CHAPTER 4CHAPTER 4

Market Segmentation, Market Segmentation, Targeting, and Positioning Targeting, and Positioning for Competitive Advantagefor Competitive AdvantageObjectiveObjective: explaining how companies : explaining how companies

segment, target and position for segment, target and position for maximum competitive advantagemaximum competitive advantage

MarketsMarkets

Originally, a Originally, a marketmarket is a physical place is a physical place where buyers and sellers gather to exchange where buyers and sellers gather to exchange goods and services.goods and services.

In marketing, a In marketing, a marketmarket is the set of all actual is the set of all actual and potential buyers of a product or service.and potential buyers of a product or service.

As marketing evolves in time, companies As marketing evolves in time, companies used different philosophies in their used different philosophies in their approaches to a market. Their thinking approaches to a market. Their thinking about serving a market passed through three about serving a market passed through three stages;stages;

Mass marketingMass marketing: here, the seller mass produces, : here, the seller mass produces, mass distributes, and mass promotes one product mass distributes, and mass promotes one product to all buyers. In the very beginning, McDonald’s to all buyers. In the very beginning, McDonald’s offered just one type of hamburger to everyone. offered just one type of hamburger to everyone. Mass marketing leads to lowest costs and prices Mass marketing leads to lowest costs and prices and create the largest potential market.and create the largest potential market.

Product-variety marketingProduct-variety marketing: here, the seller : here, the seller produces two or more products that have different produces two or more products that have different features, styles, qualities, sizes… Later, features, styles, qualities, sizes… Later, McDonald’s produced Big Mac to offer variety to McDonald’s produced Big Mac to offer variety to buyers rather than appealing to different market buyers rather than appealing to different market segments. Product-variety marketing supports segments. Product-variety marketing supports that consumers seek variety and change over that consumers seek variety and change over time.time.

Target marketingTarget marketing: here, the seller identifies : here, the seller identifies market segments, selects one or more of them, market segments, selects one or more of them, and develops products and marketing mixes for and develops products and marketing mixes for each. Today, McDonald’s offers different menus each. Today, McDonald’s offers different menus for different markets.for different markets.

MicromarketingMicromarketing

Today companies are using Today companies are using target target marketingmarketing instead of mass marketing and instead of mass marketing and product-variety marketing. product-variety marketing.

Even, today, target marketing is taking the Even, today, target marketing is taking the form of form of micromarketingmicromarketing - designing the - designing the companies marketing programs to the companies marketing programs to the needs and wants of narrowly defined needs and wants of narrowly defined segments, often called segments, often called niche marketingniche marketing. . “There will be no market for products that “There will be no market for products that everybody likes a little, only for products everybody likes a little, only for products that somebody likes a lot”. that somebody likes a lot”.

Steps in Target Steps in Target MarketingMarketing

1. 1. Market segmentationMarket segmentation; dividing a market into ; dividing a market into distinct groups of buyers with different distinct groups of buyers with different needs, characteristics or behaviors who needs, characteristics or behaviors who might require separate products or might require separate products or marketing mixes. marketing mixes.

2. 2. Market targetingMarket targeting; evaluating each market ; evaluating each market segment’s attractiveness and selecting one or segment’s attractiveness and selecting one or more of the market segments to enter.more of the market segments to enter.

3. 3. Market positioningMarket positioning; setting the competitive ; setting the competitive positioning (difference) for the product and positioning (difference) for the product and creating a detailed marketing mix.creating a detailed marketing mix.

Bases for Segmenting Bases for Segmenting Consumer MarketsConsumer Markets

There are various ways to segment a There are various ways to segment a market. A marketer has to try different market. A marketer has to try different segmentation variables, alone and in segmentation variables, alone and in combination to understand the structure combination to understand the structure of the market in the best way. The major of the market in the best way. The major variables are;variables are; geographic segmentationgeographic segmentation demographic segmentationdemographic segmentation psychographic segmentationpsychographic segmentation behavioral segmentationbehavioral segmentation

Geographic Geographic SegmentationSegmentation

Companies may divide the market into Companies may divide the market into different geographic units such as different geographic units such as nations, countries, regions, cities… nations, countries, regions, cities…

A company may decide to operate in one A company may decide to operate in one or more geographic locations but it must or more geographic locations but it must pay attention to the geographical pay attention to the geographical differences in needs and wants.differences in needs and wants.

E.g. McDonald’s serve corn soup in E.g. McDonald’s serve corn soup in Japan, pasta salads in Rome, wine in Japan, pasta salads in Rome, wine in Paris...Paris...

Demographic Demographic SegmentationSegmentation

Companies divide the market into Companies divide the market into groups based on;groups based on; age and life-cycleage and life-cycle: needs and wants : needs and wants

change with age, that is why, a change with age, that is why, a company may use different marketing company may use different marketing approaches for different age and life-approaches for different age and life-cycle groups. Lewi’s 501 and Pepsi cycle groups. Lewi’s 501 and Pepsi “generation next” are mainly targeted “generation next” are mainly targeted to the young people.to the young people.

gendergender: is mainly used in clothing, : is mainly used in clothing, cosmetics, and magazines. Coca Cola Light cosmetics, and magazines. Coca Cola Light is targeted to women, whereas Pepsi Max is targeted to women, whereas Pepsi Max is to men. is to men.

incomeincome: is mainly used for automobiles, : is mainly used for automobiles, boats, clothing, cosmetics, financial boats, clothing, cosmetics, financial services, and travel. Credit cards are services, and travel. Credit cards are offered as ordinary, gold, platinum cards offered as ordinary, gold, platinum cards for different income groups; Holiday Inn for different income groups; Holiday Inn offers upscale properties “Crowne Plaza”, offers upscale properties “Crowne Plaza”, economy properties “Hampton Inn”, luxury economy properties “Hampton Inn”, luxury “Embassy Suites”; Vakko and Beymen “Embassy Suites”; Vakko and Beymen target the high income group whereas target the high income group whereas Tiffany & Tomato to low income. Tiffany & Tomato to low income.

Psychographic Psychographic SegmentationSegmentation

Companies may divide the market into Companies may divide the market into different groups based on;different groups based on; social classsocial class: has a strong effect on preferences in : has a strong effect on preferences in

cars, clothes, home furnishings, leisure cars, clothes, home furnishings, leisure activities… Sports International, Bilkent and Or-activities… Sports International, Bilkent and Or-an are targeted to people at higher social class. an are targeted to people at higher social class.

lifestylelifestyle: Mezzaluna targets to a business : Mezzaluna targets to a business lifestyle, whereas the rest of the restaurants in lifestyle, whereas the rest of the restaurants in Ankuva to a student lifestyle. Ankuva to a student lifestyle.

personalitypersonality: mainly used for cosmetics, : mainly used for cosmetics, cigarettes, and liquor. Marlboro is targeted to cigarettes, and liquor. Marlboro is targeted to the macho man with its macho Cowboy image.the macho man with its macho Cowboy image.

Behavioral SegmentationBehavioral Segmentation

Companies may divide buyers into groups Companies may divide buyers into groups based on their knowledge, attitudes, uses based on their knowledge, attitudes, uses or responses to a product. or responses to a product. occasionsoccasions: buyers can be grouped according to : buyers can be grouped according to

occasions when they buy or use an item. Coca occasions when they buy or use an item. Coca Cola is for “Always”Cola is for “Always”

benefit soughtbenefit sought: buyers can be grouped : buyers can be grouped according to the benefits that they seek from according to the benefits that they seek from the product. In the toothpaste market, benefit the product. In the toothpaste market, benefit segments are - economic, medicinal, cosmetic, segments are - economic, medicinal, cosmetic, and taste; detergent market - cleanliness, cost; and taste; detergent market - cleanliness, cost; sewing gum - healthy teeth, fresh breath…sewing gum - healthy teeth, fresh breath…

user statususer status: markets can be segmented into : markets can be segmented into groups of nonusers, ex-users, potential users, groups of nonusers, ex-users, potential users, first-time users and regular users of a product. first-time users and regular users of a product. Potential users and regular users may require Potential users and regular users may require different kinds of marketing appeal from each different kinds of marketing appeal from each other. other.

usage rateusage rate: markets also can be segmented into : markets also can be segmented into light-, medium-, and heavy- user groups. Most light-, medium-, and heavy- user groups. Most beer companies target the heavy beer drinker.beer companies target the heavy beer drinker.

loyalty statusloyalty status: a market can also be segmented : a market can also be segmented by consumer loyalty. Consumers can be loyal to by consumer loyalty. Consumers can be loyal to brands (Alo), stores (Vakko), and companies brands (Alo), stores (Vakko), and companies (BMW) Consumer may be completely loyal (buy (BMW) Consumer may be completely loyal (buy one brand all the time), somewhat loyal (favor one brand all the time), somewhat loyal (favor one brand, sometimes buying others), no loyalty one brand, sometimes buying others), no loyalty (each time they buy a different product)(each time they buy a different product)

Segmenting Segmenting International MarketsInternational Markets

Large companies e.g. Coca Cola, Sony… Large companies e.g. Coca Cola, Sony… sell products in many different countries sell products in many different countries which vary in their economic, cultural and which vary in their economic, cultural and political make up. That is why, political make up. That is why, international firms need to group their international firms need to group their world markets into segments with distinct world markets into segments with distinct buying needs and behaviors.buying needs and behaviors.

Several variables can be used to segment Several variables can be used to segment international markets;international markets; geographic locationgeographic location; grouping countries by ; grouping countries by

regions e.g. Europe, Middle East. regions e.g. Europe, Middle East.

economic factorseconomic factors; grouping by population ; grouping by population income levels or by their overall level of income levels or by their overall level of economic development. A company’s economic economic development. A company’s economic structure shapes its population’s product and structure shapes its population’s product and service needs, therefore, the marketing service needs, therefore, the marketing opportunities that it offers.opportunities that it offers.

political and legal factorspolitical and legal factors; grouping by the ; grouping by the type of stability of government, receptive to type of stability of government, receptive to foreign firms, monetary regulations, and the foreign firms, monetary regulations, and the amount of bureaucracy. Such factors can play amount of bureaucracy. Such factors can play a crucial role in a company’s choice of which a crucial role in a company’s choice of which countries to enter and how.countries to enter and how.

cultural factorscultural factors; grouping markets according ; grouping markets according to common languages, religions, values and to common languages, religions, values and attitudes, customs and behavioral patterns.attitudes, customs and behavioral patterns.

Some companies do not prefer to segment the Some companies do not prefer to segment the international markets on the basis of international markets on the basis of geographic, economic, political, cultural, and geographic, economic, political, cultural, and other factors. Instead they prefer to do other factors. Instead they prefer to do intermarket segmentationintermarket segmentation in which in which companies form segments of consumers who companies form segments of consumers who have similar needs and buying behavior even have similar needs and buying behavior even though they are located in different countries. though they are located in different countries. E.g. teenagers live surprisingly parallel lives E.g. teenagers live surprisingly parallel lives all around the world e.g. drink Coke, eat Big all around the world e.g. drink Coke, eat Big Macs, surf on the Net, wear bluejeans. Macs, surf on the Net, wear bluejeans. Recently Pepsi introduced its sugar-free Pepsi Recently Pepsi introduced its sugar-free Pepsi Max in 16 countries with a single ad for Max in 16 countries with a single ad for teenagers who like to be on the wild side.teenagers who like to be on the wild side.

Market TargetingMarket Targeting Evaluating Market Evaluating Market

SegmentsSegments After segmenting the whole market, the firm has After segmenting the whole market, the firm has

to evaluate these segments and decide how to evaluate these segments and decide how many and which ones to target. The company many and which ones to target. The company should enter segments only where it can offer should enter segments only where it can offer superior value and gain advantages over superior value and gain advantages over competitors.competitors.

In evaluating different market segments, a firm In evaluating different market segments, a firm must look at three factors:must look at three factors: segment size and growthsegment size and growth; companies try to select the ; companies try to select the

segment with “right size and growth” for themselves. segment with “right size and growth” for themselves. Some companies prefer to target segments with large Some companies prefer to target segments with large current sales, a high growth rate, and a high profitcurrent sales, a high growth rate, and a high profit

margin. But smaller companies may find these large margin. But smaller companies may find these large segments too competitive and may find themselvessegments too competitive and may find themselves

having lack of skills and resources, therefore, prefer having lack of skills and resources, therefore, prefer to target smaller segments to target smaller segments

segment structural attractivenesssegment structural attractiveness; a segment may ; a segment may have the right size, but not offer attractive profits if have the right size, but not offer attractive profits if (1) there are strong competitors; (2) actual or (1) there are strong competitors; (2) actual or potential substitute products - may limit prices and potential substitute products - may limit prices and profits; (3) buyers with power - buyers may have profits; (3) buyers with power - buyers may have strong bargaining power relative to sellers so that strong bargaining power relative to sellers so that they may force prices down, demand more quality, they may force prices down, demand more quality, set competitors against another; (4) powerful set competitors against another; (4) powerful suppliers - can control prices, reduce quality.suppliers - can control prices, reduce quality.

company objectives and resourcescompany objectives and resources; a segment may ; a segment may have the right size with attractiveness but may not have the right size with attractiveness but may not suit with the long-run objectives of the company. suit with the long-run objectives of the company.

Selecting Market Selecting Market SegmentsSegments

The company must decide which and The company must decide which and how many segments to serve, in other how many segments to serve, in other words, the company must decide which words, the company must decide which market-coverage strategy to adopt.market-coverage strategy to adopt.

There are three market-coverage There are three market-coverage strategies:strategies: undifferentiated marketingundifferentiated marketing differentiated marketingdifferentiated marketing concentrated marketingconcentrated marketing

Company marketing

mix

Market

Co. marketing mix1Co. marketing mix2Co. marketing mix3

Segment1Segment2Segment3

Companymarketing

mix

Segment1Segment2Segment3

Market-Coverage Market-Coverage StrategiesStrategies

UndifferentiatedUndifferentiated

marketingmarketing

DifferentiatedDifferentiated

marketingmarketing

ConcentratedConcentrated

marketingmarketing

Undifferentiated MarketingUndifferentiated Marketing

A market-coverage strategy in which a A market-coverage strategy in which a firm decides to ignore market segment firm decides to ignore market segment differences and go after the whole differences and go after the whole market with one offer.market with one offer.

Here, the offer focus on what is common Here, the offer focus on what is common in the needs of consumers rather than on in the needs of consumers rather than on what is different. what is different.

The company designs a product and a The company designs a product and a marketing program that appeal to marketing program that appeal to largestlargest

number of buyers. It relies on mass number of buyers. It relies on mass advertising and a superior image in advertising and a superior image in people’s minds. E.g. Lepeople’s minds. E.g. Levviiss 501. 501.

Provides cost effectiveness because of its Provides cost effectiveness because of its low production, inventory, transportation, low production, inventory, transportation, advertising, marketing research costs.advertising, marketing research costs.

Have difficulties in (1) developing a Have difficulties in (1) developing a product or brand that satisfies all product or brand that satisfies all consumers; (2) keeping a strong place in consumers; (2) keeping a strong place in the market and making profit, when the market and making profit, when several firms follow this strategy heavy several firms follow this strategy heavy competition develops; (3) satisfying competition develops; (3) satisfying smaller segments.smaller segments.

Differentiated MarketingDifferentiated Marketing

A coverage strategy in which a firm decides A coverage strategy in which a firm decides to target several market segments and to target several market segments and designs separate offers for each. E.g. Nike designs separate offers for each. E.g. Nike offers athletic shoes for different sports offers athletic shoes for different sports such as running, aeobics, cycling, baseball, such as running, aeobics, cycling, baseball, basketball, tennis…basketball, tennis…

These companies hope for (1) higher sales; These companies hope for (1) higher sales; (2) a strong place within each market (2) a strong place within each market segment; (3) more loyal customers because segment; (3) more loyal customers because the firm’s offerings match each segment’s the firm’s offerings match each segment’s desires better.desires better.

