CHAPTER FOUR

MARKET SEGMENTATION, TARGETING AND POSITIONING

4.1 MARKET SEGMENTATION
A company cannot serve all customers in a broad market. The customers are too numerous and
diverse in their buying requirements. The company needs to identify the market segments that it
can serve more efficiently. Here sellers distinguish the major market segments, target one or
more of these segments, and develop products and marketing programs tailored to each segment.

Market Segmentation is the process of identifying and profiling distinct group of buyers who
might require separate products or marketing mixes. Market segmentation is the process that
companies use to divide large heterogeneous markets into small markets each of which tends to
be homogenous in all significant aspects that can be reached more efficiently and effectively
with products and services that match their unique needs. 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. In short, the focus of segmentation is
enhancing a separate program in a pin pointed market.
MARKET SEGMENTATION PROCEDURE

1. Survey stage
The researcher conducts exploratory interviews and focus groups to gain insight into consumer
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 demographics, geographic, psychographics,
and media graphics of the respondents.

2. Analysis Stage
The research applies factor analysis to the data to remove highly correlated variables, and then
applies cluster analysis to create a specified number of maximally different segments.

3. Profiling Stage
Each cluster profiled in terms of its distinguishing attitudes, behavior, demographics,
psychographics, and media patterns. Each segment is given a name based on its Dominant
Characteristic. The hierarchies of attributes can several customer segments. Buyers who first
decide on price are price dominant; those who first decide on the type of car (eg. Sports,
passengers, station wagons) are type dominant; these who first decide on the car brand are brand
dominant. Each segment may have distinct demographics, psychographics, and media graphics

1. Survey: Conduct a survey to identify customer requirements, preferences and perceptions

among the various market segments
2. Analysis: Analyze the collected data in order to identify similarities and differences among
the consumer groups. Also conduct an industry analysis to assess competitive dynamics of the
market.

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3. Profiling: Develop consumer profiles based on the demographic, socio-economic and
behavioral characteristics that have been identified during your analysis. Profiling helps further
refine segmentation into distinct target groups with similar needs, wants or behavior patterns.
BENEFITS OF MARKET SEGMENTATION
Market segmentation is a customer - oriented philosophy and thus is consistent with the modern
marketing concept. Specifically the advantages of market segmentation can be listed as follows:
1. Channeling money and effort to a particularly most profitable market.
2. Designing and developing products, which really match with the market demand because
it focuses on selected target markets?
3. It helps to determine an appropriate promotional appeal for a firm.
4. Market segmentation enables small business organizations to have a better chance to
compete with big companies.
5. Flexibility of organizational resources and programs in the time of fierce competition can
be done at a lower cost.
6. Choosing the best promotional activity and channel of distribution at a
relatively lower cost may be easier.
BASES FOR CONSUMER MARKET SEGMENTATION
The commonly used bases for segmenting the consumer market may be grouped into four major
categories: Geographic, Demographic, Psycho-graphic, and Behavioral characteristics.
A. Geographic Segmentation
Dividing an overall market into homogeneous groups on the basis of their locations such as
nations, state, regions, countries, cities, urban-suburban-rural, or climate depending on the notion
that consumer needs or responses vary geographically. The reason for this is simply that
consumers wants and products usage often are related to one or more of these subcategories.

Example:
Region Region 1 – 14
City  A.A. Diredawa, Awassa, Nathret Bahir Dar, Mekelleetc
Urban-Rural  Urban, Sub Urban, Rural
Climate  Hot, cold, sunny, rainy, cloudy
B. Demographic Segmentation
Demographic Segmentation involves dividing consumer groups according to characteristics 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. First customer wants
preferences and usage rates are highly associated with demographic variables. Second, they are
easily quantifiable and accessible than most other types of variables.
Examples of demographical bases of segmentation
Income under $1000, $1000-$2500, over $2500
Age under 5, 5-10, 10-19, 20-34, 35+

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Gender Male, Female- clothing, hairstyling, cosmetics
Family lifecycle Young, single, married, no children
Social class Upper class, middle class, lower class
Education High school, Diploma, Degree
Occupation Professional, managers, clerical employee
Religion Orthodox, Muslim, catholic, protestant, etc
Ethnic Background African, Asian, European
C. Psycho-graphic Segmentation
Divides a population into groups that have similar psychological characteristics, values, and
lifestyles.

