IBPS & SBI SPECIALIST OFFICER MARKETING STUDY MATERIAL ON MARKETING SEGMENTATION, TARGETING AND POSITIONING BY TSA
MARKETING 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
The process of grouping customers in markets with some
heterogeneity into smaller , more similar or homogeneous segments. The
identification of target customers groups in which customer groups in which
customers are aggregated into groups with similar requirements and buying
characteristics.
Market segment – A group of individuals, groups or
organizations sharing one or more similar characteristics that cause them to
have relatively similar product needs and buying characteristics.
Benefits of Market Segmentation
There are a number of reasons
organizations undertake segmentation
v Products
are designed to be responsive to the needs of the marketplace. – segmenting
markets facilitates a better understanding of customer’s needs, wants and other
characteristics. The sharper focus that segmentation offers, allows those
personal, situational and behavioral factors that characterize customers in a
particular segment can be considered. By being closely in touch with segments,
marketers can respond quickly to even the slight changes in what target
customers want. i.e by monitoring the trends towards healthier eating and
lifestyles, Mc Donald’s was able to respond by respond by introducing a wider
range of salads and healthy eating options – including grilled chicken, fruit
and yoghurt on to its menus.
v Increase
profits – different consumer segments react in contrasting ways to prices,
some are far less price sensitive than others. Segmentation allows an
organization to gain from the best price it can in every segment, effectively
raising the average price and increasing profitability.
v
Effective Resource Allocation - organizations are more capable of making
products that customers want and can afford.
v
There is product differentiation – Various products are made to meet the needs of
each customer segment.
Requirements
of Good Market Segments
In
addition to having different needs, for segments to be practical they should be
evaluated against the following criteria:
A
good market segmentation will result in segment members that are internally
homogenous and externally heterogeneous; that is, as similar as possible within
the segment, and as different as possible between segments.
Steps in the Market
Segmentation, Targeting and Positioning.
Variables / Bases For
Segmenting Consumer Markets
The following variables are
commonly used to segment consumer markets.
1)
Geographic
segmentation -This calls for dividing the market into different
geographical units such as Nations, States, Regions – West, North, Central, South,
e.t.c.
- 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 identifying the needs on the basis of the consumers own location.
2)
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 types of
variables.
a)
Age -Consumer
needs and wants change with age. Hence the market should be segmented as young,
old, e.t.c.
b)
Gender -This
can be employed to segment such markets for clothes deodorants, lotions,
magazines, e.t.c. Thus the markets can be for either men or women, male or
female
c)
Family life
cycle (FLC) -The product needs for a household vary 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 young children,
-
Older married with children, e.t.c.
d)
Income -Marketers
can segment the market according to the distribution of income e.g. under 1000
shillings per month, 2000/=, 4000/= per month, e.t.c.
e)
Occupation -Variables
include; bankers, teachers, farmers, clerks, students, housewives, secretaries,
e.t.c. A marketer can choose to specialize in the needs of one occupation
group.
f)
Education - Some
primary education, Some high school education, College education
-
University education e.t.c.
g)
Religion
- e.g. Muslims, Christians e.t.c.
h)
Race -
e.g. white, black e.t.c.
i.
Nationality
– e.g. Asians, Africans e.t.c.
ii.
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.
i)
Ethnic groups
j)
Generation -
Consumer is profoundly influenced by the generation in which it grows up.
This influences one’s inclination to Music, politics, e.t.c.
3)
Psychographic
segmentation -Psychographics are psychological profiles of different
consumers developed from research, sometimes referred to as A.I.O. (Attitudes,
interests and opinion profiles)
In psychographic segmentation,
buyers are divided into different groups on the basis of their:- Motives, 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.
Lifestyle -Consumers’
lifestyles are derived from their activities, interests and opinions. Each life
style group is influenced by different marketing mixes.
ii.
