Marketing Management and International Trade

Lesson 9. MARKET SEGMENTATION, TARGETING AND POSITIONING

Module 2. Consumer behaviour and market intelligence

Lesson 9

MARKET SEGMENTATION, TARGETING AND POSITIONING

9.1 Introduction

Market segmentation is a process of dividing customers into different groups or segments having similar wants. By doing so, each can be targeted and reached with a distinct marketing mix.

Segmentation helps to satisfy customer needs more closely and thereby creates competitive advantage for the organization. Segmentation process helps to identify new opportunities in terms of products and markets.

9.2 Bases of Market Segmentation

The common bases for market segmentation are

9.2.1 Geographic segmentation

In this method the market is divided on the bases of different geographic regions. This is useful for organizations which intend to slowly grow and enter different regions/ market in sequences. This is usually the starting point for segmentation. It is believed that each geographic area has similar preferences and consumption patterns. One of the most common geographic segmentation in India is about urban and rural areas. Urban and rural areas show differences in education level, income and spending patterns, socio cultural aspects etc.

Table 9.1 Types of geographic variables

Geographic variable	Classes/segments
1. Region	North India, South India, Western India, Eastern India
2. Size of a city	It is based upon population, e.g. <10,000, 10,000-25,000, 25,000 – 50,000, 50,000-1, 00, 000, >1, 00,000.
3. Density of population	High, Low, Medium
4. Weather conditions	Hot, Cold, Humid

9.2.2 Demographic segmentation

It is easy to segment the market based upon geographic segmentation. But a geographic area also may show large variation in term of different demographic variables. Age, gender, family size, family life cycle, income, education, occupation, marital status, race, religion, generation, nationality, language and social class. It is easy to measure this variable and consumer’s needs, wants and demands are directly linked with the demographic patterns and hence this segmentation criterion is more popular.

Age and life cycle is one of the most important demographic variables. Persons needs and consumption pattern changes with age and life cycle. Each person passes through life cycle stages of childhood, young age, unmarried youth, early stage of married life without children, old couples with dependent children, old age etc.

Needs and wants of male and female population also differ and hence gender differentiation is also used by marketers. Income of person has direct influence on purchasing pattern. Individuals in similar income slab are likely to buy similar products and services. Person’s social status is generally associated with income. Each generation has its own identical specific characteristics visible in the choice patterns of music, politics etc. consumption patterns are also seen similar among consumers of same social class.

Thus marketers try to segment the market based upon this demographic characteristics.

Table 9.2 Type of demographic variables

Demographic variable	Characteristics	Example
Age	<5 years, 5 to 10 years, 10 to 20, 20-30, 30-45, 45-60, >60	Toys, garments, Magazines, T.V. channels.
Life cycle stage	Bachelor, Young Married couples without children, married couples with varying ages of children, older and single parents	Food items, necessary items for starting a household, children’s need like school, clothes etc.
Family size	Single, two members, 2-4 members, more than 4 members	Food, clothes, housing
Gender	Male & female	Beauty products, automobiles
Education	Junior K.G., Senior K. G., 1 to 5 class, 5-10 class, 10-12th class	Relevant teaching aids.
Religion	Hindu, Muslim, Sikh, Christian, Buddhism, Jainism	Materials for religious ritual
Nationality	Indian, British, Germans	Products specific to socio cultural conditions of country.
Race	Aryans, Non Aryans, Tribals, Non tribals, Black, White	Products specific to each race. e.g. Tribals in India have a specific food habits, dress code etc.
Income	< Rs. 5000/month, Rs 5000-10,000/month, Rs. 10,000-25,000/month, Rs. 25,000-50,000/month, > Rs. 50,000/month	Automobiles, electronic goods, luxury items.
Occupation	Government employee employed in non government sector, unemployed, working class, working in agriculture sector, non agricultural sector.	Various household necessary items.
Generation	Young generation, old generation, Baby boomers	Fashion products.
Social class	Lower, upper and middle class and combination thereof	Automobiles, Garments, food items.

9.2.3 Psychographic segmentation

This method uses life style of individuals as segmenting criteria. Each individual has its own lifestyles. People of same age, social class, living in same geographical area which has different lifestyles. Lifestyle represents person’s entire way of living and this also determines his/her marketing needs. Marketing organizations uses some readymade models which differentiate lifestyles of individuals into different categories. Out of such models is VALS (Values and life styles) which classifies people into innovators, thinkers, achievers, experiences, believers, strivers, makers, survivors. Automobile manufacturers, Garments (suiting and shirting) industry etc use such segmentation.

9.2.4 Behavioural segmentation

In this method, the market is segmented based upon consumers’ knowledge, attitude, use and response to a product. Individuals as consumers play different roles such as an initiator, influencers, decider, buyer and user. This knowledge is useful in formulating promotional strategy. The examples of behavioural segmentation are:

9.2.4.1 Decision maker

In India, students pursue higher education. But promoters of self financed institutions try to convince their parents to woo the students.

9.2.4.2 Occasions

Individuals celebrate many occasions of happiness, e.g. birthday, wedding anniversary, some special days of life. Throughout the world, large numbers of religious and non religious festivals are celebrated. Such special occasions provide opportunity for marketers to sell their products. For e.g. In India, Raksha bandan is celebrated as a festival of bond between brother and sister. Many marketing organizations communicate their products as special gift article.

9.2.5 Benefit segmentation

Consumers are also segmented on the basis of benefit they seek from the product e.g. consumers might be purchasing two wheelers either as a economic vehicle (fuel efficient) or as a status symbol (additional features in the vehicle). Tooth paste users might be purchasing it to enhance the teeth appearance or to prevent decay. Its examples are as under.

