MARKET SEGMENTATION,TARGETING & POSITIONING

Market segmentation is the process of dividing a heterogeneous market into homogeneous

sub-units. It is the act of dissecting the marketplace into submarkets that require different
marketing mixes. It involves Dividing up a market into distinct groups that have common
needs and will respond similarly to a marketing action.

Market segmentation is a concept in economics and marketing. A market segment is a sub-set

of a market made up of people or organizations sharing one or more characteristics that cause
them to demand similar product and/or services based on qualities of those products such as
price or function.

It is the process of defining and sub-dividing a large homogenous market into clearly
identifiable segments having similar needs, wants, or demand characteristics. Its objective is
to design a marketing mix that precisely matches the expectations of customers in the targeted
segment. Few firms are big enough to supply the needs of an entire market, most must
breakdown the total demand into segments and choose the one or few the firms its best
equipped to handle.

Four basic factors that affect market segmentation are

• Clear identification of the segment

• Measurability of its effective size
• Its accessibility through promotional efforts, and
• Its appropriateness to the policies and resources of the firm.

Why segment markets?

a) Better matching of customer needs-Customer needs differ. Creating separate offers for
each segment makes sense and provides customers with a better solution

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b) Enhanced profits for business-Customers have different disposable income. They are,
therefore, different in how sensitive they are to price. By segmenting markets, businesses
can raise average prices and subsequently enhance profits
c) Better opportunities for growth-Market segmentation can build sales. For example,
customers can be encouraged to "trade-up" after being introduced to a particular product
with an introductory, lower-priced product
d) Retain more customers- Customer circumstances change, for example they grow older,
form families, change jobs or get promoted, change their buying patterns. By marketing
products that appeal to customers at different stages of their life ("life-cycle"), a business
can retain customers who might otherwise switch to competing products and brands
e) Target marketing communications-Businesses need to deliver their marketing message to
a relevant customer audience. If the target market is too broad, there is a strong risk that
(1) the key customers are missed and (2) the cost of communicating to customers becomes
too high / unprofitable. By segmenting markets, the target customer can be reached more
often and at lower cost
f) Gain share of the market segment-Unless a business has a strong or leading share of a
market, it is unlikely to be maximising its profitability. Minor brands suffer from lack of
scale economies in production and marketing, pressures from distributors and limited
space on the shelves. Through careful segmentation and targeting, businesses can often
achieve competitive production and marketing costs and become the preferred choice of
customers and distributors. In other words, segmentation offers the opportunity for smaller
firms to compete with bigger ones.

Attributes of effective segmentation

Market segmentation is resorted to for achieving certain practical purpose. For example, it has
to be useful in developing and implementing effective and practical marketing programmes.
For this to happen, the segments arrived at must meet certain criteria such:-
a) Identifiable: The differentiating attributes of the segments must be measurable so that they
can be identified.
b) Accessible: The segments must be reachable through communication and distribution
channels.

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c) Sizeable : The segments should be sufficiently large to justify the resources required to
target them. A very small segment may not serve commercial exploitation.
d) Profitable: There is no use in locating segments that are sizeable but not profitable.
e) Unique needs : To justify separate offerings, the segments must respond differently to the
different marketing mixes.
f) Durable : The segments should be relatively stable to minimize the cost of frequent
changes.
g) Measurable : The potential of the segments as well as the effect of a specific marketing
mix on them should be measurable.
h) Compatible: - Segments must be compatible with firm’s resources and capabilities.

Bases for Segmenting the Market

(a) Customer-based segmentation

(b) Product-related segmentation
(c) Competition-related segmentation.

I. Customer-based segmentation

The four important factors in this type of segmentation are:

(a) Geographic location of customers;

(b) Demographics
(c) Psychographic variables; and
(d) Behavioral
a) Geographic Segmentation: This segmentation is done on the basis of the physical location
and boundaries of the customers. The following considerations are necessary here. Read more
on geographic segmentation.
 Which country the customer resides in.
 Are there any limitations on the usage and promotion of the product in the country.
 What is the size of the country and what is the density of the population there.
 What are the climate conditions in that country.

