Segmentation and Targeting

Introduction

  • The marketing concepts of segmentation, targeting, and positioning (STP) help identify potential customers, select target segments, and develop tailored marketing strategies.

  • Modern online platforms analyze consumer behavior, revealing distinct preferences, such as the differences in hotel bookings between Mac and PC users.

  • Companies like Airbnb and Uber adapted their offerings to appeal to specific consumer segments.

Segmentation Overview

  1. Segmentation Fundamentals

    • What Is Segmentation?

      • It's the division of a diverse market into homogeneous groups with similar needs.

      • Helps companies tailor products to specific segments, uncover new opportunities, and avoid missed targets.

      • Example: A tea company produces different types of tea based on consumer preferences for hot vs. iced tea.

    • Why Segment the Market?

      • Offers tailored solutions, enhancing consumer satisfaction and enriching the customer experience.

      • Organizations benefit by identifying underserved markets, resulting in better-targeted promotions and sustainable profit growth.

  2. Characteristics of Useful Segmentation

    • Segments must be:

      • Identifiable: Segments can be classified based on measurable characteristics.

      • Substantial: They should be large enough to be profitable.

      • Accessible: Segments should be reachable through marketing channels.

      • Stable: Segments should endure long enough for marketing strategies to be effective.

      • Differentiable: Needs within segments must differ from those in others.

      • Actionable: Firms should be able to devise strategies for their identified segments.

  3. Segmentation Variables

    • Consumer Variables:

      • Geographic: Location-specific preferences.

      • Demographic: Characteristics such as age, gender, income.

      • Psychographic: Lifestyle and personality traits.

      • Behavioral: Purchase behavior, brand loyalty, etc.

      • Benefits Sought: The value or advantages sought by consumers.

    • Business Variables:

      • Firmographics: Industry and size of businesses.

      • Buying Approach: Centralized or decentralized purchasing.

      • Benefits Sought: Unique value propositions in B2B contexts.

Targeting

  • Evaluation of Segments: Companies assess segments by size, growth potential, and profitability.

  • Factors influencing segment selection include:

    • Company capabilities and resources.

    • Long-term objectives and competitive dynamics.

  • Market Strategies:

    • Firms may adopt mass marketing or one-to-one marketing depending on market demand and customer preferences.

    • Example: IBM Watson for Oncology tailors cancer treatments based on individual patient data.

Ethical and Privacy Issues

  • As technology advances, ethical considerations arise regarding customer targeting based on data collection.

  • Historical examples showcase backlash against companies like Amazon and Coca-Cola for perceived privacy invasions.

Strategy Formation Post Segmentation

  • Product Strategy: Companies like Gap Inc. offer differentiated products based on market segments, aligning their offerings with consumer values.

  • Pricing Strategy: Airlines strategize differently for leisure vs. business travelers, maximizing revenue through segment-specific pricing.

  • Communication Strategy: Tailored advertising is crucial for effectively reaching target audiences (e.g., Toyota's rugged truck ads).

  • Salesforce Strategy: Different segments might require different sales approaches, exemplified by Hillrom's segmented sales teams.

Analytical Methods for Segmentation

  1. Cluster Analysis: It groups customers based on shared characteristics, creating distinct market segments.

  2. Preference-Based Segmentation: Involves understanding consumer preferences through surveys and choice experiments (e.g., multi-attribute models).

  3. Response-Based Segmentation: Segments customers based on their observed purchase behaviors and responses to marketing actions.

Key Terms

  • Conjoint Analysis: Evaluates product attributes based on consumer preferences.

  • Mass Customization: Tailors products extensively based on individual consumer preferences.

  • Segmentation: Process of dividing a broad target market into subsets of consumers with common needs or characteristics.

  • Positioning: Defining a value proposition for target segments to differentiate products.