Lifestyle:
Lifestyle: Companies making cosmetics, alcoholic beverages and furniture are always seeking
opportunities in lifestyle segmentation. But lifestyle segmentation does not always work.

Personality:
Personality: - Marketers have used personality variable to segments. They endow their products
with brand personalities that correspond to consumer’s personalities. In the late 1950, Fords and
Chevrolets were promoted as having different personalities. Ford buyers were identified as
independent, impulsive, muscular, alert to change and self-confident.

Values: - Some marketers segment by core values, the belief systems that underlie consumer
attitudes and behavior. Core values go much deeper than behavior or attitude, and determine at a
basic level, people’s choices and desires over the long term. Marketers that segment by values
behave that by appealing to people’s inner selves it is possible to influence this outer selves their
purchase behave
D. Behavioral Segmentation
Some organizations try to segment their consumer markets on the basis of consumer behavioral
characteristics related to the product. The behavioral variables include the consumer's
knowledge, attitude, use or response to an actual product or its attributes. Accordingly behavioral
segmentation can be done with respect to the following factors.

1. Purchase occasion with regard to time such as regular and special occasion. For example,
air traveler for vacation, family or business.
2. Benefits sought from the product in relation to individual interest such as low price,
durability, general product quality and so on. In using benefit segmentation, the task is to
determine the major benefits that consumers might be looking for in the product, the
kinds of people who might be looking for each benefit, and the existing brands that come
close to delivering each benefit.
3. User status with respect to the existence and potentiality of customers such as non-users,
ex-users, potential and regular users of a product.
4. Usage rate with respect to the size of purchase such as light users, medium users or heavy
users.

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5. Readiness stage of the customers to buy a product depending on their information,
interest, intention and degree of awareness of a product. This is designed to determine the
distribution of people in various stages of readiness toward buying the product.

LEVELS OF MARKET SEGMENTATION

Market segmentation is an effort to increase a company’s precision marketing. The starting point
of any segmentation discussion is mass marketing. In mass marketing, the seller engages in the
mass production, and mass promotion of one product for all buyers. The arguments of 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.

Mass Marketing

Mass Marketing is a strategy that presumes there is one undifferentiated market and that one
product will appeal to all consumers in that market. In fact, for most of the twentieth century,
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.
Advantages of mass marketing includes Lower cost, One advertising campaign is needed, One
marketing strategy is developed, Usually only one standardized product is developed. But, It
only works if all consumers have the same needs, wants, desires, and the same background,
education and experience.eg Coca-Cola at one time produced only one drink for the whole
market, hoping it would appeal to everyone.

Segment Marketing
A market segment consists of a large identifiable group within a market with similar wants,
purchasing power, geographical location, buying attitudes, or buying habits. i.e. An auto
company may identify four broad segments: car buyers who are primarily seeking basic
transportation or high performance or luxury or safety. Thus, BMW has designed specific
models for different income and age groups. In fact, it sells models for segments with varied
combinations of age and income: for instance, the short wheel base 3 for young urban drivers.
Hilton markets to a variety of segments-business travelers, families and others-with packages
adapted to their varying needs.

Niche Marketing
A niche is a more narrowly defined group, typically a small market whose needs are not well
served. Marketers usually identify niches by dividing a segment into sub segments or by defining
a group seeking a distinctive mix of benefits. i.e. the segments of heavy smokers includes these
who are trying to stop smoking and those who don’t care. Whereas segments are fairly large and
normally attract several competitors, niches are fairly small and normally attract only one or two.
Large companies lose pieces of their market to nichers. Niche marketers presumably understand
their customers’ needs so well that the customers willingly pay a premium.

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An attractive niche is characterized as the customers in the niche have a distinct set of needs;
they will pay a premium to the firms that best satisfies their needs; the niche is not likely to
attract other competitors; the nicher gains certain economies through specialization; and the
niche has size, profit and growth potential

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. 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 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.

Local Marketing
Target marketing is leading to marketing programs being tailored to the needs and wants of local
customer groups (trading areas, neighborhoods, even individual stores). Those favoring
localizing a company’s marketing see national advertising as wasteful because it fails to address
local needs. Those against local marketing argue that it drives up manufacturing and marketing
costs by reducing economies of scale. Logistical problems become magnified when companies
try to meet varying local segments. A brand overall image might be diluted if the product and
message differ in different localities.

