Market segmentation and targeting are complementary techniques for separating a market into smaller, more homogeneous groups (segmentation), then selecting one or more of these groups as the focus of your marketing efforts (targeting).
The next step in the marketing process involves positioning your brand in a way that appeals to your chosen target market(s).
Market segmentation and targeting
You don’t need me to tell you that people aren’t a homogeneous group like robots that look the same and act the same. Instead, people are unique. Yet, they might share characteristics with other people. For instance, we can divide people into different groups based on age. You’ll find that people over 65 share more in common with other people over 65 than they do with the average 25-year-old. We’re talking about averages here, not absolutes. Hence an individual 65-year-old might have some things in common with an individual 25-year-old, but, on the whole, people in these age groups have some clear differences. These differences might impact their consumption choices. For instance, the 65-year-old will likely prefer a broadway play rather than a hip-hop concert.
The notion of segmentation and targeting uses these differences to develop marketing strategies that are more likely to yield success. In the earlier image, we see the four ways we can segment the market into discrete groups that share a common characteristic or several that might impact their purchase decisions. These are:
When we segment a market, we combine these characteristics to define separate groups that exist within the larger market. We then choose one or more groups that represent a great opportunity for our brand. We want these groups to be:
- Large enough to warrant the expense and effort necessary to accommodate their needs
- Share a common need we can use to appeal to them over our competitors
- Represent a group we can reach using some communication channel where they like to hang out
- Stable over time, otherwise, they can’t support our long-run strategy
A practical example of segmentation
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. A blue-collar worker might not only get his/her clothes pretty dirty, but smelly. So, they want a detergent that takes care of both problems.
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. And, prospective customers may choose a competitor that focuses on solving their individual needs better than my generic product. 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. Targeting is effective because companies avoid direct competition and create offerings tailored to the desired benefits of the target marketing.
My task now involves defining my target market(s) based on demographics, geographics, psychographics, and behavioral variables. In the old days, we chose target markets based on very little information, mostly demographics and geographics even though we knew that psychographics and behavioral variables had a bigger impact on consumption decisions. We just didn’t have the data needed for nuanced target markets and gathering more data is expensive. Now, with social media and everyone sharing on these platforms all the time, it’s like being invited into their living rooms to hear what matters to them as an individual. Now, we can develop market personas like the one below to help us develop a better strategy to convert members of the target market.
Armed with this information, we can now develop highly targeted campaigns designed to tap into the wants and problems faced by each persona. This is positioning and it helps us market our brand more effectively.
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. By differentiating my products from my competitors and positioning them clearly in the minds of my target market(s), I now reduce the competition and have an easier time selling my product.
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. This is called brand positioning.
I can also develop a personality for my brand that fits the type of customers who identify with a personality. Check out this visual of brand personalities below, along with brands that embody that personality.
Notice in my example, I now have 3 detergent products. In fact, P&G makes five 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 five because, if consumers really want different things from their detergent, with five different detergents, I have what they want. If I only had one product, they would choose a competitor when I didn’t offer the combination of benefits they wanted..
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 the needs of the market groups 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 consumer 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.
Obviously, you can’t just keep developing new products indefinitely. There’s a cost involved in creating and maintaining a brand. Even if the product is very similar (and I’m not entirely sure that P&G’s five detergent brands don’t share much of the same ingredients with different dyes and scents), you still need advertising, packaging, and other branding aspects to support your brand.
So, now we see how segmentation and targeting, along with product differentiation and positioning all fit together as integral components of your marketing strategy. If you’d like to learn more about segmentation and targeting fit together, check out my SlideShare on the topic.
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