Chapter Four

MARKET SEGMENTATION,
TARGETING, AND
POSITIONING

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Market
 Original Meaning- a physical place
where buyers and sellers gathered
to exchange goods and services.
 Economists- all buyers and sellers

who transact for a good or service.

 Marketer-set of all actual and

potential buyers of a product.

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 Why segmentation
 Market segmentation is a customer - oriented philosophy.
 Specifically, it has the following benefits

Investing money and effort to most profitable market.

Designing and developing products, which match with the
market demand as it focuses on selected target markets;

Choosing the best promotional activity and channel of
distribution at a relatively lower cost

It helps to determine an appropriate marketing mix
strategy for a segment.

Flexibility of organizational resources and programs in
the time of fierce competition can be done at a lower 4
cost.
 Market Segmentation

 Market segmentation is the process of dividing the total, heterogeneous

market for a product in to distinct and meaningful groups of buyers,
each of which tends to be homogenous in all significant aspects
 In market aggregation, the total market is viewed as a single unit as one
mass, aggregate market.
 To the contrary, there is an approach that views a market as being
composed of many smaller, homogenous units.
 Markets consist of buyers with different

wants,

resources,

geographical locations,

buying attitudes, and

buying practices.

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 Continued …..

 Management then selects one or more of these market groups or

segments as the organization's target market.
 The objective of aggregation is to fit the market to the product;

 whereas the objective of 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 focus of segmentation is enhancing a separate program in a pin
pointed market.

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1. Mass Marketing
 A mass market targeting approach is adopted only
by the biggest companies. Many companies target
multiple segments defined in various ways such as
various demographic groups who seek the same
product benefit
 Seller mass produces, mass distributes, and mass
promotes.
 The argument for mass market is that it will lead
to the lowest cost and prices and create the largest
potential market.
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2. Product- variety Market
 The seller produces two or more products
that have different features, styles, quality,
sizes, and so on.
 The product line is designed to offer variety
to buyers rather than to appeal to different
market segments.

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 3. Target marketing
 The seller identifies market segments, selects
one or more, and develop products and
marketing mixes customized to each selected
segment.
 Today, many companies are moving away from
mass marketing and product- variety marketing
toward target marketing.

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Segmentation Issues
 Underlying theme of
segmentation?
 Why segment?
 Is it always appropriate
to segment the market?
 Which comes first – product
differentiation or segmentation?
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Con’t….
 Target marketing helps sellers to
find better marketing opportunities
and allows companies to develop
the right product for each target
market.

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 Market Segments and Market
Segmentation
 Market segment: a group of
customers who share a similar set of
wants.
 Market segmentation: the act of
dividing a market into distinct
groups of customers who might
require separate products and/or
marketing mixes.
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Con’t….
 This approach should be contrasted to
mass marketing in which the same
marketing mix is used for all segments.
 Micromarketing: the customizing of

products and communications to

smaller markets.

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 Steps in Market Segmentation,
Targeting,and Positioning
Market
Market Market Positioning
Segmentation Targeting
5. Identify
1. Identify 3. Evaluate possible
segmentation attractiveness positioning
variables and of each concepts for
segment each target
segment the segment
market
4. Select the 6. Select,
2. Develop target develop, and
profiles of segment(s) communicate
resulting the chosen
positioning
segments concept 14
 Kotler’s Segmentation Process

 Market segmentation
1. Identify bases for segmenting the market
2. Develop profiles of resulting segments
 Market targeting
3. Develop measures of segment attractiveness
4. Select the target segment(s)
 Market positioning
5. Develop positioning for each target segment
6. Develop marketing mix for each target segment

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Effective Segmentation
• Size, purchasing power,
Measurable
Measurable profiles of segments can
be measured.

• Segments must be large or

Substantial
Substantial profitable enough to serve.

• Segments can be
Accessible
Accessible effectively reached and
served.

• Segments must respond

Differential
Differential differently to different
marketing mix elements &
actions.

• Must be able to attract and

Actionable
Actionable serve
the segments. 16
Levels Market
Segmentation

1. Mass Marketing
Same product to all consumers
(no segmentation)
2. Segment Marketing
Different products to one or more segments
(some segmentation)
3. Niche Marketing
Different products to subgroups within segments
( more segmentation)
4. Micromarketing
Products to suit the tastes of individuals or locations
(complete segmentation)
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 Bases for Segmenting
Consumer Markets
Geographic
Region, City or Metro Demographic
Size, Density, Climate Age, Gender, Family size
and life cycle, Race,
Occupation, or Income ...

Psychographic
Lifestyle or Personality

Behavioral
Occasions, Benefits,
Uses, or Attitudes
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Psycho-graphic
Segmentation
 In psycho-graphic segmentation consumer markets can be
divided in to different groups on the basis of
 social class, life style or personality characteristics.

 Even if consumers are on the same demographic

characteristics, they can have different psycho-graphic
profiles.
 These social class, life style and personality characteristics
result from psychological and sociological aspects of the
individual;

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 Geographic Segmentation
 Many organizations segment their market on some
geographic basis such as nations, states, regions, countries,
cities, urban-suburban-rural, topography or climate
depending on the notion that consumer needs or responses
vary geographically.
 Here it should be considered that the marketing costs and
potentiality of each segment varies depending on the
geographic needs and preferences.
 A firm can decide to operate in one or a few geographic
areas or operate in all but pay attention to variations in
needs and preferences of the specific location.

