Segmentation, Targeting, and Positioning

Segmentation, targeting, and positioning together comprise a three stage process. We

first (1) determine which kinds of customers exist, then (2) select which ones we are best
off trying to serve and, finally, (3) implement our segmentation by optimizing our
products/services for that segment and communicating that we have made the choice to
distinguish ourselves that way.

Segmentation involves finding out what kinds of consumers with different needs exist. In
the auto market, for example, some consumers demand speed and performance, while
others are much more concerned about roominess and safety. In general, it holds true
that “You can’t be all things to all people,” and experience has demonstrated that firms
that specialize in meeting the needs of one group of consumers over another tend to be
more profitable.

Generically, there are three approaches to marketing. In the undifferentiated strategy, all
consumers are treated as the same, with firms not making any specific efforts to satisfy
particular groups. This may work when the product is a standard one where one
competitor really can’t offer much that another one can’t. Usually, this is the case only
for commodities. In the concentrated strategy, one firm chooses to focus on one of
several segments that exist while leaving other segments to competitors. For example,
Southwest Airlines focuses on price sensitive consumers who will forego meals and
assigned seating for low prices. In contrast, most airlines follow the differentiated
strategy: They offer high priced tickets to those who are inflexible in that they cannot tell
in advance when they need to fly and find it impractical to stay over a Saturday. These
travelers—usually business travelers—pay high fares but can only fill the planes up
partially. The same airlines then sell some of the remaining seats to more price sensitive
customers who can buy two weeks in advance and stay over.
Note that segmentation calls for some tough choices. There may be a large number of
variables that can be used to differentiate consumers of a given product category; yet, in
practice, it becomes impossibly cumbersome to work with more than a few at a time.
Thus, we need to determine which variables will be most useful in distinguishing
different groups of consumers. We might thus decide, for example, that the variables that
are most relevant in separating different kinds of soft drink consumers are (1) preference
for taste vs. low calories, (2) preference for Cola vs. non-cola taste, (3) price sensitivity—
willingness to pay for brand names; and (4) heavy vs. light consumers. We now put these
variables together to arrive at various combinations.
Several different kinds of variables can be used for segmentation.

• Demographic variables essentially refer to personal statistics such as income,

gender, education, location (rural vs. urban, East vs. West), ethnicity, and family
size. Campbell’s soup, for instance, has found that Western U.S. consumers on
the average prefer spicier soups—thus, you get a different product in the same
cans at the East and West coasts. Facing flat sales of guns in the traditional male
dominated market, a manufacturer came out with the Lady Remmington, a more
compact, handier gun more attractive to women. Taking this a step farther, it is
also possible to segment on lifestyle and values.”
• Some consumers want to be seen as similar to others, while a different segment
wants to stand apart from the crowd.
• Another basis for segmentation is behavior. Some consumers are “brand loyal”—
i.e., they tend to stick with their preferred brands even when a competing one is
on sale. Some consumers are “heavy” users while others are “light” users. For
example, research conducted by the wine industry shows that some 80% of the
product is consumed by 20% of the consumers—presumably a rather intoxicated
group.
• One can also segment on benefits sought, essentially bypassing demographic
explanatory variables. Some consumers, for example, like scented soap (a
segment likely to be attracted to brands such as Irish Spring), while others prefer
the “clean” feeling of unscented soap (the “Ivory” segment). Some consumers
use toothpaste primarily to promote oral health, while another segment is more
interested in breath freshening.

In the next step, we decide to target one or more segments. Our choice should generally
depend on several factors. First, how well are existing segments served by other
manufacturers? It will be more difficult to appeal to a segment that is already well served
than to one whose needs are not currently being served well. Secondly, how large is the
segment, and how can we expect it to grow? (Note that a downside to a large, rapidly
growing segment is that it tends to attract competition). Thirdly, do we have strengths as
a company that will help us appeal particularly to one group of consumers? Firms may
already have an established reputation. While McDonald’s has a great reputation for fast,
consistent quality, family friendly food, it would be difficult to convince consumers that
McDonald’s now offers gourmet food. Thus, McD’s would probably be better off
targeting families in search of consistent quality food in nice, clean restaurants.
Positioning involves implementing our targeting. For example, Apple Computer has
chosen to position itself as a maker of user-friendly computers. Thus, Apple has done a
lot through its advertising to promote itself, through its unintimidating icons, as a
computer for “non-geeks.” The Visual C software programming language, in contrast, is
aimed a “techies.”

Michael Treacy and Fred Wiersema suggested in their 1993 book The Discipline of
Market Leaders that most successful firms fall into one of three categories:

• Operationally excellent firms, which maintain a strong competitive advantage by

maintaining exceptional efficiency, thus enabling the firm to provide reliable
service to the customer at a significantly lower cost than those of less well
organized and well run competitors. The emphasis here is mostly on low cost,
subject to reliable performance, and less value is put on customizing the offering
for the specific customer. Wal-Mart is an example of this discipline. Elaborate
logistical designs allow goods to be moved at the lowest cost, with extensive
systems predicting when specific quantities of supplies will be needed.
• Customer intimate firms, which excel in serving the specific needs of the
individual customer well. There is less emphasis on efficiency, which is
sacrificed for providing more precisely what is wanted by the customer.
Reliability is also stressed. Nordstrom’s and IBM are examples of this discipline.
• Technologically excellent firms, which produce the most advanced products
currently available with the latest technology, constantly maintaining leadership
in innovation. These firms, because they work with costly technology that need
constant refinement, cannot be as efficient as the operationally excellent firms and
often cannot adapt their products as well to the needs of the individual customer.
Intel is an example of this discipline.

Treacy and Wiersema suggest that in addition to excelling on one of the three value
dimensions, firms must meet acceptable levels on the other two. Wal-Mart, for example,
does maintain some level of customer service. Nordstrom’s and Intel both must meet
some standards of cost effectiveness. The emphasis, beyond meeting the minimum
required level in the two other dimensions, is on the dimension of strength.
Repositioning involves an attempt to change consumer perceptions of a brand, usually
because the existing position that the brand holds has become less attractive. Sears, for
example, attempted to reposition itself from a place that offered great sales but
unattractive prices the rest of the time to a store that consistently offered “everyday low
prices.” Repositioning in practice is very difficult to accomplish. A great deal of money
is often needed for advertising and other promotional efforts, and in many cases, the
repositioning fails.

