Effective Market Segmentation and Positioning Strategies

Market Segmentation Methods

To segment a market, select a sample of individuals to explain a specific behavior, such as the usage of a particular product. This is known as the explained variable. You must then consider a number of characteristics, called predictors, to determine which is most closely related to the explained variable (for example, social class or product usage).

Targeting and Optimization

One can distinguish two primary groups for segmentation:

• A Priori Targeting: This is based on previously established data. For example, deciding to study a population sample based on sex or social class.
• Optimization: This involves studying the sample to identify various existing groups and their specific characteristics.

Representative Segmentation Techniques

• Cluster Analysis: This technique is typical for forming groups within a sample based on similarities.
• The Belson Method: Defined by the formula D = Cr - Ct. The larger the value of D, the greater the explanatory power of the variable. If D is zero, the variable is not related to the property being explained.

Strategic Approaches to Segmentation

• Undifferentiated: The company does not adopt different strategies for different segments. This is the simplest approach and results in lower costs.
• Differentiated: Each segment is targeted with a different combination of the marketing mix.
• Concentrated: This strategy focuses all marketing efforts on one or more specific segments.

Product Differentiation and Value

Differentiation involves the preparation of products in terms of quality, price, design, and functionality. This is done not only to stand out against the competition but also to distinguish various products within the same company. The goal is to relate the product to a positively valued characteristic, such as quality, design, or service warranty, so that consumers associate that feature directly with the product.

Market Positioning Challenges

• Under-positioning: This occurs when the customer is unable to associate the product with any distinguishing characteristic.
• Over-positioning: This happens when an image is so narrow it excessively reduces the potential market.
• Confused Positioning: This occurs when the company changes positioning too frequently or seeks too many associations.
• Dubious Positioning: This happens when a company offers excessive benefits that the client does not believe are possible, such as high-end design, quality, and service at an impossibly low price.

Analyzing Market Demand

Demand Status and Categories

Insufficient Demand:

• Negative Demand: When the market dislikes the product and may even pay to avoid it.
• Nonexistent Demand: When target consumers are unaware of or uninterested in the product.
• Latent Demand: When there is a strong need that cannot be satisfied by any existing product.
• Declining Demand: When the request for a product is decreasing because it is becoming passé.

Adequate and Excessive Demand:

• Excessive Demand: When demand is higher than the capacity to supply (e.g., oil).
• Harmful Demand: Demand for products considered socially undesirable, such as drugs.

Price and Cross-Elasticity of Demand

Price elasticity measures the sensitivity of the amount of demand to changes in prices.

Cross-Elasticity:

• Substitutes: When the sale of one product means you do not sell the other. In this case, cross-elasticity is positive.
• Complementary Products: When the sale of one product involves the sale of another. Here, elasticity is negative.
• Independent Products: When the products are unrelated, the cross-elasticity is zero.