MARKET SEGMENTATION, TARGETING AND POSITIONING

MARKET SEGMENTATION

INTRODUCTION

Markets consist of buyers who differ in one or more respects.

They may differ in their:-

- Wants

- Resources

- Geographical locations

- Attitudes and

- Buying practices

It is therefore necessary for a marketer to segment his/her market.

MEANING OF MARKET SEGMENTATION

Marketing segmentation is

“The act of dividing a market into distinct groups of buyers who might require separate

products, and /or marketing mixes. Or it is the sub-division of a market into smaller

homogenous sub-markets which the organization might successfully satisfy”.

BENEFITS OF MARKET SEGMENTATION

The following benefits may be derived by a company as a result of market segmentation.

It may enable a company to select potentially profitable segment(s).

It enables a company to concentrate resources on the chosen segments

The analysis gives a company the opportunity to review developments and anticipate

changes in its chosen segment from competitive activity, legal / political changes, etc.

Sales opportunities are more likely to be effectively and fully exploited by staff when

target audience is properly defined.

Better services tailored to the needs of particular markets segments are offered.

Prices are tailored to customers’ situations and circumstances.

It may lead to improved level of services both in terms of sophistication and general

standards.

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Assists in identifying gaps. Market segmentation involves marketing research. During

this process, the marketer can also be engaged in “Gap Analysis.” Gap Analysis is a

process which aims to seek out differences between what markets need and want and

what is actually being supplied – the gap.

Hence gap analysis will uncover:-

o Market needs for existing services not fulfilled

o Other needs where no services currently exist.

THE PROCESS OF MARKETS SEGMENTATION

In identifying market segments, three stages are involved:-

1. Survey

2. Analysis and

3. Profiling

Survey Stage

The researchers initially conduct informal interviews with groups of consumers to find out their;

- Motivation

- Attitudes and

- Behaviour.

Based on the preliminary work, the researcher conducts more formal research by use of a

structured questionnaire using a representative sample of consumers.

Information sought includes;

a. The importance and rating consumers give to certain attributes of products

b. The extent to which people are aware of the existence of different brands of the

product

c. If brands awareness exists, how people rate different brands

d. How, when, where and by whom the product is used.

e. Attitudes towards the products category.

f. Demographic, psychographic, behavioural and geographic profiles of consumers

of the products.

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Analysis stage

The researcher can then use appropriate statistical methods to analyze data in order to categorize

the segments based on the identified characteristics.

Profiling stages

Each segment is profiled with respect to its distinguishing attitudes behaviour,

demographics, psychographics and geographical habits.

Segment characteristics and make-up vary over time, so the procedures have to be

periodically carried out.

STAGES IN IDENTIFYING MARKET SEGMENTS

WHEN SHOULD SEGMENTATION BE EMPLOYED?

A marketer should ask himself the following questions if market segmentation is to work

effectively. The answer to each must be ‘yes’.

a) Can the market be identified?

The marketer should be able to identify which consumers are members of a particular

market segment. There must be some common characteristics that the consumers have.

b) Can the market identified be measured?

The characteristics that are common to a group of consumers should be measured in

terms of size, purchasing power and other characteristics.

c) Is the market substantial?

The market should be large enough to generate sales volumes that ensure profitability,

otherwise it will not be economical to design a unique marketing mix for it. i.e., is the

market worth the effort?

d) Is the market accessible?

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SURVEY ANALYSIS PROFILING

That is, can the market be reached effectively using promotion as well as distribution?

e) Is the market responsive?

Market segments must be defined in their willingness to purchase a product in response

to variations in the marketing mix.

f) Compatibility with corporate image

The market must be compatible with the firm’s objectives and corporate image.

If the six criteria for effective segmentation are met, marketers should then choose some means

(bases or variables) for segmenting the market.

VARIABLE FOR SEGMENTING CONSUMERS MARKETS

The following variables are commonly used to segment consumer markets.

Geographic,

Demographic,

Psychographic and

Behavioral variables

Geographic segmentation

This calls for dividing the market into different geographical units such as.

- Nations

- States

- Regions – West, north, Central , South etc

- Countries,

- Cities or

- Neighborhoods

Attention should be paid to variations in geographical needs and preferences.

Geographical segmentation assists the seller to position retail outlets in most appropriate

locations as well as simply in identifying the needs on the basis of the consumers’ own location.

