Types of Trading Strategies a Beginner Could Adopt

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Forex Trading for Beginners

This Forex Trading for Beginner’s Guide will give you all the information you need so you can start trading Forex. You’ll learn what forex trading is, how to trade forex, how to make your first trade, plus our best forex trading strategies. By the end of this guide, you’ll be equipped with the right knowledge to tackle the world’s largest capital market. As a bonus, we’re also going to reveal the best forex trading platforms.

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The Foreign Exchange Market is by far the biggest market in the world in terms of liquidity and trading volume. It’s estimated that, on average, more than $5 trillion are transacted on a daily basis. Clearly, the forex market is huge. Developing an effective forex trading strategy can earn you an almost limitless amount of money over time. It’s no surprise, trading in the Forex market is so exciting. Forex trading is free and it’s very cheap to get started as a trader in the FX market.

Successful forex trading is made possible due to leverage. Once you are able to hone your skills, you may be able to trade forex full time.

There are many reasons why you should learn to trade. The best forex trading strategies will empower you to earn a considerable amount of money over time. This doesn’t mean there aren’t disadvantages to Forex trading. There are pros and cons of trading forex that you need to factor in. If you want to have a good starting experience, you need to have a 360-degree view of the FX market.

You need the best forex training for beginners that is currently available. Once you are trained, you can learn how the Forex 24-hour trading market can give you access to trading, through the four major trading sessions (London, New York, Tokyo, and Sydney) regardless of your time zone.

Let’s get started and learn the inner workings of forex trading and how it works.

What is Forex Trading? A Basic Overview

Forex is an abbreviation for the foreign exchange market. In the financial world, Forex trading is also known as FX trading, currency trading, or foreign exchange trading which can be used interchangeably.

Unlike stocks which are traded on a stock exchange like the NYSE, the global Forex market is a decentralized market. Most Forex transactions are carried out over-the-counter or off-exchange. Stocks are listed on physical public exchanges, but Forex currencies have no physical location.

Check out the step-by-step process to follow before you start engaging in the over-the-counter market: Over-the-Counter Trading – How the Whales Trade.

The biggest players that operate in the FX market are the big banks, governments, major corporations, and hedge funds. These are also referred to as being the institutional market players. However, there are also quite a few individual traders involved in the market as well. These individuals are referred to as the retail crowd

The retail crowd is a diverse group. These can be consumers who want to buy goods from another country, travelers who’re looking to travel overseas, businesses conducting trade abroad or investors and traders who wish to take advantage of the price fluctuations in the Forex market. Now that we know the two parties let’s move on to the next section – How does Forex trading work?

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How Does Forex Trading Work?

For example, if the price of the EUR/USD exchange rate is 1.1150 it suggests that we can get 1 euro for every 1.1150 US dollars.

Also, learn how to make money in the stock market fast with the CANSLIM formula.

How to Trade Forex for Beginners?

The basic foundation of trading in the foreign exchange market consists of understanding how currencies are quoted and what the exchange rates represent. In the Forex market, all currencies are quoted in pairs. This is why the act of Forex trading involves simultaneously buying one currency against another currency, which is sold.

Let’s now examine how many types of currency pairs you can encounter in the FX market.

Type of Currency Pairs

Depending on how much trading volume a currency is carrying out, we can split currencies into three major categories:

  • Major Currency Pairs: These are all the currencies that are traded against the US Dollar, the world’s reserve currency. Eg: EUR/USD, GBP/USD, and USD/PY. The major pairs offer the biggest liquidity with EUR/USD being the most liquid currency pair.
  • Minor Currency Pairs: Also referred to as cross pairs and are currency pairs that don’t trade against the US Dollar. Eg: EUR/GBP or EUR/CHF. They offer less liquidity for trading.
  • Exotic Currency Pairs: Also referred to as minor pairs, are currencies linked to the emerging economies around the world. Eg: South African Rand, Brasilian Real, and Turkish lira.

As you can see, the American Dollar plays a major role in the forex market.

Next, we need to clarify how to read currency pairs and why we use a three-letter quotation system.

How to Read and Understand Forex Quotes

The standard quotation system uses a three-letter abbreviation system and will always involve two currencies where the first currency listed on the left is the Base currency while on the right is the quote currency. The quoted price indicates how much of Quote currency is required to buy/sell one unit of Base currency.

