Segmentation, Targeting, Positioning

A concise introduction

Syed Mohammad Zubair Azam

MS-PHD Scholar Zubairazam6@gmail.com

Zubairazam6@hotmail.com

Table of Contents

Topic Page

1. What is Marketing? 1

2. Marketing mix and strategy 1

3. Segmentation 2

a. Characteristics of good segment and outcome 3

4. Targeting 3

a. Factors to be considered 4

b. Targeting strategies 4

5. Positioning 5

a. Criteria of successful positioning 5

b. Approaches 6

6. Market Definition 7

a. Dimensions 7

b. Scope of served Market 8

c. BU’s competitive advantage, Relative cost and growth

9

7. References 9

1

Marketing Strategy Regarding Segmentation, Targeting and Positioning

Marketing is defined by the American Marketing Association [AMA] as "the activity, set of institutions,

and processes for creating, communicating, delivering, and exchanging offerings that have value for

customers, clients, partners, and society at large”.

As every Department in the organization has its own worth, and thus they have their own goals and

objectives to meet which further lead towards organizational efficiency. Marketing department also has

several objectives as shown in figure 1.

Figure 1: What Marketing is all about

To achieve all above objectives, marketers use to Develop Marketing Mix for their offerings. A bird’s eye

view of this process is illustrated in figure 2.

Now as this is clear that marketing mix is customer

centric so lets have a look on what a market is all

about? How to Segment it? What needs to do for

Focused targeting and what sort of positioning will be

feasible and with what sort of appropriate tactics?

The market for any product is normally made up of

several segments. A ‘market’ after all is the aggregate

of consumers of a given product. And, consumer (the

end user), who makes a market, are of varying

characteristics and buying behavior. In order to

capture the Maximum Market share, Marketers use to

Figure 2: Marketing Mix

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divide the market in different distinct segments and then they come up with most suitable tactics for

each segment, and this approach is known as segmentation. However, Importance of STP

(Segmentation, Targeting and Positioning) can be Determined from Figure 3.

Segmentation

Through segmentation, the marketer can look at the differences among the customer groups and decide

on appropriate strategies/offers for each group. This is precisely why some marketing gurus/experts

have described segmentation as a strategy of dividing the markets for conquering them.

Table 1 shows major approaches that how segmentation can be done.

Segmentation Type Description Example—Variables

Geographics Divides market into different

geographical units

Country, Region, City

Demographics Divides market on the basis of

demographic variables

age-, gender, income

Firmographics Divides market on the basis of

company-specific variables

Number of employees,

company size

Behavioral Divides market based on how

customers actually buy or use the

product & service

Website loyality, prior

purchases

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Occasion (situational) Divides market based on the

situation that leads to a product

need, purchase, or use

Routine occasion, special

occasion

Psychographics Divides market based on lifestyle

and personality

Thrill seekers, fun lovers, risk

takers.

Benefits Divides market based on benefits

or qualities sought from the

product

Convenience, economy, quality

A very effectively segmented Market obviously leads to certain benefit. Figure 4 depicts the

characteristics of a good segment and its outcomes in the market.

Figure 4: Characteristics of a good segment and outcomes

Targeting

Once a segment has been identified, a firm must ascertain whether the segment is beneficial for them to

service. The DAMP, meaning Discernible, Accessible, Measurable and Profitable, are used as criteria to

gauge the viability of a target market. DAMP is explained in further detail below:

•Identifiable

•Accesible

•sizeable

•Profitable

•Unique Needs

•Durable

•measurable

•Compatible

Attributes of effective

Segmentation

•Facilitates proper choice of target marketing

•Higher Profits

•Facilitates tapping of the market, adapting the offer to the target

•Stimulating Innovation

•Makes the marketing effort more efficient and economic

•Benefits the customer

•Sustainable customer relationships in all phases of customer life cycle

•Higher Market Share

Reasons/Objectives of Market Segmentation

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Approach Description

Discernible/Distinguishable How a segment can be differentiated from other segments. Accessible How a segment can be accessed via Marketing Communications produced

by a firm. Measurable Can the segment be quantified and its size determined? Profitable Can a sufficient return on investment be attained from a segment's

servicing?

The next step in the targeting process is the level of differentiation involved in a segment serving. Three

modes of differentiation exist, which are commonly applied by firms.

Undifferentiated Where a company produces a like product for all of a market segment. Differentiated In which a firm produced slight modifications of a product within a

segment. Niche In which an organisation forges a product to satisfy a specialised target market

Factors to be considered while Targeting the selected market

Two important factors to consider when selecting a target market segment are the attractiveness of the

segment and the fit between the segment and the firm's objectives, resources, and capabilities.

