segmentare tintire pozitionare

5Market segmentation,targeting and positioningof marketing

5.1 Introduction

Now that we have a better understanding of the nature of marketing, we can

examine the subject in more detail. A logical starting point is an examination

of customers, and this is the theme of this chapter, along with the next chapter,

which deals with their purchasing behaviour.

Market segmentation can be defined as:

The process of breaking down the total market for a product or service

into distinct sub-groups or segments, where each segment may con-

ceivably represent a distinct target market to be reached with a distinctive

marketing mix.

Marketers realise that, to improve their opportunities for success in a

competitive market environment, they must focus marketing effort on clearly

defined market targets. The intention is to select those groups of customers

that the company is best able to serve in such a way that pressure from

competition is minimised. The sequential steps in this process are segmenta-

tion, targeting and positioning. In this chapter we examine each of these steps,

showing how they can be used to improve the effectiveness of marketing

decision-making.

There are increasingly more segmentation bases available, which means that

targeting and positioning strategies are becoming more meaningful.

5.2 The need for segmentation

We have seen that the essence of the marketing concept is the idea of placing

customer needs at the centre of the organisation’s decision-making. It has also

been said that the need to adopt this approach stems from a number of factors,

including increased competition, better informed and educated consumers,

68

DefinitionMarket segmentationcan be defined as:the process ofbreaking down thetotal market for aproduct or service intodistinct sub-groups.

Market segmentation, targeting and positioning of marketing 69

and, perhaps most importantly, changing patterns of demand. Primarily it is

this change in patterns of demand that has given rise to the need to segment

markets.

Reflect on the products and services that you purchase. Do you purchase

exactly the same kinds of products as your friends, or are your purchasing

requirements slightly different? Your friends may have different tastes in

clothes or in the type of holidays they take. Perhaps they purchase different

brands of toothpaste or breakfast cereals. This obvious example shows that

market segmentation and the subsequent strategies of targeting and position-

ing start by recognising that increasingly, within the total demand/market for

a product, specific tastes, needs and amounts demanded may differ.

We refer to a market that is characterised by differing specific preferences as

being heterogeneous. Market segmentation is disaggregative in nature – in

other words, it breaks down the total differently behaving market for a product

or service into distinct subsets or segments, with customers who share similar

demand preferences being grouped together with each segment. This is

illustrated in Table 5.1.

Effective segmentation is achieved when customers sharing similar patterns

of demand are grouped together and where each segment differs in the pattern

of demand from other segments in the market (i.e. where the clustering gives

rise to homogeneous demand within each segment and heterogeneous amongst all

of the segments). Most markets for consumer and industrial products can be

segmented on some kind of basis.

5.3 Targeted marketing efforts

The fact that most markets are made up of heterogeneous demand segments

means that companies have to decide which segments to serve. Most

companies recognise that they cannot effectively serve all segments in a

market. They must instead target their marketing efforts.

Imagine that you are a part of a team developing a new car. Should the

proposed new model be a two-, four- or five-seated model? Should it have

a 1000, 2000 or 3000cc engine? Should it have leather, fabric or plastic

seats? The developer has to address these and many other questions. In

deciding these issues, the overriding factor is customer demand – i.e. what

are customer needs? Some customers (segments) may want a five-seated

2000cc model with leather upholstery, whilst others may prefer a four-

seated model with a 1000cc engine and fabric seats. One solution would be

to compromise and produce a four-seated 1500cc model with leather seats

and fabric trim. Clearly, such a model would go some way to meeting the

requirements of both groups of buyers. The danger is that, because the

needs of neither market segment are precisely met, most potential custom-

ers might purchase from other suppliers who are prepared to cater for their

specific requirements.

In short, varied patterns of demand require that marketers develop specific

marketing mixes (i.e. product, price, promotional and channels appeals)

DefinitionWe refer to a marketthat is characterisedby differing specificpreferences as beingheterogeneous.

70 Marketing: The One-Semester Introduction

aimed or targeted at specific market segments. Marketing writers liken this

targeting versus mass marketing approach to using a rifle approach as opposed

to using a shotgun approach.

This idea of how companies target their marketing efforts was put forward

by D. F. Abell (1980) when he suggested targeting strategies based upon

customer group concentrations, or customer need concentrations, or a

combination of each. Table 5.1 illustrates how the idea works in practice.

Table 5.2 shows a marketing strategy of complete coverage. This is termed

undifferentiated marketing, and an appropriate example here might be a

popular brand of washing powder/liquid.

Table 5.3 shows a strategy that concentrates on a specialist want or wants

that cover different customer groups. This is a differentiated marketing

strategy. An example here would be an adhesives manufacturer who supplies

the engineering, textiles, schools, office supplies and ‘do-it-yourself ’

markets.

Table 5.1 Customer wants/groups

Customer wants Customer groups

Group 1 Group 2 Group 3

Want 1

Want 2

Want 3

Table 5.2 Complete coverage



Want 1 X X X

Want 2 X X X

Want 3 X X X


Table 5.4 shows a strategy that concentrates on supplying a variety of wants

to a specific customer group, for example, a mining machinery manufacturer

supplying the coal industry. This is also a differentiated marketing strategy.

