CHAPTER-3: MARKET SEGMENTATION AND TARGETING

Learning objectives of this chapter are: Ø  Meaning, Concept and Types of Market Ø  Meaning of Market Segmentation Ø  Requirements and benefits of market segmentation Ø  Segmentation variables for consumer and industrial markets Ø  Process of market segmentation Ø  Segmentation practices in Nepal Ø  Targeting and positioning the markets

Chapter Preview: 

So far, we have learned what marketing is and about the importance of understanding consumers and the marketplace. With that as a background, we now delve deeper into marketing strategy and tactics. This chapter looks further into key customer value-driven marketing strategy decisions—dividing up markets into meaningful customer groups (segmentation), choosing which customer groups to serve (targeting), creating market offerings that best serve targeted customers (differentiation), and positioning the offerings in the minds of consumers (positioning). The chapters that follow explore the tactical marketing tools—the four Ps—by which marketers bring these strategies to life.

3.1 Meaning, Concept and Types of Market

Ø  Meaning and Concept of markets

Market is a regular gathering of people for the purchase and sale of goods and services. The term market was derived from the Latin word marcatus meaning that it is a place where buying and selling take place. This view of market is very narrow in today’s context so that it is not just a place of buying and selling but also a process or medium of exchange.

Market is a medium that allows buyers and sellers of specific goods and services to interact in order to facilitate an exchange. It can be face to face at a certain place or through means of communication such as Telephone, E-mail, Internet, Facebook, Instagram, Wechat, Imo, Viber, Fax, and so on. Market satisfies the needs and wants of consumers through the exchange process. Place, commodity, area, demand, exchange, and space are the major concepts of market.

·     Place Concept: Place concept is traditional concept of market.  According to this concept, a market is an easy place where buyers and sellers meet together for the purpose of buying and selling. For example, Kalimati Fruit and Vegetable Market, Bhatbhateni Supermarket, Kathmandu Shopping Mall and so on. This concept is very narrow and is not accepted by all.

·      Commodity Concept: The market is not just a place but it also includes commodities to be bought and sold. According to this concept, market is an activity of buying and selling of commodities or products. Products or services are put in market for sale.

·    Area Concept: According to area concept of market, the market is whole area where sellers and buyers make exchanges directly or indirectly (without direct contact or using modern means of communication) in open market. Area may be a small place or nationwide or worldwide.

·      Demand Concept: According to demand concept, market is the total or aggregate demand of all actual and potential customers for a specific product over a specific period. The total or aggregate demand of customers may be too high or too low or even zero.

·     Exchange Concept: Exchange is an act of giving one thing and receiving another in return. According to this concept, market is the exchange process, in which sellers exchange their products or services with buyers in return for money. Exchange is essential to be market, without an exchange, there is no existence of market.

·   Space Concept: According to this space concept, the market is Internet-based open platform where information about products or services is provided by sellers to its buyers through online internet marketing. Space concept is a type of e-commerce and it is emerging rapidly all over the world as supported by information technologies. Amex, Mint, Zappos, Old Spice, Jet Blue, Blendtec, etc are some of the examples of online marketing.

Ø  Features of market

Product, price, place, promotion and people (buyers and sellers) are the major features of any markets.

·     Product/Commodity: Commodity is apex of market. Market cannot be possible without commodity. It can be tangible or intangible. Tangible commodities have physical shape such as shirts, shoes, balls, books whereas intangible commodities have no physical shape such as service of laundry, services of teachers, services of doctors, services of hotel etc. There can be different types of markets according to nature of commodity such as consumer goods market, industrial goods market and so on.

·     Price:  Price is another distinct feature of market. It is the value or worth of products or services. Products or services cannot be exchanged without their prices in the market. Price should be stable and reasonable as per its quality. There are several methods, strategies and policies of pricing.

·   Place/Area: Area is another distinct feature of market. The word ‘market’ does not denote only a certain place, it refers to the whole area of exchange where buying and selling of products and services are completed with direct or indirect contact between buyers and sellers.

·    Promotion: Promotion refers to raising customer awareness of a product or brand, generating sales, and creating brand loyalty. In other words, it includes all the activities the company undertakes to communicate and promote its products to the target market.  Selling a product in the market may require direct or indirect form of promotion. Without promotions of products, no market exists.

·    People (buyers and sellers):  Market includes many people such as buyers and sellers. A buyer is any person who takes some goods and services in exchange of money whereas a seller is the provider of goods and services in returns for money. Market cannot exist without buyers and sellers.

