Identifying Market Segments and Targets

CHAPTER
IDENTIFYING
MARKET
SEGMENTS
AND TARGETS
4
Chapter Objectives
1. Identify the essential components of a market.
2. Outline the role of market segmentation in developing a
marketing strategy.
3. Describe the criteria necessary for effective segmentation.
4. Explain each of the four bases for segmenting consumer
markets.
5. Identify the steps in the market segmentation process.
6. Discuss four basic strategies for reaching target markets.
7. Summarize the types of positioning strategies.
8. Explain the reasons for positioning and repositioning
products.
8-2

4.0 CONCEPT AND DEFINITION

The concept of market segment is based on
the fact that the market of commodities are
not homogeneous but they are
heterogeneous. Market represent a group of
customer having common characteristics but
two customer are never common in their
nature, habits, hobbies income and
purchasing techniques.

CONCEPT AND DEFINITION
According to Philip Kotler , Market
segmentation is sub-dividing a market into
distinct and homogeneous subgroups of
customers, where any group can conceivably
be selected as a target market to be met
with distinct marketing mix.

CONCEPT AND DEFINITION
Market Segmentation is a method of dividing
a market (Large) into smaller groupings of
consumers or organisations in which each
segment has a common characteristic such as
needs or behaviour.
4.1 Level OF Market Segmentation
a) Segment Marketing
- A market segment consists of a group of
customers who share a similar set of needs and
wants
- Marketers does not create the segment; the
marketers task is to identify the segments and
decide which one (s) to target.
- Segment marketing offers key benefits over mass
marketing.

PATTERNS OF MARKET SEGMENTATION
Market segments can be build up in many
ways, one way is to identify preference
segments
For example ice cream buyer are asked how
much they value sweetness and creaminess in
ice cream as two product attributes. Three
different patterns can emerge.

Basic Market-Preference Patterns
(a) Homogeneous
preferences
Sweetness
C
r
e
a
m
i
n
e
s
s

(c) Clustered
preferences
C
r
e
a
m
i
n
e
s
s

Sweetness
(b) Diffused
preferences
C
r
e
a
m
i
n
e
s
s

Sweetness
Preference Segments
Homogeneous preferences
exist when consumers want the same things-no
natural segments
all buyers have same preference

Clustered preferences
reveal natural segments from groups with shared
preferences

Copyright 2009 Pnatural segments
8-9
Diffused preferences
exist when consumers want very different things
No pattern ( poor research0
Take center position

b) NICHE MARKETING
Concentrating all marketing efforts on a small but
specific and well defined segment of
the population. Niches do not 'exist' but are
'created' by identifying needs, wants, and
requirements that are being addressed poorly or
not at all by other firms, and developing and
delivering goods or services to satisfy them. As
a strategy, niche marketing is aimed at being a big
fish in a small pond instead of being a small fish
in a big pond.

Niche Marketers
Copyright 2009 Pearson
Education, Inc. Publishing
as Prentice Hall
8-12
Enterprise Rent-A-Car
targets the insurance-
replacement market
c) LOCAL MARKETING
Local marketing is the customization of
marketing mix variables to the
store level based on consumer, competitor,
and store characteristics.

Baskin Robbins Focuses on
Local Marketing
INDIVIDUAL MARKETING
The ultimate level of segmentation leads to
Segments of one
Customized marketing
One to one marketing
Mass Customization
Mass production of goods with differing individual
specifications through the use of components that
may be assembled in a number of
different configurations. Mass customization is a
cost-efficient way of offering some of the
benefits of customization.

d) What is Customerization?
Customerization combines operationally driven
mass customization with customized marketing
in a way that empowers consumers to design the
product and service offering of their choice.
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-17
Customerization
the customization of products or
services through personal interaction
between a company and the customer.
A company is said to customerize when
it is able to dialogue with individual
customers and respond by customizing
its products, services, and messages on
a one-to-one basis.
4.2 Categorize The Base for Segmenting Consumer and
Business Market
4.2.1 Bases for Segmenting Consumer Markets
Geographic
Region, City or
Metro
Size, Density,
Climate

Lifestyle or Personality
Psychographic
Demographic
Age, Gender, Family size
and Fife cycle, Race,
Occupation, or Income ...
Occasions, Benefits,
Uses, or Attitudes
Behavioral
8-20
Segmenting Consumer Markets
Geographic Segmentation
Dividing an overall market into
homogeneous groups on the
basis of their locations
Does not ensure that all
consumers in a location will
make the same buying
decision.
Help in identifying some
general patterns.

