5

Market segmentation,
targeting and positioning
of marketing

5.1 Introduction
Now that we have a better understanding of the nature of marketing, we can
examine the subject in more detail. A logical starting point is an examination
of customers, and this is the theme of this chapter, along with the next chapter,
which deals with their purchasing behaviour.
Definition Market segmentation can be defined as:
Market segmentation
can be defined as: The process of breaking down the total market for a product or service
the process of into distinct sub-groups or segments, where each segment may con-
breaking down the ceivably represent a distinct target market to be reached with a distinctive
total market for a marketing mix.
product or service into
distinct sub-groups. Marketers realise that, to improve their opportunities for success in a
competitive market environment, they must focus marketing effort on clearly
defined market targets. The intention is to select those groups of customers
that the company is best able to serve in such a way that pressure from
competition is minimised. The sequential steps in this process are segmenta-
tion, targeting and positioning. In this chapter we examine each of these steps,
showing how they can be used to improve the effectiveness of marketing
decision-making.
There are increasingly more segmentation bases available, which means that
targeting and positioning strategies are becoming more meaningful.

5.2 The need for segmentation

We have seen that the essence of the marketing concept is the idea of placing
customer needs at the centre of the organisation’s decision-making. It has also
been said that the need to adopt this approach stems from a number of factors,
including increased competition, better informed and educated consumers,
68
 Market segmentation, targeting and positioning of marketing 69

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

this change in patterns of demand that has given rise to the need to segment
markets.
Reflect on the products and services that you purchase. Do you purchase
exactly the same kinds of products as your friends, or are your purchasing
requirements slightly different? Your friends may have different tastes in
clothes or in the type of holidays they take. Perhaps they purchase different
brands of toothpaste or breakfast cereals. This obvious example shows that
market segmentation and the subsequent strategies of targeting and position-
ing start by recognising that increasingly, within the total demand/market for
a product, specific tastes, needs and amounts demanded may differ.
We refer to a market that is characterised by differing specific preferences as Definition
being heterogeneous. Market segmentation is disaggregative in nature – in We refer to a market
that is characterised
other words, it breaks down the total differently behaving market for a product
by differing specific
or service into distinct subsets or segments, with customers who share similar preferences as being
demand preferences being grouped together with each segment. This is heterogeneous.
illustrated in Table 5.1.
Effective segmentation is achieved when customers sharing similar patterns
of demand are grouped together and where each segment differs in the pattern
of demand from other segments in the market (i.e. where the clustering gives
rise to homogeneous demand within each segment and heterogeneous amongst all
of the segments). Most markets for consumer and industrial products can be
segmented on some kind of basis.

5.3 Targeted marketing efforts

The fact that most markets are made up of heterogeneous demand segments
means that companies have to decide which segments to serve. Most
companies recognise that they cannot effectively serve all segments in a
market. They must instead target their marketing efforts.
Imagine that you are a part of a team developing a new car. Should the
proposed new model be a two-, four- or five-seated model? Should it have
a 1000, 2000 or 3000cc engine? Should it have leather, fabric or plastic
seats? The developer has to address these and many other questions. In
deciding these issues, the overriding factor is customer demand – i.e. what
are customer needs? Some customers (segments) may want a five-seated
2000cc model with leather upholstery, whilst others may prefer a four-
seated model with a 1000cc engine and fabric seats. One solution would be
to compromise and produce a four-seated 1500cc model with leather seats
and fabric trim. Clearly, such a model would go some way to meeting the
requirements of both groups of buyers. The danger is that, because the
needs of neither market segment are precisely met, most potential custom-
ers might purchase from other suppliers who are prepared to cater for their
specific requirements.
In short, varied patterns of demand require that marketers develop specific
marketing mixes (i.e. product, price, promotional and channels appeals)
70 Marketing: The One-Semester Introduction

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

targeting versus mass marketing approach to using a rifle approach as opposed
to using a shotgun approach.
This idea of how companies target their marketing efforts was put forward
by D. F. Abell (1980) when he suggested targeting strategies based upon
customer group concentrations, or customer need concentrations, or a
combination of each. Table 5.1 illustrates how the idea works in practice.

Table 5.1 Customer wants/groups

Customer wants Customer groups

Group 1 Group 2 Group 3

Want 1

Want 2

Want 3

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

undifferentiated marketing, and an appropriate example here might be a
popular brand of washing powder/liquid.

Table 5.2 Complete coverage

Customer wants Customer groups

Group 1 Group 2 Group 3

Want 1 X X X

Want 2 X X X

Want 3 X X X

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

that cover different customer groups. This is a differentiated marketing
strategy. An example here would be an adhesives manufacturer who supplies
the engineering, textiles, schools, office supplies and ‘do-it-yourself’
markets.
 Market segmentation, targeting and positioning of marketing 71

Table 5.3 Want satisfaction specialisation

Customer wants Customer groups

Group 1 Group 2 Group 3

Want 1

Want 2 X X X

Want 3

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

to a specific customer group, for example, a mining machinery manufacturer
supplying the coal industry. This is also a differentiated marketing strategy.

