A smart businessman knows very well that his business can succeed only if it can create true value to its customers. Businesses must use a customer-driven marketing strategy to create the right impression and deliver on the promises made. Market segmentation, targeting and positioning are the basic elements of creating a customer-centric marketing strategy, that can help you stand out from the crowd. We discuss these in detail in this tutorial. You can also jump ahead and learn more about how to market your message with this inspirational course.
To cater to the different consumer groups, any business must divide its targeted market into smaller units with specific needs or preferences, who may need to be served with unique products or marketing mixes. This process of dividing a market into several smaller sub-groups and offering different products or services is called market segmentation. For example, the sports apparel manufacturer, Nike, captured the women’s sports apparel market by creating a separate line for them and opening several Nike Women stores across the country. By using gender segmentation, the company was able to step up its marketing and sales efforts and reach out to a whole new market.
Look at the classic example of how Dunkin’ Donuts shifted its focus from doughnuts to coffee in the 90s, and went on to earn 62 per cent sales from coffee within a few years. That clearly shows the value proposition in understanding your customer segments, and giving them what they want. Further, look at the competition with Starbucks, you’ll realize that Dunkin’ Donuts targets different customers and has clearly created a separate segment for itself in the coffee house sector. Unlike Starbucks, Dunkin’ Donuts is a no-frills coffee chain, which focuses on serving customers who don’t quite care about the couches and music and instead want quality products at economical cost. By positioning the brand strongly and carving out a niche for itself amongst the working-class, Dunkin’ Donuts used market segmentation and targeting to its advantage, successfully.
Kinds of Segmentation
Businesses ply in markets that have different kinds of buyers, who differ in their buying preferences, needs, where they are located, resources etc. Companies make use of these differences to create products and services that cater to a larger audience though they may be segmented into smaller groups. This way, they match the unique needs of the consumer effectively. Market segmentation is normally done based on four main categories:
Segmenting Consumer Markets
Different methods are used to segment markets based on the consumer attitudes and preferences. It could be geographic, demographic, psychographic or behavioral segmentation. Any kind of segmentation should be based on thorough market research. This can be outsourced to various marketing research firms, or can be done in house for smaller businesses.
Once the research data is available, the market can be broken up into various segments based on the following criteria
- Geographical Segmentation – Based on the consumer’s location, companies may divide their market into countries, regions, states, cities or different neighborhoods too. Our course in tips for market segmentation for small business owners will give you a step-by-step approach to creating market segments. By localizing their products, businesses can put in concentrated efforts with regard to advertising, promotions, sales and services so that they meet the individual needs of that particular geographical group. Say for example, Coca-Cola, in its efforts to popularize its products in the Japanese market, developed four different kinds of ready-to-drink canned coffees, each targeted for a specific region of the country. Similarly, for the curry lovers in England, Pringles created the now famous Curry Pringles whereas for the Asian markets, the company launched the Funky Soy Sauce Pringles!
- Demographic Segmentation – Depending on the consumer age, gender, family life cycle, family size, income, occupation, religion, education etc. companies come up with different kinds of products. One can see this in the several toothpaste brands, which cater to children and adults in different ways.
- Psychographic Segmentation – Based on their social class, lifestyle and personal preferences, consumers can enjoy tailor-made products and services, and companies can benefit from their psychographic outlooks. If you look at the Pottery Barn stores, you will find that they sell more than just home furnishings. The PB Kids stores offer products that are ideal for a perfect childhood whereas the PB Teens section offers trendy products that are a reflection of the users’ fashion statement. This way Pottery Barn not only serves an upscale, family focused lifestyle but also gives an impression of being casual yet sensible.
- Behavioral Segmentation – Markets can also be divided based on the users’ knowledge, attitudes or response to a product. For example, holidays and occasions, benefits that the consumer looks forward to, usage patterns or loyalty status, are the different ways in which businesses can come up with several products targeted for each type of consumer. To learn more about how to sell to targeted consumers based on behavioral patterns, take this course.
