Marketing Strategy - Segmentation, Targeting, and Positioning - Essay Example

Marketing Strategy - Segmentation, Targeting, and Positioning INTRODUCTION Marketing strategy is a way how organizations allocate their resources to enhance their sales and achieve competitive advantage. The main goal of marketing strategy is to accomplish customer satisfaction through targeted marketing plan for specific customers. An important element of marketing strategy is to align it with the mission statement of the company. A marketing strategy can be viewed as a process of segmenting the market, identifying the target market, developing a marketing mix and working to effectively position the product in such a way that appeals to the prospective customers. An effective marketing strategy is a blend of product innovation, advertising, distribution, pricing plan, and other elements and it identifies the firm's marketing objectives, and elucidates how they will be attained, preferably within a given time frame. Nevertheless, a company’s goal is not just to devise the most appropriate marketing plan but also to identify the best strategies that capitalizes on opportunities and curtails risks for a firm. All three, market segmentation, targeting and positioning are important aspects of a marketing mix to complete a product’s life cycle. Despite the fact that the approach of marketers towards both segmentation and positioning is evolving as new techniques of marketing are developing, these three still constitutes an important part of overall marketing strategy within the company. Consumer behavior has also become more complex and difficult to predict for the marketers. However, evolving marketing practices have opened a new arena to identify the differentiating and grouping of consumers. Media proliferation offers several new options in communicating to the targeted populations. MARKET SEGMENTATION Market segmentation is method of identifying the market and dividing the population into smaller segments on the basis of some common characteristic or feature which determines their buying behavior. In order to capture a market for consumers with varying mind sets for any product, market segmentation is done as marketers tend to fragment the market into a number of smaller sub-markets. The members within the sub-markets are standardized on the basis of common beliefs and attitudes are similar towards one another. Marketers ensure that these market segments are profitable and accessible for the company if chosen as target market. Marketers segment the market on the basis of a criterion which makes certain that each segment is distinct and each of them consists of a homogeneous group of consumers, reacting to advertising campaigns, pricing and communication in a similar way. This strategy of market segmentation allows marketers to address every segment with an individually targeted marketing mix. Marketing managers often give a lot of significance to market segmentation while formulating their marketing strategies as it is customer focused and it identifies that consumers are a heterogeneous group and they all have their own preferences, needs, beliefs, and limitations. Often, companies have limited resources and it is impossible for them to cater to individual needs of all consumers. Therefore, on the basis of each distinct group’s needs and preferences, companies create appropriate marketing strategies for each segment. This is a reason why market segmentation is also referred as ‘a strategy of dividing the markets for conquering them.’ (Subha Rudra) Companies often do not have infinite resources and they cannot produce products for all consumers. Therefore, the goal of market segmentation is to efficiently allocate the limited capital to ensure that the fundamentals of marketing mix, price, product, distribution and promotion are being met according to particular needs of individual consumer segments. The segmentation strategy enables companies to concentrate their strategies on particular customer characteristics in the most competent and effective way. Such focused marketing also creates a good positioning image in the minds of the consumers. Beane and Ennis (1987) expressed their view on market segmentation saying, ‘a company with limited resources needs to pick only the best opportunities to pursue’. (Ries and Trout, 1972) Theoretically there are many ideal market segments, but in reality all organizations are different and so each of these organizations usually have their own criteria to develop market segments according to their own business need. Distinguishable market segmentation is advantageous for a marketer as it focuses on a subset of a group of similar people who have potential of being loyal customers. These loyal customers can help companies earn their maximum revenue. Thus, now organizations can adopt certain aspects to benefit them. Differentiated products and services are introduced to exactly meet the consumer needs Organizations can also expand through horizontal and vertical brand and line extensions Market research can be used as a tool to identify the unknown consumer needs. With respect to marketing strategy, market segmentation plays a crucial role as it provides the basis for developing an appropriate marketing mix. An effective marketing strategy can be summed up as in the following flow chart: (Subha Rudra) BASES FOR SEGMENTATION Markets for consumers are segmented on the basis of following factors: Demographic Segmentation: Consumer markets are segmented on the basis of demographic factors which include age, income, family size, gender, occupation, family life cycle, nationality, religion, and education. These are