Unit 5 – Segmentation, Targeting and Positioning

The heart of modern strategic marketing can be described as

Segmentation, Targeting and Positioning (STP).

Definition of terms & concepts related to this Unit

Market – Consists of all potential customers sharing a particular need
or want who might be willing or able to engage in exchange to satisfy
that need or want.
Market Segments & Niche Markets
 Segments represent large identifiable groups within a market.
 Niche Markets are more narrowly defined groups that seek a
special combination of benefits. Making & selling small volumes to a
small untapped part of the market. The product is of high quality &
generates high profit margin. E.g. BMW vehicles. 1
Mass Marketing V/S Target Marketing
Mass Marketing is best explained by the following motto:
To Henry Ford, “People could have a Ford in any colour as long as it
is black.”
 It is more economical to produce a car of one colour & make it
affordable to customers.
 Mass marketing refers to marketing of products & services that
have standard features.
Target Marketing – Distinguish the segment, target one or more,
develop products & programmes tailored to the segment.
 The market is thought as being made up of various categories or
groups of customers .
 Wise to produce a product that would meet each category or group
2
as far as possible.
Benefits of Niche Marketing (Limitations of Mass Marketing)
 If larger firms dominate the whole market, small firms can satisfy a niche.
 Firms can fill in a niche in unexploited markets. High prices can be
charged, hence higher profits. Large firms can switch to a niche when a market
is stagnating.
 Mass marketing firms can resort to niche marketing for improving brand
image.

Limitations of Niche Marketing (Benefits of Mass Marketing)

 Small market niches do not enable economies of scale unlike mass
marketing.
 Single-product firms operating in a niche market only are vulnerable to
changes in consumer behaviour.
 Technological change is shortening product life cycles. Small niche-market
firms may lack resources for innovation.

3
5.1. Defining Segmentation
Segmentation is the process of dividing a market into distinct groups
of buyers with different needs, characteristics, or buying behaviour
that might require separate products or marketing mixes.
5.1.1. Criteria for Assessing Viable Market Segments
Successful segmentation requires organisation to meet the following
criteria:
 Measurability – Marketing Managers must be able to measure
characteristics & needs of consumers to establish groups in the
segments.
 Accessibility – The segments must be accessible.
 Responsiveness – There must be differences among segments,
i.e., consumers from every segment must respond differently from
each other. 4
 Substantiality – Segments should be big enough (in spending
power).
 Competition – There must be fair competition.

5.1.2. Advantages of Segmentation

(a) Products are tailored to homogeneous groups of customers. They can fit
precisely customers’ needs.
(b) It identifies opportunities for new product development or use innovative
marketing approaches. It can identify gaps in the market to spread risks &
increase market share & profitability.
(c) It improves the strategic allocation of scarce resources. It avoids wasting
resources on producing goods for the whole market. The larger the market, the
broader consumer tastes tend to be.
(d) Small firms can concentrate on one or two type of segments. They cannot
compete with larger firms for satisfying the whole market.
5
(e) A more appropriate marketing mix (product features, price, promotion,
distribution) can be tailored to that segment. Price can be aligned with the
segment’s purchasing power, adequate promotional media used, and the product
distributed in specific outlets.

5.1.3. Disadvantages of Segmentation

(a) Higher production & stockholding costs than for an undifferentiated
product.
(b) Higher promotional & administrative costs.
(c) Excess specialisation can lead to problems if consumer habits change.
(d) Higher research & development costs due to product variations.

6
5.2. Bases for Segmenting Markets
5.2.1. Variables for Segmenting Consumer Markets include:
(a) Demographic
 Age (Childhood, teenage, adulthood, old age) – E.g. Toys for children.
 Gender (Male, female) – E.g. aftershave for men only.
 Ethnicity (Hindu, Muslim, Chinese, Christian) – E.g. Sarees worn by
Hindus.
 Income (Less than Rs 10,000, Rs 10,001 – Rs 20,000, etc.) – E.g. Mercedes
car targeted at high-income groups.
 Education (CPE, SC, HSC, University) – E.g. Academic courses offered by
private institutions.
 Occupation (Clerk, managers, administrative, manual workers) – E.g.
Convenience food for working women.
 Family Size (Nuclear, Extended family) – E.g. Different size of products.
7
 Social Class (Upper, Middle, Working, Lower class) – E.g. Clothing
(b) Geographic
 Continents, countries, districts, towns, etc. – E.g. Souvenir shops in coastal
regions.

(c) Psychographic
 Personality characteristics, motives and lifestyles.
E.g. Consumer’s activities such as work, hobbies, eating habits.
E.g. Consumer’s interests such as bachelorhood, family, social work, etc.

