Market Segmentation, Targeting, and Positioning (Explanation)
Clarke Ricks School of Business,
Liberty University
BUSI 690: Policy and Strategy in Global Competition
Dr. Hicks
April 9, 2022
Market Segmentation, Targeting, and Positioning (Explanation)
There is only one winning strategy. It is to carefully define the target market and direct a
superior offering to that target market."
- Philip Kotler
The idea of defining the target market and 'directing a superior offering' to them is the
fundamental idea behind market segmentation, targeting and positioning. These steps are
essential for an organisation's marketing strategy.
Meaning of segmentation, targeting, and positioning in marketing
Segmentation, targeting, and positioning are also known as the STP marketing model. The
three concepts go hand in hand when making decisions about a firm's marketing processes.
Market segmentation
The first step is market segmentation.
Market segmentation divides the market into subgroups of individuals who share similar
needs, wants, and characteristics.
It is the marketer's goal to identify the appropriate subgroups of consumers. There are
four ways of segmenting consumers (see Figure 1 below).
Demographic segmentation
This is one of the most widely used segmentation methods. Demographic segmentation
divides consumers into groups based on characteristics such as:
Age.
Sex.
Income.
Family size.
Occupation, etc.
Geographic segmentation
This divides the market based on geographical aspects. Geographic segmentation can be a
helpful tool for marketers, as certain customers from different parts of a country could have
different wants and needs. Geographic segments include:
Country.
City.
Neighbourhood.
Climate.
Psychographic segmentation
This looks at the intrinsic traits of the target consumer.
Style.
Values.
Personality traits.
Behavioural segmentation
This breaks down the market into subgroups based on consumers' behaviour when
making purchase decisions. It can be based on:
Occasions.
User status.
Usage rate.
Loyalty.
Targeting
The second step includes deciding who to target.
Targeting involves deciding which customer segment or market the firm should be aiming
at.
Once a firm identifies all market segments, it must determine which ones to target and
how many. This strategy aims to identify small, well-defined target groups.
Imagine you are working as a marketing manager for a clothing retailer. Instead of
deciding to target all women, you would specify that you want to target women between the
ages of 25-30 who purchase new clothes at least once every two weeks. To find the appropriate
target market, you need to evaluate the market segment based on its attractiveness, and
whether the firm has the resources and capabilities to do this effectively.
Positioning
Finally, the company has to position its product in the market.
Positioning involves determining where your brand or product stands affecting others in
the market.
Positioning is a vital part of marketing strategy, as it influences how customers perceive
your product offering. It is directly related to your value proposition.
Value proposition is the value a business promises to bring to its customer when buying a
product or service.
The STP model comes down to a marketer making two crucial decisions: which customers
should we serve? And how should we serve those customers? Market positioning is the last
step in the decision-making process. The business has to decide how customers will view its
product and how it will compete in the chosen market segment.
Why are segmentation, targeting, and positioning important in marketing?
Segmentation, targeting, and positioning are essential elements of marketing strategy. All
three concepts are prerequisites for developing the marketing mix. These steps are necessary
for understanding customers and the product offering better. It also allows businesses to
understand which customers they should focus their marketing strategy on and how they can
make their product the most successful from a marketing point of view.
Segmentation is essential for firms as it allows them to understand their market
better. During segmentation, customers are divided into smaller subsets based on shared
characteristics, which provides insight into the different types of customers purchasing the
firm's products or services.
Targeting is also important because it is essential to select which customer segment is
most attractive from a marketing perspective. This customer segment, or segments, will be the
ones you focus your marketing on.
Finally, positioning the product is crucial because it determines how customers will view
the product or service compared to those of competitors. This step helps businesses define
their product offerings and the value they bring to their customers.
Relationship between segmentation, targeting, and positioning
As illustrated in the Figure 2 above, segmentation, targeting, and positioning are all
related. The model begins with segmentation, in which consumers are divided into
subsegments or subgroups. Each subgroup includes a group of customers with similar
characteristics, either demographically, geographically, psychographically, or behaviourally.
The next step is targeting, in which the firm decides which market segment it wants to
target. Once the organisation identifies all market segments, it chooses the most attractive one;
the one aligned with the firm's objectives and resources.
Finally, the firm needs to decide how it will serve its customers. During this process, the
organisation needs to define its product differentiation strategy. This strategy includes figuring
out what makes the product or service different from competitors' products and services. Then,
it is time for market positioning. During this step, the firm needs to determine how they want
customers to perceive the product and position this product for each target segment.
These are all essential steps to take before establishing the marketing mix.
Market segmentation, targeting, and positioning examples
Before we conclude today's lesson, let's take a look at some market segmentation,
targeting, and positioning examples.
B2B market segmentation, targeting, and positioning
In the business-to-business (B2B) context, the marketing STP model is equally as essential
as it is in business-to-consumer (B2C) contexts.
For example, Microsoft Teams is a B2B company. It provides a platform businesses can
use primarily for inter-organisational communication. Teams' competitors include Google Meet,
Slack, and Zoom. As a result, Microsoft Teams segments its customers into four main segments:
home (for communication with friends and family), business (for smaller businesses), enterprise
(for larger firms), and education (for schools and universities). Thus, Teams segments its
customers based on buyer characteristics and targets each segment with a different plan suited
to their needs.
Case study on market segmentation, targeting, and positioning
Finally, let's direct our attention to The Coca-Cola Company, which uses a variety of
segmentation tactics to reach broad audiences.
First, Coca-Cola segments its customers geographically, based on their location. For
example, Coca-Cola launched its 'Share a Coke' campaign in Australia in 2011.1 The campaign
featured the slogan "Share a Coke with" printed on Coca-Cola bottles in addition to a variety of
the most popular names printed on each bottle next to the slogan. The campaign was so
successful that the company decided to launch it in multiple countries worldwide, including the
United Kingdom, China, Spain, etc. Of course, Coca-Cola had to conduct market research to
discover which names were the most popular in each country. The most popular names in
Australia might have worked in the UK; however, the campaign would not have proven
successful in China or Spain if the Coke bottles had English names printed on them. As a result,
this is an example of how Coca-Cola segments its customers geographically.
Coca-Cola also uses a variety of tools to target its customers. For example, it targets more
health-conscious consumers with its Coca-Cola Zero and Coca-Cola Diet products whereas
average customers. Bottle sizing also plays a role in the company's targeting. For instance, its
regular-sized cans are targeted at individuals who want to grab a drink quickly. On the other
hand, the company targets families with its larger, 1.5-2 L bottles.
Finally, Coca-Cola positions itself as a refreshing drink that brings joy to customers. It is
positioned as a thirst-quenching drink that customers can buy on the go and a high-quality soft
drink to share with family and friends.
Market Segmentation, Targeting, and Positioning - Key takeaways
Segmentation, targeting, and positioning make up the STP marketing model.
Segmentation involves dividing the market into subgroups based on demographic,
geographic, psychographic, and/or behavioural characteristics.
Targeting involves selecting which customer segment the firm should target, i.e., the
most attractive segment.
Positioning influences how customers perceive a product or service. During this stage,
the business needs to decide how it wants customers to view its product compared to
competitors' products.
The STP marketing model is a process that links each step.
Segmentation, targeting, and positioning are prerequisites for the marketing mix.
References
1. Coca-Cola Australia. What was the 'Share a Coke' campaign?. 2022.
https://www.coca-colacompany.com/au/faqs/what-was-the-share-a-coke-campaign
