Market Segmentation and a Multi-Brand Strategy

Michael Porter of Harvard Business School proposed that there were three basic marketing strategies for any business:

  1.  Cost Focus – a strategy of keeping costs down and offering the best-value to the market
  2. Differentiation – Offering multiple products and brands to different market segments
  3. Niche – selecting the most profitable market segments and limiting you offer to those segments

Porter argued that a company which tried to meet two or more of these strategies would be in ‘no man’s land’ and be at risk of failure.

For small firms this basically means the adoption of a niche marketing strategy as they will often lack the economies of scale for a cost focus approach or the resources to produce products which meet the needs of every market segment.  Small firms need to segment their market so that they can properly target their marketing resources.

However, as firms grow, a differentiated marketing strategy often needs to be developed and a multi-brand portfolio created.  This is particularly true if your market is mature, where product innovation and development becomes an increasingly important element of an organisation’s marketing tools.

A multi-brand approach and a differentiated marketing strategy can provide significant benefits:

  1. It can offer a route to grow and develop your market
  2. |t can increase your market coverage
  3. Differentiation is necessary in mature markets
  4. Having several brands allows the communication of different brand attributes at the same time without confusing consumers or weakening brand identity.
  5.  It can provide a defence. It can be a barrier to new entrants into your market and it can stop competitors from taking your market share..
  6. It can help to maintain a brand image.  For example, Disney owns Bueno Vista and Touchstone; two brands which allow them to distribute movies aimed at adults without harming their family friendly image
  7. It can be a route to innovation.  A product failure will have less of an impact on your primary brand.
  8. It allows market leaders to develop challenger brands in other markets.

So how do you segment a market for a multi-brand strategy?

The most obvious ways of segmenting a market are based on socio-demography.  This is breaking down a market or population on factors such as age or income.  For many years, this was the method used by the UK census with the A, B, C1, C2, D and E categories.  The census system broke the UK population down by profession and social standing.

Ferraro Kinder, Europe’s biggest confectionery manufacturer uses demography as part of its multi-brand strategy. Products such as their Roche chocolates are aimed at adults whilst Kinder products are aimed at children and young adults.

Another common method of segmentation is to use psychographic data. This breaks down the population of a market on the basis of lifestyle choice.  The ACORN segmentation system partially uses psychographic methodology.  The spirit drinks industry often uses this method to segment.  Haig whisky is aimed at ‘affluent greys’, older consumers with significant leisure time and disposable income; Haig Club is aimed at younger fashion conscious ‘aspiring’ professionals and uses David Beckham as a brand ambassador.

However, there are other methods of market segmentation:

  1.  You can segment your market by the benefit your product professes to provide.  This occurs in the mineral water market where Evian segments on the basis of health and Volvic segments in relation to ‘vitality’.  These are defined key criterion for consumers
  2. You can segment on the basis of consumer attitude.  PSA owns two parallel brands, Peugeot and Citroen (it is about to add two more with Vauxhall and Opel). These brands are designed to attract different market segments. Peugeot focuses on driving experience whilst Citroen focuses of utility.  These two brands share a production platform enabling economies of scale.
  3. You can segment by channel.  Distribution channels can be in conflict with one another.  For example you may choose to buy from a company’s web store rather than from their high street shops. L’Oréal segments their brands according to the distribution channel.  They own brands for premium and department stores but sell different brands in supermarkets.  They own specific brands for direct sale to consumers and brands only sold in pharmacies.  They own mail order only brands and brands which are only supplied through professional hairdressers. Until recently they owned brands such as The Body Shop which were only sold in brand specific stores.
  4. You can segment by occasion experience.  Guinness is segmented on the pub experience; Carlsberg segment on the ‘release’ occasion e.g. nightclubs; Budweiser concentrates its marketing on beer as part of relaxation in the home.
  5. You can segment on price through the creation of fighter and trade-up brands.  Whirlpool owns a budget fighter brand, Laden, and an aspirational trading up brand, Bauknecht, as well as mass market brands such as Indesit.  This provides a defence against others taking a market share via ‘pincer’ attacks.
  6. In business to business markets, you can segment on the basis of the purchase decision-maker and other key influencers on the buying decision.  For example, the UK firm Hydro Building Solutions (HBS) owns different brands in different European countries which sell aluminium construction products.  Wicona in Germany markets to Architects, engineers and research establishments.  Donal in Italy markets to installation firms and contract bidders.  Technal in France markets to end-users via TV advertisements and has its own installation network.

As a small or new start business, you need to segment to ensure that you are making the best use of your limited resources.  As your business grows and as your market matures, you can use segmentation tactically and to develop a multi-brand approach.

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