Chapter 4

1. Chapter 4 • Learning objectives: • Explain the concept of market segmentation • Indicate how marketers can segment their market • Highlight the prerequisites for effective market segmentation • Explain what is meant by the term ‘target marketing’ • Suggest factors that should be considered when selecting a target market • Explain the concept of product positioning • Describe the positioning methods that marketers can pursue in practice • Provide practical examples of product positioning methods Market Segmentation Targeting and Position

2. Introduction • Rarely does a single product or marketing approach appeal to the needs and wants of all buyers. Because of this, marketing strategists need to categorise buyers based on their characteristics and specific product needs. • This is done with the view of adapting either the product or marketing programme or both to enable the organisation to satisfy these different consumer tastes and demands. • Marketers realise that they cannot be all things to all people, they have to focus on satisfying specific customers needs and to concentrate on what they do best to remain competitive in an increasingly competitive marketplace. • This chapter will focus on segmentation, targeting and positioning and how it can be applied by marketers.

3. The aggregate market • Market aggregation is an approach whereby organisations manufacture and supply one or, at most, a few standardised products to a mass market, hoping that the product(s) would appeal to as many customers as possible. • Although market aggregation is losing its appeal amongst marketers in general, it is still appropriate in instances where the market is fairly homogeneous with regard to customer needs and preferences. • Many businesses have moved towards the trend known as counter-segmentation which consists of grouping together various market segments and directing a single marketing effort at these segments to reduce costs. • At the other end of this spectrum lies marketing segmentation based on mass customisation, whereby products are tailored to the unique needs of the customer and each buyer is viewed as a potentially unique segment.

4. Segmentation, targeting and positioning • Marketers need to know the needs and wants of their customers to enable them to provide products and services that will satisfy these needs and wants. • The problem lies in the fact that there are numerous needs that the marketer can satisfy, therefore marketers must divide the total market into segments of consumers with common needs or characteristics. A process known as market segmentation. • The next step is for the business to decide which market segment’s needs it can best satisfy: target marketing. • After selecting the market segment, the business must decide how to compete effectively in this target market. This is where product positioning comes in, which refers to the creation of a specific image or perception of the product by consumers in a selected target market. • Figure 4.1 shows the eight stages of the segmentation, targeting and positioning process.

5. Figure 4.1 The eight steps of the segmentation, targeting and positioning process

6. Segmenting the market • Merits and limitations of market segmentation • Benefits of market segmentation • Compels marketers to focus more accurately on customer needs. A greater degree of customer satisfaction can be achieved. • Leads to the identification of excellent new opportunities if research reveals an unexplored segment. • Provides guidelines for the development of separate market offerings and strategies for various market segments. • It can help guide the proper allocation of marketing resources. • Disadvantages of market segmentation • The development and marketing of separate models and offerings is very expensive. • Limited market coverage is achieved. • Cannibalisation can occur. This happens when one product takes away market share from another product of the same organisation.

7. Segmenting the market contd. • Prerequisites for market segmentation • Measurable • Identifiable • Accessible • Substantial • Meaningful • Bases for segmenting consumer markets • Levels of market segmentation Market segmentation can take place on four levels: Figure 4.2 The levels of market segmentation

8. Segmenting the market contd. • VARIABLES IN SEGMENTATION • Geographic segmentation This involves dividing the total market into different geographical areas, such as countries or regions. Variations such as the size of the city or town or population density may also be appropriate bases. The business can then decide to target only one or a limited number of geographic areas. • Demographic segmentation This involves dividing the market according to age, gender, income, family life cycle stage, ethnicity or occupation or any combination of these factors. Demographic features are probably the most common basis for segmenting consumer markets due to the following reasons: • Consumer’s wants or product use, which are often related to one or more demographic variables. • Most demographic factors are measurable, accessible and large enough to serve as a basis for operational market segments.

9. Segmenting the market contd. • Psychographic segmentation Psychographic segmentation goes beyond demographics and examines how a person thinks, feels and behaves, using personality, lifestyle and values as segmenting variables. This enables marketers to develop richer and more complete descriptions of segments. • Behavioural segmentation Benefit segmentation begins by determining the principal benefits that customers seek in a product, the kind of people who look for each benefit as well as the benefits delivered by each brand.

10. Segmenting the market contd. • Consumers can also be segmented on the bases of their buying behaviour: • Purchase occasions: some buyers may use the product regularly while others may use it only on special occasions. • Benefit sought: some market segments may be very specific in the benefits they seek when buying a product. Some may seek economy, while others may want convenience or prestige. • User status: consumers can be segmented into groups consisting of non-users, ex-users, potential users or regular users. • Usage rate: consumers can be segmented according to how frequently they buy their products. • Loyalty status: consumers vary in their loyalty towards the organisation. Hard-core loyal customers are those who are very loyal buyers and should be retained. • Buyer readiness stage: different marketing approaches have to followed, depending on the customer’s readiness to buy. • Attitude towards the product: market segments that are negative or hostile towards a product can be avoided, while those who are positive can be encouraged to support the product in future.

