Chapter Four

Market Segmentation, Targeting, and Positioning

4.1 Market segmentation
Market segmentation is dividing a market into smaller groups of buyers with distinct needs, or
behaviors who might require separate marketing mixes. This is can be done by identifying bases for
segmenting the market and develop segment profiles.
A Market consists of buyers, and these buyers differ in one or more ways.
They may differ in their wants, resource, and locations, feeling, 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.
Important segmentation topics: -
 Levels of market segmentation
 Procedure of segmentation
 Segmenting consumer and business market
 Requirements for effective segmentation

4.2Steps in market segmentation, targeting and positioning

Market segmentation Market targeting
Market positioning
Identify bases for Develop
segmenting the market measures of Develop positioning for
Develop segment segment
attractiveness each target segments
profiles of resulting
Develop a market mix for

Fig1 Process of segmentation

[Link] Levels of market segmentation
Market segmentation can be carried out at several different levels. These levels are: -

Mass marketing Segment marketing Niche marketing Micro marketing

Fig 2 levels of market segmentation

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 1) Mass marketing
Mass marketing is using almost the same product, promotion and distribution for all consumers.
Mass marketing is a plan of action under which an organization treats its total market as a single
segment that is, as one market whose members are considered to be a like with respect to demand
for the product and thus develops a single marketing mix to reach most of the customers in the
entire market. It is also a market – coverage strategy in which a firm decides to ignore market
segment differences and go after the whole market with one offer. The companies have not always
practiced target marketing. Instead, it follows mass marketing (mass producing, mass distributing,
and mass promoting) about the same product in the same way to all consumers. Thus, Mass
marketing strategy focuses on what is common in the needs of consumers rather than on what is
different.
For example one drink for whole market, hoping it would appeal to everyone (Coca-Cola).
The traditional argument for mass marketing is that it creates the largest potential market, which
leads to the lowest costs, which in turn can lead to lower prices or higher margins.
However, many critics point to the increasing splintering of the market, which makes mass
marketing more difficult. Today, marketers find it very hard to create a single product or program
that appeal to all of these diverse groups. The proliferation of distribution channels and advertising
media is making it difficult to practice “one – size – fits – all” marketing. Some claim that mass
marketing is dying
2) Segmented marketing
Segmented marketing is a market coverage strategy in which a firm decides to target several groups
of market segments and designs separate offers for each. Developing a stronger position within
several segments creates more total sales than mass marketing across all segments.
But segmented marketing also increases the cost of doing business. Developing separate marketing
plans for the separate segments requires extra marketing research, forecasting, sales analysis,
promotion planning, and channel management, and trying to reach different market segments with
different advertising increases promotion costs.
A company that practice segment marketing is bases 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.
1) The company can market more efficiently, targeting its products or services, channels and
communication programs toward only consumers that it can serve best and most profitably .

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 2) The company can also market more effectively by fine-tuning its products, prices, and programs
to the needs of carefully defined segments.
3) The company may face fewer competitors.
3) Niche marketing
Market segments are normally large; identifiable groups within a market.
Niche marketing focuses on subgroups within these groups. 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 that may seek a special combination of benefits. For example Chinese and
Indian restaurant 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 prices
c) Competitors are not attracted for entry. Whereas segments are large and normally attract several
competitors, niches are smaller and normally attract only one or a few competitors.
d) The nicher gains certain economies through specializations.
e) The niche has size, profit, and growth potential.
4) Micro marketing
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 and niche marketing fall between the extremes of mass
marketing and micro marketing.
Micro marketing: is the practice of tailoring products and marketing programs to suit the tastes of
specific individuals and locations. Micro marketing 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.
II. Individual marketing
In the extreme, micro marketing 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 market of one marketing.

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 Today, most companies are adopting mass customization. Mass customization is the process of
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 precuts.

[Link]) Segmenting Consumer and business markets

I) Segmenting Consumer markets
Consumer market includes all the individuals and households who buy or acquire goods and
services for personal consumption. Consumer buyer behavior is the buying behavior of final
consumers (individuals and households who buy goods and services for personal consumptions)
4.2.1.3Bases for 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.
1) Geographic

2) Demographic
3. Psychographic 3
4. Behavioral 4
These segmentation variables can be used in single or combination.
1) Geographic segmentation
Geographic segmentation calls for dividing the market into different geographical units, such
as nations, states, regions, counties, cities or neighborhoods. A company may decide to
operate in one or a few geographical areas, or to operate in all areas but pay attention to
geographical differences in needs and wants.

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 2) Demographic segmentation
Demographic segmentation consists of dividing the market into groups based on variables such as age,

gender, sexual orientation, family size, family life cycle, income, occupation, education, religion, ethnic

community 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 variable.
3. Psychographic segmentation
Psychographic segmentation is divides buyers into groups based on social class, lifestyle or personality

characteristics. People in the same demographic group can have very different psychographic make-ups.

