Week 3 Market Segmentataion

Harvard Business School Module Note

Overview

• Document Title: Market Segmentation, Target Market Selection, and Positioning

• Reference: Harvard Business School, 9-506-019 Rev. April 17, 2006

• Context: Used for Principles of Marketing - RSM250 H1S at University of Toronto - Rotman School of Management (1/1/2025 to 4/30/2025)

Importance of Marketing Steps

• Three Key Steps after Marketing Analysis:

  • Market segmentation

  • Target market selection

  • Positioning

• Purpose: These steps are critical for designing an effective marketing strategy. They help focus marketing efforts on appropriate customer segments and integrate the marketing-mix elements.

Market Segmentation

• Definition: Dividing the market into groups (market segments) based on distinct characteristics, behaviors, or needs.

  • Aim: To group customers that differ from one another yet show homogeneity within the group, facilitating targeted marketing.

• Essential Criteria for Segmentation:

  • Segments must be distinct from one another.

  • Segmentation must be based on customer characteristics relevant to the firm's marketing goals.

• Types of Segmentation:

  • Benefits Sought: Segmenting based on what customers seek from a product (e.g., effectiveness vs. gentleness in pain relief drugs).

  • Observable Characteristics: Using demographics (age, gender, income), geography, lifestyles, and behaviors (usage occasions) for segmentation.

• Summary of Process:

  • Understand customer benefits.

  • Develop customer profiles based on benefits.

  • Identify observable variables to discriminate benefit segments.

Target Market Selection

• Definition: Evaluating the attractiveness of market segments and selecting which segments to serve.

• Importance: Understanding customer demand structure and deciding where to maximize profits.

• Competitive Analysis: Analyzing competitive environment and internal capabilities is crucial for effective selection.

• Evaluation Factors for Selection:

  • Capability Areas:

    • Ability to conceive and design

    • Ability to produce (quality and quantity)

    • Ability to market

    • Ability to finance

    • Ability to manage/execute

  • Use of Competitor Capability Matrices: Helps recognize competitive patterns and identify segments where the firm is likely strongest.

Positioning

• Definition: Identifying a unique selling proposition for a product, aiming to occupy a distinct position in the minds of target consumers.

• Key Questions of Positioning:

  • Who are the customers?

  • What needs does the product fulfill?

  • Why is it the best option to satisfy those needs?

• Formalization: The positioning statement guides marketing efforts and aids in internal communication within the firm.

  • Structure of Positioning Statement:

    • Our (product/brand) is (single most important claim) among all because (competitive frame) (single most important support).

• Differentiation in Positioning:

  • Two Types of Differentiation:

    • Vertical Differentiation: All buyers agree on quality (e.g., luxury cars).

    • Horizontal Differentiation: Buyers have differing tastes (e.g., preferences for small cars vs. SUVs).

• Practical Implications:

  • A good positioning strategy articulates unique benefits and creates competitive differentiation.

  • All elements of the marketing mix can serve as instruments of differentiation.

The Role of Brands

• Link to Positioning: Brands communicate product differentiation and assert its unique place in the market.

• Goals of Branding: Establish distinct differentiation and aim for brand recognition (e.g., "Kleenex" for facial tissues).

• Challenges: Not all brands achieve intended meanings or consumer notice, highlighting the complexities of brand development.