1. STP
Segmentation, Targeting, and Positioning
SEGMENTATION
Building the right relationship with the right customers
Segmentation, targeting, and positioning together comprise a three stage
process. We first:
(1) determine which kinds
of customers exist, then
(2) select which ones we
are best off trying to serve
and, finally,
(3) implement our
segmentation by
optimizing our
products/services for that
segment and
communicating that we
have made the choice to
distinguish ourselves that way.
In another words:
Market Segmentation
 Identify bases for segmenting the market
 Develop segment profiles
Target Marketing

2.  Develop measure of segment attractiveness
 Select target segments
Market Positioning
 Develop positioning for target segments
 Develop a marketing mix for each segment
Segmentation
Market Segmentation:
Segmentation is the process of grouping people or organizations within a
market according to similar needs, characteristics and will respond similarly to
a marketing action.
It is splitting customers, or potential customers, in a market into different
groups, or segments, within which customers share a similar level of interest in
the same or comparable set of needs
A market can be segmented according to customer needs. For example, car
manufacturers can segment the car market into two broad segments: basic
cars 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 of
consumers who perceive the full value of certain products and services
differently from one another.
Market Segmentation as a Process:
Process of dividing the market according to similarities that exist among the
various subgroups within the market. The similarities may be common
characteristics or common needs and desires. Market segmentation comes
about as a result of the observation that all potential users of a product are
not alike, and that the same general appeal will not interest all prospects.
Therefore, it becomes essential to develop different marketing tactics based
on the differences among potential users in order to effectively cover the
entire market for a particular product.

3. Market segment:
Def.
An identifiable group of individuals, businesses, or organizations, sharing one
or more characteristics or need in an otherwise homogeneous market.
Market segments generally respond in a predictable manner to a marketing or
promotion offer.
In general, it holds true that “You can’t be all things to all people,” and
experience has demonstrated that firms that specialize in meeting the needs
of one group of consumers over another tend to be more profitable.
5.1.2 Characteristics of the Segmentation
Characteristics of the Market Segment
1. 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 some
cases also tend to have similar price levels.
3. It responds similarly to a market stimulus.
4. It can be reached by a market intervention
The requirements for effective segmentation:
a.Identifiable
The differentiating attributes of the segments must be
measurable so that they can be identified.
b.Accessible
The segments must be reachable through communication and
distribution channels.

4. c.Sizeable
The segments should be sufficiently large to justify the resources
required to target them. A very small segment may not serve commercial
exploitation.
d.Profitable
There is no use in locating segments that are sizeable but not profitable.
e.Unique needs
To justify separate offerings, the segments must respond
differently to the different marketing mixes.
f.Durable
The segments should be relatively stable to minimize the cost of
frequent changes.
g.Measurable
The potential of the segments as well as the effect of a specific
marketing mix on them should be measurable.
h.Compatible:
Segments must be compatible with firm’s resources and
Capabilities.
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 your
Products or services
• Avoid the markets which will not be profitable for you
• Build loyal relationships with customers by developing and offering them the
Products 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 enabling
you to
Charge a higher price for your products and services .

5. • Group your customers by factors such as geographical location, size and
type of
organization, 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 consumers
The 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 Variables
Segmenting Consumer Markets:
 Geographical segmentation
 Demographic segmentation
o Most popular segmentation
 Psychographic segmentation
o Lifestyle, social class, and personality-based
segmentation

6.  Behavioral segmentation
1st: 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 to
determine what nations, provinces, states, regions, countries, cities or
neighborhood will your product be available? In other words, where will you
sell your product or service?
You may plan to open a retail clothing store in a mall and only sell your
products to specific customers who shop at the mall. Alternatively, you may
sell your products to specific customers who shop at the mall and design a
direct mail campaign to reach customers outside of the mall (in another state,
for example). The above situations are certainly dissimilar and involve different
customers and geographical selling areas.
In summary, Geographic Segmentation is used to identify specific regions, city
size, and densities
2nd: Demographic variables:
Demographic Segmentation: This process of analysis comes into play when
the quality and other characteristics of the general population are taken into
consideration.
 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.

7.  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.

