Marketing strategy is built on three decisions: segmentation, targeting and positioning, in that order. Segmentation is assessing the market you sell into and dividing it into groups of buyers with different needs. Targeting is deciding which of those groups the company will serve. Positioning is deciding what the company will be known for by the buyers in those groups, against the competitors those buyers are also considering.

Segmentation and targeting get treated as one job, and they are not. Segmentation describes the market as it is. It covers the whole market, including the buyers the company will never sell to. Targeting is where the company chooses.

Kotler and Armstrong place segmentation, targeting and positioning inside the design of the marketing strategy. The marketing programme, where campaigns, content and media are built, comes after.

Most B2B marketers are handed the marketing programme and told to get on with it. The segments were never defined. The choice of which segments to serve was never made out loud. The positioning is a line on a slide that nobody has revisited since the last product launch.

Many B2B teams that do segment use segmentation to narrow who they reach. The evidence says that makes their marketing worse.

What Segmentation, Targeting and Positioning Each Decide

Segmentation. Kotler and Armstrong define market segmentation as dividing a market into smaller groups of buyers with distinct needs, characteristics or behaviours who might require separate products or marketing mixes. Segmentation is about the market, not about the company. A segmentation covers the whole market, including the segments the company has no intention of selling to, because you cannot judge which segments are worth serving without seeing all of them. The working test is in the last part of Kotler and Armstrong's definition. If two groups of buyers would be served well by the same product and the same marketing, they are not separate segments, whatever the spreadsheet says. Company size, industry and region are the easiest lines to draw and are often not segments at all, because a 400-person manufacturer and a 400-person law firm can want completely different things.

Targeting. Kotler and Armstrong define market targeting as evaluating each market segment's attractiveness and selecting one or more segments to enter. This is where strategy starts, because it is the first point at which the company commits to something and rules something else out. Entering a segment means building the product, the proof and the sales capacity to serve it. Naming the segments the company will not enter is part of the same decision, and it is what frees budget and sales capacity for the segments the company did choose. Michael Porter put it plainly: the essence of strategy is choosing what not to do.

Positioning. Kotler and Armstrong define positioning as arranging for a product to occupy a clear, distinctive and desirable place, relative to competing products, in the minds of target consumers. Every word in that definition is doing work. The place is in the buyer's mind, not in the company's messaging document. It is relative to competitors, so it cannot be decided without knowing who the buyer is comparing you against. And it has to be desirable to that buyer. What the company most wants to be known for is not always what the buyer values.

The Order Is Not Optional

Positioning is defined relative to competing products in the minds of target buyers. Until the company has decided which buyers it is targeting, there is no group of minds to be distinctive in and no set of competitors to be distinctive against. A positioning line written before the targeting decision is a claim about nobody in particular.

This is where most B2B positioning goes wrong, and it usually shows up as a sentence that could be said by any company in the category. A mid-market buyer comparing three vendors reads three versions of the same promise. With nothing to tell the vendors apart, the buyer chooses on price, or goes with the vendor the procurement team has used before.

Targeting has the same requirement. A company cannot evaluate which segments are attractive until it has defined what the segments are.

Segmentation has a requirement of its own. Kotler and Armstrong put understanding the market and its customers ahead of designing the marketing strategy. A company cannot divide a market into groups with different needs until it has found out what those needs are. That is research: who buys the category, what they are trying to achieve, how they buy, and who else they buy from. A company that segments without that research usually ends up dividing its own customer list rather than the market.

Segmentation comes first, then targeting, then positioning. Tactical campaign planning and execution should not commence until the strategy of market segmentation, targeting and positioning has been determined, which is also why a campaign brief cannot fix a missing strategy.

Diagnosis comes earlier still. Before reworking segmentation, targeting or positioning, establish whether those decisions are the problem. Weak results can come from the positioning, or from a product that does not do what buyers need, or from a sales team that cannot service the accounts marketing brings in. How to diagnose marketing problems before you optimise anything covers how to tell which.

What the Evidence Says About Targeting Narrowly

Targeting is often used in B2B to justify spending less, on fewer people, and most marketers believe that is the right call. The LinkedIn B2B Institute found that 68 per cent of B2B marketers think hyper-targeting is more effective than broad targeting.

Narrow targeting only works if the data underneath it is right. Nico Neumann, Catherine Tucker, Kumar Subramanyam and John Marshall tested that for B2B and published the results in Quantitative Marketing and Economics in 2023. They bought third-party audience segments for IT decision makers and measured who the advertising actually reached. The probabilistic segments contained 9.4 to 11.0 per cent IT decision makers. Random prospecting, with no targeting applied, reached 16 per cent. The purchased segments performed no better than buying no audience data at all.

