Segmentation, Targeting, And Positioning In Modern Marketing Strategies

The Emergence of Modern Marketing Strategies

Marketing field has developed over the last decades as a result of dynamic changes of aspects, characteristics and arising needs of the environment (Kotler et al., 2010). From 1950 to 1970, manufacturing sectors were doing very well thus being more productive compared to other sectors. During that period marketing was used as a tool to generate demand for manufactured products (Kotler, 2015). This traditional marketing was also known as 4P’s which explain the process, from developing a product, coming up with the price, how to offer promotion and finally coming up with the place where the product will be distributed to.

Therefore, this traditional marketing was based according to the marketing mix as explained by McCarthy (1998). Due to the oil crisis of 1973 (Alpanda and Peralta-Alva, 2010), it enhanced discipline of marketing strategies this was a result of improvement of technology (through innovations) and environmental changes as a result of globalization. As a result of maintaining marketing discipline as the traditional model mass marketing of products was not enough (Hooley et al., 2012). The companies came up with a conclusion that each and every customer has different characteristics, needs and objectives as they purchase the product. Therefore, it was not beneficial to companies to offer a similar product to customers according to the existing super competitive market (Weinstein, 2004).

Marketing emerged from the ingenious management of product model to a strategic model concerning the customers and the brand instead of the products (Nijssen, 2017). As a result of that shifting in focus, they decided to come up with concepts such as segmentation, targeting and positioning to help them gain a competitive advantage over their competitors since in modern way of marketing it acts as a distinct part (Hooley et al., 2012).

Segmentation is the action of dividing the diverse markets into segments of homogenous customers by use of specific features called bases (Kotler, Keller and Armstrong, 2012). Targeting is the process of estimating and evaluating the divided segments for one to select the most favourable ones. Lastly, positioning involves knowing how the customers view the company and its competitors so that they can come up with an effective and efficient positioning strategy (Kotler, Keller and Armstrong, 2012). 

At first, the aim of this paper is to explain the review and evaluation of segmentation, targeting and positioning (STP). Secondly, it will consist of illustrations of those concepts depending on different organisations and industries according to its objective, capabilities, finances and resources. lastly, it will consist of present generic recommendations applicable by several companies that need to apply the concepts of STP.

Segmentation, Targeting, and Positioning

Segmentation, Targeting and Positioning

In modern marketing strategies segmentation, targeting and positioning are popular in the marketing process since it enables an organization to enjoy marketing advantage over their rivals by dividing the wide market to smaller unique market segments (Lilien and Grewal, 2012). Smith (1956) explained the origin of STP for managing both the customers and the product claiming that it is of great importance when the companies emulate this strategy.

STP is currently the main used strategy in marketing but its implementation, becomes a challenge to the organization (Dibb et al., 2012) since it tends to be too extensive, inconsistency and research inconclusive. The cost of implementation is very high (Weinstein, 2004), availability of data is also a problem (Simkin, 2008), the need to hire skilled workers (Dibb, 2010) and finally experienced operational challenges (Clarke and Freytag, 2008). Appropriate approaches and methodologies should be applied to solve all these problems to make the process productive.

Segmentation

Segmentation helps to identify the appropriate segments which have specific needs, new markets for getting new customers and deliver focused marketing strategies through dividing the wide heterogeneous market to small homogeneous segment (Hooley et al., 2012).  This process is considered to be both scientific and creative since there is no single standard plan to divide the markets into distinct segments (Moore and Pareek, 2010). 

There are two approaches applied in this phase: “a priori” model which comprises subdividing the market depending on customer characteristic and pre-defined and the “post hoc” model which is determined by the primary research that is, the attitude and behaviour of the customer. This segmentation phase is said to be the most creative approach to marketing (Liu et al., 2012).  

A “priori” model is commonly used because it is not expensive and the required data are easily accessed. However, it is not guaranteed for a homogeneous segment that enables the organization to gain a competitive advantage (Wedel and Kamakura, 2012). In comparison “post hoc” model is more efficient approach as it helps an organization to realize the reason as to why consumers behave that way to the area of the market, therefore, it gives an organization the ability to divide and target its consumers to enjoy a competitive advantage (Wedel and Kamakura, 2012). 

Different results will be obtained from different bases depending on the variables selected in the segmentation phase (Sausen et al., 2005). The choice of characteristics to group the market is highly controversial to segmentation (Schlegelmilch, 2016). Therefore, the organization need to be more careful and creative when selecting this bases so that they can enjoy a competitive advantage over the existing competitors in the market (Jobber and Ellis-Chadwick, 2012).

The Process of Segmentation

In the segmentation phase, the bases are grouped into three categories namely; customer background characteristic, their attitudes and behaviours. The first two are concerned with the ability of an individual to an action while the last one is concerned with the concrete behavior of individuals to the area of the market (Hooley et al., 2012). The table below shows the categories of those bases.

