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CHAPTER SIX
SEGMENTATION, TARGETING AND POSITIONING

Companies today recognize that they cannot appeal to all buyers in the
marketplace or at least not to all buyers in the same way. Buyers are too
numerous, too widely scattered, and too varied in their needs and buying
practices. Moreover, the companies themselves vary widely in their abilities to
serve different segments of the market. Instead, a company must identify the
parts of the market that it can serve best and most profitably. It needs to design
strategies to build the right relationships with the right customers.

Thus, most companies have moved away from mass marketing and toward
market segmentation and targeting- identifying market segments, selecting one
or more of them, and developing products and marketing programs tailored to
each. Instead of scattering their marketing efforts (the “shotgun” approach),
focusing on the buyers who have greater interest in the values they create best
(the “rifle” approach).

Companies have not always practiced market segmentation and targeting. For
most of the past century, major consumer products companies held fast to mass
marketing- mass producing, mass distributing, and mass promoting about the
same product in about the same way to all consumers.

Market segmentation Target Marketing Market Positioning

-Identify bases for segmenting - Develop measure of -Develop positioning
the market Segment attractiveness for target segments
-Develop segment profile -Select target segments -Develop a marketing
mix for each segment

The above figure shows the three major steps in target marketing. The first is
Market segmentation- dividing a market into smaller groups of buyers with
distinct needs, characteristics, or behaviors who might require separate products
or marketing mix. The company identifies different ways to segment the market
and develops profiles of the resulting market segments. The second step is target

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marketing- evaluating each market segment’s attractiveness and selecting one or

more of the market segments to enter. The third step is market positioning-
setting the competitive positioning for the product and creating a detailed
marketing mix.

6.1 Market Segmentation

Markets consist of buyers, and buyers differ in one or more ways. They may
differ in their wants, resources, locations, buying attitudes, and buying practices.
Through market segmentation, companies divide large, heterogeneous markets
into smaller segments that can be reached more efficiently and effectively with
products and services that match their unique needs. In this section, we discuss
segmenting consumer markets and requirements for effective segmentation.

CONSUMER MARKET SEGMENTATION VARIABLES

Dividing the total market into ultimate consumer and business user segments,
results in segments that are still broad and varied for most products. The
customer market may be divided into further segments using the following
characteristics.
1. Geographic
2. Demographic
3. Psychographics
4. Buying Behavior

Geographic Segmentation
Subdividing markets into segments based on different geographical units –the
regions, countries, cities, and towns where people live and work –is usually
used. The reason for this is simply that consumers wants and products usage
often are related to one or more of these subcategories. Geographic
characteristics are also measurable and accessible –two of the conditions for
effective segmentations. Many firms market their products in a limited number

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of geographic regions, or they may market nationally but prepare a separate

marketing mix for each region.

The regional distribution of population is important to marketers because people

within a given region generally tend to share the same value, attitude and style
preference. However, significant differences do exist among regions because of
differences, in climate, social customs, and other factors.

Demographic Segmentation
In demographic segmentation, the market is divided into groups on the basis of
variables such as age, family size, family lifecycle, gender, income, occupation,
education, religion, race, generation, and nationality.

Demographic variables are the most popular bases for distinguishing customer
groups. One reason so that consumer wants, preferences and usage rates are
often associated with demographic variables. Another is that demographic
variables are easier to measure.

Even when the target market is described in non-demographic term (say, a

personality types), demographic characteristic is needed in order to estimate the
size of the target market and the media that should be used to reach it efficiently.
Here is how certain demographic variables have been used to segment markets.
1. Age and lifecycle stage
Consumer’s wants and abilities change with age. Photo companies are now
applying age and lifecycle segmentation to the film market. With film sales
down, photo companies are working hard to exploit promising niche markets:
moms, kids, and older people. Nevertheless, age and lifecycle can be tricky
variables. For example, the Ford motor company designed its Mustang
automobile to appeal to young people who wanted an inexpensive sport car. But
ford found that all age groups were purchasing the car, it then realized that its
target market was not chronologically young but the psychologically young.
Marketers must be careful to guard against stereotypes when using age and life-
cycle segmentation. For example, some 70 year olds require wheelchair, others

