BBA 1 Principles of Marketing

Chapter 2
Strategic Marketing Planning
MARKETING SEGMENTATION, TARGETING AND
POSITIONING
 MARKET SEGMENTATION
 Introduction
Markets consist of buyers who differ in one or more respects. They may differ in their wants, resources,
geographical locations, attitudes and buying practices. It is therefore necessary for a marketer to segment
his/her market.

Meaning of Market Segmentation

The process of grouping customers in markets with some heterogeneity into smaller, more similar or
homogeneous segments. The identification of target customers groups in which customer groups in which
customers are aggregated into groups with similar requirements and buying characteristics.
Market segment – A group of individuals, groups or organizations sharing one or more similar
characteristics that cause them to have relatively similar product needs and buying characteristics.

Benefits of Market Segmentation

There are a number of reasons organizations undertake segmentation 

Products are designed to be responsive to the needs of the marketplace. – segmenting markets
facilitates a better understanding of customer’s needs, wants and other characteristics. The sharper focus
that segmentation offers, allows those personal, situational and behavioral factors that characterize
customers in a particular segment can be considered. By being closely in touch with segments, marketers
can respond quickly to even the slight changes in what target customers want. i.e. by monitoring the
trends towards healthier eating and lifestyles, Mc Donald’s was able to respond by introducing a wider
range of salads and healthy eating options – including grilled chicken, fruit and yoghurt on to  its menus.

Increase profits – different consumer segments react in contrasting ways to prices, some are far less
price sensitive than others. Segmentation allows an organization to gain from the best price it can in every
segment, effectively raising the average price and increasing profitability.
Effective Resource Allocation - organizations are more capable of making products that customers want
and can afford.
There is product differentiation – Various products are made to meet the needs of each customer
segment.
Variables / Bases For Segmenting Consumer Markets
The following variables are commonly used to segment consumer markets.
 Geographic segmentation -This calls for dividing the market into different geographical units
such as Nations, States, Regions – West, North, Central, South, e.t.c.    - Countries, Cities or
Neighborhoods
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 Demographic segmentation -This consists of dividing the market into groups on the basis of
demographic variables such as:- Age, sex, family size, family life cycle, income, education,
occupation, religion, race and nationality. These variables are the most popular for distinguishing
customer groups because, Consumers’ wants and preferences are closely related to them.
 Age -Consumer needs and wants change with age. Hence the market should be segmented as
young, old, e.t.c.
 Gender -This can be employed to segment such markets for clothes deodorants, lotions,
magazines, e.t.c. Thus the markets can be for either men or women, male or female
 Family life cycle (FLC) -The product needs for a household vary according to marital status and
the present ages of children. Thus family life cycle can be divided into:-
o Single,
o Young, married with no children,
o Young, married with young children,
o Older married with children, e.t.c.
 Income -Marketers can segment the market according to the distribution of income
 Occupation -Variables include; bankers, teachers, farmers, clerks, students, housewives,
secretaries, e.t.c. A marketer can choose to specialize in the needs of one occupation group.
 Education - Some primary education, Some high school education, College education
University education e.t.c.
 Religion - e.g. Muslims, Christians e.t.c.
 Race - e.g. white, black e.t.c.
 Nationality – e.g. Asians, Africans e.t.c.
 Social class  -Social class has a strong influence on people’s preferences,
 Ethnic  groups
 Generation - Consumer is profoundly influenced by the generation in which it grows up. This
influences one’s inclination to Music, politics, e.t.c.

 Psychographic segmentation : In psychographic segmentation, buyers are divided into different

groups on the basis of their:- Motives, Lifestyle and/or Personality characteristics. People within
the same demographic group can exhibit very different psychographic profiles. Consumers can
thus be sub-divided on the basis of the following psychographic variables.
 Lifestyle -Consumers’ lifestyles are derived from their activities, interests and opinions.
Each life style group is influenced by different marketing mixes.
 Personality  -Type of personality groups may include;
o Authoritarian
o Ambitious
o Assertive
o Self-confident
o Prestige conscious
o Extrovert/Introvert

