Unit II: Market segmentation

Market Segmentation

Market segmentation is the process of dividing a broad consumer or business market into smaller, more manageable segments based on shared characteristics. It helps businesses identify and target specific groups of customers effectively.

Factors Influencing Segmentation:

Several factors affect how a market is segmented:

Market Aggregation

Market aggregation, also known as mass marketing or undifferentiated marketing, is a strategy where a company treats the entire market as a single homogeneous unit. Instead of segmenting the market, the business offers one standard product for all consumers.

Characteristics of Market Aggregation:

• Focuses on mass production and distribution.
• Lower costs due to economies of scale.

Example: Basic consumer products like salt, sugar, and electricity services.

However, this strategy is less effective when consumer preferences vary significantly.

Basis for Market Segmentation

Markets can be segmented based on the following major criteria:

Consumer Market Segmentation

1. Demographic Segmentation

• Age: Kids (toys), Teens (fashion), Adults (insurance), Elderly (medical products).
• Gender: Male grooming products, Female beauty products.
• Income: Budget brands, premium brands (luxury cars).
• Occupation: Office workers (formal wear), Students (notebooks, casual wear).

2. Geographic Segmentation

• Location: Products vary in urban and rural markets.
• Climate: Air conditioners in hot regions, heaters in cold regions.

3. Psychographic Segmentation

• Lifestyle: Fitness-oriented (gym equipment, protein shakes), Travelers (backpacks, adventure gear).
• Personality Traits: Extroverts (party wear), Introverts (books, gaming).

4. Behavioral Segmentation

• Usage Rate: Heavy users (family packs), Light users (small packs).
• Loyalty Status: Regular customers vs. brand switchers.
• Benefits Sought: Quality-conscious (Apple iPhones), price-sensitive (budget smartphones).

5. Targeting and Positioning

After segmentation, businesses choose their target market and position their product effectively.

Targeting Strategies:

• Undifferentiated Marketing – One product for all customers.
• Differentiated Marketing – Different products for different segments.
• Concentrated Marketing – Focusing on a specific niche.
• Micromarketing – Personalized products (customized shoes, local restaurant menus).

Positioning:

Positioning is how a brand or product is perceived in the minds of consumers. A strong positioning strategy highlights a unique selling proposition (USP).

Examples of Positioning Strategies:

• Cost Leadership (Walmart – low prices).
• Premium Positioning (Rolex – luxury watches).
• Niche Positioning (Tesla – electric vehicles).

In short, Market segmentation helps businesses better understand customer needs, while targeting ensures they reach the right audience. Positioning differentiates the product in a competitive market. Together, STP forms the foundation of a successful marketing strategy.

Meaning of Targeting

Targeting is the process of selecting specific customer segments from a broader market and focusing marketing efforts on them. It follows market segmentation and ensures that businesses allocate resources effectively to attract and serve their most valuable customers.

Importance of Targeting:

• Helps businesses focus on the right audience.
• Improves marketing efficiency and effectiveness.
• Enhances customer satisfaction by offering tailored products/services.
• Increases sales and profitability.

Basis for Identifying Target Customers

To select the right target market, businesses evaluate segments based on the following criteria:

1. Market Size and Growth Potential

A segment must be large enough and have growth potential. Example: The rising demand for electric vehicles makes eco-conscious consumers a profitable segment.

2. Segment Attractiveness

Factors such as competition, profitability, and market entry barriers are considered. Example: The luxury car market is attractive due to high profit margins but has strong competition.

3. Company Resources and Capabilities

The company must have the resources (production, distribution, marketing) to serve a segment. Example: A small business may focus on a local niche instead of a national market.

4. Competitive Landscape

Businesses analyze competition within the segment. Example: If a segment has dominant players (e.g., Apple in premium smartphones), entering it may be challenging.

5. Customer Needs and Compatibility

The segment should align with the company's offerings and branding. Example: A company specializing in organic products targets health-conscious customers.

Target Market Strategies

Once a target segment is identified, businesses choose one of the following strategies to serve them:

1. Undifferentiated Marketing (Mass Marketing)

• Focuses on the entire market rather than specific segments.
• Emphasizes universal appeal and economies of scale.
• Suitable for products that have widespread demand.

✅ Advantages:

• Low marketing and production costs.
• Large customer base.
• Efficient mass distribution.

❌ Disadvantages:

• Less customer engagement.
• Ignores individual preferences.
• Example: FMCG products like toothpaste, salt, and sugar use mass marketing.

2. Differentiated Marketing (Segmented Marketing)

• Targets multiple customer segments with different marketing strategies.
• Allows businesses to create customized products for different groups.

✅ Advantages:

• Increases market share by covering various segments.
• Enhances customer satisfaction.

❌ Disadvantages:

• Higher costs due to different marketing campaigns.
• Requires more resources.
• Example: Automobile companies (e.g., Toyota) offer budget, mid-range, and luxury cars for different segments.

3. Concentrated Marketing (Niche Marketing)

• Focuses on a specific market segment with specialized needs.
• Helps businesses become market leaders in that niche.

✅ Advantages:

• Strong customer loyalty.
• High profit margins.