To effectively attempt repositioning, it is important to understand how one’s brand and

those of competitors are perceived. One approach to identifying consumer product
perceptions is multidimensional scaling. Here, we identify how products are perceived
on two or more “dimensions,” allowing us to plot brands against each other. It may then
be possible to attempt to “move” one’s brand in a more desirable direction by selectively
promoting certain points. There are two main approaches to multi-dimensional scaling.
In the a priori approach, market researchers identify dimensions of interest and then ask
consumers about their perceptions on each dimension for each brand. This is useful
when (1) the market researcher knows which dimensions are of interest and (2) the
customer’s perception on each dimension is relatively clear (as opposed to being “made
up” on the spot to be able to give the researcher a desired answer). In the similarity
rating approach, respondents are not asked about their perceptions of brands on any
specific dimensions. Instead, subjects are asked to rate the extent of similarity of
different pairs of products (e.g., How similar, on a scale of 1-7, is Snicker’s to Kitkat, and
how similar is Toblerone to Three Musketeers?) Using a computer algorithms, the
computer then identifies positions of each brand on a map of a given number of
dimensions. The computer does not reveal what each dimension means—that must be
left to human interpretation based on what the variations in each dimension appears to
reveal. This second method is more useful when no specific product dimensions have
been identified as being of particular interest or when it is not clear what the variables of
difference are for the product category.
Targeting
Part of STP - Segment-Target-Postion

Targeting is the second stage of the SEGMENT "Target" POSITION (STP) process.
After the market has been separated into its segments, the marketer will select a segment
or series of segments and 'target' it/them. Resources and effort will be targeted at the
segment

The first is the single segment with a single product. In other word, the marketer targets a
single product offering at a single segment in a market with many segments. For
example, British Airway's Concorde is a high value product aimed specifically at
business people and tourists willing to pay more for speed.
Secondly the marketer could ignore the differences in the segments, and choose to aim a
single product at all segments i.e. the whole market. This is typical in 'mass marketing' or
where differentiation is less important than cost. An example of this is the approach taken
by budget airlines such as Go/

Finally there is a multi-segment approach. Here a marketer will target a variety of

different segments with a series of differentiated products. This is typical in the motor
industry. Here there are a variety of products such as diesel, four-wheel-drive, sports
saloons, and so on.

Part of STP - Segment-Target-Postion

The third and final part of the SEGMENT - TARGET - POSITION (STP) process is
'positioning.' Positioning is undoubtedly one of the simplest and most useful tools to
marketers. After segmenting a market and then targeting a consumer, you would proceed
to position a product within that market.

Remember this important point. Positioning is all about 'perception'. As perception differs
from person to person, so do the results of the positioning map e.g what you perceive as
quality, value for money, etc, is different to my perception. However, there will be
similarities.
Products or services are 'mapped' together on a 'positioning map'. This allows them to be
compared and contrasted in relation to each other. This is the main strength of this tool.
Marketers decide upon a competitive position which enables them to distinguish their
own products from the offerings of their competition (hence the term positioning
strategy).

Take a look at the basic positioning map template below.

The marketer would draw out the map and decide upon a label for each axis. They could
be price (variable one) and quality (variable two), or Comfort (variable one) and price
(variable two). The individual products are then mapped out next to each other Any gaps
could be regarded as possible areas for new products.

The term 'positioning' refers to the consumer's perception of a product or

service in relation to its competitors. You need to ask yourself, what is the position of
the product in the mind of the consumer?

Trout and Ries suggest a six-step question framework for successful positioning:

1. What position do you currently own?

2. What position do you want to own?

3. Whom you have to defeat to own the position you want.

4. Do you have the resources to do it?

5. Can you persist until you get there?

6. Are your tactics supporting the positioning objective you set?

Segmentation, Demographics and Behavior

Segmentation is the process of breaking down the intended product market into
manageable groups; it can be broken down by:

• Relationship
• Customer Type
• Product Use
• Buying Situation
• Purchasing Method
• Behavior
• Geographic Location
• Demographics
• Psychographics

Relationship
• Kind of relationship— weak, strong, “arm’s length” dealing, close partnership.

Customer Type
• Type of customer— manufacturer, service, government, military, non profit,
wholesaler, retailer, end user.
Product Use
• How customer’s use product— installation, components, accessories, raw
material, eaten, professional service.

Buying Situation
• Buying situation— rebuy, modified rebuy, new purchase.

Purchasing Method
• Purchasing methods— Internet, long term contract, warranty, financing, cash on
demand.

Behavior
• Needs—economic, functional, psychological, social.
• Benefits--quality, service, economy, convenience, speed.
• Attitude toward product--Enthusiastic, positive, indifferent, negative, hostile.
• User status--Nonuser, ex user, potential user, first time user, regular user.
• Loyalty status--None, medium, strong, absolute.
• Brand Familiarity-Unaware, aware, informed, interested, desirous, intending to
buy.
• Occasion--Regular occasion; special occasion, convenience, comparison
shopping, unsought product.
• Type of problem solving needed-routine, limited, extensive.
• Information required-low, medium, high.
Geographic Location
• Region of world, country— North America, South America, Africa, Asia, Europe.
• Regions within that country— (For Example USA) Pacific Northwest, South,
Midwest, New England.
• Size of city— population under 5,000 people to 4 million or more.
• Urban vs. rural— country, city, large city = more resources, more independence;
country=more dependence on neighbors and pooling resources.
• Climate— cold, hot, rainy, desert, beaches, mountains.

