Marketing Segmentation, Targeting, and Positioning (STP)

In order to be an effective and efficient business, firms should seek out their target customer market. A good understanding of the principles of market segmentation is an important building block of a company's marketing strategy. Market segmentation serves as the foundation for an efficient, streamlined and ultimately successful approach to customers, and a means of targeting products and services accurately, with the minimum of wastage.

MARKET SEGMENTATION

Amarketis composed of individuals or organizations with the ability and willingness to make purchases to fulfill their needs or wants. Amarket segmentis a subdivision or part of an overall market with specific and distinctive characteristics. As opposed to mass marketing where companies direct their marketing activities to the entire market. In segmentation, companies tailor-fit their marketing to the needs and wants of the particular market segment.Market Segmentationinvolves groupings various customers into segments that have common needs or will respond similarly to a marketing action. Each segment will respond to a different marketing mix strategy, with each offering alternate growth and profit opportunities.

Segmentation involves finding out what kinds of consumers with different need exist. In the case of auto market, some consumers demand speed and performance, while others are much more concerned about roominees and safety. In general, it hold true that no one can please everybody and experience has revealed that firms that concentrated in meeting the needs of one group of consumers over another tend to be more advantageous.

Segmentation calls for some tough choices. There may be great number of variables that can be used to differentiate consumers of a given product category. Yet, in reality, it becomes impossibly burdensome to work with more than a few at a time. It is indeed a requirement to find out which variables will be most helpful in distinguishing different groups of consumers.

Market segementation tries to quantify the ways in which different groups assign value to a product or service. In this sense, it allows companies to reach the greatest number of consumers throug greater awareness of how people respond to advertising.

For the segmentation to be useful, the following criteria must be met:

1. Substantiality- The targetd segment needs to be large enough to justify creating and maintaining a customized marketing mix. Simply put, there would be no point in wasting marketing budget on a market segment that is inadequately large, or has insignificant spending power. A feasible market segment is usually a homogenous group with obviously defined characteristics such as age group, socio-economic background and brand perception. Longevity is also significant. No market segmentation expert would advocate focusing on an unsteady customer group that is prone to break up, or change beyond recognition within a year or two.
2. Measurability- The company must be able to identify this specific segment and its size measurable. Market segments are usaully measured in terms of sales value or the number of customers within the segment. Dependable market research should be able to determine the size of a market segment to a reasonable degree of accuracy, so that strategiests can then decide whether, how, and to what extent they should center their efforts on marketing to this segment.
3. Accessibility- The company must have access to its targeted segment woth its specific marketing mix. When differentiating a market segment, it is vital to cnsider how the group could be accessed and, significntly, whether this falls within the strengths and abilities of the company's marketing department. Different segments might react better to outdoor advertising, social media campaigns, television infomercials, or any number of other approaches.
4. Differentiable- The best market segment should be internally homogeneous. Internal homogeneity means all customers within the segment have similar preferences and characteristics but externally heterogeneous. Differences between market segments should be clearly defined, so that the campaigns, products and marketing tools applied to them can be executed and unrelated.
5. Actionable- The market segment must have practical value. Its characteristics must give supporting data for a marketing position or sales approach. This in turn must have outcomes that are easily quantified, ideally in relation to the existing measurements of the market segment as defined by initial market research.

BASES FOR SEGMENTING CONSUMER MARKET

Marketers used several bases or variables to divide a total market into segments. It is significant that the bases for segmentation to be used should be thought of wisely because an unsuitable segmentation strategy could lead to lost sales and overlook profit opportunities. It is best to pinpoint the bases that will give substantial, measurable and accessible segments that display different response patterns to marketing mixes.

The major variables that might be used in segmenting are geographic, demographic, psychographic and behavioral variables.

Geographic Segmentation

Geographic segmentation means segregating markets by region of the country or the world, market size, market density or climate. A company may decide to operate in one or a few geographical areas or operate in all areas but pay attention to geopgraphical differences in needs and wants.Market densityis the number of people within a unit of land like census tract.Climateis normally used for geographic segmentation because of its tremendous effect on residents' needs and purchasing behavior. Air - conditioning and heating systems are products with different appeal based on climate.

Demographic Segmentation

Demographic segmentation is market segmentation according to age, race, religion, gender, family size, ethnicity, income, and education. Demographics can be segmented into several markets to help an organization target its consumers more accurately. With this type of segmentation, an organization can categorize the needs of consumers.

Psychographic Segmentation

Pyschographic segmentation divides buyers into different segments based on personality characteristics, motives, and lifestyles and geodemographics.

