COLLEGE DEPARTMENT

Learning Module
In
MANAGERIAL ECONOMICS
(SY. 2020-2021)

Week 13. Market Segmentation, Targeting and Positioning

Objectives
 Learn the three steps of target marketing, market segmentation, target marketing, and market positioning
 Understand the major bases for segmenting consumer and business marketing strategy
 Know how companies identify attractive market segments and choose target marketing strategy.
 Realize how companies position their products for maximum competitive advantage in the marketplace

Types of Market

 Markets may be classified according to: (1) type of institution; and (2) form.
 Markets According to Type of Institution
 There are three general types of markets according to type of institution: (1) consumer
markets; (2) organizational markets; and (3) international markets. a product or service
constitute the consumer market. This market "the real estate market" which refers to the
aggregate demand of services market" instance, he may, all at the same time, be a part of
the entertainment.
 Consumer Markets.
 Buyers who intend to directly consume type may be classified further into
product-related groupings like buyers of houses and lots. Another
example is "the educational services market”.
 An individual may belong to various consumer markets, For instance, he
may, all at the same time, be a part of the entertainment market, the drug
market, the dry goods market, or the food market.
 Organizational Markets.
 This second general type of market constitutes buyers of products or
services whose intention is to produce another product or service.
 International Markets.
 This refers to all types of buyers found abroad including consumers and
organizations. Car producers in Japan, for example, consider Americans,
Asians, and Europeans as their international markets.
 Markets According to Form
 Markets may also be classified according to form. These are (1) the primary; and (2) the
secondary markets.

 Primary Markets.
 This is the type of market that is formed when a firm introduces a new
product class in response to latent demand or needs.
 Latent demand refers to customer demand that is unarticulated or
abstract. It is without reference to a particular product or service. An
example may be provided as follows:
 Before the introduction of the tri-bike in the market and as late as the
1960s, people travel by other means like walking, riding in bicycles,
buses, or rigs. Travelers during this period are unable to articulate their
need for an economical and convenient means of transportation. One firm
recognized this and translated this latent need into a particular product
form which is the tri-bike, a human muscle-powered transport equipment.
The potential customers of the tri-bike constitute the primary market.
 Secondary Markets.
 This type is an offshoot of the primary market and it is formed when
customers develop specific needs or preferences.
 After the commuters became familiar with tri-bikes and have developed
convenience needs, they could specify more easily how the product might
be changed to perform better. In the case of the tri-bike, customers may
express their secondary needs, winch refers to speed. This is so because
tri-bikes are human muscle-powered and they do not move fast enough.
In response, the marketer installed engines in the tri-bikes and improved
their body structures. Tri-bikes became motorbikes or motorized tricycles
and the secondary market was created.
Market Segmentation

MANAGERIAL ECONOMICS Market Segmentation, Targeting and Positioning

  A market segment is a sub-group of a particular market which is composed of units with more or less
similar characteristics. People may have similar wants, financial resources, geographic locations, buying
attitudes, and buying patterns. These variables may be used individually to segment a market.
 Dividing a market into distinct groups with distinct needs, characteristics, or behavior who might require
separate products or marketing mixes.
The Advantages of Market Segmentation
Market segmentation offers the following advantages to the marketer:
1. Segmentation forces the marketer to be aware of realities in the market
2. Segmentation provides clues in the design of products and marketing programs that will reach the prospective
customers.
3. Segmentation can help identify opportunities for new product development.
4. Segmentation can help improve the strategic allocation of marketing resources.
Segmentation Strategies
In serving the target market, the company or the marketer may opt to adapt any of the following: (1)
concentration or single-segment strategy, and (2) multi-segment strategy.
Concentration or single-segment strategy refers to that long term decision of the company to deal only with
a particular segment of the market. A book publisher, for instance, may consider only college students and
consequently, publish only college textbooks.
The multi-segment strategy calls for providing products or services to two or more segments of the target
market. The company may even serve the entire target market. Rex Book Store, for instance, is a multi-segment
marketer, in the sense that it publishes and sells college, high school, and elementary books. In addition, they also
handle books for adults who no longer go to school.
Bases for Market Segmentation
There are many ways of segmenting a market. The best way is that which will suit the purpose of the
company or the marketer Markets may be segmented through any of the four major categories: (1) geographic; (2)
demographic; (3) psychographic; and (4) behavioral.
Geographic Segmentation requires dividing the market into different geographical units like nations,
regions, provinces, cities, towns, or barangays. A multinational company, for instance, may segment its market into
nations and treat each country as unique. The products the company sells to one country is slightly altered when
selling to another. Some multinationals find that a market segment of one country is much similar to a market
segment of another country. The company may find it more profitable to serve similar segments regardless of which
individual countries they are located.
Geographic Segmentation Variables
• World region or country • Neighborhood
• U.S. region • City or metro size
• State • Density
• City • Climate

Demographic Segmentation refers to dividing the market into segments on the basis of demographic
variables like age, sex, family size, family life cycle, income, occupation, education, religion, race, and nationality.

