Unit 3: Segmentation, Targeting, Positioning, and Branding
Market segmentation is necessary for the determination of target markets. The firm must commit resources to the identified target markets that are most likely to respond to marketing actions undertaken by the firm. The firm must identify the position of its offerings, whereby the consumer understands the differentiated attributes of the products or services offered and the value proposition offered to the consumer. Branding goods and services is important for many marketers to develop brand loyalty and equity.
Completing this unit should take you approximately 10 hours.
Upon successful completion of this unit, you will be able to:
- describe the different methods of market segmentation;
- identify the target market(s) of a firm's offerings;
- explain the concept of product positioning; and
- describe the importance of branding.
3.1: Methods of Market Segmentation
Successful marketers understand that their products and services are not all things for all people and must therefore determine the appropriate target markets through segmentation. The successful 20th-century American merchant, John Wanamaker, said, "Half the money I spend on advertising is wasted; the trouble is I don't know which half". This is precisely the challenge that marketers face. We don't want to waste money by promoting a product to consumers who will likely not buy it.
Market segmentation is the process of dividing a market of potential customers into groups, or segments, based on different characteristics. The segments created are composed of consumers who will respond similarly to marketing strategies and who share traits such as similar interests, needs, or locations. Next, we will discuss the different means of market segmentation.
This reading provides an overview of marketing segmentation methods. Markets can be segmented using different segmentation approaches. The methods used are product and industry-specific, so marketers must use the methods that best identify the proper target markets for the firm's products.
3.1.1: Geographic Segmentation
Geographic segmentation is relatively easily understood as we provide markets by geographic regions, and those regions are distinctive in terms of their physical and perhaps cultural variations. It's rather obvious that snowblowers are not very marketable in southern Florida. However, swimming pools are highly marketable in this region.
Sometimes products that would seem to be geographically segmented are less obvious. For example, one can argue that a four-wheel-drive SUV would not be marketable in South Florida. However, these automotive products are, in fact, popular in that region.
This short video also covers geographic market segmentation. This is a common segmentation method for small businesses serving nearby customers.
3.1.2: Demographic Segmentation
Demographic segmentation divides your market into segments based on ethnicity, age, gender, income, religion, family makeup, and education.
Companies can therefore target their promotional messages and marketing budget more efficiently. Instead of going after a mass market, they're able to show relevant messages to people who are more likely to respond to the messages.
Demographic segmentation is the most common type of segmentation strategy. Marketers find that responses are more likely when they can obtain demographic data on market segments. For example, life insurance is normally targeted to people aged 30-35 when they marry and begin a family of dependents. Promoting life insurance products to younger or older age segments is largely ineffective because the needs of these demographic segments are not as strong for life insurance products.
This video explains demographic segmentation rather comprehensively. Demographic segmentation is the most used type of market segmentation. There are 11 different dimensions on how to segment demographically.
This scholarly article illustrates the use of demographic segmentation, combined with psychographic segmentation for the promotion of ecotourism in Kuala Selangor, Malaysia.
3.1.3: Psychographic Segmentation
Psychographic segmentation concerns the lifestyle, personality, and values of consumers. Consumers make buying decisions based on these factors. For example, if you give donations to wildlife conservation groups, you are likely profiled as someone with these values. Consequently, as marketers share their information on mailing lists, you may find that other conservation groups have also targeted you.
Online marketers, such as Amazon, also use psychographic segmentation. Through their large data and data analytics, Amazon will make recommendations to consumers based on previous purchase patterns, which tend to say something about a consumer's personality.
This video shows an application developed by Twitter to identify personality types that marketers can use to target consumers based on personality factors.
This short article shows how psychographic segmentation in the medical and health care sciences can potentially be more effective than demographic segmentation. It addresses individuals' motivation, preference, and support factors when seeking health care.
3.1.4: Behavioral Segmentation
Behavioral segmentation concerns how people buy, through what distribution channels, how often they buy, and their usage of products and services.
This video explains behavioral segmentation based upon internet searches and capturing data from the internet user behavior. This has become a very common type of data collection and segmentation approach in recent years.
This scholarly article shows a rather extensive survey of consumer purchases of clothing from 4 countries and involving over 4600 survey respondents. View the full text of the article or download the pdf file.
3.2: Determination of Target Market(s)
In the previous sections, we discussed segmentation approaches and methods. Segmentation is important as an exercise of a means to an end. The result of segmentation is the determination of target markets. Product and service offerings can have one or more target markets, depending on what we offer.