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Demographic segmentation

This consists of dividing the market into groups on the basis of demographic variables such as:

Age, sex, family size, family life, cycle, income, education, occupation, religion, race and

nationality.

These variables are the most popular for distinguishing customer groups because,

- Consumers’ wants and preferences are closely related to them.

- They are easier to measure than most other variables.

a) Age

Consumers needs and wants change with age. Hence the market should be segmented as

young, old etc.

b) Gender

This can be employed to segment such market for clothes deodorants, lotions, magazines,

etc. thus the markets can be for men or women, males or female.

c) Family life cycle (FLC)

The product needs for a household very according to marital status and the present ages

of children. Thus family life cycle can be divided into:-

- Single

- Young, married with no children

- Young, married with youth children

- Older married with children, etc

d) Income

Marketers can segment the market according to the distribution of income.

e) Occupation

Variables include; bankers, teachers, farmers, clerks, students, housewives, secretaries,

etc. A marketer can choose to specialize in the needs of one occupation group or more.

f) Education

E.g.

- Some primary education

- Some high school education

- College education

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- University education etc.

g) Religion – e.g. Muslims, Christians etc.

h) Race – e.g. white, black etc

i) Nationality – e.g. Asians, Africans etc.

j) Ethnicity groups

k) Generation- Each consumer is profoundly influenced by the generation in which he/she

grows up. This influences one’s inclination to Music, politics etc.

Psychographic segmentation

Psychographics are psychological profiles of different consumers developed from research,

sometimes referred to as AIO (Attitudes,Interests and Opinion profiles)

In psychographic segmentation, buyers are divided into different groups on the basis of their:-

- Social class

- Lifestyle and /or

- Personality characteristics

People within the same demographic group can exhibit very different psychographic profiles.

Consumers can thus be sub-divided on the basis of the following psychographic variables.

i. Social class

Social class has a strong influence on people’s preferences. Marketers designing products

and or/ services for specific social classes build in those features that appeal to the target

social class.

ii. Lifestyle

Consumers’ lifestyles are derived from their activities, interests and opinions. Each life-

style group is influenced by different marketing mixes.

iii. Personality

Types of personality groups may include;

- Comparative authoritarian

- Ambitious

- Alertness to change

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- Self-confident

- Prestige conscious

- Self image

- Self concept

Behavioral segmentation

Buyers are divided into groups on the basis of their

- Knowledge

- Attitude

- Behaviour

- Use or

- Response to a products

In this respect, behavioral variables that are used to segment consumer markets include;-

- Occasions

- Benefits

- User status

- Usage rate

- Loyalty status

- Buyer readiness stage

- Attitude

- Individual segmentation

i. Occasions

Buyers can be distinguished according to occasions when they

- have a need

- purchase a product or

- use a product

E.g. Occasions when public transport is used mostly.

ii. Benefits

Buyers are classified according to the different benefits they seek from a product.

Benefit segmentation requires determination of:-

- The major benefits that people seek from the product

- The kind of the people who look for such benefits

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- The major brands that deliver each benefit.

iii. User status

Many marketers can be segmented into

- Non –users

- Ex- users

- Potential users

- First time users and

- Regular users of a product.

All these people require different marketing approaches.

iv. Usage rate

Market can be segmented into

- Light,

- Medium and

- Heavy users of a group of products

v. Loyalty status

A market can be segmented by customer loyalty patterns. According to the loyalty status,

the buyers can be divided into:

- Hard core loyal – Consumers who buy one brand all the time

Soft core loyal – Consumers who are loyal to two or three brands

Shifting loyal – Consumers who shift from favouring one brand to another.

Switchers – Consumers who show no loyalty to any brand

A company should study the characteristics of its hard-core customers e.g. whether middle class,

larger families etc. By studying soft-core loyal, the company can pinpoint which brands are most

competitive with its own. By looking at customers who are shifting away from its brands, a

company can learn about its marketing weakness. The company should be aware that what

appears to be brand loyalty purchase may reflect:

Habits

Indifference,

low prices,

Non- availability of other brands

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vi. Buyer readiness stage

At any given time, people are so different that;

- Some people are aware

- Some are informed

- Some are interested,

- Some are desirous of buying

- Some intend to buy

All these make a big difference in designing the marketing programme.

vii. Attitude

People in a market can be classified according to their degree of enthusiasm for a

product.

