Market Segmentation, Targeting

and Positioning
Dr. Gashaw T. (Assistant Professor)
and
Dr. Mesfin W. (Assistant Professor)

Chapter 4
 Discussion Questions
• What are the different levels of market
segmentation?
• How can a company divide a market into
segments?
• How should a company choose the most
attractive target markets?
• What are the requirements for effective
segmentation?
05/05/21 •2
 Introduction
• 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. This is B/C:
 Buyers are too numerous, too widely scattered and
too varied in their needs and buying practices.
 Companies vary widely in their abilities to serve
different segments of the market.

05/05/21 3
 Introduction
Rather than trying to compete in an
entire market, sometimes against
superior competitors, each company
must identity the parts of the market
that it can serve best.

05/05/21 4
 The Process of Target Marketing

05/05/21 5
 The Process of Target Marketing

05/05/21 •6
 Market Segmentation
 Market segmentation—dividing the market into
subsets of customers that behave similarly.
 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.
05/05/21 7
Level of Market
Segementtaion
 Level of Market
Segmentation
 Segmentation is thus a compromise between mass marketing,
which assumes everyone can be treated the same, and the
assumption that each person needs a dedicated marketing
effort.
• 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).
05/05/21 9
 Levels of Segmentation
Undifferentiated (Mass) marketing
 Mass producing, mass distributing and mass
promoting about the same product in about
the same way to all consumers.
 It focus on commonness but it ignore the
different
 The main advantage of this target is
achieving economies of scale.
05/05/21 10
 Levels of Segmentation
Undifferentiated (Mass) marketing
 The limitations are:
 Problems arise in appealing all the customers with one
offer and difficult in penetrating focused markets
 The traditional argument for mass marketing is that
it creates the largest potential market, which leads
to the lowest costs, which in turn can translate into
either lower prices or higher margins.

05/05/21 11
 Levels of Segmentation
Segmenting Markets
 A company that practices segment marketing
recognizes that buyers differ in their needs,
perceptions and buying behaviors.
 A market segment consists of a large identifiable
group within a market, with similar wants,
purchasing power, geographical location, buying
attitudes, or buying habits.
 It focus on different but ignore commonness .
05/05/21 12
 Levels of Segmentation
Segmenting Markets
 With this strategy a firm decides to target several market
segment and design separate offers for each.
 Advantage: The company hopes increasing sales and
strong position with in each market segment
 The main problem is increasing cost.
• More expensive than undifferentiated marketing
− Extra marketing research
− Forecasting, sales analysis, promotion, planning, and channel
management
− Extra promotion, advertising

05/05/21 13
 Levels of Segmentation
Concentrating or Niche Marketing Strategy
 A niche is a more narrowly defined group, typically a
small market whose needs are not being well served.
 Niche marketing focuses on subgroups within the
segments.
• Niche offers smaller companies an opportunity to
compete by focusing their limited resources on
serving niches that may be unimportant to or
overlooked by larger competitors.

05/05/21 14
 Levels of Segmentation
Concentrating or Niche Marketing Strategy
 segments are fairly large and normally attract several
competitors, whereas, niches are fairly small and may
attract only one or two rivals
• Niche marketing is appealing when
 Limited resources

 Greater knowledge of consumer needs in the niches

 Special reputation

05/05/21 15
 Levels of Segmentation
Concentrating or Niche Marketing Strategy
It mainly focus on small groups.
Advantage: increase sales
Disadvantage: it involves higher risks. i.e.
 If the competitors decide to enter the
market, the company automatically
destroyed.
05/05/21 16
 Levels of Segmentation
Concentrating or Niche Marketing Strategy
 In an attractive niche:
 Customers have a distinct set of needs;
 They will pay a premium to the firm that best satisfies
their needs;
 The niche is not likely to attract other competitors;
 The niche gains certain economies through
specialization; and
 The niche has size, profit, and growth potential.
05/05/21 17
 Levels of Segmentation
Micro-Marketing
• Micromarketing is the practice of
tailoring products and marketing
programs to suit the tastes of specific
individuals and locations.
• Micromarketing includes:
05/05/21 18
 Levels of Segmentation
Micro-Marketing includes:
Local marketing (tailoring brands and
promotions to the needs and wants of
local customer groups - cities,
neighborhoods and even specific
stores)

05/05/21 19
 Levels of Segmentation
Micro-Marketing includes:
Individual Marketing (tailoring
products and marketing programs to
the needs and preferences of
individual customers)

05/05/21 20
 Levels of Segmentation
Micro-Marketing: Individual Marketing
 The ultimate level of segmentation leads to
“segments of one,” “customized marketing, “or
“one-to-one marketing.
 Much business to-business marketing today is
customized, in that a manufacturer will
customize the offer, logistics, communications,
and financial terms for each major account.

