Customers in a market vary widely in terms of their level and sophistication of need, in the way they would like the product to be delivered to them, in their ability and willingness to pay a certain amount for getting their needs satisfied, and their most preferred method of receiving communication from the company.
All customers in a market cannot be served by a single marketing mix. Although each customer is different from the other in some way or the other, it is not economically viable to have a tailored marketing mix for each customer.
Segmentation is the process of clubbing together similar customers in a group, so that they can be served by a marketing mix especially designed for the group or segment. A company can continue to segment its market into smaller and more homogeneous groups and design special marketing mixes for them.
The idea is that more homogeneous the segment, more appropriate will the marketing mix be for every customer in the segment. Segmentation can be used as a vehicle for entering a market. An entrant can segment the existing market in a way which is not being done by incumbents. The entrant can serve the carved out segment with an appropriate marketing mix.
Normally, in any market, there are many segments. A company may not have the resources and the capabilities to design marketing mixes to serve all the segments. A company will decide to serve one or more segments depending upon its capabilities and resources. The segments that a company chooses to serve by designing special marketing mixes are called target markets.
In most markets, there will be many companies providing the same basic solutions to customer needs. The customer has to select one provider among them. The offering of a company has to be distinct, so that customers are able to make a choice by matching their requirements with the offerings of various providers. Positioning is the process of creating a distinct offer and communicating it to the customer.
Positioning is created by designing a marketing mix which is suitable for the target market but is different from marketing mixes of other providers. The chosen marketing mix has to be then communicated to the customers.
The smaller and more homogeneous the target market is for which a marketing mix is designed, the stronger will be the positioning, i.e., the fit between the marketing mix of the company and requirement of the customers of the target market will be stronger. The process of positioning is continuous in nature and it should always be proactive because new needs and competitors keep cropping up.