CHAPER FOUR

Market segmentation, targeting and positioning

A. Market Segmentation:
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. Rather than trying to compete in an entire market, sometimes against
superior competitors, each company must identify the parts of the market that it can serve best and most
profitably.
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. Thus, most companies are more
selective about the customers with whom they wish to connect.

B. Steps in Target Marketing:

1. Market segmentation:- dividing a market into smaller groups of buyers with distinct needs,
characteristics, or behaviors who might require separate products or marketing mixes. The company
identifies different ways to segment the market and develops profiles of the resulting market segments.
2. Targeting—evaluating each market segment's attractiveness and selecting one or more of the market
segments to enter.
3. Market positioning—setting the competitive positioning for the product and creating a detailed
marketing mix. We discuss each of these steps in turn.

C. Levels of Market Segmentation

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a) Mass Marketing
Companies have not always practiced target marketing. In fact, for most of the 1900s, 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. The traditional argument
for mass marketing is that it creates the largest potential market, which leads to the lowest costs, which
in turn can translate into either lower prices or higher margins. However, many factors now make
mass marketing more difficult. The creation of distribution channels and advertising media has also
 made it difficult to practice "one-size-fits-all" marketing.
b) Segment marketing
Company that practices segment marketing isolates broad segments that make up a market and adapts its
offers to more closely match the needs of one or more customers willingly pay a best price. Segment
marketing offers several benefits over mass marketing.
1) The company can market more efficiently, targeting its products or services, channels, and
communications programs toward only consumers that it can serve best and most profitably.
2) The company can also market more effectively by fine-tuning its products, prices, and programs to
the needs of carefully defined segments.
3) The company may face fewer competitors if fewer competitors are focusing on this market segment.
c) Niche Marketing
Market segments are normally large, identifiable groups within a market—for example, luxury car
buyers, performance car buyers, utility car buyers, and economy car buyers. Niche marketing focuses on
subgroups within these segments. A niche is a more narrowly defined group, usually identified by
dividing a segment into sub segments or by defining a group with a distinctive set of character who
may seek a special combination of benefits. Whereas segments are fairly large and normally attract
several competitors, niches are smaller and normally attract only one or a few competitors. Niche
marketers presumably understand their niches' needs so well that their customers willingly pay a price
premium.
d) Micro marketing
Segment and niche marketers tailor their offers and marketing programs to meet the needs of various
market segments. At the same time, however, they do not customize their offers to each individual
customer. Thus, segment marketing and niche marketing fall between the extremes of mass marketing
and micro marketing. Micro marketing is the practice of tailoring products and marketing programs to
suit the tastes of specific individuals and locations. Micro marketing includes local marketing (Local
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marketing involves tailoring brands and promotions to the needs and wants of local customer groups—
cities, neighborhoods, and even specific stores.

D. Segmenting Consumer Markets

There is no single way to segment a market. A marketer has to try different segmentation variables,
alone and in combination, to find the best way to view the market structure. The major variables that
might be used in segmenting are major geographic, demographic, psychographics, and behavioral
 variables.

a) Geographic Segmentation
Geographic segmentation calls for dividing the market into different geographical units such as nations,
regions, states, counties, cities, or neighborhoods. A company may decide to operate in one or a few
geographical areas, or to operate in all areas but pay attention to geographical differences in needs and
wants. It is common to localize products, advertising, promotions, and Sales efforts to fit the needs of
geographical areas (regions, cities, and even neighborhoods).
b) Demographic Segmentation
Demographic segmentation divides the market into groups based on variables such as age, gender,
family size, family life cycle, income, occupation, education, religion, race, and nationality.
Demographic factors are the most popular bases for segmenting customer groups. One reason is that
consumer needs, wants, and usage rates often vary closely with demographic variables.
Demographic variables are easier to measure than most other types of variables.
I. Age and Life-Cycle Stage segmentation consists of offering different products or using different
marketing approaches for different age and life-cycle groups.. Consumer needs and wants change with
age. Some companies use age and life cycle segmentation, offering different products or using different
marketing approaches for different age and life-cycle groups.
II. Gender segmentation calls for dividing a market into different groups based on sex. This
segmentation form has long been used for clothing, cosmetics, toiletries, and magazines. New
opportunities in this area are emerging such as automobiles, deodorants, and financial services. There
is an increased emphasis on marketing and advertising to women. Specialized Web sites are becoming
very popular with this group.
III. Income segmentation
It consists of dividing a market into different income groups. Marketers for automobiles, boats,
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clothing, cosmetics, financial services, and travel have long used this form of segmentation. Using this
form, marketers must remember that they do not always have to target the wealthy. Other income groups
are also viable and profitable market segments.
c) Psychographics segmentation
It calls for dividing marketing to different groups based on social class, lifestyle, or personality
characteristics. People in the same demographic class can exhibit very different psychographics
 characteristics. As previously seen in, lifestyle also affects people’s interest in various goods, and the
goods they buy express those lifestyles. This method of segmentation is gaining in popularity..
d) Behavioral segmentation
It involves dividing a market into groups based on consumer knowledge, attitudes, uses, or responses
to a product. Many marketers believe that behavior variables are the best starting point for building
market segments.
 Occasion segmentation consists of dividing the market into groups according to occasions when
buyers get the idea to buy, actually make their purchase, or use the purchased item.
 Benefit segmentation involves dividing the market into groups according to the different benefits
the consumers seek from the product. Companies can use benefit segmentation to clarify the
benefit segment to which they are appealing, its characteristics, and the major competing brands.
They can also search for new benefits and establish brands that deliver them.
 User status can also be used to divide the market. Segments of nonusers, ex-users, potential
users, first-time users, and regular users of a product are potential ways to segment.
 Usage rates are another way that marketers segment markets. These categories might be light,
medium, and heavy user groups.
 Loyalty status can also be used to segment markets. Consumers can be loyal to brands, stores,
and companies.

