Chapter 4:

Market segmentation, targeting & positioning

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. Moreover companies 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.
Most companies are moving away from mass marketing toward target marketing.
Target marketing is identifying market segments, selecting one or more of them, and developing products
and marketing mixes or programs tailored to each.
In this way, sellers can develop the right product for each target market and adjust their prices, distribution
channels, and advertising to reach the target market efficiently. Instead of scattering their marketing efforts
(the “shotgun” approach), they can focus on the buyers who have greater purchase interest in the values they
create best (the “rifle” approach).

Figs: Steps in market segmentation, targeting, and positioning

Market segmentation Target marketing Market positioning

Develop positioning for large
Identify bases for segmenting the Develop measure of segment
segments
market attractiveness
Develop a marketing mix for each
Developing segment profiles Select target segments
segment

The figures above shows the three major steps in target marketing.
The first is market segmentation
 is dividing a market into smaller groups of buyers with distinct needs, characteristics, or behavior
who might require separate products or marketing mixes.
 is the process of dividing the total market into one or more parts (markets or segments) each of
which tends to be homogenous in all the significant aspects.
 A market segment refers to a submarket, a part of the market which is homogenous in all significant
aspects.
The second step in market targeting
 the process of 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.
 is arranging for a product to occupy a clear, distinctive and desirable place relative to competing
product in the minds of target consumers.
4.1 Market Segmentation
Markets consist of buyers who differ in one or more ways 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 with products and services that match their unique needs.
4.1.1 Levels of Market Segmentation

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Buyers have unique needs and wants; each buyer is potentially a separate market. Ideally, a seller would
design a separate marketing program for each buyer. Market segmentation can be carried out at many
different levels.
Companies can practice
 no segmentation (mass marketing),
 complete segmentation (micromarketing), or
 something in between (segment marketing or niche marketing) as seen in the fig. below.

Mass marketing Segment marketing Niche marketing Micro marketing

NoSegmentation Complete Segmentation

Fig. Levels of marketing segmentation

Mass Marketing
Mass marketing is mass producing, mass distributing, and mass promoting about the same product in the
same way to all consumers.
The traditional argument for mass marketing is that it creates the largest potential market, which leads to the
lowest costs which translates into either lower prices or higher margins. However, many factors now make
mass marketing more difficult. Therefore, many companies are retreating from mass marketing and turning
to segment marketing
Segment Marketing
A company that practices segment marketing recognizes that buyer differs in their needs, perceptions and
buying behaviors. Segment marketing is marketing that buyers differ in their needs, perceptions, and buying
behaviors. It offers several benefits over mass marketing.
Niche marketing
Niche marketing is marketing that focuses on subgroups within the large identifiable groups/ segments in
market. A niche is a more narrowly defined group, usually identified by dividing a segment into sub
segments or defining a group with a distinctive set of traits who may seek a special combination of benefits.
Micromarketing
Micromarketing is the practice of tailoring products and marketing programs to suit the tastes of specific
individuals or locations. It includes local marketing and individual marketing.
In the extreme, micromarketing becomes individual marketing. Individual Marketingis the practice of
tailoring products and marketing programs to the needs and preferences of individual customers. It has also
been labeled
 “markets-of-one marketing,”
 “customized marketing” and
 “one-to-one marketing”.

4.1.2 Segmenting Consumer Markets

There is no single way to segment a market. A marketer has to try different segmentation variables, alone
and in combination, to find the best way to view the market structure. Bases for segmentation of consumer
markets or the major variables that might be used in segmenting consumer markets are geographic,
demographic, psychographic and behavioral variables.

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Geographic segmentation
Geographic Segmentation calls for dividing the market into different geographical units such as nations,
regions, provinces, counties, cities, or neighborhoods. A company may decide to operate in one or a few
geographical areas, or in all areas but pay attention to geographical differences in needs and wants.
Demographic Segmentation
Demographic segmentation means dividing the market into groups based on demographic variables such
asage, gender, family size, family life cycle, income, occupation, education, religion, race, and nationality.
Psychographic Segmentation
Itis dividing a market or buyers into different groups based on social classes, lifestyle or personality
characteristics. People in the same demographic group can have very different psychographic make ups.
Behavioral Segmentation
It is dividing a market into groups based on consumer knowledge, attitude, use, or response to a product. In
this category the following bases are adapted to segment the market. Many marketers believe that behavior
variables are the best starting point for building market segments. Those are:-
Occasion, Benefit, User status, Usage Rate and Loyalty Status
4.1.3 Segmenting Business Markets
Consumer and business marketers use many of same variables to segment their markets. Business buyers can
be segmented geographically, demographics or bybenefits sought, user status, usage rate, and loyalty status.
Yet, business marketers use some additional variables such as business customer operating characteristics;
purchasing approaches; situational factors; and personal characteristics.
Table: Major segmentation variables for Business markets
Demographics
 Industry: Which industries that buys this product should we focus on?
 Company size: What size companies should we focus on?
 Location: What geographical areas should we focus on?
Operating variables
 Technology: What customer technologies should we focus on?
 User/non-user status: Should we focus on heavy, medium, or light users or non-users?
 Customer capabilities: Should we focus on customers needing many services or few services?
Purchasing Approaches
 Purchasing function organization: should we focus on companies with highly centralized or
decentralized purchasing organizations?
 Power structure: Should we focus on companies that are engineering dominated, finance dominated,
or marketing dominated?
 Nature of existing relationships: Should we focus on companies with which we already have strong
relationships or go after the most desirable companies?
 General purchase policies: Should we focus on companies that prefer leasing? Service contracts?
Systems purchases? Sealed bidding?
 Purchasing criteria: Should we focus on company that are seeking quality? Service? Price?
Situational Factors
 Urgency: Should we focus on companies that need quick delivery or service?
 Specific application: Should we focus on certain applications of our product rather than all
applications?
 Size of order: Should we focus on large or small orders?

