CH V MARKET SEGMENTATION, TARGETING, AND POSITIONING

Prepared by: Mulugeta G/Medhin

(Strictly for limited circulation at AAUCC)

Chapter Objectives

After studying this chapter, students will be able to:

 Define the three steps of target marketing: market segmentation, market targeting, and
market positioning.
 List and discuss the major levels of market segmentation
 Discuss the bases for segmenting consumer markets
 Explain how companies identify attractive market segments and choose a market-
coverage strategies
 Discuss how companies can position their products for maximum competitive advantage
in the market.

6.1 Introduction

Companies today recognize that they cannot appeal to all buyers in the market place or at least
not to all buyers in the same way because:
 Buyers are too numerous,
 buyers are too widely scattered,
 buyers are too varied in their needs and buying practices.
 companies themselves vary widely in their abilities to serve different segments of the
market.
Rather than trying to compete in an entire market, sometimes against superior competitors, each
company must identity the parts of the market that it can serve best and most profitably.

6.2 The Process of Target Marketing

Most companies are being more choosy about the customers with whom they wish to connect.
Most have moved away from mass marketing and toward market segmentation and targeting -
identifying market segments, selecting one or more of them, and developing products and
marketing programs tailored to each. Instead of scattering their marketing efforts (the "shotgun"
approach), firms are focusing on the buyers who have greater interest in the values they create
best (the "rifle" approach).

Market segmentation Market targeting Market positioning

1. Identify bases for 3. Develop measure of 5. Develop positioning
segmenting the market. segment attractiveness for target segments
2. Develop segment profiles 4. Select target segments 6. Develop a marketing
mix for each segment

Figure 1 steps in market segmentation, targeting, and positioning

Figure 1 shows the three major steps in target marketing.
 The first is market segmentation - dividing a market into smaller groups of buyers with
distinct needs, characteristics, or behaviors who might require separate products or
marketing mixes. The company identifies different ways to segment the market and
develops profiles of the resulting market segments.
 The second step is market targeting - evaluating each market segment's attractiveness
and selecting one or more of the market segments to enter.
 The third step is market positioning - setting the competitive positioning for the product
and creating detailed marketing mix. We discuss each of these steps in turn. Market
positioning is arranging for a product to occupy a clear, distinct, and desirable place in
the mind of the consumer.

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6.3 MARKET SEGEMENTAION

Markets consist of buyers, and buyers differ in one or more ways. They may differ in their wants,
resources, locations, buying attitudes, and buying practices. Through market segmentation,
companies divide large, heterogeneous markets into smaller segments that can be reached more
efficiently and effectively with products and services that match their unique needs. In this
section, we discuss three important segmentation topics: levels of market segmentation,
segmenting consumer markets, and requirements for effective segmentation.

6.3.1 Levels of Market Segmentation

Because buyers have unique needs and wants, each buyer is potentially a separate market.
Ideally, then, a seller might design a separate marketing program for each buyer. However,
although some companies attempt to serve buyers individually, many others face larger numbers
of smaller buyers and do not find complete segmentation worthwhile. Instead, they look for
broader classes of buyers who differ in their product needs or buying responses. Thus market
segmentation can be carried out at several different levels. Figure 2 shows that companies can
practice no segmentation (mass marketing), complete segmentation (micromarketing), or
something in between (segment marketing or niche marketing).

1. Mass Marketing
Companies have not always practiced target marketing. In fact, for most of the 1900s, major
consumer products companies held fast to mass marketing – mass producing, mass distributing,
and mass promoting about the same product in about the same way to all consumers. Henry
Ford epitomized this marketing strategy when he offered the Model T Ford to all buyers; they
could have the car “in any color as long as it is black.” Similarly, Coca-Cola at one time produced
only one drink for the whole market, hoping it would appeal to everyone.