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 Demographic
Segmentation
 Probably the most widely used basis for segmenting consumer market is
demographic characteristics.
 In demographic segmentation, the market is divided into different
customer groups on the basis of demographic variables such as age, sex,
family size, family life, cycle, education, occupation, religion ethnic
background, income and nationality.
 Demographic variables have long been the most popular bases for
distinguishing customer needs and preferences for certain reasons.

customer wants, preferences and usage rates are highly associated
with demographic variables.

they are easily quantifiable and accessible than most other types of
variables.
 Even when the target market is described in non-demographic factors,
the link to demographic variables is vital to know the size of the target
market and how to reach it efficiently.

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 Behavioral Segmentation
 Some organizations try to segment their consumer markets on the basis of a
consumer behavioral characteristics related to the product.
 The variables used in behavioral segmentation include the consumer's
knowledge, attitude, use or response to an actual product or its attributes.
 Behavioral segmentation can be done with respect to the following factors:

Purchase occasion with regard to time such as regular and special
occasion. For example, air traveler for vacation, family or business.

Benefits sought from the product in relation to individual interest such as
low price, durability, general product quality and so on.

User status with respect to the existence and potentiality of customers
such as non-users, ex-users, potential and regular users of a product.

Usage rate with respect to the size of purchase such as light users,
medium users or heavy users.

Readiness stage of the customers to buy a product depending on their
information, interest, intention and degree of awareness of a product

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Segmentation of organizational markets

 Organizational size
 Industry sector
 Geographical location

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Organizational size
 Annual sales turn over
 Number of employees
 Volume of production

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 Targeting and Positioning
 Targeting is the process of assessing the relative worth
of different market segments and selecting one or more
segments in which to compete- these become the
target segment
 Positioning is the identification of a particular appeal
that the firm can make to customers in each target
segment, which is designed to convenience customers
to choose that firm over its rivals
 Target market

A group of customers at which the seller directed the
marketing programs
 Marketing for the targeted market

Marketing strategy (positioning)

Marketing mix (Product, Promotion, Price, Distribution

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Evaluating Market
Segments
 Segment Size and Growth
 Analyze sales, growth rates and expected
profitability.
 Segment Structural Attractiveness
 Consider effects of: Competitors, Availability of
Substitute Products and, the Power of Buyers &
Suppliers.
 Company Objectives and Resources
 Company skills & resources relative to the
segment(s).
 Look for Competitive Advantages.
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 “Needs-Based Segmentation”
Description
1. Needs-Based Group customers into segments based on
Segmentation similar needs and benefits sought by
customer in solving a particular consumption
problem.
2. Segment For each needs-based segment, determine
Identification which demographics, lifestyles, and usage
behaviors make the segment distinct and
identifiable (actionable).
3. Segment Using predetermined segment attractiveness
Attractiveness criteria (such as market growth, competitive
intensity, and market access), determine the
overall attractiveness of each segment.
4. Segment Profitability Determine segment profitability.
5. Segment Positioning For each segment, create a “value
proposition” and product-price positioning
strategy based on that segment’s unique
customer needs and characteristics.
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 Major Segmentation Variables for
Consumer Markets
Pacific Mountain, West North Central, West South Central, East North
Geographic Central, East South Central, South Atlantic, Middle Atlantic,

Region Pacific, Mountain, West North Central, West South Central, East North
Central, East South Central, South Atlantic, Middle Atlantic, New England

City or metro Under 5,000; 5,000-20,000; 20,000-50,000; 50,000-100,000;

100,000-250,000; 250,000-500,000; 500,000-1,000,000; 1,000,000-
size
4,000,000; 4,000,000 or over

Density Urban, suburban, rural

Climate Northern, southern

Demographic Under 6, 6–11, 12–17, 18–34, 35–49, 50–64, 64+

age
Age Under 6, 6-11, 12-19, 20-34, 35-49, 50-64, 65+

Family size 1-2, 3-4, 5+

Family life cycle Young, single; young, married, no children;

young, married, youngest child under 6; young;
married, youngest child 6 or older; older,
married, with children; older, married, no
children under 18; older, single; other 28
Choosing a Market-Coverage Strategy
 Company
 Resources

Product
Variability

Product’s Stage
in the Product Life Cycle

Market
Variability
Competitors’
Marketing Strategies
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Evaluating and Selecting the
Market Segments

a. Undifferentiated marketing
b. Differentiated marketing
c. Concentrated marketing

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a. Undifferentiated
marketing
 A firm ignores market
segmentation differences and goes
after the entire market with one
market offer.
 It focuses on what is common in
the needs of the consumer rather
than on differences

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b. Differentiated
marketing
 The firm targets several
market segments and design
separate offers for each.

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c. Concentrated marketing
 Instead of going for a small share
of a large market, the firm pursue
a large share of small markets.

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 (1) Undifferentiated Marketing
One
All Markets
Marketing Mix
(2) Differentiated Marketing
Marketing Mix
A Segment A
Marketing Mix
Segment B
B

(3) Concentrated Marketing

Segment A
Segment A
One
Segment B
Marketing Mix
Segment C 34
 Five Patterns of Target
Market Selection
Product
Selective specialization
M1 M2 M3 specialization
M1 M2 M3
P1Single-segment M1 M2 M3
concentration P1
P1
P P2
P2
P3
P3
Market Full market
specialization coverage
M1 M2 M3 M1 M2 M3
P = Product P1 P1
M = Market
P2 P2

P3 P3 35
 Thank you
Questions and Comments

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