Demographics
• Income— under $5,000 to $250,000+ a year.
• Gender— male, female, neither, both.
• Age— Infant, toddler, preschool, tween (age 8 to 12), teen, college age, 20, 30,
40, 50, 60, 70-90.
• Family size— 1 person, 2, 3, 4, 5 or more.
• Family life cycle— young, single, engaged, DINKS (double income no kids),
SINKS (single income no kids), married with kids (babies, toddler, elementary
school age, teen, older), recently divorced, empty nester (children have moved
out), same-sex couples, single parents, extended parents (grandparents raising
their grandchildren), retired (either wealthy or Medicare dependent/poor). There
are also Boomerang Kids (adult children have moved back home), Cougar/Silver
Fox (Cougar is a 40-60 year old weathly, single, career driven woman seeking a
younger man; Silver Fox is a 40-60 year old wealthy, single, career driven man
seeking a younger woman).
• Job— unemployed, housewife, part-time, full-time, student, professional,
craftsperson, farmer, retired.
• Education— grade school or less, some high school, high school graduate, some
college, college graduate, graduate degrees.
• Religion— Christian, Jewish, agnostic, atheist, Muslim, Islam etc.
• Race— White, Black, Asian, Hispanic, Native American, mixed race, etc.
• Culture/nationality—American, French, English, African, Russian, Indian etc.
• Generation— (For Example USA) GI Generation, Silent, Matures, Baby Boomer,
Gen X, Gen Y, Boomlets.

Psychographics

• Lifestyle— interests, hobbies, activities, interests, opinions, values, media

preferences. Everyone has two lifestyles, the one they are in now, and the one
they desire to be in, which is usually better than the current one. Almost all
decisions are influenced by the buyer’s current and desired lifestyle.
• Personality traits
 o Sincerity.
o Excitement.
o Competence.
o Sophistication.
o Ruggedness.
• Social class— Lower, middle-low, middle, middle-upper, upper, upper-upper,
working class, blue collar.

MARKET SEGMENTATION

The main reason why we have Segmentation is because we have so many types of
customers.

The reason why Segmentation has become important in teaching and learning about
marketing is because these groups of different customers have:
1. become more numerous, we have many more types of segments
2. the differences among groups have become more distinct
3. the groups have become large in number

Segmentation is not easy, once you decide that it is necessary to do, you may find that it
is challenging to create these segments with any workable or meaningful definition
http://www.witiger.com/marketing/marketsegmentation.htm

Criteria for Segmentation

- things you have to think about in order to decide if a potential group is worthwhile being considered a "segment"

1. Homogenous
- are the people in the proposed segment all similar without too many differences
- you could say right handed people is a segment, but.... if half the right handed people were women, and half were men,
then this might not work if the gender also was an issue.
.
Criteria 2. Heterogenous
for - the people between the segments should be very different
Segmentation - right handed and left handed might not be worthwhile if you are talking about a market segment for a
product like pull-on boots

.
Criteria 3. Substantial
for - the people in the segment should be large enough in number to be worthwhile
Segmentation - right handed men might be a large enough segment
- right handed men, who wear glasses, and speak Spanish and right motorcycles might be too small
- the group has to be large enough to "generate sufficient sales volume at a low enough cost to result in a
profit " says Sommers 10th Ed.

.
Criteria 4. Competition
for Sommers 10th Ed. suggests that a company should target segments "where the numbr of competitors and
Segmentation their size are such that the firm is able to compete effectively"
example
- some people buy trucks, some SUVs and some cars and some mini-vans
- some companies have a product segment devoted to truck buyers, like Ford
- car companies, like Nissan and Toyota might be advised to avoid selling trucks in North America
because the competition is intense and they might not make a profit
.
Criteria 5. Resources
for Sommers 10th Ed. suggests that a company should make sure the segment relates to the resources of the
Segmentation company. If the company can mfg. variations to fit its key demographics, great, but it should not take on
additional demographics if it does not have the capability
example
- a lingerie company taking on plus sizes - which would mean reconfiguring the fabric pattern cut-out
which would effect fabric cost, waste amounts, etc.

.
A Powerpoint on Segmentation
"If you want to download Chpt Eight (re: 11th edition) to view it and print it out yourself, go here
http://people.senecac.on.ca/tim.richardson/MRK106-9th-Edition/Chpt8~9thedition.ppt
this powerpoint was still downloadable Oct 2007
this powerpoint discusses
- two basic types of markets
- clustering
- 4 criteria for determining if the segment is useful
- criteria for segmenting
- aggregating segments
- VALS - values, attitudes, lifestyles
- positioning

Marketing segmentation
Marketing targets key people that help their business grow. Marketing segmentation is
just one of the steps a business must take when they are working to define their specific
target markets. Marketing segmentation is the process of dividing a market into a
group of key buyers that require different products. Instead of using the same marketing
strategy for all the consumers, it is dividing into different categories and tailored to fit the
needs of the consumers. The goal of market segmentation is to target the correct audience
with the correct product and obtain the highest rate of return for a product.
The first aspect of marketing segmentation is to find the "category of need" that the
company, service, or product will fulfill. There are three fundamental characteristics that
define the "category of need", they include the following:

• Strategic - this category must define the product the company is offering and why
it is important to the mission, objectives, or operations of the consumer.
• Operations - this category must fulfill the general operating procedures of a
company and align with its procedures.
• Functional - the final approach is to define the function need a customer has for a
product. The product or service must deal with a specific process such as
accounting, maintenance, etc. There are several domains for the functional aspect of
market segmentation, but it must be defined with the prospective audience in min

The second aspect in marketing segmentation is to define what the need is and who will
experience this need. For example, some of the needs a business may have include the
following: reduction in operating expenses, increased cash flow, improved productivity,
etc. Once the need is defined and prospects are defined, a company must then consider
the 4 bases of consumer market segmentation.

The 4 bases of consumer market segmentation include:

• Geographical bases are based on states, regions, countries, climate, population

density, and population growth rate.
• Demographical bases include variables such as age, family size, gender,
education, life cycle, occupation, income, ethnicity, and family status.
• Behavior bases include product knowledge, attitude, responses, usage, and brand
loyalty, price sensitivity, and benefits sought.
• Psychographic bases include lifestyle, personality, and values.

