Product positioning involves tailoring an entire marketing program—including product attributes, image, and price, as well as packaging, distribution, and service—to best meet the needs of consumers within a particular market segment. In this way, product positioning is part of the overall process of market segmentation, but involves a narrowing of focus. "Segmentation analysis tells us how the market is defined and allows us to target one or more opportunities," Glen L. Urban and Steven H. Star wrote in their book Advanced Marketing Strategy. "Product positioning takes place within a target market segment and tells us how we can compete most effectively in that market segment."

The key to product positioning is understanding the dimensions consumers use to evaluate competing marketing programs and make purchase decisions. It may be helpful for small business managers to create a graph in order to map consumer perceptions along several different dimensions. Once consumer perceptions are understood, the next step is to select the best positioning for the product and take steps to align the marketing program behind this positioning choice. Some examples of possible positioning choices include quality, reliability, and unique features or benefits. Before delving into product positioning further, it may be helpful to understand the process and goals of market segmentation.


Market segmentation is the science of dividing an overall market into key customer subsets, or segments, whose members share similar characteristics and needs. Because it involves significant market research, market segmentation can be costly. But it is particularly important for small businesses, which often lack the resources to target large aggregate markets or to maintain a wide range of differentiated products for varied markets. Market segmentation allows a small business to develop a product and a marketing mix that fit a relatively homogenous part of the total market. By focusing its resources on a specific customer base in this way, a small business may be able to carve out a market niche that it can serve better than its larger competitors.

In general, customers are willing to pay a premium for a product that meets their needs more specifically than does a competing product. Thus marketers who successfully segment the overall market and adapt their products to the needs of one or more smaller segments stand to gain in terms of increased profit margins and reduced competitive pressures. But the potential gains offered by market segmentation must be measured against the costs, which—in addition to the market research required to segment a market—may include increased production and marketing expenses.

In their book The Portable MBA in Marketing, Alexander Hiam and Charles D. Schewe identified six steps that companies should take in the market segmentation process. The first step is to determine the boundaries of the market. In completing this step, a marketer should use a formal business plan to develop a broad definition of their business, and then consider the offerings of both direct and indirect competitors to gain information about the basic needs of consumers in the market. The second step in the process is to decide which variables to use in segmenting the market. Many companies fall into the trap of collecting data on as many variables as possible and then attempting to sort through it later to draw meaningful conclusions. Instead, Hiam and Schewe recommend that marketers use their knowledge of the market to select a few relevant variables in advance. This approach is generally less expensive and will likely provide more useful results.

The third step in the market segmentation process is actually collecting and analyzing data, which involves applying market research tools. The goal in analyzing the data is to identify market segments that are internally homogeneous, yet are distinctly heterogeneous with respect to other segments. The fourth step is to develop a detailed profile of each market segment, which involves selecting those variables that are most closely related to consumers' actual buying behavior.

The fifth step in the market segmentation process is to decide which segment or segments to serve. In targeting a particular segment, a marketer should look for opportunities (i.e., customers with unsatisfied wants and needs) that provide a good match for the organization and its resources. It is important that the marketer consider not only the size and potential profitability of a market segment, but also whether the company's skills, technologies, and objectives would enable it to meet the needs of that segment better than its competitors.


Product positioning—which is the sixth and final step in the market segmentation process—involves developing a product and marketing plan that will appeal to the selected market segment. In order to position a product effectively, a small business must identify the attributes that are most important to consumers in the segment, and then develop an overall marketing strategy that will attract consumers' attention. Positioning can be usefully applied during the earliest stages of product design, when a company first identifies who its target customer will be in terms of demographic, geographic, and behavioral characteristics.

A number of tools exist to help marketers understand the consumer perceptions that underlie purchase decisions. One such tool, a perceptual map, is a graph that can portray various product positioning options in a visual manner. Marketers can create perceptual maps from market research data in order to identify consumer needs that are not being fulfilled. For example, say that consumers were asked to rate home computers on the following attributes:1) ease of use, 2) availability of service, 3) processing speed, and 4) data storage capacity. These four attributes could be combined into two perceptual dimensions:1) utility (consisting of ease of use and availability of service), which would appeal to non-experts who needed a basic computer for business or personal use; and 2) technical (consisting of processing speed and storage capacity), which would appeal to experienced computer users who wanted the latest in technology. Then each brand of home computer could be represented on the graph according to consumers' perceptions of the product. If most computer manufacturers touted their products' technical attributes, there might be an opportunity for a new market entrant who emphasized ease of use and service.

However, it is also important to understand the relative importance that consumers place upon the different dimensions. In the home computer market, for example, consumers ultimately want both utility and technical characteristics, but vary in the importance they place upon each product dimension. "The implications of these importances for positioning are significant," according to Urban and Star. "It is necessary to understand preference differences within the targeted market segments because they are important in selecting a position for a brand and in determining the competitive structure within the segment. When preferences vary within a segment, positions and physical product features may vary considerably. If preferences are relatively homogeneous within a segment, the positions of competing brands will be relatively similar, and the quantity of advertising and promotion will be the critical competitive weapons."

It is also important to note that price is not represented in the home computer perceptual map, whereas price definitely has an effect on the final purchase decision made by consumers. Marketers can reflect the importance of price by adding a dimension to the perceptual map, so that it becomes a cube, or by dividing the dimensional coordinates of each brand by its average price. The resulting map would show "utility per dollar" and "technical attributes per dollar," or the tradeoffs consumers make between the original dimensions and price. Finally, small business owners need to consider the fact that perceptual maps show "overall dimensions of evaluation and not detailed features," as Urban and Star noted. "Feature selection is critical in positioning, however, because features are an important determinant of overall perception and choice." In fact, product features influence both consumer perceptions and product pricing.


Once marketers have mapped consumer perceptions of competing brands and gained an understanding of the target segment, the next step is to select a position for their products. In positioning a product within a market segment, marketers should try to maximize the share of consumer choices attained by their product in order to achieve long-run profitability for the firm. Strategies that can help marketers to maximize share include adding features desired by consumers or advertising to improve consumer perceptions. Both of these strategies can be costly, however, so it is important for companies to balance the cost of making such expenditures with the payoff.

Marketers have several different positioning options available to them. One positioning option is quality emphasis, which includes not only defect-free production but also product design and customer service that meets or exceeds customer expectations. Another positioning option available to marketers involves offering unique features or benefits that consumers are unable to find in competing products, from environmentally-friendly production aspects to trendiness. Ideally, such features and benefits grow out of the company's unique sources of competitive advantage in the marketplace. This makes it difficult for competitors to match the features and benefits without incurring high costs. "If we develop a unique competitive advantage on a dimension of importance to a significant portion of the market, we can enjoy a substantial share and high margins," Urban and Star noted. Of course, continued market research and innovation are necessary to maintain such a competitive advantage.

In some cases, rather than selecting a product position within the accepted structure of a market segment, a company may instead try to create a new dimension of importance to consumers. But creating a new dimension is difficult and usually results from major product innovations. Another option available to marketers is to position products across different, yet overlapping, market segments. It is important to note, however, that since some consumers may belong to both segments, positioning claims for a product should never conflict. To avoid confusing consumers, it may be necessary to use a different brand name for the product in each segment, or to make a broad appeal to both segments and then change the positioning slightly within each segment.

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