CHAPTER FOUR

MARKET SEGMENTATION, TARGETING AND POSITIONING

A company that decides to operate in a broad market recognizes that it normally cannot serve all
customers in that market. The customers are too numerous and diverse in their buying requirements and
consequently one can find varied buyer behaviors. Instead of competing everywhere, the company needs
to identify the market segments that it can serve more effectively. To choose its markets and serve them
well, many companies are embracing target marketing. In target marketing, sellers distinguish major
market segments, target one or more of these segments and develop products and marketing programs
tailored to each segment. Instead of scattering their marketing effort (a “short-gun” approach), they can
focus on the buyers whom they have the greatest chance of satisfying (a “rifle” approach). Target
marketing involves three major decisions:

1. Market segmentation: Identifying and profile distinct groups of buyers who might require
separate products and/or marketing mixes.
2. Market targeting: Select one or more segments to enter.
3. Market positioning: Establish and communicate the products distinctive benefits in the
market.

Market Segmentation Market Targeting Market Positioning

1. Identify segmentation 5. Identify possible positioning

variables and segment the concepts for each target segment.
3. Evaluate the attractiveness of
market. 6. Select, develop and
each segment.
2. Develop profiles of communicate the chosen
4. Select the target segment(s)
resulting segments. positioning concept.

4.1.MARKET SEGMENTATION

Marget segmentation means the process of dividing the whole market for a product into several
smaller, internally homogenous groups. Markets consist of buyers, and buyers differ in one or more
ways. They may differ in their wants, resources, locations, buying attitudes, and buying practices.
Through market segmentation, companies divide large, heterogeneous markets into smaller segments

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that can be reached more efficiently and effectively with products and services that match their unique
needs. In this section, we will examine market segmentation procedure, basis for segmenting consumer
markets, and requirements for effective segmentation.

4.1.1. Bases for Segmenting Consumer Markets

There is no a 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. There are
four commonly used bases for segmenting consumers markets. These are:
1.Geographic segmentation
2. Demographic segmentation
3. Psychographic segmentation
4. Behavioral segmentation
1. Geographic Segmentation
Geographic segmentation is the process of dividing the market into different geographical units
such as nations, states, regions, countries, cities or neighborhoods. The company can decide to
operate in one or a few geographic areas or, operate in all but pay attention to local variations in
geographic needs and preferences. The regional distribution of population is important to
marketers because people within a given region generally tend to share the same value, attitude
and style preference. However, significant differences do exist among regions because of
differences, in climate, social customs, and other factors.
Examples of Geographic segmentation
➢ Region: North Ethiopia, south Ethiopia, East Ethiopia, West Ethiopia, Central Ethiopia,
highland, lowland and so on.
➢ Climate: tropical, continental and so on.
2. Demographic Segmentation
Demographic segmentation is the process of dividing the market into groups on basis of demographic
variables such as age, family size, family life cycle, gender, income, occupation, education, religion,
race, generation, nationality or social class.
Demographic variables are the most popular bases for distinguishing customer groups. One
reason is that consumer wants, preferences and usage rates are often highly associated with
demographic variables. Another is that demographic variables are easier to measure than most

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other types of variables that have been used to segment markets. Here is how certain
demographic variables have been used to segment markets.

1. Age and lifecycle stage: Consumer’s wants and abilities change with age. Photo companies
are now applying age and lifecycle segmentation to the film market. With film sales down,
photo companies are working hard to exploit promising niche markets: moms, kids, and older
people. Nevertheless, age and lifecycle can be tricky variables. For example, the Ford motor
company designed its Mustang automobile to appeal to young people who wanted an
inexpensive sport car. But ford found that all age groups were purchasing the car, it then
realized that its target market was not chronologically young but the psychologically young.
Marketers must be careful to guard against stereotypes when using age and life-cycle
segmentation. For example, some 70 year olds require wheelchair, others play tennis. Thus,
age often is a poor predictor of a person’s life cycle, health, work or family status, needs, and
buying power
2. Gender: Gender segmentation has long been applied in clothing, hairstyling, cosmetics, and
magazines. Occasionally other marketers notice an opportunity for Gender segmentation.
The automobile industry is beginning to recognize Gender segmentation. With more women
car owners, some manufacturers are designing certain features to appeal to women, although
stopping short of advertising the cars as women’s cars.

3. Income: Income segmentation is a long-standing practice in such product and service

categories as automobiles, boats, clothing, cosmetics, and travel. However, income does not
always predict the best customers for a given product.

