Chapter 4

Identifying customers
 Learning objectives

4.1 understand the target marketing concept

4.2 identify market segmentation categories and their
variables for consumer and business markets, and develop
market segment profiles
4.3 select specific target markets based on evaluation of
potential market segments
4.4 understand how to effectively position an offering to a
target market in relation to competitors, and develop an
appropriate marketing mix.
LO 4.1 Three different market
views
1- Buyers have common wants, needs and
demands.
2- Individual buyers have unique wants, needs
and demands.
3- Market contains subgroups sharing
common/similar needs – Known as Market
segments
 Target Marketing is based
on 3 premises

1- Individual buyers or groups of buyers can be

identified.
2- Sellers understand the needs of buyers.
3- Sellers will shape their offer (marketing mix)
to meet the needs of target buyers.
 Three market strategies
Figure 4.2
 1- Mass marketing
• Buyers have common wants, needs and
demands. A single product will meet the
needs of most people in the market, with an
undifferentiated approach.
• Producing large volumes at a low cost per
unit (due to ‘economies of scale’) makes it
possible to sell at a low price and capture
very large markets, ensuring high levels of
profitability. E.g. Salt, Sugar,….etc.
 2- One-to-one marketing
• Providing a unique, customised offering to
meet individual customer needs.
• A one-to-one approach often results in higher
unit costs and a more restricted market.
• One-to-one conditions typically form the basis
for a focus or niche strategy. Many small
services businesses take a one-to-one
marketing approach, for example,
hairdressers.
3- Target marketing - based on
segments
• A marketing approach that involves
developing a different marketing mix for each
target market segment.
• Market segmentation forms the basis of
target marketing.
• Many organisations view target customers
not as individuals but as market segment.
Target Marketing
 Differentiated targeting strategy
• Favoured by most market leaders able to service
almost all market segments – e.g. Banks,
insurance companies,….
• Organisation identifies multiple segments
covering total market.
• For each market segment a tailored marketing mix
is offered.
• A differentiation strategy entails high costs. To
achieve high profits requires higher retail prices,
high market share and strong customer loyalty.
Product and market specialisation

Small organisations with limited financial resources

frequently adopt one of the following approaches to
target marketing:
1- Product specialisation: Marketing efforts
concentrated on a “single product range” offered to a
number of market segments. e.g. Duracell focuses on
batteries for various segments
Product and market specialisation
2- Market specialisation: Marketing efforts aimed at
meeting a wide range of needs within a particular market
segment. e.g. APIA insurance for 50+ and retired
community and offer different services to this segment.

3- Product–market specialisation: Marketing efforts are

concentrated on offering a single product to a single
market segment. e.g. local mechanic garage
Product and market specialisation
Figure 4.3
 Target Marketing Process
The target marketing process involves three
steps:
1- Segmentation
2- Targeting
3- Positioning
 LO 4.2 Segmentation
Segmentation variables: Characteristics that buyers have in
common and that might be closely related to their purchasing
behaviour.

Figure 4.5
Segmenting consumer markets
• Segmentation variables: are characteristics that
buyers have in common and fall into four broad
categories:
1- Demographic
2- Geographic
3- Psychographic
4- Behavioural.
• Effective segmentation involves choosing
segmentation variables that are easy to measure
and readily available, and linked closely to the
purchase of the product in question.
1- Demographic segmentation
• Market segmentation based on demographic
variables, which are the vital and social
characteristics of populations, such as age,
education and income.

• Demographic variables are the most

commonly used variables for market
segmentation.
 2- Geographic segmentation
Geographic segmentation
•Market segmentation based on variables related to
geography.
•Useful geographic variables include: climate, local
population, market density, region, topography and
urban, suburban, rural footprint.

Geo-demographic segmentation
•Combines demographic variables and geographic
variables to profile very small areas, such as suburbs.
3- Psychographic segmentation
• Market segmentation based on the
psychographic variables of lifestyle, motives
and personality attributes.

• Psychographic segmentation is based on the

need to understand not who you are, but how
you live your life. This is reflected in activities
such as hobbies or choice of entertainment.
4- Behavioural segmentation
• Market segmentation based on actual
purchase and/or consumption behaviours.

• Behavioural variables include: benefit

expectations, brand loyalty, occasion, price
sensitivity and volume usage.
 Business market segmentation
• Business markets are often characterised by a
small number of buyers who might display a very
close relationship with the seller. ‘Customised’ or
‘one-to-one’ marketing is a good approach to use.

• Business marketers often isolate business

customers by using commercial industrial
directories that contain detailed information on
companies.
Effective segmentation criteria
Effective segmentation involves ensuring:
•measurability — abstract variables can be difficult to
measure
•accessibility — through distribution and
communication channels
•substantiality — the segment must be of sufficient
size to allow profitability
•practicability — segments are only of use if they
can be identified and serviced.
 Market segment profiling
Market segment profile
• Often based on significant market research.
• Describes the typical potential customer in the segment
and how the variables differ from other segments.
• Market segments must be sufficiently different from
others so a distinctive offer can be created for each
segment, without risk of overlapping or sending
confusing messages.
• The number of possible segments grows by multiplies
with each extra segmentation variable is added e.g.
adding gender doubles the number of market segments.
 LO 4.3 Targeting

Figure 4.6
 Targeting strategy
The choice of an appropriate targeting strategy
depends on:

1- Understand size and attractiveness of market

segments
2- Assessment of organisation ability to service
and compete for chosen market segments
 3 Criteria to evaluate
potential segments
1- Sales Potential
•Market potential: the total sales of a product
category that all organisations in an industry are
expected to sell in a specified period of time,
assuming a specific level of marketing activity.
•Sales revenue: total volume of sales multiplied by
the average selling price.
•Market share: the proportion of the total market
held by the organisation.
 3 Criteria to evaluate
potential segments
2- Competitive situation: an assessment of the
organisation’s competitive situation.
3- Cost structure: is influenced by the market
potential, the level of marketing activity in the industry
and the effectiveness of an organisation’s promotional
spending. Cost is an important factor!
•Be reasonable — fact-based assumptions, not hopeful
guesses!
LO 4.4 Positioning
Figure 4.7
 Positioning …….
• Positioning: the way in which target market
segments perceive an organisation’s offering in
relation to competing offerings.
• Company positioning: a positioning strategy
designed to create a single market perception of
the entire organisation in relation to
competitors.
 Brand perception
• A positioning strategy designed to create a market
perception of a particular brand, usually based on
product attributes.
 Positioning: a 2 step process
1- Determine how the company wishes to
be perceived in the target market segment.
2- Develop an appropriate marketing mix
strategy for each segment of the target market.
Step1- Determine positioning for
each target market segment
1- Analyse current
position. The use of a
common technique called
“Perceptual mapping” e.g.
Chocolate.
2- Assess competitive
position.
3- Reposition towards the
desired position in buyer's
mind.
Step 2 - Determine the marketing mix
for each target market segment
The marketing mix for each target market
segment should:
•be consistent with the desired positioning
•be internally consistent — each element of the
marketing mix should be coordinated and
supportive of the other elements
•be sustainable in the long term.
The end