Skip to content

Segmentation, targeting and positioning

Why read this? : We go through the key steps in the segmentation, targeting and positioning process. Learn how to find and go after the most attractive segments and set your brand up for success. Read this to learn how segmentation, targeting and positioning helps you win more customers and build stronger brands.

Segmentation, targeting and positioning

How this guide raises your game :-

  1. Learn the 3 main types of segmentation and the pros and cons of each.
  2. Understand how to set up a market attractiveness model to help targeting decisions.
  3. Learn how to build a brand positioning statement.

Segmentation, targeting and positioning is a marketing planning process.

It starts by breaking down the total market into more manageable segments. You identify groups of customers who share similar buying characteristics. 

Usually, you can’t go after every segment, so you prioritise. You evaluate each segment’s potential and decide where to focus your efforts. You target the most attractive segment, usually that which will deliver the best long-term sales and profits to your profit and loss.

Finally, you craft your positioning statement. This outlines who you’re going after, what benefit you’ll offer them and how you’ll prove that benefit. 

But before we go into the detail of how the segmentation, targeting and positioning process works, let’s start with where it sits in the brand development process 

Archery target with arrows in bullseye to symbolise marketing targeting

Ready to test your knowledge?

What’s your starting level of knowledge about segmentation, targeting and positioning?

Take the 2 minute, 5 question Three-Brains segmentation, targeting and positioning quiz and see how much you know about segmentation, targeting and positioning already.

Brand development - segmentation, targeting and positioning

Segmentation, targeting and positioning is the third step in the brand development process

It comes after the market research you do to analyse your market and define your brand goal, including your vision and purpose

At this stage, you start to define HOW you’re going to take on the market and achieve your goal. Who you’re going to go after, and how you’ll influence them to choose you.

You decide where to focus your attention. Which specific opportunities to go after. And how you’ll set up your brand to achieve its goal. 

Flow diagram showing the 5 steps of the brand development process - analyse your market, build your brand goal, segment, target and position, build your brand identity, brand activation

Segmentation, targeting and positioning is the process which helps you make these choices. You go from speculating about what you could do to deciding what you will do. This then drives your brand identity and marketing plan.

Why do segmentation, targeting and positioning?

As the famous quote says, you can’t please all of the people all of the time. Every category has different types of customers. They aren’t all looking for the same thing and won’t all make decisions the same way. These differences affect how you market your brand.

For example, customers might be different age groups or live in different parts of the country. Customers might consume the product in different ways or at different times. And they might have different underlying needs and wants.

Grouping customers based on shared attributes (segmentation) helps you develop more relevant solutions. Specific products and services, brand activation and customer experiences designed with their needs in mind. 

Customers choose products most relevant to their needs, rather than generic products designed to appeal to everyone. It’s easier to persuade a customer to buy a product that’s designed for their specific need. 

Segmentation helps you manage resources

But it’s not just increasing your chances of a sale. It’s also about helping you manage your resources more efficiently and effectively. No one has an infinite marketing budget. So you have to carefully plan how much to spend on areas like product development, advertising and price promotions.

Segmenting a market means you can focus your resources on specific groups, rather than spread them over the whole market. This almost always delivers a stronger ROI and boosts your profit and loss. There’s less wasted investment because you choose NOT to spend money against segments that’ll deliver the lowest return.

So why you do segmentation, targeting and positioning is to sell more to the right type of customer and spend less doing so. Now, let’s look at how it’s done.

The segmentation, targeting and positioning process

The segmentation, targeting and positioning process is well documented in marketing textbooks, notably Marketing Management by Philip Kotler. (See our branding lessons article for more on Kotler). 

You start with the whole market, and end with a clear view of how you’ll approach it with these 3 steps :-

  • segmentation : divide the total market into manageable segments.
  • targeting : identify which groups to target based on their attractiveness. 
  • positioning : decide where and how to position your brand to meet the target’s needs.

