Market Definition, Segmentation, & Targeting

4 Parts to Marketing Planning Process
1 Goals & objectives
2 Marketing strategy
3 Marketing mix
4 Financial projections
4 Steps of Marketing Strategy
1 defining the market (frame of reference)
2 segmenting the market
3 choosing the segments to target
4 positioning for target customers
Step 1: Market Definition
-identifies consumers & competitors of interest
-establishes frame of reference
-defined in terms of customer needs, not products
Known as the Achilles’ Heel of Strategy
Market definition b/c of tension of defining market either too broadly or too narrowly
Defining a market too narrowly
-firm ignores competitors in adjacent markets or segments
Defining a market too broadly
-lack focus & clarity, resulting in inability to understand key competitors/consumers
– ineffective targeting in the market
“What business are we in?”
Key question of defining the market broadly
– focuses on the job to be done
– based on customer needs
– aware of environmental trends
When defining the market more narrowly
– done in order to plan effectively
– practical definition of a market
– served market metric
– geographic region, product types, etc.
“Served Market” metric
– part of market definition
– that portion of the total market for which the firm competes
How to use both broad & narrow market definitions
– Broad definition for Strategic thinking & formulation
– Narrow definition for Strategic planning & implementation
Step 2: Market Segmentation
Dividing the market into groups of consumers who share similar characteristics
– understand characteristics that differentiate consumers w/i a market
-identify potential segments that may be a good fit for the firm
Process of Marketing Segmentation
– not everyone who buys a product wants the or needs the same thing to satisfy needs
– not everyone responds to marketing activities in the same way
Why Marketing Segmentation is critical
– compare & contrast each of the potential segments
– choose segment(s) the firm is best able to satisfy, given its skills, resources, & capabilities
Identifying segments of consumers that (3 things)
1 fit the firm’s competencies best
2 whose needs the firm believes it can do a better job of addressing than competitors
3 ensure the firm can achieve financial goals
3 Steps in Segmentation Analysis
1 dividing the market into segments
2 profiling segments
3 determining attractiveness of each segment
1 Divide market in segments (2 general categories)
1 characteristics the describe a consumer independent of their relationship w/ the product (demo, geography, psychographics)
2 characteristics that describe consumer related to the product (usage, loyalty, benefits)
Segments must be meaningful
– consumer needs must be distinct across segments
– more distinctive segments, less likely a firm will cannibalize their own brands
– homogeneous w/i a segment & heterogeneous across segments
– dimensions must be meaningful to the purchase decision
– segmentation scheme makes it easy to to find consumers
Segments of consumers, not products
Any one person can fall into more than one segment, depending on the need being addressed
– often overlooked aspect of segmentation
2 Profile the segments
– better understand opportunities
– estimate size of each segment
– understand competition
– generate insight about consumers
– rich descriptions makes targeting & positioning easier & more focused mktg mix
Purpose of profiling
– utilize demographic, psychographic, & geographic characteristics
– purpose is descriptive
Critical point of marketing process
– process described is linear, but process evolves based on learning at each step
– must evolve the market definition, segmentation scheme, & target understanding as the process evolves
Profiling & Personas
-fictionalized description of ideal customer
– given a name & capture marketers’ imagination
– distributed widely w/i firm
– shared understanding of consumer as a person
3 Determine Attractiveness of each Segment
– size, growth rate, competitive intensity, synergy w/i firm, match w/ firm, consistency w/ firm strategy
– if profiling the market was done well, this is much easier
Step 3: Choosing Target Market(s)
– mass market (Ford’s all black Model T)
– multitarget market or differentiated (P & G)
– niche (BMW)
Evaluating Segmentation & Targeting Choices (5)
1 Measurable
2 Substantial
3 Accessible
4 Differentiable
5 Actionable
Step 4: Positioning & 4 Ps
Not covered in this article