Market segmentation, targeting and positioning

One of the most important marketing principles involves identifying and understanding the needs of groups of consumers. Marketers understand that this could be a difficult process as different people want different things, which can vary between goods and services they purchase, including the movies they watch, clothes they wear and household appliance they use.

Reasons why businesses cannot appeal to all potential buyers in the market include:

• There are too many different types of consumers
• They are widely scattered across geographical areas
• They are too varied in terms of their characteristics, preferences and behaviours.

Companies divide markets into meaningful customer groups to create customer value to have the best strategy. They select a few segments within the market and develop market offerings that best serve that target market (Armstrong et al. 2020).

Segmentation plays a vital role in strategising marketing plans to understand their target markets and identify breakthrough opportunities.

Segmentation

We understand that in marketing, the main concept is to fulfil the needs of consumers, but would it be effective to simply provide a product offering? How can marketers target their specific audience and show them that their product will meet the consumer’s needs better than any other competitor on the market?

This is when marketers conduct a segmentation analysis to identify their consumer audience.

To segment a market means identifying and breaking down a single, large market into smaller, distinctive groups (segments) that share everyday needs, characteristics or behaviours so businesses can effectively reach them.

This process can follow these steps:

1. Strategy or objectives
2. segmentation methods
3. evaluate segment attractiveness
4. select target market
5. identify and develop a positioning strategy

Marketers use geographic, demographic, and behavioural segmentation methods to better understand each group's consumer profiles. They then use this information to distinguish customer similarities and the effectiveness of their product within that segment

There are many different ways to identify different markets. The following are examples of some variables that might be used in segmenting the market (Tynan & Drayton 1987; Armstrong et al. 2020).

• Geographic variables, such as regions, political areas and postcodes
• Demographic variables, such as age, gender and income
• Behavioural variables, such as frequency of product usage and occasions for product use.

These segmentation variables can be used alone or in combination, depending on the level of specificity required (Beane & Ennis 1987).

Geographic variables

This strategy organises customers into groups based on where they live. It may include splitting countries, regions and even areas within a region. This may provide insight into weather, local culture, compliance requirements and lifestyle.

Example: A national supermarket such as Countdown will have the same stores with similar assortments in various locations across New Zealand. Within those similar stores, though, a significant percentage of the assortment of goods will vary from the region-to-region city or even suburb, depending on the different needs of the customers surrounding each location. This may include:

• Online shopping in one region that may not be available in another
• Types of products sold will cater to the market audience within each region.

Demographic variables

These variables are important for marketers as they can clearly define different consumer groups and respond to your product. Many researchers rely on this segmentation process as they are easy to identify and easy to market to.

These include:

• Age
• Generation (Baby boomers, Gen X, Gen Y, Millennials etc.)
• Gender
• Income
• Occupation
• Marital Status
• Ethnicity.

Example: The brand Kellogg’s uses age and gender segmentation for all cereal products. This is a clever strategy as they aim to use one product to meet the needs of various groups within society. Some examples include Coco pops and Fruit loops for children, Special K, and All-Bran for adults.

Behavioural variables

Behavioural segmentation divides customers into groups based on how they use a product. It can even include customers who have enquired about a certain product, when and how often they purchase.

• Customers who have purchased a certain product
• Customers who have added products to their cart but have not checked out – often called ‘abandoned cart’
• Customers who have flagged interests in their account profile
• Segmentation based on the frequency of purchases
• Level of engagement with marketing communications.

Example: Although the organisation may have one large email list of 10,000 contacts, it is ‘segmented’ in the database according to different segment groups. Each time a campaign is sent, the organisation chooses which segment to send it to rather than sending it to the whole list of 10,000 people. This ensures that only relevant contacts on the list get the mail. For example, Air New Zealand rewards customers who fly the most miles with air points. They receive better treatment from the airline due to their loyalty. This may include receiving a special bonus rate, an increased check-in baggage allowance and, of course, VIP lounge access.

Requirements for effective segmentation

While there are certainly many ways a market can be segmented, not all are useful or effective. Marketers must determine whether the segment is worth pursuing. Effective segmentation addresses five (5) main criteria (Kotler & Armstrong 2020). Effective segmentation should be:

• Identifiable
• Substantial
• Reachable
• Responsive
• Profitable.

Identifiable

Marketers must be able to identify

• Who their target audience is?
• Whether or not their product or services meet the consumers’ needs
• If the segments chosen are distinct from one another with minimal overlapping.

Substantial

Marketers must identify:

• The size of their market audience and whether it is too small
• Will their audience generate sufficient profits, or is the buying power insignificant?

