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CHAPTER FIVE
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

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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 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.

5.1 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

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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 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

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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 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

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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
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

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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
-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

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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: - 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 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.

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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 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

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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.

5.2 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 of consumers rather than on what is
different. The company designs a product and a marketing program

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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

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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 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

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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.
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

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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 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.

5.3 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

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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.

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

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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.
 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,

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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.
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

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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
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

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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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