Chapter 6 – Segmentation, Targeting and Positioning

Market Segmentation
 According to Dibb, since we are living in a diverse world, marketers cannot use mass
marketing approach. Marketers should group customers that have similar requirements and
buying behaviour into segments (target marketing). This means that buyers are no longer
homogenous but should be treated as heterogeneous in terms of wants and preferences
 A market segment is about dividing the marketing into similar segments of buyers with
distinct needs, characteristics and behaviours that might require separate marketing
strategies.
 Segmenting the market will help the marketer to better predict how customers react to
advertising.
 Marketers will be able to control particular groups of people to ensure that they react in a
positive way and that their needs are satisfied.
 Market segmentation is important because it can be a means of increasing sales and
profitability.
 According to Beane and Ennis (1987), market segmentation is done for two reasons:
o To look for new product opportunities, or areas which may be receptive to current
product repositioning (Reason 1), and
o To create improved advertising messages by gaining a better understanding of one’s
customer (Reason 2)
 The distinction by Beane and Ennis is important.
 Reason 1 (A New Segment)
o The firm is segmenting the market before it has entered it.
o It will use the information about the segments in order to develop the specific
elements of the marketing mix and indeed to decide which segments should be
focused on.
 Reason 2 (More Efficiently Targeting an Existing Segment)
o Marketer looks at an existent customer base.
o Marketer sees which basis for segmenting groups of customers may be most
effective for predicting their behaviour.
o Elements of the marketing mix are then designed to appeal to specific segments.
 The segmentation model is labelled normative because of its prescriptive nature; it suggests
that practitioners should go about their business in a certain way (Danneels, 1996).
 A ‘market segment’ is a large group of identifiable customers.
 A ‘niche’ is a more narrowly defined group of customers who may seek a specific
combination of benefits.

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  According to Kotler and Armstrong (2012), there are four major steps to target marketing
 In the first two steps, the company selects the customers that it will serve.
o Market segmentation involves dividing a market into smaller segments of buyers
with distinct needs, characteristics, or behaviours that might require separate
marketing strategies or mixes.
o The company identifies different ways to segment the market and develops profiles
of the market segments chosen.
o Market targeting consists of evaluating each market segment’s attractiveness and
selecting one or more market segments to enter.
 In the final two steps, the company decides on a value proposition—how it will create value
for target customers.
o Differentiation involves actually differentiating the firm’s market offering to create
superior customer value.
o Positioning consists of arranging for a market offering to occupy a clear, distinctive,
and desirable place relative to competing products in the minds of target
consumers.

Segmenting Consumer Markets

 There is no single way to segment a market. A marketer has to try different segmentation
variables, alone and in combination, to find the best way to view market structure. The
figure below outlines variables that might be used in segmenting consumer markets. Here
we look at the major geographic, demographic, psychographic, and behavioural variables.

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 Marketers can use segmentation not only to improve customer welfare but also to improve
profits
 The major variables are:
o Geographic
o Demographic
o Psychographic
o Behavioral
 Geographic Segmentation
o Geographic segmentation divides a market into different geographical units such as,
nations, states, regions, counties, cities, or even neighbours.
o The differences influence the cars customers buy and how they are equipped.
o Many companies today are localizing their products, advertising, promotion, and
sales efforts to fit the needs of individual regions, cities, and neighbourhoods.
o For example, Domino’s Pizza is the nation’s largest pizza delivery chain. But a
customer ordering a pizza in, New York, doesn't care much about what's happening
pizza-wise in, California. So Domino's keeps its marketing and customer focus
decidedly local.
 Demographic Segmentation
o Demographic segmentation divides the market into segments based on variables suc
as age, life-cycle stage, gender, income, occupation, education, religion, ethnicity,
and generation
o This segmentation is important because consumer needs and wants, often vary
closely with demographic variables
o Age and life-cycle segmentation
 Companies divide markets into different age and life-cycle groups since
consumer needs and wants change with age
 Some companies approaches use age and life-cycle segmentation, offering
different products or using different marketing approaches for different age
and life-cycle groups
 For example, Procter & Gamble sells Crest Spinbrushes for kids featuring
favourite children’s characters. For adults, Procter & Gamble sells more
serious models, promising “a dentist-clean feeling twice a day.”
 Marketers must be careful to guard against stereotypes when using age and
life-cycle segmentation
 For example, although some 70-year-olds require wheelchairs, others play
tennis
 Thus, age is often a poor predictor of a person’s life cycle, health, work or
family status, needs, and buying power
o Gender Segmentation
 Gender segmentation divides the market into different segments based on
gender
 Gender segmentation has long been used in clothing, cosmetics, toiletries,
and magazines

