Segmentation, Targeting, Positioning

Introduction Buyers in any market differ in their wants, needs, locations, buying attitudes and tastes. It is impossible to satisfy all customers by treating them alike. The segmentation concerned with grouping customers in terms of their needs. The reason for segmentation is to identify a group of people who have a need which can be met by a single product, which concentrates the marketing firms efforts more effectively and economically. Segmentation is about dividing up the market, provides information which segment is more likely to be profitable to serve. Targeting is concerned with choosing which segment to aim for. Positioning is the way product is defined by customers. It is about the place the brand occupies in minds of the customers, relative to other brands. In this assignment accurate application of Segmentation, Targeting, Positioning and why it is important to use this method for successful Strategy, advantages and disadvantages will be discussed.

Market Segmentation Each consumer has an individual needs and tastes. But it is impossible to provide or customize each product to the requirements of each person. Therefore segmentation finds out how many people are going to buy the product, how much they will pay for it and where will they buy it from. The main purpose of segmenting is to concentrate the firms efforts on pleasing the group of people with similar needs, rather than trying hard to please everybody and maybe ending up with ineffective results. To be useful and successful, market segments must be measurable, accessible, substantial, differentiable and actionable. (Kotler, 1991, pp 224) Measurable. It is a way of identifying the members of the segment and knowing how many of them there are.
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Accessible. It must be possible to communicate with the segment as a group and get the product to them as a group. Substantial. The market segments should be large enough to serve them. Differentiable. The product should be differentiated, as market segments respond differently to the product or service. Actionable. To attract and serve the segmented group, effective action plans must be designed. Types of Segmentation There are main bases for segmenting: Geographic ( world region, country, city, climate, village) Psychographic ( social class, personality ) Behavioral ( attitude towards the product, user status, loyalty status ) Demographic ( age, gender, income, occupation, religion, race, nationality)

Geographical segmentation divides market into geographical units, like nations, regions, provinces or neighborhood. There are can be many reasons why company carries out this segmentation. For example: - Some companies prefer to set up a shop in a small town, in order to have the least number of competitors compared to large cities. - The nature of the product can be suitable for a specific area, like if the clothing manufacturer is selling warm coats, they will definitely move to cold areas, rather than warm areas. - If the company is small enough and have limited resources, then it might prefer to start up in a smaller area. - If the product itself cannot travel or be shifted, like beauty salon businesses, wedding cakes shop.

Psychographic Segmentation divides buyers into groups based on lifestyle, class and personality.
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For example, the market for hair products or make up may be described by their primary purchase motives, like beauty, health, grooming. Or usage styles daily, weekly, salon only. Or top branded shops might segment into those who are following the fashion and having a large income. Psychographic information can be collected through personal interviews, questionnaires or purchased from research companies. Behavioral segmentation divides buyers into groups based on their attitudes, knowledge or response to a product. Most companies go for this type of segmentation, as this approach examines the benefits, usage situation and loyalty. This segmentation can be divided into several types, like: occasions, user status, usage rate, loyalty status. (Kotler, 1991, pp 221) Occasion segmentation helps firms to build up a product usage. For example, coffee advertisements promote drinking coffee in the mornings to get energy and good mood for whole day. Obviously, when person is feeling too tired or sleepy early mornings there are more chances that he will first think of drinking a cup of hot coffee. User status can be segmented into non users, ex-users, potential users and regular users. Marketers will retain or motivate regular users, rebuild relationship with ex-users and attract nonusers. In order to keep the regular users happy firm must include some promotions, small gifts or just ask them how to improve the product. For example, Specsavors, UK based optical shop, which deals in contact lenses, provides free samples and solutions free of charge on each purchase to their regular clients. Nonusers can be attracted and become a regular user, if certain product is marketed effectively. For example, expectant mothers are definitely to become potential regular users of infant products.

Segmentation, Targeting, Positioning

Usage rate is also segmented into light, medium and heavy product users. For example, families with small kids are heavy users of washing powder with bleach; while adult could be a light user of this product. Loyalty Status. Customers can be loyal to particular brands, stores or companies. For example, most Arabic people in UAE loyal to their Arabic brand of perfumes, which does not consist of alcohol. They are so loyal to this Arabic brand, that they do not consider checking other French branded perfumes. When customer is shifting away to another brand, the company can identify its weaknesses.

Demographic segmentation divides groups based on age, gender, income, religion, occupation, race and nationality. It is the most commonly used method. It revolves around age. For example, sports car manufacturer has to target the age group of 20 40 years; fashion magazine will focus on targeting on female gender. After dividing the market into segments, firms manager decides which segment will be the best to target. Normally they choose the most profitable segment, considering that competitors are less likely to enter the market. This process called Targeting. There are basic three options of targeting: (Jim Blythe, 2008, pp 82) 1) Concentrated marketing or niche marketing is that company will select a single tiny segment and be the best within that segment. For example, Toyota follows this approach, by having a selection of small cars, hybrids or SUVs. If customers want a reliable small or big size vehicle, many of them will think of Toyota. 2) Differentiated marketing concentrates on two or more segments and offers differentiated marketing for each. For example, Airline companies offering Economy, First Class and Business Class tickets to attract different group of people.
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3) Undifferentiated marketing offers a basic product, which will be used by almost all groups of people. For example, petrol is undifferentiated product, as the use of it is much same for everybody, regardless to age or life style. Choosing the right market and targeting it accurately is the most important aspect of the marketer. While choosing the wrong segment to target leads to lost opportunities. After segmenting a market and then targeting a consumer, one proceeds to position a product within that market. Positioning refers to the product in customers understanding: as a high quality item, or as reliable item, or as a cheap version. Consumers build up a position for the product based on what they expect to be the most suitable, needed feature of the product. Marketer needs to identify these features in the targeted consumer understanding. For example, watches like Rolex positioned as a luxury and one of the most expensive watches. If Rolex price is dropped, it will lose its image and customers as well. Sometimes two or more firms can go after the same position, but at the same time they can be differentiated in customers perception. For example, Starbucks and Costa coffee shops offer the similar product, like coffee and cakes, but the atmosphere of the coffee shops and product assortments are different. Each has its own loyal customers, as the way they positioned themselves is very unique.