For example, a firm that sells grass seed may have consumer and business markets. Consumer markets would be seen in brick and mortar retail hardware stores, landscaping stores, or online websites. Business markets would be golf courses, landscape contractors, municipalities, and other large buyers that would purchase larger quantities in different packaging forms.
This text gives examples of how firms decide on target markets in order to capture market share for their offerings. Several approaches are illustrated to demonstrate that the firm's offerings must be targeted to market segments where consumer needs and wants can be satisfied.
Here, you will explore the five steps for defining a target market, which include evaluating the size of a market and whether or not there are enough potential customers to support the business. The text includes a structure for conducting an analysis that can help a company make effective target market decisions.
3.2.1: Market Size
The size of the target market is of primary importance to the marketer. Depending on the product, the target market may be small, such as a niche market, or large such as a consumer product that has appeal to many consumers.
This video gives an example of a mortgage broker using Facebook analytics to choose the target market size. Note the tradeoff between market prospect coverage and the cost of the ad.
3.2.2: Expected Market Growth
Determining the growth of a market is an inexact science, and marketers must be careful when making judgments on the growth rate of any targeted market. Marketers usually begin by reviewing past sales data and industry sales data as the basis for estimating the future. Although past sales data do not determine the future growth rate of a market, a trend line can be observed as a guideline.
This brief video illustrates an analysis of a company's sales performance compared with industry sales using an Excel spreadsheet.
Macroeconomic data, such as Gross Domestic Product (GDP), GDP per capita, rates of inflation, and so on, also help to paint a picture of the future. This video from the World Economic Forum provides a commentary on the global economy and its impending reset after the COVID 19 pandemic. There are short commentaries from a group of industry experts. As world business has become globalized over the past few decades, global economic analysis has become more relevant than country-specific economic analysis. Furthermore, economic analysis is data-driven, and data collection takes time. Therefore, we typically experience upturns and downturns in the economy before the data can substantiate the economic trends. COVID19 created a shock to the global economy, affecting numerous businesses and disrupting global supply chains. Economic growth estimates are accordingly amended and monitored as the uncertainty of economic growth persists.
3.2.3: Competitive Position
A firm's competitive position in the marketplace is another factor that marketers must consider, particularly when entering a new target market. The size of market share and strength of company rivals are relevant to how successful a firm can expect to perform in sales.
This short chapter reviews competitive attacks and counterattacks among industry rivals. Some of these competitive moves are observable in consumer advertising.
3.2.4: Cost of Reaching the Segment
The cost of promoting and distributing a firm's offerings is an important factor in selecting target markets and maintaining a competitive position within existing target markets.
This video shows an example of reducing advertising costs by selective targeting. This is a rather typical example of how a small business can reach a market segment cost-effectively.
3.2.5: Compatibility with the Organization's Resources
Promotional expenditures must be within reason and compatible with the firm's resources. Accordingly, companies' budget promotional and advertising expenses as an important part of the marketing plan, included in the strategic plan of the firm.
This short text gives an overview of budgeting and several methods of budgeting for promotional expenses.
3.3: Competitive Advantage and Product Positioning
In this section, we will address the important elements of why consumers would be interested in the product(s) of the firm. A competitive advantage must be developed, which can be accomplished in several ways through the marketing mix. For example, price advantage by offering a lower price than the competition for a comparable product. Exceptional customer service is another way of attracting buyers.
Positioning a firm's product is demonstrating how the product differs from competing products through its various product attributes or features. The differentiation must be seen through the eyes of the consumer, so the promotional strategy must make this clear to the consumer.
Branding is important for many, but not all products. Branding is a promise. Consumers must understand what the brand represents, such as superior quality, prestige, dependability, and so on.
3.3.1: Developing a Competitive Advantage
Why do customers want to buy your product? Why would they purchase your product instead of your competitor's product? Marketers must maintain and sustain a competitive advantage, and consumers must know what it is and why your product satisfies their needs.
Cost advantage (or differentiated advantage) are the two strategies generally followed by firms. Furthermore, the scope and scale of the market – large or small – must be considered. Large firms with a large scale of production can often offer low prices due to the cost advantages from their economies of scale. Small companies with limited scale often must compete by offering a differentiated product.
This video covers the importance of competitive advantage. A competitive advantage must be sustainable; therefore, we use the acronym SCA for sustainable competitive advantage.
