LESSON 08 - SEGMENTATION, TARGETING AND POSITIONING

8.1 Define segmenting, targeting and positioning.

So far, you have learned what marketing is and about the importance of
understanding consumers and the marketplace environment. With that
background, you are now ready to delve deeper into marketing strategy and
tactics. This chapter looks further into key customer-driven marketing
strategy decisions, such as how to divide up markets into meaningful
customer groups (segmentation), to choose which customer groups to
serve (targeting), to cerate market offerings that best serve target
customers (differentiation), and to position the offerings in the minds of
consumers (positioning).

The interface between the consumer and the supplier is the market. The
position the supplier chooses in that market for the product or service -
relative to consumer needs – defines all of the marketing actions thereafter.
Whether determined analytically or by default, this positioning is at the heart
of marketing.

A company cannot serve all customers in a broad market as customers are

very numerous and diverse in their buying requirements. Therefore, a
company needs to identify the market segments it can serve effectively and
embrace on target marketing. However, before coming to this stage
marketers had held other views as well. Their thinking passed through three
stages, mass marketing, product variety marketing and target marketing.

The first stage of market positioning is to segment the market itself by

dividing the total market into smaller parts.

Mass Marketing: Here, the marketers try to sell their products to all buyers
in the market. Normally those marketers engaged in mass production, mass
distribution, and mass communication of one product. The rational behind
mass marketing was that it would lead to lower costs and prices so that
company can obtain the largest market share. The guiding principle behind
this strategy is production philosophy.

Product Variety Marketing: On the ground that customers prefer variety,

marketers produced several versions of the product of different features,
styles, size and so on. Instead of appealing to different needs of different

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segments, producers design some varieties of the product with the mindset
that customers have different tastes and tastes change over time.

Target Marketing: Here the marketers try to distinguish differences of

various customer groups and target one or more of these segments and
design different marketing mixes tailored to each segment. Today’s
companies have realized that mass marketing and product verity marketing
no longer rewarding. Thus, the trend is to practice target marketing. Target
marketing – customer driven marketing, calls for four major steps which are
shown in figure 8.1.
1. Market segmentation
2. Market targeting
3. Market differentiation, and
4. Market positioning.

Figure 8.1 Steps in Target Marketing:

Select customers to Decide on a value

serve proposition

SEGMENTATION DIFFERENTIATION
Divide the total market Create value for Differentiate the market
into smaller segments targeted customers offering to cerate
superior customer value

TARGETING POSITIONING
Select the segment or Position the market
segments to enter offering in the minds of
the target customers

A market consists of all the potential customers sharing

particular needs and wants who might be willing to engage in
exchange to satisfy them.

It is customers with their purchasing power who will decide what

the market really is?

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8.2 Market Segmentation

Market consists of buyers, and buyers differ in one or more ways. They may
differ 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 and effectively with products and services that match their unique
needs. Therefore segmentation is the act of identifying and profiling distinct
groups of buyers who might require separate products and/or marketing
mixes. In one sense, segmentation is a strategy firms use to concentrate,
and thus optimize, their resources within an overall market. In another
sense, it is also the group of techniques vendors use for segmenting the
market.

MARKET SEGMENTATION: Dividing a market into smaller groups with

distinct needs, characteristics, or behaviors who might require
separate products or marketing mixes.

a) Degree of segmentation

Today’s marketers are moving from segments to sub segments to niches to

micro markets to segments-of-one as shown in figure 8.2.

Figure 8.2: Degree of Segmentation

Market segments Niche Micro Markets Customization

Market Segments: Market segments are larger groups of customers within

a market. In other words, they are gross cuts of a market.

One way vendors segment the market is by consumer behavior:

characteristics and responses.

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Niche
A niche is a more narrowly defined group that may show a special
combination of benefits, for example, a group of customers whose needs are
very specific. The following are the main characteristics of niche:
o Customers seek special combination of benefits.
o Competition in the market is low than in the competition of gross
segments.
o Marketer can presumably understand the need of niche so that they
can satisfy them in a superior manner.
o Customers are willing to pay a premium price.