❌ Disadvantages:

• Risky if demand decreases.
• Limited customer base.
• Example: Lamborghini focuses only on high-income luxury car buyers.

4. Micromarketing (Local or Individual Marketing)

• Involves highly personalized marketing efforts.
• Can be based on geographical location or individual preferences.

✅ Advantages:

• Deep customer connection.
• Highly relevant offers.

❌ Disadvantages:

• High cost and effort.
• Not scalable for large businesses.
• Example: Nike By You allows customers to design their own shoes.

In short, Targeting is crucial for effective marketing. Businesses must choose the right target segments based on market potential, competition, and company strengths. The selection of a target market strategy depends on product type, company goals, and customer diversity.

Meaning of Positioning

Positioning is the process of creating a unique image of a product or brand in the minds of consumers. It differentiates the product from competitors and highlights its key benefits.

Importance of Positioning:

• Helps businesses stand out in a competitive market.
• Influences customer perception and purchasing decisions.
• Creates brand loyalty and long-term customer relationships.

Example:

• Apple positions its iPhones as premium, innovative, and user-friendly.
• Volvo positions its cars as the safest vehicles in the world.

Product Differentiation Strategies

Product differentiation is the process of making a product or service unique compared to competitors. Businesses use different strategies to highlight their competitive advantages.

Tasks Involved in Positioning

The positioning process includes several key tasks that help a company establish its brand in the market.

1. Identifying the Target Market

Businesses analyze consumer needs, preferences, and demographics. Example: A luxury watch brand targets high-income individuals.

2. Analyzing Competitors

Companies evaluate competitors' positioning and find gaps in the market. Example: Tesla identified a gap in electric luxury cars and positioned itself accordingly.

3. Defining Unique Selling Proposition (USP)

Businesses identify what makes their product unique. Example: Domino’s Pizza – “30 minutes or free” USP focused on fast delivery.

4. Creating a Positioning Statement

A short statement defining the brand’s unique value. Example (BMW): “The Ultimate Driving Machine” highlights luxury and performance.

5. Communicating the Positioning

The brand message is promoted through advertising, packaging, and social media. Example: Coca-Cola’s “Open Happiness” campaign reinforces an emotional connection.

6. Monitoring and Repositioning (if needed)

Companies track customer perceptions and adjust positioning as needed. Example: McDonald's shifted focus to healthier food options in response to customer demand.

In Short, Positioning helps businesses create a distinct brand image, while product differentiation strengthens their competitive advantage. Effective positioning involves understanding the market, defining a strong USP, and continuously adapting to consumer trends.

Branding

Branding is a key marketing strategy that helps businesses build a strong reputation and customer loyalty. It involves creating a unique identity for a product or service in the minds of consumers.

Concept of Branding

Branding is the process of giving a unique identity to a product, service, or business through elements like name, logo, design, and messaging. It differentiates a company from competitors and influences consumer perceptions.

Key Elements of Branding:

• Brand Name – A unique name that represents the brand (e.g., Nike, Apple).
• Logo & Symbols – Visual elements that create recognition (e.g., McDonald’s Golden Arches).
• Tagline – A catchy phrase that reflects brand values (e.g., "Just Do It" – Nike).
• Brand Personality – The emotions and characteristics associated with the brand (e.g., Harley-Davidson represents adventure and masculinity).
• Brand Promise – The commitment a brand makes to its customers (e.g., FedEx guarantees on-time delivery).

Importance of Branding:

• Creates brand recognition and recall.
• Builds trust and customer loyalty.
• Helps businesses stand out in a competitive market.
• Increases perceived value and brand equity.

Brand Types

Brands can be categorized into different types based on ownership, target audience, and purpose.

Brand Equity

Brand equity refers to the value of a brand based on consumer perception, recognition, and loyalty. A strong brand equity increases a company’s revenue, market share, and competitive advantage.

Components of Brand Equity:

Importance of Brand Equity:

• Allows premium pricing (e.g., Apple charges more due to strong brand equity).
• Increases customer retention and loyalty.
• Helps in launching new products under the same brand (e.g., Samsung expanding into smartwatches).
• Creates a competitive advantage and higher market valuation.

Brand Positioning

Brand positioning refers to how a brand is perceived in the minds of consumers compared to competitors. It is the strategy used to create a distinct image of the brand.

Steps in Brand Positioning:

• Identify Target Audience – Understand the needs and preferences of the ideal customer.
• Analyze Competitors – Study competitors’ positioning and find a unique angle.
• Define Unique Selling Proposition (USP) – Highlight what makes the brand different and valuable.
• Develop a Brand Promise – Clearly communicate what the brand delivers.
• Communicate Consistently – Maintain a uniform brand message across advertising, packaging, and social media.

Types of Brand Positioning Strategies:

Example of Strong Brand Positioning:

Coca-Cola vs. Pepsi – Coca-Cola is positioned as a "happiness and tradition" brand, while Pepsi targets the "young and energetic" audience.

Branding is a vital strategy for business success. Strong branding creates recognition, trust, and loyalty, while brand positioning ensures a brand stands out in the market. A business with strong brand equity and clear positioning can command premium pricing and long-term customer relationships.