Mastering Market Segmentation and Targeting

Summary

Sources

salesforce.comsalesforce.comgeeksforgeeks.org

There’s a common saying in the business world, “If you try to be everything to everyone, you’ll end up becoming nothing to anyone.” Far too often, businesses fall into the trap of positioning their products as something that everyone benefits from. Their rationale is simple: if they cast their net wide enough, they’re bound to catch enough customers soon. This approach, however, is flawed in two fundamental ways. First, the company’s resources – budget and employees – get spread too thinly in chasing far-flung customer segments. This often leads to brand dilution, where the company’s real target customers stop seeing value in the brand. Think about it: a product is built to solve a specific problem. Not all seven point nine billion people in the world would have that problem. Even if the product is as essential as a toothbrush, it has to stand out from the existing toothbrushes in the market in some way to bring in sales. Consider an example: from media and conversations with friends, one notices an increasing number of people moving towards sustainable living. This sparks the idea of creating toothbrushes out of bamboo shoots. At the very outset, the plan might be to target all toothbrush users by positioning the product as an environmentally friendly alternative to plastic brushes. This strategy, however, is likely to create negligible impact, almost like a drop in the ocean. This is because eighty-five percent of the audience doesn’t care for sustainable living. While it is possible to go after them by creating awareness, one needs to first educate them on the adverse effects of using plastic on the environment, explain how the product addresses the issue, and finally, highlight how it benefits the customer individually. This long-drawn process can strain time and budget while yielding minimal returns. It would be more effective to target the other fifteen percent – people who are already looking for sustainable alternatives. These individuals are already aware of why they need the product, allowing for a direct pitch. By bypassing the lengthy process, resources are saved and used where they are needed the most. Since the target’s needs are aligned with the product offering, the customer acquisition cost is low. This scenario aptly illustrates the segmentation, targeting, and positioning model of marketing. Segmentation, targeting, and positioning, commonly known as STP, is a marketing model that redefines whom products are marketed to and how. It makes marketing communications more focused, relevant, and personalised for customers. In essence, STP is a marketing approach where an audience is segmented, the best-fit audience segments for the product are targeted, and the product is positioned to effectively capture the target segment. The easiest way to remember the STP model is through the STEP formula, which is Segmentation plus Targeting equals Positioning. A closer look at this formula reveals that the product positioning for each target segment is different. This forms the essence of the STP marketing model. Segmentation is the first and crucial step in the STP model. It involves identifying and dividing the market into smaller subgroups based on specific attributes. These attributes help in gaining better clarity on who benefits the most from a product and how. By segmenting the audience into these smaller groups, businesses can make their messages more focused and relevant. Market segmentation can be carried out using various criteria. The most commonly used criteria are psychographic, geographic, behavioral, and demographic attributes. Each of these attributes provides a unique lens through which the market can be viewed and divided. Psychographic segmentation focuses on the lifestyle preferences of the audience. It considers values, attitudes, interests, and opinions. For example, a company selling luxury travel packages might segment its market based on interests in high-end experiences, adventure activities, or wellness retreats. Geographic segmentation divides the market based on location. This can be as broad as countries or regions, or as specific as cities or neighborhoods. It is particularly useful for businesses that operate in multiple locations and need to tailor their offerings to local preferences. For instance, a clothing retailer might offer different styles and sizes in different countries to cater to varying fashion tastes and body types. Behavioral segmentation looks at the behaviors of consumers. This includes their purchasing habits, brand loyalty, and usage rates. Businesses can use this information to identify patterns and trends. For example, a software company might segment its market based on how frequently customers use their product or the specific features they utilize the most. Demographic segmentation is perhaps the most straightforward. It involves dividing the market based on demographic factors such as age, gender, income, education, and occupation. These factors are often the easiest to measure and have a significant impact on consumer behavior. For example, a car manufacturer might target different models to different age groups or income levels. A prime example of effective segmentation is seen with the Volkswagen Group. Volkswagen produces a variety of high-end brands like Audi, Porsche, and Lamborghini. Each of