What is it called when the total market is identified and divided into subgroups or segments with similar needs?

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Market Segmentation Targeting and Positioning

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

Frequently Asked Questions about Market Segmentation Targeting and Positioning

Market segmentation divides the market into subgroups of individuals who share similar needs, wants, and characteristics.

Targeting involves deciding which customer segment or market the firm should be aiming at.

Positioning involves determining where your brand or product stands affecting others in the market.

Market segmentation, targeting, and positioning together form the STP model. It is an important step to take before establishing the marketing mix.

Segmentation means consumers are divided into subsegments or subgroups, targeting is out of all market segments, a company choose the most attractive one, and positioning means the company determine how they want customers to perceive the product and position this product for each target segment.

Segmentation, targeting, and positioning are important in marketing as they help marketers understand customers and markets in more detail. Thus, STP allows marketers to convey their value proposition, address customer wants and needs, and provide more value to customers overall.

The first step in segmentation, targeting, and positioning includes segmenting the market. Segmentation can be demographic, geographic, psychographic, behavioural, or a mix of each. The next step includes deciding which customer subgroups (segments) to target. Finally, the company has to decide how to position its product in the market to address the right customer groups.

Final Market Segmentation Targeting and Positioning Quiz

Question

How would you define market segmentation?

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Answer

Market segmentation divides the market into subgroups. A market segment consists of customers with similar needs and wants.

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Question

What are the four different types of segmentation?

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Answer

• Demographic

• Geographic

• Psychographic

• Behavioural

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Answer

A target market is a group of people or an organisation the firm tries to target with its product or service. The firm identifies the target market's needs and wants, based on which it implements the appropriate marketing mix.

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Question

What is the definition of targeting?

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Answer

Once the segmentation is complete, you need to decide which customer segment you want to target with your product or service. Selecting this customer segment is known as targeting. This strategy aims to identify small, well-defined target groups.

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Question

What is the definition of positioning?

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Answer

Positioning involves determining where your brand or product stands concerning others on the market. Positioning is a vital part of marketing strategy, as it influences how customers perceive your product offering.

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Question

What is the STP marketing model?

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Answer

The STP marketing model is a market segmentation, targeting, and positioning process.

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Question

What is a value proposition?

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Answer

The value proposition is a product or service feature that brings additional value to the customer. The value proposition makes a product or service stand out from competitors' similar products or services. It is the value you promise to bring your customers if they buy your product.

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Why is it important to segment your customers?

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Answer

It is important to segment your customers because you get to understand your customers on a deeper level through segmentation. During segmentation, customers are divided into subsets based on shared characteristics, which provides insight into the different types of customers purchasing the firm's products or services.

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What is the importance of targeting?

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Answer

Targeting is also essential, as selecting the most attractive customer segment from a marketing perspective is necessary, i.e., which segment will be most interested in buying your products? This customer segment, or segments, will be the ones you focus your marketing on.

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Question

Why is positioning important? 

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Answer

Positioning your product is crucial because it determines how your customers will view your product or service compared to those of competitors. This step is vital as it helps you define your product offering and the value you bring to your customers (value proposition).

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Question

Which of the following statements are correct?

I. Segmentation, targeting, and positioning are prerequisites for the marketing mix.

II. Targeting provides insight into the market.

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Answer

Only statement I. is correct.

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Question

Positioning is important because:

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Answer

All the answers are correct.

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Question

What is the first step of the STP model? 

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Answer

The first step is segmentation.

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Question

Which step of the STP model involves deciding how the firm will serve its customers?

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Question

How would you describe the relationship between segmentation, targeting, and positioning?

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Answer

Segmentation, targeting, and positioning interrelate as they are all prerequisites to the marketing mix. Segmentation is followed by targeting, which is followed by positioning, making up the STP marketing model. These steps are essential for understanding your customers and your product offering better. They also allow you to understand which customers to focus your marketing strategy on and how to make your product the most successful from a marketing point of view.

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Question

What is a market segment?

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Answer

Market segmentation divides the market into different subgroups. A market segment consists of a group of customers who have similar needs and wants. It is the marketer's goal to identify the appropriate subgroups of consumers.

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Answer

The market is defined by the group of people who would potentially be interested in your products or services. They are people with wants and needs and the ability and willingness to buy products and services.

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Question

What are descriptive characteristics? And what is other characteristics are used for segmentation?

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Answer

It is possible to segment markets based on descriptive characteristics like demographics or geographic location. Another type of segmentation involves looking at the different types of behavior demonstrated by a consumer group.

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Question

What are the four different types of segmentation?

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Answer

The 4 main types of segmentation are:

• Demographic segmentation 

• Geographic segmentation 

• Psychographic segmentation 

• Behavioral segmentation

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Question

What are some of the factors to take into account when segmenting based on demographics?

