Segmentation, targeting, and positioning are a three stage process.
First, you determine which kinds of customers exist, then you select which ones you’d like to sell to and, finally you optimize your products/services for that segment and communicate to that segment that you differentiate yourself from competitors because of the characteristics you possess.
Segmentation’s about finding out what kinds of customers or consumers with different needs exist. In the breakfast cereal market, for example, some consumers demand nutrition and health, while others might just want Cheerios. Let’s dive deeper into customer segmentation. At a very basic level, there are three approaches to marketing.
Undifferentiated:
For firms following an undifferentiated strategy, all consumers are treated as the same with firms not making any specific efforts to satisfy particular groups. This may work when the product is a standard one or very generic. Commodities is one such product category. CRT televisions is another one. To an extent, PCs are another such product category with very little to differentiate between competing firms.
Concentrated:
In the concentrated strategy, one firm chooses to focus on one of several segments that exist while leaving other segments to competitors. For example, Southwest Airlines focuses on price sensitive consumers who will forgo meals and assigned seating for low prices. Ditto with Payless Shoes who cater to price-sensitive shoe buyers.
Differentiated:
The auto industry tries to follow a differentiated strategy. Recently, all of them have been jockeying for attention by claiming superior environmentally friendly features. The Toyota Prius did have a first-mover advantage in that regard. Most airlines follow a pricing strategy rather that a differentiated strategy: They offer high priced tickets in advance to business travelers to try and fill capacity and then sell some of the remaining seats to more price sensitive customers who can buy two weeks in advance and stay over.
Segmentation is not easy. There are many variables that are used to differentiate consumers of a given product category. It’s essential to determine which variables distinguish different groups of consumers best.
Several different kinds of variables can be used for segmentation. Let’s start with demographics.
Demographic variables are essentially personal statistics such as income, gender, education, location (rural vs. urban, East vs. West), ethnicity, and family size. It is also possible to segment on lifestyle and values. Some consumers want to be seen as similar to others, while a different segment wants to stand apart from the crowd.
Consumer behavior is another basis for segmentation.
- Some consumers are very brand loyal.
- Some consumers are heavy users while others are “light” users. For example, research conducted by the wine industry shows that some 80% of the product is consumed by 20% of the consumers—presumably a rather intoxicated group.
Benefits segmentation: You can also segment on benefits sought thus bypassing demographic explanatory variables. Some consumers use toothpaste primarily to promote oral health, while another segment is more interested in breath freshening. Or some consumers prefer the Starbucks experience where they get their coffee packaged within an ambiance and other prefer the fast-food Dunkin’ experience. It’s key to understand that segmentation should be a scientific process – mere qualitative information is not enough to carve out a potential customer base. In the end, it’s yet another consumer behavior analysis which adds more depth and comprehension to the consumer marketing process.
