Market Segmentation

Market segmentation is the identification of portions of the market that are different from one another. Segmentation allows the firm to better satisfy the needs of its potential customers.

The Need for Market Segmentation

The marketing concept calls for understanding customers and satisfying their needs better than the competition. But different customers have different needs, and it rarely is possible to satisfy all customers by treating them alike.

Mass marketing refers to treatment of the market as a homogenous group and offering the same marketing mix to all customers. Mass marketing allows economies of scale to be realized through mass production, mass distribution, and mass communication. The drawback of mass marketing is that customer needs and preferences differ and the same offering is unlikely to be viewed as optimal by all customers. If firms ignored the differing customer needs, another firm likely would enter the market with a product that serves a specific group, and the incumbant firms would lose those customers.

Target marketing on the other hand recognizes the diversity of customers and does not try to please all of them with the same offering. The first step in target marketing is to identify different market segments and their needs.

Requirements of Market Segments

In addition to having different needs, for segments to be practical they should be evaluated against the following criteria:

Identifiable: the differentiating attributes of the segments must be measurable so that they can be identified.

Accessible: the segments must be reachable through communication and distribution channels.

Substantial: the segments should be sufficiently large to justify the resources required to target them.

Unique needs: to justify separate offerings, the segments must respond differently to the different marketing mixes.

Durable: the segments should be relatively stable to minimize the cost of frequent changes.

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.

Bases for Segmentation in Consumer Markets

Consumer markets can be segmented on the following customer characteristics.

Geographic Demographic Psychographic Behavioralistic

Geographic Segmentation

The following are some examples of geographic variables often used in segmentation.

Region: by continent, country, state, or even neighborhood Size of metropolitan area: segmented according to size of population Population density: often classified as urban, suburban, or rural Climate: according to weather patterns common to certain geographic regions

Demographic Segmentation

Some demographic segmentation variables include:

Age Gender Family size Family lifecycle Generation: baby-boomers, Generation X, etc. Income Occupation Education Ethnicity Nationality Religion Social class

Many of these variables have standard categories for their values. For example, family lifecycle often is expressed as bachelor, married with no children (DINKS: Double Income, No Kids), full-nest, empty-nest, or solitary survivor. Some of these categories have several stages, for example, full-nest I, II, or III depending on the age of the children.

Psychographic Segmentation

Psychographic segmentation groups customers according to their lifestyle. Activities, interests, and opinions (AIO) surveys are one tool for measuring lifestyle. Some psychographic variables include:

Activities Interests Opinions Attitudes

Values

Behavioralistic Segmentation

Behavioral segmentation is based on actual customer behavior toward products. Some behavioralistic variables include:

Benefits sought Usage rate Brand loyalty User status: potential, first-time, regular, etc. Readiness to buy Occasions: holidays and events that stimulate purchases

Behavioral segmentation has the advantage of using variables that are closely related to the product itself. It is a fairly direct starting point for market segmentation.

Bases for Segmentation in Industrial Markets

In contrast to consumers, industrial customers tend to be fewer in number and purchase larger quantities. They evaluate offerings in more detail, and the decision process usually involves more than one person. These characteristics apply to organizations such as manufacturers and service providers, as well as resellers, governments, and institutions.

Many of the consumer market segmentation variables can be applied to industrial markets. Industrial markets might be segmented on characteristics such as:

Location Company type Behavioral characteristics

Location

In industrial markets, customer location may be important in some cases. Shipping costs may be a purchase factor for vendor selection for products having a high bulk to value ratio, so distance from the vendor may be critical. In some industries firms tend to cluster together geographically and therefore may have similar needs within a region.

Company Type

Business customers can be classified according to type as follows:

Company size Industry Decision making unit Purchase Criteria

Behavioral Characteristics

In industrial markets, patterns of purchase behavior can be a basis for segmentation. Such behavioral characteristics may include:

Usage rate Buying status: potential, first-time, regular, etc. Purchase procedure: sealed bids, negotiations, etc.

Target Market Selection

Target marketing tailors a marketing mix for one or more segments identified by market segmentation. Target marketing contrasts with mass marketing, which offers a single product to the entire market.

Two important factors to consider when selecting a target market segment are the attractiveness of the segment and the fit between the segment and the firm's objectives, resources, and capabilities.

Attractiveness of a Market Segment

The following are some examples of aspects that should be considered when evaluating the attractiveness of a market segment:

Size of the segment (number of customers and/or number of units) Growth rate of the segment Competition in the segment Brand loyalty of existing customers in the segment Attainable market share given promotional budget and competitors' expenditures Required market share to break even Sales potential for the firm in the segment Expected profit margins in the segment

Market research and analysis is instrumental in obtaining this information. For example, buyer intentions, salesforce estimates, test marketing, and statistical demand analysis are useful for

determining sales potential. The impact of applicable micro-environmental and macro-environmental variables on the market segment should be considered.