Mass marketing Segment marketing Niche marketing Micro marketing

Figure 2 Levels of marketing segmentation

The traditional argument for mass marketing is that:
a) it creates the largest potential market,
b) it leads to the lowest costs,
c) it translate into higher margins.
However many factors now make mass marketing more difficult. Today, marketers find it very
hard to create a single product or program that appeals to all of these diverse groups. The
proliferation of distribution channels and advertising media has also shop at it difficult to practice
“one –size-fits-all’’ marketing. No wonder some have claimed that mass marketing is dying. Not
surprisingly, many companies are retreating from mass marketing and turning to segment
marketing.
2. Segment Marketing
A company that practices segment marketing isolates broad segments that make up a market and
adapts its offers to more closely match the needs of one or more segments. Segment marketing
offers several benefits over mass marketing.
a) The company can market more efficiently, targeting its products or services, channels,
and communications programs toward only consumers that it can serve best and most
profitably.
b) The company can also market more effectively by fine-tuning its products, prices, and
programs to the needs of carefully defined segments.
c) The company may face fewer competitors if fewer competitors are focusing on this
market segment.

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3. Niche Marketing
Market segments are normally large; identifiable groups within a market-for example, luxury car
buyers, performance car buyers, utility car buyers, and economy car buyers. Niche marketing
focuses on subgroups within these segments. A niche is a more narrowly defined group, usually
identified by dividing a segment into sub segments or by defining a group with a distinctive set of
traits who may seek a special combination of benefits. For example, Chinese and Indian
restaurants in Addis Ababa can be cited as niche markets.
The following are the major characteristics of niches:
a) Consumers have a distinct set of needs
b) Consumers are willing to pay a premium price
c) Competitors are not attracted for entry. Whereas segments are fairly large and normally
attract several competitors, niches are smaller and normally attract only one or a few
competitors.
d) The nicher has specialization.
4. Micromarketing
Segment and niche marketers tailor their offers and marketing programs to meet the needs of
various market segments. At the same time, however, they do not customize their offers to each
individual customer. Thus, segment marketing and niche marketing fall between the extremes of
mass marketing and micromarketing. Micromarketing is the practice of tailoring products and
marketing programs to suit the tastes of specific individuals and locations. Micromarketing
includes local marketing and individual marketing.
I. Local Marketing. Local marketing involves tailoring brands and promotions to the
needs and wants of local customer groups- cities, neighborhoods, and even specific
stores. Local marketing has some drawbacks.
a) It can drive up manufacturing and marketing costs by reducing economics of
scale.
b) It can also create logistics problems as companies try to meet the varied
requirements of different regional and local markets.
c) A brand’s overall image might be diluted if the product and message vary too
much in different localities.

As companies face increasingly fragmented markets, and as new supporting technologies

develop, the advantages of local marketing often outweigh the drawbacks. Local
marketing helps a company to market more effectively in the face of pronounced regional
and local differences in community demographics and lifestyles. It also meets the needs
of the company’s first-line customers – retailer – who prefers more fine – turned product
assortments for their neighborhoods.
II. Individual Marketing. In the extreme, micromarketing becomes individual marketing-
tailoring products and marketing programs to the needs and preferences of individual
customers. Individual marketing has also been labeled one-to-one marketing, customized
marketing, and markets-of-one marketing.
Today most companies are adopting “mass customization.” Mass customization is the process
through which firms interact one-to-one with mass of customers to design products and services
tailor-made to individual needs at the price of standardized products.
6.3.2 Patterns of Market Segmentation

Market segment can be built based on preference segments.

Three different attributes can emerge: -
1. Homogeneous Preferences
Shows a market in which all of the consumers have roughly the same preference. Where
consumers have homogeneous preferences, it is appropriate to practice mass marketing.