Table 5.4 Customer group specialisation

Customer wants Customer groups

Group 1 Group 2 Group 3

Want 1 X

Want 2 X

Want 3 X

Table 5.5 shows a strategy of specialist supply where the company serves
customer groups 2 and 3 with wants 1 and 3 respectively. An example is a
spinner of carpet yarns who supplies carpet manufacturers, but who also
manufactures and sells needle punch carpets to the motor trade. This is known
as a concentrated market strategy.
A number of factors affect the choice of targeting strategy. For example,
smaller companies with fewer resources often have to specialise in certain
segments of the market in order to be competitive, so they must pursue a
concentrated strategy. Competition will also affect the choice of strategy. In
the final analysis, choosing a targeting strategy is a matter of striking the
optimum balance between the costs and benefits of each approach in the
particular situation.
72 Marketing: The One-Semester Introduction

Table 5.5 Selective specialisation

Customer wants Customer groups

Group 1 Group 2 Group 3

Want 1 X

Want 2

Want 3 X

Specifically, the advantages of target marketing are:

1 Marketing opportunities and ‘gaps’ in a market may be more accurately
identified and appraised
2 Product and market appeals (through the marketing mix) can be more
finely tuned to the needs of the potential customer
3 Marketing effort can be focused on the market segment(s) which offer the
greatest potential for the company to achieve its objectives.

Vignette 5.1

Segmentation: UK banks reluctantly target ‘lost’

financially excluded segment
Literally millions of people in the UK have a poor financial history. County Court Judgements
(CCJs), credit defaults (usually the result of non-payment of credit card debts) and late payment
histories (again on credit cards and other hire purchase agreements, including rental agreements)
affect many households. People with such histories are usually recorded on the files of credit
reference companies. The biggest credit reference companies in the UK are Experian and Equifax.
Mortgage arrears and default records are kept separately by the building societies.
Traditionally people with such poor financial histories have been of little interest to the high-
street banks, which have regarded them as a bad risk. However, the government wants to end the
financial exclusion of these people and give them the opportunity to have a bank account, cash
card and standing order and direct debit facilities. Such people often miss out on the opportunity
to purchase many goods and services because they cannot pay by standing order or direct
debit.
Conventional current accounts are regarded as a ‘cash cow’ by the banks. They generate
deposits, and income from overdraft charges, and give the bank the opportunity to ‘cross-sell’
other products such as loans, insurance, mortgages and pensions. The government wants the
banks to open ‘basic accounts’, with no overdraft facilities or chequebooks, but including standing
 Market segmentation, targeting and positioning of marketing 73

order, direct debit and cash card facilities. In the short term the banks will operate these accounts
at a loss, but they hope to make money eventually as the account holders get their financial affairs
in order and become regular account holders. Undischarged bankrupts will still be denied even
one of the basic accounts; otherwise, such accounts will be open to all regardless of credit history
and the state of their credit reference files.
Although the banks are entering into the spirit of the government’s wishes, there is some debate
as to whether they are demonstrating the degree of enthusiasm the government had hoped them
to have for the new scheme. They have given the government their commitment to set up such
accounts, but do not seem to be going out of their way to attract new account holders. Barclays
and Lloyds TSB launched such accounts throughout the UK in the third week of October 2000, and
Lloyds TSB piloted the scheme in Scotland for eight months before that. NatWest set up similar
facilities for ‘blacklisted’ customers at the beginning of October 2000, and HSBC followed suit.
Such moves represent an interesting targeting of a relatively unexploited market segment, which
could result in profitable business in the long term – although the banks themselves do not seem
particularly optimistic about the viability of such a segment.

5.4 Effective segmentation

Ideally, the base(s) used for segmentation should lead to segments that are:
1 Measurable/identifiable. The base(s) should ideally lead to ease of identifica-
tion (who is in each segment?) and measurement (how many potential
customers are in each segment?)
2 Accessible. The base(s) used should ideally lead to the marketer being able to
reach selected market targets through marketing efforts
3 Substantial. The base(s) used should ideally lead to segments that are
sufficiently large to be worthwhile serving as distinct market targets
4 Meaningful. The base(s) used should lead to segments that have different
preferences/needs, and show clear variations in market behaviour/response
to specialised marketing efforts.
Of the four requirements for effective segmentation, the last, that segments are Key point
meaningful, is very important. It is an essential prerequisite in identifying and Remember that in
selecting market targets. segmentation,
Before we examine each of the steps involved in segmentation, targeting and targeting and
positioning, we are
positioning in more detail, we need to understand and appreciate further what
seeking to identify
market segmentation means, and how this relates to our criteria for effective distinct subsets of
segmentation. A simple illustration of this idea is shown in Figure 5.1. Here, customers in the total
the country (England) is broken down into five distinct selling regions, each market for a product
served by a regional sales representative. where any subset
might eventually be
Remember that in segmentation, targeting and positioning, we are seeking
selected as a market
to identify distinct subsets of customers in the total market for a product target and for which a
where any subset might eventually be selected as a market target and for which distinctive marketing
a distinctive marketing mix will be developed. For instance, taking the mix will be developed.
74 Marketing: The One-Semester Introduction

 = Customer

   
   
   
 
       
 
     
     
     
  Ž

   
   
  ÷  
 
 

Figure 5.1 Market segmentation for a machine tools manufacturer.

geographical segmentation example in Figure 5.1, on examining the northwest

region it is broken up into an ‘assisted region’ and a ‘non-assisted region’, as
shown in Figure 5.2.
An ‘assisted region’ attracts various grants and benefits from the govern-
ment and the European Union. An industrial goods supplier selling certain
types of capital equipment (machine tools in this illustration) will target firms
to whom it sells in an assisted region with a different message (perhaps
emphasising grants available) to that it uses for those firms it sells to in a non-
assisted region.
In this hypothetical example we are assuming that buyers in assisted regions
will be more prone to the cost-savings motive (through grants), whereas those in

Non-assisted
region



 Assisted
  region

Figure 5.2 Further segmentation on the basis of assistance status.

