Unit – 2

Markets & Segmentation

Market:
Definition:
According to Pyle, “Market includes both place and region in which buyers and sellers
are in free competition with one another”.
Meaning:
Market is a place where commodities are bought and sold at retail or wholesale prices.
Types of Market:
1. Physical Market:
Physical market is a set up where buyers can physically meet the sellers and purchase the
desired merchandise from them in exchange of money. Shopping malls, department stores, retail
stores are examples of physical markets.
2. Non-Physical Market / Virtual Market:
In such markets, buyers purchase goods and services through internet. In such a market the
buyers and sellers do not meet or interact physically, instead the transaction is done through
internet. Examples - Rediff shopping, eBay etc.
3. Auction Market:
In an auction market the seller sells his goods to one who is the highest bidder.
4. Market for Intermediate Products:
Such markets sell raw materials (goods) required for the final production of other goods.
5. Black Market:
A black market is a setup where illegal goods like drugs and weapons are sold.
6. Knowledge Market:
Knowledge market is a set up which deals in the exchange of information and knowledge
based products.
7. Financial Market:
Market dealing with the exchange of liquid assets (money) is called a financial market.
Financial markets are of following types:
1. Stock Market - A form of market where sellers and buyers exchange shares is called a stock
market.
 2. Bond Market - A market place where buyers and sellers are engaged in the exchange of
debt securities, usually in the form of bonds is called a bond market. A bond is a contract
signed by both the parties where one party promises to return money with interest at fixed
intervals.
3. Foreign Exchange Market - In such type of market, parties are involved in trading of
currency. In a foreign exchange market (also called currency market), one party exchanges
one country’s currency with equivalent quantity of another currency.
Features / Characteristics of a Market:
1. One Commodity:
In practical life, a market is understood as a place where commodities are bought and sold
at retail or wholesale price, but in economics “Market” does not refer to a particular place as such
but it refers to a market for a commodity or commodities i.e., a wheat market, a tea market or a
gold market and so on.
2. Area:
In economics, market does not refer only to a fixed location. It refers to the whole area or
region of operation of demand and supply.
3. Buyers and Sellers:
To create a market for a commodity what we need is only a group of potential sellers and
potential buyers. They must be present in the market of course at different places.
4. Perfect Competition:
In the market there must be the existence of perfect competition between buyers and sellers.
But the opinion of modern economist is that in the market the situation of imperfect competition
also exists, therefore, the existence of both is found.
5. Business Relationship with buyers and sellers:
For a market, there must exist perfect business relationship between buyers and sellers.
They may not be physically present in the market, but the business relationship must be carried
on.
6. Perfect knowledge of the market:
Buyers and sellers must have perfect knowledge of the market regarding the demand of the
customers, regarding their habits, tastes, fashions etc.
7. One Price:
 One and only one price be in existence in the market which is possible only through perfect
competition and not otherwise.
8. Sound monetary system:
Sound monetary system should be prevalent in the market, it means money exchange
system, if possible, be prevalent in the market.
9. Presence of speculators:
Presence of seculars is essential just to supply business information’s and prices prevalent
in the market.
Market Segmentation:
Market segmentation is the process of dividing a target market into smaller, more defined
categories. It segments customers and audiences into groups that share similar characteristics such
as demographics, interests, needs, or location.
Requirements of Market Segmentation:
1. Substantiality:
It refers to the size of segmented markets. When the size of the segment becomes small, it
may not be possible for the marketer to develop separate marketing mix for such unprofitable
segments. In short, demand form one segment must be great enough to make the marketing efforts
worthwhile.
2. Measurability:
The main purpose of market segmentation is to measure the changing behaviour patterns
of consumers. Therefore, the segments should be capable of giving accurate measurements. But
this is often a difficult task and the segments are to be under constant review. For example, the
segment of a market for a car is motivated by a number of considerations such as economy, status,
quality, etc.
3. Accessibility:
It could be attained through the existing channel of distribution, advertising media,
salesman, etc. Newspaper and magazines also offer some help in this direction. For example, there
are magazines meant exclusively for the youth, for the professional people, etc. The segments must
permit the firm to direct successfully different marketing effort towards the segments.
4. Representability:
 Another condition is the representability of each segment. Market segments must be
representative in nature and must have individually of their own. For example, each segment will
be small in the case of industrial products but comparatively large in respect of consumer products.
5. Nature of Demand:
It refers to different quantities demanded by various segments. Each segmented market
must exhibit difference in consumption rates from another segment. In short, segmentation is
required only if there are marked differences in the nature of demand.