MANAGERIAL ECONOMICS Market Segmentation, Targeting and Positioning

 A company may choose "age” as a variable in segmenting its market, then use marketing programs
appropriate to the particular age groups it wants to serve.
A company may also segment its market according to sex and pour money and effort toward serving the
identified segment.
Family size is determined by the number of family members. The needs of a two-member family, for
instance, are different from those of a six-member family.
Family life cycle refers to that stage in which a family is currently situated. A newly-wedded couple is
regarded as in the first stage and the second stage commences after the first baby is born. The succession of
stages culminates into the last stage composing of an elderly couple (or widow) with all children living Separate
lives and having families of their own. Surely, the needs of families vary from stage to stage. This provides
companies a basis for segmenting its markets.
In terms of income, a market may be subdivided into the following: (1) the high income group; (2) the
middle income group and (3) the low income group. The basis for this type of segmentation rests on the premise
that people with more or less similar income and consequently have the same ability to spend will tend to have
more or less similar needs.
Segmenting the market according to occupation may be useful to some type of companies. Occupations
may be classified according to the following professional, technical, manager, proprietor, farmer, teacher,
housewife, student, and others people with similar occupations tend to have more or less similar needs. Household
appliances, for instance, are the identified needs of housewives.
Demographic Segmentation Variables
• Age • Education
• Gender • Religion
• Family size • Race
• Family life cycle • Generation
• Income • Nationality
• Occupation

Psychographic Segmentation refers to the classification of buyers of consumers by some psychological

characteristics they possess in common. They may be grouped according to social class or lifestyle
Segmentation by social class rests on the assumption that the human components of one social class
share similar values, interests, behaviors, and economic positions.
Lifestyle refers to a person's pattern of living in the world as expressed in his or her activities, interests, and
opinions.
A person may have a mental image of what he thinks of himself as he should be. This image will guide him
to adapt a lifestyle fitted to that image or to the attainment of such image.
Behavior Segmentation is a term that refers to the grouping of buyers on the basis of their knowledge,
attitude, use, or response to a product. Buyer behavior may be segmented according to various categories, namely:
(1) purchase occasion; (2) benefits sought; (3) user status; (4) usage rate; (5) loyalty status; (6) readiness stage (7)
attitude toward product.
Occasion segmentation calls for grouping of buyers according to occasion when they get the idea, make a
purchase, or use a product.
Buyers may also be segmented according to the benefits they seek from a particular product.

MANAGERIAL ECONOMICS Market Segmentation, Targeting and Positioning

 Another useful way of segmenting a market is by grouping product Users according to status. User status
may be classified as follows: (1) non-users; (2) ex-users; (3) potential users; (4) first-time users; and (5) regular
users. Life insurance policies, for some reason are purchased by a small percentage of the population. Aware of
this fact, life insurance companies continuously devise marketing strategies to tap the high percentage of nonusers,
ex-users, and potential users.
Segmentation by usage rate is also a way of market segmentation. It is done by classifying buyers into
light-users medium-users, and heavy-users. Oftentimes, the very few heavy-users of a product consume more than
the very many light-users
As companies are more interested in sales volume, marketing strategies are devised to attract the heavy
users in the purchase of specific brands. Also, light-users are urged to become heavy-users.
Buyers may also be grouped according to their loyalty to particular brands. They may be classified as
follows:
1. those who buy only one brand of a product;
2. those who buy two or three brands;
3. those who shift from one brand to another; and
4. those who have no brand preference.
Loyalty to a particular brand provides better insights to the marketer. It he is faced with the problem of
inducing buyers to switch loyalty to his own brand, his first move would be to determine the loyalty status of buyers.
Another way of segmenting the market is to classify buyers according to their readiness to buy. In this
regard, they may be categorized into the following stages:
1. people who are unaware of the product;
2. people who are aware of the product;
3. people who are informed of the product;
4. people who are interested in the product;
5. people who desires the product; and
6. people who want to buy the product.
From the point of view of the marketer, the last stage refers to people who are most prepared to buy. If
there are not enough people who intend to buy the product, he must exert some effort to convert the readiness
stage of some.
People's attitude toward the product may also be classified according to their degree of enthusiasm. These
are the following:
1. people who have an enthusiastic attitude toward the product;
2. people who have a positive attitude toward the product;
3. people who have an indifferent attitude toward the product;
4. people who have a negative attitude toward the product;
5. people who have a hostile attitude toward the product.
The enthusiastic attitude is most desired by marketers while the hostile one is the most unwanted. The
marketing task, therefore, will be to change an attitude into an actual sale.
Behavioral Segmentation Variables
• Occasions
• Benefits
• User Status
• Attitude toward the Product