Segmentation

Customers within any category will have different characteristics and different ways of making decisions. The main role of segmentation is to identify these differences. e.g. in what customers look like, what they do and how they decide. You group customers into segments who share similarities across relevant characteristics. Segments have to be easy to identify and distinctly different from other segments.

You do segmentation research to work out which customer variables most influence the buying decision. You hire a market research company to do qualitative and quantitative research to identify relevant variables around :-

  • demographics.
  • occasions. 
  • needs or attitudes.

Demographics

Demographic information is information based on the statistical study of a population.

It’s the type of data you typically see captured by governments and census-type surveys.

Common examples include age, gender, ethnic origin, income levels, education and family situation.

It’s the simplest way to segment as it’s based on how people are. This is easy for most people to understand.

It’s a starting point for segmentation, especially for smaller and newer businesses.

Overhead view of a train station concourse with many different types of people

Advantages of demographic segmentation

The big advantage of demographic segmentation is it clearly and visibly defines the segment. You can easily picture a demographic segment like “men under 30” or “families in Sydney with teenage children”.

Demographic groups are common in media planning. Media agencies can match media seller audience data to your segment data. They’ll know certain types of people watch certain TV shows, pass certain locations or visit certain websites. They try to find the best places to reach your segment. 

For example, that’s why, you see premium car adverts in drama shows as these attract more upmarket audiences. And it’s why you see beer adverts during sporting events as men drink more beer and watch more sport. You can usually tell the type of segment the advertiser is going after by watching where and when their advertising appears.

Disadvantages of demographic segmentation

However, demographics alone can be an overly broad way of grouping customers. And it may not always be an accurate predictor of behaviour.

Let’s say you’re a beer brand manager. Your product is a premium-priced and craft-brewed beer. You might decide your ideal segment is “men under 30 in Sydney”. But is that too broad?

For example, do all men under 30 in Sydney like craft beer? Do they all go to the same type of bars? Can they all afford to pay a premium price? Do they all have similar taste preferences? Will they all like the same type of packaging

The chances are at least some of these answers will be no, and that highlights the limits of demographic segmentation. Don’t get us wrong, it has its uses. But unless it’s all you have, you usually need a deeper level of understanding of when, where and why customers think, feel and do the things they do.

Occasions

This is a segmentation based on behaviour. It’s usually also linked to times and / or locations. Rather than being based on how people are, it’s based on what they do, and where and when they do it. 

How much of a product do people consume? When do they consume it? How often do they consume it? Where do they consume it? These are some of the common questions in an occasion-based segmentation. 

For example, an occasion-based segmentation for a restaurant could look at different booking behaviours.

So customers who prefer to book online with an app versus those who prefer to call versus those who just show up.

For a manufacturer, an occasion-based segmentation could be based on how people respond to price discount activity like vouchers or coupons. You focus your offers on people who’ll switch if the price is right. And not on those who always stay loyal to the same brand.

When occasions are time-based, that could be time of day or day of the week. For example, people eating out for lunch during the week will be different from those eating out on a weekend night.

In some categories, the segments might be based on the stage in the customer journey. Women in pregnancy vs women who’ve already had a baby, for example.

With occasion-based segmentation, the focus is more on the situation than the person. There are pros and cons to this versus demographic segmentation. 

Occasion-based segmentation better at predicting choice

Occasion-based segmentation is usually a better predictor of brand choice than demographics as it’s based on actual measured behaviour. Looking at what customers do gives a richer picture of how products are consumed.

Occasion-based segmentation doesn't tell you why customers choose

Understanding how products are consumed is a helpful insight as you can target your messages to land at relevant times and in relevant places. It helps you know when to run promotions, for example. 

But it doesn’t help you understand why customers are making decisions at those times and places. It does not help build your creative message or understand the customer’s underlying need. Without that insight, you don’t know which benefit to focus on.

Needs or attitudes

This type of segmentation tries to get more into the minds of customers and their decision-making. 

It takes a more psychological and behavioural science-led view of how customers choose products and services. 