The same pattern shows in consumer data. Nico Neumann, Catherine Tucker and Timothy Whitfield found in Marketing Science in 2019 that gender accuracy across third-party providers averaged 42.3 per cent, against a population roughly half male, which means the data performed worse than using none. Age accuracy ran from 10.7 per cent for 18 to 24 year olds to 32.0 per cent for 35 to 44 year olds.

One part of the 2023 study worked much better. Advertising placed against business content reached 41.8 per cent IT decision makers, roughly four times the purchased segments. So the finding is not that targeting is useless. It is that buying narrow audience segments from third parties does not reach the people those segments are sold as reaching.

Accurate data also goes stale. LinkedIn's own member data shows that around 40 per cent of its members change their industry, seniority, function and company size every four years. In a category with a long sales cycle, part of the buying committee identified at the start of a deal is somewhere else by the time it closes.

John Dawes found that up to 95 per cent of business customers are not in the market for a given product or service at any one time, which means most of the buyers who will eventually choose a vendor are not comparing anything today. Marketing that reaches only the buyers showing intent this quarter is marketing to the smallest available slice of the market, and the 95-5 rule sets out what that costs.

Les Binet and Peter Field analysed the B2B cases in the IPA Databank from 1998 to 2018 and scored campaigns on a combined measure of very large business effects across six indicators from sales through to profit. Loyalty strategies scored zero and had a zero success rate on that measure. Acquisition strategies scored 1.0. Reach strategies, which address customers and non-customers together, scored 1.6 and were the most effective of the three.

Jenni Romaniuk's work for the LinkedIn B2B Institute found that the duplication of purchase law holds in B2B markets. Brands share customers with each other in proportion to how large those competitors are, not in proportion to how closely their positioning matches. A small competitor with a nearly identical proposition takes fewer of your customers than a large competitor with a different one. Romaniuk described narrow targeting as counter-productive to B2B growth on the strength of this pattern.

The Ehrenberg-Bass position on differentiation follows from the same evidence. Byron Sharp and Jenni Romaniuk argue that buyers care less about product differences than marketers assume, and that being easy to recognise matters more than being demonstrably superior. Distinctiveness is whether a buyer knows which company an advertisement came from. Differentiation is whether the buyer believes the product is meaningfully different. The research says distinctiveness is doing most of the work.

Targeting Chooses Where to Compete, It Does Not Shrink the Audience

Kotler and Armstrong say choose your segments. Ehrenberg-Bass says reaching narrowly holds B2B brands back. Those two positions look contradictory and they are not, because they answer different questions.

Targeting decides which segments the company will serve. That decision governs what gets built, who gets hired, which markets the company can actually support, and what the sales team is equipped to sell. A company that has chosen mid-market financial services in three countries has made a real decision with real consequences, and it should not spend a cent reaching enterprise manufacturers in markets it cannot service.

Inside the segments the company has chosen, the evidence says reach as many category buyers as the budget allows. That includes the buyers who will not be in the market for two years, the people on the buying committee who are not the named budget holder, and the companies that currently use a competitor. Narrowing there is not strategic focus. It is a smaller audience for the same product.

The practical version: use targeting to decide which segments the company will serve and which it will not, and then reach broadly among the category buyers inside the segments you chose. An ideal customer profile is useful for deciding which accounts sales pursues and what the product has to do. It is a poor instrument for deciding who sees your advertising.

Positioning Is Not a Tagline and Not a Feature List

Two things get mistaken for positioning often enough to be worth naming.

A tagline is an expression of a position. A company can change its tagline this quarter and still hold exactly the same place in buyers' minds. That place was built by years of what the company sold, to whom, at what price, and with what service.

A feature list is not a position either. Kotler and Armstrong define positioning by the place the offering occupies relative to competing products, not by the specification. Two marketing automation platforms can ship near-identical features and hold completely different places in a buyer's mind. One is known as the system a large enterprise runs its whole sales operation on. The other is known as the tool a ten-person agency can set up in an afternoon. Same features, different positions, and the difference decides which buyer puts which platform on the shortlist.

A usable positioning decision answers three things: which buyers it applies to, which competitors those buyers are weighing the company against, and what the company wants to be the obvious choice for.