Behavioral Segmentation

Behavioral segmentation divides buyers into segments based on their knowledge, attitudes, uses, or responses to a product. Many marketers believe that behavior variables are the best starting point for building market segments.

MARKET TARGETING

Market targeting involves breaking a market into segments and then concentrating marketing efforts on one or a few key segments. Marketers select target markets using four different strategies which are undifferentiated targeting, concentrated targeting, multisegment targewting and customized marketing.

Undifferentiated Targeting

An undifferentiated targeting strategy assumes that all members of a market have similar needs that can be met with a single marketing mix. Undifferentiated targeting occurs when the marketer ignotes the apparent segment differences that exist within the market and uses a marketing strategy that is intended to appeal to as many people as possible.

This strategy can occur by default. Companies which lack a maketing orientation may practice this strategy because of lack of customer knowledge. It is convenient since a single product has to be developed.

A company using an undifferentiated targeting strategy essentially adopts a mass-market philosophy. It views the market as one big market with no individual segments. The company uses one marketing mix for the entire market. The company assumes that individual customers have similar needs that can be met with a common marketing mix.

Concentrated Targeting

A concentrated targeting strategy focuses all marketing efforts on a single market segment. A company may target just one segment with a single marketing mix. It understands the needs and motives of the segment's customers and designs a specialized marketing mix. Several segments may be identified but a company may not serve all of them. Some may be unattractive or out of line with the company's business strengths.

The strategy is suited for companies with limited resources as these resources may be too stretched if it competes in many segments. Focused marketing allows R&D expenditure to be concentrated on meeting needs of one set of customers and managerial activities are devoted to understanding and catering to their needs.

Multisegment Targeting

Multisegment targeting is a strategy that uses two or more marketing mixes to target two or more market segments. A company following multisegment targeting strategy serves two or more well - defined segments and develops a distinct marketing mix for each one of them. Separate brands are developed to serve each of the segments.

It is the most sought after target market strategy because it hase the potential to generate sales volumes, higher profits, larger market share and economies of scale in manufacturing and marketing. But the strategy involves greater product design, production, promotion, inventory, marketing research and management costs.

Customized Marketing

Customized marketing is tailoring a particular product to thr specific needs of an individual customer. In some markets, the requirements of individual customers are unique and their purchasing power is sufficient to make designing a separate marketing mix for each customer a viable option. Many service providers such as advertising, marketing research firms, architects and soicitors vary their offerings on a customer to customer basis.

They will discuss face to face with each customer their requirements and tailor their services accordingly. Customized marketing is also found within organizational markets because of high value of orders and a special needs of customers.

MARKET POSITIONING

Market positioning is developing a product and brand image in the minds of consumers. It can also include improving a customer's perception about the experience they will have if they choose to purchase a company's product or service. The business can positively influence the perceptions ot its chosen customer base through strategic promotional activities and by carefully defining the marketing mix.

A company discovers different needs and groups in the marketplace, targets those needs and groups that it can satisfy in a superior way, and then positions its offering so that the target market recognizes the company's distinctive offering and image. If a company does a poor job of positioning, the market will be confused as to what to expect. If a company does an excellent job of positioning, then it can work out the rest of its marketing planning and differentiation from its positioning strategy.

Effective positioning involves a good understanding of competing products and the benefits that are sought by target market. It also requires the firm to identify a differential advanctage with which it will deliver the required benefits to the market effectively against the competition. Business should aim to define themselves in the eyes of their customers in regards to their competition.

In positioning, the marketing department creates an image for the product based in its intended audience. This is created through the use of promotion, price, place and product. The more intense a positioning strtegy, typically the more effective the marketing strategy is for a company. The end result of positioning is the successful creation of a market - focused value proposition, a cogent reason why the target market should buy the product.

There are two approaches in product positioning which are head-to-head positioning and differentiation positioning.Head-to-head positioning is competing directly with the competitiors in similar product attributes in the same target markets. Whiledifferentiation positioningseeks a less competitive smaller market niche in which to position the brand.

Once the company has developed a clear positioning strategy, it must communicate that positioning effectively through all facets of the marketing mix and every point of contact with customers. On the other hand, companies risk confusing the target audience if their marketing tactics run counter to their positioning.

MARKETING CHANNELS

To reach a target market, the marketer uses three kinds of marketing channels. Communication channels deliver and receive messages from target buyers and include newspapers, magazines, radio, television, mail, telephone, billboards, posters, fliers, CDs, audiotapes, and the Internet. Beyond these, firms communicate through the look of their retail stores and Web sites and other media. Marketers are increasingly adding dialogue channels such as e-mail, blogs, and toll-free numbers to familiar monologue channels such as ads.

