CHAPTER FOUR

MARKET SEGMENTATION, TARGETING AND POSITIONING

DECISIONS

4.1. Meanings of Segmentation, Targeting and Positioning

Market Segmentation: Is a process by which a market is divided into distinct subsets of
people with similar needs and characteristics that lead them to
respond in a similar fashion.
Target Marketing:The process of evaluating the relative attractiveness of each market
segment (size, revenue potential, growth rate).
Product Positioning: Designing product offerings and developing strategic marketing
programs that collectively create distinct competitive advantage
within that segment.

4.2. Rationale for Market Segmentation

Simply because a whole market is RARELY homogeneous in its needs and wants, their
response to any different type of marketing initiative will differ greatly.A firm can either
market aggregate or market segment.
Market Aggregation:Putting the market into one basket. Works when there is little or no
difference in the customers’ needs or desires, or the product is fairly standardized. Lever
2000 soap used a market aggregation.
 4.3. The Growing Importance of Segmentation

Market segmentationbecomesmore important for the following reasons:

o Population growth has slowed, and more markets are maturing. Thus, more intense
competition is involved for market share.
o Social and economic forces such as expanding disposable incomes, higher education,
more sophisticated needs and lifestyles has led to an outpouring of goods and services
that compete with the opportunity to serve these new needs.
o A new important trend towards micro segmentation. Computer aided design allows for
firms to mass-customize in order to make made to order cars for example.
o Some organizations have facilitated the initiatives of specialized marketing programs by
broadening and segmenting their own products and services.

4.4. Benefits of Market Segmentation

Segmentation offers the following benefits:

 Identifies opportunities for new-product development. An analysis will often yield a
segment that is not having its needs met.
 Helps in the design of marketing programs that are most effective for reaching
homogeneous groups of customers.
 Improves strategic allocation of marketing resources.Well-defined segments with
specific products serve as potential places for business investment.

4.5. Identification of Market Segments

The idea is to ensure a segment is relatively homogeneous with regards to market segment
demands. Markets are generally segmented by four major descriptors:

1. Physical Descriptors:
Age:Toddlers are key marketing tools and consumers. They are broken down into age
categories.
Sex: Now new ways to market because of the woman outside of the home. GM has spent
millions advertising strictly to women.
Household Life Cycle:Has been changed to incorporate the non-traditional households.
Single-parent homes, never-married singles etc… It breaks them into the stages of formation,
growth and decline of a household unit.
Income:Higher Income households purchase a disproportionate number of cell phones,
expensive cars and theatre tickets. Increasing advertising now for that group.
Occupation: Certain types of products are sold to certain segments. Work boots to blue
collar workers for example.
Education: There is a strong correlation between level of education and the purchase of
books, insurance, magazines etc…
Geography: Again with the geo-demographics.
Events: National holidays, back to school, etc…
Race and Ethnic Origin: Now marketing to the three major ethnic segments. African,
Spanish, Chinese.
2. Personal or Firm Related Behavioral Descriptors:
Seek to understand how a consumer behaves in the marketplace and why.
Lifestyle: Groups consumers based on their activities, interests and opinions. It is possible
to infer what types of products they would use based on this.
Self-Orientation: How consumers pursue and acquire products that provide satisfaction and
shape their identities.
Resources: Include all psychological, physical, demographic and material means consumers
have to draw on.
VALS 2 (US Segmentation Service) uses Self-Orientation and Resources to define 8 market
segments that exhibit distinct behavior and decision making:
Actualizers Achievers
Fulfillers Experiencers
Believers Strivers
Makers Strugglers

These segments are the same size so as to represent viable markets. Companies then compare
the VAL data with usage and purchases made by each segment of their products.

Social Class: Status groupings based on income, education and occupation. It is possible to
infer certain behavior on certain products based on class. For example, middle class tends to
place value on education, family, cleanliness then lower classes do. Therefore certain
products can be geared to that.
3. Product-Related Behavioral Descriptors:
Reflect the behavior of customers toward a specific product. They include, product usage,
loyalty, purchase predisposition and purchase influence.

