Principles of Marketing

Handout 7
Identify and Segment Market for
Product or Service
Select the appropriate target market
segment and its positioning
Principles of Marketing
Handout 7

Identify and Segment Market for Product or Service

Select the appropriate target market segment and its positioning

The learners are expected to:

Identify and segment market for a product or service; and

Select the appropriate target market segment and its positioning

Lesson Presentation

Market Segmentation

Market segmentation is the process of dividing a market of potential customers into

groups, or segments, based on different characteristics. The segments created are
composed of consumers who will respond similarly to marketing strategies and who share
traits such as similar interests, needs, or locations

Why is market segmentation important for marketers?

Market segmentation makes it easier for marketers to personalize their marketing

campaigns.

By arranging their company’s target market into segmented groups, rather than
targeting each potential customer individually, marketers can be more efficient with their
time, money, and other resources than if they were targeting consumers on an individual
level. Grouping similar consumers together allows marketers to target specific audiences in
a cost-effective manner.

Market segmentation also reduces the risk of an unsuccessful or ineffective

marketing campaign. When marketers divide a market based on key characteristics and
personalize their strategies based on that information, there is a much higher chance of
success than if they were to create a generic campaign and try to implement it across all
segments.

Marketers can also us segmentation to prioritize their target audiences. If segmentation

shows that some consumers would be more likely to buy a product than others, marketers
can better allocate their attention and resources.
Consumer Segmentation Variables

These are four major variables used in market segmentation:

1. Geographic- pertains to where the population is located. Geographic segmentation

divides the market by regions, cities, urban and rural area, coastal and central land
masses, by density or areas with low, medium or heavy concentration of population, or by
areas of the country with either relatively temperate or hot temperature, among others.

Some examples of geographic segmentation sub-variables are:

 Region

 Density

 Climate

2. Demographic - refers to the general characteristics of the population. Using

demographic segmentation, males may be grouped together in one segment, and females in
another. Those belonging to the higher income (income class A and B) may form a segment,
the middle income class (income class C) another segment, and the lower income (D and E)
yet another. Age can also be an effective segmentation variable. Teenagers may compose a
segment, young adults another, and mature individuals and senior citizens may form two
more individual segments. Educational attainment can be an effective segmentation sub-
variable as well, such as those with higher education (holders) of master’s degree, or
doctorate degrees), individuals who have completed their college education, graduated from
high school, completed elementary education, and those with little or no education.

Some examples of common demographic segmentation sub-variables are:

 Gender

 Age

 Income

 Occupation

 Education

 Civil status

 Religion

 Nationality
  Race

 Family size

3. Psychographic - these are variables that represent the psychological profile of

consumers. This is one of the most effective segmentation variables in predicting purchase
behavior. However, the psycho-graphic profiles of different segments of the population are
difficult to measure as no government agency undertakes regular studies and release data
to identify and quantify these segments. This is in contrast with geographic and
demographic population data, which is collected every five years by the Philippine Statistics
Authority. Another is through Expectation Surveys undertaken by several government
agencies as the Bangko Sentral ng Pilipinas.

Examples of psycho-graphic segmentation sub-variables are:

 Lifestyle

 Personality

 Social Class

 User status

 Usage rate

 Loyalty status

 Benefits sought

4. Behavior-graphic - is the segmentation variable most indicative of purchase

behavior. Unfortunately, it is not available to all organizations as it depends on the
meticulous maintenance and conversation of internal databases. Retailer databases, for
example, can provide information such as customer listings, their home and email
addresses, and contact numbers. When customer database is organized and synchronized
with point-of-sales system, retailers can pinpoint individual customer purchases, by item,
transaction size, time of day, and frequency. When the database of a particular female
customer, for example, indicates a preference for capri pants, the retailer can send an email
to this customer to advise her of the arrival of new capri pants. Without the database, the
email will be sent to all of the retailer’s customers. Behavior-graphic segmentation not only
enhances the likelihood of sales, but dramatically reduces direct marketing costs.

The organization has to decide which segmentation sub-variables are relevant to the
successful and cost-efficient marketing of its product or service. For example, a fruit juices
company may decide to concentrate the marketing of its products to teenagers from the
middle class income bracket. It may also decide not to segment its potential consumers by
education, as educational attainment may be irrelevant in fruit juices purchase and
consumption.
Target Market

After segmenting the market into various homogeneous parts (or segments possessing
similar characteristics), the marketer decide which parts/segments he/she wants to
actively pursue. The target market of a product or service is defined as its most probable
and most logical consumers, and may likewise be its heaviest consumers. A company may,
for example, decide its product’s target market to be:

“Males and females residing in Metro Manila who belong to income classes A, B and C,
single, are between the ages of 21 to 30, who are sports-minded and are looking for a
sports drink that can provide relief after strenuous physical activities.”

