The Importance of Segmentation, Targeting and Positioning
Dr Brian Monger
Trends, like horses, are easier to ride in the direction they are going. – John Naisbitt
In marketing I’ve seen only one strategy that can’t miss — and that is to market to your best customers first, your best prospects second and the rest of the world last. – John Romero
The mass market has split into ever-multiplying, ever-changing sets of micro-markets that demand a continually expanding range of options – Alvin Toffler
The marketer should stop thinking of his customers as part of some massively homogeneous market. He must start thinking of them as numerous small islands of distinctiveness, each of which requires its own unique strategies in product policy, in promotional strategy, in pricing, in distribution methods, and in direct selling techniques.- T. Levitt
“Fish where the fish are” Italian saying
Successful organisations (those who are not relying on “luck”) realise the importance of understanding their market through the process of Segmentation, Targeting and Positioning
They know that Segmentation, Targeting and Positioning will be key elements of the marketing success of their brand(s).
Marketing and business development are based on is gaining and retaining the best customers. It is important to fully understand who these best customers could be/are and what are their specific needs and preferences. Having only a general idea of what customers want from your organisation is not enough
A `Market’ can be defined as a group of customers who exhibit broadly similar needs and have the ability to satisfy those needs. The market can also be defined in terms of the benefits sought by the customer, not in terms of particular products or technical specifications.
Market segmentation is “dividing up a market into distinct groups that (1) have common needs and (2) will respond similarly to a marketing action.”
Perhaps the best explanation for targeting our market(s) comes back to the two basic premises in business development:
1. Understanding as much as possible about buyers in order to design marketing programs that meet their needs most effectively.
2. Having limited resources. An organisation cannot be all things to all people. Instead of spreading resources and efforts, the organisation must concentrate (i.e. target or focus) on creating a value offering that will be more specific and effective.
The more clearly you define the target segments, the better you can reach them and encourage them to support your organisation
Defining the market may be approached from a number of ways each yielding a different description — some may be narrow in focus others may be broad. The defining of the market will determine who the organisations best potential competitors and customers are and their Key Buying Criteria (KBC)
A market segment comprises a relatively homogenous group of potential customers where the members of that segment share some similar characteristic of value to the organisation. These characteristics could be specific needs and wants, particular perceptions of value, behaviour, resources or location.
Target segments or target markets are distinct groups or segments of customers. Clearly defining your organisations target market will help develop the best value offers for them.
Segmentation and targeting encourages managers to:
- Position and differentiate product based upon the dominant personality or psychographic characteristic of the target market.
- Scan the environment to identify the dominant cultural values of the target market.
- Use market research to identify the personality, self-concept, and psychographic characteristics that distinguish the target market.
- Develop promotions to be consistent with the dominant personality characteristics of target market. Create products that fulfil the motivational needs of target—e.g., low risk products for groups with high risk aversion.
Identifying the Best Markets for Your Organisation
What constitutes the best market for the organisation?
The best market is the one to which an offer can be developed that is a strategically better one than that of competitors. It is also the market that offers the organisation the best value.
Market can comprise one or more target markets or segments.
Bases for segmentation
There are many ways that can be used to segment markets. This book focuses on buyer/consumer segmentation, but other approaches which are used (often in parallel with consumer segmentation) are:
- Buying Category – for examplea firm in the Restaurant and Hospitality Industry could base segmention on categories such as:
Hotels – large/small; chain or franchise; State/City/country
Pubs – large/small; State/City/country
- Distribution Channel – For example Chains; Pharmacy; Newsagents; vending machines; retail/wholesale
- Demand and Growth Related Attractiveness Is the segment sufficient in size? Will it grow further?
- Size Segments should be generally large enough to warrant the investment in targeting them with a new offer. They should remain attractive over a reasonable period of time to enable payback of investments.
- Competition Related Attractiveness One of the goals of market segmentation is to identify a profitable or strategic opportunities for the organisation. Segments that have a high degree of competitive activity may not be attractive.
- Resource Related Attractiveness Organisations need to consider how they can utilise their limited resources to best target and service each segment.
- Accessibility An organisation must be able to reach or access the segment, either with a design product offering or specific communications.
Target market identification isolates buyers with similar segmentation profiles (lifestyles, benefits sought and the like) and increases the quality of our knowledge of their requirements. The more marketers can establish this common ground with buyers, the more effective they will be in addressing these requirements in their communications programs and informing and/or persuading potential consumers that the product offering will meet their needs.
Marketers competing in nearly all product categories are constantly searching for ways to segment their market, in an attempt to better understand and then satisfy customers’ needs.
How targeting works
Targeting using profile characteristics of market segments, involves analysing segments to determine which group is most profitable and then developing a marketing communication program to reach that group. Segmentation factors can be used to predict how customers with certain characteristics will behave.
Once targets are identified and profiled, the next step is to prioritise the segments based on a combination of business and marketing objectives and profit potential. Targeting develops message strategies and media plans for the segments that have been identified as most important.
A targeted segment should be:
- Identifiable and Measurable
- Having a different response (to another segment) to a value offer (marketing mix)
- Substantial enough to meet the objectives of the organisation
- Profitable size – The relative profit potential in a segment is directly related to the competitive strength and cost effectiveness of the organisation. Even a small market may be profitable if the organisation has competitive pre-eminence (or enough when combined with other targeted segments)
- Durable – not too subject to quick change. Some segments are so dynamic that they only exist for a short period of time.