Ø  Types of markets

There are several types of the market which can be classified on the basis of geographical area, time, the volume of business, control, delivery, competition, and nature of the product as follows:

1)     On the basis of geographical area

·      Local market: Local market is that market, where customers buy locally produced products. Generally perishable products such as fruits, fish, vegetables, milk, etc. are traded in the local market. Local producers or sellers sell their products to the local customers in the local market.

·      Regional market: Regional market as the name suggests focuses on all sorts of marketing activities to a particular region or place. This market is greater and covers more geographic area than the local market.

·     National market: National market is the domestic market for products or services operating within the borders of a particular country. Market of Nepal Electricity Authority, market of Nebico Biscuit, Wai-Wai Noodles etc. are a national market.

·     Global market:  A global market (also known as world market and international market) is an exchange for products or services that span national boundaries to encompass the entire world. The term may be used to refer to the sum total of all of the market activity that takes place in the world. For instance, market of Apple, Samsung, Toyota, Hyundai, Gulf Oil, etc. are the global market.

2)     On the basis of time

·    Very short period market: Generally, the market of perishable products such as fruits, vegetables, mushroom, fish, meat, milk, etc. is a very short period. Supply cannot be increased as per demand in a very short period market. The demand of product determines its price. When demand increases the price also increase and vice-versa. Perishable products, short life, fixed supply, local customers, etc. are the main features of the very short period market.

·   Short period market:  Short period market remains longer than a very short period market. In this market, slight variation can be made to meet the demand through optimum utilization of available resources. Maximum utilization of resources, resource constraints, wider market, a large number of customers, etc. are the features of this market.

·    Long period market: Supply of products can be increased by adding resources in the long period market. In this market, adding a new machine and technology is possible to increase the product supply as per the needs or demands of customers. Broad scope, a large number of customers, price determination in open market, addition of new technology, etc. are the main features of the long period market.

·    Very long period market: It is also known as a secular market where firms have sufficient time to conduct market research, and they identify demands, develop new technology, produce customer-friendly products, and supply to the markets in very long period market.

3)     On the basis of volume of business

·    Wholesale market: Under the wholesale market, wholesalers receive products from producers or agents in large quantities and sell them to retailers. There is a direct relationship between producers and wholesalers which help connect potential buyers and sellers with each other. Purchase from producers, bulk buying, reselling, low price, etc. are the main features of the wholesale market.

·     Retail market: In the retail market, retailers purchase products in large quantities from manufacturers directly or through a wholesaler and then resells smaller quantities to the ultimate consumer for a profit. Retailers act as a link between customers and wholesalers. Bulk buying and selling in small quantities to a large number of buyers are major features of this market.

4)     On the basis of control

·      Regulated market: A regulated market is a market where the government and trade association control the forces of supply and demand who is allowed to enter the market or what prices may be charged or what would be the quality, and so on. The services related to gas, water, and electricity supply are often monitored by the government to prevent monopoly and ensure competition that will ultimately guarantee quality service. Quality product, reasonable price, control in supply, control of entry in the market, etc. are the features of the regulated market.

·    Unregulated market: Unregulated market is a free market, not controlled by a designated authority. A free market contrasts with a regulated market, in which government policy intervenes in the setting of price setting monopoly or other authority.

5)     On the basis of delivery

·    Spot market: A spot market is a type of market in which products are traded in cash for immediate delivery. In this market, delivery and cash payment take place at the same time.

·    Future market: A future market is a type of market in which people can trade standardized future contracts; that is, a contract to buy specific quantities of a commodity or financial instruments at a specified price with delivery set at a specified time in the future. Payments, price, discounts, commission, and delivery are fixed in the contract.

6)     On the basis of competition

·    Perfect market: Perfect competition market is a type of competitive market where there are a large number of sellers selling homogeneous products or services to a large number of buyers. Under this market, price and output are determined by the interaction of supply and demand forces so that firms are usually price takers. There are no product differentiations and no barriers to the entry and exit of new firms in this market.  A perfectly competitive market is hypothetical and cannot be found in practice.

·   Imperfect market: Imperfect competition market is a competitive market where there are many sellers selling heterogeneous (dissimilar) products as opposed to the perfectly competitive market situations. As the name suggests, competitive markets are imperfect in nature. There are product differentiations and barriers to the entry and exit of new firms. It can be found in practice. There are four types of imperfect markets.

i)       Monopoly- A market having only one seller. E.g. Nepal Electricity Authority.

ii)   Monopolistic competition- A market having many sellers with highly differentiated products. E.g. athletic shoe market

iii)    Oligopoly- A market having a few sellers with differentiated products. E.g. Cable TV Services, Mass Media, Oil and gas, Airlines and auto industry.

iv)  Monopsony- A monopsony is a type of market where there is one buyer and many sellers who compete to serve that buyer. E.g. Technology Industry.