6. Response Rates.
Finally, the segments must show differences in responses to the marketing variables. If
various segments respond in similar ways to a marketing mix, there is no need to develop a separate
marketing mix. For example, if all segments respond in identical fashion to price changes, there is
no need for different price for individual segments.
Importance of Market Segmentation:
1. Coordination of product and market appeals:
As market segmentation presents an opportunity to understand the nature of the market,
the seller can adjust his thrust to attract the maximum number of customers by various publicity
media and appeals.
2. Better position to spot marketing opportunities :
As the producer can make a fair estimate of the volume of his sale and the possibilities of
furthering his sales in the regions where response of the customers is poor.
3. Allocation of marketing budget:
It is on the basis of market segmentation that marketing budget is adjusted for a particular
region or locality. Specific budget can be allocated according to different market segments.
4. Meeting the competition effectively:
It helps the producer to face the competition of his rivals effectively. The producer can
adopt different strategies for different markets taking into account the rival’s strategies.
5. Effective marketing programme:
It helps the producer to adopt an effective marketing programme and serve the consumer
better at comparatively lower cost. Diverse marketing programmes can be attached for various
segments.
6. Evaluation of marketing activities:
 Market segmentation helps the manufacturer to find out and compare the marketing
potentialities of the products. It helps to adjust production and using his resources in the most
profitable manner. As soon as the product becomes obsolete, the product line could be diversified
or discontinued.
Bases or Methods of Market Segmentation:
1. Geographic Segmentation:
Geographic location is one of the simplest methods of segmenting the market. People living
in one region of the country have purchasing and consuming habit which differs from those living
in other regions. For example, life style products sell very well in metro cities, e.g., Mumbai, Delhi,
Kolkata and Chennai but do not sell in small towns. Banking needs of people in rural areas differ
from those of urban areas. Even within a city, a bank branch located in the northern part of the city
may attract more clients than a branch located in eastern part of the city.
2. Demographic Segmentation:
Factors like age, gender, income, occupation, family size, education; marital status is used
singly or in combination to segment the market.
a. Age Group:
Age is one of the most important factors for segmenting the market. The
market the producer should know for what age group his product could be most suited so
that he can plan his pricing policy, advertisement policy, marketing policy and strategy
accordingly.
b. Gender:
Marketers may also be divided on the basis of gender i.e., male and female.
Some products are exclusively produced for women while some others are for men. For
example, Lip Stick is meant for a woman and on the other hand Shaving cream is only
meant for men.
c. Income:
The manufacturer should also bear in mind while preparing his marketing
policy, the income of the prospective buyers of his product. Consumer’s needs, behaviour,
persuasion etc. differ in different income groups. For example, people in high-income
group prefer quality of goods, design, fashion-oriented products, etc. hence they can be
motivated on these factors. People in low-income group attract towards low price.
 D. Social Class:
Strongly influences the preference like in cars, clothing, home furnishings,
leisure activities, reading habits, etc. Many companies design products and services for
specific social classes.
3. Socio-economic Segmentation:
The segmentation here is done on the basis of social class like working class, middle
income group, etc. Since marketing is potentially and intimately connected with the “ability to
buy”, this segmentation is meaningful in analyzing buying patterns of a particular class. Socio -
economic factors, especially when used together, can help locate a market precisely. This method
is widely used because they not only help in locating segments but also in measuring the size of
segments easily.
4. Product Segmentation:
The products may be divided on certain criteria which may suit particular segments of the
people. For example, products may be divided into prestige products, anxiety products, functional
products and maturity products.
5. Psychographic Segmentation:
It has been seen that two consumers with the same demographic characteristics may act in
an entirely different manner. Despite having same age, from the same profession, with similar
education and income, each of the customers may have a different attitude towards risk-taking and
new product and stores.
6. Benefit Segmentation:
Consumers are interviewed to learn about the benefits they are expecting from a product.
It may be classified into generic or primary utilities and secondary or evolved utilities.
But choosing the benefit to be emphasized is not an easy job, for the thrust of various utilities may
shift from time to time.
7. Behavioural Segmentation:
In this case, buyers are divided into groups on the basis of their knowledge of, attitude
toward, use of, or response to a product. Main behavioural variables are as follows:
a. Purchase Occasions:
Buyers can be differentiated according to the occasions they develop a need
or buy a product.
 b. Readiness Buyers:
Buyers can be classified according to how much ready there are to buy, eg.,
immediate buyers, trial buyers, highly qualified enquiries, loosely qualified enquiries.
c. User Status:
Markets can be segmented into groups of non-users, ex-users, potential
users, first time users and regular users of a product.
d. Loyalty level:
A market can also be segmented by consumer loyalty. Buyers can be
divided into groups according to their degree of loyalty.
