Segmentation, Targeting & Positioning

Applied Market & Business Strategy (the “Strategy & Management Game”) - NIT / TUHH, Hamburg · part of my Technology Management MBA · study notes for revision.

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Chapter 1 was about reading a situation. This one is about the choice that follows: you cannot be everything to everyone, so who exactly do you serve, and how do you make them feel your product is for them? The answer is a three-step flow the whole marketing world calls STP - Segment, Target, Position.

The single most useful warning in this chapter comes first, though. The most common - and often fatal - mistake companies make is to rush into product development before they’ve done any of this. They build the drill they think is clever, then go hunting for someone to sell it to. That’s backwards. Understand the customer first; design second.

Caution

The order matters. Segment → Target → Position → then build. If CERMEDES (our mid-sized German power-tool maker, once a trusted brand, now struggling) skips straight to “let’s add Bluetooth to the drill,” it’s guessing. The Bluetooth might be brilliant engineering that no target customer will pay one euro more for.

1 · The STP flow

Think of STP as a funnel that turns a big, messy, heterogeneous market into one sharp promise aimed at one well-understood group.

Segmentslice the market into groups

→

Targetpick which group(s) to serve

→

Positionoccupy a place in their mind

STP in one line: divide the market, choose your part of it, then plant a clear, defensible idea of your product in the chosen customers’ heads.

Each step answers a different question:

Step	The question	The output
Segmentation	How does this market naturally split into groups?	A set of distinct, meaningful customer segments
Targeting	Which segment(s) can we serve profitably and defensibly?	One or a few chosen segments
Positioning	How do we want our chosen customers to think of us?	A positioning statement + a product designed to back it up

Note

Segmentation, formally. The old but still-perfect definition (Smith, 1956) is to view one heterogeneous market as a number of smaller homogeneous markets. Put plainly: split buyers into groups that are maximally similar within each group and maximally different between groups. If two “segments” behave the same, they’re one segment.

2 · Developing a value proposition

Before you can position anything, you need to know what value you actually offer - and value is not a feature list. It’s the answer to “what does this do for me?” Getting there is iterative, not a one-shot guess.

The healthy process looks like this: set your objectives, understand where you are and where you want to go, then genuinely get inside the customer’s head - with empathy and perspective-taking, not assumptions. Crucially, you validate your hunches through real engagement (interviews, surveys, fieldwork) and treat your first value proposition as a hypothesis to test and refine, often over several iterations, before it fits.

Set objectives & do the situation analysiswho are we, where are we, where to?

↓

Segment · Target · Positionfind a defensible, profitable group

↓

Draft a value propositiona hypothesis, not a fact

↓

Validate & iterateinterviews, surveys, fieldwork → refine

A value proposition is discovered, not declared. You draft it, test it against real customers, and refine until it fits - expect several rounds.

2.1 The Value Proposition Canvas

The tool that makes this concrete is the Value Proposition Canvas (Osterwalder et al.). It has two halves that must match: the customer profile (a circle, describing the customer as they are) and the value map (a square, describing what you offer). You do the customer side first - honestly - and only then design the value map to fit it.

Customer profile the circle - understand

• Customer Jobs - what the customer is trying to get done: tasks, problems to solve, wants and needs (functional, social, emotional).
• Pains - the bad stuff: negative emotions, undesired costs, risks, obstacles before/during/after the job.
• Gains - the good stuff they want: benefits, savings, positive outcomes - expected, desired, or delightful surprises.

Value map the square - design

• Products & Services - what you actually offer to help the job get done.
• Pain Relievers - how your offer reduces or removes the customer’s pains.
• Gain Creators - how your offer produces the gains the customer hopes for.

Fit is achieved when your Pain Relievers and Gain Creators actually address the customer’s most important Pains and Gains for the job they’re doing.

The whole logic collapses into one little equation worth memorising:

ValueValue = f(Pain Relief + Gain Creation)

Pain Relief how much you remove of what the customer dreads

Gain Creation how much you add of what the customer wants

Tip

You don’t have to relieve every pain and create every gain - that way lies a bloated, expensive product. Fit comes from nailing the few pains and gains that matter most for the job. A good canvas is as much about what you deliberately ignore as what you deliver.