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 2. Diffused Preferences.
It the other extreme, consumers preferences may be scattered throughout the space,
indicating great variance in consumer preferences. Here, Several Brands are in the
market. Where consumers vary greatly vary in their preferences individual marketing is
appropriate.
3. Clustered Preferences:
The Market might reveal distinct preference clusters called Natural Market segments.
Where consumers have clustered preferences, segment marketing is ideal to practice.
a) Homogeneous b) Diffused c) Clustered
Preferences Preferences Preferences
Creaminess

Creaminess
Creaminess

Figure 3 Basic market preference patterns

Sweetness
6.3.3 Market Sweetness
Segmentation Procedure Sweetness

Marketers use a three-step procedure for identifying market segments:

1. Survey stage.
The researcher conducts exploratory Interviews and focus groups to gain insight into
customer motivations attitudes, and behavior. Then the researcher prepares a
questionnaire and collects data on attributes and their importance ratings, brand
awareness and brand ratings, product – usage patterns, attitudes toward the product
category and respondents demographics, geographic, psychographics and media graphics.

2. Analysis stage
The researcher applies factor analysis to the data to remove highly correlated variables
then applies cluster analysis to create specified number of maximally different segments.

3. Profiling stage.
Each cluster is profiled in terms of its distinguishing attitudes, behavior, demographics,
psychographics, and media patterns, and then each segment is given a name based on its
dominant characteristics.

6.3.4 Segmenting Consumer Markets

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. The major
variables that might be used in segmenting consumer markets are:
1. geographic,
2. demographic,
3. psychographics, and
4. behavioral .
1. Geographic Segmentation calls for dividing the market into different geographical units such
as nations, regions, states, counties, cities, or neighborhoods. A company may decide to operate

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in one or a few geographical areas, or to operate in all areas but pay attention to geographical
differences in needs and wants.
Many companies today are localizing their products, advertising, promotion and sales efforts to
fit the needs of individual regions, cities, and even neighborhoods. Other companies are seeking
to cultivate as-yet untapped territory.
2. Demographic Segmentation divides the market into groups based on variables such as:
 age,
 gender,
 family size,
 family life cycle,
 income,
 occupation,
 education,
 region,
 race, and
 nationality.

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 variables.
Even when market segments are first defined using other bases, such as benefits sought or
behavior, their demographic characteristics must be know in order to assess the size of the target
market and to reach it efficiently.
Age and Life-Cycle Stage. Consumer needs and wants change with age. Some
companies use age and life-cycle segmentation, offering different products or using
different marketing approaches for different age and life –cycle groups.

Gender. Gender segmentation has long been used in clothing, cosmetics, toiletries, and
magazines.
Income. Income segmentation has long been used by the marketers of products and
service such as automobiles, boats, clothing, cosmetics financial services and travel.
3. Psychographic Segmentation divides buyers into different groups based on:
a) social class,
b) lifestyle, or
c) personality characteristics.
People in the same demographic group can have very different psychographic makeup.
4. Behavioral Segmentation divides buyers into groups based on their knowledge, attitudes,
uses, or Reponses to a product. Many marketers believe that behavior variables are the best
starting point for building market segments.
Occasions. Buyers can be grouped according to occasions when they get the idea to buy,
actually make their purchase, or use the purchased item. Occasion segmentation can
help firms build up product usage. For example, orange juice is most often consumed at
breakfast, but orange growers have promoted drinking orange juice as a cool and
refreshing drink at other times of the day.
Benefits Sought. A powerful form of segmentation is to group buyers according to the
different benefits that they seek from the product. Benefit segmentation requires finding
the major benefits people look for in the product class, the kinds of people who look for
each benefit, and the major brands that deliver each benefit.

User Status. Markets can be segmented into groups of nonusers, ex-users, potential
users, first-time users, and regular users of a product.
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6.3.5 Effective Segmentation

Even after applying segmentation variables to a consumer market, marketers must realize that not
all segmentations are useful.
To be useful, market segments must be: -