The next thing to understand is that currency pairs always have two prices: the Bid price and the Ask price. This is the two-way quote system used for buying and selling of currencies. In simple terms, the Bid price is the price at which you can sell while the Ask price is the price at which you can buy.

How to Use Forex Orders

Generally speaking, a Forex Order is a command given to your broker that shows:

  • What currency pair to buy/sell.
  • The direction of your trade (Long or Short).
  • The price to buy/sell.
  • Where to Take Profit.
  • Where to Exit.
  • How much quantity to buy/sell.
  • The type of order.

Direction wise, a Forex Order can be used to do two things:

  • Buy (Long) – If you expect the currency pair to rise, we use a buy order that is executed at the Ask price and closed at the Bid price.
  • Sell (Short) – If you expect the currency pair to fall, we use a sell order that is executed at the Bid price and closed at the Ask price.

There are five common order types that anyone can use to enter and exit a position in the Forex market:

  1. Market orders are designed to open a trade immediately at the best available market price. It can be used for both buying and selling. This order guarantees that the trade will be executed, but in volatile markets, the entry price can be slightly different than the last price quoted.
  2. Limit Order is designed to open a trade at a specific price and an expiration date. It can be used for both buying and selling. This order only guarantees that your trade will be executed at the desired price. For longs, the trigger price needs to be below the market price. For shorts, the trigger price needs to be above the market price.
  3. Stop Order is designed to buy when the trigger price is above the current market price and sell when the trigger price is below the current market price.
  4. Stop-loss order is designed to limit your losses and avert from potentially losing all your capital. If you’re buying and the exchange rate starts to go down the stop-loss order will automatically liquidate your position and minimize the loss.
  5. Take profit order is designed to close a profitable trade and lock in the profits.

This is the process to learn how to trade Forex for beginners. Once you are more familiar with the forex market, you will be able to use the London Breakout Strategy and various other forex trading strategies.

How to Open Your First Forex Trade

The first step you need to undertake is to open a practice account with your favorite Forex broker. This will give you a trading platform from where you can access the Forex market.

If you don’t want to wait for a particular exchange rate to be reached to open your first trade you can instruct your trading platform to open the trade at the current price level. This is called entering at the current market price.

You can instruct your trading platform where your stop loss, take profit and how much quantity you want to trade aka the position size. Your trading platform will do the rest.

In order for you to make a profit the market needs to go up after you bought. The same is true in reverse if you shorted the market; the price needs to go down to make a profit.

Leverage, Volume and Margin Requirements.

To invest and trade in the Forex market, you need to understand how margin trading works. Basically, whenever you open a trade you only need to put up as collateral a certain amount of your balance. This deposit is referred to as the margin requirement.

This means that you don’t have to cover the full position size, but only deposit a fraction of it to cover the possible losses. As long as your trade is active, your FX broker will lock up the required margin and only free it back to you once the position is closed. This enables traders to execute much larger trades than they could otherwise afford.

The margin requirement depends on three things:

  1. The instrument you trade: EUR/USD, GBP/USD, USD/JPY etc.
  2. Position size: This is the amount you buy or sell and it’s measured in lots. For example, 1 standard lot has a nominal value of $100,000 and it’s worth $10 for every pip movement. For example, if you want to trade $50,000 of EUR/USD that equates to 0.5 mini lots and it’s worth $5 for every one pip movement in the exchange rate.
  3. Leverage: Allows you to control bigger sums of money by borrowing from your FX broker so you can boost the profits of a trade. The standard leverage offered by most brokers is 1:50 and it can go as high as 1:500. Using a 1:50 leverage it means that you can control with every $1 from your account $50 in buying power. For example, if you invest $10,000 with a broker that provides you with 1:50 leverage it means that your total buying power is $500,000 (50 x $10,000).

The forex instrument, position size, and leverage you choose will depend on your working capital and your forex trading objectives.

How to Calculate Forex Margin

The margin requirement can be calculated using the following formula:

Margin Requirement = (Contract Size * Lot Size * Price) / Leverage.

For example, if you want to buy 0.8 lots of EUR/USD at the current market price of 1.1150 and using a leverage of 1:100 you need to have in your account at least $892 to open that position. In other words, with only $892 you can control a position size of $80,000 (0.8 lots) which is your buying power. Because of this, forex trading for beginners might be more affordable than you assumed.

Margin Requirement = (100,000 * 0.8 * 1.1150) /100 = $892

Again, if you haven’t checked it out already, we highly encourage using a forex position calculator while trading.

