Chapter Three

Market Segmentation,
Targeting and Positioning
 Learning Goals
 Explain market segmentation, and identify
several possible bases for segmenting markets.
 Distinguish between the requirements for
effective segmentation.
 Understand the concept of market targeting.
 Discuss choosing and implementing a
positioning strategy.
 Market
 Organizations that sell to consumer and business markets recognize
that they cannot appeal to all buyers in those markets, 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.
 Different companies 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.
 A ‘market’ after all is the aggregate of consumers of a given product.
 Consumer (the end user), who makes a market, are of varying
characteristics and buying behavior.
 Cont’d…
 The company needs to identify the market segments that it
can serve more effectively.
 Three Major Steps in target Marketing
1. Market segmentation: dividing a market into distinct
groups of buyers with different needs, characteristics or
behavior who might require separate products or
marketing mixes.
2. Market targeting: evaluating each market segment’s
attractiveness and selecting one or more of the market
segments to enter.
3. Market positioning: establish and communicate the
products’ key distinctive benefits in the market.
 Market Segmentation
 Markets consist of buyers, and buyers differ in
one or more ways.
1. They may differ in their wants, resources, locations,
buying attitudes and buying practices and preferences
for buying channels such as ordering by mail, phone,
the Internet or from a physical location.
2. Because buyers have unique needs and wants, each
buyer is potentially a separate market. Ideally, then, a
seller might design a separate marketing program for
each buyer.
 Cont’d…
 Why market segmentation? Because
– Buyers are too numerous,
– Buyers are too widely scattered,
– Buyers are too varied in their needs and
buying practices.
– Different companies vary widely in their
abilities to serve different segments of the
market.
 Levels of Marketing
Segmentation

Mass Segment Niche Micro

Marketing Marketing Marketing marketing

No segmentation
Complete Segmentation
 Cont’d…
 Mass Marketing: refers to mass-producing, mass
distributing, and mass promoting about the same
product in about the same way to all consumers.
Advantage
–  It creates the largest potential market
– Low production cost
– Lower prices or higher profit margins
Disadvantage
–  Difficult to create a single product that appeals to a
groups of customers
– The rise of advertising media and distribution
channel
 Cont’d…
 Segment Marketing
– Consists of a large identifiable group within a market
with similar wants, purchasing power, geographical
location, buying attitudes, or buying habits.
– Examples:
 Hotels: business travelers, families, etc
 Auto Manufacturers : utility buyers, luxury
buyers, safety buyers, performance buyers
– Even in segment markets, no two buyers are exactly
the same. Thus, advantageous to have a flexible
market offering.
 E.g. Airlines
 Cont’d…
Advantages
 Ability to create a more fine-tuned product or
service offering and price is appropriately for
the target audience.
 Choice of distribution channels and
communication channels becomes much
easier.
 Companies may face fewer competitors in the
particular segment.
 Cont’d…
 Niche Market: 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.
 Cont’d…
Advantages
– Niches are smaller and attract only one or a few
competitors
– Niche marketers - customers willingly pay price
premium.
– Niches offer smaller companies compete by
focusing their limited resources on serving niches
E.g Insurance
 Nature of attractive niche
 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.
 Cont’d…
 Micro marketing: It is the practice of tailoring
products and marketing programs to suit the
tastes of specific individuals and locations.
 Local marketing
 Individual marketing