these brands is targeted at a different segment of the market. Audi is positioned as a premium brand aimed at professionals and executives. Porsche targets sports car enthusiasts with a penchant for high performance and luxury. Lamborghini caters to an even more exclusive market, appealing to ultra-high-net-worth individuals seeking unmatched luxury and status. To perform audience segmentation effectively, businesses need to gather and analyze data about their audience. Solutions such as the Salesforce Customer Data Platform (CDP) are instrumental in this process. Salesforce CDP allows businesses to unify data from various touchpoints – including sales, service, and marketing – and use Artificial Intelligence to derive richer audience insights. This data can be further enriched with first-party data from social media, websites, and customer forums. By consolidating this data, marketers can build a single, comprehensive view of all audiences using a central, user-friendly interface. With accurate population counts and AI-enabled features, highly targeted and customized audience segments can be created. Additionally, tools like Salesforce’s Email Studio allow for segmentation of current subscribers based on their profiles, improving open and click-through rates for email campaigns. Segmentation also proves beneficial when nurturing existing subscribers. By segmenting the current customer base, businesses can make informed guesses about their larger audience. For instance, extrapolating current customer data helps identify potential audience segments and build targeted marketing strategies around them. To illustrate further, consider a company that produces plant-based milk. The general audience might include people looking to move away from dairy-based products. However, this audience can be segmented into two distinct groups: those seeking dairy-free alternatives for lifestyle purposes, typically high-income groups, and those who are lactose-intolerant looking for other options. The messaging for these two segments would naturally differ. Tools like Data Studio can further refine these segments into groups that already use a competitor product and those that do not, allowing for even more tailored communication. In summary, segmentation is an indispensable part of the STP marketing model. By dividing the market into smaller, more manageable groups, businesses can tailor their marketing efforts to be more effective and relevant, ultimately leading to better engagement and higher returns. Once segmentation is completed, the next step in the STP model is targeting. Targeting involves evaluating the market segments that have been identified during the segmentation phase and selecting the most viable ones to focus on. This process ensures that marketing efforts are directed towards segments that offer the highest potential for returns and align best with the company's objectives and resources. When deciding which segments to target, several criteria should be considered to ensure that the chosen segments are worthwhile. These criteria include size, difference, reachability, profitability, and benefits. Size is a crucial factor in the targeting process. The selected audience segments must have enough potential customers to justify the marketing efforts. Segments that are too small may not generate sufficient conversions to make the investment worthwhile. For example, a company launching a new fitness app would look for a sizable segment of individuals interested in health and wellness to ensure a broad user base. Difference refers to the distinctness between segments. There should be clear and measurable differences between any two segments. This helps in creating tailored marketing strategies for each segment and avoids unnecessary duplication of efforts. For instance, a tech company might differentiate between professional users who need high-performance laptops and casual users who prioritize affordability and ease of use. Reachability is another important criterion. The selected segments should be accessible to the sales and marketing teams without facing technical or legal complications. This involves considering the channels through which the target audience can be reached effectively. For example, a brand targeting young professionals might focus on digital marketing channels like social media and email campaigns. Profitability is a key consideration in the targeting process. The segment should have a low-to-medium customer acquisition cost while bringing in high returns. This means the audience must be willing to spend money on the product. For example, a luxury car brand would target high-income individuals who are likely to invest in premium vehicles. Benefits are also crucial when selecting target segments. Different segments may be attracted by different benefits. In the case of plant-based milk, one segment might value cruelty-free production, while another might prioritize the health benefits of a dairy-free diet. A practical example of effective targeting is seen with Nike. Nike has successfully identified and targeted fitness enthusiasts and young, active individuals as their primary audience. Through extensive research, Nike understands that this segment is not only sizable but also highly engaged and willing to invest in high-quality athletic gear. Nike’s marketing strategy is tailored to appeal to this group’s aspirations and lifestyle. The company uses