Chapter 7: Segmentation, Targeting & Positioning
Segmentation; Targeting; Differentiation; Positioning; Consumer/Business Markets
4 Steps in Designing a Customer-Driven Marketing Strategy
- Segmentation: Dividing a market into distinct groups with distinct needs, characteristics, or behaviours that might require separate marketing strategies or mixes.
- Targeting: The process of evaluating each market segment’s attractiveness and selecting one or more segments to enter.
- Differentiation: Actually differentiating the market offering to create superior customer value.
- Positioning: Arranging for a market offering to occupy a clear, distinctive, and desirable place relative to competing products in the minds of target consumers.
Buyers in any market differ in their wants, resources, locations, buying attitudes, and buying practices. Through market segmentation, companies divide large, heterogeneous markets into smaller segments that can be reached more efficiently and effectively with products and services that match their unique needs.
Segmenting Consumer Markets
Dividing a market into different geographical units, such as global regions, countries, regions within a country, provinces, cities, or even neighbourhoods. Many companies today are localizing their products, advertising, promotion, and sales efforts to fit the needs of individual regions, cities, and even neighbourhoods.
Major Segmentation Variables for Geographic Segmentation
- World Region: North America, South America, Western Europe, Eastern Europe, the British Isles, the Middle East, the Pacific Rim, Asia, Southeast Asia, Africa & Australia
- Country: Canada, the U.S., Brazil, England, China, etc.
- Region of the Country: The Maritimes, the Prairie provinces, Southern Ontario, Quebec, etc.
- Population Size: Under 5,000; 5,000-250,000; and so on.
- Type of Region: Urban, suburban, rural, mountainous, far north, ocean/beaches, etc.
Dividing the market into segments based on variables such as age, gender, family size, life cycle, household income (HHI), occupation, education, ethnic or cultural group, and generation. Demographic factors are the most popular bases for segmenting customer groups. One reason is that consumer needs, wants, and usage rates often vary closely with demographic variables. Another is that demographic variables are easier to measure than most other types of variables.
Age & Life-Cycle Segmentation
Dividing a market into different age and life-cycle groups (such as retirement, or family status). The idea is that consumers’ needs, wants & demands change as they age and/or progress through life.
Dividing a market into different segments based on gender. Women make 70% of shopping decisions. 2/3rds of all women were involved in materials installation, with 13% doing it themselves.
Household Income (HHI)
Dividing a market into different income segments. Household income refers to the total income for the family that lives in the household, whether that consists of a single person, a couple, or a family with children.
Ethnic or Cultural Group
Dividing a market based on easy-to-define criteria such as race, ethnicity, and language.
Major Segmentation Variables for Demographic Segmentation
- Age: Under a certain age, age ranges; or children, teens, young adults, middle-aged, seniors, etc.
- Gender: Male or female.
- Family Size: 2-5, or maybe even 5+
- Life Cycle: Young couple, young couple with children, single-parent family, older couple with grown children, divorced, etc.
- Household Income (HHI): Under $20,000; $20,000-$50,000; etc.
- Occupation: Professional, union worker, academic, small business owner, sales, farming/fishing, student, retired, homemaker, unemployed, etc.
- Education: High school, college or trade school, university undergraduate, post-graduate
- Ethnic or Cultural Group: African, Asian, North American, Jewish, Japanese, Métis, etc.
- Generation: Baby boomer, Generation X, Generation Z, Millennial, etc.
Dividing a market into different segments based on social class, lifestyle, or personality characteristics. People in the same demographic group can have very different psychographic makeups.
Major Segmentation Variables for Psychographic Segmentation
- Social Class: Lower lowers, upper lowers, working class, middle class, upper middles, lower uppers, upper uppers, etc.
- Lifestyle: Athletic type, active suburban family, student, single urban professional, etc.
- Personality: Highly organized & detail oriented; outgoing & adventurous; creative or artistic; quiet & solitary; ambitious, etc.
Dividing a market into segments based on consumer knowledge, attitudes, uses, or responses to a product.
Dividing the market into segments according to occasions when buyers get the idea to buy, actually make their purchase, or use the purchased item.
Dividing the market into segments according to the different benefits that consumers seek from the product. Benefit segmentation requires finding the major benefits people look for in the product class, the kinds of people who look for each benefit, and the major brands that deliver each benefit.
