Lesson 3 Market Segmentation, Targeting,

and Positioning
Companies today recognize that they cannot appeal to all buyers in the market place, 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 being more choosy about the customers with whom they wish to
connect.
The figure below shows the three major steps in target marketing.

Market Segmentation
o

Identify bases for

segmenting the
market
Develop segment
profiles

Market Targeting
o

Develop measure
of segment
attractiveness
Select target
segments

Market Positioning
o

Develop positioning
for target
segments
Develop a
marketing mix for
each segment

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 segments 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

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.

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.

Mass Marketing
Companies have not always practiced target marketing. For most of this 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.
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. One is that the market has become so diverse
that marketers have found it very hard to create a single product or program that appeals to all. The
proliferation of distribution channels and advertising media has also made it difficult to practice one-sizefits-all marketing.

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.
Segment marketing offers several benefits over mass marketing:
1.
2.
3.

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; and
The company may face fewer competitors if fewer competitors are focusing on this market
segment.

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 that may seek
a special combination of benefits. For example, the utility vehicles segment might include light-duty
pickup trucks and sport utility vehicles (SUVs). The sport utility vehicles sub-segment might be further
divided into standard SUV (as served by Ford and Chevrolet) and luxury SUV (as served by Lincoln and
Lexus) niches.
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 their customers willingly pay a rice premium. Niching offers small companies an opportunity
to compete by focusing their limited resources on serving several niches.

Micromarketing
Micromarketing is the practice of tailoring products and marketing programs to suit the tastes of
specific individuals and locations. Two forms emerge:
Local Marketing. This involves tailoring brands and promotions to the needs and wants of local
customer groups cities, neighborhoods, and even specific stores. Drawbacks of local marketing include
higher costs, reduction of economies of scale, logistical problems, and dilution of brand image.
Advantages of this practice are more effective marketing in the face of different community lifestyles and
demographics, and it meets the needs of local retailers.
Individual Marketing. This is otherwise known as the extreme of micromarketing. This practice
involves tailoring products and marketing programs to the needs and preferences of individual customers.
The tailor custom-made suit is an example. More computers are allowing more firms to pursue this
approach. Furthermore, this area is also called one-to-one marketing, customized marketing, and
markets-of-one marketing.
A modified approach of individual marketing is mass customization. This process involves firms
interacting one-to-one with masses of customers to create customer unique value by designing products
and services tailor-made to individual needs. This trend in marketing also mirrors the trend in consumer
self-marketing. In this form, consumers are taking more responsibility for determining which products
and brands to buy.

Ultimate Consumers and Business Users the First Cut

A company can segment its market in many different ways, and the bases for segmentation vary
from one market to another. Often the first step is to divide a potential market into two broad categories:
ultimate consumers and business users.
The sole criterion for this first cut at segmenting a market is the customers reason for buying.
Ultimate consumers buy goods or services for their own personal or household use and are satisfying
strictly non-business wants. They constitute the consumer market. Business users are business,

industrial, or institutional organizations that buy goods or services to use in their organizations, to resell,
or to make other products.
Segmenting a market into these two groups consumers and businesses is extremely significant
from a marketing point of view because the two segments buy differently. Consequently, the composition
of a sellers marketing mix will depend on whether it is directed toward the consumer market or the
business market.

Segmenting Consumer Markets

Dividing a total market into ultimate consumers and business users results in segments that are
still too broad and varied for most products. We need to identify some characteristics within each of these
segments that will enable us to divide them further into more specific targets.

Geographic Segmentation
Subdividing markets into segments based on location regions, cities, and towns where people live
and work is geographic segmentation. The reason for this is simply that consumers wants and product
usage often are related to one or more of these sub-categories. Geographic characteristics are also
measurable and accessible two of the conditions for effective segmentation.
Another method of geographic segmentation is based on population density such as, urban, suburban, and rural.