MANAGERIAL ECONOMICS Market Segmentation, Targeting and Positioning

 • User Rates
• Loyalty Status
• Readiness Stage

Requirements for Effective Segmentation

To be useful and effective, market segmentation must meet the following requirements:
Measurable

The variables of a particular segment must be measurable. For instance, if a segment is defined as men
who are college graduates and are currently employed, it would be relatively easy to find information about the
number of such men in the population. It may also be easy to obtain information about their number per age
bracket.

Substantial

The segment must be large or wide enough to be economically feasible. A narrow segment consists of
members with highly identical needs, making it easier to design an appropriate marketing program. A narrow
segment, however, will have fewer members and sales potential will be lower.

Accessible

Segmentation will be useful only if the segment members can be reached economically by a pre-designed
marketing effort. This is possible if the segment members are concentrated in certain geographic areas, buy their
needs at particular stores, and is exposed to certain media.

Actionable

For segmentation to be useful, the firm must have the ability to serve the various segments. It must be able
to develop and implement separate marketing programs for each segment. Firms without efficient resources will not
benefit from segmentation.

Target Marketing

Target Market - Consists of a set of buyers who share common needs or characteristics that the company decides to serve

Evaluating Market Segments

 Segment size and growth
 Segment structural attractiveness
o Level of competition
o Substitute products
o Power of buyers

MANAGERIAL ECONOMICS Market Segmentation, Targeting and Positioning

 o Powerful suppliers
 Company objectives and resources
Selecting Target Markets

The selection of targets is a marketing activity that should be planned carefully. The consequence of
picking the wrong segments may lead to lost opportunities and waste of company resources.

To determine which segments are right for the firm, the following criteria must be considered:

1. Size. In choosing a market segment, it must be large enough to be worth serving. Size, however, does not
necessarily refer to the number of potential buyers but the volume of sales that may be generated.
2. Expected growth. There are markets that are not currently attractive but some of these may be expected to
grow in the future. An example is the solo ride motorcycle market which is expected to grow fast because of
increasing oil prices.
3. Competitive position. The presence of competition in the segment considered lowers the firm's chance of
successfully making profits. The strength of the competition must be thoroughly analyzed.
4. Cost of reaching the segment. A market segment that is chosen must be easily reached by the firm. If
marketing efforts to reach it will be too expensive, it may jeopardize profits, and in that case, it must not be
chosen.
5. Compatibility with the firm’s objectives and resources. If the firm does not have enough resources to serve a
prospective segment, the segment must not be selected.

Socially Responsible Targeting

o Some segments, especially children, are at special risk
o Many potential abuses on the Internet, including fraud Internet shoppers
o Controversy occurs when the methods used are questionable
Market Positioning
 The place the product occupies in consumers’ minds relative to competing products.
 Typically defined by consumers on the basis of important attributes.
 Involves implanting the brand’s unique benefits and differentiation in the customer’s mind.
 Positioning maps that plot perceptions of brands are commonly used.

Choosing a Positioning Strategy

 Identifying possible competitive advantages
 Differentiation can be based on
 Products
 Services
 Channels
 People
 Image

MANAGERIAL ECONOMICS Market Segmentation, Targeting and Positioning

  Choosing the right competitive advantage
 Which differences to promote? Criteria include:
 Important
 Distinctive
 Superior
 Communicable
 Preemptive
 Affordable
 Profitable
 Choosing a positioning strategy
 Value propositions represent the full positioning of the brand
 Possible value propositions:
 More for More
 More for the Same
 More for Less
 The Same for Less
 Less for Much Less

MANAGERIAL ECONOMICS Market Segmentation, Targeting and Positioning