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  Some of these products are obvious, e.g. dresses, cosmetics (including men’s
cosmetics) and ‘women’s’ magazines such as Woman’s Weekly
 Some products are not so obvious; for example, certain motor cars tend to
be regarded as ‘female’ cars; this is also true of certain brands of cigarettes
 More recently, the men’s cosmetics industry has exploded, and many
cosmetics makers that previously catered primarily to women now
successfully market men’s lines. Just don’t call them “cosmetics.
o Income Segmentation
 Dividing a market into different income segments
 Income segmentation is used mainly by the marketers of products and
services such as, automobiles, boats, clothing, cosmetics, financial services,
and travel
 Many companies target affluent consumers with luxury goods and
convenience services
 For example; Dollar general, family dollar, and Dollar tree store chain targets
low to middle income groups. This means that to decide where to open its
retail outlets it research for location that are lower-middle-class
neighbourhoods.
o Psychographic Segmentation
o It divides buyers into different segments based on social class, lifestyle, or
personality characteristics
o People in the same demographic group can have very different psychographic
characteristics.
o Social class
 Many companies design products or services to specific social classes
building in features that appeal to them.
 Examples: luxurious property in Belgravia, London Jewellery - Tiffany
o Lifestyle
 Marketers often segment their markets by consumer lifestyles and base
their marketing strategies on lifestyle appeals.
 Examples: Nescafe – Red cup and Nescafe Gold
o Personality
 Give products personalities that correspond to customer personalities.
 Examples: Cosmetics, cigarettes, insurance and alcohol
o Personality
 Marketers also have used personality variables to segment markets
 For example, Mountain Dew projects a youthful and adventurous
personality. Coca-Cola Zero targets more mature personality types.
o Behavioural Segmentation
o Divide buyers into groups based on their knowledge, attitudes, uses, or responses to
a product.
o Occasions segmentation
 Divides the market into segments according to occasions when buyers get
the idea to buy, make their purchase or use the purchased item.

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  Examples:
 Orange juice for breakfast
 Turkey for Thanksgiving in the US and Christmas in Malta
 Occasion cards – Birthdays & Anniversaries
 Other marketers prepare special offers and ads for holiday
occasions.
 For example, M&M’s runs ads throughout the year but prepares
special ads and packaging for holidays and events such as Christmas,
Easter, and the Super Bowl.
o Benefit segmentation
 Divides the market into segments according to the different benefits that
consumers seek from the product.
 Benefits sought segmentation requires finding the major benefits people
look for in a product class, the kinds of people who look for each benefit and
the major brands that deliver each benefit
 For Example: Gillette has four different benefit segments of women
shavers, each target a particular benefit that women seek.
 For Example: Toothpastes Depending upon the audience segment the
benefit that the toothpaste provides would be highlighted > e.g. Teeth
whiteness – young adults; decay prevention – large families; flavour -
children
o User status segmentation
 Markets can be segmented into non-users, ex-users, potential users, first-
time users and regular users of a product.
 Marketers want to reinforce and retain regular users, attract targeted
nonusers and bring back ex-users
 For example: Ikea targets first time buyers such as newly-weds as well as
newly-divorced who are also starting off a new life
o Usage rate segmentation
 Markets can also be segmented into light, medium, and heavy product users
 Heavy users normally account for a small percentage of the market BUT for
a high percentage of total buying
 Marketers usually prefer to attract one heavy user to their product or
service rather than several light users.
 For Example: Less than 5 percent of all shoppers buy nearly 64 percent of
unbreaded seafood consumed in the United States.
 For Example: The fast-food companies such as Burger King, McDonald’s, and
KFC depend a lot on heavy users
 They do all they can to keep them satisfied with every visit
 These companies often target light users with their ads and
promotions
 The company’s marketing dollars are more often spent trying to
convince light users that they want a burger in the first place
o Loyalty status segmentation
 A market can also be segmented by consumer loyalty.

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  Consumers can be loyal to brands (Tide), stores (Target), and companies
(Apple)
 Segmenting the market by loyalty and using loyalty schemes.
 Loyalty schemes seek to build a relationship between the buyer and the
brand.
 Some consumers are completely loyal - they buy one brand all the time
 For Example: Whether they own a mac computer, an iPhone, or an iPad,
Apple devotes are granite-like in their devotion to the brand. At one end are
the quietly satisfied Mac Users, folks who own a Mac and use it for e-mail,
browsing, and social networking.
 Still other buyers show no loyalty to any brand. They either want something
different each time they buy or they buy whatever is on sale
 A recent study of highly loyal customers showed that “their passion is
contagious,” says an analyst. “They promote the brand via blogs, fan Web
sites, YouTube videos, and word of mouth.” Some companies actually put
loyalists to work for the brand.
o Using multiple segmentation bases
o Usually marketers use multiple segmentation bases to identify smaller and better
defined target groups through companies such as Nielsen and Experian.
o For example: Nielsen PRIZM system classifies every American household based on a
host of demographic factors such as age, educational level, income, occupation etc..
o Such systems can help marketers’ segment people and locations into marketable
groups. Each of these groups will have the same characteristics.
o For example: certain neighbourhood might have a certain lifestyle such as own a
Mercedes, go jogging, shop at Neiman Marcus and read wall street journal. In
another neighbourhood people might own a Toyota Yaris, and buy from cheaper
outlets.
o Such segmentation provides a powerful tool for marketers of all kinds. It can help
companies identify and better understand key customer segments, reach them more
efficiently and tailor market offerings and messages to their specific needs.

