Segmentation, Targeting, and Positioning (STP)
Foundations of Market Segmentation
All customers in a broadly defined market do not possess identical needs. Successful marketers must decide which products to offer and which specific markets to service, acknowledging that "one size doesn't fit everyone very well."
The core foundations for segmentation are based on the principles that one cannot be everything to everyone but can be everything to a selected few, and that no two individuals are exactly the same.
Market segmentation is considered core to marketing; many firms achieve leadership through effective segmentation and targeting.
Sound marketing strategy begins with discovering the most useful ways to segment a market. To create differentiation, marketers utilize the framework: Segmentation, Targeting, and Positioning.
Consumers purchase benefits and products that best address their specific needs. Segmentation analysis identifies where specific products are required to meet these consumer requirements.
The Three Pillars of Modern Marketing Strategy are:
Segmenting the market.
Targeting the user.
Positioning the products.
Historical Context:
W. Smith () is recognized as the father of market segmentation, providing it as an alternative to differentiation.
Wind's review of the status of marketing segmentation placed the concept at the heart of marketing practice.
Meaning and Process of Segmentation
The segmentation process consists of three distinct stages, popularly known as :
Segmenting.
Targeting.
Positioning.
Market segmentation is the process of dividing a heterogeneous (aggregated) market into homogeneous (segregated) sub-units.
It involves identifying portions of the market that are different from one another or share a similar set of needs.
Segmentation groups similar consumers or business customers together into a segment where they exhibit similar requirements and buying characteristics.
According to Professor Nirmalya Kumar, the segmentation process identifies variables that maximize the differences between segments while simultaneously minimizing the differences within each segment.
Importance of Segmentation
No market is totally homogeneous. Marketers must understand purchase combinations to create meaningful segments. While the focus in the was finding the customer in each individual, the modern focus is finding the individual in each customer.
Segmentation benefits organizations in numerous ways:
Improved Customer Relations: It allows buyers to find products fitting their physical or psychological needs. Tailored products increase customer loyalty. Segmentation is inherently customer-oriented as it meets expectations, aspirations, and share of wallet.
Perfect-like Marketing Mix: Segmentation helps define shopping habits (when, how much, and frequency), price sensitivity, and benefits required, making the marketing mix ( Ps) more accurate.
Better Resource Allocation: Firms can allocate resources more efficiently by revealing which customer groups are the best recipients and which groups not to target.
Competitor Analysis: It provides knowledge of competitors and the segments they serve, helping organizations identify segments they can serve better and avoiding head-on collisions with large competitors. Medium-sized firms can grow rapidly through specialized market segments. It acts as a source of competitive advantage.
Taking Care of Dynamic Environment: Changes in the environment affecting customer segments can be integrated into strategic planning. Large companies are increasingly moving away from mass marketing.
Focused Marketing Communication: It establishes one vision and one voice through harmonized messages. It allows the identification of specific media channels (e.g., using 'Femina' to reach young women interested in fashion rather than mass media).
Measurement: It is essential for measuring market share, growth, target customer specifications, and recognizing relevant competitors to formulate objectives.
Example of Strategic Communication: Mercedes produces the same cars worldwide but advertises them as "quality" cars in Germany and "prestige" cars in India.
Bases and Types of Market Segmentation
Segmentation variables are the "mirror" through which customer populations are divided. Variables are numerous and categorized by who customers are (demography), where they are (geography), and how they behave (behaviour).
Geographic and Demographic Segmentation (Geo-demographics)
Geography Variable: Defines customers by country of birth, location, regions, or states. While location doesn't guarantee identical behavior, it identifies general patterns.
Variables include: global, global regional, national, national regional, city/state, neighborhood/local, topography, and climate.
Large regions may be subdivided into small, medium, and large sizes.
Geographical Density: Urban, suburban, and rural. Low-density markets require different price, promotion, and distribution strategies.
Indian Population Data:
Tier : cities ( of population).
Tier : cities ( of population).
Tier : cities ( of population).
Tier : cities ( of population).
Rural: of the population residing in villages.
Climate: Warm, cold, and rainy.
Locality: Specific regions like the divisions of Indian Railways (Northern, Southern, Eastern, Western, North-Eastern, Central).
Other bases: Types of commerce (tourist, local worker), retail establishments (malls, downtown), competition (saturated, underdeveloped), legislation, and cost of living.