- Accessible by Marketing Communication and Distribution Activities. A segment must be accessible through advertising, other promotional media, and distribution networks
- Self containment – Preferably a product launched at a target segment should not take demand from another product(cannibalisation) in the organisation’s range
- Attractive regarding the amount or quality of the Competition. Do you have the competitive advantages, resources and skills to compete in this segment?
- Strategically significant. Is the segment strategically important for future operations?
Developing Target Segment Profiles
Segmentation and Targeting requires the development of segment profiles.
A segment profile is the description of who your targeted customers (current and future) are and what they want. To do this, we need some bases for developing the profile(s). (See examples of Target Market Profiles on the website for this book)
Bases for Creating Segmentation Profiles
There are very many bases and combinations available for segmenting markets and creating target segment profiles. In order to get a good profile (description and understanding of the market) marketers should use or a combination of these approaches. The following are some of the approaches. The basics are (in some order of general effectiveness)
1. Situation or Context Segmentation
2. Benefit (value Sought) Segmentation
3. Behavioural Segmentation
4. Lifestyle (Psychographic) Segmentation and
5. Descriptive (Demographic) Segmentation – plus some alternatives. Organisations can use each generally or by focusing on their more specific sub elements.
Other Forms of Segmentation
In the geographic segmentation approach, markets are divided into different geographic units. These units may include nations, states, counties, or even neighbourhoods. Consumers often have different buying habits depending on where they reside (regional preferences, perhaps related to culture or geography).
- Natural features
Geo-demographic segments (geodemograpic cluster).
Information that combines geographic, demographic and some lifestyle data to identify residents of a particular area with certain demographic traits is called geo-demographical and considers such factors as nation, region, state, city, climate, topography, and urban/suburban/rural descriptions.
Geo-demographic segmentation can be use to identify similar customers who don’t live in the same neighbourhood or that cut across regional and national boundaries.
Geodemographic clustering is used in a number of computer marketing models such as Mosaic which divide the population into a number of groups (clusters) with names like “Materialists” “Renovators”. The proposition of these models are that people within these groups have similar buying motivations. http://www.retaillocations.com.au/mosaic
Combines social factors (societal trends, fashions) with demographics
Temporal (Time) Segmentation
- Time of the day/week/month/year
Some brands are designed specifically for an ethnic group, or marketing communication campaigns for mainstream brands are tailored toward specific ethnic cultures or brands.
We may segment on a physical factor e.g. left handedness; hair colour; bearded; short; large/tall etc.
Positioning can be defined as
(1) The process of fitting the brand to the perception of the target segment in such a way as to set it meaningfully apart from competition.
(2) The position of the value offering (marketing mix) that comes to mind and the attributes buyers perceive as related to it.
Positioning, relates to the perception (personal impression/image) of the brand relative to competing brands, in the mind of the customer(s). The position of the brand is the key factor in communicating the benefits it offers and differentiating it from the competition.
Positioning is essential to effective marketing strategy. A well developed positioning statement defines your firm’s direction. It answers the following questions:
- who the organisation is (name and vision elements)
- what business is the organisation in? (from the customers perspective please)
- which target segment(s) are served?
- What is needed by the customers? (primary segmentational factors)
- who are the competitors? (at least direct and indirect should be considered)
- what is different about the business?
- what unique benefit is provided by the value offer(s)?
A positioning statement should not be confused with a market position. A position (or statement of position) is a statement of how you are currently perceived in the minds of your prospects.
A positioning statement, expresses how the organisation wishes to be perceived. It is the core message to be delivered to a target segment. Organisations can’t position themselves as anything. It’s about what the market perceives them as standing for.
Developing a Positioning Strategy
To create a position for a product, the authors of Positioning – The Mind of the Consumer, Ries and Trout (see website for more details) suggested that organisations ask six basic questions:
1. What position, if any, do we already have in the prospect’s mind? (This information must come from the marketplace, not the managers’ personal “gut feel”)
2. What position do we want to own?
3. What organisations must be outgunned if we are to establish that position?
4. Do we have enough marketing money to occupy and hold the position?
5. Do we have the guts to stick with one consistent positioning strategy?
6. Does our creative approach match our positioning strategy?
Positioning is best done on the basis of key segmentation and Targeting factors. Including:
- situational factors
- benefits sought
- product class,
Additionally the following should be considered:
- positioning relative to key competitors.
- positioning by use or application,
- positioning on value perception – price/quality,
- positioning by cultural rituals and/or symbols.
Positioning relative to key competitors
Competitors are part of the buyer’s landscape. Customer perceptions of value are formed with competitors in mind.
Positioning by use or application
Another way to communicate a specific image or position for a brand is to associate it with a specific use or application.
While this strategy is often used to enter a market based on a particular use or application, it is also an effective way to expand the usage of a product.
Positioning by value perception (price/quality)
Marketers often use price/quality characteristics to position their brands. One way they do it is by creating an image of a high-quality brand where cost, while not irrelevant, is considered secondary to the quality benefits derived from using the brand. Premium brands positioned at the high end of the market use this approach to positioning.
Remember that although price is an important consideration, the product quality must be comparable to, or even better than, competing brands for the positioning strategy to be effective.
Positioning by cultural rituals and/or symbols
The use of cultural symbols is used by buyers and users to differentiate between brands. Cultural rituals (e.g. going out with friends to a football match) involves the use of artefacts (club scarves). Cultural symbols are the elements that represent ideas and concepts in a society/culture/subculture.
The use of cultural symbols has become so common in our society that psychologists and sociologists have examined the mythological foundations underlying many characters and dissected the inherent meanings consumers ascribe to them.
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Also check out the article on Positioning on http://smartamarketing2.wordpress.com