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b) Demographic Segmentation: This process of analysis comes into play when the quality and
other characteristics of the general population are taken into consideration.
 The age and the gender of the target audience needs to be considered.
 The common occupations and income levels of the population also play a part.
 The religion and language that the people follow also needs to be kept in mind.
 The family size and quality of education are also important here.

c) Psychographic Segmentation: In this category the attitudes and lifestyle of the consumers
are considered. Also known as the IAO (Interests, Activities and Opinions) model, it plays a
major part in devising successful marketing strategies. Read more on psychographic
segmentation.
 The general personality traits of the customers must be kept in mind.
 The values of the people and the attitudes that they have towards certain products are
crucial pieces of information for a marketer.
 The hobbies and the perception of the selling company are also necessary to be
obtained.

d) Behavioral Segmentation: Here the marketer takes into account the general behavioral
patterns of the customers and tries to forecast what reactions they would possibly have to the
adopted marketing strategies.
 The benefits that the customers are looking for, and the value they seek and derive.
 The degree of brand loyalty and brand satisfaction.
 The willingness to buy a product, and also the rate of its usage.
 The profitability of marketing there and also the income level of the targeted customer
base

II) Product related segmentation

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a) Product use situations-different customers may use the same product in different situation.
A marketer tries to make the product versatile so that it can be used in different situations but
the customer may use different products and brands in different situations, e.g a customer may
buy a sports watch for sporting activities and a jeweled watch for party wear. Thus a product
or brand may be selected by the customer depending on use situations. Knowing these
situations helps the marketer plan the positioning strategy.

b) Benefits segmentation- here the marketer identifies benefits that a customer looks for when
buying a product. This applies when a customer buys a product for functional purposes,
durability, as a gift, an accessory etc.
c) Consumption- this is mostly used for segmenting beverages like tea, coffee, beer, cigarette
markets. The segments that are visible include: heavy users, moderate and light user.

d) Decision criteria- this relates to the decision criteria a customer uses to evaluate and buy a
brand or the product. They may use price, quality of product, service offered by the firm,
technology etc

III) Competition based segmentation

An important indicator of successful marketing of an enterprise is the number of loyal

customers it has. Customer loyalty is important in determining the competitive position of the
firm. This is also used as a basis for segmenting the market. Based on loyalty we have the
following segments.

a) Hard core loyals- these are the customers who continue to buy the same brand over and
over again. They refuse to buy competitor brands and insist on buying the preferred choice.

b) Soft core loyals- they are loyal to two or three brands in a product group. The marketer
needs to watch them and motivate them to shift to the hard core loyalty segment.

c) Switchers – they never stick to brand. They may switch for variety or for a special deal.
This is therefore a slipping segment for the marketer. The firm needs to examine why it is

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losing its customers to competitor brands. This can help it evolve marketing strategies in order
to strengthen its competitive position in the market.

TARGETING
It is process of reviewing market segments and deciding which one(s) to pursue. Once an
organization has identified its most promising market segments, it must decide whether to
target one segment or several segments
Each targeted segment will then receive a specially designed marketing mix — i.e., a specially
tailored product, price, distribution network and/or promotional campaign

There are three basic types of strategies:

1. Undifferentiated strategy(mass marketing)- offer one product to entire market

2. Multisegment strategy(differentiated) – selecting multiple segments, developing
separate marketing strategies for each

3. Concentrated strategy(niche marketing) – selecting one segment, developing one

marketing mix for that segment.