Demographic Segmentation
Market segmentation most often starts with demographics. They are frequently used because they
are often strongly related to demand and are relatively easy to measure. Demographic segmentation
deals with questions such as Who you are and How much do you earn and is commonly used when
planning and allocating selling efforts.
Table 1. Demographics Segmentation Variables
Variables
Some Examples
1. Age
Newborn, Baby, Child, Teenager, Work Beginner,
Yuppies, Middle Age, Matured, Retirees
Age Brackets are also commonly used in this
segmentation method.
2. Gender
Male, Female
3. Civil Status
Single, Married, Single Parent, Separated,
Widow, Widower, Divorced
4. Income
A, B, C, D
Income brackets are also commonly used in this
segmentation criteria.
5. Education
Illiterate, Grade School, High School, Vocational,
College, Masters, Doctoral
6. Profession
Unemployed, Housewife, White Collar Worker,
Blue Collar Worker, Teacher, Retirees, Military,
Technical Worker, Manager, Religious, Student
7. Family Life Cycle
Young, single; young, married, no children
8. Religious Affiliation
Roman Catholic, Protestant, Muslims, Buddhist
9. Nationality
Filipino, Japanese, Korean, Chinese, American

Psychographic Segmentation
Demographics are used to segment markets because these data are related to behavior and
because they are relatively easy to gather. However, demographics are not in themselves the causes of
behavior. Consumers dont buy windsurfing equipment because they are young. They buy it because they
enjoy an active, outdoor lifestyle, and it so happens that such people are also typically younger. Thus
demographics often correlate with behavior, but they do not explain it.
Marketers often go beyond demographic attributes in an effort to better understand why
consumers behave as they do. They engage in what is called psychographics segmentation, which
involves examining attributes related to how a person thinks, feels, and behaves. Frequently included in a

psychographic segmentation effort are personality dimensions, lifestyle characteristics, and consumer
values.
Personality Characteristics. An individuals personality is usually described in terms of traits
that influence behavior. Theoretically, they would seem to be good basis for segmenting markets. Our
experience tells us that compulsive people buy differently from cautious consumers, and quiet introverts
do not buy the same things or in the same way as gregarious, outgoing people.
However, personality characteristics pose problems that limit their usefulness in practical market
segmentation. First, the presence and strength of these characteristics in the general population are
virtually impossible to measure. Another problem is associated with the accessibility condition of
segmentation. There is no advertising medium that provides unique access to a particular personality
type; that is, television reaches introverts as well as extroverts. So one of the major goals of
segmentation to avoid wasted marketing effort, is not likely to be accomplished using personality.
Nevertheless, firms often tailor their advertising messages to appeal to personality traits. Even
though the importance of the personality dimension in a particular decision may be unmeasurable, the
seller believes that it does play an influential role.
Lifestyle. Lifestyle relates to activities, interests, and opinions. Your lifestyle reflects how you
spend your time and what your beliefs are on various social, economic, and political issues. It is a broad
concept that overlaps what some consider to be personality characteristics.
Although it is a valuable marketing tool, lifestyle segmentation has some of the same limitations as
segmentation based on personality characteristics. Another problem is that a given lifestyle segment
might not be accessible at a reasonable cost through a firms usual distribution system or promotional
program.
Values. According to psychologists, values are a reflection of our needs adjusted for the realities
of the world in which we live. Researchers have identified the following basic values that relate to
purchase behavior.

Self-respect

Security

Excitement

Fun & enjoyment

in life
Having warm
relationships
Self-fulfillment

Sense of belonging

Sense of
accomplishments
Being wellrespected

Although almost everyone would view all these values as desirable, their relative importance differs
among people, and their relative importance affects behavior. Thus, the relative strength of values could
be the basis for segmenting a market.