Segmenting Business Markets
Companies also serve other business markets based on the firm’s operating characteristics, situational factors, etc. This way the right value proposition is delivered to each business segment. This can be explained better with an example, such as the American Express credit cards. While the company caters to consumers, it also has a specialized operation for businesses belonging to different categories like merchants, small businesses and corporations. While corporations are provided with services for their employees and travel management or retirement planning, small businesses are given access to a network of other small businesses among other services.
Segmenting International Markets
This might seem similar to the geographical segmentation but it’s not so. International markets not only differ geographically but also in economy, politics, legal or cultural factors etc. These criteria help businesses enter the markets with different marketing campaigns that are suited to the particular environment of that country.
After creating the different market segments, it’s time for a company to target the audience and analyze which segments it will cater to and how. For this, a business must essentially look at the following step-by-step approach:
- Evaluate market segments – Companies must find out the segment size, growth pattern, segment attractiveness, competitors operating in that segment and company objectives etc. One needs to decide whether or not the segment has the ability to provide a long-term attractiveness and the platform for growth.
- Selecting target market segments – A business can either target the buyers broadly or in narrow fashion. Based on this concept, one might create mass marketing strategies, differentiated, concentrated or micromarketing strategies.
- Choosing a Targeting Strategy – Based on the product life-cycle stage, company resources, market variability and competitors’ strategies, businesses can choose a targeting strategy with lot of consideration. In today’s competitive age, companies must see to it that they involve the consumers in all phases of product development and buying process. It’s imperative to reach out to them and understand their preferences before adopting a targeting strategy.
- Socially responsible market targeting – While creating a market targeting plan, ensure that it is in line with the social and legal policies and sensitivity of the markets. For example, McDonald’s drew severe criticism for pitching high-fat foods to the low-income urban markets, who are heavier consumers than their sub-urban counterparts.
Market targeting helps businesses come up with tailor-made products and marketing campaigns to address the needs of the different market groups, but companies need to factor in the current market environment, buyer preferences, competitor actions etc. to launch their targeting plan.
Positioning is all about creating an impression in the minds of the consumer. It is the way in which the end-user will define your product or service in comparison to your competitors’ offerings. For example, Tide is positioned as a powerful, all-purpose family detergent whereas Applebee’s positioning strategy is “Eatin’ Good in the Neighborhood”.
Businesses must first create a positioning map based on customer perceptions of their brands with respect to an existing competitor’s brands. Depending on the price and orientation, they can find out the brand’s relative share in the market, based on which the positioning can be developed. Creating a unique set of benefits is crucial to a brand’s success. There are several factors that can help companies choose the right positioning strategy such as:
- Identifying value differences – Businesses must understand what the buyer values more while purchasing a product. Say for example, the user gives more importance to quality instead of price; then you must cater to that need not just by creating an attractive tagline but also delivering on quality.
- Choosing competitive advantages – Upon market research and evaluating segments, businesses may come across several potential differentiations that may provide competitive advantages with regard to other players. But it is essential to choose the advantages properly before diving into all of them. Create a USP for your brand and communicate the benefits and unique offerings to your consumers. Also, remember that some differences may not be good to promote. In such a case, you need to factor in the importance, profitability and superiority of that difference before promoting it.
- Selecting Positioning Strategy – Once a business has decided on the differences to promote and its brand USP, it must develop an overall positioning strategy, which is also called value proposition. The positioning statement must be clear and provide the following information: which market segment is being catered, what is your brand concept, and what is the competitive advantage of choosing your product.
Companies spend a lot of time in creating the right marketing mix and developing a positioning strategy, but it is also essential to communicate the same in an integrated way to the end-users. Businesses with a good plan for segmentation, targeting and positioning have already conquered half the battle of marketing and reaching out to their potential customers. So, if you are looking to launch your business, first take this course to make sure you get a jump start on creating a winning and differentiated business strategy.