Segmentation, Targeting and positioning (STP)

The importance of STP

Vital for success: if you don't know where you are focusing, you will end up 'shooting' everywhere and that will not get you far.

Segmentation - We can't serve everyone; so, we need to divide the market into reasonable, meaningful segments.

Targeting - We need not only to aim, but hit the target segments; so, we need to have a series of goals & strategies to reach the selected target segment(s).

Positioning - We need to work so that we can have a clear perceptual position in the minds of our customers (be the first in their minds when a certain need emerges).

What does segmentation mean?

.Undifferentiated market but one with many different purchase combinations.

Different needs in a market.

Segments in a market.

"The process of identifying individuals or organisations with similar characteristics that have significant implications for the determination of marketing strategy" (Jobber, 2007).

A market segment defined as a group of buyers with 'distinctive characteristics, behaviours, or needs who make similar buying decisions, and who have money to spend. Based on this definition, there are virtual infinite combinations of market segments comprising infinite combinations of buyers" (Branchik, 2010).

Importance and problems of market segmentation

Reasons why segmentation is so important - Directs a firm's marketing strategy and resource allocation among different markets and products.

Population growth has slowed, more product markets are maturing, hence more competition in gaining market share, often via brand extensions.

Trend towards micro-segmentation (one-to-one marketing, emerging from ability for mass-customisation, and existence of more specialised media).

Problems with segmentation - It's descriptive, not predictive (decisions based on current market status).

Assumes homogeneity within segments (average 'Michael' and 'Michelle').

Assumes competition-free segments (we ignore segments where we face strong competition but competitors exist in chosen segments as well).

Factors favouring and discouraging market segmentation

Factors favouring market segmentation:

Better opportunities for product or market development.

Creation of more effective marketing programmes.

Better strategic allocation of resources.

Factors discouraging market segmentation:

The market is so small that there is no point and it might not be profitable marketing to only a portion of it.

Heavy users of a product make up the larger proportion of sales volume, so they are the only relevant target.

Conditions should be met to consider customers a segment

Responsiveness (Homogeneity/heterogeneity) - Within a segment the response to a marketing activity should be as homogeneous as possible, and between segments it should be as heterogeneous as possible.

Sufficient size - Segments that are so small that profitable exploitation is impossible are not meaningful.

Measurable/identifiable - The customers in segments should be identified in one way or another so that results and strategies can be linked to concretely described segments. In addition, without identification it is difficult to estimate the size of a segment.

Accessible - To use the elements of the marketing mix, especially distribution and promotion, it is essential that the segment be accessible.

Different segmentation approaches

Personal characteristics of consumers - geographic, demographic, socio-economic, psychographic.

Forward segmentation to

Product-related variables - benefits, purchasing and usage behaviour.

Brand related variables - brand awareness, associations and loyalty.

Backwards segmentation back to personal characteristics of consumers.

Foundations of effective segmentation

Customers require different things from a certain product or service, so it's unlikely for our brand to appeal to all of them (perhaps only in the early stages of a product's lifecycle).

We need to:

identify subgroups (segments) of consumers with similar wants/needs/requirements so that customers belonging in one segment are clearly similar with each other but different from those customers in other segments.

And then

tailor our offerings (configure our marketing mix) to meet those wants/needs/requirements of a particular segment efficiently and in accordance with our strategic corporate/SBU goals.

Criteria for B2C segments

Geographic - Customers within 20 miles of our bakery"

-Local; city; national region; national; global region; global OR topography/ climate.

Local: Often used by small firms; keeps it manageable.

Global; risk of cultural inappropriateness.

Sociodemographic - University students".

Gender, Age, Cohorts of society (e.g. young adults), Level of Education, Level of Income, Occupation, Religion, Race/Ethnicity, Family size.

Psychographic - "Customers who prefer organic food".

Lifestyle, personality, values.

Behaviouristic - "Customers who tend to impulse buy".

Readiness/Innovativeness, Media and shopping habits, Ability and experience, Loyalty (e.g. brand insistence, loyalty, split/shifting loyalty, no loyalty).

Criteria for B2B segments

Demographic - Businesses with less than 10 employees".

Industry sector,

Organisational characteristics (e.g. company size, location), End use markets (manufacturers of end products? wholesalers? retailers?).

Usage variables - Heavy users of electricity"

Technology (required technology at the customer level), Usage status (heavy user, light user, none).

Purchasing approach - "Customers who prefer 24/7 customer service".

Purchasing organisation (centralised, decentralised), Power structure (technical, financial, etc.), Types of relationships (strong, weak).

Situation-related factors - Customers who need quick delivery".

Urgency of delivery, Applications of delivered product, Size of order.

Personal characteristics - Customers that will not change supplier easily.

Degree of similarity to supplier (e.g. individuals' motivation, personality perceptions), Risk Attitude, Supplier loyalty.

Segmentation challenges when crossing borders

Difficult to find global segments, easy to find global segments.

Culture is key.

Study individual segments to determine choice drivers using secondary data and on-the-ground observation (phenomenology).

How similar are the uses of the product in the new market(s) in comparison to the uses in the (home) market? If different localization.

Diaspora marketing - using immigrants from the home country as targets in new international markets.

Segmentation tools

Customer analysis - Within-group differences are minimized and the between-group differences are maximized.

Cnjoint analysis - •Uses a series of possible product/service attribute combinations.

Discriminant analysis - Identifying a series of variables that help to discriminate the members of one or more groups.