Markets can be segmented into non-users, ex-users, potential users, first-time users, and regular users of a product. Marketers want to reinforce and retain regular users, attract non-users, and reinvigorate relationships with ex-users.
Markets can also be segmented into light, medium, and heavy product users. Segmenting the marketing in this way is sometimes referred to by marketers as the “heavy half” concept, or the “80/20 rule”—the idea that 80% of the volume of a product is consumed by 20% of its consumers. Marketing researchers say that psychographic characteristics are much more valuable than demographic characteristics in describing the segment of heavy users of any product.
A market can also be segmented by consumer loyalty. Some consumers are completely loyal—they buy one brand all the time. Other consumers are somewhat loyal—they are loyal to two or three brands of a given product or favour one brand while sometimes buying others. Still other buyers show no loyalty to any brand. They either want something different each time they buy or they buy whatever’s on sale.
Major Segmentation Variables for Behavioural Segmentation
- Occasions: Regular occasion, special occasion, holiday, seasonal, etc.
- Benefits: Quality, service, economy, convenience, speed, etc.
- User Status: Non-user, ex-user, potential user, first-time user, regular user, etc.
- User Rates: Light user, medium user, heavy user, etc.
- Loyalty Status: None, medium, strong, absolute, etc.
- Readiness Stage: Unaware, aware, informed, interested, desirous, intending to buy, etc.
- Attitude toward Product: Enthusiastic, positive, indifferent, negative, hostile, etc.
Using Multiple Segmentation Bases
One of the leading segmentation systems, The Nielsen Company’s PRIZM, classifies households based on a host of demographic factors (ex: age, educational level, income, occupation, family composition, ethnicity, housing, etc.) and behavioural & lifestyle factors (ex: purchases, free-time activities & media preferences). It then classifies & names each segment. Ex: PRIZM’s newest segments is called Mobile Wallet Users—consumers who use “tap and go” and other forms of mobile payment. Nielsen found that 29% of Mobile Wallet Users are aged 35-44, and 20% are aged 25-34.
Another example of how geographic, demographic & psychographic characteristics can all be brought to bear in describing a market segment is the LGBT market.
Segmenting Business Markets
Consumer and business marketers use many of the same variables to segment their markets. Business buyers can be segmented geographically, demographically (industry, company size), or by benefits sought, user status, usage rate & loyalty status. Yet business marketers also use some additional variables, such as customer operating characteristics, purchasing approaches, situational factors, and personal characteristics.
Within a given target industry and customer size, the company can segment by purchase approaches and criteria. As in consumer segmentation, many marketers believe that buying behaviour and benefits provide the best basis for segmenting business markets.
Segmenting International Markets
Companies can segment international markets by using one or a combination of several variables. They can segment by geographic location, grouping countries by regions such as Western Europe, the Pacific Rim, the Middle East, or Africa. Geographic segmentation assumes that nations close to one another will have many common traits and behaviours. Although this is often the case, there are many exceptions.
World markets can also be segmented based on economic factors. Countries might be grouped by their population’s income levels or their overall level of economic development. A country’s economic structure shapes its population’s product and service needs and, therefore, the marketing opportunities it offers.
Countries can be segmented by political & legal factors such as the type and stability of government, receptivity to foreign firms, monetary regulations, and amount of bureaucracy.
Cultural factors can also be used, grouping markets according to common languages, religions, values and attitudes, customs, and behavioural patterns.
Intermarket (Cross-Market) Segmentation
Segmenting international markets based on geographic, economic, political, cultural & other factors presumes that segments should consist of clusters of countries. However, as new communications technologies connect consumers around the world, marketers can define & reach segments of like-minded consumers no matter where in the world they are. Using intermarket segmentation (also called cross-market segmentation), they form segments of consumers who have similar needs & buying behaviours even though they are located in different countries.
Requirements for Effective Segmentation
To be useful, market segments must be the following:
- Measurable: The size, purchasing power, and profiles of the segments can be measured. Certain segmentation variables are difficult to measure (ex: # of left handed people).
- Accessible: The market segments can be effectively reached & served.
- Substantial: The market segments are large or profitable enough to serve. A segment should be the largest possible homogeneous group worth pursuing with a tailored marketing program.