Five attitude- classes can be distinguished e.g.

- Enthusiastic,

- Positive

- Indifferent

- Negative and

- Hostile

viii. Volume segmentation

Involves grouping businesses by size and individual type.

Conclusion

Market segmentation reveals the market segment opportunities open to the firm

It has now to evaluate the various segments and decide on how many and which ones to

serve.s

In evaluating the segments, the firm should look at:

i. The segment size and growth

ii. Segment’s structural attractiveness, this is determined by:

- Threat of intense segments rivalry

- Threat of new entrants.

- Threat of substitute products

- Threat of growing bargaining power of buyers

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- Threat of growing bargaining power of suppliers

iii. Company objectives and resources.

Selecting the market segments

The company can go for;

i. Single segment concentration

ii. Selective specialization – Selects a number of segments

iii. Product specialization – makes one product and sells to a variety of customers groups.

iv. Market specialization – firm concentrates on serving many needs of a particular customer

groups E.G Kenya uniforms

v. Full market coverage – serves all customer groups with all the products that it might

need.

MARKET TARGETING

INTRODUCTION Market segmentation reveals the market segments opportunities facing the firm. The firm therefore has to evaluate the various segments and Decide on how many and which ones to serve.

EVALUATING THE MARKET SEGMENTSIn evaluating different market segments, the firm must look at the following factors.

Segment size and growth Marketing segment has to be ‘right size”. Size can be measured in terms of sales

volume. Companies should not only concentrate on sales volume but also on the growth

potential of the segment.

Segment’s structural attractivenessA segment might have desirable size and growth characteristics and still not be profitable.- It should evaluate the long run profitability of the market segments.- It has to appraise its impact on profitability. Michael Porter has identified five forces that determine the intensive long –run attractiveness of the whole market or any other segments within it.

Industry competitors Potential entrants Existence of substitute products Bargaining power of buyers and Bargaining power of suppliers.

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The five threats they pose are:- Threat of intense segment rivalry

A segment is unattractive if it already contains strong or aggressive competitors. Threat of new entrants

A segment is unattractive if it is likely to attract new competitors who will bring in new capacity, substantial resources and a drive for market share growth.

Threat of substitute productsA segment is unattractive if there exists actual or potential substitutes of the product.

Threat of growing bargaining power of buyersA segment is unattractive if the buyer’s possess strong or increasing bargaining power, are interested in low prices but high quality.

Threat of growing bargaining power of suppliersA segment is unattractive if the suppliers possess a strong or increasing bargaining power. They can raise prices or reduce the quality and quantity of products and services offered.

Company objectives and resources- Even if the segment has positive size and growth and it is attractive, the

company has to consider its own objectives and resources.- A segment can be dismissed because it does not fit in the company’s

long- run objectives.- Even if a segment fits the company’s objectives, it must consider

whether it has the required skills and resources to succeed in that segment.

Segment interrelationshipsSegments selected should be inter-related in terms of costs, performance and technology for effectiveness.

SELECTING THE MARKET SEGMENTS

From the results of segment evaluation, the company may select one or a few segments worth entering.It must decide which ones and how many to serve.Five possible market coverage strategies should be considered:-

1. Concentrated marketing / Single segment concentrationThe company selects only a single segment to concentrate on. This is because:

- The company may have a natural match to the segments success requirements,

- The company may have very limited resources- It might be a segment with no competitor

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- Can be a segment that is a logical launching pad for further segment expansion.

e.g. Volkswagen has concentrated on a small car market.Advantages:-

- A firm achieves strong market position in the segment owing to its greater knowledge of the segments needs and special reputation it builds.

- A firm enjoys many operating economies through product specialization, distribution and promotion.

- It can earn high return on interest.Disadvantages:-

- A particular segment can turn sour- Competitors may decide to enter same market.

2. Selective specialization(Multi-segment coverage)

- A firm selects a number of segments- Each of which is attractive and matches its objectives and resources.

Advantages:-- A firm’s risks are diversified and even if the segment is unattractive it

can still make profits in other segments- It may result in synergistic effects- Promotion costs are lowered- More customers are captured.