E. Segmenting Business Markets

Consumer and business marketers use many of the same variables to segment their markets.
Business buyers can be segmented geographically or by benefits sought, user status, usage rate, or
loyalty status. Additional variables unique to this market would be business customer demographics
(industry, company size), operating characteristics, purchasing approaches, situational factors, and
personal characteristics. Within a chosen industry, a company can further segment by customer size or
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geographic location. Many marketers believe that buying behavior and benefits provide the best basis
for segmenting business markets.

Segmenting International Markets Companies can segment international markets using one or
more of a combination of variables. The chief factors that can be used are:
Geographic location
Economic factors
 Political and legal factors
Cultural factors
Many companies use an approach called inter market segmentation. In this approach, companies form
segments of consumers who have similar needs and buying behavior even though they are located in
different countries. For example, the world’s teens have a lot in common.

F. Requirements for Effective Segmentation

There are many ways to segment, but not all segmentations are effective. To be useful, market segments
must have certain characteristics. Among the most significant of these are:
1) Measurability is the degree to which the size, purchasing power, and profilesof market segment can
be measured.
2) Accessibility refers to the degree to which a market segment can be reached and served.
3) Substantiality refers to the degree to which a market segment is sufficiently large or profitable.
4) Differentiation refers to the degree to which a market segment can conceptually be distinguished and
has the ability to respond differently to different market in mix elements and programs.
5) Action ability is the degree to which effective programs can be designed for attracting and serving a
given market segment.