7)     On the basis of nature of products

· Commodity market: Commodity market refers to physical or virtual transactions or buying and selling of commodities. There are two types of commodities such as soft commodities (harvested products like coffee, sugar, corn, wheat, soybean, fruits and so on) and hard commodities (gold, rubber, oil, etc.). It can be a consumer market and industrial market.

·   Financial market: A financial market is a market in which people and entities can trade financial securities such as stocks and bonds. There are two types of financial markets-money market and capital market. The dealing of short -term fund is called the money market and dealing with the long-term fund is called the capital market. Nepal Stock Exchange is an example of the financial market.

3.2 Market Segmentation

Ø  Meaning and Concept of Market Segmentation

Market segmentation involves dividing the market of potential customers into homogeneous subgroups. These subgroups may be distinguished in terms of their behavior pattern, attitudes, demographic characteristics, psychographic profile and the like. It can be defined as a business strategy in which the field of potential customers or markets is divided into different groups with common characteristics and one of these groups is the prospects to be targeted. It is important for finding customers that are the best match for products or services. Companies today recognize that they cannot appeal to all buyers in the marketplace—or at least not to all buyers in the same way. Buyers are too numerous, widely scattered, and varied in their needs and buying practices. Moreover, companies themselves vary widely in their abilities to serve different market segments.  Companies must identify the parts of the market they can serve best and most profitably. They must design customer-driven marketing strategies that build the right relationships with the right customers. Thus, most companies have moved away from mass marketing and toward target marketing: identifying market segments, selecting one or more of them, and developing products and marketing programs tailored to each.

Customers may be of different types according to their needs, wants, interests, buying purposes, buying habits, age, gender, education, religion, income level, place and so on. Market segmentation can be done on the basis of market and customer characteristics. For example, the market can be segmented into three categories on the basis of income levels such as low-income level, middle-income level, and high-income level. Likewise, the market can be segmented into two categories on the basis of genders such as male markets and female markets.

Different authors and scholars have defined market segmentation differently. Some of the popular definitions are presented here to help you understand it.

“Market segmentation is the act of identifying and profiling distinct group of buyers who might require separate product and /or marketing mixes.”- Philip Kotler

“Market segmentation is a process of dividing the total market for goods or services into several smaller groups, such as that the members of each group are similar with respect to the factors that influence demand.” -William J. Stanton, Michael J. Etzel & Bruce J. Walker4

In conclusion, market segmentation is the process of dividing total market into identifiable small segments having similar needs, wants, or demand characteristics. Its main objective is to design a marketing mix that precisely matches the expectations of customers in the targeted segment. The market segmentation can be done by analyzing the different segmentation variables such as behavioral, demographic, geographical, and psychographic strategies. The market segments should be divisible, accessible, substantial, measurable and actionable.

Ø  Objectives/Benefits of Market Segmentation

Market segmentation splits customers into small segments with similar needs and wants to best utilize a firm’s finite resources through buyer-based marketing. There are many reasons as to why market segmentation is done. One of the major reasons marketers segment market is because they can create a custom marketing mix for each segment and cater them accordingly. There are several objectives or benefits of market segmentation which are as follows:

1.   Identification of market opportunity: Market segmentation divides the total market into different small segments to identify a market opportunity. It divides the total market with the view of strategy map of profitability. After analyzing the market segment, a firm can choose the best segment and offer relevant products or services.

2.   Use of marketing resources: Marketers can use available marketing resources to satisfy the needs and wants of customers through market segmentation. It also reduces risks in deciding where, when, how, and to whom a product or service or brand will be marketed.

3.  Evaluation of competition: The objective of market segmentation is to evaluate the existing and new competitors and reduce the possible negative effects or threats from them. A firm can be a leader through proper and careful market segmentation.

4.   Strategic planning: Marketers can collect information about needs, behavior, buying capacity, buying motive of customers through market segmentation and proper study of such segments. This information will be very important for strategic planning and effective marketing.

5.  Market specialization: The market segmentation helps to attain market specialization and reduce the negative effects of huge competition, business risks, growth, and development. It focuses on profitable segments of the market so as to specialize in achieving a competitive advantage.