Micro markets
A micro market is a geographically based group of customers who have their
own distinctive requirements.

Segments of one (Mass customization)

Here, each customer is served differently with customer tailored marketing
offers.

b) Market Segmentation Procedure

Survey Stage
Here the company conducts various types of surveys such as interview,
focused group discussion, etc. to reveal the customers’ demographic data,
psychological data, behavioral data, etc.

Analysis Stage
Here various analytical tools are used to identify common and distinctive
factors and make customer groups which show differences in such variables.

Profiling Stage
Each group (segment) is now profiled in terms of its distinguishing
characteristics. Figure 8.4 shows the major segmentation variables for
consumer markets.
Geographic (region, city, density, etc.)
Demographics (age, income, gender, etc.)
Psychographics (attitudes, perception, etc.)
Behavioral (media behavior, buying behavior, etc.)

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 Figure 8.4 Bases for Segmenting Consumer Markets

SEGMENTING VARIABLES
Geographic Demographic Psychographic Behavioral
Segmentation Segmentation Segmentation Segmentation
World Age Social Class Occasions
Region Gender Lifestyle Benefits
Country Family Size Personality User Status
Country Family Life Usage Rate
Region Cycle Loyalty
City Income Status
Density Occupation Readiness
Climate Education Stage
Religion Attitude
Race toward
Generation product
Nationality

Specific characteristics become the most powerful tools for

segmentation.

Geographic Segmentation

Geographic segmentation calls for dividing the market into different

geographical units such as nations, regions, states, counties, cities, or even
neighborhoods. A company may decide to operate in one or a few
geographical areas, or to operate in all areas but pay attention to
geographical differences in needs and wants. Here, the marketers try to
divide the market into different geographical units which tend to show
buying differences. For example, regional wise (Asia, North America,
Western Europe, etc.), density wise (urban, suburban, rural), climate (hot
areas, cold areas), etc. This segmentation is appropriate for products like
cloths, foods, shelter, liquor etc.

Demographic Segmentation

Demographic segmentation divides the market into groups based on

variables such as age, gender, family size, family life cycle, income,
occupation, education, religion, race, generation, and nationality.
Demographic factors are the most popular base for segmenting markets

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because consumer wants and preferences are often associated with
demographic variables. Another thing is that these variables are easier to
measure than most other types of variables. Even when market segments
are first defined using other bases, such as benefits sought or behavior, their
demographic characteristics must be known in order to assess the size of the
target market and to reach it efficiently.

Age and life cycle stage. Wants, preferences and buying behavior
change with age. Thus this provides marketers with a useful way to
segment the market. E.g. babies, youths, adults. This basis is highly
used for such products such as clothes, food, hair cuts, beauty
product, toys, etc.

Gender. This is also widely used by marketers to segment the

markets for products such as clothing, hairdressing, cosmetics,
footwear, and magazines.

Income. This variable also has long been used to segment in such
products as housing, clothing, cosmetics, automobiles, travel, etc.

Family size. E.g. small families with members 1-2, medium size
families 3-5 and families of members more than 5, etc.

Family life cycle. Each life cycle stage reflects different buying
behaviors. E.g. Young, single; young, married, no children; young,
married, youngest children under 6; young, married, youngest child 6
or over; older, married, with children; older, married, no children
under 18; older, single; other; etc.

Occupation. Occupation reflects different status and roles which lead

to different buying behaviors. E.g. managers, professionals, lecturers,
clericals, farmers, students, housewives, unemployed, etc.

Education. This variable is used in such products as education

courses, training products etc. E.g. primary education, secondary
education, undergraduates, post graduates, etc.

Religion. E.g. Buddhist, Catholic, Hindu, Islam, etc.

