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Chapter 6: Market segmentation, targeting and positioning, Segmenting…
Chapter 6: Market segmentation,
targeting and positioning
Companies today understand that they cannot effectively serve all buyers in the same way because customers differ in their needs, locations, and behaviors, and companies have varying capabilities.
Therefore, instead of using mass marketing, firms adopt target marketing — they divide the market into segments (market segmentation), evaluate and choose which segments to serve (market targeting), and then design offerings that stand out (differentiation) to deliver superior customer value. This approach allows companies to build stronger, more profitable relationships with the right customers. (Product-Variety Marketing)
Marketing Strategy
Four Major Steps in Designing a Customer Value–Driven Marketing Strategy:
Market Segmentation:
Divide the market into distinct groups of buyers with different needs, characteristics, or behaviors.
Identify different ways to segment the market.
Develop detailed profiles for each segment.
Market Targeting (Targeting):
Evaluate the attractiveness of each market segment.
Select one or more segments to enter and serve.
Differentiation:
Decide how to create value for the chosen target customers.
Involves designing and differentiating the firm’s market offering to create superior customer value.
Positioning:
Means arranging the market offering to occupy a clear, distinctive, and desirable place in the minds of target consumers compared to competing products.
Market Segmentation Overview:
Buyers differ in their wants, resources, locations, attitudes, and buying behaviors.
Market segmentation helps companies divide large, diverse markets into smaller, more specific segments.
This allows firms to reach customers more efficiently and effectively with products and services that meet their unique needs.
Four key topics in segmentation:
Segmenting consumer markets
Segmenting business markets
Requirements for effective segmentation
Requirements for effective segmentation
To be useful, market segments must be:
Measurable>
The segment’s size, purchasing power, and characteristics can be clearly measured.
Accessible>
The segment can be effectively reached and served through communication and distribution.
Differentiable>
The segments are clearly distinct and respond differently to different marketing mixes.
Substantial>
The segment is large or profitable enough to justify a tailored marketing program.
Actionable>
Practical and effective marketing programs can be created for each segment.
Segmenting business markets (firmographics)
Yet, business marketers also use some additional variables, such as customer operating characteristics, purchasing approaches, situational factors, and personal characteristics.
Consumer and business marketers use many of the same variables to segment their markets. Business buyers can be segmented geographically, demographically (indus try, company size), or by benefits sought, user status, usage rate, and loyalty status.
Importance of segmentation
A market segment is a group of present or potential customers who share a common characteristic.
This characteristic must help explain and predict how they respond to a supplier’s marketing stimuli (e.g., price, ads, distribution).
Purpose of Segmentation
Segmentation identifies common characteristics to predict customer reactions to marketing activities.
Customers are naturally diverse, so grouping them helps marketers
understand patterns in preferences and behaviours.
Benefits of Segmentation
marketers can:
Control and tailor marketing efforts more effectively.
Ensure customers react positively (e.g., make purchases, become repeat customers).
Satisfy the specific needs of each group
Impact on Profitability
Identifying new product opportunities or markets receptive to repositioning.
Improving advertising messages by understanding customers better.
‘normative segmentation model
’ refers to the conventional segmentation–targeting–positioning sequence (how they should go about their business)
Problems in implementing segmentation
Product criteria versus distinct customer needs
Customer-Focused Segmentation
Based on the idea that segmentation should reflect different customer needs.
Helps marketers fulfil needs more accurately for each segment.
Reality: Segmentation Often Based on Product Criteria
In practice, some “segments” are created using product-related criteria, not customer needs.
These groups do not represent homogeneous needs or behaviours.
Example:
Corporate banks segment clients by turnover or size, but treat them as if they are true customer segments even though their needs and buying behaviour may differ.
Sectorized View vs. Segmented View
Sectorised view = dividing markets based on product categories rather than customer needs.
Segmented view = grouping customers based on differences in needs, behaviours, or preferences.
Companies may use sectorization due to:
Industry norms
Practical or operational constraints
Difficulty in breaking away from established market structures
Intuition versus planning
Segmentation in Theory vs. Practice
Segmentation should be done in a planned, systematic way.
