PRINCIPLES OF MARKETING

Dr. S. Thirumal, M.Com., M.Phil., MBA., PGDCA., Ph.D,

Assistant Professor
School of Excellence in Law
The Tamil Nadu Dr. Ambedkar Law University
Chennai – 600 113
E-mail: drthirumal20@gmail.com

MODULE – II
 MODULE - 2
Market Segmentation

MEANING & DEFINITIONS

Market segmentation is a marketing strategy that involves dividing a market into

smaller groups, or segments, of consumers with similar characteristics.
According to Philip Kotler, “Market segmentation is sub-dividing a market into distinct
and homogeneous subgroups of customers, where any group can conceivably be selected as a
target market to be met with distinct marketing mix”.
According to William J. Stanton, “Market segmentation consists of taking the total
heterogeneous market for a product and dividing it into several sub-market or segments, each
of which tends to be homogeneous in full significant aspects”.
Definition of R.S. Davar: Grouping of buyers or segmenting the market is described as
market segmentation.

CHARACTERISTICS OF MARKETING SEGMENTATION

a. Identification: To facilitate division of the market in various segments based on certain
common characteristics relevant to a particular product or service, the marketers must be in a
position to identify these characteristics. It is easy to identify certain segmentation variables
because they are easily visible or observable. These are demographics such as age, sex,
marital status, education and occupation. This information about demographic variables can
be obtained either through observation or through research (by using questionnaires).
Similarly, geographic segmentation (region, city size, density of area and climate) can easily
be identified as they are observable or through mapping. But there are certain characteristics
which are not easily identifiable.

b. Measurability:Another important characteristic ascertains the degree of measurability of

the size and purchasing power of the segments. The marketer must be able to determine the
size of the market that is to find out how many people are there in the segment and where
they are located. The marketer must be able to measure the sales potential of the particular
segment and also be able to determine the extent of influence of the marketing mix elements
on the particular segment. For instance, a restaurant may want to improve upon the F & B
services offered by it.The size of the customers will include regular customers as well as
occasional customers, the latter may eat and drink (especially the youngsters) to rebel against
their parents. A knowledge of such consumer behaviours, though difficult to measure will be
useful to the marketer.

c. Accessibility: The extent to which the market segments can be reached and served is
another area of concern. The consumers must be accessible or available to the marketers. For
instance, a company which sells ‘skin care products’, may find that heavy users of its brand
are teenagers and young women, who are frequent visitors at fast-food centres and beauty
parlours. But unless the firm is able to get more information on places or store preferences
and exposure to various media’s it will be difficult to reach this consumer segment. Because
once the firm has found a medium that reaches their consumers, it can communicate with it’s
target segment effectively. Marketers try to reach their consumers through “differentiated
marketing for differentiated consumer profiles “.

d. Substantiality: Another matter of concern for the marketer is the extent to which the
segments are large enough and worthy of investment. For a market segment to be worthwhile,
it must have a large number of people with specific needs and interests. The size of the large
segment must be big enough to be economically viable. The size of the market is not the only
indicator of the economic worthiness of the segment. It is also necessary to undertake
consumer research methodology to determine whether the consumers are dissatisfied or only
partly satisfied with the existing products and whether they are willing to pay for the firm’s
product. The target segment should be a large homogeneous group worth focusing with a
tailored marketing programme. For instance, a company may observe that ‘retired persons’
prefer to have a rocking chair. But going by the problem faced of space availability in houses,
the size of the market is shrinking in nature. In this case the particular segment will not be
substantial to make it a market.

e. Stability: Marketers would like to target consumers whose behaviours can be predicted.
The marketers want to be sure of the stability of the consumers in terms of their demographic
and psychological characteristics and wants and needs which are likely to grow faster over a
period of time. Marketers would like to avoid ‘fads’ which may disappear one day because it
is unpredictable in terms of durability
METHODS/BASES OF MARKET SEGMENTATION

I. Demographic Segmentation

Demographic segmentation involves dividing the market based on age, gender, income,
education, occupation, family size and lifestyle. It's straightforward and often the starting point
for segmentation, as these factors are easy to identify.This market segmentation strategy
assumes that individuals with similar demographics will have similar needs.

