CHAPTER THREE

MARKET SEGMENTATION,
TARGETING AND POSITIONING

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 Chapter Content
• Market Segmentation,
• Targeting Market, and
• Market Positioning

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 Leading questions
• What are the different levels of market segmentation?
• In what ways can a company divide a market into
segments?
• How should consumer and business markets be
segmented?
• How should a company choose the most attractive
target markets?
• How to create a good position in the market?

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 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.
 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.
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 Introduction
• This decision requires a keen understanding of
consumer behavior and careful strategic thinking.
• 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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 4.1 Market Segmentation
• In market aggregation, the total market is viewed as a single unit as
one mass, aggregate market.
• To the contrary, there is an approach that views a market as being
composed of many smaller, homogenous units.
• Markets consist of buyers with different
– Wants,
– Resources,
– Geographical locations,
– Buying attitudes, and
– Buying practices. Yalew Gorlfu Mkg Mgt
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 Continued…
 Market segmentation is the process of dividing the total,
heterogeneous market for a product in to distinct and
meaningful groups of buyers, each of which tends to be
homogenous in all significant aspects.
• Management then selects one or more of these market groups or
segments as the organization's target market.
– The objective of aggregation is to fit the market to the
product;
– whereas the objective of segmentation is an attempt to fit the
product to the market believing that each segment calls for a
different product, promotional appeal, or other element in the
marketing mix.
• The focus of segmentation is enhancing a separate
program in a pin pointed
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Segmenting, Targeting and Positioning process

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 Why Segmentation?
• Market segmentation is a customer - oriented philosophy.
• Specifically, it has the following benefits
– Investing money and effort to most profitable market.

– Designing and developing products, which match with the

market demand as it focuses on selected target markets;
– Choosing the best promotional activity and channel of
distribution at a relatively lower cost
– It helps to determine an appropriate marketing mix strategy for
a segment.
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– Flexibility of resources and programs
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 Bases for Segmenting Consumer Markets

Geographic
Nations, states,
regions or cities, sub-cities

Demographic
Age, gender, family size and
life cycle, or income

Psychographic
Social class, lifestyle, or
personality

Behavioral
Responses to market offer

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 Geographic Segmentation
• Many organizations segment their market on some geographic
basis such as nations, states, regions, countries, cities, urban-
suburban-rural,
• Here it should be considered that the marketing costs and
potentiality of each segment varies depending on the
geographic needs and preferences.
• A firm can decide to operate in one or a few geographic areas or
operate in all but pay attention to variations in needs and
preferences of the specific location.
• E.g. Regional branches are geographical
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 Demographic Segmentation
• Demographic variables have long been the most popular bases
for distinguishing customer needs and preferences for certain
reasons:
– customer wants, preferences and usage rates are highly
associated with demographic variables.
– they are easily quantifiable and accessible than most other
types of variables.
• Even when the target market is described in non-demographic
factors, the link to demographic variables is vital to know the
size of the target market and how toMkgGMIC
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 Psycho-graphic Segmentation
• Psychographics is the science of using psychology and
demographics to better understand consumers.
• Even if consumers are on the same demographic characteristics,
they can have different psycho-graphic profiles.
• In psycho-graphic segmentation consumer markets can be
divided in to different groups on the basis of
psychological/personality traits, lifestyle, or values.
• These social class, life style and personality characteristics result
from psychological and sociological aspects of the individual.
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 Behavioral Segmentation

• In behavioral segmentation, marketers divide buyers into groups

on the basis of their knowledge of, attitude toward, use of, or
response to a product.
• Readiness stage of the customers to buy a product depends on
their information, level of loyalty, interest, intention and degree
of awareness of a product, frequency of interactions with your
brand, and other factors.

• Summary of Major Segmentation Variables for Consumer

Markets pp-215
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 Segmentation of organizational markets
• We can segment business markets with some of the same
variables we use in consumer markets, such as geography,
benefits sought, and usage rate, but business marketers also use
other variables.
• A company can segment further by purchase criteria.

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Major Segmentation Variables for Business Markets
Demographic 1. Industry: Which industries should we serve? Banking (service)
Manufacturing, Mining, Assembly, Government
2. Company size: On the base of Annual sales turn over, Number of
employees, Volume of production
3. Location: What geographical areas should we serve? Domestic
and Export markets

Operating 4. Technology: What customer technologies should we focus on?

Variables 5. User or nonuser status: Should we serve heavy users, medium
users, or light users?
6. Customer capabilities: customers needing many or few services?

