CHAPTER FOUR

MARKET SEGMENTATION, TARGETING AND POSITIONING

1.1. Market Segmentation

A company cannot serve all customers in a broad market. The customers are too numerous and
diverse in their buying requirements. The company needs to identify the market segments that it can
serve more efficiently. Many companies are embracing target marketing. Here sellers distinguish the
major market segments, target one or more of these segments, and develop products and marketing
programs tailored to each. Market segmentation means the process of dividing the whole market for
a product into several smaller, internally homogenous groups. I.e. it is dividing a market into distinct
groups of buyers with different needs, characteristics, or behavior who might require separate
products of marketing mixes. A company that practices market segmentation recognizes that buyers
differ in their needs, perceptions, and buying behaviors. Hence, the company tries to isolate the
broad segments that make up the market and adapts its offers to more closely match the needs of one
or more segments. The essence of segmentation is that the members of each group are similar with
respect to the factors that influence demand. Hence, sometimes the ability to segment markets
effectively is considered as a major element for company success. Market Segmentation is the
process of identifying and profiling distinct group of buyers who might require separate products or
marketing mixes.
4.1.2. LEVELS OF MARKET SEGMENTATION

Market segmentation is an effort to increase a company’s precision marketing. The starting point of
any segmentation discussion is mass marketing. In mass marketing, the seller engages in the mass
production, and mass promotion of one product for all buyers. The arguments of mass marketing is
that it creates the largest potential market, which leads to the lowest costs, which turn can lead to
lower prices or higher margins.

I. Segment Marketing
A market segment consists of a large identifiable group with in a market with similar wants,
purchasing power, geographical location, buying attitudes, or buying habits. i.e. An auto
company may identify four broad segments: car buyers who are primarily seeking basic
transportation or high performance or luxury or safety.
Segmentation is an approach midway between mass marketing and individual marketing. Each
segment’s buyers are assumed to be quite similar in wants and needs, yet no buyers are really
alike. Segment marketing offers several benefits over mass marketing. The company can create a
more fine-tuned product or service offering and price it appropriately for the target audience. The
choice of distribution channels and communications channels becomes much easier. The
company also may face fewer competitors in the particular segment.

2. Niche Marketing
A niche is a more narrowly defined group, typically a small market whose needs are not well
served. Marketers usually identify niches by dividing a segment into sub segments or by defining
a group seeking a distinctive mix of benefits. i.e. the segments of heavy smokers includes those
who are trying to stop smoking and those who don’t care. Whereas segments are fairly large and
normally attract several competitors, niches are fairly small and normally attract only one or two.
Large companies lose pieces of their market to nichers. Niche marketers presumably understand
their customers’ needs so well that the customers willingly pay a premium.

Eg. Ferrari gets a high price for its cars because loyal buyers feel no other automobile comes
close to offering the product-service-membership benefits handle that Ferrari does.

An attractive niche is characterized as follows:

The customers in the niche have a distinctive set of needs; they will pay a premium to the firms
that best satisfies their needs; the niche is not likely to attract other competitors; the nicher gains
certain economies through specialization; and the niche has size, profit and growth potential.

3. Local Marketing
Target marketing is leading to marketing programs being tailored to the needs and wants of local
customer groups (trading areas, neighborhoods, even individual stores). Those favoring
localizing a company’s marketing see national advertising as wasteful because it fails to address
local needs. Those against local marketing argue that it drives up manufacturing and marketing
costs by reducing economies of scale. Logistical problems becomes magnified when companies
try to meet varying local segments. A brands overall image might be deluded if the product and
message differ in different localities.
 4. Individual Marketing
The ultimate level of segmentation leads to “Segments of One” customized marketing, ‘or’ one-
to-one marketing. For countries, consumers were served as individuals: The tailor made the suit
and the cobbler designed shoes for the individual. Much business-to business marketing today is
customized, in that a manufacturers will customize the offer, logistics, communications, and
financial terms for each major accounts. Mass customization is the ability to prepare on a mass
basis individually designed products and communications to meet each customer’s requirements.
Today customers are taking more individual initiative in determining what and how to try. They
log on to the internet; look up information and evaluators of product or services offers; dialog
with suppliers, users, and product critics; and make up their own minds about the best offers.
Marketers will still influence the process but in new ways. They will need to set up toll-free
phone numbers and e-mail addresses to enable buyers to reach them with questions, suggestions,
and complaints. They will involve customers more in the product-specification process. They
will sponsor an internet home page that provides full information about the company’s products,
guarantees, and locations.

