Segmentation, Targeting, and Positioning in Marketing Strategy

Subject: Marketing
Pages: 12
Words: 3240
Reading time:
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Study level: PhD

Introduction

In any marketing strategy, the processes of segmentation, targeting, and positioning (STP) play a pivotal role. The STP concept is not new, but its importance for successful business operation has not faded within recent decades with their substantial changes in terms of the way the global market works as opposed to the way national markets worked in the past. Segmentation refers to dividing the market consisting of potential customers with different needs into groups (segments), in which the needs and demand are expected to be similar. Further, targeting refers to the process of selecting the segments that an organisation will try to address (sell this segment’s customers products or services), and reaching individuals in those segments. Finally, positioning refers to the way the organisation continuously presents itself to the audience and to the process of creating a desired image among customers. Evidently, the successfulness of positioning will depend on how well it is supported by the results of segmentation and targeting.

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Although the STP concept remains relevant for today’s marketing, there are also important changes in the way the three processes are performed in the modern world, which is why it is necessary that theorists and practitioners continuously update both the theoretical understanding of STP and the practical applications of them. In order to analyse the STP concept, it is possible to explore it from the theoretical and conceptual perspective and provide specific examples from the airline industry. Further, based on the analysis, recommendations will be provided to every addressed company in the context of managing marketing efforts and strategy.

Theoretical and Conceptual Perspective

The theoretical basis for the concept of STP is the recognition shared by theorists and practitioners that the achievement of customer needs satisfaction should be pursued in a strategic, systematic way. First of all, Hooley, Piercy, and Nicoulaud (2012, p. 183) state that STP ‘provide [marketing professionals] with some extremely powerful tools;’ it means that, if accurately and fully implemented, the processes of positioning and segmentation allow practitioners and their organisations to improve performance and operation; e.g., by increasing the level of sales, widening the customer base, or raising the customer loyalty rate. However, the authors also stress that the STP-based marketing strategy tools will not be effective unless organisations focus on satisfying customer needs in a unique way; i.e., in a way in which competitors are unable to satisfy the same needs. From this perspective, positioning (as the concept’s third element, the implementation of which is largely based on the first two) helps organisations gain competitive advantages.

Smith and Colgate (2007, p. 7) employ a different approach to the concept and focus on the process of customer value creation. The authors differentiate among several types of customer value and explain the way marketers should commit to certain models in their pursuit of competitive advantage. For example, Smith and Colgate (2007, p. 17) refer to the operation of Starbucks, in which the company managed to offer value based on two major elements: the purchase and consumption environment and the interactions with customers. In order to achieve excellence as per the former element, the organisation pays much attention to design and facilities management, and in order to achieve excellence as per the latter element, the organisation extensively engages in training, service quality improvement initiatives, and the creation of strong corporate culture. From the theoretical perspective, this example shows that focusing on ‘the value on which [a company] plan[s] to compete’ (Smith & Colgate 2007, p. 17) is an effective strategy in terms of positioning.

However, before positioning can be successfully performed, it is necessary to approach the first two steps of the STP paradigm. The segmentation step is based on the acknowledgement that all customers are not the same, and the market, as a collective body of people and organisations that have needs and are willing to purchase products and services, can be divided into segments; i.e., groups of potential customers whose needs are similar and thus can be addressed in similar ways. The process of segmenting the market (i.e., identifying segments) is crucial in business planning. In this context, Gottfredson, Schaubert, and Saenz (2008, p. 64) state that segmentation is an important part of the principles that lead businesses to breakthrough performance. Specifically, organisations should understand that customers and profit pools are constantly changing, which is why it is necessary to perform ongoing monitoring of market segments. The purpose of such monitoring is updating the information on what the biggest and the fastest-growing (i.e., potentially the most profitable) segment is; this can help companies adjust their targeting efforts.

In turn, targeting should not be understood as the mere process of selecting segments that will be further addressed through business operation. First, there are three distinct targeting strategies: undifferentiated, concentrated, and differentiated. The first does not recognise any individual segments, the second suggests selecting one segment to be targeted, and the third suggests selecting two or more segments to be addressed. Therefore, either one or several different marketing mixes may be needed depending on the targeting strategy employed. In this context, Johnson, Christensen, and Kagermann (2008, p. 62) stress the figure of the targeted customer because it is the central figure in the customer value proposition (CVP) process. The process focuses on the targeted customer and requires identifying customer needs to be fulfilled, defining the tasks that need to be accomplished to achieve such satisfaction, and offering the products or services that will effectively resolve the issue of the need that is not properly addressed at the moment.