 Local marketing: involves tailoring brands and

promotions to the needs and wants of local
customer groups- cities, neighborhoods, and
even specific stores. Eg. Bank services
 Cont’d…
Drawbacks
– Drives up manufacturing and marketing costs by
reducing economies of scale.
– Creates logistical problem as companies try to meet
the varied requirements of different regional and local
markets
– Brands overall image may be diluted if the product
and message vary in different localities
Advantage
–  Helps a company to market more effectively
– It also meets the needs of the company’s “first-line
customers”- retailers
 Cont’d…
 Individual Marketing: The ultimate level of
segmentation leads to “Segments of One”
customized marketing, or ‘one-to-one
marketing’.
 Refers to the practice of tailoring products
and marketing programs to the needs and
preferences of individual customers
 PATTERNS OF MARKET
SEGMENTATION
 Homogeneous Preferences: shows a market where all
the customers have roughly the same preference. The
market shows no natural segments.
 Diffused Preferences: consumer preferences may be
scattered throughout the space; indicating that
consumers vary greatly in their preferences.
 Clustered Preferences: The market might reveal
distinct preference clusters, called natural market
segments.
Cont’d…
 SEGMENTING CONSUMER
MARKETS
 Marketers can apply geographic, demographic,
and psychographic variables related to
consumer characteristics as well as behavioral
variables related to consumer responses.
 No single way to segment a market.
 Marketer has to try different segmentation
variables, alone and in combination, to find the
best way to view the market structure.
 Geographic segmentation
 Geographic segmentation calls for dividing the
market into different geographical units such
as nations, states, regions, counties, cities, or
neighborhoods.
 People’s attitudes towards products and services may
differ based on the geographical location they live I
E.g. Warm weather – social life takes place outdoors
 Demographic segmentation, the market is divided into
groups on the basis of age and other variables.
 Demographic segmentation

