UNIT 3

Market Segmentation
Market Segmentation is a process of dividing the market of potential customers into different groups and
segments on the basis of certain characteristics. The member of these groups share similar characteristics
and usually has one or more than one aspect common among them.

There are many reasons as to why market segmentation is done. One of the major reasons marketers segment
market is because they can create a custom marketing mix for each segment and cater them accordingly. The
concept of market segmentation was coined by Wendell R. Smith who in his article “Product Differentiation
and Market Segmentation as Alternative Marketing Strategies” observed “many examples of segmentation” in
1956. Present-day market segmentation exists basically to solve one major problem of marketers; more
conversions. More conversion is possible through personalized marketing campaigns which require
marketers to segment market and draft better product and communication strategies according to the needs
of the segment.

Bases of Market Segmentation

Segmenting is dividing a group into subgroups according to some set ‘basis’. These bases range from age,
gender, etc. to psychographic factors like attitude, interest, values, etc.

Gender
Gender is one of the most simple yet important bases of market segmentation. The interests, needs and wants
of males and females differ at many levels. Thus, marketers focus on different marketing and communication
strategies for both. This type of segmentation is usually seen in the case of cosmetics, clothing, and jewellery
industry, etc.

Age group
Segmenting market according to the age group of the audience is a great strategy for personalized marketing.
Most of the products in the market are not universal to be used by all the age groups. Hence, by segmenting
the market according to the target age group, marketers create better marketing and communication
strategies and get better conversion rates.

Income
Income decides the purchasing power of the target audience. It is also one of the key factors to decide
whether to market the product as a need, want or a luxury. Marketers usually segment the market into three
different groups considering their income. These are
 High Income Group
 Mid Income Group
 Low Income Group
This division also varies according to the product, its use, and the area the business is operating in.

Place
The place where the target audience lives affect the buying decision the most. A person living in the
mountains will have less or no demand for ice cream than the person living in a desert.

Occupation
Occupation, just like income, influences the purchase decision of the audience. A need for
an entrepreneur might be a luxury for a government sector employee. There are even many products which
cater to an audience engaged in a specific occupation.

Usage
Product usage also acts as a segmenting basis. A user can be labelled as heavy, medium or light user of a
product. The audience can also be segmented on the basis of their awareness of the product.
Lifestyle
Other than physical factors, marketers also segment the market on the basis of lifestyle. Lifestyle includes
subsets like marital status, interests, hobbies, religion, values, and other psychographic factors which affect
the decision making of an individual.

Types of Market Segmentation

Geographic Segmentation
Geographic segmentation divides the market on
the basis of geography. This type of market
segmentation is important for marketers as
people belonging to different regions may have
different requirements. For example, water might
be scarce in some regions which inflates the
demand for bottled water but, at the same time, it
might be in abundance in other regions where the
demand for the same is very less.

People belonging to different regions may have

different reasons to use the same product as well.
Geographic segmentation helps marketer draft
personalized marketing campaigns for everyone.

Demographic Segmentation
Demographic segmentation divides the market on the basis of demographic variables like age, gender, marital
status, family size, income, religion, race, occupation, nationality, etc. This is one of the most common
segmentation practice among marketers. Demographic segmentation is seen almost in every industry like
automobiles, beauty products, mobile phones, apparels, etc and is set on a premise that the customers’ buying
behaviour is hugely influenced by their demographics.

Behavioural Segmentation
The market is also segmented on the basis of customer’s behaviour, usage, preference, choices and decision
making. The segments are usually divided on the basis of their knowledge of the product and usage of the
product. It is believed that the knowledge of the product and its use affect the buying decision of an
individual. The audience can be segmented into –

 Those who know about the product,

 Those who don’t know about the product,
 Ex-users,
 Potential users,
 Current Users,
 First time users, etc.
People can be labelled as brand loyal, brand-neutral, or competitor loyal. They can also be labelled according
to their usage. For example, a sports person may prefer an energy drink as elementary (heavy user) and a not
so sporty person may buy it just because he likes the taste (light/medium user).

