Segmentation, Targeting and Positioning

  • Post last modified:10 April 2021
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Segmentation, Targeting and Positioning

Segmentation, Targeting and Positioning (STP) are the basic tools used by the marketers.

Each customer has different needs, wants and desires. Also, each customer has a different background, education level, and experiences. Hence companies need to look for the offerings that can match with the need of different groups of customers or segments.

  • Segmentation: Dividing the heterogeneous market into homogeneous segments by using one or more attributes.

  • Targeting: Deciding the number of segments of the market to pursue.

  • Positioning: Creating a distinctive image of product/brand in the mind of consumers.
Positioning is not what you do to a product; it is what you do to the mind of a prospect.Ries and Trout (1972)

Segmentation, Targeting and Positioning Process

The growing use of the Segmentation, Targeting and Positioning Process (STP) has occurred as a direct result of the prevalence of mature markets, the greater diversity in customer needs, and the ability to reach specialized or niche segments.

As such marketers are increasingly segmenting markets and identifying attractive segments (i.e. who to focus on and why?), in order to identify new product opportunities, develop suitable positioning and communications strategies (i.e. what message to communicate), and effectively allocate resources to key marketing activities (i.e. how much should we spend and where?).

STP refers to the three activities

  • Segmentation
  • Targeting
  • Positioning
Segmentation, Targeting and Positioning
Segmentation, Targeting and Positioning Model

Benefits of Segmentation, Targeting and Positioning Process

Enhancing a company’s competitive position by providing direction and focus for marketing strategies such as targeted advertising, new product development, and brand differentiation.

For example, Coca-Cola identified through market research that its Diet Coke brand (also marketed as Coca-Cola Lite) was regarded as ‘girly’ and ‘feminine’ by male consumers. As a direct result the company developed a new product, branded Coke Zero, which is targeted at the health-conscious male segment of the soft drinks market.

Examining and identifying growth opportunities in the market through the identification of new customers, growth segments, or new product uses.

For example, Arm & Hammer was able to attract new customers when existing consumers identified new uses for their baking soda (Christensen, Cook, and Hall, 2005). Lucozade also changed the positioning and targeting from its original marketing strategy positioned for sick children and rebranded to target athletes as an energy drink.

More effective and efficient matching of company resources to targeted market segments promises the greatest return on marketing investment (ROMI).

For example, financial institutions like HSBC and Barclays and large retailing multinationals such as Tesco and ASDA Wal-Mart are utilizing data-informed segmentation strategies to effectively target direct marketing messages and rewards to customers they have classified as offering long-term value to the company, i.e. they are profitable customers.


What is Market Segmentation?

Market segmentation can be defined as the process of dividing a market into distinct subsets of consumers with common needs or characteristics and selecting one or more segments to target with a distinct marketing mix.

Characteristics of Market Segment

Before going into the segment identification process, student should first understand that not all segments are profitable. To be an effective target segment, it should posses following characteristics.

Characteristics of Segment should be:

  1. Identifiable
  2. Sizeable
  3. Stable and growing
  4. Reachable
  5. Congruent with marketer objectives and resources
Characteristics of Market Segment
Characteristics of Market Segment

Identifiable

Marketers divide the market into exclusive segments on the basis of common need by using the demographic, lifestyle, and other factors. These factors are named as bases for segmentation.

For example, in demographic segmentation marketers use gender, age, ethnicity to segment the market.

Sizeable

A profitable segment should have enough number of consumers. A segment can be identifiable but may not be sizeable.

For example, marketer divides the market based on education and wish to target female consumer having PhD degree in a village setup. This segment is identifiable but may not sizeable in a particular territory.

Stable and growing

Marketers look for the segments those are stable and growing in nature.

For example, students are identifiable and sizeable segment for e-retailers. Marketers know that in India a number of the customer using e-retailing will grow very fast in the coming decade.

Reachable

A segment can be identifiable, sizeable and stable/growing, but if it is not reachable then it is not a target segment. Reachable means the ability of a marketer to communicate with customers effectively and economically.

Imagine a group of customer living in one of hill area of India has no access to media. In this case, marketers cannot reach to the customer effectively and economically. On the other side, If the customer is educated, it makes easy for marketers to reach out to the customers.

Congruent with marketer objective and resources

Marketers may not be willing to target each and every segment, even if the segments qualify preceding criteria.

For example, Earlier Mahindra did not consider Scooter segment as one of the target segment because it was not in congruence with the Mahindra’s objective. Now Mahindra changed its strategy and its marketing objectives, and launched Mahindra Gusto in Scooter segment.