- Differentiable: The segments are conceptually distinguishable and respond differently to different marketing-mix elements and programs.
- Actionable: Effective programs can be designed for attracting and serving the segments.
Evaluating Market Segments
In evaluating different segments, marketers look at 3 factors: segment size & growth, segment structural attractiveness, and company objectives & resources. They do this by collecting & analyzing data on current segment sales, growth rates, and expected profitability for various segments.
But “right size and growth” is a relative matter. The largest, fastest-growing segments are not always the most attractive ones for every company. Smaller companies may lack the skills and resources needed to serve the larger segments. Or they may find these segments to be too competitive. Such companies may target segments that are smaller and less attractive, in an absolute sense, but that are potentially more profitable for them. And if a company identifies a segment as being unprofitable, it might even take steps to encourage that group to shop at the competition instead.
Segment Structural Attractiveness
Marketers also need to examine major structural factors that affect long-run segment attractiveness. This is where marketing strategy meets corporate strategy, and executives analyze the “five forces” that most affect and influence a company’s ability to compete in a particular area.
5 Forces that Most Affect a Company’s Ability to Compete in a Market
- Competitors: How many, and are they direct or indirect competition for business in this segment?
- New Entrants: How easy or difficult is it for an existing company to start serving this segment, or for a new company to start up and start doing it?
- Substitutes: If we don’t serve this segment, what else can they buy that will serve the same purpose?
- Power of Buyers: When it comes to this segment, do buyers have strong bargaining power relative to sellers? If so, will they try to force prices down, demand more services, and set competitors against one another?
- Power of Suppliers: If suppliers have control over us, that can affect our prices and reduce the quality or quantity of products we can produce
Company Objectives & Resources
The company must consider its own objectives & resources. Some attractive segments can be dismissed because they don’t mesh with a company’s long-run objectives. Or the company may lack the skills and resources needed to succeed in an attractive segment. A company should enter only those segments in which it can create superior customer value and gain advantages over competitors.
Selecting Target Market Segments
A target market consists of a set of buyers who share common needs or characteristics that the company decides to serve. Companies can target very broadly (undifferentiated marketing), very narrowly (micromarketing), or somewhere in between (differentiated or concentrated marketing).
A market-coverage strategy in which a firm decides to ignore market segment differences and go after the whole market with one offer. This mass-marketing strategy focuses on what is common in the needs of consumers rather than on what is different. The company designs a product & a marketing program that will appeal to the largest number of buyers.
Differentiated Marketing (Segmented Marketing)
A market-coverage strategy in which a firm decides to target several market segments & designs separate offers for each.
But differentiated marketing also increases the costs of doing business. Developing separate marketing plans for the separate segments requires extra marketing research, forecasting, sales analysis, promotion planning, and channel management. And trying to reach different market segments with different advertising campaigns increases promotion costs.
Concentrated Marketing (Niche Marketing)
A market-coverage strategy in which a firm goes after a large share of one or a few segments or niches. Through concentrated marketing, the firm achieves a strong market position because of its greater knowledge of consumer needs in the niches it serves and the special reputation it acquires. It can market more effectively by fine-tuning its products, prices, and programs to the needs of carefully defined segments. It can also market more efficiently, targeting its products or services, channels, and communications programs toward only those consumers that it can serve best and most profitably.
Whereas most market segments are fairly large and normally attract several competitors, niche markets are smaller and may attract only one or two competitors. Niche marketing lets smaller companies focus their limited resources on serving very small groups of customers that may be unimportant to or overlooked by larger competitors. Many companies start as niche marketers to get a foothold against larger, more-resourceful competitors and then grow into broader competitors.
The practice of tailoring products and marketing programs to the needs and wants of specific individuals and local customer segments—includes local marketing & individual marketing.
Tailoring brands & promotions to the needs/wants of a small group of people who live in the same city or neighbourhood or who shop at the same store. Ex: convenience stores.
Advances in communications technology have given rise to a new high-tech version of location-based marketing. Using location-based social networks such as Foursquare, and local marketing deal-of-the-day services such as Groupon, local retailers can target consumers based on where they are right now.