6.  Effective marketing mix: Market segmentation helps to make an effective marketing mix through market segment research. It gathers useful information about small segments of the market and provides relevant information for designing the marketing mix (4Ps) plan, policies, and programs.

7.   Environmental adaptation: Market segmentation helps firms to adapt to environmental forces such as demographic, political-legal, economic, socio-cultural, and technological. With such ability, firms can enjoy a lot of benefits beyond its limitations.   

Ø  Requirements for Effective Market Segmentation

Clearly, there are many ways to segment a market, but not all segmentations are effective. To be useful, market segments must have the following characteristics or requirements:

1. Divisible/Differentiable: The first requirement of market segmentation is divisible. Without divisible characteristic of a total market, it cannot be classified into small segments. The segments are conceptually distinguishable and respond differently to different marketing mix elements and programs. If men and women respond similarly to marketing efforts for soft drinks, they do not constitute separate segments.

2.    Measurable: The second requirement of market segmentation is measurable. The size, purchasing power, and profiles of the segments can be measured. Likewise, customers’ income, age, gender, etc also can be easily measured. Certain segmentation variables are difficult to measure perfectly such as customers’ attitudes, beliefs, and perceptions.

3.  Accessible: The third requirement of market segmentation is accessible. The market segments can be effectively reached and served. If the market segment is beyond the access, it becomes difficult to reach there and serve the target customers so that it cannot be effective.

4.     Substantial: The fourth requirement of market segmentation is substantial. The market segments should be large or profitable enough to serve. A segment should be the largest possible homogeneous group worth pursuing with a tailored marketing program. If the market segment is small, it becomes difficult to earn higher profits.

5.    Actionable: The final requirement of market segmentation is actionable. Effective programs can be designed for attracting and serving the segments. A business firm should have sufficient resources such as human, financial, physical and information and be able to implement its plans, policies, and programs to attract target customers.

Ø  Process of market segmentation

Market segmentation is the process of dividing the total market into small segments having similar characteristics. There are five steps in market segmentation as shown below:

1.  Market Survey: The first and foremost stage of market segmentation is a market survey. A survey is a data collection technique used to gather information about the market or customers. In this stage, special attention should be paid to customers’ needs and wants, features of products, brand awareness, customers’ attitudes towards products, features of customers, and preferences patterns of customers at the same time of market survey. Despite these, information about education, age, gender, fashion, customs, religions, purchasing power, buying power, buying motives, etc. of customers should be gathered.

2.   Segment Identification: The second stage of market segmentation is segment identification. After the survey has been conducted, information and data regarding customers are carefully analyzed by using appropriate statistical tools such as average, percentage, regression, correlation, ANOVA, T-test, F-test, and so on. On the basis of customers’ needs, demands and their characteristics, a market segment is identified and classified into special and general categories.

3.   Segment Profiling: The third stage of market segmentation is segment profiling. A market segment profile describes the similarities and differences among potential customers within a segment. According to Kurtz, a segment profile might include information about lifestyle patterns, attitudes towards product attributes, and brands, product use habits, geographic locations, and demographic characteristics.

Figure: Process of Market Segmentation

4.    Segment Selection: The fourth stage of market segmentation is segment selection in which the profile of the market segment is evaluated carefully and one or more market segment(s) is/are selected. A market evaluation is usually done on the basis of the size of segment, growth potential, profitability, competition, technology, potential risks and sales of segment market, government rules and regulations, ethical considerations and so on. After analyzing the markets on the basis of these

5.    Product Positioning: The final stage of market segmentation is product positioning. It is done after selecting the best market segment. Product positioning is the process of developing a product image in the minds of consumers in relation to competitors’ products and developing marketing mix for the target market.  It describes clearly how a firm’s products differ compared to the competitors.

Ø  Market Segmentation Variables

The act of identification and division of the total market into small segments is known as market segmentation. There are several variables of market segmentation which can be grouped into two categories such as consumer market variables and industrial market variables.

Fig: Classification of Market Segmentation Variables

Before understanding the market segmentation variables, it is important to understand the difference between a consumer market and an industrial market. A consumer market is a market that creates and sells consumer products and services (e.g. B2C market, McDonald selling burgers to its customers, Coke selling its Cokes to its consumers) to individual buyers instead of selling to businesses whereas an industrial market is a market that creates and sells industrial products and services (e.g. B2B market) to other businesses instead of individual buyers. The market segmentation variables for the consumer market and industrial market are not totally the same, and they have some differences which are separately discussed below.

a)     Consumer Market Segmentation

Consumer market can be segmented on the basis of geographic, demographic, psychographic, and behavioral variables. They are discussed below.