Note that larger segments are not necessarily the most profitable to target since they likely will have more competition. It may be more profitable to serve one or more smaller segments that have little competition. On the other hand, if the firm can develop a competitive advantage, for example, via patent protection, it may find it profitable to pursue a larger market segment.

Suitability of Market Segments to the Firm

Market segments also should be evaluated according to how they fit the firm's objectives, resources, and capabilities. Some aspects of fit include:

Whether the firm can offer superior value to the customers in the segment The impact of serving the segment on the firm's image Access to distribution channels required to serve the segment The firm's resources vs. capital investment required to serve the segment

The better the firm's fit to a market segment, and the more attractive the market segment, the greater the profit potential to the firm.

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.

The following diagrams show examples of the five market selection patterns given three market segments S1, S2, and S3, and three products P1, P2, and P3.

SingleSegment

SelectiveSpecialization

ProductSpecialization

MarketSpecialization

Full MarketCoverage

  S1 S2 S3

P1

P2

P3

  S1 S2 S3

P1

P2

P3

  S1 S2 S3

P1

P2

P3

  S1 S2 S3

P1

P2

P3

  S1 S2 S3

P1

P2

P3

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.

Brand Positioning: Meaning and Positioning Strategies!

Meaning:

In marketing, positioning has come to mean the process by which marketers try to create an image or identity in the minds of their target market for their product, brand, or organization. Brand positioning is at the heart of marketing strategy.

It is the act of designing the company’s offer and image so that it occupies a distinct and valued place in the target customer’s minds. A good brand positioning helps to guide marketing strategy by clarifying what a brand is all about, how it is unique, how it is similar to competitive brands, and why consumers purchase it. Thus, in simple words brand positioning refers to the position or image which a brand enjoys in the minds of present and potential customers.

Positioning Strategies:

1. Positioning by product attributes and benefits:

It is to associate a product with an attribute, a product feature, or a consumer feature. Sometimes a product can be positioned in terms of two or more attributes simultaneously. The price/quality attribute dimension is commonly used for positioning the products.

A common approach is setting the brand apart from competitors on the basis of the specific characteristics or benefits offered. Sometimes a product may be positioned on more than one product benefit. Marketers attempt to identify salient attributes (those that are important to con-sumers and are the basis for making a purchase decision).

2. Positioning by price/quality:

Marketers often use price/quality characteristics to position their brands. One way they do it is with ads that reflect the image of a high-quality brand where cost, while not irrelevant, is considered secondary to the quality benefits derived from using the brand. Premium brands positioned at the high end of the market use this approach for positioning the product.

Another way to use price/quality characteristics for positioning is to focus on the quality or value offered by the brand at a very competitive price. Although price is an important consideration, the product quality must be comparable to, or even better than, competing brands for the positioning strategy to be effective.

Parle Bisleri — ‘Bada Bisleri, same price ‘ad campaign.

3. Positioning by use or application:

Another way is to communicate a specific image or position for a brand to associate it with a specific use or application. Surf Excel is positioned as stain remover ‘Surf Excel haina!’ Also, Clinic All Clear – ‘Dare to wear black’.

4. Positioning by product class:

Often the competition for a particular product comes from outside the product class. For example, airlines know that while they compete with other airlines, trains and buses are also viable alternatives. Manufacturers of music CDs must compete with the cassette industry. The product is positioned against others that, while not exactly the same, provide the same class of benefits.

5. Positioning by product user:

Positioning a product by associating it with a particular user or group of users is yet another approach. Motography Motorola Mobile, in this ad the persona of the user of the product has been positioned.

6. Positioning by competitor:

Competitors may be as important to positioning strategy as a firm’s own product or services. In today’s market, an effective positioning strategy for a product or brand may focus on specific competitors.

This approach is similar to positioning by product class, although the competition is within the same product category in this case. Onida was positioned against the giants in the television industry through this strategy. Onida colour TV was launched with the message that all others were clones and only Onida was the leader— ‘Neighbour’s envy, owner’s pride’.

7. Positioning by cultural symbols:

This is an additional positioning strategy wherein the cultural symbols are used to differentiate the brands. Examples are Humara Bajaj, Tata Tea, and Ronald McDonald. Each of these symbols has successfully differentiated the product it represents from competitors.

Chapter 9 Objectives

After reading Chapter 9, you will be able to:

Define differentiation and positioning and explain why they are important elements of marketing strategy.

