Chapter 2

Segmentation, Targeting and Positioning

Dr P R Bhattacharyya

“Positioning is not what you do to a product; it is what you do to the mind of a prospect”

(Ries and Trout, 1972)

STP Process

• Method by which whole markets are subdivided into

different segments

• Three activities that should be undertaken, usually

sequentially, if segmentation is to be successful:

– Segmentation

– Targeting

– Positioning

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STP Process

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Benefits of STP Process

“80% of profits usually derived by 20% of customers” Pareto’s Principle

• Enhancing a company’s competitive position by providing direction

& focus for marketing strat5egies.

• Examining and identifying growth opportunities in the market

through the identification of new customers, growth segments or

new product uses.

• More effective and efficient matching of company resources to

targeted market segments promising the greatest ROMI.

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Market Segmentation

• Market segmentation is the division of a market into different groups of customers with distinctly similar needs and product/service requirements.

• Purpose of market segmentation:– Leverage scarce resources. – To ensure that the elements of the marketing mix

are designed to meet particular needs of different customer groups.

– Allows organisations to focus on specific customers needs, in the most efficient and effective way.

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Marketing Segmentation

• Market Segmentation & Product Differentiation

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Process of Market Segmentation

• There are two main approaches to segmenting markets:

• Breakdown Method: Adopts the view that the market is considered to consist of customers which are essentially the same, so the task is to identify groups which share particular differences.

• Build-Up Method: Considers a market to consist of customers that are all different, so here the task is to find similarities.

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Process of Market Segmentation• Aim is to identify segments where:

– identifiable differences exist between segments (segment heterogeneity).

– similarities exist between members within each segment (members homogeneity).

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Segmenting Consumer Markets

• Segmentation Bases/Criteria

– Profile Criteria - Who my market are and where are they?

– Behavioural Criteria - Where, when, and how does my market behave?

– Psychological Criteria - Why does my market behave that way?

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Segmenting Consumer Markets

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Segmenting Consumer Markets

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Segmenting Business Markets

• Segmentation Bases/Criteria

– Organisational Criteria – e.g., Organisational size and location

– Buyer Characteristics – e.g., Choice criteria, purchase context

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Organisational Characteristics

Source: McDonald and Dunbar (2004). Reproduced with kind permission.

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Buyer Characteristics

• Decision Making Unit– Policy factors– Purchasing strategies– Attitudes towards vendors and toward risk

• Choice Criteria– What specifications of product/service they

choose

• Purchase Situation– Structure of the purchasing procedures– Type of buying situation – Stage in the purchase decision process

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Targeting

• To determine which, if any, of the segments uncovered should be targeted

• Evaluation of Market Segments - DAMP– Distinct – is each segment clearly different from

other segments?– Accessible – can buyers be reached through

appropriate promotional programmes and distribution channels?

– Measurable – is the segment easy to identify and measure?

– Profitable – is the segment sufficiently large to provide a stream of constant future revenues and profits?

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Segment Attractiveness Factors

• Rating approach for different segment attractiveness factors:– Market growth– Segment profitability– Segment size– Competitive intensity within the segment – Cyclical nature of the industry

• Each of these attractiveness factors is rated on a scale of 0-10 and loosely categorized as high, medium or low in attractiveness.

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Segment Attractiveness Factors

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Targeting Approaches

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Positioning

• The act of designing the company’s offering and image so that they occupy a meaningful and distinct competitive position in the target customers’ minds.

• Two fundamental elements: – Physical attributes - the functionality and

capability that a brand offers.– Communication - the way in which a brand is

communicated and how consumers perceive the brand relative to other competing brands in the market place.

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Perceptual MapsRepresent a geometric comparison of how competing products are perceived

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Correspondence analysis is a method for exploring

associations between sets of categorical variables.

Mathematically it is a method for breaking down the value

of

the goodness-of-fit statistic into components due to the

rows and columns of the contingency table. It can also be

considered as a technique for assigned order to unordered

categories.

Correspondence Analysis

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EXAMPLE

The data was collected to examine the relationship

between a girl's age and her relationship with her

boyfriend.

Each of 139 girls have been classified into one of three

groups (no boyfriend, boyfriend/no sexual intercourse,

boyfriend/sexual intercourse), and the second variable is

the girl's age (1 = 16 or less, 2=17, 3=18, 4=19, 5=20 or

older)

No boyfriend 0.92 0.64 0.19 -1.01 -0.93Boyfriend/ No sex 0.24 0.42 0.13 0.24 -1.26Boyfriend/Sexual relationship -1.76 -1.48 -0.45 1.39 2.85

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EXAMPLEYoungest age group is most associated platonic relationships or none!Older age group most associated with sexual relationships.

-0.4 -0.2 0.0 0.2 0.4 0.6 0.8-0.4 -0.2 0.0 0.2 0.4 0.6 0.8

When the items are both large and positive then the corresponding row and column will have a large contribution to the test statistic value, and these two are said to be positively associated.When the items are both large but have different signs then the corresponding rows and columns are said to be negatively associated.When the items have both got values close to 0 then the association is close to the expected value under an assumption of independence.

Positioning Strategies

• Position a brand either functionally or expressively (symbolically)

• Functional – Features– Quality– Use

• Expressively– User– Benefit– Heritage

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