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Chapter 4

4. Market Segmentation, Targeting and Positioning For Competitive

Advantage

Introduction

Target marketing involves three activities:

Market segmentation
Market targeting, and
Market positioning.

4.1. Market Segmentation

Market segmentation aims to increase a companys precision marketing.

In contrast, sellers that use mass marketing engage in the mass production,
distribution, and promotion of one product for all buyers. to stay focused rather
than scattering their marketing resources, more marketers are using market
segmentation.

4.1.1. Levels of Market Segmentation

Companies can apply segmentation at one of four levels:

Segments
Niches
Local areas, and
Individuals.

1)Segment Marketing: A market segment consists of a large identifiable group

within a market, with similar wants, purchasing power, geographical location,
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buying attitudes, or buying habits. For example, an automaker may identify four
broad segments in the car market: buyers who are primarily seeking;

A. Basic transportation
B. high performance
C. luxury, or
D. Safety.

2) Niche Marketing: A niche is a more narrowly defined group, typically a small

market whose needs are not being well served. Marketers usually identify niches
by dividing a segment into sub segments or by defining a group seeking a
distinctive mix of benefits. Whereas segments are fairly large and normally attract
several competitors, niches are fairly small and may attract only one or two rivals.

3) Local Marketing: Target marketing is leading to some marketing programs that

are tailored to the needs and wants of local customer groups (trading areas,
neighborhoods, even individual stores).

4) Individual Marketing: The ultimate level of segmentation leads to segments

of one, customized marketing, or one-to-one marketing.

Much business-to-business marketing today is customized, in that a manufacturer

will customize the offer, logistics, communications, and financial terms for each
major account. Now technologies such as computers, databases, robotic
production, intranets and extranets, e-mail, and fax communication are permitting
companies to return to customized marketing, also called mass customization.
Mass customization is the ability to prepare individually designed products and
communications on a mass basis to meet each customers requirements.

4.1.2. Market-Segmentation Procedure

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Marketers use a three-step procedure for identifying market segments:

1. Survey stage. The researcher conducts exploratory interviews and focus groups
to gain insight into customer motivations, attitudes, and behavior. Then the
researcher prepares a questionnaire and collects data on attributes and their
importance ratings, brand awareness and brand ratings, product-usage patterns,
attitudes toward the product category, and respondents demographics,
geographics, psychographics, and media graphics.

2. Analysis stage. The researcher applies factor analysis to the data to remove
highly correlated variables, and then applies cluster analysis to create a specified
number of maximally different segments.

3. Profiling stage. Each cluster is profiled in terms of its distinguishing attitudes,

behavior, demographics, psychographics, and media patterns, and then each
segment is given a name based on its dominant characteristic.

4.1.3. Segmenting Consumer and Business Markets

I. Bases for Segmenting Consumer Markets

In segmenting consumer markets, marketers can apply geographic, demographic,

and psychographic variables related to consumer characteristics as well as
behavioral variables related to consumer responses.

1. Geographic Segmentation: calls for dividing the market into different

geographical units such as nations, states, regions, counties, cities, or
neighborhoods.
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2. Demographic Segmentation: In demographic segmentation, the market is

divided into groups on the basis of age and the other variables. Here is how certain
demographic variables have been used to segment consumer markets:

Age and life-cycle stage. Consumer wants and abilities change with age.
Gender
Income
Generation
Social class

3. Psychographic Segmentation: In psychographic segmentation, buyers are

divided into different groups on the basis of lifestyle or personality and values.
People within the same demographic group can exhibit very different
psychographic profiles.

Lifestyle. People exhibit many more lifestyles and the goods they consume
express their lifestyles.
Personality
Values.

4. Behavioral Segmentation: In behavioral segmentation, buyers are divided into

groups on the basis of their knowledge of, attitude toward, use of, or response to a
product.

Many marketers believe that behavioral variablesoccasions, benefits, user

status, usage rate, loyalty status, buyer-readiness stage, and attitudeare the
best starting points for constructing market segments.