Purchasing 7. Purchasing-function organization: Should we serve companies

Approaches with a highly centralized or decentralized purchasing organization?
8. Nature of existing relationship: Should we serve companies with
which we have strong relationships or simply go after the most
desirable companies?

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 Major Segmentation Variables for Business Markets
9. General purchasing policies: companies that prefer
leasing? Service contract? Systems purchases? Sealed
bidding?
10. Purchasing criteria: companies that are seeking
quality? Service? Price?
12. Urgency: Should we serve companies that need
quick and sudden delivery or service?
Situational 13. Size or order: Should we focus on large or small
Factors orders?

Personal 14. Buyer-seller similarity: companies whose people

Characteris and values are similar to ours?
tics 15. Attitude toward risk: risk-taking or risk-avoiding
customers?
16. Loyalty: companies that show high loyalty to their
suppliers?
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Requirements for Effective Segmentation

Measurable
• Size, purchasing power, profiles
of segments can be measured.
Accessible
• Segments must be effectively
reached and served.

Substantial
• Segments must be large or
profitable enough to serve.

Differential
• Segments must respond
differently to different marketing mix
elements & actions.
Actionable
• Must be able to attract and serve
the segments.
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 4.2 Targeting a 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
• Target market
– A group of customers to whom the seller directed the
marketing programs

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 Evaluating Market Segments

• In evaluating different market segments, the firm must

look at two factors: the segment’s overall attractiveness
and the company’s objectives and resources.
• Segment Size and Growth
• Analyze sales, growth rates and expected profitability.
• Segment Structural Attractiveness
• Consider effects of:
• Competitors,
• Availability of Substitute Products and,
• The Power of Buyers & Suppliers.
• Company Objectives and Resources
• Company skills & resources relative to the segment(s).
• Look for Competitive
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 Market Coverage
• Marketers have a range or continuum of possible levels
of segmentation that can guide their target market
decisions.

Multiple Segment Single-segment

Full Market
Specialization Concentration
Coverage

Mass………l….…………l………….........l………customized

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A. 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, General Motors and
Coca-Cola can undertake a full market coverage strategy.
• They use:
– undifferentiated or mass marketing, the firm ignores segment
differences and goes after the whole market with one offer.
• This creates the largest potential market,
• leads to the lowest costs,
• in turn can lead to lower prices or higher margins.
– In differentiated marketing, the firm sells different products
to all the different segments of the market.
• It creates more total sales than undifferentiated marketing.
• However, it also increases the costs of doing business.
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B. Multiple Segment Specialization
• This is known as multistage coverage.
• The company selects a number of segments each of which is
attractive, potential and appropriate.
• Keeping synergies in mind, companies can try to operate in super
segments rather than in isolated segments.
• A firm attempt some synergy with:
– Product specialization- the firm sells a certain product to
different market segments.
• A microscope manufacturer, for instance, sells to university,
government, and commercial laboratories, making different
instruments.
– Market specialization - concentrates on serving many needs of a
particular customer group:
• by selling an assortment of products only to university
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C. Single-segment Concentration
• Here, the firm markets to only one particular segment.
– the firm gains deep knowledge of the segment’s needs and
achieves a strong market presence.
– It also enjoys operating economies by specializing its
production, distribution, and promotion.
– If it captures segment leadership, the firm can earn a high
return on its investment.
– A company uses this strategy when it produces a typical
product for a single type of market like plasma TV.

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 4.3. Positioning the Product
• Product’s Position - the place the product occupies in
consumers’ minds relative to competing products; i.e.
– Volvo positions on “safety”.

– BMW position on “ performance”

– Mercedes position on “ Luxury”

• Marketers must:
– Plan positions to give products the greatest image by
customers
– Develop marketing mixes
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Steps to Choosing and Implementing a Positioning Strategy

• Step 1. Identifying a set of possible competitive

advantages: Competitive Differentiation.
• Step 2. Selecting the right competitive advantage.
• Step 3. Effectively communicating and delivering the
chosen position to the market.

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Developing Competitive Differentiation
• an entity's goods or services superior to all of a customer's other
choices.
• a condition or circumstance that puts a company in a favorable or
superior business position
Product Service

Differentiation
Areas for Competitive

Personnel Image
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Selecting the Right Competitive Advantages

Important

Profitable Distinctive
Criteria
for
Determining
Which
Affordable Differences Superior
to
Promote

Preemptive Communicable

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• Effectively communicating and delivering the
chosen position to the market.

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CHAPTER END

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