11. Segmenting the market contd. • Marketers can combine psychographic and lifestyle segmentation, which leads to the identification of three distinct types of social characterisation and behaviour: • Tradition-directed behaviour: easy to predict since it changes little over time • Other-directedness: an individual attempts to fit in and adapt to the behaviour of his/ her peer group • Inner-directedness: individuals are seemingly indifferent to the behaviour of others • Developing segment profiles Every segment considered by the organisation must be described fully in terms of its size, demographic and psychographic details, lifestyle, behaviour patterns and product usage.

13. Ice Activity Identify the demographic and geographic variables of the target market that we find in the following products: • Pampers baby wipes • Coke Zero • Mr Price • Ty’s Night club • Menlyn Rooftop Drive-inn

14. F. Ackermans • G. Nike • H. Creme Soda • I. Samsung Smart Phone • J. Golf GTI

15. Segmenting the market contd. • Bases for segmenting industrial markets: Today the importance of market segmentation is increasingly being recognised by business-to-business marketers. The most popular bases for segmenting industrial markets include: • Demographic dimensions: the company size, as reflected in the sales volume, number of employees, geographical area, number of outlets or scope of operation can be used to classify companies into market segments. • Operating variables: companies can be classified according to their operational characteristics such as technology, user types, product types or frequency with which they require delivery. • Purchasing approaches: marketers of industrial products often have to negotiate with the purchasing departments of other businesses. Most important variables to be used are the degree of centralisation/ decentralisation of the purchasing function, the power structure of the companies, the nature of the existing relationship with the customer etc. • Situational factors: the delivery requirements of customers, the product application or the order size can be used as criteria. • Personal characteristics: the market can be segmented on the bases of organisational values, risk profile or loyalty towards suppliers.

16. Segmenting the market contd. The industrial marketer must compile a comprehensive description of the characteristics, needs and demands of the various market segments. The figure below provides a guideline. • Bases for segmenting business markets • Customer location: business markets are often segmented on a geographic basis because some industries are geographically concentrated. • Customer type: the factors that influence this basis of segmentation include customer size, type of industry, organisational structure and purchasing style and purchase criteria. Figure 4.3 Steps in segmenting the industrial market

17. Market targeting • Selecting potential target markets For effective targeting of market segments, markets must conform to the following four criteria: • Identifiable • Sufficient • Stable • Accessible • Before a specific market segment is selected, it must first be evaluated according to five evaluation criteria: • Target market size and growth potential: a target market doesn't necessarily need to be big. A small one can often be more profitable. • Attractiveness and potential profitability: the attractiveness of a target market lies not only in its size and growth possibilities but also in the promise of long-term profitability. • The resources and skills of the organisation: a segment can only be chosen as a target market if marketing management is fully committed to serving this market better than any other competitor can.

18. Market targeting contd. • Compatibility with the organisation’s objectives: if it is found that the objectives of the organisation cannot be fulfilled by the choice of a particular market segment, it should be disregarded. • Cost of reaching the target market: if the cost of reaching a target market is too high, it should not be considered. • Steps in the evaluation of potential target markets Figure 4.5 Steps in the evaluation of potential target markets

19. Market targeting contd. • Step 1: Deciding on appropriate evaluation criteria Assessing the market attractiveness of the organisation hinges on four factors: market/ customer factors, economic and technological factors, competitive factors and environmental factors. The competitive position of the organisation also hinges on four factors: the current market position, economic and technological factors, the unique capabilities of the organisation and possible synergy with other market segments. • Step 2: Weighting factors to reflect their importance The factors must now be weighted to reflect their relative importance. • Step 3: Assessing current position of each target market After the weights have been assigned, the manager must rate the organisation on each of the critical factors. • Step 4: Projecting the future position of each target market The organisation must predict how the market attractiveness might change over the next three to five years. • Step 5: Evaluating implications of possible future changes Walker, Boyd and Larreche suggest that a possible new target market must be rated strongly on at least one of the two dimensions (market attractiveness or competitive position) and at least moderately positive on the other to be considered an attractive position.

20. Market targeting contd. • Approaches to target marketing • Concentrated marketing Also referred to as single-segment concentration strategy and concentrates the market offering on one specific target market that can lead to greater expertise in production, distribution and marketing communications. • Differentiated marketing Also referred to as multiple-segment strategy. The business elects to target two or more target markets, developing a unique marketing strategy for each one. It allows the business to cater for diverse needs but is costly. • Undifferentiated marketing Also known as market aggregation. The business chooses to ignore the differences in the market and pursues the total market with one basic market offering.

21. Market targeting contd. • Niche segment strategies A business can carve out a niche within a segment and further customise its marketing effort on the group of customers in that niche. It offers a certain amount of security to smaller firms who try and compete against larger or multinational organisations. • Mass customisation Customisation refers to the tailoring of products to the special and unique needs of the customer. Mass customisation combines the advantages of a niche segment strategy while retaining the breadth of opportunity available with differentiated marketing.