4. Social Class: Social class has a strong influence on preference in clothing, house furnishing,
leisure activities, reading habits, and retailers. Many companies design products and services
for specific social classes.
5. Generation: The idea is that each generation is profoundly influenced by the milieu in which it
grows up – the music, movies, politics, and events of the time.
3. Behavioral Segmentation

Some marketers regularly attempt to segment their markets on the basis of product related
behavior they utilize behavioral segmentation. Many marketers believe that behavior variables
are the best starting point for building segments.

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1. Occasions: Buyers can be grouped according to occasions when they get the idea to buy,
actually make their purchase, or use the purchased item. Occasion segmentation can help
firms build up product usage. For example, juice is most often consumed at breakfast, but
orange goers have promoted drinking orange juice as a cool and refreshing drink at other
times of the day.

2. Benefits Sought: Many companies credited with drawing attentions to the notion of benefit
segmentation when they described a hypothetical division of their product market based on
the benefits desired. Two things determine the effectiveness of benefits segmentation. First,
the specific benefits consumers are seeking must be identified. This typically involves
several research steps, beginning with the identification of all possible benefits related to a
particular product or behavior through brainstorming, observing consumers, and listing to
focus groups. The second task, once the separate benefits are known, is to describe the
demographic and psychographics characteristics of the people seeking each benefit.
3. User Status: Markets can be segmented into groups of nonusers, ex-users, potential users,
first time users, and regular users of a product. A company’s market position influences its
focus. Marketer share leaders focus on attracting potential users, whereas smaller firms focus
on attracting current users away from the market leader.

4. Usage Rate: Markets can also be segmented in to light, medium, and heavy product users.
Heavy users are often a small percentage of the market but account for a high percentage of
total consumption. Marketers usually prefer to attract one heavy user to their product or
service rather than several light users
5. Loyal Status: Consumers have varying degree of loyalty to specific brands, stores, and
others entities. Buyers can be divided into four groups according to brand loyalty status: -
• Hard-core loyal: - Consumers who buy one brand all the time
• Split loyal: - Consumers who are loyal to two or three brands.
• Shifting loyal: - Consumers who shift from one brand to another
• Switchers: - Consumers who show no loyalty to any brand.

Each market consists of different numbers of the four types of buyers. A brand loyal market is
one with a high percentage of hard-core brand loyal buyers. A company can learn a great deal by
analyzing the degree of brand loyalty. By studying its hard-core loyal, the company can identify

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its products strengths. By studying its split loyal, the company can pin point which brands are
most competitive with its own. By looking at customers, who are shifting away from its brand,
the company can learn about its marketing weakness and attempt to correct them. One caution:
what appear to be a brand loyal purchase patterns may reflect habit, indifference, a low price, a
high switching cost, or the non-availability of other brands. Thus a company must carefully
interpret what is behind the observed purchase patterns.

4. Psychographics Segmentation

In psychographics segmentation, buyers are divided into different groups on the bases of lifestyle
or personality and values. People with the same demographic group can exhibit very different
psychographics profiles.

• Lifestyle: - People exhibit many more lifestyle than are suggested by the seven social
classes. The goods they consume express their lifestyle. Companies making cosmetics,
alcoholic beverages and furniture are always seeking opportunities in lifestyle
segmentation. But lifestyle segmentation does not always work.
• Personality: - Marketers have used personality variable to segment markets. 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. Chevrolet owners were conservative, thrifty, prestige-conscious, less
masculine, and seeking to avoid extremes.
4.1.2. Business Market Segmentation
Consumer and business marketers use many of the same variables to segment their markets.
Business buyers can be segmented geographically, demographically (industry, company size), or
by benefits sought, user status, usage rate, and loyalty status. Yet, business marketers also use
some additional variables, such as customer operating characteristics, purchasing approaches,
situational factors, and personal characteristics.

4.1.3. Requirements for Effective Segmentation

Clearly there are many ways to segment a market as we have seen above, but not all
segmentation is effective.

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To be useful a market segment must have the following characteristic

a. Measurability: - the size, purchasing power and profiles of the segments should
be measurable.
b. Accessible: - the market segments should be effectively reached and served.
c. Substantial: - the market segments must be large (profitable) enough to serve.
d. Differentiable: - the segments should be conceptually and practically
distinguishable and respond differently to different marketing mix and programs.
E.g. if married and unmarried women respond similarly to a sale of perfume, they
do not constitute separate segments.
e. Actionable: - it should be possible to design effective programs for attracting and
serving the segments.

4.2. MARKET TARGETING

Market Targeting is the process of selecting one or more market segments to enter. Let’s assume
that a company has segmented the total market for its product. Now management is in a position
to select one or more segments as its target markets.

Once the firm has identified its market-segment opportunities, it has to evaluate the various
segments and decide how many and which to target. We will now examine the process of
evaluating and selecting marketing segments.

