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A Brief Note on Segmentation Targeting and Positioning

In class, we have defined marketing as a business function responsible for creating and

retaining customers. This means that marketing is about customer management. We have to

identify the customers and by satisfying their needs better than the competition, they can be

retained. Profitability of a firm is a function of effective marketing through which a firm is able

to retain its customers .Understanding the customer requirements and meeting such

requirements is the key in enhancing the profitability of a firm. A firm attempts to meet the

customer requirements through various activities which are typically referred to as the 4 Ps of

marketing or marketing mix.

Customer Differences and Competition

In any market there is competition and every firm has to compete for the customer. It is the

competition that makes marketing complex and challenging. If there is only one firm in a

market, there is no competition present and the customers do not have any available choice to

select. This situation is called a monopoly. In reality such monopoly situations do not easily

occur in markets.

In most markets there is considerable competition. There are many firms trying to market their

products to the same customers. Because of this, customers have many choices and they

prefer those products which provide them with the maximum benefit, those products that

meet their needs better. The attempt of any company through marketing is therefore to do

better than the competition in meeting customer needs. But, it is impossible for one

organisation to meet the needs of all possible customers better than the competition since the

customers vary and their needs also vary. Customers are selective and firms also must be

selective rather than trying to be every thing for every one. If there is one truth in marketing, it

is the diversity of customers and their varied expectations from products.

Marketing to the ‘Customer of One’

All customers are not alike. They have different preferences, different expectations and seek

different benefits from products. For example, many customers may use shampoo but what

they want from a shampoo are different things. Some want the shampoo to clean their hair,

still others expect shampoo to be an anti-dandruff remedy, and some others want the benefit

of conditioning the hair. Some people want the shampoo to prevent fall of hair and yet others

want shampoo to de-tangle hair. It is very difficult, or rather impossible for one company to

offer one shampoo that satisfies all the diverse needs of all the customers. So, in the shampoo

market there is space for many brands and many firms promising different benefits.

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Another example is that of a skin lotion. Some people may have dry skin while some others may

have oily skin. People may have diverse likings for the fragrance of the lotion. Hence different

type of products may be preferred by different customers and indeed this is the case with this

product category. One product alone cannot meet everyone’s requirements.

In fact, we can say that each customer is unique with own needs, own requirements and own

preferences. For example, if you are buying dress material, each one of you may have your own

preferred material, favourite colour, favourite pattern and favourite design. Further, we may

not want to buy a shirt and then find a lot of other people wearing a similar shirt. I might like to

have a white shirt with thin lines running from top to bottom. Another person may prefer

colourful shirts with flower patterns- say in yellow, blue or green. One of the basic lessons of

marketing is that each customer is unique and different from other customers. The market is

composed of such ‘customers of one’ which is often the expression used to indicate the innate

differences between people and their preferences in a market.

Customised Marketing

However trying to make a product for each individual customer may not be very profitable or

even practical. It will be very expensive and only in the case of certain speciality products like

luxury automobiles such custom manufacturing is ever practised. For example if you buy a

Rolls-Royce car, the company will design the car taking into consideration your specific

requirements. This kind of an approach is called a customised marketing.

Mass Marketing

Another company may decide to ignore these differences between customers and have only

one product for everyone irrespective of their special needs. Such an approach is called mass

marketing. Mass marketing ignore the differences between customers while customised

marketing tries to understand each customer and make a product uniquely for each one. Henry

Ford the famous entrepreneur and car manufacturer was known for his mass marketing

approach. He believed that only one type of car is required for every customer. Henry Ford is

credited with this famous statement “you can have any colour you want as long as it is black”.

This kind of an approach can be termed mass marketing. Even today many companies practice

mass marketing. What they believe is the differences between people are not large enough and

one product can meet the needs of every customer. If you buy baking soda, you'll find there is

only one type of baking soda available in the market from all the brands and this is which is the

one you can use for all cooking applications. Baking soda is mass manufactured and mass

marketed.

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Target marketing

In between the extremes of customised marketing and mass marketing, we can have a

compromise approach where we look for similarities between customers and the presence of

customer groups. Though we can say that each customer is unique there are also similarities

between them. A company may concentrate on these similarities and decide that there are

groups of customers with similar needs who can be focussed or targeted.

Over a period of time some companies may develop expertise with certain type of customers

having certain specific needs. When you try to be everything to every customer you will end up

being a failure. Therefore in a competitive market, it is better to be specialised and focus on

some customers with some particular needs. This method of being focussed in marketing is

called target marketing. Target marketing is about choosing a group of customers and trying to

meet their particular need.

For example, different customers need different types of toilet soap. But Johnson & Johnson

decided that they will focus only on one group which is the babies. They make soaps for babies

and they have become very successful at this. Their success is partly due to being focussed. This

kind of an approach which falls between customised marketing and mass marketing is called

target marketing.

So we can differentiate between customised marketing, mass marketing and target marketing.

Mass marketing is the way when a company does not discriminate between customers and

offer the same product to everyone. Generally such organizations believe in mass production,

mass distribution and mass promotion of one product to all the buyers. Compared to this, in

target marketing a company is focused in targeting one particular group of customers with the

product designed to appeal to them. In a competitive market it is always a better strategy to

practise target marketing.

Steps in Target Marketing

The target marketing consists of three steps. They are

Segmentation: This is the act of analysing customer differences and dividing the market

into many sub groups.

Targeting: This is selecting one of more of such sub groups identified in the previous

step.

Positioning: Deciding what you want your product to be perceived by such selected sub

groups.

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Segmentation

The idea of segmentation is that all customers are not alike. Within each market there are

groups of customers having similar preferences. Such groups of customers are called customer

segments. Market segmentation is therefore identifying groups of such customers having

similar preferences in a market.

Market segmentation consists of dividing the market into homogeneous groups of customers.

The idea is to have groups which are different from each other but share some similar

characteristics within the groups. Such a group of customers may share some characteristics

that make them respond similarly to marketing stimulus.

Segmentation Criteria and Variables

A market can be divided into various segments based around several criteria like age, sex,

income, community etc. These criteria are also called segmentation variables. Usually

segmentation is done using consumer related variables called consumer characteristics. These

are characteristics that describe the customers like gender, age, income etc. We can divide any

market into sub groups using such variables. For example, the market for dress material can be

divided into two basic groups of male and female using sex as criteria. You have a male market

group and female group whose needs are different. There are different magazines published for

men and women (like ‘Vanitha’ for women), different perfumes for men (like Axe for men) and

women.

The idea of such segmentation using consumer characteristics is that people who are having

different characteristics are different in terms of their expectations from the product. This is

easily understood in the case of sex differences like men and women wanting different dresses

or perfumes. There can be many other consumer characteristics which can be used for

segmentation. These criteria can be demographic characteristics like gender, age, income etc.

The criteria also can be geographic like dividing the Indian market into South Indian market,

north Indian market etc. In fact there can be various criteria using which a market can be

divided. Once such divisions are made, we have to ask the question whether the created

segments are really different or not.

Demographic segmentation

Demographic segmentation is about the use of demographic variables. The demographic

variables which are typically used are gender, age, income etc. The word ‘demographic’ means

some thing describing a population and use of such variables is a very simple way of

segmenting a market. In many cases such segmentation is very useful. We have already seen

the use of sex for segmentation.

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Another very useful variable for demographic segmentation is the income. It is quite obvious

that people can be divided into subgroups based on income and such groups are having

different preferences in the case of most of the products. For example, people of the upper

income groups may buy different types of cars compared to people of lower income. Say, a

company like BMW will be typically targeting the upper income customers while another

company like Maruti Suzuki really looks at relatively middle income customers. In the case of

detergents, brands like Ariel, Henko or Surf target the higher segment while Nirma focus on the

lower income segments.

The third important variable in demographics is age. People of different age groups have

different needs and they respond differently to marketing. Research suggests that older

customers prefer the colour white in their cars while the younger customers may prefer very

bright eye catching colours like red.