Product Usage: Important as in many markets a small proportion of potential customers

makes a high percentage of all purchases. In industrial markets, these are called heavy users
or key accounts.

Loyalty: Reflected by the number of successive purchases made over time – current users
can vary their purchases of a given brand or usage of a given supplier. Identifying loyalty is
easy in industrial markets; in consumer markets it involves market research.

Purchase Predisposition: Identify the non-users who are likely to become future buyers.
For example, knowledgeable non-users who state intentions to buy a high fiber cereal are the
most likely to become future users.
Purchase Influence: Can be used in both consumer and industrial markets. In the
consumer, many products are bought by the wife, but more and more the husband is helping
to influence the purchases made towards the children etc…

Innovativeness: Involves individuals and firms capacity and desire to innovate. Particularly
when it comes to adopting new products.
4. Customer Needs Descriptors:
Consumer needs are expressed in the benefits sought from a particular product or service.
Consumers do not have identical needs, thus they attach different degrees of importance to
different benefits.

Choice Criteria: Evaluating brand alternatives on the basis of desired characteristics.

Consumers then can also segment based on choice criteria when targeting particular
segments.

4.6. The Requirements for Effective Segmentation

An effective and useful segmentation will be defined based on the following 4 criteria:

1. Adequate Size:Sufficient potential customers in each segment. This involves a trade-off

in customer homogeneity and scale effects.
2. Measurability:The use of measurable variable as bases for segmentation. There is a need
for a combination of concrete (age) and abstract descriptors.
3. Accessibility:Segments are designed to facilitate targeting of marketing efforts. Variables
must be defined in order to make the identifying of members easy.
4. Different Response:Segments must respond differently to one or more variables.
Segmentation variables must maximize behavioral differences between segments.

4.7. Analysing and Prioritizing Potential Target Markets

Often it is better to apply a common analytical framework across market segments; market
Attractiveness / Business Position Matrix: The following steps are used in the creation of a
matrix of this type.

1. Choose the criteria to measure attractiveness and competitive position.

2. Weight attractiveness and competitive position factors to reflect their relative
importance.
3. Assess the current position of each potential target market on each factor.
4. Project the future position of each market based on expected environmental, customer
and competitive trends.
5. Evaluate implications of possible future changes for business strategies and resource
requirements.

Step 1: Selection of Market Attractiveness and Business Strength Factors: An evaluation of

the firm’s current or potential competitive position and the kind of opportunity analysis
described above.
 4.7.1. Factors Underlying Market Attractiveness
Managers judge the attractiveness of current and potential markets on the basis of 4 variables:
1. Market Factors: Reflect the characteristics of the customers making up the market in
question – the benefits they seek, their satisfaction with current products, their power
relative to suppliers – and factors that might shape the market’s future volume potential
such as market size, growth rate and life-cycle stage.
2. Economical and Technological Factors: Examine the capital and technology a firm
needs to compete in the market, plus structural variables – such as entry and exit barriers
– that will shape the long-term profit and competitiveness potential.
3. Competitive Factors: Measure the number and strengths of existing competitors in the
market and consider the possibility of future competitive changes through the appearance
of substitute products.
4. Environmental Factors: Reflect broad social and political constraints on the firm’s
ability to compete profitably.
4.7.2. Factors Underlying Competitive Position / Business Strengths
The same 4 variable exist when judging business strengths:
1. Market Factors: Most appropriate for evaluating markets that the firm is already in
since they reflect the strength of the firm’s current share position and product
offerings of the existing competition.

2. Economic and Technological Factors: Can indicate the businesses current or

potential competitive advantages or shortcomings in low production costs or
sustainable product differentiation. The business’s capabilities might reflect
operational strengths or weaknesses relative to the competition.

