SEGMENTATION, TARGETING CHAPTER FOUR

AND POSITIONING
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INTRODUCTION
Businesses may not be in a position to satisfy the exact
requirements of each individual customer since customers have
different preferences. Therefore, many companies adopt a
strategy that is known as target marketing.
This strategy involves dividing the market into segments and
developing products or services for these segments.
To develop the best marketing plans, managers, need to
understand what makes each segment unique and different.
Identifying and satisfying the right market segments is often
the key to marketing success.

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EFFECTIVE TARGET MARKETING REQUIRES
▪ Identify and profile distinct groups of buyers who differ in
their needs and preferences (market segmentation)
▪ Select one or more market segments to enter (market
targeting)
▪ Establish and communicate the distinctive benefits of the
market offering (market positioning)

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BASES OF SEGMENTING CONSUMER MARKETS
Market segmentation divides a market into defined slices. A
market segment consists of a group of customers who share a
similar set of needs and wants. The marketer’s task is to identify
the appropriate number and nature of market segments and
decide which one(s) to target.

Two bases for segmenting consumer markets are consumer

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MEANING OF SEGMENTATION
A market segment consists of a group of customers who share
a similar set of needs and wants.

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BASES OF SEGMENTING CONSUMER MARKETS

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GEOGRAPHIC SEGMENTATION
•Divides a market into geographical units such as nations, states,
regions, counties, cities, or neighborhoods.
•The company can operate in one or a few areas, or it can operate
in all but pay attention to local variations.
•Grass roots marketing – activities concentrate on getting as close
and personally relevant to individual customers as possible.

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DEMOGRAPHIC
Divide the market on variables such as age, family size,
family life cycle, gender, income, occupation, education,
religion, race, generation, nationality, and social class.
Why is demographic variables so popular with
marketers?
Because they are often associated with consumer needs and
wants and easy to measure.

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AGE AND LIFE CYCLE
The consumer’s wants and abilities change with age. For example,
Toothpaste brands such as Colgate offer three main lines of products
to target kids, adults, and older consumers.

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LIFE STAGE
A person’s major concerns, such as going through a divorce,
going into a second marriage, deciding to buy a new
home, and so on.
These life stages present opportunities for marketers who
can help people cope with major concerns.

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GENDER
•Men and women have different attitudes and behave differently,
based partly on genetic makeup and partly on socialization.
•Women tend to be more communal-minded and men more self-
expressive and goal-directed.
•Gender differentiation has long been applied in clothing, hairstyling,
cosmetics, and magazines.
• Male-oriented markets and female-oriented markets are present.`

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INCOME
Income segmentation is a long-standing practice in such categories as
automobiles, clothing, cosmetics, financial services, and travel. However,
income does not always predict the best customers for a given product.

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GENERATION
Each generation/cohort is profoundly influenced by the times in
which it grows up the music, movies, politics, and defining events of
that period.
Members share the same major cultural, political, and economic
experiences and have similar outlooks and values.
Marketers often advertise to a cohort by using the icons and
images prominent in its experiences. They also try to develop
products and services that uniquely meet the particular interests or
needs of a generational target.

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RACE AND CULTURE
Multicultural marketing is an approach recognizing that different
ethnic and cultural segments have sufficiently different needs and
wants to require targeted marketing activities and that a mass
market approach is not refined enough for the diversity of the
marketplace.

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PSYCHOGRAPHIC SEGMENTATION
Dividing a market into different segments based on
lifestyle or personality characteristics.

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PSYCHOGRAPHIC SEGMENTATION: THE
VALS SEGMENTATION SYSTEM

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VALS FRAMEWORK
The four groups with higher resources are:
Innovators: successful, sophisticated, active, “take-charge” people
with high self-esteem. Purchases often reflect cultivated tastes for
relatively upscale, niche-oriented products and services.
Thinkers: mature, satisfied, and reflective people motivated by
ideals and who value order, knowledge, and responsibility. They seek
durability, functionality, and value in products.

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VALS FRAMEWORK
Achievers: successful, goal-oriented people who focus on careers and
families. They favor premium products that demonstrate success to
their peers.
Experiencers: young, enthusiastic, impulsive people who seek a variety
of excitement. They spend a comparatively high proportion of their
income on fashion, entertainment, and socializing.

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VALS FRAMEWORK
The four groups with lower resources are

Believers: conservative, conventional, and traditional people with

Strivers: trendy and fun-loving people who are resource-constrained.