Reachable

Marketers must find a way to reach their target market. No matter how effective it may be, any product will not be able to impact if its market cannot be reached.

Responsive

For a segmentation strategy to be successful, marketers must identify if:

• Customers, specifically their chosen target audience, react positively to their product/service
• If they cannot provide services to their target audience, they will need to re-evaluate their segmentation process.

For instance, Ford and Holden do not target the large and very lucrative luxury car segment. People in this market typically purchase Porsches, BMWs and Audi’s. In contrast, Ford and Holden are very successful competing for the middle-priced family-oriented segment. Dhruv Grewal, Michael Levy, Shane Mathews, Paul Harrigan, Tania Bucic, Foula Kopanidis. Marketing

Profitable

Segment profitability = (Segment size × Segment adoption percentage × Purchase behaviour × Profit margin percentage) − Fixed costs

Businesses will need to identify their potential profitability both currently and in the future.

Watch the following ad for Bic For Her – pens developed and marketed specifically to women. What do you think about it? Would you consider this an effective segmentation strategy?

Once they have evaluated the effectiveness of their segments, they must decide on who their target audience must be.

Once they have evaluated the effectiveness of their segments, they must decide on who the best market audience would be to pursue. If more than one target market is selected, the marketer must consider the best strategy to target and reach their market group/s and maximise profits.

Undifferentiated targeting strategy

When businesses consider everyone a potential user of their product or service, they will choose not to segment their product to one particular target audience. This could be because their product provides similar benefits to all customers or meets the specific needs of a mass market. Rice, flour, salt, and sugar are all examples of items that use this method. Example: Coca Cola has successfully generated billions in profits using undifferentiated marketing strategies.

Differentiated targeting strategy

When businesses have a few market segments they would like to target, they opt for a differentiated targeting strategy as they provide different products/services for each target group. This strategy helps businesses obtain a bigger share in the market.

The main advantage of this strategy is that businesses can provide products that appeal to multiple segments. Hence, if one product isn’t successful and suffers in sales, other products can help pick up revenue to help the business continue.

Example: Estee Lauder showcases a successful portfolio with a range of brands and products under its umbrella to target various market segments. Their products range from skincare, beauty and perfume.

These are some of the brands under Estee Lauder.

• Aveda
• Bobbi brown
• Clinique
• DKNY
• MAC
• Jo Malone
• Michael Kors
• Tom Ford
• Tommy Hilfiger.

Estée Lauder is an expert in creating differentiated brands that serve the tastes of different market segments.

Five of the top-ten best-selling prestige perfumes belong to Estée Lauder. So do eight of the top-ten prestige make-up brands.

The original Estée Lauder brand, with its gold and blue packaging, appeals to older individuals, 50+. Then there’s Clinique, the company’s most popular brand, perfect for middle-aged mothers with no time to waste. For young consumers, their go-to product is MAC. For the women that are opting for a natural alternative, there’s upscale Aveda. (Gary Armstrong, Philip Kotler, Michael Harker, Ross Brennan.Marketing)

Estee Lauder has a stronger position due to this, as they have a larger market share in each of their market segments. It, however, adds to the business's workload because it necessitates more marketing plans and research to prepare and sell their brands/products to their unique target demographic. The following video explains the difference between undifferentiated and differentiated marketing while highlighting the pros and cons of each strategy.

Concentrated targeting strategy

Concentrated targeting focuses on the small niche market where businesses target a single primary market audience. Businesses will put all their energy into meeting that specific group’s needs and expectations. A business can market effectively through concentrated marketing by perfecting its products and prices to cater to its specific segment. This type of marketing comes with a higher risk as they count on the success of their product and may risk the business's longevity if the product is not profitable.

For example, e-cards (online cards) can be created for special events. Consumers are now looking for e-cards with personalised messages with the growing online demand.

Greenenvelope “Save Time, Save Trees, Save Money Email Invitations + RSVP Tracking” is an e-card company emphasising the importance of being eco-friendly whilst creating personalised cards for special events.

Micro-marketing targeting strategy

Compared to other strategies, including the differentiated and concentrated strategy, where they meet the needs of various market segment groups, the micro marketing strategy customises its offers to meet the needs of each customer, otherwise known as one-to-one marketing.

It may include coupons or discount sales based on your behaviour and previous purchases through online shopping. Countdown New Zealand will usually send consumers an email with their lowest price specials based on their previously purchased goods.

