Segmentation, Targeting and Positioning

A bank branch in a college town offers one savings account to students, retired teachers and shop owners. Students want a zero balance, retired teachers want safety and a helpful clerk, and shop owners want quick cash deposits. One account cannot please all three.

STP, segmentation, targeting and positioning, is the sequence at the heart of marketing strategy. Segmentation comes first.

Two ways to find segments. Start from descriptive characteristics (geographic, demographic, psychographic) and check whether the groups differ in needs or responses. Or start from behavioural responses (benefits sought, usage occasions, brands) and check whether each group has a distinct profile: do car buyers who want quality rather than a low price differ in age, income or lifestyle?

Demographic variables are popular because they are linked to needs and easy to measure. Even a segment described by personality has to be linked back to demographics, to estimate its size and choose media. Psychographics adds psychology: people with the same demographics can have very different lifestyles and values.

Levels of segmentation run from one offer for everyone to one offer per person.

Business markets are segmented with a nested approach from Thomas Bonoma and Benson Shapiro (1983). It runs from demographic or firmographic variables (industry, company size, location) and operating variables (technology used, user status, customer capabilities) to purchasing approaches (purchasing policies, buying criteria, how buying is organised). Then come situational factors (urgency, order size) and the personal characteristics of the buyers.

Useful segments are measurable, substantial (large and profitable enough), accessible, differentiable (they respond differently) and actionable (the firm can design programmes for them). To illustrate the size test: a gym in Indore counts 4,000 working women aged 25 to 40 nearby. If 5% join at ₹1,500 a month, that is 200 members and ₹3 lakh a month.

Don't confuse segmentation with targeting. Segmentation describes the groups in a market; targeting chooses which of them to serve. Keep the bases apart too: usage rate and loyalty are behavioural variables, not demographic ones. The word micromarketing is used two ways. In the table above, every level below mass marketing is micro, as in Kotler and Keller. Kotler and Armstrong keep the word for local and individual marketing only.

Where it breaks. Segments drawn on paper may not behave differently. If every group responds the same way to price and promotion, separate programmes add cost without adding sales. Demographics are easy to measure but describe buyers rather than explain them; many marketers believe behavioural variables are the best starting point (Kotler and Armstrong).

For exams. Expect a variable to be matched to its basis, and the five tests of a useful segment.

Geographic, demographic, psychographic, behavioural.

An auto-parts maker in Pune can sell brake pads to car makers, to two-wheeler makers, or to repair garages. It cannot serve all three well at once, so it has to choose.

Evaluating segments. Each segment is judged on three things:

• its size and growth;
• its structural attractiveness: competition, substitutes, and the power of buyers and suppliers;
• its fit with the firm's objectives and resources.

For the Pune maker, garages may be the largest segment, but they are scattered and buy in small lots. Car makers buy in bulk but have strong bargaining power. The firm weighs both against its own capacity and skills.

Choosing a pattern. Having evaluated the segments, the firm chooses how to cover them.

Single-segment concentration one product, one market

Selective specialisation unrelated segments

Product specialisation one product, many markets

Market specialisation many products, one market

Full market coverage every product, every market

Examples. A luxury watchmaker concentrates on one high-end segment. A maker of nuts and bolts that sells different types to car makers, electrical-equipment makers and builders practises product specialisation. A firm selling an assortment of products only to ice-cream makers practises market specialisation. Only very large firms, such as Hindustan Unilever, Nestlé or Coca-Cola in non-alcoholic drinks, can attempt full market coverage.

These five patterns follow Derek Abell (1980) and are used by Kotler and Keller. Seen as strategies, targeting runs from undifferentiated (mass) marketing, through differentiated (segmented) and concentrated (niche) marketing, to micromarketing.

Don't confuse product specialisation with market specialisation. Product specialisation sells one product to many customer groups, like the nuts and bolts. Market specialisation sells many products to one customer group, like everything an ice-cream maker buys.

Where it breaks. Concentration is risky: if the one segment shrinks or a strong rival enters, the firm has nothing to fall back on. Full coverage spreads effort across many offers and suits only the largest firms. Targeting also raises ethical questions when the chosen segment is vulnerable, such as children for sugary snacks.

In practice. Many firms start with one segment and add others over time, one by one, rather than entering all at once. For exams, expect a case matched to one of the five patterns, and the four strategies in order.

