Getting Started: Why Can’t We Just Sell to Everyone?
Imagine you are opening a new clothing store. If you try to sell baby clothes, business suits, and professional football kits all in the same tiny shop, you might find it hard to please anyone! Most businesses realize they cannot satisfy every single customer in the world. Instead, they use a three-step process called STP: Segmentation, Targeting, and Positioning.
In this chapter, we will learn how businesses break down a big market into smaller groups, choose who to sell to, and how to make sure customers think of their brand in the right way.
1. Market Segmentation: Breaking It Down
Market segmentation is the process of dividing a large market into smaller groups of consumers who have similar needs or characteristics. Think of it like a giant pizza; instead of eating the whole thing at once, you slice it into pieces so it’s easier to handle!
Common Methods of Segmentation
The syllabus requires you to know five specific ways a business can "slice" the market:
- Demographic: Dividing the market based on "who" the customer is. This includes age, gender, family size, or ethnic background.
Example: A company like LEGO segments by age, offering "Duplo" for toddlers and "Technic" for teenagers. - Geographic: Dividing customers based on where they live. This could be by country, region, city, or even climate.
Example: A car manufacturer might sell 4x4 vehicles in mountainous regions and small electric cars in busy cities. - Income: Grouping customers by how much money they earn. This helps a business decide if they should sell luxury goods or budget items.
Example: Rolex targets high-income individuals, while Casio offers affordable watches for lower-income segments. - Behavioural: Dividing the market based on how customers "act" towards a product. This includes loyalty to a brand, how often they use the product (usage rate), or the benefits they seek.
Example: Airlines have "Frequent Flyer" programs to target people who travel often for business. - Psychographic: This is about the customer's lifestyle, personality, and values. It’s about "what they believe" rather than just who they are.
Example: A brand like Patagonia targets people who value environmental activism and an outdoor lifestyle.
Quick Review: Why segment? It helps a business understand its customers better, prevents wasting money on the wrong people, and helps increase sales by providing exactly what a specific group wants.
2. Market Targeting: Choosing Your Focus
Once the market is divided into segments, the business must decide which ones to enter. This is called Targeting. Don’t worry if this seems like a big decision—businesses usually choose based on how much profit they can make and whether they have the right resources.
Mass Marketing vs. Niche Marketing
There are two main ways to target:
Mass Marketing
This is when a business ignores segments and tries to sell the same product to the whole market.
Pros: You can produce in huge quantities, which lowers the cost per unit (economies of scale).
Cons: Competition is usually very high, and it is hard to satisfy everyone with one product.
Example: Basic food items like flour or milk, or global brands like Coca-Cola.
Niche Marketing
This is when a business targets a very small, specific segment of a larger market.
Pros: Less competition and you can often charge a higher price (premium) because the product is specialized.
Cons: The market size is small, so if your costs go up or customers leave, the business is at high risk.
Example: A company that only makes left-handed scissors or high-end vegan hiking boots.
Memory Aid:
Mass = Massive audience.
Niche = Narrow audience.
3. Market Positioning: Finding Your Place
Positioning is about the "place" a product occupies in the minds of consumers relative to competing products. It’s all about perception.
When you think of Volvo, you might think of "safety." When you think of Ferrari, you think of "speed and luxury." That is positioning!
Influences on Positioning
A business chooses its position based on:
1. Competitors: What are they doing? Can we do something different (a "Gap" in the market)?
2. Company Strengths: What are we good at? (e.g., Are we the cheapest or the highest quality?)
3. Consumer Perceptions: What do people already think of us?
Key Takeaway: Positioning helps a business differentiate itself. If you are just "another coffee shop," you might fail. If you are the "fastest coffee shop for commuters," you have a clear position!
4. Targeting International Markets
Sometimes, a business grows so much it decides to target customers in other countries. This is exciting but challenging!
Benefits of International Targeting
- Huge Growth Potential: Access to millions of new customers.
- Spreading Risk: If sales are down in your home country, they might be up in another.
- Longer Product Life: A product that is "old" in one country might be "new and trendy" in another.
Difficulties of International Targeting
- Cultural Differences: What is polite in one country might be offensive in another. (e.g., colors or hand gestures in ads).
- Language Barriers: Translations can go wrong and make the brand look unprofessional.
- Legal and Economic Factors: Different taxes, laws, and different levels of income in each country.
Did you know? When McDonald's entered India, they had to reposition their menu because many people do not eat beef for religious reasons. They created the "McAloo Tikki" burger to suit local tastes!
Summary Checklist
Check your understanding:
- Can you define Segmentation, Targeting, and Positioning?
- Do you know the 5 methods of segmentation? (Demographic, Geographic, Income, Behavioural, Psychographic)
- Can you explain the difference between Niche and Mass marketing?
- Can you list two benefits and two difficulties of selling in international markets?
Common Mistake to Avoid: Don't confuse "Segmentation" with "Targeting." Segmentation is the act of dividing the groups; Targeting is the act of choosing which group to sell to.