Psychographic Segmentation
Psychographic Segmentation divides the audience on the basis of their personality, lifestyle and attitude. This
segmentation process works on a premise that consumer buying behaviour can be influenced by his
personality and lifestyle. Personality is the combination of characteristics that form an individual’s distinctive
character and includes habits, traits, attitude, temperament, etc. Lifestyle is how a person lives his life.

Personality and lifestyle influence the buying decision and habits of a person to a great extent. A person
having a lavish lifestyle may consider having an air conditioner in every room as a need, whereas a person
living in the same city but having a conservative lifestyle may consider it as a luxury.
Nature of a market segment
A market segment needs to be homogeneous. There should be something common among the individuals in
the segment that the marketer can capitalise on. Marketers also need to check that different segments have
different distinguishing features which make them unique. But segmenting requires more than just similar
features. Marketers must also ensure that the individuals of the segment respond in a similar way to the
stimulus. That is, the segment must have a similar type of reaction to the marketing activities being pitched.
A good market segment is always externally heterogeneous and internally homogeneous.

Examples of market segmentation

Market segmentation is a common practice among all the industries. It is not possible for a marketer to
address the mass with same marketing strategy. Here are some examples of market segmentation to prove
this point.

 Marketers will only waste their time and might end up making fun of themselves if they don’t segment
the market while marketing beauty products.
 A company that sells nutritious food might market the product to the older people while fast-food chains
target the working demographic or teens.
 Sports brands often segment the market based on the sports they play which help them market the
sports specific products to the right audience.
Market Segmentation is a convenient method marketers use to cut costs and boost their conversions. It
allows them to be specific in their planning and thus provide better results. It ultimately helps them to target
the niche user base by making smaller segments.

Market Segmentation of Consumer & Industrial Goods

Through market segmentation, large heterogeneous markets are divided into smaller groups; thus enabling
the marketers to reach these groups more efficiently and effectively with products and services that match
their unique needs. Since, the characteristics of consumer and organizational markets are different; basis for
segmentation for consumer goods is different from that of organizational markets.

Following are some of the bases used for segmenting the markets:

Market Segmentation of Consumer Goods:

To have a best view of the market structure, the marketer has to use different variables of market
segmentation in combination with each other or in isolation.

The different bases for consumer market segmentation are:

a. Geographic Segmentation
b. Demographic Segmentation
c. Behavioural Segmentation
d. Psychographic Segmentation

a. Geographic Segmentation:
Under geographic segmentation the markets are divided on the basis of different geographical units such as
nations, regions, states, provinces, cities, or even neighbourhoods. The decision whether to cater to needs of
one or few geographical segments or all the geographical segments are at the sole discretion of the marketer.

The marketers have to pay attention to geographical differences in needs and wants of these segments. In
order to offer the best suited product to a particular area, the marketer needs to have thorough demographic
knowledge about the region as well as knowledge of taste and preferences of the people belonging to that
segment.

In this type of segmentation, either the company may introduce customized product for a particular region or
they may make slight adjustments in the standardized product as per need of that geographical segment.
Today, many companies are trying to localize their products, advertising, and sales efforts in order to fit to the
needs of individual regions, cities, and even neighbourhoods. Also some companies are trying to venture
through untapped markets. Eg. Some retail companies are trying to enter the semi-urban and rural areas
wherein the market potential is still huge for these companies.

b. Demographic Segmentation:
Under demographic segmentation, the markets are divided into groups based on various demographic factors
such as age, gender, family size, family life cycle, income, occupation, religion, race, generation, education, and
nationality.

In this type of segmentation, it is believed that the taste and preferences of a particular demographic group is
believed to be similar and thus the products are positioned accordingly.

