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Market segmentation,
targeting and positioning
of marketing
5.1 Introduction
Now that we have a better understanding of the nature of marketing, we can
examine the subject in more detail. A logical starting point is an examination
of customers, and this is the theme of this chapter, along with the next chapter,
which deals with their purchasing behaviour.
Definition Market segmentation can be defined as:
Market segmentation
can be defined as: The process of breaking down the total market for a product or service
the process of into distinct sub-groups or segments, where each segment may con-
breaking down the ceivably represent a distinct target market to be reached with a distinctive
total market for a marketing mix.
product or service into
distinct sub-groups. Marketers realise that, to improve their opportunities for success in a
competitive market environment, they must focus marketing effort on clearly
defined market targets. The intention is to select those groups of customers
that the company is best able to serve in such a way that pressure from
competition is minimised. The sequential steps in this process are segmenta-
tion, targeting and positioning. In this chapter we examine each of these steps,
showing how they can be used to improve the effectiveness of marketing
decision-making.
There are increasingly more segmentation bases available, which means that
targeting and positioning strategies are becoming more meaningful.
Want 1
Want 2
Want 3
Want 1 X X X
Want 2 X X X
Want 3 X X X
Want 1
Want 2 X X X
Want 3
Want 1 X
Want 2 X
Want 3 X
Table 5.5 shows a strategy of specialist supply where the company serves
customer groups 2 and 3 with wants 1 and 3 respectively. An example is a
spinner of carpet yarns who supplies carpet manufacturers, but who also
manufactures and sells needle punch carpets to the motor trade. This is known
as a concentrated market strategy.
A number of factors affect the choice of targeting strategy. For example,
smaller companies with fewer resources often have to specialise in certain
segments of the market in order to be competitive, so they must pursue a
concentrated strategy. Competition will also affect the choice of strategy. In
the final analysis, choosing a targeting strategy is a matter of striking the
optimum balance between the costs and benefits of each approach in the
particular situation.
72 Marketing: The One-Semester Introduction
Want 1 X
Want 2
Want 3 X
Vignette 5.1
order, direct debit and cash card facilities. In the short term the banks will operate these accounts
at a loss, but they hope to make money eventually as the account holders get their financial affairs
in order and become regular account holders. Undischarged bankrupts will still be denied even
one of the basic accounts; otherwise, such accounts will be open to all regardless of credit history
and the state of their credit reference files.
Although the banks are entering into the spirit of the government’s wishes, there is some debate
as to whether they are demonstrating the degree of enthusiasm the government had hoped them
to have for the new scheme. They have given the government their commitment to set up such
accounts, but do not seem to be going out of their way to attract new account holders. Barclays
and Lloyds TSB launched such accounts throughout the UK in the third week of October 2000, and
Lloyds TSB piloted the scheme in Scotland for eight months before that. NatWest set up similar
facilities for ‘blacklisted’ customers at the beginning of October 2000, and HSBC followed suit.
Such moves represent an interesting targeting of a relatively unexploited market segment, which
could result in profitable business in the long term – although the banks themselves do not seem
particularly optimistic about the viability of such a segment.
= Customer
÷
Non-assisted
region
Assisted
region
markets
5.5.1 Geographic segmentation
In international marketing, different countries may be deemed to constitute
different market segments. Within a country, a market may be segmented into
regions that normally represent an individual salesperson’s territory.
Family life cycle segmentation is based on the idea that typically consumers
pass through a series of quite distinct phases in their lives. Each phase gives
rise to, or is associated with, different purchasing patterns and needs. For
example, the unmarried person living at home will probably have very
different purchasing patterns to someone of the same age who has left home
and recently married. Similarly, it is recognised that purchasing patterns of
adults often change as they approach and then move into retirement. The
subject is given fuller treatment in Chapter 6, but the stages are defined as:
1 Young
2 Young single, no children
3 Young couple, youngest child under 6 (Full Nest I)
4 Young couple, youngest child 6+ (Full Nest II)
5 Older couple with children 18+ at home (Full Nest III)
6 Older couple, family head in work, no children at home (Empty Nest I)
7 Older couple, family head retired, no children at home (Empty Nest II)
8 Older alone (in work)
9 Older alone (retired).
A further development in the application of family life cycle has been
developed by Research Services and termed ‘SAGACITY’. This combines life
cycle with income and occupation in order to delineate different consumer
groups. Consumers are divided into one of four life cycle groups:
1 Dependent: adults 15–34 who are not heads of household or housewives,
unless they are childless students in full-time education
2 Pre-family: adults 15–34 who are heads of household but childless
3 Family: adults under 65 who are heads of household or housewives in
households with one or more children under 21 years of age
4 Late: all other adults whose children have already left home or who are 35
or over and childless.
