segmentation, targeting, positioning
DESCRIPTION
A concise introduction to Segmentation criteria and approaches, Targeting your Customers and positioning your product into the hearts and minds of your customers.TRANSCRIPT
Segmentation, Targeting, Positioning
A concise introduction
Syed Mohammad Zubair Azam
MS-PHD Scholar [email protected]
Table of Contents
Topic Page
1. What is Marketing? 1
2. Marketing mix and strategy 1
3. Segmentation 2
a. Characteristics of good segment and outcome 3
4. Targeting 3
a. Factors to be considered 4
b. Targeting strategies 4
5. Positioning 5
a. Criteria of successful positioning 5
b. Approaches 6
6. Market Definition 7
a. Dimensions 7
b. Scope of served Market 8
c. BU’s competitive advantage, Relative cost and growth
9
7. References 9
1
Marketing Strategy Regarding Segmentation, Targeting and Positioning
Marketing is defined by the American Marketing Association [AMA] as "the activity, set of institutions,
and processes for creating, communicating, delivering, and exchanging offerings that have value for
customers, clients, partners, and society at large”.
As every Department in the organization has its own worth, and thus they have their own goals and
objectives to meet which further lead towards organizational efficiency. Marketing department also has
several objectives as shown in figure 1.
Figure 1: What Marketing is all about
To achieve all above objectives, marketers use to Develop Marketing Mix for their offerings. A bird’s eye
view of this process is illustrated in figure 2.
Now as this is clear that marketing mix is customer
centric so lets have a look on what a market is all
about? How to Segment it? What needs to do for
Focused targeting and what sort of positioning will be
feasible and with what sort of appropriate tactics?
The market for any product is normally made up of
several segments. A ‘market’ after all is the aggregate
of consumers of a given product. And, consumer (the
end user), who makes a market, are of varying
characteristics and buying behavior. In order to
capture the Maximum Market share, Marketers use to
Figure 2: Marketing Mix
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divide the market in different distinct segments and then they come up with most suitable tactics for
each segment, and this approach is known as segmentation. However, Importance of STP
(Segmentation, Targeting and Positioning) can be Determined from Figure 3.
Segmentation
Through segmentation, the marketer can look at the differences among the customer groups and decide
on appropriate strategies/offers for each group. This is precisely why some marketing gurus/experts
have described segmentation as a strategy of dividing the markets for conquering them.
Table 1 shows major approaches that how segmentation can be done.
Segmentation Type Description Example—Variables
Geographics Divides market into different
geographical units
Country, Region, City
Demographics Divides market on the basis of
demographic variables
age-, gender, income
Firmographics Divides market on the basis of
company-specific variables
Number of employees,
company size
Behavioral Divides market based on how
customers actually buy or use the
product & service
Website loyality, prior
purchases
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Occasion (situational) Divides market based on the
situation that leads to a product
need, purchase, or use
Routine occasion, special
occasion
Psychographics Divides market based on lifestyle
and personality
Thrill seekers, fun lovers, risk
takers.
Benefits Divides market based on benefits
or qualities sought from the
product
Convenience, economy, quality
A very effectively segmented Market obviously leads to certain benefit. Figure 4 depicts the
characteristics of a good segment and its outcomes in the market.
Figure 4: Characteristics of a good segment and outcomes
Targeting
Once a segment has been identified, a firm must ascertain whether the segment is beneficial for them to
service. The DAMP, meaning Discernible, Accessible, Measurable and Profitable, are used as criteria to
gauge the viability of a target market. DAMP is explained in further detail below:
•Identifiable
•Accesible
•sizeable
•Profitable
•Unique Needs
•Durable
•measurable
•Compatible
Attributes of effective
Segmentation
•Facilitates proper choice of target marketing
•Higher Profits
•Facilitates tapping of the market, adapting the offer to the target
•Stimulating Innovation
•Makes the marketing effort more efficient and economic
•Benefits the customer
•Sustainable customer relationships in all phases of customer life cycle
•Higher Market Share
Reasons/Objectives of Market Segmentation
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Approach Description
Discernible/Distinguishable How a segment can be differentiated from other segments. Accessible How a segment can be accessed via Marketing Communications produced
by a firm. Measurable Can the segment be quantified and its size determined? Profitable Can a sufficient return on investment be attained from a segment's
servicing?
The next step in the targeting process is the level of differentiation involved in a segment serving. Three
modes of differentiation exist, which are commonly applied by firms.