8. Volume Segmentation:
Buyers may be divided on the basis of quantity purchased—bulk users, moderate quantity
buyers and single-unit buyers. Different marketing strategies can be adopted to tackle each group.
9. Marketing Factor Segmentation:
The responsiveness of buyers to different marketing activities is the basis for this type of
segmentation. For example, if a manufacturer knows that one group of his customers are giving
more response to change in advertising than others, he must increase the amount of advertising
aimed at them.
Choosing the Basis of Market Segmentation:
1. Company Resources:
Market segmentation is not just a blue print on paper, it involves heavy expenditure in
implementing it. Unless the company has got enough resources, market segmentation cannot be
undertaken at all.
2. Product Characteristics:
Most products are heterogeneous in character but certain products show homogeneity. In
the case of former type, market segmentation is necessary but in the later case the necessity of
segmentation is disputed.
3. Position of the Product and Product Life Cycle:
The various stages of a product cycle are: introduction, growth, maturity and decline. In
the first stage and last stages market segmentation is meaningless. During introduction stages the
necessary data cannot be collected and in the last phase the necessity for market segmentation does
not arise at all.
4. Homogeneous Nature of Market:
When the market is of homogeneous nature, there is not much use of segmentation. Proper
segmentation of market is required only when the customer preferences vary from group to group.
5. Competitive Marketing Strategies:
Sometimes it might become necessary to fall in line with the competitor activity of market
segmentation. Arrangements similar to those undertaken by the competitors have to be made to
meet the competition effectively. Experience shows that it is difficult for an organisations to be
successful through undifferentiated marketing, when competitors are practising active
segmentation.
Benefits of Market Segmentation:
1. The manufacturer is in a better position to find out and compare the marketing potential of
his products.
2. The result obtained from the market segmentation is an indicator to adjust the production.
3. Changes required may be studied and implemented without losing markets.
4. It helps in determining the kinds of promotional devices that are effective and also helps to
evaluate their results.
5. Appropriate timing for the introduction of new products, advertising could be easily
determined.
Target Marketing:
A company cannot concentrate on all the segments of the market. The company can satisfy
only limited segments. The segments the company wants to serve are called the target market, and
the process of selecting the target market is referred as market targeting.
Procedure for Target Marketing:
1. Evaluating Market Segments:
Evaluation of market segments calls for measuring suitability of segments. The segments
are evaluated with certain relevant criteria to determine their feasibility.
a. Attractiveness of Segment:
In order to determine attractiveness of the segment, the company must think
on characteristics/conditions which reflect its attractiveness, such as size, profitability,
measurability, accessibility, actionable, potential for growth, scale of economy,
differentiability, etc. These characteristics help decide whether the segment is attractive.
 b. Objectives and Resources of Company:
The firm must consider whether the segment suit the marketing objectives.
Similarly, the firm must consider its resource capacity. The material, technological, and
human resources are taken into account. The segment must be within resource capacity of
the firm.
2. Selecting Market Segments:
When the evaluation of segments is over, the company has to decide in which market
segments to enter. That is, the company decides on which and how many segments to enter. This
task is related with selecting the target market. Target market consists of various groups of buyers
to whom company wants to sell the product; each tends to be similar in needs or characteristics.
Philip Kotler describes five alternative patterns to select the target market. Selection of a suitable
option depends on situations prevailing inside and outside the company.
Methods / Strategies of Target Marketing:
1. Single Segment Concentration:
It is the simplest case. The company selects only a single segment as target market and
offers a single product. Here, product is one; segment is one. For example, a company may select
only higher income segment to serve from various segments based on income, such as poor,
middleclass, elite class, etc. All the product items produced by the company are meant for only a
single segment.
2. Selective Specialization:
In this option, the company selects a number of segments. A company selects several
segments and sells different products to each of the segments. Here, company selects many
segments to serve them with many products. All such segments are attractive and appropriate with
firm’s objectives and resources.
3. Product Specialization;
In this alternative, a company makes a specific product, which can be sold to several
segments. Here, product is one, but segments are many. Company offers different models and
varieties to meet needs of different segments. The major benefit is that the company can build a
strong reputation in the specific product area. But, the risk is that product may be replaced by an
entirely new technology. Many ready-made garment companies prefer this strategy.