influencers and athletes to promote its products, creating a strong brand association with fitness and athletic excellence. By focusing on this specific segment, Nike has been able to build a loyal customer base that resonates with its brand values and messaging. In addition to demographic targeting, Nike also employs psychographic and behavioral targeting. They create campaigns that reflect the attitudes and interests of their audience, such as the famous "Just Do It" slogan, which inspires motivation and determination. Nike's digital marketing efforts, including personalized email campaigns and targeted social media ads, further ensure that their message reaches the right audience at the right time. To effectively implement targeting, businesses need comprehensive visibility of their audience segments. Solutions like Salesforce CDP help unify audience and customer data from multiple sources, providing more comprehensive insights. With more data and insights, segmenting and targeting audiences becomes more precise and granular. Tools like Journey Builder can then be used to create highly personalized and relevant customer journeys throughout the lifecycle. In summary, targeting is a strategic process that involves evaluating and selecting the most viable market segments based on criteria such as size, difference, reachability, profitability, and benefits. By focusing on the most promising segments, businesses can optimize their marketing efforts and achieve better results. The example of Nike illustrates how effective targeting can help a brand connect with its audience and build a strong, loyal customer base. The final stage in the STP model is positioning. Positioning involves deciding how to communicate the product to the chosen audience segments in a way that differentiates it from competitors. It is about establishing a distinct image of the product in the minds of the target customers, making it clear how the product stands out and why it is the best choice for them. Positioning is not just about the product itself, but also about how it is perceived by the target audience. This process involves understanding customer needs, analyzing competitor offerings, and identifying the unique value proposition of the product. The goal is to create a strong and favorable image in the minds of the customers, which can drive their purchasing decisions. There are several strategies that businesses can use for positioning: Competitor-based positioning involves highlighting how a product is better than its competitors. This strategy focuses on direct comparisons, emphasizing superior features, quality, or performance. For instance, a smartphone manufacturer might position its latest model as having a better camera or longer battery life than a rival brand. Consumer-based positioning centers around how well the product aligns with the needs and preferences of the target customers. This strategy emphasizes understanding and addressing the specific desires and concerns of the audience. For example, a skincare brand might position its products as being specially formulated for sensitive skin, appealing to consumers who prioritize gentle and hypoallergenic ingredients. Price-based positioning emphasizes the cost of the product relative to competitors. This strategy can involve positioning the product as a more affordable option, offering better value for money, or as a premium product justifying a higher price point. For example, a budget airline might position itself based on offering the lowest fares, while a luxury airline might highlight its superior service and amenities. Benefit-based positioning focuses on the unique benefits that the product provides to the customers. This strategy highlights specific advantages that set the product apart. For instance, a fitness tracker brand might position its product based on advanced health monitoring features that competitors lack. Attribute-based positioning emphasizes specific attributes or characteristics of the product. This could include anything from innovative technology to unique design elements. For example, a car manufacturer might position a new model based on its cutting-edge safety features or eco-friendly technology. Prestige-based positioning targets customers who seek status and luxury. This strategy involves positioning the product as a symbol of prestige and exclusivity. Luxury brands often use this approach, highlighting the craftsmanship, heritage, and exclusivity of their products. For instance, a high-end watch brand might position its watches as symbols of success and sophistication. A compelling example of effective positioning is Starbucks. Starbucks has successfully positioned itself as the "Third Home" between work and home, targeting medium and high-income customers. This positioning strategy is based on offering more than just coffee; it’s about providing a unique and comfortable environment where customers can relax, work, or socialize. Starbucks achieves this by focusing on several key elements. First, the ambiance of Starbucks stores is designed to be inviting and comfortable, with cozy seating, free Wi-Fi, and a pleasant atmosphere. This creates a sense of community and belonging, making customers feel at home. Second, Starbucks emphasizes the quality and variety of its products. From specialty coffees to an array of snacks and beverages, Starbucks caters to diverse tastes and preferences. This variety not only