Segmentation, targeting and positioning

Segmentation

Market segmentation is essential in the crucial task of selecting a target market for a given product and designing an appropriate marketing mix (Tynan and Drayton, 1987, p. 301). It is one of the key building blocks of strategic marketing and is essential for marketing success. Highly successfill firms make use of market segmentation (Lilien and Rangaswamy, 2003, p. 61), and it lies at the heart of successfill marketing (McDonald, 2010). It also has one of the largest impacts on marketing decisions (Roberts et al., 2014, p. 127).

Market segmentation is a technique which can help firms find ways of establishing a competitive advantage. A market segment is a section of a market which possesses one or more unique features that both give it an identity and set it apart from other segments. Market segmentation amounts to partitioning a market into a number of distinct sections, using criteria which reflect different and distinctive purchasing motives and behaviour of customers. Segmentation makes it easier for firms to produce goods or services that fit closely with what people want.

Market segmentation research

Segmenting and selecting the optimum market segments are called target marketing. This is a vital marketing skill. Target marketing requires an ability to:

a Find the key characteristic/s that break a market into relevant ‘actionable' segments.

b Identify and quantify which customers fall into which segments.

c Target the best segments most likely to give the best results.

West (2010) suggests the critical things to look for are that it is large enough, has sufficient purchasing power, and is reachable. The organization should also be able to serve the segment effectively and target it with marketing programs.

One can segment consumer markets using many different variables including:

• • Geographic: segments mean location, and this can include streets, towns, cities, regions, countries, continents, hading blocs like the European Union and NAFTA.
• • Demographics or social statistics: includes age, sex, family, life cycle, job type/socioeconomic and group income level.
• • Geodemographics: mixes geographic and demographic data to create categories of house types and locations - for example, people who live in detached houses in exclusive suburbs.
• • Psychographics: attempts to segment according to psychological profiles of people in terms of their lifestyles, attitudes and personalities -for example, active go-getters.
• • Behavioural: addresses behaviour’ patterns which include usage (e.g. heavy or light users) and uses, the ways a product or service is used - in other words, the benefit enjoyed.

Industrial, organizational or business-to-business markets can also be broken into segments and the most appropriate ones selected as target markets. Different variables are used for these types of markets: customer type, size, location, how they operate or the corporate culture. Customer type categorizes the type of product or service which the customer organization produces. In the UK, industry type is defined by the SIC, Standard Industrial Classification code. The size of the customer in terms of sales, number of staff and usage may determine whether it is worth targeting or not. Size of customer is also influenced by whether they are heavy or light users of a particular product or service and whether they are very loyal to a particular competitor.

Segmentation strategy

Some finns place a product within a single market segment. Few resources or a lack of competitors in the segment may make this strategy attractive, hi so doing a firm may be able to develop a strong market position through gaining an in-depth knowledge of the segment’s needs over a long period of time. Operating economies may also be obtained through specialization. Such a strategy is of course risky since a downturn in the market or the sudden emergence of a strong competitor can have a drastic impact on profits. A more conservative strategy is to look for a match between capabilities and the demands of several different segments. This makes it possible to spread the risk so that if one segment starts to become unprofitable there are still others that can bring in cash for the firm.

Finns sometimes concentrate on producing one product or service which is supplied to several different customer groups. In pursuing this strategy, a firm can build a good reputation in the area of the specific product. This also can be a risky strategy since it involves concentrating on a single product or service.

Concentrating on serving the needs of a particular group of customers represents yet another way of segmenting the market. This can involve making available many different products or services. Risk in this case is associated with a downturn in the fortunes of the particular group of customers selected.

Segment synergies

Funis which decide to serve more than one segment need to pay close attention to synergies between segments with respect to cost, performance and technology. Two or more segments might provide just the opportunity for exploitation because they share common distribution channels, manufacturing facilities, etc. The joint effect of marketing to all segments creates synergy. That is, the overall effect of marketing to two or more segments is to produce gr eater sales and profits than if each segment had been exploited one at a time in complete isolation from the others.

In international markets it is sometimes a good strategy to use a segment to which one can gain access as a stepping stone to other segments which may be difficult to access unless one already has a base in the country concerned.