Research into national statistical database (e.g. the Philippines Statistics Authority)
shows the following population profile:

Figure 1. Population Statistic

Metro Manila Population 11,278,564

By gender: By marital status:

Male 49.3% Single 31.1%

Female 50.7% Married 46.2%

Separated/Widow/Widowe
r 22.7%

By income class: By age:

Class AB 21.2% Below 10 14.8%

Class C 41.3% 10 to 20 21.4%

Class D 22.4% 21 to 30 19.7%

Class E 15.1% 31 to 40 17.9%

41 to 50 11.7%

51 to 60 8.4%

Above 60 6.1%
Elements of an Ideal Target Market

A company may finalize the selection of its market upon consideration of its conformity
with the following elements:

 Substantial - the select target market must be large enough in terms of quantity
and/or total consumption capability. The size of a target market can be determined as
follows:

Target market: Males and females residing in Metro Manila who belong to income
classes A,B, and C, single, are between the ages of 21 to 30, who are sports-minded and are
looking for a sports drink that can provide relief after heavy physical activity.

11, 278, 564 (Metro Manila Population)

x 1.00 (decimal equivalent of the percentage of the population who are

male and female)

x 0.625 (decimal equivalent of the percentage of the population who

belong to income classes A,B, and C)

x 0.311 (decimal equivalent of the percentage of the population who are

single)

x 0.197 (decimal equivalent of the percentage of the population who are

between the ages 21 to 31)

431,877 Target market size

Although psychographic segmentation sub-variables (such as being sports-minded, or

those engaged in heavy physical activity) may be the most indicative in determining
potential consumption, no database on these factors are available in public database. In
most cases, organizations may have to conduct market research to determine the
percentage of the total population processing these psychographic characteristics.

After the total size of the target market is determined (in this case 431.877), the
organization then decides on the substantiveness of the total market. If the organization
feels the size is sufficient to generate substantial sales revenues to make a profit, the
company can proceed to market its product/service offering.

If, however, the organization feels that the target market is not substantial enough to
generate sufficient revenues, the organization can either:
 A. Expand its target market to include other segment brackets previously not
targeted

The company may decide to not just target ages 21 to 30 but likewise include ages 31 to
40. This will result in a larger target market, as follows:

11,278,564 (Metro Manila Population)

x 1.00 (decimal equivalent of the percentage of the population who

are male and female)

x 0.625 (decimal equivalent of the percentage of the population who

belong to income classes A,B, and C)

x 0.311 (decimal equivalent of the percentage of the population who

are single)

x 0.376 (decimal equivalent of the percentage of the population who

are between the ages 21 to 30 and 31 to 40)

824,294 Target market size

B. Expand its target market by reducing the number of sub-variables

The company may decide to exclude civil status as a segmentation sub-variable by

targeting all men and women regardless of marital status. The resulting target market size
is as follows:

11,278,564 (Metro Manila Population)

x 1.00 (decimal equivalent of the percentage of the population who
are made and female)

x 0.625 (decimal equivalent of the percentage of the population who

belong to income classes A,B, and C)

x 0.376 (decimal equivalent of the percentage of the population who

are between the ages 21 to 30 and 31 to 40)

2,650,463 Target market size

C. Combination of the two options

The company may decide not to use civil status as a segmentation sub-variable. It may
expand its target market to include ages 31 to 40. The resulting target market size is as
follows:

11,278,564 (Metro Manila Population)

x 1.00 (decimal equivalent of the percentage of the population who

are male and female)

x 0.625 (decimal equivalent of the percentage of the population who

belong to income classes A,B, and C)

x 0.376 (decimal equivalent of the percentage of the population who

are between the ages 21 to 30 and 31 to 40)

2.650,463 Target market size

However, expanding one’s target requires necessary adjustments in the elements of the
product’s or service’s marketing mix. For example, extending the original target market
from income classes A and B to include income class C would require adjustments in its
suggested retail price, an expansion of its distribution network, and a possible re-
calibration in the details of its intended advertising and promotions plan.

In market segmentation, the more segmentation sub-variables are used, the smaller the
target market becomes. This results in a focused market, where the market may feel that
the product has been made exclusively for me. Inversely, the less segmentation sub-
variables are used, the larger the target market becomes.

