UNIT II: Market Segmentation and Targeting

Let us start with understanding the meaning of the term market. It stands for a
group of buyers and their demands (and not the geographical area). So, the market
for a product is nothing but the aggregate of customers of that product. Mostly
markets can be divided into two categories:
Homogenous Markets: The customers are similar to each other with respect to
their product requirements (e.g. match-box, mineral water, petrol, bricks etc).
Customers in such markets require similar type of products, similar availability,
price, and information requirements.
Heterogeneous Markets: In such markets customers differ widely from each
other in terms of their requirements and their characteristics (e.g. furniture,
apparels). The customers vary with respect to price they want to pay, kind of
product they want to have, where and how they want to buy it etc.
Markets for most of the products are heterogeneous in nature, though they vary in
their degree of heterogeneity. Companies have limited resources. It is not feasible to
produce all the possible products for all the customers. The firm would benefit from
the decision of what needs and whose needs to serve (i.e. selecting one or more
sub markets of heterogeneous markets). Companies need to pick up the submarkets in a way to have best possible use of their resources (financial, expertise,
experience, technology etc).
Market segmentation is division of a large group of customers with varied needs
and characteristics into several smaller groups of customers on the basis of their
similarities and differences.
The customers in the smaller groups are more similar in terms of what they seek
from the product but different from customers of other groups.
Customers may have one or more of requirements from a product. It can be low
price, excellent quality, basic functions, aesthetic appeal etc. Buyers of 'Sony TV'
seek excellent quality irrespective of the high price, buyers of 'Nirma' washing
powder seek low price and basic washing function.
Let us consider the example of wrist watch in this context. Customers in lower
income groups are similar in their requirements of low price, benefit of accurate
time and some degree of durability of watch. Whereas, customers in high income
groups are different from low income group customers in terms of benefits they
seek from wrist watch and their characteristic of income, but they are similar in
their requirements like fashion, style, prestigious brand name of watch.
Marketers break up the heterogeneous market for a product into several sub-units
or sub-markets, each relatively more homogeneous within itself, compared to the
market as a whole.
This process of breaking up the market into number of distinct sub-markets of
buyers, each with relatively more homogeneous characteristics is known as market
segmentation, and the sub-market are known as segment .
A Market segment consists of group of customers who share similar set of needs
and wants. The marketers task is to identify the number and nature of market
segments and decide which one(s) to target.

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Market segmentation and Product Differentiation

Market segmentation
In market segmentation, product differences are based on differences in the needs
of the customers.
Different kinds of products are offered to satisfy needs of different segments. In
market segmentation, the starting point is customers (e.g. Lifebuoy soap to kill
bacteria and Dove soap to moisturize the skin).
Product Differentiation
In product differentiation, the marketer offers differences in products which are not
due to differences in the needs.
These differences are to offer variety to customers to choose from (e.g. bathing soap
is in different colours and fragrances, custard powder in different flavours, pencil
sharpeners in different shapes etc).

