UNIT 2

Identifying Market Segments and Targets

Market Segmentation and Targeting: A Simple Guide for Students and Marketers

Imagine opening a shop that tries to sell to everyone. You stock every size, every price and every style. Sounds safe, right? In reality, you end up pleasing nobody properly. That is exactly why smart companies practise market segmentation and targeting. They stop chasing everyone and start serving the right people really well.

1. What is STP?

STP stands for Segmentation, Targeting and Positioning. First, you divide the market into groups. Then you pick the group(s) you want to serve. Finally, you shape your brand so that group sees it as the obvious choice. This post covers the first two steps. Positioning has its own post in this series.

1.1 The levels of segmentation

Think of it as a ladder that goes from “everyone” down to “one person”:

Why niches are attractive. Customers in the niche have distinct needs and will pay extra to the firm that serves them best. Big rivals are less likely to bother with the niche, the nicher gains from specialising, and the niche has enough size, profit and growth potential. The internet and globalisation have made niche marketing much easier because small groups scattered across the world can now be reached cheaply.

A note on individual marketing. Many companies now practise mass customization: they build the ability to produce individually designed products at mass-market prices. The next step is that consumers take the initiative themselves (self-marketing), for example by designing products, sharing reviews and spreading word-of-mouth.

1.2 Ways to segment a consumer market

There are four big families of variables. Marketers rarely use just one; they usually combine several to get a sharper picture.

1.3 Behavioral variables in detail

• Decision roles: initiator, influencer, decider, buyer, user. The person who pays is not always the person who decides (think of a child asking for a toy).
• Occasions: when people get the idea, buy or use. Greeting cards for festivals, an airline for business trips versus holidays.
• Benefits sought: what people want out of the product. Toothpaste buyers split into those wanting economy, medicinal protection, cosmetic whiteness or taste.
• User status: nonusers, ex-users, potential users, first-time users, regular users.
• Usage rate: light, medium and heavy users. Often a small group of heavy users makes up a huge share of sales (the “80/20” idea).
• Buyer-readiness stage: unaware, aware, informed, interested, desirous, intending to buy. A campaign must match the stage most people are in.
• Loyalty status: hard-core loyals, split loyals, shifting loyals, switchers.
• Attitude: enthusiastic, positive, indifferent, negative, hostile.

Combining variables: geoclustering

Marketers often merge several variables to find “clusters” of people in specific areas. Tools such as PRIZM-type systems group neighbourhoods by income, lifestyle and spending behaviour, so a retailer can decide exactly where to open a store or send a mailer.

1.4 Bases for segmenting business markets

Business (B2B) marketers use all the consumer variables, plus a few of their own. A useful way to remember them is to go from the broad to the personal:

1.5 When is a segment actually useful? (five tests)

You can slice a market a hundred ways, but a segment is only worth chasing if it passes these tests:

1.6 Evaluating and selecting market segments

Once the segments are mapped, the firm has to decide which ones to enter. It looks at three things:

1. Segment size and growth. Is it big enough and growing? Bigger is not always better: small firms may do best in smaller segments that giants ignore.
2. Segment structural attractiveness. Based on Porter’s five forces: how intense is rivalry, how easy is it for new entrants to arrive, are there substitutes, how much power do buyers have, how much power do suppliers have? A segment is less attractive when it is crowded, easy to enter, or when buyers and suppliers can dictate terms.
3. Company objectives and resources. Even an attractive segment may not fit the firm’s long-run goals, skills or resources. A firm should enter only where it can offer superior value.

Five patterns of target-market selection

Two further ideas appear here. Segment-by-segment invasion plans warn firms to enter in a planned order rather than all at once so competitors cannot predict their moves. And intersegment relationships remind marketers to look for “supersegments”: groups of related segments that share useful similarities.

1.7 Targeting responsibly

Targeting can go wrong when it takes advantage of vulnerable people. Children, for instance, are heavily targeted for fast food and sugary products, which raises concerns about obesity. Targeting consumers who are disadvantaged, or marketing products that are harmful, brings criticism and legal risk. The lesson is that the goal is not to exploit a segment but to serve it well, and a socially responsible firm checks that its targeting is fair and honest.

2. Crafting the Brand Positioning

2.1 Why positioning needs a “frame of reference”

You cannot position a brand in thin air. You need to decide two things first:

• Who is the target market? (This comes from segmentation and targeting.)
• Who is the competition? The answer tells the customer what category the brand belongs to and what it should be compared with.

Spotting competitors

Your closest competitors are the ones chasing the same customers and needs with similar offers. But watch out for latent competitors: firms that may satisfy the same need in a completely different way and sneak up on you. There are two ways to look for competitors:

• Industry-based analysis: look at firms making similar products.
• Market-based analysis: look at firms trying to satisfy the same customer need, even with different products (for example, a movie theatre competes with streaming and gaming).

Once identified, study each competitor’s strategies, objectives, strengths and weaknesses.

2.2 Points-of-difference (PODs) and points-of-parity (POPs)

This is the heart of the chapter. Every brand needs two kinds of associations in the customer’s mind.

Three tests for a good point-of-difference

Three kinds of points-of-parity

• Category POPs: things consumers see as necessary to be a credible offering in a category (a bank must be safe and offer ATMs).
• Correlational POPs: designed to overcome a perceived weakness created by the point-of-difference (a premium brand must still seem reasonably priced).
• Competitive POPs: designed to cancel out a rival’s point-of-difference.

The tricky part: negatively correlated attributes. Some desirable features pull against each other, such as “low price” versus “high quality”, or “powerful” versus “safe”. Customers often assume you cannot have both. Great brands find ways to achieve both, either by launching separate lines, using clever communication, or developing new technology.

3. The brand mantra

A brand mantra is a short three-to-five-word phrase that captures the heart and soul of the brand (think of Nike: “authentic athletic performance”). It does three jobs: it communicates what the brand is and what it is not, it simplifies by giving employees a clear focus, and it inspires people to think about how to deliver the promise in everything they do.

3.1 Communicating category membership

Before talking about differences, customers need to know what category the brand belongs to. There are three common ways:

• Announcing category benefits: reassure customers that the brand will deliver the basic benefits of the category.
• Comparing to exemplars: link to a well-known brand in the category (“as good as the leader”).
• Relying on the product descriptor: the words that follow the brand name explain what the product is.

3.2 How to differentiate

A brand can stand apart on many fronts. Any benefit that is desirable, deliverable and differentiating can become the point-of-difference.

3.3 Emotional branding

People do not buy on logic alone. Emotional branding connects with customers on a deeper level, which makes the brand harder to copy. The book makes a smart point: emotional differences work best when they are tied to real functional differences. A heartwarming story cannot rescue a product that does not do its job.

3.4 Alternative approaches to positioning

Not everyone likes the tidy POP/POD structure. Several softer, more qualitative approaches exist:

• Brand narratives and storytelling: the brand is positioned through a story that shows what it stands for.
• Cultural branding: the brand speaks to a social tension or ideology in society, so it becomes an icon of a cultural movement.

Debate to keep in mind: some believe structured positioning gives clarity, while others believe stories create stronger emotional bonds. In reality, many strong brands use both.

3.5 Positioning for small businesses

Small firms follow the same principles but must be more focused, put extra emphasis on distinctive brand elements and secondary associations (borrowing credibility from other people, places or things), and find ways to create buzz, since they cannot match the budgets of big competitors.

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