22. Product positioning • Defining product positioning Refers to the way consumers perceive a product in terms of its characteristics and advantages and its competitive position. It therefore involves the creation, in the minds of targeted buyers, of a distinctive position with regard to the organisation’s product relative to those of competing organisations. • Product positioning maps A perceptual map is a multi-dimensional graphic image of consumer perceptions. These maps assist marketers in developing focused marketing mixes or strategies and also help to assess whether or not a particular marketing programme holds any competitive advantage. • Copy positioning versus product positioning • Copy positioning: using the communication elements to create distinctive images and associations of the product in the consumers mind. • Product positioning: positioning strategies are based on substantive attributes such as durability, performance, price or service quality.

23. Product positioning contd. • The positioning process: Figure 4.10 The positioning process

24. Product positioning contd. • Step 1: Identify a relevant set of competitive brands The positioning process starts with the identification of a relevant set of competitive brands against which a particular producer’s brand will be compared. • Step 2: Identify relevant determinants or differentiation variables In essence, product positioning has to do with competitive differentiation and the effective communication of it to customers. Kotler suggests that an organisation or market offering can be differentiated along four different dimensions: product, services, personnel or image. The marketer must decide which of these or other differentiation variables should be used in developing a positioning map. • Step 3: Determine consumers’ perceptions The marketer must establish how consumers perceive the various brands in terms of the determinant variables selected to be used in the previous step by collecting primary data from a sample of consumers.

25. Product positioning contd. • Step 4: Analyse the intensity of a brand’s current position When a consumer is aware of the brand, the intensity of awareness may vary. In many markets the awareness for a particular product may be as little as three or fewer brands, when there are more than twenty brands in the product class. In such markets, the marketer of the lesser-known brand must attempt to increase the intensity of awareness by developing a strong relationship between the brand and a limited number of variables. • Step 5: Analyse the brand’s current position From the data collected from consumers about their perceptions of the various brands in the market, the marketer can establish how strongly a particular brand is associated with a variety of determinant variables. • Step 6: Determine the customers’ most preferred combination of attributes By asking respondents to rate their ideal product and existing products on a number of determinant variables, this would give insight into the positions that appeal most to consumers. • Step 7: Select positioning strategies The position chosen must reflect customer preferences and the positions of competitive brands. It must also reflect the expected future attractiveness of the target market and the relative strengths and weaknesses of competitors as well as the organisation’s own capabilities.

26. Product positioning contd. • Positioning methods • Attribute positioning: the organisation positions itself in terms of one or more outstanding attributes. • Benefit positioning: this positioning method emphasises the unique benefits that the organisation or product offering offers its customers. • Use/ application positioning: an organisation can position itself or its market offering in terms of the product use or application possibility. • User positioning: the organisation may position its products with the users in mind. • Competitor positioning: some products can best be positioned against competitive offerings. • Product category positioning: an organisation can position itself in a product category not traditionally associated with it, thereby expanding its business opportunities. • Quality/ price positioning: the organisation may claim that its product is of exceptional quality, or the lowest price.

27. Product positioning contd. • Communicating market positions After the marketer has decided on a particular positioning statement and strategy, this must be communicated to the target market. • Common positioning errors • Under-positioning: when customers have only a vague idea of a particular brand and they do not sense anything special about the brand. • Over-positioning: buyers may have a very narrow image of a brand. • Confused positioning: this occurs when the marketer changes the positioning of the brand too frequently, or when too many claims are made about the brand. Consumers are therefore not sure what to expect from the brand. • Doubtful positioning: when the claims made about a brand are hard to believe or too good to be true. In such instances consumers will be reluctant to buy the brand. • Repositioning strategies Marketers often need to reposition their brands or products as the market develops, competitors enter or exit, and customers’ expectations and needs change.

28. Product positioning contd. • Gradual repositioning: involves a planned and continuous adaptation to the changing market environment. • Radical repositioning: is utilised when there is an ever- increasing gap between what the brand offers and what the market wants and entails that managers think about a major strategic change in the positioning. • Innovative repositioning: is where the planner finds a new strategic position that offers market opportunities not previously exploited or utilised. • Zero positioning: is where the organisation maintains its current positioning and therefore presents an unchanged face to the market over a long period of time.

29. ICE ACTIVITY • From the following brands, give one example of a positioning method that they use, and shortly explain why. • BMW : Sheer driving pleasure • Nike: Just do it • Pep: Lower prices for everyone • Mac Donalds –Im loving it • City Lodge – Your home away from home • Coca Cola – Open happiness • Woolworths – The difference • Avis – We try harder

30. Questions • Discuss with the use of examples the bases of segmentation that a company needs to consider if they were to launch a new product in the market. (12) • Discuss the positioning methods that Pick n Pay can use to position themselves within the market. (14)