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Principles of Marketing

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Marketing Segmentation

The Lesson emphasizes the key steps in: market segmentation; market targeting, and market
positioning. Market segmentation provides a method to divide or segment the market into narrow
segments (using a variety of different meaningful variables. Today we will be discussing the major
variables that can be used to segment the consumer markets.


A. Market Segmentation:

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 that can be reached more
efficiently and effectively with products and services that match their unique needs. Companies
today recognize that they cannot appeal to all buyers in the marketplace, or at least not to all buyers
in the same way. Buyers are too numerous, too widely scattered, and too varied in their needs and
buying practices. Moreover, the companies themselves vary widely in their abilities to serve
different segments of the market. Rather than trying to compete in an entire market, sometimes
against superior competitors, each company must identify the parts of the market that it can serve
best and most profitably.

Thus, most companies are more selective about the customers with whom they wish to connect.
Most have moved away from mass marketing and toward market segmentation and targeting—
identifying market segments, selecting one or more of them, and developing products and
marketing programs tailored to each. Instead of scattering their marketing efforts firms are
focusing on the buyers who have greater interest in the values they create best.

B. Steps in Target Marketing:

Figure shows the three major steps in target marketing. The first is market segmentation
dividing a market into smaller groups of buyers with distinct needs, characteristics, or behaviors
who might require separate products or marketing mixes. The company identifies different ways to
segment the market and develops profiles of the resulting market segments. The second step is
market targeting—evaluating each market segment's attractiveness and selecting one or more of
the market segments to enter. The third step is market positioning—setting the competitive
positioning for the product and creating a detailed marketing mix. We discuss each of these steps
in turn.

C. Levels of Market Segmentation

Because buyers have unique needs and wants, each buyer is potentially a separate market. Ideally,
then, a seller might design a separate
marketing program for each buyer.
However, although some companies
attempt to serve buyers individually, many
others face larger numbers of smaller buyers
and do not find complete segmentation
worthwhile. Instead, they look for broader
classes of buyers who differ in their product
needs or buying responses. Thus, market
segmentation can be carried out at several
different levels. Figure shows that
companies can practice no segmentation
(mass marketing), complete segmentation
(micromarketing), or something in between (segment marketing or niche marketing).

Levels of marketing segmentation

a) Mass Marketing

Companies have not always practiced target marketing. In fact, for most of the 1900s, 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. Henry Ford
epitomized this marketing strategy when he offered the Model T Ford to all buyers; they could
have the car” in any color as long as it is black." Similarly, Coca-Cola at one time produced only
one drink for the whole market, hoping it would appeal to everyone.
The traditional argument for mass marketing is that it creates the largest potential market, which
leads to the lowest costs, which in turn can
translate into either lower prices or higher
margins. However, many factors now make
mass marketing more difficult. The
proliferation of distribution channels and
advertising media has also made it difficult
to practice "one-size-fits-all" marketing.

b) Segment Marketing

A company that practices segment
marketing isolates broad segments that make
up a market and adapts its offers to more
closely match the needs of one or more
segments. Thus, Marriott markets to a variety of segments—business travelers, families, and
others—with packages adapted to their varying needs. Segment marketing offers several benefits
over mass marketing. The company can market more efficiently, targeting its products or services,
channels, and communications programs toward only consumers that it can serve best and most
profitably. The company can also market more effectively by fine-tuning its products, prices, and
programs to the needs of carefully defined segments. The company may face fewer competitors if
fewer competitors are focusing on this market segment.

c) Niche Marketing

Market segments are normally large, identifiable groups within a market—for example, luxury car
buyers, performance car buyers, utility car buyers, and economy car buyers. Niche marketing
focuses on subgroups within these segments. A niche is a more narrowly defined group, usually
identified by dividing a segment into sub segments or by defining a group with a distinctive set of
traits who may seek a special combination of benefits. Whereas segments are fairly large and
normally attract several competitors, niches are smaller and normally attract only one or a few
competitors. Niche marketers presumably understand their niches' needs so well that their
customers willingly pay a price premium.

d) 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. 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 (Local marketing involves tailoring brands and promotions to the needs
and wants of local customer groups—cities, neighborhoods, and even specific stores. Citibank
provides different mixes of banking services in its branches depending on neighborhood
demographics) and individual marketing (tailoring products and marketing programs to the needs
and preferences of individual customers).