often very dominant factors for market segmentation. A good example of a combination of demographic factors is the product range launched by Dove under the banner of Dove ProAge. The target market for this product is women in their later years. The promotional campaigns of this product focus primarily on the individual needs of women in their fifties. Geographic Segmentation: For different businesses, the potential customers vary and their segmentation is based on geographic boundaries. Small local stores consider geographic location as one of the most important factors for segmenting their target market. Geographic factors that affect market segmentation are region, size, climate, and population density. Geographic segmentation can be clearly seen in the beer industry where the companies have to differentiate their product according to the needs of the consumers. For example, Americans prefer lighter beers, whereas Germans prefer a much stronger drink. Behaviouralistic Segmentation: This type of segmentation is affected by the expectations a customer has from the product when buying a particular product. These expectations are different for each consumer depending on their motives and buying behavior. Factors affecting behaviouralistic segmentation include quality, usage rate, brand loyalty, user status, occasion and attitudes toward offering. Behaviouralistic segmentation is evident from the emotional advertising campaign launched by Oxo Gravy that highlighted it as a product that brings families together and focuses on expressions like love, and sharing time. Psychographic Segmentation: Market segmentation is also often done on psychographic factors which are affected by the life-style and buying behavior of different customers. Psychographic segmentation is done on the basis of common values, attitudes, interests, opinions, and activities of individual customers. An example for psychographic segmentation is depicted in the positioning done by Dorint-Novotel Hotel which segmented the consumer groups on personal efficiency. This resulted in improved facilities like 24-hour room service, Wi-Fi availability, and rent-a-car facility. TARGET MARKETS The second most imperative element of effective marketing is to select the appropriate target market from the different market segments identified. This chosen target market is identified to develop and promote a particular product according to the needs of that particular consumer group. Similarly, the goal of targeted marketing is to choose the appropriate market segment and design powerful marketing campaigns solely for those segments. Nowadays, focused target marketing is a key to success for most of the small businesses. A major advantage of targeted marketing is that it sets a definite direction for the company’s marketing efforts and leads to a more synchronized and cohesive marketing plan, making pricing promotion more time and cost effective. Often, market segmentation is confused with target marketing. Here, to clearly differentiate between them, it is important to note that segmentation involves dividing the whole market whereas target market is selecting the segment as its market for concentrating its sales on. A selection of target market requires a complete evaluation of all the market segments and then, the most appropriate one is selected. The evaluation of target market is done on the following criteria: Size The size of the target market needs to be evaluated and whether it is profitable to invest in the particular size of consumer market. Expected Growth The future of the target market is evaluated and whether it is expected to grow in the near future so it might be profitable to choose it. Competitive Position Number of competitors in the market is an important factor and their product offerings. Often, it is not a good idea to launch a product in a market where there is already a strong competitor with loyal customer base. Cost to Reach Convenience and accessibility is often a major factor in the sales of a product. Therefore companies need to see the costs associated to reach out to the target market. Compatibility As already mentioned, marketing efforts should be aligned with the goals. Therefore, while selecting the target market, it is important to see that it does not conflict with the organizational goals. APPROACHES TO TARGET MARKETING After the target market is identified, an approach to target market must be selected. There are four standard approaches to target marketing that are being used by the companies nowadays. Marketers have categorized these approaches in the following way: An Undifferentiated Approach In this approach, firms take all markets as one huge market and there is no delineation between market segments, instead the market is viewed as one mass market with one marketing strategy for the entire market. Though this approach is very expensive, it is often selected in markets where there is narrow differentiation among market segments. For example, the Olympics are marketed at a world market, or certain government services. The Olympics uses an undifferentiated marketing strategy, targeting everyone, although different games do differentiate themselves from each other. A Differentiated Targeting Approach Under this approach, organizations tend to target several market segments; each is attractive to the product offering. In this approach, companies develop different marketing strategies to tap into different market segments. Companies, who adopt this approach, often do not achieve economies scale because they have to modify their product and marketing strategies according to each segment. A famous example of this approach is Levis