Table 5.5 shows a strategy of specialist supply where the company serves

customer groups 2 and 3 with wants 1 and 3 respectively. An example is a

spinner of carpet yarns who supplies carpet manufacturers, but who also

manufactures and sells needle punch carpets to the motor trade. This is known

as a concentrated market strategy.

A number of factors affect the choice of targeting strategy. For example,

smaller companies with fewer resources often have to specialise in certain

segments of the market in order to be competitive, so they must pursue a

concentrated strategy. Competition will also affect the choice of strategy. In

the final analysis, choosing a targeting strategy is a matter of striking the

optimum balance between the costs and benefits of each approach in the

particular situation.

Table 5.3 Want satisfaction specialisation



Want 1

Want 2 X X X

Want 3

Table 5.4 Customer group specialisation



Want 1 X

Want 2 X

Want 3 X


Specifically, the advantages of target marketing are:

1 Marketing opportunities and ‘gaps’ in a market may be more accurately

identified and appraised

2 Product and market appeals (through the marketing mix) can be more

finely tuned to the needs of the potential customer

3 Marketing effort can be focused on the market segment(s) which offer the

greatest potential for the company to achieve its objectives.

Table 5.5 Selective specialisation



Want 1 X

Want 2

Want 3 X

Vignette 5.1

Segmentation: UK banks reluctantly target ‘lost’financially excluded segment

Literally millions of people in the UK have a poor financial history. County Court Judgements(CCJs), credit defaults (usually the result of non-payment of credit card debts) and late paymenthistories (again on credit cards and other hire purchase agreements, including rental agreements)affect many households. People with such histories are usually recorded on the files of creditreference companies. The biggest credit reference companies in the UK are Experian and Equifax.Mortgage arrears and default records are kept separately by the building societies.Traditionally people with such poor financial histories have been of little interest to the high-

street banks, which have regarded them as a bad risk. However, the government wants to end thefinancial exclusion of these people and give them the opportunity to have a bank account, cashcard and standing order and direct debit facilities. Such people often miss out on the opportunityto purchase many goods and services because they cannot pay by standing order or directdebit.Conventional current accounts are regarded as a ‘cash cow’ by the banks. They generate

deposits, and income from overdraft charges, and give the bank the opportunity to ‘cross-sell’other products such as loans, insurance, mortgages and pensions. The government wants thebanks to open ‘basic accounts’, with no overdraft facilities or chequebooks, but including standing


5.4 Effective segmentation

Ideally, the base(s) used for segmentation should lead to segments that are:

1 Measurable/identifiable. The base(s) should ideally lead to ease of identifica-

tion (who is in each segment?) and measurement (how many potential

customers are in each segment?)

2 Accessible. The base(s) used should ideally lead to the marketer being able to

reach selected market targets through marketing efforts

3 Substantial. The base(s) used should ideally lead to segments that are

sufficiently large to be worthwhile serving as distinct market targets

4 Meaningful. The base(s) used should lead to segments that have different

preferences/needs, and show clear variations in market behaviour/response

to specialised marketing efforts.

Of the four requirements for effective segmentation, the last, that segments are

meaningful, is very important. It is an essential prerequisite in identifying and

selecting market targets.

Before we examine each of the steps involved in segmentation, targeting and

positioning in more detail, we need to understand and appreciate further what

market segmentation means, and how this relates to our criteria for effective

segmentation. A simple illustration of this idea is shown in Figure 5.1. Here,

the country (England) is broken down into five distinct selling regions, each

served by a regional sales representative.

Remember that in segmentation, targeting and positioning, we are seeking

to identify distinct subsets of customers in the total market for a product

where any subset might eventually be selected as a market target and for which

a distinctive marketing mix will be developed. For instance, taking the

order, direct debit and cash card facilities. In the short term the banks will operate these accountsat a loss, but they hope to make money eventually as the account holders get their financial affairsin order and become regular account holders. Undischarged bankrupts will still be denied evenone of the basic accounts; otherwise, such accounts will be open to all regardless of credit historyand the state of their credit reference files.Although the banks are entering into the spirit of the government’s wishes, there is some debate

as to whether they are demonstrating the degree of enthusiasm the government had hoped themto have for the new scheme. They have given the government their commitment to set up suchaccounts, but do not seem to be going out of their way to attract new account holders. Barclaysand Lloyds TSB launched such accounts throughout the UK in the third week of October 2000, andLloyds TSB piloted the scheme in Scotland for eight months before that. NatWest set up similarfacilities for ‘blacklisted’ customers at the beginning of October 2000, and HSBC followed suit.Such moves represent an interesting targeting of a relatively unexploited market segment, whichcould result in profitable business in the long term – although the banks themselves do not seemparticularly optimistic about the viability of such a segment.

Key pointRemember that insegmentation,targeting andpositioning, we areseeking to identifydistinct subsets ofcustomers in the totalmarket for a productwhere any subsetmight eventually beselected as a markettarget and for which adistinctive marketingmix will be developed.

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geographical segmentation example in Figure 5.1, on examining the northwest

region it is broken up into an ‘assisted region’ and a ‘non-assisted region’, as

shown in Figure 5.2.