Step 2: Weighing Each Attractiveness and Business Strength Factor: A numerical weight is
assigned to each factor to indicate its relative importance. Different weights can be given for
different types of businesses; it is not a set weight. The marks out set 0-10 on scale.
For example:
Attractiveness:
Factor Group Weight Rating Total
Market 50 8 400
Economic 20 9 180
Competition 20 9 180
Environment 10 10 100
Total 100 36 860

Attractiveness Rating = 860 / 100 = 86

Steps 3 and 4: Rating each Segment as to its Market Attractiveness and Company Strengths:
Requires that each factor be rated on a scale of 1-10 on the firm’s strengths in those areas.
Based on the score above, the company figured it was very strong in the attractiveness area.
The management should consider and strive to maintain a strong, high rating.
A firm’s capabilities must be judged by assessing their value relative to the needs of the
market and those of the major competition, it is important to undertake this kind of detailed
analysis.

Step 5: Projecting the Future Position of a Market: Tougher then assessing the current state
of a firm’s position. More discussion of this occurred in module 4. Managers must address
the following:

Changes in product or process technology

 Shifts in the economic climate
 The impact of social or political trends
 Shifts in the bargaining power OR vertical integration of customers

Step 6: Evaluation Implications for Choosing Target Markets and Allocating Resources: A
manager should only target a market if it rates highly in attractiveness and in Business /
Competitive Strength. A business may invest in a non-strong market for one of 3 reasons:

1. Management believes the strength of the market will increase of the next few years.
2. They see the markets as a stepping stone to larger, more attractive markets in the
future.
3. Shared costs are present allowing for the ease of a second entry.
4.7.3. Targeting Strategies
There are the following three common targeting strategies:

1. Mass-Market Strategy:The primary objective of this strategy is to gain economies of scale

and a cost advantage. This requires substantial resources and good mass marketing
capabilities. It is favored by larger business units or by those that have a parent
corporation that provides substantial support. There are two ways to handle this type.
a. Ignore segments and produce on single program.
b. Differentiated – Design separate marketing programs for the different segments.

2. Niche-Market Strategy: Involves serving one or more segments that are not the largest,
consists of substantial numbers of customers seeking somewhat specialized benefits from
a product or service. This type avoids direct competitionwith larger firms that are
pursuing larger segments.

3. Growth-Market Strategy: Target one or more fast growing segments even though they
are not currently very large. A strategy favored by smaller firms to avoid direct
competition with large competitors but ensuring them future volume and market share.
The problem with this is that fast growth will eventually bring in the larger guys and they
normally will crush all small competition.
4.7.4. Ethical Issues in Target Marketing

Inclusion Issues:Sometimes including minorities in targeting marketing they get pissed.

For example, including them in market tobacco and alcohol, they think we are trying to wipe
out the race.
Exclusion Issues: Some surveys show, products are priced highest where the people can
least afford them. Shows that people do not target these poorer communities when using
special promotions etc…
4.8. Positioning Decisions

4.8.1. Physical versus Perceptual Product Positioning

1. Physical Product Positioning

One way to compare the current position of a product offering relative to the competition is
on the basis of a set of objective physical characteristics. In many cases a physical product
positioning analysis will provide useful information, particularly in the early stages of
identifying and designing new product offerings.

Despite being based on technical rather than on market data, physical product positioning
can be an essential step in undertaking a strategic market analysis. It will reveal how the
different brands compete with one another and may reveal meaningful product gaps where
improvement is a must. It may also reveal the competition’s weakness and allow your firm to
exploit and find a place for a product entry.

Limitations of Physical Positioning

It does not pose a complete picture as positioning mostly occur inside the consumers’
minds. They are sometimes based on social and psychological issues as opposed to the
physical ones where your product may be on top. That is where the perceptual positioning
analysis comes in.

2. Perceptual Product Positioning

Physical similar products may be perceived as being different because of the different
product histories, names and advertising campaigns. For example, people will pay nearly
double for Bayer aspirin than the store brand even though they are the same product because
they like the Bayer name and what it represents.

