Baby R Us Market Segmentation and Target Marketing

Introduction to Baby R Us

Baby R Us is a store concept and brand extension of Toys R Us, the largest specialty retailer of toys. While Toys R Us serves a broad audience, Baby R Us focuses specifically on supplies and toys for children under two years old. Because of this narrower focus, the target market for Baby R Us differs meaningfully from that of the parent brand. This paper explains Baby R Us in terms of market segmentation and target marketing, examining both the primary and secondary customer groups the brand must reach.

Target Market Overview

The main Toys R Us concept is a toy store that appeals to a large target market. The toys sold appeal primarily to children under 14, but many products also attract older buyers. The company segments its customers into end users — usually a child — and buyers — usually a parent or grandparent. The average age of a Toys R Us customer is 43.1 years, which is consistent with other major toy retailers such as Target and Walmart, and indicates that adults are the primary purchasers regardless of who the end user is (Bickle, 2011). The median age, while older than some might expect, reflects the significant role grandparents play in buying toys. Geographically, Toys R Us operates as a big-box store with an emphasis on suburban locations, a mix of anchor stores at shopping plazas and standalone stores. The company targets nearly all U.S. markets and earns approximately one-third of its revenue overseas, with Japan being the largest international market (Toys R Us 2015 Form 10-K). The Baby R Us brand accounts for 38% of U.S. revenues and 20.2% of international revenues.

Baby R Us takes the Toys R Us model and refines it for a more specific niche. The end user is either a baby under the age of two or the parent of such a child. Baby R Us carries not just toys but a wide range of baby accessories, many of which serve the parents more directly than the baby. This differs from selling toys to toddlers and older children, who are old enough to express preferences about what they want. A baby is entirely dependent on its parents and has no capacity to indicate a preference. As a result, the buyer — the parent — is far more central to the target market at Baby R Us than is the case at Toys R Us, where the end user also plays a significant role in driving purchase decisions.

A distinctive feature of Baby R Us is the baby registry. The registry reveals several important things about the brand's market. First, the target market extends beyond the parents themselves to include their friends and family. When parents set up a registry at Baby R Us, friends and family become active buyers, and the brand must appeal to these gift-givers and encourage them to spend generously. Gifts therefore represent a more significant component of the Baby R Us business model than they do at Toys R Us.

The Baby Registry and Word-of-Mouth Marketing

The registry also highlights the importance of targeting first-time parents. This group is especially valuable because parents tend to reuse items for subsequent children, meaning that almost everything purchased for a first child will be brand new. The implication is that the brand must reach parents before the baby actually arrives — and that the most important new customers are those who have never previously considered shopping there but now have a strong motivation to do so.

Finally, the registry underscores the importance of peer-group dynamics in marketing. Many people have children around the same time as their friends, which creates powerful word-of-mouth opportunities. First-time parents naturally seek advice from friends who are going through or have recently gone through the same experience. Word-of-mouth marketing is therefore critical for Baby R Us: the brand must engage early adopters and influencers within peer groups so that positive experiences are shared widely. This dynamic is quite different from how Toys R Us markets its products, and is one of the reasons that operating Baby R Us as a distinct brand makes strategic sense.

Demographic and Behavioral Segmentation

The Baby R Us target market can be segmented primarily by demographics and, to a lesser degree, by behavior. The most important demographic consists of young couples having their first child, typically between the ages of 25 and 35. While higher-income households make for particularly attractive targets, other income groups should not be ignored, because price elasticity of demand for essential baby supplies tends to be relatively low. The most valuable customers are generally the more affluent and better-educated parents, since educational attainment correlates with higher earnings. Other demographic factors such as race and geography matter primarily insofar as they influence household wealth. An online retail strategy can help bridge gaps in physical store coverage, as e-commerce represents a major growth channel in the baby goods industry (Strauss, 2012).

The secondary target consists of the friends and family of new parents — the gift buyers. Gift purchasing is not always registry-driven and tends to peak with the birth of a first child. Gift buyers typically set a budget, which has direct implications for product mix. The store must ensure a sufficient selection of goods in the $20–$100 range to accommodate most gift-givers. Grandparents-to-be represent a notable exception: they tend to be far less price-sensitive when purchasing baby gifts, which suggests that higher-end products should also be available and marketed with grandparent-specific messaging.