Let’s now study some of the market catalysts that can drive a currency pair.

What Drives the Forex Exchange Rate

The value of the currency pair can be driven by several factors including:

  • How well a country’s economy is doing?
  • Geopolitical events and how stable is a government.
  • Central Bank’s monetary policy.
  • Interest rates
  • News reports and economic data.
  • Supply and Demand.

These are a few of the factors that can influence the value of a currency.

Best Forex Trading Platform for Beginners

The best forex trading platform for beginners is the MetaTrader4 platform developed by MetaQuotes Software. The MT4 platform is one of the most popular Forex trading platforms utilized by millions of retail Forex traders around the world. Its features can be used by both experienced and beginning forex traders alike.

The MetaTrader 4 is free and it comes with many built-in features. There are countless technical indicators that can help you analyze a Forex price chart. Additionally, you can use the MT4 to build your own automated trading strategy and backtest any kind of trading ideas you might have.

Learn how to backtest your trading strategies even if you don’t have any experience with our Beginners’ Guide to Effective Backtesting.

Alternatively, you can use the web-based trading platform TradingView, which is another free Forex trading platform that has the same features as the MT4 platform and much more.

Without a forex trading strategy to advance your trading skills, a trading platform is useless. This is why we want to also explore the wide range of forex trading strategies

Below you’ll discover what are the different types of forex trading strategies that work.

Forex Trading Strategies for Beginners

Forex traders employ different trading styles that mostly fit their own personalities. We can break down Forex market trading strategies into four distinctive trading edges that can be used in different market environments:

While these are the most popular active FX trading strategies, Forex traders can use these concepts to innovate and develop well-versed Forex systems through the use of fundamental analysis and/or technical analysis. There are many tools a Forex trader can use to gain an edge in the FX market like Forex chart patterns, technical indicators, statistics and much more.

Check out a top-down approach to fundamental analysis of stocks: Fundamental Analysis of Stocks – 5 Financial Ratios to Follow.

In order to time the Forex market, you can apply a Forex strategy that is designed to improve your trading:

  • Forex trend trading strategies
  • Forex momentum trading strategies
  • Forex range trading strategies
  • Forex reversal trading strategies
  • Forex breakout trading strategies
  • Forex Carry Trade strategies

As a novice Forex trader, you have a wide variety of Forex trading strategies so you can take advantage of the currency price fluctuations. Since the market conditions are constantly changing, make sure you get familiarized with different types of Forex trading strategies.

Final Words – Forex Trading for Beginners

The basic mechanics of trading the forex market are similar to any other market. Buy low and sell high in the hope to generate a profit. Due to its unique characteristics, the forex market provides a wide range of trading opportunities that no other market does. The forex market, therefore, is very suitable for the novice trader that is looking to either make an extra income or a full-time trading career.

Forex trading for beginners can be extremely competitive. So, make sure you learn how to trade forex for beginners before you risk your hard-earned money. Learn as much as you can about the ins and outs of FX trading so, you’ll always be prepared to safely navigate the Forex market.

For more trading tips and tricks make sure you follow our Top 10 Forex Blogs list. The more you can learn about forex trading strategies, the more likely you’ll be able to become a successful trader.

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2 Options Trading Strategies Beginners Can Use

If you’re brand new to the world of options, here are two strategies that you can start with.

You don’t need to be a professional trader to use options. Image source: Getty Images.

Whether you’re a bull, bear, or you have a neutral outlook on the stock market, there are ways to put the power of options to work for you. And, you don’t need to be an investment genius to do it. Here are two basic strategies that you can use to generate income, protect your capital, and profit from volatility.

Covered calls can generate income and limit your losses

Selling covered calls is perhaps the most basic options strategy there is. Essentially, you are selling someone else the right to buy stock from you for a certain price at any time before a specified date.

The best way to describe this is through an example. Let’s say that I own 100 shares of ExxonMobil, which is trading for about $85 as I write this, and I don’t foresee any massive price swings in the near future. I could sell one call option (remember, each option contract is for 100 shares) expiring on the third Friday in January 2020 with a strike price of $90. In return, I get a premium of $140, which I get to keep.

There are a few different ways that this trade could play out:

1. ExxonMobil could drop, and be below $85 per share in January. This would be unfortunate, but remember that you received a premium of $140 ($1.40 per share) for selling the option. You get to keep that income which helps to lessen your loss, the option expires worthless, and you get to repeat the process.