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Benefits of Market Segmentation
For all the marketing activities to be performed efficiently and effectively, it is
important to be able to develop appropriate marketing mix and focus it properly on
customers. Along with this ultimate benefit of segmentation, some other benefits of
marketing segmentation are discussed below:
1.Identifying Attractive Segments: A marketer can have much clearer picture of
market, if it is in smaller segment.
By looking at the market in the form of several segments, a firm can have better
picture of available opportunities ,growth potential and competitive scenario of
each segment (e.g. assessing the market of TV viewers as different groups
interested in watching different kinds of channels as compared to assessing TV
viewers as a whole, gives better and more useful idea about the available
opportunities).
2. Efficient and Effective matching of company resources to target customer
groups: As companies have limited resources it is not feasible to produce all
possible products for all the people in the markets (e.g. it may not be possible/
profitable to produce all kinds of apparels, furniture required by all kinds of buyers
in the markets).
The best that can be aimed for is to provide selected products for selected segments
of customers , this enables the most effective use of a firms resources like
financial, expertise, experience, technology etc.
Market segmentation enables the company to pick up the best and most suitable
segments to pursue. The firm would be benefited, if it understands the marketing
efforts required for different segments and selecting the segments which show the
best fit with the resources of the company.
3. Identification of Gaps in the need satisfaction: Market segmentation helps
the marketers to evaluate need satisfaction of various customer segments by the
existing products in the market.
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Such an exercise helps in better identification of segments, whose needs are not
being satisfied well or identifying segments with no product offering to match their
needs (e.g. Nirma identified the gap of no washing powder being offered for lower
income group in the market, Cadbury identified and included older people as new
segment of sell chocolates).
4. Developing Appropriate Marketing Mix: Market segmentation enables to get
more clarity about characteristics of customers, their needs, purchase behaviour
and responses to marketing activities.
It helps in better identification of customers with detailed knowledge about their
similarities. By considering such information, marketer can take more appropriate
decisions about products, price, distribution and promotion.
The purpose is to ensure best possible match between marketing mix and
requirements of its segments. Thus, market segmentation gives advantage of
increasing the effectiveness of marketing mix (e.g. various segments of bicycle
markets are being served with different marketing mix variables to cater to the
differences in the requirements of various segments).
5. Sharp focusing of Market Strategy on Target Customers: Market
segmentation enables a company to observe customers in smaller groups , which
helps in better identification of customers characteristics.
Such information helps the companies in better focusing of marketing efforts on
its customers . It also prevents
scattering away of marketing efforts, thus
improving the efficiency of marketing strategy (e.g. for informing business
executives about a management workshop through advertisements in business
TV channels and financial newspapers rather than through general TV channels
and newspapers, a company can sharply focus its message on its potential
customers).
Requirements of effective Market Segments:
Measurability: It should be possible to measure the number and size of customers
to some reasonable extent.
Substantial: The segment should be large and profitable enough to serve in the
long run.
Distinctiveness: The segment should be clearly different in their needs and
characteristics from other segments (e.g. customer segments in mobile handset
market have some clear and important differences from each other to make each
segment a distinct one.)
Accessibility: The segment can be effectively reached and served.
Bases for Segmentation
To segment consumer market, we use certain criteria related with customers. The
commonly used bases for segmenting the market are broadly divided into following
four categories:
1. Geographic: Customers with different geographical locations vary in their needs
for products due to differences in climate, culture, eating habits etc.
Geographic segmentation calls for dividing markets into different geographical
units such as nation, states, countries, region, cities, or neighbourhood.

The company decides to operate in one or few geographical areas or to operate in

all but pay attention to variation in geographical needs and preferences (e.g.
McDonalds has made modification in its burgers as per the tastes of different
countries, e.g. demand for sunscreen varies due to difference in climate.)
Geographic

Variable

Components
Country

India, China, Canada

Region
South India, North-East
Table: Geographic Segmentation and Variable
City
Delhi, Bangalore

2. Demographic: Demographic segmentation consists of dividing the markets into

groups on the basis of demographic variables such as age, gender, family size,
family life cycle, income, occupation, education, religion, race, and nationality.
Demographic variables are the most popular basis for distinguishing the customer
groups.
Consumers wants, preferences, usage rates, buying practices etc. are often highly
associated with demographic variables.
Demographic variables are easier to measure as compared to other types of
variables. Even when the target market is segmented on non-demographic bases,
linking the segments back to demographic characteristics is necessary in order to
know the size of the target market and how to reach it efficiently.
i. Age: Consumers' wants, purchase preferences and purchase capacities change
with age.
Some companies offer different products with different marketing approaches for
different age groups (e.g. different types of toys, games, clothes, books for children
of different age groups).
ii. Gender: Segmenting the market on the basis of gender helps the marketer to
categorize products specifically for males and females.
Gender segmentation is necessary to be used as a base for large number of
products (e.g. clothing, cosmetics, foot wear, wristwatch etc.) Hindustan Lever
offers Fair and Lovely for women and Fair and Handsome for men because of the
difference in the facial skin of males and females.