Local marketing has some drawbacks. It can drive up manufacturing & marketing costs by reducing economies of scale. It can also create logistics problems as companies try to meet the varied requirements of different regional and local markets.
Individual Marketing (Mass Customization)
Tailoring products and marketing programs to the needs and preferences of individual customers. For centuries consumers were served as individuals. So, in a sense we’re returning to an old tradition. Computer databases, robotic production, flexible manufacturing, and interactive communication media have combined to foster mass customization.
Choosing a Targeting Strategy
Companies need to consider many factors when choosing a market-targeting strategy. Which strategy is best depends on company resources. When the firm’s resources are limited, concentrated marketing makes the most sense. The best strategy also depends on the degree of product variability. Undifferentiated marketing is more suited for uniform products such as grapefruit or steel. The product’s life-cycle stage must also be considered. When a firm introduces a new product, it may be practical to launch only one version, and undifferentiated marketing or concentrated marketing may make the most sense. In the mature stage of the product life cycle, however, differentiated marketing often makes more sense. Another factor is market variability. If most buyers have the same tastes, buy the same amounts, and react the same way to marketing efforts, undifferentiated marketing is appropriate. Finally, competitors’ marketing strategies are important. When competitors use differentiated or concentrated marketing, undifferentiated marketing can be suicidal.
Socially Responsible Target Marketing
Target marketing sometimes generates controversy and concern. The biggest issues usually involve the targeting of vulnerable or disadvantaged consumers with controversial or potentially harmful products.
For example, targeting kids who don’t have the same critical thinking defenses. Another problem is when marketing of adult products spills over into children’s segments. For example, when Victoria’s Secret uses extremely young models in their ads, they might be attracting minor girls to buy their provocative clothing. On top of this, the digital age has made accessing a child’s eyeballs easier than ever before, with little parent intervention in the process.
In Canada, advertising to children is strictly controlled by several organizations, including Advertising Standards Canada, which publishes the Canadian Code of Advertising Standards; the Canadian Association of Broadcasters, which has its own code for television advertising aimed at children; and Concerned Children’s Advertisers, an advocacy group dedicated to promoting media literacy, ethics, and responsibility in advertising to children.
Differentiation & Positioning
A product position is the way the product is defined by consumers on important attributes—the place the product occupies in consumers’ minds relative to competing products. Consumers are overloaded with information about products and services. To simplify the buying process, consumers organize products, services & companies into categories and “position” them in their minds. A product’s position is the complex set of perceptions, impressions & feelings that consumers have for the product compared with competing products.
The less differentiated the product actually is, the more important positioning becomes.
Consumers position products in their minds with or without the help of marketers. But marketers do not want to leave their products’ positions to chance. They must plan positions that will give their products the greatest advantage in selected target markets, and they must design marketing mixes to create these planned positions.
Perceptual Positioning Maps
In planning their differentiation and positioning strategies, marketers often prepare perceptual positioning maps, which show consumer perceptions of their brands versus competing products on important buying dimensions. Example Positioning Map for Large Luxury SUVs:
Size of circle indicates market share.
Choosing a Differentiation & Positioning Strategy
The differentiation and positioning task consists of 3 steps: identifying a set of differentiating competitive advantages upon which to build a position, choosing the right competitive advantages, and selecting an overall positioning strategy. The company must then effectively communicate and deliver the chosen position to the market.
Identifying Possible Value Differences & Competitive Advantages
To the extent that a company can differentiate and position itself as providing superior customer value, it gains competitive advantage. Competitive advantage is an advantage over competitors gained by offering greater customer value, either through lower prices or by providing more benefits that justify higher prices.
In what specific ways can a company differentiate itself or its market offer? It can differentiate along the lines of product, services, channels, people, or image.
Through product differentiation brands can be differentiated on features, performance, or style and design. Similarly, companies can differentiate their products on attributes such as consistency, durability, reliability, or repairability.
Some companies gain services differentiation through speedy, convenient, or careful delivery. Others differentiate their service based on high-quality customer care.
Firms that practice channel differentiation gain competitive advantage through the way they design their channel’s coverage, expertise, and performance.
Companies can also gain a strong competitive advantage through people differentiation—hiring and training better people than their competitors do.