Further, product (or service) positioning refers to the process of building a certain image of an organisation and its products or services among current and potential customers. In this regard, Collis and Rukstad (2008, p. 82) stress the importance of clarity; the most successful companies, according to the authors, are capable of expressing their strategy and their operation in one meaningful sentence. This vision implies that, to a remarkable degree, positioning is associated with the place a product (or service) occupies in customers’ minds compared to similar products or services provided by competitors. Therefore, organisations whose operation and strategy can be described both by their executives and their customers in a short, clear statement gain the competitive advantage of being properly positioned in accordance with their target audiences. However, this clarity should not be confused with primitiveness; the perceived simplicity of what a business does and how it does it can be attained through extensive strategic planning and ensuring that the entire operation contributes to the achievement of strategic goals, and no elements of such operation come into conflict with the business strategy.

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Finally, it should be emphasised that the conceptual framework of STP is not universal or universally applicable. The review of relevant academic literature on marketing shows that various authors propose different approaches to managing marketing strategy, and the abundance of marketing theories suggests that there are many ways to practice successful marketing available for professionals. At the same time, marketing strategy analysis will almost inevitably feature the elements of STP because they are key components of business planning. The fundamental theoretical understanding of the STP concept is that an organisation cannot successfully operate (e.g., in terms of providing products or services to customers) without analysing who its current and potential customers are, what their needs are, how customers can be reached, and how the organisation wants the customers to perceive the organisation and its products or services.

Industry Examples

In order to demonstrate the way the STP concept can be used in practice, three examples from the airline industry can be provided. First, American Airlines Group, one of the world’s largest airlines (American Airlines Group n.d., para. 4), employs a marketing strategy, the exploration of which can help theorists and practitioners learn how organisations of such a remarkable size cope with the global demand and the challenges of the modern world. In terms of segmentation, the company uses ‘a mix of demographic, geographic and psychographic variables’ (Bhasin 2017a, para. 3). It means that American Airlines Group recognises different population features among the groups of its current and potential customers. At the same time, the company uses the undifferentiated targeting strategy (Bhasin 2017a, para. 4), which means that the market is viewed as a whole, and there are no individual segments, which is why a single marketing mix is required (see Theoretical and Conceptual Perspective). This choice can be explained by the fact that American Airlines Group pursues serving global demand as opposed to various types of local demand.

From the theoretical perspective, this approach is justified by the company’s size and by the acknowledgement of today’s global economy situation. Theodore Levitt, one of the most influential business theorists of the 20th century distinguished international operation from global operation; the former refers to satisfying customer needs in several countries based on the understanding of cultural differences among them, while the latter refers to satisfying the same customer needs everywhere (Hussain & Khan 2013, p. 357). In this context, it can be argued that the undifferentiated approach to targeting helps American Airlines Group focus on the customer need for transportation and avoid ‘spreading itself too thin’ through concentrating on various types of local demand and local customer needs and using many different marketing mixes. Concerning positioning, Bhasin (2017a, para. 5) states that, after recent events, including the economic crisis of 2008 and the company’s restructuring in 2013, American Airlines Group engaged in repositioning efforts, and today, it uses benefit-based positioning. This approach allows creating a favourable image of the company among targets based on the perception of benefits provided by the organisation compared to the lack of such benefits in services provided by the organisation’s competitors.

Another example of the use of STP in the airline industry can be found in the marketing efforts made by British Airways. Dudovskiy (2016, para. 1) explains that the organisation employs individual segmentation aimed at identifying persons among the members of the general public that have specific customer needs that the organisation can satisfy. At the same time, the individual approach does not imply British Airways refrains from categorising its potential customers and dividing them into groups based on common demographic characteristics. Importantly, targeting is viewed as the process of selecting specific groups (among those identified through segmentation), to which the products and services will be sold. Apart from demographic characteristics, the company also uses four other groups of characteristics in its segmentation and targeting: geographic, psychographic, behavioural, and travel- and tourism industry-based. Moreover, target segments recognised by British Airways are based on the expensiveness of services provided by the company and include four levels: economy class, premium economy, executive club, and first class.

