MARKETING MATERIAL

9040 – Marketing Practice 5 Positioning

Chapter 5

SEGMENTATION AND POSITIONING

The substantial advantage enjoyed by the brand leader is, by definition, only available to one brand in a market. On the other hand, it is often possible to break the larger markets into smaller segments. Thus, these larger markets may contain within them distinct groups of customers with quite different detailed needs and wants; and each of these represents a different 'segment', with different consumer purchasing characteristics. This process is called 'segmentation'; or sometimes 'target marketing' - because the supplier carefully targets such a specific group of customers.

SEGMENTATION

'Segmentation' is, thus, a strategy used by vendors to concentrate, and thus optimise, the use of their resources within an overall market.

One focus may be that of consumer behaviour; though an alternative may be the product or service itself - but this follows much the same rules, from a different perspective. In the context of the consumer, the traditional factors  are often grouped as follows;

geographic: region, urban or rural etc

demographic: age, sex, marital status etc

socio-economic: income, social class, occupation etc

psychological: attitudes, lifestyles, culture etc

SEGMENTATION BY BENEFIT

Using such general factors has its limitations. Indeed, there is some evidence[1] that these conventional factors may not offer significant differentiation between meaningful segments. It is much more productive to relate segmentation to the specific characteristics of the market for the product or service.

Different customers, or groups of customers, look for different combinations of benefits; and it is these groupings of benefits which then define the segments. It is these differences which the producers can most effectively use to target their brands, or the public service providers their offerings, on the segment; to position them where they most clearly meet the needs of the consumers in that segment.

SEGMENTATION BY CONSUMPTION PROFILE

Recently a number of research agencies have started to characterise consumer segments in terms of the buying choices of the consumers in them. Thus, they are characterised by their purchases of a range of key products and, in particular, by a range of media read and television programmes watched. The data for this may be provided in some depth by MRB's TGI survey, or in less depth by other surveys.

SEGMENT VIABILITY

There is a pure, customer oriented, marketing reason behind segmentation. By designing products or services which are narrowly targeted on the needs of one specific segment, whose consumers are looking for very much the same thing as each other, it may be possible to offer them the best match to their needs. In practice, however, producers usually target segments rather than the overall market because this allows them to concentrate their resources on a limited group of consumers; so that the brand can be made to dominate that segment - and gain the benefits of segment leader, albeit on a smaller scale than if it were the overall market leader.

For this to happen, the segment has to be viable; has to be worthwhile, say, in terms of revenue generated against the costs involved. It therefore needs meet a number of broad criteria;

SIZE - the first question to be asked is simply whether the segment is substantial enough to justify attention; will there be enough volume generated to provide an adequate profit. In general, it is best to choose the smallest number of segments, and hence the largest average size (including the one you are targeting), which still allows the resources to be productively concentrated and head-on competition with the market leaders avoided.

IDENTITY - the segment has to have characteristics which will enable it to be separately identified (and measured by market research); by both the producers and the consumers. It must be recognisable to both as a cohesive entity.

RELEVANCE - the basis for segmentation must be relevant to the important characteristics of the product or service; it must be 'actionable'.

ACCESS - finally, the producer must be able to get at the segment which has been found. If tapping that segment is too difficult, and accordingly too expensive, it clearly will not be viable.

If all these criteria are met segmentation is a very effective marketing device. It can allow even the smaller organisations to obtain leading positions in their respective segments; often then described as 'niche' marketing, and gain some of the control this offers. It is worth repeating, yet again, that the most productive bases for segmentation are those which relate to the consumers own groupings in the market; and not to the artificially imposed producers' segments.

To discover -  and use - these 'natural' (consumer based) segments requires a number of steps;

a) MARKET RESEARCH - the basis for almost all effective segmentation must be sound market research; which is described in more detail in a later chapter. The critical consumer characteristics which are to form the basis of the segmentation must be determined, and this demands that all the related characteristics are measured (including customer attitudes and their perceptions of product attributes as well as their 'demographic' characteristics and usage patterns).

BACKGROUND INVESTIGATION - the first stage is to undertake the desk research which will best inform the researcher, and the marketer, as to what the most productive segments  are likely to be. This leads to the 'hypotheses' to be tested.

QUALITATIVE RESEARCH - the 'dimensions' which are important to these consumers, and the 'language' which is used by them, should be first investigated by qualitative research, such as 'group discussions'.

QUANTITATIVE RESEARCH - the next stage is to conduct the quantitative research, using the dimensions identified in the previous stage, to try measure attitudes to the brand (and its competitors), as well as the consumer's 'ideal brand'.

b) ANALYSIS - this is the most important stage of segmentation. It is now almost invariably dependent upon the use of considerable computing power; since this is needed to undertake the complex analyses, on the large number of variables involved. Usually some form of 'factor analysis' is used to group together those variables that are almost interchangeable in the consumers' eyes. Then 'cluster analysis' is used to create the specified number of groups/segments of consumers. Each of these clusters of consumers should be as similar within itself, but as different from other clusters, as possible.

The typical outcome will be a set of prioritised position maps, delineating these segments; preferably limited to the 6 - 8 most important dimensions - which is usually all that the average marketer can handle!

c) IMPLEMENTATION - these clusters (typically no more than half a dozen in number, where more than this would probably fragment rather than segment the average market) then need to be described in terms of the key characteristics which differentiate them. Then, and only then, can the supplier's products (and the competitors) be mapped onto these dimensions; and the product 'positioning' exercise (described below) begun - so that the target segments are optimally addressed.

d) SEGMENTATION/POSITIONING - the marketer must then use these 'maps' to decide exactly what his or her plans should be; taking into account the resources available as well as the competitive and consumer positioning on the 'map'. Which will be the target groups; which will be the chosen segments? Where will the products or services be repositioned (if this is needed) to compete most effectively and/or to be most attractive to consumers?