Market segmentation will vary with current economic conditions and trends. Market
research is a large factor in marketing segmentation and will help companies determine
how to create a campaign and use managerial judgment to implement the campaign.
Other factors businesses must include with marketing segmentation are the accessibility
the target market has to the business. Some questions a business must ask include: "is the
product accessible online? Can consumers find the location easily? Is the product they are
seeking easy to find?" Every group that is segmented must be able to provide a large
customer base that will provide solid revenue for the company. Marketing segmentation
requires the marketing team to create separate marketing plans for each segmented group
as well. A larger company usually has funding for market research and they are able to
define their segmented groups using this market research. Since a smaller business
doesn't have the funding to conduct market research, they need to implement other
strategies. Here are a few tips for smaller companies that are looking to segment their
market:

First, always look for secondary resources that can provide you with data. Some
secondary resources include expert's advice in the particular field, research publications,
and trade publications. Second, watch competitors marketing efforts and copy certain
aspects of them. Trade buyers generally have a lot of key information that can also help a
small business segment the market. A needs analysis is another great way to obtain
research from individuals and segmented groups. Once the market is dividing into
smaller segments, companies can begin measuring the differences between groups.
Marketing efforts are much easier for companies that have implemented marketing
segmentation because they are able to discover niche markets.

Marketing segmentation allows a company to find a new approach for businesses and
customers. When a company implements marketing segmentation, they are able to
determine the needs and wants of customers and it is easier for them to satisfy a variety
of people. Targeting customer groups versus product groups allows a company to offer
additional services to customers and bundle different packages that normally would not
be offered together. Increasing profits is a large goal for most businesses, implementing
marketing segmentation will allow a company to develop strategies for price increases
and having the customers accept the higher price. Price segmentation will occur for
regions. Typically large cities have higher prices than rural areas. For example, Wal-Mart
will charge higher prices for the same product at different stores because of the economic
situation of the city the store is in.

Marketing segmentation will allow companies the opportunity to develop new products
that are based on the needs of the target market. When a company has niche groups, they
tend to develop niche products for these groups. Several companies will create marketing
segmentation strategies that focus on customer loyalty. When a customer continues to
purchase products from the same company, the company will be able to reward them
with premium products and promotional materials.

Over time customers will change their buying behavior. Companies that participate in
marketing segmentation will recognize the customer changes and will find ways to
produce products that are geared toward a certain lifestyle or toward particular customer
needs. For example, several people began purchasing cars with navigation systems built-
in to help them with directions. Electronic companies produced individual GPS systems
for cars that customers could purchase without having to purchase a new car. Since the
sale of these units increased, cell phone companies began including GPS services with
the cell phone for their customers. By offering the same device to customers and
changing it with different stages, GPS manufacturers were able to capitalize on the
particular needs of the consumers.
Creating brand identity is one of the main goals of marketing segmentation. Since
targeted marketing efforts stress the importance of a product or company to a specific
group of consumers, they are able to create brand identity in several market segments.
Some customers may be targeted in two different groups of market segments. For
example, a cell phone manufacturer may place business professionals in a particular
segment and place family consumers in another segment. A customer that is a business
professional may also be in the segment for a family group. The individual will
immediately associate the company with business-related cell phones and will also be
able to identify them as individual cell phone services.

One of the main reasons companies implement marketing segmentation is because it

allows a company to identify needs of customers and improve products to meet their
needs. A customer typically is willing to pay a higher price for a product if it meets their
needs. Marketing segmentation also allows companies the opportunity to become a
market leader. When a company becomes a market leader, they can develop stronger
relationships with suppliers, partners, and customers. A company that is seen as a market
leader will have the opportunity to strengthen its brand and ensure profitability to the
business.

Since most companies compete on price, market strategy will allow a company the
opportunity to find the demand for products that are closely related and determine the key
differences between the products. Having the ability to keep a product in the lowest price
density is another marketing segmentation strategy. Companies have the ability to sustain
a higher price level and higher margins if their product provides value to customers.
Since market competition is continually increasing for consumers, business customers are
used to multiple choices for products. Marketing segmentation provides customers with
the ability to be more effective with pricing products and provide a greater density to
their service.

Several companies offer marketing segmentation services. Since numbers alone don't
allow companies the opportunity to understand the markets, outside companies have
identified different strategies and analyze data and find ways to companies to improve
their services. One of the services offered by market segmentation companies is the
ability to determine the emotional reasons behind purchasing products. They will discuss
different reasons why customers buy and the emotional need versus traditional research.
It is common for companies to create marketing segmentation strategies that are based on
rational reasons for purchasing a product versus emotional reasons for purchasing a
product. Hiring an outside market research company will help determine the different
reasons and they will help a company understand what their primary motivations are
behind the price, quality, and service of consumer buying. Outside companies will
conduct surveys of customers and determine the hidden desires and motivations behind
purchasing a product. Since human behavior is complex, it is difficult for companies to
understand the attitudes and beliefs consumers have about products. Using a company
that specializes in marketing segmentation will allow your company to understand those
abilities and provide more detail about your target customers such as loyal customers,
brand switchers, and the customers of competitors.

Market Segmentation Check List

How Well is Your Company Using Market Segmentation Techniques?

1. Does your company segment the market? If not, why not?

2. What strategy is used - differentiation, concentration, of atomization?
3. What segment(s) of the market are you trying to serve?
4. How successful are you at meeting this objective?
5. What is your typical customer profile?
6. Are target market defination based on research?
7. What dimentions (methods) are used to segment markets?
8. When was your last segmentation analysis conducted?
9. How frequently are updates obtained?
10. What is your budget for segmentation analysis?
11. Are products decisions based on segmentation research?
12. Are pricing and distribution decisions based on segmentation?
13. Are promotional decisions based on segmentation research?
14. Is segmentation analysis used in assessing competition, trends, and changes in the
marketplace?
15. Is segmentation analysis used to evaluate your present marketing efforts.- markets
to pursue?

Benefits Of Market Segmentation.

The overall objective of using a market segmentation strategy is to improve your company's strategy
competitive position and better serve the needs of your customers. There are four major benifits of market
segmentation analysis and strategy. They are:

1. Design or provide responsive products to meet the needs of the market place. You will be able to employ
a more interactive, personalized approach which goes a long way in building relationship
and customer loyalty. You will move closer towards the marketing concept - customer satisfaction as a
profit. You will be able to place the customer first and design and refine your product and service mix to
their satisfaction.