Dimensions on Which Consumers Perceive Competitive Offerings:

They are classified as follows:

 Simple Physically Based Attributes:Related to a single physical dimension such as price,

quality, power or size.
 Complex Physically Based Attributes:Because of the large number of physical attributes,
consumers use composite attributes to evaluate an offering. Example, the efficiency of a
computer system, the roominess of a car etc…
 Essentially Abstract Attributes:Are influenced by physical characteristics, they are not
related to them directly in any way. Examples, bodiness of a beer, sexiness of a perfume
etc… Subjective and difficult to relate to physical characteristics other than by
experience.
 4.8.2. The Positioning Process

Involves the following steps and the descriptions of the steps follow:

1. Identify relevant set of competitive products

2. Identify set of determinant attributes that define the ‘product space’ in which the
positions of current offerings are located
3. Collect information from a sample of customers and potential customers about
perceptions of each product on the determinant attribute
4. Analyze the intensity of a product’s positioning in customer’s mind
5. Determine product’s current location in the product space (product positioning)
6. Determine customers’ most preferred combination of determinant attributes.
7. Examine the fit between preferences of market segments and current position of product
(market positioning).
8. Select Positioning or repositioning strategy.

Step 1: Identify a relevant set of competitive products:

Positioning analysis can take place at the company, product line, product category and brand
levels.
Step 2: Identify Determinant Attributes:
More common types of positioning bases are as follows:
Features: Directly related to the product. Genn air “this is the quietest dishwasher in
America.
Benefits: Again, directly related to a product. Examples, Volvo’s emphasis on safety and
durability.

Usage: Includes end use (if you have it in the kitchen, it probably goes with pork),
demographic (just because kids are kids, doesn’t mean you can’t have gorgeous floors),
psychographic or behavioral (Ellesse positioning as a upscale active-wear line) and
popularity (Hertz, the biggest car rental company in the World).

Parentage: Includes who makes it, and prior products (Buying a car is like getting married, it
is a good idea to know the family first, picture of the ancestors of the Mercedes S class).

Manufacturing Process: Is often a subject of positioning efforts (We know the watch is
perfect, we just take another 1,000 hours to be sure).

Ingredients: As a positioning concept, clothing manufacturers stating their shirts are 100%
CRAP.

Endorsements: 2 Types, expert (discover why 5,000 doctors recommend the Swedish
mattress), and those via emulation Mikey and Nike.
Comparison: With the competition’s product (Pedigree is more nutritious the IAMS and
tasted better, Fozzie eating it).

Pro-Environment: Positioning the company as a good citizen.

Product Class: When freeze dried coffee was introduced as a new and different product type
as compared with regular or instant coffees.

Price / Quality: Wal-Mart positions itself as the lowest price seller of quality products.
Country or Geographic area: Russian Vodka, French Wines.

The number actually influencing a customer’s purchase is small, because consumers can only
consider attributes that they are aware of. It is critical that the positioning effort be kept
simple as to not confuse the idiots.

Step 3: Determine the Consumers’ Perceptions:

Many ways to collect the consumer’s opinion:

 Factor Analysis
 Discriminant Analysis
 Multi-attribute compositional models
 Multidimensional Scaling

Step 4: Analyze the Intensity of a Product’s Current Position:

Often the awareness set for a given product class is three or fewer when there are 20+ brands
available.

A brand not known by a customer cannot occupy a position in that customers mind. Thus,
the first point is to build brand awareness. In doing so, it need to be STRONGLY associated
with several concepts relating to the purchase decision.
Marketing Opportunities to Gain Positioning Intensity: The main opportunity to find a
profitable market position id to find a segment that is not dominated by a leading brand.
Competing head on with the leading brand on the basis of attributes is not likely to be
effective. An example, Ford marketing the minivan to woman and young families.

Constraints Imposed by an Intense Position: Although marketers seek an intense position for
their brands, attaining such a position puts constraints on future marketing efforts. If there
happens to be a shift in the market environment, marketers may have a tough time
repositioning a brand that is set in the consumers mind. Repositioning also carries the threat
of alienating the entire current users of the product.