Individual Marketing
The ultimate level of segmentation leads to “Segments of One” customized marketing, ‘or’ one-
to-one marketing. For countries, consumers were served as individuals: The tailor made the suit
and the cobbler designed shoes for the individual. Much business-to business marketing today is
customized, in that a manufacture's will customize the offer, logistics, communications, and
financial terms for each major accounts. New technologies computers, databases, robotic
production, e-mail, and fax-permit companies to return to customized marketing, or what is
called “Mass customization”. Mass customization is the ability to prepare on a mass basis
individually designed products and communications to meet each customer’s requirements.

4.2.1 Choosing a Market-Coverage Strategy

Many factors need to be considered when choosing a market-coverage strategy. Which strategy
is best depends on company resources. When the firm's resources are limited, concentrated

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marketing makes the most sense. The best strategy also depends on the degree of product
variability.

Undifferentiated marketing is more suited for uniform products such as grapefruit or steel.
Products that can vary in design, such as cameras and automobiles, are more suited to
differentiation or concentration. The product's life-cycle stage also must be considered.

When a firm introduces a new product, it is practical to launch only one version and
undifferentiated marketing or concentrated marketing makes the most sense. In the mature stage
of the product life cycle, however, differentiated marketing begins to make more sense. Another
factor is market variability .If most buyers have the same tastes, buy the same amounts, and react
the same way to marketing efforts, undifferentiated marketing is appropriate. Finally,
competitors' marketing strategies are important. When competitors use differentiated or
concentrated marketing, undifferentiated marketing can be suicidal. Conversely, when
competitors use undifferentiated marketing, a firm can gain an advantage by using differentiated
or concentrated marketing.
Requirements for Effective Market Segmentation
There are many ways to segment a market but the segmentation should be in such a way that
each segment responds in a homogeneous fashion to a given marketing program. The following
three characteristics will help marketing to move to this goal.
a. Measurability: The variables used to categorize customers must be measurable. For
effective market segmentation the degree to which the size and purchasing power of the
resulting segments can readily be measured, is important.
b. Accessibility: it is the degree to which the resulting segments can be effectively reached and
served. The market segment itself should be accessible through the existing marketing
institutions-middlemen, advertising media, company sales force and so on with a minimum
cost and waste,
c. Profitability: Each segmented market should be large enough to be profitable and worth
perusing. A segment is the largest possible homogeneous group of buyers that it pays to go
after with a specially designed marketing program. In segmenting a consumer market, for
example, a firm must not develop too wide a variety of styles, colors, sizes and prices.
d. Actionable: It refers to the practicality of the plan for segmentation; whatever criteria used to
segment a market should be converted to reality.

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4.2 MARKET TARGETING

Meaning of Market Targeting

Market Targeting is the process of selecting one or more market segments to enter. Once the firm
has identified its market-segment opportunities, it has to decide how many and which ones to
target. Marketers are increasingly combining several variables in an effort to identify smaller,
better-defined target groups. Thus, a bank may not only identify a group of wealthy retired
adults, but within that group distinguish several segments depending on current income, assets,
savings, and risk preferences.

Evaluating and Selecting the Market Segments

In evaluating different market segments, a firm must look at three factors: segment size and
growth, segment structural attractiveness, and company objectives and resources. The company
must first collect and analyze data on current segment sales, growth rates, and expected
profitability for various segments. It will be interested in segments that have the right size and
growth characteristics. But "right size and growth" is a relative matter. The largest, fastest-
growing segments are not always the most attractive ones for every company.

Smaller companies may lack the skills and resources needed to serve the larger segments or may
find these segments too competitive. Such companies may select segments that are smaller and
less attractive, in an absolute sense, but that are potentially more profitable for them.

The company also needs to examine major structural factors that affect long-run segment
attractiveness. For example, a segment is less attractive if it already contains many strong and
aggressive competitors. The existence of many actual or potential substitute products may limit
prices and the profits that can be earned in a segment. The relative power of buyers also affects
segment attractiveness. Buyers with strong bargaining power relative to sellers will try to force
prices down, demand more services, and set competitors against one another all at the expense of
seller profitability. Finally, a segment may be less attractive if it contains powerful suppliers who
can control prices or reduce the quality or quantity of ordered goods and services.