3 · Jobs-to-be-Done (JTBD)

Here’s the mindset shift that makes the canvas click. The classic line:

“People don’t want to buy a quarter-inch drill - they want a quarter-inch hole.”

Nobody wants your product. They “hire” it to get a job done, and if something else does the job better, they’ll fire you and hire that instead. The cosmetics version says it just as well: “in the factory we make cosmetics; in the store we sell hope.” The drill is a means; the hole (or the shelf that’s now hung, or the pride in a job done right) is the end.

The productquarter-inch drill

→ hired to do →

The functional jobmake a quarter-inch hole

→ so that →

The real outcomeshelf up, room finished, feel capable

JTBD reframes competition around the job, not the product category. A picture-hanging strip that needs no hole is a competitor to a drill.

3.1 Finding needs through pains and gains

You uncover the job by interrogating the pains and gains directly. A useful set of prompts:

Digging into Pains	Digging into Gains
What frustrates or annoys them?	What are they looking for most (design, guarantees, features)?
Which features are they missing today?	How do current products delight them?
What are the main difficulties they hit?	What would make their life easier (more service, lower cost)?
What social risks (status, trust) do they fear?	What positive social outcome do they want?
What financial or technical risks worry them?	What would make them more likely to adopt (less cost, less risk, better quality)?
What barriers (upfront cost, hassle) block adoption?

3.2 A worked customer profile

To make it tangible, here’s the canonical example - a family choosing a cinema outing. Two different “jobs” (a date night vs. a kids’ afternoon) produce very different profiles from the same activity, which is exactly why segmentation matters.

For a “date night” job…	Jobs	Gains wanted	Pains felt
What the couple wants	Get entertained; escape real life; enjoy a moment together	Feel included in the story; leads to great conversation after; an intimate setting	Can’t get a babysitter; limited film options; too expensive; not intimate enough

The customer profile (circle) for a cinema “date night.” Notice the pains aren’t about the film at all - they’re about babysitting, intimacy and choice.

Once you see those pains, the value map almost writes itself: duo seats and a cocktail-bar space (create intimacy), a babysitting portal (ease the babysitter pain), small theatres and short run-times (enable more options, more often). That’s a value proposition built from the job outward - not from “we own a projector, let’s sell tickets.”

4 · Segmentation criteria - how to slice

So how do you actually cut the market? There’s no single right cut; you pick criteria that produce groups that are genuinely different in what they need and how they buy. In business-to-business (B2B) markets, a well-known ladder runs from easy, surface-level variables to deep, hard-won ones - least progressive to most progressive.

Firmographics least progressive · easy to get

Industry · company location · company size. The “demographics” of a firm - public, obvious, but only a rough cut.

Operating variables middle

Their technology, how they use the product and brand, their capabilities. Tells you more about fit than firmographics do.

Purchasing approach most progressive · hardest to learn

How the purchasing function is organised, general buying policies, and the internal power structure - who really decides. Deepest insight, hardest to obtain.

The B2B segmentation ladder. The deeper you go, the more useful (and the more expensive to discover) the segmentation becomes.

4.1 Need-based segmentation

The most powerful cut is usually by need - why people buy, not who they are. The same demographic can hide wildly different needs. A grocery example splits shoppers not by age or income but by what shopping means to them:

The Quality Shopper shopping = perfection

• High demand for healthy food and enjoyment; wants the best, not the cheapest.

The Food-Discoverer shopping = inspiration

• Seeks novelty and experience; the trip itself is part of the reward.

The Smart-Shopper shopping = hunt

• Enjoys the game of finding good value; deals are a win.

The Low-Cost / Efficient Sourcer shopping = limitation / process

• Just wants it done: lowest cost or fastest process, no enjoyment sought.

Need-based segments of grocery shoppers. Two people of identical age and income can sit in opposite corners - which is precisely the point.

4.2 The persona

To keep a segment human (and to stop teams designing for a spreadsheet), we give each one a persona - a single, named, fictional character who embodies the segment. It turns “males 25-35, upper-middle income” into someone you can picture and argue about.

Persona: “Jane Moviegoer”

• 25-35 years old, upper-middle class (income around 60,000 USD)
• Married, two kids; prefers action movies
• Likes popcorn, beer and long drinks
• Buys tickets online; goes about once every two months

A persona makes a segment concrete. When someone proposes a feature, you ask: “Would Jane care?” - and usually the answer is obvious.

