Segmentation, Targeting, and Positioning
Segmentation, targeting, and positioning together comprise a three-stage process:
- To determine which kinds of customers exist, then
- To select which ones we are best off trying to serve and, finally,
- To implement our segmentation by optimizing products/services for that segment and communicating that we have made the choice to distinguish ourselves that way.
Table of Contents
- 1 Segmentation, Targeting, and Positioning
- 2 Bases for Market Segmentation
- 3 Target Market Segments
- 3.1 Assess Each Factor to Identify Segment Attractiveness
- 3.2 Rate Market Segments on Each Factor
- 3.3 Assess Segment Profitability
- 3.4 Plot Future Position for Each Segment
- 3.5 Choose Target Segments and Allocate Resources
- 4 Product Positioning
Segmentation involves finding out what kinds of consumers with different needs exist. Each segment will respond to a different marketing mix strategy, with each offering alternate growth and profit opportunities. In the next step, the marketer decides to target one or more segments.
Being able to develop specific strategies for your target markets is very important. Positioning involves implementing the marketers’ targeting. Positioning is developing a product and brand image in the minds of consumers.
The concept of market segmentation emerged as an extension of the marketing concept in the latter part of the 1950s. It is based on the simple observation that all the existing and potential consumers are not alike; there are significant differences in their needs, wants, tastes, background, income, education, and experience, etc. and these characteristics change over time with lifestyle changes.
Had they been alike, it would have eliminated the need to have different variations of the same basic product and one promotional campaign is all that would have been needed. For example, there would have been only one type of soap, one detergent, one car, one computer, one washing machine, and so on.
A market is composed of individuals with dissimilar needs and wants and for this reason, it is called a heterogeneous market.
A market segment is a portion of a larger market in which individuals, groups, or organizations share one or more characteristics that cause them to have relatively similar product needs.
When marketers provide a range of product or service options to serve diverse consumer preferences, they are more satisfied and happy. Market segmentation is a positive force for both marketers and consumers alike. In his book, ‘Competitive Advantage’, Michael E. Porter says:
“The competitive advantage of a firm lies in being everything to a select few. To be everything to everyone is a sure recipe for a strategic failure.”
Bases for Market Segmentation
A segmentation variable is a characteristic of individuals, groups, or organizations that marketers use to divide and create segments of the total market. Variables, such as geographic location, age, sex, or product benefits sought are used frequently to segment markets.
One approach to segmentation is on an a priori ’ basis. In this case, the marketer may assume that differences must exist among heavy users and light or medium users of a product category. Before collecting any data on the market, the basis for segmentation is decided and afterward, the data is collected and analyzed.
The marketer can also assume that dual-income households are growing in urban areas and then develop a program for this segment.
Selecting the right segmentation variable is critical. For example, small car producers might segment the market on the basis of income but they probably would not segment it on the basis of political beliefs or religion because politics or religion do not normally influence consumers’ automobile needs.
Segmentation variables must also be measurable to segment the market accurately. For example, segmenting the market on the basis of intelligence would be difficult because this characteristic cannot be measured accurately. Marketers can use one or more variables to segment the market.
Different variables are used to segment consumer markets. Broadly speaking, segmentation variables fall under two categories: consumer characteristics and consumer responses.
The most popular bases for market segmentation include geographic factors, demographic factors, psychological characteristics, social/cultural variables; use related factors, use situation variables, benefits sought, and a combination of several segmentation bases called hybrid formats, such as demographic/psychographic profiles, geo-demographic variables, values, and lifestyles.
The geographic location of consumers is usually the starting point of all market segmentation strategies. The location of consumers does help the company in planning its marketing offer.
The assumption is that consumers in a particular geographic area have identical preferences and consumption behavior. For example, people in West Bengal have different food habits and dress codes than people in South India. Exporters often segment the market as Western countries, African countries, CIS countries, etc.
Demographic characteristics are commonly used to segment the market.
Shaving products for women are based on the demographic variable of gender. Toy manufacturers such as Funskool and Mattel toys segment the market on the basis of the age of children. Auto manufacturers segment the market by considering income as an important variable.