Concerning positioning, Dudovskiy (2016, para. 1) suggests that, for British Airways, this process is associated primarily with the choice of appropriate marketing mixes that can be used to address the demand in each of the target segments formed by segmentation characteristics and willingness to purchase services from the company at a price in a certain range. Bhasin (2017b, para. 6) states that the organisation’s positioning is largely based on its leadership ‘in strategic markets, alliances, and diverse customer groups.’ Unlike American Airlines Group, which uses benefit-based positioning, British Airways focuses on customer class-based positioning; this approach suggests that the company pursues creating a certain image of itself based on its potential customer’s income, social background, and status. The marketing mix used to implement positioning successfully includes four P’s: product, place, price, and promotions. The latter includes special offers as well as campaigns involving celebrities.

Finally, the marketing strategy of Etihad Airways (based in Abu Dhabi) can be analysed in the context of STP. First of all, the company performs its segmentation based on the customers’ tastes and financial abilities; this approach can also be described as behaviour- and income-based segmentation. The segment which Etihad Airways targets is the customer group that prefers comfortable transportation and considers reliability of operation to be a major criterion in the selection of transportation services provider (Etihad Airways SWOT analysis, USP & competitors n.d., para. 6). Based on this segmentation, three target groups can be identified: corporate clients, upper-middle-class individual clients, and middle-class individual clients (Etihad Airways SWOT analysis, USP & competitors n.d., para. 7). It can be concluded that the process of targeting primarily relies on income as well as differentiation between individual customer needs and corporate customer needs. For the latter category, the company provides travel management consultation based on specific business needs in each given case.

The company’s positioning, in turn, is aimed at creating the image of ‘a global airline which gives a grand experience of flying’ (Etihad Airways SWOT analysis, USP & competitors n.d., para. 8). It is noteworthy that this statement is rather general and does not contain specific features that could make Etihad Airways significantly different from its competitors. However, a closer examination of the company’s marketing strategy shows that the company takes specific measures to pursue the desired image; e.g., by inviting celebrities (Bell 2016, para. 1) to promote the company internationally: Etihad Airways only provides international flights (Etihad Airways SWOT analysis, USP & competitors n.d., para. 10). However, the growing competition is a major threat to the successfulness of the organisation’s performance, which is why additional and possibly innovative marketing strategies should be employed. In fact, for all three organisations addressed above, recommendations can be provided.

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Generic Management Recommendations

It is evident from the description above that all three addressed organisations currently use STP in their operation and marketing efforts; however, additional suggestions can be proposed as per improving the effects of STP on the companies’ performance. First of all, based on the marketing theory (see Theoretical and Conceptual Perspective), businesses can obtain more benefits if their segmentation is detailed and well-structured. One of the major implications of the STP concept is that organisations engaged in selling products or providing services can benefit remarkably from knowing their current and potential target audience better. From this perspective, defining as many groups of customers with similar demand and needs as possible will provide an organisation with more opportunities and instruments for addressing those demand and needs.

Therefore, a major recommendation for all three companies is to diversify the variables, based on which the segmentation and targeting processes are performed. From this perspective, British Airways has demonstrated better results than the other two airline industry participants because the company currently employs a larger number of variable categories than American Airlines Group or Etihad Airways. This is why it is possible to recommend the latter two companies to widen the pool of variables used for segmentation. In this regard, Gottfredson, Schaubert, and Saenz (2008, p. 69) state that ‘[c]orrectly segmenting customers…is one of the most powerful methods of building loyalty, increasing growth, gaining market share, and thus expanding [companies’] share of the profit pool.’ What the authors refer to as correct segmentation is the accuracy and relevance of segmentation criteria. This is why, when companies add more variables, it is necessary to ensure that those variables are justified by actual developments in the market and among the customers and not just artificially designed in order to diversify the segmentation considerations.

