Target Market Selection Segmentation and Positioning

August 6, 2008

From a high-level, the goal of a marketing strategy is to identify a target market and develop a marketing mix that will appeal to those potential customers. Decisions regarding the ideal marketing mix can be organized in terms of Price, Promotion, Product, and Price. However, the goal is not to just come up with a particular strategy, but rather to focus on providing value to your key market segments.

Use Demand Metric’s Market Segmentation Tool to analyze market segment sizes and develop Customer Profiles based on Demographic, Psychographic, and Environmental criterion.

What types of analyses need to be completed?

As a starting point, most marketers conduct an internal analysis or their organization to identify which opportunities make the most sense to pursue. Use Demand Metric’s S.W.O.T. Analysis Tool to get started. This framework identifies the firm’s Strengths, Weaknesses, Opportunities, and Threats, with special attention paid to the various implications stemming from each.

Once you have a clear understanding of your firm’s capabilities and resources, you are ready to analyze the external environment to seek market opportunities that fit your organization’s goals and objectives.

Next, download Demand Metric’s STEP Analysis Tool to review of the Social, Technological, Economic, and Political issues affecting your firm’s ability to capitalize on a market. Combining the internal and external analyses provides a foundation for evaluating potential market opportunities, and serves as a basis for objectively comparing the attractiveness of each opportunity.

It is helpful to view marketing strategy planning as a process of segmenting markets, targeting specific customers, and working to effectively position your offering among the competition. The following sections in this report will outline how to effectively segment, target, and position, your product or service.

There are four basic types of market opportunities: Market Penetration, Market Development, Product Development, and Diversification.

 

  1. Market Penetration is the attempt to increase sales of current products in present markets. Some strategies to penetrate markets include: more aggressive marketing, increasing service to improve renewal rates, or attracting competitor customers directly.
  2. Market Development is the effort to increase sales by selling current products into new markets. Firms may advertise to reach new target customers within a geographic region, or look to international markets for expansion.
  3. Product Development refers to offering new or improved products to present markets. By working closely with your customers, you may find new and innovative ways to better satisfy your target market.
  4. Diversification means opening completely new lines of business, with new products in new markets. Many organizations diversify their product mix to mitigate risks related to economic variables such as recessions.

The question becomes: which opportunities should be evaluated first? The answer falls out of a sound analysis of existing markets and potential new markets. Most companies look to markets that are close to home, since they are more familiar and can be responded to quickly. Additionally, it is more profitable to retain, rather than recruit new customers.

For these reasons, market penetration is usually the first type of opportunity a firm will evaluate. Conversely, many organizations have found that market development, especially in rapidly growing China and India, is the key to their success. The next section will outline what “markets” are, and provide pragmatic advice for market segmentation.

Market Segmentation Best Practices

Market segmentation is a two-step process of: naming broad product markets, and segmenting those markets in order to select target markets. Use Demand Metric’s Market Segmentation Tool to help you with market sizing and analysis, and to develop customer profiles.

 

Most segmentation efforts fail because inexperienced marketers attempt to find one or two demographic characteristics to segment a mass market. Generally, customer needs and behaviors do not fit nicely into one or two demographic characteristics. This section of the report will outline Best Practices related to segmenting your various product markets.

1. Defining Generic and Product Markets

A market is a group of potential customers who have similar needs and are willing to purchase goods or services to satisfy those needs. Good marketers focus on the customer and develop marketing mixes for very specific target markets. On the other hand, poor marketers focus on their products when defining markets, leading to missed opportunities and questionable customer satisfaction. The point here is that a market is external to an organization; it doesn’t make sense to segment potential markets based on the features contained in your products or services.

When narrowing down the mass market, it is helpful to think of two basic types of markets: generic markets and product markets. A generic market is a market of customers with generally similar needs, which organizations satisfy in a variety of ways. An example of a generic market would be the transportation market for a city; buses, trains, cars, bicycles, and walking, are all methods of getting around town.

Contrastingly, a product market is a market of customers with very similar needs. An example of a product market would be for laptop computers, where customers have the choice between products from Microsoft, Dell, Apple, Fujitsu, etc.

When evaluating potential market opportunities, look for a definition that is broader than your firm’s current product market, but not so broad that your firm could not handle the demand if it were generated. Work to establish a slightly broader definition for your current product markets.

When defining your product market, there are four important aspects:

  1. What - Product Type
  2. To Meet – Customer Needs
  3. Who - Customer Segments
  4. Where - Geographic Region

 

An example of a product market might be “marketing advisory services for mid-sized enterprises in North America with limited budgets.” Once you have defined your product markets, you are ready to continue the segmentation process to identify potential target markets.

2. Understand Common Market Segment Dimensions

There are common market segment dimensions for consumer and B2B markets. Following are two lists containing sample dimensions that can be used to slice and dice your consumer or B2B product markets. Be very careful when selecting your dimensions, as these parameters will form the basis for defining your target markets.

* Note: the following lists are meant to provide examples that will stimulate your thinking of applicable dimension. There are thousands of variables that could be used for this exercise, so be sure to carefully select the right dimensions for your market.