Other demographic variables are there like family size, education, religion, nationality etc which

are also useful for segmentation. The idea is to find the most important characteristic that

discriminate between customers and useful in dividing the market. In the case of certain

products like deodorants, there may be significant differences between male and female and

we cannot ignore it. But in the case of certain other products such differences are there only

between income groups or in some cases religion. For example in the case of food habits, the

religions play a major role. So for a company like Macdonald's, they have to consider different

religious segments before they decide on the menu. Among certain religious groups, pig and

beef are taboo in menu while in certain other cases; beef may be very sought after.

Geographic Segmentation

Geographical variables are also very useful in segmenting the markets. Typically people from

different geographic areas respond differently to products and marketing. There are

differences in taste preferences; there are also different cultural characteristics. In certain

cases even climate can be a useful segmentation variable. In a typical case, a company

manufacturing readymade clothing may be looking at different type of clothing for those from

various parts of the country .So the typical geographic variables that are used in market

segmentation are geographic regions, density of population (urban vs rural), climate etc.

Psychographic Segmentation

Another important segmentation variable is the so-called as psychographic variables.

Psychographics is about graphing the mind in terms of lifestyle, personality etc. If we have

information on consumer’s psychological characteristics, segmentation can be done using a

combination of such characteristics. For example, people of a certain mental make up might

prefer action and adventure movies while there could be another group who might prefer

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romance and tragedy. These differences cannot be explained by demography, but only by

psychographics. Often market researchers collect data from consumers using surveys on

several aspects of mindset, values, life styles, likes and dislikes before they develop

psychographic segmentation approaches.

Behavioural Segmentation

One last type of segmentation variables are the behavioural variables. You can divide the

markets into segments based on several behavioural variables like usage status, the benefits

sought by the customer from the products, the usage rate, whether there are loyal to the

product or not etc. For example if you consider the usage rate of any product, there are major

differences between the light users of the product and heavy users of the product.

Many of these variables individually or in combination can be used for market segmentation.

Once you divide a market into segments, it is important that we must look at whether the

segments are actually different in terms of marketing. If there are major differences between

the segments in terms of customer profiles and preferences the segmentation variable used is

useful and otherwise segmentation may not make sense.

Targeting

This is the second step in target marketing. There are a variety of ways in which a market can be

segmented and all markets are composed of many segments. There are various segments in

any market and the firm may not need to select all the segments in a market to operate. They

may decide only to choose one or a few of such segments to operate. Market targeting is the

process of selecting one or more such segments. It is important that the right segments are

chosen from the available many and this decision must be made on the basis of attractiveness

of the segment. There are several factors that determine the market attractiveness and some

important criteria commonly used are given below.

Selection Criteria for market segment

Selection of a market segment is based on several factors to measure its attractiveness. The

important factors are the following.

1. The size of the market

Bigger markets are better in terms of potential. What is the size of the market? Is the market

big enough? It may not be always possible to estimate accurately the size of all market

segments. But we must be able to have some idea of its size which is often arrived at using

marketing research.

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2. Market growth

What is the growth of the market? Growing markets are attractive markets. If the market is

stagnant or shrinking it is not a good idea to enter into such a market. You must not get into a

market if it is not growing. Even now there may be a market for audio CD players, but it is not a

growing market and new products like MP3 players are taking over the market. Therefore it

does not make any sense in entering into such a market making CD playing music equipments.

3. Degree of Competition

What is the level of competition in the market segment? If the competition in the market

segment is very high, it does not make much sense in entering this particular market. If you

look at the car market, you find that a lot companies are having their products in the lower

segment. Swift and Ritz from Maruti, Getz and I20 from Hyundai, Beat from General Motors,

Polo from Volkswagen, Fabia from Skoda, Figo from Ford, Indica Vista from Tatas and Grande

Punto from Fiat are all competing in the same market between a price age of four to six lakhs

rupees. This is perhaps one of the biggest markets in passenger cars. However because of

tremendous competition in the segment it may not make sense for a new company to enter

into this particular market segment.