5. Multi-Attribute Segmentation (Geoclustering): Marketers are increasingly

combining several variables in an effort to identify smaller, better defined target
groups. One of the most promising developments in multi-attribute segmentation is
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geo-clustering, which yields richer descriptions of consumers and neighborhoods

than does traditional demographics.

II. Bases for Segmenting Business Markets

Business markets can be segmented with some variables that are employed in
consumer market segmentation, such as geography, benefits sought, and usage
rate. Yet business marketers can also use several other variables. The demographic
variables are the most important, followed by the operating variables down to the
personal characteristics of the buyer.

4.1.4. Effective Segmentation

To be useful, market segments must be:

Measurable: The size, purchasing power, and characteristics of the

segments can be measured.
Substantial: The segments are large and profitable enough to serve. A
segment should be the largest possible homogeneous group worth going
after with a tailored marketing program.
Accessible: The segments can be effectively reached and served.
Differentiable: The segments are conceptually distinguishable and respond
differently to different marketing mixes. If two segments respond identically
to a particular offer, they do not constitute separate segments.
Actionable: Effective programs can be formulated for attracting and serving
the segments.

4.2. Market Targeting

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Market segmentation reveals the firms market segment opportunities. The firm
now has to evaluate the various segments and decide how many and which
segments it can serve best.

4.2.1. Evaluating Market Segments

Marketers evaluate each segment to determine how many and which ones to target
and enter. In evaluating different market segments, a firm must look at three
factors:

Segment size and growth

Segment structural attractiveness and
Company objectives and resources.

4.3. Market Positioning

Beyond deciding which segments of the market it will target, the company
must decide on a value propositionhow it will create differentiated value
for targeted segments and what positions it wants to occupy in those
segments. A products position is the way the product is defined by
consumers on important attributesthe place the product occupies in
consumers minds relative to competing products.
Products are made in factories, but brands happen in the minds of
consumers

A products position is the complex set of perceptions, impressions, and feelings

that consumers have for the product compared with competing products.

Positioning is arranging for a product to occupy a clear, distinctive, and desirable

place relative to competing products in the minds of target consumers.
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Positioning can also be defined as the art and science of fitting the product or
service to one or more segments of the broad market in such a way as to set it
meaningfully apart from competition.

4.3.1. Approaches to Positioning

Positioning strategies generally focus on either the consumer or the competition.

While both approaches involve the association of product benefits with consumer
needs.

A number of positioning strategies might be employed in developing a

promotional program some of these will be discussed below.

1) Positioning by Product Attributes and Benefits: A common approach to

positioning is setting the brand apart from competitors on the basis of the specific
characteristics or benefits offered.

2) Positioning by Price/Quality: Marketers often use price/quality characteristics

to position their brands. Premium brands positioned at the high end of the market
use this approach to positioning. Another way to use price/quality characteristics
for positioning is to focus on the quality or value offered by the brand at a very
competitive price.

3) Positioning by Use or Application: Another way to communicate a specific

image or position for a brand is to associate it with a specific use or application.
While this strategy is often used to enter a market on the basis of a particular use or
application, it is also an effective way to expand the usage of a product.

The alternative positioning strategies

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Essentially, the development of a positioning platform can be broken into a six-step

process.