An ‘assisted region’ attracts various grants and benefits from the govern-

ment and the European Union. An industrial goods supplier selling certain

types of capital equipment (machine tools in this illustration) will target firms

to whom it sells in an assisted region with a different message (perhaps

emphasising grants available) to that it uses for those firms it sells to in a non-

assisted region.

In this hypothetical example we are assuming that buyers in assisted regions

will be more prone to the cost-savings motive (through grants), whereas those in

Figure 5.1 Market segmentation for a machine tools manufacturer.

Figure 5.2 Further segmentation on the basis of assistance status.


non-assisted regions will react more to general commercial criteria like

reliability, price and service. The important element to note is that the bases

selected for segmentation (geography and assistance status) are meaningful

ones. Remember that it only makes sense to continue to subdivide markets in

this way as long as the resulting segments are worthwhile serving as distinct

market targets with distinct marketing mixes. There are some markets where

complete segmentation (i.e. tailoring the marketing mix to individual

customers) is not only desirable, but also essential. In shipbuilding each

customer may be treated as a separate market, but for most consumer product

markets such customising of the marketing effort would be totally impractical.

The following represents the sequential steps in conducting a segmentation,

targeting and positioning exercise for any given product market:

1 Select bases(s) for segmentation and identify segments

2 Evaluate and appraise the market segments resulting from step 1

3 Select an overall targeting strategy

4 Select specific target segments in line with step 3

5 Develop ‘product positioning’ strategies for each target segment

6 Develop appropriate marketing mixes for each target segment in order to

support positioning strategies.

These steps will each now be dealt with individually.

The machine tools example used the bases of geography and benefits to

segment the market. There is no prescribed way to segment a market; different

bases and combinations of bases, particularly innovative ones, should be

sought by the marketer. There are, however, a number of relatively common

bases frequently used by marketers.

5.5 Segmentation bases in consumer productmarkets

5.5.1 Geographic segmentation

In international marketing, different countries may be deemed to constitute

different market segments. Within a country, a market may be segmented into

regions that normally represent an individual salesperson’s territory.

5.5.2 Demographic segmentation

This approach consists of a wide variety of bases, and some of the more

common ones are age, income, sex, education, nationality, family size, family

life cycle, social class/occupation, and type of neighbourhood.

Demographic bases constitute the most popular bases for segmentation in

consumer product markets (see Reynolds and El-Adley, 1995, 1997). The

reason for this is that they are often associated with differences in consumer

demand (i.e. they are meaningful).

Key pointThere is no prescribedway to segment amarket; different basesand combinations ofbases, particularlyinnovative ones,should be sought bythe marketer.


Family life cycle segmentation is based on the idea that typically consumers

pass through a series of quite distinct phases in their lives. Each phase gives

rise to, or is associated with, different purchasing patterns and needs. For

example, the unmarried person living at home will probably have very

different purchasing patterns to someone of the same age who has left home

and recently married. Similarly, it is recognised that purchasing patterns of

adults often change as they approach and then move into retirement. The

subject is given fuller treatment in Chapter 6, but the stages are defined as:

1 Young

2 Young single, no children

3 Young couple, youngest child under 6 (Full Nest I)

4 Young couple, youngest child 6+ (Full Nest II)

5 Older couple with children 18+ at home (Full Nest III)

6 Older couple, family head in work, no children at home (Empty Nest I)

7 Older couple, family head retired, no children at home (Empty Nest II)

8 Older alone (in work)

9 Older alone (retired).

A further development in the application of family life cycle has been

developed by Research Services and termed ‘SAGACITY’. This combines life

cycle with income and occupation in order to delineate different consumer

groups. Consumers are divided into one of four life cycle groups:

1 Dependent: adults 15–34 who are not heads of household or housewives,

unless they are childless students in full-time education

2 Pre-family: adults 15–34 who are heads of household but childless

3 Family: adults under 65 who are heads of household or housewives in

households with one or more children under 21 years of age

4 Late: all other adults whose children have already left home or who are 35

or over and childless.

These four major life cycle groups are then broken down further by a

combination of occupation and/or income to produce 12 major SAGACITY

groupings:

Approx. % of

UK population

(DW) Dependent white collar 6

(DB) Dependent blue collar 9

(PFW) Pre-family white collar 4

(PFB) Pre-family blue collar 4

(FW+) Family, better-off white collar 6

(FB+) Family, better-off blue collar 9

(FW–) Family, worse-off white collar 8


(FB–) Family, worse-off blue collar 14

(LW+) Late, better-off white collar 5

(LB+) Late, better-off blue collar 7

(LW–) Late, worse-off white collar 9

(LW–) Late, worse-off blue collar 19

Occupation and social class are linked because in most developed economies

official socio-economic group (social class) categorisations are based on

occupation. Of all the demographic bases for segmenting markets, social class

is probably the most widely used basis for segmenting consumer product

markets.

