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Principles of Marketing Unit 5: Segmentation, Targeting and Positioning

No firm can serve everyone well, so marketers divide markets into groups, choose which to serve, and decide how to stand out in those buyers' minds. This unit covers segmentation, targeting and positioning (STP), the heart of customer-driven strategy.

Covers: Geographic, demographic, psychographic and behavioral segmentation, Segmenting business markets, Requirements for effective segments, Evaluating and selecting target segments, Targeting strategies, Differentiation and positioning, Value propositions and positioning statements

Study guide

Market segmentation divides a market into distinct groups of buyers who have different needs, characteristics or behaviors and who might want separate marketing programs. Consumer markets are segmented on four main bases. Geographic segmentation uses nations, regions, cities or climate. Demographic segmentation uses age, life-cycle stage, gender, income, education, ethnicity and generation; it is the most popular base because these variables are easy to measure and often linked to needs. Psychographic segmentation uses social class, lifestyle and personality. Behavioral segmentation uses occasions, benefits sought, user status, usage rate and loyalty. Many marketers consider benefit segmentation the most powerful because it starts from why people buy.

Business markets are segmented on many of the same variables plus operating characteristics, purchasing approaches, situational factors and personal characteristics of buyers. A software firm might segment by company size, industry, or whether purchasing is centralized. International markets can be segmented by geographic location, economic factors, political and legal factors and cultural factors, or by intermarket segmentation, which groups consumers with similar needs across countries, such as affluent teens worldwide. To be useful, segments must be measurable, accessible (reachable and servable), substantial (large or profitable enough), differentiable (responding differently to marketing programs) and actionable (the firm can design programs to attract them).

Targeting is evaluating each segment's attractiveness and selecting one or more to enter. Firms look at segment size and growth, structural attractiveness (competitors, substitutes, buyer and supplier power) and fit with company objectives and resources. Targeting strategies run from broad to narrow. Undifferentiated (mass) marketing ignores segment differences and offers one program to the whole market. Differentiated (segmented) marketing targets several segments with separate offers, usually raising both sales and costs. Concentrated (niche) marketing goes after a large share of one or a few small segments, which suits firms with limited resources. Micromarketing tailors offers to specific locations (local marketing) or individuals (individual or one-to-one marketing).

Positioning is arranging for a product to occupy a clear, distinctive and desirable place in target consumers' minds relative to competitors. Firms differentiate on product, service, channel, people or image. A positioning map (perceptual map) plots consumer perceptions of brands on two important dimensions, such as price and performance, revealing gaps and head-to-head rivals. Not every difference is worth promoting: a good one is important, distinctive, superior, communicable, preemptive, affordable and profitable. Firms should avoid three errors: underpositioning (buyers have only a vague idea of the brand), overpositioning (too narrow a picture) and confused positioning (a mixed image from too many claims or frequent changes).

A brand's full positioning is its value proposition, the full mix of benefits on which it is positioned. Five winning propositions appear on many tests: more for more (premium quality at a premium price), more for the same, the same for less, less for much less, and the most ambitious, more for less. A positioning statement summarizes the choice: To (target segment and need) our (brand) is (concept) that (point of difference). For example: 'To busy college students who need healthy meals, FreshBox is the meal kit that takes 15 minutes from box to table.' Once chosen, the position must be delivered consistently through every element of the marketing mix.

Key ideas

• Segmentation, targeting, differentiation and positioning are the four steps of customer-driven strategy.
• Consumer markets are segmented on geographic, demographic, psychographic and behavioral bases.
• Effective segments are measurable, accessible, substantial, differentiable and actionable.
• Targeting strategies range from undifferentiated to differentiated, concentrated and micromarketing.
• Positioning is about the place a brand holds in consumers' minds relative to competitors.
• Positioning maps show how consumers perceive brands on two key dimensions.
• A value proposition is the full mix of benefits a brand is positioned on, such as more for more.

Formulas and rules

Common mistakes

• Placing lifestyle or personality under demographic segmentation instead of psychographic.
• Calling usage rate or benefits sought demographic when they are behavioral variables.
• Confusing differentiated marketing (several segments) with concentrated marketing (one niche).
• Thinking positioning is something done to the product; it happens in the customer's mind.
• Assuming any difference is a good basis for positioning without checking if it is important and profitable.

Before the test, make sure you can

• Classify segmentation variables as geographic, demographic, psychographic or behavioral.
• Test whether a proposed segment meets the five requirements for effective segmentation.
• Calculate the sales potential of a segment and compare segments.
• Identify undifferentiated, differentiated, concentrated and micromarketing strategies.
• Read a positioning map described in words and spot gaps and close rivals.
• Identify the five value propositions and the three positioning errors.
• Write a positioning statement for a product.

Words to know

Market segmentation

Dividing a market into distinct groups of buyers who have different needs, characteristics or behaviors and who might require separate marketing strategies.

Geographic segmentation

Dividing a market into geographical units such as nations, regions, states, cities or neighborhoods.

Demographic segmentation

Dividing the market based on variables such as age, life-cycle stage, gender, income, occupation, education, ethnicity and generation.

Psychographic segmentation

Dividing a market based on social class, lifestyle or personality characteristics.

Behavioral segmentation

Dividing a market based on consumer knowledge, attitudes, uses or responses to a product, including occasions, benefits, user status, usage rate and loyalty.

Benefit segmentation

Dividing the market according to the different benefits consumers seek from the product.

Intermarket segmentation

Forming segments of consumers who have similar needs and buying behaviors even though they are located in different countries.

Target market

A set of buyers who share common needs or characteristics that a company decides to serve.

Undifferentiated marketing

A strategy in which a firm ignores segment differences and targets the whole market with one offer.

Differentiated marketing

A strategy in which a firm targets several market segments and designs separate offers for each.

Concentrated (niche) marketing

A strategy in which a firm goes after a large share of one or a few segments or niches.

Micromarketing

Tailoring products and marketing programs to suit the tastes of specific individuals and local customer segments.

Positioning

Arranging for a market offering to occupy a clear, distinctive and desirable place relative to competing products in the minds of target consumers.

Positioning map

A chart that shows consumer perceptions of brands against competitors on important buying dimensions.

Competitive advantage

An advantage over competitors gained by offering greater customer value, through lower prices or greater benefits.

Value proposition

The full positioning of a brand: the full mix of benefits on which it is positioned.

Positioning statement

A statement that summarizes company or brand positioning: To (target segment and need), our (brand) is (concept) that (point of difference).

Confused positioning

A positioning error in which buyers have a mixed image of the brand because of too many claims or frequent changes.

Sample practice questions

30 more questions like these, from level 1 to 5, are in the practice set.