Customer-Driven Marketing Strategy — Segmentation, Targeting, Differentiation & Positioning
STP explained: four segmentation bases, why segment, the five requirements for useful segments, targeting with Porter's five forces and the five target-selection patterns, differentiation types, positioning and perceptual maps.
1Customer-driven marketing strategy
Why "customer-driven"? A marketing strategy built without understanding your real customer fails. Focus on recognising real needs, then retain customers by meeting them repeatedly. That builds loyalty.
- Segmentation
- Targeting
- Differentiation
- Positioning
Decide who to serve
- Market segmentation: dividing a market into smaller segments with distinct needs, characteristics or behaviour that may need separate strategies or mixes.
- Market targeting: evaluating each segment's attractiveness and selecting one or more to enter.
Decide how to create value
- Differentiation: differentiating the offer to create superior customer value.
- Positioning: arranging for the offer to occupy a clear, distinctive and desirable place in target consumers' minds, relative to competitors.
2Market segmentation — four bases
Kotler: segmentation is dividing a market of potential customers into groups based on different characteristics, then serving selected segments.
| Base | Divides by | Examples from the notes |
|---|---|---|
| Geographic | Nations, regions, states, counties, cities | Keells Super locates branches in high-residential areas across the country |
| Demographic | Age, gender, family size, family life cycle, income, occupation, education, religion, race, generation, nationality | Milk powder in Sri Lanka: different packs from infants to the elderly; age bands such as ≤5, 5–15, 15–30, 30–45 |
| Psychographic | Social class, lifestyle, personality | Social classes (lower-lower … upper-upper); working women's lifestyle → instant foods, day-care centres, workwear |
| Behavioural | Buying behaviour | See below |
Behavioural segmentation parameters:
| Parameter | Meaning | Example |
|---|---|---|
| Occasion | Purchased for a specific occasion, frequent or once in a lifetime | Avurudu sweets, wedding sarees, Valentine's gifts |
| Usage rate | Heavy / medium / light users | Heavy mobile-data users get unlimited plans |
| Loyalty | Customer retention rates show brand loyalty | Loyalty card tiers |
| Benefits sought | The benefit customers want | Toothpaste: whitening vs sensitivity vs cavity protection |
Why segment?
- Meet customer needs more precisely
- Increase sales and profits
- Segment leadership: become the leader in a segment
- Retain customers
- Focus marketing communications and cut needless advertising and feature costs
Five requirements for effective segments
Segmenting salt buyers by hair colour is useless. Hair colour doesn't affect salt purchases. Useful segments must be:
| Requirement | Meaning | Example from the notes |
|---|---|---|
| Measurable | Size, purchasing power and profile can be measured | 10–15% of Sri Lankans are left-handed, but there's no data on them, so the segment is hard to quantify |
| Accessible | Can be effectively reached and served | Late-night socialisers who heavily use a fragrance but share no common places or media are hard to reach |
| Substantial | Large or profitable enough to serve | Cars for people over 7 feet tall wouldn't pay |
| Differentiable | Segments respond differently to marketing-mix elements | If men and women respond the same way to soft-drink marketing, they aren't separate segments |
| Actionable | Effective programmes can be designed to attract and serve them | A small airline found 7 segments but lacked the staff for 7 programmes |
Measurable · Accessible · Substantial · Differentiable · Actionable
3Market targeting & Porter's five forces
Target marketing is choosing the group of customers the business will satisfy. Prices, promotions and distribution are then designed for them. To evaluate segments, consider:
- Segment size and growth
- Structural attractiveness, using Porter's five forces
- Company objectives and resources
| Force | Meaning | Depends on |
|---|---|---|
| 1. Rivalry among existing competitors | More competitors with similar offers means less power for the company | Exit barriers, similarity of offers and strategies, number, size and commitment of rivals, high fixed costs |
| 2. Threat of new entrants | Easy entry weakens incumbents. High entry barriers protect them | Capital needed, economies of scale, distribution access, brand loyalty, cumulative experience, switching costs |
| 3. Threat of substitutes | Different products meeting the same need. Red Bull vs coffee: both give energy | Number of substitutes, buyers' propensity to switch, relative price-performance, perceived differentiation, switching costs |
| 4. Bargaining power of suppliers | How easily sellers can raise input costs | Supplier concentration, input uniqueness, switching cost, threat of forward integration, importance of volume to the supplier |
| 5. Bargaining power of buyers | Buyers' ability to drive prices down | Buyer volume and concentration, order size, ability to substitute, switching costs, information, threat of backward integration, price sensitivity |
Strong forces → less attractive segment (low profit potential). Weak rivalry, high entry barriers, few substitutes, weak suppliers and weak buyers → attractive segment.
