What is the division of the market into distinct subsets of customers having similar needs and wants?

15 Apr, 2022 Marketing communication

As a communication professional, you will become more valued if you can contribute to your company’s marketing activities. Much better than just leaving marketing-related activities totally with marketers. A key aspect of marketing is market segmentation, and even though communicators play a minor role, it is important for us to understand the process, which is more sophisticated than we generally realize. It’s in our own interests to be able to talk knowledgeably about the process in collaboration with marketers, with our own team, and in management meetings. In this way, we can add value to the communication role, the marketing communication role, and the strategic planning role of the organization.  The bottom line: Understand market segmentation better so you can be a more effective communicator.

Equally important is that we can adapt some of the concepts from market segmentation to the comms role. This knowledge is invaluable for planning and implementing stakeholder relations activities.

What are we talking about?

So, let’s walk through a thoroughly professional market segmentation process, which will show us where marketing communication and market segmentation activities fit.

It is too costly and overwhelming for a business to market directly to everyone who could be a possible future customer, so market segmentation is needed to enable businesses of all sizes to reach groups of consumers who have similar characteristics. These groups can be subdivided into the most promising segments, and messages developed to appeal strongly to them to satisfy their needs and wants.

At the simplest level, segmenting (also called matching, targeting, tailoring, customizing, or personalizing, or niche marketing) takes place when “a persuasive message has a characteristic in common with the recipient of that message,” explains Jacob Teeny from the Kellogg School of Management at Northwestern University in Illinois.

Definitions

Firstly, a couple of definitions:

“The purpose of marketing is to match the genuine needs and desires of consumers with the offers of suppliers particularly suited to satisfy those needs and desires,” state Dolnicar, Grun & Leisch in their 2018 book, Market Segmentation Analysis, published by Springer. You can download a free PDF of the 324-page book, or individual chapters. A softcover version of the book costs 49.99 euros, so the free PDF is an attractive alternative if you are interested.,

The purpose of market segmentation is mainly to increase profitability in marketing to potential customers, and is also valuable for achieving greater impact with other target audiences.

Market segmentation is the process by which a market is divided into distinct subsets of customers with similar needs and characteristics that lead them to respond in similar ways to a particular product offering and marketing program, as defined in Marketing Strategy, by Walker, Gountas, Mavondo & Mullins (2012).

Another angle: market segmentation is the practice of dividing your target market into approachable groups. Market segmentation creates subsets of a market based on demographics, needs, priorities, common interests, and other psychographic or behavioral criteria used to better understand the target audience.

Market segmentation lies at the heart of successful marketing. In simple terms, it involves cutting markets into slices. Ideally, consumers belonging to the same market segments – or sets of buyers – are very similar to one another in their consumer characteristics. We’ll look at this more closely later.

Market segmentation analysis, as defined by Dolnicar, Grun & Leisch, is “the process of grouping consumers into naturally existing or artificially created segments of consumers who share similar product preferences or characteristics.”

The benefits of market segmentation

Companies that properly segment their market enjoy significant advantages. The main short-term aim for most of these companies is increased profitability, while other types of organizations may use other performance measures like the amount of donations received or number of volunteers recruited.

Greater profitability

Several examples show greater profitability and other benefits resulting from market/customer segmentation activities:

• “Customer segmentation in retail: 6 powerful case studies,” by Lexer, 2021.
• “Customer segmentation to increase revenue: Examples from Best Buy, Mercedes Benz, and AMEX,” by Qualtrics, 2018.
• “Market segmentation: One method, four examples,” TRC Market Research guest post in GreenBook Directory, undated.
• “Case study: Understanding and targeting your most valuable market segments for growth,” by Monica Collings, LinkedIn, 2020.
• “Market Segmentation – Nike Case Study,” by Chris Ng, LinkedIn, 2018.
• “6 segmentation case studies open up new revenues for brands,” by BarnRaisers, 2018.
• “MetLife: A Case Study in Customer Segmentation,” by R Waitumbi, student assignment, Harvard Business School, 2018.
• “Lego’s Market Segmentation Strategy,” by Instructure, Community College of Spokane, 2017.