Demographic factors are the most popular bases for segmentation and are easier to measure than
most other types of variables:

i. Age and Life-Cycle Stage:

Consumer needs and wants vary as per the age as well as with changes in the life-cycles. Companies offer
different products or use different marketing strategies based on different age and/or life- cycle groups. Eg.
Companies prepare special products for higher age group consumers by considering their special needs.
However, marketers must be careful regarding stereotyping when segmenting the markets on the basis of age
and life-cycle.

ii. Gender:
Many products are segmented on the basis of gender; wherein either companies design their product
exclusively on the basis of gender or they position their products on the basis of gender. Gender segmentation
has long been used in clothing, cosmetics, toiletries, and magazines.

iii. Income:
Consumer’s tastes and preferences vary with change in income level. Income segmentation is usually used by
those marketers who are in the business of automobiles, clothing, cosmetics, financial services, and travels.
Eg. Companies providing luxury branded goods and convenience services usually target affluent consumers.

iv. Generation:
The buying pattern of the customers changes as per the succeeding generations. Earlier due to fewer options
in the market, the customer used to buy whatever was available in the market; however, the newer
generations, being tech-savvy, analyzes and evaluates products on the basis of features and prices before
making the buying decision.

c. Behavioural Segmentation:
Behavioural segmentation is usually carried out for existing customers since segmentation is done on the
basis of buying pattern of the customers. However, in case of new customers, their buying pattern has to be
observed while they are making the purchase. This segmentation is done on the basis of the usage of the
product. Under behavioural segmentation, the buyers are segmented on the basis of their knowledge,
attitudes, uses, or response towards a product.

i. Occasions:
Markets can be segmented on the basis of the occasions for which the product is used. Different products are
best suited for different occasions. Customers can be grouped on the basis of when they get an idea to buy the
product, when they actually make their purchase, or when do they use the purchased items.

ii. Benefits Sought:

Consumer market is segmented on the basis of benefits that the customers seek from the product. Each
segment seeks a different mix of benefits. Under benefit segmentation, the marketers needs to look into: the
major benefits that people look for in the product, the kind of people who look for each benefit, and the major
brands that deliver each benefit.
iii. User Rate:
The frequency of product usage by different customers is different. Thus on the basis of usage frequency, the
customers can be grouped as those who use the product rarely, intermittently, or regularly.

Segmentation can also be done on the basis of light, medium, and heavy product users. Usually, heavy users
constitute a small percentage of the market but account for high percentage of total consumption. Therefore,
marketers target the customer with heavy usage of products or those who use the product very frequently.

iv. Usage Status:

Markets can be segmented on the basis of non-users, ex-users, potential users, first-time users, and regular
users of a product. In this type of segmentation, the marketers reinforce and retain regular users, try to
attract targeted non-users, and revive relationships with ex-users. Some of the potential user groups can be
consumers facing life-stage changes such as newlyweds, new parents, etc.

v. Loyalty Status:
Customers can be grouped on the basis of their loyalty towards the company. They can be classified into
groups according to their degree of loyalty viz. completely loyal, somewhat loyal, not at all loyal. Completely
loyal customers buy only one brand all the time; while somewhat loyal customers prefer two or three brands
at a time or might favour one brand but sometimes buy other brands.

However; not at all loyal customers, do not show loyalty to any of the brands. These types of customers either
buy whatever is on sale or seek something new each time they buy. Based on the intensity of loyalty of the
customers, they can be classified into four type’s viz. staunch loyalist, split loyals, shifting loyals, and
switchers.

Staunch loyalists are those customers who do not switch brands under any circumstances since they are
emotionally attached with the brand. They are not attracted towards other brands even if these other brands
offer extra features or attractive discounts. Split loyals are those customers who are loyal to two or three
brands at a time. They alternatively use these brands; however, do not like to try out the newer ones.

Shifting loyals are those customers who remain loyal to a particular brand for a particular period of time.
After that they again switch brands and remain loyal with the other brand for some time and so on. This kind
of behaviour is usually observed in case of convenience goods. Switchers are those customers who are not
loyal to any particular brand and frequently keep on changing brands based on availability, discounts, and
added features of the product.

vi. Attitude:
On the basis of attitude, the customers can be classified as positive, negative, enthusiastic, indifferent, and
hostile. Marketers try to develop strategies keeping in mind the attitude of the target customers.

vii. Use of Multiple Segmentation Bases:

Multiple segmentation bases are often used by the marketers for identifying and defining the groups in a
better way, target them more efficiently, and tailor market offerings and messages to their specific needs.