4. Behavioral Segmentation
Behavioral segmentation divides buyers into groups based on their knowledge, attitudes, uses or responses to
a product. Many marketers believe that behavioral variables are the best starting point for building market
segments. Many marketers believe that behavioral variables can be include
1) Occasions (regular and special occasions)
2) Benefits (quality, service, economy, speed)
3) User status (non- users, ex-users, potential users, first time users , Regular users)
4) User rates (light users, medium users, heavy users)
5) Loyalty status (hard – core, split, shifting, switchers,)
6) Readiness stage (unaware, aware, informed, interested, desire, Intending to buy)

II) Segmenting Business markets

Consumer and business marketers use many of the same variables to segment their markets. Business
buyers segment geographically or by benefits sought user status, usage rate, loyalty status, readiness
state and attitudes. Yet business marketers also use some additional variables like
1) Demographics (industry, company size),
2) Operating characteristics
3) Purchasing approaches
4) Situational factors
5) Personal characteristics

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 A) Demographic
1) Industry– which industry should we serve?
2) Company size -what size companies should we serve?
Business customers’ size can be segmented or estimated using such factors as sales volume, number of
employees, number of production facilities, and number of sales offices.
B) Operating variables
1) Technology – what customer technologies should focus on?
2) User/non-user status –should we serve heavy user, medium user, light users and non-user?
3) Customer capabilities- should we serve customers needing many or few service?
C) Purchasing approaches
1) Purchasing function organization (organization structure)-Should we serve companies with highly
centralized or decentralized, purchasing organization?
2) . Power structure: - should we serve companies that are engineering dominated, financially dominated?
3) . Nature of existing relationships: - should we serve companies with which we have strong relationships
or simply go after the most desirable companies?
4) . General purchase polices- should we serve companies that prefer leasing? Service contract? System
purchasing?
5) Purchasing criteria: - should we serve companies that are seeking quality? Service? Price?
D) Situational factors
1) Urgency- should we serve companies that need quick and sudden delivery or service?
2) Specific application: - should we focus on certain applications of our product rather than all applications?
3) Size of order: - should we focus on large, medium, small?
E) Personal characteristics
1) Buyer – seller similarities: - should we serve companies whose people and values are similar to ours?
2) Attitudes toward risk: - should we serve risk – taking or risk – voiding customers?
3) Loyalty: - should we serve companies that show high loyalty to their suppliers?
[Link] Requirements for effective Segmentation
Conditions for effective segmentations to be useful, market segments must be: -
 Measurable
 Substantial(large enough)
 Accessible
 Differentiable
 Actionable

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1) Measurable: - The degree to which the size, purchasing power and profits of a market
segment can be measured.
2) Sustainability: - The degree to which a market segment is sufficiently large or profitable.

3) Accessibility: - The degree to which a market segment can be reached and served
4) Differentiable: - the segments are conceptually distinguishable and respond differently to different
marketing mix – elements and programs.
5) Action ability: - The degree to which effective programmes can be designed for attracting and
serving a given market segment.
4.2.2) Market targeting
Market targeting is the process of evaluating each market segment’s attractiveness and
selecting one or more segments to enter.
Once the firm has identified its market – segment opportunities, it has to evaluate the various segments and
decide how many and which ones to target.
[Link] Evaluating market segments
In evaluating different market segments, a firm must look at two dimensions: segment attractiveness and company fit.
I. Evaluating Segment attractiveness
The company must first collect and analyze data on current sales value, projected sales-growth rates
and expected profit margins right –size for the various segments.
II. company fit(capacity )
Even if a segment has the right size and growth and is structurally attractive, the company must
consider its objectives and resources for that segment.
4.2.3 Segment strategy
After evaluating different segments, the company must now decide which and how many segments to
serve.
This is the problem of target-market selection. A target market consists of a set of buyers who share
common needs or characteristics that the company decides to serve.
[Link] market-coverage strategies
The firm can adopt one of three market-coverage strategies: undifferentiated marketing
differentiated marketing and concentrated marketing.
I. Undifferentiated marketing—A market coverage strategy in which a firm decides to ignore
market segment differences and go after the whole market with one offer. The offer will focus on
what is common in the needs of consumers rather than on what is different.

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 II. Differentiated marketing— A market-coverage strategy in which a firm decides to target several
market segments and designs separate offers for each.
III. Concentrated marketing— A market-coverage strategy in which a firm goes after a large
share of one or a few submarkets. Concentrated marketing is especially appealing when
company resources are limited.

4 .2.3 Positioning
A product’s position is the way the product is defined by consumers on important attributes – the
place the product occupies in consumers’ minds relative to competing products.
Positioning is the act of designing the company’s offering and image so that they occupy a meaningful
and distinct competitive position in the target customer’s mind.
Positioning is the battle for your mind. It is not what you do to the product, but it is what you do in the mind
of the prospect, that is, you position the product in the minds of prospect.
-Is something (perception) that happens in the minds of the target market?
-Is the aggregate perception the market has of a particular company, product or service in relation to their
perceptions of the competitors in the same category?
In marketing, Positioning has come to mean the process by which marketers try to create an image or
identity in the minds of their target market for its product, brand, or organization.
For example, one auto company might choose to differentiate its cars on durability, while its competitors
may choose to emphasize fuel economy, comfort, or smoothness of ride. The result of positioning is the
successful creation of a market-focused value proposition, a simple clear statement of why the target market
should buy the product.
[Link] Positioning strategies
Marketers can follow several positioning strategies. These strategies use associations to change
consumers’ perception of products.
[Link] Positioning errors.
Usually, a company needs to avoid three serious positioning errors.
I. Under positioning— A positioning error referring to failure to position a company, its
product or brand. That is, failing to position the company at all.
II. Over positioning—A positioning error referring to too narrow a picture of the company, its
product or a brand being communicated to target customers.
III. Confused positioning—A positioning error that leaves consumers with a confused image of
the company, it product or a brand.