Behavioral Segmentation
Some marketers regularly attempt to segment their markets on the basis of product-related
behavior they utilize behavioral segmentation.
Benefits Desired. From a customer-oriented perspective, the ideal method for segmenting a
market is on the basis of customers desired benefits. Certainly, using benefits to segment a market is
consistent with the idea that a company should be marketing benefits and not simply the physical
characteristics of a product.
Usage Rate. Another basis for market segmentation is the rate at which people consume a
product. A popular categorization of usage rates is non-users, light users, medium users, and heavy
users.
Sometimes a marketer will select as a target market the non-user or light user, intending to woo
these customers into higher usage. Or light users may constitute an attractive niche for a seller simply
because they are being ignored by firms that are targeting heavy users. Once the characteristics of these
light users have been identified, management can go to them directly with an introductory low-price offer.
Or a seller might get consumers to increase their usage rates by (1) describing new uses for a product;
(2) suggesting new times or places for use; or (3) offering multiple-unit packaging.

Segmenting Business Markets

Even though the number of buyers in a business market may be relatively few compared to a
consumer market, segmentation remains important. The reason is quite simple a highly focused
marketing effort directed at meeting the specific needs of a group of similar customers is both more
efficient and more likely to be successful.

Customer Location
Business markets are frequently segmented on a geographic basis as some industries are
geographically concentrated.
Companies also segment international markets geographically.
In
considering developing countries, for example, a firm might consider the reliability of public utilities, the
quality of the transportation system, and the sophistication of the distribution structure in deciding where
to expand its operation.

Customer Type
Size. Business customer size can be estimated using such factors as sales volume, number of
employees, number of production facilities, and number of sales offices. Many sellers divide their potential
market into large and small accounts, using separate distribution channels to reach each segment. The
sellers sales force may contact large-volume accounts directly, but to reach the smaller accounts, the
seller may use a middleman or rely on the Internet or telemarketing.
Organization Structure. Firms approach buying in different ways. Some rely heavily on their
purchasing departments to control the inflow of information, reduce the number of potential alternatives,
and conduct negotiations. Selling to such companies would require a strong personal selling effort
directed specifically at purchasing executives. IT would also need excellent supporting materials if the
product exceeded the technical expertise of the purchasing managers.
Other buyers opt for greater involvement in the purchase process by the people who will be directly
affected by the purchase. Selling to a market segment such as this requires many, varied contacts, and
often involves several people from the selling firm.
Purchase Criteria. All buyers want good quality, low prices, and on-time delivery. However,
within a market there are groups for which one of these or some other purchase criterion is particularly
significant.

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 the degree to which the size, purchasing power, and profiles of a market segment
can be measured.
2. Accessibility the degree to which a market segment can be reached and served.
3. Substantiality the degree to which a market segment is sufficiently large or profitable.
4. Differentiation 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. Actionability the degree to which effective programs can be designed for attracting and serving
a given market segment.

Market Targeting
Market segmentation reveals the firms market segment opportunities. The firm now has to
evaluate the various segment and decide how many and which ones to target. We now look at how
companies evaluate and select target segments.

Evaluating Market Segments

In evaluating market segments, a marketer must look at three factors:

1. Size and growth. Companies must collect and analyze data on current dollar sales, projected
sales-growth rates, and expected profit margins for the various segments. The company will be
interested in segments that have the right size and growth characteristics. The largest, fastestgrowing segments are not always the most attractive ones for every company, though. The
company must consider competition and whether their company resources are sufficient to pursue
the opportunity.
2. Segment structural attractiveness. The company must assess several major structural factors
that affect long-run segment attractiveness. Areas to consider include:
a. Current and potential competitors;
b. Threat of substitute products;
c. Relative power of buyers; and
d. Relative power of suppliers.
3. Companys 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 in relation to
that segment. Some attractive segments could be dismissed quickly because they do not mesh
with the companys long-run objectives. Even if a segment fits the companys objectives, the
company must consider whether it possesses the skills and resources it needs to succeed in that
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.