Personality -Type of personality groups may include;
-
Authoritarian
-
Ambitious
-
Assertive
-
Self-confident
-
Prestige conscious
-
Extrovert/Introvert
4)
Behavioral
segmentation -Buyers are divided into groups in the basis of their,
Knowledge, Attitude, Use or Response
to a product.
In this respect, behavioral
variables that are used to segment consumer markets include:-
i)
Occasions
benefits -Buyers can be distinguished according to occasions when they
-
Purchase a product or
-
Use a product
E.g. Occasions when public
transport is used mostly. Occasion
segmentation can help firms expand product usage.
ii)
Benefits -Buyers
are classified according to different benefits they seek from the product.
Variables here include:-
-
Economy (Low price)
-
Medical (Decay prevention)
-
Bright teeth
-
Good taste, e.t.c. for toothpaste.
Benefit
segmentation requires determination of:-
-
The major benefits that people seek from the product
-
The kind of people who look for such benefit
-
The major brands that deliver each benefit.
iii)
User status -Many
markets 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 -Markets
can be segmented into
-
Light,
-
Medium and
-
Heavy user 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 loyals – Consumers who buy one brand all the
time
-
Soft core loyals – Consumers who are loyal to two or
three brands
-
Shifting loyals – Consumers who shift from favoring 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, e.t.c.
-
By studying soft-core loyals, 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 weaknesses.
-
The company should be aware that what appears to be
brand loyalty purchase may reflect.
§ Habits,
§ Indifference,
§ A
low price or
§ Non-availability
of other brands.
vi)
Buyer readiness
stage -At any given time, people are in different stages of readiness to
buy a product;
-
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 Purchase patterns
Variables
for Segmenting Industrial / Business Markets
Industrial markets can be segmented using the same variables
for consumer markets e.g. geographic, demographic and behavioral. Other
variables that may be used include volume segments.
1)
Demographic
§ Industry
– Which industries should we serve?
§ Company
size –Which size companies should we serve?
§ Location
– What geographic areas should we focus on?
2)
Operating
variables
§
Technology – What customer technologies should
we focus on?
§
User-non-user status – Should we focus on heavy,
medium, light users or non-users?
§
Business capabilities – Should we serve business
needing many or few services?
3)
Purchasing
approaches
§
Nature of existing relationship.- Should we serve
companies with which we have strong relationships or simply go after the most
desirable companies?
§
Power structure – Should we serve companies that
are engineering dominated, financially dominated,? E.t.c.
§
Purchasing criteria i.e. focus on quality, price,
service e.t.c.
4)
Situational
factors
§
Urgency – Should we serve companies that need
quick and sudden delivery or service
§
Specific application: Should we focus on certain
applications of our product rather than all applications.
§
Size of order.- Should we focus on large or
small orders.
5)
Personal
characteristics
§
Buyer-seller similarity – Should we focus on
companies whose people and values are similar to ours?
§
Attitude towards risk – Should we focus on risk
takers or risk avoiding customers?
§
Loyalty – Should we focus on companies that show
high loyalty to their suppliers?
Market Targeting
This is the
evaluation of the various segments identified during segmentation and
deciding how many and which ones to serve.
Evaluating The Market
Segments
In evaluating different market segments, the firm must look
at the following factors
1)
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.
2)
Segments
structural attractiveness – Using Porter’s Five Forces Analysis.
A segment might have desirable size
and growth characteristics and still not profitable.
The company should evaluate the
long-run profitability of the market segment.
Michael
Porter has identified five forces that determine the intensive long-run
attractiveness of the whole market or any other segment within it. These five
forces 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.
§ Threats
of substitute products -A segment is unattractive if there exists actual or
potential substitutes for the product.
§ Threats
of growing bargaining powers of buyers -A segment is unattractive if the buyer’s
posses strong or increasing bargaining power. Interested in low prices but high
quality.
§ Threat
of growing bargaining power and suppliers -A segment is unattractive if the
suppliers posses a strong or increasing bargaining power. They can raise prices
or reduce the quality and quantity of products and services offered.
