Segmentation, Targeting and Positioning

Introduction

Target marketing involves the identification of the most profitable market segments.
Therefore, businesses may decide to focus on just one or a few of these segments. They may
develop products or services to satisfy each selected segment. Such a target marketing
strategy differs from mass marketing (where a company may decide to produce and distribute
one product to all consumers) or from product differentiation (where a company offers a
variety of products to a large market). Marketers have been moving away from mass
marketing endeavours, as they are increasingly targeting smaller segments with customised
marketing programmes. In this light, this chapter sheds light on the process of market
segmentation. It clarifies how businesses could select the most profitable segments as they
employ market coverage and positioning strategies to attract them.

Market Segmentation

Market segmentation is the actual process of identifying segments of the market and the
process of dividing a broad customer base into sub-groups of consumers consisting of
existing and prospective customers. Market segmentation is a consumer-oriented process and
can be applied to almost any type of market. In dividing or segmenting markets, researchers
typically look for shared characteristics such as common needs, common interests, similar
lifestyles or even similar demographic profiles. So, market segmentation assumes that
different segments require different marketing programmes, as diverse customers are usually
targeted through different offers, prices, promotions, distributions or some combination of
marketing variables. For example, Southwest Airlines’ single-minded focus on the short-haul,
point-to-point, major-city routes, allowed them to prosper as their competitors floundered.
The airline’s focus on specific segments allowed them to do a better job of deciding what
their target segment really valued (for example, convenience, low price, on-time departures
and arrivals, among other things).

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Once the customer segments have been identified and profiled, the marketer must decide
which segment to target. Diverse customers will have different expectations. For instance,
there may be customers who will value a differentiated, high quality service, whilst others
may be more price-sensitive. Notwithstanding, not all firms have the resources to serve all
customers in an adequate manner. Trying to serve the entire market could be a recipe for
disaster. The overall aim of segmentation is to identify high-yield segments. These are likely
to be the most profitable groups of customers, or may hold potential for growth. Hence, the
most lucrative segments will usually become target markets.

The Benefits of Segmentation

By dividing the market into segments, marketing managers can acquire a better
understanding of the needs and wants of customers. This enables them to customise or to
‘tailor’ the company’s marketing activities more accurately and responsibly to the individual
customers’ likings. Segmentation marketing supports businesses in meeting and exceeding
their customers’ requirements. It may also allow them to evaluate the competitors’ strengths
and weaknesses. This way, they could discover business opportunities in markets which were
not served well.

Customer segmentation enables marketers to adopt a more systematic approach when

planning ahead for the future. This leads to better exploitation of marketing resources,
resulting in the development of a more finely-tuned marketing programme. For example, the
businesses’ integrated marketing communications can be better organised, as targeted
advertising (for example native advertising) and promotional activities can be directed at
individual customers.

Segmentation Variables

The traditional variables that may be used for market segmentation can be grouped into four
main categories: (i) Demographic (ii) Geographic (iii) Psychographic (iv) Behavioural

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Demographic Segmentation

Demographic segmentation involves dividing the market into groups that are identifiable in
terms of physical and factual data. The demographic variables may include; age, gender,
income, occupation, marital status, family size, race, religion and nationality. These
segmentation methods are a popular way of segmenting the customer markets, as the
demographic variables are relatively easy to measure.

Geographic Segmentation

Geographic segmentation involves selecting potential markets according to where they are
located. This segmentation approach may consider variables such as climate, terrain, natural
resources and population density, among other geographic variables. Markets can be divided
into regions because one or more of these variables could differentiate customers from one
region to the next. For example, those individuals who are living in wet and cold climates
will favour warm, sunny destinations for their holidays. This issue could greatly affect
competition among airlines for certain destinations, particularly during the peak holiday
seasons.

Psychographic Segmentation

Psychographic segmentation could be used to segment markets according to personality

traits, values, motives, interests and lifestyles. A psychographic dimension can be used by
itself to segment a market, or it can be combined with other segmentation variables. The
psychographic variables are used when purchasing behaviours correlate with the personality
or lifestyles of consumers. Diverse consumers may respond differently to the businesses
marketing efforts. The lifestyle one leads and expects to lead greatly depends on an
individual’s social status which is generally influenced by occupation. Social grades (grades
in status) may be broken down as follows:

A: Higher managerial, administrative or professional;

B: Intermediate managerial, administrative or professional;
C: Supervisory, clerical and junior managerial, administrative or professional;
D: Semi or unskilled manual workers;
E: State pensioners or widows, casual or lowest grade workers.

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Behavioural Segmentation

Behavioural segmentation is defined as the segmentation of the market according to

individual purchase behaviours. Behaviour based segmentation is conspicuous with the
benefits sought from the product, with the identification of specific buying behaviours, in
terms of shopping frequency and volumes of purchase, et cetera. For example, a customer
relationship management system could include customer profiles of frequent-flyer travellers,
and could reveal valuable information on their past transactions. The frequency with which
individuals travel often depends on their occupation. The higher the standard of living of
individuals will enable them to travel more frequently. These issues ought to be considered
by the airlines’ marketers. A poorly run airline could lose the return custom of its business
travellers. Moreover, it may lose credibility among potential prospects who may have come
in contact with disappointed travellers.

The Requirements for Effective Segmentation

The market segments must possess the following characteristics:

Measurability: It must be possible to measure the size and purchasing power of the
segment. It must be possible to gather concrete information on the various characteristics of
the market. The businesses would be more effective in their marketing strategies and tactics if
they hold accurate data, on their chosen segments.