TARGET MARKET STRATEGIES

There are several different target-market strategies that may be followed. Targeting strategies usually

can be categorized as one of the following:

Attractiveness of the segment

size of the segment

Growth Rate of the Segment

competition in the segment

Brand Loyalty of current customers

attainable Market share

Sales Potential

Profit Margin

Suitability of Market Segments to the Firm

Whether the firm can offer superior value to the customers in the

segment

The impact of serving the segment on the

firm's image

Access to distribution channels

The firm's resources vs. capital investment

required

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Single-segment strategy - Also known as a concentrated strategy. One market segment (not the

entire market) is served with one marketing mix. A single-segment approach often is the

strategy of choice for smaller companies with limited resources.

Selective specialization- This is a multiple-segment strategy, also known as a differentiated

strategy. Different marketing mixes are offered to different segments. The product itself may or

may not be different - in many cases only the promotional message or distribution channels

vary.

Product specialization- The firm specializes in a particular product and tailors it to different

market segments.

Market specialization- The firm specializes in serving a particular market segment and offers

that segment an array of different products.

Full market coverage - The firm attempts to serve the entire market. This coverage can be

achieved by means of either a mass market strategy in which a single undifferentiated

marketing mix is offered to the entire market, or by a differentiated strategy in which a separate

marketing mix is offered to each segment.

Positioning

Positioning concerns how to position a product in the minds of consumers. A firm often performs this by

producing a perceptual map, which denotes products produced in its industry according to how

consumers perceive their price and quality. From a product's placing on the map, a firm would tailor its

marketing communications to suit meld with the product's perception among consumers.

Generally, there are three types of positioning concepts:

FFuunnccttiioonnaall ppoossiittiioonnss

SSyymmbboolliicc ppoossiittiioonnss

EExxppeerriieennttiiaall ppoossiittiioonnss

Solve problems.

Provide benefits to customers.

Get favorable perception by investors (stock profile) and lenders.

Self-image enhancement.

Ego identification.

Belongingness and social meaningfulness.

Affective fulfillment

Provide sensory stimulation.

Provide cognitive stimulation.

CCRRIITTEERRIIAA’’SS FFOORR SSUUCCCCEESSSSFFUULL PPOOSSIITTIIOONNIINNGG

CCeerrtain criteria are needed to be fulfilled for successful positioning are:-

a. CCllaarriittyy:: -- While positioning its brand the firm must be able to position itself in both distinct value, proposition, and to its target audience.

b. CCoonnssiisstteennccyy:: - Consistency in positioning means keeping the positioning plank/bases intact

for longtime. Planks should be carefully chosen while positioning. But it does not mean that the firm must change its positioning bases even though its survival is at stake. The firm must be

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flexible to the changing environment.

c. CCrreeddiibbiilliittyy:: -- The firm must deliver trustworthy and believable value proposition. There should be perfect match between promise and action.

d. CCoommppeettiittiivveenneessss:: -- FFoorr surviving in this competitive and changing environment innovative

resources, talent pool, competitive advantage, strong financial backup etc are very important.

Approaches to Positioning

Approach Description Example

Customer benefit approach Involves putting the brand above competitors, based on specific brand attributes and customer benefit.

Procter & Gamble’s Head & shoulder shampoo functions as anti dandruff and anti hairfall shampoo.

Price quality approach Sometimes brands attempts to offer more in term of service, feature, quality, or performance. Manufacturer of such brands charge higher prices partly to cover the cost and partly to communicate the fact that they are of high quality

Rado, Timex, Givenchi, Rolex etc.

The use and application approach

How the product can be used and what features are there?

IBM, BlackBerry, Nokia N and E series etc.

The product user approach What kind of Users are using the product. User Imagery is being inforced.

Zong’s recent ad of Blackberry. Indigo and Honda ads.

The product class approach This approach is use so that the brand is associated with a particular product category. This is generally used when a category is too crowded

Dove, LUX, Caltex etc.

The cultural symbol approach The positioning strategy is based on deeply entrenched cultural symbol. The use of cultural symbol can help to differentiate the brand from competitors brands.

Marlboro, Bonanza ads in Pakistan.

The competitor approach Many brands use competitor as a dominant plank in their campaign. These brands are positioned following its competitor. This is an offensive strategy.

Ufone’s ad of ganta free, Zongs ad of Free msgs when mobilink withdraw its package of free messages near eid.