1.    Geographic variables

The geographic segmentation is the oldest, most basic and most conventional way of segmenting the markets. Consumer market can be segmented on the basis of geographic variables such as region, population density, climate, and city size, etc.

·   Region: Consumer market can be segmented on the basis of the geographic region. If the market is worldwide, consumer market can be an Asian market, West market, East Market, South Atlantic market. Suppose the consumer market is all over Nepal, consumer market can be Mountain region market, Hilly region market, and Terai region market.

·      Density: Population density is determined by calculating the number of people living in one square Kilometer land area. It becomes high in cities but low in villages. For example, the consumer market can be segmented into three on the basis of density such as urban area market, suburban area market, and rural area market.

·     Climate: Consumer market can be segmented on the basis of climate into three such as Cold climate market, moderate climate market, and hot climate market.

·     City Size: Some cities are big and some are small. The consumer market can also be segmented on the basis of the size of the city. For instance, it can be a big city market, medium city market, and small city market.

2.   Demographic variables

Demographic features of the markets are also basic variables of market segmentation. Demographic variables include religion, educational, income, age, gender, occupation, social class, ethnic background, etc.

·  Religion: Religion affects the living style, fashion, food, purchasing behavior, and so on. Therefore, the consumer market can be segmented into on the basis of religion, for example, Hindu market, Muslim market, Christian market, and Buddhist market etc. in Nepal.   

·   Education: Education impacts customers’ needs, wants, and desires, purchasing power and priority, etc. Thus, the consumer market can be divided on the basis of education such as the market for educated people, the market for uneducated people, and so on.

·   Income: Customers’ income also affects customers’ purchasing power. Thus, the consumer market can be segmented on the basis of education. For example, it can be a market for high-income people, the market for medium income people, and the market for low-income people.

·   Age: Customers have different needs, wants and desires according to their age groups. Small children like dolls, teenagers like goods of modern fashion, adult and old aged people like long lasting and gentle looking goods. Thus, the market can be segmented on the basis of age such as children’s market, Teenagers’ market, Adults’ market, and elders’ markets, etc.

·  Gender: Gender also affects consumer products. On the basis of gender, the consumer market can be segmented into two groups such as the market for male and market for female.

·     Occupation: People with different occupations such as doctors, engineers, professors, managers, farmers, laborers, foremen, etc. have different needs, wants and desires. Thus, consumer market can be segmented into different markets on the basis of these occupations. For example, the market for engineers, the market for farmers, and the market for foremen and so on.

·  Social class: Customers have different purchasing power, behaviors, buying motive as per their social classes. Thus, they can be segmented into different market segments on the basis of social class such as the market for high class, the market for middle class and market for low class.

·   Ethnic background: Ethnic background also affects customers’ lifestyles, spending habit, cultural practices, and rituals. So the consumer market can be divided into different markets as per ethnic background. For example, it can be an Asian market, African market, American market, European market, etc.

3.      Psychographic variables

Consumer market can also be segmented on the basis of psychographic variables such as lifestyle, personality, and buying motives, etc.

·     Lifestyle: Lifestyle of people represents their activities, interests, ideas, habit, and so on. People can be believers, strivers, and achievers. Thus, the consumer market can be segmented into three types on the basis of lifestyle such as the market for believers, the market for strivers and market for achievers. A person having a lavish lifestyle may consider having an air conditioner in every room as a need, whereas a person living in the same city but having a conservative lifestyle may consider it as a luxury.

·        Personality: Personality is the combination of characteristics that form an individual’s distinctive character and includes habits, traits, attitude, temperament, etc. Personality also influences the buying decision and habits of a person to a great extent. Market researchers can conduct a segmentation based on personality to form a group of people with similar personality traits. Different people have different personalities such as creative, emotional, friendly; introvert, extrovert etc. help organizations to filter their customers in a systematic manner. So based on these different personality types, consumer market can be segmented into different market segments.

·      Buying motives: Buying motive can be rational or emotional or ego-related. Thus, the consumer market, for example, can be segmented into different types according to buying motives such as the market for rational buyers, the market for emotional buyers, and so on.

4.      Behavioral variables

Consumer market can be divided into different small segments on the basis of behavioral variables such as product benefits, purchase occasion, user status, usage rate and loyalty status.