Race. Sinhalese, Tamils, Muslim. Racial and religious variables are

used for such products such as clothing, food, religion courses, etc.

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Multi attribute Demographic Segmentation

To define target markets more accurately and effectively, most marketers

tend to segment a market combining two or more demographic variables,
for example segmenting the market using age and gender, or age, income
and gender etc. as shown in the figure 8.5.

Figure 8.5: Age and Income Classification

Age (Years)
Under 30 31-50 Over 50

Bellow 10,000 30 50 20
Income (Rs.)

10,000-20,000 40 50 10

Above 20,000 35 60 05

Psychographic Segmentation

Psychographic Segmentation divides buyers into different groups based on

the variables such as social class, lifecycles, or personality characteristics.
Note that people within the same demographic segment might show
different buying behavior due to different psychographic profiles.

Social classes. Social classes are relatively homogeneous and

enduring divisions in society which are hierarchically ordered and
whose members share similar values, interests and behavior, for
example upper class, middle class, lower class, etc.
Social classes have several implications on marketing.
o Persons within each social class tend to behave more alike than
persons from two different social classes.
o Persons are perceived as occupying inferior or superior positions
according to their social classes.
o A person’s social class indicated by a number of variables such
as occupation, income, wealth, and education.
o Social classes show distinct product and brand preferences in
areas as clothing, housing, home furniture, leisure activities and
automobiles.

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 Lifestyles. Lifestyles also have an impact on buying behavior of the
market. Sometimes people coming from the same social class show
different buying behaviors due to different lifestyles. Lifestyle is
defined as the pattern of living in the world. Normally, lifestyle is
expressed by the person’s activities, interests and opinions. This
segmentation is practiced by marketers for products as automobiles,
apparels, cosmetics, leisure activities, etc.

Personality. Certain personality variables can used to segment

markets. Marketers try to match brand personalities with consumer
personalities, such as authoritarian, masculine, self-confident,
ambitious, gregarious, etc.

Behavioral Segmentation

Behavioral Segmentation divides buyers into groups based on their

knowledge, attitudes, uses, or responses to a product. Many marketers
believe that behavior variables are the best starting point for building
market segments. In this way of segmentation customers are classified to
groups according to their buying responses to a product.

Occasions. Buyers are grouped according to the occasion, e.g. cloths

for casual wear, cloths for special occasions.

Benefits sought. A powerful form of segmentation is to classify

buyers according to the different benefits they seek from the product,
e.g. economy seeking buyers, quality seeking buyers, service, speed,
etc.

User Status. Markets can be segmented into groups of nonusers, ex-

users, potential users and regular users. Thereafter the company can
approach each type of customers with different marketing treatments.

User Rate. Customers can also be categorized according to the

degree of usage rate of the product, e.g. light users, medium users,
and heavy users.

Loyalty Status. Here the market is segmented according to the

degree of the loyalty of the customers towards the product, e.g. hard-
Core loyals, shifting loyals, switchers, etc.

Buyer Readiness Stage. A market consists of people in different

stages of readiness to by a product, e.g. some customers are still

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 unaware of the product, some are interested, informed, intending to
buy, etc.

Attitude. Here consumers in the market are classified in to certain

groups according to the attitude they show towards the product, e.g.
enthusiastic, positive, negative, indifferent, hostile, etc.

The segment needs to have unique characteristics that producers and

consumers can identify and market research can measure.

Requirements for Effective Segmentation

Though there are many different ways to segment a market, all the
segmentations are not effective for a particular product. To be effective, the
segments should fulfill the following characteristics as shown in figure 8.6.

Figure 8.6: Characteristics of Effective Segmentation

Measurable Size, purchasing power, profiles of segments can be

measured

Substantial Segments must be large or profitable enough to serve

Accessible Segments can be effectively reached and served

Differentiable Segments must respond differently to different

marketing mix elements and actions

Actionable Must be able to attract and serve the segment

The figure 8.7 shows a three-group country segmentation based on different

criteria as an example.