Segmenting Business Markets

 Consumer and business marketers use many of the same variables to segment their
markets.
 However the business marketer also use other variables, such as customer operating
characteristics, situational factors and personal characteristics.
 For example, Starbucks has developed distinct marketing programs for each of its two
business segments: the office coffee and food service segments.
o In the office coffee segment, Starbucks coffee services to businesses and helps these
business customers design the best office solutions involving its best coffees
o The Starbucks Foodservice division teams up with businesses and other
organizations—ranging from airlines, restaurants and colleges- to help them serve
the Starbucks brand to their own customers. Starbucks provides not only the coffee,

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 products to its food service partners, but also equipment, training, and marketing
and merchandising support.
 Many companies establish separate systems for dealing with larger or multiple-location
customers.
 For example, Steelcase, first divides customers into seven segments than the salespeople
work with independent Steelcase dealers to handle smaller, local, or regional Stellcase
customers in each segment. But many national, multiple-location customers, such as
ExxonMobil or IBM, have special needs that may reach beyond the scope of individual
dealers. Therefore, Steelcase uses national account managers to help its dealer networks
handle national accounts.

Market Targeting
 Market segmentation reveals the firm’s market segment opportunities. The firm now has to
evaluate the various segments and decide how many and which segments it can serve best.
We now look at how companies evaluate and select target segments.

Evaluating Market Segments

 In evaluating different market segments, a firm must look at three factors: segment size and
growth, segment structural attractiveness, and company objectives and resources.
 Segment Size and growth
o First, a company wants to select segments that have the right size and growth
characteristics. But "right size and growth" is a relative matter. The largest, fastest
growing segments are not always the most attractive ones for every company.
Smaller companies may lack the skills and resources needed to serve larger
segments. Or they may find these segments too competitive. Such companies may
target segments that are smaller and less attractive, in an absolute sense, but that
are potentially more profitable for them.
 Segment Attractiveness
o The company also needs to examine major structural factors that affect long-run
segment attractiveness. For example, a segment is less attractive if it already
contains many strong and aggressive competitors or if it is easy for new entrants to
come into the segment.
o The existence of many actual or potential substitute products may limit prices and
the profits that can be earned in a segment. The relative power of buyers also
affects segment attractiveness. Buyers with strong bargaining power relative to
sellers will try to force prices down, demand more services, and set competitors
against one another—all at the expense of seller profitability. Finally, a segment may
be less attractive if it contains powerful suppliers that can control prices or reduce
the quality or quantity of ordered goods and services.
 Company objectives and resources
o Some attractive segments can be dismissed quickly because they do not mesh with
the company’s long-run objectives. Or the company may lack the skills and resources
needed to succeed in an attractive segment.

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 o For example, the economy segment of the automobile market is large and growing.
But given its objectives and resources, it would make little sense for luxury-
performance carmaker BMW to enter this segment. A company should only enter
segments in which it can create superior customer value and gain advantages over
its competitors.

Selecting Target Market Segments

 After evaluating different segments, the company must decide which and how many
segments it will target.

 A target market consists of

a set of buyers who share
common needs or
characteristics
that the company decides
to serve.
 Market targeting can be
carried out at several
different levels.
 In the image below, it
shows that companies
can target very broadly
(undifferentiated
marketing), very
narrowly (micromarketing),
or somewhere in between (differentiated or concentrated marketing)

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 Undifferentiated Marketing (mass marketing)
o Undifferentiated marketing is a market-coverage strategy in which a firm decides to
use the same offer to all segments.
o With this strategy, the firm focuses on what is common to all potential consumers
rather than attempting to exploit differences
o The organisation designs one product and one marketing mix to all consumers
without any form of differentiation
o Such strategy has been criticised since it would be difficult to satisfy all consumers.
o This will also make the marketers’ job more difficult to compete with other
organisations that focus on particular segments that do a better job to satisfy the
customers.