05/05/21 21
 Levels of Segmentation
Micro-Marketing: Individual
Marketing
Mass customization is the ability to
prepare individually designed products
and communications on a mass basis
to meet each customer’s requirements.

05/05/21 22
 Bases for Segmenting
Consumer Markets
• In segmenting consumer markets,
marketers can apply:
Geographic,
Demographic,
Psychographic variables, and
Behavioral variables

05/05/21 23
 Geographic Segmentation
 Geographic segmentation calls for dividing the market
into different geographical units such as nations, states,
regions, counties, cities, or 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.
 Ex.- Mcdonalds globally, sell burgers aimed at local
markets, for example, burgers are made from lamb in India
rather then beef because of religious issues. In Mexico more
chilli sauce is added and so on.

05/05/21 24
 Demographic Segmentation
• Demographic segmentation dividing the market
into groups based on variables such as age, gender,
family size, family life cycle, income, occupation,
education, religion, race and nationality.
Demographic factors are the most popular bases for
segmenting customer groups. B/C of :
1. Consumer needs, wants and usage rates often vary
closely with demographic variables.
2. Demographic variables are easier to measure than
most other types of variable.

05/05/21 25
 Demographic Segmentation
 Here is how certain demographic variables have been used
to segment consumer markets:
• Age and life-cycle stage: Consumer wants and abilities
change with age,
 Gender: Gender segmentation has long been applied in
clothing, hairstyling, cosmetics, and magazines.
 Social class: Social class strongly influences preference in
cars, clothing, home furnishings, leisure activities, reading
habits, and retailers, which is why many firms design
products for specific social classes.
05/05/21 26
 Demographic Segmentation
 Income: Income segmentation is a long-standing
practice in such categories as automobiles, boats,
clothing, cosmetics, and travel.
 However, income does not always predict the best
customers for a given product.
 The most economical cars are not bought by the really
poor, but rather by those who think of themselves as
poor relative to their status aspirations; medium-price
and expensive cars tend to be purchased by the over
privileged segments of each social class.

05/05/21 27
 Psychographic Segmentation
• In psychographic segmentation, buyers are
divided into different groups on the basis of
lifestyle, personality and values.
• People within the same demographic group can
exhibit very different psychographic profiles.

05/05/21 28
 Psychographic Segmentation
➤ Lifestyle: People exhibit many more lifestyles
than are suggested by social classes, and the
goods they consume express their lifestyles.
➤ Personality: Marketers can endow their products
with brand personalities that correspond to
consumer personalities.
Apple Computer’s iMac computers, for example, have a
friendly, stylish personality that appeals to buyers who do
not want boring, ordinary personal computers.

05/05/21 29
 Psychographic Segmentation
➤ Values: Core values are the belief systems that
underlie consumer attitudes and behaviors.
• Core values go much deeper than behavior or
attitude, and determine, at a basic level, people’s
choices and desires over the long term.

05/05/21 30
 Psychographic Segmentation
➤ Although values often differ from culture to culture, Roper
Reports has identified six values segments stretching across
35 Countries:
 Strivers (who focus more on material and professional goals),
 Devout (who consider tradition and duty very important),
 Altruists (who are interested in social issues),
 Intimates (who value close personal relationships and family
highly),
 Fun seekers (who tend to be younger and usually male), and
 Creative’s (who are interested in education, knowledge, and
technology).

05/05/21 31
 Behavioral Segmentation
 In behavioral segmentation, buyers are divided
into groups on the basis of their knowledge of,
attitude toward, use of, or response to a product.
 Many marketers believe that behavioral
variables-occasions, benefits, user status, usage
rate, loyalty status, buyer-readiness stage, and
attitude-are the best starting points for
constructing market segments.