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play tennis. Thus, age often is a poor predictor of a person’s life cycle, health,
work or family status, needs, and buying power

2. Gender
Gender segmentation has long been applied in clothing, hairstyling, cosmetics,
and magazines. Occasionally other marketers notice an opportunity for Gender
segmentation.
The automobile industry is beginning to recognize Gender segmentation. With
more women car owners, some manufacturers are designing certain features to
appeal to women, although stopping short of advertising the cars as women’s
cars.
3. Income
Income segmentation is a long-standing practice in such product and service
categories as automobiles, boats, clothing, cosmetics, and travel. However,
income does not always predict the best customers for a given product.

4. Social Class
Social class has a strong influence on preference in clothing, house furnishing,
leisure activities, reading habits, and retailers. Many companies design products
and services for specific social classes.

Behavioral Segmentation
Some marketers regularly attempt to segment their markets on the basis of
product related behavior they utilize behavioral segmentation. Many marketers
believe that behavior variables are the best starting point for building segments.

1. Occasions
Buyers can be grouped according to occasions when they get the idea to buy,
actually make their purchase, or use the purchased item. Occasion segmentation
can help firms build up product usage. For example, juice is most often
consumed at breakfast, but orange goers have promoted drinking orange juice as
a cool and refreshing drink at other times of the day.

1. Benefits Sought

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Many companies credited with drawing attentions to the notion of benefit

segmentation when they described a hypothetical division of their product
market based on the benefits desired.

Two things determine the effectiveness of benefits segmentation. First, the

specific benefits consumers are seeking must be identified. This typically
involves several research steps, beginning with the identification of all possible
benefits related to a particular product or behavior through brainstorming,
observing consumers, and listing to focus groups.

The second task, once the separate benefits are known, is to describe the
demographic and psychographics characteristics of the people seeking each
benefit.
3. User Status
Markets can be segmented into groups of nonusers, ex-users, potential users, first
time users, and regular users of a product. A company’s market position
influences its focus. Marketer share leaders focus on attracting potential users,
whereas smaller firms focus on attracting current users away from the market
leader.

4. Usage Rate
Markets can also be segmented in to light, medium, and heavy product users.
Heavy users are often a small percentage of the market but account for a high
percentage of total consumption. Marketers usually prefer to attract one heavy
user to their product or service rather than several light users

5. Loyal Status

Consumers have varying degree of loyalty to specific brands, stores, and others entities.
Buyers can be divided into four groups according to brand loyalty status: -

-Hard-core loyal: - Consumers who buy one brand all the time

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-Split loyal: - Consumers who are loyal to two or three brands.

-Shifting loyal: - Consumers who shift from one brand to another
-Switchers: - Consumers who show no loyalty to any brand.
Each market consists of different numbers of the four types of buyers. A brand
loyal market is one with a high percentage of hard-core brand loyal buyers. A
company can learn a great deal by analyzing the degree of brand loyalty. By
studying its hard-core loyal, the company can identify its products strengths. By
studying its split loyal, the company can pin point which brands are most
competitive with its own. By looking at customers, who are shifting away from
its brand, the company can learn about its marketing weakness and attempt to
correct them. One caution: what appear to be a brand loyal purchase patterns
may reflect habit, indifference, a low price, a high switching cost, or the non
availability of other brands. Thus a company must carefully interpret what is
behind the observed purchase patterns.

Psychographics Segmentation

In psychographics segmentation, buyers are divided into different groups on the

bases of lifestyle or personality and values. People with the same demographic
group can exhibit very different psychographics profiles.

Lifestyle:
Lifestyle - People exhibit many more lifestyle than are suggested by the seven
social classes. The goods they consume express their lifestyle. Companies making
cosmetics, alcoholic beverages and furniture are always seeking opportunities in
lifestyle segmentation. But lifestyle segmentation does not always work.

Personality: - Marketers have used personality variable to segment markets.