1. Measurable: The size, purchasing power and characteristics of the segments can be
measured.
2. Substantial: The segments are large and profitable enough to serve.
A Segment should be the largest possible homogeneous group worth going after with a
tailored marketing program.
3. Accessible. The segments can be effectively reached and served.
4. Differentiable: The segments are conceptually distinguishable and respond differently to
different marketing mixes.
If two segments respond identically to a particular offer, they do not constitute separate
segments.
5. Actionable: Effective programs can be formulated for attracting and serving the
segments.
6.4 Market Targeting
Market targeting is the process of evaluating each market segments attractiveness and selecting
one or more segments to enter. A firm has to evaluate various segments and decide how many
and which ones to target.
6.4.1 Evaluating Market Segments
In evaluating different Market segments, the firm must look at two factors:
1. The Segment’s size and growth
2. The Company’s objectives and resources.
To enter in to the segment:
a. The segment should fit with the company’s objectives
b. The company should possess the skills and resources
3. Segment structural attractiveness
A segment is less attractive if:
a. It contains many strong and aggressive competitors
b. There are many actual or potential substitute products
c. Buyers have strong power
d. It contains powerful suppliers

6.4.2 Selecting and Entering Market Segments

Having evaluated different segments, the company can consider five patterns of target market
selection.
1. Single – Segment concentration
2. Selective specialization
3. Product specialization
4. Market specialization
5. Full market coverage.
1. Single- Segment Concentration
Through concentrated marketing, the firm gains a thorough understanding of the segments
needs and achieves a strong market presence. Furthermore, the firm enjoys operating,
economies by specializing its production, distribution, and promotion; if it attains segment
leadership, it can earn a high return on its investment.

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 However, concentrated marketing involves higher than normal risks if the segment turns sour
because of changes in buying patterns or new competition. For These reasons, many
companies prefer to operate in more than one segment.
2. Selective Specialization
Here, the firm selects a number of segments, each objectively attractive and appropriate.
There may be little or no synergy among the segments, but each segment promises to be
moneymaker. This multi segment coverage strategy has the advantage of diversifying the
firm’s risk.
3. Product Specialization
Through a product specialization strategy the firm builds a strong reputation in the specific
product area. The downside risk is that the product may be supplanted by an entirely New
Technology.
4. Market Specialization
Here, the firm concentrates on serving many Needs of a particular customer group. The firm
gains a strong reputation in serving the customer groups and becomes a channel for further
products that the customer group could use. However, the downside risk is that the customer
group may have its budgets cut.
5. Full Market Coverage
Here, a firm attempts to serve all customer groups with all of the products they might need.
Only very large firms can undertake a full market coverage strategy. Large firms can cover a
whole market in two broad ways.
I. Through undifferentiated marketing.
Here, the firm Ignores market segment differences and goes after the whole market with
one market offer.
II. In differentiated Marketing
The firm operates in several market segments and designs different programs for each
segment.
Five patterns of target market selection
(1) (2) (3)
Single-segment Selective Product
Concentration Specialization Specialization

P1 P1 P1

P2 P2 P2

P3 P3 P3

M1 M2 M3 M1 M2 M3 M1 M2 M3
(4) (5)
Market Specialization Full Market Coverage

P1 P1

P2 P2

P3 P3
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M1 M2 M3 M1 M2 M3
6.4.3 Three Alternative Market Coverage (Targeting) Strategies
After evaluating different segments, the company must decide which and how many segments to
serve. This refers to decision of target market selection. A target Market consists of a group of
buyers sharing common needs or characteristics that the company decides to serve. There are
three alternative market coverage or targeting strategies.
1. Undifferentiated or mass marketing
2. Differentiated marketing
3. Concentrated marketing

1. Undifferentiated Marketing
This strategy is also known as market aggregation or mass marketing strategies. It is a
strategy in which a firm decides to ignore market segment differences and go after the
whole market with one offer or product. The mass marketing strategy focuses on what is
common in the needs of the consumers rather than on what is different. This strategy
relies on mass distribution and mass marketing and aims to give the product a superior
image in people’s mind. The fact that consumers are to numerous and diverse in their
buying behavior make it difficult to practice “one size fits all” marketing.
2. Differentiated Marketing
It is a strategy in which affirm decides to target several market segments or niches and
designs separate offers for each.
3. Concentrated Marketing
It is a strategy in which a firm goes after a large share of one or a few sub markets. It is
appealing when company resources are limited. Instead of going after a small share of a
large market, the firm goes after a large share one or a few segments or niches.

6.4.4 Choosing a Market – Coverage (Targeting) Strategy

The following factors should be considered in choosing a market coverage strategy.

