Lecture 6 - Marketing segmentation and positioning

Market segmentation is the subdividing subdividing of a market into distinct subsets of customers, where any subset may conceivably be selected as a target market target market to be

Three Major steps in target marketing

To succeed in today’s competitive marketplace, companies must be

customer-oriented so that they can deliver greater value to them

and keep them satisfied and loyal The company embarks on a

Market segmentation is the subdividing subdividing of a

market into distinct subsets of customers,

where any subset may conceivably be

selected as a target market target market to be reached

with a distinct marketing mix”.

(Kotler)

Key elements of market segmentation

 the total market consists of varied groups of consumers, each

group consists of people (or organizations) with common needs and preferences, who may well react to ‘market stimuli’ in much the

same way

 the marketer has to determine which segments offer the best

opportunity for achieving company’s objectives Each market

segment can become a target market for a firm, an would require a

specific marketing mix.

 major variables used are geographic, demographic,

psychographic and behavioural.

 the process of dividing the market into distinct group with different

needs is called market segmentation

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Benefits of Segmentation

 provides products, product features or attributes more closely matching

their identified needs

 enables a firm to identify those groups of customers who are most likely

to buy This ensures that resources will not be wasted and marketing and

sales activity can be highly focused The result should be lower costs,

greater sales and higher profitability

 provides greater customer choice by generating a variety of products

within a particular class from which consumers can choose

Table 1 Market segmentation variables for consumer markets

Kotler, Wong, Saunders, and Armstrong, Principles of Marketing, Power points, Four European

Edition, @ Pearson Education Limited 2005

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The Main Bases of Segmentation

The purpose of segmentation is to identify the consumers who

respond in a similar way

 1.1 Geographic Segmentation

 Segmentation by location can also be a feature of international marketing

strategy, where marketing strategy is formulated around the different needs of

various cultures, countries or regions.

 needs and motives will be significantly influenced by a range of factors

including climate, religion, culture and even geography

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The Main Bases of Segmentation

 1.2 Demographic Segmentation

 the common base of segmentation is by demography such as age, sex,

income, educational qualification and occupation, etc

 the total size of each segment will suggest possible levels of demand for

corresponding products (rattles and prams, bicycles and motor cycles,

retirement cottages and sea cruises)

 another much used characteristic is the type of residence

Table 3: Most common way a market can be segmented

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Table 4: Example of how the market for soap may be segmented:

Table 5: CCN EuroMOSAIC households across Europe (%)

The Main Bases of Segmentation

 1.3 Psychographic Segmentation

and Occupational status)

Opinions (where they sand on product related

issues)

 1.3 Psychographic Segmentation (cont’d )

One simple example generalises life-style in terms of four categories:

(a) Upwardly mobile, ambitious

 People seek a better and more affluent lifestyle, principally through better

paid and more interesting work, and a higher material standard of

living Persons with such a lifestyle will be prepared to try new

products

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 1.3 Psychographic Segmentation (cont’d )

(b) Traditional and Sociable

 Compliance and conformity to group norms bring social approval and

reassurance to the individual Purchasing patterns will therefore be

‘conformists’

(c) Security and Status seeking

 ‘Safety’ needs and ‘ego-defensive’ needs are stressed This life-style links

status, income and security It encourages the purchase of strong and

well know products and brands, and emphasises those products and

services which confer status and make life as secure and predictable

as possible

(c) Security and Status seeking (cont’d )

 These would include insurance, membership of the AA or RAC, etc

Products that are well established and familiar inspire more

confidence than new products, which will be resisted

(d) Hedonistic preference

 The emphasis is on ‘enjoying life now’ and the immediate satisfaction of

wants and needs Little consideration is given to the future

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The Main Bases of Segmentation

 1.4 Behavioural segmentation

 Markets segmented based upon consumer knowledge, attitude,

use or response to a product.

● Buyer readiness stage

● Attitude towards product

Benefit Segmentation

strongly favored in fast moving

consumer goods (FMCG) markets is

the use of the benefit variable.

