Market Segmentation, Target Market, Positioning and

Differentiation
Market Segments
Marketing opportunities increase when customer groups with varying needs and wants are recognized.
Markets can be segmented or targeted on a variety of factors including age, gender, location, geographic
factors, demographic characteristics, family life cycle, desire for relaxation or time pressures.
Market Segmentation-
Definition- Market segmentation is the segmentation of markets into homogenous groups of customers,
each of them reacting differently to promotion, communication, pricing and other variables of the
marketing mix. Market segments should be formed in such a way that differences between buyers within
each segment are as small as possible. Thus, every segment can be addressed with an individually
targeted marketing mix.
A key factor in competitive success is focusing on little differences that give a marketing edge and are
important to customers. Market segmentation matches consumer differences with potential or actual
buying behavior. It may prove more profitable to develop smaller market segments into a target
segment.
When it comes to marketing strategies, most people spontaneously think about the 4P (Product, Price,
Place, Promotion) – maybe extended by three more Ps for marketing services (People, Processes,
Physical Evidence).
Market segmentation and the identification of target markets, however, are an important element of each
marketing strategy. They are the basis for determining any particular marketing mix. Market
segmentation is the first step in the three phase segmentation strategy. After segmenting the market into
homogeneous clusters, the marketer must select one or more segments to target. So the second step is
target marketing, which is process of evaluating each market segment’s attractiveness and selecting one
or more segments to enter. The third step is market positioning, which involves arranging for a product
to occupy a clear, distinctive, and desirable place relative to competitive products, in the minds of target
consumers. Literature suggests the following steps:
Why Market Segmentation?
Segmentation is the basis for developing targeted and effective marketing plans. Furthermore, analysis
of market segments enables decisions about intensity of marketing activities in particular segments. A
segment-orientated marketing approach generally offers a range of advantages for both, businesses and
customers.
Better serving customers needs and wants- It is possible to satisfy a variety of customer needs with a
limited product range by using different forms, bundles, incentives and promotional activities.
Higher Profits- It is often difficult to increase prices for the whole market. Nevertheless, it is possible
to develop premium segments in which customers accept a higher price level. Such segments could be
distinguished from the mass market by features like additional services, exclusive points of sale, product
variations and the like.
Opportunities for Growth- Targeted marketing plans for particular segments allow to individually
approach customer groups that otherwise would look out for specialized niche players. By segmenting
markets, organizations can create their own ‘niche products’ and thus attract additional customer groups.
Sustainable customer relationships in all phases of customer life cycle- Customers change their
preferences and patterns of behavior over time. Organizations that serve different segments along a
customer’s life cycle can guide their customers from stage to stage by always offering them a special
solution for their particular needs.
Targeted communication- It is necessary to communicate in a segment-specific way even if product
features and brand identity are identical in all market segments. Such a targeted communications allows
stressing those criteria that are most relevant for each particular segment (e.g. price vs. reliability vs.
prestige).
Stimulating Innovation- An undifferentiated marketing strategy that targets at all customers in the total
market necessarily reduces customers’ preferences to the smallest common basis. Segmentation
provides information about smaller units in the total market that share particular needs. Only the
identification of these needs enables a planned development of new or improved products that better
meet the wishes of these customer groups.
Higher Market Shares- In contrast to an undifferentiated marketing strategy, segmentation supports the
development of niche strategies. Thus marketing activities can be targeted at highly attractive market
segments in the beginning. Market leadership in selected segments improves the competitive position of
the whole organization in its relationship with suppliers, channel partners and customers. It strengthens
the brand and ensures profitability. On that basis, organizations have better chances to increase their
market shares in the overall market.
Market preference pattern-
Homogeneous Preferences- It’s a market where all the consumers have roughly the same preferences.
The market shows no natural segments.
Diffused Preferences- Consumer preferences may be scattered throughput the space, indicating that
consumers vary greatly in their preferences.
Clustered Preferences- The market might reveal distinct preference clusters called natural market
segments.

Levels of Market Segmentation:

1. Mass Marketing- It refers to the treatment of market as a homogeneous group and offering the same
marketing mix to all customers. Mass marketing allows economies of scale to be realized through mass
production, mass distribution, and mass communication.

2. Niche marketing-A niche market is a focused, targetable portion of a market. By definition, then, a
business that focuses on a niche market is addressing a need for a product or service that is not being
addressed by mainstream providers. You can think of a niche market as a narrowly defined group of
potential customers.

3. Segment marketing- Here different products are developed for one or more market segments.
Market is divided into segments and then different marketing mix is developed for each segment.

4. Micro-marketing- Micromarketing can be defined as tailoring products and programs or services to

the needs and wants of individuals and groups, including local marketing and individual marketing. The
term local marketing refers to tailoring brands and promotions to the needs and want of local groups,
such as cities and neighborhoods. Individual marketing is tailoring the product or service to one
individual, also known as "one-to-one marketing".
Levels of Market SegmentationLevels of Market Segmentation
Mass MarketingSame product to all consumers (no segmentation)

Mass MarketingSame product to all consumers (no segmentation)

Segment MarketingDifferent products to one or more segments(some segmentation)

MicromarketingProducts to suit the tastes of individuals or locations (complete segmentation)

Niche MarketingDifferent products to subgroups within segments( more segmentation)

Effective Segmentation: Kotler mentions five criteria for an effective segmentation:

Measurable: It has to be possible to determine the values of the variables used for segmentation
with justifiable efforts. This is important especially for demographic and geographic variables.
For an organization with direct sales (without intermediaries), the own customer database could
deliver valuable information on buying behavior (frequency, volume, product groups, mode of
payment etc).
Relevant: The size and profit potential of a market segment have to be large enough to
economically justify separate marketing activities for this segment.
Accessible: The segment has to be accessible and servable for the organization. That means, for
instance, that there are target-group specific advertising media, as magazines or websites the
target audience likes to use.
Distinguishable: The market segments have to be that diverse that they show different reactions to
different marketing mixes.
Feasible: It has to be possible to approach each segment with a particular marketing program and to
draw advantages from that.

Criteria for Market Segmentation

It is widely thought in marketing that than segmentation is an art, not a science.The key task is to find
the variable, or variables that split the market into actionable segments. There are two types of
segmentation variables:
(1) Needs- The basic criteria for segmenting a market are customer needs. To find the needs of
customers in a market, it is necessary to undertake market research.
(2) Profilers- Profilers are the descriptive, measurable customer characteristics (such as location, age,
nationality, gender, income) that can be used to inform a segmentation exercise. The most common
profilers used in customer segmentation include the following:
Geographic
• Region of the country • Urban or rural
Demographic
• Age, sex, family size • Income, occupation, education • Religion, race, nationality
Psychographic
• Social class • Lifestyle type • Personality type
Behavioural
• Product usage - e.g. light, medium, heavy users • Brand loyalty: none, medium, high • Type of user
(e.g. with meals, special occasions)

Strategy - SWOT analysis

Definition: SWOT is an abbreviation for Strengths, Weaknesses, Opportunities and Threats. SWOT
analysis is an important tool for auditing the overall strategic position of a business and its environment.
The Key Distinction - Internal and External Issues
Strengths and weaknesses are Internal factors. For example, a strength could be your specialist
marketing expertise. A weakness could be the lack of a new product.
Opportunities and threats are external factors. For example, an opportunity could be a developing
distribution channel such as the Internet, or changing consumer lifestyles that potentially increase
demand for a company's products. A threat could be a new competitor in an important existing market or
a technological change that makes existing products potentially obsolete.
It is worth pointing out that SWOT analysis can be very subjective - two people rarely come-up with the
same version of a SWOT analysis even when given the same information about the same business and
its environment. Accordingly, SWOT analysis is best used as a guide and not a prescription. Adding and
weighting criteria to each factor increases the validity of the analysis.
Areas to Consider
Some of the key areas to consider when identifying and evaluating Strengths, Weaknesses,
Opportunities and Threats are listed in the example SWOT analysis below:
Porter’s five forces Model:
Defining an industry
An industry is a group of firms that market products which are close substitutes for each other (e.g. the
car industry, the travel industry).
Some industries are more profitable than others. Why? The answer lies in understanding the dynamics
of competitive structure in an industry.
The most influential analytical model for assessing the nature of competition in an industry is Michael
Porter's Five Forces Model, which is described below:
Porter explains that there are five forces that determine industry attractiveness and long-run industry
profitability. These five "competitive forces" are
- The threat of entry of new competitors (new entrants) - The threat of substitutes - The bargaining
power of buyers - The bargaining power of suppliers - The degree of rivalry between existing
competitors

Threat of New Entrants

New entrants to an industry can raise the level of competition, thereby reducing its attractiveness. The
threat of new entrants largely depends on the barriers to entry. High entry barriers exist in some
industries (e.g. shipbuilding) whereas other industries are very easy to enter (e.g. estate agency,
restaurants). Key barriers to entry include
- Economies of scale - Capital / investment requirements - Customer switching costs - Access to
industry distribution channels - The likelihood of retaliation from existing industry players.
Threat of Substitutes
The presence of substitute products can lower industry attractiveness and profitability because they limit
price levels. The threat of substitute products depends on:
- Buyers' willingness to substitute - The relative price and performance of substitutes - The costs of
switching to substitutes
Bargaining Power of Suppliers
Suppliers are the businesses that supply materials & other products into the industry. The cost of items
bought from suppliers (e.g. raw materials, components) can have a significant impact on a company's
profitability. If suppliers have high bargaining power over a company, then in theory the company's
industry is less attractive. The bargaining power of suppliers will be high when:
- There are many buyers and few dominant suppliers - There are undifferentiated, highly valued
products - Suppliers threaten to integrate forward into the industry (e.g. brand manufacturers threatening
to set up their own retail outlets) - Buyers do not threaten to integrate backwards into supply - The
industry is not a key customer group to the suppliers
Bargaining Power of Buyers
Buyers are the people / organisations who create demand in an industry. The bargaining power of buyers
is greater when
- There are few dominant buyers and many sellers in the industry - Products are standardised - Buyers
threaten to integrate backward into the industry - Suppliers do not threaten to integrate forward into the
buyer's industry - The industry is not a key supplying group for buyers
Intensity of Rivalry
The intensity of rivalry between competitors in an industry will depend on:
- The structure of competition - for example, rivalry is more intense where there are many small or
equally sized competitors; rivalry is less when an industry has a clear market leader.
- The structure of industry costs - for example, industries with high fixed costs encourage competitors
to fill unused capacity by price cutting
- Degree of differentiation - industries where products are commodities (e.g. steel, coal) have greater
rivalry; industries where competitors can differentiate their products have less rivalry
- Switching costs - rivalry is reduced where buyers have high switching costs - i.e. there is a significant
cost associated with the decision to buy a product from an alternative supplier
- Strategic objectives - when competitors are pursuing aggressive growth strategies, rivalry is more
intense. Where competitors are "milking" profits in a mature industry, the degree of rivalry is less
- Exit barriers - when barriers to leaving an industry are high (e.g. the cost of closing down factories) -
then competitors tend to exhibit greater rivalry.

Analytical Models used in Appraising Business Portfolios

The BCG Matrix:
The BCG Matrix was created by the Boston Consulting Group (BCG) and it became on of the most
well-known portfolio management decision making tools in the early 1970's. It is based on the product
life cycle theory, and it is used to prioritize the product portfolio in a company or department. There are
two dimensions - market share and market growth. The basic premise in using the Matrix is that the
higher the market share a product has, the higher the growth rate and the faster the market for that
product grows.
The BCG Matrix was created in order to alleviate the standard one-size fits all in their time. It is useful
to a company to achieve balance between the four categories of products a company produces. Market
decisions are also well made by considering and using the Porter's Five Forces.
Four segments in the BCG matrix:
1. Cash Cows (high market share, low growth) - Keep investments low, while keeping profits high.
Profits and cash generation should be higher because of low growth.
2. Dogs (low market share, low growth) - Liquidate, if they are not delivering cash. Avoid and reduce
the number of these an organization maintains. Keep an eye out for expensive revival strategies - a dog
is typically always a dog.
3. Stars (high market share, high growth) - Invest further in these - they incur high costs, but they are
market leaders and should also generate lots of cash. Stars may balance on net cash flow, but the
organization should try to maintain market share on this would because rewards are likely
4. Question marks (low market share, but high growth) - These have poor cash inflow, but have high
demands and low returns due to low market share. Efforts should be made to change market share. If
this isn't possible, this will likely turn into a dog as growth slows.
Caution should be taken as high market share isn't the only consideration. High market share doesn't
necessarily mean profit. Growth isn't necessarily the only valid measurement factor. Occasionally, dogs
can earn more cash than cash cows.

GE MATRIX
The GE/McKinsey Matrix was developed in the 1970s by the management consulting firm McKinsey &
Co. as a tool to screen General Electric’s large portfolio of strategic business units (SBUs). The idea
behind the matrix (a.k.a., the GE Business Screen or GE Strategic Planning Grid) is to evaluate
businesses along two composite dimensions: industry attractiveness and industry strength. Conceptually,
this matrix is similar to the BCG Growth-Share Matrix in that it maps SBUs on a grid of the industry
and, at the same time, marks their competitive position. The GE/McKinsey Matrix improves on the
BCG approach in two ways: 1) it utilizes more comprehensive axes (the BCG matrix uses market
growth rate as a proxy for industry attractiveness and relative market share as a proxy for the strength of
the business unit); and 2) it consists of nine-cells rather than four, allowing for greater precision.
Industry attractiveness and SBU strength are calculated by first identifying the criteria for each,
determining the value of each parameter in the criteria, and multiplying that value by a weighting factor.
The result is a quantitative measure of industry attractiveness and the SBU’s relative performance in that
industry. The industry attractiveness index is made up of such factors as market size, market growth,
industry profit margin, amount of competition, the degree of seasonal and cyclical fluctuations in
demand, and industry cost structure. The industry attractiveness index consists of factors like relative
market share, price, competitiveness, product quality, customer and market knowledge, sales
effectiveness, and geographic advantages.
Each SBU can be portrayed as a circle plotted on the matrix, with the information conveyed as follows:

• Market size is represented by the size of the circle.

• Market share is shown by using the circle as a pie chart.

• The expected future position of the circles is indicated by an arrow.

The sample diagram shows the relative position of an SBU with a market share of 65%. The arrow in
the upward right position indicates that the SBU is expected to lose strength relative to competitors, and
that the business unit is in an industry that is projected to become increasingly less attractive. The tip of
the arrow indicates the future position of the center point of the circle.
Both axes are divided into three segments, yielding nine cells. The nine cells are grouped into three
zones:
• The Grey Zone consists of the three cells in the upper left corner. If the SBU falls in this zone, it’s
in a favorable position with relatively attractive growth opportunities. This position indicates a
"green light" to invest and grow this SBU.
• The white Zone consists of the three diagonal cells from the lower left to the upper right. A
position in the yellow zone is viewed as having medium attractiveness. Management must
therefore exercise caution when making additional investments in this SBU. The suggested
strategy is to protect or allocate resources on a selective basis rather than growing or reducing
share.
• The Red Zone consists of the three cells in the lower right corner. A harvest strategy should be
used in the two cells just below the three-cell diagonal. These SBUs shouldn’t receive
substantial new resources. The SBUs in the lower right cell shouldn’t receive any resources and
should probably be divested or eliminated from a firm’s portfolio.
 There are strategy variations within these three groups. For example, within the Red Zone, a firm would
be inclined to quickly divest itself of a weak business in an unattractive industry, whereas it might
perform a phased harvest of an average SBU in the same industry.

Ansoff Growth Strategy Matrix

Ansoff's growth strategy matrix remains a popular tool for analyzing growth.

The matrix presents four main strategic choices, ranging from an incremental strategy in which current
products are sold to existing customers to a revolutionary strategy in which new products are sold to
new customers.

•Market penetration. In this quadrant, the company markets existing products to existing customers. The
products remain unchanged and no new customer segments are pursued; instead, the company
repositions the brand, launches new promotions or otherwise tries to gain market share and accordingly,
increase revenue.

•Market development. Here, the company markets existing products to one or more new customer
segments. These customers could represent untapped verticals, virgin geographies or other new
opportunities.

•Product development. This quadrant involves marketing new products to existing customers. The
company grows by innovating, gradually replacing old products with new ones.

• Diversification. This quadrant entails the greatest risk; here, the company markets new products to new
customers. There are two types of diversification: related and unrelated. In related diversification, the
company enters a related market or industry. In unrelated diversification, the company enters a market
or industry in which it has no relevant experience.
These quadrants represent varying degrees of risk. Assuming that the more a business knows about its
market, the more likely it will be to succeed; the market penetration strategy entails the least risk, while
the diversification strategy entails the most. (In fact, consultants often refer to the diversification cell as
the 'suicide cell.')
 S tr a te
A B C
W h e re w e a re Wh

Assessment Baseline
 Micro Environment- The microenvironment refers to the forces that are close to the company and
affect its ability to serve its customers. It includes suppliers that deal directly or indirectly, consumers
and customers, and other local stakeholders. Micro tends to suggest small, but this can be misleading. In
this context, micro describes the relationship between firms and the driving forces that control this
relationship. It is a more local relationship, and the firm may exercise a degree of influence.
Macro environment- The macro environment refers to all forces that are part of the larger society and
affect the microenvironment.It includes all the factors that influence the firm but are not in its direct
control. A company does not generally influence any laws (although it is accepted that they could lobby
or be part of a trade organization). It broadly includes concepts such as demography, economy, natural
forces, technology, politics, culture and Govt. policies. The macro environment is continuously
changing, and the company needs to be flexible to adapt. There may be aggressive competition and
rivalry in a market. Globalization means that there is always the threat of substitute products and new
entrants. The wider environment is also ever changing, and the marketer needs to compensate for
changes in culture, politics, economics and technology.
Demographic Environment:
No business can run without people, so it becomes important to study the population- its size, growth rate, age
distribution, religious composition and literacy level. This is a very important factor to study for marketers and
helps to divide the population into market segments and target markets
Socio-Cultural Environment: Consumer buying behavior is closely related to the socio-cultural setup. In any
society, the culture, traditions, beliefs, values and lifestyles of the people largely influence their consumption
patterns and purchase decisions. Culture relates to religion, language, education etc. whereas social class is
determined by income, occupation location of residence etc. The values can also be further categorized into
core beliefs, which passed on from generation to generation and very difficult to change, and secondary
beliefs, which tend to be easier to influence. As a marketer, it is important to know the difference between the
two and to focus your marketing campaign to reflect the values of a target audience.
Economic Environment:
It relates to the both the general economic conditions as well as segment wise economic conditions of the
population with respect to – their disposable income, purchasing power etc.. It also includes the growth rate of
the economy, tax rates, inflation rates, credit availability and interest rates, price of important materials, labour
rates, energy scene etc. This refers to the purchasing power of potential customers and the ways in which
people spend their money. Within this area are two different economies, subsistence and industrialized.
Subsistence economies are based more in agriculture and consume their own industrial output. Industrial
economies have markets that are diverse and carry many different types of goods. Each is important to the
marketer because each has a highly different spending pattern as well as different distribution of wealth.
Political Environment:
This plays a very important role in case of a business/industrial firm. The political environment includes all
laws, government agencies, and groups that influence or limit other organizations and individuals within a
society. The political environment of a nation directly influences its economic status thus affecting the
industrial growth. In fact, the economic and political environments are closely knit and they have a major role
in structuring the industrial setup. Political environment may include- the type of government in the country,
its stability, media, social and religious organizations etc..It is important for marketers to be aware of the
political scenario as it can be complex. Some products are regulated by both state and federal laws. There are
even restrictions for some products as to who the target market may be, for example, cigarettes should not be
marketed to younger children. There are also many restrictions on subliminal messages and monopolies. As
laws and regulations change often, this is a very important aspect for a marketer to monitor.
Natural environment:
This covers the aspects of climate, ecology and availability of natural resources. This includes the natural
resources that a company uses as inputs and affects their marketing activities. The concern in this area is the
increased pollution, shortages of raw materials and increased governmental intervention. As raw materials
become increasingly scarcer, the ability to create a company’s product gets much harder. Also, pollution can
go as far as negatively affecting a company’s reputation if they are known for damaging the environment. The
last concern, government intervention can make it increasingly harder for a company to fulfill their goals as
requirements get more stringent.
Technological Environment:
For a business firm, technology affects not only its final products, but also its raw materials, processes, and
operations as well as its customer segments. The technological environment is perhaps one of the fastest
changing factors in the macroenvironment. This includes all developments from antibiotics and surgery to
nuclear missiles and chemical weapons to automobiles and credit cards. As these markets develop it can create
new markets and new uses for products. It also requires a company to stay ahead of others and update their
own technology as it becomes outdated. They must stay informed of trends so they can be part of the next big
thing, rather than becoming outdated and suffering the consequences financially.
Legal Environment:
Businesses should have a thorough understanding of the implications of all the legal provisions relating
to their business. Business legislation is classified into categories like- corporate affairs, consumer
protection, employee protection, corporate protection etc
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