Creates better total sales, but Creates better total sales, but increases the costs - developing increases the costs - developing separate marketing plans for the separate marketing plans for the separate segments requires extra separate segments requires extra marketing research, sales analysis, marketing research, sales analysis, promotional planning, channel promotional planning, channel management. management.

Because of the high costs involved in Because of the high costs involved in this approach, the company must this approach, the company must compare increased sales with compare increased sales with increased costs when deciding to use increased costs when deciding to use differentiated marketing strategy. differentiated marketing strategy.

Concentrated MarketingConcentrated Marketing

A market-coverage strategy in which a firm A market-coverage strategy in which a firm goes after a large share of one or a few goes after a large share of one or a few submarkets.submarkets.

Suitable for smaller companies to achieve a Suitable for smaller companies to achieve a strong market place in the segments (or strong market place in the segments (or niches) that it serves because of its greater niches) that it serves because of its greater knowledge of the segment’s needs.knowledge of the segment’s needs.

Involves higher-than-normal risks because the Involves higher-than-normal risks because the target may not respond or larger competitors target may not respond or larger competitors may decide to enter the same market but offers may decide to enter the same market but offers operating economies because of specialization operating economies because of specialization in production, distribution, and promotion.in production, distribution, and promotion.

Choosing a Market-Coverage Choosing a Market-Coverage StrategyStrategy

Factors needed to be considered when Factors needed to be considered when choosing a market-coverage strategy are;choosing a market-coverage strategy are; company resourcescompany resources; when the firm’s ; when the firm’s

resources are limited, concentrated resources are limited, concentrated marketing is the better.marketing is the better.

product variabilityproduct variability; for uniform products e.g. ; for uniform products e.g. grapefruit or steel, undifferentiated grapefruit or steel, undifferentiated marketing is more suitable. But for products marketing is more suitable. But for products that vary in design e.g. cameras or that vary in design e.g. cameras or automobiles, differentiated or concentrated automobiles, differentiated or concentrated is more suitable.is more suitable.

product’s stage in the life cycleproduct’s stage in the life cycle; when the ; when the product is new, it is better to produce only one product is new, it is better to produce only one version of the product - undifferentiated or version of the product - undifferentiated or concentrated marketing. For mature products, concentrated marketing. For mature products, differentiated marketing makes more sense.differentiated marketing makes more sense.

market variabilitymarket variability; when buyers have the same ; when buyers have the same tastes and react the same way to marketing tastes and react the same way to marketing efforts, undifferentiated marketing is suitable. efforts, undifferentiated marketing is suitable.

competitor’s marketing strategiescompetitor’s marketing strategies; when ; when competitors use segmentation, undifferentiated competitors use segmentation, undifferentiated marketing can be suicidal. On the contrary, marketing can be suicidal. On the contrary, when competitors use undifferentiated when competitors use undifferentiated marketing, a firm can gain an advantage by marketing, a firm can gain an advantage by using differentiated or concentrated marketing.using differentiated or concentrated marketing.

Positioning for Positioning for Competitive AdvantageCompetitive Advantage

Once a company has decided which Once a company has decided which segments to enter, it must decide what segments to enter, it must decide what “positions” it wants to occupy in those “positions” it wants to occupy in those segments.segments.

A product’s position is the place the A product’s position is the place the product has in consumer’s minds product has in consumer’s minds relative to competing products. In other relative to competing products. In other words, a product’s position is the set of words, a product’s position is the set of perceptions, impressions, and feelings perceptions, impressions, and feelings that consumersthat consumers

hold for the product compared with hold for the product compared with competing products. E.g. Toyota is competing products. E.g. Toyota is positioned on economy, Mercedes and positioned on economy, Mercedes and Cadillac on luxury and Porsche and Cadillac on luxury and Porsche and BMW on performance, Volvo on safety.BMW on performance, Volvo on safety.

Consumers simplify the buying process Consumers simplify the buying process by categorizing products in their by categorizing products in their minds. Marketers do not leave their minds. Marketers do not leave their products’ positions to chance. They products’ positions to chance. They must plan positions that will give their must plan positions that will give their products the greatest advantage in products the greatest advantage in selected target markets. selected target markets.

Positioning StrategiesPositioning Strategies

Marketers can position (differentiate) their Marketers can position (differentiate) their products on;products on; productproduct: a company can differentiate its : a company can differentiate its

physical product from the competitors e.g. physical product from the competitors e.g. product featureproduct feature - Volvo provides safety, Delta - Volvo provides safety, Delta Airlines offers wider seating and free in-flight Airlines offers wider seating and free in-flight telephone use; telephone use; product performanceproduct performance - Vestel - Vestel Washing Machine offers express washing, Washing Machine offers express washing, Rinso offers better whiteness; Rinso offers better whiteness; style and designstyle and design - Porsche offers unique look; - Porsche offers unique look; atmosphereatmosphere - - Hard Rock Café is special with itsHard Rock Café is special with its

interior design, Ciragan Palace with its interior design, Ciragan Palace with its building; building; placeplace - Swiss Hotel offers the best - Swiss Hotel offers the best Bosphorus view...Bosphorus view...

serviceservice: a product can be differentiated by : a product can be differentiated by its speedy, convenient or careful service its speedy, convenient or careful service delivery e.g. Akbank offers full banking delivery e.g. Akbank offers full banking services at home, Garanti offers service services at home, Garanti offers service during the lunch time, Osmanli Bank offers during the lunch time, Osmanli Bank offers branches in supermarkets, Migros offers branches in supermarkets, Migros offers home delivery, McDonald’s offer training for home delivery, McDonald’s offer training for its franchisees…its franchisees…

personnelpersonnel: a company can hire better : a company can hire better people than competitors do e.g. Singapore people than competitors do e.g. Singapore Airlines is well known with its beautiful Airlines is well known with its beautiful flight attendants, IBM’s people are flight attendants, IBM’s people are professional, McDonald’s people are polite…professional, McDonald’s people are polite…

imageimage: a company may establish an image different : a company may establish an image different from the competitors e.g. Motorola “quality”. from the competitors e.g. Motorola “quality”. Symbols, famous people and sponsorship can be used Symbols, famous people and sponsorship can be used to create image.to create image.

benefitsbenefits: a product’s benefit can be differentiated : a product’s benefit can be differentiated e.g. Nazar chewing gum protects from the devil eyes, e.g. Nazar chewing gum protects from the devil eyes, Orbit offers teeth protection, Colgate offers better Orbit offers teeth protection, Colgate offers better taste... taste...

usage occasionsusage occasions: a product’s position can be : a product’s position can be positioned according to the time of using the product positioned according to the time of using the product e.g. Hilton “when American business take the family e.g. Hilton “when American business take the family along, American business stays at Hilton”...along, American business stays at Hilton”...

user categoryuser category: a product can be positioned for some : a product can be positioned for some people e.g. Johnson&Johnson’s babypeople e.g. Johnson&Johnson’s baby

shampoo, Pepsi Max for adventurous men…shampoo, Pepsi Max for adventurous men… against another productagainst another product: this approach : this approach

can be named as competitive advertising can be named as competitive advertising where the company positions itself directly where the company positions itself directly against one competitor e.g. Avis “we try against one competitor e.g. Avis “we try harder” against Hertz, Wendy’s “where is harder” against Hertz, Wendy’s “where is the beef?” against McDonald, Sabah against the beef?” against McDonald, Sabah against Milliyet; Burger King against McDonald; Milliyet; Burger King against McDonald; Sheraton against Hilton…Sheraton against Hilton…

product class dissociationproduct class dissociation: a product may : a product may also be positioned away from all competitors also be positioned away from all competitors e.g. Sprite has positioned itself against the e.g. Sprite has positioned itself against the “cola” products, Yapi Kredi claims to be “cola” products, Yapi Kredi claims to be giving the best services…giving the best services…

pprrice:ice: a product can be differentiated by a product can be differentiated by using its price. The product would be having using its price. The product would be having the lowest price in the market e.g. Alo. the lowest price in the market e.g. Alo.

After the company selects the After the company selects the right position for itself, it must right position for itself, it must communicate and deliver the communicate and deliver the chosen position with promotions.chosen position with promotions.