 Market segmentation, targeting and positioning of marketing 75

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

reliability, price and service. The important element to note is that the bases
selected for segmentation (geography and assistance status) are meaningful
ones. Remember that it only makes sense to continue to subdivide markets in
this way as long as the resulting segments are worthwhile serving as distinct
market targets with distinct marketing mixes. There are some markets where
complete segmentation (i.e. tailoring the marketing mix to individual
customers) is not only desirable, but also essential. In shipbuilding each
customer may be treated as a separate market, but for most consumer product
markets such customising of the marketing effort would be totally impractical.
The following represents the sequential steps in conducting a segmentation,
targeting and positioning exercise for any given product market:
1 Select bases(s) for segmentation and identify segments
2 Evaluate and appraise the market segments resulting from step 1
3 Select an overall targeting strategy
4 Select specific target segments in line with step 3
5 Develop ‘product positioning’ strategies for each target segment
6 Develop appropriate marketing mixes for each target segment in order to
support positioning strategies.
These steps will each now be dealt with individually.
The machine tools example used the bases of geography and benefits to
segment the market. There is no prescribed way to segment a market; different Key point
bases and combinations of bases, particularly innovative ones, should be There is no prescribed
sought by the marketer. There are, however, a number of relatively common way to segment a
market; different bases
bases frequently used by marketers. and combinations of
bases, particularly
innovative ones,
should be sought by
5.5 Segmentation bases in consumer product the marketer.

markets
5.5.1 Geographic segmentation
In international marketing, different countries may be deemed to constitute
different market segments. Within a country, a market may be segmented into
regions that normally represent an individual salesperson’s territory.

5.5.2 Demographic segmentation

This approach consists of a wide variety of bases, and some of the more
common ones are age, income, sex, education, nationality, family size, family
life cycle, social class/occupation, and type of neighbourhood.
Demographic bases constitute the most popular bases for segmentation in
consumer product markets (see Reynolds and El-Adley, 1995, 1997). The
reason for this is that they are often associated with differences in consumer
demand (i.e. they are meaningful).
76 Marketing: The One-Semester Introduction

Family life cycle segmentation is based on the idea that typically consumers
pass through a series of quite distinct phases in their lives. Each phase gives
rise to, or is associated with, different purchasing patterns and needs. For
example, the unmarried person living at home will probably have very
different purchasing patterns to someone of the same age who has left home
and recently married. Similarly, it is recognised that purchasing patterns of
adults often change as they approach and then move into retirement. The
subject is given fuller treatment in Chapter 6, but the stages are defined as:
1 Young
2 Young single, no children
3 Young couple, youngest child under 6 (Full Nest I)
4 Young couple, youngest child 6+ (Full Nest II)
5 Older couple with children 18+ at home (Full Nest III)
6 Older couple, family head in work, no children at home (Empty Nest I)
7 Older couple, family head retired, no children at home (Empty Nest II)
8 Older alone (in work)
9 Older alone (retired).
A further development in the application of family life cycle has been
developed by Research Services and termed ‘SAGACITY’. This combines life
cycle with income and occupation in order to delineate different consumer
groups. Consumers are divided into one of four life cycle groups:
1 Dependent: adults 15–34 who are not heads of household or housewives,
unless they are childless students in full-time education
2 Pre-family: adults 15–34 who are heads of household but childless
3 Family: adults under 65 who are heads of household or housewives in
households with one or more children under 21 years of age
4 Late: all other adults whose children have already left home or who are 35
or over and childless.
These four major life cycle groups are then broken down further by a
combination of occupation and/or income to produce 12 major SAGACITY
groupings:

Approx. % of
UK population
(DW) Dependent white collar 6
(DB) Dependent blue collar 9
(PFW) Pre-family white collar 4
(PFB) Pre-family blue collar 4
(FW+) Family, better-off white collar 6
(FB+) Family, better-off blue collar 9
(FW–) Family, worse-off white collar 8
 Market segmentation, targeting and positioning of marketing 77

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

(LW+) Late, better-off white collar 5
(LB+) Late, better-off blue collar 7
(LW–) Late, worse-off white collar 9
(LW–) Late, worse-off blue collar 19

Occupation and social class are linked because in most developed economies
official socio-economic group (social class) categorisations are based on
occupation. Of all the demographic bases for segmenting markets, social class Key point
is probably the most widely used basis for segmenting consumer product Of all the
markets. demographic bases
for segmenting
Social class scores highly against other segmentation criteria in being markets, social class is
identifiable and accessible. It is easy to classify individuals on the basis of probably the most
occupation, and to reach different social classes according to different media widely used basis for
and shopping habits. The social class grading system used in the UK, together segmenting consumer
product markets.
with a broad indication of the type of occupation associated with each, is:

Social class Type of occupation Approx. % of

grading UK population
A Higher managerial 4
B Intermediate management 11
C1 Supervisory, clerical, administrative 26
C2 Skilled manual 30
D Semi-skilled/unskilled 25
E Pensioner (no supplementary income) 4
Casual and lowest grade workers

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

social class being a meaningful basis for segmenting markets. For example, it
is often the case that the skilled manual group (C2) can earn higher incomes
than their counterparts in supervisory or even intermediate management (C1
or B). They are often able to purchase products and services that were
traditionally the prerogative of the upper social grades.
Education might also be said to be related to social class, because the better
educated tend to get the higher paid jobs. Education is usually expressed as
terminal education age (TEA). This classification is open to criticism because
of an increase in the provision of part-time and distance learning education,
which means that although a person’s TEA might be low, education might
have been enhanced through later part-time higher qualifications.
Partly because of the diminishing meaningfulness of social class/occupation
as a basis of segmentation, new forms of social classification have begun to
emerge which take into account a wider range of factors than the single index
of occupation on which more conventional social grading systems are based.
An example is the type of neighbourhood/dwelling – the ACORN system (A
Classification Of Residential Neighbourhoods). This system takes dwellings,
rather than individuals, as a basis for segmentation. It is based upon the
10-yearly return made by the householder in the census enumeration district
within which the house is situated. This census of population takes place in
78 Marketing: The One-Semester Introduction

every year that ends in one (i.e. the last one was in 2001), and householders
must complete their return by law. There is also a 10 per cent sample taken in
every year that ends in six. In the United Kingdom, there are around 125 000
such census districts, and the ACORN system has classified each of these into
one of 11 major groups. Each of these major groups is further subdivided to
yield a total of 36 specific neighbourhood types. The 11 major groups, and
some examples of how Group A is further subdivided into neighbourhood
types, are given below:

A agricultural areas
A1 agricultural villages
A2 areas of forms and smallholdings
B modern family housing, higher incomes
C older housing of intermediate status
D poor quality, older terraced housing
E better-off council estates
F less well-off council estates
G poorest council estates
H multi-racial areas
I high-status non-family areas
J affluent suburban housing
K better-off retirement areas
U unclassified

Essentially, the ACORN system is based on the idea that the type of area and
housing in which an individual lives is a good indicator of his or her possible
patterns of purchasing, including the types of products and brands that might
be purchased. There is evidence to suggest that this is the case. In other words,
the ACORN system goes some way to fulfilling the ‘meaningfulness’ criterion
for a segmentation basis.
ACORN was developed at the research firm Consolidated Analysis Centres
Inc. (CACI). ‘Sample Plan’, for instance, is a service that can be used for
marketing research using a computer program to select ACORN areas.
Individual addresses can then be chosen that provide a truly representative
sampling frame for survey work.
The effectiveness of census data in providing segmentation bases has been
further refined. Pinpoint (PIN) analysis is based on census data, and it claims
104 census variables to delineate 60 neighbourhood types that are clustered
into 12 main types.
MOSAIC is another approach based on census data. It has added data on
the financial circumstances of potential target customers living within each
district by relating it to Royal Mail postcodes. Each postcode represents on
average between eight and twelve individual homes of a similar type, and each
is ascribed an individual MOSAIC categorisation. For example, M1 is ‘High
status retirement areas with many single pensioners’; M17 is ‘Older terraces,
young families in very crowded conditions’; M34 is ‘Better council estates but
with financial problems’; and M55 is ‘Pretty rural villages with wealthy long-
distance commuters’. It is called ‘MOSAIC’ because if each of the 58 different
MOSAIC categorisations ascribed to postal codes was represented as a
 Market segmentation, targeting and positioning of marketing 79

different colour and then superimposed onto a map of the UK, it would
resemble a mosaic pattern.
This classification is a very powerful database for direct mail, because
individual householders can be personally targeted according to the type of
MOSAIC categorisation of their home, and in the specific geographical area in
which their home is situated. For instance, it is possible to specify that a
personal letter go out to all residents in South-East Huddersfield (HD8) who
fall in the M46 ‘Post-1981 housing in areas of highest income and status’
MOSAIC category.

5.5.3 Lifestyle segmentation

This is referred to as psychographic segmentation. It is based on the idea that
individuals have characteristic modes and patterns of living that may be
reflected in the products and brands they purchase. For example, some
individuals prefer a ‘homely’ lifestyle, whereas others may have a ‘sophisti-
cated’ lifestyle.
Young and Rubicam, the advertising agency, put forward a formal lifestyle
classification called ‘4Cs’, where ‘C’ stands for ‘customer type’. Consumers
are put into one of the following categories:
 Mainstreamers (the largest group, containing in excess of 40 per cent of the
population)
 Aspirers
 Succeeders
 Reformers.

