Market Segmentation, Targeting, and Positioning (STP)

4.1 Market Segmentation

Definitions:
- Market segmentation is subdividing a market into homogenous subsections of customers. These subsections can be selected as a target market to be reached with a distinct marketing mix.
- Dividing the total heterogeneous market into smaller homogeneous markets with similar needs and wants.
Stages of market evolution:
- Stage 1: Mass Marketing
  - Mass-produce, mass-distribute, and mass-promote one product to all buyers.
  - Aims for the lowest costs and prices and the largest potential market.
- Stage 2: Product-Variety Marketing
  - Produce two or more products with different features, styles, and sizes.
  - Offers variety to buyers rather than appealing to different market segments.
- Stage 3: Target Marketing
  - Identify market segments, select one or more segments, and develop tailored products and marketing mixes.
  - Companies are moving towards target marketing to better find marketing opportunities.
Three major steps in target marketing:
- Market segmentation: Divide a market into distinct groups of buyers who might require separate products or marketing mixes.
- Market targeting: Evaluate each segment’s attractiveness and select one or more segments to enter.
- Market positioning: Set the competitive positioning for the product and create a detailed marketing mix.
Steps in Market Segmentation, Targeting, and Positioning
- Market Segmentation
  1. Identify segmentation variables and segment the market
  2. Develop profiles of resulting segments
- Market Targeting
  1. Evaluate attractiveness of each segment
  2. Select the target segment(s)
- Market Positioning
  1. Identify possible positioning concepts for each target segment
  2. Select, develop, and communicate the chosen positioning concept
Importance of Market Segmentation:
- Better understanding of consumer needs and behavior.
- Helps to:
  - Understand potential customers.
  - Pay proper attention to particular areas.
  - Formulate marketing programs.
  - Select channels of distribution.
  - Understand competition.
  - Use marketing resources efficiently.
  - Advertise the products and launch sales promotion programs.
  - Design marketing mix (product, price, place, and promotion).
Basis for Segmentation:
- Geographic Segmentation
- Demographic Segmentation
- Psychographic Segmentation
- Buyer Behavior Segmentation

1. Geographic Segmentation

Dividing the market into different geographical units (nations, states, regions, cities, etc.).
The company can operate in one or a few geographical areas.
Many companies are “regionalizing” their marketing programs, localizing products, advertising, promotion, and sales efforts to fit the needs of individual regions, cities, and neighborhoods.

2. Demographic Segmentation

Dividing the market into groups based on demographic variables such as age, sex, family size, family lifecycle, income, occupation, education, religion, race, and nationality.
Demographic factors are popular because:
- Consumer needs, wants, and usage rates often vary closely with demographic variables.
- Demographic variables are easier to measure than other types of variables.

3. Psychographic Segmentation

Buyers are divided into different groups based on social class, lifestyle, or personality characteristics.
People in the same demographic group can have very different psychographic profiles.
Social class has a strong effect on preferences in cars, clothes, home furnishings, leisure activities, and retail.

4. Behavior Segmentation

Buyers are divided into groups based on their knowledge, attitude, use, or response to a product.
Behavior variables are considered the best starting point for building market segments.

Requirements for Effective Segmentation

To be useful, market segments must be:
- Measurable: Size, purchasing power, and profile of the segment.
- Accessible: Can be reached and served.
- Substantial: Large and profitable enough to serve.
- Differentiable: Distinguishable and respond effectively.
- Actionable: Effective programs can be developed.

Procedure of Market Segmentation

Stage I: Identify Market Segmentation Bases
- Identify potential customers and classify them into market segments based on particular characteristics.
- Segments should group customers with similar needs together.
Stage II: Develop Relevant Profiles for each Segment
- Develop a profile of the relevant customer needs and behaviors in each segment.
- Precise description to make the marketing “match” the needs of the customer.
Stage III: Forecast Market Potentials
- Create a “Forecast” of the market potential within each segment.
- “Go, no-go” stage: Gather information on sales potential to determine whether further analysis is justified.
Stage IV: Forecast Probably Market Share
- Determine how much of the market can be obtained (market share).
- Develop specific marketing strategies for the segments being developed.
Stage V: Select Specific Market Segments
- Identify specific target markets using all gathered information.
- Example: University students who have part-time jobs and do not have credit cards.

4.2. Market Targeting

Market targeting is the process of evaluating each segment’s attractiveness and selecting one or more target market segments to enter.
Consists of a set of buyers who share common needs or characteristics that the company decides to serve.

Evaluating Market Segments

A firm must look at 3 factors:
1. Segment size and growth
2. Segment structural attractiveness
3. Company objectives and resources
Segment Size and Growth
- Analyze sales, growth rates, and expected profitability.
Segment Structural Attractiveness
- Consider effects of competitors, availability of substitute products, and the power of buyers & suppliers.
Company Objectives and Resources
- Company skills & resources relative to the segment(s).
- Look for Competitive Advantages.
Segment Size and Growth
- Collect and analyze data on current dollar sales, projected sales, growth rates, and expected profit margins for the various segments.
- Selects segments that have the right size and growth characteristics.
Segment Structural Attractiveness
- Examine major structural factors that affect long-run segment attractiveness.
- Michael Porter identified five competitive forces to consider:
  - The impact of current competitors
  - The impact of potential competitors or entry
  - The impact of substitute products
  - The power of suppliers
  - The power of buyers
Company Objectives and Resources
- Consider the company’s own objectives and resources in relation to the segment.
- Decide whether the company possesses the skills and resources needed to succeed in that segment.

Marketing TARGET

Marketing segmentation reveals the market segment opportunities facing the firm.
The firm has to decide on how many segments to cover and how to identify the best segments.
The firm can adopt one of three market-coverage strategies:
- Undifferentiated (mass) marketing
  - Same product to all consumers.
- Differentiated (segmented) marketing
  - Different products to one or more segments.
- Concentrated (niche) marketing

Undifferentiated Marketing

Referred to as mass marketing, the firm aims its resources at the entire market with one particular product.
Coca-Cola's original marketing strategy.
Focuses on what is COMMON in the needs of the customers.
When a firm produces only one product or product line and promotes it to all customers with a single marketing mix.

Differentiated Marketing Strategy

The firm decides to target several segments and develops distinct products/services with separate marketing mix strategies aimed at the varying groups.
Airline companies offering first, business, or economy class tickets with separate marketing programs.
The firm decides to target several market segments or niches and designs separate offers for each.
Creates more total sales than undifferentiated marketing.
When a firm produces numerous products and promotes them with a different marketing mix designed to satisfy smaller segments.
Tends to raise costs.
Firms may be forced to practice differentiated marketing to remain competitive.

Concentrated Marketing

The organization concentrates its marketing effort on one particular segment.
When a firm commits all of its marketing resources to serve a single market segment.
Attractive to small firms with limited resources and to firms offering highly specialized goods and services.
The firm will develop a product that caters to the needs of that particular group.
Rolls Royce cars aim their vehicles at the premium segment, similar to Harrods in the UK.

4.3. Market Positioning

Market positioning is the process of setting the competitive positioning for the product and a detailed marketing mix.
A product's position is the complex set of perceptions, impressions, and feelings that consumers hold for the product compared with competing products.
Marketers plan positions that will give their products the greatest advantage in selected target markets and design marketing mixes to create the planned positions.

Steps to Choosing and Implementing a Positioning Strategy

Step 1. Identifying a set of possible competitive advantages: Competitive Differentiation.
Step 2. Selecting the right competitive advantage.
Step 3. Effectively communicating and delivering the chosen position to the market.