The marketer uses distribution channels to display, sell, or deliver the physical product or service(s) to the buyer or user. These channels may be direct via the Internet, mail, or mobile phone or telephone, or indirect with distributors, wholesalers, retailers, and agents as intermediaries.

To carry out transactions with potential buyers, the marketer also uses service channels that include warehouses, transportation companies, banks, and insurance companies. Marketers clearly face a design challenge in choosing the best mix of communication, distribution, and service channels for their offerings.

Various Channels of Distribution

The different types of marketing channels or channels of distribution have been identified based on the number of intermediaries or the levels the goods or services passes through to reach the customers.

These marketing channels are bifurcated into the following two categories:

Direct Marketing Channel

Direct selling is that medium of distribution in which there is no middle person involved, and the manufacturer directly sells the goods or services to the customer. It is also termed as 'zero-level channel.

This type of channel is popular among the services industry. Most of the services like travel, catering, salons fall under the direct marketing channel. Even when the products are complicated to use like the industrial machinery require direct selling and support from the manufacturer. The small manufacturer of general goods finds this channel more profitable and cost-efficient since they cannot afford giving margin to the intermediaries. For Example; In restaurants, the food is prepared as well as served to the consumers.

Indirect Marketing Channels

In this channel of distribution, the goods produced by manufacturing units passes through different intermediaries to reach its final consumer. The indirect channels can be further classified into the following types, each of which is supported by an example:

One-Level Channel

The single-level channel involves only one middle person, i.e. the retailer who purchases the goods from the manufacturer and sells them to the customers. The shopping malls and marts use this channel for acquiring products at a low price and selling them to customers at a reasonable price. Also, the manufacturers of some specialise products like furniture, clothing, footwear, etc. preferably go for the one-level marketing channel. For Example; Big Bazaar is a retail mart which buys the products directly from the manufacturer and makes it available to the consumers.

Two-Level Channel

The wholesaler buys the goods in large quantity from the manufacturers and supplies it to the various retailers in small amounts. The retailers to the customers then sell these goods. This channel is preferred by the manufacturers who want to sell their products to obtain market share. It eliminates the expenses which the manufacturer incurs on the sales force, warehousing of goods and other retail selling practices. It also facilitates mass production and a high volume of sales by increasing the scalability of the manufacturers. For Example; Rice yield by farmers is purchased and stored in bulk quantity by the wholesalers. The retailers then buy the rice in small portion from the wholesaler and sell it to the customers.

Three-Level Channel

The manufacturer appoints agents or gives the goods to agencies which further distribute the products to selective wholesalers in large quantity. The wholesalers then sell the rice to the retailers in smaller amount who finally sell it to the customers. This is one of the most commonly used channels of distribution for confectionery products. It is used by the manufacturers who look forward to capturing a massive market by reaching the consumers scattered over a vast geographical area. For instance; in rural marketing. Even the perishable goods manufactured in large quantity need to be distributed through this medium since the manufacturers cant acquire customers more quickly through any other channel. For Example; Tata Tea manufactured by the company is sold to the agencies in different regions; these agencies sell it to the wholesalers of their respective areas. The wholesaler further sells it to the retailers from where it reaches the customers.

MARKETING ENVIRONMENT

The marketing environment consists of the task environment and the broad environment. The task environment includes the actors engaged in producing, distributing, and promoting the offering. These are the company, suppliers, distributors, dealers, and target customers. In the supplier group are material suppliers and service suppliers, such as marketing research agencies, advertising agencies, banking and insurance companies, transportation companies, and telecommunications companies. Distributors and dealers include agents, brokers, manufacturer representatives, and others who facilitate finding and selling to customers.

The broad environment consists of six components: demographic environment, economic environment, social-cultural environment, natural environment, technological environment, and political legal environment. Marketers must pay close attention to the trends and developments in these and adjust their marketing strategies as needed. New opportunities are constantly emerging that await the right marketing savvy and ingenuity.

Assessment Task No. 2

• Instructions

Instructions

Directions: Explain each questions, before you begin writing, read the words carefully and plan what you will say. Your essay should ne as well organized and as carefully written as you can make it. Avoid copying from any recources, use your own words.

1. Which of the two do you agree and why; Marketers create needs or Needs pre-exist marketers.
2. Why is it important to seek out your target customer/market?
3. Would you agree that without communication channels a products can't reach it's target market?