STPSegmentation, Targeting, and Positioning SEGMENTATIONBuilding the right relationship with the right customersSegmentation, targeting, and positioning together comprise a three stageprocess. We first:(1) determine which kindsof customers exist, then(2) select which ones weare best off trying to serveand, finally,(3) implement oursegmentation byoptimizing ourproducts/services for thatsegment andcommunicating that wehave made the choice todistinguish ourselves that way.In another words:Market Segmentation Identify bases for segmenting the market Develop segment profilesTarget Marketing
Develop measure of segment attractiveness Select target segmentsMarket Positioning Develop positioning for target segments Develop a marketing mix for each segmentSegmentationMarket Segmentation:Segmentation is the process of grouping people or organizations within amarket according to similar needs, characteristics and will respond similarly toa marketing action. It is splitting customers, or potential customers, in a market into differentgroups, or segments, within which customers share a similar level of interest inthe same or comparable set of needsA market can be segmented according to customer needs. For example, carmanufacturers can segment the car market into two broad segments: basiccars and luxury cars. They can have separate product lines for each segment.For example, for the luxury car segment,Market segmentation enables companies to target different categories ofconsumers who perceive the full value of certain products and servicesdifferently from one another.Market Segmentation as a Process:Process of dividing the market according to similarities that exist among thevarious subgroups within the market. The similarities may be commoncharacteristics or common needs and desires. Market segmentation comesabout as a result of the observation that all potential users of a product arenot alike, and that the same general appeal will not interest all prospects.Therefore, it becomes essential to develop different marketing tactics basedon the differences among potential users in order to effectively cover theentire market for a particular product.
Market segment:Def.An identifiable group of individuals, businesses, or organizations, sharing oneor more characteristics or need in an otherwise homogeneous market.Market segments generally respond in a predictable manner to a marketing orpromotion offer.In general, it holds true that “You can’t be all things to all people,” andexperience has demonstrated that firms that specialize in meeting the needsof one group of consumers over another tend to be more profitable.5.1.2 Characteristics of the SegmentationCharacteristics of the Market Segment1. It is distinct from other segments (different segments have different needs),though one can also count on the existence of some minute similarities.2. Products that are demanded by the consumers are homogeneous and in somecases also tend to have similar price levels.3. It responds similarly to a market stimulus.4. It can be reached by a market interventionThe requirements for effective segmentation:a.IdentifiableThe differentiating attributes of the segments must bemeasurable so that they can be identified.b.AccessibleThe segments must be reachable through communication anddistribution channels.
c.SizeableThe segments should be sufficiently large to justify the resourcesrequired to target them. A very small segment may not serve commercialexploitation.d.ProfitableThere is no use in locating segments that are sizeable but not profitable.e.Unique needsTo justify separate offerings, the segments must responddifferently to the different marketing mixes.f.DurableThe segments should be relatively stable to minimize the cost offrequent changes.g.MeasurableThe potential of the segments as well as the effect of a specificmarketing mix on them should be measurable.h.Compatible:Segments must be compatible with firm’s resources andCapabilities.Market segmentation - why segment markets(i.e.Benefits)?• Identify your most and least profitable customers• Focus your marketing on the customers who will be most likely to buy yourProducts or services• Avoid the markets which will not be profitable for you• Build loyal relationships with customers by developing and offering them theProducts and services they want• Improve customer service• Get ahead of the competition in specific parts of the market• Use your resources wisely• Identify new products• Improve products to meet customer needs• Increase profit potential by keeping costs down, and in some areas enablingyou toCharge a higher price for your products and services .
• Group your customers by factors such as geographical location, size andtype oforganization, type and lifestyle of consumers, attitudes and behavior.5.1.4 Objectives of the Segmentation 1. To avoid wastage of precious company resources. 2. To divide the market into various segments, or target groups. 3. To target each profitable segment in a unique way that suits that particular segment, and provides adequate returns. 4. To avoid overlapping and redundant information to one particular segment. 5. To maximize sales and profits. 6. To gain new customers. 7. To sustain the existing consumers. 8. To introduce newer products into the market for both the existing and the new consumersThe objectives of market segmentation are to more accurately meet the needs of selected customers in a more profitable way. Precisely how this can be achieved will vary by company capability.5.1.5 Segmentation VariablesSegmenting Consumer Markets: Geographical segmentation Demographic segmentation o Most popular segmentation Psychographic segmentation o Lifestyle, social class, and personality-based segmentation
Behavioral segmentation1st: Geographic variables:Geographic variables include territories such as nations, provinces, states,regions, countries, cities, or neighborhoods of your customers.Where do your customers live? To answer this question you need todetermine what nations, provinces, states, regions, countries, cities orneighborhood will your product be available? In other words, where will yousell your product or service?You may plan to open a retail clothing store in a mall and only sell yourproducts to specific customers who shop at the mall. Alternatively, you maysell your products to specific customers who shop at the mall and design adirect mail campaign to reach customers outside of the mall (in another state,for example). The above situations are certainly dissimilar and involve differentcustomers and geographical selling areas.In summary, Geographic Segmentation is used to identify specific regions, citysize, and densities2nd: Demographic variables:Demographic Segmentation: This process of analysis comes into play whenthe quality and other characteristics of the general population are taken intoconsideration. The age and the gender of the target audience needs to be considered. The common occupations and income levels of the population also play a part.
The religion and language that the people follow also needs to be kept in mind. The family size and quality of education are also important here. Demographic segmentation consists of dividing the market into groups based on variables such as age, gender family size, income, occupation, education, religion, race and nationality. As you might expect, demographic segmentation variables are amongst the most popular bases for segmenting customer groups. This is partly because customer wants are closely linked to variables such as income and age. Also, for practical reasons, there is often much more data available to help with the demographic segmentation process.The main demographic segmentation variables are summarized below: Age Consumer needs and wants change with age although they may still wish to consumer the same types of product. So Marketers design, package and promote products differently to meet the wants of different age groups. Good examples include the marketing of toothpaste (contrast the branding of toothpaste for children and adults) and toys (with many age-based segments). Gender Gender segmentation is widely used in consumer marketing. The best examples include clothing, hairdressing, magazines and toiletries and cosmetics. Income Another popular basis for segmentation. Many companies target affluent consumers with luxury goods and convenience services.
Social class Many Marketers believe that a consumers "perceived" social class influences their preferences for cars, clothes, home furnishings, leisure activities and other products & services. There is a clear link here with income-based segmentation. Lifestyle Marketers are increasingly interested in the effect of consumer "lifestyles" on demand. Unfortunately, there are many different lifestyle categorization systems, many of them designed by advertising and marketing agencies as a way of winning new marketing clients and campaigns!Advantages of demographic segmentation: The organization can easily categorize the wants of the consumers on the basis of demographic factors such as age, gender etc. Demographic segmentation variables are much easier to obtain and measure compared to the variables of other segmentation strategies. Demographic segmentation helps the organization in understanding the customers and satisfying their needs. In a market driven by intense competition, market segmentation analysis can be of great help indeed. This segmentation is basically based on the simple fact that you cant please all consumers with a single product; you will have to identify the potential market, divide it into various segments and cater to the needs of each segment in order to become a successful business entity.3rd: Psychographic variables:Psychographic variables:Psychographic variables refer to any attribute relating to personality, lifestyle,values, interests or attitudes. These factors consider various influences on a
person’s buying behavior. Different lifestyle choices like parenting, exercisedecisions, religion, marriage or health can greatly affect a person’srequirements or preferences for certain products or services.People have different lifestyle patterns and behavior could change as peoplepass through different stages in life. On the other hand, a consumer’sopinions, interests or hobbies will have a huge impact on the products orservices they will choose to buy. One good example is the increasing demandfor organic products.The importance of psychographic segmentation:The variables that come into play in this scenario are primarily psychological innature. Here are some of the most common variables that fall under thiscategory and are well utilized by marketers and business organizations inorder to enhance their sales figures. Interests Activities Opinions Behavioral patterns Habits Lifestyle Perception of selling company HobbiesUsing these factors as a base, a marketer can determine how a particulargroup of customers will respond to the launch of a new product. This form ofsegmentation should not be confused with demographic segmentation, asdemographic segmentation primarily takes into consideration the age and thegender of the targeted customer group.4th: Behavioral variables:Behavioral segmentation:
Behavioral segmentation divides customers into groups based on the waythey respond to, use or know of a product. Behavioral segments can groupconsumers in terms of :a) User status: market can be segmented into nonusers, ex-users, potentialusers, first time users, and regular users of product. Marketers want toreinforce and retain regular users, attract targeted nonusers, and reinvigoraterelationships with ex-users.b) Usage rate market also can be segmented into light, medium, heavyproduct users. Heavy users are often a small percentage of the market butcount for a high percentage of total consumptionc) Loyalty status: When assessing loyalty, consumers can be classified ascompletely loyal, somewhat loyal, or not loyal. Completely loyal consumers arethose that would not consider buying another brand or visiting a different outlet. Itend to be more loyal for service products, such as my hairdresser and my doctor,while I tend to be a brand switcher when it comes to most food products. Someconsumers may be loyal to more than one brandd) Benefits Sought: An important form of behavioral segmentation. Benefitsegmentation requires. Marketers to understand and find the main benefitscustomers look for in a product.e) Occasions: When a product is consumed or purchasedBases for Segmentation in Industrial MarketsIn contrast to consumers, industrial customers tend to be fewer in number andpurchase larger quantities. They evaluate offerings in more detail, and thedecision process usually involves more than one person. These characteristicsapply to organizations such as manufacturers and service providers, as well asresellers, governments, and institutions.
Many of the consumer market segmentation variables can be applied toindustrial markets. Industrial markets might be segmented on characteristicssuch as: Location Company type Behavioral characteristicsLocationIn industrial markets, customer location may be important in some cases.Shipping costs may be a purchase factor for vendor selection for productshaving a high bulk to value ratio, so distance from the vendor may be critical.In some industries firms tend to cluster together geographically and thereforemay have similar needs within a region.Company TypeBusiness customers can be classified according to type as follows: Company size Industry Decision making unit Purchase CriteriaBehavioral CharacteristicsIn industrial markets, patterns of purchase behavior can be a basis forsegmentation. Such behavioral characteristics may include: Usage rate Buying status: potential, first-time, regular, etc. Purchase procedure: sealed bids, negotiations, etc.Global marketing:When a company becomes a global marketer, it views the world as onemarket and creates products that will only require weeks to fit into anyregional marketplace. Marketing decisions are made by consulting with
marketers in all the countries that will be affected. The goal is to sell the samething the same way everywhere. Market targeting:The guided missile Todays anti-aircraft attack method is farmore effective. Just one heat-seeking ground-to-air missile is released, which homesaccurately in on its target.Thats what targeted marketing is all about.DefinitionBreaking down a market into segments and then concentrating (targeting) yourmarketing efforts on one or a few key segments.Target MarketDefinition: A specific group of consumers at which a company aims its products andservices.The beauty of target marketing is that it makes the promotion, pricing anddistribution of your products and/or services easier and more cost-effective.Target marketing provides a focus to all of your marketing activities.
Advantages of targeted marketing are: Your attention is focused on one specific market area, which is likely to result in your marketing campaigns being far more cost- and time-efficient. You appear to be a specialist in the prospective customers own field, and you can increasingly build up a reputation as being just that. Your promotion material is highly relevant to their needs, and is less likely to be junked You stand out from your competitors By differentiating yourself from your competitors, prospective customers are less likely to focus on price as the key issue, thus enhancing your profit margins.Target marketing approach TypesUndifferentiated marketing (full marketing coverage)Sometimes referred to as mass marketing the firm may decide to aim its resources at theentire market with one particular product. (sugar example)Differentiated marketing strategyWhere the firm decides to target several segments and develops distinct products/serviceswith separate marketing mix strategies aimed at the varying groups. An example of this wouldbe airline companies offering first, business (segment 1) or economy class tickets (segment 2), with separate marketing programs to attract the different groups.