D. Segmenting Consumer Markets

There is no 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. The major variables
that might be used in segmenting are major geographic, demographic, psychographics, and
behavioral variables.

a) Geographic Segmentation

Geographic segmentation calls for dividing the market into different geographical units such as
nations, regions, states, counties, cities, or neighborhoods. A company may decide to operate in
one or a few geographical areas, or to operate in all areas but pay attention to geographical
differences in needs and wants. It is common to localize products, advertising, promotions, and
sales efforts to fit the needs of geographical areas (regions, cities, and even neighborhoods).

b) Demographic Segmentation

Demographic segmentation divides the market into groups based on variables such as age, gender,
family size, family life cycle, income, occupation, education, religion, race, and nationality.
Demographic factors are the most popular bases for segmenting customer groups. One reason is
that consumer needs, wants, and usage rates often vary closely with demographic variables.
Another is that demographic variables are easier to measure than most other types of variables.
Even when market segments are first defined using other bases, such as benefits sought or
behavior, their demographic characteristics must be known in order to assess the size of the target
market and to reach it efficiently. Demographic variables are easier to measure than most other
types of variables.

I. Age and Life-Cycle Stage

Age and life cycle segmentation consists of offering different products or using different marketing
approaches for different age and life-cycle groups. Marketers must guard against stereotypes when
using this form of segmentation. While certain age and life cycle groups do behave similarly, age is
often a poor predictor of a person’s life cycle, health, work or family status, needs, and buying
power. Consumer needs and wants change with age. Some companies use age and life cycle
segmentation, offering different products or using different marketing approaches for different age
and life-cycle groups.

II. Gender segmentation

calls for dividing a market into different groups based on sex. This segmentation form has long
been used for clothing, cosmetics, toiletries, and magazines. New opportunities in this area are
emerging such as automobiles, deodorants, and financial services. There is an increased emphasis
on marketing and advertising to women. Specialized Web sites are becoming very popular with this

III. Income segmentation

It consists of dividing a market into different income groups. Marketers for automobiles, boats,
clothing, cosmetics, financial services, and travel have long used this form of segmentation. Using
this form, marketers must remember that they do not always have to target the affluent. Other
income groups are also viable and profitable market segments.

c) Psychographics segmentation

It calls for dividing a market into different groups
based on social class, lifestyle, or personality characteristics. People in the same demographic class
can exhibit very different psychographics characteristics. As previously seen in, lifestyle also
affects people’s interest in various goods, and the goods they buy express those lifestyles. This
method of segmentation is gaining in popularity. Personality variables can also be used to
segment markets. Marketers will give their products personalities that correspond to consumer

d) Behavioral segmentation

It involves dividing a market into groups based on consumer knowledge, attitudes, uses, or
responses to a product. Many marketers believe that behavior variables are the best starting point
for building market segments. Occasion segmentation consists of dividing the market into groups
according to occasions when buyers get the idea to buy, actually make their purchase, or use the
purchased item. Benefit segmentation involves dividing the market into groups according to the
different benefits the consumers seek from the product. Companies can use benefit segmentation
to clarify the benefit segment to which they are appealing, its characteristics, and the major
competing brands. They can also search for new benefits and establish brands that deliver them.
User status can also be used to divide the market. Segments of nonusers, ex-users, potential
users, first-time users, and regular users of a product are potential ways to segment. Usage rates
are another way that marketers segment markets. These categories might be light, medium, and
heavy user groups. Loyalty status can also be used to segment markets. Consumers can be loyal
to brands, stores, and companies. Consumers can be completely loyal, somewhat loyal, or not loyal
at all. An amazing amount of information can be uncovered by studying loyalty patterns.
Today there is a trend toward targeting multiple segments. Very often, companies begin their
marketing with one targeted segment, and then expand into other segments. This often boosts a
company’s competitive advantage and knowledge of the customer base. One of the most
promising developments in multivariable segmentation is “geodemographic” segmentation based
upon both geographic and demographic variables.


Market segmentation

 dividing a market into smaller groups

Market targeting

evaluating each market segment's attractiveness and selecting one or
more of the market segments to enter

Market positioning

setting the competitive positioning for the product

Geographic segmentation

dividing the market into different geographical units

Demographic segmentation

divides the market into groups based on variables such as age,
gender, family size, family life cycle, income, occupation, education,
religion, race, and nationality.

Behavioral segmentation

 involves dividing a market into groups based on consumer
knowledge, attitudes, uses, or responses to a product.

In last Lesson we studied the segmentation to day we will continue the same topic and market
targeting, and market positioning


A. Segmenting Business Markets

Consumer and business marketers use many of the same variables to segment their markets.
Business buyers can be segmented geographically or by benefits sought, user status, usage rate, or
loyalty status. Additional variables unique to this market would be business customer demographics
(industry, company size), operating characteristics, purchasing approaches, situational
factors, and personal characteristics. By going after segments instead of the whole market,
companies have a much better chance to deliver value to consumers and to receive maximum
rewards for close attention to customer needs. Within a chosen industry, a company can further
segment by customer size or geographic location. Many marketers believe that buying behavior
and benefits provide the best basis for segmenting business markets.