A study by Bain & Company, reported in the Harvard Business Review in 2008, found that “81% of executives said it [customer segmentation] was a crucial tool for growing profits.” However, “fewer than 25% believed their companies used it effectively.” Bain also found that “over a five-year period, businesses that successfully tailor product and service offerings to desirable customer segments post annual profit growth of about 15%. By contrast, companies that fail to connect the right value propositions to the right customer segments realize annual profit growth of only 5%.”

Other benefits

A range of other benefits outlined by Qualtrics:

1. Stronger marketing messages: You no longer have to be generic and vague – you can speak directly to a specific group of people in ways they can relate to, because you understand their characteristics, wants, and needs.
2. Targeted digital advertising: Market segmentation helps you understand and define your audience’s characteristics, so you can direct your marketing efforts to specific ages, locations, buying habits, interests etc.
3. Developing effective marketing strategies: Knowing your target audience gives you a head start about what methods, tactics and solutions they will be most responsive to.
4. Better response rates and lower acquisition costs: These will result from creating your marketing communications both in ad messaging and advanced targeting on digital platforms like Facebook and Google using your segmentation.
5. Attracting the right customers: Market segmentation helps you create targeted, clear and direct messaging that attracts the people you want as customers.
6. Increasing brand loyalty: when customers feel understood, uniquely well served and trusting, they are more likely to stay with your brand.
7. Differentiating your brand from competitors: More specific, personal messaging makes your brand stand out.
8. Identifying niche markets: segmentation can uncover not only under-served markets, but also new ways of serving existing markets – opportunities which can be used to grow your brand.
9. Niche segments match the organizational skill set: in terms of their needs, are large enough to be profitable, have solid potential for growth.
10. Staying on message: As segmentation is so linear, it’s easy to stay on track with your marketing strategies, and not get distracted into less effective areas.
11. Driving growth: You can encourage customers to buy from you again, or trade up from a lower-priced product or service.
12. Enhanced profits: Different customers have different disposable incomes; prices can be set according to how much they are willing to spend. Knowing this can ensure you don’t over (or under) sell yourself.
13. Product development: You’ll be able to design with the needs of your customers top of mind, and develop different products that cater to your different customer base areas.

Implications of committing to market segmentation

Market segmentation is a key marketing strategy, but it needs to be the most appropriate solution. It is a long-term strategy requiring senior management to make a significant commitment, and provision needed for resources involving substantial changes and financial commitments.

Research is necessary, including field surveys and focus groups, testing of alternative marketing messages and advertising concepts. Clearly an anticipated increase in sales is necessary to justify the commitment of resources. The market segmentation strategy needs to create more net profit than other marketing options.

Potential changes include the development of new products, refining existing products, changes in pricing and distribution channels used to sell the product, as well as all marketing communication in support of the changed strategy. In turn, these changes are likely to lead to changes within the internal structure of the organization. To maximize the benefits of market segmentation, organizations base themselves fundamentally around market segments, rather than organizing around products. Business units responsible for segments are suitable to ensure ongoing focus on the evolving needs of market segments.

These changes require a long-term organizational commitment, and therefore the decision to investigate the potential of a market segmentation strategy must be made at the highest executive level, and must be systematically and continuously communicated and supported at all organizational levels and across all business units.

Factors affecting a company’s segmentation strategy

Several factors are likely to affect a company’s segmentation strategy:

• Company resources: When resources are restricted, a concentrated strategy may be more effective.
• Product variability: For highly uniform products (such as sugar or steel) undifferentiated marketing may be more appropriate. For products that can be differentiated, (such as cars) then either a differentiated or concentrated approach is indicated.
• Product life cycle: For new products, one version may be used at the launch stage, but this may be expanded to a more segmented approach over time. As more competitors enter the market, it may be necessary to differentiate.
• Market characteristics: When all buyers have similar tastes or are unwilling to pay a premium for different quality, then undifferentiated marketing is indicated.
• Competitor activity: When competitors apply differentiated or concentrated market segmentation, using undifferentiated marketing may prove to be fatal for your campaign. You should consider whether to use a different market segmentation approach.