Categories of segmentation bases
Customer background characteristic	The attitude of the customer	The behaviour of the customer
Geographic Demographic: sex, Age and subculture	Benefit segmentation	The buying behaviour of the customer
Social-economic: Level of education, income and consumer life cycle Psychographic: lifestyle and personality	Views of customers and their preferences	Usage behaviour Communication behaviour

The bases of customer background have become more popular because of becoming more reliable and accurate (Nijssen, 2017). This bases (characteristics) can be measured according to the income, location, culture, gender and occupation (Schlegelmilch, 2016). Even if these bases are difficult to measure they help the organization to understand individuals (Lilien and Grewal, 2012). 

The main disadvantage of the segmentation approach is that it there is no guarantee for segmented market areas to internally homogeneous and externally different from other market areas (Jobber and Ellis-Chadwick, 2012).  In those segmented areas, individuals may behave differently in the marketplaces while individuals of different areas may behave in similar manners in the marketplaces (Schlegelmilch, 2016). The background of the customer’s characteristics is a useful part and can be used as a first step in the segmentation process. The outcome of the segmented areas needs to be redefined since they are too broad thus failing to explain why customers behave that way in the marketplace (Nijssen, 2017). 

In the second category, the attitude of the customer which tries to link the customer characteristics with their actual behaviour In the marketplace, therefore, being the more effective base of market segmentation (Kotler, 2015). Customer’s attitude according to traditional approach involves researching the possible benefits enjoyed by the customers from the product. Due to dividing the market into a more directly pertinent to decision making this approach has become the most effective in market segmentation (Armstrong et al., 2015 and Haley, 1968).

Recently perception (view) and preferences approach are commonly used in customer’s attitude. They involve selecting individuals with the same needs and they perceive (view) product in the same way (Jobber and Ellis-Chadwick, 2012). In segmentation customer attitude is very important since it links customer’s characteristics and behaviours directly making it a more useful base (Diamantopoulos et al., 2003). This approach tends to be time-consuming and expensive since it relies on data that are not easily accessed (Baker, 2014). 

 The final base of category used in market segmentation is the customer behaviour, it is declared as the most direct and effective method according to the exact behaviour of the consumer (Rogers, 2003). This approach includes the purchase behaviour which shows the pattern of customers purchase level, usage (consumption) behaviour which includes the volume of products consumed and communication behaviour which involves how the consumer communicate about the product such as their opinions (Hooley et al., 2012).

Categories of Segmentation Bases

The behavioural segmentation approach is declared more accurate in terms of predicting how the consumer will react to toward the product (Lilien and Grewal, 2012). This therefore makes a behavioral approach most used base for marketing segmentation. For one to understand the reaction of consumers of a product attitudinal approach is said to be more efficient (Jobber and Ellis-Chadwick, 2012). Behaviour approach should be used in-line to a customer’s background characteristic making the scheme more relevant and efficient (Schlegelmilch, 2016).

Targeting

It is the second phase of STP which mostly deals with identifying and assessing the favourable segment. The nature of the organization, its long-term objective, resources and its sources of finances determine the marketing strategies (Diamantopoulos et al., 2014). An organization may target the whole market or its entire part to offer a similar product to its customers, this is called mass marketing (Franke et al., 2010). This process greatly benefits well-established organisations whose products are popular and valued by the customers (Tedlow and Jones, 2014).

On the other side, some organization prefers differentiated marketing which involves only targeting one segment and disregarding the others. It can be more productive and effective but it depend on the need of the segment selected, it can also be more expensive (Schlegelmilch, 2016). concentrated marketing sometimes tend to be more profitable since it gives an organization a firm position compared to other companies which doesn’t emulate this process since they understand the needs of their customers in the targeted area (Schlegelmilch, 2016). Once the targeted segment loose interest for the product it negatively affects the organization thus it is risky (Venter et al., 2015).

Potential segment selected by the company should be important and useful to ensure that it is identifiable, attainable, measurable and can be obtained whenever needed (Dibb and Simkin, 2016).

Positioning

Being the last phase it is interlinked by segmentation as well as targeting (Keller et al., 2002). Positioning, therefore, is the process to come up with a new design of products and services so as to achieve a distinct competitive place in the mind of customers (Kotler, 1997, p.295). Differentiating the product and services gives the organization a position in a customer’s mind (Nijssen, 2017).

It is not a guarantee that all competitive differences will be successful unless they contain the six main concepts which include superiority (gaining customers trust), communication (exchanging of messages effectively to ensure they are understood by customers), distinction (the difference must be special/unique), profitability, affordable (must be attainable) and importance where the customers must enjoy and value the difference made. According to jobber (2010), he argued that for positioning to be successful it must possess criteria such as clarity, consistency, credibility and competitiveness (more so the differential advantage).

The Process of Targeting

Organizational Uses of STP (Segmentation, Targeting And Positioning) 

Discovering, evaluating and selecting the target market to create a competitive advantage over the existing competitors and also to gain a strong positioning in the mind of customers (Schlegelmilch, 2016). For an organization to achieve that it must choose various segmentation methodologies, approaches of targeting and positioning strategies according to the size of the organization, available resources, its capability and the set long-term objectives (Schlegelmilch, 2016).

