What it means
Three decisions form the core of any marketing strategy: segmentation, targeting and positioning. Segmentation divides the market into coherent groups, targeting selects which of those groups the business will serve, and positioning defines the place the offer occupies in the customer's mind relative to competitors.
Everything downstream, from pricing to campaign creative, should follow from those three. Strategy is distinguished from planning by the presence of trade-offs.
A document that promises to reach everyone, compete on quality and price at once, and be present on every channel is a wish list, because it never says what the business will give up. Choosing to be expensive and specialised, or cheap and broad, is what makes the rest of the decisions straightforward.
The commercial logic is about concentrating limited resources where returns are highest. A business with a $2,000,000 budget spread across eight segments is invisible in all of them, while the same budget concentrated on two segments can achieve enough presence to shift buying behaviour.
Concentration also lowers cost, because messages, materials and sales skills are reused rather than duplicated. Strategies are tested against unit economics, and the standard test compares lifetime value with acquisition cost.
If the customers a strategy targets are expensive to win and quick to leave, no amount of execution quality rescues it, which is why segment-level lifetime value analysis usually precedes the final targeting decision. The nuance is that a strategy has a shelf life.
Competitor moves, technology shifts and changing customer expectations erode a position over time, so most businesses revisit the core choices every two or three years while leaving the annual plan to handle everything shorter than that.
In practice
Real-world examples.
Example
A commercial insurance broker decides to serve only construction and engineering firms, dropping general commercial work that made up a third of its revenue. Within two years its win rate in the chosen sectors doubles because its proposals, risk knowledge and referral network are all concentrated.
Example
A coffee equipment supplier positions explicitly against cheaper imports on total cost of ownership rather than purchase price, publishing service intervals and parts costs. The strategy targets buyers who run more than four machines, and it deliberately concedes the single-machine cafe market to competitors.
Example
A regional accountancy firm chooses to specialise in owner-managed businesses planning a sale within five years. It builds exit readiness services around that group, prices at a premium, and turns away routine compliance-only clients that would fill capacity at lower margin.
Formula
Calculation
The usual quantitative test of a marketing strategy is the ratio of customer lifetime value to customer acquisition cost.
Customer lifetime value = average monthly revenue per customer x gross margin x average customer lifetime in months
Average customer lifetime = 1 / monthly churn rate
A subscription analytics business targets mid-sized retailers. Average revenue per customer is $150 a month, gross margin is 75%, and monthly churn among these customers is 2%.
Average customer lifetime = 1 / 0.02 = 50 months
Monthly gross profit per customer = $150 x 0.75 = $112.50
Customer lifetime value = $112.50 x 50 = $5,625
The blended cost of winning one of these customers is $1,500.
Ratio = $5,625 / $1,500 = 3.75
A ratio around 3 or above is generally considered healthy, so this segment supports the strategy. Now compare a second segment of very small retailers where revenue is $40 a month, churn is 5% and acquisition cost is $600. Lifetime is 1 / 0.05 = 20 months, monthly gross profit is $40 x 0.75 = $30, lifetime value is $30 x 20 = $600, and the ratio is $600 / $600 = 1.0. The strategy of concentrating on mid-sized retailers is not a matter of taste; the arithmetic makes the choice.Case study
Seen in the real world.
This is an illustrative and fictional scenario. Kestrel Logistics offered freight forwarding to anyone who called, competing on price against much larger operators and running at a net margin of 2%. Growth was steady but the business never generated enough cash to invest in systems.
The board ran a segment analysis and found that shipments of temperature-sensitive pharmaceutical goods represented 9% of volume but 31% of gross profit, and that those customers stayed an average of six years against two years for general freight. Kestrel chose to reposition around that segment, invested $900,000 in validated cold chain capability and compliance accreditation, and stopped bidding on general low-margin lanes.
Revenue fell by 14% in the first year as general freight business was allowed to lapse. By the third year revenue had recovered past its old level and net margin had reached 7%, because the customers Kestrel now served valued capability rather than the lowest quoted rate. The uncomfortable part of the strategy, letting go of work, was what made the rest of it possible.
Watch out
Common mistakes.
- Writing a strategy that lists channels and tactics, which is a plan, and never states which customers the business is choosing not to serve.
- Positioning on quality or service without evidence, when every competitor claims both and the words carry no information for a buyer.
- Choosing target segments on size alone, without checking acquisition cost, churn and margin, which is how businesses end up growing unprofitably.
Questions
People also ask.
What is the difference between marketing strategy and business strategy?
Business strategy covers the whole enterprise including operations and finance, while marketing strategy focuses on the customer-facing choices of who to serve and how to be preferred.
How often should a marketing strategy be revisited?
Typically every two to three years, or sooner if a major competitor move, technology shift or change in customer behaviour undermines the position it relies on.
Can a small business have a real marketing strategy?
Yes, and arguably it needs one more urgently, because limited budgets make the choice of where not to compete the difference between visibility and irrelevance.
From the founder's library
Take it further with the book.
Build your financial confidence beyond this definition. Shihan's full-length guide, Accounting Fundamentals, takes the same plain-English approach and turns it into a complete, practical playbook for non-finance managers, business owners and students - with chapter-end quiz answers and presentation slides included.
25% off with code MMHQ25, applied at checkout. Priced in USD - checkout may show the equivalent in your local currency.
View the book and save 25%Related