Two further tests decide whether the position will hold. The University of Virginia's Darden School lists six criteria for vetting a positioning statement, and two of them are the ones companies skip. Attainability asks whether the company can deliver, and whether its claims are consistent with its performance. Sustainability asks whether the position can be maintained over time. A position the company cannot deliver every time is an advertising claim, and customers find out. The company also needs proof that the claim is true before any campaign makes it.

How to Tell Whether Your Company Has Made These Decisions

Ask four questions. Segmentation, targeting and positioning are decisions the business and marketing make together. Marketing should be leading the analysis and recommending the answer, because this is the strategic work marketing is trained for. What marketing cannot do is decide alone, because the answers commit the product, the budget and the sales team.

Which groups of buyers does the market divide into, and why? If the answer is a list of company sizes and industries with no difference in what those buyers need, the company has a reporting structure rather than a set of segments.

Which of those groups are we not selling to this year? A targeting decision that excludes nothing has not been made. If nobody can name a group the company is not pursuing, the company has not chosen its target segments.

Who does a buyer compare us to, and what do we want them to conclude? If the sales team names one set of competitors and the leadership team names another, positioning is being decided in two places at once. Keeping positioning consistent across the business is marketing's job.

Can we deliver it, and can we prove it? A customer result, a reference, a demonstration or a test, and an operation that performs the way the claim says it does. Marketing can dramatise a claim. It cannot manufacture the evidence for one.

An unanswered question means the decision has not been made yet. Take it back to the business and get it decided before the next campaign is planned, rather than letting whoever writes the brief guess at it.

Sources

• Philip Kotler and Gary Armstrong, Principles of Marketing. Source of the definitions of market segmentation, market targeting and positioning, and of the marketing process model in which the market and its customers are understood first, the marketing strategy is designed next, and the marketing programme that delivers it is built after that.
• Michael E. Porter, "What Is Strategy?", Harvard Business Review, November and December 1996. Source of the observation that the essence of strategy is choosing what not to do.
• Nico Neumann, Catherine E. Tucker, Kumar Subramanyam and John Marshall, "Is first- or third-party audience data more effective for reaching the 'right' customers? The case of IT decision-makers", Quantitative Marketing and Economics, 2023. Source of the finding that third-party audience segments for IT decision makers contained 9.4 to 11.0 per cent IT decision makers against a random prospecting baseline of 16 per cent, and that advertising placed against business content reached 41.8 per cent.
• Nico Neumann, Catherine E. Tucker and Timothy Whitfield, "How Effective Is Third-Party Consumer Profiling and Audience Delivery? Evidence from Field Studies", Marketing Science, 2019. Source of the third-party data accuracy figures for gender and age.
• LinkedIn B2B Institute, 2030 B2B Trends, "The Death of Hyper-Targeting". Source of the survey finding that 68 per cent of B2B marketers believe hyper-targeting is more effective than broad targeting, and of LinkedIn's member data showing around 40 per cent of members change industry, seniority, function and company size every four years.
• Les Binet and Peter Field, "The 5 Principles of Growth in B2B Marketing: Empirical Observations on B2B Effectiveness", published by the LinkedIn B2B Institute, drawing on B2B cases in the IPA Databank from 1998 to 2018. Source of the comparison of loyalty, acquisition and reach strategies on very large business effects.
• John Dawes, Ehrenberg-Bass Institute for Marketing Science, "Advertising Effectiveness and the 95-5 Rule: Most B2B Buyers are Not in the Market Right Now", May 2021, published with the LinkedIn B2B Institute. Source of the finding that up to 95 per cent of business customers are not in the market for a given product or service at any one time.
• Jenni Romaniuk, John Dawes and Sahar Faghidno, Ehrenberg-Bass Institute for Marketing Science, "The Double Jeopardy Law in B2B Shows the Way to Grow", May 2021. Source of the finding that B2B brands grow by acquiring more customers rather than by increasing loyalty within a narrow set.
• Jenni Romaniuk, Ehrenberg-Bass Institute for Marketing Science, research for the LinkedIn B2B Institute on the duplication of purchase law in B2B markets. Source of the finding that B2B brands share customers in proportion to competitor size rather than positioning similarity, and of the description of narrow targeting as counter-productive to B2B growth.
• Byron Sharp and Jenni Romaniuk, Ehrenberg-Bass Institute for Marketing Science, on differentiation and distinctiveness. Source of the distinction between being recognisable and being believed to be superior.
• "Positioning: The Essence of Marketing Strategy", Darden Business Publishing, University of Virginia, UV1425, revised December 2009. Source of the criteria for vetting a positioning statement, including attainability and sustainability.