Segmenting International Markets Companies can segment international markets using one or
more of a combination of variables. The chief factors that can be used are:

Geographic location.

Economic factors. Political and legal factors. Cultural factors

 Many companies use an
approach called intermarket segmentation. In this approach, companies form segments of consumers
who have similar needs and buying behavior even though they are located in different countries.
For example, the world’s teens have a lot in common.

B. Requirements for Effective Segmentation

There are many ways to segment, but not all segmentations are effective. To be useful, market
segments must have certain characteristics. Among the most significant of these are:
1) Measurability is the degree to which the size, purchasing power, and profiles of a
market segment can be measured.
2) Accessibility refers to the degree to which a market segment can be reached and served.
3) Substantiality refers to the degree to which a market segment is sufficiently large or

4) Differentiation refers to the degree to which a market segment can conceptually be
distinguished and has the ability to respond differently to different marketing
mix elements and programs.
5) Action ability is the degree to which effective programs can be designed for attracting
and serving a given market segment.
C. Market Targeting
Market segmentation reveals the firm's market segment opportunities. The firm now has to
evaluate the various segments and decide how many and which ones to target. We now look at
how companies evaluate and select target segments.

a) Evaluating 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.
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

a) Undifferentiated Marketing

Using an undifferentiated marketing (or mass-marketing) strategy, a firm might decide to ignore
market segment differences and go to 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. It relies on mass distribution and mass advertising, and it aims to give the product a
superior image in people's minds. As noted earlier in the chapter, 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 a differentiated marketing strategy, a firm decides to target several market segments or
niches and designs separate offers for each. General Motors tries to produce a car for every "purse,
purpose, and personality." Nike offers athletic shoes for a dozen or more different sports, from
running, fencing, and aerobics to bicycling and baseball. By offering product and marketing
variations, these companies hope for higher sales and a stronger position within each market
segment. Developing a stronger position within several segments creates more total sales than
undifferentiated marketing across all segments. Procter & Gamble gets more total market share
with eight brands of laundry detergent than it could with only one. 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 separate segments requires extra marketing research, forecasting, sales
analysis, promotion planning, and channel management. Trying to reach different market segments
with different advertising increases promotion costs. 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, 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. Today, the low cost of setting up shop on the
Internet makes it even more profitable to serve seemingly minuscule niches. Concentrated
marketing provides an excellent way for small new businesses to get a foothold against larger, more
resourceful competitors. Through concentrated marketing, firms achieve strong market positions
in the segments or niches they serve because of their greater knowledge of the segments' needs and
the special reputations they acquire. They also enjoy many operating economies because of
specialization in production, distribution, and promotion. If the segment is well chosen, firms can
earn a high rate of return on their investments.
At the same time, concentrated marketing involves higher-than-normal risks. The particular market
segment can turn sour. Or larger competitors may decide to enter the same segment.

d) 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 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.

e) Socially Responsible Target Marketing

Smart targeting helps companies to be more efficient and effective by focusing on the segments
that they can satisfy best and most profitably. Targeting also benefits consumers—companies
reach specific groups of consumers with offers carefully tailored to satisfy their needs. However,
target marketing sometimes generates controversy and concern. Issues usually involve the targeting
of vulnerable or disadvantaged consumers with controversial or potentially harmful products. In
market targeting, the issue is not really who is targeted but rather how and for what. Controversies
arise when marketers attempt to profit at the expense of targeted segments—when they unfairly
target vulnerable segments or target them with questionable products or tactics. Socially
responsible marketing calls for segmentation and targeting that serve not just the interests of the
company but also the interests of those targeted.

f) Positioning for Competitive Advantage

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. Thus, Tide is positioned as a powerful, all-purpose family
detergent; In the automobile market, Toyota and Subaru are positioned on economy, Mercedes
and Cadillac on luxury Consumers are overloaded with information about products and services.
They cannot re evaluate products every time they make a buying decision. To simplify the buying
process, consumers organize products into categories—they "position" products, services, and
companies in their minds. A product's position is the complex set of perceptions, impressions, and
feelings that consumers have for the product compared with competing products. Consumers
position products with or without the help of marketers. But marketers do 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

b) Choosing a Positioning Strategy

Some firms find it easy to choose their positioning strategy. For example, a firm well known for
quality in certain segments will go for this position in a new segment if there are enough buyers
seeking quality. But in many cases, two or more firms will go after the same position. Then, each
will have to find other ways to set itself apart. Each firm must differentiate its offer by building a
unique bundle of benefits those appeals to a substantial group within the segment.
The positioning task consists of three steps: identifying a set of possible competitive advantages
upon which to build a position, choosing the right competitive advantages, and selecting an overall
positioning strategy. The company must then effectively communicate and deliver the chosen
position to the market.