Personal Demographic Segmentation
This involves readily observable personal characteristics:
Age: Categories include school-age children, college students, preteens, teens, Generation , Generation (Millennials), Baby Boomers, and seniors.
The Grey Market (Third Age Group): People aged and above. Focus for personal care, pharmacy, and telemarketing.
Generation /Millennials: Born after . They embrace change, rely on technology, and represent a slated of the global workforce by and by .
Youth markets: Use of credit cards and carbonated drinks (e.g., "Youngistan").
Gender: Lines are blurring as roles change, but distinctions remain (e.g., scooties for women vs. motorcycles for boys). By , India will have working women aged . Indian males often act as "surrogate users" for products targeted at women (soaps, shampoos).
Family Structure (Family Life Cycle): Progresses through stages:
Bachelor stage (young and single).
Newly married couple.
Full Nest (young married with dependent children; needs baby food, clothes).
Full Nest (older married with dependent children).
Empty Nest (older married with no children at home).
Solitary survivor (older single person).
Race and Ethnicity: Different celebrations (Diwali for Hindus vs. Chinese New Year) create distinct segments.
Politics: Preferred colors of caps in India (Congress: white; Samajwadi: red; BSP: blue; BJP: saffron).
Family Size: Small family (prefers small packs) vs. large family (prefers large packs).
The Psychological Life Cycle: Focuses on the transformation of attitudes rather than chronological age (e.g., "kid adults" and "old youngsters").
Sagacity: Refinement of family life cycle grouping based on behavior and aspirations: Dependent, Pre-family, Family, and Late. These are further classified by income (Better off/Worse off) and occupation (White Collar/Blue Collar).
ACORN (A Classification of Residential Neighbourhood): Uses the house or locality as the basis. Propositions suggest neighborhood reflects professional status and behavior.
Top Delhi neighborhoods: Greater Kailash , Greater Kailash , Preet Vihar.
Top Mumbai neighborhoods: Ward -Grant Road-Walkeshwar, Ward--West Bandra Jetty.
Top U.P. neighborhoods: Sector , of Noida.
Socioeconomic Segmentation
Populations broken down by income, employment, education, and social class.
Income: Popular for cars, luggage, and fashion. Classes include lower, middle, and high net worth individuals ().
Ernst Engel's Observations on increased household income:
Smaller percentage of expenditure goes for food.
Percentage spent on housing, household operations, and clothing remains constant.
Percentage spent on other items (recreation, education, vacation) increases.
Occupation: Different requirements for executives (e.g., Armani suits) vs. school teachers.
Social Class: Objectified through income, occupation, and residence location. A social class may have different purchase requirements despite lower income (e.g., comparing a professor to a policeman).
Behavioural Segmentation
Also called Product-related segmentation. Focuses on purchasing behaviour, values, and how customers use products.
Usage Status: Categories include 'light', 'medium', and 'heavy' users, or non-users, first-time users, and regular users (e.g., frequent flyer schemes).
Brand Loyalty Levels:
Hard Core Loyals: Same brand every time.
Soft Core Loyals: Loyalty divided between two or more brands.
Shifting Loyals: Brand switchers.
Switchers: No particular preference.
Benefit Sought: Dividing customers by the specific benefit they seek (e.g., baking soda for baking vs. fridge deodorizing; baby wool for cosmetics vs. child care).
Occasions for Purchase: Specific events such as Diwali (gifts), Holi (colors), Ramadan (dates), or weddings (Lehenga/Choli). Includes critical events like Valentine’s Day or Mother’s Day.
Frequency of Purchasing: Annual (bulk buying during harvest), quarterly, monthly, or weekly.
Willingness to Buy: Segments based on awareness and usage history.
Season: Summer (ACs), rainy, or winter. Some products are shifting to year-round sales due to erratic weather.
Tribal: Based on social groups or cultures (e.g., young independent women).
Advantages/Limitations: Straightforward to understand but heavy users are often price-conscious, and it provides little info on unique segment problems.
