MARKET SEGMENTATION AND PRODUCT POSITIONING

To compete effectively, many companies are now embracing target marketing. Instead of
scattering their marketing efforts, they are focusing on those consumers they have the greatest
chance of satisfying. Effective target marketing requires that marketers:

1. Identify and profile distinct group of buyers who differ in their needs and wants (market
segmentation)
2. Select one or more market segments to enter (market targeting)
3. For each target segment, establish and communicate the distinctive benefits of the
company’s market offering (market positioning)

Market Segmentation

The total market for most products is heterogeneous and cannot be considered as one
homogeneous market. It does not have a single uniform entity. It has sub-markets which are
significantly different from one another. It is easily broken down into sections known as
segments. To achieve maximum customer satisfaction, marketers divide the heterogeneous
market into fairly homogeneous subject of customers. This process is referred to as market
segmentation. Each segment of the market is assumed to have similar needs, and will respond in
a similar way to the market offering strategy.

The business then decides which market segment(s) it can best satisfy. The process of deciding
which segments(s) to pursue is referred to as market targeting. After selecting the market
segments(s) the organization must decide how to compete effectively in this target market. A
decision has to be made concerning advantage to be achieved.

Benefits of market segmentation

1. It compels marketers to focus more accurately on customer needs. In a segmented

market, the marketer can fully appreciate the differences in customer needs and respond
accordingly. When the market offering is developed around customer needs, demands
and preferences, customer satisfaction can be achieved.
 2. Segmentation leads to the identification of excellent new marketing opportunities if
research reveals an unexplored segment. Without proper segmentation such a market may
remain untapped for years.
3. Market segmentation provides guidelines for the development of separate market offering
and marketing strategies for the various market segmentations.
4. Segmentation can help guide the proper allocation of marketing resources. A large
growing market segment may be allocated a greater portion of marketing budget, while a
shrinking one may be scaled down or eventually abandoned if it becomes unattractive.

Disadvantages of market segmentation

1. The development and marketing of separate models and market offering is very
expensive. One standardized model is much cheaper to manufacture and to market
2. Only limited market coverage is achieved since marketing strategies would be directed at
specific market segment only.
3. Excessive differentiation on the basis product may eventually lead to proliferation of
models and variations, and finally to cannibalization among the models/variations. This
happens when one product takes away market share from another product of the same
firm.

Prerequisites for Market Segmentation

Essentially market segmentation is meant to enhance customer satisfaction and increase

profitability for the organization. Both aspects must therefore be borne in mind when
undertaking the exercise. For segmentation to be effective, it must meet the following criteria: -

i. It must be measurable
The size, purchasing power, potential profit of the segment must be measurable. Without
these, it would be difficult to compare such a segment with others or to assess its
attractiveness properly.
ii. It must be large enough
 A market segment that is too small is not profitable due to lack of economies of scale. A
segment must be the largest homogeneous group of people worth exploiting with a
tailored market offering and marketing strategy.
iii. It must be accessible
The marketer must be able to reach the market segment with his or her market offering
and marketing strategy. Rural people who cannot read, write or listen to the radio would
be an inaccessible market.
iv. It must be actionable
It must be possible to develop separate marketing offering for different market segments.
Businesses are often unable to undertake different market offerings or strategies when
and if they realize that there is no distinct difference between various segments
v. It must be differentiable
Different market segments must exhibit heterogeneous needs, people in different segment
must have different needs, demands and desires, while people in the same segment must
exhibit similar/homogeneous characteristic and needs. The marketer should also be able
to distinguish segment from each other without too much difficult.

Bases of Segmentation Consumer Markets

The variables/bases utilized when segmenting the markets are geographic, demographic,
psychographic and behavioral variables.

Geographic segmentation

The marketer divides the total market into different geographical units such as nations, states,
regions, counties, cities, and neighborhoods. The company can operate in one or a few areas, or
it can operate in all but pay attention to local variations. In that way it can tailor marketing
programs to the needs and wants of local customer groups in trading areas, neighborhoods, even
individual stores. In a growing trend called grassroots marketing, such activities concentrate on
getting as close and as personally relevant to individual customers as possible.
Much of Nikes initial success comes from engaging target consumers through grassroots
marketing efforts such as sponsorship of local school teams, expert conducted clinics, and
provision of shoes, clothing and equipment.

Demographic Segmentation

In demographic segmentation, we divide the market on variables such as age, family size, family
lifecycle, gender, income, occupation, religion, race, generation, nationality, and social class.
One of the reasons demographic variables are so popular with marketers is that they are often
associated with consumer needs and wants. Another is that they are easy to measure. Even if we
describe the target market in nondemographic terms (say by personality type), we may need to
link back to the demographic characteristics in order to estimate the size of the market and the
media we should use to efficiently reach them.

Age and lifecycle stage – consumer wants and abilities change with age. Toothpaste brands such
as Colgate and Acquafresh offer three main lines of products to target kids, adults, and older
consumers. Age segmentation can be further refined like we see in various diaper brands.
Nevertheless, age and lifecycle can be tricky variables. The target market for some products may
be the psychologically young.

Life stage- people in the same part of the lifecycle may still differ in their life stage. Life stage
defines a person’s major concern such as going through divorce, going into a second marriage,
taking care of an older parent, deciding to cohabit with another person, deciding to buy a new
home and so on. These stages present opportunities for marketers who can help people cope with
their major concerns.

Gender – men and women have different attitudes and behave differently, based partly on
genetic makeup and partly because of socialization

Income- segmentation is a long standing practice in such categories as automobiles, clothing,

cosmetics, financial services, and travel. However, income does not always predict the best
consumers for a given product. Blue-collar workers were among the first purchasers of color
television sets; it was cheaper for them to buy these sets than go to movies and restaurants.