G. Market Targeting
Market segmentation reveals the firm's market segment opportunities. The firm now has to evaluate the
various segments and decide how many and which ones to target. We now look at how companies
evaluate and select target segments.
1) Evaluating Market Segments
In evaluating different market segments, a firm must look at three factors: segment size and growth,
segment structural attractiveness, and company objectives and resources. The company must first
collect and analyze data on current segment sales, growth rates, and expected profitability for various
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segments. It will be interested in segments that have the right size and growth characteristics. But "right
size and growth" is a relative matter. The largest, fastest-growing segments are not always the most
attractive ones for every company. Smaller companies may lack the skills and resources needed to serve
the larger segments or may find these segments too competitive. Such companies may select segments
that are smaller and less attractive, in an absolute sense, but that are potentially more profitable for them.
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 the profits that can be earned in a segment.
a) Undifferentiated Marketing
Using an undifferentiated marketing (or mass-marketing) strategy, a firm might decide to ignore market
segment differences and go to the whole market with one offer. This mass-marketing strategy focuses on
what is common in the needs 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. It relies on mass
distribution and mass advertising, and it aims to give the product a superior image in people's minds.
As noted earlier in the chapter, 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.
b) Differentiated Marketing
Using a differentiated marketing strategy, a firm decides to target several market segments or niches
and designs separate offers for each. By offering product and marketing variations, these companies
hope for higher sales and a stronger position within each market segment. Developing a stronger
position within several segments creates more total sales than undifferentiated marketing across all
segments. But differentiated marketing also increases the costs of doing 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. Trying to reach
different market segments with different advertising increases promotion costs, thus, the company must
weigh increased sales against increased costs when deciding on a differentiated marketing strategy.
c) Concentrated Marketing
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A third market-coverage strategy, concentrated 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. Today, the low cost of setting up shop on the
Internet makes it even more profitable to serve apparently very small niches. Concentrated marketing
provides an excellent way for small new businesses to get a foothold against larger, more resourceful
competitors. Through concentrated marketing, firms achieve strong market positions in the segments
 or niches they serve because of their greater knowledge of the segments' needs and the special
reputations they acquire. They also enjoy many operating economies because of specialization in
production, distribution, and promotion. If the segment is well chosen, firms can earn a high rate of
return on their investments.
d) Choosing a Market-Coverage Strategy
Many factors need to be considered when choosing a market-coverage 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.. 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.
e) Socially Responsible Target Marketing
Smart targeting helps companies to be more efficient and effective by focusing on the segments that they
can satisfy best and most profitably. Targeting also benefits consumers—companies reach specific
groups of consumers with offers carefully tailored to satisfy their needs. However, target marketing
sometimes generates controversy and concern. Issues usually involve the targeting of vulnerable or
disadvantaged consumers with controversial or potentially harmful products. In market targeting, the
issue is not really who is targeted but rather how and for what. Controversies arise when marketers
attempt to profit at the expense of targeted segments—when they unfairly target vulnerable segments or
target them with questionable products or tactics. Socially responsible marketing calls for segmentation
and targeting that serve not just the interests of the company but also the interests of those targeted.
f) Positioning for Competitive Advantage
Once a company has decided which segments of the market it will enter, it must decide what positions it
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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. Thus, in the automobile market, Toyota and Subaru are positioned on economy, Mercedes and
Cadillac on luxury Consumers are overloaded with information about products and services.
2) Choosing a Positioning Strategy
 Some firms find it easy to choose their positioning strategy. For example, a firm well known for quality
in certain segments will go for this position in a new segment if there are enough buyers seeking quality.
But in many cases, two or more firms will go after the same position. Then, each will have to find other
ways to set itself apart. Each firm must differentiate its offer by building a unique bundle of benefits
those appeals to a substantial group within the segment.
The positioning task consists of three steps:
1. Identifying a set of possible competitive advantages upon which to build a position.
2. Choosing the right competitive advantages.
3. Selecting an overall positioning strategy. The company must then effectively communicate and
deliver the chosen position to the market.
3) Identifying Possible Competitive Advantages
The key to winning and keeping customers is to understand their needs and buying processes better than
competitors do and to deliver more value. To the extent that a company can position itself as providing
superior value to selected target markets it gains competitive advantage. But solid positions cannot be
built on empty promises. If a company positions its product as offering the best quality and service, it
must then deliver the promised quality and service. Thus, positioning begins with actually
differentiating the company's marketing offer so that it will give consumers more value than
competitors' offers do & hiring and training better people than their competitors do.
4) Choosing the Right Competitive Advantages
Suppose a company is fortunate enough to discover several potential competitive advantages. It now
must choose the ones on which it will build its positioning strategy. It must decide how many
differences to promote and which ones.
I. How Many Differences to Promote?
Many marketers think that companies should aggressively promote only one benefit to the target market.
Each brand should pick an attribute and advertize itself as "number one" on that attribute.
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Other marketers think that companies should position themselves on more than one differentiating
factor. This may be necessary if two or more firms are claiming to be the best on the same attribute.
Today, in a time when the mass market is fragmenting into many small segments, companies are trying
to broaden their positioning strategies to appeal to more segments.
II. Which Differences to Promote?
Not all brand differences are meaningful or worthwhile; not every difference makes a good
 differentiator. Each difference has the potential to create company costs as well as customer benefits.
Therefore, the company must carefully select the ways in which it will distinguish itself from
competitors. A difference is worth establishing to the extent that it satisfies the following criteria:
• Important: The difference delivers a highly valued benefit to target buyers.
• Distinctive: Competitors do not offer the difference, or the company can offer it in a more
distinctive way.
• Superior: The difference is superior to other ways that customers might obtain the same benefit.
• Communicable: The difference is communicable and visible to buyers.
• Preemptive: Competitors cannot easily copy the difference.
• Affordable: Buyers can afford to pay for the difference.
• Profitable: The Company can introduce the difference profitably.
Many companies have introduced differentiations that failed one or more of these tests
e) Selecting an Overall Positioning Strategy
Consumers typically choose products and services that give them the greatest value. Thus, marketers
want to position their brands on the key benefits that they offer relative to competing brands. The full
positioning of a brand is called the brand's value proposition the full mix of benefits upon which the
brand is positioned. It is the answer to the customer's question "Why should I buy your brand?" Volvo's
value proposition hinges on safety but also includes reliability, roominess, and styling, all for a price that
is higher than average but seems fair for this mix of benefits.
f) Communicating and Delivering the Chosen Position
Once it has chosen a position, the company must take strong steps to deliver and communicate the
desired position to target consumers. All the company's marketing mix efforts must support the
positioning strategy. Positioning the company calls for concrete action, not just talk. If the company
decides to build a position on better quality and service, it must first deliver that position.
Designing the marketing mix product, price, place, and promotion essentially involves working out the
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tactical details of the positioning strategy. Thus, a firm that seizes on a "for more" position knows that it
must produce high-quality products, charge a high price, distribute through high- quality dealers, and
advertise in high-quality media. It must hire and train more service people, find retailers who have a
good reputation for service, and develop sales and advertising messages that broadcast its superior
service. This is the only way to build a consistent and believable “more for more" position.