4. Market Specialization:
 This strategy consists of serving many needs of a particular segment. Here, products are
many but the segment is one. The firm can gain a strong reputation by specializing in serving the
specific segment. Company provides all new products that the group can feasibly use. But, reduced
size of market, reduced purchase capacity of the segment, or the entry of competitors with superior
products range may affect the company’s position.
5. Full Market Coverage:
In this strategy, a company attempts to serve all the customer groups with all the products
they need. Here, all the needs of all the segments are served. Only very large firm with overall
capacity can undertake a full market coverage strategy.
Methods of Full Market Coverage:
a. Undifferentiated Marketing:
Company sells the same products to all the customer groups. It does not
consider difference among buyers. Product and marketing programme remain common for
all the segments. The firm relies on mass production, mass distribution, and mass
advertising. So, it can considerably reduce production, distribution, and promotional costs.
Similarly, reduced costs result into low price and the price-sensitive consumers can be
attracted. This method is followed by pharmaceutical companies.
b. Differentiated Marketing:
Here, company operates in several segments and designs different
marketing programmes for each of the segments. Various groups of customers are targeted
by several types of products and marketing strategies. It is based on the notion that each
group needs different products. This strategy is used by the most of automobile companies.
This strategy creates more total sales, but costs of doing business also on increase.
Product Positioning:
Meaning:
Product positioning is the creation of a clear image in the minds of consumers within the
targeted segment about the nature of the product and the benefits to be gained from purchasing
the product.
Definition:
According to Kotler, “Positioning is the act of designing the company’s offerings and image to
occupy a distinctive place in the target market’s mind.”
Significance / Importance of Positioning:
1. To Make Entire Organisation Market-Oriented:
Product positioning is a part of the broader marketing philosophy. It concerns with
identifying superior aspects of product and matching them with consumers more effectively than
competitions. This philosophy makes the entire organisation market oriented.
2. To Cope with Market Changes:
Once the product is positioned successfully doesn’t mean the task of manager is over. He
has to constantly watch the market. As per new developments in the market place, new competitive
advantages should be identified, discovered or developed to suit the changing expectations of the
market. It makes the manager active, alert and dynamic.
3. To Meet Expectation of Buyers:
Generally, the advantages to be communicated are decided on the basis of expectations of
the target buyers. So, product positioning can help realize consumers’ expectations.
4. To Promote Consumer Goodwill and Loyalty:
Systematic product positioning reinforces the company’s name, its product and brand. It
popularizes the brand. The company can create goodwill and can win customer loyalty.
5. To Win Attention and Interest of Consumers:
Product positioning signifies those advantages that are significant to consumers. When
such benefits are promoted through suitable means of advertising, it definitely catches the interest
and attention of consumers.
6. To Attract Different Types of Consumers:
Consumers differ in terms of their expectations from the product. Some want durability;
some want unique features; some want novelty; some wants safety; some want low price; and so
on. A company, by promoting different types of competitive advantages, can attract different types
of buyers.
7. To Face Competition:
This is the fundamental use of product positioning. Company can respond strongly to the
competitors. It can improve its competitive strength.
Steps in Product Positioning:
1. Identifying the Differences or Positioning Concept:
 Marketers have to understand consumer motives behind purchasing a product. This will
help in identifying the positioning theme. A marketer can adopt several approaches in positioning
his product to develop or enhance its value to the customers. A marketing offer can be
differentiated on the basis of product, services, people, channel and image.
a. Product Differentiation:
Product can be differentiated on attributes like shape, size, colour, quality,
performance etc. For example, Colgate introduced a herbal version using the positioning of the
natural feel preferred in rural areas.
b. Services Differentiation:
Services can be differentiated in respect of delivery, installation and
maintenance. Long warranty periods, free service coupons, 24 hours services, emergency
care etc. are some examples. Reliance, a private LPG company pitted against the three well
established public sector undertakings (IOCL, HPCL, BPCL) differentiated its products on
the basis of distribution and better refilling facility. It successfully differentiated its
products despite the fact that they are priced higher.
c. People Differentiation:
People or personalities (film and sports celebrities) that consumers respect
and admire to bring a differentiation to the image of products and services. For example,
Aamir Khan endorsing Coca-Cola in a villager’s outfit brings a huge differentiation to the
product image and help in pushing sales.
d. Image Differentiation:
The image of a brand or a company may win the consumer, despite the
product being very similar to a competitive one. Image is built through advertisements,
symbols, signs, colours, logos etc. Special care should be taken while doing so in the case
of rural consumers.
2. Select the Positioning Concept:
As there can be various parameters for positioning the product, the marketer has to select
the best and most effective alternatives. A marketers has to select a positioning concept that serves
as a bridge between the products and the target market.
