February 13, 2013

Segmentation, targeting and positioning

Following on from the buyer behaviour post, let's look at understanding the customer.

The 4Ps - Product, Price, Place and Promotion - will help us understand how to take the product to market. For now, we need to understand which type of person, organisation or entity we consider to be a customer (or potential customer).

In the coffee example, the first thing to consider is which type of coffee we are offering. Let's try instant caffeinated coffee granules sold in a tin.

Who would buy this? I'll assume a range of individuals of varying ages. Are some age groups more likely to buy? Would we target students? Can they afford our product? Can they afford it regularly? What about professionals? Would they prefer filter coffee, or freshly ground coffee? Do the preferences differ based on their income? Does the type of job make a difference? What about their nationality, or the city, suburb or country they live in?

All sorts of questions could be asked, and should be asked, in order to understand who the target customer is. This process is called Segmentation. Selecting a segment of the population that fits the profile of customers we would like to sell to, or that we believe to be likely buyers of our product. For some products you may do segmentation as a responsive activity, once you have observed who purchased and consumed your product. This helps you to target similar people in the next sales cycle. In other cases you may have a new product being introduced and wish to carefully profile and advertise to a target customer base. An example is a premium coffee blend, high-end coffee machines, or even exclusive jewellery, watches or cars.

Segmentation could be based on demographics (age, gender, income, household size, nationality, etc), location (city, country, etc), behaviour, lifestyle, attitudes, beliefs or a combination of these. When conducting field market research for a leading South African research company, I quite often had to search for individuals of a certain age, within an income band, living in specific suburbs, with a certain number of household members. In the coffee example we also have to consider that organisations may also purchase our product for use in their staff kitchens, canteens and meeting rooms. These potential customers would have additional characteristics we could use in the segmentation process.

Targeting refers to the way in which we rank the different segments, choose which ones to focus on, consider which resources we provide for each target segment and the approach we intend to use to target that segment. We may be constrained financially or may not have enough people to carry out advertising campaigns and other activities, so we only focus on one segment initially. We may realise that different promotion campaigns, pricing, or even product variants (labels, sizes, packaging, etc) may be required for the different segments.

A positioning strategy will uncover why the customer should choose our product. We need to identify our unique selling point, if one exists, or establish if we offer the customer more for their money, less for their money, or if it's the same as competing products. If we understand where we fit in the current market (how our coffee product compares to others that are available) then we can look at unique ways to promote the brand, and start to create areas of differentiation that make our product stand out.

While the customer should be at the centre or every aspect here, the positioning is critical to get right. If we understand how we differ from the rest it gives us the foundation to choose the right words, images, symbols, celebrities, etc in any customer-facing collateral. We could have the best product in the world but if the messaging is not right nobody will ever find out because they won't buy it.


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