Selecting Market Segments

After evaluating different segments, the company hopes to find one or more market segments
worth entering. It must engage in target-market selection.
A target market is a set of buyers who share common needs or characteristics that the company
decides to serve.
The firm can adopt one of three market-coverage strategies:
1. Undifferentiated marketing is a market-coverage strategy in which a firm decides to ignore
market segment differences and go after 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 for its success. It aims to give the
product a superior image in peoples minds. Most modern marketers, though, 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.
2. Differentiated marketing is a market-coverage strategy in which a firm decides to target several
market segments and designs separate offers for each. 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. For example, Procter & Gamble gets more total
market share with eight brands of laundry detergent than it could with only one. However,
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 segment requires extra marketing
research, forecasting, sales analysis, promotion planning, and channel management. Further,
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.
3. 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 few segments or niches. Concentrated
marketing provides an excellent way for small new businesses to get a foothold against larger,
more resourceful competitors. Through concentrated marketing, the firm achieves a strong market

position because of its greater knowledge of consumer needs in the segments or niches it serves
and the special reputation it acquires. It also enjoys many operating economies because of
specialization in production, distribution, and promotion. If the segment is well chosen, the firm
can earn a high rate of return on its investment. At the same time, concentrated marketing
involves higher-than-normal risks.
The particular market segment can turn sour or large
competitors may decide to enter the same segment.

Choosing a Market-Coverage Strategy

Companies need to consider many factors when choosing a market-coverage strategy.
1. Company resources. When a companys resources are limited, concentrated marketing makes
the most sense.
2. Product variability. Standardization can be matched with undifferentiated strategies; variance
can be matched with differentiated strategies.
3. Products stage in the life-cycle. In the beginning stages, use limited product offerings and
pursue undifferentiated or concentrated markets. Expand product offerings (differentiation) in the
latter stages.
4. Market variability. If tastes are the same, use undifferentiated marketing.
5. Competitors marketing strategies.
Be careful of using opposites unless you can segment
where they have not.

Positioning for Competitive Advantage

Beyond deciding which segments of the market it will enter, the company must decide what
positions it wants to occupy in those segments. A products 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 brands unique benefits and differentiation in
customers minds. For example, Tide is positioned as a powerful, all-purpose family detergent; Ivory
Snow is positioned as the gentle detergent for fine washables and baby clothes. In the automobile
market, Toyota Tercel and Subaru are positioned on economy, Mercedes and Cadillac on luxury, and
Porsche and BMW on performance. Volvo positions powerfully on safety.
Consumers are overloaded with information about products and services. They cannot reevaluate
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 products
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 positions.

Choosing a Positioning Strategy

The positioning task consists of three steps:
1.

Identifying a set of possible competitive advantages upon which to build a position. The
key to winning and keeping customers is to understand their needs and buying processes better
than competitors do and to deliver more value. A competitive advantage is an advantage over
competitors gained by offering consumers greater value, either through lower prices or by
providing more benefits that justify competitive advantage.
Specific ways that a company can differentiate its offer from those of the competition are:
a. Product differentiation. This involves differentiating a companys physical product.
Methods include variety of standard or optional features, performance, style and design, or
attributes (such as consistency, durability, reliability, or repairability).
b. Services differentiation. This involves the way the firm differentiates the services that
accompany the product. Methods include:
i. Speedy, reliable, or careful delivery
ii. Installation service
iii. Customer training service