Some of the critical factors that should be considered while positioning a brand are:
a. Attractive: Does it provide value to the customer?
 b. Distinctive: Is it different from that of its competitors?
c. Affordable: Can buyers pay for it?
3. Developing the Concept:
Once the positioning strategy has been selected, the marketer needs to develop the concept
in an effective manner so that it can be properly address to the target market. Then he has to select
the appropriate media vehicle to reach the target market effectively. Marketers should strive
towards linking the positioning closer to the target customers to ensure that it appeals to them.
4. Communicating the Concept:
After developing the concept, high tech position may be communicated by futuristic
products, classy ads in elite journals and large show rooms with good atmosphere. An effective
communication is one that clarifies the target market, value proposition and the supporting product
differentiation. For rural areas, the positioning should be the generic benefit of the product.
Types of Positioning
1. Using Product Characteristics or Customer Benefits:
Probably the most-used positioning strategy is to associate an object with a product
characteristic or customer benefit. For example, Honda and Toyota have emphasized economy and
reliability and have become the leaders in the number of units sold. Volvo have stressed safety and
durability. Although this may be a successful way to indicate product superiority, consumers are
generally more interested in what such features mean to them, that is, how they can benefit by the
product.
2. Positioning by Price and Quality:
The price quality product characteristic is so useful and pervasive that it is appropriate to
consider it separately. In many product categories, there exist brands that deliberately attempt to
offer more in terms of service, features or performance. Manufacturers of such brands charge more,
partly to cover higher costs, and partly to help communicate the fact that they are of higher quality.
Conversely, in the same product class there are usually other brands that appeal on the basis of
price, although they might also try to be perceived as having comparable at least adequate quality.
3. Positioning by Use or Application:
Another way to communicate an image is to associate the product with a use, or application.
Products can of course, have multiple positioning strategies, although increasing the number
involves obvious difficulties and risks. Often a positioning-by-use strategy represents a second or
third position for the brand, a position that deliberately attempts to expand the brand’s market.
4. Positioning by Product User:
Another positioning approach is to associate a product with a user or a class of users. Some
cosmetics companies seek a successful, highly visible model as their spokesperson as the
association for their brand. Michael Jordan, for example was used by products as diverse as Nike,
McDonald’s etc.
5. Positioning by Product Class:
Some products need to make critical positioning decisions that involve product-class
associations. For example, Dove positioned itself apart from the soap category, as a cleansing
cream product, for women with dry skin.
6. Positioning by Cultural Symbols:
Many marketers use deeply entrenched cultural symbols to differentiate their brand from
competitors. The essential task is to identify something that is very meaningful to people that other
competitors are not using and associate the brand with that symbol. Pillsbury’s “doughboy” is an
example that illustrates this type of positioning strategy.
7. Positioning by Competitors:
In most positioning strategies, an explicit or implicit frame of reference is one or more
competitors. In some cases the reference competitors can be the dominant aspect of the positioning
strategy. It is useful to consider positioning with respect to a competitor for two reasons.
First, a competitor may have a firm, well crystallized image developed over many years.
Second, sometimes it is not important how good customers think you are; it is just important that
they believe you are better than a given competitor.
Product Differentiation
It refers to the process of making a product different in some respects from the competitive
products.
Types/Means of Product Differentiation:
1. Employee Differentiation:
Companies creating excellent customer relationships is the best way to differentiate
themselves from their competitors. Using a relationship differentiation strategy, companies can
build a good relationship with sales representatives, employees, and technical representatives.
2. Channel Differentiation:
A company may differentiate itself from a cluster of competitors through a distribution
differentiation strategy. It is impossible for every company to manufacture a product and then
make it available to dealers, distributors, retailers, etc., with its own distribution channels. Supply
chain and distribution is a vital factor for a company that focuses on distribution differentiation.
Companies tend to standardize the distribution channels to create a competitive advantage.
3. Image Differentiation:
Image differentiation, in a sense, is a combination of multiple strategies. It means creating
a reputable and differentiable image of your brand. A company can only do that by mastering all
departments such as product quality, customer service, product performance, etc.
4. Service Differentiation:
Service differentiation, in simplest terms, means creating a unique way to serve customers.
Well, every company serves its customers, so what can be different. There are several factors
in servicing your customers, such as order processing, customer service method, etc.
Benefits of Differentiation:
1. Helps to attract customer attention
2. Satisfies the demand of different segments of the market
3. Encourages non-price competition
4. Assists in facing competition from competitors products
5. Provides a measure of control in the matter of pricing.

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