2. ExxonMobil could rise slightly, but stay below $90 through January. This would be the best-case scenario. Not only would you be sitting on a nice gain with the stock, but you get the premium from selling the option added to your gains. And, you are free to sell another option on your stock.

3. ExxonMobil could have an excellent fourth quarter and be above $90 at expiration. In this case, your shares would be “called away,” meaning you’d be forced to sell them for $90 apiece, no matter how high they climbed. This would produce a nice gain — a $5 rise in price plus a $1.40 options premium translates to a 7.5% return in just four months. The risk, however, is missing out on gains if the stock price goes through the roof. Even if the stock rose to say, $125, you’d be forced to sell for $90.

4. The stock price doesn’t move at all — it expires at the same price as it was when you sold the covered call. From an income standpoint, this is a good outcome. The option you sold expires worthless, and since you still own the stock, you’re free to repeat the process.

In a nutshell, a covered call allows you to generate some income and provides some degree of downside protection, in exchange for giving up some of your potential for share price gains.

In-the-money calls as a stock replacement

Option prices have two components — intrinsic value and time value. Intrinsic value is the amount of money that an options contract would be worth if it expired right now. For example, a contract with a $10 strike price to buy a stock trading for $15 would have an intrinsic value of $5. Time value is the premium you pay for what could happen before expiration. If that options contract was trading for $6, $5 would be intrinsic value and the other $1 would be time value.

As your options get deeper in the money, the time value fades away and intrinsic value makes up most of the option price. Therefore, you don’t have to pay a time premium to buy a deep-in-the-money option, and it can be used in place of owning a stock.

Let’s say that I want to buy shares of Amazon.com, but I don’t want to lay out the $77,000 it would cost to buy 100 shares. Instead, I could buy a call option expiring in January 2020 with a strike price of $400 for a premium of $380. Only about $10 (2.6%) of this is made up of time value, and you’ll benefit from price increases of 100 shares of Amazon.com stock for $38,000, about half the price of buying the shares outright. In a way, this is like buying shares on margin, but you don’t have to pay margin interest, which is generally far more than the time value you’ll pay.

The risk in doing this is if Amazon were to fall below $400 before 2020, you could lose your entire investment. As unlikely as it is, it’s certainly possible. Using options as stock replacement certainly has its perks, but at the cost of more risk.

Start off conservative

As a final thought, it is admittedly very easy to lose money in options if you don’t know what you’re doing. Therefore, it’s important to start out slow. Maybe buy one deep-in-the-money call option on a stock you’d like to own, and then use it to observe the pricing dynamics of options and get a good feel for how a trade like this plays out over time. Or, maybe sell a far out-of-the-money covered call on one of your current holdings. It won’t generate a ton of income, but the point is to learn.

The bottom line is that you can read about options until your eyes cross, but there’s no substitute for real-world experience. So, if you do decide to add options to your investment toolkit, it’s important to do so slowly.

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  • Have you ever tried to teach yourself by piecing together the overwhelming amount of information you find on the web, but you still haven’t gotten the results you expected?
  • And instead of moving forward after buying into false promises from so-called “million dollar traders” and “gurus,” you’ve actually gone backwards and been burned?
  • What if today’s the day you can finally start on the path of freedom and independence?

Hi there. I’m Ross with Warrior Trading. We’ll get to know each other better and I’ll tell you more on how I started out as a beginner trader just like you in more detail below. Most importantly, how I’ve been able to distill my process into a unique trading system that allows me to maximize my profits and minimize my losses.

I’m not making millions of dollars a year in trading profits…

And while I could brag about my trading success with making anywhere from $250k-500k in trading profits in 1 year, or having built the largest trading community with over 500,000+ traders… that’s not why you should listen to me.

You should listen to me because… I’ve literally had every real life trading experience and made every mistake in the trading book…

I’ve lost tens of thousands of dollars, researched all the info on the web, even been scammed by so-called “trading gurus,” but most importantly I know what works and what doesn’t work. I’ve discovered the path to taking control over life … to becoming financially secure … and to taking care of loved ones

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The decision that you’ve made to start trading with the goal of living your dream of having complete freedom in terms of time, money, and location was a hard but necessary one.

You’ve probably heard from so-called “trading gurus” on the internet making outlandish promises about fancy cars, boats, women, millions of dollars, and how you can achieve all that…

I hate to be the bearer of truth (as much as I bought into it when I first started), but most people that buy into these claims FAIL, which means your beliefs and skepticism are correct.