Even when competing offers look the same, buyers may perceive a difference based on company or brand image differentiation. A company or brand image should convey a product’s distinctive benefits and positioning. Developing a strong and distinctive image calls for creativity and hard work. A company cannot develop an image in the public’s mind overnight by using only a few ads.
Choosing the Right Competitive Advantages
Suppose a company is fortunate enough to discover several potential differentiations that provide competitive advantages. It must now choose the ones on which it will build its positioning strategy. It must decide how many differences to promote and which ones.
How Many Differences to Promote
Some marketers believe that the best approach is to aggressively promote only one benefit to the target market; in other words, to focus on the product or brand’s unique selling proposition (USP).
Other marketers choose to position their brands on more than one differentiator. This may be necessary if 2+ companies or products are claiming to be best on the same attribute. As companies increase the number of claims for their brands, they risk disbelief and a loss of clear positioning.
Which Differences to Promote
A difference is worth establishing to the extent that it satisfies the following criteria:
- Important: The difference delivers a highly valued benefit to target buyers.
- Distinctive: Competitors don’t offer the difference, or we can offer it in a more distinctive way.
- Superior: The difference is superior to other ways customers might obtain the same benefit.
- Communicable: The difference is communicable and visible to buyers.
- Pre-Emptive: Competitors cannot easily copy the difference.
- Affordable: Buyers can afford to pay for the difference.
- Profitable: The company can introduce the difference profitably.
Selecting an Overall Positioning Strategy
The full positioning of a brand is called the brand’s value proposition: the full mix of benefits upon which the brand is differentiated & positioned.
Possible Value Propositions
The red cells represent a losing value proposition. The green cells represent a winning value proposition. The yellow cell represents, at best, a marginal proposition.
More for More
“More-for-more” positioning involves providing the most upscale product & charging a higher price to cover higher costs. Not only is the market offering high in quality, it also gives prestige. It symbolizes status & a loftier lifestyle. Often, the price increase exceeds the actual increase in quality.
More for the Same
Companies can attack a competitor’s more-for-more positioning by introducing a brand offering comparable quality but at a lower price.
The Same for Less
Offering “the same for less” can be a powerful value proposition—everyone likes a good deal. This can be achieved by superior purchasing power & lower-cost operations.
Less for Much Less
A market almost always exists for products that offer less & therefore cost less. Few people need/want, or can afford the best in everything they buy. In many cases, consumers will settle for less than optimal performance or give up some of the bells and whistles in exchange for a lower price.
More for Less
Of course, the winning value proposition would be to offer “more for less.” Many companies claim to do this. And, in the short run, some companies can actually achieve such lofty positions. Eventually, though, in the long run companies often settle for a different position in the market.
Choosing a Positioning Strategy
Each brand must adopt a positioning strategy designed to serve the needs and wants of its target markets. “More for more” will draw one target market, “less for much less” will draw another, and so on. Thus, in any market, there is usually room for many different companies, each successfully occupying different positions. The important thing is that each company must develop its own winning positioning strategy, one that makes it special to its target market.
Developing a Positioning Statement
What is a Positioning Statement?
A statement that summarizes company or brand positioning—it takes this form:
To (target segment) who (need, reason to buy), our (brand) is the (concept, product category or Point of Parity) that provides (Point of Difference). This is from Lecture 5.
Example Positioning Statement: Subway
To health-conscious people who need healthy food, Subway is the fast food restaurant that provides nutritious options.
Communicating & Delivering the Chosen Position
Once it has chosen a position, the company must take strong steps to deliver and communicate the desired position to target consumers. All the company’s marketing-mix (product, price, place & promotion) efforts must support the positioning strategy.
Establishing a position or changing one usually takes a long time. In contrast, positions that have taken years to build can quickly be lost. Once a company has built the desired position, it must take care to maintain the position through consistent performance and communication. It must closely monitor and adapt the position over time to match changes in consumer needs and competitors’ strategies. However, the company should avoid abrupt changes that might confuse consumers. Instead, a product’s position should evolve gradually as it adapts to the ever-changing marketing environment.
Related notes you might be interested in
Chapter 8: Customer-Driven Marketing Strategy: Creating Value for Target Customers
UTM / MGT252
Chapter 10: New Product Development and Product Life-Cycle Strategies
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Chapter 9: Products, Services, and Brands: Building Customer Value
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