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 Figure 8.7: Country Segments based on the Country Characteristics

Segment 1 Segment 2 Segment 3

Holland Austria United States
Japan Belgium
Sweden Denmark
United Kingdom Finland
France
Norway
Switzerland
Mobility
Number of air passengers/km
Air cargo
Number of newspapers
Population Relatively high Relatively high Very high
Cars per capita
Motor gasoline consumption per
capita
Electricity production
Health standard
Life expectancy Very high Average High
Physician per capita
Hospitals bed per capita
Trade situation
Imports/GNP Strong in exports Balanced trade Dependent on
Exports/GNP
imports
Materialism (Lifestyle)
GDP per capita
TVs per capita
Conserver society In between Material society
Personal computers per capita
Electricity consumption per capita
Tourism
Foreign visitors per capita Low tourist High tourist In between
Tourist expenditures per capita
attraction attraction
Tourist receipts per capita
Culture
Language
Religion
Not used in the analysis (some factors are not quantifiable)
Customs
Education expenditures
Graduate education in population
Source: Journal of Marketing (October 1993), American Marketing Association

8.3 Market Targeting

Market segmentation reveals the firm’s market segment opportunities.

Market targeting is the act of selecting one or more segments to enter so
that the company has to evaluate the various segments and select the
appropriate segments to target. Thus targeting involves two tasks.
1. Evaluating attractiveness of each segment.
2. Deciding how many and what segments to target.

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 TARGET MARKET:
A set of buyers sharing common needs or characteristics that the company
decides to serve.

Evaluating Market Segments

To identify the attractive segments to enter, the company must evaluate

each segment using
Segment size and growth
Structural attractiveness of the segments
Company objectives and resources

Segment size and Growth: In analyzing the segments, first the company
should consider whether the potential segment have the right size and
growth characteristics.

Structural Attractiveness: Here the marketer is concerning about the

long-term profitability of the segment. The long run profit attractiveness of a
segment can be assessed by Michael Porter’s five forces model. There are,

Threat of Intense Segment Rivalry. A segment is unattractive if it

already contains strong and aggressive competitors.

Threat of new entrants. A segment is unattractive if it is likely to

attract new competitors.

Threat of substitute products. A segment is unattractive when

there are actual or potential substitutes for the product.

Threat of growing bargaining power of buyers. A segment is

unattractive if the buyers have strong bargaining power which leads to
prices down, forcing to increase quality, etc.

Threat of growing bargaining power of suppliers. A segment is

unattractive if the suppliers show a strong bargaining power which
leads to raise prices of supplies, reducing quality, etc.

Company objectives and resources: In addition to the criteria discussed

above, the company must further consider its own objectives and resources
in relation to the segment. Sometimes some attractive segments might get
less attention because it does not mesh with the company’s long run
objectives. Further the company must consider whether the company has
required skills and resources to succeed in the segment. The company

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should enter only segments in which it can offer superior value and gain
advantages over competitors.

Selecting the Target Market Segments

After evaluating different market segments, the company now must design
which segments and how many segments it will target. A target market
consists of a set of buyers who share common needs or characteristics that
the company decides to serve.

Patterns of Target Market Selection: The following methods show the

patterns of target market selection.

1. Single Segment Concentration. Here the company selects a single

segment. The firm achieves a strong market positioning in the
segment through concentration to that segment only.

2. Selective Specialization. Here the company selects a number of

segments. This strategy called multi segment coverage and it has the
advantage of diversifying the firm’s risk.

3. Product Specialization. Here the company is devoting to a certain

product that it sells to several segments. The company would build up
a strong reputation in a specific product area.

4. Market Specialization. The company tries to fulfill many needs of a

particular segment.

5. Full Market Coverage. The company can serve all customer groups
with all the products that they require. Only large firms can practice
this strategy.