DEEP DOWN you and I both know that it’s a nice dream to have but only the 1% of traders that succeed are able to live this lifestyle that’s the cream of the cream of the crop!

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By setting realistic goals, success becomes easier to achieve.

Now let’s talk about what’s holding beginner traders back…

“The Challenge for Beginner Traders”

The biggest challenge that beginner traders face is a lack of direction and guidance. There are thousands of financial instruments and various trading strategies, but very few have been proven with years of track records and replicated success to support their validity.

“Warrior Traders”

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“Average Traders in the Market”

Most beginner traders don’t have a strategy they can adopt, so they instead trade the market through trial and error which causes them to lose thousands of dollars and time they can never get back.

Beginner traders lack a trading system to follow for direction, confidence, and experience. We’ve seen so many experienced traders that have traded for years but are missing the key piece. This is why over 90% fail.

The average beginner trader gives up in less than 1 year after starting. Trading has a very high turnover because most beginner traders blow up their accounts and then give up even when they are just one trading strategy away from having different results…

Only 10% of the beginner traders in the market will actually be able to make a full-time career of it. The remaining 90% give in to frustration and quit .

Now that we’ve established the differences and probability for success between an average trader in the market and a Warrior Trader that follows our road map for trading…

Let’s talk about the good news in that even if the probability of making millions from trading is very SLIM, it’s much more achievable to make $100 a day trading the markets (most traders aim for $200-400/day).

That’s what you should start with. When you start with a realistic goal, you’ll be able to take it step by step and achieve it.

“Potential Daily Profits Targets for a Beginner Trader & What Their Milestones Should Be”

As a Beginner Trader I started with a conservative goal of $50/day goal, then increased it to $100, then $200, and continued to increase by increments of $100. The ability to meet these profit milestones takes time and willingness to learn.

This is the process that a lot of our beginner traders started with and what you should as well. It allows them to celebrate growth and progress by acknowledging milestones along the way both monetarily and personally.

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We want to give you the time to spend with your families, travel, or do anything else that your newfound freedom allows. We would rather you have enough money so that you no longer have to worry about it.

“How Does a Beginner Trader Become Profitable?”

We’ve done this by focusing on the simple goal of $100-200/day instead of aiming to be the 1/1000 that can buy a $250k Aston Martin and blow their money.

Yes, not everyone will be successful and that’s the truth…

Anybody that tells you otherwise is lying to you and selling you a false sense of success and wasting your precious time, energy and money.

We value you and your time, money, and energy because we are just like you. We are just farther along the path and willing to share our road map.

It is up to you to take the first few steps with us. Some will stray from the path, but those that stick with us will be guided towards a life of working less and from home.

“Steps to Success / Different Styles for a Beginner Trader”

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Warrior Trading may publish testimonials or descriptions of past performance but these results are NOT typical, are not indicative of future results or performance, and are not intended to be a representation, warranty or guarantee that similar results will be obtained by you.

Ross Cameron’s experience with trading is not typical, nor is the experience of students featured in testimonials. They are experienced traders. Becoming an experienced trader takes hard work, dedication and a significant amount of time.

Your results may differ materially from those expressed or utilized by Warrior Trading due to a number of factors. We do not track the typical results of our current or past students. As a provider of educational courses, we do not have access to the personal trading accounts or brokerage statements of our customers.

Available research data suggests that most day traders are NOT profitable.

In a research paper published in 2020 titled “Do Day Traders Rationally Learn About Their Ability?”, professors from the University of California studied 3.7 billion trades from the Taiwan Stock Exchange between 1992-2006 and found that only 9.81% of day trading volume was generated by predictably profitable traders and that these predictably profitable traders constitute less than 3% of all day traders on an average day.

In a 2005 article published in the Journal of Applied Finance titled “The Profitability of Active Stock Traders” professors at the University of Oxford and the University College Dublin found that out of 1,146 brokerage accounts day trading the U.S. markets between March 8, 2000 and June 13, 2000, only 50% were profitable with an average net profit of $16,619.

In a 2003 article published in the Financial Analysts Journal titled “The Profitability of Day Traders”, professors at the University of Texas found that out of 334 brokerage accounts day trading the U.S. markets between February 1998 and October 1999, only 35% were profitable and only 14% generated profits in excess of than $10,000.