In reality, segmentation often:
Happens unsystematically
Relies on intuition of marketers
Responds to customer requests
Is chosen for ease of implementation, not accuracy
Practical Constraints
There is often a gap between statistically valid segments and those that can realistically have an effective marketing program.
Therefore, segmentation becomes a compromise between:
Addressing customer needs
Meeting the firm’s operational and organisational constraints
Organisational Limitations
A company’s: …may limit effective segmentation:
Structure
Distribution systems
Sales force organisation
Budget for market research
Many companies adopt an ad hoc approach due to:
Customer requests
High costs of identifying segments
Validity of segmentation
number of assumptions that could be flawed:
The market and its boundary may be pre-defined by the marketer and this may not reflect reality
Segments may not be stable with respect to time or competitor activity
The process of segmentation itself may change the market’s response to the dimensions of the segmentation technique
Questioning the substantiality criterion
Refers to whether a market segment is worth targeting.
Common interpretations focus on:
Profitability
Viability/size of the segment
A segment may be considered substantial if it has:
Enough consumers to justify a tailored product
Profits that outweigh the costs of targeting
Strategic Evaluation Beyond Profit
Segmenting decisions can also consider strategic value, not just immediate profits.
Five strategic criteria to evaluate a segmenting opportunity:
Sales potential – expected revenue from the segment
Fit with firm resources – aligns with capabilities and strengths
Cost of segmenting – resources needed to develop and serve the segment
Competition – intensity and positioning of competitors
Growth potential – likelihood of segment expansion over time
Market Targeting
Evaluating Market Segments
Factors a Firm Must Evaluate When Assessing Market Segments
Segment Size and Growth
The firm should analyze the current size and expected growth rate of the segment.
“Right size and growth” depends on the company’s capabilities.
The largest or fastest-growing segments are not always ideal—they may be too competitive or require too many resources.
Smaller firms might prefer smaller, less competitive segments that can be more profitable for them.
Segment Structural Attractiveness
A segment becomes less attractive if:
It has many strong competitors.
It is easy for new entrants to join.
There are many substitute products, which limit prices and profitability.
Buyers have strong bargaining power, pushing prices down or demanding more services.
Suppliers are powerful, making inputs costly or limiting availability.
Company Objectives and Resources
Even attractive segments should be avoided if they don’t align with the company’s long-term goals.
A company must have the skills, resources, and capabilities to compete successfully in the segment.
Example:
The economy car segment is large and growing, but Mercedes-Benz would not enter it because it conflicts with its luxury brand positioning.
A firm should only enter segments where it can:
Create superior customer value, and
Gain a competitive advantage.
Selecting Target Market Segments
A target market is a group of buyers with shared needs or characteristics that a company decides to serve.
Levels of Market Targeting
Broad Targeting: Undifferentiated (mass) marketing
Medium Targeting: Differentiated or concentrated marketing
Narrow Targeting: Micromarketing
Undifferentiated Marketing
(Mass Marketing)
The firm ignores segment differences and targets the whole market with one offer.
Focuses on common needs of consumers rather than differences.
Designs one product and one marketing program for all.
Limitations:
Hard to create a product that satisfies everyone.
Mass marketers struggle to compete with specialized firms that better meet specific segment needs.
Modern marketers generally doubt this strategy’s effectiveness.
Differentiated Marketing (Segmented Marketing)
The firm targets several segments and creates separate offers for each.
Example: P&G markets many laundry detergents (Tide, Gain, Cheer, Dreft, etc.), each targeting a different customer segment.
Aims for: Higher overall sales & Stronger position in each targeted segment
Costs of Differentiated Marketing
More expensive because the firm must: (Develop and produce many product variations)
Higher sales vs. Higher costs
Create separate marketing plans for each segment
Conduct extra research, forecasting, sales analysis, promotions, and channel management
Design multiple advertising campaigns
Concentrated Marketing (Niche Marketing)
Focus Strategy
Instead of seeking a small share of a large market, the firm aims for a large share of one or a few small segments.
Advantages
Stronger market position due to deep understanding of niche needs.
Ability to fine-tune products, pricing, and marketing programs to match the niche perfectly.
Higher marketing efficiency:
Only targets customers the firm can serve best.
Channels and communication are highly focused.
Ideal for small companies with limited resources:
Niches may be too small or overlooked by large competitors.
Helps smaller firms gain a foothold before expanding.