These four major life cycle groups are then broken down further by a
combination of occupation and/or income to produce 12 major SAGACITY
groupings:
Approx. % of
UK population
(DW) Dependent white collar 6
(DB) Dependent blue collar 9
(PFW) Pre-family white collar 4
(PFB) Pre-family blue collar 4
(FW+) Family, better-off white collar 6
(FB+) Family, better-off blue collar 9
(FW–) Family, worse-off white collar 8
Market segmentation, targeting and positioning of marketing 77
Occupation and social class are linked because in most developed economies
official socio-economic group (social class) categorisations are based on
occupation. Of all the demographic bases for segmenting markets, social class Key point
is probably the most widely used basis for segmenting consumer product Of all the
markets. demographic bases
for segmenting
Social class scores highly against other segmentation criteria in being markets, social class is
identifiable and accessible. It is easy to classify individuals on the basis of probably the most
occupation, and to reach different social classes according to different media widely used basis for
and shopping habits. The social class grading system used in the UK, together segmenting consumer
product markets.
with a broad indication of the type of occupation associated with each, is:
every year that ends in one (i.e. the last one was in 2001), and householders
must complete their return by law. There is also a 10 per cent sample taken in
every year that ends in six. In the United Kingdom, there are around 125 000
such census districts, and the ACORN system has classified each of these into
one of 11 major groups. Each of these major groups is further subdivided to
yield a total of 36 specific neighbourhood types. The 11 major groups, and
some examples of how Group A is further subdivided into neighbourhood
types, are given below:
A agricultural areas
A1 agricultural villages
A2 areas of forms and smallholdings
B modern family housing, higher incomes
C older housing of intermediate status
D poor quality, older terraced housing
E better-off council estates
F less well-off council estates
G poorest council estates
H multi-racial areas
I high-status non-family areas
J affluent suburban housing
K better-off retirement areas
U unclassified
Essentially, the ACORN system is based on the idea that the type of area and
housing in which an individual lives is a good indicator of his or her possible
patterns of purchasing, including the types of products and brands that might
be purchased. There is evidence to suggest that this is the case. In other words,
the ACORN system goes some way to fulfilling the ‘meaningfulness’ criterion
for a segmentation basis.
ACORN was developed at the research firm Consolidated Analysis Centres
Inc. (CACI). ‘Sample Plan’, for instance, is a service that can be used for
marketing research using a computer program to select ACORN areas.
Individual addresses can then be chosen that provide a truly representative
sampling frame for survey work.
The effectiveness of census data in providing segmentation bases has been
further refined. Pinpoint (PIN) analysis is based on census data, and it claims
104 census variables to delineate 60 neighbourhood types that are clustered
into 12 main types.
MOSAIC is another approach based on census data. It has added data on
the financial circumstances of potential target customers living within each
district by relating it to Royal Mail postcodes. Each postcode represents on
average between eight and twelve individual homes of a similar type, and each
is ascribed an individual MOSAIC categorisation. For example, M1 is ‘High
status retirement areas with many single pensioners’; M17 is ‘Older terraces,
young families in very crowded conditions’; M34 is ‘Better council estates but
with financial problems’; and M55 is ‘Pretty rural villages with wealthy long-
distance commuters’. It is called ‘MOSAIC’ because if each of the 58 different
MOSAIC categorisations ascribed to postal codes was represented as a
Market segmentation, targeting and positioning of marketing 79
different colour and then superimposed onto a map of the UK, it would
resemble a mosaic pattern.
This classification is a very powerful database for direct mail, because
individual householders can be personally targeted according to the type of
MOSAIC categorisation of their home, and in the specific geographical area in
which their home is situated. For instance, it is possible to specify that a
personal letter go out to all residents in South-East Huddersfield (HD8) who
fall in the M46 ‘Post-1981 housing in areas of highest income and status’
MOSAIC category.
Vignette 5.2
disaster at Charles De Gaulle airport near Paris in July 2000 left the future of the aircraft in grave
doubt. However, British Airways is taking the long-term view on one of its most important and
prestigious market segments, and is asking aircraft designers and manufacturers to develop a
long-term replacement for the aircraft, whether or not Concorde is allowed to re-enter service in
the near future.