2. Determine effective and cost efficient promotional strategies. As a planning tool, use it to analyse and
develop your communication mix.appropriate promotional campaigns can be designed and targeted to

the right media vehicles. This marketing investment can be supplemented by public relations initiatives and
sales promotion methods. In addition the personal sales process can be improved by providing sales
representatives with useful background customer research, recommended sales appeals, and
on going support.
3. Evaluate market competition, in particular your company's market
position. If the information collected was thorough you should be able to explore you company's market
position - how it is perceived by its customers and potential customers relative to the competition.

4. Provide insight on present marketing strategies. it is important to periodically reevaluate your present
marketing strategies to try to capitalize on new opportunities and circumvent potential threats.
segmentation research is useful in exploring new markets - perhaps

secondary smaller or fringe markets which might have otherwise been neglected by concentrating on
primary markets. with all those information you have the necessary research base upon which all other
marketing strategies can be successfully formulated and implemented.

Is your company using marketing segmentation techniques as effectively as possible? Take a look at my
marketing segmentation 15 point check list. on my web site.

Limitations of market segmentation.

Having said a lot about segmentation I must warn than it is not a bed of roses, and marketers must be aware
of some of the disadvantages of market segmentation analysis. These include:

1. Segmentation findings only provide a composite profile of a group.Although research can provide
meaningful marketing information, some forms of segmentation analysis reflect only expected segment
decision making, and do not necessarily indicate individual purchase behavior. Two women may both be
forty years old and both earning $50,000 per year. By using demographic analysis only, the marketer may
wrongly stereotype these consumers as similar prospects. In reality , they may have different interests,
attitudes, and perspectives on life. Further investigation in their lifestyles is possible through psychographic
research, which can help the marketer to present a more complete picture of a market situation.

2. The great diversity of consumer lifestyles in the 80s and continuing in the 90s has made segmentation
more difficult and costly in many markets.Changing family structure, the rise of women in the work force,
increases in divorce and single person households, the increase in ethnic groups such as the rise in Hispanic
and Asian population and also the increasing black middle class, and today's changing lifestyles(e.g.,
convenience - seeking, health and fitness conscious, etc.) have created great opportunities and a lot
of problems for marketers attempting marketing segmentation

.3. Segmentation research is not a remedy forother marketing or organizational deficiencies.The best
segmentation information is worthless unless it is supported by consistent product, promotional, pricing,
and distribution strategies that are regularly evaluated and revised as situation dictate.

4. Segmentation's effectiveness is limited by management's ability to implement strategic implications.

A marketing orientation requires a strong commitment by the firm. This includes support in the areas of
personnel, resources to hire marketing consultants, time investment of management, and the willingness to
act on prescribed recommendations. Findings from a segmentation analysis need to progress from the
"report on the executive's shelf" stage to the "working document" stage.

5. To many market segments - over-segmentation.In the process of segmenting the markets, to many
segments are sometimes formed. This becomes costly and reduces profits. If unprofitable segments
are formed because of a lack of segments evaluation, marketers
generally combine segments to reduce the number of segments.

Market Segmentation Analysis

Remember taking a quiz in some magazine and finding out that your score of 58 meant
you really should have taken that circus job? A well-executed segmentation analysis
provides a more "statistically sound" technique for splitting your marketplace into
manageable segments.

Market segmentation is used as a strategic marketing tool for defining markets and
thereby allocating resources. Segmentation studies use statistical techniques called factor
analysis and cluster analysis to combine attitudinal and demographic data to develop
segments that are easier to target. In many situations it is better to identify your target
groups and aggressively market to smaller, more defined segments.

From a marketing management viewpoint, market segmentation is the act of dividing a

market into distinct groups who might be attracted to different products or services. This
technique is widely accepted as one of the requirements for successful marketing. By
dividing the market into relatively homogenous subgroups or target markets, both
strategy formulation and tactical decision making can be more effective.

Market segmentation is concerned with individual or group differences in response to

specific market variables (e.g. preferences, lifestyles, media habits, etc.). The strategic
presumption is that if these response differences exist, can be identified, and are
reasonably stable over time, and if the segments can be efficiently reached, the company
may increase its market share beyond that obtained by assuming market homogeneity.

Example:
WestGroup conducted a segmentation study for the Arizona Lottery in 1996. The
objective of the project was to help the Lottery design an effective marketing strategy to
maximize the return on their marketing dollars. The study identified six segments of the
population (those opposed to the Lottery were excluded from the study).

The segments were identified as Optimists, Critics, Dreamers, Managers, Analysts, and
Pessimists. (Click here for detailed definitions of the Lottery segments.) Among the six
segments, the Optimists and Dreamers had the greatest frequency of play in the lottery.
Thus, based on the demographic information we collected for each group, the Arizona
Lottery made a concerted effort to direct their advertising campaigns to members of these
segments. Information from the segmentation study helped provide direction for
constructing campaign messages, purchasing media that will reach the demographic
groups found in the target segments, and identifying the most appropriate media to use.

For final review

Put simply, segmentation is the process of partitioning a market into groups of potential
customers who share similar defined characteristics and who are likely to exhibit similar
purchase behavior. The key to a successful segmentation strategy is the ability to
capitalize on similarities within a segment that are important from a marketing point of
view.

http://www.buzzle.com/articles/market-segmentation-theory.html
Market Segmentation Analysis
The act of dividing target markets into various segments based on a number of factors,
and then devising individual market strategies for each segment is a commonly
carried out practice. The task of market segmentation analysis is imperative for the
success of the marketing activities of every company. Read on to know more.
When the producer of a specific commodity decides to undertake the marketing and
promotional activities for that commodity, what makes him decide how to approach his
potential customers? The base of his customers is obviously vast and varied and contains
people from all walks of life and belonging to different income groups. Each of these
different groups of customers require an altered and unique approach. The basis for this
approach is arrived at by carrying out market segmentation analysis.