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Fair and Lovely for Women
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Fair and Lovely for Men

iii. Income: It is one of the most commonly used and important base for
segmenting the market for large number of products and services.
It has direct bearing on the choice behavior of customers with respect to kind of
products and brands.
People within a same income group are more likely to buy similar kind of products
and brands (e.g. Different models of mobile phones of different companies have
income as an important base for their market segments i.e. customer buying Nokia
Bar Phones are different from customers buying Nokia Lumia in their income
levels).

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Nokia C1-01

Nokia Lumia 920

iii. Education: The level of education influences consumers preference over wide
range of products.
It is considered relevant as a base to segment the markets for certain products.
(e.g. Kinds of calculators for students of physics, maths, engineering, coaching
institutes use education as one of the important base to segment the market,
publishers segment their market on the basis of subject areas and level of
education).

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Simple Calculator

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Scientific Calculator

iv. Occupation: People with different occupations like farming, technical, health,
education, sports, etc. vary in their requirement for some of the products (e.g.
supplement health drinks for sports people, books for teachers, medical equipment
for doctors).
v. Family size and Family life cycle stage: People pass through different stages
of life-cycle like childhood, teenager, youth, married couples without children,
couples with teenager children, and so on.
Customers tend to have different consumption patterns at different stages of lifecycle. Accordingly, product requirements and purchasing power vary for different
stages of family life cycle.
Product requirements also vary for different sizes of the family (e.g. different kinds
of bank loans based on different life-cycle stages, availability of large family packs
of FMCGs, various sizes of refrigerators for small and large families)

Demographic Variables
Age

Components
4-10, 15-18, 20-25, 25-35

Gender
Income

Male, Females
Table: Demographic Segmentation and Variables
High, Medium and Low

Education

High school, Graduates, Post-graduates

Occupation

Students, Businessmen, Professionals

Family size

Single, two members, four members

Family Life Cycle Stage

Unmarried single, Young married, Married

couples with children in teenage group.

3. Psychographic: It relates to understanding and using the psychology of the

customer as a base for differences in their needs for products.
By analysing consumers activities, interests and opinions, we can understand the
psychological makeup of consumers.
Psychographic characteristics influence product choice behaviour of buyers and
also help in designing right marketing activities for the buyers.
In psychographic segmentation buyers are divided into different groups on the
basis of life style and personality characteristics.
i. Life style: It is persons way of living and reflects living as a combination of his
actions, interests and opinions.
The goods that people consume express their life-style (e.g. clothes for fashionable
and modern women or clothes for traditional and conservative women,
advertisement of Nerolac paints by Shahrukh Khan shows his lifestyle and tries to
match it with the lifestyles of its customers.)

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ii. Personality: Marketers try to endow their products with brand personality that
corresponds to consumer personality.
Matching the personality of the brand with personality of customer makes strategy
more effective (e.g. Godrej launched its advertising campaign for building image of
its products with Aamir Khan as its brand ambassador. It was to project the
personality of its products and its similarity with personality of customers).

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Behavioural Segmentation
Buyers are divided into segments on the basis of factors related with their buying
behaviour. The various kinds of bases in this category are as follows:
1.Benefits sought: Marketing is all about satisfying consumers needs and wants.
It is classification of buyers according to benefits they seek from products.
Benefits can be in tangible form like functional features to provide convenience,
safety, durability etc.(e.g. functional features of mobile handsets sought by
customers) and/or benefits which are in the intangible form. (e.g. particular brand
of car, jeans, bag may have status symbol as their intangible benefit.)
A company can choose the product benefit to satisfy a particular need of customers
(e.g. toothpaste which also works as a mouthwash)
An attempt is made to determine demographic, psychographic and media habits
associated with each benefit segment. It enables the company to design appropriate
marketing programme and focus it properly on them. (e.g. companies are
launching number of products with health benefits like atta noodles, whole wheat
bread, high fiber biscuits, multigrain flour etc. for health conscious customers, diet
ice-cream for caloric watchers, lower price mattresses for people seeking economy,
high nutritional value of breakfast cereal for mental growth of children, different
toothpastes offer different benefits like cavity prevention, white teeth, sensitive
teeth, fresh breath, strong teeth, strong gums etc for different segments ).