Costs of market segmentation

Organizations need to make a substantial financial commitment in implementing market segmentation. Various people have to commit considerable time to conduct a thorough analysis, which can be quite a sophisticated process. If senior management commit to a segmentation strategy, more human and financial resources are required to develop and implement a customized marketing mix.

Evaluation of the success of the segmentation strategy, and the continuous monitoring of market dynamics (which may indicate a need to modify the strategy) imply an ongoing commitment of resources. And these resource commitments are made under the assumption that a worthwhile ROI on this investment will be achieved.

In the worst case, if market segmentation is not implemented well, the entire exercise is a waste of resources. Instead of leading to competitive advantage, a failed market segmentation strategy can lead to substantial expenses generating no additional return at all, instead marginalizing staff involved in the activity.

Main steps in market segmentation

Descriptions of the number of steps in the segmentation process may vary, depending on the strategists involved and whether some steps are subdivided. Here are some important steps:

1. Decide if it’s worthwhile. Segmentation is a long-term commitment which requires an investment of time and resources. To reap the full benefits of segmentation, companies must be open to change – whether that is modifying their products or even restructuring the business around the needs of the market segments. The expected increase in sales must be sufficient to justify the expense involved in implementing the strategy. Organizations need to weigh up the advantages and disadvantages and decide whether or not to go ahead.
2. Specify your ideal target. Is there a need for your products and services? Is the market large or small? Where does your brand sit in the current marketplace?
3. Collect and explore data. Marketplace data is the basis for all segmentation studies. Surveys are the most common source of data, but they can be unreliable in reflecting behavior. Make sure you also explore other possibilities, such as customer data from loyalty cards, or data from research studies and experiments. You’ll also need to decide what type of information to collect. The most common criteria are geographic (the customer’s location), socio-demographic (age, gender, income, education), behavioral (such as how much they spend or where they buy from) and psychographic (lifestyle, interests or aspirations), though it will depend on your business. The best is what works for your business at the least possible cost.
4. Segment your market: Decide which of the criteria (demographic/firmographic, psychographic, geographic or behavior) you want to use to segment your market. You don’t need to stick to just one – in fact, most brands use a combination – so experiment with each one and find what works best.
5. Understand your market: You do this by conducting preliminary research surveys, focus groups, polls, etc. Ask questions that relate to the segments you have chosen, and use a combination of quantitative (tickable/selectable boxes) and qualitative (open-ended for open text responses) questions.
6. Create customer profiles and customer segments: Analyze the responses from your research to highlight which customer segments are most relevant to your brand.
7. Decide which segment to target. You will need to consider two key questions: which segments do you want to commit to? And how likely is it that they would choose you over and above your competitors? If you do decide to target more than one segment, ensure they are mutually compatible.
8. Design the marketing mix. You need to consider how best to position your product in each and reach out to them. The marketing mix provides a toolbox with the key components being the 4Ps – product, price, promotion and place. You may have to redesign or rebrand your existing range (Product), change your price or discount structures (Price), reconsider your distribution channels (Place) and develop new messages and ways to target the audience (Promotion). Analysis of each market segment can help you understand customers’ lifestyle choices and the benefits they are seeking, and inform advertising decisions.
9. Test your marketing strategy: Once you have interpreted your responses, test your findings on your target market, using conversion tracking to see how effective it is. And keep testing. If uptake is disappointing, review your segments or your research methods.

Criteria for evaluating segment attractiveness

The segmentation team has to ask a number of questions which fall into two broad categories. Answering these two questions forms the basis of the target segment decision:

1. Which of the market segments would the organization most like to target? Which segment would the organization like to commit to?
2. Which of the organizations offering the same product would each of the segments most like to buy from? How likely is it that our organization would be chosen? How likely is it that each segment would commit to us?

Unfortunately, there isn’t a standard formula for evaluating the attractiveness of market segments and so a good deal of subjective judgment must be exercised. Nevertheless, a number of considerations can be used to assist in evaluating market segments for overall attractiveness. The following lists a series of questions that can be asked.