Typically these are the three criteria namely the market size, market growth and intensity of

competition that we use to decide whether it makes sense in selecting a particular market

segment. The criteria are the size of the market (is the market big enough?) the growth of the

market (how fast is the market segment growing?) and the level of competition the market

segment. Based on these criteria, the market segments must be evaluated to determine the

attractiveness of each segment.

Niche Segments and Niche Marketing

Sometimes there could be very small market segments which are not big enough to

accommodate more than one player. A company may choose such a small market segment and

become so much of an expert in meeting the highly specialised requirements of the customers

in that segment. When a company does this as a strategy, it can be called ‘niche marketing’

and such a small but often highly profitable segment is called a niche segment. In the case of

bathing soaps, segment of babies can be called a very small but a very attractive market

segment. This segment is one where the competition is relatively less and the parents are

prepared to pay a premium for the soap. Also the highly specialized nature of the segment

makes it difficult for many companies to operate. However Johnson and Johnson is a leader in

this market and what they practice is niche marketing. They specialise in the narrow segment

and make baby soaps.

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Differentiation and Positioning

Differentiation and Positioning are the steps in target marketing that follow segmentation and

targeting. Differentiation is about building differences into a firm’s product compared to the

competing offers while positioning is about making the customer perceive the product as

unique and distinct.

Commodities and product Differentiation

Once we have done the segmentation and selected one or more segments to target, the next

step is positioning and differentiation. In a competitive market if all the products are similar, no

company will get any advantage. In such a market there will be heavy competition and the

profitability will suffer. When there are no differences between different products in a market

such products exist as commodities. Here the customer may not feel there are any differences

between competing products and as a result may not have any strong preferences.

For example it is seen that customers in India do not have any particular choice for petrol or

diesel. Whether it is Indian oil (IOC) or Hindustan Petroleum (HP), they are least bothered.

Petrol and diesel are therefore commodities. In a commoditised market product differences do

not exist, customers do not see any advantages in buying one product over another. Customers

may not be prepared to pay a higher price for one firm’s product over another. We say that in

such markets product differentiation does not exist.

What is product Differentiation?

So what is product differentiation? Basically product differentiation is about designing

differences in a company's product compared to competition and communicating and

convincing customers about such differences as advantageous to them. For example, the

company Hero Honda, over a period of time has successfully differentiated their bikes as high

on mileage. This is the result of many years of effective advertising and consistent product

quality. People still believe it. Though in today’s market there are many other bike makers

providing equally high mileage, still people relate fuel efficiency to Hero Honda. There are many

other examples where companies have successfully differentiated their products.

Differentiation Defined

Differentiation can be defined as the act of designing a set of meaningful differences to

distinguish the companies offer from competitor’s offers. When differentiation is successfully

done, customers perceive the firm’s offer as different from the competition. When all products

in the market appear the same to the customer, the product can be said to be a commodity.

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None of the players in the market then will get any advantage and the competition will be

primarily based on price and credit.

Differentiation can be done in many ways. Sometimes it can be a real and tangible difference

and sometimes intangible. A company can differentiate their products along for basic

dimensions which are the product, services, personal or image.

1. Product Differentiation

Product differentiation as the term implies, is about designing meaningful differences in the

product itself. BMW cars are known as the ultimate diving machines or the best driver’s car.

Here the differences are designed into the product which helps differentiates BMW from any

other company’s cars. Product differentiation can be done based on many aspects like features,

performance, durability, style etc.

Features

Features are characteristics that supplement the product’s basic functioning. When LG markets

their 3-D televisions as flicker free, this is a feature based differentiation.

Performance

Performance or performance quality can be defined as the levels at which the product’s

primary characteristic operate. Products available in the market can be differentiated based on

different levels of performance quality at which they are designed to perform. If you look at the

mobile phone market, iPhone is manufactured to a higher quality level compared to lower

priced brands like Micro Max and Lava. Similarly Rolex is a brand manufactured to higher

performance quality compared to another brand like Titan.