They endow their products with brand personalities that correspond to
consumer’s personalities. In the late 1950, Fords and Chevrolets were promoted
as having different personalities. Ford buyers were identified as independent,
impulsive, muscular, alert to change and self-confident. Chevrolet owners were

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conservative, thrifty, prestige-conscious, less masculine, and seeking to avoid

extremes.

Requirements for effective segmentation

Clearly there are many ways to segment the market, but not all segmentation are
effective. To be useful market segments must be:
Measurable-the size, purchasing power, and profiles of the segments can be
measured.
Accessible-the market segments can be effectively reached and served.
Substantial- the market segments are large or profitable enough to serve.
Differentiable- the segments are conceptually distinguishable and respond
differently to different marketing mix elements and programs.
Actionable- effective programs can be designed for attracting and serving the
segments.

Evaluating market segments

In evaluating different market segments a firm must look at three factors
a. -Segment size and growth
b. -Segment structural attractiveness, and
c. -Company objectives and resources.
The company must first collect and analyze data on current segment sales,
growth rates, and expected profitability for various segments. It will be
interested in segments that have the right size and growth characteristics.
However, the ‘right size and growth’ is a relative mater.
The company also needs to examine major structural factors that affect long run
segment attractiveness. For example a segment is less attractive if it already
contains many strong and aggressive competitors. The existence of many actual
or potential substitute products may limit prices and profits that can be earned in
a segment. The relative power of buyers also affects the segment attractiveness.
Finally, a segment may be less attractive if it contains powerful suppliers who

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can control prices or reduce the quality and quantity of ordered goods and
services.

Even if a segment has the right size and growth and is structurally attractive, the
company must consider its own objectives and resources some attractive
segments can be dismissed quickly because they do not mesh with the
company’s long run objectives. Or the company may lack the skills and resources
needed to succeed in an attractive segment. The company should enter only
segments in which it can offer superior value and gain advantages over
competitors.

6.2 Market Targeting

Market Targeting is the process of selecting one or more market segments to
enter
Let’s assume that a company has segmented the total market for its product.
Now management is in a position to select one or more segments as its target
markets.
Target market consists of a set of buyers who share common needs or
characteristics that the company decides to serve. Because buyers have unique
needs and wants, a seller could potentially view each buyer as a separate target
market. Ideally then a seller might design a separate marketing program for each
buyer. However, although some companies do attempt to serve buyers
individually, most face larger numbers of smaller buyers and do not find
individual targeting worthwhile. Instead they look for broader segments of
buyers. More generally, target marketing can be carried out at several different
levels.

Undifferentiated marketing
Using an undifferentiated marketing (mass marketing) strategy, a firm might
decide to ignore market segment differences and target the whole market with
one offer. This mass marketing strategy focuses on what is common in the needs

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of consumers rather than on what is different. The company designs a product

and a marketing program that will appeal to the largest number of buyers. Most
modern marketers have strong doubts about this strategy. Difficulties arise in
developing a product or brand that will satisfy all consumers. Moreover mass
marketers often have trouble competing with more focused firms that do a better
job of satisfying the needs of specific segments and niches.

Differentiated Marketing
Using differentiated marketing (segmented marketing) strategy, a firm decides to
target several market segments and designs separate offers for each. By offering
product and marketing variations to segments, companies hope for higher sales
and a stronger position within each market segment. Developing a stronger
position within several segments create more total sales than undifferentiated
marketing across all segments.
But differentiated marketing also increases the costs of ding business. A firm
usually finds it more expensive to develop and produce, say, 10 units of 10
different products than 100 units of one product. Developing separate marketing
plans for the separate segments requires extra marketing research, forecasting,
sales analysis, promotion planning, and channel management. Thus, the
company must weigh increased sales against increased costs when deciding on a
differentiated marketing strategy.