The target market should ideally be:

 Financially capable - must have the financial means to afford means to afford the
purchase price of the product/service. Since organizations require a selling price for
their product/service, financial capability is an essential element of an ideal target
market. For this reason, most profit-oriented organizations exclude income class E
as part of their target market.

 Reachable - must be within physical reach to permit product distribution. It should

also reachable by various marketing activities (advertising, promotions, Internet and
digital marketing, etc.)

 Homogeneous - must react similarly to specific marketing stimuli. A homogeneous

market is an ideal target market. Since companies employ various marketing stimuli
to attract, persuade, or retain the loyalty of its target market, homogeneous markets
will ensure that the marketing activities will be efficient and effective.

Target Market vs. Consuming Market

How does a product’s target market differ from its consuming market? A company’s
target market is the group of individuals with specific characteristic to whom the company
has decided to focus its marketing efforts. For example, a fruit juices brand may have
identified its target market to be “males and females residing in major urban centers
nationwide, who are between the ages of 12 and 25, belonging to income classes A,B and C
who are looking for a carbonated beverage with a high caffeine content that can
reinvigorate them and keep them active enough to perform their daily activities.”
Individuals who fit this description is the brand’s target market.

On the other hand, the consuming market comprise of actual consumers of the
product/service. The great majority of its consuming market would naturally come from
their selected target market. However, some individuals outside the product’s target market
description (above the age of 25, for example) may also buy the fruit juices brand and may
also find its value proposition applicable to them (although to a lesser extent). A product’s
or service’s consuming market, therefore, is larger than its target market, because it
includes individuals that are not target market of the product/service.
Positioning

Positioning is the process of communicating the image of a brand into the minds of
consumers. The objective is to make the brand stand out in comparison to its competitors.

Why should a brand have an image or a brand position? The first reason is to recall.
Customers have difficulty remembering brand position? The first reason is to recall.
Customers have difficulty remembering brands that have no distinct image. This can be
illustrated using a typical high school student attending a reunion of his elementary
graduating class. Upon seeing his former schoolmates, he may remember some
schoolmates immediately, some even by name. These schoolmates are memorable because
of some distinct image they had when they were together in primary school: the most
intelligent, the neatest, the cutest, the tallest, the darkest, the funniest, etc. He may
struggle to remember the names of the majority of his schoolmates because they were just
“faces in the class,” little known for anything in particular.

The same holds true with customers. When a customer needs a particular product or
service, he will only include in his/her mental list of possible brands to purchase. Those
brands that he remembers and recalls. The customer will exclude other brands that have
not established their position in his memory.

Having a
catchy brand
name is good
strategy for
branding

Elements of Good Brand Position

 What is a good brand position? These are three requirements:

 Unique - A brand must select a position that is not currently occupied by another
brand. For example, it would not be good for a new bank to position itself as a full-
service financial institution that is willing to go out of its way to satisfy customer
needs and adopt other bank’s tagline. The new bank must identify its own
distinctive features and communicate them to its customers using a different tagline

 Beneficial - The selected position must be perceived by its customers as beneficial

Customers always ask when considering a product or service, “what in it for me?”
They are willing to patronize market offerings that they perceive as capable of
satisfying their needs and/or wants. Hence, if a commercial bank that is slow in
processing transactions.

 Credible - Once a brand position is selected, it must ensure that it performs and
fulfills the promise of its position. If a retailer positions itself as customer-friendly
and communicates this through the tagline “service with a smile,” the organization
must ensure that this positioning is implemented 100% of the time for it to be
credible, perhaps requiring employees to smile all the time when dealing with
customers.

Selecting a Good Brand Position

There are several tools available that can be used in the selection of a good brand
position. One of the most powerful of these tools is perceptual mapping.

Perceptual Mapping

Perceptual mapping involves the identification of a competitive brand’s position using

two variables or axes (for example, price and quality). Each variable represents a factor
relevant and important to customers. Using perceptual maps, new products launched into
the market can select the position they wish to occupy. This is after a comprehensive
assessment of the number, size, and intensity of competition in each quadrant of the map.
For existing brands, perceptual mapping is useful in identifying industry
participants perceived by customers to be the brand’s most direct competitor’s
Communicating Brand Position

The brand position of a product/service must be consistent and communicated

effectively to its target market. It is pointless to adopt a brand position if it is known only to
the company’s executives and employees. The continuous and consistent communication of
the brand’s positioning to its target market is important to create impact in the market. All
elements of the product must be consistent to the brand’s selected positioning.

For example, products intended for the female market are packaged in relatively small
containers (for comfortable handling by a woman’s hand), in soft shapes, and labeled in
colors, e.g. pink, lavender, etc.. For products intended for the upper income classes, they
would be priced relatively higher.

