4..market Segmentation - Notes And Assignment 1.doc 5d4l4b

MARKET SEGMENTATION, TARGETING AND POSITIONING MARKET SEGMENTATION INTRODUCTION Markets consist of buyers who differ in one or more respects. They may differ in their:-

Wants

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Resources

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Geographical locations

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Attitudes and

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Buying practices

It is therefore necessary for a marketer to segment his/her market. MEANING OF MARKET SEGMENTATION Marketing segmentation is “The act of dividing a market into distinct groups of buyers who might require separate products, and /or marketing mixes. Or it is the sub-division of a market into smaller homogenous sub-markets which the organization might successfully satisfy”. BENEFITS OF MARKET SEGMENTATION The following benefits may be derived by a company as a result of market segmentation.  It may enable a company to select potentially profitable segment(s).  It enables a company to concentrate resources on the chosen segments  The analysis gives a company the opportunity to review developments and anticipate changes in its chosen segment from competitive activity, legal / political changes, etc.  Sales opportunities are more likely to be effectively and fully exploited by staff when target audience is properly defined.  Better services tailored to the needs of particular markets segments are offered.  Prices are tailored to customers’ situations and circumstances.  It may lead to improved level of services both in of sophistication and general standards.

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 Assists in identifying gaps. Market segmentation involves marketing research. During this process, the marketer can also be engaged in “Gap Analysis.” Gap Analysis is a process which aims to seek out differences between what markets need and want and what is actually being supplied – the gap. Hence gap analysis will uncover:o Market needs for existing services not fulfilled o Other needs where no services currently exist. THE PROCESS OF MARKETS SEGMENTATION In identifying market segments, three stages are involved:1. Survey 2. Analysis and 3. Profiling Survey Stage The researchers initially conduct informal interviews with groups of consumers to find out their; -

Motivation -

Attitudes and

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Behaviour.

Based on the preliminary work, the researcher conducts more formal research by use of a structured questionnaire using a representative sample of consumers. Information sought includes; a. The importance and rating consumers give to certain attributes of products b. The extent to which people are aware of the existence of different brands of the product c. If brands awareness exists, how people rate different brands d. How, when, where and by whom the product is used. e. Attitudes towards the products category. f. Demographic, psychographic, behavioural and geographic profiles of consumers of the products.

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Analysis stage The researcher can then use appropriate statistical methods to analyze data in order to categorize the segments based on the identified characteristics. Profiling stages  Each segment is profiled with respect to its distinguishing attitudes behaviour, demographics, psychographics and geographical habits.  Segment characteristics and make-up vary over time, so the procedures have to be periodically carried out. STAGES IN IDENTIFYING MARKET SEGMENTS

SURVEY

ANALYSIS

PROFILING

WHEN SHOULD SEGMENTATION BE EMPLOYED? A marketer should ask himself the following questions if market segmentation is to work effectively. The answer to each must be ‘yes’. a) Can the market be identified? The marketer should be able to identify which consumers are of a particular market segment. There must be some common characteristics that the consumers have. b) Can the market identified be measured? The characteristics that are common to a group of consumers should be measured in of size, purchasing power and other characteristics. c) Is the market substantial? The market should be large enough to generate sales volumes that ensure profitability, otherwise it will not be economical to design a unique marketing mix for it. i.e., is the market worth the effort? d) Is the market accessible? 3

That is, can the market be reached effectively using promotion as well as distribution? e) Is the market responsive? Market segments must be defined in their willingness to purchase a product in response to variations in the marketing mix. f) Compatibility with corporate image The market must be compatible with the firm’s objectives and corporate image. If the six criteria for effective segmentation are met, marketers should then choose some means (bases or variables) for segmenting the market. VARIABLE FOR SEGMENTING CONSUMERS MARKETS The following variables are commonly used to segment consumer markets.  Geographic,  Demographic,  Psychographic and  Behavioral variables Geographic segmentation This calls for dividing the market into different geographical units such as. -

Nations

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States

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Regions – West, north, Central , South etc

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Countries,

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Cities or

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Neighborhoods

Attention should be paid to variations in geographical needs and preferences. Geographical segmentation assists the seller to position retail outlets in most appropriate locations as well as simply in identifying the needs on the basis of the consumers’ own location.