Producers of refrigerators, washing machines, microwave ovens, etc. take income and family size as important variables in segmenting the market. Ready-to-wear garment producers often segment the market on the basis of social class.
Examples: Chirag Din, Arrow, Van Heusen, Louis Philippe, Levi, and others. In general, the social class can represent the lower, middle, and upper class depending on education, income, status, etc. For example, an engineer and a clerk are considered as members of different social classes.
Consumers have a certain self-image and this describes their personality. There are people who are ambitious, confident, aggressive, impulsive, modern, conservative, gregarious, loners, extroverts, introverts, etc.
Some motorcycle manufacturers segment the market on the basis of personality variables such as macho image, independence, and impulsiveness. Some producers of liquor, cigarettes, apparel, etc. segment the market on the basis of personality and self-image.
Marketers often are not concerned about measuring how many people have the characteristic as they assume that a substantial number of consumers in the market either have the characteristic or want to have it.
Buyers can be identified according to the use occasion when they develop a need and purchase or use a product. For example, Archies greeting cards are used on many different occasions. User statuses, such as non-users, potential users, or first-time users can be used to segment the market. Markets can also be segmented into light, medium, or heavy users of a product.
Brand loyalty of varying degrees can be present among different groups of consumers and may become the basis to segment the market. There are consumers who are very loyal to cigarette brands, beer, and even toothpaste.
Markets may also be divided by considering the level of product awareness such as unaware of the product, aware, interested, desirous, or contemplating purchasing the product. Based on attitude, consumers may be enthusiastic, indifferent, or hostile towards the product and these differences can be used to segment the market.
Target Market Segments
Instead of aiming a single product and marketing program at the mass market, most companies identify relatively homogeneous segments and accordingly develop suitable products and marketing programs matching the wants and preferences of each segment.
It should, however, be realized that all segments do not represent equally attractive opportunities for a company. Companies need to categorize segments according to their present and future attractiveness and their company’s strengths and capabilities relative to different segments’ needs and competitive situations.
The following sequential steps present a useful framework, managers can use for this purpose:
- Establish criteria to measure market attractiveness and business strength position.
- Evaluate market attractiveness and business strength factors to ascertain their relative importance.
- Assess the current position of each potential segment on each factor.
- Project the future position of each market segment based on expected environmental, customer and competitive trends.
- Evaluate Segment Profitability
- Evaluate implications of possible future changes with respect to strategies and requirements of resources.
Assess Each Factor to Identify Segment Attractiveness
Each of the factors should be assigned a numerical weight to denote the factor’s relative importance in the overall assessment. Let us assume that a company wants to assess the fairness cream segment in India. Some users would rate each factor in the boxes, assigning a weight to each one.
Rate Market Segments on Each Factor
This step requires quantitative and qualitative data to make an objective assessment of each criterion identified. It is extremely important to make a detailed analysis of major competitors with respect to their objectives, strategy, resources, and marketing programs.
Another aspect to be carefully assessed is the evidence that, by entering the segment, the company can more completely satisfy unmet consumer needs in the target segment and gain a competitive advantage.
Assess Segment Profitability
The fact that a segment has positive attraction factors and the company has desired strengths does not necessarily mean that the segment can be served profitably. Many segments are large and the market is growing, but the customers seek low prices and the competing companies have a chance of making profits only by airtight control of their costs.
It would be advantageous to enter a smaller segment if the customers are prepared to pay a price premium for a product or service for which the cost of differentiation is less than the premium charged.
Plot Future Position for Each Segment
A company’s management should assess the likely changes in the segment’s attractiveness over the coming three to five years. This would require projecting the possible shifts in consumer needs, lifestyle, behavioral patterns, entry, and exit of competitors, and changes in their strategies.
The company management should also assess the possible changes in product or technology, shifts in macro trends, and the bargaining power of customers.
The company management should anticipate the possible shifts in its competitive position in the market assuming that the company would respond appropriately to projected environmental changes without making any changes in its basic strategy.