1. Identifying competitors

2. Assessing consumers perceptions of competitors

3. Determining competitors positions.

4. Analyzing the consumers preferences

5. Making the positioning decision.

6. Monitoring the position.

Chapter 5

5. Designing Products: Products, Brands, Packaging and Services

5.1. What Is a Product?

A very simple definition for product is that, a product is something that can be
acquired via exchange to satisfy a need or a want. This definition permits us to
classify a broad number of things as products:
Goods
Services are intangible products consisting of acts or deeds directed toward
people or their possessions.
Ideas include platforms or issues aimed at promoting a benefit for the
customer. Examples include cause-related or charitable organizations such as
the Red Cross,
Information Marketers of information include websites, magazine and book
publishers, schools and universities, research firms, churches, and charitable
organizations.
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Digital Products Digital products, such as software, music, and movies are
among the most profitable in our economy.
People The individual promotion of people, such as athletes or celebrities, is
a huge business around the world.
Places When we think of the marketing of a place, we usually think of
vacation destinations like Rome or Orlando. However, the marketing of places
is quite diverse. Cities, states, and nations all market themselves to tourists,
businesses, and potential residents.
Experiences and Events Marketers can bring together a combination of
goods, services, ideas, information, or people to create one-of-a-kind
experiences or single events. Good examples include athletic events like the
Olympics.
Real or Financial Property The exchange of stocks, bonds, and real estate,
once marketed completely offline via real estate agents and investment
companies, now occurs increasingly online.
Organizations Virtually all organizations strive to create favorable images
with the publicnot only to increase sales or inquiries, but also to generate
customer goodwill.
A customers decision to purchase one product or group of products over
another is primarily a function of how well that choice will fulfill that
persons needs and satisfy his or her wants. Economists use the term utility
to describe the ability of a product to satisfy a customers desires.
Customers usually seek out exchanges with marketers who offer products
that are high in one or more of these five types of utility:
Form Utility Products high in form utility have attributes or features that set
them apart from the competition. Often these differences result from the use
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of high-quality raw materials, ingredients, or components; or from the use of

highly efficient production processes.
Time Utility Products high in time utility are available when customers
want them.
Place Utility Products high in place utility are available where customers
want them, which is typically wherever the customer happens to be at that
moment
Possession Utility Possession utility deals with the transfer of ownership or
title from marketer to customer.
Psychological Utility Products high in psychological utility deliver positive
experiential or psychological attributes that customers find satisfying.
Sporting events often fall into this category, especially when the competition
is based on an intense rivalry. The atmosphere, energy, and excitement
associated with being at the game can all create psychological benefits for
customers. Conversely, a product might offer exceptional psychological
utility because it lacks negative experiential or psychological attributes.
5.1.1. Product Classifications the basis of three characteristics:
Durability,
Tangibility, and
Consumer or industrial use.
Durability and tangibility. Nondurable goods are tangible goods that are
normally consumed in one or a few uses (such as beer and soap). Because these
goods are consumed quickly and purchased frequently, the appropriate strategy
is to make them available in many locations, charge only a small markup, and
advertise heavily to induce trial and build preference.
Durable goods are tangible goods that normally survive many uses (such as
refrigerators). These products normally require more personal selling and
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service, command a higher margin, and require more seller guarantees. Services
are intangible, inseparable, variable, and perishable products (such as haircuts
or cell phone service), so they normally require more quality control, supplier
credibility, and adaptability.
Consumer-goods classification. Classified according to consumer
shopping habits
Convenience goods
purchased frequently, immediately, and with a minimum of
effort, such as newspapers;
Shopping goods
that the customer, in the process of selection and purchase, characteristically
compares on the basis of suitability, quality, price, and style, such as
furniture;
Specialty goods
with unique characteristics or brand identification, such as cars, for which a
sufficient number of buyers are willing to make a special purchasing effort;
Unsought goods
Those consumers do not know about or do not normally think of buying,
such as smoke detectors. Dealers that sell specialty goods need not be
conveniently located but must communicate their locations to buyers;
unsought goods require more advertising and personal sales support.

Industrial-goods classification. Materials and parts are goods that enter

the manufacturers product completely.
Raw materials can be either farm products (e.g., wheat) or natural products (e.g.,
lumber).
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Manufactured materials and parts fall into two categories:

1. Component materials (iron) and
2. Component parts (small motors).
Capital items are long-lasting goods that facilitate developing or managing the
finished product.
5.2. Product and Service Decisions

Marketers make product and service decisions at three levels:

Individual product decisions,

Product line decisions, and
Product mix decisions.