 Differentiated Marketing (segmented market)

o A market-coverage strategy in which a firm targets several market segments and
designs separate offers for each segment.
o For example, VF Corporation’s combined brands give it a much greater, more stable
market share than any single brand could – their four Jeanswear brands alone
account for 25% of all jeans sold in the USA.
o Using this strategy the company aims to achieve higher sales and stronger position.
o Having a stronger position will make more sales than undifferentiated strategy.
o For example P&G’s multiple detergent brands capture four times the market share
of its nearest rival.
o Having said that, differentiated market increase the costs of doing business, unlike
undifferentiated which is considered cheaper. It is cheaper to make 100 units of the
same product rather than producing 10 units for 10 different products.
o Also the marketers’ needs to design different marketing plans for every different
segment.
 Concentrated marketing (niche marketing)
o When using a concentrated marketing strategy, a firm goes after a large share of one
or a few smaller segments or niches.
o For example, Whole Foods Market is a niche food retailer – the world’s biggest
retainer of natural and organic foods that caters to affluent consumers who mass
retailers (Walmart etc. ) can’t serve well
o Through concentrated marketing, 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.
o It can market more effectively by fine-tuning its products, prices and programs to
the needs of carefully defined segments. It can also market more efficiently,
targeting its products or services, channels, and communications programs toward
only consumers that it can serve best and most profitably.
o Many companies start as nichers to get a foothold against larger, more resourceful
competitors and then grow into broader competitors.
o For example: Southwest Airlines began by serving intrastate, no-frills commuters in
Texas but is now one of the nation’s largest airlines. And Enterprise Rent-A-Car

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 began by building a network of neighbourhood offices rather than competing with
Hertz and Avis in airport locations. Enterprise is now the nation’s largest car rental
company.
 Micromarketing
o Micromarketing is the practice of tailoring products and marketing programs to the
needs and wants of specific individuals and local customer segments; it includes
local marketing and individual marketing
o Local Marketing
 Local marketing involves tailoring brands and promotions to the needs and
wants of local customer groups : Cities, Neighbourhoods and Specific stores
 For example: the drugstore chain, Duane Reade, adapts its merchandise
assortments to individual neighbourhoods. In Manhattan, around Penn
Station, it sells sandwiches and quick lunches to the area’s many office
workers and communters.
 Local marketing has some drawbacks
 It can drive up manufacturing and marketing costs by reducing economies of
scale
 It can also create logistics problems as companies try to meet the varied
requirements of different regional and local markets
 Still, as companies face increasingly fragmented markets, and as new
supporting technologies develop, the advantages of local marketing often
outweigh the drawbacks.
o Individual Marketing
 Individual marketing refers to tailoring of products and marketing programs
to the needs and preferences of individual customers.
 More powerful computers, detailed databases, robotic production and
flexible manufacturing, and interactive communication media such as
mobile phones and the Internet have combined to foster ‘mass’
customization
 Mass customization is the process through which firms interact one-to-one
with masses of customers to design products and services tailor-made to
individual needs
 Individual marketing has made relationships with customers more important
than ever. Interaction marketing is becoming a marketing princpleof the
twentieth century.
 Companies these days are hypercustomizing everything
 For example: At mymms.com, candylovers can buy M&Ms embossed with
images of their kids or pets.
 For example: JH Audio in Orlando makes music earphones based on molds
of customers's ears to provide optimized fit and better and safer sound.
 For example: Nike’s NikeID program lets users choose materials for shoes’
tread and pick the color of the swoosh and stitching. They also cater if you
have a different-sized right and left feet.

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  For example: On a much larger scale, Harley-Davidson's H-D1 factory
customization program lets customers go online, design their own Harley,
and, get it in as little as four weeks.
 Increasingly, individual customers are taking more responsibility for
determining which products and brands to buy

Choosing a Targeting Segment

 Which strategy is best depends on the company’s resources. When the firms’s resources are
limited, concentrated marketing makes the most sense.
 The best strategy also depends on the degree of product variability. Undifferentiated
marketing is more suited for uniform products, such as grapefruit or steel. Products that can
vary in design, such as cameras and cars, are more suited to differentiation or concentration.
 When a firm introduces a new product, it may be practical to launch one version only, as
undifferentiated marketing or concentrated marketing may make the most sense. In the
mature stage of the product life cycle, however, differentiated marketing often makes more
sense.
 Another factor is market variability. If most buyers have the same tastes, buy the same
amounts, and react the same way to marketing efforts, undifferentiated marketing is
appropriate.
 Finally, competitors’ marketing strategies are important. When competitors use
differentiated or concentrated marketing, undifferentiated marketing can be suicidal since
differentiated focus more on the needs and wants of the customer and therefore they are
more satisfied.