Some of the elements to be considered in communicating brand positioning are:

 Packaging

 Labeling

 Selling Price

 Advertising

 Brand endorser

 Tagline

Examine this caselet: (Note: the following was established through the authors’
observation)

In 2015, Kopiko launched 78°C, a ready-to-drink coffee latte. As lattes are mixtures of
espresso coffee and milk, Kopiko positioned itself as the “best tasting latte,” extracted a
temperature of 78°C. It claims that 78°C degrees in the optimum extraction temperature for
coffee. The result is a latte that has “rich taste and tempting aroma. “It comes in a
“shapely” PET bottle. The 30-second video advertisement casts European-looking
endorsers. It used the University Athletic Association of the Philippines (UAAP) as its major
advertising vehicle. This is particularly effective since the primary target market are
students of the UAAP member schools and viewers of the athletic games. In addition, the
campaign also focuses on the 78 th year of UAAP. The product or brand is placed
prominently in all advertisements announcing UAAP game schedules.

Identifying and Selecting Competitive Advantage

 Competitive advantage is defined as the superiority of an organization over
competitor. It typically answers the question “Why should the customer purchase from this
company instead of its competitors?”

 Cost advantage - results when firm has the ability to produce a product or service
at a lower cost compared to its competitors

This cost superiority will result in the company either being able to sell its
products or services at a lower price than its competitors, or generate a larger
margin from its sales.

 Differential advantage - when a company’s product or service differs from its

competitors and are perceived by consumers to be better or of greater value.

 Focus advantage - When a company knows its target market very well, and can
service its needs better than any of its competitors.

Competitive advantage can be achieved through external or internal means. Companies

can take advantage of opportunities that arise from changes in macro-environmental
factors, and being responsive to these changes. Internally, a company can achieve cost
advantage or differentiation through improvements int he production process, cost
efficiency measures, branding, or product innovation. Focus advantage, on the other hand,
can be attained by studying and predicting the needs and preferences of the target market.

Sources of competitive advantage include the company’s cost structure,

products/service offerings, and distribution networks, among others. In selecting its
competitive advantage, the company must know what operational attributes ( such as
products/service offerings, and distribution network, among others. In selecting its
competitive advantage, the company must know what operational attributes (such as
product quality, technology, price, availability, service, etc.) are important to its target
market. Selecting an operational aspect with low importance to a company’s target market
will result to incremental competitive advantage.
Name: ______________________________________________________

Activity 1:

Activity 1: Picture
 The picture above are different products of organizational and consumer markets. List
down the productthat you think belongs to the organizational market and explain why you
did not choose the other product?

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Activity 2:

Enumerate and briefly explain the following:

A. Major variables used in market segmentation

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B. Elements of target market

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C. Elements of a good brand position

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D. Differentiate Organizational and consumer market.

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Activity 3: Reflection
 Research for an advertisement of a famous Philippine company. Then let them answer
the following questions:

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(Advertisement)

1. Who do you think is the target market of this company? Why?

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2. Do you think their company’s target market is appropriate with the products /
services they are offering? Why?

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3. For you, why is it important for companies to have a particular target market?

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Activity 4: Research Project

Conduct a mini marketing research. Follow the guidelines and format provided below:

Mini-Marketing Research Guidelines

The purpose of these research project is to challenge the students to

think like a marketing manager/researcher by applying the knowledge
accumulated throughout the chapter. Your going to conduct your own research
study by formulating a research problem, determining the research
methodology to be used, collecting the data, presenting the research report to
the class.
Step 5: Write and Present the Research Report

The number of pages are meant to be guidelines, Your written report

should

Include the following.

1. Title Page (1 page)

2. Table of Contents (1 page)

3. Executive Summary (5-10 pages max.)

The exucutive summary is considered by many to be most important

part of the

research report. There may be only a few people who will have the time to
read

the entire research report in detail. Most people will only focus on the
executive

summary so it is important not to try to summarize the entire report, but

rather

provide a concise summary of the following:

1. Brief statement of problem & reasearch objectives

2. Major findings

3. Conclusions

4. Recommendations

Oral Presentation

The oral presentation should be approximately 10-12 minutes and

include:

A. Introduction of Presenters

B. Problem Definition

C. Research Objective

D. Research Methodology

E. Findings/Conclusions

F. Recommendations
 Note: This oral presentation should be conduct by face to face presentation.

This involve by the 3 critiques and 1 presenter only . Your going to use as many

visual aids dduring the presentation as deem necessary. (follow the health

protocol: wear facemask, faceshield and observe social distancing