This lecture covers competitive advantage. This is based on Michael Porter's work, where he develops a matrix of cost and differentiated approaches.
This scholarly article assesses the elements of competitive advantage in the Spanish wine industry. Strategy, resources, capability, and managerial ability all affect a firm's competitive advantage.
3.3.2: Head-to-Head Positioning
Market positioning is how companies differentiate their products from competing products.
Head-to-head positioning involves competing directly with rival products with similar product attributes. For example, Coke and Pepsi compete head-to-head in the soft drink industry. Similarly, National Car rental competes directly with Hertz and Avis.
This video gives an example of positioning by explaining the importance of a value proposition. Consumers need to know what is different about your offering and why they should buy your product rather than your competitors'. The value proposition is a means by which marketers position their product among rival products.
3.3.3: Differentiation Positioning
Unlike head-to-head positioning, differentiation seeks new markets by identifying and seeking out customers who aren't necessarily interested in what the market typically offers but could be interested in your offerings because of their innovative qualities.
Yellow Tail wine from Australia differentiated its products by using attractive labels and by providing a low price point for its products. Their strategy was not to compete head-to-head with other wine producers but rather to attract consumers of beer and wine coolers.
This video shows the positioning of a brand by differentiating your brand.
3.3.4: Product Repositioning
On some occasions, marketers must consider repositioning a product. This often occurs because of changes in consumer preferences, new competitive products entering the market, changing technology, or a need to revamp a product that has become somewhat old.
This comprehensive text explores the reasons behind a repositioning strategy and why companies choose to reposition a brand. The repositioning process is evaluated in-depth, including managing consumer perceptions about a brand and the importance of monitoring the strategy. Risks and pitfalls are also examined, as well as strategies for avoiding these mistakes.
3.4: Product Branding
Product branding is important to many marketing practitioners. Various aspects of branding must be considered, such as brand awareness, brand loyalty, and brand equity. In this section, we will consider how successful branding is developed.
From the perspective of the marketing firm, the brand is a promise to deliver the attributes that the brand is known for. For the consumer, the brand is a perception of what their expectations are of the brand. Strong branding delivers strong sales and profits for the firm, and the consistency in brand performance results in repeat business of satisfied customers.
This video lecture discusses effective branding. The purpose of branding is to create a relationship with your customer.
Brand awareness is the first stage in a company's branding strategy. Marketers use promotion within the marketing mix to let consumers know about the brand so that consumers understand what the brand stands for.
This scholarly article discusses brand awareness in internet marketing. Note that it was written with a focus on Lithuania, but internet and social media marketing are currently very common and effective everywhere.
3.4.2: Brand Loyalty
Ultimately, marketing professionals attempt to achieve brand loyalty for their products. Depending on the degree of involvement in a purchasing decision, consumers may compare products and brands or become loyal to certain brands based on their personal experience with the brand. Sometimes buyers may engage in "heuristics", or mind scripts, wherein a consumer will consider only a single brand when making a purchase. This is an ideal situation for the marketer when one considers the lifetime purchase possibilities of a brand.
This scholarly article illustrates that cognitive and emotional factors are involved in the brand loyalty of consumers in consumer goods markets.
3.4.3: Brand Equity
What is a brand worth? Successful brands are those that can capture higher prices. Therefore, developing and maintaining a strong brand will reap monetary rewards for the marketer. Brand equity is the commercial value that derives from consumer perception of the brand name of a product or service rather than from the product or service itself. In other words, brand equity is the difference in price that a strong brand can capture compared to a weaker or unknown brand of a similar product.
This scholarly article concerns the branding of universities and the various components of university branding as perceived by the consumers of education. Colleges, universities, and other non-profit organizations are now keenly aware of the value of branding.
Unit 3 Discussion
- Start discussions: 1 Post replies: 1
Product repositioning occurs when a company changes the image of a product and seeks to change the way consumers think about a brand. Target markets might change, and revised marketing strategies will be implemented. As an example, Marlboro cigarettes were originally targeted at women. Today, our image of that brand is the rugged Marlboro Man sitting on a horse.
Discuss a brand that has sought to reposition itself, and whether or not they were successful in their efforts.
Study Guide: Unit 3
We recommend reviewing this Study Guide before taking the Unit 3 Assessment.
Unit 3 Assessment
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Take this assessment to see how well you understood this unit.
- This assessment does not count towards your grade. It is just for practice!
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