c. Channel differentiation. This involves gaining competitive advantage through the way
the company designs its channel coverage, expertise, and performance.
d. People differentiation.
This involves hiring and training better people than the
competitors do.
e. Image differentiation. This requires working to establish images that differentiate them
from competitors. Symbols can be used.
2. Choosing the right competitive advantage. In so doing, the organization must decide on the
following:
a. How many differences to promote? Many marketers think that companies should
aggressively promote only one benefit to the target market. Ad man, Rosser Reeves, called
this benefit the Unique Selling Proposition (USP). This involves going for the number
one attribute.
b. Others believe that more than one differentiating factor is fine. However, avoid:
i. Underpositioning. Failing to ever really position the company at all.
ii. Overpositioning. Giving buyers too narrow a picture of the company.
iii. Confused positioning. Leaving buyers with a confused image of a company.
c. Which differences to promote? Not all differences are meaningful or worthwhile. A
difference is worth establishing if it satisfies the following criteria:
i. Important. The difference delivers a highly valued benefit to target buyers.
ii. Distinctive. Competitors do not offer the difference, or the company can offer it in
a more distinctive way.
iii. Superior. The difference is superior to other ways that customers might obtain the
same benefit.
iv. Communicable. The difference is communicable and visible to buyers.
v. Preemptive. Competitors cannot easily copy the difference.
vi. Affordable. Buyers can afford to pay for the difference.
vii. Profitable. The company can introduce the difference profitably.
3. 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
brands value proposition the full mix of benefits upon which the brand is positioned. It is the
answer to the customers question, Why should I buy your brand?
Typical brand propositions can include:
a. More for More. This involves providing the most upscale product or service and charging a
higher price to cover the higher costs. For example, Ritz-Carlton Hotels, Mont Blanc writing
instruments, Mercedes-Benz automobiles each claims superior quality, craftsmanship,
durability, performance, or style and charges a price to match. Not only the marketing offer
high in quality, it also offers prestige to the buyer. It symbolizes status and a loftier
lifestyle. Often, the price difference exceeds the actual increment in quality.
In general, companies should be on the lookout for opportunities to introduce a much more
for much more brand in any underdeveloped product or service category. Yet, more for
more brands can be vulnerable. They often invite imitators who claim the same quality but
at a lower price. Luxury goods that sell well during good times may be at risk during
economic downturns when buyers become more cautious in their spending.
b. More for the Same. Companies can attack a competitors more for more positioning by
introducing a brand offering comparable quality but at a lower price. (e.g. Lexus by Toyota)
c. The Same for Less. Offering the same for less can be a powerful value proposition
everyone likes a good deal. For example, Amazon.com sells the same book titles as its
brick-and-mortar competitors but at lower prices, and Dell Computer offers equivalent
quality at a better price for performance. They do not claim to offer different or better
products. Instead, they offer many of the same brands as department stores and specialty
stores but at deep discounts based on superior purchasing power and lower-cost operations.
Other companies develop imitative but lower-priced brands in an effort to lure customers
away from the market leader.
d. Less for Much Less. A market almost always exists for products that offer less and
therefore cost less. Few people need, want, or can afford the very best in everything they

buy. In many cases, consumers will gladly settle for less than optimal performance or give
up some of the bells and whistles in exchange for a lower price. Less for much less
positioning involves meeting consumers lower performance or quality requirements at a
much lower price.
e. More for Less. Of course, the winning value proposition would be to offer more for less.
Many companies claim to do this like Procter & Gamble. In the short run, some companies
can actually achieve such lofty positions however, they will find it difficult to sustain such
best-of-both positioning. Offering more usually costs more, making it difficult to deliver on
the for less promise. Companies that try to deliver both may lose out to more focused
competitors.
All said, each brand must adopt a positioning strategy designed to serve the needs and wants of its
target markets. The important thing is that each company must develop its own winning positioning
strategy, one that makes it special to its target consumers. Offering only the same for the same
provides no competitive advantage, leaving the firm in the middle of the pack. Companies offering one of
the three losing value propositions the same for more, less for more, and less for the same will
inevitably fail. Here, customers soon realize that theyve been underserved, tell others, and abandon the
brand.

Communicating and Delivering the Chosen Position

Once a position is chosen, the company must take strong steps to deliver and communicate the
desired position to target consumers. All the companys 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 involves working out the tactical details of the
positioning strategy. Thus, a firm that seizes on a more for more position knows that it must produce
high-quality products, charge a high price, distribute through high-quality dealers, and advertise in highquality 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 products position
should evolve gradually as it adapts to the ever-changing marketing environment.
References:
Armstrong, G and Kotler, P (2011). Marketing: An Introduction, 10th Edition. USA: Pearson Education, Inc.
Stanton, W. (2003) Principles of Marketing.