Mass/undifferentiated marketing – this is concerned with selling a single product to the

whole market. This strategy is based on the assumption that, in respect to the product in
question, customers’ needs are very similar if not identical.
The main benefit for the firm is that it can produce on a large scale, benefiting from low unit
production costs via economies of scale. These lower costs can be passed on to the consumer
in the form of lower prices because, although profit margins on each item sold may be lower,
high sales volume should generate large profits overall.
The main disadvantage of mass marketing is that, increasingly in today’s markets, consumers
are less interested in standardised products and often prepared to pay premium prices for
products that cater for their specific needs.

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Differentiated/selective marketing – this is concerned with targeting each segment with a
product with its own marketing mix designed to match the needs of the consumers within the
segment.
By tailoring products to meet consumer needs more closely, firms are likely to increase
consumer satisfaction and generate a greater degree of consumer loyalty.
The differentiated approach also allows the firm to spread risks, so that it will be less affected
by a decline in demand from one segment.
The main disadvantages of this approach include confusion amongst customers when faced
with dozens of brands and lost economies of scale from shorter production runs and the
additional costs of having to advertise several rather than one brand.

Niche/concentration marketing – this is concerned with targeting one particular, well-defined

group of customers (a niche) within the overall market.
Jordan’s, the cereal company, adopted this approach by targeting groups of customers
interested in organic products at a time when this group of consumers represented a relatively
small proportion of the overall market.
Niche markets can be targeted profitably by small firms who have relatively small overheads
and, therefore, do not need to achieve the volume of sales required by larger competitors.

The main disadvantages of niche markets are that the potential for sales growth and
economies of scale may be limited, and the survival of the firm may be seriously affected if
sales begin to decline.

POSITIONING

It is establishing a differentiating image for a product or service in relation to its competition.

It involves deciding how the firm wants the company and its brands to be perceived and
evaluated by target markets, it needs to differentiate the product from other products of the

firm or its competition. Positioning complements and is an integral part of the company’s

segmentation strategy and selection of target markets.The same product can be positioned

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differently to different market segments. The result of successful positioning is a distinctive
brand image on which consumers rely in making product choices.
In positioning their product in the market, a variety of positioning strategies could be used by
the marketing organisation including:
• product attributes
• price and quality
• use or application
• product user
• product class
• Competitor.

Product attributes In this case the firm uses one or more product attributes or features as the
basis for positioning its product. For example, while the brookside dairy focuses on the
nutritional attributes of milk as a key selling point, Kleenex tissues focus on softness, strength
and absorbency. The firm may also use a key benefit that the market is seeking as the basis of
positioning their product.
Price and quality Two of the key dimensions used by consumers in evaluating alternative
brands is price and quality. Some firms use a high price (premium pricing) strategy to
indicate that their product is high or superior quality, for example old jamaica chocolates.
Other firms use a lower price, good quality strategy, such as Yu with its everyday low pricing
strategy.
Use or application Products can be positioned as the right product to use for a particular
occasion or purpose. For example, meat pies may be targeted for consumption at the football
game, may be a reward for a hard days work.
User This strategy is based on certain products being suited for certain users. For example,
insurance policies that are specifically designed to senior citizens. Some of the classical
examples of positioning strategies that have been aimed at gaining new users was the
repositioning of Johnson's baby oil as a sun tanning lotion (not recommended!)
Product class When close substitutes exist, the firm may focus on the benefits its product
class relative to other product classes. For example, a manufacturer of vinyl shutters may
propose that vinyl is more durable, easier to clean and need less maintenance than wood
shutters.

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Competitor Some firms deliberately compare themselves to competitors as a means of
gaining the desired position for their product in the mind of the consumer. Other firms
deliberately position themselves away from competitors, known as 'comparative advertising'.

Review questions
1. In the area where you live, is there a group of people with unsatisfied product needs who
represent a market? Could this market be reached by a business organization? Why or
why not?
2. List the differences between concentration and differentiated strategies. Describe the
advantages and disadvantages of each strategy.
3. Identify and describe four major categories of base variables that can be used to segment
consumer markets. Give examples of product markets that are segmented by variables in
each category
4. Choose a product and discuss how it could best be positioned in the market