Undifferentiated Where a company produces a like product for all of a market segment. Differentiated In which a firm produced slight modifications of a product within a
segment. Niche In which an organisation forges a product to satisfy a specialised target market
Factors to be considered while Targeting the selected market
Two important factors to consider when selecting a target market segment are the attractiveness of the
segment and the fit between the segment and the firm's objectives, resources, and capabilities.
TARGET MARKET STRATEGIES
There are several different target-market strategies that may be followed. Targeting strategies usually
can be categorized as one of the following:
Attractiveness of the segment
size of the segment
Growth Rate of the Segment
competition in the segment
Brand Loyalty of current customers
attainable Market share
Sales Potential
Profit Margin
Suitability of Market Segments to the Firm
Whether the firm can offer superior value to the customers in the
segment
The impact of serving the segment on the
firm's image
Access to distribution channels
The firm's resources vs. capital investment
required
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Single-segment strategy - Also known as a concentrated strategy. One market segment (not the
entire market) is served with one marketing mix. A single-segment approach often is the
strategy of choice for smaller companies with limited resources.
Selective specialization- This is a multiple-segment strategy, also known as a differentiated
strategy. Different marketing mixes are offered to different segments. The product itself may or
may not be different - in many cases only the promotional message or distribution channels
vary.
Product specialization- The firm specializes in a particular product and tailors it to different
market segments.
Market specialization- The firm specializes in serving a particular market segment and offers
that segment an array of different products.
Full market coverage - The firm attempts to serve the entire market. This coverage can be
achieved by means of either a mass market strategy in which a single undifferentiated
marketing mix is offered to the entire market, or by a differentiated strategy in which a separate
marketing mix is offered to each segment.
Positioning
Positioning concerns how to position a product in the minds of consumers. A firm often performs this by
producing a perceptual map, which denotes products produced in its industry according to how
consumers perceive their price and quality. From a product's placing on the map, a firm would tailor its
marketing communications to suit meld with the product's perception among consumers.
Generally, there are three types of positioning concepts:
FFuunnccttiioonnaall ppoossiittiioonnss
SSyymmbboolliicc ppoossiittiioonnss
EExxppeerriieennttiiaall ppoossiittiioonnss
Solve problems.
Provide benefits to customers.
Get favorable perception by investors (stock profile) and lenders.
Self-image enhancement.
Ego identification.
Belongingness and social meaningfulness.
Affective fulfillment
Provide sensory stimulation.
Provide cognitive stimulation.
CCRRIITTEERRIIAA’’SS FFOORR SSUUCCCCEESSSSFFUULL PPOOSSIITTIIOONNIINNGG
CCeerrtain criteria are needed to be fulfilled for successful positioning are:-
a. CCllaarriittyy:: -- While positioning its brand the firm must be able to position itself in both distinct value, proposition, and to its target audience.
b. CCoonnssiisstteennccyy:: - Consistency in positioning means keeping the positioning plank/bases intact
for longtime. Planks should be carefully chosen while positioning. But it does not mean that the firm must change its positioning bases even though its survival is at stake. The firm must be
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flexible to the changing environment.
c. CCrreeddiibbiilliittyy:: -- The firm must deliver trustworthy and believable value proposition. There should be perfect match between promise and action.
d. CCoommppeettiittiivveenneessss:: -- FFoorr surviving in this competitive and changing environment innovative
resources, talent pool, competitive advantage, strong financial backup etc are very important.
Approaches to Positioning
Approach Description Example
Customer benefit approach Involves putting the brand above competitors, based on specific brand attributes and customer benefit.
Procter & Gamble’s Head & shoulder shampoo functions as anti dandruff and anti hairfall shampoo.
Price quality approach Sometimes brands attempts to offer more in term of service, feature, quality, or performance. Manufacturer of such brands charge higher prices partly to cover the cost and partly to communicate the fact that they are of high quality
Rado, Timex, Givenchi, Rolex etc.
The use and application approach
How the product can be used and what features are there?
IBM, BlackBerry, Nokia N and E series etc.
The product user approach What kind of Users are using the product. User Imagery is being inforced.
Zong’s recent ad of Blackberry. Indigo and Honda ads.
The product class approach This approach is use so that the brand is associated with a particular product category. This is generally used when a category is too crowded
Dove, LUX, Caltex etc.
The cultural symbol approach The positioning strategy is based on deeply entrenched cultural symbol. The use of cultural symbol can help to differentiate the brand from competitors brands.
Marlboro, Bonanza ads in Pakistan.
The competitor approach Many brands use competitor as a dominant plank in their campaign. These brands are positioned following its competitor. This is an offensive strategy.
Ufone’s ad of ganta free, Zongs ad of Free msgs when mobilink withdraw its package of free messages near eid.