Concentrated Marketing:Where the organization concentrates its marketing effort on one particular segment. The firmwill develop a product that caters for the needs of that particular group. For example RollsRoyce cars aim its vehicles at the premium segment, same as Harrods within the UK.Customized or Micro-MarketingThis newest target marketing strategy attempts to appeal to targeted customers withindividualized marketing programs. Allow customers to “build-their-own” products.This approach requires extensive technical capability for marketers to reach individualcustomers and allow customers to interact with the marketer. The Internet has beenthe catalyst for this target marketing strategy. (the tailor example)Attractiveness of a Market SegmentThe following are some examples of aspects that should be considered whenevaluating the attractiveness of a market segment: Size of the segment (number of customers and/or number of units) Growth rate of the segment Competition in the segment
Brand loyalty of existing customers in the segment Required market share to break even Sales potential for the firm in the segment Expected profit margins in the segmentSuitability of Market Segments to the FirmMarket segments also should be evaluated according to how they fit the firmsobjectives, resources, and capabilities. Some aspects of fit include: Whether the firm can offer superior value to the customers in the segment The impact of serving the segment on the firms image Access to distribution channels required to serve the segment The firms resources vs. capital investment required to serve the segmentResults of wrong targeting strategy:Ineffective targeting led to wrong product offers, inappropriate marketing appeals,wrong pricing, and over positioning on the brand name. No firm can offer singleproduct to satisfy the entire segments.Ø For example, in Indian market many MNCs offered single product to the entiresegment. The offer did not suit middle class as such. They suited only the premiumsegment. Naturally, the firms were unable to gather worthwhile volumes. As the firmdid not target those segments and as they failed to make product offers that wereappropriate for them, the end result was poor.· For this reason firms like Reebok, Ray-ban, and Levi did not showed satisfactoryresult for quite some time in Indian market while they were very successful in thewestern markets.Thus the choice of target marketing for a given industry can decide the fate of theindustry in the market. This is because firms differ in their competencies, resources,objectives, and strategies.
Positioning:Definition: How you differentiate your product or service from that of yourcompetitors and then determine which market niche to fillOr in another sense:Definition: The consumer perception of a product or service as compared to itscompetition.Positioning helps establish your products or services identity within the eyesof the purchaser. A companys positioning strategy is affected by a number ofvariables related to customers motivations and requirements, as well as by itscompetitors actions."A Positioning Strategy results in the image you want to draw in the mind of your customers,the picture you want him/her to visualize of you what you offer, in relation to the marketsituation, and any competition you may have".A good Position is:1- What makes you unique?2- What is considered a benefit by your target market?An alert company must differentiate its product at every point it comes in contactwith customerThere are some steps to positioning 1- Identifying possible competitive advantages.2- Choosing the right competitive advantage.3- Selecting an overall positioning strategyWhat are the steps to dopositioning?