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For Sensitive Teeth

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For Bad Breath

For Gum Care

2. Usage status: Status of customers as ex- users, potential user, current user,
competitors brand user can be used as one of the criteria for segmenting the
market.
For example, a company may consider the group of people not consuming the
product as an attractive market segment to aim its marketing plans so as to
convert them into buyers (e.g. in case of microwave, there is large segment of
potential customers who could benefit from using microwave).
3. Loyalty status: Extent of brand loyalty on the part of consumers could also be
a basis for segmentation.
Buyers segmented on this basis can be in groups like hard-core loyal, soft-core
loyal, shifting loyalty and switchers.
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When the company is able to identify the characteristics of customers with high
brand loyalty, it can develop an appropriate marketing strategy suitable to them or
to attract new customers with similar characteristics or customers of competing
brands.
Companies can develop marketing programme to hold on to their loyal customers
as it is cost effective to keep the existing loyal customers while trying to get more
new customers (e.g. airline companies, hotels offer reward programmes to their
customers for repeat purchase, retail outlets often come out with promotional
schemes based on loyalty of their customers)
4. Usage rate: Many companies segment the customers as light, medium and
heavy users of the product.
Buyers in such groups may show some common demographic, psychographic
characteristics and media habits.(e.g. teenagers as heavy users of choclates, older
people as light users for chocolate).
It helps the company in selecting suitable segment and developing right marketing
approach for it.
5. Occasions: Many products are bought, whenever they are required like tires.
But purchase of some of the products is related with occasions. Such products are
segmented using bases of occasions (e.g. holiday packages by travel agencies
during vacations, gift packs during festival seasons, invitation cards printing
during wedding sessions).

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Behavioral Variables
Benefits sought
Usage Status
Usage Rates
Loyalty Status

Components
Status, Convenience, Economy etc
Ex-users, Current users, Potential users
Heavy, Medium and Light users
Hard-core loyals, Soft-core loyals,
Shifting loyalty, Switchers

Occasion

Festivals, Wedding, Vacations etc

Table: Behavioural Segmentation and Variables

Multiple Segmentation Bases
There is no single way to segment the markets.
Although, all segmentation bases are useful, each has its own characteristics. A
market can be segmented using only one base or more than one bases.
Various bases can be used in different combinations for segmenting markets.
Usually different bases are used in succession and in a suitable order.
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The only requisite is that the base chosen has to be relevant for the concerned
market. Companies may also change the bases with the change in situation.
Segmentation in Business Markets
Business to Business market segmentation is the identification of group of
potential and present business customers with some common characteristics.
The variables for segmenting these markets can be broadly grouped in two
categories, which are as follows:
1.Organisational Characteristics: Firms differ a lot from each other in terms of
their characteristics and degree and degrees of these characteristics.
Some of the common bases being used for segmenting the organisations are:
i. Size of the organization: As the size influences the order size, order frequency,
delivery time etc, grouping of thefirmson this basis is important.
ii. Technology: Within the same industry, organisations may have different
technologies. The kind of technology influences the needs of the customers and
thus can be important as a base for segmentation.
iii. User status: The potential and present customers can also be segmented on
the basis of their being non-users, light users, medium users and heavy users.
iv. Geographical location: Often the needs of business customers vary due to
different geographical areas.
v. Industry type: There is very wide range of industries in business scenario.
Different industries have different requirement. The differences in their needs have
to be considered so as to segment them and develop right marketing mix for them.
2. Buyer characteristics: It refers to purchase related policies and procedures of
the organisations. Some of the bases in thiscategoryare as follows:
i. Purchase decision making unit: People with the responsibility to take
purchase decision vary across organizations.
It can be just one person or committee or a department or a group of people from
different departments. As a result, organisations require different kind of
marketing approach from seller organisations. Thus, the companies can be
segmented on this basis also.
ii. Purchase Criteria: It is used as a base for segmenting due to its relevance for
designing marketing activities. As different companies have different purchase
criteria, it may have influence with respect to kind of product, its price, delivery,
after sale service, terms and conditions. So, this also can be used as a basis for
segmentation.
iii. Multiple Bases: Companies can use multiple bases as per the requirements of
the situation and may change them with the change in the situation.
Market targeting
Choosing the right segment(s) out of all the market segments is called market
targeting and the segment selected is called target market.
Once the firm has developed various market segments, it needs to decide: how
many segments to cover and which ones.
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Choosing the market segment requires evaluating different segments on the criteria
of (i) attractiveness of various market segments on factors like size, growth,
profitability, scale economy, competitive situations etc (ii) companys capability to
compete in various segments on factors like objectives, competencies and
resources.
Ways of Targeting
The firms have different types of target marketing options to choose from. These
have been broadly classified as follows:
1.Undifferentiated Target Marketing (mass marketing): Under this strategy, a
firm chooses not to recognize the different market segments making up the
market.
It treats the market as an aggregate, focusing on what is common in the needs of
people rather than on what is different. It tries to design a product and marketing
program that appeals to the largest number of buyers.
It uses the policy of same product, distribution channels, pricing, mass advertising
and advertising themes, for entire market.
This strategy has the advantage of keeping costs low because it develops and
applies only one type of marketing mix.
It is a suitable strategy when the firm aims to target largest market segment.
But, when several firms in the industry do this, the result is hyper competition in
the largest target segment selected. Marketers for commodities like sand, wheat,
and petrol use this strategy. Broadly the same product is being bought by masses
at the same price and at the same places. (e.g. Hamdard is using undifferentiated
target marketing for its product Rooh-Afja as the product, its price, kinds of retail
outlets carrying it and its advertising strategies are same for all the customers).
Common Marketing

S
i
n
g
l
Undifferentiated

Programme

Market
Table: Undifferentiated Marketing Strategy

"
Differentiated Target Marketing: Under this strategy, a firm decides to operate in
more than one segments of the same market and designs separate product and
marketing programs for each.
It brings more total sales volume in a product category. For example: HUL is
offering different soaps for different customers segments in soap category. Offering
product in more segments will build more sales volume of soap category as a whole
for the company. For example, Nokia is selling mobile phones for number of
different segments. It results in better matching of product with customers needs
thus resulting in satisfying different customer segments and much larger number
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of total customers. However this strategy require high costs (e.g. different cars for
different segments by Maruti, different soaps for different segments by HUL).
Marketing Programme A
Segment 1
Marketing Programme B

Segment 2

Marketing Programme C

Segment 3

Table: Differentiated Marketing Strategy

"
Maruti Alto

"

"
Maruti Swift

Maruti Ertiga

Concentrated Target Marketing: Under this strategy, an organization selects only

one of the segments as target market and focuses on its needs through its
marketing programs.
In this way, a firm has greater understanding of the customer needs in one
segment and achieves providing quite appropriate product and marketing program
for its customer.
If the segment is well chosen, the firm can earn high rates of return on its
investment. But at the same time, this strategy involves higher than normal risks
to its business due to the reasons like: If there is any change in customers need/
or a new competitor enters the market or any other change, it may have decline in
its volume and profits or it can just out of the markets (e.g. coaching institute for
preparing students for IAS exams only).

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