Segmentation - Targeting – Positioning

Segmentation - Targeting – Positioning
Eureka Facts, The Smart Marketing Information. 1
SEGMENTATION – TARGETING – POSITIONING
BY: JORGE A. RESTREPO
President & Principal Researcher EurekaFacts LLC
The strategic marketing planning process flows
from a mission and vision statement to the selection of
target markets, and the formulation of specific marketing
mix and positioning objective for each product or service
the organization will offer. Leading authors like Kotler
present the organization as a value creation and delivery
sequence. In its first phase, choosing the value, the
strategist "proceeds to segment the market, select the
appropriate market target, and develop the offer's value
positioning. The formula - segmentation, targeting,
positioning (STP) - is the essence of strategic marketing."
(Kotler, 1994, p. 93).
Market segmentation is an adaptive strategy. It
consists of the partition of the market with the purpose of
selecting one or more market segments which the
organization can target through the development of
specific marketing mixes that adapt to particular market
needs. But market segmentation need not be a purely
adaptive strategy: The process of market segmentation
can also consist of the selection of those segments for
which a firm might be particularly well suited to serve by
having competitive advantages relative to competitors in
the segment, reducing the cost of adaptation in order to
gain a niche. This application of market segmentation
serves the purpose of developing competitive scope, which
can have a "powerful effect on competitive advantage
because it shapes the configuration of the value chain."
(Porter, 1985, p. 53).
According to Porter, the fact that segments differ
widely in structural attractiveness and their requirements
for competitive advantage brings about two crucial
strategic questions: the determination of (a) where in an
industry to compete and (b) in which segments would
focus strategies be sustainable by building barriers
between segments (Porter, 1985, p. 231).
Through market segmentation the firm can
provide higher value to customers by developing a market
mix that addresses the specific needs and concerns of the
selected segment. Stated in economic terms, the firm
creates monopolistic or oligopolistic market conditions
through the utilization of various curves of demand for a
specific product category (Ferstman, C., & Muller, E.,
1993). This is an expanded application of the
microeconomic theory of price discrimination, where the
firm seeks to realize the highest price that each segment is
willing to pay. In this case the theory's reliance on price is
broadened to include all 4 P's of the marketing mix (Wilkie,
1990, P. 98). This application of microeconomic theory is
particularly applicable to organizations active in product
categories that are cluttered with competition. It is also
useful where sufficiently large markets with distinct sets of
value preferences are found, or when the organization
chooses to proactively build a stronghold by creating value
preferences among a set of consumers.
Segmentation as a process consists of segment
identification, segment selection and the creation of
marketing mixes for target segments. The outcome of the
segmentation process should yield "true market segments"
which meet three criteria: (a) Group identity: true segments
must be groupings that are homogeneous within segments
and heterogeneous across groups. (b) Systematic
behaviors: a true segment must meet the practical
requirement of reacting similarly to a particular marketing
mix. (c) The third criteria refers to efficiency potential in
terms of feasibility and cost of reaching a segment (Wilkie,
1990). In addition, Gunter (1992) recommends considering
the stability of market segments over time and different
market conditions.
Stage one - segment identification
The first stage of market analysis consists of
segment identification. The analyst has the option of
segmenting the market using different sets of criteria
including personal characteristics of the consumer, benefits
sought, and behavioral measures of the consumer (Wilkie,
1990, p. 101). Within these categories the options available
are truly overwhelming and in many cases different
segmentation approaches will steer strategy along very
different paths. Utilizing multiple segmentation approaches
is recommended by several authors (Porter, 1985; Gunter,
1992).
There is no recipe for choosing which variables to
utilize when segmenting. The identification of segmentation
variables is among the most creative parts of the
segmentation process, because it involves conceiving
dimensions along which products and buyers differ, that
carry important structural or value chain implications.
Furthermore, "the greatest opportunity for creating
competitive advantage often comes from new ways of
segmenting, because a firm can meet buyer needs better
than competitors or improve its relative cost position"
(Porter, 1985, p. 247).