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 Personal Characteristics
 Buyer-seller similarity: Should we focus on companies whose people and values are similar to ours?
 Attitudes toward risk: Should we focus on risk-taking or risk-avoiding customers?
 Loyalty: Should we focus on companies that show high loyalty to their suppliers?

The table lists questions that business marketers should ask to determine which customers they want to serve.
By segments going after instead of the whole market, companies can deliver just the right value proposition
(offer) to each segment served and capture more value in return. Almost every company serves at least some
business markets.A company can also set up separate systems for dealing with larger or multiple-location
customers.Within a target industry and customer size, the company can segment by purchase approaches and
criteria. As in consumer segmentation, many marketers believe that buying behavior and benefits provide the
best basis for segmenting business markets.
4.1.4 Requirements for Effective Segmentation
Clearly, there are many ways to segment a market, but not all segmentations are effective. To be useful ,
market segments must have the following characteristics:
 Measurability, Accessibility, Substantiality and Actionability
4.1.5 Importance of market segmentation:
 to concentrate marketing efforts on a specific segment and achieve better results.
 to take care of specific requirements of each segment more effectively as you are not treating all
customers alike,
 to pay proper attention to a particular area
 to frame and adopt separate policies to meet the needs of the different buyer groups
 to use the advertising media effectively by developing promotional programs specifically for each
segment
 to use of the marketing resources more efficient is possible
4.2 Market Targeting
Once marketing segmentation has revealed its market segment opportunities, the firm must evaluate the
segments and decide how many and which one to target.
Each of the 4P's of the marketing mix (product, price, promotion and physical distribution) can be designed
with the target market in mind.
Target marketing is identifying market segments, selecting one or more of them, and developing products
and marketing mixes or programs tailored to each.
4.2.1 Evaluating Market Segments +
In evaluating different market segment, a firm must look at three factors:
 segment size and growth,
 segment structural attractiveness, and
 company objectives and resources.
Segment size and Growth
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 segment that has the right size and growth
characteristics. But “right size and growth” is a relative matter. However, the largest, fastest-growing
segments are not always the most attractive ones for every company.
Segment Structural Attractiveness

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A segment may have desirable size and growth and still not offer attractive profits. The company must
examine several major structural factors that affect long-run segment attractiveness.
Company Objectives and Resources
Some attractive segments could be dismissed quickly because they do not mesh with the company’s long-run
objectives. If a segment fits the company’s objectives, the company then must decide whether it possesses the
skills and resources needed to succeed in that segment. If the company lacks the strength needed to compete
successfully in a segment and cannot readily obtain them, it should not enter the segment. Even if the
company possesses the required strengths, it needs to employ skills and resources superior to those of the
competition to win in a market segment. The company should enter only segments where it can offer
superior value and gain advantage over competitors.
4.2.2 Selecting Target Market Segments
After evaluating different segments, the company must decide which and how many segments to serve. This
is the problem of target market selection. A target market consists of a set of buyers who share common
needs or characteristics that the company decides to serve. The figure below shows that the firm can adopt
one of three market coverage strategies:
 Undifferentiated marketing
 Differentiated marketing and
 Concentrated marketing.