Social class scores highly against other segmentation criteria in being

identifiable and accessible. It is easy to classify individuals on the basis of

occupation, and to reach different social classes according to different media

and shopping habits. The social class grading system used in the UK, together

with a broad indication of the type of occupation associated with each, is:

Social class

grading

Type of occupation Approx. % of

UK population

A Higher managerial 4

B Intermediate management 11

C1 Supervisory, clerical, administrative 26

C2 Skilled manual 30

D Semi-skilled/unskilled 25

E Pensioner (no supplementary income) 4

Casual and lowest grade workers

Although still widely used in marketing, doubt is sometimes expressed about

social class being a meaningful basis for segmenting markets. For example, it

is often the case that the skilled manual group (C2) can earn higher incomes

than their counterparts in supervisory or even intermediate management (C1

or B). They are often able to purchase products and services that were

traditionally the prerogative of the upper social grades.

Education might also be said to be related to social class, because the better

educated tend to get the higher paid jobs. Education is usually expressed as

terminal education age (TEA). This classification is open to criticism because

of an increase in the provision of part-time and distance learning education,

which means that although a person’s TEA might be low, education might

have been enhanced through later part-time higher qualifications.

Partly because of the diminishing meaningfulness of social class/occupation

as a basis of segmentation, new forms of social classification have begun to

emerge which take into account a wider range of factors than the single index

of occupation on which more conventional social grading systems are based.

An example is the type of neighbourhood/dwelling – the ACORN system (A

Classification Of Residential Neighbourhoods). This system takes dwellings,

rather than individuals, as a basis for segmentation. It is based upon the

10-yearly return made by the householder in the census enumeration district

within which the house is situated. This census of population takes place in

Key pointOf all thedemographic basesfor segmentingmarkets, social class isprobably the mostwidely used basis forsegmenting consumerproduct markets.


every year that ends in one (i.e. the last one was in 2001), and householders

must complete their return by law. There is also a 10 per cent sample taken in

every year that ends in six. In the United Kingdom, there are around 125 000

such census districts, and the ACORN system has classified each of these into

one of 11 major groups. Each of these major groups is further subdivided to

yield a total of 36 specific neighbourhood types. The 11 major groups, and

some examples of how Group A is further subdivided into neighbourhood

types, are given below:

A agricultural areas

A1 agricultural villages

A2 areas of forms and smallholdings

B modern family housing, higher incomes

C older housing of intermediate status

D poor quality, older terraced housing

E better-off council estates

F less well-off council estates

G poorest council estates

H multi-racial areas

I high-status non-family areas

J affluent suburban housing

K better-off retirement areas

U unclassified

Essentially, the ACORN system is based on the idea that the type of area and

housing in which an individual lives is a good indicator of his or her possible

patterns of purchasing, including the types of products and brands that might

be purchased. There is evidence to suggest that this is the case. In other words,

the ACORN system goes some way to fulfilling the ‘meaningfulness’ criterion

for a segmentation basis.

ACORN was developed at the research firm Consolidated Analysis Centres

Inc. (CACI). ‘Sample Plan’, for instance, is a service that can be used for

marketing research using a computer program to select ACORN areas.

Individual addresses can then be chosen that provide a truly representative

sampling frame for survey work.

The effectiveness of census data in providing segmentation bases has been

further refined. Pinpoint (PIN) analysis is based on census data, and it claims

104 census variables to delineate 60 neighbourhood types that are clustered

into 12 main types.

MOSAIC is another approach based on census data. It has added data on

the financial circumstances of potential target customers living within each

district by relating it to Royal Mail postcodes. Each postcode represents on

average between eight and twelve individual homes of a similar type, and each

is ascribed an individual MOSAIC categorisation. For example, M1 is ‘High

status retirement areas with many single pensioners’; M17 is ‘Older terraces,

young families in very crowded conditions’; M34 is ‘Better council estates but

with financial problems’; and M55 is ‘Pretty rural villages with wealthy long-

distance commuters’. It is called ‘MOSAIC’ because if each of the 58 different

MOSAIC categorisations ascribed to postal codes was represented as a


different colour and then superimposed onto a map of the UK, it would

resemble a mosaic pattern.

This classification is a very powerful database for direct mail, because

individual householders can be personally targeted according to the type of

MOSAIC categorisation of their home, and in the specific geographical area in

which their home is situated. For instance, it is possible to specify that a

personal letter go out to all residents in South-East Huddersfield (HD8) who

fall in the M46 ‘Post-1981 housing in areas of highest income and status’

MOSAIC category.

5.5.3 Lifestyle segmentation

This is referred to as psychographic segmentation. It is based on the idea that

individuals have characteristic modes and patterns of living that may be

reflected in the products and brands they purchase. For example, some

individuals prefer a ‘homely’ lifestyle, whereas others may have a ‘sophisti-

cated’ lifestyle.

Young and Rubicam, the advertising agency, put forward a formal lifestyle

classification called ‘4Cs’, where ‘C’ stands for ‘customer type’. Consumers

are put into one of the following categories:

� Mainstreamers (the largest group, containing in excess of 40 per cent of the

population)

� Aspirers

� Succeeders

� Reformers.

5.5.4 Direct or behavioural segmentation

All the approaches to consumer market segmentation described so far have

been examples of associative segmentation – that is, they are used where it is felt

that differences in customer needs and purchasing behaviour may be

associated with them. For example, if we use age to segment a market, we are

assuming that purchasing behaviour in respect of a certain product is a

function of age. Most of the problems that arise from using associative bases

are concerned with the extent to which the bases are truly associated with a

reflection of actual purchasing behaviour.