Requirements for Effective Segmentation

  1. Measurable
  2. Accessible
  3. Substantial
  4. Unique
  5. Appropriate
  6. Stable
Requirements for Effective Segmentation

Measurable

Although in many consumer markets measurement is generally a relatively straightforward exercise, it is often a more difficult process with industrial or technical goods. This is due largely to the relative lack of specific published data.

Accessible

In some cases, it may be possible to identify a sizeable and potentially profitable segment but then, either because of a lack of finance or in-house expertise, this potential may be difficult to exploit.

Substantial

If the strategist is to justify the development of a segment, the exercise must be cost-effective. The size and value of the segment is, therefore, an important determinant of this decision. Size should, of course, be seen in relative rather than absolute terms, since what may be too small to be considered by one organization may be appropriate to another, smaller, company.

Unique

In its response, so that it can be distinguished from other market segments.

Appropriate

To the organization’s objectives and resources.

Stable

So that its behaviour in the future can be predicted with a sufficient degree of confidence.


Bases for Market Segmentation

The bases for market segmentation are as follows:

  1. Geographic Segmentation
  2. Demographic Segmentation
  3. Psychographic Segmentation
  4. Behavioural Segmentation

Geographical Segmentation

Geographical segmentation is one of the oldest and simplest methods of dividing the customer market on the basis of the geographical location of the customers.

For example, lifestyle products sell very well in big cities then in small towns. People living in rural and urban region of the country have different purchasing or buying habits. Therefore services or product has to be designed keeping in mind the different preferences of each customer group.

Demographic Segmentation

Demographic segmentation is dividing the customer market on the basis of several variables such as age, sex, gender, occupation, income, education, marital status, family life cycle, community, social status, nationality etc.

For example buying behavior of car, beauty products, mobile phones, cards, apparels, are hugely influenced by their demographics.

Psychographic Segmentation

Psychographic Segmentation is dividing the customer market on the basis personality, lifestyles, attitudes and habits of an individual. The personality refers to the traits which characterise persons as introvert, extrovert ambitious etc. Lifestyles refer to how a persons lives his life and do the expenditures.

For example person having a lavish lifestyle may consider having an air conditioner in every room as a need, whereas a person living in the same city but having a conservative lifestyle may consider it as a luxury.

Behavioral Segmentation

Behavioral Segmentation is dividing the market on the basis of the individual’s knowledge about the product and the usage of the product. The customer can be segmented into those who know about the product, those who don’t know about the product, Ex users, Potential users, Current Users First time users, etc.

For example, an athlete may prefer to buy running shoes to participate in marathon race and a non-athlete person may buy it just because he likes the shoes (light/medium user).


What is Targeting in Marketing?

The target segments are the groups of customers that the marketer decides to serve. It comprises buyers who share common needs, wants and preferences, and the marketer decides to serve them. The marketer would choose a segment that is viable; and, that he can cater to effectively and efficiently.

Targeting is to evaluate potential and commercial attractiveness of each segments and select one or more segments.

Targeting Approaches

Once identified, the organization needs to select its approach to target marketing it is going to adopt.

Four differing approaches can be considered.

  • Undifferentiated
  • Differentiated
  • Concentrated
  • Customized Target Marketing

Undifferentiated

In an undifferentiated approach, there is no delineation between market segments, and instead, the market is viewed as one mass market with one marketing strategy for the entire market.

For example, the Olympics are marketed at a world market or certain government services. The UK postal service uses an undifferentiated marketing strategy, targeting everyone, although the Post Offices do differentiate between other products and services.

Differentiated

A differentiated targeting approach recognizes that there are several market segments to target, each being attractive to the marketing organization. As such, to exploit market segments, a marketing strategy is developed for each segment.

For example, Hewlett Packard has developed its product range and marketing strategy to target the following user segments of computing equipment: home officer users; small and medium businesses; large businesses; and health, education, and government departments.

Concentrated

A concentrated or niche-marketing strategy recognizes that there are segments in the market, but implements a concentrated strategy by focusing on just a few market segments. This is often adopted by firms that either has limited resources by which to fund their marketing strategy, or are adopting a very exclusive strategy in the market.

For example, Jordan’s cereal company originally used this approach to target just consumers interested in organic food products. This approach is also used a lot by small to medium and micro-sized organizations, given their limited resources: the local electrician.

Customized Target Marketing

The final approach is a customized targeting strategy in which a marketing strategy is developed for each customer as opposed to each market segment. This approach is more predominant in B2B markets (e.g. marketing research or advertising services) or consumer markets with high-value highly customized products (e.g. purchase of a custom-made car).