Segment size and growth

• How large is the market?
• Is the market segment substantial enough to be profitable? (Segment size can be measured by the number of customers, but better measures are likely to include sales value or volume)
• Is the market segment growing or contracting?
• What are the indications that growth will be sustained in the long term? Is any observed growth sustainable?
• Is the segment stable over time? (Segment must have sufficient time to reach desired performance level)

Segment structural attractiveness

• To what extent are competitors targeting this market segment?
• Do buyers have bargaining power in the market?
• Are substitute products available?
• Can we carve out a viable position to differentiate from any competitors?
• How responsive are consumers in the market segment to the marketing program?
• Is this market segment reachable and accessible? (i.e., for distribution and promotion)

Company objectives and resources

• Is this market segment aligned with our company’s purpose?
• Do we have the resources necessary to enter this market segment?
• Do we have prior experience with this market segment or similar market segments?
• Do we have the skills and/or know-how to enter this market segment successfully?

Barriers to implementation

Despite all the benefits of market segmentation, businesses still find it hard to implement market segmentation best practices. This raises concerns regarding best practices of market segmentation. It is highly important to understand market segmentation benefits and limitations to overcome its challenges effectively.

1. Senior management. Lack of leadership, pro-active championing, commitment and involvement in the market segmentation process by senior executives undermines the success of market segmentation. Unless the CEO sees the need for a segmentation review, understands the process and shows an active interest in it, it is virtually impossible for a senior marketing executive to implement the findings in a meaningful way.
2. Insufficient resources. Senior management can also prevent successful implementation by not making enough resources available, either for the initial market segmentation analysis itself, or for the long-term implementation of a market segmentation strategy.
3. Unready organizational culture. Successful implementation prevented by lack of market or consumer orientation, resistance to change and new ideas, lack of creative thinking, bad communication and lack of sharing of information and insights across organizational units, short-term thinking, unwillingness to make changes and office politics.
4. Lack of training. If senior management and the segmentation team don’t understand market segmentation, or if they are unaware of the consequences of pursuing such a strategy, the attempt to introduce market segmentation is likely to fail.
5. Lack of marketing expertise in the organization. The higher the market diversity and the larger the organization, the more important is a high degree of formalization. The lack of a qualified data manager and analyst in the organization can also represent major stumbling blocks.
6. Inherent restrictions such as lack of financial resources, or the inability to make the structural changes required. A company with limited resources must pick only the best opportunities. Process-related barriers include not having clarified the objectives of the program, lack of planning or poor planning, a lack of structured processes to guide the team through all steps of the process, poor allocation of responsibilities, and time pressure that stands in the way of trying to find the best possible segmentation outcome.
7. Lack of management understanding. There is a disappointing level of acceptance of science in industry because management will not use techniques it does not understand. One way of counteracting this is to make market segmentation analysis easier to understand, and to present results in a way that simplifies interpretation by managers. This can be achieved by using graphical visualizations.
8. Individuality. Qualitative surveys create multiple statistical segments but creating a segment to target is not easy. As every person is unique, classifying people by their purchasing behavior is difficult. Market segmentation can cater to an individual’s position within the segment and can leave others out. With so many options to consider, it can be hard to divide customers into segments, according to bython.
9. Keeping market segments up to date. This is another challenge in market segmentation. Segments evolve continuously. Therefore, they have to be updated frequently.So, keeping them up-to-date can be pretty challenging. This is another finding from bython.

Most of these barriers can be identified from the outset of a market segmentation study, and then proactively removed. If barriers can’t be removed, the team head should seriously consider abandoning the attempt of exploring market segmentation as a potential future strategy.

Before jumping in, check these

In addition to tasks, this checklist includes a series of questions which, if not answered in the affirmative, serve as knock-out criteria. For example: if an organization is not market-oriented, even the best market segmentation analyses can’t be successfully implemented.

If going ahead with the market segmentation analysis, you need a strong sense of purpose and dedication, along with patience and a willingness to appreciate the inevitable problems that will be encountered in implementing the conclusions reached by analysis.