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Answer

• Age

• Income 

• Gender

• Family size 

• Occupation 

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Question

What are some of the factors to take into account when segmenting based on geographics?

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Answer

• Rural vs. city 

• Country

• Climate 

• Time zone 

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Question

What are some of the factors to take into account when segmenting based on psychographics?

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Answer

• Lifestyle 

• Personality 

• Values ​​and beliefs 

• Hobbies 

• Interests 

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Question

What are the four different types of loyalty used for behavioral segmentation?

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Answer

• Hard-core loyals: stick to one brand only 

• Split loyals: are loyal to a few brands at a time 

• Shifting loyals: those that change their loyalty from one brand to another

• Switchers: are not loyal to any specific brand

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Question

Which of the following is not part of behavioral segmentation?

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Which of the following is not part of demographic segmentation?

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Question

Which of the following statements is correct?

I. Demographic segmentation is the most useful for marketers. 

II. Behavioral segmentation can be conducted by looking at occasions at which consumers use your product. 

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Answer

Only statement II. Is correct 

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What is psychographic segmentation?

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Answer

Psychographic segmentation is a segmentation technique in which consumers are divided based on psychological traits that influence their purchase patterns.

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Question

Name two benefits of market segmentation. 

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Answer

• Insight into consumer behaviour, buying habits, and purchase patterns. 
• Allows organisations to understand consumer needs. 
• Helps organisations come up with effective marketing campaigns to target specific groups of consumers.

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Question

Which of the following statements is correct? 

I. Market segmentation can help organizations formulate appropriate marketing strategies.

II. Market segmentation is only useful for large companies.

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Answer

Only statement I. is correct.

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Question

Which of the following statements is not true?

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Answer

Market segmentation increases profits and cuts costs

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Answer

Mass marketing is a strategy in which businesses decide to target an entire market with their product or service. Mass marketing is where a business sells to the largest part of the market. A mass market involves a lot of different product options for consumers. Customer needs in this type of market tend to be less specific.

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Answer

Niche marketing involves outlining and understanding the needs and wants of customers in the small (niche) market segment. Niche segments are usually created by identifying needs and wants that are not addressed by the mass market or by other businesses.

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Answer

Generic brands appear as a result of mass marketing. A generic brand is a product without a universally recognised brand name or logo. These types of products are usually not advertised. Sometimes generic brands are synonymous with a product, meaning consumers treat the brand name as if it were the product.

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Question

What is an example of a generic brand?

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Answer

• Kleenex 

• Chapstick 

• Bubble wrap 

• Jacuzzi 

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Question

Which of the following statements is correct? 

I. Mass marketing tends to ignore the differences between consumer segments. 

II. The aim of mass marketing is to reach as many consumers as possible

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Answer

Both statements are correct.

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Question

Which of the following statements is not correct regarding mass marketing?

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Answer

The idea behind mass marketing is for a small customer subgroup to purchase generic products.

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Which of the following statements is not correct regarding niche marketing?

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Answer

The price of niche market products tends to be relatively low.

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Question

Name two advantages of mass marketing.

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Answer

• Benefits of large-scale production (economies of scale). 

• The potential to minimise unit costs. 

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Name two disadvantages of mass marketing. 

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Answer

• The market is more competitive.
• It can be hard to persuade consumers of the superiority of the product due to the lack of differentiation.

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Question

Name two advantages of niche marketing. 

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Answer

• Customers could be easier to find and reach.
• The company gains market expertise due to the specialised skill set required to manufacture the product or operate the service. 
• More loyal customers as limited options exist.

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Question

Name two disadvantages of niche marketing.

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Answer

• Higher unit costs.

• Could attract competition if the product or service is successful.

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Question

Which of the following is an advantage of mass marketing?

1. Economies of scale 

2. Easier to find and reach customers 

3. Higher customer loyalty 

4. Increased market expertise 

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Question

Which of the following is an advantage of niche marketing?

1. Economies of scale 

2. Higher customer loyalty 

3. Higher unit cost 

4. Lack of differentiation 

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Question

Which of the following is a disadvantage of mass marketing?

1. Lower unit costs

2. Economies of scale 

3. Specialized skills 

4. Lower customer loyalty 

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Question

Which of the following is a disadvantage of niche marketing?

1. Easier to reach customers 

2. Lower customer loyalty 

3. The market is more competitive

4. Higher unit costs of production

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Question

A company who wants to target a small subsegment of consumers can be regarded as a ............

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Question

........ is a small segment of a larger market

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Question

The following are characteristics of a niche markets 

a. Low number of consumers

b. Low quantity of products

c. High prices

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Niche market tends to ..... and mass market tends to .......

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A strategy that targets an entire market is known as ....

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What is the term for the process of dividing a total market into subgroup?

What means dividing the total market for a product into different parts and segments?

What are the 4 types of market segmentation?

What are the segments of the total market?