One of the most widely used concepts in marketing management is that of STP, that is,
Segmentation, Targeting and Positioning. What this implies is that the potential customer
base is studied by the marketer by carrying out market segmentation analysis, the most
approachable and profitable segment is chosen and targeted, and the necessary marketing
and promotion steps are taken. For a marketer his resources are absolutely vital and he
cannot afford to waste these resources on useless purposes. He has to have a specific
target audience in mind (for any form of promotion), and then take steps accordingly. The
first step of this entire process is market segmentation analysis. Learn more about market
segmentation strategy.

Why Segment Your Market?

Now the question that surely arises is what is the purpose of market segmentation
analysis, and why must it be performed. The following are the primary reasons for
carrying out market segmentation for market trend analysis.

1. To avoid wastage of precious company resources.

2. To divide the market into various segments, or target groups.
3. To target each profitable segment in a unique way that suits that particular
segment, and provides adequate returns.
4. To avoid overlapping and redundant information to one particular segment.
5. To get maximum response and sales from each segment.

Basis for Market Segmentation

When it comes down to practical application of market segmentation analysis, there have
to be some fixed parameters that marketers must adopt and enforce in order to achieve
the best results and maximum profits. The following are the different factors that
determine how the different market segments are arrived at.

Geographic Segmentation: This segmentation is done on the basis of the physical location
and boundaries of the customers. The following considerations are necessary here. Read
more on geographic segmentation.

• Which country the customer resides in.

• Are there any limitations on the usage and promotion of the product in the
country.
• What is the size of the country and what is the density of the population there.
• What are the climate conditions in that country.

Demographic Segmentation: This process of analysis comes into play when the quality and
other characteristics of the general population are taken into consideration.

• The age and the gender of the target audience needs to be considered.
• The common occupations and income levels of the population also play a part.
• The religion and language that the people follow also needs to be kept in mind.
• The family size and quality of education are also important here.

Psychographic Segmentation: In
this category the attitudes and lifestyle of the consumers are
considered. Also known as the IAO (Interests, Activities and Opinions) model, it plays a
major part in devising successful marketing strategies. Read more on psychographic
segmentation.

• The general personality traits of the customers must be kept in mind.

• The values of the people and the attitudes that they have towards certain products
are crucial pieces of information for a marketer.

The hobbies and the perception of the selling company are also necessary to be

Market Segmentation Process

Coming straight to the point, market is a place where buyers buy and sellers sell. In such
a case, buyers and sellers both are at an advantageous position. However, to maximizing
sales, which eventually leads to increase in profit, is the very lasting objective of any
seller/producer. For the purpose of sales maximization, sellers employ marketing, which
is a process of commercially promoting, distributing and advertising a given product or
service. Market segmentation process is one such technique that has been innovated by
marketing professionals. Read on marketing strategies.
What is Market Segmentation?

The process of market segmentation, involves the creation of market segments or parts or
sub-sets. A segment of the market is basically a sub-set, in terms of goods, service or
product, of the entire market and is identified or created by the marketing department in
such a manner that the individuals (or organizations) in that very segment would demand
a certain set of goods and services that have similar features. In short, a segment is a
division of market, the elements of which depict common needs. The meritorious features
of a market segment includes the following:

1. Geographically or product-wise or even need wise, a single market segment is

distinct from other segments, though one can also count on the existence of some
minute similarities.
2. Products that are demanded by the consumers are homogeneous and in some
cases also tend to have similar price levels.
3. A product introduction into such a segment stimulates similar and almost
congruent reactions from a majority of consumers.

Market Segmentation as a Process

There are some specialized theories based upon which markets can be easily segmented
into different sections. Market segmentation can be positive segmentation, negative
segmentation or top-down segmentation. Companies also derive separate segmentation
techniques for every product and brand. Market segmentation process is usually done
with the help of past data, on filed surveys and consumer interactions. Volumes of goods
supply in every segment is made with the help of economic indexes and average income
and demand figures.
Steps for Market Segmentation Process
As mentioned above, one of the basic objectives of market segmentation is to maximize
sales and profits. Hence, the three important objectives of any segmentation process is to
gain new customers, sustain the existing consumers and introduce newer products into
the market for the existing consumers and there by gain new consumers. The five step
process of market segmentation goes as follows.

1. The first step in the market segmentation process is to establish the market and
targeted consumers. This process involves tremendous paper work and surveys.
Economic and demographic factors are also analyzed in the process. In addition to
that this step might also include advertising about the product
2. The second step is often termed as market mapping and involves structuring the
entire marketing procedures based upon the need of the said market. Logistics
cost, retail and whole sale cost, etc, are some important parameters that are set up
during this stage. Another very important factor involved in this step is the
targeting of consumers who are also known as decision makers. The remaining
three steps are derived on the basis of this step.
3. The third step is entirely dependent upon the consumers as the demand by
consumers and their suggestions are largely viewed, surveyed, taken into
consideration and in many cases implemented.
4. In this step, the actual segment begins to take shape as like minded consumers
having same demands are placed together and are analyzed as a group. Launching
of a parallel or a totally new product is viewed in this situation. This segregation
is often based upon economic indexes, demographic, geographic situations.
5. The last step is catering to the needs of existing consumers and finding new
markets. This step is purely the first step towards a new 5-step-cycle that begins
with finding a new market.
There are many theories associated with the yield curve and one such theory is the market
segmentation theory. This market segmentation theory brings together potential
buyers into segments with common needs, that will respond to a marketing action.
This means that certain investors are interested in particular types of investments like
short term debt securities. However, few investors are interested in only long term
bonds. Thus, the market segmentation theory discusses each separate maturity as
independent from others. Let us understand what is market segmentation theory in
brief. You can read more on marketing strategies.

What is Market Segmentation Theory

The market segmentation theory shows that there is no direct relationship between
the prevailing interest rates in the market in both, the short term and long term
markets. These short term and long term plans have separate term periods that cannot
be replaced among each other. So the demand and supply of debt instruments with
short term period and long term period are calculated individually. You can read
more on business financing.

The market segmentation theory finds that the securities that are traded in short term
market may undergo a significant flux and the rates that are applied to long term
investments remain static to some extent. The market segmentation theory is
sometimes also known as the segmented markets theory. The segments market theory
mostly agrees and supports the preferred habitat theory. According to the preferred
habitat theory, the investors have a specific expectation when one is required to
invest in securities with different maturity lengths. When an investor trades on an
opportunity that matches their preferences and their assumed degree of risk, the
expectations remain within the degree of reason. However, if the investor buys or
sells securities that have a maturity beyond their preferences, it will affect their
assumption of risks and needs and will require a need for increased return to balance
that risk. You can read more on market segmentation analysis.

