Chapter Four

Market Segmentation,
Targeting, & Positioning
 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.
• Buyers are too numerous,
• Too widely scattered and
• Too varied in their needs and buying practices
• Companies vary widely in their abilities
• Companies identify the parts of the market they can
serve best.
 Introduction
• ‘Shotgun’ Approaches Vs. The ‘Rifle’ Approach
 4.1. Market segmentation
• Market segmentation means dividing a market
into distinct groups of buyers with different
needs, characteristics or behaviors, who might
require separate products or marketing mixes.
• Through market segmentation, companies divide
large, heterogeneous markets into smaller
segments(homogeneous) that can be reached
more efficiently with products and services that
match their unique needs.
 Levels of market segmentation
• Buyers have unique needs and wants, each
buyer is potentially a separate market.
• Thus, 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).
 Micromarketing
Products to suit the tastes of individuals or locations
(complete segmentation)
Niche Marketing
Different products to subgroups within segments
( more segmentation)
Segment Marketing
Different products to one or more segments
(some segmentation)
Mass Marketing
Same product to all consumers
(no segmentation)
Levels of Market Segmentation
 Mass Marketing
• Companies have not always practiced target
marketing
• 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
 Segment Marketing
• 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 benefits of MS over MM
– Market more efficiently
– Targeting its products
– Channels
– Communications programs and
– Fewer competitors
 Niche Marketing
• A niche is a more narrowly defined group, usually
identified by dividing a segment into sub segments
• It attract only one or a few competitors
• In niche marketing the customers willingly pay price
premium
• Smaller companies an opportunity to compete by
focusing their limited resources on serving niches that
may be unimportant to or overlooked by larger
competitors.
 Micro marketing
• Micromarketing is the practice of tailoring
products and marketing programs to suit the
tastes of specific locations and individuals
– Local marketing: Local marketing involves
tailoring brands and promotions to the needs
and wants of local customer groups - cities,
neighborhoods and even specific stores.
– Individual marketing: Tailoring products and
marketing programs to the needs and
preferences of individual customers
 Basis of segmenting the market
• There is no single way to segment a market.
• A marketer has to try different segmentation variables,
alone and in combination, to find the best way to view
the market structure.
• Major basis of segmenting consumer market are
1. Geographic,
2. Demographic,
3. Psychographic and
4. Behavioral variables.
 Basis of segmenting the market
1. Geographic segmentation
• It calls for dividing the market into different
geographical units, such as nations, states,
regions, counties, cities or neighborhoods.
 Basis of segmenting the market
2. Demographic segmentation
• Consists of dividing the market into groups based on
demographic variables.
• Demographic factors are the most popular bases for
segmenting customer groups.
• One reason is that consumer needs, wants and usage
rates often vary closely with demographic variables.
• Another is that demographic variables are easier to
measure than most other types of variable.
 Basis of segmenting the market

3. Psychographic segmentation:

• Psychographic segmentation divides buyers into

groups based on
– Attitude,
– Perception, and
– Personality… characteristics.
 Basis of segmenting the market
4.Behavioral segmentation: divides buyers into groups
based on their knowledge, attitudes, uses or
responses to a product.
• Some examples of behavioral segmentation are:
– User status,
– Usage rate,
– Loyalty status
Requirements for Effective Segmentation
Measurable
Measurable
• Size, purchasing power, profiles
of segments can be measured.
Accessible
Accessible
• Segments must be effectively
reached and served.

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

Differential
Differential • Segments must respond
differently to different marketing mix
elements & actions.