5.5.4 Direct or behavioural segmentation

All the approaches to consumer market segmentation described so far have
been examples of associative segmentation – that is, they are used where it is felt
that differences in customer needs and purchasing behaviour may be
associated with them. For example, if we use age to segment a market, we are
assuming that purchasing behaviour in respect of a certain product is a
function of age. Most of the problems that arise from using associative bases
are concerned with the extent to which the bases are truly associated with a
reflection of actual purchasing behaviour.
Because of the problems of associative segmentation, many marketers Key point
believe that it is better to use direct bases for segmenting markets. Such bases Because of the
take actual consumer behaviour as the starting point for identifying different problems of
associative
segments, and they are therefore referred to as behavioural segmentation segmentation, many
bases. These divide into three categories: marketers believe that
it is better to use direct
1 Occasions for purchase. Segments are identified on the basis of differences in bases for segmenting
the occasions for purchasing the product in question. In the market for markets.
men’s ties, the ‘occasion for purchase’ might include gift-giving, subscrip-
tion to clubs or societies, and purchasing a new shirt or suit.
80 Marketing: The One-Semester Introduction

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

‘non-user’ segments for a product.
3 Benefits sought. This is certainly one of the most meaningful ways to segment
a market. The total market for a product or service is broken down into
segments that are distinguished by the principal benefit(s) sought by that
segment. For example, the household liquid detergent market might
include the following benefit segments: economy, mildness to hands,
cleansing power and germ protection.

5.5.5 Loyalty status

A direct approach to segmenting markets is the extent to which different
customers are loyal to certain brands (brand loyalty) or retail outlets (store
loyalty). Identifying segments with different degrees of loyalty may enable a
company to determine which, if any, of its prospective customers may be
brand-loyalty prone. Such a market segment is clearly a very attractive one on
which to concentrate any future marketing effort. Once convinced of the
relative merits of a brand/supplier, such customers are unlikely to switch
brands. Understandably, where existing brand loyalty is already strong in a
market, the would-be new entrant is faced with a particularly difficult
marketing problem. In this situation it may be advisable or necessary to
identify and target segments with low brand loyalty.
It is suggested by a number of marketing writers that consumers fall into
one of four categories as far as loyalty status is concerned:
1 Hard core loyals, who have absolute loyalty to a single brand (e.g. brands
AAAAAA)
2 Soft core loyals, who divide their loyalty between two, or sometimes more
brands (e.g. brands AABABBA)
3 Shifting loyals, who brand-switch, spending some time on one brand and then
moving to another (e.g. brands AAABBB)
4 Switchers, who show no brand loyalty, often purchasing products that are
lowest in price or have a special offer (e.g. brands BCBAACD).

Vignette 5.2

Segmentation: British Airways wants a long-term

replacement for Concorde to service the supersonic
business class segment
You only have to travel to Times Square in New York City at 42nd Street and Broadway and look
at the British Airways advertising on the hoardings. At the most important crossroads in the world,
in the centre of the worlds ‘capital’, along with the almost full-size replica of Concorde in BA livery,
you realise that Concorde is the most important ‘brand icon’ the firm possesses. The Concorde
 Market segmentation, targeting and positioning of marketing 81

disaster at Charles De Gaulle airport near Paris in July 2000 left the future of the aircraft in grave
doubt. However, British Airways is taking the long-term view on one of its most important and
prestigious market segments, and is asking aircraft designers and manufacturers to develop a
long-term replacement for the aircraft, whether or not Concorde is allowed to re-enter service in
the near future.
Expensive modifications will have to be made to the plane if it is ever going to be allowed to fly
again. BA is pushing the original manufacturers, European Aeronautic Space and Defence and
BAE Systems, to try and get the modification in place by the end of 2000 to allow the plane to re-
enter service around September 2001 – a very ambitious time horizon. If the present Concorde
fleet is allowed to resume service in 2001, then BA intends to keep them flying until around 2015
but is eager to find an even better aircraft to replace the by-then ageing icon of sophisticated
business travel.
Major aircraft manufacturers such as Boeing see little future in scheduled flight supersonic air
travel. They are not convinced that there are sufficient customers out there willing to pay the sort
of ticket prices necessary to make the economics of developing and manufacturing such an aircraft
add up. They see the demand for smaller ‘Lear’ and ‘Gulfstream’ type supersonic business jets
rather than for the more ‘mass market’ type Concorde replacement craft. British Airways is looking
forward to getting Concorde back into service not only because it wants to satisfy demand from
one of their most prestigious market segments, but also because it regards Concorde as one of its
most effective marketing tools. The marketing effects of having a Concorde fleet in operation to key
destinations around the world impacts positively on all BA’s services. Whether BA has misread the
future market for such a service remains to be seen. Many in the business jet and supersonic
military jet markets do not believe a replacement for Concorde will turn out to be financially viable,
even given the different economic circumstance that might exist 15 years down the line.

5.6 Segmentation bases in industrial product

markets
The concept of segmentation, targeting and positioning is the same between Key point
consumer and industrial markets. Segmenting industrial product markets The concept of
segmentation,
suggest a number of additional bases and precludes others that are used for
targeting and
consumer markets. positioning is the same
The most frequently encountered bases for segmentation of industrial between consumer
product markets are: and industrial markets.