Evaluate the segments, then choose a pattern of coverage.

Two detergents clean equally well. Yet shoppers think of one as ‘the gentle one’ and the other as ‘the one for tough stains’. Each brand holds a place in buyers' minds, and that place decides many purchases.

Al Ries and Jack Trout made the idea famous (Positioning: The Battle for Your Mind, 1981): positioning is not what you do to a product but what you do to the prospect's mind.

Points of difference and parity. A position rests on two kinds of association. This pairing is Kevin Lane Keller's.

Value proposition. A value proposition is the full set of benefits on which the brand is positioned. Kotler and Armstrong sum up the winning ones in five phrases.

Bases of positioning. A brand can be positioned on:

• attributes (a phone's battery life) or benefits (all-day use without charging);
• use or application (a cough syrup for night-time) or user (a shampoo for children);
• competitor (better than the leader on one point) or product class (a juice against soft drinks);
• price and quality.

An example. Imagine a new breakfast mix. Its positioning statement: “For working parents in cities, the breakfast mix ready in five minutes, because it needs only hot water.” The target is working parents and the category is breakfast mix. Speed is the point of difference; hot water is the reason to believe. Taste and nutrition must be points of parity, or the speed will not matter.

Don't confuse positioning with differentiation. Differentiation makes the offer actually different. Positioning decides which difference to stress, and how buyers should see it. And a point of parity is not a weakness: it is the minimum a buyer expects.

Where it breaks. A position cannot be claimed by advertising alone; if the product does not deliver, buyers will not hold the idea. A position that is too narrow can also limit growth, and changing an established position is slow and costly.

For exams. Expect Ries and Trout's line, the POD and POP distinction, and the five winning value propositions.

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Positioning errors. Kotler names four. Underpositioning: buyers have only a vague idea of the brand. Overpositioning: buyers have too narrow an idea of it. Confused positioning: too many claims, or the position changes too often. Doubtful positioning: buyers find the claims hard to believe, given the product, price or maker.

A decision. The breakfast brand's research finds that buyers love the speed but suspect the mix is unhealthy. That doubt is a missing point of parity, not a reason to drop the point of difference. The better move is to give a reason to believe on nutrition, such as listing the ingredients plainly on the front of the pack, while keeping speed at the centre.

Links. Brand management (this unit) takes positioning into brand equity.

Positioning lives in the customer's mind, not in the product.

A tiffin service in Bengaluru tells customers its food is ‘tasty and hygienic’. Every rival says the same. A difference that every competitor also claims gives no one a reason to choose.

A firm positions its offer by differentiating it from competitors'. Kotler and Keller name five main bases.

Is it a real point of difference? Keller's three tests: it must be

• desirable to consumers: personally relevant to them;
• deliverable by the company: it has the resources and commitment to create and keep the association profitably;
• differentiating from competitors: seen as distinctive and superior.

Back to the tiffin service. ‘Tasty and hygienic’ is desirable but fails the third test, since every rival claims it. ‘Delivered by 12.30 on every working day, or the meal is free’ is desirable and differentiating. It is deliverable only if the kitchen and riders can keep the promise; otherwise it costs more than it earns.

Points of parity come in three kinds:

The brand-positioning bull's-eye (Kotler and Keller) communicates the positioning to everyone in the organisation. At its centre are the brand mantra (the brand's essence in a few words) and the key points of parity and difference. Around them are the reasons to believe, facts that support those points. The outer ring holds the brand's values, personality or character and its executional properties and visual identity. Boxes beside it record the inputs (the target consumer and a key insight; the competitive need and rival brands) and the output: the ideal consumer takeaway.

Don't confuse a point of difference with any difference. A difference counts only if it passes all three tests. Some study notes list only two kinds of points of parity, category and competitive; Kotler and Keller add a third, correlational, for the weakness a brand's own strengths create.

Where it breaks. Most product and service differences can be copied, so a point of difference wears out unless the firm renews it. Personnel differentiation depends on every employee, every day, which is hard to keep consistent across many branches.

For exams. Expect the five bases of differentiation, the three tests (desirable, deliverable, differentiating), the kinds of points of parity, and what sits at the centre of the bull's-eye.

Differentiate on product, services, people, channel or image; test it as desirable, deliverable, differentiating.