Choose Target Segments and Allocate Resources
Before making the final decision of choosing the market segment, it is necessary to examine that the segment is at least strongly positive on one of the two dimensions of market attractiveness and business strength and is at least moderately positive on the other.
A company may decide to enter a segment that otherwise does not currently appear to be positive under certain conditions, such as when there is a belief among the managers that the segment’s attractiveness or the company’s business strength is likely to improve in the coming few years, or they believe such segments would offer the opportunity to enter more attractive markets in the coming years.
There are three basic targeting strategies:
- Undifferentiated Mass Marketing.
- Differentiated Multiple Segment Marketing.
- Single Segment Specialisation or Niche Marketing.
These are explained as follows:
Undifferentiated Mass Marketing
This strategy involves ignoring any differences among consumers and offering one product or service to the entire market. This strategy of mass marketing focuses on what is common in the needs of consumers rather than what is different.
For more than 90 years, Coca-Cola offered only one product version to the whole market and hoped that it would appeal to everyone. Hamdard offers its Rooh Afza based on this strategy. Undifferentiated marketing provides cost economies.
Differentiated Multiple Segment Marketing
The marketer decides to enter several market segments and develops separate offers for each. For instance, Maruti is producing different models of cars for various segments, Nike offers athletic shoes for different sports and Coca-Cola and Pepsi are offering different versions of their soft drinks.
Companies producing toiletries are offering different versions of toilet soaps for dry skin, oily skin, and normal skin. These companies expect higher sales volumes by offering product versions and a stronger position within each segment. Differentiated marketing strategy increases costs considerably.
Single Segment Specialisation or Niche Marketing
Many companies succeed by producing a specialized product aimed at a very focused market or a niche. This strategy also appeals to firms with limited resources. The company targets a segment and goes for a larger market share instead of a small share in a larger market segment.
Recycled paper producers often focus on the market for greeting cards or wedding cards. Oshkosh Truck is the largest producer of airport rescue trucks. The concentrated strategy may involve more than normal risks. If a large competitor decides to enter the same segment, the going may become quite tough for the smaller company.
We live in an over-communicated society. Every day, an average consumer is exposed to numerous marketing-related messages and the marketer must successfully create a distinct and persuasive product or service image in the mind of the consumer. Brand positioning is a major decision in marketing.
It is believed to be the source from which all other decisions of the marketing mix should flow. The entire combination of marketing mix elements attempts to communicate the brand’s “position” to consumers. Product positioning is a decision reached by a marketer to try to achieve a defined brand image relative to competition within a market segment.
Product positioning decisions are strategic decisions and have an impact on the long-term success of the brand. A product cannot exist unless it finds a place in the consumer’s perception of the world of products around her/ him.
This perception of the product is subjective and is governed by the individual’s needs, values, beliefs, experience, and environment. Each brand is noticed only when it occupies a particular point or space in the individual consumer’s mind relative to other brands. The ‘position’ is the way the product or the brand is defined by consumers on important attributes.
Nestle’s Maggi noodles have been successfully positioned as the “two-minute” noodle in the minds of target consumers and have created a distinctive brand image. HLL’s soap Lux is the “beauty soap” of female film stars and Dettol is the antiseptic for minor nicks and cuts.
BMW car is positioned as the “ultimate driving machine” As markets become more crowded and competitive with similar types of products, consumers rely more on the product’s image than on its actual characteristics in making their buying decisions.
The right positioning is probably more important to the ultimate success of a brand than its actual attributes. Marketers sometimes assign different images to the same product or service in different market segments or at times, reposition the same product without actually making it any different physically.
They attempt to create a distinct position for their brand so that consumers perceive it as being different and occupying a niche no other product does and thereby try to create a product image congruent with the relevant self-image of the target consumers.
Marketers strive to differentiate their products or services by emphasizing attributes that they claim to be better able to satisfy consumer needs and wants than competing brands.
Positioning theory is significantly different from target marketing. It puts emphasis on the target consumers’ perceptions of brands in relation to other brands in the same product category. A major contribution of positioning theory is that it has introduced the concept of ‘distance’ and ‘dissimilarity’ between brands in the ‘perceptual space’ of the consumers.