Many information services companies provide multivariable segmentation which is a combination of

geographic, demographic, lifestyle, and behavioural segmentation. Such segmentation helps the marketers to
divide people and locations into marketable groups of similar-minded consumers.

d. Psychographic Segmentation:
Psychographic make up of people within the same demographic group may vary. Under psychographic
segmentation the market is segmented on the basis of social class, lifestyles, beliefs, motivation, values, and
personality characteristics.
i. Lifestyle:
Lifestyle segmentation involves classifying people on the basis of their activities, interests, opinions, and
attitudes. Lifestyles study therefore helps make sense of what people do, why they do it, and what doing it
means to them and others. It determines the overall manner in which people live, and spend time and money.

ii. Values:
Values and beliefs are used by the marketers to determine the buying behaviour of groups. Since values
influence the buying decision in the long run; it is believed that if the values of customers are taken care of
then the chances of the customers becoming loyal and profitable to the company increases.

iii. Personality:
It is considered that the personality traits such as masculinity, sportsmanship, and aggression are important
buying motivators. It is also observed that customers get attracted to the product with which they are able to
connect. Therefore, while designing or communicating the product, the company should keep in mind the
personality traits of the target groups.

Market Segmentation of Industrial Goods:

Purchasing behaviour and benefits sought are considered to be the best basis for organizational markets
segmentation. Through organizational segmentation, companies can deliver the right value proposition to
each segment and serve them better since it is relatively much easier for the companies to design their
offerings as per the segment’s requirements as compared to the fulfilling the requirement of the market as a
whole. Though bases for consumer goods segmentation are altogether different from that of organizational
goods segmentation, the variables used for segmentation are somewhat similar.

In Organisational goods segmentation, there are two types of approaches:

[I] Bonoma and Shapiro segmentation model

[II] Wind and Cardozo’s two stage market segmentation model

[I] Bonoma and Shapiro Segmentation Model:

This type of segmentation uses demographic segmentation, purchasing approaches, operating characteristics,
situational factors, and personal characteristics as variables.

(a) Demographic Segmentation:

Demographics is used to segment both the consumer and industrial goods; however the demographic
variable used to segment the consumer markets differ from those of the industrial markets. The variables
used to segment organisational markets on the basis of demographics are company size, industry, and
customer location.

(i) Company Size:

Company size matter’s during the organizational markets segmentation. If the company size is small and its
manufacturing capacity is less, then it will not be feasible for this company to target huge firms since the
order size of the latter will be large and the former might not be able to complete and supply the order in
time.

(ii) Industry:
Industries differ in their functioning. Thorough knowledge of functioning of these industries enables the
marketer to segment the market effectively. The marketer should not only have full knowledge of these
industries but should also have knowledge of various categories of sub-industries operating under these
industries.

(iii) Customer Location:

Proximity to the customer location also plays an important role in industrial markets segmentation. The
companies will mostly prefer to have their vendors in the vicinity of their companies and vice-versa.
(b) Purchasing Approaches:

(i) Organization’s Purchasing Approach:

Marketer should segment the companies on the basis of their purchasing approach since it vary from
company to company viz. centralized purchasing approach or de-centralized purchasing approach.

(ii) Power Structure:

Company can segment its organizational market on the basis of former’s power structure for purchasing. Eg.
If the company is controlled more by the technical department then it can be said that members of that
department will be more influential while taking buying decisions.

(iii) Relationship among Buyers and Sellers:

The marketer can segment the markets on the basis of its relationship with the buyers-viz. having good
relations with buyers or not having equally good relationship with the buyers. Company makes strategies to
attract those buyers with whom it does not have good relations; however, in those cases where the company
has good relationship with its buyers, it will prepare strategies to strengthen its relationship with these
buyers and gain maximum output from it.

(iv) General Purchasing Policies of Companies:

Companies can be segmented on the basis of their purchasing policies. Purchasing policies of companies
differ from company to company. Some companies might adopt bidding process for purchasing while others
might go for selecting the best suppliers.

Some companies may buy product while others may prefer to take it on lease. Some companies may opt for
purchasing the complete manufacturing set-up while others may go for purchasing individual components
which are further assembled at the plant.

c. Operating Variables:

Organizational markets can be segmented on the basis of operating variables which include technology used
by the company, product and brand-use status, and customer capabilities.