Disadvantages:-- Losses- Expensive- Needs more resources

3. Product specialization A firm concentrates on making one product and selling it to a variety of customers groups.This strategy works when;

- Demand is continuous- There are homogenous goods- Same resources are used.

Advantage: - A firm avoids putting all eggs in one basket.

Disadvantage- a lot of expenditure on advertisements.

4. Market specializationA firm concentrates on serving many needs of particular customer group.

5. Full market coverageHere, the firm attempts to serve all customer groups with all the products that they may need. Large firms can cover a whole market in two broad ways, namely:-

- Undifferentiated marketing and

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- Differential marketing

Undifferentiated marketing(Market Aggregation)The firm ignores market segments differences and goes after the whole market with one product offer.

FocusIt focuses on what is common in the needs of buyers rather than what is different.

DesignIt designs a product and marketing programme that will appeal to the broadest number of buyers.

RelianceIt relies on mass distribution and mass advertising.The aim is to give a product a superior image in people’s minds.

Advantages:-- The narrow product line keeps down production, inventory and

transportation costs.- The absence of segmentation lowers the cost of marketing research and

product management.- The undifferentiated advertising programmes keep down advertising

costs.

Disadvantages:-- Lack pf personal touch.- New entrants- There may be intense competition in the large market segments- It may be unprofitable operating in large segments.

Differentiated marketingHere, the firm operates in most segments of the market but designs tailored programmes for each significantly different segment.

Advantages:-- Creates more total sales than undifferentiated marketing- Customer satisfaction is higher- Better defined marketing programmes

Disadvantages:-It increases the cost of doing business e.g.

- Products modification,- Production- Administrative,

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- Inventory- Promotion and- Distribution costs.

MARKET POSITIONING

Meaning

This is the act of designing a company’s offering and image to occupy a distinctive place in the target market’s minds.i.e. The act of creating differences between a company’s offers and those of competitors.

A difference is worth establishing to the extent that is satisfies the following criteria.1) Important : - the difference delivers a highly valued benefit to a sufficient number of

buyers2) Distinctive: - the difference is delivered in a distinctive way.3) Superiror: the difference is superior to other ways of obtaining the benefit.4) Pre-emptive: the difference cannot be easily copied by competitors.5) Affordable – The buyer can afford to pay for the difference.6) Profitable – The Company will find in profitable to introduce the different product.

Positioning strategies:-

1) Attribute positioningA company positions itself on an attribute e.g. size number of years in existence.

2) Benefit positioningA product/firm is positioned as the leader in a certain class benefits.3) Use or application positioning

Positioning a product as the best for some use or application 4) User positioning

Positioning a product as the best for some user group. e.g. Bic pen, food for consumption.

5) Competitor positioningThe product claims to be better in some way than a named competitor’s product.

6) Product category positioningThe product is positioned as the leader in certain products category

7) Quality or price positioningThe product is positioned as offering the best value for the stated price.

How many differences to promote1) Single benefit positioning

e.g. best quality , best service, lowest price, best value, safest, fastest most convenient , most advanced technology.

2) Double benefit positioning

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May be necessary if two or more firms claim to be the best on the same attributes3) Triple benefits positioning

e.g. Smithkline Beecham promotes its aqua fresh toothpaste as offering these benefits.- Anti- cavity protection- Better breath- Whiter teeth.

The challenge is to convince the consumers that the products offer all three.

As companies increase their number of claims for their brands, they risk disbelief and loss of clear positioning.

Companies must avoid four major positioning errors.1) Under Positioning

When buyers have only a vague idea of the brandThe brand is seen as just another entry in a crowded marketplace E.G When Pepsi introduced its clear crystal Pepsi in 1993 (U.S.A) customers were distinctively unimpressed. They didn’t see “clarity” as an important benefit of a soft drink.

2) Over PositioningBuyers may have too narrow an image of the brand.

3) Confused PositioningBuyers might have a confused image of the brand resulting from the company making too many claims or changing brand positions too frequently e.g. omo

4) Doubtful PositioningBuyers might find it hard to believe the brand’s claims in view of the products features, prices or manufacturers.

Individual Assignment (20 marks)Select an industrial firm of your choice and:

i. Explain the variables it uses to segment its market.ii. The pricing methods it uses for its products/services

iii. The benefits that would accrue to the firm from marketing planning

iv. Prepare a marketing plan for that firm

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