This concept can present many opportunities for the perceived differentiation of products and brands. Prof. Levitt says that there is no such thing as a commodity; all goods and services are differentiable.
To be meaningful, a differential advantage has to be persuasive and sustainable. With rapid developments in science and technology, more and more brands in a given product category tend to become physically similar and more or less equal in performance.
The product or brand manager has little choice but to fall back more and more on non-functional factors to distinguish her/his brand and meaningfully persuasive differentiation becomes an increasingly challenging task.
Positioning exercise is in fact an effort to create a meaningful and sustainable differential advantage. Brands can be expected to create a loyal following only when they are perceived as different in some way, which is convincingly meaningful and persuasive for the members of the target segment.
It is not really what the product is or does, but actually what the marketer does to the mind of the consumer. According to Subroto Sengupta, positioning strategies revolve around answering the following four questions convincingly by the brand itself:
- Who am I? (The identity, lineage, family)
- What am I? (The functional capabilities)
- For whom am I? (Who do I serve best)
- Why me? (Why at all a consumer should choose me and not the other alternative).
Process of Determining the Positioning Strategy
Jack Trout and Al Ries suggest that managers should ask themselves six basic questions to create a position for a product or service:
- What position, if any, do we already have in the prospect’s mind? (This information must come from the marketplace, not the managers’ perceptions.)
- What position do we want to own?
- What companies must be outgunned if we are to establish that position?
- Do we have enough marketing money to occupy and hold the position?
- Do we have the guts to stick with one consistent positioning strategy?
- Does our creative approach match our positioning strategy?
The brand or product manager must determine which strategy is best suited in a given situation to position the brand or the firm, as the case may be. The exercise to determine the positioning strategy is not easy and could prove to be difficult and quite complex. Six steps need to be taken to reach a decision about positioning.
It may appear simple but it is not. This requires broad thinking. The competing products may not be only those, which come from the same product category with which the brand competes directly. For example, Maggi competes not only with Top Ramon and other noodles but also with all other products, which are used as snacks. The marketer must consider all likely competitors, various use situations, and usage effects on the consumer.
Assessment of Consumers’ Perceptions of Competition
After defining the competition, it is important to determine how consumers perceive the competing products. To do this, a set of product attributes, such as product characteristics, consumer benefits, product uses, or product users are chosen for comparison. The task is to identify relevant attributes to avoid any which would be superfluous. The most useful and relevant attributes are chosen which describe the brand images.
Determining Competitor’s Position
This exercise is undertaken to reveal how all the competing brands, including the company’s own, are positioned and what is their relative position in the consumer’s perceptual map. Which are the competing brands that consumers consider similar and which are the ones considered dissimilar?
Marketing research can be used to plot a perceptual map that would show the position of different competing brands. Two-dimensional and multi-dimensional scaling techniques are available to help the researcher. (For a comprehensive discussion of these research techniques, the reader should refer to some good text on marketing research).
Analyzing the Consumers’ Preferences
The analysis so far discussed would determine where in the perceptual map the product should be positioned. The next step requires the identification of segments or clusters of customers who prefer this product location in the perceptual maps.
Customers who value a certain set of attributes or benefits would form a segment. An ideal product would be the one that is preferred over all others.
Making the Positioning Decision
Up to this point, it may become reasonably clear to make some subjective decision as to which position can be appropriate. In many situations, however, it may become necessary to rethink. Positioning usually involves segmenting the market and choosing one or more segments.
This would require ignoring the remaining parts of the market and focusing on only a selected part. It is to be considered whether the selected segment or segments would support the brand entry.
A specific chosen position may lead consumers to believe that this is what the product is for and those not looking for that specific benefit may not consider the brand.
If the decision is for an undifferentiated strategy, it may be possible to be general in positioning approach, encouraging consumers that they will get what they are looking for. For instance, the Toyota slogan, “I love what you do for me –Toyota,” communicates to consumers that they will get whatever they are looking for from this brand.