·  Product benefits: Consumers expect different kinds of benefits from goods such as quality, service, economy, and product performance, etc. so, consumer market can be segmented on the basis of these variables. For example, market for a quality product, market for an economy product, and so on.

·     Purchase occasion: Purchase occasion of goods can be different. Since some goods like grocery items can be frequently bought and some expensive goods like cars, jackets are bought occasionally. Thus, consumer market can be divided based upon purchase occasion, for instance, regular purchase market, occasional purchase market, special occasion market and so on.

·     User/loyalty status: Consumer market can be segmented on the basis of user status-new users, existing users, non-users, potential users and switched users. Thus, the consumer market can be divided into several groups according to user statuses such as the market for new users, the market for existing users, market for non-users, and the market for switched users. The consumers who are fully loyal to the brand always buy the same brands and consumers who are not loyal buy occasionally or shift into other brands.

·     Product Usage rate: The market can be segmented based on product usage. For example, the market can be divided into heavy, medium, light and non-user of a particular product or service.

b)     Industrial Market Segmentation

Industrial markets can be segmented on the basis of geographic, demographic, operating, and purchase related variables.

1.      Geographic variables

Industrial market can be segmented on the basis of geographic variables such as area, climate and topography.

·    Area: On the basis of geographical area, market can be segmented into different markets such as local market, national market, regional market, and international market.

·       Climate: Industrial market can be segmented into different markets on the basis of climate such as Tropical (low altitude) market, Temperate (middle altitude) market, and Alpine (high altitude climate) market.

·     Geographic region: Industrial market can be divided into different markets on the basis of the geographic region such as Mountain region, Hilly region, and Terai region market.

2.      Demographic Variables

Industrial market can be segmented on the basis of demographic variables such as types and size of the business.

·    Types of Business: Industrial markets can be segmented on the basis of different types of businesses. They can be an agricultural market, the construction market, mining market, manufacturing market, insurance market, service market and so on.

·     Size of Business: Industrial market can also be segmented depending upon the size of businesses. They can be segmented like the market for small and cottage industries, the market for medium-size industries, the market for large or big industries and so on.

3.      Operating variables: Industrial market can also be segmented on the basis of operating variables such as technology, the requirement of service, usage rate, etc.

·       Technology: Technology can be manual, machinery, automatic, computer, and robotized. The market can be different on the basis of level of technology such as the market for a manual, market for machinery, the market for automatic machinery, the market for computer technology and the market for robotized technology.

·     Requirement of services: Industrial market can be segmented on the basis of requirement of services such as market for ordinary goods and market for service requirement goods.

·      Usage rate: On the basis of usage rate, industrial market can be segmented into different markets such as heavy users market, medium users market, low users market and so on.

4.      Purchase related variables

    Industrial market can also be segmented on the basis of purchase related variables such as purchase methods and negotiation period.

·    Purchase Methods: There are different types of industrial customers who apply different purchase methods as per their purchasing rules and procedures. Some of them apply concentrated and some of them diversified. Similarly, some of them apply buying through contract, and buying through tender. Thus, marketers should segment the total market on the basis of customers’ purchase methods.

·      Negotiation Period: Negotiation is an inseparable part of the purchase. Negotiation can be of long-term, mid-term and short-term. Thus, marketers can segment the industrial market on the basis of the negotiation period.

3.3 Targeting the Market

After evaluating different segments, the company must decide which and how many segments it will target. A company should enter only segments in which it can create superior customer value and gain advantages over its competitors. Targeting the market means nothing but selecting the appropriate market segments that can create superior customer value for gaining a competitive advantage for a company.

Ø  Meaning and Concept of Target Market:

 A target market consists of a set of buyers who share common needs or characteristics that the company decides to serve. It is a particular group of customers at which a product or service is aimed. A well-defined target market is the first element of a marketing strategy. It is a particular market segment in which a company decides to serve its customers by developing an appropriate marketing mix, plans, and policies. Target market allows the marketers to customize their products or messages to the target group of consumers in a focused manner.

Global Market

National Market

Regional Market

Market Segments

Fig: Target Market

In the above figure, it is illustrated that how the target market is selected from the total market. Total market available is considered as a global market which can be segmented into small national markets, and then these national markets are also divided into several regional markets. Under these regional markets, different markets are classified according to similar needs or characteristics of consumers which are known as market segments. From these market segments, one or more appropriate markets is/are selected to serve and aim marketing efforts which is known as the target market.