The range of results in these three studies exemplify the challenge of determining a definitive success rate for day traders. At a minimum, these studies indicate at least 50% of aspiring day traders will not be profitable. This reiterates that consistently making money trading stocks is not easy. Day Trading is a high risk activity and can result in the loss of your entire investment. Any trade or investment is at your own risk.

Any and all information discussed is for educational and informational purposes only and should not be considered tax, legal or investment advice. A referral to a stock or commodity is not an indication to buy or sell that stock or commodity.

This does not represent our full Disclaimer. Please read our complete disclaimer.

Citations for Disclaimer

Barber, Brad & Lee, Yong-Ill & Liu, Yu-Jane & Odean, Terrance. (2020). Do Day Traders Rationally Learn About Their Ability?. SSRN Electronic Journal. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2535636

Garvey, Ryan and Murphy, Anthony, The Profitability of Active Stock Traders. Journal of Applied Finance , Vol. 15, No. 2, Fall/Winter 2005. Available at SSRN: https://ssrn.com/abstract=908615

Douglas J. Jordan & J. David Diltz (2003) The Profitability of Day Traders, Financial Analysts Journal, 59:6, 85-94, DOI: https://www.tandfonline.com/doi/abs/10.2469/faj.v59.n6.2578

Copyright © 2020 Warrior Trading™ All rights reserved.

Types of Trading Strategies a Beginner Could Adopt

Once target segments are identified, the marketing manager selects a targeting strategy that will be the best fit for reaching them. Targeted marketing enables the marketing and sales teams to customize their message to the targeted group(s) of consumers in a focused manner. The targeting strategy is where the marketing mix comes together to create the right offer and marketing approach for each target segment. A summary of common targeting strategies is provided in the table below.

Strategy Target Market Example
Mass marketing Everybody everywhere Target
Differentiated marketing Large groups within the total market Costco, Sam’s Club
Niche marketing High penetration within smaller, specialized segments Trader Joe’s, Whole Foods
Micromarketing Individual customers or localized microsegments Groupon

Mass Marketing

Mass marketing, also called undifferentiated marketing, involves marketing to the entire market the same way. Mass marketing effectively ignores segmentation and instead generates a single offer and marketing mix for everyone. The market is treated as a homogeneous aggregate. Mass marketing aims to reach the largest audience possible, and exposure to the product is maximized. In theory, this would directly correlate with a larger number of sales or buy-in to the product.

Mass marketing tries to spread a marketing message to anyone and everyone willing to listen. Communication tends to be less personal, as evidenced by common mass-marketing tactics: national television, radio and print advertising campaigns; nationally focused coupons; nationally focused point-of-purchase displays. The success of mass-marketing depends on whether it is possible to reach enough people, through mass-communication techniques and one universal product offer, to keep them interested in the product and make the strategy worthwhile. While mass-marketing tactics tend to be costly because they operate on a large scale, this approach yields efficiencies and cost savings for companies because it requires the marketing team to execute only one product offer and marketing mix.

Crest Toothpaste. All-purpose toothpaste isn’t targeted to one particular market segment.

For certain types of widely consumed items (e.g., gasoline, soft drinks, white bread), the undifferentiated market approach makes the most sense. For example, toothpaste (such as the brand Crest) isn’t made specially for one consumer segment, and it is sold in huge quantities. The manufacturer’s goal is to get more people to select and buy their particular brand over another when they come to the point of purchase. Walk through any supermarket, and you will observe hundreds of grocery products, especially generic items, that are perceived as nearly identical by the consumer and are treated as such by the producer. Many mass-marketed items are considered staple or “commodity” items. People buy new ones when the old ones wear out or are used up, and mass-marketed brand loyalty might be the primary driver when they decide which replacement product to purchase.

Differentiated Marketing

A differentiated marketing strategy is one in which the company decides to provide separate offerings to each different market segment that it targets. It is also called multisegment marketing. Each segment is targeted in a particular way, as the company provides unique benefits to different segments. The goal is to help the company increase sales and market share across each segment it targets. Proctor and Gamble, for example, segments some of its markets by gender, and it has separate product offerings and marketing plans for each: Secret-brand deodorant for women, and Rogaine (a treatment for hair loss) for men. [1]

When it is successful, differentiated marketing can create a very strong, entrenched market presence that is difficult for competitors to displace because of consumers’ strong affinity for products and offers that meet the unique needs of their segment. A differentiated strategy can be a smart approach for new companies that enter a market and lure customers away from established players to capture share in a large overall market. Often, established companies become vulnerable to new competitors because they don’t give sufficient attention to the perfect marketing mix for any given market segment.