8-21
Pampers
This ad is an
example of
geographic
segmentation.
When visiting the
web site look for the
different countries
Pampers markets to.
8-22
Crunch Fitness
Centers
Using Geographic
Segmentation
8-23
as Prentice Hall
8-24
Demographic Segmentation
Age and Life Cycle
Life Stage
Gender
Income
Generation
Social Class
as Prentice Hall
8-25
Toyota Scion
Targets Gen Y Consumers
8-26
Segmenting by gender
Marketers must ensure that traditional
assumptions are not false
Other firms start by targeting one gender and
then switch to both
To some companies market successfully to
both genders
Dove Targets Women
as Prentice Hall
8-27
8-28
Segmenting by age
Many firms identify
market segments on
the basis of age
Products are often
designed to meet the
specific needs of
certain age groups
Examples: baby food
and denture cream.
Dole: Developing a
Product Specifically
for Children

Market-product grid showing how different Reebok
shoes reach customer groups with different needs
as Prentice Hall
8-32
Behavioral Segmentation
Decision Roles
Initiator
Influencer
Decider
Buyer
User
Behavioral Variables
Occasions
Benefits
User Status
Usage Rate
Buyer-Readiness
Loyalty Status
Attitude
as Prentice Hall
8-33
Loyalty Status
Switchers
Shifting loyals
Split loyals
Hard-core
The Conversion Model
as Prentice Hall
8-34
Convertible Shallow Average Entrenched
Strongly
unavailable
Ambivalent Available
Weakly
unavailable
Users
Nonusers
The Brand Funnel Illustrates Variations in the
Buyer-Readiness Stage
Aware
Ever tried
Recent trial
Occasional user
Regular user
Most often used
as Prentice Hall
8-35
8-36
Psychographic Segmentation
Divides a population into groups that have
similar psychological characteristics, values, and
lifestyles
Lifestyle: peoples decisions about how to live
their daily lives, including family, job, social, and
consumer activities
The most common method for developing
psychographic profiles of a population is to
conduct a large-scale survey:
VALS and VALS 2.
Values and Lifestyles
8-37
Product-related segmentation: dividing a
consumer population into homogeneous
groups based on characteristics of their
relationships to the product
Can take the form of segmenting based on:
Benefits that people seek when they buy
Usage rates for a product
Consumers brand loyalty toward a product

4.2.2 Bases for Segmenting Business
Markets
Demographic
Operating Variables
Purchasing Approaches
Situational Factors
Personal Characteristics
Four levels of Micromarketing
as Prentice Hall
8-39
Segments
Local areas Individuals
Niches
as Prentice Hall
8-40
Behavioral Segmentation Breakdown
Segmenting for Business Markets
as Prentice Hall
8-41
Demographic
Operating Variable
Purchasing Approaches
Situational Factors
Personal
Characteristics
Steps in Segmentation Process
as Prentice Hall
8-42
Needs-based segmentation
Segment identification
Segment attractiveness
Segment profitability
Segment positioning
Segment acid test
Marketing-Mix
Strategy
Target Marketing
Target marketing requires marketers to take
three major steps:
Identify and profile distinct groups of buyers
who differ in their needs and preferences
(market segmentation)
Select one or more market segments to enter
(market targeting)
For each target segment, establish and
communicate the key distinctive benefit(s) of
the companys market offering. (market
positioning)
Heavy and Light Users of Common Consumer
Products
HEAVY HALF LIGHT HALF
PRODUCT (% USERS)
75%
71%
Soups and
detergents (94%)
25%
29%
79% 21%
Toilet tissue (95%)
Shampoo (94%)
75% 25%
17%
17%
Paper towels (90%)
Cake mix (74%)
Cola (67%)
83%
83%
13%
5%
87%
19%
Beer (41%)
Dog food (30%)
Bourbon (20%)
81%
95%
Effective Targeting Requires
Identify and profile distinct groups of buyers
who differ in their needs and preferences
Select one or more market segments to enter
Establish and communicate the distinctive
benefits of the market offering
as Prentice Hall
8-45
Criteria for Effective Segmentation
Market segmentation cannot be used in all
cases. To be effective, segmentation must
meet the following basic requirements.
The market segments must be measurable in
terms of both purchasing power and size.
Marketers must be able to effectively promote
to and serve a market segment.
Market segments must be sufficiently large to
be potentially profitable.
The number of segments must match the
firms capabilities.
8-46
Requirements for Effective Segmentation
Size, purchasing power, profiles
of segments can be measured.
Segments can be effectively
reached and served.
Segments are large or profitable
enough to serve.
Measurable
Accessible
Substantial
Differential

