Market Segmentation
The Baby R Us brand is a store concept of Toys R Us, which is the largest retailer of toys. Baby R Us is a brand extension that specially focuses on supplies and toys for babies, so the under 2 crowd. The target market is different for this concept compared with the target market for Toys R Us. This paper will explain Baby R Us in terms of market segmentation and target marketing.
Target Market
The main Toys R Us concept is a toy store that appeals to a large target market. The toys sold appeal mainly to children under 14, but there is plenty appeal with some of these products to older buyers as well. The company segments its customers in terms of the end users (usually a child) and the buyer (usually a parent or grandparent). The average age of a Toys R Us customer is 43.1 years, which is in line with other major toy retailer (Target and Wal-Mart), and indicates that adults are the ones buying things, no matter who the end user is (Bickle, 2011). The median age is maybe older than expected, but reflects the role that grandparents play in buying toys. Geographically, Toys R Us is a big box store with an emphasis on suburban locations. These are a mix between anchor stores at shopping plazas and standalone stores. The company targets at almost all U.S. markets, and earns around 1/3 of its revenue overseas as well, with Japan being the largest international market (2015 Toys R Us Form 10K). The Baby brand is 38% of U.S. revenues and 20.2% of international revenues (Ibid.)
Baby R Us takes this idea to a more refined niche market. In terms of the end user, the end user is either a baby under the age of two, or the parent of a baby under the age of 2. There are some differences from regular Toys R Us with respect to the product. Baby products sold are not just toys, but other baby accessories. In many cases, these are much more for the parents than they are for the baby. This differs from selling toys that appeal to toddler and children, as those consumers are old enough to make their own choices about what they want, whereas a baby is completely dependent on its parents and in many cases has no capacity to express a preference. Thus, the buyer is much more the target market at Baby R U.S. than at Toys R Us, where the end user also has to be targeted.
Another distinct element of Baby R Us is the baby registry. This reveals a couple of things about the brand. First, the target market is not just the parents, but the friends and families of the parents. If the company appeals to parents enough that they set up a registry there, friends and families become part of the buyers, and there is a need to convince those buyers to spend more on gifts. So gifts are a more important component of the market segmentation at Baby R Us. Moreover, the brand has to appeal to first-time parents. This is actually important, because parents often re-use items for subsequent children, but almost everything for the first child will be new. The implication here is that the parents are to be targeted before they actually have a baby, and that the most important customers are the ones who have never been considering shopping at the store, but now have a very strong motivation to do so. Finally, the registry provides another dynamic, in that peer groups are important to marketing. Many people have children around the same time as their friends, and as a result of this there is considerable emphasis placed on word of mouth. People who are parents for the first time are likely to talk to those among their peer group who have just gone through, or are going through, the same thing. Word of mouth marketing is critical — as a company Baby R Us needs to dial in on the early adopters and influencers among peer groups, so that the power of word-of-mouth marketing can be harnessed. All of this is quite different from how Toys R Us markets, which is one of the reasons why running Baby R Us as a distinct brand makes a lot of sense.
Segmentation
The segment of the target market can therefore be broken down primarily be demographic, and to a lesser degree by behavior. The most important demo are young couples who are having their first child. Those with more money make for better targets, but other groups should not be ignored, because there is a point where price elasticity of demand on key baby supplies is fairly low. The age bracket is typically between 25-35. The cream of the target market are among the wealthier parents, which are usually the older ones, and those with the best education, because education correlates with earnings. Other factors such as race and geography really only matter to the extent that they influence wealth. The online retail strategy can seek to bridge the gaps in store locations that exist with Baby R Us. Online is a major source of growth in this industry (Strauss, 2012).
The secondary target consists of the friends and family of the new parents. These are the gift buyers, and not always from a registry. Gift buying will peak with the first child. The gift-buying market usually sets a budget for the purchase. This has some implications for product mix, as the store needs to ensure that it has enough goods in the gift-giving sweet spot between $20-$100 to ensure that everybody can buy something. Grandparents-to-be are pretty much the only group that is not going to be price sensitive when it comes to buying baby gifts, which again implies that there should be some higher-end products available that are marketed specifically with grandparent triggers in mind.
Because of the grandparents/relatives aspect, Baby R Us actually serves multiple generations, from Boomers to Millennials. For Baby R Us, this is good news in that each generation plays a specific role and thus distinct strategies can be developed for each segment. This is where segmenting by behavior comes in. There are regular customers and gift customers, and within the latter group there are the serial gift-givers and the one-time gift givers. Most are the one-timers, but grandparents, uncles, godparents and other close relations may all end up as the serial gift-givers. If the company can convert a potential one-timer into a serial gift giver, that would be quite valuable.
The regular buyers are the parents, and that is an entirely different market. Clearly, key is to get to the parents early because a baby shower alone could be worth thousands to the company. This means that the company has to have particular appeal to the influencers in each peer group. Specific incentives for baby showers and registries are critical, because successful execution of these will give the company positive exposure to friends of the happy couple, and those friends just happen to be in the same approximate target market, many of whom soon to have babies of their own. Impressing the client in this case means impressing many of their friends, and a lot of those friends are potential future customers.
Overall, segmenting the market for Baby R Us is best done on the basis of demographics because there are multiple generations and they have completely different shopping profiles, and based on behavior, because of the distinction between gift buyers and regular buyers, and the distinction between different types of gift buyers. Further, online shoppers for this brand will be distinct again. The products are sold to all customers, but understanding this segmentation of the market will help Baby R Us make better decisions with both merchandising and promotions, as the segmentation has distinct implications for each of these areas of the business.
References
Bickle, M. (2011). Battle grounds among toy retailers: Breaking down the consumer demographics. Forbes. Retrieved November 15, 2015 from http://www.forbes.com/sites/prospernow/2011/12/20/battle-grounds-among-toy-retailers-breaking-down-the-consumer-demographics/
Strauss, M. (2012). Retailers go online to grab share of baby goods market. Globe & Mail. Retrieved November 15, 2015 from http://www.theglobeandmail.com/report-on-business/retailers-go-online-to-grab-share-of-baby-goods-market/article4107407/
Toys R Us 2015 Form 10-K. Retrieved November 15, 2015 from http://www.toysrusinc.com/investor-relations/
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