4Five patterns of target-market selection
Two ways to achieve full market coverage
Undifferentiated (mass) marketing
- Ignores segment differences: one offer, one strategy for the whole market.
- Focuses on what buyers have in common.
Differentiated (multi-segment) marketing
- Different offers and messages for different segments.
- A combination of concentrated and undifferentiated marketing.
5Differentiation
After choosing targets, the firm decides on a value proposition: how it will create competitive value for those segments. Marketing differentiation produces offers customised to a segment to gain competitive advantage.
There are two options:
- broad differentiation: wide appeal with special features
- focused differentiation: appeals to a niche
How to promote it
- Through packaging, promotion, even the name.
- It may need new functional features, or just a packaging redesign.
- Sometimes no product change at all: just a new advertising campaign.
How to measure it
- Some differences are physical and measurable (e.g. "the lowest-price gym in the area").
- Others are abstract ("the coolest car", fashion shown on young, hip models). These can't be measured.
- So differentiation is often subjective: it changes how customers evaluate the benefits of one item versus another.
Example: BMW's slogan "Sheer Driving Pleasure" claims an abstract benefit that can't be measured, and the real difference may be tiny.
Types of differentiation
| Type | How |
|---|---|
| Price | Lowest price for cost-conscious buyers, or a high price to signal luxury |
| Performance and reliability | Long-lasting value, better performance (e.g. longer-life batteries) |
| Location and service | "Local business in your community" → personal service, which also justifies a higher price than national brands |
Benefits:
- Brand loyalty
- Can sustain a higher price (customers see it as worth more)
- Helps stand out when products are similar (bottled water: stress price, local origin or design)
6Positioning & perceptual maps
The place a product occupies in consumers' minds, on important attributes, relative to competing products.
- Firms position by stressing unique features or building an image through the marketing mix.
- Once a strong position is established, it's hard to reposition.
Perceptual (positioning) maps show how customers perceive brands versus competitors on key buying dimensions. A firm can then position:
- in a gap in the market (no competitor there), or
- head-to-head next to a competitor.
Drag circles to where customers would place each brand. Circle size = market share. Look for empty areas: those are the gaps.
The dimensions are price and luxury vs performance orientation. Circle size = market share. Toyota's Land Cruiser sits as a niche brand: relatively affordable and performance-oriented.
Choosing a differentiation and positioning strategy: three steps
- Identify a set of possible competitive advantages to build a position on.
- Choose the right advantages and an overall positioning strategy. A competitive advantage is gained by offering greater customer value, through lower prices or more benefits.
- Communicate and deliver the chosen position effectively to the market.
When several firms chase the same position, each must find another way to stand out, offering unique benefits valued by a substantial group in the segment.
Expect:
- The 4 segmentation bases with Sri Lankan examples
- The importance of segmentation
- The 5 requirements (MASDA) with the notes' examples
- Porter's 5 forces and what each depends on
- The 5 target-market patterns (draw the P × M grid)
- Undifferentiated vs differentiated marketing
- Differentiation types
- Positioning and perceptual maps
- "How does Coca-Cola position its brand?" Emotional happiness ("Open Happiness", "Taste the Feeling"), universal appeal, consistent red branding.
7Quiz 04: model answer
From Week 05/Quiz 04.docx in the Marketing folder.
Question: You plan to start a company selling luxury fashion brands to high-income earners. Develop a customer-driven marketing strategy to succeed.
What the model answer covers:
- Explain the new product idea
- Use segmentation bases to recognise the potential segments
- Evaluate each segment: size and growth, structural attractiveness, company objectives and resources
- Select the segments to target
- Develop a positioning strategy covering each core concept: differentiation, value proposition and positioning statement
8Quick revision sheet
| Concept | Remember it as |
|---|---|
| STP + D | Segment → Target → Differentiate → Position |
| Segmentation bases | Geographic · Demographic · Psychographic · Behavioural |
| Behavioural | Occasion · usage rate · loyalty · benefits sought |
| Why segment | Precise needs, sales and profit, leadership, retention, focused communication |
| Requirements | MASDA |
| Targeting | Size and growth + structural attractiveness (Porter) + company goals |
| Porter's 5 forces | Rivalry · new entrants · substitutes · supplier power · buyer power |
| 5 patterns | Single concentration · selective specialisation · product specialisation · market specialisation · full coverage |
| Full coverage | Undifferentiated (mass) vs differentiated (multi-segment) |
| Differentiation | Price · performance and reliability · location and service |
| Positioning | Place in the mind vs competitors; perceptual maps; find gaps |
| Positioning steps | Identify advantages → choose → communicate and deliver |
?Self-check quiz
10 questions on this week. Answer them all, then press Check my answers. Your best and latest scores are saved and shown on the subject page.