Target market is decided after detail analysis of segmented markets on the basis of market size, growth potential, estimated profit, competition, brand loyalty and risks, etc. A target market is a market a company wants to sell its products and services to, and it includes a targeted set of customers for whom it directs its marketing efforts. Identifying the target market is an essential step in the development of a marketing plan. A target market can be separated from the market as a whole by geography, buying power, demographics , and psychographics. Some of the popular definitions about target markets are given below to help you understand its meaning more clearly.

“Target market is a set of buyers sharing common needs and characteristics that company decides to serve.”- Kotler and G. Armstrong

“A target market is a group of customers towards which a business has decided to aim its marketing efforts and ultimately its merchandise.”- Kurtz

In a nutshell, a target market is a market (a group of customers) with similar needs or characteristics that a company wants to sell its products and service, and direct its marketing efforts. It involves tailoring the company’s marketing efforts to appeal to a specific group of customers.

Ø  Types of Target Market

 Target market can be carried out at several different levels. Based on these levels, it can be classified into following four major types:

Fig: Types of Target Market

1.      Undifferentiated (mass) Market: It is also known as a mass market in which a firm decides to ignore market segment differences and focus on common needs of the customers rather than individual or specific needs. It also emphasizes on an entire target market rather than a segment of it.  According to Philip Kotler- “it is a market-coverage strategy in which a firm decides to ignore market segment differences and go after the whole market with one offer.” The company designs a product and a marketing program that will appeal to the largest number of buyers. For example, basic goods such as sugar, salt, and rice are usually marketed effectively though undifferentiated market. However, most modern marketers have strong doubts about this market because it is very difficult to develop a product or brand that will satisfy all consumers. Moreover, mass marketers often have trouble competing with more focused firms that do a better job of satisfying the needs of specific segments and niches.

2.      Differentiated (segmented) Market: Differentiated market is also known as a segmented market in which a firm decides to target several market segments and designs separate marketing mix such as product, price, place and promotion for each segment. According to Philip Kotler-“It is a market-coverage strategy in which a firm decides to target several market segments and designs separate offers for each.” Toyota Corporation, for instance, produces several different brands of cars- from Scion to Toyota to Lexus- each targeting its own segments of car buyers. By offering product and marketing variations to different segments, companies hope for higher sales and a stronger position within each market segment than the undifferentiated market. However, a company finds it more expensive to develop and produce, say, 10 units of 10 different products than 100 units of a single product. And trying to develop separate marketing plans and advertising campaigns for the separate segments requires extra efforts and higher promotional costs.

3.      Concentrated (niche) Market: Concentrated market is also known as niche market in which a firm focuses on a large share of one product or a few segments. According to Philip Kotler-“it is a market-coverage strategy in which a firm goes after a large share of one or a few segments or niches.”  It is a single, well defined, and well-understood market. For example, Nirma started as a nicher, selling only low-price detergent to rural and semi-rural consumers. In this market, the firm achieves a strong market position because of its greater knowledge of consumer needs in the niches it serves and the special reputation it acquires. It can market more efficiently by fine-tuning its products, prices, and programs to the needs of carefully defined segments that it can serve best and most profitably. However, this market involves higher-than-normal risks and higher possibility of suffering if the segment turns sour.  

4.      Micro market (individual) Market: Micro market is also known as micro-niche or individual market in which a firm aims to fulfill the needs of individuals. According to Philip Kotler-“Micromarketing is the practice of tailoring products and marketing programs to suit the tastes of specific individuals and local customer segments.” It includes local and individual marketing.

·       Local market is the market where tailoring brands and promotions are done to meet the needs and want of local customer segments-cities, neighborhoods, and even specific stores. For example, Walmart customizes its merchandise store by store to meet the needs of local shoppers.

·     Individual market is the market where tailoring products and marketing programs are done to meet the needs and preferences of individual customers. It is also labeled as one-to-one marketing, mass customization, and markets-of-one marketing. For example, Plasma screens placed in shopping malls around the country can now analyze shoppers’ faces and place ads based on an individual shopper’s gender, age, or ethnicity.

3.4   Product positioning for Target Market: Meaning and Concept of Product Positioning

Beyond deciding which segments of the market it will target, the company must decide on a value proposition—how it will create differentiated value for targeted segments and what positions it wants to occupy in those segments. A product’s position is the way the product is defined by consumers on important attributes—the place the product occupies in consumers’ minds relative to competing products. Products are made in factories, but brands happen in the minds of consumers. Tide is positioned as a powerful, all-purpose family detergent; Ivory is positioned as the gentle detergent for fine washables and baby clothes. In the automobile market, the Nissan Versa and Honda Fit are positioned on the economy, Mercedes and Cadillac on luxury, and Porsche and BMW on performance.