Figure 8.8 shows that companies can target very broadly (undifferentiated
marketing), very narrowly (micromarketing), or somewhere in between
(differentiated or concentrated marketing)

Figure 8.8 Target Marketing Strategies

Micromarketing
Undifferentiated Differentiated Concentrated
(local or
(mass) marketing (segmented) (niche) marketing
individual
marketing
marketing)

Targeting Broadly Targeting Narrowly

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 a) Undifferentiated Marketing. Using an undifferentiated marketing (mass
marketing) strategy, the company goes after the entire market ignoring market
segment differences. Considering what is common in the needs of buyers, the
company can design one product and one marketing program that will appeal to
the broadest number of buyers. Thus the company has to produce the product at
larger quantities (mass production) and practice mass distribution and mass
advertising. The major rational behind this approach is cost economies.

b) Differentiated Marketing. This means the company decides to operate several

market segments and offer different products and marketing offers for each
segment. With this approach, the company can increase both sales and customer
satisfaction. However this strategy tends to increase costs of doing the business
also.

c) Concentrated Marketing. A third market-coverage strategy, concentrated

marketing (niche marketing), is especially appealing when company resources
are limited. Instead of going after a small share of a large market, the firm goes
after a large share of one or a few smaller segments or niches. It can market
more effectively and efficiently by fine-tuning its products, prices and targeting
its products or services, channels toward only consumers that it can serve best
and most profitably.

d) Micromarketing. Micromarketing is the practice of tailoring products and

marketing programs to suit the tastes of specific individuals and locations. Rather
than seeing a customer in every individual, micro marketers see the individual in
every customer. Micromarketing includes local marketing and individual
marketing. Local marketing involves tailoring brands and promotions to the needs
and wants of local customer groups-cities, neighborhoods, and even specific
stores. Individual marketing involves tailoring products and marketing programs
to the needs and preferences of individual customers-also labeled ‘markets-of-
one marketing,’ ‘customized marketing,’ and ‘one-to-one marketing.’

Three main alternative market selection strategies can be illustrated as

follows.

Undifferentiated marketing

Company Market
marketing mix

Differentiated marketing

Company Segment 1
marketing mix 1
Company Segment 2
marketing mix 2
Company Segment 3
marketing mix 3

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Concentrated marketing

Segment 1
Company
marketing mix Segment 2

Segment 3

8.4 Differentiation and Positioning the Marketing Offer

Introduction

After selecting a target market to enter, next the company must think of
how to differentiate and positioning its marketing offer in relation to its
competitors. The company will be in a better position to earn high profits
unless there are competitors serving the same target market. However if
there are another strong competitor or several competitors in that segment,
the company has to offer something different and of higher value to
customers to attract customers to the company’s offer. This is achieved by
differentiation and positioning the marketing offer.

Differentiation

Differentiation is the act of designing a set of meaningful differences to

distinguish the company’s offer from competitors’ offer.

Four broader ways of differentiating marketing offer;

1. Offering something better.
2. Offering something never.
3. Offering something faster.
4. Offering something cheaper.

Basic Dimensions for differentiation

The company can differentiate its marketing offer along four basic
dimensions.
1. Product differentiation
2. Service differentiation
3. Personal differentiation
4. Image differentiation

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 Product Differentiation

The company can think of bases for differentiating its physical product.
Here a number of product differentiators in terms of Features,
Performance, Durability, Reliability, Reparability, Style and Design can be
identified.

Service Differentiation

The company can differentiate its marketing offer by differentiating

accompanying services. When the marketers find it difficult differentiate
the physical product, the competitive advantage often lies in service
differentiation. Number of service differentiators such as Delivery,
Installation, Repair, Customer training and Other Miscellaneous services
can be identified.