Serious questions to ask yourself and senior management

1. Is your organization’s culture market-oriented?
2. Is your organization genuinely willing to change?
3. Does your organization take a long-term perspective?
4. Is the organization open to new ideas?
5. Is communication good across organizational units?
6. Is the organization able to make significant (structural) changes?
7. Does the organization have sufficient financial resources to support a market segmentation strategy?
8. Are you able to secure visible commitment to market segmentation from senior management?
9. Can you secure active involvement of senior management in the market segmentation analysis?
10. Can you secure the required financial commitment from senior management?
11. Can you ensure that the market segmentation concept is fully understood? If it isn’t, conduct training until the concept is fully understood.
12. Are you able to ensure that the implications of pursuing a market segmentation strategy are fully understood? If they aren’t, conduct training until the implications are fully understood.
13. Can you assemble a team of 2-3 people (segmentation team) to conduct the market segmentation analysis?

Establishing a market segmentation team

You need to be able to action these steps to set up a market segmentation team:

1. Ensure a marketing expert is on the team.
2. Ensure a data expert is on the team.
3. Ensure a data analysis expert is on the team.
4. Set up an advisory committee representing all affected organizational functions.
5. Ensure the objectives of the market segmentation analysis are clear.
6. Develop a structured process to follow during market segmentation analysis.
7. Assign responsibilities to segmentation team members using the structure process.
8. Ensure there is enough time to conduct the market segmentation analysis without time pressure.

Knock-out criteria

According to Dolnicar et al., certain criteria are used to determine if market segments resulting from the market segmentation analysis show enough promise to proceed. Segmentation work requires several criteria to be satisfied. If not, you should not commit:

• The segment must be homogeneous. Consumers in the segment must be similar to one another.
• The segment must be distinct. Consumers in the segment must be distinctly different in required characteristics or behavior from people other segments.
• The segment must be large enough. The segment must contain enough consumers to make it worthwhile to spend extra money on customizing the marketing mix for them.
• Consumers in the segment must match the strengths of the organization. The organization must have the capability to satisfy the needs of consumers in the segment.
• Consumers in the segment must be identifiable. It must be possible to spot them in the marketplace.
• The segment must be reachable. There has to be a way to reach consumers in the segment in order to make the customized marketing mix accessible to them.

These criteria must be understood by senior management, the segmentation team, and the advisory committee. Most of the criteria don’t require further specification, but some do. For example, while size is non-negotiable, the exact minimum viable target segment size needs to be specified.

Profiling of market segment

Market segmentation is a strategic marketing tool. The selection of one or more target segments is a long-term decision significantly affecting the future performance of an organization.

Work done in the earlier stages of the segmentation process enables analysis to identify where consumer preferences are.

Marketing decisions

Many marketers consider the 4Ps of marketing comprise the main elements of the marketing mix:

1. Product
2. Price
3. Promotion
4. Place

Segmentation, targeting, positioning

Market segmentation is not an independent marketing strategy. Instead, it partners with the other areas of strategic marketing, most importantly: positioning and competition. The process of segmenting the market is deceptively simple. However, the task can be very laborious because it involves reviewing volumes of data, and requires a great deal of skill in analysis, interpretation, and some judgment. Considerable analysis is required, and many decisions need to be made.In fact, the segmentation process is frequently seen as part of what is referred to as the segmentation-targeting-positioning (STP) approach, which proposes a sequential process.

• Segmentation comprises identifying the market to be segmented, selection, segmentation; and description and development of profiles.
• Targeting comprises an evaluation of each segment’s attractiveness and selection of the segments to be targeted.
• Positioning is what an organization can do to ensure their product is perceived as distinctly different from competing products, and in line with segment needs.

Perhaps the most important marketing decision is the selection of one or more market segments on which to focus. Since consumers in a market segment are judged to have unique needs, a firm that develops a total product focused solely on the needs of that segment will be able to meet the segment’s desires better than a firm whose product or service attempts to meet the needs of several segments.

Identifying the market to be segmented

There are two approaches to segmenting a market – a discovery approach or an analytic approach. Each approach is appropriate to the type of business and market they are approaching. The two approaches give an indication of the probable future profitability of a segment, and the tendencies and behaviors it exhibits.

An analytic approach is based much more on research and data, where two sets of information have been sourced and used to segment the market. This approach indicates the likely future growth of the segment, and whether it is worth investing funds. Therefore, this will usually be done in advance. The second approach is based more on observing buying behaviors within the segment and on primary research.

