There is only one winning strategy. It is to carefully define the target market and direct a superior offering to that target market."
- Philip Kotler
The idea of defining the target market and 'directing a superior offering' to them is the fundamental idea behind market segmentation, targeting and positioning. These steps are essential for an organisation's marketing strategy.
Meaning of segmentation, targeting, and positioning in marketing
Segmentation, targeting, and positioning are also known as the STP marketing model. The three concepts go hand in hand when making decisions about a firm's marketing processes.
Market segmentation
The first step is market segmentation.
Market segmentation divides the market into subgroups of individuals who share similar needs, wants, and characteristics.
It is the marketer's goal to identify the appropriate subgroups of consumers. There are four ways of segmenting consumers (see Figure 1 below).
Demographic segmentation
This is one of the most widely used segmentation methods. Demographic segmentation divides consumers into groups based on characteristics such as:
Age.
Sex.
Income.
Family size.
Occupation, etc.
Geographic segmentation
This divides the market based on geographical aspects. Geographic segmentation can be a helpful tool for marketers, as certain customers from different parts of a country could have different wants and needs. Geographic segments include:
Country.
City.
Neighbourhood.
Climate.
Psychographic segmentation
This looks at the intrinsic traits of the target consumer.
Style.
Values.
Personality traits.
Behavioural segmentation
This breaks down the market into subgroups based on consumers' behaviour when making purchase decisions. It can be based on:
Occasions.
User status.
Usage rate.
Loyalty.
Targeting
The second step includes deciding who to target.
Targeting involves deciding which customer segment or market the firm should be aiming at.
Once a firm identifies all market segments, it must determine which ones to target and how many. This strategy aims to identify small, well-defined target groups.
Imagine you are working as a marketing manager for a clothing retailer. Instead of deciding to target all women, you would specify that you want to target women between the ages of 25-30 who purchase new clothes at least once every two weeks. To find the appropriate target market, you need to evaluate the market segment based on its attractiveness, and whether the firm has the resources and capabilities to do this effectively.
Positioning
Finally, the company has to position its product in the market.
Positioning involves determining where your brand or product stands affecting others in the market.
Positioning is a vital part of marketing strategy, as it influences how customers perceive your product offering. It is directly related to your value proposition.
Value proposition is the value a business promises to bring to its customer when buying a product or service.
The STP model comes down to a marketer making two crucial decisions: which customers should we serve? And how should we serve those customers? Market positioning is the last step in the decision-making process. The business has to decide how customers will view its product and how it will compete in the chosen market segment.
Why are segmentation, targeting, and positioning important in marketing?
Segmentation, targeting, and positioning are essential elements of marketing strategy. All three concepts are prerequisites for developing the marketing mix. These steps are necessary for understanding customers and the product offering better. It also allows businesses to understand which customers they should focus their marketing strategy on and how they can make their product the most successful from a marketing point of view.
Segmentation is essential for firms as it allows them to understand their market better. During segmentation, customers are divided into smaller subsets based on shared characteristics, which provides insight into the different types of customers purchasing the firm's products or services.
Targeting is also important because it is essential to select which customer segment is most attractive from a marketing perspective. This customer segment, or segments, will be the ones you focus your marketing on.
Finally, positioning the product is crucial because it determines how customers will view the product or service compared to those of competitors. This step helps businesses define their product offerings and the value they bring to their customers.
Relationship between segmentation, targeting, and positioning
As illustrated in the Figure 2 above, segmentation, targeting, and positioning are all related. The model begins with segmentation, in which consumers are divided into subsegments or subgroups. Each subgroup includes a group of customers with similar characteristics, either demographically, geographically, psychographically, or behaviourally.
The next step is targeting, in which the firm decides which market segment it wants to target. Once the organisation identifies all market segments, it chooses the most attractive one; the one aligned with the firm's objectives and resources.
Finally, the firm needs to decide how it will serve its customers. During this process, the organisation needs to define its product differentiation strategy. This strategy includes figuring out what makes the product or service different from competitors' products and services. Then, it is time for market positioning. During this step, the firm needs to determine how they want customers to perceive the product and position this product for each target segment.
These are all essential steps to take before establishing the marketing mix.
Market segmentation, targeting, and positioning examples
Before we conclude today's lesson, let's take a look at some market segmentation, targeting, and positioning examples.
B2B market segmentation, targeting, and positioning
In the business-to-business (B2B) context, the marketing STP model is equally as essential as it is in business-to-consumer (B2C) contexts.
For example, Microsoft Teams is a B2B company. It provides a platform businesses can use primarily for inter-organisational communication. Teams' competitors include Google Meet, Slack, and Zoom. As a result, Microsoft Teams segments its customers into four main segments: home (for communication with friends and family), business (for smaller businesses), enterprise (for larger firms), and education (for schools and universities). Thus, Teams segments its customers based on buyer characteristics and targets each segment with a different plan suited to their needs.
Case study on market segmentation, targeting, and positioning
Finally, let's direct our attention to The Coca-Cola Company, which uses a variety of segmentation tactics to reach broad audiences.
First, Coca-Cola segments its customers geographically, based on their location. For example, Coca-Cola launched its 'Share a Coke' campaign in Australia in 2011.1 The campaign featured the slogan "Share a Coke with" printed on Coca-Cola bottles in addition to a variety of the most popular names printed on each bottle next to the slogan. The campaign was so successful that the company decided to launch it in multiple countries worldwide, including the United Kingdom, China, Spain, etc. Of course, Coca-Cola had to conduct market research to discover which names were the most popular in each country. The most popular names in Australia might have worked in the UK; however, the campaign would not have proven successful in China or Spain if the Coke bottles had English names printed on them. As a result, this is an example of how Coca-Cola segments its customers geographically.
Coca-Cola also uses a variety of tools to target its customers. For example, it targets more health-conscious consumers with its Coca-Cola Zero and Coca-Cola Diet products whereas average customers. Bottle sizing also plays a role in the company's targeting. For instance, its regular-sized cans are targeted at individuals who want to grab a drink quickly. On the other hand, the company targets families with its larger, 1.5-2 L bottles.
Finally, Coca-Cola positions itself as a refreshing drink that brings joy to customers. It is positioned as a thirst-quenching drink that customers can buy on the go and a high-quality soft drink to share with family and friends.
Market Segmentation, Targeting, and Positioning - Key takeaways
- Segmentation, targeting, and positioning make up the STP marketing model.
- Segmentation involves dividing the market into subgroups based on demographic, geographic, psychographic, and/or behavioural characteristics.
- Targeting involves selecting which customer segment the firm should target, i.e., the most attractive segment.
- Positioning influences how customers perceive a product or service. During this stage, the business needs to decide how it wants customers to view its product compared to competitors' products.
- The STP marketing model is a process that links each step.
- Segmentation, targeting, and positioning are prerequisites for the marketing mix.
References
- Coca-Cola Australia. What was the 'Share a Coke' campaign?. 2022. https://www.coca-colacompany.com/au/faqs/what-was-the-share-a-coke-campaign
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