(i) Company Technology:

Segmentation can be done on the basis of companies having manual production lines, or semi-automated
lines, or fully automated lines. In this case, purchasing decisions made by companies falling in each of the
above categories will differ as per the requirement of their technologies.

(ii) Product and Brand-Use Status:

All users of a particular brand or product have similar experience with the product or brand. So the markets
can be segmented based on the product and brand-use status. The segment of existing customers is different
from that of the prospective customers. The existing customers have got some experience with the product
and brand of the company and the company also has some knowledge about the expectations of these
customers.

Thus, in this case, companies try to capitalize on the existing customer segment. However, the prospective
customers’ segment can be lured towards the product by both explaining to them the benefits and features of
the product and/or with the help of free trials.

(iii) Customer Capabilities:

Marketers should be aware of the operating, technical, and financial strengths and weaknesses of its clients. A
customer with less sophisticated technology might be willing to pay extra for product testing to be done at
the supplier’s premises itself. Many software companies provide after sales services like technical support,
installation, and maintenance to its clients.
d. Situational Factors:

Situational factors are temporary in nature. Variables under situational factors are urgency of order
fulfillment, product application, and size of the order.

(i) Urgency of Order Fulfillment:

Seller of industrial goods can differentiate the markets on the basis of urgency of order fulfillment. The
markets are categorized on the basis of immediate replacement products, regularly used products, and
products used for building a new plant. Companies often pay premium prices for those products which are
needed to be replaced immediately.

(ii) Product Application:

The way in which the product is used by the company is also one of the bases for segmentation. Same product
might be used by different companies in different manner and/or for different purposes. Robustness and
reliability is important for those machines which are operated continuously (say 24 hours); however, price
and product features are important for those customers who use the same machine for relatively lower time
say 8 hours a day.

(iii) Size of Order:

Companies can be segmented on the basis of size of the order-viz. bulk orders or small orders. Automated
companies capable of delivering huge amount in short time span usually opts for bulk orders; while
companies with manual processes will take up small orders which they can easily fulfill within short time
span.

e. Personal Characteristics of Buyers:

In every organization, the purchase decisions are made by either a person or a group of people; therefore
marketers may segment the market on the basis of the personal characteristics of these deciders. A risk
averse decision maker in the company may not prefer new product or service as risks involved in the product
are more as compared to benefits offered; however, risk taking decision maker would take the risk of testing
the benefits of the new product even in the presence of risk involved.

[II] Wind and Cardozo’s Two Stage Market Segmentation Model:

Wind and Cardozo’s two stage market segmentation model is widely adopted in today’s market. This model of
business segmentation is based on two- step classifications-viz. micro-segmentation and macro-
segmentation.

A. Micro Segmentation:
The important micro-segmentation variables are buying decision criteria, decision-making unit structure, and
attitude towards suppliers.

(i) Buying Decision Criteria:

Different companies set different criteria for purchasing a product. Criteria of selection may be quality, or
technical support and maintenance, or price. Segmentation is done on the basis of the criteria adopted by the
company.

(ii) Decision-Making Unit Structure:

Purchase decision in any company is influenced by large number of people. Which product is being bought
and whether the product was bought earlier are the two bases for segmentation under decision-making unit
(DMU). It is imperative for the company to understand the decision-making unit structure of its client in
order to maintain good relations with the people who take the decisions; and thus to try and win contracts
from these clients.
(iii) Attitudes towards the Supplier:
Attitude of the decision maker towards a particular supplier is also an important factor for segmentation.
Attitude of a decision maker towards a supplier is formed on the basis of age, education, job title, and decision
style of the supplier. Segmentation variables under this can be neutral attitude, positive attitude, negative
attitude, adversarial attitude, or opponent attitude towards a supplier.

B. Macro Segmentation:

(i) Company Size:

Market segmentation can be done on the basis of size of the organizations present in the market. On the basis
of company size, the marketer can determine the formers’ business potential. However, most of the times,
market size is needed to be combined with something else in order to have more realistic results.

(ii) Geographic Locations:

Under geographic location, the companies are segmented on the basis of culture, language, and business
attitudes of the people prevailing in the company. Culture and communication requirements of the company
are considered to be important while segmenting the market. Eg. Advertising strategy of a company for
different countries will be different and should be aligned with the cultural practices in that country.