However, differentiated marketing is also very expensive. It carries higher costs for the company because it requires the development of unique products to fit each target segment. Likewise, each unique product and market segment requires its own marketing plans and execution: unique messages, campaigns, and promotional tactics and investments. Costs can add up quickly, especially if you are targeting a lot of unique market segments.

Niche Marketing

Niche marketing (also called concentrated marketing) is a strategy that targets only one or a few very defined and specific segments of the consumer population. The goal is to achieve high penetration among the narrowly defined target segments. For example, the manufacturer of Rolex watches has chosen to concentrate on only the luxury segment of the watch market.

An organization that adopts a niche strategy gains an advantage by focusing all efforts on only one or a small handful of segments. All of their market analysis, product development, marketing strategy, and tactics concentrate on serving that select part of the market. When they do it well, this approach can provide a differential advantage over other organizations that don’t concentrate all their efforts on the “niche” segment(s). Niche targeting is particularly effective for small companies with limited resources, as it does not require the use of mass production, mass distribution, or mass advertising. When a company is highly successful in desirable “niche” market segments, it can be very profitable.

Ralph Lauren store, London

The primary disadvantage of niche marketing is that it makes companies vulnerable to demand in the narrow market segments they serve. As long as demand is robust, the organization’s financial position will be strong. But if something changes and demand drops off, the company has nothing to cushion it from financial hardship. Since the company has focused all efforts on one market (essentially putting all their eggs in one basket), the firm is always somewhat at risk. Such companies are especially vulnerable to small shifts in population or consumer tastes, which can greatly affect their position (for better or for worse). Large competitors with deeper pockets may choose to enter a market and use their size and resources to put smaller, niche players out of business. To insulate themselves from this type of risk, many companies pursing a niche strategy may target multiple segments.

Luxury-goods providers are a great illustration of the challenges of the niche marketing strategy. When economic recessions occur, luxury-goods providers like Rolex, Chanel, and Armani routinely struggle financially because their narrow segment of “luxury” consumers has less disposable income. When fickle consumer tastes shift from Ralph Lauren to Dolce & Gabanna to Prada (and back again), the company’s profitability can hang in the balance.


Micromarketing is a targeting strategy that focuses even more narrowly than niche marketing. It caters to the needs of individuals (“individual marketing”) or very small segments in a targeted geography (“local marketing”). Micromarketing can be very powerful by giving consumers exactly what they want, when they want it. However, to achieve large-scale success with this approach, companies must figure out how to meet highly individualized needs efficiently and profitably.

Handmade, customizable “Weeglins” from Etsy.com

Individual marketing is sometimes referred to as “mass customization” or “one-to-one marketing.” With this approach, companies offer consumers a product created to their individual specifications. For example, Build-A-Bear Workshop invites children to create their own custom stuffed animals. A child can select the type of animal, from teddy bear to unicorn, along with color, size, clothing, and other accessories. Creators of handmade goods on Etsy.com take orders from buyers who may request variations on the individually crafted jewelry, clothing, toys, and other items displayed on the Web site. In the following video, Etsty CEO, Chad Dickerson, explains what makes the company’s approach unique.

Click here to read a transcript of the video.

Achieving wide-scale success with individual marketing requires product providers to develop production strategies and an entire marketing mix that can ramp up as demand grows. Frequently this involves offering a baseline product with parameters customers can customize to fit their needs. On the Web site www.mymms.com, for example, you can order M&M candies in colors of your choice, custom-printed with words or images you select. The advent of digital print technologies has also made mass customization a viable targeting strategy for companies like Vista Print and Sticker Mule. They provide custom print materials, stickers, decals and other printed products for businesses and individuals using designs created and uploaded by customers. Their primary messaging emphasizes custom products designed by and for individual customers, matching their unique needs and preferences.

Local marketing is a targeting strategy focused expressly on a small, clearly defined neighborhood or geographic area. Organizations using this technique strive to generate a strong local presence, and targets may include any person or organization within that small area.