Actionable
Segments must respond
differently to different marketing
mix elements & programs.
Effective programs can be
designed to attract and serve
the segments.
Evaluating and Selecting The
Market Segments
The firm must look at two factors:
a) the segments overall attractiveness
b) the companys objectives and resource
The Five Pattern of Target Market
Selection
1. Single - Segment Concentration
Through concentrated marketing, the firm gains
a strong knowledge of segments need and
achieves a strong market market presence
Firm enjoys operating economies through
specializing its production, distribution and
promotion.
Capture leadership, earn high return on its
investment
eg. Volkswagen- small car market and Porsche on
sport car market
2. Selective Specialization
The firm selects a number of segments, each
objectively attractive and appropriate.
May be little or no synergy among the
segments but each promise to be a
moneymaker.
This multi segment strategy has the
advantages of diversifying the firms risk.
E.g a radio broadcaster may has two stations
rhythm and blues music for older consumers.
Urban street music for listeners under 25.
3. Product Specialization
The firm makes a certain product that it sells
to several segment.
The firm makes different microscope for
different customer groups and builds a strong
reputation in the specific product area.
E.g microscope segment university,
government, commercial laboratories.
4. Market Specialization
The firm concentrates on serving many needs
of a particular customer group.
An example would be a firm that sells an
assortment of products only to university
laboratories. The firms gains a strong
reputation in serving this customer group
and becomes a channel for additional
products the customer group can use.
5. Full Market Coverage
The firm attempts to serve all customer
groups with all the product they might need.
Only very large firms such as Sony( television
market) , Toyota ( vehicle market) and Coca-
cola ( drink market) can undertake a full
market coverage strategy. Large firms can
cover a whole market in two broad ways ;
through undifferentiated marketing or
differentiated marketing
Undifferentiated Marketing
Firm ignores segment differences and goes
after the whole market with one offer. It
design a product and a marketing program
that will appeal to the broadest number of
buyers.
It relies on mass distribution, mass advertising
Differentiated Marketing
The firm operates in several market segment
and designs different products for each
segment.
IBM offers many hardware and software
packages for different segments in the
computer market.
Five Patterns of Target Market
Selection
Single-segment
concentration
Product
specialization
M1 M2 M3
P1

P2

P3

Selective
specialization
M1 M2 M3
P1

P2

P3

M1 M2 M3
Full market
coverage
P1

P2

P3
Market
specialization
M1 M2 M3
P1

P2

P3
P1

P2

P3

M1 M2 M3
P = Product
M = Market
Additional Segmentation Criteria
Ethical Choice of Market Targets
Segment Interrelationships & Supersegments
Segment-by-Segment Invasion Plans
Intersegment Cooperation
Steps in Segmentation, Targeting,
and Positioning
1. Identify Bases
for Segmenting the Market
2. Develop Profiles
of Resulting Segments
3. Develop Selection Criteria
4. Select Target
Segment(s)
5. Develop Positioning
for Each Target Segment
6. Develop Marketing
Mix for Each Target Segment
Market
Positioning
Market
Targeting
Market Segmentation
Copyright 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 59 of 24
The act of designing a companys
offering and image to occupy a
distinctive place in the minds of the
target market.
Positioning

The goal of positioning is to locate the brand in the minds of
consumers to maximize the potential benefit to the firm. A
good brand positioning helps guide marketing strategy by
clarifying the brands essence, identifying the goals it helps
the consumer achieve, and showing how it does so in a
unique way.

Brand Positioning
Customer wants and
needs
Company capabilities
Competitive actions
Quality
P
r
i
c
e

Brand
A
B
C
D
E
F
G
To create a well-differentiated brand
position marketers must have a keen
understanding of customer wants
and needs, company capabilities, and
competitive actions.

