Business positioning and market segmentation

Improve your customer targeting to gain competitive advantage and get a better return on your marketing investment.

Seeking out your target customers and satisfying their needs sounds like such an obvious, basic concept in the battle for business success. In practice, though, this strategy is far from easy to execute. To determine your target market, you need to consider three main issues: market segmentation, audience targeting and business positioning.

1. Market segmentation

This means grouping your various customers according to their common needs or the way they will respond to a marketing action. Each segment will offer different opportunities for growth and profit.

Business-to-consumer (B2C) market segmentation

If you are selling consumer goods there are a number of ways to segment your market, including:

  • Demographics. This focuses on customer characteristics such as age, gender, income bracket, occupation, education, family status and social and cultural background.
  • Psychographics. This refers to traits such as lifestyle choices, personality, values, opinions, attitudes and interests.
  • Behaviour. For example, are they online shoppers or shopping centre customers? Have they purchased before? Do they exhibit brand loyalty?
  • Geographical location. Segments can vary by region, area size, climate, urban/suburban/rural, and domestic/international.

Once you have grouped your customers into market segments, you need to evaluate each segment and decide which ones to target. For a segment to be practical, it needs to be:

  • identifiable – so that you can measure its differentiating attributes
  • accessible – so that you can reach it through various communication and distribution channels
  • substantial – i.e. large enough to justify the needed resources
  • specialised – having different needs to address
  • durable – stable enough to minimise the impact of changes to existing products or the introduction of new ones.

Business-to-business (B2B) market segmentation

Target market segmentation is especially important in B2B markets, as there is often little to differentiate one product from another. But B2B market segmentation is very different from B2C market segmentation, for a number of reasons. For example:

  • Buyers are under more pressure to be objective and rational about their decision, and may be almost as knowledgeable as you about the product or service you are selling.
  • The buying decision is likely to involve several people: a specifier to test the product, a production manager to trial it, a board of directors to impose an overriding structure on the source of supply, a buyer to negotiate the price, and so on.

You should therefore focus on a manageable group of decision-makers to define your target audience.

In B2B market segmentation, target markets are grouped by common measures such as:

  • geographic – for instance, a target audience that does business in a particular language, city, province or country
  • firmographic – the company’s staff size, industry or income bracket
  • psychographic – especially useful for repeat clients, who may be drawn to factors such as price range, quality levels or delivery terms
  • need-driven – a difficult target audience to assess, but one of the most fruitful.

2. Audience targeting

No one strategy will suit all customer groups, so you must develop a specific strategy for each of your target markets.

There are three main targeting strategies you can use:

  • Undifferentiated. This may be useful if your product has little competition so that you don’t need to tailor strategies for different preferences.
  • Concentrated. Here, you focus on a single segment so you can intimately understand its needs and wants. Small businesses often find that this strategy enables them to compete effectively against larger companies.
  • Multi-segment. This approach will suit you if you need to focus on two or more well-defined market segments. It offers many benefits but can be costly, owing to increases in management input, market research and promotional strategies.

Before selecting your targeting strategy, be sure to perform a cost-benefit analysis of all available strategies.

3. Business positioning

Business positioning is the means by which you develop a product and brand image in customers’ minds, and improve their perception about the experience they will have if they choose to buy your product or service. You can positively influence the perceptions of your chosen customer base through strategic promotional activities and by carefully defining your marketing mix.

For effective positioning, you need to:

  • have a good understanding of competing products and the benefits that your target market seeks
  • identify a differential advantage with which you will deliver the required benefits to the market effectively against the competition.

Crucial – but not so simple

Market segmentation, audience targeting and business positioning can be a complex affair, whether you are running a B2B or a B2C company. But these elements are all critical to a successful marketing plan – and what’s more, they evolve with a shifting marketplace, so smart companies re-evaluate them continually.

Next steps to a greater return on your marketing ROI

For more advice on profit growth through better business positioning and market segmentation, email us or call us on 020 7099 2621.

See also our pages on strategic marketing and branding.