Personal Differentiation

Companies can obtain a superior competitive edge by differentiating their

people (personnel). This can be achieved by hiring and training better
people than competitors do. Better trained people possess the good
characteristics of competency. (Possess the required skills and
knowledge), Courtesy (friendly, respectful, and considerate), Credibility
(Trustworthy), Reliability (perform the service with consistency and
accuracy) and Communication (can understand the customer and
communicate clearly)

Image Differentiation

Though customers do not perceive any difference in the areas discusses

before, if company can create a different image to the company and
brand, it will gain a valuable competitive advantage. However a different
brand personality will not come to the product or company by itself. A
creative and hardworking identity building effort (program) is needed to
achieve this. Various tools are used for this purpose such as names,
symbols, atmospheres, and events. The ultimate result of such a program
is creating an image.
Creativity and effective communication is must to build a strong image.
The image gas to be conveyed trough every possible communication
vehicles and disseminated continuously. The message must be expressed
in symbols, written and audio/visual media, atmosphere and events.

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Positioning

Positioning is the act of designing the company’s offer and image so that it
occupies a distinct and valued place in the target customers’ mind. All above
ways of differentiators are not meaningful or worthwhile for a brand as each
difference tends to create costs to the company as well as benefits to the
customers. Therefore the company should select the effective differentiators
which are distinctive and valued by customers. The following are some
criteria to decide the worthiness of a difference.

Important (Hugh value to customers)

Distinctive (Other cant offer the same)
Superior (superior to other ways)
Communicable (difference is communicable and visible to customers)
Pre-emptive (cannot be easily copied by competitors)
Affordable (buyers can pay for the difference)
Profitable (profitable for company t introduce the difference)

Therefore the company should select to promote few differences that will
appeal most strongly to the target market.

Positioning strategy mainly calls for two decisions.

1. How many differences to promote?
2. Which differences to promote?

In answering the above questions, one reputed way is promote one benefit
to the target market (Single benefit positioning). If a company uses the
single benefit positioning, the benefit will act as the unique selling
positioning (USP) of the brand. The brand must be positioned as number one
on that benefit.

Some companies are trying double benefit positioning. When another

competitor is also trying to claim the same benefit, the company may think
of double benefit positioning. Sometimes we can see there are situations
where triple or multi benefit positioning is used. But increasing the number
of claims might confuse the customers.

Several positioning strategies can be identified for marketers to practice.

Attribute positioning. Promoting one or more attributes of the

product.
Benefit positioning. Promoting benefit/benefits directly.
Use positioning. Promote the type of usage that is ideal for the
product.

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 User positioning. Promoting the product for certain type of
customers.
Competitor positioning. Positioning with comparison to competitors.
Product category positioning. Positioning as a different product
class.
Quality/Price positioning.

Developing a clear and valued positioning strategy is not adequate at all.

The marketing mix should be designed accordingly to offer what was
promised to customers in the positioning strategy and the positioning
strategy must be effectively communicated.

The dimensions of..... Positioning maps must reflect those that are
important to the consumer not just those that the supplier favors.

Activity - 01

1. Identify private sector companies which engage in geographic,

demographic, psychographic, and behavioral market
segmentation in Sri Lanka separately.

2. List public sector organizations which use marketing

segmentation for their business/activities under above
categories.

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 Please do the Self Assessment Lesson 08

Summary

There are a number of ways of defining markets, but for a marketer the key
definition is in defining who the customer is. Even so there are different
categories: customers, users and prospects. This categorization leads to the
concepts of penetration and brand (market) share. Within markets there
may be segments, which a producer may target to optimize use of scarce
resources. The viability of these segments depends on size, identity,
relevance and access. The identification of market segments requires a
number of activities including background investigation, qualitative research,
quantitative research, analysis, implementation and
segmentation/positioning. A major aid to positioning is usually offered by
two dimensional maps based on the two most critical dimensions identified
by statistical analysis

Now please go to lesson review questions & try to answer them

by yourself to complete this lesson.

Additional Reading

www.e4me.com www.trigem.co.kr
www.ibm.com www.mobil.com
www.staples.com www.microsoft.com
www.sgi.com

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