If they are correct there is a very reasonable chance of developing a successful overall strategy. If they are wrong there is an even greater likelihood that problems will be encountered at a later stage. The intellectual effort  which needs to be committed to this process cannot, therefore, be underestimated.

POSSIBLE APPROACHES TO SEGMENTATION

In overall terms, though, there are four main strategies which may be adopted;

This is a very effective form of marketing, especially for the smaller organisation; since it concentrates resources into a very sharply focused campaign. It is, perhaps, more risky - since there may be a greater likelihood of a small segment disappearing.

CROSS SEGMENT - some, probably most, suppliers resolutely ignore the segments and pattern their marketing on other factors.

Full coverage can come in two forms;

I) UNDIFFERENTIATED -  a few organisations attempt, sometimes successfully, to address a whole market (including its segments) with a single product or non-segmented range.

II) DIFFERENTIATED;- alternatively it may be to an extent differentiated where the organisation covers the market with a range of products or services (under the one brand) which are more or less individually targeted at segments.

A variation on the last theme is that of 'category marketing'. This development has come about because of the increasing power of retailers, and their suppliers may now try to coordinate their offerings across a whole category, such as detergents (in which the tow main manufacturers have numbers of separate brands), so that the category as a whole offers the maximum returns - to the retailer (and, hence, to the supplier).

Segmentation is a time and resource consuming process, but the benefits to be derived far more than outweigh this. Tony Lunn[2] reports, for example, that "In all cases.......marketing men volunteered the information that the benefits more than justified the time and expenditure involved. In some cases the findings were held to have contributed to substantial gains in market share, in others to arresting decline in share in the light of fierce competition".

The final stage, of the segmentation process above, introduced the concept of positioning. This is, though, a separate technique - albeit that it works most effectively in conjunction with segmentation. Unfortunately, there can sometimes be confusion between 'segmentation' and 'positioning'; and indeed - as we have seen - the two processes often overlap. The key difference is that segmentation applies to the market itself, to the customers who are clustered into the 'natural' segments which occur in that market. The positioning relates to the product or service within the market; and to what the supplier can do with these 'products' to best 'position' them against these segments.

 A further complication is that 'positioning' can sometimes be divorced from 'segmentation'; in that the supplier can choose dimensions on which to position the brand that are not derived from research - but are of his or her own choosing. Indeed, such positioning can be applied (to differentiate a brand, for instance) even when segmentation is not found to be viable! This is the practical 'positioning' of products or services so that they are they are recognisably different from their competitors - as measured in terms of their positions on the 'map' of competitive brand positions (ideally against the dimensions which matter to the consumer!) - and positively gain a competitive advantage as a result.

In practice it typically uses many of the sophisticated techniques applied to segmentation, but in its simplest application it only requires that you decide 'where' you want your product or service to be against the critical dimensions (or variables) which are applied by its market/customers.

Easiest of all to use are graphical 'maps' which show the position(s) against these dimensions.

Conventionally, such product positioning maps (sometimes described as 'product space') are drawn with their axes dividing the map into four quadrants. This is because most of the parameters upon which they are based usually range from 'high' to 'low' or from '+' to '-' (with the 'average', or mean, or zero position in the centre; where these axes cross). This is best shown by a typical example;

The value of each product's (or service's) sales (or 'uptake'), as well as that of each cluster of consumers, is conventionally represented by the area of the related circle.

In the above case there are just two clusters of consumers, one buying mainly on the basis of price (and accepting the lower quality this policy entails) and one on the basis of quality (prepared to pay extra for this). Against these segments there are just two main brands (A and B), each associated with a cluster or segment. There is also a smaller brand (C), associated with cluster 1; offering an even higher quality alternative (but at an even higher price).

Real-life product positioning maps will, of course, be more complex, involving a number of such dimensions; and drawn with less certainty as to where the boundaries might be. But they do, once more, offer a very immediate picture of where potential may lie, and which products or services are best placed to tap this. They also offer a sound basis for 're-positioning' existing products (or launching a complementary new product, positioning), so that they better match the requirements of the specific 'clusters' on which they are targeted. In the above example, Brand C might be content to remain a 'niche product' product. Alternatively, the positioning map shows that if it were reduced in price slightly (and were backed by sufficient promotion) it might become a very competitive contender for Brand A's market share.

If the positioning research is carried out regularly, over time, the map can also show how these positions are changing. Tracking changes in position is a very powerful tool of marketing.

There are alternative graphical approaches which try to produce just one diagram which contains all the information which would otherwise be contained in the various dimensions. On the other hand, it is my belief that these often add to the confusion rather than remove it, and the basic approach offers a better picture; one which is inherently more understandable.

Because of its importance, I will repeat the statement from the beginning of this box. Positioning, based on effective segmentation, is the single most important activity in the whole of marketing. Carried out effectively by design, or poorly by default, it determines every other element of marketing.

This, most important, technique completes the set of rules which I am, at this stage, suggesting are most useful for helping to define the Product:Service Package. In the next section we move on to review what has been learned about the Package, in the light of the customers' views of this - for it is the customer who really decides what your Product:Service Package amounts to.

This is the next stage of learning in what we call the Learning Loop, which is another key element of Realistic Marketing.

One essence of Realistic Marketing is that it is an on-going process. More specifically, it is iterative; the processes are repeated so that the lessons learned at the later stages are fed back to influence the earlier stages in the decision-making process. This is also an incremental process, there a small (incremental) improvements at each iteration; and again this is typical of Realistic Marketing.

This is called the Learning Loop, since the value is the learning which may be progressively incorporated.

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