1. Company Resources:
If the firm’s resources are limited, concentrated marketing is appropriate.
2. Degree of Product Variability:
Undifferentiated marketing is appropriate for uniform products such as steel.
Differentiated or concentrated strategy is appropriate for products that can vary in design
like camera and automobiles.
3. Product Life Cycle Stages:
When introducing a new product, undifferentiated or concentrated marketing is better. At
the maturity stage, differentiated marketing is better.
4. Market Variability:
If most buyers have the same tastes, buy the same amount and react the same way to
marketing efforts, undifferentiated marketing is appropriate.
5. Competitors Marketing Strategies:
When competitors use differentiated or concentrated marketing, undifferentiated
marketing is inappropriate. When competitors use undifferentiated marketing,
differentiated marketing is most appropriate.

6.5 Differentiation and Positioning Strategy

6.5.1 Differentiation
In today’s highly competitive global market place, a product will not survive – let alone thrive –
without some distinct competitive difference that sets it apart from every rival product.
Differentiation is the act of designing a set of meaningful differences to distinguish the
company’s offering from competitor’s offerings.
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 A company can differentiate its market offering along five dimensions: Products, Services,
Personnel, Channel, and Image.
Differentiation Variables

Product Services Personnel Channel Image

Form Features Ordering ease Competence Courtesy Coverage Symbol Media
Performance Delivery Credibility Reliability Expertise Atmosphere
Conformance Installation Responsiveness Performance Events
Durability Customer Training Communication
Reliability Customer Consulting
Reparability Style Maintenance and
Design repair miscellaneous

Product Differentiation

Here the seller faces an abundance of design parameters, including;

1. Form: the size, shape or physical structure of a product.
2. Features: are the characteristics that supplement the products basic function.
3. Performance Quality: is the level at which the product’s primary characteristics operate.
4. Conformance Quality: Buyer expects products to have a high conformance quality,
which is the degree to which all of the produced units are identical and meet the promised
specifications.
5. Durability: is a measure of the products expected operating life under natural or stressful
conditions, is important for products such as vehicles and kitchen appliances.
6. Reliability: is a measure of the probability that a product will not malfunction or fail
within a specified time period.
7. Reparability: is a measure of ease of fixing a product when it malfunctions or fails.
8. Style: describes the products look and feel to the buyer. Buyers are normally willing to
pay a premium for products that are attractively styled.
9. Design: Offer a potent way to differentiate and position a company’s products and
services.
It is the integrating force that incorporates all of the qualities just discussed, this means the
designer has to figure out how much to invest in form, feature development, performance,
conformance, durability, reliability, repairability, and style.

Services Differentiation

The main service differentiations are:

1. Ordering ease: refers to how easy it is for the customer to an order with the company.
2. Delivery: refers to how will the product or service is delivered to the customer, covering
speed, accuracy, and customer care.
3. Installation: refers to the work done to make a product operational in its planned location
4. Customer training: refers to how the customer’s employees are trained to use the
vendor’s equipment properly and efficiently.
5. Customer consulting: refers to data, information systems, and advising services that the
seller offers to buyers.
6. Maintenance and repair: describes the service program for helping customers keep
purchased products in good working order, and important consideration for many
products.