It aims to identify needs, attitudes and motivations as to why customers act and choose the way they do.

Are they safety-conscious or risk-takers? Are they driven by indulgence or healthiness? Do they see convenience or value as more important? 

Research agencies love this type of research.

Close up image of a man in a suit wiping away a tear and looking sad

It often results in the creation of customer personas to describe each segment. “Anxious Anne”. “Lonesome Lukas”, “Risky Rachel” and so on. These paint a picture of each segment and show their underlying motivations. 

This can help make the messages in your communications more relevant and meaningful. 

However, they’re not helpful for media planning, as you can’t buy media against their factors.

You usually have to invest in qualitative research to find out what these needs are. And then you do quantitative research to work out the size of the different needs-based segments. This can be expensive and time-consuming.

An example customer segment profile completed for a customer called Lonesome Lukas. Includes their story, goals, habits, pains and influences.

Combining segmentation types

In an ideal world, you’d combine all 3 types of segmentation. You take the best bits from each. The simplicity of demographics. The behaviour-driven nature of occasions. And the psychological insight from needs-based segmentation. 

But in reality, you rarely have access to all three types of segmentation data. 

If you’re new to segmentation, it’s usually best to start with demographics. It’s the simplest approach. You add occasion and needs-based segmentation when you’re more confident about how you understand your audience.

The easiest way to think about segmentation is to imagine your whole audience as like a giant pizza or cake. You’re essentially trying to split the whole into wedges or segments which are easier for you to manage.

You don’t eat everything in one go.

In fact, let’s stick with the pizza theme, and imagine our business was a pizza shop

Our customer segmentation might be people who like pineapple on pizza, people who don’t like pineapple on pizza and people who just don’t like pizza.

An apple pie cut into six segments with one segment pulled out on a slice

This is an occasion-based behavioural way of segmenting the market as it’s based on what they do. (Eat pizza with pineapple, eat pizza but not with pineapple, don’t eat pizza).

What matters here though, is that with this understanding, you can start to review what you offer and identify which segment is going to be the most attractive.

You’d then obviously choose to NOT do any activity for the other segments. This review of the segments and the choice of which is the most attractive is called targeting. In this step, you identify your target audience.

Customer segment persona / profiles

As you collect information about the segments and start to focus on which you’ll target, you should also consider how you’ll organise what you know about each segment. 

Similarly to the customer experience process, it’s common to create customer segment profiles for key segments.

These collate and summarise key facts about the segment.  You use them to have a single collective customer view which helps deliver consistent brand activation

(See our separate article on customer segment profiles for more on this).

Customer Experience Personal Template Blank.001

Targeting

There are many different ways to identify which segment(s) will be the most attractive for your business.

The simplest way is where you can allocate a sales value to each group. And even if you don’t have a specific sales value for the segment, you should be able to at least quantify the number of people in each segment.

But bear in mind, that the biggest segments are often the most competitive.

Your competitors have the same overall market as you do. The bigger the segment, the more competitors it attracts.

Archery target with arrows in bullseye to symbolise marketing targeting

The competitiveness of each segment can also be worth considering when evaluating the attractiveness of a segment. If there is a dominant competitor against a specific segment, it will take you more time and resources to dislodge that competitor. It’s worth looking at less competitive segments, even if they may be smaller overall.

Other targeting variables

There are other variables to consider. What about price, for example? Is one segment prepared to pay more of a premium? What about easiness of access to the customer? Can you actually find the customer? You can even look at more strategic views of market attractiveness. For example, Porter’s five forces model suggests you look at the threat of :-

  1. Segment competition – strong players in the segment make segments less attractive.
  2. New entrants – segments where it’s easy / likely new competitors will come in are less attractive.
  3. Substitutes – if other products can easily meet the segment’s need, the segment is less attractive.
  4. Buyers – if buyers in the segment have increasing power, it’s less attractive.
  5. Suppliers – if suppliers in the segment have increasing power, it’s less attractive.

