Market Segmentation Targetting & Positioning

Organizations that sell to consumer or business markets recognize they cannot appeal to all buyers in those markets or at least not to all buyers in the same way.  Market segmentation is the process of classifying customers into groups with different needs, characteristics or behaviour.

Why Market Segmentation?

Buyers are too numerous, too widely scattered & too varied in their needs and buying practices.

Rather than trying to compete in an entire market, sometimes against superior competitors, many companies try to identify parts of the market that they can serve best. They try to satisfy the needs and wants of specific segments of the market better than other players can… this strategy is expected to lead to customer loyalty.

Companies have not always practiced market segmentation. Marketing has evolved through the following three stages:

 Mass marketing: one product for all buyers, with no significant variations in the offering.


 Product Variety Marketing – two or more products (different styling, design, size, etc) to offer variety rather than to appeal to different segments

 Target Marketing: developing product(s) for targeted segment(s) to meet specific needs

Market Segmentation


 Many companies are moving away from conventional market segmentation

 They are aiming at “micro segmentation” and “a market of one”

 Target marketing can better help them find marketing opportunities

 Technology (especially IT) is an important factor in facilitating this process

Flexible market offerings

 Naked solution: Product and service elements that all segments value

 Discretionary options: Elements valued by some segments – options usually have additional charges

Market preference patterns

 Homogenous: no natural segments; all users want the same features, hence all brands tend to cluster around the middle of the market

 Diffused: no distinct patterns, great variation in customer preferences; first player usually in the middle of the market, later players adopt different strategies and positions

 Clustered: natural segments; first player might focus on largest segment or be in the middle while later entrants follow their own strategies

Target Marketing

Target marketing can be done at four levels – by market segments, aimed at niche markets, marketing by local areas and targeted at individuals.

Steps in Segmentation, Targeting and Positioning

 Market segmentation would entail identification of bases (criteria) for segmentation, followed by development of profiles of these target segments.

 Market targeting would have to start with developing measures of attractiveness for the segments, application of these metrics to the identified segments that would permit selection of segments.

 Market positioning starts with preparing the positioning statement for each of the selected segments, followed by developing the marketing mix strategy for each segment.

Effective Targeting

 Identification and profiling of distinct groups of buyers who differ in their needs and preferences

 Selection of one or more market segments to target (enter)

 Establishing and communicating the distinctive benefits of the market offering to the selected target segment(s)

Market Segmentation Parameters

Criteria / Parameters for consumer markets:

 Demographic – easy to measure variables such as age, sex, monthly household income, education, occupation, family size etc

 Psychographic – psychological variables like values, lifestyles, attitudes, opinions etc

 Geographic – based on geographic units such as country, region, urban / rural

 Behavioural – based on knowledge of, attitudes towards, usage rate of category etc

Demographic criteria / parameters

 Age

 Sex

 Education

 Household income

 Occupation

 Socio-economic class

 Family size

 Family life cycle stage

 Marital status

 Religion

 Nationality

 Ethnic origin / race

Psychographic criteria / parameters

 Values

 Attitudes

 Interests

 Lifestyles

 Opinions

 Preferences

 Personality

Geographic criteria / parameters

Continent – Region – Country – Town / town class – Urban versus rural

Behavioural criteria / parameters

 User status: non-user, ex-user, potential, regular…

 Attitudes: enthusiastic, positive, indifferent, negative, hostile

 Buyer readiness: unaware, aware, informed, interested, desirous, intending…

 Purchase occasions: regular, special, occasional

 Usage rates: light, medium, heavy

 Loyalty status: hard core, split, shifting, switcher

 Benefits sought: tangible/intangible (emotional)

 Decision role: buyer, user, influencer, decider, initiator

Criteria / Parameters for organizational markets:

Some of the same variables may be used – demographic, geographic, usage rates, buyer readiness status, buyer loyalty status etc. There are several other factors in addition:

 Demographic: industry, company size, location, growth rates

 Operating variables: technology, user/non-user

 Purchasing approaches: centralized/decentralized, structure (engineering/finance dominated), relationships, policies (leasing/bidding etc), quality/price etc

 Situational: urgency, size, application orientation

 Buyers’ personal characteristics: values, risk attitudes, loyalty /relationship

To be effective, market segments must be:

 Measurable in terms of size and purchasing power

 Differentiable so that they respond differently to marketing stimuli

 Substantial regarding size (large) and profitability

 Accessible so that they can be reached (physically) and served

 Actionable in terms of the degree to which effective marketing programmes can be devised and implemented

Market Targeting

After the market has been segmented, it is necessary to evaluate the segments prior to selecting the segments to be targeted using three sets of factors:

 Size and potential for growth

 Structural attractiveness

 Company objectives & resources

Selecting Market Segments

 Single segment concentration leads to strong knowledge of segment needs, helps achieve operating economies… but the segment may have limited growth prospects or may collapse.

Example: Polaroid due to digital photography

 Selective specialization helps to diversify risk by focusing on (unrelated) segments that are individually attractive.

 Product specialization focuses on a single product (or variations thereof) to sell to various segments but new technology can supplant the product. Example: mechanical typewriters, word processors

 Market specialization leads to serving many needs of a specific segment, but the segment may shrink, leading to loss of volumes and revenues

 Full market coverage is an attempt to serve all customer segments – suitable only for very large organizations

Full market coverage

Large organizations adopt one of two ways:

 Undifferentiated marketing – making one offer (that appeal to the entire market and ignoring differences among segments. This has the advantage of lower costs and might lead to lower prices.

 Differentiated marketing – designing different products and offers for each selected segment.

This approach increases costs of product modification, manufacturing, inventory, marketing communications & administration.

Market Coverage Strategy: factors

 Company resources

 Competitors’ activities / strategies

 Stage of Product Life Cycle

 Market variability

Positioning

Positioning may be viewed as the core perceptions about the brand in terms of tangibles and intangibles relative to perceptions about competing brands in the minds (perceptual space) of consumers and prospects.

Bases for Brand Positioning

 Brand parentage (corporate, parent brand)

 Product category

 Brand attributes (USP)

 Brand benefits

 Customer segments

 Usage occasions

 Price-value relationship

 Competitor orientation

Implementing Positioning

Three steps are involved:

 Identifying alternative / possible sets of competitive advantages

 Selecting the right advantage

 Communicating the advantage

A technique known as ‘perceptual mapping’ is often used to analyse consumer perceptions prior to brand positioning / re-positioning.

A difference is worth promoting if it is:

 Important to the target segments

 Distinctive and different from competitors

 Superior or better by way of benefits

 Affordable by selected target segments

 Pre-emptive

 Communicable

 Profitable for the organization