Consumers are overloaded with information about products and services. They cannot reevaluate products every time they make a buying decision. To simplify the buying process, consumers organize products, services, and companies into categories and “position” them in their minds. A product’s position is the complex set of perceptions, impressions, and feelings that consumers have for the product compared with competing products. Consumers position products with or without the help of marketers. But marketers do not want to leave their products’ positions to chance. They must plan positions that will give their products the greatest advantage in selected target markets, and they must design marketing mixes to create these planned positions.

Product positioning is a powerful marketing strategy that aims to make a brand occupy a distinct position relative to the competing brands in the minds of customers. Firms apply this strategy either by focusing on the distinguishing features of their brands or try to create a suitable image through advertising. Once a brand is positioned, it is very difficult to reposition it without destroying its credibility. Product features, price, quality, technology, benefits, category, use, service, competition, etc. are the variables of product positioning.  Some of the popular definitions about product positioning are given below:

“Product positioning defines where your product (item or service) stands in relations to others offering similar products and services in the marketplace as well as the mind of consumer.”- The Economic Times

“Product positioning is the act of designing the company’s offering and image so that they occupy a meaningful and distinct competitive position in the target consumers’ mind.”- Philip Kotler

To sum up, product positioning is the process of creating a favorable image of products or services in the mind of consumers. It helps in creating a favorable perception of a product or service amongst the consumers. It communicates the competitive advantage to the target customers about products or services. Thus, it is a mind washing program which must be supported by the marketing mix.

Ø  Process of Product Positioning

Product positioning is the process of creating a favorable image of a product in the mind of the consumers. The product positioning process includes the following steps:

1.    Identify the target market: The first and foremost step of product positioning is to identify the target market. Target market is a set of buyers sharing common needs and characteristics that the company decides to serve. It is essential for the marketers to identify the target market and then understand their needs, wants and preferences. The products or services must fulfill the demands of the target markets.

2.    Identify the product features: The second step of product positioning process is to identify the features and benefits of products. The marketers must be aware about them. It is rightly said that you cannot sell something unless and until you yourself are convinced of it.

3.    Identify the competitors: The third step of product positioning is to identify the existing competitors and new competitors in the target market. You cannot position your products without identifying and knowing competitors. Find, who are competitors? How they are positioned in respect to each other? Which competitors are perceived as similar and which as different? A marketer must be aware of competitors’ offerings in the target market.

4.      Promote brand: The fourth step of product positioning is to promote the brand. You can use different ways to promote product brands such as choose suitable media of promotion, choose the right theme for the promotion, use catchy taglines, highlight the benefits of the product, no leave any confusion in promotion, don’t use vulgar words and phrases, don’t hurt any religions if possible. Promoting a brand should be suitable as well as ethical. We should be careful because competitors are also watching your promotional activities.

Fig: Process of Product Positioning

5.    Positioning decision: The fifth step of product positioning is making positioning decision. The positioning decision can be taken into account by considering the following guidelines:

     i)       An economic analysis should be done.

     ii)     It should imply a segmentation commitment.

     iii)    Do not try to be something, you are not.

     iv)    Symbols or set of symbols must be considered while making a decision on product positioning strategy.

6.  Monitoring: The final step of product positioning is to monitor the position. It the phrase of evaluating, measuring, and following up. It is necessary to check whether product positioning is working or not and making remedial measures or monitoring by taking feedbacks about product positioning.

Review/Important Questions

Brief Answer Questions

1.      What is market? Name any four types of markets.

2.      What is market segmentation? Write the process of market segmentation.

3.      Point out benefits of market segmentation.

4.      What is target market? Identify any four types of target market.

5.      What is product positioning? Point out the steps of process of product positioning.

Short Answer Questions

6.    What is market segmentation? Briefly explain the process of market segmentation.

7.    Explain the requirements for effective market segmentation.

8.  Explain the benefits of market segmentation. Also describe the variables used in the segmentation of an industrial market?

9.    Describe the demographic segmentation of consumer market in the context of Nepal?

10.  What is a target market? How is product positioned to create demand in the target market?

Comprehensive Answer Questions

11. What do you understand by a consumer goods market and an industrial goods market? Discuss the variables for segmentation of both-consumer market and industrial markets.

12. What do you understand by product positioning for target market? Is it essential? Explain the process of product positioning.

THANK YOU!