9.2.5.1 User status

All consumers of a product can be classified as non user, first time user, ex-user, regular user or potential user. The marketing organization can adopt different marketing strategies for each class.

9.2.5.2 Usage rate

Based upon quantity of purchase, the user can be segmented as heavy, medium or light user. For example, a soft drink supplier company may segment the young college students of a particular geographic area into heavy, medium and light based upon their consumption. It may then try to convert light users to medium or heavy type by special promotion schemes.

9.3 Industrial Market Segmentation

Industrial markets can also use the segmentation criteria used for consumer markets. The industrial segmentation criteria along with relevant questions to be asked by organization are given below:

1. Industry: To which industry the firm should supply?

2. Firm size: Which size firms should the organization target?

3. Location: Which geographical region should be targeted?

4. Technology: Which customer technology should be focused on?

5. User status: Which user status customer from heavy, medium, light etc. should be served?

6. Customer capability: What kind of customer is to be served, one requiring few or one requiring all services?

7. Purchasing function: Which kinds of firms are served, one with centralized purchasing system or one with decentralized purchasing system?

8. Power structure: Which kind of firm is to be served, one with marketing domination or financial domination or engineering domination?

9. Size of order: Which type of order is to be focused on, small or large?

10. Similarity among buyer-seller: Which kind of firm is to be targeted, one having similar or different values?

11. Risk attitude: Whether risk averse or risk taking attitude firm is to be selected?

12. Loyalty: Whether the firm showing high loyalty to their customer is to be targeted or not?

9.4 Stepwise Process of Market Segmentation

1. Preparing a primary list and standard profile of the various groups where segmentation is to occur.

2. Finding out what is bought, where, when and how it is bought. A list of all similar competitive product/service, channels of distribution, frequencies and purchase methods.

3. Who buys what, where and how? The data obtained from first two steps are combined to obtain various micro segments.

4. Why purchase is made? Trying to know what exactly consumer in each micro segment try to get from their purchase.

5. Segmentation: Forming segments of consumers having similarities.

6. Segment examination: The segment tested for size, differentiation, reach and compatibility with organization.

7. Defining attractiveness criteria: The various factors which make a segment attractive are identified, and tested in terms of their relative importance to organization.

8. Deciding criteria parameter: Low, medium and high scores are set for chosen criteria of attractiveness.

9. Rank the segments: The segments are ranked considering overall attractiveness of each segment.

10. Deciding target segment: Based upon organizations strengths and weaknesses, a target segment is finally selected.

9.5 Targeting

Target market means the market segment to which a particular good or service is marketed. It is mainly defined by age, gender, geography, socio economic grouping, or any other demographic combination. In general, it is studied and mapped by an organization through lists and reports containing demographic information that may have effect on the marketing of key products or services. Target marketing involves breaking a market into segments and then selectively putting all marketing efforts on one or a few key segments. Target marketing provides focus to all the marketing activities of the organization and thus makes promotion, pricing and distribution of organization’s goods / services easier and economical. Segmentation divides the market into different segments. Target market signifies only those segments that the organization wants to adopt it it as market. For selecting target market, organization performs evaluation of different segments on criteria of relevant, accessible, sizable, profitable etc and selects the most appropriate segments.

Attractiveness of the segment and the fit between the segment and the firms objectives, resources and capabilities are the important factors to be considered for target market selection. The attractiveness of segment is decided upon following factors: size of the segment (number), growth rate and competition in the segment, attainable market share depending upon promotional budget and competitors expenditure, brand loyalty of present customers in the segment, break even market share, sales potential and expected profit margin in segment.

Suitability of market segment depends upon: organization’s capacity in offering superior value to the customers in the segment, impact of serving the segment on the firm’s image, access to distribution channels, firm’s resources in relation to capital investment required to serve the segment.

There are several target market strategies as follows:

9.5.1 Single segment strategy

Serving one market segment with one marketing mix. This strategy is adopted by smaller companies with limited resources.

9.5.2 Selective specialization

Different marketing mixes are offered to different segments.

9.5.3 Product specialization

The organization specializes in a particular product and tailors it to different market segments.

9.5.4 Market specialization

The organization specializes in serving a particular market segment and provides different products in the segments.

9.5.5 Full market coverage

Serving the entire market either by a man market strategy in which a single undifferentiated marketing mix is offered to the entire market or by differentiated marketing strategy in which differentiated marketing mix is offered to each segment.

9.6 Positioning

The position of a Product is the aggregate of all the qualities ascribed to it by the consumers. A product’s potential is how potential buyers see the product and is expressed relative to the position of the competitors. Positioning is a platform for the brand. It facilitates the brand to get through the mind of target consumers. Three types of positioning concepts are used by marketing organization.

1. Functional Positioning: Provide benefits, solve problems, obtain favorable perception from financial Stockholders.

2. Symbolic Positioning: ego identification, self image enhancement, belongingness and social meaningfulness.

3. Experimental Positioning: Provide sensory and cognitive stimulations.

9.6.1 Approaches of positioning

Organization uses following different approaches for positioning.

1. Customer Benefit Approach: Putting the brand above competitors based upon specific brand attributes and customer benefit. e.g. shampoos.

2. Price Quality Approach: Brands offer more in terms of services, feature, quality or performance and also charge higher price to cover additional cost and communicate that they are of high quality. e.g. Watches

3. Use and Application Approach: Product is positioned with a use or application approach. e.g. Mobiles.

4. Product user Approach: Brand identifies and determines the target segment for positioning the product e.g. Chyavanprash.

5. Product Class Approach: In this approach, brand is associated with a particular product category e.g. Toilet Soaps.

6. Cultural Symbol Approach: This approach is based upon deeply entrenched cultural symbol e.g. cigarettes

7. Competitor Approach: In this approach, brand uses competitor as a dominant plank in their campaign.