05/05/21 32
 Behavioral Segmentation
 Occasions: Buyers can be distinguished
according to the occasions on which they develop
a need, purchase a product, or use a product.
 Benefits: Buyers can be classified according to
the benefits they seek.
 One study of travelers uncovered three benefit
segments: those who travel to be with family, those
who travel for adventure or education, and those who
enjoy the “gambling” and “fun” aspects of travel.

05/05/21 33
 Behavioral Segmentation
 User status: Markets can be segmented
into nonusers, ex-users, potential users,
first time users, and regular users of a
product.
 Market leaders focus on attracting
potential users, whereas smaller firms
try to attract users away from the leader.

05/05/21 34
 Behavioral Segmentation
 Usage rate: Markets can be segmented
into light, medium, and heavy product
users. Heavy users are often a small
percentage of the market but account for a
high percentage of total consumption.
 Marketers usually prefer to attract one heavy user
rather than several light users, and they vary their
promotional efforts accordingly.

05/05/21 35
 Behavioral Segmentation
 Loyalty status. Buyers can be divided into
four groups according to brand loyalty
status:
I. Hard-core loyals (who always buy one brand),
II. Split loyals (who are loyal to two or three brands),
III. Shifting loyals (who shift from one brand to
another, and
IV. Switchers (who show no loyalty to any brand).

05/05/21 36
 Behavioral Segmentation
• Buyer-readiness stage: A market consists
of people in different stages of readiness to
buy a product:
 Some are unaware of the product, some are
aware, some are informed, some are interested,
some desire the product, and some intend to
buy.
 The relative numbers make a big difference in
designing the marketing program.

05/05/21 37
Segmenting for Business Markets
Demographic
Demographic

Operating
Operating Variable
Variable

Purchasing
Purchasing Approaches
Approaches

Situational
Situational Factors
Factors
Personal
Personal
Characteristics
Characteristics
 Segmentation for Business
Markets
• Organizational size
 Annual sales turn over
 Number of employees
 Volume of production
• Industry sector
 Banking (service)
 Manufacturing
 Mining, and others
• Geographical location
 Domestic and
 Export markets

05/05/21 •39
 Segmenting for Business
Markets
Demographic Variables
1. Industry: Which industries should we
serve?
2. Company size: What size companies
should we serve?
3. Location: What geographical areas
should we serve?
05/05/21 40
 Segmenting for Business
Markets
Operating Variables
I. Technology: What customer technologies
should we focus on?
II. User or nonuser status: Should we serve
heavy users, medium users, light users, or
nonusers?
III. Customer capabilities: Should we serve
customers needing many or fewer services?
05/05/21 41
 Segmenting for Business Markets
Purchasing Approaches
I. Purchasing-function organization: Should we serve companies
with highly centralized or decentralized purchasing organizations?
II. Power structure: Should we serve companies that are engineering
dominated, financially dominated, and so on?
III. Nature of existing relationships: Should we serve companies with
which we have strong relationships or simply go after the most
desirable companies?
IV. General purchase policies: Should we serve companies that prefer
leasing? Service contracts? Systems purchases? Sealed bidding?
V. Purchasing criteria: Should we serve companies that are seeking
quality? Service? Price?

05/05/21 42
 Segmenting for Business Markets
Situational Factors
I. Urgency: Should we serve companies
that need quick and sudden delivery or
service?
II. Specific application: Should we focus
on certain applications of our product
rather than all applications?
III. Size of order: Should we focus on large
or small orders?
05/05/21 43
 Segmenting for Business
Markets
Personal Characteristics
1. Buyer–seller similarity: Should we serve
companies whose people and values are similar to
ours?
2. Attitudes toward risk: Should we serve risk-taking
or risk-avoiding customers?
3. Loyalty: Should we serve companies that show
high loyalty to their suppliers?
05/05/21 44
Effective Segmentation
Criteria
Measurable
Measurable

Substantial
Substantial

Accessible
Accessible

Differentiable
Differentiable

Actionable
Actionable
Requirements for Effective
Segmentation
 Measurable: The size, purchasing power, and
characteristics of the segments can be measured.
 Substantial: The segments are large and
profitable enough to serve. A segment should be
the largest possible homogeneous group worth
going after with a tailored marketing program.
 Accessible: The segments can be effectively
reached and served.

