Segmentation, Targeting and Positioning

What is STP ?

STP or segmentation targeting positioning is a marketing tool with the help of which marketeers differentiate, attract, retain and grow customer base for their respective products.

What is segmentation?

Segmentation is the procedure that an organisation goes through to segregate the market into different groups according to the different characteristics which might need different products. The Marketer, groups various people into segments on the basis of similar characteristics, tastes, perception etc. so that they will have a similar view/response to a particular product launched specifically for each segment.

“The subdividing of a market into homogenous (or similar) subsets of customers, where any subset may conceivably be selected as a target market to be reached with a distinct marketing mix”

Market segmentation is a two-step process of: naming broad product markets, and segmenting those markets in order to select target markets. Most segmentation efforts fail because inexperienced marketers attempt to find one or two demographic characteristics to segment a mass market. Generally, customer needs and behaviours do not fit nicely into one or two demographic characteristics. This section of the report will outline Best Practices related to segmenting our various product markets.

 Defining Generic and Product Markets

A market is a group of potential customers who have similar needs and are willing to purchase goods or services to satisfy those needs. Good marketers focus on the customer and develop marketing mixes for very specific target markets. On the other hand, poor marketers focus on their products when defining markets, leading to missed opportunities and questionable customer satisfaction. The point here is that a market is external to an organization; it doesn’t make sense to segment potential markets based on the features contained in our products or services.

When narrowing down the mass market, it is helpful to think of two basic types of markets: generic markets and product markets. A generic market is a market of customers with generally similar needs, which organizations satisfy in a variety of ways. An example of a generic market would be the transportation market for a city; buses, trains, cars, bicycles, and walking, are all methods of getting around town.

Contrastingly, a product market is a market of customers with very similar needs. An example of a product market would be for laptop computers, where customers have the choice between products from Fujitsu, Dell, Apple, Lenovo, HP etc.

When evaluating potential market opportunities, we look for a definition that is broader than our firm’s current product market, but not so broad that our firm cannot handle the demand if it were generated. Work to establish a slightly broader definition for our current product markets.

When defining our product market, there are four important aspects:

1. What - Product Type
2. To Meet – Customer Needs
3. Who - Customer Segments
4. Where - Geographic Region

An example of a product market might be “Financial Consulting services in Western parts of India”, where once we have defined our product markets, we are ready to continue the segmentation process to identify potential target markets.

 Understand Common Market Segment Dimensions

There are common market segment dimensions for consumer and B2B markets. Following are two lists containing sample dimensions that can be used to slice and dice our consumer or B2B product markets. High importance is to be given to the allocating criteria and the weight preferences, as these parameters will form the basis for defining our target markets.

* Note: the following lists are meant to provide examples that will stimulate our thinking of applicable dimension. There are thousands of variables that could be used for this exercise, so be sure to carefully select the right dimensions for our market.
B2C Segmentation Criteria

Demographic:

• Age
• Income
• Marital Status
• Education
• Family Size
• Gender
• Geographic Location
• Social Status
• Occupation

               

Psychographic:

• Brand Preferences
• Price Sensitivity
• Conservative/Liberal
• Enviro-Friendly
• Hobbies
• Lifestyle
• Information Sources
• Service Preferences
• Buy Based on Trends
• Spontaneity
• Influenced by Peers
• Relationship Importance

                         

                                                                      

Behavioural: 

• Purchase History
• Where They Shop
• Type of Store Preferences
• Association Memberships
• Internet Usage
• Impulsiveness

  

Environmental:

• Country of Residence
• Political Climate
• Currency
• Payment Methods
• Shipping & Receiving
• Languages Spoken

B2B Segmentation Criteria

Demographic:

• Annual Revenue
• # Employees
• Industry
• # Locations
• Years in Business
• Markets Served
• Products/Services
• Job Title
• Level of Experience/Seniority

Psychographic:

• Resistance to Change
• Diversification Oriented
• Open Minded/Rigid
• Decision Making Process
• Early Adopter/Follower
• Growth Oriented/Static
• Technology Sophistication
• Professionalism
• Require Referrals
• Awareness of Competitors
• Risk Aversion
• Loyalty
• Market Focused/Product Focused

Behavioral:

• Website Visits
• Responses to Marketing
• Purchasing Methods
• Association Memberships
• Internet Usage
• Social Media Groups
• Collateral Views/Downloads

Environmental:

• Technology Landscape
• Purchasing Power
• Management Practices
• Purchasing Process
• Business Culture

Differences in B2B and B2C markets can be understood from the diagram give below:-

Group Customers into Homogeneous Micro Segments

In this stage of the segmentation process, our goal is the find customers who have similar needs that will respond to a marketing mix in a predictable manner.

Following are 4 criteria that strong market segments have in common:

1. Homogeneous - customers in a market segment should be very similar in both their segment dimensions and their likely response to a marketing mix.
2. Heterogeneous - customers in different market segments should be as divergent as possible with other segments.
3. Economic Upside - the segment needs to be large enough, or predicted to grow sufficiently, to be profitable.
4. Operational - the segment dimensions should be helpful for understanding & identifying customers and making decisions regarding the marketing mix.

It is essential that market segments are operational. The whole point of segmenting is to assist with better targeting, positioning, and decision-making; be sure that our segment dimensions are extremely relevant.

