Lesson 5- Segmentation and Target Marketing PDF

LESSON 05 SEGMENTATION AND TARGET MARKETING S. Maneesha Aishcharya  Market Segmentation and Targeting Market Segmentation and Targeting refer to the process of identifying a company’s potential customers, choosing the customers to pursue, and creatin...

LESSON 05 SEGMENTATION AND TARGET MARKETING S. Maneesha Aishcharya  Market Segmentation and Targeting Market Segmentation and Targeting refer to the process of identifying a company’s potential customers, choosing the customers to pursue, and creating value for the targeted customers. It is achieved through the Segmentation, Targeting and Positioning (STP) process.  Segmentation, Targeting and Positioning Strategy STP marketing is an acronym for Segmentation, Targeting, and Positioning- a three-step model that examines your products or services as well as the way you communicate their benefits to specific customer segments. In a nutshell, the STP marketing model means you segment your market, target select customer segments with marketing campaigns tailored to their preferences, and adjust your positioning according to their desires and expectations.  Segmentation Segmentation means to divide the marketplace into parts, or segments, which are definable, accessible, actionable, and profitable and have a growth potential. In other words, a company would find it impossible to target the entire market, because of time, cost and effort restrictions. It needs to have a ‘definable’ segment- a mass of people who can be identified and targeted with reasonable effort, cost and time. The four main types of Customer Segmentation include: 1) Geographic Segmentation: Diving your audience based on country, region, state, province, etc. 2) Demographic Segmentation: Dividing your audience based on age, gender, education level, occupation, gender, etc. 3) Behavioral Segmentation: Dividing your audience based on how they interact with your business: What they buy, how often they buy, what they browse, etc. 4) Psychographic Segmentation: Dividing your audience based on “who” your potential customer is: Lifestyle, hobbies, activities, opinions, etc. The Five Levels of Market Segmentation 1) Mass Marketing 2) Segment Marketing 3) Niche Marketing 4) Local Marketing 5) Individual Marketing  1) Mass Marketing Mass marketing is the marketing of one single product through one strategy to the entire market. Mass marketing believes that in the market there are most people have similar kinds of characteristics, behavior, and consumption patterns. It does not differentiate the whole market based on any factors such as consumer’s taste, need, preference, age, sex, etc. thus, it is also called undifferentiated marketing.  2) Segment Marketing Segment marketing divides the whole market into various segments based on some factors such as customers’ consumption patterns, purchasing power & spending patterns, geography, social values, etc. As segment marketing differentiates the entire market into many segments, it is also known as differentiated marketing.  3) Niche Marketing Niche marketing is the highly specialized level of market segmentation, where the marketer only focuses on specific customers, and their distinct need, want, and characteristics. The firm concentrates only on a specific market segment, thus it is also called concentrated marketing. An example of niche marketing may be a sports car company, where the company only focus on the need and requirements of sports personalities  4) Local Marketing The Local Marketing is the marketing in local markets or areas where the locally produced products are marketed in the same area. For example, a farmer markets and sells his vegetables to his neighborhood, his community people, and other persons in his village. The marketer may target his neighborhoods, local consumer groups, his village people & nearby villages, local markets, small regions, or even specific stores. The product features may consist of local appeals, organic, local flavor, local usage, etc.  5) Individual Marketing In individual marketing, the marketer focuses on satisfying the need and want of a single customer. It is a micro-marketing strategy, also referred to as one-to-one marketing and customized marketing where a targeted customer is offered a customized service. It is like direct marketing, where the marketer individually visits, communicates, and offers his services to the target customer, or also by personalized messages. To market a person, the marketer may focus on the customer’s profile, sentiments, buying behavior, personal need, want hobby, location, etc.  Targeting Targeting is the process of evaluating each market segment’s attractiveness and selecting one or more segments to enter. This is the stage where you decide which segments you created during the segmentation phase are worth pursuing. The main goal here is to look at the segments created before and determine which of those segments are most likely to generate desired conversions.  Your ideal segment is one that is actively growing, has high profitability, and has a low cost of acquisition. You should ideally consider the below criteria to choose your targetable segments:  Size: Consider how large your segment is as well as its future growth potential. Your audience segments must have enough potential customers to be worth marketing to. If your segments are too small, you may not get enough conversions to justify your marketing efforts.  Profitability: Consider which of your segments are willing to spend the most money on your product or service. Determine the lifetime value of customers in each segment and compare.  Reachability: Consider how easy or difficult it will be for you to reach each segment with your marketing efforts. Consider customer acquisition costs (CACs) for each segment. Higher CAC means lower profitability.  Positioning Positioning is the act of designing the company's offering and image to occupy a distinct place in the mind of the target market. Arranging for a product to occupy a clear, distinctive and desirable place relative to competing products in the minds of target consumers. The goal of positioning is to connect with the target audience on a personal level and set the product or services apart from the competition.  There are three positioning factors that can help to gain a competitive edge: 1) Symbolic Positioning: Enhance the self-image, belongingness, or even ego of your customers. The luxury car industry is a great example of this- they serve the same purpose as any other car but they also boost their customer’s self-esteem and image. 2) Functional Positioning: Solve your customer’s problem and provide them with genuine benefits. 3) Experiential Positioning: Focus on the emotional connection that your customers have with your product, service, or brand.  Benefits of STP Marketing Improved engagement: By targeting specific audience segments with personalized messages, they find it relevant and is more likely to engage and convert. Reduced marketing costs: Focusing only the segments with a high potential return on investment, will no longer waste the budget on channels and segments that don’t work. More robust product: By knowing precisely whom we’re pitching our product to, can make improvements based on feedback from that audience segment, fostering focused product innovation.  Theory in Practise: STP Case Studies The STP approach has been used by many global brands to achieve success. While each company has used the STP framework differently, all have gained some measure of benefit from it.  Apple Inc. Apple Inc. positions itself as a lifestyle, targeting those audience segments with a keen design aesthetic, who want to stand out from the crowd, and are well-off. Apple follows a “closed” software ecosystem with an emphasis on security. In doing so, it creates an aura of exclusivity that makes people feel privileged to own Apple products. Apple’s STP model works so well that the brand name has become synonymous with expensive, high-performance, luxury gadgets.  McDonald’s McDonald’s name evokes images of a family with kids enjoying a ‘happy meal’ of burgers, fries, and Coke. McDonald’s target audience is low to middle-income segments, and it positions itself as an accessible, budget-friendly brand, consciously staying away from the luxury fine-dining market. You can find a McDonald’s on almost every street, which is a sign of its accessibility. Apart from segmenting its audience by their income, McDonald’s also does geographic segmentation quite well. It customizes its menu for each country based on cultural preferences, making it more appealing to its target audience segments.  Coca-Cola Coca-Cola has the entire world as its market. But it also has cut-throat competition in the form of another brand, Pepsi. To gain a competitive edge over Pepsi, it introduced new variants such as Diet Coke and Coke Zero to target niche, health-conscious audience segments. It also brought in more flavored variants to target the younger, experiential population. Beyond segmentation and targeting, Coca-Cola positions itself as a drink that brings families and friends together. This is evident from its advertisements, which typically feature get- togethers, festivals, and celebrations in which Coke plays an integral role.