8.  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 can't
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

9. person’s buying behavior. Different lifestyle choices like parenting, exercise
decisions, religion, marriage or health can greatly affect a person’s
requirements or preferences for certain products or services.
People have different lifestyle patterns and behavior could change as people
pass through different stages in life. On the other hand, a consumer’s
opinions, interests or hobbies will have a huge impact on the products or
services they will choose to buy. One good example is the increasing demand
for organic products.
The importance of psychographic segmentation:
The variables that come into play in this scenario are primarily psychological in
nature. Here are some of the most common variables that fall under this
category and are well utilized by marketers and business organizations in
order to enhance their sales figures.
 Interests
 Activities
 Opinions
 Behavioral patterns
 Habits
 Lifestyle
 Perception of selling company
 Hobbies
Using these factors as a base, a marketer can determine how a particular
group of customers will respond to the launch of a new product. This form of
segmentation should not be confused with demographic segmentation, as
demographic segmentation primarily takes into consideration the age and the
gender of the targeted customer group.
4th: Behavioral variables:
Behavioral segmentation:

10. Behavioral segmentation divides customers into groups based on the way
they respond to, use or know of a product. Behavioral segments can group
consumers in terms of :
a) User status: market can be segmented into nonusers, ex-users, potential
users, first time users, and regular users of product. Marketers want to
reinforce and retain regular users, attract targeted nonusers, and reinvigorate
relationships with ex-users.
b) Usage rate market also can be segmented into light, medium, heavy
product users. Heavy users are often a small percentage of the market but
count for a high percentage of total consumption
c) Loyalty status: When assessing loyalty, consumers can be classified as
completely loyal, somewhat loyal, or not loyal. Completely loyal consumers are
those that would not consider buying another brand or visiting a different outlet. I
tend 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. Some
consumers may be loyal to more than one brand
d) Benefits Sought: An important form of behavioral segmentation. Benefit
segmentation requires. Marketers to understand and find the main benefits
customers look for in a product.
e) Occasions: When a product is consumed or purchased
Bases for Segmentation in Industrial Markets
In contrast to consumers, industrial customers tend to be fewer in number and
purchase larger quantities. They evaluate offerings in more detail, and the
decision process usually involves more than one person. These characteristics
apply to organizations such as manufacturers and service providers, as well as
resellers, governments, and institutions.

11. Many of the consumer market segmentation variables can be applied to
industrial markets. Industrial markets might be segmented on characteristics
such as:
 Location
 Company type
 Behavioral characteristics
Location
In industrial markets, customer location may be important in some cases.
Shipping costs may be a purchase factor for vendor selection for products
having a high bulk to value ratio, so distance from the vendor may be critical.
In some industries firms tend to cluster together geographically and therefore
may have similar needs within a region.
Company Type
Business customers can be classified according to type as follows:
 Company size
 Industry
 Decision making unit
 Purchase Criteria
Behavioral Characteristics
In industrial markets, patterns of purchase behavior can be a basis for
segmentation. 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 one
market and creates products that will only require weeks to fit into any
regional marketplace. Marketing decisions are made by consulting with

12. marketers in all the countries that will be affected. The goal is to sell the same
thing the same way everywhere.
Market targeting:
The guided missile
Today's anti-aircraft attack method is far
more effective. Just one heat-seeking ground-to-air missile is released, which homes
accurately in on its target.
That's what targeted marketing is all about.
Definition
Breaking down a market into segments and then concentrating (targeting) your
marketing efforts on one or a few key segments.
Target Market
Definition: A specific group of consumers at which a company aims its products and
services.
The beauty of target marketing is that it makes the promotion, pricing and
distribution of your products and/or services easier and more cost-effective.
Target marketing provides a focus to all of your marketing activities.

13. 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 customer's 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 Types
Undifferentiated marketing (full marketing coverage)
Sometimes referred to as mass marketing the firm may decide to aim its resources at the
entire market with one particular product. (sugar example)
Differentiated marketing strategy
Where the firm decides to target several segments and develops distinct products/services
with separate marketing mix strategies aimed at the varying groups. An example of this would
be airline companies offering first, business (segment 1) or economy class tickets (segment 2)
, with separate marketing programs to attract the different groups.