4.2.1. Evaluating Market Segments

In evaluating different market segments a firm must look at three factors

a) Segment size and growth: 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. However, the
‘right size and growth’ is a relative mater.
b) Segment structural attractiveness: 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 profits that can be earned in
a segment. The relative power of buyers also affects the segment attractiveness. Finally, a

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 segment may be less attractive if it contains powerful suppliers who can control prices or
reduce the quality and quantity of ordered goods and services.
c) Company objectives and resources: Even if a segment has the right size and growth and is
structurally attractive, the company must consider its own objectives and resources some
attractive segments can be dismissed quickly because they do not mesh with the company’s
long run objectives. Or the company may lack the skills and resources needed to succeed in
an attractive segment. The company should enter only segments in which it can offer
superior value and gain advantages over competitors.

4.2.2. Target Marketing Strategies

After evaluating different segments, the company must decide which and how many segments it
will target. A target market consists of a set of buyers who share common needs
or characteristics that the company decides to serve. Market targeting can be carried out at
several different levels. Companies can target very broadly (undifferentiated marketing), very
narrowly (micromarketing), or somewhere in between (differentiated or concentrated marketing).

A. Undifferentiated marketing; Using an undifferentiated marketing (mass marketing)

strategy, a firm might decide to ignore market segment differences and target the whole
market with one offer. This mass marketing strategy focuses on what is common in the
needs of consumers rather than on what is different. The company designs a product and a
marketing program that will appeal to the largest number of buyers. Most modern marketers
have strong doubts about this strategy. Difficulties arise in developing a product or brand
that will satisfy all consumers. Moreover mass marketers often have trouble competing with
more focused firms that do a better job of satisfying the needs of specific segments and
niches.
B. Differentiated Marketing: Using differentiated marketing (segmented marketing)
strategy, a firm decides to target several market segments and designs separate offers for
each. By offering product and marketing variations to segments, companies hope for higher
sales and a stronger position within each market segment. Developing a stronger position
within several segments create more total sales than undifferentiated marketing across all
segments. But differentiated marketing also increases the costs of doing business. A firm
usually finds it more expensive to develop and produce, say, 10 units of 10 different
products than 100 units of one product. Developing separate marketing plans for the

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 separate segments requires extra marketing research, forecasting, sales analysis, promotion
planning, and channel management. Thus, the company must weigh increased sales against
increased costs when deciding on a differentiated marketing strategy.
C. Concentrated Marketing: A third market coverage strategy, concentrated marketing
(niche marketing), is especially appealing when company resources are limited. Instead of
going after a small share of a large market, the firm goes after a large share of one or a few
segments or niches. Through concentrated marketing, the firm achieves a strong market
position because of its grater knowledge of consumer needs in the niches it serves and the
special reputation it acquires. It can market more effectively by fin-tuning its products,
prices and programs to the needs of carefully defined segments. It can also market more
efficiently, targeting its products or services, channels, and communications programs
toward only consumers that can serve best and most profitably.
Whereas segments are fairly large and normally attract several competitors, niches are
smaller and may attract only one or a few competitors. Niching offers smaller companies an
opportunity to compete by focusing their limited resources on serving niches that may be
unimportant to or overlooked by larger competitors. Many companies start as nichers to get
a foothold against larger, more resourceful competitors, and then grow into broader
competitors. Concentrated marketing can be highly profitable.

At the same time, it involves higher than-normal risks. Companies that rely on one or a few
segments for all of their business will suffer greatly if the segment turns sour. Or larger
competitors may decide to enter the same segment with greater resources. For these reasons,
many companies prefer to diversify in several market segments.

D. Micromarketing: Differentiate and concentrated marketers tailor their offers and marketing
programs to meet the needs of various segments and niches. Micromarketing is the practice
of tailoring products and marketing programs to suit the tastes of specific individuals and
locations. Micromarketing includes local marketing and individual marketing.
• Local marketing- involves tailoring brands and promotions to the needs and wants of
local customer groups- cities, neighborhoods, and even specific stores. Local marketing
has some drawbacks. It can drive your manufacturing and marketing costs by reducing
economies of scale. It can also create logistics problems as companies try to meet the
varied requirements of different regional and local market. Still, as companies face

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 increasingly fragmented markets, and as new supporting technologies develop, the
advantages of local marketing often outweigh the drawbacks.
• Individual Marketing- in the extreme, micromarketing becomes individual marketing
tailoring products and marketing programs to the needs and preferences of individual
customers. It has also been labeled one- to- one marketing, mass customization and
markets of one marketing.