The discovery approach is more suited to a market with a comparatively low number of customers, and the process of discovering segments is based on interest in the offer or a similar offer the business may be able to provide to the potential customer. For this reason, a discovery-based approach is a much quicker process for determining the profitable segments. Both approaches can benefit from elements of the other and, in most situations, work well in combination when determining a profitable and defined segment.

Potential market

The potential market for a given product or service to be segmented should be first explored by identifying the size of the potential market. For existing products and services, estimating the size and value of the market potential is fairly straightforward. However, this becomes much more difficult when a product or service is totally new to the market and there is no previous data available on which to base forecasts.

A basic approach is to first assess the size of the overall market, then estimate the percentage of people likely to use the product or service, and finally to estimate the revenue potential.

Viewing market segmentation as the first step in the segmentation-targeting-positioning approach is useful because it ensures that segmentation is not seen as independent from other strategic decisions. It is important, however, not to adhere too strictly to the sequential nature of the segmentation-targeting-positioning process. It may well be necessary to move back and forward from the segmentation to the targeting step, before being in the position of making a long-term commitment to one or a small number of target segments.

If the market segmentation analysis is conducted to inform advertising decisions, benefits sought, lifestyle segmentation variables, and psychographic segmentation variables are particularly useful, as is a combination of all of those.

Selecting a suitable base

A major step in the segmentation process is the selection of a suitable base. In this step, marketers seek to minimize differences between people in a segment and maximize differences between each segment. Marketers can segment the market using any base or variable that is identifiable, substantial, responsive, actionable and stable:

• Identifiable is when distinct groups within the marketplace can be identified or recognized
• Substantial is when a segment or group of customers represents a sufficient size to be profitable. This could mean a sufficiently large number of people or in purchasing power
• Accessible is when marketers can reach the targeted segments with promotional or distribution activities
• Responsive refers to the extent to which consumers in a defined segment will respond to marketing offers targeted at them
• Actionable – when data shows the segments are a suitable source of reference in marketing decisions.

Types of market segmentation

With segmentation and targeting, you want to understand how your market will respond in a given situation, like purchasing your products. In many cases, a predictive model may be incorporated into the study so that you can group individuals within identified segments based on specific answers to survey questions.

Demographic segmentation

Demographic segmentation sorts a market by elements such as age, education, income, family size, race, gender, occupation, and nationality. Demographic is one of the simplest and most commonly used forms of segmentation because the products and services we buy, how we use those products, and how much we are willing to spend on them is most often based on demographic factors.

Geographic segmentation

Geographic segmentation can be a subset of demographic segmentation, although it can also be a type of segmentation in its own right. It creates different target customer groups based on geographical boundaries. Because potential customers have needs, preferences, and interests that differ according to their geographies, understanding the climates and geographic regions of customer groups can help determine where to sell and advertise, as well as where to expand your business.

Firmographic segmentation

Firmographic Segmentation is similar to demographic segmentation, except that demographics look at individuals while firmographics look at organizations. Firmographic segmentation would consider things like company size, number of employees and would illustrate how addressing a small business would differ from addressing an enterprise corporation.

Behavioral segmentation

Behavioral Segmentation divides markets by behaviors and decision-making patterns such as purchase, consumption, lifestyle, and usage. For instance, younger buyers may tend to purchase bottled body wash, while older consumer groups may lean towards soap bars. Segmenting markets based on purchase behaviors enables marketers to develop a more targeted approach because you can focus on what you know they, and are therefore more likely to buy.

Psychographic segmentation

Psychographic segmentation considers the psychological aspects of consumer behavior by dividing markets according to lifestyle, personality traits, values, opinions, and interests of consumers. Large markets like the fitness market use psychographic segmentation when they sort their customers into categories of people who care about healthy living and exercise.

Targeting

Targeting follows segmentation, and is the process of actually determining the target markets, and planning the promotional media used to make the segment appealing. Targeting is a changing environment. Traditional targeting practices of advertising through print and other media sources, has made way for a social media presence, leading to a much more ‘web-connected’ focus. Behavioral targeting is a product of this change, and focuses on the optimization of online advertising and data collection to send a message to potential segments. This process is based around the collection of cookies, which are collected by a consumer’s browser and sold to businesses to identify potential segments to appeal to.