(iii) Purchasing Situation:

Companies can be segmented on the basis of existing customers, or new and potential customers. More
emphasis needs to be given on attracting the potential customers while the cost for retaining old customers is
relatively lower. The potential or new customers can be attracted by focusing on excellent delivery and
services.

(iv) Decision Making Stage:

Companies can be segmented on the basis of their decision making stage. Under this, the marketer has to
determine at which stage of decision making process the buyer company is in. This type of segmentation is
mainly done for the new/potential clients of the company.

(v) Benefit Segmentation:

Many companies use same product for completely different purposes. Under benefit segmentation,
companies can be segmented on the basis of the benefit they seek from the product or how the product is
utilized by them.

(vi) Type of Institution:

The requirements of different organizations are different. They also differ as per the industry in which they
are working. Therefore, under this type of segmentation, the markets need to be segmented on the basis of
their requirements and as per the need of the industry in which they are working.

(vii) Purchasing Strategies:

Segmentation can be done on the basis of purchasing strategies of the companies which differ from company
to company. Segmentation can be done on the basis of either global or local decision-making structure.
Decision-making power of purchasing officers or the engineers or technical specialist can also be the bases
for power structure segmentation.

(viii) Business Model of the Purchasing Company:

Buyer business model affects the segmentation decision. The decisions regarding where and what to buy
depends upon the business model. Companies can be segmented on the basis of cost leadership strategy or
differentiation strategy.

Companies having cost leadership strategy prefer high- volume manufacturing and thus require high-volume
purchases; therefore in these types of clients, the marketer will have to focus more on price pressure and
precise delivery.
However, in case of differentiation strategy, since the client company gives customized products and services
to its end customers; these companies also expect that their suppliers should provide specialized products to
them. In this case volume purchases also decreases.

Levels of Market Segmentation | Mass Segment Niche Micro Marketing

Markets consist of buyers, and buyers differ in different ways. They differ in their wants, locations, resources
and buying attitudes. The process of converting heterogeneous market into homogenous markets is called
is called segmentation. Every buyer has different approaches towards product. Their wants and need are
different, so separate market programs can satisfy well the buyers wants and needs.

Levels of Market Segmentation

Buyers have different and unique needs and wants. Every buyer is potentially a separate market. Ideally, then
a seller might design a separate marketing program for each buyer. Some companies serve buyers
individually, many others face larger number of smaller buyers and do not find complete segmentation.
Thus market segmentation can be dividing into:

1. Mass Marketing
2. Segment Marketing
3. Niche Marketing
4. Micro Marketing

1. Mass Marketing
Mass marketing is to produce the same product for all the customers. In this segments producer act for:

1. Mass production
2. Mass distribution
3. Mass Promotion

The traditional argument for mass marketing is that it creates prospective markets, which helps to minimize
the cost and affected price to settle it low. However, many factors now make mass marketing more and more
difficult and in these days it is impossible to follow mass marketing because it is not possible to produce one
product and serve different group of customers. In this situation mass media played an important role. Many
producers following this now turn to segmentation market. No wonder some have claimed that mass
marketing is dying. Many businesses are retreating from mass marketing to segmented marketing.

2. Segmented Marketing
This segment recognizes that buyers vary in their needs, behavior, perception. The process of isolation broad
segment, which make a market and can bitterly understand the wants and needs of customers. In fact, it sells
models for segments with different combinations of age and income. For instance General Motors designed its
Buick Park Avenue for older and higher income consumers. It produces better results as compared to mass
marketing. A producer can market it product efficiently, and give good results to its customers.

3. Niche Marketing
Large groups in the market, which is identifiable, it defines as a segment more precisely, by dividing a
segment into sub segments. Niche gives a good opportunity to small companies, and they can allocate their
resource by serving niches, which are overlooked by large companies. Niche offers smaller companies an
opportunity to compete by focusing their limited resources on serving niches that may be unimportant or
may overlooked by larger competitors.