4.1.3 PATTERNS OF MARKET SEGMENTATION

Market segments can be built in many ways. One way is to identify preference segments.
Suppose ice cream buyers are asked how much they value sweetness and creaminess as the
product attributes. Three different patterns can emerge.

1. Homogeneous Preferences
This preference shows a market where all the customers have roughly the same preference. The
market shows no natural segments. We would predict that existing brands would be similar and
cluster around the middle of the scale in both sweeteners and creaminess.

2. Diffused Preferences

At the other extreme, consumer preferences may be scattered throughout the space; indicating
that consumers vary greatly in their preferences. The first brand to enter the market is likely to
position center to appeal to the most people. A brand in the center minimizes the sum of total
customers dissatisfaction. A second competitor could locate next to the first brand and fight for
market share. Or it clear locate is a cannel to attract a customers group that was not satisfied with
the cluster brand. If several brands are in the market, they are likely to position through at the
space and show real differences to match consumer-preference differences.

3. Clustered Preferences
The market might reveal distinct preference clusters, called natural market segments. The firm in
this market has three options. It might position in the center, hoping to appeal to all groups. It
might position in the largest market segment (concentrated marketing). It might develop several
brands, each positioned in a different segment of the first firm developed only one brand,
competitors would enter and introduce brands in the others segments.

4.1.4 Basis for segmenting consumer market

Two broad groups of variables are used to segment consumer markets. Some researches try to
form segments by looking at consumer’s characteristics. They commonly use Geographic,
demographic and psychographics characteristics. Other researchers try to form segments by
looking at consumer responses (behavior) to benefit sought, use occasions or brands.

Once the segments are formed, the researcher sees whether different consumer characteristics are
associated with each customer response segment. For example, the researcher might examine
whether people who want “quality” versus “low price” in buying an automobile differ in their
geographic and psychographic makeup.

The major segmentation variables – geographic, demographics, psychographics and behavioral

segmentation can be used singly or in combination.

Geographic Segmentation

This calls for dividing the market into different geographical units such as nations, states,
regions, countries, cities or neighborhoods. The company can decide to operate in one or a few
geographic areas or operate in all but pay attention to local variations in geographic needs and
preferences.

Demographic Segmentation

In demographic segmentation, the market is divided into groups on the bases of demographic
variables such as age, family size, gender, income, occupation, education, religion, race,
generation, nationality or social class. Demographic variables are the most popular bases for
distinguishing customer groups. One reason is that consumer wants, preferences and usage rates
are often highly associated with demographic variables. Another is that demographic are easier
to measure than most other types of variables.

Psychographic Segmentation

In psychographic segmentation, buyers are divided into different groups on the basis of life style
and/or personality. People within the same demographic group can exhibit very different
psychographic profile.

Behavioral Segmentation

Behavioral segmentation focuses on product related behavior of customers. This focuses on such
attributes as product usage rates (heavy users, medium users or light users), the benefits derived
from the product (benefit sought), attitude towards the product (enthusiastic, positive, indifferent,
negative, and hostile), buyers’ readiness stage (unaware, aware, informed, interested, desirous,
and intending to buy), etc.

