Market segmentation, targeting and positioning

Welcome to the Heart of Marketing Strategy!

Ever wondered why some people queue for hours for a new iPhone while others are perfectly happy with a basic budget phone? Or why some brands only advertise on TikTok while others stick to newspapers?

The answer lies in STP: Segmentation, Targeting, and Positioning. In this chapter, we will learn how businesses stop trying to sell to "everyone" and start focusing on the "right" customers. This is one of the most practical parts of the 9587 syllabus because you can see it happening every time you walk into a mall or scroll through social media!

Don't worry if these terms sound a bit "business-y" right now. We'll break them down into simple steps that make perfect sense.

1. Market Segmentation: Dividing the Pie

Market Segmentation is the process of dividing a large, diverse market into smaller groups of consumers who have similar needs, characteristics, or behaviors.

The Analogy: Imagine you are at a party with 100 people. You can't order one pizza that everyone will love (some are vegan, some hate pineapple, some want extra meat). Instead, you "segment" the party into groups and order different pizzas for each group. That’s market segmentation!

Why is Segmentation Important?

Businesses segment their markets because:
1. Better Resource Allocation: They don't waste money advertising to people who will never buy their product.
2. Tailored Marketing: They can design products and ads that speak directly to a specific group's heart.
3. Higher Competitiveness: By focusing on a small group, a business can become the "best" choice for those specific people.

Bases of Market Segmentation

The syllabus requires you to know three main ways (bases) to group customers:

1. Geographical Segmentation: Grouping customers based on where they live.
Example: A clothing brand selling thick winter coats in Hokkaido, Japan, but light linen shirts in Singapore.

2. Demographic Segmentation: Grouping customers based on who they are. This is the most common base. It includes age, gender, and income.
Example: Rolex targets high-income earners (income), while Lego targets children (age).

3. Behavioural Segmentation: Grouping customers based on how they act or use a product. This includes brand loyalty, usage rate (heavy users vs. light users), and benefits sought.
Example: Airlines have "Frequent Flyer" programs for business travelers who fly every week (usage rate/loyalty).

Types of Segmentation: Mass vs. Niche

Mass Marketing: The business ignores segments and sells the same product to the entire market.
Pros: Lower costs due to mass production.
Cons: Hard to compete when other brands offer something more specific.

Niche Marketing: The business focuses on a very small, well-defined segment.
Pros: Less competition; can charge higher prices.
Cons: If the niche is too small, the business might not make enough profit.

Memory Aid: Remember "G-D-B"

Geographical (Where)
Demographical (Who)
Behavioural (How)

Quick Review: Segmentation is just about grouping. You aren't picking who to sell to yet; you're just seeing what the groups are!

2. Market Targeting: Picking Your Group

Once a business has identified all the different segments, it must decide which ones to focus on. This is called Market Targeting.

Did you know? Even giant companies like Coca-Cola don't target "everyone" with a single drink. They target health-conscious people with Coke Zero and traditionalists with Classic Coke.

Criteria for Selecting a Target Market

How does a business choose? They look at these three factors:

1. Segment Size and Growth: Is the group big enough to make a profit? Is it growing? (A small, shrinking group is usually a bad target).
2. Segment Structural Attractiveness: Are there too many strong competitors already in this group? Are the buyers very powerful and likely to demand low prices?
3. Company Objectives and Resources: Does the company have the money and skills to serve this group? Does it fit the brand's image?

Common Mistake to Avoid: Students often think businesses should always pick the biggest segment. Wrong! The biggest segment usually has the most competition. Sometimes, a smaller segment is more profitable because no one else is serving it.

Key Takeaway: Targeting is about being selective. You want to pick the segment where you have the best chance of winning.

3. Market Positioning: Standing Out

After picking a target group, the business needs to decide how it wants those customers to perceive them. Market Positioning is the place a product occupies in the consumer's mind relative to competitors.

Unique Selling Proposition (USP) and Differentiation

To have a strong position, you need a Unique Selling Proposition (USP). This is the one feature or benefit that makes your product different and better than the rest.

Product Differentiation is the process of making your product stand out from competitors through design, quality, or special features.

Example:
Volvo positions itself on safety.
Apple positions itself on design and innovation.
Dyson positions itself on superior technology.

The Perceptual Map

A Perceptual Map is a visual tool used to show how customers perceive different brands. It usually has two axes (like Price and Quality).

Why is it useful?
1. It helps businesses see where there are "gaps" in the market (e.g., a high-quality product that is also low price).
2. It helps businesses see who their closest competitors are.
3. It helps them decide if they need to "re-position" (change their image) if they are too close to a competitor.

How to Read a Perceptual Map (Step-by-Step):

1. Look at the two axes (e.g., Y-axis is Price, X-axis is Quality).
2. Brands in the top-right are "Premium" (High Price, High Quality).
3. Brands in the bottom-left are "Budget" (Low Price, Low Quality).
4. If two brands are right next to each other, they are direct rivals fighting for the same spot in the customer's mind!

Don't worry if this seems tricky at first... Just remember that positioning is all about perception. It's not just what the product is, but what the customer thinks it is.

Key Takeaway: Positioning is the final step. It’s how you "claim your territory" in the customer's brain using your USP.

Summary: The STP Process

To wrap it all up, remember the flow:

1. Segmentation: Divide the market into groups (GDB).
2. Targeting: Select which group(s) to enter based on size and resources.
3. Positioning: Use a USP to stand out in the minds of that target group and map it out!

Final Tip for the Exam: When discussing these topics, always try to use a real-world company example. It shows the examiner that you understand how these theories apply to the real business world!