Concentrated Marketing
A third market coverage strategy, concentrated marketing (niche marketing), is
especially appealing when company resources are limited. Instead of going after
a small share of a large market, the firm goes after a large share of one or a few
segments or niches.
Through concentrated marketing, the firm achieves a strong market position
because of its grater knowledge of consumer needs in the niches it serves and the

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special reputation it acquires. It can market more effectively by fin-tuning its

products, prices and programs to the needs of carefully defined segments. It can
also market more efficiently, targeting its products or services, channels, and
communications programs toward only consumers that can serve best and most
profitably.
Whereas segments are fairly large and normally attract several competitors,
niches are smaller and may attract only one or a few competitors. Niching offers
smaller companies an opportunity to compete by focusing their limited resources
on serving niches that may be unimportant to or overlooked by larger
competitors.
Many companies start as nichers to get a foothold against larger, more
resourceful competitors, and then grow into broader competitors. Concentrated
marketing can be highly profitable. At the same time, it involves higher than-
normal risks. Companies that rely on one or a few segments for all of their
business will suffer greatly if the segment turns sour. Or larger competitors may
decide to enter the same segment with greater resources. For these reasons, many
companies prefer to diversify in several market segments.
Micromarketing
Differentiate and concentrated marketers tailor their offers and marketing
programs to meet the needs of various segments and niches. Micromarketing is
the practice of tailoring products and marketing programs to suit the tastes of
specific individuals and locations. Micromarketing includes local marketing and
individual marketing.
Local marketing- involves tailoring brands and promotions to the needs and
wants of local customer groups- cities, neighborhoods, and even specific stores.
Local marketing has some drawbacks. It can drive u manufacturing and
marketing costs by reducing economies of scale. It can also create logistics
problems as companies try to meet the varied requirements of different regional
and local market.

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Still, as companies face increasingly fragmented markets, and as new supporting

technologies develop, the advantages of local marketing often outweigh the
drawbacks.
Individual Marketing- in the extreme, micromarketing becomes individual
marketing tailoring products and marketing programs to the needs and
preferences of individual customers. It has also been labeled one- to- one
marketing, mass customization and markets of one marketing.

The company can follow one of three strategies –market aggregation, single-
segment concentration, or multiple –segment targeting. Four guidelines govern
how to determine which segments should be the target markets. The first is that
target markets should be compatible with the organizations goal and image.
The second is to match the market opportunity represented in the target markets
with the company’s resources. Over the long run, a business must generate a
profit to survive. This rather obvious statement translates into our third market –
selection –gridline. Fourth, a company ordering should seek a market more there
are the least and smallest competitors. A seller should not enter a market that is
already saturated with competition inters it has save overriding differential
advantage that will enable it to take customers from existing firms.

Choosing a Target Market Strategy

Companies need to consider many factors when choosing a target marketing
strategy. Which strategy is best depends on company resources. When the firm’s
resources are limited, concentrated marketing makes the most sense. The best
strategy also depends on the degree of product variability. Undifferentiated
marketing is more suited for uniform products such as grapefruit or steel.
Products that can vary in design, such as cameras and automobiles, are more
suited to differentiation or concentration. The product’s life-cycle stage also
must be considered. When a firm introduces a new product, it may be practical

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to launch only one version, and undifferentiated marketing may make the most
sense. In the mature stage of the product life cycle, however, differentiated
marketing begins to make more sense.
Another factor is market variability. If most buyers have the same tastes, buy the
same amounts, and react the same way to marketing efforts, undifferentiated
marketing is appropriate. Finally, competitors’ marketing strategies are
important. When competitors use differentiated or concentrated marketing
undifferentiated marketing can be suicidal. Conversely, when competitors use
undifferentiated marketing, a firm can gain an advantage by using differentiated
or concentrated marketing.

6.3 Market Positioning

Beyond deciding which segments of the market it will target, the company must
decide what positions it wants to occupy in those segments. A product’s position
is the way the product is defined by consumers on important attributes- the place
the product occupies in consumers’ minds relative to competing products.
Positioning involves implanting the brand’s unique benefits and differentiation
in customers’ minds.
Consumers are overloaded with information about product and services. They
cannot reevaluate products every time they make a buying decision. To simplify
the buying process, consumers organize products, services, and companies into
categories and position them in their minds. A products position is the complex
set of perceptions impressions, and feelings that consumers have for the product
with competing products.
Consumers position products with or without the help of marketers. But
marketers don not want to leave their products positions to chance. They must
plan positions that will give their products the greatest advantage in selected
target markets, and they must design marketing mixes to create these planned
positions.