Segmentation variables
Wilkie (1990) divides segmentation variables into
three categories: personal characteristics, benefits sought,

Segmentation - Targeting – Positioning
Eureka Facts, The Smart Marketing Information. 2
and behavioral measures. The following section will
explain each set of variables in broad terms.
Personal characteristics
The set of personal characteristics includes all the
variables that can be used to describe or identify particular
individuals. They include a vast array of personal
attributes, media exposure, demographic, geographic, and
geodemographic, lifestyles (activities, interests, opinions),
and psychographics.
Psychodemographics and geodemographics
have become popular segmentation tools. However,
despite the wealth of literature recently published it is
important to keep in mind that they are tools available to
the researcher and not the only segmentation variable
groups to consider. The power in serving segmentation
stems from their reduced cost and actionability. Because
they originated together, the two concepts have been
confused for one another but they are now recognized as
distinct consumer typology sets (Piirto-Heath, R. 1995).
Geodemographics.
Geodemographic models are conceptually based
on the assumptions that (1) neighborhoods contain
homogeneous groups of individuals, that (2) such groups
can be clustered and are share similarities across
geographies. The most commonly known geodemographic
classification systems in the US are Claritas' PRIZM,
CACI's ACORN, and Donnelley's ClusterPLUS.
The clusters are identified using census data and
geographic information. Current systems develop a
surrogate measure for socioeconomic ranking utilizing a
mixture of educational attainment, income, home value,
occupation and age; this information is laid over satellite-
generated data measuring urban, suburban, rural settings.
The analysis is enriched using other variables and survey
data to extract the different clusters. Households sharing
similar education, income, life stage, dwelling type and
type of community do tend to have similar purchasing
habits. This makes geodemographic clusters highly
actionable and reachable. The cluster is defined in a well-
rounded "picture" that includes research on media habits,
purchasing patterns for many categories, and the
possibility to match individual promotional response to the
geodemographic classification. Segmenting consumers by
geodemographic clusters enhances potential for directly
identifying and reaching prospects. The geodemographic
approach permits prospect identification down to the
census block level so the implementation of distribution,
direct marketing, and other strategies are simplified. One
of the disadvantages of this system is that it is a
classification of heads of household. To this date there has
been no profiling of other household members. The other
major disadvantage of geodemographic approaches is
precisely the reason why psychographics has become so
popular: it describes segments by many of their
characteristics but not by their attitudes, values, beliefs or
personality orientations.
Psychographics
Psychographics classify consumers by their
values and lifestyles. Though psychographic classifications
are now abundant, among the best known are VALS 2 and
LOV. Psychographic studies range from the general
profiling of lifestyles to the product specific segmentation
based on psychographic elements. Psychographic
variables are classified into three categories: product
attributes, lifestyle attributes, and psychological attributes.
The study of lifestyles is largely explained in terms
of the AIO's: attitudes, interests, and opinions. These are a
reflection of a mix of economic, cultural and social values.
Values in turn are largely shaped by early lifetime
experiences. Among the strongest forces forming values
are the triad of institutions (family, religion, and school),
media, and government (Gunter 1992).
The use of psychographics is important not only
as a consideration during the initial segmentation but as an
important element for the segment evaluation and
marketing mix formulation phases of the STP process.
"Although typically used more in advanced analysis than
initial segmentation studies, psychographics can be very
useful in identifying and explaining the behavior of markets.
For example, although the market for cars can be defined in
geodemographic terms, psychographically a researcher
may be able to identify many reasons or motives underlying
car buying behavior which could help to design a more
effective promotional and marketing strategy" (Gunter, B. &
Furnham, A., 1992, p. 64).
Benefits sought
The second group of variables used to segment
consumers includes all those related with the benefits and
needs they seek to fulfill and the nature of their demand for
different products and services. It also encompasses value
preferences such as quality, price, style, image, etc.
Behavioral Measures
The third category of segmentation variables is
behavioral measures. It includes product usage and actual
behavior such as buying patterns, usage data, channel,
ownership, quantities, brand loyalty, attitudes, etc.
Wilkie (1990) explains that variables in the first
category are unchangeable by the marketer, so the
segmentation by this level of variables should yield
adaptive strategies that recognize the reality of consumer