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VALS FRAMEWORK
Makers: practical, down-to-earth, self-sufficient people who like to
work with their hands. They seek country-made products with a
practical or functional purpose.
Survivors: elderly, passive people concerned about change and loyal
to their favorite brands.

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BEHAVIORAL SEGMENTATION

In behavioral segmentation, marketers divide buyers into groups on the

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NEEDS AND BENEFITS
Not everyone who buys a product has the same needs or wants the
same benefits from it. Needs-based or benefits-based segmentation is
a widely used approach because it identifies distinct market segments
with clear marketing implications.

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NEEDS AND BENEFITS
Enthusiast: often buys luxury products and has higher incomes.
Image seekers: they buy products to say who they are, and they are
willing to pay more to get what they want.
Savvy shoppers: they love to shop and believe they don’t have to
spend a lot to get a good product. They are happy to use the
bargain bin.

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NEEDS AND BENEFITS
Traditionalist: they have very traditional values, they like to buy
brands they’ve heard of and from businesses that they have been
around a long time.
Satisfied buyers: not knowing much about the product, they tend to
buy the same brands.
Overwhelmed: a potentially attractive target market, they find
purchasing a product confusing.

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DECISION ROLES
People play five roles in a buying decision:
Initiator,
Influencer,
Decider,
Buyer, and
User

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USER AND USAGE: REAL USER AND USAGE
RELATED VARIABLES
Many marketers believe variables related to various aspects of users or
their usage are good starting points for constructing market segments.

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WHAT ARE THE VARIABLES RELATED TO
USERS?
Occasions: a time of day, week, month, year, or other well-defined
temporal aspects of a consumer’s life. Example: Air travel is triggered
by occasions related to business, vacation, or family.
User status: every product has its nonusers, ex-users, potential users, first-
time users, and regular users. Example: Mothers-to-be are potential
users who will turn into heavy users.
Usage rate: it can be segmented into light, medium, and heavy product
users.
Buyer-Readiness stage: some people are unaware of the product, some
are aware, some are informed, some are interested, some desire the
product, and some intend to buy.

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WHAT ARE THE VARIABLES RELATED TO USERS?
▪Loyalty status
Hard-core loyals: consumers who only buy one brand all the
time.
Split loyals: consumers who are loyal to two or three brands.
Shifting loyals: consumers who shift loyalty from one brand to
another.
Switchers: consumers who show no loyalty to any brand.
▪Attitude: five consumer attitudes about products are enthusiastic,
positive, indifferent, negative, and hostile.
▪Multiple bases:acombination of different behavioral bases.

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BEHAVIORAL SEGMENTATION BREAKDOWN

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BASES FOR SEGMENTING BUSINESS
MARKETS
Business market can be segmented using some of the same
variables we use in the consumer market for example
geography, benefit sought, and usage rate but the business
market also uses other variables.

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SEGMENTING FOR BUSINESS MARKETS
Demographic
Operating Variable
Purchasing Approaches
Situational Factor
Personal Characteristics
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MAJOR SEGMENTATION VARIABLES FOR
BUSINESS MARKETS
1. Demographic
• Industry: which industries should we serve?
• Company size: what size companies should we serve?
• Location: what geographical areas should we serve?
2. Operating Variables
• Technology: what customer technologies should we focus on?
• User or nonuser status: should we serve heavy users, medium
users, light users, or nonusers?
• Customer capabilities: should we serve customers needing
many or few services?
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3. Purchasing Approaches
Purchasing-function organization: should we serve companies with a
highly centralized or decentralized purchasing organization?
Power structure: should we serve companies that are engineering
dominated, financially-dominated, and so on?
Nature of existing relationship: should we serve companies with which
we have strong relationships or simply go after the most desirable
companies?
General purchasing policies: should we serve companies that prefer
leasing? Service contract? Systems purchases? Sealed bidding?
Purchasing criteria: should we serve companies that are seeking quality?
Service? Price?
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4. Situational Factors
• Urgency: should we serve companies that need quick and
sudden delivery or service?
• Specific application: should we focus on a certain
application of our product rather than all applications?
• Size or order: should we focus on large or small orders?

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5. Personal Characteristics
Buyer-seller similarity: should we serve companies whose
people and values are similar to ours?
Attitude toward risk: should we serve risk-taking or risk-
avoiding customers?
Loyalty: should we serve companies that show high loyalty to
their suppliers?

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FLEXIBLE MARKET OFFERING
A flexible market offering consists of two parts:
Naked Solution: containing the product and service elements that all
segment members value, and
Discretionary Options: product some segment members may value.
Example: an airline offers all economy passengers a seat, small snack,
and soft drinks, and charges extra for alcoholic beverages and meals.