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

 Type of application/end use, e.g. nylon for clothing or that used for
parachutes
 Product/technology, e.g. plastic containers and steel containers
 Type of customer, e.g. manufacturing industry versus public authority
 Customer size, e.g. by customer turnover or by the average value of orders
placed with the company
82 Marketing: The One-Semester Introduction

 Loyalty of customer
 Usage rate, e.g. heavy or light
 Purchasing procedures, e.g. centralised or decentralised, the extent of
specification buying, tender versus non-tender procedures
 Benefits sought, based on the product needs that customers require from
their purchase – e.g. a car might be needed for the company’s representa-
tives, for hiring out, or as the managing director’s personal car.
Shapiro and Bonoma (1984) have suggested a ‘nested’ approach to industrial
market segmentation. They identified five general segmentation bases
arranged in a nested hierarchy, as shown in Figure 5.3:
1 Demographic variables give a broad description of the segments and relate to
general customer needs and usage patterns
2 Operating variables enable a more precise identification of existing and
potential customers within demographic categories
3 Purchasing approaches looks at customers’ purchasing practices (e.g.
centralised or decentralised purchasing); it also includes purchasing
policies/criteria and the nature of the buyer/seller relationship
4 Situational factors consider the tactical role of the purchasing situation,
Key point requiring a greater or less detailed knowledge of the individual buyer
The criteria given for
bases of consumer 5 Personal characteristics relate to people who make purchasing decisions.
market segmentation –
being identifiable, As with consumer markets, industrial market segmentation may be on an
accessible, substantial indirect (associative) or a direct (behavioural) basis. Again, a variety of bases
and, most important,
may be used together in order to obtain successively smaller sub-segments of
meaningful – are
equally applicable to the market. The criteria given for bases of consumer market segmentation –
industrial market being identifiable, accessible, substantial and, most important, meaningful –
segmentation. are equally applicable to industrial market segmentation.

Demographics

Operating variables

Purchasing approach

Situational

Personal characteristics

Figure 5.3 ‘Nested’ approach to industrial segmentation.

 Market segmentation, targeting and positioning of marketing 83

5.7 Evaluating and appraising market segments

Having decided on a basis for segmentation and identified market segments,
the marketer must then evaluate the various market segments that have been
identified. Overall, segments should be appraised with respect to sales and
profit potential or, in the case of a not-for-profit organisation, the potential to
contribute to overall organisational objectives. This in turn requires that each
segment be appraised with respect to factors such as overall size, projected
growth, extent of existing and potential competition, nature of competitive
strategies, and customer requirements.

Vignette 5.3

Segmentation: Merck and Co. Inc. targets USA’s

bald males
Merck and Co. Inc., the American pharmaceutical company, has found a potentially very
profitable commercial use for its existing drug Finasteride®. The drug has been used to treat
prostate medical complains for some years. In a lower dose (1 mg), the drug has been successful
in trials treating male-pattern baldness (androgenic alopecia). The drug will be marketed under
the brand name ‘Propecia®’ in the USA. The product is in the form of a pill, which patients have
to take once a day. It is the only treatment for male-pattern hair loss in pill form, and is available
from pharmacists on a prescription basis only. However, a number of Internet companies are
already marketing the product and will supply customers without the need of a doctor’s
prescription. Obviously taking the drug without first consulting a doctor or at least some other
health professional has certain risks. However, many people are prepared to take the risk, and
Internet suppliers and customers are on the increase.
The United States Food and Drug Administration granted a marketing licence to Merck on
December 22, 1997. The marketing clearance of Propecia® is based on a double-blind, placebo-
controlled, multicentre trial involving 1879 men. Eighty-three per cent of men in the Propecia®
group reported reduction in hair loss or increase in hair growth. This was verified scientifically by
hair counts. Seventy-two per cent of the people in the placebo group were found to have
progressive hair loss over the same time period (24 months). Propecia® is targeted at men only;
it is not safe for use by women; in fact, women must not even handle the drug whilst pregnant as
it can cause foetal abnormalities. The tablets have a coating that prevents contact with the active
ingredients in normal situations, but there is always a risk of tablets being crushed, exposing the
active ingredients. Treatment causes loss of sexual function in some males, although this is usually
temporary and very limited. The treatment needs to be taken every day. When the treatment is
stopped, hair loss reverts to the pre-treatment level.
A licence to market the product has been granted in the UK to Merck, Sharp and Dohme of
Hertfordshire, but at the time of writing (July 2001) the company has no release date for a UK
launch. Much has been written about Propecia®, and much scientific information is available on
the Internet. Those suffering hair loss problems in Britain are waiting anxiously for the drug’s
release. There is a huge market all over the world, worth £ billions, for any scientifically proven
product for the treatment of andogenic alopecia. The only comparable product to Propecia® is
84 Marketing: The One-Semester Introduction

minoxidil, marketed by Phamacia and Upjohn as ‘Regain®’ (Rogaine® in the USA). Minoxidil is
available without a doctor’s prescription over-the-counter in pharmacies. Many websites offer
minioxidil as well as Finasteride®.
Minoxidil is administered as a lotion, topically. It is sold in regular and extra strength solutions.
The drug minoxidil was originally developed for treatment in high blood pressure patients, who
were also observed to grow more hair when taking the medicine. A perfect candidate for
minoxidil is a young male who is just starting to bald in the vertex/crown of the scalp. It is also
suitable for women, although not in the extra strength version. Propecia® is likely to be more
popular than Regaine®, as it is in tablet form and therefore much more convenient to take.
However, it is not suitable for women.