Individual Product Line Decision

Product and Service Attributes: Developing a product or service involves

defining the benefits that it will offer. These benefits are communicated and
delivered by product attributes such as
Quality,
Features, and
Style and design.
Product Quality: is one of the marketers major positioning tools. Quality has a
direct impact on product or service performance; thus, it is closely linked to
customer value and satisfaction. In the narrowest sense, quality can be defined as
freedom from defects. But most customer-centered companies go beyond this
narrow definition. They define quality in terms of creating customer value and
satisfaction. The American Society for Quality defines quality as the characteristics
of a product or service that bear on its ability to satisfy stated or implied customer
needs. Similarly, Siemens defines quality this way: Quality is when our customers
come back and our products dont.
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Product Features. A product can be offered with varying features. A stripped-

down model, one without any extras, is the starting point. The company can create
higher-level models by adding more features. Features are a competitive tool for
differentiating the companys product from competitors products. Being the first
producer to introduce a valued new feature is one of the most effective ways to
compete.
Product Style and Design. Another way to add customer value is through
distinctive product style and design. Design is a larger concept than style. Style
simply describes the appearance of a product. Styles can be eye catching or yawn
producing. A sensational style may grab attention and produce pleasing aesthetics,
but it does not necessarily make the product perform better. Unlike style, design is
more than skin deepit goes to the very heart of a product.
5.2.1. Product line decisions

A product line is a group of products that are closely related because they function
in a similar manner, are sold to the same customer groups, are marketed through
the same types of outlets, or fall within given price ranges. The major product line
decision involves product line lengththe number of items in the product line.
Product line length is influenced by company objectives and resources.

5.2.2. Product Mix Decisions

An organization with several product lines has a product mix. A product mix (or
product portfolio) consists of all the product lines and items that a particular seller
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offers for sale. A companys product mix has four important dimensions: width,
length, depth, and consistency.
Product mix width refers to the number of different product lines the company
carries.
Product mix length refers to the total number of items a company carries within
its product lines. Colgate typically carries many brands within each line.
Product mix depth refers to the number of versions offered for each product in
the line.
Consistency of the product mix refers to how closely related the various product
lines are in end use, production requirements, distribution channels, or some other
way. Colgate product lines are consistent insofar as they are consumer products
and go through the same distribution channels. The lines are less consistent insofar
as they perform different functions for buyers. These product mix dimensions
provide the handles for defining the companys product strategy.

5.3. Product Life Cycle Strategies

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The PLC has five distinct stages:

1. Product development begins when the company finds and
develops a new-product idea. During product development, sales are
zero, and the companys investment costs mount.
2. Introduction is a period of slow sales growth as the product is
introduced in the market. Profits are nonexistent in this stage because
of the heavy expenses of product introduction.
3. Growth is a period of rapid market acceptance and increasing profits.
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4. Maturity is a period of slowdown in sales growth because the product

has achieved acceptance by most potential buyers. Profits level off or
decline because of increased marketing outlays to defend the product
against competition.
5. Decline is the period when sales fall off and profits drop.
1. Introduction Stage
Starts when a new product is first launched.
Introduction takes time, and sales growth is apt to be slow.
Profits are negative or low because of the low sales and high distribution and
promotion expenses.
Much money is needed to attract distributors and build their inventories.
Promotion spending is relatively high to inform consumers of the new
product and get them to try it.
2. Growth Stage
Sales will start climbing quickly.
New competitors will enter the market and introduce new product features.
The market will expand.
The increase in competitors leads to an increase in the number of
distribution outlets, and sales jump just to build reseller inventories.
Profits increase during the growth stage as promotion costs are spread over a
large volume and as unit manufacturing costs decrease.
It enters new market segments and new distribution channels.
It shifts some advertising from building product awareness to building
product conviction and purchase,
It lowers prices at the right time to attract more buyers.
The firm faces a trade-off between high market share and high current profit.