Further, apart from the methods of segmentation and targeting, it is also important that the airline industry companies ensure that the philosophy behind the use of STP is adequate to the modern conditions. Lusch, Vargo, and Malter (2006, p. 265) describe a marketing model in which ‘the market and the customer are things to act upon: to segment, to target, to penetrate, to manipulate, and to control.’ The authors further speculate that this model might have been applicable to real-life business conditions in the past, but it is now outdated and no longer viable, especially under the conditions of the global market. In this regard, American Airlines Group demonstrated a beneficial understanding of modern trends, as the company’s use of the undifferentiated targeting strategy indicates its insight into the mechanisms of global market operation. Therefore, it can be recommended to the other two airline companies to develop more coherent targeting strategies based on the scope of their target markets.

Both companies can potentially benefit from polishing the targeting strategies. Etihad Airways especially can be expected to need these modifications because the company operates exclusively internationally. The core of the proposed recommendation is the suggestion to focus on similar customer needs and demand in all countries in which potential customers reside regardless of possible differences in terms of culture or specific local conditions. In this context, the approach to targeting employed by British Airways, which features various considerations of customers’ background as well as their willingness to purchase products and services at a certain price, can be reconsidered by focusing on common needs and not different ones.

In today’s business studies, particular attention is paid to the concept of dynamic capabilities, which are constituted by ‘the capacity of an organization to purposefully create, extend or modify its resource base’ (Ambrosini, Bowman & Collier 2009, p. S9). This concept contributes to flexibility in business analysis because it explores organisations’ competitive advantages in a dynamic context as opposed to the static resource-based view (Lockett, Thompson & Morgenstern 2009, p. 9). In accordance with this modern understanding, it is important that the three addressed companies make their targeting strategies more flexible, which would imply an increased speed of identifying and adjusting variables.

Finally, positioning can be regarded as an especially challenging area of marketing for recommendations because segmentation and targeting can be described as technical processes to a larger extent than positioning. Building a certain image of an organisation among its current and potential customers is a more creative process; in this regard, British Airways’ and Etihad Airways’ promotion initiatives, in which celebrities participate, are promising and potentially beneficial in terms of increasing customer loyalty and sales rates. The reason for this potential effectiveness is the trust that many members of the general public place in celebrities. Therefore, it can be recommended that all three companies engage more extensively in collaborating with influential and reputable celebrities.

An additional recommendation is connected to the use of marketing mixes, which is largely dependent on an organisation’s STP. It was noted above (see Industry Examples) that British Airlines employs a four-P’s marketing mix. It can be recommended to the company to expand the mix; e.g., by adding the people consideration. Similarly, the other two companies may discover that their continuous STP suggest that marketing mixes should be expanded, in which case the necessary changes should be made and not impeded by inflexible marketing strategies.

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Conclusion

The importance of STP has been demonstrated both from the theoretical perspective and based on specific industry examples. Particular themes that emerged from the analysis are the changing requirements of the modern global market and the need to adopt flexible marketing strategies. Based on the results of the analysis, it was recommended to American Airlines to diversify its current segmentation and targeting variables and to improve its promotion efforts as part of positioning. Further, it was recommended to British Airways to consider adopting the undifferentiated targeting strategy. Finally, to Etihad Airways, it was primarily recommended to commit to the global marketing principles as opposed to the international marketing principles. As it was repeatedly stressed above, improved STP will allow the companies to obtain powerful instruments for promoting their growth and increasing their ability to satisfy customer needs more successfully.

Reference List

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Bell, J 2016, ‘Etihad Airways reveal 360-degree virtual reality film starring Nicole Kidman’, The National. Web.

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Bhasin, H 2017b, Marketing strategy of British Airways – British Airways marketing strategy. Web.

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Dudovskiy, J 2016, British Airways segmentation, targeting and positioning. Web.

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Johnson, MW, Christensen, CM & Kagermann, H 2008, ‘Reinventing your business model’, Harvard Business Review, vol. 86, no. 12, pp. 57-68.

Lockett, A, Thompson, S & Morgenstern, U 2009, ‘The development of the resource-based view of the firm: a critical appraisal’, International Journal of Management Reviews, vol. 11, no. 1, pp. 9-28.

Lusch, RF, Vargo, SL & Malter, AJ 2006, ‘Marketing as service-exchange: taking a leadership role in global marketing management’, Organizational Dynamics, vol. 35, no. 3, pp. 264-278.

Smith, JB & Colgate, M 2007, ‘Customer value creation: a practical framework’, Journal of Marketing Theory and Practice, vol. 15, no. 1, pp. 7-23.