a. Age : Marketers design, package and promote products differently to meet the wants
of different age groups. Good examples include the marketing of toothpaste (contrast
the branding of toothpaste for children and adults)
b. Gender: Gender segmentation is widely used in consumer marketing. The best
examples include clothing, hairdressing, magazines and toiletries and cosmetics.
c. Income: Many companies target affluent consumers with luxury goods and
convenience services. Good examples include Coutts bank; Moet & Chandon
champagne and Elegant Resorts - an up-market travel company.
d. Social class: Consumers "perceived" social class influences their preferences for cars,
clothes, home furnishings, leisure activities and other products & services.
e. Lifestyle: Marketers are increasingly interested in the effect of consumer "lifestyles"
on demand. Unfortunately, there are many different lifestyle categorization systems,
many of them designed by advertising and marketing agencies as a way of winning
new marketing clients and campaigns.

II. Geographic Segmentation:

Geographic segmentation is technically a subset of demographic segmentation. Its

segmented based on geographical boundaries like cities, states, regions,population density and
climate. It can also include urban, suburban, and rural areas or even based on climate and
population density. This strategy is more useful for larger companies seeking to expand into
different branches, offices, or locations.

a. Region: by continent, country, state, or even neighbourhood.

b. Size of metropolitan area: segmented according to size of population.
c. Population density: often classified as urban, suburban, or rural.
d. Climate: according to weather patterns common to certain geographic regions.
 III. Psychographic Segmentation

Psychographic segmentation relies on consumers' lifestyles, interests, attitudes, values,

and personalities. It's more subjective but incredibly effective as it consider the consumer's
psychological traits, which can influence buying behavior.

a. Innovators: These are cosmopolitan people who are eager to try new ideas. They
are highly venturesome and willing to assume the risk of an occasional bad
experience with a new product.
b. Early Adopters: These are influential people with whom the average person checks
out an innovation.
c. Early Majority: This group tends to deliberate before adopting a new product. Its
members are important in legitimising an innovation but they are seldom leaders.
d. Late Majority:This group is cautious and adopts new ideas after an innovation has
received public confidence.
e. Laggards: These are past-oriented people. They are suspicious of change and
innovations. By the time they adopt a product, it may already have been replaced by
a new one. Understanding of psychographic of consumers enables marketers to better
select potential markets and match the product image with the type of consumer
using it. For example, women making heavy use of bank credit cards are said to lead
an active lifestyle and are concerned with their appearance. They tend to be liberated
and are willing to try new things.

IV. Behavioristic Segmentation

In behavioral segmentation, marketers segment consumers based on their behavior

towards products, including usage rate, brand loyalty, user status (new, regular, potential),
benefits sought, and readiness to purchase. It's crucial for understanding consumer interaction
with a product or service.

a. Opinions, interests and hobbies: this covers a huge area and includes consumers’
political opinions, views on the environment, sporting and recreational activities and
arts and cultural issues.
b. Degree of loyalty: customers who buy one brand either all or most of the time are
valuable to firms.
 c. Occasions: this segments on the basis of when a product is purchased or consumed.
d. Benefits sought: this requires marketers to identify and understand the main benefits
consumers look for in a product. Usage – some markets can be segmented into
light, medium and heavy user groups.

V. Technographic Segmentation: In the digital age, segmenting based on consumers' use of

technology, preferred devices, software, and platforms is increasingly relevant.

MERITS OF SEGMENTATION

a. Increased Resource Efficiency: Marketing segmentation allows management to

target a specific demographic or customer. Before trying to promote products in the
entire market, marketing segments will enable you to focus on a precise approach,
which often costs less than a broad-reach approach.
b. Stronger marketing messages: You no longer have to be generic and vague – you can
speak directly to a specific group of people in ways they can relate to, because you
understand their characteristics, wants, and needs.
c. Better targeted digital advertising: Marketing segmentation enables a company to
perform better targeted advertising strategies. This includes marketing plans that direct
effort toward specific ages, locations, or habits via social media.
d. Stronger brand image: Market segmentation forces management to consider how it
wants to be perceived by a specific group of people. Once the market segment is
identified, management must then consider what message to craft. Because this message
is directed at a target audience, the company's branding and messaging are more likely to
be very intentional. This may also have an indirect effect of causing better customer
experiences with the company.
e. Improved customer experience: Customer segments who believe a company
understands and addresses their needs through their products are more likely to exhibit
brand loyalty. Market segmentation can increase customer satisfaction and lead to
prolonged customer retention.
f. Developing Effective Marketing Strategies: Knowing your target audience gives
you a head start on what methods and tactics need to be applied while creating an
effective marketing strategy that can be responsive.
 g. Better response rates and lower acquisition costs: will result from creating your
marketing communications both in ad messaging and advanced targeting on digital
platforms like Facebook and Google using your segmentation.
h. Attracting the right customers: targeted, clear, and direct messaging attracts the
people you want to buy from you.
i. Increasing brand loyalty: when customers feel understood, uniquely well served, and
trusting, they are more likely to stick with your brand.
j. Differentiating your brand from the competition: More specific, personal messaging
makes your brand stand out.
k. Identifying niche markets: segmentation can uncover not only underserved markets,
but also new ways of serving existing markets – opportunities which can be used to grow
your brand.
l. Staying on message: As segmentation is so linear, it’s easy to stay on track with your
marketing strategies, and not get distracted into less effective areas.
m. Driving growth: You can encourage customers to buy from you again, or trade up from
a lower-priced product or service.
n. Enhanced profits: Different customers have different disposable incomes; prices can
be set according to how much they are willing to spend. Knowing this can ensure you
don’t oversell (or undersell) yourself.
o. Product development: You’ll be able to design new products and services with the
needs of your customers top of mind, and develop different products that cater to your
different customer base areas.

DEMERITS OF MARKET SEGMENTATION

a. Marketing expenses: Refining the marketing strategy to explore the customer base in
detail means more money for marketing and research. Promoting these items to different
customer bases will also add to a company’s growing costs.
b. Greater risk of misassumptions: Market segmentation is rooted in the assumption
that similar demographics will share common needs. This may not always be the case. By
grouping a population together with the belief that they share common traits, a company
may risk misidentifying the needs, values, or motivations of individuals within a given
population.
 c. Production issues: Smaller market segments also mean fewer buyers for a company’s
products and possibly fewer profits. Producing multiple versions of products to meet
these segments’ individual needs can also run up costs, as can maintaining a consistent
inventory of these narrowly focused products.
d. Increased product line complexity: Marketing segmentation takes a large market and
attempts to break it into more specific, manageable pieces. This has the downside risk of
creating an overly complex, fractionalized product line that focuses too deeply on catering
to specific market segments. Instead of a company having a cohesive product line, a
company's marketing mix may become too confusing and inconsistently communicate its
overall brand.
e. Unprofitable target: While market segmentation can uncover profits through new
market segments, it can also turn up segments that aren’t strong or sizable enough to
generate a profit. There is also the chance that the attempt to tap into a new market will
not reach or generate new customers despite a company’s best efforts.
f. Higher reliance on reliable data: Market segmentation is only as strong as the
underlying data that support the claims that are made. This means being mindful of what
sources are used to pull in data. This also means being conscious of changing trends and
when market segments may have shifted from prior studies.

COSTS OF MARKET-SEGMENTATION

a. Product costs: In order to accommodate each market segment, the firm goes ahead
with designing a specific product. Designing work may be in the range of mere change in
label to complete rethinking of entirely new product. It involves good deal of research and
development activities as a product is to be separated for each market segment.

b. Production cost: Though technological break-through have made possible good many
firms to reduce the number of units needed to achieves economics of scale, still there
persists a problem of high productivity costs. The firm is expected to achieve sufficient
sales volume in each market segment to justify the costs involved in separate production
runs. In case the sales in each segment are insufficient to keep production lines operating
continuously, the firm may be either forced to stop the production periodically or to shift
the line over to the production of products for other market segments. Both of these
activities are quite expensive.
 c. Promotion costs: Every organisation has to develop a promotion strategy that fits to
each market segment. It is but natural that multiple strategies require huge expenditure on
both human and financial resources to design different ads and place them in various media.
Multiplicity of ads deprives the firms of quantity discounts and concessions. This results in
mounting promotion costs.

d. Inventory costs: More the segments the firm wants to serve, the larger will be the
inventory costs. These inventory costs work out higher because of two basic reasons
namely:

1. Larger selection of products will force the firm to maintain more and more records
covering location and quantity of merchandise.

2. The firm must maintain increased buffer stock for normal demand and increased
safety stock for unpredicted demand levels.

e. Management costs: Market segmentation strategy consumes good deal of valuable

time of management. The management is to design and implement a coordinated marketing
strategy for each market segment. Such a coordinated strategy deals with product pricing,
promotion and distribution. Many organizations employ specialized services of a product
or market manager whose main responsibility is to develop and monitor organisation
strategies.

