Market segmentation and targeting are complementary techniques for separating a market into smaller, more homogeneous groups (segmentation), then selecting 1 or more of these groups as the focus of your marketing efforts (targeting).
Segmentation is appropriate when naturally occurring groups exist within the market. Often used segmentation variables include demographics (like age, gender, income, education), geographics (such as country, state, urban or rural), and psychographic (such as lifestyle, values, attitudes). The notion of segmentation is that consumers respond better when products, their messaging, the price, and other elements of your marketing strategy focus on elements that match what that particular group wants. Often, other groups respond better to other choices for your marketing strategy.
For example, let’s say you make laundry detergent and you recognize that not every family is alike. Some families have kids, some families are made up of working professionals. some are composed of blue-collar workers. Hence, while everyone needs laundry detergent, they don’t need the SAME laundry detergent. The family with kids wants something strong enough to take on the dirt and stains kids get on their clothing. The professionals spend a lot of money on their clothes, which don’t get very dirty since they work in an office and don’t wear their suits to play a pickup basketball game, so they want a detergent that’s safe for their expensive clothing. They also probably have many clothes they dry clean, so they don’t buy as much laundry detergent (and have higher incomes), so they’re willing to spend a little more on detergent that protects their clothes.
You get the idea, right.
So, I can produce a single detergent and sell my generic product to everyone. The problem with that strategy is rather than being everything everyone needs, my product probably only somewhat satisfies everyone. I’m more successful if I develop specific products for each market segment; something that fits just right (like the Goldilocks story). Now consumers have a reason to buy the product that’s just right for them.
There’s another problem with trying to market my middle-of-the-road product to everyone. I now compete with every other detergent maker for the same market. And, my market is vast since everyone needs detergent. Hence, my advertising costs are much greater than if I chose to only reach a segment of the market.
Ah, and now we come to targeting. I’ve segmented the market into homogeneous groups. Now, I have to choose 1 or a small number of those segments as prospects for my brand–targeting. You now see better the fit between segmentation and targeting.
A brand selects those segments that fit the characteristics and personality of their brand. Check out this visual of brand personalities below.
My task now involves defining my target markets based on demographics, geographics, and psychographic. We often call these market personas.
Targeting is effective because companies avoid direct competition and create offerings tailored to the needs of the target.
Going back to our detergent example, I craft a brand that’s designed specifically with moms of small kids in mind. I call this Tide and my marketing message is “The tough stain cleaner”. I create another brand designed for my working professionals. I call this Cheer and my marketing messaging involves the detergent’s performance in cold water to protect your colors. I create a detergent for my blue-collar family who gets their clothes sweaty and grimy. I call this Gain and my messaging involves improving the smell of washed clothes.
Notice in my example, I now have 3 detergent products. In fact, P&G makes 5 detergents. And, while the products likely cut into each other’s market share (something we call cannibalism), I’m still better off as a manufacturer by having all 5.
The answer to why cannibalism isn’t nearly as deadly as it sounds resides in the fact that the segments we talked about earlier actually exist (they aren’t just figments of my imagination) and that their needs truly differ from each other. Thus, if I’m P&G, I know customers want different laundry detergents. My options are to either make different detergents, each designed to fit a particular type of consumers or stand around waiting for a competitor to recognize the different needs of the segments and develop a product that answers that need.
Therefore, rather than losing market share from my brand to the competition, which means I make less money, P&G develops brands specific to a market segment. Developing your own competing brands means you’re still losing marketing share by dividing the market between your brands, but you’re still making all the money as a corporation. It’s just how the market is divided between your brands (and those of your competition) versus turning over part of your market to the competition by ignoring their needs.
Differentiation and positioning
Differentiation involves crafting brands that differ on one or more dimensions from other brands, even if those brands are your own. Positioning involves developing a marketing strategy (pricing, distribution, messaging, and product attributes) designed to solve a specific problem. Usually, that involves using elements of the 4Ps to support the difference in your brand versus other brands.
So, now we see how segmentation and targeting, along with product differentiation and positioning all fit together as integral components of your marketing strategy.
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