Substantiality: This is the degree to which segments are profitable enough to be worth
pursuing with ‘tailored’ marketing programmes.

Accessibility: This refers to the degree to which one may reach and serve segments. For
example, there is no point in conducting a heavy television advertising campaign for the
business class service during off-peak viewing times of the day.

Auctionability: This relates to the degree to which effective programmes can be redesigned
to attract and serve relevant segments. For instance, a small airline could identify different
market segments, but its human and financial resources may limit its ability to adequately
develop separate marketing programmes.

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Market Targeting

Once the market segmentation has been completed, the company should be aware of the
needs and wants of its selected segments. It is in the interest of the business to identify any
untapped needs in the marketplace, as there could be customers who may not be adequately
served by competitors. It is then necessary to identify the most profitable segments and to
decide which segments will be served. There are three market coverage alternatives which
can be applied; undifferentiated marketing; differentiated marketing and concentrated
marketing.

An Undifferentiated Marketing Strategy

An undifferentiated marketing strategy ignores any differences in the market. Therefore, this
strategy involves approaching the customers with one market offer. In this day and age,
discerned customers are increasingly becoming more demanding. It will prove difficult for
the business to develop a product or a brand which will satisfy all consumers who may have
different needs, wants and expectations.

A Differentiated Marketing Strategy

A differentiated marketing strategy will usually involve targeting a number of segments. This
marketing coverage strategy entails developing an individual product or service offering, and
creating a marketing plan for each and every segment. Hence, the company should carry out a
thorough market research to learn about how it can satisfy its selected segments. This will
translate to more costs than an undifferentiated strategy. Therefore, it is extremely important
for the company to decide which services are of critical importance to its chosen segments.
The marketing managers should determine whether there will be significant margins when
opting for differentiated marketing. For example, the legacy airlines’ provision of additional
facilities, such as; separate check-in desks, airport lounge facilities, separate cabins with
comfortable seating for first class or business class passengers, as well as superior inflight
meals, will translate to greater costs for the airline.

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Concentrated marketing

The companies with limited resources will usually target just one or a few sub-markets. If a
segment is successfully chosen, there is a possibility that the firm may earn a high rate of
return on its investment. However, this form of marketing could also involve a high-risk
factor. If the selected segment fails, the company can experience hefty losses.

In sum, the appropriate market coverage strategy may be determined by a number of factors:

 The company’s resources. If the resources are limited, concentrated marketing

could be the most logical choice;
 The type of service which is to be offered. For example, airlines could offer
chartered or scheduled service, low-cost or full-service, long-haul or short-
haul services, business or leisure services, and so on;
 Diversities within the market. The companies need to understand their
customers’ requirements. For example, independent business travellers may
have different needs and wants than those of the corporate business travellers
who are sponsored by their employers;
 The competitors’ market coverage strategies. For example, if competing
airlines are successfully applying segmentation techniques; probably, it would
not make good business sense to employ an undifferentiated marketing
strategy.

Which segment should be selected? Businesses should only consider those market segments
that are profitable. Therefore, they should target profitable customers within those segments
and nurture a long-lasting relationship with them.

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Positioning

The final stage in target marketing is product positioning. Firms formalise “positioning
statements” which specify the position they wish to occupy in their target customers’ minds,
relative to other competitors’ products or services. Customers continuously compare products
or services. Therefore, marketers must build their positioning strategies to improve the
customers’ (and prospects’) perceptions of their products. Effective product positions have
four important characteristics. Firstly, they are built around benefits for prospective
customers. Secondly, they differentiate the specific firms’ products or service from those of
key competitors. Thirdly, the respective firms need to possess relevant skills, resources, and
the credibility to deliver on their implied statements and promises. Finally, an effective
position is defensible, which means that an aggressive competitor cannot act quickly to
neutralise or preempt another positioning strategy. For example, a full-service, national
carrier could differentiate itself among other competitors as the only airline offering a
superior service in its chosen markets. The tourism businesses should stand out from their
rivals whether they decide to position themselves alongside competitors, or to position
themselves in untapped niches. They may position themselves for their high standards of
service, additional amenities and so on.

Alternatively, low-cost carriers like Southwest Airlines could position themselves as a

punctual airline, as a no-frills airline, as a low-cost airline, as a safety-conscious airline, as a
friendly airline, and as the airline serving the western part of the U.S. Recently, they used TV
advertising to counter an unpleasant customer perception about the airline’s ‘free-for-all’
seating policy. The rationale behind this spot was to build an image in their consumers’
minds.

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Summary

It is virtually impossible to satisfy all customers, so it is up to the company to select the

specific parts of the market which they can best serve. Therefore, businesses could identify
market segments, select a few profitable segments, and develop products and marketing
mixes that are aimed at particular customers. Target marketing is made up of three stages:
market segmentation, marketing targeting and product positioning.

Segmentation is the identification of customer groups who share similar characteristics. This
process has a number of advantages, and enables a marketing manager to design an effective
plan for each segment. Usually, tourism companies segment their market by using
demographic, geographic, psychographic, behavioural and product-related variables. The
chosen segments ought to be measurable, accessible, substantial and actionable.

Three market coverage alternatives including; undifferentiated marketing; differentiated

marketing and concentrated marketing were also put forward in this chapter. Businesses
should consider the most appropriate market coverage strategy according to their resources,
the type of service to be offered and the diversities within the market. However, they should
also evaluate their competitors’ market coverage strategies.

The final stage in target marketing is product positioning. Consumers have different
perceptions of products or services. Therefore, business should underline their products’
unique attributes, features and value propositions to differentiate themselves from other
competitors in the marketplace.