Role of target market choice

Targeting is really about the connection between your audience and your brand identity. You have to decide where your brand has the best chance to win, based on the fit with the segment, and your competitive strategy. It’s also about the decision on where NOT to play. You want to focus your resources on the most likely segments to choose your products.

So if your products have more technology features than competitors, go for the segment which focuses on these rather than on price. If your product focuses on sustainability, focus on that and avoid the segment that values convenience.

Chances are you’ll have around 6-8 segments to choose from. Unless your business has a portfolio of products, you should use market attractiveness to identify the top ones to focus on. You usually do this by capturing relevant data and using it to calculate an attractiveness ‘score’ for each segment.  

How to calculate segment attractiveness scores

The data to calculate attractiveness is usually found via secondary research. Government statistics, observed behaviour and online sources can be rich sources of data to help you measure segments. 

You use this data to make decisions about the relative importance of each variable and weight a percentage to each variable. How you do this depends on your business’s goal and context.

This weighting is then captured in a table or graph where the initial data is plugged in and then weighted scores are calculated based on the data inputs.

There are 7 steps to get to segment attractiveness scores :-

Market segment attractiveness blank template

Step 1 - Identify variables to evaluate segments

So, here you identify the variables you plan to use to measure how attractive the market is.

This could be the relative size or profitability of the market, for example. The important point is that they need to be quantifiable measures, where you have access to the actual data.

Note, that your choice of variables can be more than the three we picked here. But we’d recommend no more than seven to keep the model relatively simple to use.

Step 2 - Identify weighting across variables

Here, you decide how important each variable is to your final choice. You might start by assuming all variables are equal but then adjust depending on your goals. For example, if your end goal is total sales, you give more weight to market size. But if it’s profit margin, you upweight profitability.

Note that the total weights must add up to 100 to make the calculations work. In effect, you are allocating 100 ‘points’ across the variables.

Step 3 - Identify segments to evaluate

Here you plug in each segment you want to evaluate and start to populate the scores for each variable for that segment.

Step 4 - Add up the total size of the variable

To create a weighted score, you first add up each segment’s score (horizontally in this table) to get a total variable size.

Step 5 - Calculate the weighted score

This weighted score calculation looks complicated. But if you did steps 1 – 4, the numbers are already plugged into the table. You take the segment variable size divided by the total variable size and then multiply it by the weighting for that variable. That gives you the weighted score for that segment – variable combination.

Step 6 - Repeat for each segment

Once you complete one row of scores, you follow the same process for the rest of the table.

You follow the same calculation process as in Step 5 pulling the correct segment size, total variable size and weighting numbers to calculate each segment – variable score.

Step 7 - Calculate the segment total score

Add up each segment’s variable scores to get a total attractiveness score. The one with the highest score is the most attractive.

Using the market attractiveness model

To use the market attractiveness model, you gather the relevant data and plug it into the spreadsheet.

It gives you a relative attractiveness score for each segment. Check out our separate market attractiveness article for a worked-through example. 

The model gives you a fact-based view of which segments are more attractive than others.

There may however also be some subjective influences on your decision. For an example, check out our Six Hats creative thinking article which walks through how a business might build other factors into its targeting decision.

Market segment attractiveness - pizza shop example

While we won’t cover the topics here, we also recommend you check out the Boston Consultancy Group BCG matrix and the GE McKinsey matrix models.

These are more complex but follow the same basic logic process we’ve used above.

Positioning

The final part of the segmentation, targeting and positioning process is how you position your product. This position is how you want customers to perceive your product in relation to your competitors. The term was originally conceived by Ries and Trout at the end of the 1960s. 

The positioning statement is usually crafted based on a standard template. You fill in the blanks relative to your brand. You then use the positioning statement to shape your brand identity. it usually has 5 elements :-

1. TO (Target audience) 2. BRAND (Your brand) 3. IS THE BRAND OF (Frame of reference) 4. THAT DELIVERS (Benefit – Functional / Emotional ) 5. DUE TO (Reason to believe and Reason why).