5 · Targeting - choosing which segments to serve

Now you’ve got several segments. You can’t chase all of them, so you filter. Each candidate segment faces a four-question gate - an easy mnemonic: Differentiable, Substantial, Accessible, Actionable. A “no” on any one knocks the segment out (or sends you back to find better segments).

1. Differentiable? - Is it genuinely distinct from other segments? (If not, you haven’t found a real segment - merge it back.)
2. Substantial? - Is it large and profitable enough, today and in the future, to be worth serving?
3. Accessible? - Can you actually reach and serve it through channels you can use?
4. Actionable? - Do we have the resources and capabilities to serve it well?

A candidate segment

→

Differentiable? Substantial? Accessible? Actionable?all four = Yes

→

Keep it → score against rivalsany No → find new segments, restart

The targeting gate. Segments that clear all four questions go through to scoring; the rest are dropped or redefined.

5.1 Scoring the survivors

If more than one segment survives the gate, rank them. Build a simple weighted table: your criteria down the side, your segments across the top, and your scores (say 1-4) in the cells. There’s no universal template - the discipline is choosing criteria that matter to your strategy and being honest with the numbers.

Criterion (weight)	Segment A	Segment B	Segment C
Size / profit potential	4	2	3
Growth outlook	3	4	2
Fit with our capabilities	4	2	3
Ease of access (channels)	2	3	4
Weighted total	High	Medium	Medium

5.2 The customer-segment profile

For each segment you decide to target, write it up so the whole company shares one picture. A tidy template:

Field	What to capture
Segment size	How many customers / how much spend is here today
Segment growth	Is it expanding or shrinking, and how fast
Profitability	Margins realistically achievable in this segment
Needs and wants	The jobs, pains and gains that define them
Buying process	Who’s involved, how they decide, how long it takes
Success factors	What you must get right to win here

Note

For CERMEDES, a plausible target is the serious trade professional - small building firms and craftspeople for whom a tool that fails on site costs a day’s work. They’re differentiable (very different needs from a weekend DIY buyer), substantial, accessible through trade channels, and actionable if CERMEDES leans on its real strength: German-engineered durability. That single choice already rules a lot of product ideas in and out.

6 · Positioning - occupying a place in the mind

Positioning is how customers perceive you relative to rivals: the spot your brand owns in their heads. It has two moving parts - the product you design, and the mental slot you aim for.

6.1 Core vs augmented product

Start with the layers of the product itself. The core product is the basic benefit that meets the need (a drill that makes holes). The augmented product wraps that core in the extras that actually create a satisfying, defensible bundle - brand, service, warranty, credit terms. Rivals can copy your core quite easily; the augmentation is often where the durable difference lives.

Core product the basic benefit

The bundle of benefits that satisfies the core customer need - the drill that reliably makes the hole.

Augmented product the defensible wrapper

Brand · services · warranties · credit possibilities · support - the extras that shape the whole experience and shield you from copycats.

Design the core to meet the need; augment it to win the segment and hold off competitors.

6.2 Brand architecture

When you serve several segments, you face a portfolio question: how many brands, and how are they related? This is brand architecture, and it’s a spectrum from one master brand over everything to a stable of independent brands.

Approach	Idea	Everyday example feel
Branded house	One master brand stretched across all products	Google → Google Maps, Google Drive
Sub-branding	Master brand + a distinct product sub-brand	Apple → iPhone, iPad
Endorsement branding	Product brand leads, master brand endorses/backs it	”Courtyard by Marriott”
House of brands	Many separate brands, parent stays hidden	P&G → Ariel, Gillette, Pampers

Left to right, the parent brand’s presence fades and each product stands more on its own.

The trade-off running underneath is transfer effects vs cannibalisation. Sharing one brand across segments spreads good reputation cheaply (a positive transfer), but risks two things: cannibalisation (a new product steals sales from your own existing one instead of from rivals) and negative transfer (a stumble in one product stains the shared name). A branded house maximises transfer but also maximises both risks; a house of brands firewalls each product but forfeits the free reputation and costs far more to build.