(d) Behavioural Variables

 Frequency of use of the product by the buyers. – E.g. Regular, potential,
non-users, heavy/moderate/light users.
 Time of use. – E.g. cereals for breakfast or as a snack food.
 Events – E.g. Birthdays, graduations, public holidays (Greeting cards).
8
 Purpose – E.g. Running, office shoes.
(e) Benefits Segmentation
 Focuses on the benefits rather than on the features. – E.g. Use of toothpaste.
Benefits sought:
 Are people seeking prevention of tooth decay?
 Long time protection?
 Freshness of the mouth?
 Whitening of the teeth in choosing toothpaste?

9
5.2.2. Variables for Segmenting Industrial Markets include:
 Industry Type – Different industries have different requirements
in terms of quality, product features, etc.
E.g. Textile & Communication industry.
 Technology Base – Different organisations have different means
that they use.
E.g. Printing Industry.
 Company Size – Large businesses have different requirements &
purchase in different ways compared to small & medium size
businesses.
E.g. Invoicing procedures, delivery procedures, terms of credit.
 Size of Order – Some organisation may order in bulk to benefit
from economies of scale while others may not be able to do so.
E.g. Hypermarkets, Supermarkets, Wholesalers. 10
5.3. The Segmentation Process
The process of segmenting a market involves a number of activities &
steps. There are 7 steps in all.
Step 1 – Target a Generic Market
 What broad product is the firm in? E.g. Furniture, computer or
electronic equipment market.
Step 2 – Analyse Benefits Desired
 List all potential customer needs. E.g. In a computer hardware
market the needs may be ability to compute, word process, navigate
the Internet, speed, storage capacity, reliability, aftersales service, etc.
Step 3 – Remove Qualifying Benefits
 The core needs. Because everyone wants them, they are not useful
for segmentation purposes. E.g. The computer hardware offers the
11
ability to compute, word process & navigate the Internet.
Step 4 – Group Benefits into Segments
 Aggregate people who have similar needs & wants into this
segments.
 People who are not homogeneous should be used to form new
“sub market”.
Step 5 – Enumerate Customer Characteristics
 Name the segments or “sub market”.
 Describe the different segments in terms of geographic,
demographic & psychographic variables.
 Be sure to establish why the different segments behave as they do?
 What are the determining characteristics of these segments?

12
Step 6 – Evaluate the Segments
Which segments to choose based on criteria for assessing viable
market segments, that is:
 Which segment are large enough?
 Easy to reach?
 Which segments could your firm serve best, given its strengths &
weaknesses?
 Where is the competition weakest or least aggressive?
Step 7 – Select the most Appropriate Segment
The following steps may be followed in deciding the segments for a
particular market.
(a) Choose the segments that pass the evaluation stage
The formal market segmentation exercise would consist of a survey whereby
13
data are collected on the following amongst others:
 Attributes & their importance ratings.
 Brand awareness & brand ratings.
 Product usage pattern.
 Attitudes towards product categories.
 Demographics, psychographics & mediagraphics of respondents.

(b) Analysis Stage

Data obtained are processed & analysed.

(c) Profiling Stage

Segments are profiled in terms of its distinguishing characteristics.

14
5.4. Definition of Targeting
It is the process of focussing on one group forming part of the segment
but having different characteristics, means & preferences.
 Targeting a particular group of customers from within a segment is
important as it enables some degree of customisation.
 It is easier to focus attention on or serve a smaller group than a
larger one.

5.5. Definition of Positioning

Positioning is the customers’ perception of a product’s attributes
(benefits & cost) relative to those of competitive brands.
 Positioning may be regarded as the way consumers perceive a
product on dimensions most important to them.
 Positioning tries to drive marketing managers to come up with
15
what is termed a “Unique Selling Proposition”.
Example: Toothpaste has been positioned as follows in the market.
Blendax – A fluoride toothpaste that fights cavities.
Closeup – A toothpaste that whitens the teeth.
Colgate Total – A toothpaste that has the above features & keep the
mouth fresh all day long.

5.5.1. How are customers’ perception influenced?

Rather than allowing customers to position products on their own, they
are influenced through:
 Advertising, personal selling & sales promotion (Free tasting,
demonstration, gift vouchers, free coupons, etc).

16
5.5.2. Ways of Positioning Products
(a) Head To Head Positioning
 Involves the direct matching of a leading competitor’s positioning
attributes.
 This is normally done when the manufacturer’s attributes are:
1. Comparable but are of a lower cost.
2. Superior, a higher price may be claimed.
 This type of positioning requires a lot of marketing effort & is best
achieved when a manufacturer or service provider benefits from
price & cost leadership.

17
(b) Differentiated Positioning
When products are indeed different from those offered by
competition, firms have recourse to differentiated positioning.
 Unique features – Automatic brake system & air bags in cars.
 Unique benefits – Colgate Total.
 Unique packaging – Single slices for bread & cheese.

(c) Customer-Oriented Positioning

Positioning is also done on the basis of the needs & wants of
customers.
 Used to serve niche market.
 Banks & transport companies have recourse to this type of
positioning. 18