Socially Responsible Target Marketing

 Although target marketing focuses on the needs and wants of consumers it sometimes
generates controversy and concern.
 The biggest issues usually involve the targeting of vulnerable or disadvantaged consumers
with controversial or potentially harmful products.
 For example, McDonald’s has been criticized by parents groups who are concerned that its
popular Happy Meals offers—featuring trinkets and other items tied in with children’s
movies such as Toy Story—create a too-powerful connection between children and the often
fat-and calorie-laden meals. McDonald’s has responded by putting the Happy Meal on diet,
cutting the overall calorie count.
 For example, Banks targeting low-income groups with credit card promotions

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  Through Internet, marketers can target and reach vulnerable segments with misleading
messages
 For example: The FBI’s Internet Crime Complaint Center Website alone received more than
310,000 complaints last year.
 Thus, in target marketing, the issue is not really who is targeted but rather how and for
what. Controversies arise when marketers attempt to profit at the expense of targeted
segments – when then unfairly target vulnerable segments or target them with questionable
products or tactics. Socially responsible marketing calls for segmentation and targeting that
serve not just the interests of the company but also the interests of those targeted.

Differentiation and Positioning

 Market positioning is the process of establishing a position for a product relative to its
competitors, using the different elements of the marketing mix.
 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 position is the way a product is defined by consumers on important attributes—
the place the product occupies in consumers’ minds relative to competing products
 For Example: In the automobile market :
o Toyota Echo and Ford Focus are positioned on economy
o Mercedes and Cadillac are positioned on luxury
o Porsche and BMW are positioned on performance
o Volvo positions powerfully on safety
 Positioning in the consumer’s mind - examples
o Rolex brand…"the best expensive watch“; “precision”
o Swatch…”fashion watches”
o Kleenex…”pocket tissues”….”ultrasoft”
o Heineken…”the expensive beer”…”premium lager”
o Wal-Mart & ASDA…”cheap merchandise”…”Always low prices”
 Consumers are overloaded with information about products and services.
 They cannot re-evaluate 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. Marketers 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.
 Fuchs and Diamantopoulos distinguish between different positioning;
o Intended
 Intended positioning is how the marketer intends to position the offering.

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  For example, a watch manufacturer may position one of their models in the
luxury space.
 This may be driven because the marketers found a gap in the market or that
consumers feel that with the current products they are not satisfied.
o Actual
 It refers to the actual positioning information (via marketing
communications’) given to customers and this will depend on how the
communications campaign is actually executed.
o Perceived
 It refers to the actual positioning information (via marketing
communications’) given to customers and this will depend on how the
communications campaign is actually executed.
 Perceived positioning can vary from customer to customer, depending on
how each one of them interprets the information given.
 They start by saying that when marketers position their brands, they are effectively
influencing customer perceptions of those brands. Through advertising the marketers will
establish an image in the mind of the consumers a position compared to other products.
 There are two key sources of error that can affect the effectiveness of positioning.
1. Firstly, the intended position may be misconstrued, so the position that the
organisation hopes to achieve for the brand does not actually meet a valid customer
want or does not adequately distinguish the company’s offering from that of
competitors.
2. Secondly, the intended position may be well defined, but the execution may not be
effective so consumers do not perceive the actual position the right way.
 One of the decisions that marketers need to make is the type of positioning to be used. The
choices that are available are as follows:
o Features - The marketer emphasises the concrete attributes of the brand. The
advantage of this approach is that it is tangible and measurable.
o Abstract - These are groups of attributes, but they may not be very tangible.
o Direct - Emphasis is on the advantages to the consumer; for example, whether the
offering is more convenient or involves lower cost.
o Indirect - The emphasis here is on hedonic needs and the psycho-social benefits to
the customer; for example, that a product makes someone look more attractive or
respectable.
o Surrogate - Here potential customers are invited to make associations between the
brand and something else; for example, some watches draw associations between
the brand and famous personalities.

Positioning Maps
 Positioning maps is a diagrammatic technique used by marketers to show where existing
products and services are positioned in the market so that the firm can decide where they
would like to place (position) their product.
 It helps the marketers to see from the customers’ perceptive.
 This will help marketers to develop a market positioning strategy for their product or service.

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  Firms have two options they can either position their product so that it fills a gap in the
market or if they would like to compete against their competitors they can position it where
existing products have placed their product.
 It is important to keep in mind that perceptual maps are based on the buyer’s perception.
This means that the same product can be perceived differently by different consumers.
 Therefore it is important that the information that the marketers have at hand is very
accurate.
 If customer perception data is wrong, the map will be wrong and this will affect the success
of any marketing strategy based on the perceptual (positioning) map.
 If marketers find a gap in the market they need to make sure that there is enough demand
for the product that is positioned in that gap.

 Assuming that the data is accurate, in this example the marketer will have a better idea
where to position the product in order to gain a competitive advantage over other
established products. You will note that some brands are sold on the basis of price (they are
cheap), others are sold on the basis of better chocolate quality. Having these different
market segments manufacturers are able to take advantage of this offering different product
in each segment.
 For example: So far as cars are concerned, manufacturers offer different models in order to
cater for different segments that place varying emphasis on luxury, fuel economy, passenger
capacity, speed and a number of other factors.

