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.
MARKET SEGMENTATION
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.
Segmentation
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
group.
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
personalities.
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.
KEY TERMS
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
MARKET SEGMENTATION (CONTINUED)
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
profitable.
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
competitors.
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
positions.
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
attendants.
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
criteria:
• 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
benefit.
• 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
benefits.
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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