05/05/21 46
Requirements for Effective
Segmentation
 Differentiable: The segments are conceptually
distinguishable and respond differently to
different marketing mixes. If two segments
respond identically to a particular offer, they do
not constitute separate segments.
 Actionable: Effective programs can be
formulated for attracting and serving the
segments.

05/05/21 47
 Market Targeting
Strategies
 Target market: Targeting is the process
of assessing the relative worth of different
market segments and selecting one or more
segments in which to compete- these
become the target segment
 is a set of buyers sharing common needs or
characteristics that the company decides to serve.

05/05/21 48
 Evaluating Market
Segments
• Evaluating Market Segments at three
basic factors.
1.Segment size and growth
Analyze sales, growth rates and
expected profitability.

05/05/21 49
 Evaluating Market
Segments
2.The segment’s overall attractiveness
 The firm must ask whether a potential
segment has the characteristics that
make it generally attractive, such as size,
growth, profitability, scale economies,
and low risk.

05/05/21 50
 Evaluating Market Segments
2.The segment’s overall attractiveness
 Segment profitability is affected by five principal factors:
Industry competitors and the threat of
segment rivalry
Potential entrants to the market and the
threat of mobility
The threat of substitute products
Buyers and their relative power
Suppliers and their relative power.

05/05/21 51
 Evaluating Market
Segments
3. The company’s objectives and resources:
 The firm must consider whether investing in the segment makes
sense given the firm’s objectives and resources.
 Some attractive segments could be dismissed because they do not
much with the company’s long-run objectives; some should be
dismissed if the company lacks one or more of the competences
needed to offer superior value.
Company skills & resources relative to the
segment(s).
Look for Competitive Advantages.

05/05/21 52
 Selection Strategy
• The company should enter only
segments in which it can offer
superior value and gain advantages
over its rivals.
• There are different strategies for
market selection.

05/05/21 53
 Selection Strategy
1. Single segment concentration : This
strategy involves selecting one
segment from within the total market.
A single segment strategy enables a
seller to penetrate one market in depth
and to acquire reputation as a specialist
or an expert in the limited market.
05/05/21 54
 Selection Strategy
1. Single segment concentration :
 Through concentrated marketing, the firm gains a thorough
understanding of the segment’s needs and achieves a strong
market presence.
 Furthermore, the firm enjoys operating economies by
specializing its production, distribution, and promotion; if
it attains segment leadership, it can earn a high return on its
investment.
 However, concentrated marketing involves higher than
normal risks if the segment turns sour because of changes
in buying patterns or new competition.
05/05/21 55
 Selection Strategy
2. Selective Specialization: Here the firm selects a
number of segments, each objectively attractive
and appropriate.
 There may be little or no synergy among the
segments, but each promises to be a
moneymaker.
 This multi segment coverage strategy has the
advantage of diversifying the firm’s risk.

05/05/21 56
 Selection Strategy
3. Product Specialization: Another approach is to
specialize in making a certain product for several
segments.
 An example would be a microscope manufacturer that sells
microscopes to university laboratories, government laboratories,
and commercial laboratories.
 Through a product specialization strategy, the firm builds
a strong reputation in the specific product area.
 The downside risk is that the product may be replace by
an entirely new technology.
05/05/21 57
 Selection Strategy
4.Market Specialization: With market specialization,
the firm concentrates on serving many needs of a
particular customer group.
 An example would be a firm that sells an assortment of products only
to university laboratories, including microscopes, oscilloscopes, and
chemical flasks.
 The firm gains a strong reputation in serving this
customer group and becomes channel for further
products that the customer group could use.
 However, the downside risk is that the customer group
may have its budgets cut.
05/05/21 58
 Selection Strategy
5. Full Market Coverage: Here a firm attempts to
serve all customer groups with all of the products
they might need.
 Only very large firms can undertake a full market
coverage strategy.
 Large firms can cover a whole market in two
broad ways: through undifferentiated marketing
or differentiated marketing strategies.