Even if a segment has the right size and growth and is structurally attractive, the company must
consider its own objectives and resources in relation to that segment. Some attractive segments
could be dismissed quickly because they do not mesh with the company's long-run objectives.

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Even if a segment fits the company's objectives, the company must consider whether it possesses
the skills and resources it needs to succeed in that segment. If the company lacks the strengths
needed to compete successfully in a segment and cannot readily obtain them, it should not enter
the segment. Even if the company possesses the required strengths, it needs to employ skills and
resources superior to those of the competition in order to really win in a market segment. The
company should enter only segments in which it can offer superior value and gain advantages
over competitors.

4.3 MARKET POSITIONING

Positioning what place do you want your product to hold in the consumer’s mind? Once a
company has decided which segments of the market it will enter, it must decide what positions it
wants to occupy in those segments. 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 involves implanting the brand's unique benefits and
differentiation in customers' minds. To simplify the buying process, consumers organize
products into categories—they "position" products, services, and companies in their minds.
Understanding and applying the principles of positioning is essential for developing an efficient
position against the competitors, so the marketers must find answer to the following questions:
o What is the company’s image in the eyes of our current clients?
o How is the company’s offer perceived by the potential customers?
o What are the elements that differentiate the company’s offer against the bids of its main
competitors?
o Which are the necessary changes to be made in order to strengthen the competitive position
within the aimed market segment/segments?

TOOLS FOR COMPETITIVE DIFFERENTIATIONS

A company must try to identify the specific way it can differentiate its products to obtain a
competitive advantage. Differentiation is the act of designing a meaningful difference to
distinguish the company’s offering from competitors offering. How exactly can a company
differentiate its market offering from competitors? Here we will examine how a market offering
can be differentiated along time dimensions: - product, services, personnel, channel or image.

Product Differentiation

Differentiation of physical products takes place along a continuous. At one extreme we find
highly standards products that allow little variation. At the other extreme are products capable of
high differentiation, such as automobiles, commercial holdings, and furniture. Here the seller

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faces an abundance of design parameters. The main product differentiations are features,
performance, conformance, durability, reliability, reparability, style and design.

1. Features
Features are characteristics that supplement the products basic function. The starting point of
feature differentiation is a stripped down, or “bare bones”, version of the product. The company
can create additional version by adding extra features. Thus an automobile manufactures can
offer optional features, such as electric windows, air bags, automatic transmission, and air
conditioning. Each feature has a chance of capturing the fancy of additional buyers.

2. Performance quality
Most products are established initially at one of four performance levels, low, average, high and
superior. Performance quality refers to the level at which the products primary characteristics
operate. The important question here is: Does higher product performance produce higher
profitability? Quality’s link to profitability does not mean that the firms should always design the
highest performance level possible. There are diminishing returns to level increasing
performance, in that fewer buyers are willing to pay for it. The manufacturer must design a
performance level appropriate to the target market and competitor’s performance levels.

3. Conformance quality
Buyers expect products to have a high conformance quality. Conformance quality is the degree
to which all the produced units are identical and meet the promised target specifications.
Suppose a Porsche 944 is designed to accelerate to 60 miles an hour within 10 seconds. If every
Porsche 944 coming off the assembly line does this, the model is said to have high conformance
quality. However, If 944s vary greatly in their acceleration time, they have low conformance on
this criterion. The problem with low conformance is that the product will felt to deliver on its
promises to many buyers.

4. Durability

Durability is a very important product attribute to most buyers. Durability is a measure of the
product’s expected operating life under natural and/or stressful conditions. Buyers will generally
pay more for products that have more durability. However, this rule is subject to some
qualifications. The extra price must not be exclusive. Furthermore, the product must not be
subject to technological obsolescence, in which case the buyer may not pay more for longer-
lined products.

5. Reliability

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Buyers normally will pay a premium for product with more reliability. Reliability is a measure of
the probability that a product will not fail within a specified time period. Buyers want to avoid
the high costs of product breakdowns and repair time.