Because of the problems of associative segmentation, many marketers

believe that it is better to use direct bases for segmenting markets. Such bases

take actual consumer behaviour as the starting point for identifying different

segments, and they are therefore referred to as behavioural segmentation

bases. These divide into three categories:

1 Occasions for purchase. Segments are identified on the basis of differences in

the occasions for purchasing the product in question. In the market for

men’s ties, the ‘occasion for purchase’ might include gift-giving, subscrip-

tion to clubs or societies, and purchasing a new shirt or suit.

Key pointBecause of theproblems ofassociativesegmentation, manymarketers believe thatit is better to use directbases for segmentingmarkets.


2 User/usage status. A distinction may be made between ‘heavy’, ‘light’ and

‘non-user’ segments for a product.

3 Benefits sought. This is certainly one of the most meaningful ways to segment

a market. The total market for a product or service is broken down into

segments that are distinguished by the principal benefit(s) sought by that

segment. For example, the household liquid detergent market might

include the following benefit segments: economy, mildness to hands,

cleansing power and germ protection.

5.5.5 Loyalty status

A direct approach to segmenting markets is the extent to which different

customers are loyal to certain brands (brand loyalty) or retail outlets (store

loyalty). Identifying segments with different degrees of loyalty may enable a

company to determine which, if any, of its prospective customers may be

brand-loyalty prone. Such a market segment is clearly a very attractive one on

which to concentrate any future marketing effort. Once convinced of the

relative merits of a brand/supplier, such customers are unlikely to switch

brands. Understandably, where existing brand loyalty is already strong in a

market, the would-be new entrant is faced with a particularly difficult

marketing problem. In this situation it may be advisable or necessary to

identify and target segments with low brand loyalty.

It is suggested by a number of marketing writers that consumers fall into

one of four categories as far as loyalty status is concerned:

1 Hard core loyals, who have absolute loyalty to a single brand (e.g. brands

AAAAAA)

2 Soft core loyals, who divide their loyalty between two, or sometimes more

brands (e.g. brands AABABBA)

3 Shifting loyals, who brand-switch, spending some time on one brand and then

moving to another (e.g. brands AAABBB)

4 Switchers, who show no brand loyalty, often purchasing products that are

lowest in price or have a special offer (e.g. brands BCBAACD).

Vignette 5.2

Segmentation: British Airways wants a long-termreplacement for Concorde to service the supersonicbusiness class segment

You only have to travel to Times Square in New York City at 42nd Street and Broadway and lookat the British Airways advertising on the hoardings. At the most important crossroads in the world,in the centre of the worlds ‘capital’, along with the almost full-size replica of Concorde in BA livery,you realise that Concorde is the most important ‘brand icon’ the firm possesses. The Concorde


5.6 Segmentation bases in industrial productmarkets

The concept of segmentation, targeting and positioning is the same between

consumer and industrial markets. Segmenting industrial product markets

suggest a number of additional bases and precludes others that are used for

consumer markets.

The most frequently encountered bases for segmentation of industrial

product markets are:

� Geographic, e.g. northwest and southeast, Germany and Denmark

� Type of application/end use, e.g. nylon for clothing or that used for

parachutes

� Product/technology, e.g. plastic containers and steel containers

� Type of customer, e.g. manufacturing industry versus public authority

� Customer size, e.g. by customer turnover or by the average value of orders

placed with the company

disaster at Charles De Gaulle airport near Paris in July 2000 left the future of the aircraft in gravedoubt. However, British Airways is taking the long-term view on one of its most important andprestigious market segments, and is asking aircraft designers and manufacturers to develop along-term replacement for the aircraft, whether or not Concorde is allowed to re-enter service inthe near future.Expensive modifications will have to be made to the plane if it is ever going to be allowed to fly

again. BA is pushing the original manufacturers, European Aeronautic Space and Defence andBAE Systems, to try and get the modification in place by the end of 2000 to allow the plane to re-enter service around September 2001 – a very ambitious time horizon. If the present Concordefleet is allowed to resume service in 2001, then BA intends to keep them flying until around 2015but is eager to find an even better aircraft to replace the by-then ageing icon of sophisticatedbusiness travel.Major aircraft manufacturers such as Boeing see little future in scheduled flight supersonic air

travel. They are not convinced that there are sufficient customers out there willing to pay the sortof ticket prices necessary to make the economics of developing and manufacturing such an aircraftadd up. They see the demand for smaller ‘Lear’ and ‘Gulfstream’ type supersonic business jetsrather than for the more ‘mass market’ type Concorde replacement craft. British Airways is lookingforward to getting Concorde back into service not only because it wants to satisfy demand fromone of their most prestigious market segments, but also because it regards Concorde as one of itsmost effective marketing tools. The marketing effects of having a Concorde fleet in operation to keydestinations around the world impacts positively on all BA’s services. Whether BA has misread thefuture market for such a service remains to be seen. Many in the business jet and supersonicmilitary jet markets do not believe a replacement for Concorde will turn out to be financially viable,even given the different economic circumstance that might exist 15 years down the line.

Key pointThe concept ofsegmentation,targeting andpositioning is the samebetween consumerand industrial markets.