Ways in which businesses can implement a micro marketing targeting strategy include:

• Cookies website stores in a visitor’s browser, provide a unique identification of each potential customer who visits and details how the customer has searched the site
• They may also ask consumers to fill in a questionnaire or survey
• Algorithms to provide recommendations for related products to customers as they browse the site
• Customised orders where consumers share details regarding the product or service intending to be purchased.

With this information, marketers can cater to their consumer's needs by providing personalised products they may be interested in.

Before choosing a target marketing strategy, marketers will evaluate which option would be best suited based on their objective and resources.

Once the targeting strategy has been established, marketers will focus on differentiation and product positioning.

Product positioning refers to where products fit in the minds of the consumers in the market. If positioned effectively, their products will fulfil unmet needs and differentiate themselves from their competition.

A critical component for effective positioning is understanding the audience and their interests, desires, and outcomes, working alongside the chosen market segmentation group. If we do not have all that information, marketers would be unable to effectively position their products to meet the needs of their target audience.

Marketers position products to appeal to a specific group of consumers. They create an image of their brand that they want consumers to accept.

• Fun
• Fast
• Fuel efficient
• Comfort
• Luxury.

As you can see, Ferrari focuses on positioning its cars to target high-end consumers who desire luxurious cars.

Factors that are considered when positioning products on the market include:

Premise of positioning

When businesses work to position their product, they will target their segmentation group, catering to their consumers' specific needs, attitudes, and beliefs. However, they may risk losing other consumers that do not fit into this segment. Some companies can avoid this by undertaking a Differentiated targeting strategy that caters to many segmentation groups.

Long term positioning

Can you position the product over a long-term period? It would not be beneficial to continue to change your product positioning as this can confuse your consumers. By maintaining the same message, consumers will develop a sense of loyalty and trust toward your product.

Relevant positioning

Is your product relevant to the segment group chosen? Does it meet their needs? Marketers must address what consumers want and provide a relevant product to meet their needs. Consumers are not motivated to purchase this product if there is no relevance.

Clear and coherent

Do not confuse consumers; make your logos or catchphrases clear and simple. Make it worth remembering as well as helping them identify your product or service based on your catchphrase. Example: “Target - Expect more, pay less”.

Distinctive position

Does the product stand out compared to the competition? Does the product have that distinctive position in the marketplace where consumers can differentiate it from its competitors?

Price position

How will the products be priced? Will it be classified as a low-end or high-end product? Marketers will position their products based on the socio-economic status of their target group and what they would be willing to pay for certain products. If businesses target medium or low-income earners, they will position their products to provide trustworthy, affordable products with the same quality as competitive products on the market.

A great example of this is IKEA. They strive to provide low prices without sacrificing the quality of their products.

Service position

How will businesses service their products? What services will they offer to support the customer service journey? Iconic is a great example where they offer free delivery and refunds 24/7 customer service for enquiries, complaints, and feedback.

The video below will further detail different differentiation and positioning strategies.

The following include examples of how different brands have used differentiation and positioning strategies for their products:

Check out this playful ad from Samsung when comparing their product to apple

Throughout this ad, Samsung has primarily focused on brand and product differentiation. They have playfully compared the latest apple phone release to their Samsung model.

Burger king showcased their new burger by going head-to-head with the famous big mac from McDonald’s.

Reflect on these ads and how they have used positioning and differentiation and who their target audience may be. Are they effective in getting their message across?

Marketers focus on the differentiation and positioning of their products to better meet customers’ needs and build a competitive advantage over other products in the market. When this happens, consumers view the business’ position on the market as uniquely suited to their preferences and needs and therefore drive their sales.

Customer personas are semi-fictional representations of characters created to present the target market or ideal customers. They are used by businesses to understand better the target market and their perspectives (Vaughan 2021).

Buyer personas are fictional representations of characters used to understand the customer's perspective. Buyer personas should be based on research and market segmentation.

Buyer personas are the steps a customer goes through when engaging with a company. For instance, searching for the business or product, buying the product or service, using it and disposing of it.

Businesses with a customer-centric approach understand their customer's journey from beginning to end and gain a competitive advantage (Hoffman & Bateson 2017).

Understanding how customers interact with businesses at multiple touchpoints throughout their journey is vital in delivering positive customer experiences. A tool available to accomplish this is customer journey mapping which focuses on the customer’s perspective and the service delivery system (Lemon & Verhoef 2016).

It helps businesses identify the touchpoints in different phases and manage customer expectations accordingly to deliver a great experience. Based on this, they will create a customer persona and the ideal consumer who would most likely be interested in their products.

The following video provides further information on creating a customer persona.

Below are some examples of consumer personas.