Market Segmentation, Targeting,

and Positioning

• Types of competition
• The competitive environment (Porter)
• Sales forecasting
• Steps of market segmentation
• Bases for segmenting consumer markets
• Target market strategies
• Positioning
 The competitive environment
The interactive exchange in the marketplace influenced by
actions of marketers of directly competitive products,
marketers of products than can substitute for one another,
and other marketers competing for the same consumers’
purchasing power.

• Should we compete?
• If so, in what markets should we compete?
• How should we compete?
 Types of competition
Characteristics Pure Monopolistic Oligopoly Monopoly
competition competition

Number of Many Few to many Few No direct

competitors competitors
Ease to entry into Easy Somewhat Difficult Regulated by
industry by new difficult government
firms
Similarity of No directly
Similar Different Can be
goods/services competing
offered by similar or
goods or
competing firms different
services
Control over price None Some Some
Considerable
by individual firms
Examples agriculture cosmetics car
electricity
Industry is a group of firms which offer a product or
class of products that are close substitutes for each
other.

Industry profitability
Exit barriers
Low High

Entry Low Low, stable Low, risky

returns returns
barriers
High High, stable High, risky
returns returns
Five competitive forces (Porter)
Potential entrants

Threat of new entrants

Supplier power Industry competitors Buyer power

Suppliers Buyers
Rivalry among
existing firms

Threat of substitutes

Substitutes
 Sales forecasting
• Estimating currect demand
Market potential =
Sets the upper limit on the demand that competing firms
can expect from a segment
Total Market Potential (Q) = n x q x p
n = number of buyers in the market
q = quantity purchased by an average buyer per year
p = price of an average unit

The chain-ratio method

• Estimating future demand = sales forecasting

 The chain-ratio method

Demand for a new light beer = population x

personal discretionary income per capita x
average percentage of discretionary income spent on food x
average percentage of amount spent on food that is spent on beverages x
…………………........................that is spent on alcoholic beverages x
…………………………………..that is spent on beer x
…………………………………..that will be spent on light beer
 Sales forecasting methods
• Quantitative forecasting: applies statistical
techniques to previous data to predict numerical
forecasts
• Market tests
• Trend analysis
• Exponential smoothing

• Qualitative forecasting: more subjective in nature

than quantitative methods
• Jury of executive opinion
• Delphi technique
• Sales force composite
• Survey of buyer intentions
 Quantitative methods
Market test =
A quantitative forecasting method that introduces a new
product, price, promotional campaign, or other marketing
variable in a relatively small test market location in order
to assess consumer reactions.
Trend analysis =
A quantitative forecasting method that estimates future
sales through statistical analysis of historical sales
patterns.
Exponential smoothing =
A quantitative forecasting method that assigns weight to
historical sales data, giving the greatest weight to the most
recent data.
 Benefits and limitations of the
quantitative forecasting methods
Benefits Limitations

Market test

Provides realistic information on actual Alerts competition to new-product

purchases rather than on intent to buy plans; time-consuming; expensive

Trend analysis

Quick; inexpensive; effective with Assumes the future will continue the
stable consumer demand and past; ignores environmental changes
environment

Exponential smoothing

Same benefits as trend analysis, but Same limitations as trend analysis, but
emphasizes more recent data not as severe due to emphasis on
recent data
 Qualitative methods
Jury of executive opinion (managerial judgement) =
A qualitative forecasting method that combines and averages the
sales expectations of various executives.

Delphi technique =
A qualitative forecasting method that gathers and redistributes several
rounds of anonymus forecasts until the participants reach consensus.

Sales force composite =

A qualitative forecasting method that develops sales estimates based on
the combined estimates of the firm’s salespeople.

Survey of buyer intentions =

A qualitative forecasting method that samples opinions among
groups of present and potential customers concerning their purchase
intentions.
 Benefits and limitations of the qualitative
forecasting methods
Benefits Limitations
Jury of executive opinion
Opinions come from executives in many Managers may lack sufficient knowlegde
different departments; quick; inexpensive and experience to make meaningful
predictions
Delphi technique
Group of experts can accurately predict Time-consuming; expensive
long-term events such as technological
breakthroughs
Sales force composite
Salespeople have expert customer, product Innacurate forecasts may result from low
and competitor knowledge; quick; estimates of salespeople concerned about
inexpensive their influence on quotas
Survey of buyer intentions
Useful in predicting short-term and Intentions to buy may not result in actual
intermediate sales for firms that serve only purchases; time-consuming; expensive
a few customers
 Market segmentation
Division of a total market into smaller, relatively
homogeneous groups.

Market segments should be:

– Measurable
– Substantial
– Accessible
– Differentiable
– Actionable
 Steps of market segmentation

1. Forecast market potential

2. Select segmentation criterias
3. Develop profiles of resulting segments
4. Select the target segment(s)
5. Positioning – develop marketing-mix for each
target segments
 Selecting the target
market

Sales forecast Making segments

Positioning
Bases for segmenting consumer
markets
Geographic segmentation Demographic segmentation

Locations (nation, city, Sex, age, income, education,

town, etc.) ethnic group, religion,
houshold size, stage in the
family life cycle

Psychographic segmentation Benefit segmentation

Benefits
Values and lifestyles (VALS) User status
Personality Usage rate
Brand loyalty
 Generation segmentation
• The Depression Cohort
• The World War II Cohort
• The Postwar Cohort
• Leading-Edge Baby Boomer Cohort
• Trailing-Edge Baby Boomer Cohort
• Generation X Cohort
• Generation Y Cohort
(Schewe – Karlovich)
 Example of psychographic segmentation
(gas purchases – Mobil Corp. USA)

• Road warriors (generally middle-aged, higher-income men,

premium gas, sandwiches and drinks, driving over 25000 miles a year,
spends the most on gasoline purchases)

• True Blues (men and women with moderate to high-income, brand

loyal, sometimes loyal to particular service stations)

• Generation F3 (fuel, food, fast, younger and mobile people,

heavy users)

• Homebodies (usually housewives, driving their children around

during the day, stop at any convenient gas station)

• Price shoppers (isn’t loyal to brands or stations, rarely buys

premium gas, tight budgets, spend the least amount they can on gas each
year)
 Target market strategies (STP
strategies)
• Undifferentiated (mass-) marketing:
Using the same maketing mix for all consumers
• Differentiated marketing:
Offers different marketing mix strategies to different segments
• Concentrated marketing:
Select one segment
• Niche marketing:
Selecting subsegment(s)
• Individual marketing:
Offering products and marketing mix to individual consumers
• Mass customization:
Preparing individually designed products and communication on a
large scale
 Positioning
Marketing strategy that emphasizes serving a specific market
segment by achieving a certain position in buyers’ mind.

Goals
of identification differentiation
Positioning:
• product attributes – technical items
Basis • users – Johnson&Johnson
of • benefits – toothpaste
Positioning: • personalities – Nike
• competitors – telecom
• price
•…
 Functions of positioning
• Competitive advantage strategic tool

• A help for the customer reduces risk

• Determine the marketing mix

 True or False?
• The target market for a product is the specific segment
of prospective customers who are most likely to buy.
• Market segmentation refers to the process of dividing the
total market into several heterogeneous groups.
• A firm’s marketing capabilities do not limit the number of
segments to which it chooses to market.
• Product-related segmentation focuses on consumers’
relationships to goods and services.
• Henry Ford’s strategy for the Model T is an example of
a) undifferentiated marketing, b) concentrated marketing,
c) individual marketing.