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Product Usage Segmentation

 by identifying lucrative segments on how much customers use In most

markets, the 80/20 rule applies That is, 80% of a product or brand is

bought by 20% of the customers This is converted to a broader

classification which uses the labels Heavy User, Medium User, Light User

 the heavy user segment is a valuable and important target for marketers

 on the other hand, there may be an attractive volume in the Light User

Segment if the reason for light use can be clearly identified and the

marketing mix can be manipulated in order to overcome the problem

Guinness have run many successful campaigns to make inroads into the

non-user/light user segment

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Requirements for effective segmentation

There are many ways to segment a market To be useful, market

segments must be:

Requirements for effective segmentation

There are many ways to segment a market To be useful, market

segments must be: (cont’d…)

Segmenting Industrial Markets

A number of methods for segmenting the industrial market exist

Improved databases provide additional intelligence information

allowing much tighter targeting of industrial customers

 (a) by location

 many business sectors are concentrated in particular locations, for

example steel in Sheffield, computer companies along the M4 corridor etc

 (b) customer size

 the size of a company either by turnover or employee numbers can

give a broad indication of their needs for certain products, e.g

management training services

Segmenting Industrial Markets

 (c) usage rates

 customers can be segmented as heavy, medium or light users; this is most

relevant in raw material and parts markets and the market for some industrial

services, for example telecommunications and travel.

(d) industry classification (Standard Industry classification

(SIC)

 this classification indicates the nature of the business

(e) product use

 Different products may be used in different forms or ways, for example an

industrial organization may buy a fleet of cars for use by its sales force, or to

hire out to the public as the basis for its service Different uses are likely to be

associated with different needs.

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Table 8: Primary segmentation variables for business markets (continued)

Source: Adapted from Thomas V Bonoma and Benson P Shapiro, Segmenting the Industrial Market

(Lexington, MA: Lexington Books, 1983); see also John Berrigan and Carl Finkbeiner, Segmentation

Marketing: New methods for capturing business (New York: Harper Business, 1992).

Identify the market coverage approaches in selecting

a target market

It is a process of evaluation of the selected segments and then deciding which market

segments to operate within Once the organization decides on its target market to

serve, it can adopt one of the following market coverage strategies market coverage strategies:

 2.1 Concentrated (Niche) Marketing

 especially appealing when the organization’s resources are limited

 allows the firm to maintain its market presence

 by offering a specific range of products and services to a particular segment

 small businesses should adopt this form of marketing strategy as a foothold against the larger

competitors

it is also called niche marketing

 2.1 Concentrated (Niche) Marketing -

cont’d…

 runs the risk of relying on a single segment of a single market e.g the De

Lorean sports car firm ran into irreversible financial difficulties in 1981-82

when the sports car market contracted in the USA

 specialization nonetheless can enable a firm to capitalize on a profitable,

although perhaps temporary, competitive edge over rivals ( such as Kickers

specializing in leisure footwear)

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 2.2 Differentiated (Segmented) Marketing

 means the organization targets a few markets or niches and offer

different products to different kinds of customers e.g car

manufacturers such as Borneo is currently using such a strategy

Their brand, Toyota is used to target at the middle class while Lexus

addresses the luxury segment

 the main disadvantage is the additional cost of marketing and

production (extra product design and development costs, the loss of

economies of scale in product and storage, extra promotion and

administrative costs and so on)

 2.3 Undifferentiated (Mass) Marketing

 ignores market segmentation and go after the whole market

 design of product and marketing program largely depends on mass

distribution and production

 good for economies of scale in terms of costs of product

 however, this kind of marketing strategy is not very effective as

customers these days are not homogenous.

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.

Choosing a Target-Marketing Strategy

Requires Consideration of:

 company resources

 the degree of product variability

 product’s life-cycle stage

 market variability

 competitors’ marketing strategies

.

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 A marketing strategy that emphasizes serving a

specific market segment by achieving a certain

position in buyers’ minds

Choosing a Positioning Strategy

be sources of differentiation.

◦ Unique selling proposition

◦ Positioning errors to avoid

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Criteria for Meaningful

Choosing a Positioning Strategy

 Selecting an overall positioning strategy

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● More for More Value Proposition

● More for the Same Value Proposition

● The Same for Less Value Proposition

● Less for Much Less Value Proposition

● More for Less Value Proposition

Choosing a Positioning Strategy

 Developing a positioning statement

● Positioning statements summarize the company or brand

Positioning and Repositioning

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 Position Mapping

● Graphic illustration that shows differences in consumers’

perceptions of competing products

 Reposition Reposition

● Marketing strategy to change the position of its product

in consumers’ minds relative to the positions of

competing products

Perpetual Mapping

Brands can be positioned in relation to competitive brands on

product maps in which relative positions are defined in terms of how buyers perceive key characteristics

A basic perceptual map plots brands in perceived price and

perceived quality terms

Price and quality are clearly important elements in every marketing

mix, but in the customer’s opinion, they cannot be considered independent variables A ‘high’ price will almost always be associated with high quality and equally, low price with low quality Thus, while everybody would like to buy a bargain brand, there is a problem to overcome Will customers accept that a high quality product can be offered at a low price?

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