Segmentation, Targeting and Positioning

Barriers include

Market segmentation principles are well established in marketing theory and a recognised component of marketing strategy.

Managing Diverse Customer Needs

Market segmentation offers a route to making these decisions, helping to address the practical resource constraints facing leadership teams in all types of organizations.

Customer needs become increasingly diverse. Market segmentation offers organizations means to handle complexity.

Segmentation: grouping into segments customers who are homogenous (needs/buying behaviour)

Benefits

More efficient resource allocation

marketing programmes which area better fit with customer needs

improved competitiveness

Markets are characterized by the diverse nature of customers (characteristics, needs, expectations, and buying behaviour).

Segmentation is led by:

technology advances

importance of smart targeting in times of recession

Defining Market Segmentations

it is the grouping of like-minded behaving consumers or business customers for the purpose of:

Developing products/services

Targeting sales and marketing activities

Managing customer services

Determining internal resources

Market segmentation is the grouping of like-minded and similarly behaving consumers or business customers together for the purposes of developing products/services, targeting sales and marketing activities, managing customer service and determining internal resourcing.

Key Benefits of Segmentation

Improved customer insights

More focused product and service propositions

Enhanced awareness of external market trends and competition

Focused resources allocation and marketing spend on the most worthwhile opportunities

Internal Clarity

Increased revenues from target customers

Enhanced awareness of external market trends and competition: an organization cannot decide which segments to target without examining these issues.

Focused resource allocation and marketing spend segmentation reveals who not to target and which customer groups will be the best recipients of resources.

Segmentation Approaches

Information technology has enhanced organizations' ability to capture and manage customer insights:

Characteristics

Needs

Buying Behaviour

Influences upon their Decisions

Perception

Motives

Attitudes

Usage

Purchasing Activity

‘Traditional’ survey-based approach: it begins with qualitative research (depth interviews/focus groups), followed by a quantitative survey, and a confirmatory qualitative research phase. The survey findings are statistically analysed and modelled, to produce segments.

Segments which emerge almost by accident: when an organization is carrying out customer research for other purposes

Pros/Cons

Survey-based quantitative approach: effective in creating segments, but is expensive and takes time, requires expert marketing research and involves disruption to the organization.

Qualitative-only ‘accidental’ approach: quick and easy. It is vulnerable to poor scoping and misinterpretation. It must be followed with a quantitative confirmatory study.

Segment Quality Criteria: Kotler

Desirable segment characteristics used in both consumer and business-to-business contexts.

Measurability - enabling segment size and potential to be judged

Accessibility - a segment that can be reached and served

Substantiality - a segment that is of sufficient size and profit potential.

Actionability - a segment that can be reached effectively with a marketing programme

Segments are homogeneous - distinctive in terms of its customer profile and needs

Segment size and potential profitability - the size of the segment is sufficient so that resources allocation can be justified, and future profitability judged adequate.

Segment Stability - given that probability could rely upon it, this is implied by the substantiality criterion.

Segment Accessibility - concerning whether suitable and distinctive marketing programmers can be developed for emerging segments.

Segment Compatibility - concerns the extent to which the segment output fits the organisational context.

Segment Actionability - refers to whether the organisation has the resources and capabilities to serve the emerging segments.

Why a Target Market is Attractive?

The market attractiveness dimension includes all aspects that relate to the market, such as expected profitability or ROI, seasonality, economies of scale, competitive intensity, ability to develop a competitive advantage, industry sales, the overall cost and feasibility of entering the market, or whatever is deemed appropriate for a particular sector and organization in judging the relative merits of segments. By using a set of variables (rather than a single financial indicator) the technique forces managers to consider attractiveness more broadly than in relation to short-term profitability

Market Overcoming Operational Problems

Brand positioning must be developed.

Data mining will be carried out demands, to explore the current customer base to allocate these customers to the newly created segments

Segmentation Process Issues

Barriers include

Shortfall in required data for identifying segments.

Insufficient Budget.

Lack of Suitably Skilled Personnel.

Weak understanding of the segmentation process.

Poor sharing of data and ideas.

Inadequate inter-functional buy-in.

Poor appreciation of the fit with corporate strategic planning.

Implementation Issues

Inadequate financial resourcing for implementation.

Insufficient time or suitably skilled employees.

Organizational resistance to required changes and/or inflexibility in the distribution system.

Poor fit between tactical marketing programmes and the segment solution.

Implementation Problems include inadequate financial resourcing for implementation; insufficient time or suitably skilled employees committed to the segment roll-out; poor internal/external communication of the segment solution and lack of senior management involvement; unclear demarcation of implementation responsibilities; poor fit between tactical marketing programmes and the segment solution; organizational resistance to required changes and/or inflexibility in the distribution system.