14. Concentrated Marketing:
Where the organization concentrates its marketing effort on one particular segment. The firm
will develop a product that caters for the needs of that particular group. For example Rolls
Royce cars aim its vehicles at the premium segment, same as Harrods within the UK.
Customized or Micro-Marketing
This newest target marketing strategy attempts to appeal to targeted customers with
individualized marketing programs. Allow customers to “build-their-own” products.
This approach requires extensive technical capability for marketers to reach individual
customers and allow customers to interact with the marketer. The Internet has been
the catalyst for this target marketing strategy. (the tailor example)
Attractiveness of a Market Segment
The following are some examples of aspects that should be considered when
evaluating 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

15.  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 segment
Suitability of Market Segments to the Firm
Market segments also should be evaluated according to how they fit the firm's
objectives, 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 firm's image
 Access to distribution channels required to serve the segment
 The firm's resources vs. capital investment required to serve the
segment
Results 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 single
product to satisfy the entire segments.
Ø For example, in Indian market many MNCs offered single product to the entire
segment. The offer did not suit middle class as such. They suited only the premium
segment. Naturally, the firms were unable to gather worthwhile volumes. As the firm
did not target those segments and as they failed to make product offers that were
appropriate for them, the end result was poor.
· For this reason firms like Reebok, Ray-ban, and Levi did not showed satisfactory
result for quite some time in Indian market while they were very successful in the
western markets.
Thus the choice of target marketing for a given industry can decide the fate of the
industry in the market. This is because firms differ in their competencies, resources,
objectives, and strategies.

16. Positioning:
Definition: How you differentiate your product or service from that of your
competitors and then determine which market niche to fill
Or in another sense:
Definition: The consumer perception of a product or service as compared to it's
competition.
Positioning helps establish your product's or service's identity within the eyes
of the purchaser. A company's positioning strategy is affected by a number of
variables related to customers' motivations and requirements, as well as by its
competitors' 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 market
situation, 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 contact
with customer
There are some steps to positioning 1- Identifying possible competitive advantages.
2- Choosing the right competitive advantage.
3- Selecting an overall positioning strategy
What are the steps to do
positioning?

17. 1-Identifying possible competitive advantages:
1- Situational analysis
1st 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 this
product (First mover advantage)? LG Flatron, pampers, Nescafe, Ariel, Kleenex &
etc.
Thus, the company’s positioning begins with differentiating its marketing offer so
that it will give consumers more value than competitors do.
The differentiation to be made marketers must think through customer’s whole
experience with the company’s product or service and the company market offer
can be differentiated through
1-product,
2-service,
3-channels,
4-people

18. 5- Image
Even if a company finds several potential competitive advantages it must
choose the ones on which to build its positioning strategy. It faces two
important issues – how many differences to promote and which differences to
promote.
• How Many Differences to Promote?
Many marketers are of the opinion that companies should vigorously promote
only one benefit to the largest market. Each brand should select an attribute
and claim itself as “number one” on that attribute. Buyers tend to recognize
“number one” easily. Thus, Peps toothpaste consistently promotes its decay
prevention. Some of the popular “number one” positions to promote arc “best
quality” “best service”, “lowest price”, “best value”, and “most advanced
technology”. Other marketers believe that companies should position
themselves on more than one differentiating element. This may be required in
situations where two or more companies claim to be best on the same
attribute. Steel case, an office furniture systems company, differentiates itself
from competitors on two benefits: best on-time delivery and best installation
support.”
As mass market is fragmenting into many small segments, companies are
trying to widen their positioning strategies to appeal to more segments. For
example, Bcecham promotes its Aqua fresh toothpaste as offering three
benefits: “anti-cavity protection”, “better breath” and “whiter teeth. Clearly,
many people want all the three benefits and the challenge is to convince them
that the brand delivers all three. Beecham’s solution was to create a
toothpaste that squeezed out of the tube in three colors, -thus visually
confirming the three benefits..
• Which Differences to Promote?
For gaining competitive advantage, a company or a brand can be
differentiated in many ways. But al! Differences are not meaningful and
worthwhile. Moreover, each difference is likely to enhance company costs as
well as customer benefits simultaneously. So the company must be careful in
selecting ways of distinguishing itself from competitors.
A difference is worth promoting to the extent that it
satisfies the following criteria:
• Important: The difference delivers a highly valued benefit to target buyers.
• Distinctive: Competitors do not offer the difference, or the company can
offer it in a more distinctive way.

