Market Segmentation, Targeting, and

Positioning for Competitive Advantage

Objective: explaining how companies segment,
target and position for maximum competitive
advantage

Markets

Originally, a market is a physical place where buyers and

sellers gather to exchange goods and services.
In marketing, a market is the set of all actual and
potential buyers of a product or service.
As marketing evolves in time, companies used different
philosophies in their approaches to a market. Their
thinking about serving a market passed through three
stages;

Mass marketing: here, the seller mass produces, mass

distributes, and mass promotes one product to all buyers.
In the very beginning, McDonalds offered just one type
of hamburger to everyone. Mass marketing leads to
lowest costs and prices and create the largest potential
market.
Product-variety marketing: here, the seller produces
two or more products that have different features, styles,
qualities, sizes Later, McDonalds produced Big Mac to
offer variety to buyers rather than appealing to different
market segments. Product-variety marketing supports
that consumers seek variety and change over time.
Target marketing: here, the seller identifies market
segments, selects one or more of them, and develops
products and marketing mixes for each. Today,
McDonalds offers different menus for different markets.

Micromarketing

Today companies are using target marketing instead of

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

Steps in Target Marketing

1. Market segmentation; dividing a market into distinct
groups of buyers with different needs, characteristics or
behaviors who might require separate products or
marketing mixes.
2. Market targeting; evaluating each market segments
attractiveness and selecting one or more of the market
segments to enter.
3. Market positioning; setting the competitive positioning
(difference) for the product and creating a detailed
marketing mix.

Bases for Segmenting Services

Markets

There are various ways to segment a market. A

marketer has to try different segmentation variables,
alone and in combination to understand the
structure of the market in the best way. The major
variables are;
geographic segmentation
demographic segmentation
psychographic segmentation
behavioral segmentation

Geographic Segmentation

Companies may divide the market into

different geographic units such as nations,
countries, regions, cities
A company may decide to operate in one or
more geographic locations but it must pay
attention to the geographical differences in
needs and wants.
E.g. McDonalds serve corn soup in Japan,
pasta salads in Rome, wine in Paris...

Demographic Segmentation

Companies divide the market into groups based

on;

age and life-cycle: needs and wants change with age,

that is why, a company may use different marketing
approaches for different age and life-cycle groups.
Lewis 501 and Pepsi generation next are mainly
targeted to the young people.

gender: is mainly used in clothing, cosmetics, and

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

Psychographic Segmentation

Companies may divide the market into different

groups based on;

social class: has a strong effect on preferences in cars,

clothes, home furnishings, leisure activities Sports
International, Bilkent and Or-an are targeted to people at
higher social class.
lifestyle: Mezzaluna targets to a business lifestyle, whereas
the rest of the restaurants in Ankuva to a student lifestyle.
personality: mainly used for cosmetics, cigarettes, and
liquor. Marlboro is targeted to the macho man with its
macho Cowboy image.

Behavioral Segmentation

Companies may divide buyers into groups based on

their knowledge, attitudes, uses or responses to a
product.

occasions: buyers can be grouped according to occasions

when they buy or use an item. Coca Cola is for Always
benefit sought: buyers can be grouped according to the
benefits that they seek from the product. In the
toothpaste market, benefit segments are - economic,
medicinal, cosmetic, and taste; detergent market cleanliness, cost; sewing gum - healthy teeth, fresh
breath

user status: markets can be segmented into groups of

nonusers, ex-users, potential users, first-time users and
regular users of a product. Potential users and regular
users may require different kinds of marketing appeal
from each other.
usage rate: markets also can be segmented into light-,
medium-, and heavy- user groups. Most beer companies
target the heavy beer drinker.
loyalty status: a market can also be segmented by consumer
loyalty. Consumers can be loyal to brands (Alo), stores
(Vakko), and companies (BMW) Consumer may be
completely loyal (buy one brand all the time), somewhat
loyal (favor one brand, sometimes buying others), no
loyalty (each time they buy a different product)

Segmenting International
Markets

Large companies e.g. Coca Cola, Sony sell products

in many different countries which vary in their
economic, cultural and political make up. That is why,
international firms need to group their world markets
into segments with distinct buying needs and behaviors.
Several variables can be used to segment international
markets;

geographic location; grouping countries by regions e.g. Europe,

Middle East.

economic factors; grouping by population income levels or

by their overall level of economic development. A
companys economic structure shapes its populations
product and service needs, therefore, the marketing
opportunities that it offers.
political and legal factors; grouping by the type of stability of
government, receptive to foreign firms, monetary
regulations, and the amount of bureaucracy. Such factors
can play a crucial role in a companys choice of which
countries to enter and how.
cultural factors; grouping markets according to common
languages, religions, values and attitudes, customs and
behavioral patterns.

Some companies do not prefer to segment the

international markets on the basis of geographic,
economic, political, cultural, and other factors.
Instead they prefer to do intermarket
segmentation in which companies form segments
of consumers who have similar needs and buying
behavior even though they are located in different
countries. E.g. teenagers live surprisingly parallel
lives all around the world e.g. drink Coke, eat Big
Macs, surf on the Net, wear bluejeans. Recently
Pepsi introduced its sugar-free Pepsi Max in 16
countries with a single ad for teenagers who like to
be on the wild side.

Market Targeting
Evaluating Market Segments

After segmenting the whole market, the firm has to

evaluate these segments and decide how many and
which ones to target. The company should enter
segments only where it can offer superior value and
gain advantages over competitors.
In evaluating different market segments, a firm must
look at three factors:

segment size and growth; companies try to select the segment

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

margin. But smaller companies may find these large

segments too competitive and may find themselves
having lack of skills and resources, therefore, prefer to
target smaller segments
segment structural attractiveness; a segment may have the right
size, but not offer attractive profits if (1) there are strong
competitors; (2) actual or potential substitute products may limit prices and profits; (3) buyers with power buyers may have strong bargaining power relative to
sellers so that they may force prices down, demand more
quality, set competitors against another; (4) powerful
suppliers - can control prices, reduce quality.
company objectives and resources; a segment may have the right
size with attractiveness but may not suit with the long-run
objectives of the company.