Target audience is the segment you chose based on its attractiveness. Brand is self-evident. But the other elements need some explanation.

Frame of reference

The frame of reference defines how customers group similar products for which your brand is a substitute.

It defines the category and sets the stage on which to compete. It clarifies what a brand “is” and therefore, must be familiar to customers.

The frame of reference should be large enough to be worth going after. But if it’s too large, it may lose its distinctiveness. And if it’s too small, it may provide familiarity but represent insignificant volume or growth potential.

For example, if you make chocolate bars, a ‘narrow’ frame of reference could be other chocolate bars.

Frame of reference tool to be used to define category with small circle of narrow definition and large circle for broad definition

A mid-size frame of reference would be snacks.

And a broad frame of reference would be all food.

A narrow frame of reference can help your business focus on very specific target groups. But you may only have a limited number of customers looking for that very specific definition of the category.

Going broad with your definition gives you more potential customers, but also a broader range of competitors and a less specific and clear definition of the need.

Example Frame of reference - Pizza Shop

Let’s look at an example using the pizza shop from earlier. 

A narrow definition would be to only look at other pizza shops based in Bondi.

But as pizza delivery can go to a wider area, a broader frame would be pizza delivery services in the Eastern Suburbs. This brings in competitors like Pizza Hut and Domino’s, plus delivery services like Menulog and DoorDash.

And with the broadest definition, you could define the market as all evening meals in Sydney. This brings in a wider range of options from other cuisines to home cooking.

Frame of reference - pizza shop example

It can take some experimenting to find the ideal definition of your category as it depends on your business’s context. But you must define it as it then helps you decide on your product range, your innovation plan and your communications among other things.

The Point of difference

The final part of the positioning statement is the point of difference.

This is the distinct element of your brand that will make the difference for the target audience.

It’s made up of the benefit tied to the justification system for the benefit – the reason why and the reason to believe.

The benefit and benefit ladder

The benefit connects the customer to your brand. It’s what they want or need from the category that your brand can offer in a unique, differentiated and superior way. 

Benefit ladder - Product feature, functional benefit, consumer benefit, emotional benefit

You can map out benefits using a tool like the benefit ladder. This approach is useful as benefits work at multiple levels. For example, it could be an attribute or feature of the product itself. Or it could be related to a more functional, consumer or emotional-level benefit. (See our branding lessons article for more on emotional benefits).

So that and because

Each of these different levels connects with the benefit above and / or below it. Start at the lowest “product feature” level. As you go “up” the ladder, each benefit is delivered “so that” the level above can be delivered until you reach the highest level emotional benefit. From the top of the ladder going down, each higher level benefit is delivered “because” the benefit below it has been delivered.

If you build each level of benefit correctly, you can move up and down the ladder and link each rung together with a “so that” or a “because“. 

Once you map all these out, you use it to identify which benefits to focus on at different stages of the customer journey. For example, you might highlight the emotional benefit in advertising campaigns to drive awareness. Emotional benefits go deeper psychologically. They tend to be stronger and more consistent over time. Think buying a car to keep your family safe (e.g. Volvo). Or buying alcohol to celebrate a special occasion (e.g. Krug champagne).

More functional benefits tend to be used closer to the point of purchase to help close the sale. They’re more short-term and varied. For example, price discounts or speedy deliveries.

The Reason why and Reason to believe

The final part of the positioning statement is the reason why and the reason to believe.

These elements justify and validate your brand benefit. They show why the customer should believe your benefit.

Reason why

Reason’s why are communications elements that explain the product. They help the customer understand the message of the benefit. 

The reason why might relate to ingredients

For example, take health and beauty products like shampoo, skincare and make-up. These often contain ingredients with specific benefits. When the Reason Why is ingredient-based, it’s usually where the brand has a unique ingredient that differentiates it from competitors.

The reason why may relate to sourcing.