B2C Segmentation Criteria

Demographic:

  • Age
  • Income
  • Marital Status
  • Education
  • Family Size
  • Gender
  • Geographic Location
  • Social Status
  • Occupation

Psychographic:

  • Brand Preferences
  • Price Sensitivity
  • Conservative/Liberal
  • Enviro-Friendly
  • Hobbies
  • Lifestyle
  • Information Sources
  • Service Preferences
  • Buy Based on Trends
  • Spontaneity
  • Influenced by Peers
  • Relationship Importance

Behavioral:

  • Purchase History
  • Where They Shop
  • Type of Store Preferences
  • Association Memberships
  • Internet Usage
  • Impulsiveness

Environmental:

  • Country of Residence
  • Political Climate
  • Currency
  • Payment Methods
  • Shipping & Receiving
  • Languages Spoken

B2B Segmentation Criteria

Demographic:

  • Annual Revenue
  • # Employees
  • Industry
  • # Locations
  • Years in Business
  • Markets Served
  • Products/Services
  • Job Title
  • Level of Experience/Seniority

Psychographic:

  • Resistance to Change
  • Diversification Oriented
  • Open Minded/Rigid
  • Decision Making Process
  • Early Adopter/Follower
  • Growth Oriented/Static
  • Technology Sophistication
  • Professionalism
  • Require Referrals
  • Awareness of Competitors
  • Risk Aversion
  • Loyalty
  • Market Focused/Product Focused

Behavioral:

  • Website Visits
  • Responses to Marketing
  • Purchasing Methods
  • Association Memberships
  • Internet Usage
  • Social Media Groups
  • Collateral Views/Downloads

Environmental:

  • Technology Landscape
  • Purchasing Power
  • Management Practices
  • Purchasing Process
  • Business Culture

 

Using a Customer Relationship Management (CRM) database system can assist with clustering customers with similar needs, buying patterns, or other relevant characteristics.

Discuss the opportunity to aggregate customers into market segments with your Information Technology leaders, as they should have some experience with gathering the data you need.

3. Group Customers into Homogeneous Micro Segments

In this stage of the segmentation process, your goal is the find customers who have similar needs that will respond to a marketing mix in a predictable manner.

Following are 4 criteria that strong market segments have in common:

  1. Homogeneous - customers in a market segment should be very similar in both their segment dimensions and their likely response to a marketing mix.
  2. Heterogeneous - customers in different market segments should be as divergent as possible with other segments.
  3. Economic Upside - the segment needs to be large enough, or predicted to grow sufficiently, to be profitable.
  4. Operational - the segment dimensions should be helpful for understanding & identifying customers and making decisions regarding the marketing mix.

It is essential that market segments are operational. The whole point of segmenting is to assist with better targeting, positioning, and decision-making; be sure that your segment dimensions are extremely relevant.

Once you have established distinct market segments based on various dimensions, you are ready to start targeting your potential customers. The next section of the report provides advice pertaining the effective target marketing techniques.

Target Marketing

Following are 5 criteria that indicate whether you have selected a viable target market: size, expected growth, competitive position, cost to reach, and compatibility.

  1. Size - how large is this target market? Worth pursuing?
  2. Expected Growth - even if the market is small, it may be profitable if there are indications that it will grow.
  3. Competitive Position - low competition equals attractive market.
  4. Cost to Reach - is this market accessible with our tactics?
  5. Compatibility - how aligned is this market to our goals?

There are three standard approaches to target marketing. The first approach is the Single Target Market approach whereby the firm selects one particular market segment and makes every effort to “own” that space. The second approach is the Multiple

Target Market approach in which the firm selects two or more segments to go after, requiring a separate marketing mix for each. The final approach is the Combined Target Market approach and results from combining two or more submarkets into one larger target market, which is managed with a single strategy.

Most organizations prefer to adopt a segmentation approach such as the Single or Multiple Target Market strategies. These firms adjust their marketing mix for each target market to ensure that each segment is very satisfied with their offerings.

Generally, it is better to target specific segments with an appropriate solution, than to approach combined segments with an “off-the-shelf” solution.

Positioning and Competitive Differentiation

The final stage in developing a strategic marketing plan is to analyze the target market to identify where competitors are positioned, and which attributes are most important when customers are making a purchase. Use Demand Metric’s Competitive Product Positioning Map for help on this exercise.

Product positioning refers to the place an offering occupies in the customers mind on important attributes, relative to competitive offerings. To understand your current market position, conduct a simple market research project to identify which product-class attributes are most important, which brands are perceived to best deliver each attribute, and where product improvements need to be made to improve customer satisfaction.

There are two basic strategies when it comes to positioning: head-to-head and differentiation. Organizations that have a solid competitive advantage in areas deemed relevant by the target market typically go after a large portion of the total market share, and are not afraid to compete head-to-head with new market entrants or established competitors.

Those firms who cannot compete head-on with industry giants are better off looking for a niche in the market that their offering is particularly suited to fulfill. Conducting a comprehensive competitive analysis in conjunction with annual market research is an effective method for understanding your role as a supplier within the industry. As the environment changes, you will be in a position to capitalize on new market opportunities.

Marketing is an organic process that involves understanding organizational capabilities & resources, analyzing attractive market opportunities, and executing well-timed campaigns to drive revenue. Getting back to the basics and developing disciplined processes related to internal, external, and market analyses, are essential for reacting to dynamic market conditions.

Discuss the four types of market opportunity (market penetration, market development, product development, diversification) with Senior Management to identify which area your organization will be looking to exploit in the near future.

Conduct a market segmentation initiative to define your general product market; further segment the market based on the needs of your customers and/or other relevant dimensions; and evaluate your submarkets to ensure they provide operational intelligence that supports decision-making.

Once market segments and submarkets are established, analyze which segment(s) would be best to pursue. Adopt a Single, Multiple, or Combined Target Market strategy and further evaluate the competitive landscape in each market. Conduct market research to understand the current competitive positions for each brand in the marketplace, and identify areas your organization can provide a competitive advantage.

Finally, tweak your marketing mix to achieve differentiation in the markets you serve, and update marketing materials to reflect your new position. Remember, maintaining leadership and revenue in any market requires diligence and the ability to listen and respond to current and potential customers.

Previous post:

Next post: