LESSON ELEVEN
MARKET SEGMENTATION
SEGMENTATION, TARGETING AND POSITIONING:
Building the Right Relationships with the Right Customers
Organization that sell consumers’ and industrial products recognize that; they cannot appeal
to all buyers in those market/at least not all buyers in the same way. Buyers are too
numerous, too widely scattered and too varied in their needs and buying practices; and
organizations also vary widely in their abilities to serve different segments of the market. For
instance, in the auto market, 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.
Therefore, organization will try to look for market where they can successfully satisfy rather
than conquering the whole market and this is done through target marketing. The figure
beneath shows the three major steps in target marketing.
Market Segmentation
-Identify bases for segmenting
the market
-Develop profiles of resulting
segments
Target Marketing
-Develop selection criteria
/measures of segment
attractiveness
-Select target segments
Market Positioning
-Develop positioning for each
target segments
-Develop a marketing mix for
each segment
The first step is market segmentation i.e. dividing a market into smaller groups of buyers with
distinct needs, characteristics or behavior who might require separate products or marketing
mixes. The company identifies different ways to segment the market and develops profiles of
the resulting market segments. The second step is targeting i.e. evaluating each market
segments’ attractiveness and selecting one or more of the market segments to enter. Finally,
is market positioning i.e. setting the competitive positioning for the product and creating a
detailed marketing mix.
MARKET SEGMENTATION
Market segmentation is the act of bifurcating or dividing a market into smaller groups of
buyers with distinct needs, characteristics or behavior who might require separate products or
marketing mixes, (Kotler & Armstrong, 2006). It is also important to note that, markets
consists of buyers and buyers differ in one or more ways for instance, they may differ in their
wants, resources, locations, buying attitudes and buying practices. Market segmentations can
be done in into three levels that is; segmenting consumer markets, segmenting business
/industrial markets and segmenting international markets.
1.
SEGMENTING CONSUMER MARKETS
There is no single way to segment a market. A marketer has to try different segmentation
variables, alone and in combination to find the best way to review the market structure. There
are a number of segmentation variables that allow an organization to divide their market into
homogenous groups. These variables/bases include; geographic, demographic, psychographic
and behavioral.
a.
Demographic Segmentation
These divides the market into groups based on variables such as age, sex, family size, family
life-cycle, income, occupation, education, religion, race and nationality. Demographic factors
are the most popular bases for segmenting customer groups this is because, customer needs,
wants and usage rates often vary closely with demographic variables. The following are the
brief descriptions of the variables.
Gender: The marketers divide the market into smaller segments based on gender. This is for
the reason that, both men and women have different interests and preferences, and thus the
need for segmentation. Organizations need to have different marketing strategies for men
who would obviously not work in case of females i.e. woman would not purchase a product
meant for males and vice a versa. The segmentation of the market as per the gender is
important in many industries like cosmetics, footwear, and apparel industries.
Age Group: Division on the basis of age group of the target audience is also one of the ways
of market segmentation. The products and marketing strategies for teenagers would obviously
be different than kids for instance;
 Age group (0 - 10 years) - Toys, Nappies, Baby Food, Prams
 Age Group (10 - 20 years) - Toys, Apparels, Books, School Bags
 Age group (20+ years) - Cosmetics, Anti-Ageing Products, Magazines, apparels etc
Income: Marketers divide the consumers into small segments as per their income.
Individuals are classified into segments according to their monthly earnings. The three
categories are; high, middle and low income earners’ group. Therefore, the stores catering to
the higher income group would have different range of products and strategies as compared
to stores which target the lower income group.
Marital Status:
Market segmentation can also be as per the marital status of the individuals for
example travel agencies would not have similar holiday packages for bachelors and married
couples.
Family life cycle: Refers to the stages families go through over time and how it affects
people’s buying behavior. For example, if you have no children, your demand for medical
care for children is likely to be slim to none. But if you have children or adopt them, your
demand might be very high because children frequently get sick.
Occupation: Office
b.
goers would have different needs as compared to school / college students.
Geographic Segmentation
Geographic segmentation refers to the classification of market into various geographical
areas such as nations, states, regions, counties, cities or neighborhood. A company may
decide to operate in one or a few geographical areas or to operate in all areas but pay
attention to geographical differences in needs and wants. For instance, SIMOTECH
Investments Ltd can sell and promote beef products in US freely whereas in India,
SIMOTECH Investments Ltd can’t promote and sell beef products as it is strictly against the
religious beliefs of the countrymen.
City size and population density (the number of people per square mile) are also used for
geographic segmentation purposes. In addition, market researchers also look at migration
patterns to evaluate opportunities.
c.
Psychographic Segmentation
This divides the buyers into different groups based on social lifestyle, or personality
characteristics. People in the same demographic group can have very different psychographic
make-ups. For instance, if your product crosses several market segments like cereal. The
group of potential consumers could be “almost” everyone. However, there are groups of
people who have different needs with regard to their cereal; some consumers might be
interested in the fiber, some consumers (especially children) may be interested in the prize
that comes in the box, other consumers may be interested in the added vitamins, and still
other consumers may be interested in the type of grains. Associating these specific needs with
consumers in a particular demographic group could be difficult and; marketing professionals
often desire more information about consumers than just demographic data by wanting to
know why consumers behave the way they do, what is of high priority to them, or how they
rank the importance of specific buying criteria.
In this situation, Psychographic segmentation help fill in the gaps because it gather
information by conducting extensive surveys that ask people about their activities, interests,
opinion, attitudes, values, and lifestyles. This is done on the following categories of
customers:
Innovators: These are successful, sophisticated, take-charge people with high self-esteem.
Because they have such abundant resources, they exhibit all three primary motivations in
varying degrees. They are change leaders and are the most receptive to new ideas and
technologies. Innovators are very active consumers, and their purchases reflect cultivated
tastes for upscale, niche products and services. Image is important to Innovators, not as
evidence of status or power but as an expression of their taste, independence, and personality.
Innovators are among the established and emerging leaders in business and government, yet
they continue to seek challenges. Their lives are characterized by variety. Their possessions
and recreation reflect a cultivated taste for the finer things in life.
Thinkers: Thinkers are motivated by ideals. They are mature, satisfied, comfortable, and
reflective people who value order, knowledge, and responsibility. They tend to be well
educated and actively seek out information in the decision-making process. They are well
informed about world and national events and are alert to opportunities to broaden their
knowledge. Thinkers have a moderate respect for the status quo institutions of authority and
social decorum, but are open to consider new ideas. Although their incomes allow them many
choices, Thinkers are conservative, practical consumers; they look for durability,
functionality, and value in the products they buy.
Achievers: These are motivated by the desire for achievement; Achievers have goal-oriented
lifestyles and a deep commitment to career and family. Their social lives reflect this focus
and are structured around family, their place of worship, and work. Achievers live
conventional lives, are politically conservative, and respect authority and the status quo. They
value consensus, predictability, and stability over risk, intimacy, and self-discovery. With
many wants and needs, Achievers are active in the consumer marketplace. Image is important
to Achievers; they favor established, prestige products and services that demonstrate success
to their peers. Because of their busy lives, they are often interested in a variety of timesaving
devices.
Experiencers: They are motivated by self-expression. As young, enthusiastic, and impulsive
consumers, Experiencers quickly become enthusiastic about new possibilities but are equally
quick to cool. They seek variety and excitement, savoring the new, the offbeat, and the risky.
Their energy finds an outlet in exercise, sports, outdoor recreation, and social activities.
Experiencers are avid consumers and spend a comparatively high proportion of their income
on fashion, entertainment, and socializing. Their purchases reflect the emphasis they place on
looking good and having “cool” stuff.
Believers: Like Thinkers, Believers are also motivated by ideals. They are conservative,
conventional people with concrete beliefs based on traditional, established codes: family,
religion, community, and the nation. Many Believers express moral codes that are deeply
rooted and literally interpreted. They follow established routines, organized in large part
around home, family, community, and social or religious organizations to which they belong.
As consumers, Believers are predictable; they choose familiar products and established
brands. They favor American products and are generally loyal customers.
Strivers: Strivers are trendy and fun loving. Because they are motivated by achievement,
Strivers are concerned about the opinions and approval of others. Money defines success for
Strivers, who don’t have enough of it to meet their desires. They favor stylish products that
emulate the purchases of people with greater material wealth. Many see themselves as having
a job rather than a career, and a lack of skills and focus often prevents them from moving
ahead. Strivers are active consumers because shopping is both a social activity and an
opportunity to demonstrate to peers their ability to buy. As consumers, they are as impulsive
as their financial circumstance will allow.
Makers: Like Experiencers, Makers are motivated by self-expression. They express
themselves and experience the world by working on it i.e. building a house, raising children,
fixing a car, or canning vegetables and have enough skill and energy to carry out their
projects successfully. Makers are practical people who have constructive skills and value
self-sufficiency. They live within a traditional context of family, practical work, and physical
recreation and have little interest in what lies outside that context. Makers are suspicious of
new ideas and large institutions such as big business. They are respectful of government
authority and organized labor, but resentful of government intrusion on individual rights.
They are unimpressed by material possessions other than those with a practical or functional
purpose. Because they prefer value to luxury, they buy basic products.
Survivors: Survivors live narrowly focused lives. With few resources with which to cope,
they often believe that the world is changing too quickly. They are comfortable with the
familiar and are primarily concerned with safety and security. Because they must focus on
meeting needs rather than fulfilling desires, Survivors do not show a strong primary
motivation. Survivors are cautious consumers. They represent a very modest market for most
products and services. They are loyal to favorite brands, especially if they can purchase them
at a discount.
d.
Behavioral Segmentation
The loyalties of the customers towards a particular brand help the marketers to classify them
into smaller groups, each group comprising of individuals loyal towards a particular brand.
Therefore, Behavioral segmentation divides buyers into groups based on their knowledge,
attitudes, uses, or responses to a product. Many marketers believe that behavior variables are
the best starting point for building market segments. These include:
Benefits sought: A powerful form of segmentation is to group buyers according to the
different benefits that they seek from the product. Benefit segmentation is therefore means,
dividing the market into groups according to the different benefits that the consumers seek
from the product. For instance, the benefit one gets from buying a toothpaste i.e. the
toothpaste’s price, ability to whiten your teeth, fight tooth decay, freshen your breath are the
most important benefits you get from the product.
User Status: Markets can be segmented into groups of non-users, ex-users, potential users,
first time users and regular users of a product for instance, For example, the entertainment
and gaming company SBA gathers information about the people who gamble at its
casinos. High rollers, or people who spend a lot of money, are considered VIPs. VIPs people
get special treatment, including a personal host who looks after their needs during their
casino visits. A market share leaders are interested in frequent users because they want to
reach other people like them i.e. they are also keenly interested in nonusers and how they can
be persuaded to use products; but on the other hand small firms focus on attracting current
users away from the market leader.
Usage Rate: Buyers are classified a long a continuum ranging from non-users to heavy users.
Heavy users are often a small percentage of the market but account for a high percentage of
total consumption. Marketers usually prefer to attract one heavy user to their product or
service rather than several light users. For instance, in the fast food industry; the heavy users
make up only 20% of patrons but eat up about 60% of all the food served.
Loyalty Status: A market can also be segmented by consumer loyalty. Consumers can be
loyal to brands, stores and companies. Buyers can be divided into groups according to their
degree of loyalty for instance; some customers are completely loyal to two or three brands of
a given product or favor one brand while sometimes buying others. Still other buyers show
loyalty to any brand that is, they either want something different each time they buy or they
buy whatever’s on sale. Therefore, a company can learn by analyzing loyalty patterns in its
market. It should start by studying its own loyal customers e.g. to better understand the needs
and behavior of its core soft drink customers, Pepsi observed them in places where its
products are consumed i.e. in homes, in stores, in movie theaters, at sporting events and at the
beach.
Summary of Consumer Bases of Segmentation:
By Behavior

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
Benefits sought
from the product
How often the
product is used
(usage rate)
Usage situation
(daily use,
holiday use, etc.)
Buyer’s status
and loyalty to
product
(nonuser,
potential user,
By Demographics


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

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
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

Age/generati
on
Income
Gender
Family life
cycle
Ethnicity
Family size
Occupation
Education
Nationality
Religion
By Geography




Region/continent
/country/ state/
neighborhood
Size of city or
town
Population
density
Climate
By
Psychographics
 Activities
 Interests
 Opinions
 Values
 Attitudes
 Lifestyles
first-time users,
regular user)

Social class
Marketers must be effective at creating niche segments to promote and sell their products or
services. They can either segment a market by behavioral, psychographic, demographic,
geographic methods or the combination of the above. However, the more precise the
segmentation strategy that a marketing department uses to effectively reach their core target
market, the more sales will result in the long run.
2.
SEGMENTING BUSINESS/INDUSTRIAL MARKETS
The approach to segmentation of industrial markets involves selecting suitable basis to
identify groups of organization that may be targeted with similar marketing mixes. In
industrial market, the bases that are often used include:
 Industries type for instance, textile, beverages, mining, fishing etc
 Company size, marketers might target only large company. For instance, it can be
based on the turn over, number of employees, sales which determine the market size
and market shares.
 Location, i.e. it is possible to segment and industrial market geographically. The
marketer might decide to target only company in a particular region.
 Usage rate, buyers are classified a long a continuum ranging from non-users to heavy
users. Non users may be persuaded to buy whereas the marketing mix for heavy users
may build a long term relationship.
 The purchasing function, segmentation is based on whether the purchasing function is
centralized/ decentralized in either case; the marketer can then approach each segment
in different way.
 The market end, the marketer can segment the market based on the type of the
customer/ end market severed for instance, a company selling Aluminum might
segment the market based on the companies that manufacture; saucepan, car
manufacturing product, foils (foodstuff) etc. therefore, once a potential segments have
been identified, the marketer have to ensure that segments are viable before moving
into the next stage of the segmentation process.
NB. In addition to the above, business buyers can also be segmented geographically,
demographically and behaviorally. Therefore, by going after segments instead of the whole
market, companies can deliver just the right value proposition to each segment served and
capture more value in return.
3.
SEGMENTING INTERNATIONAL MARKETS
Few companies have either the resources or the will to operate in all or even most, of the
countries. Although some large companies such as Coca-Cola or Sony; that sell products to
more than 200 countries, most international firms focus on a smaller set. Operating in many
countries presents new challenges that is, different countries even those that are close
together can vary greatly in their economic, cultural and political make-up. Thus, just as they
do within their domestic markets, international firms need to group their world markets into
segments with distinct buying needs and behaviors. Companies can segment international
markets using one or combination of several variables:
 They can be segment by geographical location i.e. grouping countries by regions such
as Western Europe, or Africa. The geographical segmentation assumes that nations
close to each other will have many common traits and behaviors. However, there are
also many exceptions for instance, US and Canada have much in common but they
differ culturally and economically from neighboring Mexico. Therefore, even within
regions consumers differ widely.
 World market can also be segmented on the basis of economic factors for instance;
countries might be grouped by population income levels or by their overall level of
economic development. A company’s economic structure shapes its populations’
product and service needs and therefore the marketing opportunities it offers.
 Countries can also be segmented by political and legal factors such as the type and the
stability of government, receptivity to foreign firms, monetary regulations and the
amount of bureaucracy. Such factors can play a crucial role in a company’s choice of
which countries to enter and how.
 Cultural factors can also be used, that is grouping markets according to common
languages, religions, values and attitudes, customs and behavioral patterns.
Finally, segmenting international markets on the basis of geographic, economic, political,
cultural and other factors assumes that the segments should consist of cluster of countries.
However, many companies use different approach called inter-market segmentation. Intermarket segmentation means forming segments of consumers who have similar needs and
buying behavior even though they are located in different countries for instance, MercedesBenz targets the world’s well-to-do, regardless of their country.