Choosing a differentiation and positioning strategy

 Each firm must differentiate its offer by building a unique bundle of benefits that appeals to
a substantial group within the segment
 A brand’s positioning must serve the needs and preferences of well-defined target markets
o Mc Cafe and Starbucks are both coffee shops but product offers and store
atmospheres are different

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 o Each succeeds because it creates the right value proposition for its particular mix of
customers
 The positioning task consists of three steps:
o identifying a set of possible competitive advantages upon which to build a position
o choosing the right competitive advantages
o selecting an overall positioning strategy
 The company must then effectively communicate and deliver the chosen position to the
market

 Identifying a set of possible competitive advantages

o To build profitable relationships with target customers, marketers must understand
customer needs better than competitors do and deliver more value
o To the extent that a company can position itself as providing superior value, it gains
competitive advantage either through lower process or by providing more benefits
that justify higher prices.
o If a company positions its product as offering the best quality and service, it must
then deliver the promised quality and service, it must actually differentiate the
product so that it delivers the promised quality and service.
o For Example: When Staples’ research revealed that it should differentiate itself on
the basis of “an easier shopping experience, first, it remade its stores to actually
deliver the promised positioning
o A company can differentiate itself or its market offer along the lines of:
 Product differentiation - features/ performance/ style/ design
 Service differentiation – speedy/ convenient/ careful delivery
 Channel differentiation – coverage/ expertise/ performance
 People differentiation – hiring and training people better than competitors
 Image differentiation – image has to convey distinctive benefits and
positioning in everything it does
o Product differentiation
 Through product differentiation, brands can be differentiated on features,
performance, or style and design.
 For example, some chicken producers claim that their branded chickens are
better fresher and more tender
 At the other extreme are products that can be highly differentiated,
such as automobiles, clothing, and furniture
 Other products such as mobiles and cars can be differentiated on
features, performance, or style and design
 Volvo provides new and better safety features
 Whirlpool designs its dish-washer to run more quietly
 Similarly, companies can differentiate their products on such attributes as
consistency, durability and reliability
o Services differentiation

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  Some companies gain services differentiation through speedy, convenient,
or careful delivery
 For example: First convenience Bank of Texas offers “Real Hours for Real
People”; it is open seven days a week, including evenings.
 Others differentiate their service based on high-quality customer care
 For example, BankOne has opened full-service branches in super-markets to
provide location convenience along with Saturday, Sunday, and weekday-
evening hours
o Channel differentiation
 Firms that practice channel differentiation gain competitive advantage
through the way they design their channel’s coverage, expertise, and
performance
 For Example: Amazon.com, and GEICO set themselves apart with their high-
quality direct channels
 For Example: Caterpillar’s success in the construction-equipment industry is
based on superior channels. Caterpillar’s dealers worldwide are renowned
for their first-rate service
o People Differentiation
 Companies can gain a strong competitive advantage through people
differentiation: Hiring and training better people than their competitors do
 For Example: Disney people are known to be friendly and upbeat
 For Example: Singapore Airlines enjoys an excellent reputation largely
because of the grace of its flight attendants
 For example, Disney trains its theme park people thoroughly to ensure that
they are competent, courteous, and friendly -from the hotel check-in agents,
to the monorail drivers, to the ride attendants, to the people who sweep
Main Street USA. Each employee is carefully trained to understand
customers and to “make people happy.”
o Image Differentiation
 Even when competing offers look the same, buyers may perceive a
difference based on company or brand image differentiation
 For Example: If Ritz-Carlton means quality, this image must be supported
by everything the company says and does
 For Example: Symbols – such as the McDonald’s golden arches, the Nike
swoosh, or Google’s colourful logo - can provide strong company or brand
recognition and image differentiation
 For Example: The company might build a brand around a famous person, as
Nike did with its Air Jordan basketball shoes and Tiger Woods golfing
products
 For Example: Some companies even become associated with colours, such
as IBM (Blue) or UPS (brown)
 The chosen symbols, characters, and other image elements must be
communicated through advertising
 Choosing the Right Competitive advantages