4.1.3. Importance of segmentation

Buyers are too numerous, too widely scattered and too varied in their needs and buying practices.
Moreover, the companies themselves vary widely in their ability to serve different segments of
the market. Rather than trying to compete in an entire market, each company must identify the
part of the market that it can serve best and most profitably.

To choose its markets and serve them well, many companies are embracing target marketing. In
target marketing, sellers distinguish the major market segments, target one or more of those
segments, and develop products and marketing programs tailored to each segments. Instead of
scattering their marketing effort, they can focus on the buyers whom they have the greatest
chance of satisfying.

Criteria’s for effective segmentation

There is no underlying theory to the process of market segmentation. It follows that what is an
appropriate basis for segmenting one market may not be appropriate to other markets. Before we
begin to look at the bases on which marketers can segment any given market, we need to be
aware of requirements by which the effectiveness of any segmentation basis can be assessed. We
will consider here five important criteria.

Market segments must be:

a) Measurable – The size purchasing power and profiles of the segments can be measured.
b) Substantial – the market segments are large or profitable enough to serve
c) Differentiable - the segments are conceptually distinguishable and respond differently to
different marketing mix elements and programs.
d) Accessible – the market segments can be effectively reached and served
e) Actionable – effective programs can be designed for attracting and serving the segment.

4.2. Target Marketing

After a market is segmented, the company must decide which and how many segments to serve.
This is what we call market selection (target marketing). A target market consists of a set of
buyers who share common needs or characteristics that the company decides to serve. In
selecting markets, it is advisable for companies to consider the followings:

 First, target markets should be compatible with the organization’s goals and image.
 Second, the segment’s opportunity should commensurate with the company’s resource.
 Third, the segment must be profitable.
 Fourth, a company ordinarily should seek a market where there are the least and
smallest competitors.

There are three alternative strategies in target marketing:

1. Aggregation strategy: (undifferentiated marketing or mass strategy): - a firm might

decide to ignore market segment differences and go after the whole market with one offer
(treating the total market as a single segment). An aggregate market’s members are
considered to be alike with respect to demand for the product i.e. customers are willing to
make some compromises on less important dimensions in order to enjoy the primary benefit
the product offers. Hence, this approach focuses on what is common among consumers rather
than 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 one pricing strategy and superior image in the people’s minds. Undifferentiated
marketing provides cost economies. The narrow product line keeps down production,
inventory and transportation costs. The undifferentiated advertising program keeps down
advertising costs. The absence of segments marketing research and planning lowers the costs
of marketing research and product management. But it may not be advantageous to use this
approach in today’s competitive environment. This is because this approach targets its
products at everybody or the average customer. The fallacy of developing products directed
at average customer is that relatively a few customers are exist. Typically, population is
characterized by diversity. An average is simply midpoint in some set of characteristics.
Because most customers are not average they are not likely to be attracted to an average
product. Rather they tend to use the products of other companies that appear to tailor to their
specific needs. But, this by no means that there is no any circumstance that this approach can
be practiced. It may be applied when the total market for the type of product under
consideration (the majority of customers in the total market) are likely to respond in very
similar fashion to one marketing mix. In addition, it may be appropriate for firms that are
marketing an undifferentiated, staple product like salt or sugar. For most customers sugar is
sugar and salt is salt.
2. Single segment strategy (Concentrated marketing): - is selecting one segment among
many segments. Then one marketing mix (program) will be designed to reach this market
segment. This approach is desirable when the company has limited resource to serve many
segments. Apart from this, it enables companies to penetrate new market in depth and to
acquire reputation as a specialist in that market. No matter how this advantage, it may turn
out to be a little bit disadvantageous from the risk point of view. In this approach, the
company invests the whole of its resources in a single market and hence if anything wrong
happens with that market, say if the market declines, the seller will suffer considerably.
3. Multiple segment strategy (differentiated marketing):- When a firm selects two or more
market segments to serve. A separate marketing mix (program) is designed for each of such
market segments. Companies pursuing this strategy hope that a stronger position in several
segments will strengthen consumers’ over all identification of the company with the product
category. This strategy may provide the company with higher sales as compared to other
 strategies and of course minimizes the vulnerability of the firm for risk as it operates in more
than one segment. No matter how, companies advocating this approach should recognize that
the costs associated with this strategy is relatively greater than the other approaches. This is
so; first because marketing for different segments requires producing different kinds of
products tailored to each segment hence, production costs are obviously greater. Second, the
company should come up with different promotional and distribution programs for each
segment, which in turn keeps the associated costs up.