Generation – research on it (Gen Y, Gen X, baby boomers etc.) where are we now?

Race and culture- multicultural marketing is an approach recognizing that different ethnic and
cultural segments have sufficiently different needs and wants to require targeted marketing
activities, and that a mass market approach is not refined enough for the diversity of the market
place.

Psychographic Segmentation

Psychographics is the science of using psychology and demographics to better understand

consumers. In psychographic segmentation, buyers are divided into different groups on the basis
of psychological/personality traits, lifestyle, or values. People within the same demographic
group can exhibit different psychographic profiles.

One of the most popular commercially available classification system based on psychographic
measurements is Strategic Business Insight’s (SBI) VALS (values and lifestyles) framework.
They identified eight primary groups. Four with higher resources and the other four with lower
resources.

The four with higher resources are:

a) Innovators: successful, sophisticated, active, ‘take charge’ people with high self-esteem.
Purchases often reflect cultivated tastes for relatively upscale, niche-oriented products
and services
b) Thinkers- mature, satisfied, and reflective people motivated by ideals and who value
order, knowledge, and responsibility. They seek durability, functionality, and value in
products.
c) Achievers-successful, goal oriented people who focus on career and family. They favor
premium products that demonstrate success to their peers
 d) Experiencers- young, enthusiastic, impulsive people who seek variety and excitement.
They spend comparatively high portion of income on fashion, entertainment, and
socializing.

The four groups with lower resources are

a) Believers- conservative, conventional and traditional people with concrete beliefs. They
prefer familiar, locally made products and are loyal to established brands
b) Strivers- trendy and fun loving people who are resource constrained. They favor stylish
products that emulate the purchases of those with greater material wealth.
c) Makers- practical, down to earth, self-sufficient people who like to work with their own
hands. They seek locally made products with a practical and functional purpose.
d) Survivors- elderly, passive people concerned about change and are loyal to their favorite
brands.

Behavioral Segmentation

In behavioral segmentation, marketers divide buyers into groups on the basis of needs and
benefits, decision roles and, use of, or response to a product

Needs and benefits- not everyone who buys a product has the same needs or wants the same
benefits from it. Needs-based or benefit based segmentation is a widely used approach because it
identifies distinct market segments with clear marketing implications.

Decision roles – it is easy to identify the buyer for many products. People play five roles in
buying decision: initiator, influencer, decider, buyer, and user.

User and usage – real user and usage related variables

i. Purchases Occasion- Some buyers may use a product very regularly, while other may use
it only on special occasions e.g. electricity in urban and rural environments.
ii. Benefits sought - Some market segment may be very specific in the benefits they seek
when buying a specific product. Some may seek economy, while other may prefer
convenience or prestige.
 iii. User Status- Consumer can be segmented into groups consisting of potential users and
regular users. A balanced approach would require a firm to focus on regular users as well
as on potential users. Regular users guarantee survival in the medium term, while
potential users can be enticed into becoming user for future growth. Each segment would
be approached differently as the market task would vary according to user status.
iv. Usage rate- Marketers can make provision for different segment based on how frequently
buyers buy their products.
v. Loyalty status- Consumers vary in their loyalty towards the firms or its brand names.
Marketers make different market task spending on the standard of the loyalty of the
consumers.
vi. Business Readiness stage- Different marketing approaches have to be followed
depending on the consumer’ readiness to buy.
vii. Attitude towards the product- By segmentation consumers according to their attitudes
toward the product, a firm can increase its marketing productivity.

Product Positioning

A company discovers different needs and groups in the market place, targets those it can satisfy
in a superior way, and then positions its offering so the target market recognizes the company’s
distinctive offerings and images. This refers to the way consumers perceive a product in terms of
characteristics and advantages and its competitive position.

It therefore involves the creation, in the minds of the target buyers, of a distinctive position with
regards to the firm’s product relative to those of competing firms. For effective positioning it is
important that the marketer understand customer buying criteria and recognize the performance
of each competitor on each of the evaluative criteria.

The positioning Process

i. Identify a relevant set of competitive brands

The positioning process starts with the identification of a relevant set of competitive
brands against which a particular producer’s brand will be compared. It is essential that
all the relevant competing brands be identified (comprehensive) so as to make the
 positioning effort worthwhile. The marketer then identifies the strength and weakness of
his brand.

ii. Identify relevant determinant or differentiation variable(s)

Products positioning has to do with competitive differentiation and the effective
communication thereof to customers.
A market offering can be differentiated along four dimensions:
 Customer awareness
 Product quality
 Product availability
 Technical assistance
 Selling staff
iii. Determine consumer’s perceptions
The marketers must establish how consumers perceive the various brands in terms of
determinant variable used in the previous step. It involves collecting data from customers.
iv. Analyze the intensity of a brand’s current position
When a customer is aware of a brand, the intensity of awareness may vary. In a
population of brands, a customer may be aware of one or two. The marketer of a lesser
known brand must attempt to increase awareness.
v. Analyze the Brand’s current position
From the data collected from the consumer about their perception of the various brands in
the market, the marketer can establish how strongly a particular brand is associated with a
variety of determinant variable(s).
vi. Determine customer’ most preferred combination of attributes
Deciding where to position a new brand or where to reposition an existing one depends
on the market analysis as well as the market position analysis. The position chosen must
reflect customer preferences and the position of competitive brands.

Positioning Methods

a) Attribute positing- Firm position itself in terms of one or more outstanding attributes
b) Benefits positioning- Emphasize the unique benefits that the product provides or
application possibility
c) User positioning- Position the offering with user in mind
d) Competitive positioning- Against competitive offering
e) Quality/price positioning- May claim that its products are of exceptional quality or the
lowest price.