Segmentation, Targeting & Positioning
Monday, 9 October, 2017
Learning Objectives
To understand:
the steps in the target marketing process
the different dimensions that marketers use to segment consumers
how marketers evaluate and select potential market segments
how marketers develop a targeting strategy
how marketers develop and implement a positioning strategy
How do we use segmentation in marketing?
We collect data
Segment consumers
Target different groups
And position products
Steps in The Target-Marketing Process (STP Process)
Step 1: Segmentation
Why do we need segmentation?
About dividing the whole into smaller groupings and later select the appropriate market to tap into
Different people want different things for different purposes and for different reasons
Consumer needs are not homogenous on a whole
Market Segmentation
The process of dividing a larger market into smaller pieces based on one or more meaningful shared
characteristics (Solomon et al, 2013, p 223)
Objective: to identify groups of customers with similar requirements so that they can be served
effectively, while being of a sufficient size for the product or service to be supplied efficiently
Have to segment the market into groups that share meaningful characteristics
Advantages of Segmentation
Match product and services more closely to customers' needs --> greater profit
because satisfy the needs of customers and provide them with more value
Growth opportunities: can broaden out and target customers from different
countries
Marketing mix efficiencies: more effective targeting is possible; can reach the
consumers more efficiently
e.g. if know that our consumers are avid users of social media, can focus advertising through
social media and target a lot of your customers -- efficient
Enhanced customer retention: different product offerings for different segments;
Can offer different types of products to customers through different times e.g. cars
[start with a small car; family cars; sports car etc.)
How can we segment consumer markets?
Demographic: observe characteristics based on demography -who our customers are and where we
can find them
Demographics are statistics that measure observable aspects of a population, including age, gender,
ethnic group, income, education, family structure, and place of residence.
e.g. age, gender, family life cycle, income & social class, ethnicity, geographic
Segmenting by Demographics: Age (Generational marketing)
o Children
LEGO Christmas
Rice Krispies Multi-grain Shape: targeted children by making their product into shapes that
appeal to children
Children affect the spending pattern of families
o Teens
12-17 year old
‘feel-good’ product: video games, cosmetic products
o Millennials: born after 1994
o Generation Y: born between 1977 and 1994
o Generation X : Born between 1965 and 1978
o Baby-boomers : born between 1946 and 1964 - potentially high levels of disposable income
Segmenting by Demographics: Gender
Many products appeal to one sex or the other
Metrosexual: a straight, urban male who is keenly interested in fashion,
home design, gourmet cooking, and personal care
Segmentation isn't stereotyping but about identifying groups of people that
share a similar need; addressing their consumption behavior
Lifestyle variable
Segmenting by Demographics: Family Life Cycle
Family needs and expenditures change over time
As families move through stages, different product categories ascend or descent in
importance
Even if importance is constant, needs within category may change (e.g., furniture)
Segmenting by Demographics: Income and Social Class
Income
Strongly connected to buying power
The more disposable income the person has, the higher the buying power & the
more valuable they are as a customer
e.g. American express credit card is segmented based on income, rewarded with different
benefits according to the range
Social Class
Many consumers buy according to an image they’d like to portray, not their actual
level
Segment based on 'ideal class' i.e. what class they want to be in instead of what class
they actually belong in to appeal to them
“Easy credit” may lead consumers to buy cars and homes they can’t truly afford
Segmenting by Demographics: Ethnicity & Place of Residence
A consumer’s national origin is often a strong indicator of his/her preferences
E.g. IMAN cosmetics: decided that there is a market for people with different skin
tones
Geodemography
People who live in the same area will have some similar characteristics, e.g.
spending pattern, income level etc.
Combines demographics with geography
People who live near one another share similar characteristics
Segmenting Consumer Markets: Demographics no longer say enough to serve as a
basis for marketing strategy (Yankelovich and Meer, 2006)
They are useful to use alongside psychographic and behavioural segmentation;
cannot just use one
Segmenting Consumer Markets :Psychographic segmentation
Psychographic segmentation: segments markets in terms of customers’ shared activities, interests
and opinions (AIOs)
About people's lifestyles' and personalities
e.g. Harley Davidson advertising based on a lifestyle; TV programs offering
different channels based on people's interests/age (kids mix) --> combination of variables
Segmenting Consumer Markets: Behavior
Most powerful segmenting
Based on people's behavior
Segmenting by Behavior
Usually considered a more robust method of segmentation: closest to the
consumption experience (based on actual purchase behaviour)
Segmentation based on behaviour
Benefits sought from the product; e.g. sightseeing
Users and non-users
Heavy, moderate, light users (level of consumption) *idea behind loyalty
schemes
Usage occasion; e.g. restaurants separate their market based on usage
occasion
Segmentation in the 21st Century
The increasing complexity and variety in customer lifestyles is adding a new
dimension to the segmentation challenge (Dibb, 2001)
Development of more advanced information and communication technologies in
parallel with the rise of the Internet
Customers can no longer be regarded as a homogenous market (Kuo & Cranage,
2012)
People do not want to sacrifice their individual differences and they are willing to
pay more for what they want and need (Bardakci & Whitelock, 2004)
With consumers’ growing interest in expressing individuality and increasing
purchasing power, companies need to think of their consumers as individuals
Segment of one: Instead of satisfying one segment at a time, customization strategy
satisfies a “finer segment,” that is one customer at a time.