Durability

Durability is a measure of the product’s expected life. The functional lives of products are

different and this life can be designed to be different by the company. There are products that

are designed and manufactured to last for a lifetime while other products may last only for a

few years. Godrej Safes and locks are known to last longer and the company differentiates their

products on durability.

Style

Style is subjective and is in the eye of the beholder. Style describes how well the product looks

and feels to the buyer. People are prepared to pay a premium for Rayban sunglasses primarily

because of the style. Style is an intangible variable on which many products are differentiated.

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2. Services differentiation

A company can differentiate their products not only by building such differences into the

physical product but also by excelling in services that are provided to the customer. There can

be significant differences in services like delivery, installation, after sales service and customer

service at the time of purchase. For example Kingfisher airline used to be differentiated from

many other airlines on the quality of service that they provide to the customer at the time of

check-in as well as during the flight. Tata Indicom tries to differentiate their products from

competitors by the superior level of service which they call their ‘Customer Charter’. In the

customer Charter, the company make a pledge to the customer about the minimum levels of

service they can expect. Despite severe competition, Maruti Suzuki is able to do well in the

market because of the superior quality of service they provide.

3. Personnel differentiation

Personal differentiation is providing superior customer service by using better trained and

motivated employees to serve the customer. Better employees always contribute to higher

customer satisfaction. So the philosophy of personal differentiation is to use highly trained

personnel to deliver consistently superior quality of customer experience. If you visit

MacDonald’s or Pizza Hut outlets you'll be able to experience a higher quality of customer

service. When you enter a supermarket, when the store employees greet you and give you a

shopping cart and also help you in selecting what you want, you feel like patronising the

supermarket. This is an example of personal differentiation.

4. Image differentiation

Image differentiation is another intangible method of differentiating the company’s offer from

competition. Many lifestyle and fashion brands are differentiated more on image than on any

significant product differences.

What is positioning?

A firm may design a product to have several differences. But it doesn't mean that these

differences are meaningful or significant to the customer. Positioning is the act of designing the

firm’s offer in such a manner that it occupies a unique and distinct place in the consumer's

mind.

In a way, positioning goes beyond differentiation. Many products may be different, but they

may not be seen as different and unique by the customers. If in the case of a product the

customers see the product as significantly different and unique we call it well positioned.

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A classic example for positioning is the pain balm brand ‘Moov’. There are many pain balms

available in the market. Most of them are generic in the sense that they can be used for any

kind of aches and pains anywhere on the body. But ‘Moov’ was introduced as a balm primarily

for the backache. They have succeeded in making the customer see ‘Moov’ as a backache balm.

So whenever you think of ‘Moov’, you think of backache balm. It does not mean that you

cannot use Moov for headache or knee ache. But typically people may not use Moov for

headache. Instead they may even buy another balm like Amrithanjan or tiger balm for

headache. This is the case where a product ‘Moov’ is seen as different and unique. When a

company is able to establish their product as different and unique we will say they have

positioned it successfully.

Positioning is a mind game. The same product can be positioned differently so that people look

at it differently. It is not always done by making the product different but by influencing the

customer to see the product differently. For example there is this chemical called petroleum

jelly which is a commodity. When it is mixed with appropriate colour, fragrance and the

additional ingredients, it is marketed as a solution for cracked lips in winter. The same product

with a different colour, fragrance and another name can be packaged differently and marketed

as a solution for cracked heels in winter. So the ingredients in the product are the same, but

people see it differently. This is the reason why it is said that positioning is more of a mind the

game. Positioning is not what you do to the product, but what you do to the consumer’s mind

to alter the product perception. The vehicle Maruti Omni can be seen as a van and as a car. The

company would like the customers to perceive it more as a car than as a van and if customers

share this view, it is positioning success.

Positioning defined

Positioning is the act of designing a firm’s offer to the customer so that it occupies a distinct

and unique place in the target customers mind. While differentiation is trying to make the

product appear different, in positioning we go one step beyond in an attempt to occupy a

unique and distinct position in the consumer's mind. Among the many perceived differences,

one or more of differences are selected and communicated effectively to occupy such a unique

slot in the consumer's mind. What we must keep in mind is that the unique and distinct

position we chose to have in the consumer’s mind must be relevant to the consumer. Then only

positioning success will lead to business success.