Expensive modifications will have to be made to the plane if it is ever going to be allowed to fly
again. BA is pushing the original manufacturers, European Aeronautic Space and Defence and
BAE Systems, to try and get the modification in place by the end of 2000 to allow the plane to re-
enter service around September 2001 – a very ambitious time horizon. If the present Concorde
fleet is allowed to resume service in 2001, then BA intends to keep them flying until around 2015
but is eager to find an even better aircraft to replace the by-then ageing icon of sophisticated
business travel.
Major aircraft manufacturers such as Boeing see little future in scheduled flight supersonic air
travel. They are not convinced that there are sufficient customers out there willing to pay the sort
of ticket prices necessary to make the economics of developing and manufacturing such an aircraft
add up. They see the demand for smaller ‘Lear’ and ‘Gulfstream’ type supersonic business jets
rather than for the more ‘mass market’ type Concorde replacement craft. British Airways is looking
forward to getting Concorde back into service not only because it wants to satisfy demand from
one of their most prestigious market segments, but also because it regards Concorde as one of its
most effective marketing tools. The marketing effects of having a Concorde fleet in operation to key
destinations around the world impacts positively on all BA’s services. Whether BA has misread the
future market for such a service remains to be seen. Many in the business jet and supersonic
military jet markets do not believe a replacement for Concorde will turn out to be financially viable,
even given the different economic circumstance that might exist 15 years down the line.
Loyalty of customer
Usage rate, e.g. heavy or light
Purchasing procedures, e.g. centralised or decentralised, the extent of
specification buying, tender versus non-tender procedures
Benefits sought, based on the product needs that customers require from
their purchase – e.g. a car might be needed for the company’s representa-
tives, for hiring out, or as the managing director’s personal car.
Shapiro and Bonoma (1984) have suggested a ‘nested’ approach to industrial
market segmentation. They identified five general segmentation bases
arranged in a nested hierarchy, as shown in Figure 5.3:
1 Demographic variables give a broad description of the segments and relate to
general customer needs and usage patterns
2 Operating variables enable a more precise identification of existing and
potential customers within demographic categories
3 Purchasing approaches looks at customers’ purchasing practices (e.g.
centralised or decentralised purchasing); it also includes purchasing
policies/criteria and the nature of the buyer/seller relationship
4 Situational factors consider the tactical role of the purchasing situation,
Key point requiring a greater or less detailed knowledge of the individual buyer
The criteria given for
bases of consumer 5 Personal characteristics relate to people who make purchasing decisions.
market segmentation –
being identifiable, As with consumer markets, industrial market segmentation may be on an
accessible, substantial indirect (associative) or a direct (behavioural) basis. Again, a variety of bases
and, most important,
may be used together in order to obtain successively smaller sub-segments of
meaningful – are
equally applicable to the market. The criteria given for bases of consumer market segmentation –
industrial market being identifiable, accessible, substantial and, most important, meaningful –
segmentation. are equally applicable to industrial market segmentation.
Demographics
Operating variables
Purchasing approach
Situational
Personal characteristics
Vignette 5.3
minoxidil, marketed by Phamacia and Upjohn as ‘Regain®’ (Rogaine® in the USA). Minoxidil is
available without a doctor’s prescription over-the-counter in pharmacies. Many websites offer
minioxidil as well as Finasteride®.
Minoxidil is administered as a lotion, topically. It is sold in regular and extra strength solutions.
The drug minoxidil was originally developed for treatment in high blood pressure patients, who
were also observed to grow more hair when taking the medicine. A perfect candidate for
minoxidil is a young male who is just starting to bald in the vertex/crown of the scalp. It is also
suitable for women, although not in the extra strength version. Propecia® is likely to be more
popular than Regaine®, as it is in tablet form and therefore much more convenient to take.
However, it is not suitable for women.
High price
per gram
Brand A
Brand B
Brand C
Brand D
Possible
positioning
strategies
for new
brand
Low price
per gram
Figure 5.4 A hypothetical product positioning map for the ‘instant’ breakfast food
market.
86 Marketing: The One-Semester Introduction
Vignette 5.4
5.11 Summary
✓ Used well, the techniques and concepts described in this chapter can
contribute significantly to overall company marketing success. Market
segmentation, targeting and positioning decisions are strategic rather than
tactical. In later chapters these areas will be considered in relation to
strategic aspects of marketing planning.
Questions
1 Bases for segmentation
The process of market segmentation requires the use of different bases for segmentation strategy
to be effective. Outline the most effective bases that might be used to segment industrial
markets.
2 Evaluation of bases
What are the main criteria used by management to assess the possible effectiveness of any
potential segmentation base or variable?
4 Segmentation bases
Using two consumer goods examples and two industrial goods examples, suggest segmentation
bases for each of these.