For a unique or almost unique product for us; customization
Mass customized products: level of choice given so that people feel that they are
offered an individual product but they are actually offered a menu of choices available to them
e.g. customizing trainers, build a bear
Segmentation activity
Consider HOTELS or BREAKFAST CEREAL as your product category; identify at least three different
variables that you think would be important in defining the segmentation strategy for this
particular product category.
Hotels: income; family life cycle; usage frequency
Cereals: Gender; age; lifestyle
Step 2: Targeting
Steps in The Target-Marketing Process
Phases of Targeting
Evaluation of Market Segments
A viable market segment should:
Have members with similar wants and needs that are different from those in
other segments (should be homogenous within but should be different from other segments)
Be measurable in size and purchasing power
Be large enough to be profitable
Be reachable by marketing communications
Have needs the marketer can address
Developing Segment Profiles
After segments are identified, marketers should develop profiles or descriptions of
the typical customers within a segment
A segment profile is a description of a “typical” customer in that segment
It might include customer demographics, location, lifestyle information and product-usage
characteristics
o Segments are usually defined on multiple bases (e.g. a combination of the behavioral,
psychographic and demographic bases)
E.g. Mosaic profiles
Choosing a Targeting Strategy
Undifferentiated
Differentiated
Concentrated
Customized
Undifferentiated Targeting Strategy
Offer or product to the whole market
E.g. Henry Ford and the model T car; one product, one price to one market
However it is currently hard to find such a targeting strategy now
Differentiated Targeting Strategy
Companies shave multiple target market segments and each different; have a
different marketing mix offering for each different segment
E.g. Procter and Gamble: own different brands in different industries and each brand have
different target market segments
Also see Arcadia: can make tailored offerings to each specific segments
Concentrated Targeting Strategy
Select one segment and develop marketing mix for that one segment
Usually for smaller companies because they lack the resources to satisfy different
segments
e.g. Bang & Olufsen: focus on upmarket consumers
Customized Targeting Strategy
Specific marketing mix for each customer
Tightly defined products/individualized products for every customer
Very common in biz to biz market
Mass Customization
Modify a basic good or service to meet the needs of an individual
The goal of mass-customization is to provide sufficient varieties in products or
services so that each individual can find exactly what he or she wants at a reasonable price.
Markets of one, that is, meeting the tailored needs of individual customers and
doing so on a mass-basis.
Aims to satisfy as many needs as possible for each individual
Targeting activity
Think about the product category we discussed before (HOTELS or BREAKFAST CEREALS)
select the segment profile(s) you consider as having the most potential (most
profitable)
recommend the most appropriate targeting strategy
Step 3: Positioning
Steps in The Target-Marketing Process
Positioning means developing a marketing strategy aimed at influencing how a particular market
segment perceives a good or service in comparison to the competition
The act of designing the company’s offering so that it occupies a meaningful and distinct position in
the target customer’s mind.
Consumers need to believe that you are positioned in the way that you make it up to
be
Need to know where your competitors sit in the market
Repositioning
Change of positioning strategy. e.g. Lucozade: when it was first launched, it was a drink that would
build back the health of a child after it was sick. Now it has repositioned itself to be a sports drink.
Reason: markets do not stay still; consumer trends change constantly
Perceptual Map
It is a visual representation of consumer perceptions of a brand and its competitors,
using attributes (dimensions) that are important to consumers. (Fahy and Jobber, 2015, p. 133)
A vivid way to construct a picture of where products or brands are “located” in
consumers’ minds
Positioning activity
- Think about the product category we discussed before (HOTELS or BREAKFAST CEREALS)
Outline what positioning approach you would aim for when trying to target this market with your own
product. You may want to draw a perceptual map of where you think your product would fit in with
other competitor products in the marketplace.
“Rather than ask what we are good at and what else can we do with that skill, you ask, who are our
customers? What do they need?
And then you say we’re going ‘to give that to them regardless of whether we have the skills to do so,
and we will learn these skills no matter how long it takes…
There is a tendency I think for executives to think that the right course of action is to stick to the
knitting—stick with what you are good at. That may be a generally good rule, but the problem is the
world changes out from under you if you are not constantly adding to your skill set.”
- Evaluating the different segments and work out which one will be the most profitable
- Elements of marketing mix must be coherent and match the target market segment