Targeted Segmentation Profiles: The Telecom Industry
1. Talk & Texters: Practical, conservative customers interested in basic functions. (Consumer)
: Modern, fun-oriented socializers interested in all services. (Consumer)
: Seek trendy handsets to join peer groups; affinity for photo/video/MP3. (Consumer)
: Torn between traditional and modern; low communication needs; use for emergencies only. (Consumer)
: Technology-oriented "mobile generation"; needs phone for games and music. (Consumer)
: Individualists, technology-immersed, value for money and respect; organize life/business but not emotionally attached. (Business focus)
: Corporation decides; focus on coverage, reliability, and volume discounts. (Business)
: Frequent travelers; focus on roaming, data transfer, and flexibility. (Business)
Psychographic Segmentation
Examines mental characteristics and predispositions connected with purchasing habits (Interests, Activities, Opinions - ).
Personality Characteristics:
Young & Rubicam Classification: Mainstreamers, Reformers, Aspirers, and Success Achievers.
Briggs and Myers Dimensions: Extrovert/Introvert, Sensing/Intuitive, Thinking/Feeling, Judging/Perceptive.
Lifestyle: Frameworks like SRI Consulting Intelligence classify customers into: Innovators, Thinkers, Achievers, Experiencers, Believers, Strivers, Makers, and Survivors.
Values: University of Michigan identified nine basic values: Self-respect, Security, Excitement, Fun/Enjoyment, Warm relationships, Self-fulfilment, Sense of belonging, Sense of accomplishment, Knowledge.
Toothpaste Market Segmentation Example:
The Sensory Segment: Seek flavor/appearance; Teens/young people; Brands: Colgate, Stripe.
The Sociables: Seek bright teeth; Large families; Brand: Ultra Brite.
The Worriers: Seek decay prevention; Large families; Brand: Crest.
The Independent Segment: Seek low price; Men; Heavy users.
Targeting: Meaning and Strategies
Targeting involves making choices about which segments to serve. No organization can address all segments with specific mixes.
Types of Targeting:
Mass Marketing (Undifferentiated): One product/marketing mix for all. Capture volume for economies of scale (e.g., Coca Cola, Sony).
Large Segment (Single-segment/Concentrated): Focus on one core segment (e.g., of the market). High risk if the segment fails (e.g., pagers losing to mobiles).
Adjacent Segment: Starting in one segment and moving to a closely related one (e.g., Suzuki starting with Maruti , then Zen, then Esteem).
Multi-Segment (Differentiated): Serving multiple segments with separate mixes (e.g., Nike serving golfers, cricketers, and basketball players).
Small Segment: Competing in the smallest segment often ignored by large firms (e.g., Mercedes' early focus on luxury only).
Niche Segment: Targeting a limited number of customers seeking specialized benefits. Avoids direct competition with large firms (e.g., OM Pizzas between fine dining and mass market; Emami's Fair and Handsome).
Sub-Segment (Micromarketing): Meaningful differences within a segment (e.g., ready food kitchen offering office delivery vs. AC dine-in).
Selection Criteria: Existing market share, production expertise, scale economies, competitive environment, segment attractiveness (size/growth), available resources, and anticipated profitability.
Target Market Failure: Marketers must evaluate if targets have changed, if they are profitable, and if functional areas have relevant target information.
Positioning: The Battle for the Mind
Defined by Al Ries and Jack Trout (), positioning is about identity—what you are in the marketplace vis-a-vis competitors. It creates a perception in the consumer's mind.
The goal is to develop a Unique Selling Proposition ().
Positioning Process:
Identify relevant competitive products.
Identify determinant attributes defining the "product space."
Collect customer perceptions of determinant attributes.
Determine product's current location.
Determine customers' preferred combination of attributes.
Examine the fit between segment preferences and current position.
Write a positioning or value proposition statement.
Bases of Positioning:
Attributes (e-bay: "Buy it, Sell it. Love it.")
Price/Quality (Omega watches; Acer as low-cost).
Competitors (Walmart: "Save money. Live better.")
Application (Health insurance).
Product User (Apple; Crane’s stationery).
Product Class (BMW: "Ultimate driving machine").
Dreams (Honda: "Sach kardenge sapne").
Completeness (Raymond's "Complete man").
First-mover (Compaq portable PC).
Distribution (Dell direct sales).
Exclusivity (Toshiba laptops).
Waku Waku Doki Doki (Toyota: adrenaline/anticipation).
Health (Dhara Oil: "Health ki chinta dhara pe chhod dijiye").
Personalisation (Ford India centers).
Case Study: Tata Nano repositioned from "the cheapest car" (which hurt its aspirational value) to a "smart car" with power steering, vibrant colors, and Bluetooth connectivity.