4. Micro Marketing
Micro-marketing adopt products and marketing programs to match the taste of specific localities and
individuals. Micro Marketing can be divided in to Local Marketing and Individual Marketing.
i) Local Marketing
Adopting brand and promotion to the wants and needs of local customers like cities, specific stores. But it has
some drawbacks. It increases manufacturing and marketing cost by reducing economies of scale.

ii) Individual Marketing

Adopting products and marketing programs to the needs of individual customers. Through mass
communication prevalence individual marketing was locally ignored, but new technologies powerful
computers, all have combined to foster mass customization.

Target Marketing and Market Segmentation

Target marketing involves breaking a market into segments and then concentrating your marketing efforts
on one or a few key segments consisting of the customers whose needs and desires most closely match your
product or service offerings. It can be the key to attracting new business, increasing sales, and making your
business a success.

The beauty of target marketing is that aiming your marketing efforts at specific groups of consumers makes
the promotion, pricing, and distribution of your products and/or services easier and more cost effective and
provides a focus to all of your marketing activities.

For instance, suppose a catering business offers catering services in the client’s home. Instead
of advertising via a newspaper insert that goes out to everyone, the caterer would first identify the target
market for its services. It could then target the desired market with a direct mail campaign, flyer delivery in a
particular residential area, or a Facebook ad aimed at customers in a specific area, thereby increasing
its return on investment in marketing and bringing in more customers.

Although you can approach market segmentation in many different ways, depending on how you want to slice
up the pie, three of the most common types are demographic segmentation, geographic segmentation, and
psychographic segmentation.

Demographic Segmentation
Demographic grouping is based on measurable statistics, such as:

 Gender
 Age
 Income level
 Marital status
 Education
 Race
 Religion
Demographic segmentation is usually the most important criterion for identifying target markets, which
means that knowledge of demographic information is crucial for many businesses. A liquor vendor, for
instance, might want to target its marketing efforts based on the results of Gallup polls, which indicate that
beer is the beverage of choice for people under the age of 54—particularly in the 18 to 34 range—whereas
those aged 55 and older prefer wine.

Geographic Segmentation
Geographic segmentation involves segmenting the market based on location. Home addresses are one
example, but depending on the scope of your business, you could also use:

 Neighborhood
 Postal or ZIP code
 Area code
 City
 Province or state
  Region
 Country (if your business is international)
Geographic segmentation relies on the notion that groups of consumers in a particular geographic area may
have specific product or service needs. For example, a lawn care service may want to focus its marketing
efforts on a particular town or subdivision inhabited by a high percentage of older residents.

Psychographic Segmentation
Psychographic segmentation divides the target market based on socioeconomic class or lifestyle preferences.
The socioeconomic scale ranges from the affluent and highly educated at the top to the uneducated and
unskilled at the bottom. The UK-based National Readership Survey segregates social class into six categories:

Social Grade Social Status Occupation

A Upper class Higher managerial, administrative, or professional

B Middle class Intermediate managerial, administrative, or professional

C1 Lower middle class Supervisory, clerical, junior managerial, administrative, or professional

C2 Skilled working class Skilled manual labor

D Working class Semi- and unskilled manual labor

E Subsistence class Unemployed, seasonal, or casual

The lifestyle-preferences classification involves values, beliefs, interests, and the like. Examples include
people who prefer an urban lifestyle as opposed to a rural or suburban lifestyle, people who are pet lovers, or
people with a keen interest in environmental issues. Psychographic segmentation is based on the premise
that the choices people make when purchasing goods and services reflect their lifestyle preferences or
socioeconomic class.

DIFFERENTIATION AND POSITIONING

Differentiation and Positioning are the last steps of the marketing strategy. We know which customers we
want to serve, having segmented the market and targeted the most promising segment(s). But how are we
going to serve the selected customers? This involves differentiating ourselves from other offerings in the
market, this is known as Differentiation. Also, we aim at a position in the market and in customers’ minds,
this is known Positioning.

Differentiation and Positioning are strongly related and depend on each other. Positioning, which is the
process of arranging for a product to occupy a clear, distinctive and desirable place relative to competing
products in the minds of target customers, depends on the differentiation, and vice versa. Because through
the differentiation, which is the process of actually differentiating the product to create superior customer
value, we can achieve the desired position in customers’ minds.