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REQUIREMENTS FOR EFFECTIVE SEGMENTATION
Measurable: The size, purchasing power, and characteristics of the
segments can be measured.
Substantial: The segments are profitable enough to serve.
Accessible: The segments can be effectively reached and served.
Differentiable: The segments are conceptually distinguishable and
respond differently to different marketing mix elements and
programs.
Actionable: Effective programs can be formulated for attracting
and serving the segments.

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MARKET TARGETING
Once the firm has identified its market-segment
opportunities, it must decide how many and which
ones to target. Marketers are increasingly
combining several variables in an effort to identify
smaller, better-defined target groups.

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STEPS IN SEGMENTATION PROCESS
• Need-based segmentation: group customers into segments
based on similar needs and benefits.
• Segment identification: for each needs-based segment,
determine which demographics, lifestyles, and usage behaviors
make the segment distinct and identifiable (actionable).
• Segment attractiveness: using predetermined segment
attractiveness criteria (such as market growth, competitive
intensity, and market access), determine the overall
attractiveness of each segment.

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 Segment profitability: determine segment profitability.
Segment positioning: for each segment, create a “value
proposition” and product-price positioning strategy based on
that segment’s unique customer needs and characteristics
Segment acid test: create a “segment storyboard” to test the
attractiveness of each segment’s positioning strategy.
Market mix strategy: expand segment positioning strategy to
include all aspects of the marketing mix: product, price,
promotion, and place.

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FORCES THAT DETERMINE THE INTRINSIC
LONG-RUN ATTRACTIVENESS OF A MARKET
SEGMENT (MICHAEL PORTER)
• Threat of intense segment rivalry
• Threat of new entrants
• Threat of substitute products
• Threat of buyers’ growing bargaining power
• Threat of suppliers’ growing bargaining power

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EVALUATING AND SELECTING THE MARKET
SEGMENTS
A firm must look at two factors: the segment’s overall
attractiveness and the company’s objectives and resources.
Marketers have a range or continuum of possible levels of
segmentation that can guide their target market decisions.

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EVALUATING AND SELECTING THE MARKET
SEGMENTS
▪Full market coverage: a firm attempts to serve all customer groups with
all the products they might need. Only very large firms such as
Microsoft (software market), General Motors (vehicle market), and
Coca-cola (nonalcoholic beverage market) can undertake the full
market coverage strategy.
Large firms can cover a whole market in two ways: through
undifferentiated or differentiated marketing.

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▪ Multiple Segment Specialization: A firm selects a subset of all the
possible segments, each objectively attractive and appropriate.
There may be little or no synergy among the segments, but each promises
to be a money maker.
Two types: product specialization and market specialization

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MULTIPLE SEGMENT SPECIALIZATION
Product specialization: the firm sells a certain product to different
market segments. For example, a microscope manufacturer sells to
universities, government, and commercial laboratories.
Market specialization: the firm concentrates on serving many needs of a
particular customer group. For example, a microscope manufacturer sells
only to universities. The firm has gained a strong reputation among this
customer group.

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EVALUATING AND SELECTING THE
MARKET SEGMENTS
▪ Single-segment Concentration: the firm markets to only one particular
segment
Example: Porsche concentrates on the sports car market and
Volkswagen on the small-car market.
▪ Individual Marketing: “Segments of one”, “Customized
marketing”, or “One-to-one marketing”.

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POSITIONING PRODUCTS
Positioning is the act of designing a company’s offering and
image to occupy a distinctive place in the minds of the target
market.
Positioning starts with a product. A piece of merchandise, a
service, a company, an institution, or even a person... But
positioning is not what you do to a product. Positioning is what
you do to the mind of the prospect. That is, you position the
product in the mind of the prospect.
“For value-, health-, and convenience-seeking buyers, who want to make good
choices when it comes to their health, society, and the environment, our
product/offering is an online food and household goods store, that provides an
assortment of healthy, sustainable, everyday essentials at a fair price. Unlike
other retailers such as Amazon, Target, and Walmart, our product/ offering
allows customers to shop with the confidence that every item they buy is a good
choice for them and for society.”
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PRODUCT POSITIONING DIMENSIONS
Product Attributes / Differences / Benefits

Product User/Usage

By Association

Problem Solution

Against a Competitor / Away from Competitors +

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PERCEPTUAL MAPPING
A means of displaying or graphing, in two or more dimensions,
the location of products, brands, or groups of products in
customers’ minds.

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REPOSITIONING

Changing consumers’ perceptions of a brand in

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