Demographics

Operating variables

Purchasing approach

Situational

Personal characteristics


� Loyalty of customer

� Usage rate, e.g. heavy or light

� Purchasing procedures, e.g. centralised or decentralised, the extent of

specification buying, tender versus non-tender procedures

� Benefits sought, based on the product needs that customers require from

their purchase – e.g. a car might be needed for the company’s representa-

tives, for hiring out, or as the managing director’s personal car.

Shapiro and Bonoma (1984) have suggested a ‘nested’ approach to industrial

market segmentation. They identified five general segmentation bases

arranged in a nested hierarchy, as shown in Figure 5.3:

1 Demographic variables give a broad description of the segments and relate to

general customer needs and usage patterns

2 Operating variables enable a more precise identification of existing and

potential customers within demographic categories

3 Purchasing approaches looks at customers’ purchasing practices (e.g.

centralised or decentralised purchasing); it also includes purchasing

policies/criteria and the nature of the buyer/seller relationship

4 Situational factors consider the tactical role of the purchasing situation,

requiring a greater or less detailed knowledge of the individual buyer

5 Personal characteristics relate to people who make purchasing decisions.

As with consumer markets, industrial market segmentation may be on an

indirect (associative) or a direct (behavioural) basis. Again, a variety of bases

may be used together in order to obtain successively smaller sub-segments of

the market. The criteria given for bases of consumer market segmentation –

being identifiable, accessible, substantial and, most important, meaningful –

are equally applicable to industrial market segmentation.

Figure 5.3 ‘Nested’ approach to industrial segmentation.

Key pointThe criteria given forbases of consumermarket segmentation –being identifiable,accessible, substantialand, most important,meaningful – areequally applicable toindustrial marketsegmentation.


5.7 Evaluating and appraising market segments

Having decided on a basis for segmentation and identified market segments,

the marketer must then evaluate the various market segments that have been

identified. Overall, segments should be appraised with respect to sales and

profit potential or, in the case of a not-for-profit organisation, the potential to

contribute to overall organisational objectives. This in turn requires that each

segment be appraised with respect to factors such as overall size, projected

growth, extent of existing and potential competition, nature of competitive

strategies, and customer requirements.

Vignette 5.3

Segmentation: Merck and Co. Inc. targets USA’sbald males

Merck and Co. Inc., the American pharmaceutical company, has found a potentially veryprofitable commercial use for its existing drug Finasteride®. The drug has been used to treatprostate medical complains for some years. In a lower dose (1mg), the drug has been successfulin trials treating male-pattern baldness (androgenic alopecia). The drug will be marketed underthe brand name ‘Propecia®’ in the USA. The product is in the form of a pill, which patients haveto take once a day. It is the only treatment for male-pattern hair loss in pill form, and is availablefrom pharmacists on a prescription basis only. However, a number of Internet companies arealready marketing the product and will supply customers without the need of a doctor’sprescription. Obviously taking the drug without first consulting a doctor or at least some otherhealth professional has certain risks. However, many people are prepared to take the risk, andInternet suppliers and customers are on the increase.The United States Food and Drug Administration granted a marketing licence to Merck on

December 22, 1997. The marketing clearance of Propecia® is based on a double-blind, placebo-controlled, multicentre trial involving 1879 men. Eighty-three per cent of men in the Propecia®

group reported reduction in hair loss or increase in hair growth. This was verified scientifically byhair counts. Seventy-two per cent of the people in the placebo group were found to haveprogressive hair loss over the same time period (24 months). Propecia® is targeted at men only;it is not safe for use by women; in fact, women must not even handle the drug whilst pregnant asit can cause foetal abnormalities. The tablets have a coating that prevents contact with the activeingredients in normal situations, but there is always a risk of tablets being crushed, exposing theactive ingredients. Treatment causes loss of sexual function in some males, although this is usuallytemporary and very limited. The treatment needs to be taken every day. When the treatment isstopped, hair loss reverts to the pre-treatment level.A licence to market the product has been granted in the UK to Merck, Sharp and Dohme of

Hertfordshire, but at the time of writing (July 2001) the company has no release date for a UKlaunch. Much has been written about Propecia®, and much scientific information is available onthe Internet. Those suffering hair loss problems in Britain are waiting anxiously for the drug’srelease. There is a huge market all over the world, worth £ billions, for any scientifically provenproduct for the treatment of andogenic alopecia. The only comparable product to Propecia® is


5.8 Selecting specific target markets

This step concerns organisations that decide to pursue a concentrated or

differentiated targeting strategy. The company must decide which of the

segments in the market it is best able and willing to serve. This decision must

be based on some of the factors outlined, including company resources,

competition, segment potential and company objectives. Four characteristics

will make a market segment particularly attractive:

1 The segment has sufficient current sales and profit potential to meet

company objectives

2 The segment has the potential for future growth

3 The segment is not over-competitive

4 The segment has some relatively unsatisfied needs that the company can

serve particularly well.

5.9 Developing product positioning strategies

For each segment in which a company chooses to operate, it must determine

a product positioning strategy. Product positioning relates to the task of

ensuring that a particular company’s products or services occupy a pre-

determined place in selected target markets, relative to competition in that

market. This process is also called ‘perceptual mapping’ or ‘brand mapping’.