Those who advocate the market segmentation theory have pointed out that the
evaluation of the yield curves of short term and long term markets show that the rate
of interest applied has little or no relationship with one another. In fact, the yield
curve is based on the available supply and the demand of options and not interest
rates. You can read more on market segmentation strategy.

Investors Choice

The investors choice is one of the most important part of the market segmentation
theory. It is seen that investors make their choices in advance and normally want to
invest in debt instruments with short term periods. This is because the investors want
to have some amount of liquidity and short term investments gives them this. Thus,
in the finance market, the debt instruments that have more demands are short term
investments.
 The market segmentation theory states that if there is more demand for a particular
investment it will definitely cost more. However, the yield of this investment will be
very low. Thus, one can understand why short term yields are lower than the long
term investment yields. It is also seen that when short term rate increases during any
period of time, the investors will not shift from long term bonds to short term bonds.
Therefore, increase in the rate of yield will not influence investors of long term
investments.

This market segmentation theory is based on the practices of commercial banks and
insurance companies and investment trusts. Commercial banks are institutions that
mostly deal with the short term investments and insurance companies and investment
trusts indulge in long term investments. However, there are chances of overlapping
between the different types of markets and some institutions deal in different markets
that offer different securities with different maturities.

The market segmentation theory has its own advocates as well as critics. Some
investors execute investment that involve both short term as well as long term
maturities. These investors do not believe that these two different investment markets
function as independents, especially in case of interest rates. They focus on the short
term market and influence the long term market gains and vice versa. This was some
information related to what is market segmentation theory. I hope this has helped you
understand this segmentation theory of the market.

Target Marketing Strategy

The sole aim of any business functions is to make profit. In order to attain maximum
monetary benefit, business men and management spend scores of hours trying to zero in
on the perfect strategy that will fish maximum returns.

Marketing is an important function that plays a vital role in the running of the business. If
the product is not marketed in the right manner and fails to reach the end customer, the
business will fail. This is why, marketing strategies play crucial roles. While marketing a
product, the company has to decide a target market. Target market is nothing but that
specific set of audience to whom the product manufactured is meant to cater to. Target
market is more like dividing the vast sea of customers into smaller segments and using
the 4Ps of marketing (Product, Price, Place and Promotion) on this segment effectively to
achieve maximum sales and profits. Target marketing strategy helps tap that subset of the
customer population that are most likely to purchase and use the product. Read more on
marketing mix strategy.

How to Identify a Target Market?

Target market, unlike mass marketing does not dole out a single product to the entire
market, instead marks out a specific range of people to who the product must be
effectively marketed to. As a marketing professional one needs to identify the target
market correctly and tap as much profit as possible. To identify the target market one will
have to look at the product being manufactured and sold. Ask a few questions such as
what does this product do? Whom is it helpful to? Which regions of the world will accept
this product, etc.
Let's consider the simple example of marketing a pair of low waist jeans. The product is
catering to the fashion taste buds of the young, teenage generation. Thus, the target
market would be based on the age ranging from 14-25 years of age. Then again if we
consider a product exclusively for men, such as shaving cream, the target market will be
divided based on gender. Other factors affecting target market selection are income,
occupation, geographical location, etc. If your company is selling desert coolers, it is but
obvious that the target market will be for extremely hot regions of the world and not the
cold regions. Moreover, if you are selling a luxurious product in an economically poor
country, it's quite obvious the product will not sell. Thus, based on the product marketed,
the target market can be identified and worked upon. You can also read more on product
life cycle theory.

Let's have a look at how you can divide the market into tiny segments for one's target
market.

Demographic Segmentation: This segment involves categorization of customers

based on factors such as age, income, family size, gender, education, nationality, race,
etc. Read more on demographic segmentation.

Geographical Segmentation: As we already read above, segmentation based on the

region is important while dealing with specific products like desert coolers, fur coats,
blankets, snow boots, raincoats, etc. the climatic conditions will determine one's target
area. Read more on geographical segmentation.

Behavioral Segmentation: This form of segmentation clubs factors like brand

loyalty and value of quality. For example, several IT companies market their products
specifically to customers loyal to their products. Then again, certain companies target
their high scale products to people who cherish, value and are ready to shell out extra
cash for valuable pieces.

Psychographic Segmentation: This type of categorization involves clubbing of

people's interests, life styles and personalities. Read more on psychographic
segmentation.

Types of Target Marketing Strategies

It's important to tap the most attractive segment for maximum profit. To help you achieve this, here are
some target marketing strategies.

Single Segment Strategy: This strategy involves the use of only one marketing mix
for one market segment. Usually small scale companies with limited budget and
resources opt for this form of target marketing strategy.

Selective Specialization Strategy: In this strategy, several marketing mixes are

implemented in different segments. The same product is marketed differently in different
segments, which is why this target marketing strategy is also known as differentiated
strategy.

Product Specialization: The product manufactured is customized and then marketed,

so as to cater to different market segments.

Market Specialization Strategy: In this form of target marketing, the company

first finalizes the market segment they wish to cater to and then manufacture a variety of
products exclusively for this segment.

Full Market Coverage Strategy: The company uses this strategy when they wish to
serve the mass market. This means a single marketing mix combination can be used or
even several marketing mixes are used to cater to segments made in this entire market.

Market Segmentation Strategy

Market segmentation strategy involves dividing the market into groups, where
individuals have similar needs and wants for services and products. It could also be a
segmentation of people on the basis of behavior, culture and economic status. To get a
clearer picture of what is market segmentation, one can always look into the definition
provided by business dictionary.com, market segmentation is defined as, "Process of
defining and sub-dividing a large homogenous market into clearly identifiable segments
having similar needs, wants, or demand characteristics".

Why Segment your Market?