Once we have established distinct market segments based on various dimensions, we are ready to start targeting our potential customers. The next section of the report provides advice pertaining the effective target marketing techniques.

TARGETING

Targeting evaluates the attractiveness of each segment of its buying power, size, growth of the market, competitiveness etc. Defending a target market requires market segmentation, “the process of pulling apart the entire market as a whole and separating it into manageable, disparate units based on demographics”. We then choose or come up with a particular strategy or a product itself for each targeted segment.

Target marketing makes the promotion, pricing and distribution of the products or services in a particular segment. Target marketing provides a focus to all marketing activities.   Market targeting means to choose one’s target market.

 

PROCESS OF CHOOSING TARGET MARKET:

-     
    We must make sure that target market is not synonymous to segmentation. Segmentation is just the first step of the target market.Target market follows different basis of segmentation. We must view each segment as a distinct marketing opportunity and continuously evaluate the worth of each segment (sales/profit potential).

-      Estimating whether the segment is:

Ø  Distinguishable.

Ø  Measurable

Ø  Sizable.

Ø  Accessible.

Ø  Growing.

Ø  Profitable

Ø  Compatible with the firm’s resources.

-           Ø  Checking out if the firm has the differential advantage
            Ø  Distinctive capability for serving the selected segments.

-          

   At the end choose those segments which the most appropriate for the company.

 

DECISIONS INVOLVED IN TARGETING STRATEGY INCLUDE

     which segments to targeting.

     how many products to offer.

     which products to offer in which segments.

After evaluating different segments, the company can consider five patterns of target market selection. They are:-

   

      

1. Single Segment concentration: We have brands in the market which concentrate only on one segment. For example, Zodiac brand concentrates on formal wear for executives and professionals. Farm Equipment Division of M&M concentrates on tractors.
           Through concentrated marketing, the firm gains a strong knowledge of the segment needs and achieves a strong market presence. But, a particular market's growth can deteriorate or a competitor may invade the segment. For example, when Digital camera technology took off, Kodak's market share started to fall gradually and they could not regain their dominance as new competitors like Sony and Nikon had arrived.
2. Selective Specialization: A firm selects the number of segments, each objectively attractive and appropriate. There may be little or no synergy among them but each promises to be a money-maker. For example, Cadbury's advertising targets audience of a wide range with one select ad for each segment.
3. Product Specialization: A microscope manufacturer makes different microscopes for different customer groups such as University, Govt., Hospitals and commercial laboratories and builds a strong reputation in that product area. The risk is that the product may be replaced by newer technologies.
4. Market Specialization: A firm gains strong reputation in serving a customer group and becomes a channel for additional products the customer group can use. For example, ITC first concentrated only on tobacco related products, and later they moved into the field of FMCG and IT services. The downside is that the customer group suffers budget cuts or shrink in size.
5. Full Market Coverage: The firm attempts to all customer groups will all the products that might be needed. Only very less firms like Microsoft(Software), General Motors(Vehicle), Dell(Electronics) etc. can undertake a full market coverage strategy.
                They can cover the whole market via Undifferentiated Marketing, where the firm ignores segment differences and Differentiated marketing, where the firm offers different products for different segment.

POSITIONING

Positioning “has come to mean the process by which marketers try to create an image or identity or value in the minds of their target market for its product, brand, or organization.”

Positioning involves on affecting the target. The example can be Apple Computer has chosen itself as user-friendly computers.  Thus, Apple advertising itself as a computer for “non-gigs”.

Positioning of a product is a sum of the attributes which are normally described by the customers.  Describe its standing, target market, quality, strengths, weaknesses, prices and any other values the product represents.

There are three types of positioning concept:

-          Functional position

Ø  Solve problems.

Ø  Provide benefits to customers.

Ø  Get favourable perception by investors (stock profile) and lenders.

-          Symbolic positions

Ø  Self-image enhancement.

Ø  Ego identification.

Ø  Belongingness and social meaningfulness.

Ø  Affective fulfilment.

-          Experiential positions

Ø  Provide sensory stimulation.

Ø  Provide cognitive stimulation

Approaches of positioning- the main approaches to positioning are:

-         

       Customer benefit approach- involves putting the brand behind the competitors. It can be a single product which can solve many problems e.g.  Procter & Gamble’s Head & shoulder shampoo functions as anti-dandruff and anti-hair fall shampoo.

-          The price-quality approach- some brands have higher price to cover the cost of the product and to give the customer message that this product is on a high level and quality example can be RADO watch  £1,323

 

        The use or application approach.- For example: MUSIC EDITION mobile phone. Samsung scg-r470

 

-          The product user approach – in here the brand identify the target market for which product will be position.

-     The product class approach.

-          The cultural symbol approach. - It is based on showing the cultural symbol which helps stand out from other competitors. The example of this can be the MALBORO brand which shows the cowboy image 

 

-      The competitor approach.

       To effectively understand repositioning, it is important to understand how one’s brand and those of competitors are perceived.  This let identify how products are perceived by the consumers.  After that the company can attempt to move the brand in more desirable directions by promoting other, certain points.   

Segmentation, targeting and positioning are closely interrelated with each other.

Questions:
1. You are from HUL and you are going to launch a face wash. Explain what will be your approach for STP ?
2. Mention the salient features of the 5 patterns of target market selection with an example for each.
3. What is the inter-relationship between segmenting, targeting and positioning?