Step 5: Analyze the Product’s Current Position:

Only way is to conduct marketing research and analyze it using the techniques discussed in
the appendix.

Step 6: Determine Customers’ Most Preferred Combination of Attributes:

Several ways analysts can measure customer preferences and include them in a positioning
analysis. You could ask survey takers to describe their ideal product within a category. Or,
they could ask takers to rate a bunch of similar brands and give their degree of affinity for
each.

Step 7: Define Market Positioning and Market Segmentation:

For defining market segments, the difference in benefits sought will determine the segments.
When customers ideal points cluster (more than one chooses that point), the analyst can
consider that a distinct segment.

By analyzing the preferences of customers within different segments, along with their
perceptions of different brands, analysts can learn the following:

1. The competitive strength of different brands within segments;

2. The intensity of the rivalry between brands in different segments;
3. The opportunities for gaining a differentiated position within a specific target
segment.

Step 8: Selecting Positioning Strategies:

The position chosen should match the preferences of a particular market segment and should
also take into account the current positions of competing brands. It should also reflect the
current and future attractiveness of the target market (its size, expected growth, and
environmental constraints) and the relative strengths and weaknesses of the competition.

The Sales Potential of Market Positions: The sales level of a brand is affected by many
things, some of which are controlled by the firm (Product, Price, Promotion and Distribution)
and some which are not (activities of the competition and the environments evolution).

All of those influence elements of the consumers purchasing process, such as awareness,
purchase intent and search for the product.

Product Intent Share: Represents the percentage of consumers who intend to buy a specific
brand before actually searching for it.

Evaluations of sales potential should also consider these pertinent market dynamics:
1. Growth of Market Segments: If a segments growth rate is higher than the market growth
rate, the sales potential could be substantial.
2. Evolution of a Segments Ideal Points: If possible, brands should be in the evolutionary
path of a segments ideal point to enjoy an increasing market share.
3. Changes in Positioning Intensity: If an existing brand has a low positioning intensity but
a favorable position in a segment, the firm should try to increase the positioning intensity
which will increase market share and penetration.
4. Evolution of Existing Brands’ Positions: The shifts in brand positions are tough to
predict but their evolution can be anticipated.
5. Emerging Attributes: Long term sales potential of a brand will be effected by its position
on the current determinant attributes and also on the position of emerging attributes.
6. Development of New Segments: The number of consumers with similar needs separate
from the current segment may increase to the point where the creation of a separate
segment. This may create opportunities but it may also weaken sales of existing product.
7. Introduction of New Brands:Often unpredictable, the analysis of the product space may
hint at the moves competition may make.

4.8.3. Market-Positioning Strategies

There are the following seven market-positioning strategiesthat are relevant to a large number
of situations:
1. Mono-Segment Positioning: Developing and marketing a product to a single
market segment. This would give a brand an advantage in the segment targeted but
not generate much in segments outside the targeted.
2. Multi-Segment Positioning: Positioning to attract customer from multiple
segments. It provides higher economies of scale, requires smaller investment and
avoids dispersion of managerial attention.
3. Standby Positioning: In order to minimize response time, the firm prepares a
standby plan if it is forced to move from multi to mono segment positioning. It
will outline the products and attributes involved as well as the details of the
marketing programs.
4. Imitative Positioning:Where a new brand targets a position similar to that of a
successful existing brand. It is particularly successful if the new brand has a
distinct competitive advantage to the old.
5. Anticipatory Positioning: A firm may position a new brand to anticipate the
evolution of a segments needs. This strategy enables a firm to pre-empt a market
position that may have Substantial long term potential. At worst, it may cause an
economic crisis if the segment never evolves.
6. Adaptive Positioning:Consists of periodically repositioning a brand to follow the
evolution of a segment.
7. Defensive Positioning:Firms in strong market positions will pre-empt imitative
positioning by introducing their own brands as imitators in order to eat up that
market share. Although it lessens profitability, it allows for a firm to hold a
position. Examples: P&G produces, TIDE and BOLD.