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 o If the company discovers that it has a number of potential differentiations it must
now choose the ones on which it must build its potion strategy.
o It must decide how many differences to promote and which ones.
o HOW MANY DIFFERENCES TO PROMOTE?
 Advertising executive Rosser Reeves, for example, said a company should
develop a unique selling proposition (USP) for each brand and stick to it
 For example: Walmart promotes its unbeatable low prices, and Burger King
promotes personal choice— “have it your way.”
o A difference is worth establishing to the extent that it satisfies the following criteria:
 Important: The difference delivers a highly valued benefit to target buyers
 Distinctive: Competitors do not offer the difference, or the company can
offer it in a more distinctive way.
 Superior: The difference is superior to other ways that customers might
obtain the same benefit
 Communicable: The difference is communicable and visible to buyers
 Pre-emptive: Competitors cannot easily copy the difference
 Affordable: Buyers can afford to pay for the difference
 Profitable: The company can introduce the difference profitably
o However companies that have failed on or more of these criteria didn’t manage to
gain competitive advantage.
o For Example: When Westin Stamford hotel failed although it advertised that it is the
world’s tallest hotel.
o Choosing the right differentiators can help a brand stand out from the pack of
competitors.
o For example, Nissan introduced its novel little Cube, and positioned it differently
from its competitors such as affordability, it position it as a “mobile device” that fits
today’s digital lifestyles.
 Selecting an Overall Positioning Strategy
o Consumers typically choose products and services that give them the greatest value
o The full positioning of a brand is called the brand’s value proposition – the full mix
of benefits on which a brand is differentiated and positioned.
o It is the answer to the customer’s question “Why should I buy your brand?”
o For Example: BMW’s “ultimate driving machine” value proposition hinges on
performance but also includes luxury and styling, all of a price that is higher than
average but seems fair for this mix of benefits.
o For Example:
 Volvo’s Value Proposition hinges on safety (most important)
 But also includes reliability, roominess and styling
 For a price that seems higher than average
 But which seems fair for this mix of benefits
o The matrix of value proposition:

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o The figure shows possible value propositions on which a company might position its
products.
o In the figure, the five purple cells represent winning value propositions—
differentiation and positioning that give the company a competitive advantage.
o The orange cells, however, represent losing value propositions.
o The center yellow cell represents at best a marginal proposition. In the following
sections, we discuss the five winning value propositions:
 more for more,
 more for the same,
 the same for less,
 less for much less, and
 More for less.

 More and More

 ‘More for more” positioning involves providing the most upscale
product or service and charging a higher price to cover the higher
costs

 Not only is the marketing offer high in quality, it also gives prestige
to the buyer
 It symbolizes status and a loftier lifestyle
 Often, the price difference exceeds the actual increment in quality
 For Example: Ritz-Carlton Hotels and Mercedes-Benz automobiles -
each claims superior quality, craftsmanship, durability, performance,
or style and charges a price to match
 MORE FOR THE SAME
 Companies can attack a competitor’s more-for-more positioning by
introducing a brand offering comparable quality but at a lower price
 For example, Toyota introduced its Lexus line with a more-for-the-
same value proposition versus Mercedes and BMW.
 The Same for Less

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  Offering “the same for less” can be a powerful value proposition –
everyone likes a good deal
 For Example: For example, Amazon.com offers the Kindle Fire tablet
computer, which sells for less than 40 percent of the price of the
Apple iPad or Samsung Galaxy.
 For Example: Ryanair offers the same destinations as other airlines
such as Lufthansa at much lower prices.
 Less for Much Less
 A market almost always exists for products that offer less and
therefore cost less
 Consumers are ready to settle for lower performance or something
more basic in exchange for a lower price
 For example, Hotel chains such as Ramada Limited, suspend some
of amenities such as such as a pool and attached restaurants, and
charge less accordingly.
 For Example: Family Dollar stores offer more affordable goods at
very low prices.
 More for Less
 Of course, the winning value proposition would be to offer more for
less. Many companies claim to do this. And, in the short run, some
companies can actually achieve such lofty positions.
 For example, when it first opened for business, Home Depot had
arguably the best product selection, the best service, and the lowest
prices compared to local hardware stores and other home
improvement chains.
 In the long run, companies will find it very difficult to sustain such
best-of-both positioning
 Companies that try to deliver both may lose out to more focused
competitors
 For example, facing determined competition from Lowe’s stores,
Home Depot must now decide whether it wants to compete
primarily on superior service or on lower prices
 Developing a positioning statement
o A statement that summarizes company or brand positioning takes this form: To
(target segment and need) our (brand) is (concept) that point-of-difference)
o For example: “To busy professionals who need to stay organized, Palm is an
electronic organizer that allows you to backup files on your PC more easily and
reliably than competitive products.”
o Placing a brand in a specific category suggests similarities that it might share with
other products in the category. But the case for the brand’s superiority is made on
its points of difference
o For Example: the U.S. Postal Service ships packages just like UPS and FedEx, but it
differentiates its Priority Mail from competitors with convenient, low-price, flat-rate
sipping boxes and envelopes.
 Communicating and Delivering the Chosen Position

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 o Once it has chosen a position, the company must take strong steps to deliver and
communicate the desired position to target consumers
o All the company’s marketing mix efforts must support the positioning strategy
o If the company decides to build a position on better quality and service, it must first
deliver that position
o Designing the marketing mix – product, price, place, and promotion – involves
working out the tactical details of the positioning strategy
o Thus, a firm that seizes on a more-for-more position knows that it must produce
high-quality products, charge a high price, distribute through high-quality dealers,
and advertise in high-quality media
o It must hire and train more service people, find retailers who have a good reputation
for service, and develop sales and advertising messages that broadcast its superior
service
o This is the only way to build a consistent and believable more-for-more position