5.8 Selecting specific target markets

This step concerns organisations that decide to pursue a concentrated or
differentiated targeting strategy. The company must decide which of the
segments in the market it is best able and willing to serve. This decision must
be based on some of the factors outlined, including company resources,
competition, segment potential and company objectives. Four characteristics
will make a market segment particularly attractive:
1 The segment has sufficient current sales and profit potential to meet
company objectives
2 The segment has the potential for future growth
3 The segment is not over-competitive
4 The segment has some relatively unsatisfied needs that the company can
serve particularly well.

5.9 Developing product positioning strategies

Definition For each segment in which a company chooses to operate, it must determine
Product positioning a product positioning strategy. Product positioning relates to the task of
relates to the task of
ensuring that a
ensuring that a particular company’s products or services occupy a pre-
particular company’s determined place in selected target markets, relative to competition in that
products or services market. This process is also called ‘perceptual mapping’ or ‘brand mapping’.
occupy a The idea of product/brand positioning is applicable to both industrial and
predetermined place
consumer markets. The key aspects of this approach are based on a number of
in selected target
markets, relative to
assumptions, which are now explained. All products and brands have both
competition in that objective and subjective attributes that they possess to a greater or lesser
market. extent.
 Market segmentation, targeting and positioning of marketing 85

Examples of objective attributes include:

Size Large ⇔ Small
Weight Heavy ⇔ Light
Strength Strong ⇔ Weak
Examples of subjective attributes include:
Value for money Good value ⇔ Poor value
Fashion Very fashionable ⇔ Old fashioned
Reliability Very reliable ⇔ Very unreliable
Customers consider one or more of these attributes in choosing between
products and/or brands in a given segment.
Customers have their own ideas about how the various competitive offerings
of products or brands rate for each of these attributes; i.e. positioning takes
place in the mind of the customer.
Using these criteria, it is then possible to establish:
 important attributes in choosing between competitive offerings
 customer perceptions of the position of competitive market offerings with
respect to these attributes
 the most advantageous position for the company within this segment of the
market.

High price
per gram

Brand A

Brand B
Brand C

Very sweet Not at all sweet

Brand B

Brand D

Possible
positioning
strategies
for new
brand

Low price
per gram
Figure 5.4 A hypothetical product positioning map for the ‘instant’ breakfast food
market.
86 Marketing: The One-Semester Introduction

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

proposing to enter the market for ‘instant’ breakfast foods, in which there are
already five competitors – A, B, C, D and E. The company should first
establish what customers believe to be the salient attributes in choosing
between brands in this market. In addition, the perceived position of existing
competitors with respect to these attributes should also be investigated. If the
important attributes have been found to be ‘price’ and ‘taste’, a possible
positioning map might be drawn as shown in Figure 5.4.
Using this information, the company must now decide where to position its
product within the market. One possibility is to position the new brand in the
medium-price, medium-taste part of the market; another, to position it at the
low-price, less sweet taste area (these possibilities are plotted on the position
map, Figure 5.4). Both of these strategies would give the new brand
distinctiveness, as opposed to positioning the brand next to one of the
established brands, which would mean intense competition for market
share.

Vignette 5.4

Segmentation: Deutsche Post, Germany’s largest

postal company, targets Europe’s small investors
The German government has decided to float off 25 per cent of Germany’s most successful postal
and logistics organisation, the state-run Deutsche Post. Like Britain, Germany has a share-owning
culture, thanks mainly to the release of the first issue of Deutsche Telekom shares in 1996, from
which a number of small investors did very well. The government wants at least 50 per cent of the
share issue of Deutsche Post to go to the millions of potential small investors around Europe. In
reality it is expected that the majority of investors will come from inside Germany, or at least that
is what the company hopes. Things could go terribly wrong. The government is full of angst. A
failure of the issue would not only be a political embarrassment, but also a good deal of money
could be lost to the government’s coffers.
The company faces a difficult marketing communication problem in persuading Germany’s
plethora of small investors to take the new issue. One of the main problems is that although the first
two tranches of Deutsche Telekom shares were deemed a success by investors, the third tranche
was somewhat disappointing and many investors got their fingers burnt. The company is spending
serious money in trying to persuade Germany’s small investors to make the issue an unqualified
success.
The offer, if successful, could raise as much as E7.4 billion for the government, which is
obviously supporting Deutsche Post’s marketing efforts. As well as extensive advertising, Deutsche
Post is planning to offer the shares at the lower end of price expectations to create an attractive
‘bargain’ – in a sense, a form of promotional pricing. It is also using sales promotions to improve
the perceived value of the new issue by offering a E0.5 discount per share if investors subscribe
to the offer before a set date. Those who keep their shares until 30 November 2002 will also
qualify for an additional free share for every 15 shares held. Overall the package is very
attractive, and should overcome any possible investor resistance due to the third tranche of
Deutsche Telekom experience.
 Market segmentation, targeting and positioning of marketing 87

5.10 Developing appropriate marketing mixes

This is the final step in the appraisal of segmentation, targeting and
positioning. It involves the design of marketing programmes that will support
the chosen positional strategy in the selected target markets. The company
must now determine how to apply the ‘Four Ps’ of its marketing mix – i.e.
what price, product, distribution (place) and promotional strategies will be
necessary to achieve the desired position in the market.