4.2.3. Choosing a Target Market Strategy

Companies need to consider many factors when choosing a target marketing strategy. Which
strategy is best depends on:

i. Company resources: when the firm’s resources are limited, concentrated marketing makes the
most sense.
ii. 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.
iii. The product’s life-cycle stage: when a firm introduces a new product, it may be practical to
launch only one version, and undifferentiated marketing may make the most sense. In the
mature stage of the product life cycle, however, differentiated marketing begins to make more
sense.
iv. 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.
v. Competitors’ marketing strategies: If 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.
4.3.MARKET POSITIONING

After a target market has been selected a company will naturally find others competing in that
segment. The next task is to develop a marketing plan that will enable your product to compete
effectively against them. It is unlikely that success will be achieved with a marketing program
that is virtually identical to competitors for that already have attained a place in the minds of

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individuals in the target market and have developed brand loyalty. Since people have a variety of
needs and tastes, market acceptance is more easily achieved by positioning.

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.

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.
Consumers are overloaded with information about product and services. They cannot reevaluate
products every time they make a buying decision. To simplify the buying process, consumers
organize products, services, and companies into categories and position them in their minds. A
products position is the complex set of perceptions impressions, and feelings that consumers
have for the product with competing products.

Consumers position products with or without the help of marketers. But marketers don not want
to leave their products positions to chance. They must plan positions that will give their products
the greatest advantage in selected target markets, and they must design marketing mixes to create
these planned positions.

4.3.1. Identifying Possible Competitive Advantages

Competitive advantage is an advantage over competitors gained by offering consumers greater
value, either through lower prices or by providing more benefits that justify higher prices.

Consumers typically choose products and services that give them the greatest value. Thus the
key to winning and keeping customers is to understand their needs and buying processes rather
than competitors do and to deliver more value.

Positioning begins with actually differentiating the company’s marketing offer so that it will give
consumers more value than competitors’ offers do. A company or market offer can be
differentiated alone the lines of product, services, people or image. Differentiation is the act of
designing a set of meaning-full differences to distinguish the company’s offering from
competitors’ offerings. Areas of differentiation could be:

• Product Differentiation: Differentiation of physical products takes place along a continuous

process. At one extreme we find highly standard products that allow little variation. In the

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 other extremes we find products capabilities of high differentiation, such as automobiles,
commercial holdings, and furniture. Here the seller faces an abundance of design parameters.
The main product differentiations are features, performance, conformance, durability,
reliability, reparability, style and design.
• 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 differentiations are ordering easily, delivery, installation, customer
training, customers consulting, maintenance and repair, and a few others.
• 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:
• Competence –The employees possess the required skill and knowledge.
• Courtesy –The employees are friendly, respectful and considerate.
• Credibility –The employees are trust worthy.
• Reliability –The employees perform the service consistently and accurately.
• Responsiveness –The employees respond quickly to customer’s requests and problems.
• Communication –The employees make an effort to understand the customer and
communicate clearly.
• Channel Differentiations: Companies can achieve differentiation through the way they design
their distribution channel, particularly these channels coverage, expertise, and performance.
For example, caterpillar’s 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 caterpillar’s 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. A company or brand image should convey
the product’s distinctive benefits and positioning. Developing a strong and distinctive image
calls for creativity and hard work. A company cannot develop an image in the public’s mind
overnight using only a few advertisements.

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4.3.2. Selecting the Right Competitive Advantages (Developing a Positioning Strategy)
Companies use several tactics to differentiate their products and brands. Even in the case of
commodity products, the company must see its task as that of converting undifferentiated
product into a differentiated offering. But all brand differences are meaningful or worthwhile.
Not every difference is a differentiator. Each difference has the potential to create company costs
as well as customer benefits. Therefore the company must carefully select the way in which it
will distinguish itself from competitors. A difference is worth establishing to the extent that it
satisfies the following criteria.

• Important: The difference delivers a highly valued benefit to a sufficient number of buyers.
• Distractive: The difference either is not offered by others or is offered in a more distinctive
way by the company.
• Superior: The difference is superior to other ways of obtaining the same benefits.
• Communicable: The difference is communicable and visible to buyers.
• Preemptive: The difference cannot be easily copied by competitors.
• Affordable: The buyers can afford to pay for the difference
• Profitable: The company will find it profitable to introduce the difference
Each firm will want to promote those few differences that will appeal most strongly to its target
markets. In other words, the firm will want to develop a focused positioning strategy.

4.3.3. Communicating and Delivering the Chosen Position

Once it has chosen the position, the company must take strong steps to deliver and communicate
the desired position to target customers. All company’s marketing mix elements should support
the positioning strategy. Positioning calls for concrete action not talk. E.g. if the company
decides to position on better quality and service, it should not only communicate these
differentiation bases to the prospective target markets but also should deliver it. Otherwise, it
bound to fail sooner or later even if its positioning strategy is the best one.

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