The idea of product/brand positioning is applicable to both industrial and

consumer markets. The key aspects of this approach are based on a number of

assumptions, which are now explained. All products and brands have both

objective and subjective attributes that they possess to a greater or lesser

extent.

minoxidil, marketed by Phamacia and Upjohn as ‘Regain®’ (Rogaine® in the USA). Minoxidil isavailable without a doctor’s prescription over-the-counter in pharmacies. Many websites offerminioxidil as well as Finasteride®.Minoxidil is administered as a lotion, topically. It is sold in regular and extra strength solutions.

The drug minoxidil was originally developed for treatment in high blood pressure patients, whowere also observed to grow more hair when taking the medicine. A perfect candidate forminoxidil is a young male who is just starting to bald in the vertex/crown of the scalp. It is alsosuitable for women, although not in the extra strength version. Propecia® is likely to be morepopular than Regaine®, as it is in tablet form and therefore much more convenient to take.However, it is not suitable for women.

DefinitionProduct positioningrelates to the task ofensuring that aparticular company’sproducts or servicesoccupy apredetermined placein selected targetmarkets, relative tocompetition in thatmarket.

High priceper gram

Low priceper gram

Very sweet Not at all sweet

Brand

Possiblepositioningstrategiesfor newbrand

B

Brand A

Brand C

Brand B

Brand D


Examples of objective attributes include:

Size Large ⇔ Small

Weight Heavy ⇔ Light

Strength Strong ⇔Weak

Examples of subjective attributes include:

Value for money Good value ⇔ Poor value

Fashion Very fashionable ⇔ Old fashioned

Reliability Very reliable ⇔Very unreliable

Customers consider one or more of these attributes in choosing between

products and/or brands in a given segment.

Customers have their own ideas about how the various competitive offerings

of products or brands rate for each of these attributes; i.e. positioning takes

place in the mind of the customer.

Using these criteria, it is then possible to establish:

� important attributes in choosing between competitive offerings

� customer perceptions of the position of competitive market offerings with

respect to these attributes

� the most advantageous position for the company within this segment of the

market.

Figure 5.4 A hypothetical product positioning map for the ‘instant’ breakfast foodmarket.


An example best serves to illustrate this process. Imagine a company is

proposing to enter the market for ‘instant’ breakfast foods, in which there are

already five competitors – A, B, C, D and E. The company should first

establish what customers believe to be the salient attributes in choosing

between brands in this market. In addition, the perceived position of existing

competitors with respect to these attributes should also be investigated. If the

important attributes have been found to be ‘price’ and ‘taste’, a possible

positioning map might be drawn as shown in Figure 5.4.

Using this information, the company must now decide where to position its

product within the market. One possibility is to position the new brand in the

medium-price, medium-taste part of the market; another, to position it at the

low-price, less sweet taste area (these possibilities are plotted on the position

map, Figure 5.4). Both of these strategies would give the new brand

distinctiveness, as opposed to positioning the brand next to one of the

established brands, which would mean intense competition for market

share.

Vignette 5.4

Segmentation: Deutsche Post, Germany’s largestpostal company, targets Europe’s small investors

The German government has decided to float off 25 per cent of Germany’s most successful postaland logistics organisation, the state-run Deutsche Post. Like Britain, Germany has a share-owningculture, thanks mainly to the release of the first issue of Deutsche Telekom shares in 1996, fromwhich a number of small investors did very well. The government wants at least 50 per cent of theshare issue of Deutsche Post to go to the millions of potential small investors around Europe. Inreality it is expected that the majority of investors will come from inside Germany, or at least thatis what the company hopes. Things could go terribly wrong. The government is full of angst. Afailure of the issue would not only be a political embarrassment, but also a good deal of moneycould be lost to the government’s coffers.The company faces a difficult marketing communication problem in persuading Germany’s

plethora of small investors to take the new issue. One of the main problems is that although the firsttwo tranches of Deutsche Telekom shares were deemed a success by investors, the third tranchewas somewhat disappointing and many investors got their fingers burnt. The company is spendingserious money in trying to persuade Germany’s small investors to make the issue an unqualifiedsuccess.The offer, if successful, could raise as much as E7.4 billion for the government, which is

obviously supporting Deutsche Post’s marketing efforts. As well as extensive advertising, DeutschePost is planning to offer the shares at the lower end of price expectations to create an attractive‘bargain’ – in a sense, a form of promotional pricing. It is also using sales promotions to improvethe perceived value of the new issue by offering a E0.5 discount per share if investors subscribeto the offer before a set date. Those who keep their shares until 30 November 2002 will alsoqualify for an additional free share for every 15 shares held. Overall the package is veryattractive, and should overcome any possible investor resistance due to the third tranche ofDeutsche Telekom experience.


5.10 Developing appropriate marketing mixes

This is the final step in the appraisal of segmentation, targeting and

positioning. It involves the design of marketing programmes that will support

the chosen positional strategy in the selected target markets. The company

must now determine how to apply the ‘Four Ps’ of its marketing mix – i.e.

what price, product, distribution (place) and promotional strategies will be

necessary to achieve the desired position in the market.