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Personnel Differentiation
Companies can gain a strong competitive advantage through having better trained people.
Well-trained personnel exhibit six characteristics: Courtesy, Credibility, reliability,
responsiveness, and Communication.
Channel Distribution
Companies can achieve competitive advantage through the way they design their distribution
channels coverage, expertise and performance.
Image Differentiation
Buyers respond differently to company and brand images. Identity comprises the ways that a
company aims to identify or position itself or its product whereas Image is the way the public
perceives the company or its products. Image delivers emotional power beyond a mental image.
For the image to work, it must be conveyed through every available communication vehicle and
brand contact, including logos, media and special events.
Developing and communicating a Positioning Strategy
All products can be differentiated to some extent. A difference is worth establishing to the extent
that it satisfies the following criteria:
1. Important: The differences deliver a highly valued benefit to a sufficient number of
buyers.
2. Distinctive: The difference is delivered in a distinctive way.
3. Superior: The difference is superior to other ways of obtaining the benefits
4. Preemptive: The difference can’t be copied easily by competitors.
5. Affordable: The buyer can afford to pay for the difference.
6. Profitable: the company will find it profitable to introduce the difference.
6.5.2 POSITIONING
It is the act of designing the company’s offerings and image so that they occupy a meaningful and
distinct competitive position in the target customers’ minds. A position is the way you lock your
brand inside a consumer’s mind. Whereas a technological feature can be duplicated, a competing
brand can’t enter the perceptual territory that you have occupied if you defend it well. You can
copy the features of a competitor, buy you can’t dislodge him from the consumer’s mind without
a differentiating positioning strategy. Positioning is the fountainhead decision in marketing and
advertising. Product concepts emerge from a market positioning analysis.

Consumer’s Perceptual Space

The concept of perceptual space forms the theoretical basis for brand positioning. The
consumers’ mind is regarded as a geometric perceptual space, with product categories and brands
occupying different points in that space. In marketing terms, there is no such thing as a product or
service which exists by itself independent of the consumer.
For a product to exist, it must find a place in an individual consumer’s perception of the world of
products around him/her. And this perception is subjective, governed by the individual
consumer’s values, beliefs, needs, experience and environment. However, the cognitive map of
the individual is not a photographic representation of the physical world. Every perceiver is, as it
were, to some degree a non-representational artist, painting a picture of the world that expresses
his individual view of reality.

Positioning is the battle for a place in the consumer’s mind. Marketing strategy should be
designed to create a perception for brands in the prospect’s minds so that it stands apart from
competing brands and approximates much closer to what the consumer wants. Positioning is a
fountain head decision and an integrating concept. It provides the direction and thrust to
marketing and advertising planning and also integrates all the elements of the marketing mix.
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The marketing planner and the advertising strategist have to design each element of the marketing
mix to serve the positioning objective of the brand.

Definition of positioning
The position of a brand is the perception it brings about in the mind of a target consumer. The
perception of the consumer is based on:
a) Functional attributes and benefits of a product
b) Emotional or symbolic benefits
c) The consumers’ attitudes, beliefs, and values.
Positioning is a relative concept. A position is a point that a brand occupies in the customers
perceptual space in relation (compared) to competing brands. Positioning is a differentiation
concept. Positioning is rooted in differentiating a brand from competitive brands in a multi-brand
market. Four basic components of the positioning concepts
1. Product class
2. Consumer segmentation
3. Perceptual mapping
4. Brand benefits and attributes

1. Product class
A production class or product market can be defined as the set of products and brands which are
perceived as substitutes to satisfy some specific consumer needs. The marketing management
can’t put the positioning concept to work unless considering other brands that are competing
ones. Which other brands must our brand compete in order to keep itself in the customers’
perceptional space? What is the structure of the market or set of substitutes amongst which our
brand is to be positioned?
2. Consumer segmentation
Positioning theory places emphasis on the target consumer’s perceptions of brands in relation to
other brands. We can’t think of positioning a brand except in relation to a particular target
segment. Positioning and segmentation have an inseparable relationship. Positioning is a theory
that was born out of intense competition. This makes it necessary to identify competitors and to
differentiate a brand among the similar ones. Each brand has to carve out a ‘niche’ for its own ans
in a competitive market only such a unique brand will survive. Thus, positioning a brand and
target segment are integrated and inseparable. The two are integrated because a brand must be
positioned to appeal to a target consumer segment. A consumer segment too, would respond to a
brand that occupies that position preferred by it.

3. Perceptual Mapping
Perceptual mapping represents consumers’ perceptions in two dimensional space so that the
manager can readily see where his own brand is positioned in the mind of the target customer in
relation to other competitive brands.
4. Brands Attributes and Benefits
A consumer can allot a position in his mind only to a brand whose benefits are meaningful. A
consumer compares and places brands in relation to the desirable benefits.

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