The differentiation and positioning process consists of three steps:

1. Identifying a set of differentiating competitive advantages on which to build a position

2. Choosing the right competitive advantages
3. Selecting an overall positioning strategy.
Then, the company has to deliver its promises by effectively communicating and delivering the chosen
position to the selected market.
Differentiation
In order to achieve a strong position in the segment the company has chosen, it has to find ways to set itself
apart. To do so, it has to deal with competitive advantages. In other terms, each firm must differentiate itself
and its offer by building a unique bundle of benefits. This bundle of benefits should appeal to a substantial
group within the chosen and targeted segment. You see that by means of this differentiation, the right
position in customers’ minds can be achieved, leading to a strong correlation of differentiation and
positioning.

The firm can differentiate itself by identifying possible value differences and competitive advantages and then
choosing the right ones.

Positioning
What position should the product occupy in consumers’ minds? That is dealt with by positioning. The place a
product occupies in consumers’ minds relative to competing products is called the product’s position. Thus, it
is not our own position of our product, but the way we would like our customers to think about it. This
involves perceptions, impressions and feelings that customers should have for the product in comparison to
competing products. Differentiation and Positioning are strongly related to each other. By differentiating the
product, the company can achieve the position it wants to achieve in consumers’ minds.

Finding the right positioning strategy requires selecting a value proposition and developing a positioning
statement.

Delivering the chosen Differentiation and Positioning Strategy

A differentiation and positioning strategy is worthless if it is not realized. Differentiation and positioning
should, in other words, be delivered. That means that once a position has been chosen, the company must
take steps to actually deliver and communicate the desired position to the target consumers. The means to do
so is the marketing mix. If the company wants to build a strong position on basis of better quality, it must
deliver better quality. Thus, the marketing mix elements have to support the chosen position. If the company
pursues a more-for-more positioning strategy, it needs high-quality products, high prices, high-quality
distribution and advertising in high-quality media.

Realizing the chosen differentiation and positioning strategy by means of the marketing mix is the only way
to achieve the desired position in consumers’ minds.

Value positioning and USP

A value proposition is a promise of value to be delivered, communicated, and acknowledged. It is also a belief
from the customer about how value (benefit) will be delivered, experienced and acquired. A value proposition
can apply to an entire organization, or parts thereof, or customer accounts, or products or services.
Creating a value proposition is a part of business strategy. Kaplan and Norton say "Strategy is based
on a differentiated customer value proposition. Satisfying customers is the source of sustainable value
creation." Developing a value proposition is based on a review and analysis of the benefits, costs, and value
that an organization can deliver to its customers, prospective customers, and other constituent groups within
and outside the organization. It is also a positioning of value, where

Value = Benefits - Cost (cost includes economic risk)

The relation between USP and Value proposition

A unique selling point is 1 or maximum 2 things which differentiates the product from its competitors. For
example – Volvo is known to have the safest buses and cars. Apple is known to be a solid brand and has a
fantastic brand equity. McDonalds is known have fantastic burgers and quality across its all outlets. So each of
the above brands has a unique selling point.
Value is built in a product right from its concept stage up to the last point of delivery to the customer
as well as its after sales service. In essence, the more you build a product keeping the customer in mind, there
more are the chances of your product’s value being higher.
Naturally, a product will have the highest value when it has a USP or a unique selling point. The reason Volvo
is a favoured brand is because it provides security to its travellers. The reason apple has such a fantastic
brand equity is because its Laptops are awesome. So basically, USP is a part of Value proposition. When you
want to provide value to your customers, you need to have a unique selling point to sell to the customers. This
USP is the main point on which your value stands.
Volvo is just an automobile manufacturer like Audi, BMW, Volkswagen, Toyota and others. However,
it delivers more in value because its USP is safety. A Lamborghini has the USP of its design and speed.
A Ferrari has its USP in it being a major status symbol. So, each of them deliver value to the end customer, and
each of them has a USP.
A USP can be anything. If I introduce an ergonomic keyboard, the keyboard being ergonomic is my
USP. It can sell better than normal keyboards. But if i am not advertising the product, and i am not
distributing it in the right channel, then i am not building value for the product. So my USP is in place, but the
value proposition is poor.