-
Even if the segment has positive size and growth and it
is attractive, the company has to consider its own objectives and resources.
-
The segment can be dismissed because it does not fit in
the company’s long-run objectives.
-
Even if segments fit the company’s objectives, it must
consider whether it has the required skills and resources to succeed in that
segment.
3)
Segment
interrelationships
Segments selected should be
inter-related in terms of costs, performance and technology for effectiveness.
Target Market Strategies
There
are several different target-market strategies that may be followed. Targeting
strategies usually can be categorized as one of the following:
- Single-segment strategy - also known as a concentrated strategy. One market segment (not the entire market) is served with one marketing mix. A single-segment approach often is the strategy of choice for smaller companies with limited resources.
- Selective specialization- this is a multiple-segment strategy, also known as a differentiated strategy. Different marketing mixes are offered to different segments. The product itself may or may not be different - in many cases only the promotional message or distribution channels vary.
- Product specialization- the firm specializes in a particular product and tailors it to different market segments.
- Market specialization- the firm specializes in serving a particular market segment and offers that segment an array of different products.
- Full market coverage - the firm attempts to serve the entire market. This coverage can be achieved by means of either a mass market strategy in which a single undifferentiated marketing mix is offered to the entire market, or by a differentiated strategy in which a separate marketing mix is offered to each segment.
Undifferentiated marketing strategy
Differentiated marketing
A
firm that is seeking to enter a market and grow should first target the most
attractive segment that matches its capabilities. Once it gains a foothold, it
can expand by pursuing a product specialization strategy, tailoring the product
for different segments, or by pursuing a market specialization strategy and
offering new products to its existing market segment.
Another
strategy whose use is increasing is individual
marketing, in which the marketing mix is tailored on an individual
consumer basis. While in the past impractical, individual marketing is becoming
more viable thanks to advances in technology.
Market Positioning
This is the act of designing a company’s offering and image
to occupy a distinctive place in the target market’s mind. I.e. The act of
creating a difference between a company’s offer from those of competitors.
Positioning is the process of establishing and maintaining a
distinctive place in the market for the organizations’ product or brands. Positioning
starts with the product, but positioning is not what you do to a product.
Positioning is what you do to the mind of the customer. You should concentrate
on the perception of the customer and not the reality of the product.
Positioning then is how the product is perceived and evaluated by the target
market, relative to competing products. To the consumer perception
is reality. That is why it is said that a marketing battle is fought in the
minds of consumers. Marketers who attain a superior position in customers’
minds have won the marketing battle.
A difference is worth establishing to the extent that it
satisfies the following criteria.
1)
Important: - The difference delivers a highly valued
benefit to a sufficient number of buyers.
2)
Distinctive:- The difference is delivered in a
distinctive way
3)
Superior: 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 difference.
Positioning strategies:-
1)
Attribute positioning -A company positions itself on an
attribute e.g. size, number of years in existence.
2)
Benefit positioning -The product is positioned as the
leader in a certain benefit.
3)
Use or application positioning -Positioning a product
as the best for some use or application.
4)
User positioning -Positioning a product the best for
some user group e.g. Bic pen, food for consumption.
5)
Competitor positioning -The product claims to be better
in some way then a named competitor.
6)
Product category positioning -The product is positioned
as the leader in a certain product category
7)
Quality or price positioning. -The product is
positioned as offering the best value
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 brand
The 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 Positioning -Buyers may have too narrow a image of
the brand. These buyers might think that suits at Sir Henry’s start at 15000/=
when in fact it offers affordable suits started at 3000/=
3.
Confused Positioning -Buyers might have a confused
image of the brand resulting from the company making too many claims or
changing the brands positioning too frequently e.g. Omo, Zain
4.
Doubtful Positioning -Buyers might find it hard to
believe the brand claims in view of the products features, price or
manufacturers.
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