Segmentation, Targeting and Positioning (STP)

OPENING THOUGHT
The first challenges presented in this chapter are the concepts of market segmentation and
the segmentation processes used by marketing firms. Students may have difficulty
understanding the various steps of the segmentation process as well as differentiating
between target markets and market positioning. The instructor is urged to use personal
examples of target markets in illustrating the different markets.

DETAILED CHAPTER OUTLINE

Companies cannot connect with all customers in large, broad, or diverse markets. But they
can divide such markets into groups of consumers or segments with distinct needs and wants.
A company then needs to identify which market segments it can serve effectively. This
decision requires a keen understanding of consumer behavior and careful strategic thinking.
To develop the best marketing plans, managers need to understand what makes each segment
unique and different.
To compete more effectively, many companies are now embracing target marketing.
Effective target marketing requires that marketers:
A) Identify and profile distinct groups of buyers who differ in their needs and wants
(market segmentation).
B) Select one or more market segments to enter (market targeting).
C) For each target market, establish and communicate the distinctive benefit(s) of the
company’s market offering (market positioning).

BASES FOR SEGMENTING CONSUMER MARKETS

Market segmentation divides a market into well-defined slices. A market segment
consists of a group of customers who share a similar set of needs and wants. The
marketer’s task is to identify the appropriate number and nature of market segments and
decide which one(s) to target.

We use two broad groups of variables to segment consumer markets.

A) Descriptive characteristics: geographic, demographics, and psycho-
graphic.
B) Behavioral considerations: consumer responses to benefits, usage occasions, or brands.
Regardless of which type of segmentation scheme we use, the key is adjusting the marketing
program to recognize customer differences.
Geographic Segmentation
Geographic segmentation divides the market into geographical units.
A) More and more, regional marketing means marketing right down to a specific pin
codes.
B) Marketing to microsegments has become possible even for small organizations as
database costs decline, software becomes easier to use, and data integration
increases.

Demographic Segmentation
In demographic segmentation, we divide the market by variables such as age, family size,
family life cycle, gender, income, occupation, education, religion, race, generation,
nationality, and social class.
A) Consumer needs, wants, usage rates, and product and brand preferences are often
associated with demographic variables.
B) Demographic variables are easy to measure.

Age and Life-Cycle Stage

Consumer wants and abilities change with age.
Nevertheless, age and life cycle can be tricky variables. The target market for some
products may be the psychologically young.

Life Stage
A) Persons in the same part of the life cycle may differ in their life stage. Life stage
defines a person’s major concern. These life stages present opportunities for
marketers who can help people cope with their major concerns.
Gender
A) Men and women have different attitudes and behave differently, based partly on
genetic makeup and partly on socialization.
B) Some traditionally more male-orientated markets, are beginning to recognize
gender segmentation, changing how they design and sell their products.
Income
A) Income segmentation is a long-standing practice in product and service
categories.
B) However, income does not always predict the best customers for a given product.
C) Increasingly, companies are finding their markets are hourglass shaped as middle-
market Indian consumers migrate toward both discount and premium products.
Marketers need to utilize the dormant potential of markets at the “bottom of the
pyramid” in South Asia.

Socio-Economic Classification

The Socio-Economic Classification (SEC) of urban households in India is based on a

combination of two factors—the education level and the occupation of the head of the
household. This is discussed in Table 7.2.

Marketing Insight: Segmenting Rural Markets

discusses the SEC classification of rural households in India.

Generation
A) Each generation or cohort is profoundly influenced by the times in which it grows up.
B) Demographers call these groups cohorts.
1) They share similar outlooks and values.
2) Marketers often advertise to a cohort by using the icons and images prominent in
its experiences.
 C) Generational cohorts also influence each other.
D) Marketers often advertise to a cohort by using the icons and images prominent in its
experiences.

Psychographic Segmentation
Psychographics is the science of using psychology and demographics to better understand
consumers.
A) In psychographic segmentation, buyers are divided into different groups on the
basis of psychological/personality traits, lifestyle, or values.
B) One of the most popular commercially available classification systems is SRI
Consulting Business Intelligence’s VALS framework.
1) The major tendencies of the four groups with high resources are:
a. Innovators
b. Thinkers
c. Achievers
d. Experiencers
2) The major tendencies of the four groups with lower resources are:
a. Believers
b. Strivers
c. Makers
d. Survivors
Behavioral Segmentation
In behavioral segmentation, marketers divide buyers into groups on the basis of their
knowledge of, attitude toward, use of, or response to a product.

Needs and Benefits

A) Benefits: Not everyone who buys a product has the same needs or wants the same
benefits from it.
B) Needs-based or benefit-based segmentation is a widely used approach because it
identifies distinct market segments with clear marketing implications.
Decision Roles
It’s easy to identify the buyer for many products. People play five roles in a buying
decision: Initiator, Influencer, Decider, Buyer, and User.