Tip

The CERMEDES read. A branded house is tempting - put “CERMEDES” on everything and let the trusted name do the work. But if the firm wants to chase cheap DIY buyers and keep its premium trade credibility, a cut-price line under the master brand risks negative transfer (looking cheap) and cannibalising the professional range. A distinct sub-brand or a separate value brand may protect the flagship. That’s a real brand-architecture decision, not a logo choice.

7 · The positioning statement

Finally, you write the position down. The positioning statement is an internal document - deliberately plain, even dull. It is not a slogan or an ad; its job is to keep everyone inside the company aligned on what the product stands for, so all the outward communication pulls in one direction. The template:

The template

• ”Among [target market], [X] is the [frame of reference] that [point of difference] because [reason to believe].”

Four blanks, four hard strategic decisions. Filling them in is far harder than it looks.

The textbook example makes it stick:

“Among snackers, Snickers is the candy bar that satisfies your hunger because it’s packed with nuts.”

Each blank is a real choice:

Blank	What it is	Snickers
Target market	Who’s in your customer’s head - decided before you write; you position in their mind, not the whole world’s	Snackers (not “everyone,” not just “chocolate lovers”)
Frame of reference	The category or need you compete in - set it as large as is reasonable	Candy bar (could be framed as “a snack” or even “a small meal”)
Point of difference (POD)	The single most compelling, unique reason they’d pick you - your promise, the essence of the value prop	Satisfies your hunger
Reason to believe (RTB)	Credible evidence, inherent in the product/company, that you’ll deliver the POD	It’s packed with nuts

7.1 The six criteria of good positioning

A statement can fill the blanks and still be weak. Test it against six criteria - all six should pass:

1 · Relevance do consumers care?

• The POD must matter to the target, not just to you.

2 · Uniqueness meaningful differentiation?

• Rivals can’t credibly claim the same thing.

3 · Clarity will they get it?

• Instantly understood, no decoding required.

4 · Credibility will they believe it?

• The RTB makes the promise convincing.

5 · Attainability can we deliver?

• We can actually make good on it today.

6 · Sustainability can we maintain it?

• We can defend it over time against imitation.

Relevance and uniqueness earn attention; clarity and credibility get believed; attainability and sustainability keep it true. Fail any one and the position leaks.

7.2 Bringing it home for CERMEDES

Pulling the chapter together, a first-draft positioning statement for our recovering tool-maker might read:

target: serious trade professionalsframe: power tools for the job sitePOD: won’t quit on youRTB: German engineering, tested to survive daily site abuse

“Among trade professionals, CERMEDES is the power-tool brand that keeps working when cheaper tools fail, because every tool is German-engineered and site-tested to survive daily abuse.”

Run it through the six criteria before trusting it: relevant (downtime hurts them), unique (if rivals can’t match the durability story), clear, credible (heritage and testing back it), attainable (only if the tools genuinely last), sustainable (only if quality is defended). Notice how positioning loops straight back to the JTBD job - keep my work moving - and to the value map - relieve the pain of a tool dying mid-job. STP is one connected argument, not four separate slides.

Revision summary

Tip

The one-minute recap

• STP = Segment → Target → Position. Do it in that order; the classic fatal mistake is rushing into product development before understanding the customer.
• A value proposition is a hypothesis to test and iterate. The Value Proposition Canvas matches a customer profile (Jobs, Pains, Gains) to a value map (Products/Services, Pain Relievers, Gain Creators). Value = f(Pain Relief + Gain Creation).
• JTBD: people hire products to get a job done - “not a drill, a quarter-inch hole.” Find needs by digging into pains and gains.
• Segment on criteria that create real difference - in B2B, the ladder runs firmographics → operating variables → purchasing approach (least → most progressive). Need-based cuts are strongest; make each segment human with a persona.
• Target by gating segments on Differentiable, Substantial, Accessible, Actionable, then score the survivors and write a customer-segment profile (size, growth, profitability, needs, buying process, success factors).
• Position using core vs augmented product and a brand-architecture choice (branded house → sub-branding → endorsement → house of brands), weighing transfer effects vs cannibalisation.
• Write the positioning statement: “Among [target], [X] is the [frame of reference] that [point of difference] because [reason to believe].” Then test it on six criteria: relevance, uniqueness, clarity, credibility, attainability, sustainability.

Next: Market Selection & Going International → - choosing which markets and countries to enter.