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Note on Market Definition and Segmentation
Market Definition:
Basically there is no single way to define the market for a given business unit, so market is defined in
various ways along each of several dimensions. The main dimensions include products, type of
customers, geography and stages in the production –distribution system.
Products: products can be defined relatively narrowly or very broadly. The two main dimensions of
products are its functions and the technology used in the product. In a product for every feature, it has a
function. Functions tell the use of the product and what is the product all about. Whether the product is
tangible r intangible, the main thing is t o define the “product” scope of a market by the range of its uses
or functions to be included. Technology and materials used in the product define the industry for the
particular product.
Customers: for industrial products manufacturers, a natural way to classify customers is by industries.
Even within an industry group, customer needs and buying patterns can be different due to different
factors like size location etc. for every product there is a different class and set of customers.
Geography: For a product distribution, first the manufacturer has to decide whether he will go regional,
national or international. The products which are bulky, fragile or perishable limit their operations to
regional markets because of freight costs. When the manufacturer decides to go beyond national
boundaries, tariffs and other barriers may serve as constraints and may lead to cost differentials related
to scope of that particular market.
Level of Production/Distribution: It is very important for a business unit to determine the particular
level at which the business itself and its competitors will operate and which production-distribution level
will they have. Producers of raw material may choose to sell only to other downstream producers or
they may produce finished products themselves, or even both. The producer may choose to do the
vertical integration.
Multidimensional Market Definition:
Market can also be defined with multiple variables i.e. it may be defined by grouping some main
dimensions like customers,functions,and technology. In this way market cells can be made which give a
broader definition of the market. If dimensions of geography and level of production/distribution is also
added, then it will lead to a more elaborate set of possibilities to define the market.
Managers may need to use different definitions of the market to satisfy different purposes but It is
important to note that an appropriate served market definition at one point may not be appropriate
later on, because of changes in customer needs, technology or competitors activities.
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Strategic market Definition:
In order to formulate a business strategy one must consider the scope of the market served by the
business unit, and how more than one strategy can be employed for distinct submarkets or segments
within a served market.
Scope of the served Market:
The served market in which a BU actually competes may be coextensive with a total market in which the
overall effectiveness of competitive performance should be evaluated. Generally the served market will
be considerably narrower in scope and smaller in size than the total market. It’s important to note that
the choices involved in defining the scope of served market are not always the result of conscious and
deliberate decision making. Small business units have resource limitation which restricts the range of
possibilities. However, any set of market cells could constitute a market. To classify some common
approaches to served market definition, we can analyze theoretical possibilities under the area of the
following main categories
1-Breadth of Product line
The businesses which are specialized in technology and have a broad range of product uses, businesses
which are specialized in product uses and have multiple technologies etc
2-Types of Customers
Customers can be categorized as segments of single customer and multiple customer segments
3-Geographic scope
It classifies the business unit as regional, national or international.
4-Level of Production
It helps in determining whether the BU is of raw or semi finished materials or components, finished
products or wholesale or retail distribution.
Customer segmentation
Market segment is defined as an identifiable group of customers with requirements in common that are,
or may become, significant in determining a separate product strategy.
For the purpose of strategy formulation customer segments must have some characteristics that are
common to members of a segment and some characteristics which differ from other segments.
Criteria for Segmentation
It’s important to see that when does a particular segment require the differential strategic treatment?
the general criteria for it includes size of the segment(in actual or potential sales) the incremental costs,
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the magnitude of inter segment differences ,the durability of differences, the cyclical vitality(whether
the segment is more variable then others in relation to overall business cycle or not),the links with other
segments, the utilization of the distinctive competences( it depends on the fit between the
characteristics of the segment and distinctive competences of the BU),and the competition.
BU’s Competitive effectiveness, Relative Costs and Growth Potential:
For the purpose of evaluating the BU’s competitive effectiveness, it seems reasonable that all of the
market shares i.e. share in each served segment, combined share in both segments and share of total
market including irrelevant segments, are relative measures. Cost of a BU generally depends on relative
scale and experience in each of several key” cost sectors” corresponding to different components of
total cost. For the purpose of evaluating future growth and opportunities and potential competitive
threats, we need to view the market more broadly. Potential competitors may include firms selling in
the immediately adjacent market; firms operating in related cost sectors, firms in other geographic
regions and producers of functionally related products whose offerings might be modify to compete
with those of the business unit. Each of these possibilities represents a potential direction for the BU’s
future growth and a new source of competition.
References
Note on Market Definition and Segmentation, Robert D. Buzzell, HBS, 1978
International Marketing, 11/e. Philip R. Cateora
Marketing Management, Philip Kotler