1-Identifying possible competitive advantages:1- Situational analysis1st Your marketing environment (Macro) EX:How is the market now satisfying the need your product satisfies?What are the switching costs for potential users for your market?What are the positions of the competition?2nd internal affairs (micro)Is your company small and flexible?Do you offer low cost and high quality?Does your product offer unique benefits? Are you the first on the market with thisproduct (First mover advantage)? LG Flatron, pampers, Nescafe, Ariel, Kleenex &etc.Thus, the company’s positioning begins with differentiating its marketing offer sothat it will give consumers more value than competitors do.The differentiation to be made marketers must think through customer’s wholeexperience with the company’s product or service and the company market offercan be differentiated through1-product, 2-service,3-channels,4-people
5- ImageEven if a company finds several potential competitive advantages it mustchoose the ones on which to build its positioning strategy. It faces twoimportant issues – how many differences to promote and which differences topromote.• How Many Differences to Promote?Many marketers are of the opinion that companies should vigorously promoteonly one benefit to the largest market. Each brand should select an attributeand claim itself as “number one” on that attribute. Buyers tend to recognize“number one” easily. Thus, Peps toothpaste consistently promotes its decayprevention. Some of the popular “number one” positions to promote arc “bestquality” “best service”, “lowest price”, “best value”, and “most advancedtechnology”. Other marketers believe that companies should positionthemselves on more than one differentiating element. This may be required insituations where two or more companies claim to be best on the sameattribute. Steel case, an office furniture systems company, differentiates itselffrom competitors on two benefits: best on-time delivery and best installationsupport.”As mass market is fragmenting into many small segments, companies aretrying to widen their positioning strategies to appeal to more segments. Forexample, Bcecham promotes its Aqua fresh toothpaste as offering threebenefits: “anti-cavity protection”, “better breath” and “whiter teeth. Clearly,many people want all the three benefits and the challenge is to convince themthat the brand delivers all three. Beecham’s solution was to create atoothpaste that squeezed out of the tube in three colors, -thus visuallyconfirming the three benefits..• Which Differences to Promote?For gaining competitive advantage, a company or a brand can bedifferentiated in many ways. But al! Differences are not meaningful andworthwhile. Moreover, each difference is likely to enhance company costs aswell as customer benefits simultaneously. So the company must be careful inselecting ways of distinguishing itself from competitors.A difference is worth promoting to the extent that itsatisfies the following criteria:• Important: The difference delivers a highly valued benefit to target buyers.• Distinctive: Competitors do not offer the difference, or the company canoffer it in a more distinctive way.
• Superior: The difference is superior to other ways that customers mightobtain the same benefit.• Communicable: The difference is communicable and visible to buyers.• Unique: Competitors cannot easily copy the difference,• Affordable: Buyers can afford to pay for the difference.• Profitable; The Company can introduce the difference profitablyHowever, too many claims for a brand expose the company to risk-disbeliefand a loss of clear positioning. In finding positioning strategies, a companymust consciously avoid those major errors.2-create competitive advantageThe company must carry out 2 steps:1-make competitor analysis2-Develop competitive marketing strategy that strongly position the companyagainst competitors and give it the greatest possible competitive advantage.1-competitor analysis:Competitor Analysis FrameworkMichael Porter presented a framework for analyzing competitors. Thisframework is based on the following four key aspects of a competitor: Competitors objectives Competitors assumptions Competitors strategy Competitors capabilitiesObjectives and assumptions are what drive the competitor, and strategy andcapabilities are what the competitor is doing or is capable of doing. Thesecomponents can be depicted as shown in the following diagram:A competitor analysis should include the more important existing competitorsas well as potential competitors such as those firms that might enter theindustry, for example, by extending their present strategy or by verticallyintegrating.Competitors Current StrategyThe two main sources of information about a competitors strategy is what thecompetitor says and what it does. What a competitor is saying about itsstrategy is revealed in:
annual shareholder reports interviews with analysts statements by managers press releasesHowever, this stated strategy often differs from what the competitor actuallyis doing. What the competitor is doing is evident in where its cash flow isdirected, such as in the following tangible actions: hiring activity R & D projects capital investments promotional campaigns strategic partnerships mergers and acquisitionsCompetitors ObjectivesKnowledge of a competitors objectives facilitates a better prediction of thecompetitors reaction to different competitive moves.Competitor objectives may be financial or other types. Some examples includegrowth rate, market share, and technology leadership. Goals may beassociated with each hierarchical level of strategy - corporate, business unit,and functional level.Competitors AssumptionsThe assumptions that a competitors managers hold about their firm and theirindustry help to define the moves that they will consider. For example, if in thepast the industry introduced a new type of product that failed, the industryexecutives may assume that there is no market for the product.A competitors assumptions may be based on a number of factors, includingany of the following: beliefs about its competitive position past experience with a product regional factors industry trends rules of thumbA thorough competitor analysis also would include assumptions that acompetitor makes about its own competitors, and whether that assessment isaccurate.
