Market segmentation, targeting and positioning
Marketing and Service Management · Unit II · Topic 6 of 15 · 4 min read
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1. Meaning
A market is not one uniform mass of buyers. Buyers differ in needs, income, location and habits. Market segmentation is the process of dividing a total market into distinct, fairly homogeneous groups (segments) of buyers who have similar needs and who respond similarly to a marketing mix. Wendell R. Smith introduced the idea in 1956 (“Product Differentiation and Market Segmentation as Alternative Marketing Strategies”, Journal of Marketing). Kotler defines it as “subdividing a market into distinct subsets of customers, where any subset may conceivably be selected as a target market to be reached with a distinct marketing mix.”
Example: a car maker sells a small hatchback to first-time urban buyers, a sedan to middle-income families, and an SUV to higher-income buyers who value status and travel.
2. Bases of segmentation (consumer markets)
(a) Geographic. By nation, region, State, city size, urban or rural, climate, population density. Woollens sell in the north in winter; rural packs (small sachets) for villages; regional-language advertising.
(b) Demographic. By age, sex, family size, family life cycle, income, occupation, education, religion, caste, nationality. The most used basis because the data is easy to obtain and closely linked to wants: baby products, women’s cosmetics, senior-citizen health plans, premium and economy brands by income.
(c) Psychographic. By social class, lifestyle and personality. Buyers in the same demographic group may differ widely: fitness-conscious buyers, eco-conscious buyers, status seekers, adventure lovers.
(d) Behavioural. By buyers’ knowledge of, attitude to, use of or response to the product:
- occasion (festival gift packs, wedding jewellery);
- benefit sought (toothpaste for whitening, sensitivity or cavity protection);
- user status (non-user, ex-user, first-time, regular);
- usage rate (light, medium, heavy users);
- loyalty status (hard-core loyal, switchers);
- readiness stage (unaware, aware, interested, intending to buy).
Business (industrial) markets are segmented by industry, company size, location, purchasing approach (centralised or decentralised), order size and the benefit sought (price, service, quality).
3. Types of segmentation strategy
“Types of market segmentation” (November 2022) can be answered by the bases above and, briefly, by the level of segmentation:
- Undifferentiated (mass) marketing: one offer for the whole market.
- Differentiated marketing: separate offers for several segments.
- Concentrated (niche) marketing: a large share of one small segment.
- Micro marketing: local and individual marketing, tailored to a city, a store or a person (customised online recommendations).
4. Process of segmentation
The process is usually stated as the STP sequence (segmentation, targeting, positioning):
- Identify the market and its total size.
- Collect data on buyers’ needs and characteristics through marketing research.
- Choose the bases and divide the market into segments.
- Develop profiles of each segment (who they are, what they want).
- Evaluate segments for size, growth, profit, competition and fit with the firm’s resources.
- Select target segments (targeting).
- Position the product in each target segment: create a clear and distinctive place in the customer’s mind relative to competitors (value, quality, safety, luxury).
- Design the marketing mix for each segment and review it periodically.
5. Requisites of sound segmentation
A segment is useful only if it is:
- Measurable: size and purchasing power can be measured.
- Substantial: large and profitable enough to serve with a separate mix.
- Accessible: can be reached through available media and channels.
- Differentiable: responds differently from other segments.
- Actionable: the firm has the resources to design programmes for it.
- Stable: lasts long enough to justify the effort.
6. Benefits and limitations
Benefits (November 2022): better understanding of customer needs; products that fit each segment; efficient use of the marketing budget; discovery of unserved segments (market opportunities); stronger position against competitors; customer satisfaction and loyalty; and suitable pricing for each segment.
Limitations: higher costs of production, inventory and promotion for several products; segments may be too small; over-segmentation confuses buyers; data on psychographic bases is hard to get; segments change over time.
How this is examined
“Explain the bases of market segmentation” (10 or 16 marks) needs a definition with Smith or Kotler, the four bases each with sub-variables and an Indian example, the business bases in a line, and a closing paragraph on benefits. “Elaborate on market segmentation” (April 2021) is the same answer in short-note length. “Write a note on process of market segmentation” (January 2026) takes section 4; “What are the requisites of sound market segmentation?” (October 2023) takes section 5.
Now try the real questions: Marketing and Service Management past question papers.