attracts a wide range of customers but also encourages repeat visits. Third, Starbucks leverages its brand values, such as sustainability and ethical sourcing, to appeal to socially conscious consumers. By highlighting its commitment to environmental and social responsibility, Starbucks strengthens its brand image and builds loyalty among customers who share these values. Finally, Starbucks uses effective marketing and branding to reinforce its positioning. Through consistent messaging, attractive store design, and strategic partnerships, Starbucks maintains a strong and recognizable brand presence that resonates with its target audience. In summary, positioning is a critical step in the STP model, involving the strategic communication of a product’s unique value to the target audience. By using various positioning strategies, businesses can differentiate their products from competitors and create a strong, favorable image in the minds of customers. The example of Starbucks illustrates how effective positioning can transform a brand into a beloved and integral part of customers' daily lives. The benefits of employing the STP marketing model are substantial and multifaceted. By effectively segmenting, targeting, and positioning their products, businesses can achieve improved engagement, reduced marketing costs, and the development of more robust products. One of the primary benefits is improved engagement. By targeting precise audience segments with personalized messages, businesses become more relevant to their customers. This relevance translates into higher engagement rates as the audience feels understood and valued. Personalized marketing efforts resonate more deeply with customers, leading to increased interaction and loyalty. Another significant benefit is the reduction in marketing costs. With the STP model, businesses focus their resources on segments with a high potential return on investment. This targeted approach ensures that marketing budgets are not wasted on broad, unfocused campaigns. Instead, efforts are concentrated on channels and segments that are most likely to yield positive results, making the marketing spend more efficient and effective. The STP model also contributes to the development of more robust products. By understanding precisely who the product is for, businesses can make targeted improvements based on feedback from that audience segment. This focused innovation ensures that products better meet the needs and expectations of the target customers, leading to higher satisfaction and loyalty. Several companies have successfully implemented the STP model to dominate their respective markets. Apple, McDonald's, the Godrej Group, and Coca-Cola are prime examples of how effective segmentation, targeting, and positioning can lead to market leadership. Apple has mastered the STP model by positioning itself as a lifestyle brand. Targeting audience segments with a keen design aesthetic who want to stand out from the crowd, Apple positions its products as high-performance, luxury gadgets. The company’s emphasis on a closed software ecosystem with a focus on security creates an aura of exclusivity. This strategy has made the Apple brand synonymous with expensive, high-quality technology, appealing to well-off, design-conscious consumers. McDonald’s, on the other hand, uses segmentation to appeal to various demographics. By offering products that cater to different age groups, income levels, and cultural preferences, McDonald's ensures it has something for everyone. The company targets low to middle-income families with an emphasis on affordability and convenience. Geographic segmentation also plays a key role, with McDonald's customizing its menu to suit local tastes and preferences. This strategy allows McDonald's to remain accessible and appealing across diverse markets. The Godrej Group, a well-known Indian conglomerate, utilizes social listening to segment its audience effectively. By identifying what their target audiences are talking about and reading, Godrej shapes its content marketing strategies to deliver maximum engagement and awareness. This approach helps Godrej engage a wide range of customers across different product categories, from household goods to real estate, reinforcing its trusted brand image in the Indian market. Coca-Cola’s approach to STP marketing is also noteworthy. Despite having a global market, Coca-Cola uses segmentation to create targeted products and campaigns. For example, to compete with Pepsi, Coca-Cola introduced variants like Diet Coke and Coke Zero to target health-conscious consumers. The company also offers flavored variants to appeal to younger, experiential audiences. Coca-Cola positions itself as a drink that brings people together, a theme evident in its advertisements featuring family gatherings, festivals, and celebrations. This positioning strategy helps Coca-Cola maintain its status as a beloved brand worldwide. In conclusion, the STP marketing model offers significant benefits, including improved engagement, reduced marketing costs, and more robust products. Companies like Apple, McDonald's, Godrej Group, and Coca-Cola demonstrate how effective segmentation, targeting, and positioning can lead to dominance in their markets. By understanding their audiences and tailoring their marketing efforts accordingly, these companies have built strong, loyal customer bases and sustained their competitive edge.