5.11 Summary

� Used well, the techniques and concepts described in this chapter can

contribute significantly to overall company marketing success. Market

segmentation, targeting and positioning decisions are strategic rather than

tactical. In later chapters these areas will be considered in relation to

strategic aspects of marketing planning.

Questions

1 Bases for segmentationThe process of market segmentation requires the use of different bases for segmentation strategyto be effective. Outline the most effective bases that might be used to segment industrialmarkets.

2 Evaluation of basesWhat are the main criteria used by management to assess the possible effectiveness of anypotential segmentation base or variable?

3 Segmentation, targeting and positioningHow do you explain the importance now attached to effective market segmentation, targetingand positioning?

4 Segmentation basesUsing two consumer goods examples and two industrial goods examples, suggest segmentationbases for each of these.

5 TargetingExplain each of the following types of targeting strategy: (a) undifferentiated marketing; (b)differentiated marketing; (c) concentrated marketing.

6 Selecting targetsDiscuss the considerations that should be made when selecting specific target markets.


References

Abell, D. F. (1980). Defining the business: the starting point of strategic planning,

Chapter 3. Prentice Hall.

Reynolds, P. L. and El-Adley, M. (1995). The changes in the UK financial services

environment and its relation to the importance of market segmentation. Proceedings

of the 9th Annual Financial Services Marketing Workshop, The Manchester School of

Management, University of Manchester Institute of Science and Technology

(UMIST), 23–24 November.

Reynolds, P. L. and El-Adley, M. (1997). Market segmentation within the UK banking

personal loans sector. Presented at the INFORMS Marketing Science Conference,

University of California at Berkeley, California, USA, 22–24 March.

Shapiro, B. P. and Bonoma, T. V. (1984). How to segment industrial markets. Harvard

Business Review, May–Jun, 104–10.

Further reading

Adcock, D. (2000) Segmentation as a strategic tool. Marketing Strategies for Competitive

Advantage, Chapter 6. John Wiley & Sons.

Armstrong, G. and Kotler, P. (2000). Market segmentation, targeting and positioning

for competitive advantage. Marketing: An Introduction, 5th edn, Chapter 6. Prentice

Hall.

Blythe, J. (2001). Segmentation, targeting and positioning. Essentials of Marketing, 2nd

edn, Chapter 4. Person Educational Ltd.

Davies, M. (1998). Targeting, segmentation and positioning. Understanding Marketing,

Chapter 4. Prentice Hall.

Day, G. S. and Shocker, A. D. (1976). Identifying Competitive Product Market

Boundaries – Strategic and Analytical Issues. Marketing Science Institute.

Kotler, P., Bowen, J. and Makens, J. (1996). Marketing segmentation, targeting and

positioning. Marketing for Hospitality and Tourism, Chapter 9. Prentice Hall.

Lancaster, G. A. and Reynolds, P. L. (1998). Customers and marketing. Marketing,

Chapter 3. Macmillan Press.

Lancaster, G. A. and Reynolds, P. L. (1999). Segmentation, target marketing and

positioning. Introduction to Marketing: A Step by Step Guide to All The Tools of

Marketing, Chapter 2. Kogan Page.

Nickels,W. and Burk-Wood, M. (1997). Market segmentation, targeting and position-

ing. Marketing, Relationships, Quality, Value, Chapter 8. Worth Publishers.

Plamer, A. (2000). Segmentation and targeting. Principles of Marketing, Chapter 3.

Oxford University Press.

Wells,W. D. and Gubar, G. (1996). Life cycle concepts in marketing research. Journal

of Marketing Research, 13, 355–63.

7 PositioningWhat do you understand by the term ‘product positioning’?

6Buyer behaviour

6.1 Introduction

It is interesting to think back five or ten years and compare ourselves then with

the way we are (or think we are) now. Have our attitudes towards the world

around us changed or remained the same? Do we still like and dislike the same

things? As consumers, we are continually exposed to new experiences and

different influences throughout our lives. Whilst it is true that some of us are

more susceptible to change and influences than others, nobody goes through

life remaining the same as at birth. Some of our responses to our environment

are the results of our inherent psychological makeup. As our situations change,

opportunities often emerge as we are subject to a wider range of influences to

which we may consciously or subconsciously respond in a positive or negative

manner. Changes in circumstances may arouse inherent needs or promote

completely new needs and wants in our consumption patterns.

The task of marketing is to identify these needs and wants accurately, then

to develop products and services that will satisfy them. The role of marketing

is not to ‘create’ wants, but to fulfil them. Chapter 2, which discussed the

marketing concept, provided some explanation of what this means in terms of

business practice.

For marketing to be successful, it is not sufficient simply to discover what

customers require. It is infinitely more valuable to find out why it is required.

Only by gaining a deep and comprehensive understanding of buyer behaviour

can marketing’s goals be realised. Such an understanding works to the mutual

advantage of the consumer and the marketer. By understanding consumers,

marketing should become better equipped to satisfy their needs efficiently.

This, in turn, should lead to a company being able to establish a loyal group

of customers with positive attitudes towards its products.

6.2 Definitions

Consumer behaviour can be formally defined as:

The acts of individuals directly involved in obtaining and using economic

goods and services, including the decision processes that precede and

determine these acts.

89

DefinitionThe role of marketingis not to ‘create’wants, but to fulfilthem.

Documents

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