A weekly produce share from Suzie’s Farm, a CSA in California

Groupon and Amazon Local are excellent examples of local marketing. Both online services partner with local businesses to promote timely offers and special pricing for individuals living in a designated geographic area. Limited-time and limited-quantity deals may include restaurant meals, spa treatments, performances, recreational activities, lessons, hotel accommodations, and a wide variety of other local area products and services. These local marketing companies earn revenue when consumers purchase and redeem the special offers in their neighborhood or city. Another example are farm cooperatives and CSAs (community-supported agriculture shares), which virtually always use a local marketing strategy. They market locally grown produce and farm-fresh goods to people residing in the immediate community, and their ongoing goal is to increase local supply and demand for healthy, local, farm-fresh food and produce.

Applying the Marketing Mix to Target Segments

With any of the strategies described above, the marketing team must come together to develop a marketing mix tailored to the needs of each segment being targeted. This marketing mix is the unique combination of product, promotion, place, and price designed expressly to fit a designated market segment.

This course will explore each element of the marketing mix in further detail in other modules. However, the following questions can help you start down the path toward shaping the marketing mix to fit your target segments.

Marketing Mix Element Targeting Criteria
Product What would make the ideal product for your target segment?

What special features or capabilities are critical for this segment?

What unique problems does your product help this segment solve?

Promotion What are the best ways to get your target segment’s attention?

What do you want this segment to remember about your product?

Place / Distribution Where does this segment look or shop for your product?

What is the best way to get your product to your target customers?

Price What price(s) are your target customers willing to pay for your product?

How much is too expensive? How much is too cheap?

As you consider each of these questions, you generate ideas for altering the marketing mix to appeal to your target segment.

A Case in Point: Alumni Charitable Giving

Let’s see how this works in practice. A university alumni organization embarks on a fund-raising campaign to generate funding for the strategic expansion of new and existing university programs. The baseline “product” this organization sells is charitable giving: an affiliation with the university, a tax deductible charitable donation, and the honor of contributing to a worthy philanthropic cause.

For the coming year, the alumni organization decides to use a niche marketing strategy. Specifically, it will target alumni with significant upcoming reunions or years since graduation: 5 years, 10 years, 15 years, 20 years, 25 years, 30 years, and so forth. The organization chooses to tailor the marketing mix as follows:

  • Product: The ideal product for these alumni isn’t just a generic philanthropic donation. Instead, it is a giving opportunity that reflects their significant anniversary. For this reason, the alumni organization introduces a new “product” or type of donation opportunity: a class legacy fund that encourages alumni to contribute with other classmates to a common fund. When they do, they can select the areas they want their donation to benefit, such as scholarships, library, technology, and endowed professorship, etc.
  • Promotion: Getting the attention of busy alumni scattered across the world is a challenge. People are most likely to pay attention when a message is coming from someone they know personally, and so the alumni organization decides to capitalize on classmate relationships. It recruits several well-connected people from each class to post on social media and send email messages to fellow classmates about an upcoming reunion as well as the legacy-fund donation opportunity. The email message asks people to share with other former classmates who may not have heard about the reunion and class legacy fund. Happily, this message begins to go viral, working through pre-existing networks to spread the word. The organization also sends a letter about the class legacy fund to older alumni who are less likely to be active with email or digital technology.
  • Place/Distribution: As people learn about the class legacy fund, the alumni organization wants to make sure the donation opportunity is easy for anyone to act on. For this reason, they offer a variety of different ways to contribute: mail a check; dial a phone number; donate on a Web site using PayPal or a credit card; donate via phone using a mobile app. People can even come to the annual reunion activities and contribute to the legacy fund in person.
  • Price: For a voluntary donation, “price” can be tricky. On one hand, the alumni organization wants to encourage donations of any size to the class legacy funds, no matter how small. On the other hand, it also wants to encourage alumni to consider making larger donations when possible. Based on publicly available income data, the alumni organization recognizes that most recent graduates have lower average salaries and disposable income compared to those who have been working their fields for a decade or more. Acting on this information, it adjusts the range of “suggested donation” levels for each class. Recent alumni marking a 5-year anniversary are invited to contribute between $25 and $250. Alumni marking 10- and 15-year anniversaries are invited to contribute between $50 and $500 to class legacy funds. Alumni with 20 or more years see suggested donation amounts ranging from $150 to $2,500 or more.

Thoughtful consideration of the four Ps leads to a successful launch of the alumni organization’s class legacy funds. Because the alumni organization has tailored the product, promotional strategy, placement, and pricing to the interests of the target segments, the effort is much more successful than the all-purpose, generic, “please donate to your alumni organization” campaign used in the past. In this example, wise targeting strategy works hand-in-hand with the marketing mix to yield better results.

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