For example, a manufacturer of industrial electronics for assembly lines might target and customize its product differently from Nissan, Unilever, and Levi’s, given the differing requirements in assembly line processes for the manufacture of automobiles, foodstuffs, and clothing.


What is Positioning?

Product positioning is how the product is perceived by consumers based on the number of attributes in the minds of consumers relative to competing products.

Therefore, every company must be able to differentiate and determine the position of bids effectively to achieve competitive advantage during the life cycle of a product or an offer (Kotler et. al: 2003).

Positioning process has the following six steps:

  1. Defining the market in which product competes, identifying relevant buyers and competitors.

  2. Identification of key attributes of the products and understanding the perception of consumers for each attribute.

  3. Understanding the perception of consumers towards the competitor’s offerings on relevant attributes.

  4. Identifying the target consumers’ preferred combination of attributes.

  5. Developing the distinctive, differentiating, and value-based positioning and communicate each attribute provide the value.

  6. Creating a positioning statement focused on the benefits and value that the product provides and communicates with the target consumers.

Positioning Strategies

There are few types of positioning strategies used by the companies:

  1. Umbrella positioning
  2. Premier positioning
  3. Positioning against competition
  4. Un-owned positioning
  5. Repositioning
Positioning Strategies
Positioning Strategies

Umbrella positioning

Umbrella positioningUmbrella positioning is a statement that describes the universal benefits of the company’s offerings. In umbrella positioning, it do not offer the benefits of using a given product. It offers the benefits of using all the product from a particular brand.

For example: LG offers all its products with the positioning and punch line of “Life’s Goods”.

Premier positioning

It is one of the strategies exclusively focused on a particular brand, product or services.

For instance, TATA promotes its air conditioner with the exclusive brand VOLTAS but at the same time using the TATA brand.

Positioning against competition

In this strategy, companies acknowledge their competitors.

For example, AAJ TAK claims that they are India’s No 1 Hindi news channel.

Un-owned positioning

Positioning is the image in the mind of consumers; it is not a physical object that could be owned by anyone.

For instance, competitors in the market look for the positioning gap in the market and try to fill that gap, if found profitable.

Repositioning

Repositioning is the process by which a company strategically changes the distinct image and identity that its product or brand occupies in the mind of consumers.

For example, TATA positioned its NANO as LAKHTAKIYA (1 lakh) car but failed to create a proper consumer base due to its tag cheap car. Now TATA is positioning its product as “City’s car” and focus on driving and parking benefits of NANO in the crowded cities.


Perceptual Mapping

Perceptual mapping represents a geometric comparison of how competing products are perceived (Sinclair and Stalling, 1990).

Perceptual mapping is constructing a map like diagram representing consumers’ perception of competing brands along relevant product attributes.

It shows marketers:

  1. How consumer perceives their brand in relation to the competition.

  2. How to determine the direction for altering undesirable consumer perception of their brands.

  3. Gaps, in the form of un-owned perceptual positions, that represent opportunities for developing new brands or products.

For example, in fashion retailing, there are numerous brands in the marketplace all competing with each other across differing core attributes, brand reputation, store presence, price, and clothing quality or trendy and stylish.

To show how the different brands might be positioned relative to each other using the attribute scores for each brand of fashion retailer we can measure and map the brand positioning for the respective brands.

Perceptual Mapping

Key Terms

  • Segmentation: Dividing the heterogeneous market into homogeneous segments by using one or more attributes.

  • Targeting: Deciding the number of segments of the market to pursue.

  • Positioning: Creating a distinctive image of product/brand in the mind of consumers.

  • Re-positioning: Changing the existing image of band/product to new desired positioning.

  • Perceptual mapping: Plotting the graph by using products/brand available with respect to the two most important attributes of products in the considered market.

Reference

  • V. S. Ramaswamy, S. Namakumari; 2009; Marketing Management; MacMillan Publishers Pvt Ltd.
  • Kotler P. and Keller, K. L. (2016). Marketing Management, 15th Edition, India: Pearson India Education Services Pvt Ltd.
  • Schiffman, L. G., Wisenblit, J. and Kumar, S. R. (2016) Consumer Behavior, 11th Edition, India: Pearson India Education Services Pvt. Ltd.
  • Belk, R. W., Bahn, K. D., and Mayer, R. N. (1982), ‘Developmental recognition of consumption symbolism’, Journal of Consumer Research, 9 (June), 4–17.

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