Develop and communicating
Positioning Strategy
Frame of Reference
Points of parity / difference
Establishing membership
Identify target market and relevant
competition
Identify POP and POD of
brand associations

Positioning requires that marketers define and
communicate similarities and differences between their
brand and its competitors:

1. Determine a frame of reference by identifying the
target market and relevant competition
1.Identify the optimal points of parity and points of
difference brand associations given that frame of
reference
2.Create a brand mantra to summarize the positioning
and essence of the brand

Competitive Frame of Reference
Identifying Competitors
Analyzing Competitors
A frame of reference begins by determining
the category to which the product belongs,
which includes all products that a brand
competes with, or can serve as a substitute.
Competitors can then be analyzed and more
narrowly defined. For example, even though a
new brand in the premium bottled water
space is in the same category as Cokes Dasani,
it must focus more on other premium priced
brands such as Fiji.

Points of Parity / Difference
Points of Parity
POP
Points of
Difference
POD
Choosing POPs and PODs
Brand
Benefits
Brand
Attributes
Reasons
to
believe
Proof
points
Establishing Brand Positioning
Internally
Points of
difference
Communicate
Category Membership
Category Benefits
Compare to
exemplars
Product descriptor
Points of
parity
Brand Positioning Bulls-eye
Establishing category membership

e.g., HP digital cameras reinforced with category
membership i.e. being in the same class as Sony,
Canon, etc.).
There are three main ways to convey a brand's
category membership:
- Announcing category benefits.
- Comparing to exemplars (established leaders).
- Relying on the product descriptor. (The product
descriptor that follows the brand name is often a
concise means of conveying category origin).

Choosing POPs and PODs.

Points-of-parity are driven by the needs of
category membership (to create category
POPs) and the necessity of negating
competitors' PODs (to create competitive
POPs). In choosing points-of-difference, two
important considerations are that consumers
find the POD desirable and that the firm has
the capabilities to deliver on the POD
Three key consumer desirability
criteria for PODs
Relevance. (The Westin Stamford hotel in Singapore
advertised that it was the world's tallest hotel, but a
hotel's height is not important to many tourists).
Distinctiveness. Target consumers must find the POD
distinctive and superior.
Believability. Target consumers must find the POD
believable and credible. (Chanel No. 5 perfume may
claim to be the quintessential elegant French perfume
and support this claim by noting the long association
between Chanel and haute couture
Three key deliverability criteria
The firm must be able to actually create the POD.
Communicability. (I.e. the message is consistent
with existing knowledge and consumers have no
trouble to believe. E.g. Using patented, branded
ingredients, such as Nivea Wrinkle Control Creme
with Q10 co-enzyme or Herbal Essences hair
conditioner with Hawafena).
Sustainability. (The positioning that is
preemptive, defensible, and difficult to attack,
plus can be reinforced over time).

Positioning can be based on Brands
attributes, Brands benefits, and Brands
values. The first is the easiest, but the worst
effectively (can be copied, consumers may not
seek just attributes, later it may be impossible
to change); stress must be made on two latter
factors).

Creating POPs and PODs
Major problem: features frequently are
negatively correlated, plus may possess both
positive and negative aspects. Development of
non-conflicting PODs and POPs become a mix
of science and art (e.g. Gore-Tex was able to
overcome the seemingly conflicting product
image of "breathable" and "waterproof"
through technological advances).

Remedies to the problem
Present POPs/PODs separately. (e.g. Head and
Shoulders two sequential campaigns on effective
dandruff removal and nice hair looking).
Leverage equity of another entity. (e.g.
celebrities or branded ingredients may lend
credibility to a negative POP/POD).
Redefine the relationship. (The most difficult
approach. Means, redefining that the relationship
is indeed positive).