Positioning strategy

Choosing how to position a product is one of the more critical decisions a company can make.

The positioning strategy indicates how a firm wants the customers to think about the product

relative to competition. There are many positioning strategies that are available. Some of the

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common positioning strategies are attributing positioning, benefit positioning, use or

application positioning and user positioning.

Attribute positioning

Attribute positioning is the positioning strategy based on leadership on one of the product

attributes. Customers will always remember the first brand on any attribute though they may

not remember what the second is. For example all of you may remember the first 3D film in

India, but very few will be able to recall the second or the third. This is true with brands also. In

attribute positioning what you're trying to do is to be the first on at least one dimension which

is relevant to the customer. For example despite competition even now, Hero Honda is

perceived as the fuel-efficient bike.

Benefit positioning

Benefit positioning is identifying a relevant benefit which the customer is looking for. Head and

shoulders shampoo is positioned as an antidandruff shampoo.

Use or application positioning

This is to position a brand for a particular use or application. Though cornflakes can be eaten at

any occasion, most of the corn flakes brands are positioned as breakfast cereals. Similarly

though Maggi noodles are consumed by many for breakfast, the positioning is more as a snack

rather than as a staple food.

User positioning

User positioning is developing the positioning strategy based on a very narrowly defined the

user group. A classic example is Johnson & Johnson baby soaps which is identified and known

as soaps for babies.

Positioning statement

A positioning statement is a statement that expresses how a firm want their products to be

perceived by the customers. Often it is useful to develop a clear positioning statement that

captures the essence of position which a company want to occupy in the consumer's mind.

Developing a positioning strategy and converting that into a positioning statement is more of

an art than a science. There are various approaches and templates to do the same. One very

commonly used template for developing a positioning statement is given below.

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Positioning Template Example

For the _____________________ (define target segment), _______________ (name the

brand) is the brand of ______________________ (frame of reference) that

___________________ (point of Difference) because of __________________________

(justification)

By completing the blanks, positioning statement for a brand can be developed. This template

primarily uses the following concepts which need to be identified and filled in.

Define Target segment

We already know what the target segment is. In any positioning statement, the first step is to

define the target segment. A positioning statement is much more useful when we are able to

define the target segment very precisely. For example, Complan is a brand targeted at growing

children and their mothers (buyers) who are worried about children’s growth.

Brand

Ultimately brand is what is positioned as unique and different in the consumer's mind. It is

important that the brand name is also something that contributes to recall and if possible

communicate the positioning to the customer. In the earlier example, Complan is the brand

which is simple to remember and carries a meaning of complete planned food.

Frame of reference

Frame of reference defines in which market category that you want your product to belong. For

example, Titan watches and Ajanta clocks are positioned more as a gift and so they compete

more with other gift items available in the market. Complan is positioned in the health

beverage category rather than as a tasty chocolate or mango drink.

Point of difference

Within the product category our product must be different from competition on one or more

dimensions. It is important that we select the difference on which we can base our position and

marketing decisions. Complan helps children grow tall faster while the competitor Boost focus

on keywords like stamina and energy than on growth. In marketing speak the single unique

point of difference which a company promote to the customer is also called the ‘Unique Selling

Proposition’ or USP.

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Justification

Justification is a reason to believe which you must provide to the customer. Why should the

customer believe you? It must be something that is convincing to the customer. Complan

suggest that it helps children grow faster because it contains the 23 vital nutrients that growing

children need.

Now if we take the example of Complan, we may use the template and write the positioning

statement as follows.

For Children (define target segment), Complan (name the brand) is the brand of health

beverage (frame of reference) that help them grow faster (point of Difference) because of 23

vital nutrients it contains which growing children need (justification)

Can you use the positioning statement template to develop such a positioning statement for

any brand of your choice?