 Demographic segmentation is the most

popular consumer segmentation method b/c
1. Consumer wants, preferences, and usage
rates are often associated with demographic
variables.
2. Demographic variables are easier to
measure.
 Cont’d…
 Include:
 Income  Under $1000, $1000-$2500, over
$2500
 Age  Under 5, 5-10, 10-19, 20-34, 35+
 Gender  Male, Female
 Family lifecycle  Young, single, married, no
children
 Social class  Upper class, middle class, lower
class
 Cont’d…
 Education  High school, Diploma, Degree
 Occupation  Professional, managers, clerical,
employee
 Religion  Orthodox, Muslim, catholic,
protestant, etc
 Ethnic Background  African, Asian, European
Psychographic Segmentation
 In psychographics segmentation, buyers
are divided into different groups on the
bases of
 Lifestyle
 Personality and
 Values: are the belief systems that
underlie consumer attitudes and
behaviors.
 Behavioral Segmentation
 Buyers are divided into groups on the basis of their
knowledge of, attitude toward, use of, or response to a
product. Include:
– Occasions. Buyers can be distinguished according to the occasions on
which they develop a need, purchase a product, or use a product.
– Benefits. Buyers can be classified according to the benefits they seek.
– Identified the benefit
– Describe peoples demographic and psychographics characteristics
– Usage rate: Another basis for market segmentation is the rate at which
people use or consume a product. A frequently used categorization of usage
rate is nonusers, light users, medium users, and heavy users. Normally a
company is most interested in the heavy users of its products.
 Cont’d…
 Loyal Status: Buyers can be divided into four groups according to brand
loyal 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
 Buyers Readiness stage: Some are unaware of the product, some are
aware, some are informed, some are interested, some desire the product,
and some intend to buy.
 Attitude. Five attitude groups can be found in a market: (1) enthusiastic,
(2) positive, (3) indifferent, (4) negative, and (5) hostile.
 Effective Segmentation
To be useful, market segments must be:
 Measurable: The size, purchasing power, and characteristics of the
segments can be measured.
 Substantial: The segments are large and profitable enough to serve. A
segment should be the largest possible homogeneous group worth going
after with a tailored marketing program.
 Accessible: The segments can be effectively reached and served.
 Differentiable: The segments are conceptually distinguishable and respond
differently to different marketing mixes. If two segments respond
identically to a particular offer, they do not constitute separate segments.
 Actionable: Effective programs can be formulated for attracting and
serving the segments.
 4.2. MARKET TARGETING
 Here, marketers evaluate each segment to determine
how many and which ones to target and enter.
Evaluating Market Segments
 The firm must look at two factors when evaluating the
segment:
(1) the segment’s overall attractiveness,(size, growth,
profitability, scale economies, and low risk.) and
(2) the company’s objectives and resources: to enter
 The segment should fit with company's objective
 The company should possess the skills and resource
 Cont’d…
 Segment is less attractive if
 It contains many strong and aggressive
competitors
 There are actual or potential competitors
 Buyers have strong power
 It contains powerful suppliers
Selecting and Entering Market
Segments
 Cont’d…
 Full Market Coverage: Here a firm attempts to serve all
customer groups with all of the products they might
need.
 can cover a whole market in two broad ways: through
1. undifferentiated marketing, the firm ignores market-
segment differences and goes after the whole market
with one market offer.
2. differentiated marketing, the firm operates in several
market segments and designs different programs for
each segment.
 Targeting strategies
 Three alternatives
1. Undifferentiated or mass marketing
2. Differentiated marketing
3. Concentrated marketing
Factors affecting market coverage strategies
 Company resource
 Degree of product variability
 Product life cycle stage
Market variability Competitors marketing strategies
 4.3. Differentiation and
Positioning
 Differentiation: It is the act of designing a set of
meaningful differences to distinguish the
company’s offering from competitor's offerings.
 It is where positioning begin- being different in
a way that customers want
 A company can differentiate its market offering
along five dimension
 Product Personnel
 Service Channel Image
 Product differentiation
 Differentiating the physical product
– Form: size, shape, physical structure of a product.
– Features: characteristics that supplement the
product's basic function.
– Performance quality: the level at which the product’s
primary characteristics operate (low, high, average,
superior)
– Conformance quality: the degree to which all the
produced unites are identical and meet the promised
specifications.
– Durability: the product's expected operating life
under natural or stressful conditions
 Cont’d…
 Reliability: the probability that the product will
not malfunction or fail within a specified period
of time
 Repairability: the ease of fixing a product when
it malfunctions or fails
 Style: the product’s look and feel to the buyer –
degree of attractiveness
 Service Differentiation
 Ordering ease: how easy it is for the customer to place
an order with the company
 Delivery: how well the product or service is delivered to
the customer. Includes: speed, accuracy and care
attending the delivery process.
 Installation: the wok done to make a product
operational in its planned location.
 Customer training: training the customer's employees
to use the vendor’s equipment properly
 Customer consulting: data, information systems, and
advising services that the seller offers to buyers
 Maintenance and repair
 Personnel differentiation
 Competence: possess the required skill and knowledge
 Courtesy : friendly, respectful, and considerate
 Credibility: trustworthy
 Reliability: perform the service consistently and
accurately
 Responsiveness: respond quickly to customers’
requests and problems
 Communication: make the effort to understand
customer and communicate clearly.
 Positioning
 After a target market has been selected a company will naturally find others
competing in that segment.
 The next task is to develop a marketing plan that will enable your product to
compete effectively against them.
 It is unlikely that success will be achieved with a marketing program that is
virtually identical to competitors for that already have attained a place in the
minds of individuals in the target market and have developed brand loyalty.
Since people have a variety of needs and tastes, market acceptance is more
easily achieved by positioning.
 Positioning is the act of designing the company’s offering and image so that
they occupy a meaningful and distinct competitive position in the target
customer’s mind. ‘Positioning is what you do to mind of the prospect’.
Which difference to promote?
 Important: deliver high value
 Distinctive: competitor do not offer the
difference
 Superior:
 Communicable: being visible
 Preemptive: not easily copied
 Affordable: buyers afford to pay the difference
 Profitable
 Positioning Strategies
 Marketers can follow several positioning strategies. They can position their
products on specific product attributes such as low price, performance,
benefits, usage occasions, against a competitor and combination of many
attribute.
 Each firm must differentiated its offer by building a unique bundle of
competitive advantages those appeals to a substantial group within the
segment. The positioning task consists of three steps.
– Identifying a set of possible competitive advantages on which to
build a position.
– Selecting the right competitive advantages
– Effectively communicating and delivering the chosen position to
the market.
THE END