brand that uses multiple marketing strategies to target price conscious, trendy, casual, the traditionalist, the utilitarian and the mainstream clothing shopper. Niche-Marketing Strategy This marketing approach enables firms to identify and focus their marketing strategies on a few market segments. This approach is often adopted by firms which want to have exclusive market strategy in the market or the one who have adopted limited resources. It is also used by small to medium and micro-sized firms who have finite resources. In this approach, a company makes all possible effort to dominate within their target market and make loyal customers. For example, a local electrician who focuses on marketing within only one or two residential areas. Customized Targeting Strategy This final approach is a very personalized marketing strategy in which firms tend to develop products according to individual customer needs, rather than each market segment. This approach is widely prevalent in high value product offerings within industrial markets (B2B markets) or consumer markets. A good example is the custom-made cars made by Mercedes for its high profile and loyal customers. (Ries and Trout, 1972) POSITIONING The third most important aspect of understanding the overall marketing strategy is positioning. After the market is segmented, size and of potential of each market segment is evaluated, particular target markets and approaches have been identified, it is important to position the brand effectively within the specified target market. Al Ries and Jack Trout, in their book ‘Positioning- a battle of your mind’, defined the concept as “Positioning is what you do to a mind of a prospect”. Positioning is important because it gives a reason to consumers to prefer and differentiate the brand over competitors and actually buy it. Positioning centers around two basic elements. The first is concerned with the physical characteristics, the functionality and competence that a brand offers. For example, a car’s appearance and design, its technical specifications, and carbon emissions. The second element is the methodology adopted by firms to communicate the brand and the way consumers perceive the brand relative to its competitors in the market. This element of communication is essentially important as it is not about the product but is focused on the consumers of the product. (Ries and Trout, 1972) The product positioning is the sum of features that are associated with the product by the consumers- its reputation, its value, the kind of people who use the product, its strengths, its weaknesses, and the price it represents. Positioning is a platform for the brand which facilitates the brand to relive in the minds of the target consumer. At the basic level, positioning strategy is developed at the time of selection of a target market. The key to the success of positioning strategy is the correct identification of some key attributes that determine the consumer preference in the particular target market. These features can either be physical or intangible but they should be relevant to the target market and must align with its preferences. This is a significant part as it forms the basis for marketing strategy and until it is clearly identified, effective marketing plan cannot be formulated. The absence of relevant features may lead to confused positioning, leading to confused customers. Market research allows firms to identify these key factors which drive the consumer’s first choice. For example, market research helped identify that female teenagers preferred stylish, trendy, colorful and reputed brands while shopping for apparels. Marketing communications is one of the most effective ways of positioning brands. There are two traditional ways, either positioning through physical characteristics or expressively through emotional appeal. Functionality of the brands is positioned through features and advantages it offers, whereas expressive brands concentrate social values, attitude, interests that the brand proposes. While positioning a brand, companies make a promise to their customers with regard to their offering which depends on their positioning statement. For example, in the car industry, Mercedes have targeted niche markets and positioned some of its vehicles as the high-end luxury cars. CONCLUSION Market segmentation, targeted marketing and positioning are essential concepts to understand the idea behind effective marketing. Over the time, these concepts have evolved and new theories have been developed but these basic marketing theories still forma a strong foundation for modern day marketing plans. For the implementation, they have to follow a thorough process in order to be accurate and successful. However, the new theories are more difficult implement and understand as they require intensive market research to gain insight into the consumer behavior, preferences and needs. Now, the companies have become from product-based to customer-based and satisfied customers are considered the biggest stakeholders. Therefore, reaching the right customers and communicating the right message with them has become of prime importance to augment the sales. REFERENCES Anonymous (2008) Target Market Selection, Segmentation and Positioning. Demand Metric, [blog] 6th Aug, Available at: http://demandmetric.wordpress.com/2008/08/06/target-market-selection-segmentation-and-positioning/ [Accessed: 31 November 2010 Demand Metric (2010) How to Guide, [online] Available at: http://www.docstoc.com/docs/12344593/Market-Segmentation-Targeting-and-Positioning [Accessed: 31th November 2010]. Durham Associates (n.d.) 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