REQUIREMENTS FOR EFFECTIVE SEGMENTATION
It is difficult to effectively cater for everybody in the market place, so businesses will aim
their products and services at specific parts of the market. After selecting a market segment,
businesses should evaluate their choice carefully and ensure they have made the right
decision. If a business begins promoting products without a full evaluation, it is risking
wasting time and money. A successful market segment will usually meet the following
criteria:
Measurability of Segment: Before embarking on a sales strategy it is important to know the
size of existing sales in that segment. A firm also needs to know how product sales are
growing in the chosen segment. If you cannot measure the growth rate, it will be difficult to
assess whether your chosen segment is profitable. For example smart phone sales are growing
rapidly but which segments of the market are they growing in? And in which segments is
growth stagnant?
Accessibility of segment: Accessibility is about communicating with your customers and
being able to get things to them. Communication is usually through the internet, TV, radio.
However, if target customers do not use these things it will be difficult to communicate with
them. Post is also a challenge unless you can find out where people making up your market
segment live. If you cannot target your segment effectively through marketing
communication then it is not viable as you will be unable to tell them about your product or
firm. The other aspect of accessibility is being able to distribute your product to your chosen
segment. For example a shop based in Tanzania is unlikely to get a large number of
customers from Uganda. In this instance the shop will have to reassess its chosen segment or
think about solutions to help accessibility such as selling to customers through the internet
and mailing out purchases.
Substantial/Suitability of Segment: Firms need to ensure that the segment is suitable. This
means that the characteristics of the people making up the segment, suggest the segment are
likely to buy the product and have the spending power to buy the product. There needs to be
an opportunity to increase product sales within the chosen segment. Using our smart phone
example, if the chosen segment contains people aged 20-30 and if we imagine 95% of this
age group own a smart phone, the chosen segment will probably need to be reconsidered.
This is unless the company feels that the segment would like to replace their existing smart
phone and have the money to purchase a replacement smart phone. Segment suitability also
includes the size of the segment. If the segment is too small, potential for sales growth will be
limited. If it is too large, it will be difficult to create marketing activities to suit all of the
groups included in the segment.
Distinguishable Segment: Different segments must be differentiated, they must react
differently to different campaigns or products, and different marketing tools would be used to
target these audiences. Their characteristics must be differentiated and their understanding of
the marketing efforts and the product or service must be different. Therefore, chosen
segments should be clearly distinguishable to avoid doubt about which part of the market, the
firm's marketing activities are aimed at. Otherwise there is a risk that market activities will
"spill over" into different segments. If there is more than one segment, each one should be
made up of target markets which require specific marketing, due to differences in buying
behaviour. For example if married and unmarried men behave similarly when purchasing
shoes, perfume, then there is little value in placing them in different segments (i.e they do not
constitute separate segments).
Action-ability of Segment: Even if all of the criteria listed above are satisfied a segment is
unsuitable unless the business has the resources to cater for the needs of the segment. For
example a small business with a £45000 turnover would not accept a multi-million pound
manufacturing contract.
In nut shut, an effective segment is defined, measurable, accessible, actionable and suitable
for the firm. These elements mean that a firm; has a clearly defined, distinguishable and
profitable segment, the resources to cater for its segments and able to access its segment, so
that it can profit from a segment with growing product sales. Thus, if any of these elements is
missing it will hinder the success of the firm and lead to wasted effort.
Advantages of Market Segmentation
 Helps distinguish one customer group from another within a given market.
 Helps crystallize the needs of the target buyers and elicit more predictable responses
from them; develop marketing programs on a more predictable base; develop
marketing offers that are most suited to each group.
 Helps achieve the specialization required in product distribution, promotion and
pricing for matching the customer group and develop marketing offers and appeals
that match the needs of such group.
 Makes the marketing effort more efficient and economical
 Concentrate efforts on the most productive and profitable segments, instead of
frittering them over irrelevant/unproductive/unprofitable segments.
 Facilitates proper choice of target market
 Facilitates effective tapping of the market
 Helps divide the markets and conquer them
 Helps spot the less satisfied segments and succeed by satisfying such segments.
 Brings benefits not only to the marketer but to the customer as well.