Differentiation Strategies
Competitive
Advantage
Sustainable Leverageable
Customer Advantage
Means of Differentiation

Product
Service
Employees/personnel
Channels
Image

Product Differentiation
Product differentiation is a strategy that
involves a firms using different
marketing mix activities to help
consumers perceive the product as being
different and better than competing
products.
Product form
Features
Customization
Performance
Conformance
Durability
Reliability
Repairability
Style
FORM In terms of size, shape or physical structure of a product.
Consider the many possible forms taken by products such as
aspirin. Although aspirin is essentially a commodity, it can
be differentiated by dosage size, shape, color, coating or
action time.
FEATURES Most products can be offered with varying features that
supplement the products basic function
PERFORMANCE
QUALITY
Most products are established at one of four performance
levels . Low , Average, high or superior. Performance quality
is the level at which the products primary characteristics
operate.
CONFORMANCE
QUALITY
Buyers expect products to have a high conformance quality
which is the degree to which all the produced unit are
identical and meet the promised specifications.
DURABILITY Durability, a measure of the products expected operating
life under natural or stressful conditions is a valued attribute
for certain products.

RELIABILITY
Buyers normally will pay a premium for more reliable products. Reliability
is a measure of the probability that a product will not malfunction or fail
within a specified time period. National has an excellent reputation for
making reliable major home appliance.
REPAIRABILITY
Buyers prefer products that are easy to repair. Reparability is a measure
of the ease of fixing a product when it malfunctions or fails. An
automobile made with standard parts that are easily replaced has high
reparability.

STYLE
Style describe the products look and feel to the buyer. Car buyers pay a
premium for Jaguars because of their extraordinary look.

DESIGN
Design offers a potent way to differentiate and position a companys
product and services. Design is the factor that will often give a company
its competitive edge. Design is the totality of features that affect how a
product looks and functions in terms of customer requirments.

Service Differentiation
When the physical product cannot
easily be differentiated , the key to
competitive success may lie in adding
value service and improving their
quality.

ODERING EASE Ordering ease refers to how easy it is for the customer to place an order
with the company. Many banks now provide home banking software to
help customers get information and do transactions more efficiently.
Consumers are now even able to order their eyewear without going to
the optical store.
INSTALLATION
Refers to the work done to make product operational in its planned
location. Buyers of heavy equipment expect good installation service.
Ease of installation becomes a true selling point

DELIVERY
Delivery refers to how well the product or service is delivered to the
customer. It includes speed, accuracy and care attending the delivery
process. Todays customers have grown to expect delivery speed : Pizza
delivered in one-half hour, film developed in one hour, eyeglasses made
in one hour, cars lubricated in 15 minutes.
DESIGN
Design offers a potent way to differentiate and position a companys
product and services. Design is the factor that will often give a company
its competitive edge. Design is the totality of features that affect how a
product looks and functions in terms of customer requirments.

Design Differentiation
as Prentice Hall
12-87
Ordering ease
Delivery
Installation
Customer training
Customer consulting
Maintenance and
repair
Returns

Personnel Differentiation
Competence They possess
the required skill and
knowledge; courtesy; They
are friendly, respectful and
considerate.
Reliability The perform
the service consistently and
accurately
Responsiveness they
respond quickly to
customers requests and
problems
Communication They
make an effort to
understand the customer
and communicate clearly
Channel Differentiation
One of the ways of a companies can
differentiate their offerings in the minds of
the consumers ; They can differentiate their
offerings through theirs channels coverage,
expertise and performance and thus may
achieve competitive advantages
Image Differentiation
Identity Can be built by strong symbols. The
company can choose a symbol such as the
tiger (Maybank), Apple ( Apple Computer) or
bird ( Cathay Pacific).
A brand can be built around a famous
person(s) as with Michelle Yeoh and David
Tang for Mandarin Oriental Hotel.
Companies may choose a color identifier such
as blue (IBM), Yellow ( Kodak) or red
(Campbell soup) or a specific piece of sound
Or music. Cathay Pacific chose green as its
corporate color and this is consistently
expressed in its print ads, letterheads and
other communication tools.
Events and Sponsorships - A company can
build its brand image through creating or
sponsoring various event. Event marketers
have favored sport events and are now using
other venues such as art museums, zoos or
ice shows to entertain client and employees.
Using Multiple Image Building Technique
Swatch watch provides an excellent example
of how to use multiple image building
technique to etch a lasting image in the
publics mind.
Copyright 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 97 of 24
Discussion Questions
1. How can a firm develop and establish
an effective positioning in the market?
2. How do marketers identify and analyze
competition?
3. How are brands successfully
differentiated?
4. What are the differences in positioning
and branding with a small business?

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