For example, someone consistently accessing cookware-based searches is likely to have ads for cookware sales appear, due to the cookie information they deliver showing an interest in this area.

In targeting a market, there are three different market coverage choices to consider – undifferentiated, differentiated and niche marketing. Choosing which targeting choice to pursue depends on the product or service being offered:

• Undifferentiated marketing, also called mass marketing, is a strategy that involves creating one message for an entire audience. It helps businesses to reach more people at a lower cost, and improves brand recognition.
• Differentiated marketing involves a company creating marketing campaigns that appeal to two or more segments of their target audience.
• A niche market is a small market segment that is a subset of the market on which a specific product is focused. It defines the product features aimed at satisfying specific market needs, as well as the price range, production quality and the demographics it is intended to target.

Positioning

According to advertising guru, David Ogilvy, “Positioning is the act of designing the company’s offering and image to occupy a distinctive place in the minds of the target market. The goal is to locate the brand in the minds of consumers to maximize the potential benefit to the firm. A good brand positioning helps guide marketing strategy by clarifying the brand’s essence, what goals it helps the consumer achieve, and how it does so in a unique way.”

Positioning is the final stage in the ‘STP’ process and focuses on how the customer ultimately views your product or service in comparison to your competitors. This stage is important in gaining a competitive advantage in the market. Therefore, customer perceptions have a huge impact on the brands positioning in the market.

Three types of positioning

There are three types of positioning that are key in positioning the brand to a competitive advantage; these are functional positioning, symbolic positioning, and experiential positioning.

• Functional positioning is focused on the aspects of the products or services that can fulfill consumers’ needs or desires.
• Symbolic positioning is based on the characteristics of the brand that fulfill customers’ self-esteem.
• Experiential positioning is based around the characteristics of the brands that stimulate the sensory or emotional connection with the customers.

Regarding market segmentation as the first step in the segmentation-targeting-positioning approach is useful because it ensures that segmentation is not perceived as independent from other strategic decisions. A combination of the three is key to positioning the brand at a competitive advantage to its immediate competition. Just remember it is important not to maintain a completely strict sequence to the segmentation-targeting-positioning process. It may well be necessary to move back and forward from the segmentation to the targeting step, before being being able to commit long-term to one or a small number of target segments.

Overall, positioning should provide better value than competitors do, and to communicate this differentiation effectively to the consumer

Data sources used for segmentation

Marketers use a variety of data sources for segmentation studies and market profiling. Typical sources of information include:

Internal sources

• Customer transaction records, e.g. sale value per transaction, purchase frequency
• Patron membership records, e.g. active members, lapsed members, length of membership
• Customer relationship management (CRM) databases
• In-house surveys
• Customer self-completed questionnaires or feedback forms

External sources

• Commissioned research (where the business commissions a research study and maintains exclusive rights to the data; typically the most expensive means of data collection)
• Data-mining techniques
• Census data (population and business census)
• Observed purchase behaviors
• Government agencies and departments
• Government statistics and surveys, e.g. studies by departments of trade, industry, technology, etc.
• Omnibus surveys (a standard, regular survey with a basic set of questions about demographics and lifestyles where an individual can add specific sets of questions about product preference or usage; generally lower cost than commissioned survey methods)
• Professional/industry associations/employer associations
• Proprietary surveys or tracking studies (also known as syndicated research; studies carried out by market research companies where business can purchase the right to access part of the data set)
• Proprietary databases/software.

More reading

You can read further about marketing communication in my article, “How to use features and benefits in your marketing communication“.

About Kim Harrison – author, editor and content curator

Kim Harrison, Founder and Principal of Cutting Edge PR, loves sharing actionable ideas and information about professional communication and business management. He has wide experience as a corporate affairs manager, consultant, author, lecturer, and CEO of a non-profit organization. Kim is a Fellow and former national board member of the Public Relations Institute of Australia, and he ran his State’s professional development program for 7 years, helping many practitioners to strengthen their communication skills. People from 115 countries benefit from the practical knowledge shared in his monthly newsletter and in his books available from cuttingedgepr.com.

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