Actionable
Actionable • Must be able to attract and serve
the segments.
 4.2 Market Targeting
Select one or more market segments to enter (Market Targeting)
 4.2 Market Targeting
• Criteria to evaluate the attractiveness of the
segment
– Market growth and size
– Structural attractiveness of the market
– Company objective and resources
 4.2 Market Targeting
• Target Market Strategies
1. Single segment concentration
2. Selective specialization
3. Product specialization
4. Market specialization
5. Full market coverage
 Market positioning
• Positioning is the act of designing the company's
offering and image so that they occupy a meaning
full and distinctive competitive position in the
target customer's minds.
 Choosing a Differentiation and Positioning
Strategy needs:
• Identifying a set of possible competitive advantages
to build a position
• Choosing the right competitive advantages
• Selecting an overall positioning strategy
• Developing a positioning statement
• Choosing a Differentiation and Positioning Strategy
Chapter Five
Product
 Definition of Product
• Product is anything that can be offered to a
market for attention, acquisition, use, or
consumption that might satisfy a need or want.
• Products include more than just tangible goods.
• A company's market offering often includes both
tangible goods and services.
• Each component can be a minor or a major part
of the total offer.
 Levels of Product
1. Core benefit:
• Which addresses the question what is the buyer
really buying?
2. Basic (Generic/Actual) product:
• Turn the core benefit into an actual product.
• They need to develop product and service features,
design, a quality level, a brand name, and packaging.
 Levels of Product
3. Expected product:
• A set of attributes and conditions that buyers normally
expects when they buy a product.
4. Augmented product:
• An augmented product that meets the customers’ desires
beyond their expectations.
• Inclusion of additional features, benefits, attributes or related
services that serve to differentiate the product from its
competitors.
• The new competition is not between what companies
produce in their factories.
 Levels of Product
5. Potential Product:
• All the augmentations and transformations that the
product might ultimately undergo in the future.
 Product Classification
1. Based on Durability and Tangibility
A. Nondurable goods: are tangible goods that are
normally consumed in one or a few uses (such as beer
and soap).
B. Durable goods: are tangible goods that normally
survive many uses (such as refrigerators).
C. Services: are intangible, inseparable, variable, and
perishable products
2. Based on the purpose of purchase
A. Consumer goods: Consumers buy a vast array of goods. Goods that can be
purchased for personal or final consumption.
B. Convenience goods: conveniences goods are goods that the customer usually
purchases frequently, immediately, and with a minimum of effort. Examples
include soaps, and newspapers.
C. Staples: are goods that consumers purchase on a regular basis. For example, one
buyer might routinely purchase bread, soap...
D. Impulse: goods are purchased on impulse, without any planning or search effort.
E. Emergency goods: are purchased when a need is urgent-umbrellas during a
rainstorm and candles during blackouts.
F. Shopping goods: are less frequently purchased that customers compare carefully
on suitability, quality, price, and style.
G. Specialty goods: are goods with unique characteristics and/or brand identification
for which a significant group of buyers are habitually willing to make a special
purchasing effort.
H. Unsought goods: are consumer products that the consumer either does not know
about or knows about but does not normally think of buying.
 Product Classification
• New product development process
1. Idea Generation
2. Idea screening
3. Concept development and testing
4. Market strategy development
5. Business Analysis
6. Product development
7. Market Tests
8. Commercialization
 Product Life Cycle and its Management
• Factors which affect the length of product life
cycle include:
– Customer preferences,
– Seasons, technological changes,
– Completion, and
– The rate of acceptance of consumers for new ideas.
• A firm’s marketing success can be affected
considerably by its ability to understand and
manage the life cycle of its products.
 Product Line and Product Mix
• Product mix has four main characteristics:
• Product Length: is the total number of items in
its product mix.
• Product Width: is the number of different
product lines offered by the company
• Product Depth: is the average number of items
offered by the company in each product line.
• Product Consistency: refers to how closely the
various product lines are related in production
requirements, distribution and channels etc.
 Branding, Packaging and Labeling
• Branding:
• A brand is a name, term, sign, symbol, or design, or
a combination of these, intended to identify the
goods or services of one seller or group of sellers
and to differentiate them from those of
competitors.
 Branding, Packaging and Labeling
• Packaging: Packaging involves designing and producing the
container or wrapper for a product.
• Poorly designed packages can cause headaches for
consumers and lost sales for the company.
• Labeling: Labeling is subset of packaging, sellers must
label their products. The label may be a simple tag
attached to the product or an elaborately designed
graphic that is part of the package. The label might carry
only the brand name or a great deal of information
 Branding, Packaging and Labeling
• Labels perform several functions.
– The label identifies the product or brand.
– The label might also grade the product.
– The label might describe the product:
– The label might promote the product
through its attractive graphics.
Chapter 6

Pricing
 Meaning of Price
• All for-profit organizations and many nonprofit
organizations set prices on their goods or services.
• In the narrowest sense, price is the amount of money
charged for a product or service.
• More broadly, price is the sum of all the values that
customers give up in order to gain the benefits of
having or using a product or service.
• Historically, price has been the major factor affecting
buyer choice.
 Meaning of Price
• Price is the only element in the marketing mix
that produces revenue.
• Price is also one of the most flexible marketing
mix elements.
• Pricing is the number one problem facing many
marketing executives, and many companies do
not handle pricing well.
 Meaning of Price
• One frequent problem is that companies are too
quick to reduce prices in order to get a sale
rather than convincing buyers that their
product's greater value is worth a higher price.
• Other common mistakes include pricing that is
too cost oriented rather than customer-value
oriented, and pricing that does not take the rest
of the marketing mix into account
Factors Influencing Price Determination
• Customer perceptions of the product's value set the
ceiling for prices.
• If customers perceive that the price is greater than
the product's value, they will not buy the product.
• Product costs set the floor for prices.
• If the company prices the product below its costs,
company profits will suffer.
Factors Influencing Price Determination
• In setting its price between these two extremes, the
company must consider a number of other internal
and external factors, including
– Its overall marketing strategy and mix,
– The nature of the market and demand,
– Marketing objectives and competitors'
strategies and prices.
Factors Influencing Price Determination
• Pricing an established product usually is less
difficult than pricing a new product, however,
because the exact price or a narrow range of prices
may be dictated by the market.
 Estimated Demand
• In pricing a company must estimate the total
demand for the product.
1. Determine whether there is a price the market
expects and
2. Estimate what the sales volume might be at
different prices
 Pricing Objectives
• Common objectives are survival, current profit
maximization, market-share maximization and product-
quality leadership.
1. Survival: This is a short-term objective that is appropriate
only for companies that are plagued with overcapacity,
intense competition, or changing consumer wants.
2. Current profit Maximization: To maximize current profits,
companies estimate the demand and costs associated with
alternative prices and then choose the price that produces
maximum current profit, cash flow, or return on
investment.
 Pricing Objectives