3. Maturity Stage
Lasts longer than the previous stages,
It poses strong challenges to marketing management.
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The slowdown in sales growth results in many producers with many products to
sell.
In turn, this overcapacity leads to greater competition.
In modifying the market, the company tries to increase consumption by finding
new users and new market segments for its brands.
The company might also try modifying the productchanging characteristics
such as quality, features, style, or packaging to attract new users and inspire more
usage.
Finally, the company can try modifying the marketing miximproving sales by
changing one or more marketing mix elements. The company can offer new or
improved services to buyers. It can cut prices to attract new users and competitors
customers. It can launch a better advertising campaign or use aggressive sales
promotionstrade deals, cents-off, premiums, and contests. In addition to pricing
and promotion, the company can also move into new marketing channels to help
serve new users.
4. Decline Stage
The sales of most product forms and brands eventually dip.
Sales decline for many reasons, including
Technological advances
Shifts in consumer tastes, and
Increased competition.

Chapter 6
6. Pricing Considerations and Strategies
6.1. Introduction
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The price of a product is the amount of money a seller is willing to accept in

exchange for the product at a given time and under given circumstances.
6.2. Factors to Consider When Setting Prices
Customer value perceptions
Costs
Competitor strategies
Internal factors affecting pricing include the companys overall marketing
strategy, objectives, and marketing mix, as well as other organizational
considerations.
External factors include the nature of the market and demand and other
environmental factors.
6.2.1. Organizational Considerations
In small companies, prices are often set by top management
In large companies, pricing is typically handled by divisional or product line
managers.
In industrial markets, salespeople may be allowed to negotiate with
customers within certain price ranges.
Even so, top management sets the pricing objectives and policies, and it
often approves the prices proposed by lower level management or
salespeople.

6.2.2. The Market and Demand

Analyzing the Price-Demand Relationship
In the normal case, demand and price are inversely relatedthat is, the higher the
price, the lower the demand. Thus, the company would sell less if it raised its price.
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In short, consumers with limited budgets probably will buy less of something if its
price is too high. Understanding a brands price-demand curve is crucial to good
pricing decisions.
6.2.3. The Economy
Economic factors such as a boom or recession, inflation, and interest rates affect
pricing decisions because they affect consumer spending, consumer perceptions of
the products price and value, and the companys costs of producing and selling a
product.
6.2.4. Other External Factors
How will resellers react to various prices? The company should set prices that give
resellers a fair profit, encourage their support, and help them to sell the product
effectively.
The government is another important external influence on pricing decisions.
Finally, social concerns may need to be taken into account. In setting prices, a
companys short-term sales, market share, and profit goals may need to be
tempered by broader societal considerations.
6.3. Pricing Strategies
Three major pricing strategies:
1) Customer value-based pricing,
2) Cost based pricing, and
3) Competition-based pricing.

1. Customer Value-Based Pricing

Customer value-based pricing uses buyers perceptions of value, not the sellers
cost, as the key to pricing. Value-based pricing means that the marketer cannot
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design a product and marketing program and then set the price. Price is considered
along with all other marketing mix variables before the marketing program is set.
Its important to remember that good value is not the same as low price.
2. Cost-Based Pricing
Cost-based pricing involves setting prices based on the costs for producing,
distributing, and selling the product plus a fair rate of return for its effort and risk.
A companys costs may be an important element in its pricing strategy.
Companies with lower costs can set lower prices that result in smaller margins but
greater sales and profits.
a. Types of Costs: A companys costs take two forms: fixed and variable.
Fixed costs (also known as overhead) are costs that do not vary with production
or sales level.
Variable costs vary directly with the level of production. Total costs are the sum
of the fixed and variable costs for any given level of production.
B .Cost-Plus Pricing: The simplest pricing method is cost-plus pricing (or
markup pricing)adding a standard markup to the cost of the product.
C .Break-Even Analysis and Target Profit Pricing: (a variation called
target return pricing): Target return pricing uses the concept of a break-
even chart, which shows the total cost and total revenue expected at different
sales volume levels.
3. Competition-Based Pricing
Competition-based pricing involves setting prices based on competitors strategies,
costs, prices, and market offerings. Consumers will base their judgments of a
products value on the prices that competitors charge for similar products.