Fig: Target marketing strategies/ the three market coverage strategies

Undifferentiated Differentiated Concentrated Micromarketing

(mass) (segmented) (niche) (local & individual)
marketing marketing marketing marketing
Undifferentiated Marketing
Undifferentiated marketing is a market coverage strategy in which a firm ignores market segment
differences and pursues the whole market with one offer. The offer focuses on what is common in the needs
of consumers rather than on what is different. 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
Differentiated marketing is a market coverage strategy in which a firm targets several market segments and
designs separate offers for each. Companies identified a segment of the market that no other manufacturer
was serving.
Concentrated Markeing
Concentrated marketing is a market coverage strategy in which a firm goes after a large share of one or a
few submarket. Or it is especially appealing to companies with limited resources.
Instead of pursuing a small share of a large market, the firm pursues a large share of one or a few submarket.
Today, the low cost of setting up shop on the Internet market is even more profitable to serve seemingly
minuscule niches. Small businesses, in particular, are realizing riches form serving small niches on the web.
Concentrated marketing provides an excellent way for new small businesses to get a foothold against larger,
more resourceful competitors.
Choosing a Market Coverage Strategy

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Companies need to consider many factors when choosing a market coverage strategy. Which strategy is best
depends on
 The company resource:
o When the firm’s resources are limited, concentrated marketing makes the most sense.
 The degree of product variability:
o Undifferentiated marketing is more suited for uniform products; differentiation or
concentrations are more suited to products that can vary in design.
 The product’s life cyclestage
o When a firm introduces a new product, it is practical to launch only one version and
undifferentiated marketing or concentrated marketing makes the most sense; in the mature
stage of the product life cycle, differentiated marketing begins to make more sense.
 Market variability:
o If most buyers have the same tastes, buy the same amounts, and react the same way to
marketing efforts, undifferentiated marketing is appropriate.
 Competitor’s marketing strategies
o When competitors use segmentation, undifferentiated marketing can be suicidal; when
competitors use undifferentiated marketing can gain an advantage by using differentiated or
concentrated marketing.

4.3 Positioning for Competitive Advantage

Once a company has decided which segments of the market it will enter, it must decide what“positions” it
wants to occupy in those segments. A product’s position is the way the product is defined by consumers on
important attributes; or it is the place the product occupies in consumers’ minds relative to competing
products.Thus, for example in the automobile market, Toyota is positioned on economy, Mercedes on luxury,
BMW on performance and Volvo positions powerfully on safety.
Consumers are overloaded with information about products and services. They cannot re-evaluate products
every time make a buying decision. To simplify the buying, consumers organize products into categories
they “position” products, services, and companies in their minds.
A product’s position is the complex set of perceptions, impressions, and feelings that consumers hold for the
product compared with competing products. Consumers position products with or without the help of
marketers. But marketers do 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.
4.3.1 Positioning Alternatives
Marketers have numerous alternatives for positioning their products and services. They can position their
products on specific product attributes, such as low price or taste; the benefits provided, such as crest reduces
cavities; usage occasions are also used to create positions; for a certain class of users - urban dwellers who
dream of the great outdoors; against a competitor; fordifferent product classed. Even though firms work
hard to maintain a consistent and focused long-term positioning strategy, the time may come when they need
to create a new position.
4.3.2 Choosing a Positioning Strategy
Some firms find it easy to choose their positioning strategy. 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, and

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  effectively communicating and delivering the chosen position to the market.
Identifying possible competitive Advantages
Competitive advantage is an advantage over competitors gained by offering consumers grater value, either
through lower prices or by providing more benefits that justify higher prices. Consumers typically choose
products and services that give them the greatest value. Thus, the key to winning and keeping customers is to
understand their needs and buying processes better than competitors do and to deliver more value.But solid
positions cannot be built on empty promises. If a company positions its product as offering the best quality
and service, it must then deliver the promised quality and service. Thus, positioning begins with actually
differentiating the company’s marketing offer so it will give consumers more value than competitors’ offer
do.
To find points of differentiation, marketers must think through the customer’s entire experience with the
company’s product or service. An alert company can find ways to differentiate itself at every point where it
comes in contact with customers.
In what specific ways can a company differentiate its offer from those of competitors?
A company or market offer can be differentiated along the lines of product, service, personnel, or image.
How Many Differences to Promote?
Many marketers think that companies should aggressively promote only one benefit to the target market.
Other marketers think that companies should position themselves on more than one differentiating factor.
This may be necessary if two or more firms are claiming to be best on the same attribute. As the mass market
is fragmenting into many small segments, companies are trying to broaden their positioning strategies to
appeal to more segments. However, as companies increase the number of claims for their brands, they risk
disbelief and a loss of clear positioning.
In general, a company needs to avoid three major positioning errors.
 The first is under positioning
o failing to position of the company at all.
 The second r is overpositioning
o giving buyers too narrow a picture of the company.
 Finally, companies must avoid confused positioning
o leaving buyers with a confused image of a company.
Which Differences to Promote?
A difference is worth establishing to the extent that it satisfies the following criteria:
 Important: - the difference delivers a highly valued benefit to target buyers.
 Distinctive: - competitors do not offer the difference, or the company can offer it in a more
distinctive way.
 Superior:- the difference is superior to other ways that customers might obtain the same benefit.
 Communicable:- the difference is communicable and visible to buyers.
 Pre- emptive: - competitors cannot easily copy the difference.
 Affordable:- buyers can afford to pay the difference.
 Profitable:- the company can introduce the difference profitably.