Selecting Market Segments

The company must decide which and how many

segments to serve, in other words, the company
must decide which market-coverage strategy to
adopt.
There are three market-coverage strategies:
undifferentiated marketing
differentiated marketing
concentrated marketing

Market-Coverage Strategies

Company
marketing
mix

Co. marketing mix1

Co. marketing mix2
Co. marketing mix3

Company
marketing
mix

Undifferentiated
marketing

Market

Differentiated
marketing

Concentrated
marketing

Segment1
Segment2
Segment3

Segment1
Segment2
Segment3

Undifferentiated Marketing

A market-coverage strategy in which a firm decides

to ignore market segment differences and go after
the whole market with one offer.
Here, the offer focus on what is common in the
needs of consumers rather than on what is
different.
The company designs a product and a marketing
program that appeal to largest

number of buyers. It relies on mass advertising

and a superior image in peoples minds. E.g.
Levis 501.
Provides cost effectiveness because of its low
production, inventory, transportation,
advertising, marketing research costs.
Have difficulties in (1) developing a product or
brand that satisfies all consumers; (2) keeping a
strong place in the market and making profit,
when several firms follow this strategy heavy
competition develops; (3) satisfying smaller
segments.

Differentiated Marketing

A coverage strategy in which a firm decides to

target several market segments and designs separate
offers for each. E.g. Nike offers athletic shoes for
different sports such as running, aeobics, cycling,
baseball, basketball, tennis
These companies hope for (1) higher sales; (2) a
strong place within each market segment; (3) more
loyal customers because the firms offerings match
each segments desires better.

Creates better total sales, but increases the costs

- developing separate marketing plans for the
separate segments requires extra marketing
research, sales analysis, promotional planning,
channel management.
Because of the high costs involved in this
approach, the company must compare increased
sales with increased costs when deciding to use
differentiated marketing strategy.

Concentrated Marketing

A market-coverage strategy in which a firm goes

after a large share of one or a few submarkets.
Suitable for smaller companies to achieve a strong
market place in the segments (or niches) that it
serves because of its greater knowledge of the
segments needs.
Involves higher-than-normal risks because the target
may not respond or larger competitors may decide
to enter the same market but offers operating
economies because of specialization in production,
distribution, and promotion.

Choosing a Market-Coverage Strategy

Factors needed to be considered when choosing a

market-coverage strategy are;

company resources; when the firms resources are limited,

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

products stage in the life cycle; when the product is new,

it is better to produce only one version of the
product - undifferentiated or concentrated
marketing. For mature products, differentiated
marketing makes more sense.
market variability; when buyers have the same tastes
and react the same way to marketing efforts,
undifferentiated marketing is suitable.
competitors marketing strategies; when competitors use
segmentation, undifferentiated marketing can be
suicidal. On the contrary, when competitors use
undifferentiated marketing, a firm can gain an
advantage by using differentiated or concentrated
marketing.

Positioning for Competitive

Advantage

Once a company has decided which segments to

enter, it must decide what positions it wants
to occupy in those segments.
A products position is the place the product has
in consumers minds relative to competing
products. In other words, a products position is
the set of perceptions, impressions, and feelings
that consumers

hold for the product compared with

competing products. E.g. Toyota is
positioned on economy, Mercedes and
Cadillac on luxury and Porsche and BMW on
performance, Volvo on safety.
Consumers simplify the buying process by
categorizing products in their minds.
Marketers do not leave their products
positions to chance. They must plan positions
that will give their products the greatest
advantage in selected target markets.

Positioning Strategies

Marketers can position (differentiate) their products

on;

product: a company can differentiate its physical

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

interior design, Ciragan Palace with its building; place

- Swiss Hotel offers the best Bosphorus view...
service: a product can be differentiated by its speedy,
convenient or careful service delivery e.g. Akbank
offers full banking services at home, Garanti offers
service during the lunch time, Osmanli Bank offers
branches in supermarkets, Migros offers home
delivery, McDonalds offer training for its
franchisees
personnel: a company can hire better people than
competitors do e.g. Singapore Airlines is well known
with its beautiful flight attendants, IBMs people are
professional, McDonalds people are polite

image: a company may establish an image different

from the competitors e.g. Motorola quality.
Symbols, famous people and sponsorship can be
used to create image.
benefits: a products benefit can be differentiated
e.g. Nazar chewing gum protects from the devil eyes,
Orbit offers teeth protection, Colgate offers better
taste...
usage occasions: a products position can be
positioned according to the time of using the
product e.g. Hilton when American business take
the family along, American business stays at
Hilton...
user category: a product can be positioned for some
people e.g. Johnson&Johnsons baby

shampoo, Pepsi Max for adventurous men

against another product: this approach can be
named as competitive advertising where the
company positions itself directly against one
competitor e.g. Avis we try harder against Hertz,
Wendys where is the beef? against McDonald,
Sabah against Milliyet; Burger King against
McDonald; Sheraton against Hilton
product class dissociation: a product may also be
positioned away from all competitors e.g. Sprite has
positioned itself against the cola products, Yapi
Kredi claims to be giving the best services
price: a product can be differentiated by using its
price. The product would be having the lowest price
in the market e.g. Alo.

After the company selects the right position

for itself, it must communicate and deliver
the chosen position with promotions.