3. Market share leadership: Firms choose this objective

because they believe that higher sales volume will lead
to lower unit costs and higher long-run profit. When
– 1) The market is highly price sensitive
– 2) Production and distribution costs fall; and
– 3) A low price discourages competition.
4. Product-quality leadership: Companies that aim to be
product-quality leaders will offer premium products
at premium prices.
 Pricing Objectives
Competitive Reactions
• Competition greatly influences base price. A new product is
distinctive only until competition arrives, which is inevitable.
The threat of potential competition is greatest when the field
is easy to enter and profit prospects are encouraging.
Other Marketing Mix-elements
• A product’s base price is influenced considerably by the other
ingredients in the marketing mix.
 Effective, customer-oriented pricing involves understanding
how much value consumers place on the benefits they receive
from the product and setting a price that captures this value.
 Approaches of Pricing

• Cost Based Approach: considering the total cost /variable

and fixed cost/ of the product to determine price. The
simplest pricing approach.
Cost plus (Mark up) pricing: adding a standard
markup to the cost of the product.
Target-return pricing: In target-return pricing, the firm
determines the price that would yield its target rate of
return on investment (ROI).
• Value Based Approach: here the base of the price is
the value of the product.
Perceived-value pricing: They see the buyers’ perceptions of
value, not the seller’s cost, as the key to pricing.
 Approaches of Pricing

• Competition Based Approach: Based on competition

– Going-rate pricing: the firm bases its price largely on
competitors ‘prices.
– The firm might charge the same, more, or less than
its major competitor(s) charges.
– Sealed-Bid Pricing: Competitive-oriented pricing is
common when firms submit sealed bids for jobs.
– In bidding, each firm bases its price on expectations
of how competitors will price rather than on a rigid
relationship to the firm’s own costs or demand.
 Pricing Strategies
• New Product Pricing Strategies
1. Market-skimming pricing
– The product's quality and image must support
its higher price, and enough buyers must want
the product at that price.
– The costs of producing a smaller volume cannot
be so high that they cancel the advantage of
charging more.
– Competitors should not be able to enter the
market easily and undercut the high price.
 Pricing Strategies
• New Product Pricing Strategies
2. Market-penetration pricing
– The market must be highly price sensitive
– production and distribution costs must fall as sales
volume increases.
– the low price must help keep out the competition,
and the company must maintain its low-price
position-otherwise, the price advantage may be
only temporary.
 Other Pricing Strategies
• Product line pricing: In product line pricing,
management must decide on the price steps to set
between the various products in a line.
• Captive-product pricing: Companies that make
products that must be used along with a main
product are using captive product pricing. Example
camera film and printer cartridges.
• Producers of the main products (razors, cameras and
printers) often price them low and set high markups
on the supplies used along with a main product are
using captive-product pricing.
 Other Pricing Strategies
• Product bundle pricing: Price bundling can promote
the sales of products consumers might not
otherwise buy, but the combined price must be low
enough to get them to buy the bundle.
• Discount: Most companies adjust their basic prices
to reward customers for certain responses, such as
early payment of bills, volume purchases, and off-
season buying. The discount can be cash/rice
discount, quantity discount, seasonal discount,
functional discount.
 Other Pricing Strategies
• Segmented Pricing: Companies will often adjust their basic
prices to allow for differences in customers, products and
locations. In segmented pricing, the company sells a
product or service at two or more prices, even though the
difference in prices is not based on differences in costs.
• Psychological pricing: Price says something about the
product. For example, many consumers use price to judge
quality. A $100 bottle of perfume may contain only $3
worth of scent, but some people are willing to pay the $100
because this price indicates something special.