6. Reparability

Buyers prefer products that are easy to repair. Reparability is a measure of the ease of fixing a
product that manufactures or fails. Thus an automobile made with standard parts that are easily
replaced has high reparability. Ideal reparability would exist if users could fix the product
themselves with little or no cost or time lost. The buyer might simply remove the defective part
and insist a replacement part.

7. Style

Buyers are normally willing to pay a premium for products that are attractively styled. Style
describes the product’s looks and feel to the buyer. Many car buyers pay a premium for jaguar
automobiles because of this extraordinary look, even though Jaguar had in the past a poor record
of reliability. Style has the advantage of creating product distinctiveness that is difficult to copy.
Under style differentiation, we must include packaging as a shying weapon, especially in food
products, cosmetics, toiletries, and small-consumed appliances. The package provides the
buyer’s first encounter with the product and is capable of turning the buyer on or off.

8. Design

As competitions intensify, design will offer one of the most patent ways to differentiate and
position a company’s products and services. Design is the totality of features that affect how
products look and functions in terms of customer requirements. Design is particularity important
in making and marketing durable equipment, apparel, retail services and packaged goods. All of
the qualities we’ve discussed under the meaning “Product differentiation are design parameters.
The design has to figure out how much to invest in feature development, performance,
conformance, reliability, reparability, style and so forth.

Service Differentiation

In addition to differentiating its physical products, a firm can also differentiate its services. When
the physical product cannot easily be differentiated, the key to competitive success often lies in
adding more value-adding service and improving their quality. The main service differentiation
are ordering ease, delivery, installation, customer training, customers consulting, maintenance
and repair, and a few others.

1. Ordering Ease

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Ordering ease refers to how easy it is for the customer to place an order with the company. For
example, some companies have eased the ordering process by supplying customers with
computer terminals through which they send orders directly to the seller. Many banks are now
providing home banking software to help customers get information and transact with the bank
more efficiently.

2. Delivery
Delivery refers to how well the product or service is delivered to the customers. It includes the
speed, accuracy, and care attending the delivery process. Buyers will often choose the supplier
with a better reputation for on-time delivery.

3. Installation
Installation refers to the work done to make a product operational in its planned location. Buyers
of heavy equipment expect good installation service from the vendor. For examples, some
companies deliver all the purchased equipment to the site at the same time rather than sending in
different components at different times.

4. Customer Training
Customer training refers to training the customer’s employees to use the vendor’s equipment
properly and efficiently. Some companies are not only selling and install these expensive
equipment but also take on the responsibility for training the uses of this equipment.

5. Customer Consulting
Customers consulting refer to data, information systems, and advising services that the seller
offers free or for a price to buyers. Some sellers consult their buyers in setting up accounting and
inventory systems, computer ordering systems and so forth.

6. Maintenance and Repair

Maintenance and repair describes the company’s service program for helping customers keep
this purchased product in good working order. Automobile buyers are especially concerned with
the quality of repair service that they can expect from this dealer.

7. Miscellaneous Services
Companies can find many other ways to add value by differentiating their customer services.
They can offer a better product warranty or maintenance contract than their competitors. They
can establish patronage awards, as the airlines have done with their frequent-flyer programs.

Personnel Differentiation
Companies can gain a strong competitive advantage through hiring and training better people
than their competitors do. Better-trained personnel exhibit six characteristics:

o Competence –The employees possess the required skill and knowledge.

o Courtesy –The employees are friendly, respectful and considerate.

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o Credibility –The employees are trust worthy.
o Reliability –The employees perform the service consistently and accurately.
o Responsiveness –The employees respond quickly to customer’s requests and problems.
o Communication –The employees make an effort to understand the customer and
communicate clearly.
Channel Differentiations

Companies can achieve differentiation through the way they shape their distribution channel,
particularly these channels coverage, expertise, and performance. For example, caterpillar
success in the construction – equipment industry is based partly on its superior channel
development. Its dealers are found in more locations than competitor’s dealers and caterpillars
dealers are typically better trained and perform more reliably.

Image Differentiations
Even when competing offers look the same buyers may respond differently to the company
image or brand image. Consider the success of Marlboro cigarette. The primary way to account
of Marlboro’s extraordinary worldwide market share (around 3%) is that Marlboro’s “Macho
Cowboy” image has struck a responsive chord with much of the cigarette smoking public.

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