19. • Superior: The difference is superior to other ways that customers might
obtain 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 profitably
However, too many claims for a brand expose the company to risk-disbelief
and a loss of clear positioning. In finding positioning strategies, a company
must consciously avoid those major errors.
2-create competitive advantage
The company must carry out 2 steps:
1-make competitor analysis
2-Develop competitive marketing strategy that strongly position the company
against competitors and give it the greatest possible competitive advantage.
1-competitor analysis:
Competitor Analysis Framework
Michael Porter presented a framework for analyzing competitors. This
framework is based on the following four key aspects of a competitor:
 Competitor's objectives
 Competitor's assumptions
 Competitor's strategy
 Competitor's capabilities
Objectives and assumptions are what drive the competitor, and strategy and
capabilities are what the competitor is doing or is capable of doing. These
components can be depicted as shown in the following diagram:
A competitor analysis should include the more important existing competitors
as well as potential competitors such as those firms that might enter the
industry, for example, by extending their present strategy or by vertically
integrating.
Competitor's Current Strategy
The two main sources of information about a competitor's strategy is what the
competitor says and what it does. What a competitor is saying about its
strategy is revealed in:

20.  annual shareholder reports
 interviews with analysts
 statements by managers
 press releases
However, this stated strategy often differs from what the competitor actually
is doing. What the competitor is doing is evident in where its cash flow is
directed, such as in the following tangible actions:
 hiring activity
 R & D projects
 capital investments
 promotional campaigns
 strategic partnerships
 mergers and acquisitions
Competitor's Objectives
Knowledge of a competitor's objectives facilitates a better prediction of the
competitor's reaction to different competitive moves.
Competitor objectives may be financial or other types. Some examples include
growth rate, market share, and technology leadership. Goals may be
associated with each hierarchical level of strategy - corporate, business unit,
and functional level.
Competitor's Assumptions
The assumptions that a competitor's managers hold about their firm and their
industry help to define the moves that they will consider. For example, if in the
past the industry introduced a new type of product that failed, the industry
executives may assume that there is no market for the product.
A competitor's assumptions may be based on a number of factors, including
any of the following:
 beliefs about its competitive position
 past experience with a product
 regional factors
 industry trends
 rules of thumb
A thorough competitor analysis also would include assumptions that a
competitor makes about its own competitors, and whether that assessment is
accurate.

21. Competitor's Resources and Capabilities
A competitor's capabilities can be analyzed according to its strengths and
weaknesses in various functional areas, as is done in a SWOT analysis.
The competitor's strengths define its capabilities. The analysis can be taken
further to evaluate the competitor's ability to increase its capabilities in certain
areas. A financial analysis can be performed to reveal its sustainable growth
rate.
Competitor Response Profile
Information from an analysis of the competitor's objectives, assumptions,
strategy, and capabilities can be compiled into a response profile of possible
moves that might be made by the competitor. This profile includes both
potential offensive and defensive moves. The specific moves and their
expected strength can be estimated using information gleaned from the
analysis.
The result of the competitor analysis should be an improved ability to predict
the competitor's behavior and even to influence that behavior to the firm's
advantage.
2-developing a competitive strategy
There are 3 main strategies that a firm could follow in order to
have 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

22. 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 upscale
product or service and charging a higher price .Ex: Ritz-Carlton Hotels, Mont
Blanc , Mercedes automobile.
 More for the Same/Less
C 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 with
more for the same or more for less.
Ex: Toyota introduced its Lexus line with a³more for the same´ value proposition
versus Mercedes, and BM
W
.
 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 quality
computers at a lower price for performance´
Wal-Mart uses this strategy. AMD makes less expensive versions of Intel's
microprocessor chips.
POSITIONING STATEMENT:
There are four main parts to an internal positioning
statement.
 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

23. 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)?