4.3. The Concept of Positioning

After segmenting and targeting its market, then the company should develop marketing mix
program tailored to each targeted market so that customers in each target market will respond in
favor of the company’s product. This, the act of – designing the company’s offering and image to
occupy a distinctive place in the mind of the target customers is what we call positioning. The
end result of positioning is the successful creation of a customer focused value proposition, a
cogent reason why the target market should buy the product. In positioning, the firm will decide
upon the nature of the product i.e. form, attribute, performance quality, conformance quality,
durability reliability etc aspects of the product in light with each segment, the pricing strategy,
promotional approach and distribution strategy associated with each segment.

Positioning task consists of three steps: identifying a set of competitive advantage upon which to
build a position, selecting the right competitive advantages, and effectively communicating and
delivering the chosen position to the market.

A. Identifying possible competitive advantage: - Consumers typically choose products that

give them the greatest value. Thus the key to success is to understand customer needs and buying
process better than competitors do. That means a firm should come up with some kind of
benefits to customers that make it different from competitors so that customers will be attracted
to the company’s products than competitor products. To this end, a company needs to know on
what grounds it can make its offers peculiar from competitors. A company’s offer can be
differentiated along the lines of product, services, people or image.

1. Product differentiation: - Physical products vary in their potential for differentiation. At one
extreme we find products that allow little variation and at the other extreme products capable of
high differentiation. Companies can differentiate their products on such attributes as features,
performance, durability, reliability, reparability style and design.

2. Service differentiation: Beyond differentiating its physical product, a firm can also
differentiate the service that accompanies the product. Some companies gain competitive
advantage through speed, convenient, careful delivery, installations, customer training, customer
consultancy service and maintenance and repair.

3. Personnel differentiation: companies can get competitive advantage through hiring and
training better people than their competitors do. People differentiation requires that a company
select its customers –contact people carefully and trained them well.

4. Channel differentiation: companies can gain competitive advantage through the way they
design their distribution channel’ coverage, expertise and performance.

5. Image differentiation: Buyers respond differently to company and brand image. Image
refers to the way the public perceives the company or its product.

B. Selecting the right competitive advantage: suppose that 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.

How many to promote: there is no fast and hard rule in this regard. A company may select as
many differentiation bases as it needs. Today in a time when mass marketing is fragmenting in
favor of small segments, companies most often tend to broaden their positioning strategy by
accommodating more than one differentiation basis. However, as they increase the number of
claims of their brands, they risk disbelief and a loss of clear positioning.

Which difference to promote: Not all brand differences are meaningful or worthwhile, not
every difference is a good differentiator. Each difference has a 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 highly valued benefit to customers (important), possibility to deliver it in distinct way
than competitors (distinctive), the difference must be presented in superior ways than it is
presented by competitors (superior), it should be communicable and visible to customers
(communicability), it should be difficult for competitors to copy the difference (preemptive), it
should be affordable at prices desired by buyers (affordability), and it should be profitable to the
company.

C. Communicating and delivering the chosen position: - Once it has chosen the position, the
company must take strong steps to deliver and communicate the desired position to target
customers. All company’s marketing mix elements should support the positioning strategy.
Positioning calls for concrete action not talk. E.g. if the company decides to position on better
quality and service, it should not only communicate these differentiation bases to the prospective
target markets but also should deliver it. Otherwise, it bound to fail sooner or later even if its
positioning strategy is the best one.