c) Identifying Possible Competitive Advantages

The key to winning and keeping customers is to understand their needs and buying processes
better than competitors do and to deliver more value. To the extent that a company can position
itself as providing superior value to selected target markets it gains competitive advantage. But
solid positions cannot be built on empty promises. If a company positions its product as offering the
best quality and service, it must then deliver the promised quality and service. Thus, positioning
begins with actually differentiating the company's marketing offer so that it will give consumers more
value than competitors' offers do.
To find points of differentiation, marketers must think through the customer's entire experience
with the company's product or service. An alert company can find ways to differentiate itself at
every point where it comes in contact with customers. In what specific ways can a company
differentiate its offer from those of competitors? A company or market offer can be differentiated
along the lines of product, services, channels, people, or image.
Companies can gain a strong competitive advantage through people differentiation—hiring and
training better people than their competitors do. Thus, Disney people are known to be friendly and
upbeat. Singapore Airlines enjoys an excellent reputation largely because of the grace of its flight

d) Choosing the Right Competitive Advantages

Suppose a company is fortunate enough to discover several potential competitive advantages. It
now must choose the ones on which it will build its positioning strategy. It must decide how many
differences to promote and which ones.

I. How Many Differences to Promote?

Many marketers think that companies should aggressively promote only one benefit to the target
market. Each brand should pick an attribute and tout itself as "number one" on that attribute.
Thus, Crest toothpaste consistently promotes its anti cavity protection. A company that hammers
away at one of these positions and consistently delivers on it probably will become best known and
remembered for it.

Other marketers think that companies should position themselves on more than one
differentiating factor. This may be necessary if two or more firms are claiming to be the best on
the same attribute. Today, in a time when the mass market is fragmenting into many small
segments, companies are trying to broaden their positioning strategies to appeal to more segments.
In general, a company needs to avoid three major positioning errors. The first is under positioning
failing to ever really position the company at all. Some companies discover that buyers have only a
vague idea of the company or that they do not really know anything special about it. The second
error is over positioning—giving buyers too narrow a picture of the company.

II. Which Differences to Promote?

Not all brand differences are meaningful or worthwhile; not every difference makes a good
differentiator. Each difference has the potential to create company costs as well as customer
benefits. Therefore, the company must carefully select the ways in which it will distinguish itself
from competitors. A difference is worth establishing to the extent that it satisfies the following
Important: The difference delivers a highly valued benefit to target buyers.
Distinctive: Competitors do not offer the difference, or the company can offer it in a
more distinctive way.
Superior: The difference is superior to other ways that customers might obtain the same
Communicable: The difference is communicable and visible to buyers.
Preemptive: Competitors cannot easily copy the difference.
Affordable: Buyers can afford to pay for the difference.
Profitable: The company can introduce the difference profitably.
Many companies have introduced differentiations that failed one or more of these tests.

e) Selecting an Overall Positioning Strategy

Consumers typically choose products and services that give them the greatest value. Thus,
marketers want to position their brands on the key benefits that they offer relative to competing
brands. The full positioning of a brand is called the brand's value proposition—the full mix of
benefits upon which the brand is positioned. It is the answer to the customer's question "Why
should I buy your brand?" Volvo's value proposition hinges on safety but also includes reliability,
roominess, and styling, all for a price that is higher than average but seems fair for this mix of

f) Communicating and Delivering the Chosen Position

Once it has chosen a position, the company must take strong steps to deliver and communicate the
desired position to target consumers. All the company's marketing mix efforts must support the
positioning strategy. Positioning the company calls for concrete action, not just talk. If the
company decides to build a position on better quality and service, it must first deliver that position.
Designing the marketing mix—product, price, place, and promotion—essentially involves working
out the tactical details of the positioning strategy. Thus, a firm that seizes on a "for more" position
knows that it must produce high-quality products, charge a high price, distribute through highquality
dealers, and advertise in high-quality media. It must hire and train more service people, find
retailers who have a good reputation for service, and develop sales and advertising messages that
broadcast its superior service. This is the only way to build a consistent and believable "more for
more" position. Companies often find it easier to come up with a good positioning strategy than to
implement it. Establishing a position or changing one usually takes a long time. In contrast,
positions that have taken years to build can quickly be lost. Once a company has built the desired
position, it must take care to maintain the position through consistent performance and
communication. It must closely monitor and adapt the position over time to match changes in
consumer needs and competitors' strategies. However, the company should avoid abrupt changes
that might confuse consumers. Instead, a product's position should evolve gradually as it adapts to
the ever-changing marketing environment.

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