Multinational scaling - Visually demonstrating how particular consumers view the various offerings.

Semantic differential - a graphic representation of brand scores on various characteristics.

Description of the segments

A profile ('persona') needs to be created for each discovered segment, based on the scores for the examined variables.

Needs to be given a name and a photo.

Needs to include the most distinguishing characteristics of each segment.

Different personas for different roles (e.g. influencer, user, lost customer, promoter).

We must use a variety of segmentation criteria and the emerging customer personas should include meaningful info.

The aim should be to build a portrait of a character as much personalised as possible, and to be able to describe it using an' elevator pitch'.

Example

Australian Tourism Corporation (ATC) has broken up the travel market into specific market segments, incl.:

independent adventurers aged 25-34 (primary market).

young independent travellers (YIT's) aged 18-24 (secondary market).

independent adventurers aged 45-65.

YITs - Typically single students, They make their own travel arrangements, Many are on a 'gap year' and travel either on their own or with friends, Travellers seeking experiences, not tourists, Low-price products, incl. hostel accommodation, bus passes, sporting activities, adventure and an immersion in the "fun" Australian lifestyle and people.

Targeting

Deciding the number of segments to serve and the best action plans to reach them.

What type of coverage?

Single segment concentration, Selective specialization, Product specialization, market sepcialisaion, full market coverage.

How do we know if the selected segments are viable?

Measureable, accesible, substantial, differentiable, actionable.

Production: "Is there a cost-effective way for us to develop the product variations to cover their diverse needs?" OR "We can make so many product variations!"

Marketing: "Many distinct market segments where there is demand for our product/service!" OR "There is no demand for these product variations!"

Undifferentiated marketing

Firm straight to market.

Definition - All customers are treated the same.

Goal - Acquire mass of people viewing - drive traffic.

Needed capabilities - mass marketing, branding.

Research methods - anticipate customer priorities through information acceleration.

Differentiated Marketing

Definition - Customers grouped into high-level market segments.

Goal - acquire and begin to develop customer relationships, drive revenue.

Needed capabilities - Value proposition design, customer relationship management.

Research methods - Segmentation on needs, behaviour, targeting models.

Concentrated/one-to-one marketing

Definition - customers are targeted and act differently based on their unique profiles.

Goal - development and retention of customers, customer profitability.

Needed capabilities - experience management, profitability management.

Research methods - customer profitability in market tests, customer lifetime value.

Niche marketing

adapting a company's offerings to more closely match the needs of one of more sub-segments where there is often little competition.

Positioning

Marketing is not a battle of products; it's a battle of perceptions"

Al Ries & Jack Trout.

Placing of the product/service in a particular perceptual position within the customer's mind, so that they can have a clear and distinctive image in mind that is consistent and positive!

RELATIVE TO CURRENT AND POTENTIAL COMPETITORS AND CUSTOMER NEEDS.

If the brand comes to the top of the mind when a need arises, that is the brand the consumer will most likely buy.

So, our role as marketers is to 'climb to the top rung of the ladder that exists in customers' heads' to what criteria customers use to form impressions? What image we want to have in their minds, in comparison to competitors?

Each element of the marketing mix (should) contribute to the positioning of the product and/or brand.

The positioning statement

three key components: the audience and context.

the value proposition.

the action components that will be used by the company to deliver the value proposition to the audience in the context identified.

DHL example:

[Convince] To business managers and professionals engaged in making time sensitive decisions about international business, [that] DHL delivers on time

[Because] its pickup, transportation and delivery system is wholly-

owned and managed by DHL personnel, not by 3rd-party providers.

The 4 cs of positioning:

Clarity - in terms of target market and differential advantage.

Consistency - maintain a consistent message.

Competitiveness - the differential advantage should offer the customer something of value competitors cannot provide.

Creditability - in the minds of the target customer-they must believe the claim.

Positioning triangle and intended brand characteristics

Positioning is the selection of those 'values or characteristics' (e.g.) cheap, friendly, feminine, or honest) for which:

The target group considers them important.

The brand is strong in that area.

The competitors are less strong in that area.

Positioning - middle of the triangle - desired mind position at the target group.

Company (brand) - top of the triangle - identity and strength.

Customer (target group) - bottom left of triangle - relevant benefits and values.

Competitors - bottom right of triangle - different mind positioning.

Brand personality traits vs brand values

Aaker 1995

sincerity - down to earth, honest, wholesome, cheerful.

Exciting - daring, spirited, imaginative, up-to-date.

Competence - reliable, intelligent, successful.

Sophisticated - upper class, charming.

ruggedness - outdoorsy, tough.

Kostelijk 2017 brand values:

'the value compass' - functionality, safety, honesty, social responsibility, care and affection, intimacy, joy, stimulation, beauty, prestige, achievement.

Perceptual mapping

The visual representation of the different competitive brand offerings/objects of interest in perceptual space (in the minds of consumers).

What matters is what the customer believes, not what the brand manager believes!

Perceptual maps can be built based on different dimensions/axes, e.g.

- Quality AND price

- Key attributes / benefits.

Potential customers (i.e. non-customers) often perceive a brand differently from existing customers.

Perceptual map according to attribute perceptions

Emotional:

Sheer indulgence, time for me, e.g. galaxy caramel.

Personal:

Comfort, replenishment, fuel, e.g. mars.

Functional:

Hunger, e.g. snickers.

Social:

social affiliation, togetherness, formal ritual e.g. galaxy minsterels.

Emotional.