Problems in implementing segmentation

• Segmentation is carried out at a point in time, but given the dynamic marketing
environment, the findings will become rapidly out of date.
• Product criteria versus distinct customer needs
o Segments may be developed on the bases of product criteria rather than reflecting
distinctive customer needs
o For example, in the corporate banking sector, some banks divide their customer
base in terms of turnover and/or size criteria. This is despite the fact that these
banks talk about the resultant groupings as if they are genuine customer segments;
in practice they may fail to delineate between customers in terms of product
requirements and buying behaviour.
• The above approach is a sectorised view of the market which is based on product criteria
rather than on the needs of the customers. It is more convenient and easy to use it.
• A reason for pursuing the sectorised view is because of industry norms, that may also limit
the extent to which segmentation can be undertaken effectively
• One example is the car market in the UK which segments by car size. These segments may
not actually correspond to specific targeted groups of buyers but may reflect a convenient
means of dividing up the market. The sales force of a company may also be geared towards
the satisfaction of operational considerations rather than marketing requirements.
• There are also operation considerations in segmenting a market.
• For example, sales people may have geographical territories rather than type of customer.
• Intuition versus planning
o Segments may also be developed on an unsystematic basis, through marketer’s
intuition and customer requests.
o Dibb and Simkin (1994) argue that a company’s structure, distribution systems and
sales force may limit the practicability of segmentation.
o They also point out that there are some problems with the reliability of
segmentation techniques.;

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 o For example, they may be motivated by customer requests and the costs of
identifying segments may be prohibitive.
o In a study of segmentation, Danneels found that the implementation of
segmentation, targeting and positioning did not follow the normative model. He
says:
 In the normative model, segmentation, targeting and retail mix
development occur sequentially. It was found that this sequence was not
respected by the apparel retailers in this study. The data suggests that a
cyclical process of adjustment of the retail mix would more accurately
reflect actual business practice. This suggests that, in practice, the stages of
the sequence are rearranged and repeated.
• Validity of segmentation
o Dibb and Stern (1995) argue that the process of segmentation makes a number of
assumptions which could be flawed.
o They identify three main problems:
1. The market and its boundary may be pre-defined by the marketer and this
may not reflect reality (market definition).
2. Segments may not be stable with respect to time or competitor activity.
3. The process of segmentation itself may change the market’s response to
the dimensions of the segmentation technique (market stability).
o Attitudinal responses correlate with behavioural activity (attitudinal reliability), so
there may be problems with interpreting the output of cluster analysis.
• Process led
o Quinn et al. (2007) say that the positivistic premise underlying the idea that
homogeneous groups of consumers can be created – can also lead to a process-
driven understanding of market segmentation. They argue that it is important to
understand the factors that influence both the consumer and the organisation.
What this means is that purely by focusing on what bases distinguish different
segments, may not take into account why this is the case and how changes in the
marketing environment may diminish the validity of segmentation bases that had
previously been effective.
o There are examples of consumers abandoning predictable patterns of consumption.
For example, in general only young people have bought certain types of toys and
games, but in recent years older men have been buying such products as well
(nostalgia market). Changes in lifestyle, income and ethnic group are increasing the
diversity of customer needs and behaviour.
• Questioning the substantiality criterion
o Pires, Stanton and Stanton (2011), say that common interpretations of substantiality
focus on profitability or viability of the segment size in terms of numbers and market
potential, but there is imprecision about what substantiality actually entails. Within
consumer markets, substance may refer to having a sufficient number of consumers
to warrant tailoring a product. Another approach is whether the profits from
segmentation outweigh the costs of focusing.

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 o There are five ways to value a segmenting opportunity, on a more strategic basis,
without addressing profitability: sales potential, fit with the firm’s existing resources,
cost of segmenting, competition and growth. The issue is not simply a matter of
profits generated by the particular segment (whether it has sufficient substance) but
whether there is strategic advantage in segmenting; that is, a long-term impact on
the firm’s competitive position.
• Problems with geographic segmentation
o There are also specific problems with geographical segmentation. If it is possible for
a customer to buy in one market and sell in another, there exists personal arbitrage.
Example: buying alcohol from a country that tax is lower and consume in country
where tax is higher.
o Geographical segmentation may be imposed where customers buy a certain product
by force of habit. E.g. Cost of right-hand & left-hand cars- driving a left-hand drive
car in Malta
o Language can also help marketers to keep geographical markets separate. For
example, health warnings on cigarettes and ingredients on food packages.
o Marketers may also control their distribution networks by not offering warranties on
products which have been bought in one country and then taken to another. For
example, hi-fi, pcs, white goods.

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