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A company must try to identify and differentiate the specific products to obtain a
competitive advantage. Differentiation is the act of designing meaningful
differences to distinguish the company’s offering from competitors offering.

How exactly can a company differentiate its market offering from competitors?
Here we will examine how a market offering can be differentiated along the lines
of: - product, services, personnel, channel or image.

Product Differentiation
Differentiation of physical products takes place along a continuous process. At
one extreme we find highly standard products that allow little variation. In the
other extremes we find products capabilities of high differentiation, such as
automobiles, commercial holdings, and furniture. Here the seller faces an
abundance of design parameters. The main product differentiations are features,
performance, conformance, durability, reliability, reparability, style and design.

Service Differentiation
In addition to differentiating its physical products, a firm can also differentiate
its services. When the physical product cannot easily be differentiated, the key to
competitive success often lies in adding more value, adding service and
improving their quality. The main service differentiations are ordering easily,
delivery, installation, customer training, customers consulting, maintenance and
repair, and a few others.

Personnel Differentiation

Companies can gain a strong competitive advantage through hiring and training
better people than their competitors do. Better-trained personnel exhibit six
characteristics:
 Competence –The employees possess the required skill and
knowledge.
 Courtesy –The employees are friendly, respectful and considerate.
 Credibility –The employees are trust worthy.

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 Reliability –The employees perform the service consistently and

accurately.
 Responsiveness –The employees respond quickly to customer’s
requests and problems.
 Communication –The employees make an effort to understand the
customer and communicate clearly.

Channel Differentiations

Companies can achieve differentiation through the way they design their
distribution channel, particularly these channels coverage, expertise, and
performance. For example, caterpillar’s success in the construction equipment
industry is based partly on its superior channel development. Its dealers are
found in more locations than competitor’s dealers and caterpillar’s dealers are
typically better trained and perform more reliably.

Image Differentiations

Even when competing offers look the same buyers may respond differently to
the company image or brand image. A company or brand image should convey
the product’s distinctive benefits and positioning. Developing a strong and
distinctive image calls for creativity and hard work. A company can not develop
an image in the publics mind overnight using only a few advertisements.

Developing a positioning strategy

Companies use several tactics to differentiate their products and brands. Even in
the case of commodity products, the company must see its task as that of
converting undifferentiated product into a differentiated offering. But all brand
differences are meaningful or worthwhile. Not every difference is a
differentiator. Each difference has the potential to create company costs as well
as customer benefits. Therefore the company must carefully select the way in
which it will distinguish itself from competitors. A difference is worth
establishing to the extent that it satisfies the following criteria.

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Important
The difference delivers a highly valued benefit to a sufficient number of buyers.

Distractive
The difference either is not offered by others or is offered in a more distinctive
way by the company.
Superior
The difference is superior to other ways of obtaining the same benefits.
Communicable
The difference is communicable and visible to buyers.

Preemptive
The difference cannot be easily copied by competitors.
Affordable
The buyers can afford to pay for the difference
Profitable
The company will find it profitable to introduce the difference

Each firm will want to promote those few differences that will appeal most
strongly to its target markets. In other words, the firm will want to develop a
focused positioning strategy.

Different positioning strategies

Attribute Positioning
This occurs when a company positions itself on an attribute such as size, number
of years in existence and so forth.

Benefit Positioning
Here the product is positioned, as the leader in a certain benefit.

Use/Application positioning

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This involves positioning the product as best for some use or application. I.e.
AutoCAD software can best be positioned as suitable to Architectural drawings.

User Positioning
This involves positioning the product as best for some uses group. I.e. AutoCAD
software to Architects.

Competitor Positioning
Here the product positions itself as better in some way that a named or implied
competitor.

Product category Positioning

Here the product positioned as the leader in a certain product category.

Quality price positioning

Here the product positioned as offering the best value i.e., high quality / high
price, or lowest price.

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