A good example is “Lego” (The Lego Group) which is very popular and successful construction toy line company due to use of background customer characteristics especially age as the base for market segmentation (Lego, 2018). Their products meet the children’s needs covering the age from 1 to 16 years of age. There are products for pre-school kids from 1 to 5 years called “Duplo”, they are more attractive in terms of colour, shape and numbers, therefore, they easily manipulate children.

They also produce products for children from 4 to 7 years which are more imaginative and creative. The other collection of their products for children between the age of seven to sixteen are more elaborated and sophisticated to help them develop their social and scientific skills (Lego, 2018). Upon understanding the customers (children) preferences and tastes “lego” company obtained better positioning in the mind of their customers (The Lego Group Annual Report, 2016). Below are the pictures demonstrating the happiness of the children due to their favourite toys.

by use of concentrated marketing, the company has put it focuses on the children between the age of 2 and 16 thus enabling the company to achieve a strong position in the entire world. Their brand has become prominent, cherished and respected since it valued brand values such as creativity, quality and fun (Lego, 2018). 

Comparing the Lego Company which applies concentrated marketing strategy and the Coca-Cola which target a wide market dealing with a similar product by use of marketing strategy (Coca-Cola Company, 2018). The brand keeps launching different varieties of products to meet the rising needs of customers.

For example, the customer who prefer the low amount of sugar or no sugar the company established “diet coke”, “caffeine-free coke” and “Coca-Cola Zero” to cater for their needs (Coca-Cola Company, 2018). Again due to the introduction of Vanilla Coca Coke and its flavoured version, Cherry Coca-Cola and its flavoured brand allowed the brands to do best by selling this beverage (Coca-Cola Company, 2018). Through advertisements, Coca-Cola has achieved a strong positioning in the mind of the customer linking its brand with enjoyable moments in the life of their customers.

The Process of Positioning

BMW and Audi companies have decided to segment their market depending on the first income from medium to high and then the life cycle stages such as a family that has children, solitary survivors and many more. It employs a differentiated approach to offer their products to different segments.

BMW offers different series according to the levels of managers, that is, 3 series to middle managers, 5 series to senior managers and 7 series to the highest level which is the top managers. It designs its products according to classes, number and preference of their customers. An example is Z4 sport targeting the unmarried, couples and newly married individuals while the X5 targets mainly the married couples who have children (BMW Group, 2018). BMW has the ability to target many customers within different segments because of diversifying their products, therefore, enabling it to be a major player in the automobile market (BMW Group, 2018). BMW company is innovative to new technology along with its main values such as performance, safety, reliability and control. These core values have helped it to be a synonym of elegance, achievement and luxury to improve the perception of their customers.

Recommendations for applying STP

For companies more so medium and large to enjoy a competitive advantage over their competitors they should apply the STP (segmentation, Targeting and Positioning) as a strategic marketing technique. This will help the company to maximize its productive level as well as increasing its efficiency, identify opportunities and create a strong positioning in the mind of their customers. Some of the main key that needs to be considered before applying STP:

• The company’s market segmentation should be determined by their set long-term objective, resources and its ability.
• Customer behaviour should help the company to segment its market since it depends on the actual behaviour of the consumers in the marketing areas.
• Companies should first consider and target areas that internally homogeneous, easily accessible, significant, necessary and unchanging (stable).
• It is advisable for companies to be creative in their way of doing things to earn a competitive advantage.
• There is a need for companies to evaluate the segments which are more attractive and group them by priority.
• Companies should identify opportunities through segmentation and targeting.
• Companies should differentiate their product from those products made by their competitors so that they build a strong positioning in the mind of their customers.
• Companies need to select positioning strategies which are important, credible, clear, consistent and communicable.
• Companies need to be careful with the approach of positioning since its extremely a problem when the customers perceive a company in a certain way (Skoda as an Example).

Conclusion 

Every market has a different customer with different needs, objectives, aims and characteristics which the organization should comply with. Therefore, there is a need for an organization to use the STP strategies (segmentation, targeting and positioning). These strategies will help the organization to improve on their level of production as well as efficiency. Due to understanding the rising needs of customers the organization will enjoy a competitive advantage over their competitors in the market. The reason as to why the STP strategies are used is it enables the organization to divide large markets to distinct market which the organization is in a position to serve more easily.

Market segmentation can be grouped into two approaches “a priori” and “a post hoc” but the selected approach depends on the primary research and decision made. In a priori model, the market segment is based on pre-defined and existing publicly classification scheme. For post hoc model it is the most creative as it is commonly based on the conducted research and skills.

The choice used to segment the market is very controversial as it falls into three categories which include the; characteristics of customer background, their attitudes and behaviours. In customer’s background characteristic it explain about the features of product the customers are more interested with, the tastes and preference they need and the level of their income which directly affect the demand for the product. The second category which is the customer attitude describe the perception of the product by the customer. If they perceive the product positively the company is likely to increase its sales. For behaviour it involves the reactions of the customers toward the product.

In targeting phase the company may use three approaches such as differentiated marketing, mass marketing and concentrated marketing. The size of the company, its resources and their objectives are the one to guide in the selection of appropriate base and targeting approach. Organisations should differentiate its products or services through either brand performance or the insight of the customer.

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