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Demographic segmentation This consists of dividing the market into groups on the basis of demographic variables such as: Age, sex, family size, family life, cycle, income, education, occupation, religion, race and nationality. These variables are the most popular for distinguishing customer groups because, -

Consumers’ wants and preferences are closely related to them.

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They are easier to measure than most other variables.

a) Age Consumers needs and wants change with age. Hence the market should be segmented as young, old etc. b) Gender This can be employed to segment such market for clothes deodorants, lotions, magazines, etc. thus the markets can be for men or women, males or female. c) Family life cycle (FLC) The product needs for a household very according to marital status and the present ages of children. Thus family life cycle can be divided into:-

Single

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Young, married with no children

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Young, married with youth children

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Older married with children, etc

d) Income Marketers can segment the market according to the distribution of income. e) Occupation Variables include; bankers, teachers, farmers, clerks, students, housewives, secretaries, etc. A marketer can choose to specialize in the needs of one occupation group or more. f) Education E.g. - Some primary education - Some high school education - College education 5

- University education etc. g) Religion – e.g. Muslims, Christians etc. h) Race – e.g. white, black etc i) Nationality – e.g. Asians, Africans etc. j) Ethnicity groups k) Generation- Each consumer is profoundly influenced by the generation in which he/she grows up. This influences one’s inclination to Music, politics etc. Psychographic segmentation Psychographics are psychological profiles of different consumers developed from research, sometimes referred to as AIO (Attitudes,Interests and Opinion profiles) In psychographic segmentation, buyers are divided into different groups on the basis of their:-

Social class

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Lifestyle and /or

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Personality characteristics

People within the same demographic group can exhibit very different psychographic profiles. Consumers can thus be sub-divided on the basis of the following psychographic variables. i.

Social class Social class has a strong influence on people’s preferences. Marketers deg products and or/ services for specific social classes build in those features that appeal to the target social class.

ii.

Lifestyle Consumers’ lifestyles are derived from their activities, interests and opinions. Each lifestyle group is influenced by different marketing mixes.

iii.

Personality Types of personality groups may include; -

Comparative authoritarian

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Ambitious

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Alertness to change 6

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Self-confident

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Prestige conscious

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Self image

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Self concept

Behavioral segmentation Buyers are divided into groups on the basis of their -

Knowledge

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Attitude

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Behaviour

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Use or

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Response to a products

In this respect, behavioral variables that are used to segment consumer markets include;-

i.

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Occasions

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Benefits

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status

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Usage rate

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Loyalty status

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Buyer readiness stage

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Attitude

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Individual segmentation

Occasions Buyers can be distinguished according to occasions when they -

have a need

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purchase a product or

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use a product

E.g. Occasions when public transport is used mostly. ii.

Benefits Buyers are classified according to the different benefits they seek from a product. Benefit segmentation requires determination of:-

The major benefits that people seek from the product

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The kind of the people who look for such benefits 7

iii.

The major brands that deliver each benefit.

status Many marketers can be segmented into -

Non –s

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Ex- s

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Potential s

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First time s and

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Regular s of a product.

All these people require different marketing approaches. iv.

Usage rate Market can be segmented into

v.

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Light,

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Medium and

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Heavy s of a group of products

Loyalty status A market can be segmented by customer loyalty patterns. According to the loyalty status, the buyers can be divided into: - Hard core loyal – Consumers who buy one brand all the time Soft core loyal – Consumers who are loyal to two or three brands Shifting loyal – Consumers who shift from favouring one brand to another. Switchers – Consumers who show no loyalty to any brand

A company should study the characteristics of its hard-core customers e.g. whether middle class, larger families etc. By studying soft-core loyal, the company can pinpoint which brands are most competitive with its own. By looking at customers who are shifting away from its brands, a company can learn about its marketing weakness. The company should be aware that what appears to be brand loyalty purchase may reflect: 

Habits

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Indifference,



low prices,

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Non- availability of other brands 8

vi.

Buyer readiness stage At any given time, people are so different that; -

Some people are aware

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Some are informed

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Some are interested,

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Some are desirous of buying

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Some intend to buy

All these make a big difference in deg the marketing programme. vii.