Competitors Resources and CapabilitiesA competitors capabilities can be analyzed according to its strengths andweaknesses in various functional areas, as is done in a SWOT analysis.The competitors strengths define its capabilities. The analysis can be takenfurther to evaluate the competitors ability to increase its capabilities in certainareas. A financial analysis can be performed to reveal its sustainable growthrate.Competitor Response ProfileInformation from an analysis of the competitors objectives, assumptions,strategy, and capabilities can be compiled into a response profile of possiblemoves that might be made by the competitor. This profile includes bothpotential offensive and defensive moves. The specific moves and theirexpected strength can be estimated using information gleaned from theanalysis.The result of the competitor analysis should be an improved ability to predictthe competitors behavior and even to influence that behavior to the firmsadvantage.2-developing a competitive strategyThere are 3 main strategies that a firm could follow in order tohave a competitive advantage (i.e. they all include differentiation): Operational Excellence. Superb operations and execution. Often by providing a reasonable quality at a very low price. Task-oriented vision towards personnel. The focus is on efficiency, streamlined operations, Supply Chain Management, no-frills, volume is important. Most large international corporations are operating out of this discipline. Measuring systems are very important. Extremely limited variation in product assortment. Product Leadership. Very strong in innovation and brand marketing. Company operates in dynamic markets. The focus is on development, innovation, design, time to market, high margins in a short time frame. Flexible company cultures. Customer Intimacy. Company excels in customer attention and customer service. Tailors its products and services to individual or almost individual customers. Large variation in product assortment. Focus is on: CRM, deliver products and services on time and above
customer expectations, lifetime value concepts, reliability, being close to the customer. Give decision authority to employees that are close to the customer.There are also some other strategies: More for More‡ T h i s p o s i t i o n i n g s t r a t e g y i n v o l v e s providing the most upscaleproduct or service and charging a higher price .Ex: Ritz-Carlton Hotels, MontBlanc , Mercedes automobile. More for the Same/LessC o m p a n i e s c a n t a r g e t c o m p e t i t o r m o r e - for-more strategy withmore for the same or more for less. Ex: Toyota introduced its Lexus line with a³more for the same´ value propositionversus Mercedes, and BMW . Same for Less‡ P o w e r f u l v a l u e p r o p o s i t i o n . Ex: Dell offers equivalent qualitycomputers at a lower price for performance´Wal-Mart uses this strategy. AMD makes less expensive versions of Intelsmicroprocessor chips.POSITIONING STATEMENT:There are four main parts to an internal positioningstatement. Your Target This is a concise and specific description of the person you are aiming your product at. As an example, our target is: “Small business owners who want to grow their business or need help marketing.” Make sure you keep this accurate and descriptive, and please don’t try to fit more than one target into the sentence. (It’s for your own good!) Frame of Reference Your frame of reference helps to anchor your business to a well known market position, so that people have an easy place to start when learning about you. Our frame of reference is “marketing firm.” Even though we view ourselves as being very different from most marketing firms, a marketing firm is the closest thing to what we are. Once we tell people that, we can more easily explain how we are different. Point of Difference This is the part that you have probably heard repeatedly. Why are you different from other companies in your frame of reference? Our example is “We specifically make our products for small businesses. They are easier to understand and follow, provide more value, and will better meet the
needs of a small business.” You should try to make your difference as concrete as possible, and again be specific with how you phrase things. Reasons to Believe You’ve explained how your business is different, now prove it. It’s not enough to say that your company is better for your target because of X Y Z, you must show reasons why. The Small Fuel example for this one is: “Because we are a small business, and we only work with small businesses, we uniquely understand their needs and requirements. We guarantee our products are the best way to grow a small business; if you aren’t happy with the results, we’ll give your money back.” The more believable your reasons are, the better.The Template___________________ (Product, Company, Service, Person)Is the only ___________________ (category of product)That provides ___________________ (the customer)With ___________________ (one key benefit)Because ___________________ (why they should believe).This is unlike ___________________ (primary competitor)Which provides ___________________ (competitor’s main benefit)?