05/05/21 59
Undifferentiated Marketing
Strategy
• In undifferentiated marketing, the firm
ignores market-segment differences and
goes after the whole market with one
market offer.
 To reach the market, the firm uses mass distribution backed
by mass advertising to create a superior product image in
people’s minds.
• Presumably, the company can turn its lower costs into lower
prices to win the price-sensitive segment of the market.
05/05/21 60
Undifferentiated Marketing
Strategy
• In differentiated marketing, the firm operates in
several market segments and designs different
programs for each segment.
 Differentiated marketing typically creates more total
sales than doe’s undifferentiated marketing.
 However, the need for different products and marketing
programs also increases the firm’s costs for product
modification, manufacturing, administration, inventory, and
promotion.

05/05/21 61
 Differentiation and
Positioning Strategies
Differentiation is what a company does to
the product. Positioning is what it does to
the customer’s mind.
Kotler defines differentiation as “the
process of adding a set of meaningful and
valued differences to distinguish the
company’s offering from competitors’
offerings”
05/05/21 62
Differentiation Dimensions
A firm can differentiate its offering
along five dimensions:
Product Differentiation
Services Differentiation
Personnel Differentiation
Channel Differentiation
Image Differentiation

05/05/21 63
 Differentiation Variables

Product Service personnel Channel Image

Form •Ordering ease •Competenc Coverage Symbols

Features •Delivery e
Performance •Installation •Courtesy Expertise Media
Conformance •Customer •Credibility Atmospher
Durability training •Reliability Performa e
Reliability •Customer •Responsive nce
Repairability consulting ness Events
Style •Maintenance •Communica
Design and repair tion
•Miscellaneous
 Positioning (the Battle of Perception)
 Positioning is the act of designing the company’s offering
and image to occupy a distinctive place in the target
market’s mind.
 Positioning strategies help to create a desired image for a
company and its products in the minds of a chosen user
segment.
 The marketer’s goal is to build a strong and defensible
position on one or more bases that are relevant and
important to the consumer-and do it better than the
competitors.
05/05/21 65

Compiled by Gashaw
 Positioning Strategy
 Positioning on product feature: This can be done by ads the
different features of a product and then the consumers knows
what benefits or features to buy.
 Positioning on benefits: This can be done by ads to show the
benefit of the product to the consumers
 Positioning on Usage: Usage time or usage situation. Product
like food, clothes, recreational items are positioned by this
method.
 Positioning on users
 Positioning against competitors : This can be done directly or
indirectly
05/05/21 66

Compiled by Gashaw
 Positioning Strategy
A company must avoid four major
positioning errors.
• Under positioning: Some companies discover that buyers
have only a vague idea of the brand. The brand is seen as
just another entry in a crowded marketplace.
• Over positioning: Buyers may have too narrow image of
the brand. Thus, a consumer might think that the offering is
very expensive and something unachievable when in fact it
may be affordable for an average consumer.
05/05/21 67

Compiled by Gashaw
 Positioning Strategy
• Confused positioning: Buyers might have a confused
image of a brand resulting from the company’s making
too many claims or changing the brand’s positioning
too frequently.
• Doubtful positioning: Buyers may find it hard to
believe the brand claims in view of the product’s
features, price or manufacturer. Positioning statements
and claims should be well supported with product’s
performances.

05/05/21 68

Compiled by Gashaw
 Repositioning Strategies
• Having developed a position for a brand, there is
frequently the need to reposition as:
i. The market develops,
ii. Competitors enter or exit, and
iii.Customers’ expectations and needs change.
• In thinking about repositioning, the marketing planner
has four strategic options:

05/05/21 69

Compiled by Gashaw
 Repositioning Strategies
 Gradual repositioning, which involves a planned and continuous
adaptation to the changing market environment.
 Radical repositioning, where an increasing gap between what the brand
offers and what the market wants leads the management team to think
about a major strategic change.
 Innovative repositioning, where the planner finds a new strategic
position that offers market opportunities that have not so far been
identified by competitors.
 Zero positioning, where the organization maintains an unchanged face to
the market over a long period of time and/or it communicates very
poorly with the target market, with the result that potential customers
have little idea of what the organization stands for.
05/05/21 70

Compiled by Gashaw