Identify dimensions of differentiation and internet-specific differentiation strategies.

Discuss how companies can position or reposition themselves on the basis of attributes, technology, benefits, user category, relation to competitors, integrator capabilities, or reverse positioning.

The J. Peterman Story

The J. Peterman Company is a classic example of successfully combining clever differentiation with powerful positioning.

The founder established his company as a breed apart from ordinary competitors.

Every item has a description that communicates nostalgia and romance.

Visit www.jpeterman.com and discuss what makes their products “unique.”

Differentiation

Kotler defines differentiation as the process of adding meaningful and valued differences to distinguish the company’s offering from the competition.

There are a number of differentiation dimensions and strategies for their accomplishment.

Differentiation Dimensions

A firm can differentiate along 5 dimensions:

Product

Service

Personnel

Channel

Image

Product Differentiation

Product line differentiation is an important e-marketing strategy.

Differentiation may include customization, bundling, and attractive pricing of products.

Internet sales may not rely as heavily on product packaging and displays as do traditional retailers.

Packages shipped to households may require additional packing materials not required in bulk case shipments to wholesalers and retailers.

Service Differentiation

Customer service can be enhanced by 24-hour customer feedback through e-mail and the ability to respond more rapidly to customer concerns.

Home delivery of groceries, online banking, and securities trading are becoming increasingly popular.

Today such services supplement traditional services, but may someday replace them.

Personnel Differentiation

The internet allows companies to deliver products more efficiently.

Low-cost channels

Automated processes

Reduced dependence on personnel

Lower transaction cost

Channel Differentiation

The internet:

Is a location-free, time-free distribution and communication channel.

Functions as a communication channel for companies that provide product or service information online.

Serves as a transaction and distribution channel for companies that conduct online commercial transactions.

Becomes the entire distribution channel for digital products.

Image Differentiation

A company can differentiate itself by creating a unique experience online, called “experience branding.”

Through experience branding firms can better retain customers, target key segments, and enhance profitability.

Build-a-Bear extends its offline experience online.

Some Web sites invite users to upload content and comments, which gives them a competitive edge.

Positioning

Positioning is the process of creating a desired image for a company and its products in the minds of a chosen user segment.

The e-marketer’s goal is to build a position on one or more bases that are relevant and important to the consumer.

Firms can position brands, the company, the CEO, or individual products.

Bases and Strategies for Positioning

Product or service attribute

Technology positioning

Benefit positioning

User category

Competitor positioning

Integrator positioning

Product or Service Attribute

May include features such as size, color, ingredients, speed, etc.

Amazon’s 1-click checkout process is an example of a positioning attribute.

iVillage allows users to build personalized mean menus.

Tylenol does not sell online, but provides useful one-to-one features for pain relief and health information and Tylenol greeting cards.

Technology Positioning

Positioning on the basis of technology shows that a firm is on the cutting edge.

At Lands’ End, consumers can build virtual models of themselves and try on virtual outfits.

At American Airlines, customers can store seating preferences and frequent flier account information.

Benefit Positioning

Benefit positioning is generally a stronger basis for positioning because it answers the consumer question: What will this product/service do for me?

Miller Lite offers software that can be used as a social organizer.

On the Valvoline motor oil site, visitors can send greeting cards, download racing screensavers, and sign up for newsletters.

User Category

User category positioning relies on customer segments.

Kellogg’s has an interactive site for children.

Yahoo! Groups hosts forums organized by specific interests.

Eons is a social network for baby boomers.

Competitor Positioning

Many firms position by benefits that provide advantages over their competitors.

Companies may position themselves against:

An entire industry.

A particular firm.

Relative industry position.

“I Can’t Believe It’s Not Butter” margarine positions itself against other margarines.

Integrator positioning

Integrators provide everything a consumer needs in a particular product category, industry, or even in general.

Consumers want convenience and one-stop shopping:

Martha Stewart’s Web site brings together business units in one place.

TheKnot.com offers everything to do with weddings.

Integrator positioning, cont.

We can expect to see more integrator positioning in the real estate, lending, jewelry, and hospitality industries.

zipRealty uses software that reduces the agents' work.

LendingTree and HomeGain.com help brokers find clients more cheaply and quickly.

Blue Nile sells an estimated $129 million of jewelry that would require 116 retail stores.

Web travel agencies can move market share to hotels that give them discounts.

Repositioning Strategies

Repositioning is the process of creating a new or modified brand, company, or product position.

A company may enhance or modify a position, based on market feedback.

Yahoo! repositioned from online guide to Web portal.

Amazon repositioned from world’s largest bookstore to “Earth’s biggest selection.”

Facebook now hosts many business page profiles and third-party applications.