Before one market's products or services, one needs to understand their customers, and
find ways and means to satisfy their wants. This is imperative to stay ahead of the
competition and build the brand. This is done through extensive market research.
Although it is not possible to satisfy individual needs and even to understand all of them,
a clearly defined market segmentation strategy will help create a market to cater to
groups of individuals that will make economic sense to mass produce and distribute. The
concept of target market segmentation strategy also falls under the blanket of market
segmentation, except the former recognizes and understands the diversity of customers
and provides them with products and services that suit their specific requirements. A
successful market strategy strives to understand different segments and its different
needs; works on the exhibited common wants; and responds immediately.
Market Segmentation Strategies
How a market is segmented is based on variables used for segmentation; behavioral,
demographic, psychographic and geographical differences.

Behavioral Segmentation: Behavioral segmentation is based on the customer's needs and

subsequent reaction to those needs or toward the purchase of intended products and/or
services. This study is conducted on all variables that are closely related to the product
itself, like loyalty to a particular brand, cost effectiveness in terms of benefits and usage,
circumstances responsible for the purchase, whether the customer is a regular, a first
timer or and has the potential to become a customer, and whether the readiness to buy is
linked to status.

Demographic Segmentation: Demographic segmentation refers to a wide study of the

potential customers. While marketing a product many variables like age, gender,
education, income, size of the family, occupation, socioeconomic status, culture and
religion, language and nationality are taken into account. There are many instances where
such a segmentation has worked very profitably, toys and clothes for every age group,
certain food products that do well in certain counties and don't in some, either due to
cultural or religious reasons. Demographic segmentation plays a vital role in determining
whether a product can be mass marketed or designed for specific clientèle.

Psychographic Segmentation: Segmenting people according to their lifestyles and values,

and how they translate into consumption or purchases of products of services is what
psychographic segmentation is all about. How one's interest, opinions, values, attitude
and the activities they perform, all affects how and why a group of people would lean
towards one product more than others. A high status would translate into an expensive
flying habit, while a thrift value will translate into an economy flight.

Geographical Segmentation: Geographical segmentation is done by dividing people

(markets) into different geographical locations. The country, state, or neighborhood, the
king of gentry, climate, size of a place segmented into size of its age wise population, etc.
all play a role in devising market strategies. This helps the producer and the marketers to
understand what will sell and what won't, for example, a market for winter wear would
definitely not work in warm regions.

To understand marketing concepts better, read through marketing tools and marketing
plans.

Before a company launches its services, it not only studies a market segmentation
strategy, but relates it in terms of a product life cycle theory. Both the concepts
combined, give the marketeers a clear idea of what would be profitable, or otherwise.

Product Differentiation
Companies manufacturing products which satisfy the same need have to come up with a
certain distinguishing factor for their product to be recognized. This is where companies
come with product differentiation strategies based on minor unique details, which will
ensure their product is etched in the minds of target consumers.

What is Product Differentiation ?

The product differentiation definition states that it is the process by which a product is
distinguished from others, so that it appeals more to the target audience. Other than
distinguishing the product from its competitors, this process should ensure the product is
distinct from all other products the company offers.

Product differentiation gives the product or service an edge over rival products. It
highlights unique aspects of the products and also generates value for the product in the
eyes of the buyer, which should be any manufacturer's ultimate goal. When the buyer
perceives, a difference is when he will remember the product and buy it, thereby resulting
in higher sales for the company.

Product Differentiation Strategy

The challenge companies face in creating product differentiation is to come up with a

strategy which not only creates value for buyers, but also makes it difficult for rival
companies to emulate. Whatever the company does to achieve this can be termed as a
product differentiation strategy.

Product Features
By modifying the basic objectives behind the product or service being sold, the
manufacturer can differentiate the product from it's competitors.

Linking Functions
A way for product differentiation is to link together two functions of the same firm.
An example of this could be linking the sales function with the company's service
function.

Timing
While entering a new product in the market, it is crucial to do so at the right time to
help create product differentiation and positioning at time of launch. The new entrant
gets the first mover advantage when the new product comes in before any rival
company comes up with a similar product.

Location
Another aspect which could assist in creating product differentiation is the location of
the firm. The closer the firm is located to the target consumers, the more advantages it
has over other competitors.

Product Mix
The total mix or variety of products sold by a firm can also be a reason for product
differentiation. If a consumer is buying a laptop from a particular brand, he would be
more inclined to purchase laptop accessories of the same brand, rather than going for
than other brands. Also, consumers prefer buying a variety of goods from one
particular location rather than going to different places. Thus, stores selling a variety
of products under one roof are better off than stand alone stores.

Links With Other Firms

 Product differentiation could also be a result of links between different firms, services
or products. There is a link between mobile handset manufacturing companies and
service providers or automobiles and insurance companies.

Reputation
A firm's reputation and goodwill can be a vital factor when it comes to product
differentiation. It takes time for the company to get to a position where it has built
itself a wonderful reputation in public, but once there, there is no looking back. The
best way a company can create an outstanding reputation is by providing consumers
with top quality products or services, to give them a memorable experience.

Product Customization
Certain products are customized for selling consumers what they exactly want. A
good example here would again be a laptop manufacturing company, which provides
customized laptops for all it's customers where they get to decide what they want in
their laptops rather than going with whatever the company has to offer.

Packaging and Advertising

Product differentiation can sometimes be done without modifying or altering the
product or its features. This can be done by adopting an attractive or unique
packaging, or by opting for a unique advertising campaign which registers itself in
minds of the customer.

Distribution Channels
There are few products which create a differentiation on basis of their distribution
channel. An example here would be that of soft-drink manufacturers. They distribute
drinks throughout the country through a chain of bottlers. The company sends the
main ingredients of the drink to the bottlers, who then add carbonated water and pack
the drink for eventual distribution.

Service
The amount of service and support provided by manufacturers can also create a
product differentiation in the market. Certain manufactures have developed their own
after-sales service centers and pride themselves in providing the best possible service
to customers.

Read more on:

• Marketing
• Marketing Mix
• Marketing Strategies

A successful product differentiation strategy will shift the competition of the product
from price to other non-price factors. This helps the company to strengthen its position in
the market as an increase in sales is the direct outcome of a good product differentiation
strategy and execution.