boots to a variety of retailers in order to reach each of their target markets. To do this, Big T Boots will use retail segmentation by organizing customers’ similarities and buying habits.
Big T Boots segments the retailers they use into four categories: specialty stores, department stores, discount stores, and e-retailers.
Specialty stores are typically small retail stores that offer only one type of product. Although specialty stores typically sell only a single type of product, they specialize in what they sell and offer a very wide variety of the single product they offer. Salespeople who work in specialty stores are experts in the product that is sold and provide a high level of service to their customers.
Because they provide great customer service and offer a wide variety of the product, specialty stores are able to charge high prices for their products.Boots Unlimited is a specialty store that sells only one type of footwear: boots. They sell work boots, motorcycle boots, and cowboy boots. Each store stocks over 300 different types of boots, and their salespeople are boot experts.
Boots Unlimited is known to sell only the best products available, so they attract the premium boot buyer.Big T Boots makes handmade cowboy boots of premium leather and exotic animal skins to sell to the premium boot buyer target market. A pair of Big T ostrich-skin boots can sell for as much as $800 at Boots Unlimited.
Boots Unlimited fills an important retail segment for Big T Boots by selling their highest-quality boots to the premium boot buyer who only buys the best boots that are available.
Department stores are large stores that sell a wide variety of quality merchandise that is organized into different departments. Department stores provide a high-quality shopping experience for their customers by providing comfortable surroundings and helpful salespeople. Department stores contain many different departments, which typically include jewelry, cosmetics, home appliances, clothing, and shoes. Because they provide a vast array of quality products in a shopper-friendly environment, department stores are able to charge relatively high prices for their products.
Dot’s Department Store sells trendy cowboy boots to the fashion boot buyer. Along with cowboy boots, Dot’s offers the latest styles of sandals, clogs, loafers, athletic shoes, dress shoes, and shoe accessories. Dot’s sells western-style cowboy boots, which are dyed in a variety of colors for the fashion boot buyer market. A pair of pink leather cowboy boots with tassels and studs sells for $395 at Dot’s Department Store. Since the fashion boot buyer is one of Big T Boots’ target markets, they reach this target market by selling their fashionable cowboy boots to Dot’s.
Discount stores are big stores that sell a large variety of general merchandise in a no-frills environment with a low level of customer service. Discount stores are divided into different departments similar to department stores, but they sell a much larger range of products than department stores. In addition to clothing and footwear, discount stores sell other household items like pet supplies, sports equipment, gardening supplies, toys, and electronics. The goal of a discount store is to sell large quantities of products at low prices. In order to sell their products at low prices, discount stores must buy the products they sell at a low price and sell high quantities of the products they offer in order to make a profit.
J-Mart is a discount store that sells cowboy boots to the budget boot buyer. Along with cowboy boots, J-Mart sells a variety of inexpensive footwear in their shoe department. In addition to cowboy boots, they sell work boots, athletic shoes, and inexpensive dress shoes to the budget footwear buyer. A pair of low-cut, artificial leather cowboy boots sells for $39 at J-Mart. Since the budget boot buyer is a target market for Big T Boots, they sell their inexpensive cowboy boots to J-Mart. J-Mart provides an important retail segment for Big T Boots by selling large quantities of their inexpensive cowboy boots to the budget boot buyer target market.
Electronic Retailers, or e-tailers, sell goods and services online. Many e-tailers do not carry or handle inventory, so they are able to offer a large inventory of a variety of products on their website without having to pay inventory carrying costs. E-tailers cannot offer their customers the opportunity to inspect their products and are unable to provide a high level of personal service since they do not have a brick and mortar store or salespeople. However, e-tailers have the advantage of never closing and being able to attract customers from anywhere in the world. Since their customers do not have to leave their homes to buy their products, e-tailers provide their customers with a convenient way to buy the products they sell.
ShoePlanet.com is an electronic retailer that sells all types of cowboy boots to the convenience boot buyer target market. Along with cowboy boots, ShoePlanet.com sells a large variety of men’s, women’s, and children’s footwear via their website to the convenience boot buyer. ShoePlanet.com does not inventory any products – they take orders from their website and buy footwear from vendors like Big T Boots after the products are ordered. Big T Boots ships the products from their warehouse and bills ShoePlanet.
com for each individual sale. ShoePlanet.com provides an important retail segment for Big T Boots by selling their entire line of cowboy boots to the convenience boot buyer.
Let’s review. Companies that provide goods and services typically make a variety of products to sell to different types of consumers. Each consumer group has different buying habits and shops in different retail stores.
In order for a producer to reach all the different groups of consumers, they must offer their products through different retail segments. Big T Boots uses these four types of retailers to sell to their four target markets:
- Specialty stores are small stores that specialize in one type of product. They provide a wide variety of the individual product they sell and a high level of customer service.
- Department stores are large stores that sell a wide variety of quality merchandise in very comfortable surroundings.
- Discount stores are large stores that sell a wide variety of general merchandise in a no-frills environment with very little customer service.
- Electronic retailers sell goods and services online. E-tailers do not typically carry much inventory and cannot provide their customers with personal service.
They do provide a convenient shopping experience since their customers can shop at any time and from any location that has an Internet connection.
Following this lesson, you will be able to:
- Explain why it is important for producers of goods and services to understand the target markets that purchase their products
- Understand how to use retail segmentation to choose different retailers to sell a product
- Describe four different types of retailers