How to determine profitability

Segmentation, Targeting, and Positioning   Segmentation, targeting, and how to determine profitability together comprise a three stage process. Segmentation involves finding out what kinds of consumers with different needs exist. In the auto market, for example, some consumers demand speed and performance, while others are much more concerned about roominess and safety.

Generically, there are three approaches to marketing. In the undifferentiated strategy, all consumers are treated as the same, with firms not making any specific efforts to satisfy particular groups. This may work when the product is a standard one where one competitor really can’t offer much that another one can’t. Usually, this is the case only for commodities. Note that segmentation calls for some tough choices. Thus, we need to determine which variables will be most useful in distinguishing different groups of consumers. Several different kinds of variables can be used for segmentation.

Campbell’s soup, for instance, has found that Western U. Some consumers want to be seen as similar to others, while a different segment wants to stand apart from the crowd. Another basis for segmentation is behavior. One can also segment on benefits sought, essentially bypassing demographic explanatory variables.

Some consumers use toothpaste primarily to promote oral health, while another segment is more interested in breath freshening. Our choice should generally depend on several factors. First, how well are existing segments served by other manufacturers? It will be more difficult to appeal to a segment that is already well served than to one whose needs are not currently being served well. Secondly, how large is the segment, and how can we expect it to grow?

It is possible using to target very specific customer groups based on magazine subscriptions, past purchases, and demographic variables. For example, Apple Computer has chosen to position itself as a maker of user-friendly computers. The emphasis here is mostly on low cost, subject to reliable performance, and less value is put on customizing the offering for the specific customer. Wal-Mart is an example of this discipline. There is less emphasis on efficiency, which is sacrificed for providing more precisely what is wanted by the customer. Nordstrom’s and IBM are examples of this discipline.