Role of the Internet: The low cost of online operations makes serving small niches more profitable.
Disadvantages / Risks
High dependence risk:(If the niche declines or shifts, the company may suffer heavily.)
Vulnerability to large competitors:
Bigger companies may enter the niche with greater resources.
Many large firms even create or acquire niche brands.
Micromarketing
Tailoring products and marketing programs to the needs of specific individuals and local customer segments.
Difference from other strategies:
Differentiated and concentrated marketing target segments or niches, but do not customize for each individual.
Micromarketing sees the individual in every customer.
Types of Micromarketing
Local Marketing
Tailors brands and promotions to the needs of local customer segments (cities, neighborhoods, or specific stores).
Example: Marriott’s Renaissance Hotels Navigator program hyper-localizes guest experiences across 155 hotels worldwide.
High-tech approach: SoLoMo (Social + Local + Mobile) marketing uses geolocation on smartphones/tablets to offer localized deals and information.
Drawbacks:
Higher manufacturing and marketing costs (reduces economies of scale)
Logistics challenges in serving diverse local markets
Benefits:
More relevant and engaging marketing for increasingly fragmented markets
Digital tools can outweigh costs and challenges
Individual Marketing
Definition: Tailoring products and marketing programs to the needs and preferences of individual customers.
Also called: (One-to-one marketing Mass customization Markets-of-one marketing)
For centuries, consumers were naturally served as individuals: Tailors made custom suits
Mass marketing obscured this practice, but new technologies are enabling a return to individual customization.
Modern Technologies Supporting Individual Marketing
Detailed customer databases
Robotic production and flexible manufacturing
Interactive technologies: smartphones, online platforms, social media
These enable mass customization, where firms interact one-to-one with large numbers of customers to create products, services, and marketing programs tailored to individual needs.
Examples of Individual Marketing
M&Ms: Personalized messages or pictures on candies
Nike ID / Puma Factory: Design and order personalized sneakers
Beyond customizing products, marketers also customize their marketing messages to engage customers on a one-to-one \basis.
Choosing a Targeting Strategy
Company Resources
Limited resources → Concentrated (niche) marketing is most suitable.
Larger resources → Can use differentiated or undifferentiated strategies.
Degree of Product Variability
Uniform products (e.g., grapefruit, steel) → Best for undifferentiated marketing.
Variable/customizable products (e.g., cars, cameras) → Better suited for differentiated or concentrated marketing.
Product Life-Cycle Stage
Introduction stage:
Often practical to launch one version of the product.
Use undifferentiated or concentrated marketing.
Mature stage:
Buyers have diverse needs.
Differentiated marketing is usually more effective.
Market Variability
If buyers have similar needs, tastes, and responses → Undifferentiated marketing is appropriate.
If buyers differ widely → Differentiated or concentrated approaches are better.
Competitor Strategies
If competitors use differentiated or concentrated strategies → Using undifferentiated marketing can be dangerous.
If competitors use undifferentiated marketing → A firm can gain advantage by targeting segments more precisely (using differentiated or concentrated marketing).
Socially Responsible Target Marketing
Benefits of Smart Targeting
Helps companies become more efficient and effective by focusing on segments they can serve best.
Consumers benefit from more relevant, tailored offers.
Why Target Marketing Can Be Controversial
Concerns arise when companies target vulnerable or disadvantaged groups with harmful or questionable products. (banks pushing for credit cards to uneducated financially instable individuals )
Examples
Mortgage lenders criticized for selling high-risk loans to low-income consumers who cannot afford them.
Targeting Children is Seen as extremely vulnerable (McDonald’s Happy Meals criticized for encouraging unhealthy food choices)
Digital Marketing Makes Children Even More Vulnerable
Digital ads are less obvious than TV ads.
Ads may be embedded in games, apps, or educational content.
Children often use personal devices, making parental supervision harder.
Lines between entertainment, education, and advertising become blurred.
Risks of Digital Targeting & Hypertargeting
Internet and smartphones enable precise targeting, which can be abused.
Unscrupulous marketers can send deceptive, personalized messages directly to users.
FBI’s Internet Crime Complaint Center receives hundreds of thousands of complaints yearly.