5.11 Summary
✓ Used well, the techniques and concepts described in this chapter can
contribute significantly to overall company marketing success. Market
segmentation, targeting and positioning decisions are strategic rather than
tactical. In later chapters these areas will be considered in relation to
strategic aspects of marketing planning.

Questions
1 Bases for segmentation
The process of market segmentation requires the use of different bases for segmentation strategy
to be effective. Outline the most effective bases that might be used to segment industrial
markets.

2 Evaluation of bases
What are the main criteria used by management to assess the possible effectiveness of any
potential segmentation base or variable?

3 Segmentation, targeting and positioning

How do you explain the importance now attached to effective market segmentation, targeting
and positioning?

4 Segmentation bases
Using two consumer goods examples and two industrial goods examples, suggest segmentation
bases for each of these.

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

6 Selecting targets
Discuss the considerations that should be made when selecting specific target markets.
88 Marketing: The One-Semester Introduction

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

References
Abell, D. F. (1980). Defining the business: the starting point of strategic planning,
Chapter 3. Prentice Hall.
Reynolds, P. L. and El-Adley, M. (1995). The changes in the UK financial services
environment and its relation to the importance of market segmentation. Proceedings
of the 9th Annual Financial Services Marketing Workshop, The Manchester School of
Management, University of Manchester Institute of Science and Technology
(UMIST), 23–24 November.
Reynolds, P. L. and El-Adley, M. (1997). Market segmentation within the UK banking
personal loans sector. Presented at the INFORMS Marketing Science Conference,
University of California at Berkeley, California, USA, 22–24 March.
Shapiro, B. P. and Bonoma, T. V. (1984). How to segment industrial markets. Harvard
Business Review, May–Jun, 104–10.

Further reading
Adcock, D. (2000) Segmentation as a strategic tool. Marketing Strategies for Competitive
Advantage, Chapter 6. John Wiley & Sons.
Armstrong, G. and Kotler, P. (2000). Market segmentation, targeting and positioning
for competitive advantage. Marketing: An Introduction, 5th edn, Chapter 6. Prentice
Hall.
Blythe, J. (2001). Segmentation, targeting and positioning. Essentials of Marketing, 2nd
edn, Chapter 4. Person Educational Ltd.
Davies, M. (1998). Targeting, segmentation and positioning. Understanding Marketing,
Chapter 4. Prentice Hall.
Day, G. S. and Shocker, A. D. (1976). Identifying Competitive Product Market
Boundaries – Strategic and Analytical Issues. Marketing Science Institute.
Kotler, P., Bowen, J. and Makens, J. (1996). Marketing segmentation, targeting and
positioning. Marketing for Hospitality and Tourism, Chapter 9. Prentice Hall.
Lancaster, G. A. and Reynolds, P. L. (1998). Customers and marketing. Marketing,
Chapter 3. Macmillan Press.
Lancaster, G. A. and Reynolds, P. L. (1999). Segmentation, target marketing and
positioning. Introduction to Marketing: A Step by Step Guide to All The Tools of
Marketing, Chapter 2. Kogan Page.
Nickels, W. and Burk-Wood, M. (1997). Market segmentation, targeting and position-
ing. Marketing, Relationships, Quality, Value, Chapter 8. Worth Publishers.
Plamer, A. (2000). Segmentation and targeting. Principles of Marketing, Chapter 3.
Oxford University Press.
Wells, W. D. and Gubar, G. (1996). Life cycle concepts in marketing research. Journal
of Marketing Research, 13, 355–63.
 6
Buyer behaviour

6.1 Introduction
It is interesting to think back five or ten years and compare ourselves then with
the way we are (or think we are) now. Have our attitudes towards the world
around us changed or remained the same? Do we still like and dislike the same
things? As consumers, we are continually exposed to new experiences and
different influences throughout our lives. Whilst it is true that some of us are
more susceptible to change and influences than others, nobody goes through
life remaining the same as at birth. Some of our responses to our environment
are the results of our inherent psychological makeup. As our situations change,
opportunities often emerge as we are subject to a wider range of influences to
which we may consciously or subconsciously respond in a positive or negative
manner. Changes in circumstances may arouse inherent needs or promote
completely new needs and wants in our consumption patterns.
The task of marketing is to identify these needs and wants accurately, then
to develop products and services that will satisfy them. The role of marketing Definition
is not to ‘create’ wants, but to fulfil them. Chapter 2, which discussed the The role of marketing
marketing concept, provided some explanation of what this means in terms of is not to ‘create’
wants, but to fulfil
business practice. them.
For marketing to be successful, it is not sufficient simply to discover what
customers require. It is infinitely more valuable to find out why it is required.
Only by gaining a deep and comprehensive understanding of buyer behaviour
can marketing’s goals be realised. Such an understanding works to the mutual
advantage of the consumer and the marketer. By understanding consumers,
marketing should become better equipped to satisfy their needs efficiently.
This, in turn, should lead to a company being able to establish a loyal group
of customers with positive attitudes towards its products.

6.2 Definitions
Consumer behaviour can be formally defined as:
The acts of individuals directly involved in obtaining and using economic
goods and services, including the decision processes that precede and
determine these acts.
89