Marketing Management Topic 5: Market Segmentation, Target Marketing and Market Positioning

Stages of Segmenting, Targeting and Positioning

1. Needs-based segmentation 2. Segmentation identification (1-2 segment into needs-based groups) 3. Segment attractiveness 4. Segment profitability (3-4 about market targeting - identifying and deciding on the most attractive and profitable segments) 5. Segment positioning 6. Segment 'acid test' 7. Marketing-mix strategy (5-7 are about market segment positioning)

Overview

A company can opt to sell to everyone or it can pick a specific segment of the entire market and divide it into smaller groups for easy targeting. Market segmentation is the process of partitioning a large market into smaller, more workable groups that have parallel wants and needs. There are times when a company needs to apply market segmentation, such as an increase in the number of aggressive competitors, a lack of technological capability, strain on the budget, and diversification of consumer needs. Market segmentation can result in more appropriate and practical target marketing. This process also allows developing and communicating a positioning strategy for each unique segment. This however implies that marketing managers need to create a specific number of ideas to promote a unique selling proposition.

Choosing POPs and PODs

A marketer must choose and create POPs and PODs that will achieve brand marketing goals. Consumers must find PODs desirable and the firm must be able to deliver the PODs. Overall, brand's desirability is based on relevance, distinctiveness and believability and these are the attributes that need to guide the firms during the positioning process since the ultimate goal of this exercise is to create a long-lasting competitive advantage and differentiation in the market clutter. In this case understanding of brand mantra, which represents the heart and the soul of a brand and its essence, is a key to deliver a consistent and engaging brand positioning strategy.

Part 3: Developing and Communicating a Positioning Strategy

After segmenting and targeting a market, we turn to positioning our product within our selected target market segment. A product or brand is positioned in the market according to the mental picture or perception that consumers have of the product/brand in terms of its attributes and benefits to them against those of competitors. Market positioning 'is the act of designing the company's offering and image to occupy a distinctive place in the mind of the target market', so that the target understands and appreciates what the company stands for in relation to its competition (Kotler et al. 2013, p. 344). The company's positioning must be rooted in an understanding of how the target defines value and makes choices among vendors.

5 Dimensions of Consumer Market Segmentation

Consumer markets are segmented on one or more of the following dimensions: Geographic segmentation, which divides the market into different geographical units like nations, states, regions, counties, cities, or neighbourhoods. Demographic segmentation, which divides the market into groups based on demographic variables like age, life-cycle, gender, income, and generation (Generation Y or Baby Boomers). Psychographic segmentation - dividing the market into different groups on the basis of lifestyle, personality, or values. Behavioural segmentation, where the market is 'divided into groups on the basis of their knowledge of, attitude toward, use of, or response to a product' (Kotler et al, 2013, p. 273). Who makes the purchase decision is an important variable, as well as the usage occasion (family dinner or anniversary), user status (non-user, ex-user, potential user, etc.), usage rate (light, medium, or heavy users) and so on. Multi-attribute segmentation (geo-clustering), which divides the market on a combination of variables (i.e. geographic and demographic data) in an effort to identify smaller and better defined target groups.

5 Dimensions of Business Market Segmentation

Demographic variables (industry, company size, or location) Operating variables (technology or customer capabilities) Purchasing approaches (existing relationship or purchasing policies) Situational factors (urgency or order size) Personal characteristics (attitude toward risk or loyalty).

Part 2: Marketing Targeting

Despite the diversity of suggested segmentation methods, it is important to keep in mind that not all identified segments may be profitable or useful for the company. Hence, marketing targeting involves deciding how many and which market segments the firm should focus its marketing efforts

Mass Marketing

In contrast to segmentation of markets, mass marketing means attempting to sell one product to all buyers. Sellers today are tending to move away from mass marketing because target marketing is more helpful in spotting market opportunities and developing winning products marketing mixes. We should, however, be cautious in our approach to segmentation, as there is a limit beyond which market segmentation becomes counterproductive for the company. Segmentation favours the customer - the smaller the segment, the more closely their needs are satisfied. However, segmentation reduces economy of scale and companies prefer larger rather than smaller segments. In most markets there is a fine balance between the desires of the market for excellent products and the needs of the company to be profitable and to compete successfully with other sellers.

Segmentation

Market segmentation is the act of dividing a market into distinct groups of buyers with different needs or responses. When we look more closely at the needs and wants of customers, we discover that many buyers share similar preferences for products and services that satisfy those needs. Consequently, most markets can be divided into segments of customers, where the preferences of each segment allow a marketer to create specific offerings that closely match those preferences. This is what market segmentation is about. The three key steps in target marketing are: 1) market segmentation; 2) determining a target market or segment; and 3) communication of distinctive product/service values to the designated segment (positioning the product to suit buyers and resist competition).

Targeting a Segment

Once some appropriate segments have been identified using the criteria above, the next question is which one should a company focus on? A firm can consider four levels of target market selection: Full market coverage - the company serves all customer groups with products they might need (the so-called undifferentiated or mass marketing). Multiple segments specialisation - the company selects several attractive segments, which may be very distinct, yet profitable. Single-segment concentration - the company concentrates on one market only for its one product. Individual marketing - this is the ultimate level of segmentation which gave rise to customised marketing, customising the product to the individual customer's unique set of wants and preferences. Customerisation may not be applicable to complex products.

Points of Parity and Points of Difference

Points-of-parity are common associations among brands. In contrast, with positioning, points-of-difference can clearly set a brand apart.

Identifying and Profiling the Market Segments

Segments are identified based on needs and wants of consumers, and described or profiled using the bases of segmentation. Selecting the target segment is based on the segment's overall attractiveness and the firm's profit objectives.

Target Marketing

Target marketing involves developing a specific marketing strategy (products and other marketing effort) for each market target. Essentially, target marketing requires three basic steps: 1. Identify and profile distinct groups of buyers who might need a separate marketing mix (segmentation) (discussed in part 2 above). 2. Target a segment(s) to enter (discussed below). 3. Positioning strategy - establishing the product's distinctive benefits in the market (competitive positioning) and communicate this to the market.

3 Steps of Effective Positioning

The positioning tasks consist of three steps: 1) identify the frame of reference in the target market (competitors); 2) determine the ideal points-of-parity (POP) and points-of-difference (POD) brand associations; and 3) communicate brand essence and overall positioning to the selected target market(s). The company's product- positioning enables it to plan its competitive marketing strategies.

Effective Segmentation

To be useful, market segments must be: Measurable - there is no point in specifying that our dietary product will target people of a certain weight and height if we cannot readily identify and measure the market. Substantial - this is the minimum criterion for profitability. Accessible - in countries like Australia with vast areas of the interior only sparsely populated, it is difficult to cater to the special needs of this group because it is costly to access them in their widely separate locations. Differentiable - the preferences of the segments should be clear and not overlap. In the car market the use of both conventional and 4 wheel drive vehicles for city driving has blurred the boundaries of the segments involved. Actionable - a small airline identified several segments, but it had too few staff to develop separate marketing programs.