 Behavioral segmentation -Buyers are divided into groups in the basis of their, Knowledge,
Attitude, Use or Response to a product. In this respect, behavioral variables that are used to
segment consumer markets include:-
 Occasions benefits -Buyers can be distinguished according to occasions when they
o Purchase a product or
BBA 1 Principles of Marketing

o Use a product
.
 Benefits -Buyers are classified according to different benefits they seek from the product.
Variables here include:-
o Economy (Low price)
o Medical (Decay prevention)
o Bright teeth
o Good taste e.t.c. for toothpaste.
 Benefit segmentation requires determination of:-
o The major benefits that people seek from the product
o The kind of people who look for such benefit
o The major brands that deliver each benefit.
 User status -Many markets can be segmented into
o Non-users.
o Ex-users,
o Potential users,
o First time users and
o Regular users of a product
All these people require different marketing approaches.
 Usage rate -Markets can be segmented into
o Light,
o Medium and
o Heavy user group of products.
 Loyalty status -A market can be segmented by customer loyalty patterns. According to the
loyalty status, the buyers can be divided into:-
o Hard core loyal – Consumers who buy one brand all the time
o Soft core loyal – Consumers who are loyal to two or three brands
o Shifting loyal – Consumers who shift from favoring one brand to another.
o Switchers – Consumers who show no loyalty to any bran

 MARKET TARGETING

This is the evaluation of the various segments identified during segmentation and deciding how many and
which ones to serve.

Evaluating the Market Segments

In evaluating different market segments, the firm must look at the following factors
 Segment size and growth
 Marketing segment has to be ‘right size’. Size can be measured in terms of sales volume.
 Companies should not only concentrate on sales volume but also on the growth potential of the
segment.
 Segments structural attractiveness –

Using Porter’s Five Forces Analysis.

A segment might have desirable size and growth characteristics and still not profitable. The company
should evaluate the long-run profitability of the market segment.
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Michael Porter has identified five forces that determine the intensive long-run attractiveness of the
whole market or any other segment within it. These five forces are:-

Threat of intense segment rivalry -A segment is unattractive if it already contains strong or aggressive
competitors.
Threat of new entrants -A segment is unattractive if it is likely to attract new competitors who will bring
in new capacity, substantial resources and a drive for market share growth.
Threats of substitute products -A segment is unattractive if there exists actual or potential substitutes
for the product.
Threats of growing bargaining powers of buyers -A segment is unattractive if the buyer’s posses
strong or increasing bargaining power. Interested in low prices but high quality.
Threat of growing bargaining power of suppliers -A segment is unattractive if the suppliers posses a
strong or increasing bargaining power. They can raise prices or reduce the quality and quantity of
products and services offered.
o Even if the segment has positive size and growth and it is attractive, the company has to consider
its own objectives and resources.
o The segment can be dismissed because it does not fit in the company’s long-run objectives.
o Even if segments fit the company’s objectives, it must consider whether it has the required skills
and resources to succeed in that segment.

 MARKET POSITIONING

This is the act of designing a company’s offering and image to occupy a distinctive place in the target
market’s mind. I.e.The act of creating a difference between a company’s offers from those of competitors.
Positioning is the process of establishing and maintaining a distinctive place in the market for the
organizations’ product or brands. Positioning starts with the product, but positioning is not what you do to
a product. Positioning is what you do to the mind of the customer. You should concentrate on the
perception of the customer and not the reality of the product. Positioning then is how the product is
perceived and evaluated by the target market, relative to competing products. To the consumer perception
is reality. That is why it is said that a marketing battle is fought in the minds of consumers. Marketers
who attain a superior position in customers’ minds have won the marketing battle.

Positioning strategies

 Attribute positioning -A company positions itself on an attribute e.g. size, number of years in existence.
 Benefit positioning -The product is positioned as the leader in a certain benefit.
 Use or application positioning -Positioning a product as the best for some use or application.
 User positioning -Positioning a product the best for some user group
 Competitor positioning -The product claims to be better in some way then a named competitor.
 Product category positioning -The product is positioned as the leader in a certain product category
 Quality or price positioning. -The product is positioned as offering the best value