Use of Big Data and Personal Tracking
Marketers track:
Browsing behavior
Location
Messages
Shopping patterns
This creates detailed consumer profiles.
Used for hypertargeting—sending messages tailored to individual users.
The Fine Line: Serving vs. Stalking
Marketers say personalization helps customers.
Critics argue it can become intrusive, like stalking.
Consumers fear misuse of sensitive data.
When Targeting Becomes Unethical when
Exploit vulnerable segments
Sell harmful or risky products
Use deceptive or manipulative tactics
Put company benefit above consumer well-being
Principle of Socially Responsible Target Marketing
The issue is not who is targeted, but how and for what purpose.
Ethical marketing:
Protects vulnerable groups
Uses targeting to benefit consumers
Avoids manipulation
Aligns company success with consumer well-being
Differentiation and Positioning
Value Proposition and Product Positioning
Value Proposition
Defines how a company will create differentiated value for its targeted segments.
Determines the position it wants to occupy in the minds of consumers in each segment.
Product Position
Definition: How consumers perceive a product on important attributes compared to competitors.
Key idea: Products exist physically, but brands exist in consumers’ minds.
Why Positioning Matters
Consumers face information overload and cannot analyze every product repeatedly.
To simplify decisions, they categorize and position products mentally.
A product’s position reflects:
Perceptions
Impressions
Feelings about the product relative to competitors
Role of Marketers in Positioning
Consumers naturally position products, but marketers don’t leave it to chance.
Companies must:
Plan positions that maximize advantage in target markets
Design marketing mixes to reinforce these planned positions
Positioning Maps
Purpose
Help marketers visualize consumer perceptions of their brand versus competitors.
Show important buying dimensions (e.g., price, performance, luxury).
Often include brand market share (circle size on the map).
Perceptual maps help marketers identify gaps in the market.
They clarify how consumers perceive brands along relevant dimensions.
They inform differentiation and positioning strategies for competitive advantage.
Choosing a Differentiation and Position Strategy
Some firms find it easy if they are already well-known for a particular strength (e.g., quality).
They can carry this reputation into a new segment if enough buyers value it.
Often, multiple firms target the same position.
Each firm must differentiate its offer by creating a unique bundle of benefits for a substantial group within the segment.
A brand’s positioning must align with the needs and preferences of clearly defined target markets.
Three key steps:
Identify a set of differentiating competitive advantages to build a position.
Choose the right competitive advantages to emphasize.
Select an overall positioning strategy.
After choosing the strategy, the firm must effectively communicate and deliver the position to the market.
Identifying Possible Value Differences and Competitive Advantages
Marketers must understand customer needs and deliver superior value compared to competitors.
Superior value leads to competitive advantage.
Competitive Advantage
Definition: An advantage over competitors gained by:
Offering lower prices, or
Providing more benefits that justify higher prices.
Importance of True Differentiation
Promises must be real: Solid positioning cannot rely on slogans alone.
Example: If a product is positioned as high-quality with excellent service, the company must:
Actually deliver the promised quality
Provide superior service in reality
Companies must live their slogans, not just advertise them
Ways to Differentiate
Product Differentiation
Based on features, performance, style, or design
Physical product itself is the focus
Service Differentiation
Services that accompany the product, e.g., speedy or convenient service
Enhances the overall customer experience
Channel Differentiation
Competitive advantage through distribution channels
Includes coverage, expertise, and performance of channels
People Differentiation
Hiring and training better employees than competitors
Select and train customer-contact personnel carefully
Image Differentiation
Buyers may perceive differences even when products look the same
Brand or company image conveys distinctive benefits and positioning
Requires creative, sustained effort; cannot be built overnight with a few ads
Choosing the Right Competitive Advantages
How many differences to promote
➡️ Promote only ONE key benefit (Unique Selling Proposition – USP)
Idea: A brand should choose one attribute and claim to be #1 on it → easier for consumers to remember
➡️ Promote MORE THAN ONE difference
Necessary when:
Competitors all claim the same attribute
Company wants to appeal to multiple segments
➡️ Modern trend
Mass markets are fragmenting → companies increasingly use broader positioning to reach multiple segments.