User and Usage-Related Variables

Many marketers believe variables related to various aspects of users or their usage—
occasions, user status, usage rate, buyer-readiness stage, and loyalty status—are good
starting points for constructing market segments.
A) Occasions
B) User Status
C) Usage Rate
D) Buyer-Readiness Stage
E) Loyalty Status
 a) hard-core loyals
b) split loyals
c) shifting loyals
d) switchers
F) Attitudes
a) enthusiastic
b) positive
c) indifferent
d) negative
e) hostile
G) Multiple bases

MARKET TARGETING
Once a firm has identified its market-segment opportunities, it must decide how many
and which ones to target. This has lead some researchers to advocate a needs-based
market segmentation approach.

Effective Segmentation Criteria

To be useful, market segments must rate favorably on five key criteria:
A) Measurable
B) Substantial
C) Accessible
D) Differentiable
E) Actionable

Evaluating and Selecting the Market Segments (Just overview)

In evaluating different market segments, the firm must look at two factors: The segment’s
overall attractiveness and the company’s objectives and resources.
Full market coverage
1) The firm attempts to serve all customer groups with all the products they might
need.
2) In undifferentiated marketing, the firm ignores segment differences and goes after
the whole market with one offer.
3) In differentiated marketing, the firm operates in several market segments and
designs different products for each segment.
Multiple Segment Specialization
1) With selective specialization, a firm selects a subset of all the possible
segments, each objectively attractive and appropriate. There may be little or no
synergy among the segments, but each promises to be a moneymaker.
2) Keeping synergies in mind, companies can try to operate in supersegments
rather than in isolated segments. A supersegment is a set of segments sharing
some exploitable similarity.
3) With product specialization, the firm sells a certain product to several different market
segments. A microscope manufacturer, for instance, sells to university, government, and
commercial laboratories, making different instruments for each and building a strong
reputation in the specific product area. The downside/risk is that the product may be
supplanted by an entirely new technology.
4) With market specialization, the firm concentrates on serving many needs of a
particular customer group, such as by selling an assortment of products only to university
laboratories. The firm gains a strong reputation among this customer group and becomes
a channel for additional products its members can use. The downside/risk is that the
customer group may suffer budget cuts or shrink in size.

Single-Segment Concentration
With single-segment concentration, the firm markets to only one particular
segment.
1) Through concentrated marketing, the firm gains deep knowledge of the segment’s needs
and achieves a strong market presence.
2) A niche is a more narrowly defined customer group seeking a distinctive mix of benefits
within a segment. Marketers usually identify niches by dividing a segment into sub-
segments.
a. Niche marketers aim to understand their customers’ needs so well that
customers willingly pay a premium.
3) However, there are risks. A market segment can turn sour or a competitor
may invade the segment.
4) For these reasons, many companies prefer to operate in more than one
segment.
5) Companies can try to operate in super-segments rather than in isolated
segments.
a. A super-segment is a set of segments sharing some exploitable similarity.
Individual Marketing
The ultimate level of segmentation leads to “segments of one,” “customized marketing,”
or “one-to-one marketing.
Today customers are taking more individual initiative in determining what and how to
buy.

They log onto the Internet; look up information and evaluations of product or service
offerings; conduct dialogue with suppliers, users, and product critics; and in many cases
design the product they want.

Customerization combines operationally driven mass customization with customized

marketing in a way that empowers consumers to design the product and service offering
of their choice.
DEVELOPING AND COMMUNICATING A POSITIONING STRATEGY

All marketing strategy is built on STP—Segmentation, Targeting, and Positioning.

A company discovers different needs and groups in the marketplace, targets those needs
and groups that it can satisfy in a superior way, and then positions its offering so that the
target market recognizes the company’s distinctive offering and image.
A) Positioning is the act of designing the company’s offering and image to occupy a
distinctive place in the mind of the target market.
B) The goal is to locate the brand in the minds of consumers to maximize the potential
benefit to the firm.
C) A good brand positioning helps guide marketing strategy by clarifying the brand’s
essence, identifying the goals it helps the consumer achieve, and showing how it does
so in a unique way.
D) A good positioning has a “foot in the present” and a “foot in the future.” It needs to be
somewhat aspirational so the brand has room to grow and improve.
E) The result of positioning is the successful creation of a customer-focused value
proposition, a cogent reason why the target market should buy the product.
F) Positioning requires that marketers define and communicate similarities and
differences between their brand and its competitors. Specifically, deciding on a
positioning requires:
a. determining a frame of reference by identifying the target market and
relevant competition
b. identifying the optimal points-of-parity and points-of-difference brand
associations given that frame of reference
c. creating a brand mantra to summarize the positioning and essence of the
brand

Moov, the pain relieving ointment from Paras Pharmaceuticals, succeeded in a market
dominated by established brands that promised relief from headache, body ache and
sprains by positioning itself as the backache specialist. Initially, it was launched as a balm
for relieving joint pain that troubles old people. Subsequently, based on consumer insight
that backache is a significant problem faced by many, especially housewives, the brand
was repositioned as the backache specialist.

Deciding on positioning requires determining a frame of reference by identifying target

markets and competition and identifying the ideal points-of-parity and points-of-difference
brand associations.