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Note on Market Definition and Segmentation

Market Definition:

Basically there is no single way to define the market for a given business unit, so market is defined in

various ways along each of several dimensions. The main dimensions include products, type of

customers, geography and stages in the production –distribution system.

Products: products can be defined relatively narrowly or very broadly. The two main dimensions of

products are its functions and the technology used in the product. In a product for every feature, it has a

function. Functions tell the use of the product and what is the product all about. Whether the product is

tangible r intangible, the main thing is t o define the “product” scope of a market by the range of its uses

or functions to be included. Technology and materials used in the product define the industry for the

particular product.

Customers: for industrial products manufacturers, a natural way to classify customers is by industries.

Even within an industry group, customer needs and buying patterns can be different due to different

factors like size location etc. for every product there is a different class and set of customers.

Geography: For a product distribution, first the manufacturer has to decide whether he will go regional,

national or international. The products which are bulky, fragile or perishable limit their operations to

regional markets because of freight costs. When the manufacturer decides to go beyond national

boundaries, tariffs and other barriers may serve as constraints and may lead to cost differentials related

to scope of that particular market.

Level of Production/Distribution: It is very important for a business unit to determine the particular

level at which the business itself and its competitors will operate and which production-distribution level

will they have. Producers of raw material may choose to sell only to other downstream producers or

they may produce finished products themselves, or even both. The producer may choose to do the

vertical integration.

Multidimensional Market Definition:

Market can also be defined with multiple variables i.e. it may be defined by grouping some main

dimensions like customers,functions,and technology. In this way market cells can be made which give a

broader definition of the market. If dimensions of geography and level of production/distribution is also

added, then it will lead to a more elaborate set of possibilities to define the market.

Managers may need to use different definitions of the market to satisfy different purposes but It is

important to note that an appropriate served market definition at one point may not be appropriate

later on, because of changes in customer needs, technology or competitors activities.

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Strategic market Definition:

In order to formulate a business strategy one must consider the scope of the market served by the

business unit, and how more than one strategy can be employed for distinct submarkets or segments

within a served market.

Scope of the served Market:

The served market in which a BU actually competes may be coextensive with a total market in which the

overall effectiveness of competitive performance should be evaluated. Generally the served market will

be considerably narrower in scope and smaller in size than the total market. It’s important to note that

the choices involved in defining the scope of served market are not always the result of conscious and

deliberate decision making. Small business units have resource limitation which restricts the range of

possibilities. However, any set of market cells could constitute a market. To classify some common

approaches to served market definition, we can analyze theoretical possibilities under the area of the

following main categories

1-Breadth of Product line

The businesses which are specialized in technology and have a broad range of product uses, businesses

which are specialized in product uses and have multiple technologies etc

2-Types of Customers

Customers can be categorized as segments of single customer and multiple customer segments

3-Geographic scope

It classifies the business unit as regional, national or international.

4-Level of Production

It helps in determining whether the BU is of raw or semi finished materials or components, finished

products or wholesale or retail distribution.

Customer segmentation

Market segment is defined as an identifiable group of customers with requirements in common that are,

or may become, significant in determining a separate product strategy.

For the purpose of strategy formulation customer segments must have some characteristics that are

common to members of a segment and some characteristics which differ from other segments.

Criteria for Segmentation

It’s important to see that when does a particular segment require the differential strategic treatment?

the general criteria for it includes size of the segment(in actual or potential sales) the incremental costs,

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the magnitude of inter segment differences ,the durability of differences, the cyclical vitality(whether

the segment is more variable then others in relation to overall business cycle or not),the links with other

segments, the utilization of the distinctive competences( it depends on the fit between the

characteristics of the segment and distinctive competences of the BU),and the competition.

BU’s Competitive effectiveness, Relative Costs and Growth Potential:

For the purpose of evaluating the BU’s competitive effectiveness, it seems reasonable that all of the

market shares i.e. share in each served segment, combined share in both segments and share of total

market including irrelevant segments, are relative measures. Cost of a BU generally depends on relative

scale and experience in each of several key” cost sectors” corresponding to different components of

total cost. For the purpose of evaluating future growth and opportunities and potential competitive

threats, we need to view the market more broadly. Potential competitors may include firms selling in

the immediately adjacent market; firms operating in related cost sectors, firms in other geographic

regions and producers of functionally related products whose offerings might be modify to compete

with those of the business unit. Each of these possibilities represents a potential direction for the BU’s

future growth and a new source of competition.

References

Note on Market Definition and Segmentation, Robert D. Buzzell, HBS, 1978

International Marketing, 11/e. Philip R. Cateora

Marketing Management, Philip Kotler