Which differences to promote
Important: Delivers a highly valued benefit to target customers
Distinctive: Competitors don’t offer it, OR company can offer it better
Superior: Better than alternative ways to get the same benefit
Communicable: Difference must be visible and explainable to customers
Preemptive: Hard for competitors to copy
Affordable: Customers can pay for it
Profitable: Company can introduce it profitably
Why Choosing the Right Differentiators Matters
Positioning decisions are crucial to success
The right differentiators help the brand stand out in a crowded market
The wrong ones can cause failures, backlash, or wasted resources
Selecting an Overall Positioning Strategy
The full positioning of a brand is called the brand’s value proposition—the full mix of benefits on which a brand is differentiated and positioned. It is the answer to the customer’s question “Why should I buy your brand?”
value proposition hinges on performance but also in cludes luxury and styling, all for a price that is higher than average but seems fair for this mix of benefits.
winning value propositions:
More for more:
involves providing the most upscale product or service and charging a higher price to cover the higher costs. A more-for-more market offering not only offers higher quality, it also gives prestige to the buyer. ( It symbolizes status and a loftier lifestyle)
Although more-for-more can be profitable, this strategy can also be vulnerable. It often invites imitators who claim the same quality but at a lower price
Also, luxury goods that sell well during good times may be at risk during economic downturns when buyers become more cautious in their spending.
More for the Same
. A company can attack a competitor’s value proposition by positioning its brand as offering more for the same
The Same for Less
. Offering the same for less can be a powerful value proposition—everyone likes a good deal
They don’t claim to offer different or better products. Instead, they offer many of the same brands as department stores and specialty stores but at deep discounts based on superior purchasing power and lower-cost op erations
Other companies develop imitative but lower-priced brands in an effort to lure customers away from the market leader.
Less for Much Less
. A market almost always exists for products that offer less and therefore cost less.
Few people need, want, or can afford “the very best” in everything they buy. In many cases, consumers will gladly settle for less-than-optimal performance or give up some of the bells and whistles in exchange for a lower price.
Less-for-much-less positioning involves meeting consumers’ lower performance or quality requirements at a much lower price.
More for Less
. Of course, the winning value proposition would be to offer more for less. Many companies claim to do this. And, in the short run, some companies can actually achieve such lofty positions.
Yet in the long run, companies will no doubt find it very difficult to sustain such best of-both positioning. Offering more usually costs more, making it difficult to deliver on the “for-less” promise. Companies that try to deliver both may lose out to more focused competitors.
All said, each brand must adopt a positioning strategy designed to serve the needs and wants of its target markets. More for more will draw one target market, less for much less will draw another, and so on. In any market, there is usually room for many different companies, each successfully occupying different positions. The important thing is that each company must develop its own winning positioning strategy, one that makes the company special to its target consumers.
Positioning – Drivers, Types, and Challenges
Drivers of Positioning
Strategic factors: Position can be guided by the company’s core competencies.
Market gaps: Positioning can target underserved segments or unmet customer needs (e.g., luxury watches suitable for evening wear).
Types of Positioning
Intended positioning: The desired brand position the company aims for.
Actual positioning: The position communicated through marketing campaigns; depends on execution.
Perceived positioning: How customers actually perceive the brand; influenced by:
Company communications
Word of mouth
Past experiences
Sources of Error in Positioning
Misalignment of intended position: The intended position may not satisfy real customer wants or may not differentiate the brand effectively from competitors.
Poor execution: Even a well-defined intended position may fail if marketing communications are ineffective, leading to incorrect customer perceptions.
Types of Positioning Strategies
Features:
Focus on concrete, tangible brand attributes; measurable and straightforward.
Abstract:
Emphasises groups of attributes that are less tangible.
Direct:
Highlights practical advantages to the consumer (e.g., convenience, cost).
Indirect:
Focuses on hedonic or psychosocial benefits (e.g., attractiveness, status).
Surrogate:
Encourages customers to associate the brand with something else, like celebrities or lifestyles.
Developing a Positioning Statement
Company and brand positioning should be summed up in a positioning statement.
The statement should follow the form: To (target segment and need) our (brand) is ( concept) that (point of difference)
From the customer’s perspective, alternatives are perceived as occupying different positions based on:
Functionality – what the product can do
Price – cost to the customer
Image – brand perception or reputation
Effective positioning helps a product stand out and appeal to the target segment.