Why Segmentation, Targeting and Positioning is important in Marketing Strategy? Buyers of a product or service are not same, therefore market segmentation is important. Every buyer has preferences, needs and resources. It is impossible to cater every customers individual characteristics. Marketers group the customers into segments by variables they have in common. And these individual characteristics help marketers to create a standardized marketing for all customers in this segment. Each customer has different income. By segmenting markets, business
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can raise average prices and increase its profits. By marketing product to customers at different stages of their life, business can retain customers who might switch to another brand. By segmenting customers into groups business gets to know its customers better, obviously since the customer orientation grows, business has more chances to gain their loyalty. Trough accurate segmentation business can achieve a competitive production and become customers preferred choice. In other words, segmentation gives chance to smaller firms to compete with larger ones.

Advantages of Market Segmentation: 1) By segmenting, the firm can understand its customers better. By knowing its customers the firm knows what to provide and how many, on what price and by when, which leads to customer satisfaction and higher profits. For example, Dell offers the same product to every customer, but at the same time it is differentiated from customer to customer. Product designed exactly as buyer wants it to be. 2) While concentrating on small segment, it is easier to deal with competition. 3) The firm can concentrate effectively on few customers, rather than ineffectively on the masses. By concentrating on few customers, firm gives its 100 % to please them; it knows about its customers, their needs and provides particular product or service to match them, which can make the firm superior to its competitors. 4) Once the firm recognized its customers, it is always easier to plan its strategy. The firm knows exactly what product it has to offer and how many, on what price and size. 5) Good segmentation can expand the market by bringing potential customers in need of the same product, who was unaware of the product before. 6) It is beneficial to companies with less resource or newly started businesses.
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7) Increases market share. Market leadership in selected segments improves the competitive position of the organization in its relationship with customers. It strengthens the brand, which leads to have better chances to increase their market shares in the overall market. 8) Focuses firms marketing on the customers most likely to buy its products or services. 9) Creates a competitive advantage. the greatest opportunity for creating a competitive advantage often comes from new ways of segmenting, because a firm can meet buyer needs better than competitors or improve its relative cost position ( Porter, 1985, p 247 ) Critical Thinking Identifying market segments requires significant amounts of market research, which can be expensive. To identify which group customer belongs to, the firm needs to buy information from research companies, print questionnaires, and interview customers personally, by phone or email, which creates extra costs to the firm. Limited popularity of the brand. While focusing on one or small group of customers only, the firm can miss the chance of getting expanded globally. Not all customers will be aware of the brand. Targeting multiple segments can increase marketing costs. To attract the buyers from two or more segments always require marketing the product or service, which can be expensive. Buyers behavior cannot be entirely governed by age, gender, or religion. As he grows older, become better educated, have children or change his job will not really change his basic likes and dislikes. If person likes to drink beer, no amount of money will make him suddenly like Champaign instead.

Segmentation, Targeting, Positioning

Summary Segments must be measurable, accessible, substantial, differentiable and actionable. The narrower the segment the fewer the customers, but satisfaction is greater. If segment has been identified correctly, the greater the premium buyers are willing to pay. There are many ways to segment a market. Targeting is concerned with selecting an appropriate segment and approaching it effectively. Sales forecasting is easier when market is segmented properly and where the item is standardized.

Bibliography

1. Engel, J.F., Blackwell, R.D., Miniard, P.W., Consumer Behavior, 8th Edition (Fort Worth, Tx, Dryden Press, 1995) 2. Hassan, S.S., Katsanis, L.P., Identification of global consumer segments: a behavioral framework, Journal of International Consumer Marketing, (1991), pp 11-28 3. Jamal Ahmed, Marketing in a multicultural world: the interplay of marketing, ethnicity and consumption, European Journal of Marketing, (2003), pp 1599-1620 4. Jim Blythe, Essentials of Marketing, 4th Edition, (2008), pp 73-92. 5. Michael J. Baker, Susan Hart, The Marketing Book, 6th Edition, (2008), pp 222-241 6. Paul Baunes, Chriss Fill, Kelly Page, Marketing, (2010), pp 216-259. 7. Paul Peter, Jerry C. Olson, Consumer Behavior and Marketing Strategy, 4th Edition, (Chicago, IL, Irwin, 1996), (Chapter 16) 8. Philip Kotler, Gary Armstrong, Principles of Marketing, 13th Edition, (2009), pp 216-242
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9. Yankelovich, D., Meer, D. Rediscovering Market Segmentation,, Harvard Business Review, (2006), pp 122-132