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Principles of Marketing – MGT301
VU
Lesson – 17
Lesson overview and learning objectives:
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
Market Segmentation
marketing program for each buyer.
1. Identify bases for
However, although some companies
segmenting the market
attempt to serve buyers individually, many 2. Develop segment profiles
others face larger numbers of smaller buyers
Market Targeting
and do not find complete segmentation
3.
Develop
measure of
worthwhile. Instead, they look for broader
segment attractiveness
classes of buyers who differ in their product
4. Select target segments
needs or buying responses. Thus, market
segmentation can be carried out at several
Market positioning
5. Develop positioning for
different levels. Figure shows that
target segments
companies can practice no segmentation
6. Develop a marketing
(mass marketing), complete segmentation
mix for each segment
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Principles of Marketing – MGT301
VU
(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.
Segmentation
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.
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Principles of Marketing – MGT301
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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.
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Principles of Marketing – MGT301
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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
Market targeting
dividing a market into smaller groups
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
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