Segmenting consumer markets
Geographic Segmentation
A company may decide to operate in one or a few geographical areas or operate in all areas but pay attention to geographical differences in needs and wants.
Many companies today are localizing their products, services, advertising, promotion, and sales efforts to fit the needs of individual regions, cities, and other localities.
Problems with geographic segmentation
None of the above methods will work if it is possible for customers to buy in one market and sell in another; this is also known as
personal arbitrage
The ability of the British government to impose high taxes on sales of alcohol in the UK is being challenged by the ability of British drinkers to drive to France and buy relatively cheap drinks
Dividing a market into different geographical units, such as nations, states, regions, counties, cities, or even neighborhoods.
Demographic segmentation
Divides the market into segments based on variables such as age, life-cycle stage, gender, income, occupation, education, religion, ethnicity, and generation
It's the most popular bases for segmenting customer groups, One reason is that consumer needs, wants, and usage rates often vary closely with demographic variables. Another is that demographic variables are easier to measure than most other types of variables.
Age and life-cycle segmentation:
Dividing a market into different age and life-cycle groups, offering different products or using different marketing approaches for different age and life-cycle groups.
Marketers must be careful to guard against stereotypes when using age and life-cycle segmentations, age is often a poor predictor of a person’s life cycle, health, work or family status, needs, and buying power.
Gender Segmentation:
Dividing a market into different segments based on gender.
There is now more brands that make different products targeted for men or women (the develop their offering to relate to each)
Brands that have traditionally targeted men have been targeting women more lately due to their high purchasing power
Income segmentation:
Dividing a market into different income segments
The marketers of products and services such as automobiles, clothing, cosmetics, financial services, and travel have long used income segmentation. Many companies target affluent consumers with luxury goods and convenience services. (fifth avenue club members)
Not all income targeting is for the affluent some is for the low and middle class such as the dollar store and dollar tree (they target neighborhoods with this class)
Psychographic segmentation:
divides buyers into different segments
based on lifestyle or personality characteristics
. People in the same demographic group can have very different psychographic characteristics.
Marketers often segment their markets by consumer lifestyles and base their marketing strategies on lifestyle appeals.
Marketers also use personality variables to segment markets.
Occasion segmentation:
Dividing the market into segments according to occasions when buyers get the idea to buy, actually make their purchase, or use the purchased item. (soup in the winter)
Marketers are always trying to widen their target by promoting their products to other times than used to
Behavioral segmentation:
divides buyers into segments
based on their knowledge, attitudes, uses, or responses to a product.
Many marketers believe that behavior variables are the best starting point for building market segments.
Benefit segmentation:
Dividing the market into segments according to the different benefits that consumers seek from the product. (healthy buyer looking for watches to track their calories, steps, etc.)
User Status.
Markets can be segmented into non users, ex-users, potential users, first-time users, and regular users of a product. Marketers want to rein force and retain regular users, attract targeted non users, and reinvigorate relationships with ex-users.
Usage Rate.
Markets can also be segmented into light, medium, and heavy product users. Heavy users are often a small percentage of the market but account for a high percentage of total consumption
*Loyalty Status
.* A market can also be segmented by consumer loyalty. Consumers can be loyal to brands (Tide), stores (Target), and companies ( Apple). Buyers can be divided into groups according to their degree of loyalty. Some consumers are completely loyal—they buy one brand all the time and can’t wait to tell others about it.
Some consumers may be very loyal those who can't wait to talk about their products to others while Other consumers are somewhat loyal—they are loyal to two or three brands of a given product or favor one brand while sometimes buying others. Still other buyers show no loyalty to any brand—they either want something different each time they buy, or they buy whatever’s on sale.
Highly loyal customers can be a real asset. They often promote the brand through personal word of mouth and social media. Instead of just mar keting to loyal customers, companies should engage them fully and make them partners in building the brand and telling the brand story.
In contrast, by studying its less-loyal buyers, a company can detect which brands are most competitive with its own. By looking at customers who are shifting away from its brand, the company can learn about its marketing weaknesses and take actions to correct them.
Using Multiple Segmentation Bases
Marketers rarely limit their segmentation analysis to only one or a few variables. Rather, they often use multiple segmentation bases in an effort to identify smaller, better-defined target groups.