For example, think about wine from a specific region or country. If your brand is located somewhere that adds an extra and relevant benefit for the customer, this can be a real competitive advantage. In some categories, sourcing has become so important, that the name is legally protected. e.g. champagne can only come from the Champagne region of France and Feta cheese can only come from Greece.

The reason why may relate to how a product is made.

Think about whiskies aged for 10+ years or that use a certain type of still. These process-driven reasons why are common in premium products as they’re often built around quality and attention to detail that customers will pay more for.

Finally, the reason why may relate to the mode of action. What a product actually does. This is common with products which claim health benefits. e.g. yoghurts or infant formulas which contain prebiotics and / or probiotics and claim to benefit the immune system.

Check for relevance with market research

When you decide on the reason why, make sure it’s relevant to the need or benefit the customer is looking for. Do market research to confirm which reason why resonates strongest with your target audience.

Reason to believe

The second half of the justification system is the reason to believe. It’s the evidence or validation of why the reason why should be believed.

This could relate to clinical or scientific evidence behind the reason why. Or it could be your product was the first to include or make a specific ingredient or benefit. This helps you “claim” the credit for the reason why.

It could also be that external and impartial experts, thought leaders or influencers endorse and support your message.

Make sure you pick credible experts though. Some people claim to be experts when they aren’t. But choosing the right experts can be a powerful way to back up your message.

Reason Why and Reason to believe ways to define

Finally, it may be that your brand has some sort of legitimacy based on history. For example, it’s been doing the same thing for such a long time it’s recognised as a leader in its field. Or perhaps a past event has stuck in people’s minds and helps back up your core message.

Sometimes it could just be down to the fact that your brand found a relevant connection to consumers long ago and has managed to retain and build on that.

Positioning statement example

While the positioning statement seems like just one sentence, you can see that it’s actually a carefully constructed statement with many choices. As a reminder, it follows this structure :- 

1. TO (Target audience) 2. BRAND (Your brand) 3. IS THE BRAND OF (Frame of reference) 4. THAT DELIVERS (Benefit – Functional / Emotional ) 5. DUE TO (Reason to believe and Reason why).

As an example for our pizza business, we’d start with our target audience – pineapple pizza lovers. Our brand is the Sydney Pineapple Pizza Company. And our frame of reference is pizza shops delivering to the Eastern Suburbs.

A graphic showing examples of how to do segmentation, targeting and positioning for a pizza shop company

Our benefit is a functional one (tastiest) backed up by a reason why around sourcing (the world’s finest pineapples) and a reason to believe that these ingredients (pineapples) have been endorsed by the World Pineapple Organisation. So, we end up with this positioning statement :-

To pineapple pizza lovers, the Sydney Pineapple Pizza Company is the pizza shop delivering to the Eastern Suburbs that delivers the tastiest pineapple pizzas due to sourcing the world’s finest pineapples as proven by the World Pineapple Organisation.

See our how to use positioning in e-Commerce article for more on using positioning. 

Conclusion - segmentation, targeting and positioning

Segmentation, targeting and positioning is a key marketing planning process to make choices about how your brand will succeed in its category.

You use it to identify segments and evaluate their attractiveness to deliver against your goals. It then helps you craft a positioning statement that sets the direction for how you’ll achieve those goals. 

These are key elements of your overall brand strategy. They help you define your brand identity, build your marketing plan and write the briefs which drive all your brand activation. The segmentation, targeting and positioning process is at the heart of all long-term successful marketing. That’s why you must learn how to do it, and learn how to do it well. 

Three-Brains and brand strategy

Need help building your brand strategy? Sceptical about all those agencies who say they can solve your marketing problems before they even ask what those problems are?

We’ve many years of marketing experience building successful brands. Our coaching and consulting services start by helping you work out what your marketing problems are. Then, we help you find the right answers to solve those problems for your business. Get in touch to learn how we can help you build your brand strategy skills and grow your business.

Latest blog posts on brand strategy