Attitude People in a market can be classified according to their degree of enthusiasm for a product. Five attitude- classes can be distinguished e.g.

viii.

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Enthusiastic,

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Positive

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Indifferent

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Negative and

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Hostile

Volume segmentation Involves grouping businesses by size and individual type.

Conclusion  Market segmentation reveals the market segment opportunities open to the firm  It has now to evaluate the various segments and decide on how many and which ones to serve.s  In evaluating the segments, the firm should look at: i.

The segment size and growth

ii.

Segment’s structural attractiveness, this is determined by: -

Threat of intense segments rivalry

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Threat of new entrants.

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Threat of substitute products

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Threat of growing bargaining power of buyers 9

iii.

Threat of growing bargaining power of suppliers

Company objectives and resources.

Selecting the market segments The company can go for; i.

Single segment concentration

ii.

Selective specialization – Selects a number of segments

iii.

Product specialization – makes one product and sells to a variety of customers groups.

iv.

Market specialization – firm concentrates on serving many needs of a particular customer groups E.G Kenya uniforms

v.

Full market coverage – serves all customer groups with all the products that it might need.

MARKET TARGETING INTRODUCTION  Market segmentation reveals the market segments opportunities facing the firm.  The firm therefore has to evaluate the various segments and  Decide on how many and which ones to serve. EVALUATING THE MARKET SEGMENTS In evaluating different market segments, the firm must look at the following factors. Segment size and growth  Marketing segment has to be ‘right size”. Size can be measured in of sales volume.  Companies should not only concentrate on sales volume but also on the growth potential of the segment. Segment’s structural attractiveness A segment might have desirable size and growth characteristics and still not be profitable. - It should evaluate the long run profitability of the market segments. - It has to appraise its impact on profitability. Michael Porter has identified five forces that determine the intensive long –run attractiveness of the whole market or any other segments within it.  Industry competitors  Potential entrants  Existence of substitute products  Bargaining power of buyers and 10

 Bargaining power of suppliers. The five threats they pose are: Threat of intense segment rivalry A segment is unattractive if it already contains strong or aggressive competitors.  Threat of new entrants A segment is unattractive if it is likely to attract new competitors who will bring in new capacity, substantial resources and a drive for market share growth.  Threat of substitute products A segment is unattractive if there exists actual or potential substitutes of the product.  Threat of growing bargaining power of buyers A segment is unattractive if the buyer’s possess strong or increasing bargaining power, are interested in low prices but high quality.  Threat of growing bargaining power of suppliers A segment is unattractive if the suppliers possess a strong or increasing bargaining power. They can raise prices or reduce the quality and quantity of products and services offered.

Company objectives and resources - Even if the segment has positive size and growth and it is attractive, the company has to consider its own objectives and resources. - A segment can be dismissed because it does not fit in the company’s long- run objectives. - Even if a segment fits the company’s objectives, it must consider whether it has the required skills and resources to succeed in that segment. Segment interrelationships Segments selected should be inter-related in of costs, performance and technology for effectiveness. SELECTING THE MARKET SEGMENTS From the results of segment evaluation, the company may select one or a few segments worth entering. It must decide which ones and how many to serve. Five possible market coverage strategies should be considered:1. Concentrated marketing / Single segment concentration The company selects only a single segment to concentrate on. This is because: - The company may have a natural match to the segments success requirements, - The company may have very limited resources - It might be a segment with no competitor 11

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Can be a segment that is a logical launching pad for further segment expansion. e.g. Volkswagen has concentrated on a small car market. Advantages:- A firm achieves strong market position in the segment owing to its greater knowledge of the segments needs and special reputation it builds. - A firm enjoys many operating economies through product specialization, distribution and promotion. - It can earn high return on interest. Disadvantages:- A particular segment can turn sour - Competitors may decide to enter same market. 2. Selective specialization (Multi-segment coverage) - A firm selects a number of segments - Each of which is attractive and matches its objectives and resources. Advantages:-

A firm’s risks are diversified and even if the segment is unattractive it can still make profits in other segments It may result in synergistic effects Promotion costs are lowered More customers are captured.

Disadvantages:- Losses - Expensive - Needs more resources 3. Product specialization A firm concentrates on making one product and selling it to a variety of customers groups. This strategy works when; - Demand is continuous - There are homogenous goods - Same resources are used. Advantage: - A firm avoids putting all eggs in one basket. Disadvantage -

a lot of expenditure on ments.

4. Market specialization A firm concentrates on serving many needs of particular customer group. 5. Full market coverage Here, the firm attempts to serve all customer groups with all the products that they may need. Large firms can cover a whole market in two broad ways, namely:- Undifferentiated marketing and 12

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Differential marketing

Undifferentiated marketing (Market Aggregation) The firm ignores market segments differences and goes after the whole market with one product offer. Focus It focuses on what is common in the needs of buyers rather than what is different. Design It designs a product and marketing programme that will appeal to the broadest number of buyers. Reliance It relies on mass distribution and mass advertising. The aim is to give a product a superior image in people’s minds. Advantages:-

The narrow product line keeps down production, inventory and transportation costs. The absence of segmentation lowers the cost of marketing research and product management. The undifferentiated advertising programmes keep down advertising costs.

Disadvantages:-

Lack pf personal touch. New entrants There may be intense competition in the large market segments It may be unprofitable operating in large segments.

Differentiated marketing Here, the firm operates in most segments of the market but designs tailored programmes for each significantly different segment. Advantages:-

Creates more total sales than undifferentiated marketing Customer satisfaction is higher Better defined marketing programmes

Disadvantages:It increases the cost of doing business e.g. - Products modification, - Production - istrative, 13

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Inventory Promotion and Distribution costs.

MARKET POSITIONING Meaning This is the act of deg a company’s offering and image to occupy a distinctive place in the target market’s minds. i.e. The act of creating differences between a company’s offers and those of competitors. A difference is worth establishing to the extent that is satisfies the following criteria. 1) Important : - the difference delivers a highly valued benefit to a sufficient number of buyers 2) Distinctive: - the difference is delivered in a distinctive way. 3) Superiror: the difference is superior to other ways of obtaining the benefit. 4) Pre-emptive: the difference cannot be easily copied by competitors. 5) Affordable – The buyer can afford to pay for the difference. 6) Profitable – The Company will find in profitable to introduce the different product. Positioning strategies:1) Attribute positioning A company positions itself on an attribute e.g. size number of years in existence. 2) Benefit positioning A product/firm is positioned as the leader in a certain class benefits. 3) Use or application positioning Positioning a product as the best for some use or application 4) positioning Positioning a product as the best for some group. e.g. Bic pen, food for consumption. 5) Competitor positioning The product claims to be better in some way than a named competitor’s product. 6) Product category positioning The product is positioned as the leader in certain products category 7) Quality or price positioning The product is positioned as offering the best value for the stated price. How many differences to promote 1) Single benefit positioning e.g. best quality , best service, lowest price, best value, safest, fastest most convenient , most advanced technology. 2) Double benefit positioning 14

May be necessary if two or more firms claim to be the best on the same attributes 3) Triple benefits positioning e.g. Smithkline Beecham promotes its aqua fresh toothpaste as offering these benefits. - Anti- cavity protection - Better breath - Whiter teeth. The challenge is to convince the consumers that the products offer all three. As companies increase their number of claims for their brands, they risk disbelief and loss of clear positioning. Companies must avoid four major positioning errors. 1) Under Positioning When buyers have only a vague idea of the brand The brand is seen as just another entry in a crowded marketplace E.G When Pepsi introduced its clear crystal Pepsi in 1993 (U.S.A) customers were distinctively unimpressed. They didn’t see “clarity” as an important benefit of a soft drink. 2) Over Positioning Buyers may have too narrow an image of the brand. 3) Confused Positioning Buyers might have a confused image of the brand resulting from the company making too many claims or changing brand positions too frequently e.g. omo 4) Doubtful Positioning Buyers might find it hard to believe the brand’s claims in view of the products features, prices or manufacturers.

Individual Assignment (20 marks) Select an industrial firm of your choice and: i. Explain the variables it uses to segment its market. ii. The pricing methods it uses for its products/services iii. The benefits that would accrue to the firm from marketing planning iv. Prepare a marketing plan for that firm

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