5 Targeting
Explain each of the following types of targeting strategy: (a) undifferentiated marketing; (b)
differentiated marketing; (c) concentrated marketing.
6 Selecting targets
Discuss the considerations that should be made when selecting specific target markets.
88 Marketing: The One-Semester Introduction
7 Positioning
What do you understand by the term ‘product positioning’?
References
Abell, D. F. (1980). Defining the business: the starting point of strategic planning,
Chapter 3. Prentice Hall.
Reynolds, P. L. and El-Adley, M. (1995). The changes in the UK financial services
environment and its relation to the importance of market segmentation. Proceedings
of the 9th Annual Financial Services Marketing Workshop, The Manchester School of
Management, University of Manchester Institute of Science and Technology
(UMIST), 23–24 November.
Reynolds, P. L. and El-Adley, M. (1997). Market segmentation within the UK banking
personal loans sector. Presented at the INFORMS Marketing Science Conference,
University of California at Berkeley, California, USA, 22–24 March.
Shapiro, B. P. and Bonoma, T. V. (1984). How to segment industrial markets. Harvard
Business Review, May–Jun, 104–10.
Further reading
Adcock, D. (2000) Segmentation as a strategic tool. Marketing Strategies for Competitive
Advantage, Chapter 6. John Wiley & Sons.
Armstrong, G. and Kotler, P. (2000). Market segmentation, targeting and positioning
for competitive advantage. Marketing: An Introduction, 5th edn, Chapter 6. Prentice
Hall.
Blythe, J. (2001). Segmentation, targeting and positioning. Essentials of Marketing, 2nd
edn, Chapter 4. Person Educational Ltd.
Davies, M. (1998). Targeting, segmentation and positioning. Understanding Marketing,
Chapter 4. Prentice Hall.
Day, G. S. and Shocker, A. D. (1976). Identifying Competitive Product Market
Boundaries – Strategic and Analytical Issues. Marketing Science Institute.
Kotler, P., Bowen, J. and Makens, J. (1996). Marketing segmentation, targeting and
positioning. Marketing for Hospitality and Tourism, Chapter 9. Prentice Hall.
Lancaster, G. A. and Reynolds, P. L. (1998). Customers and marketing. Marketing,
Chapter 3. Macmillan Press.
Lancaster, G. A. and Reynolds, P. L. (1999). Segmentation, target marketing and
positioning. Introduction to Marketing: A Step by Step Guide to All The Tools of
Marketing, Chapter 2. Kogan Page.
Nickels, W. and Burk-Wood, M. (1997). Market segmentation, targeting and position-
ing. Marketing, Relationships, Quality, Value, Chapter 8. Worth Publishers.
Plamer, A. (2000). Segmentation and targeting. Principles of Marketing, Chapter 3.
Oxford University Press.
Wells, W. D. and Gubar, G. (1996). Life cycle concepts in marketing research. Journal
of Marketing Research, 13, 355–63.
6
Buyer behaviour
6.1 Introduction
It is interesting to think back five or ten years and compare ourselves then with
the way we are (or think we are) now. Have our attitudes towards the world
around us changed or remained the same? Do we still like and dislike the same
things? As consumers, we are continually exposed to new experiences and
different influences throughout our lives. Whilst it is true that some of us are
more susceptible to change and influences than others, nobody goes through
life remaining the same as at birth. Some of our responses to our environment
are the results of our inherent psychological makeup. As our situations change,
opportunities often emerge as we are subject to a wider range of influences to
which we may consciously or subconsciously respond in a positive or negative
manner. Changes in circumstances may arouse inherent needs or promote
completely new needs and wants in our consumption patterns.
The task of marketing is to identify these needs and wants accurately, then
to develop products and services that will satisfy them. The role of marketing Definition
is not to ‘create’ wants, but to fulfil them. Chapter 2, which discussed the The role of marketing
marketing concept, provided some explanation of what this means in terms of is not to ‘create’
wants, but to fulfil
business practice. them.
For marketing to be successful, it is not sufficient simply to discover what
customers require. It is infinitely more valuable to find out why it is required.
Only by gaining a deep and comprehensive understanding of buyer behaviour
can marketing’s goals be realised. Such an understanding works to the mutual
advantage of the consumer and the marketer. By understanding consumers,
marketing should become better equipped to satisfy their needs efficiently.
This, in turn, should lead to a company being able to establish a loyal group
of customers with positive attitudes towards its products.
6.2 Definitions
Consumer behaviour can be formally defined as:
The acts of individuals directly involved in obtaining and using economic
goods and services, including the decision processes that precede and
determine these acts.
89