PRODUCT DIFFERENTIATION

Product differentiation is a marketing strategy that helps a business distinguish its

product from its competitors. It's a way to create a competitive advantage and increase sales
and brand loyalty.

PRODUCT DIFFERENTIATION VS. MARKET SEGMENTATION

Aspect Product Differentiation Market Segmentation

Making a product unique by Dividing the market into smaller groups

Definition emphasizing its distinctive features based on characteristics to tailor
and benefits. marketing strategies.
 Focus On the product or service itself. On the customer or market.

To create a product or service that To identify and target specific groups of

Objective appears unique or superior in some consumers more effectively with tailored
aspect compared to competitors. marketing strategies.

Concerned with the attributes and Concerned with the characteristics and
Scope
characteristics of the product. behaviors of the target audience.
Unique features, design, quality, Demographics, psychographics, geograph
Key Éléments
functionality, and brand perception. ic location, behavioral factors.

To create a perceived value and To customize marketing efforts for

Goal uniqueness for the product in the different segments, maximizing
eyes of the consumers. relevance and appeal.
Emphasizes the unique selling points Involves creating different marketing
Marketing
Strategy (USPs) of the product or service. mix strategies for each segment.

Helps in building brand loyalty and Enhances marketing efficiency by

Benefit
justifying premium pricing. focusing on specific consumer needs.

Aims to create a competitive Aims to enhance customer satisfaction

Outcome advantage and increase customer and engagement by meeting specific
loyalty. needs.

MARKETING MIX

The marketing mix is a central idea in marketing that denotes the four essential
components to consider when creating a marketing plan for a good or service. These include
the following: product, price, promotion, and place.

i. Product: Its refers to the good or service being offered to customers. Anything that can
be made available to a market for consideration, acquisition, usage, or consumption is a
product. A business must consider the qualities and advantages of its product, how it
differs from competing items, and how to stand out in the market while creating a
marketing plan.
ii. Price: Price is the sum of money a consumer must spend to purchase a product. A
corporation must consider its costs, the costs of comparable products, and what buyers
 are willing to pay when determining the pricing of a product. Businesses may use
pricing strategies like cost-plus, value-based, or penetration pricing to achieve the
marketing objectives.
iii. Promotion: Its refers to the communication aspect of marketing. This includes
advertising, sales, and public relations. Some strategies include advertising, sales
incentives, one-on-one sales, public relations, and direct marketing. A company must
decide which promotion mix will reach its target market and help it achieve its
marketing objectives when designing a marketing plan.
iv. Place: Place, sometimes referred to as a distribution, describes how a product is made
accessible to clients. A company must consider how it will distribute its goods to
customers when creating a marketing strategy, such as through brick-and-mortar stores,
online, or a direct sales force. When creating its distribution plan, the business must
consider several variables, including accessibility, availability, and delivery times.
v. People: The people are the employees, customers, and other stakeholders who interact
with a business. It is important to create a positive and memorable experience for
these people. For example, ensuring customer service representatives respond politely
and efficiently impacts customer satisfaction levels.
vi. Process: Its refers to the procedures and steps involved in delivering a product or
service to the end-user. It is important to streamline the process and make it as
efficient as possible.
vii. Physical Evidence: Its refers to the tangible aspects of a product, including
packaging, branding, and more. Ensuring the tangible aspect of a product aligns with
the customer’s perception of the brand is essential in setting the business apart from
competitors.

TARGET MARKET

The target marketing is a strategy that involves identifying and marketing to a specific
group of people who are likely to buy a product or service.
A target market is a subset of the audience you’re aiming to reach (your market). It is
made up of a group of customers that have one or more commonalities between them and are
most likely to be interested in your products.
 The target market is the specific group of people who are most likely to buy a product
or service. Identifying and understanding the target market is crucial for tailoring marketing
strategies, delivering products that meet needs, and maximizing your business's success. It
helps you focus your resources and efforts, ensuring a higher return on investment and better
customer satisfaction.

PURPOSE OF TARGET MARKET

a.Optimize Resources: Identifying a target market ensures that marketing efforts, budgets,
and resources are directed where they can have the most impact. Suppose you're a toy
manufacturer and learn that parents with children under 10 are your primary customers.
In that case, you can avoid costly advertising on platforms for other age groups, ensuring
your resources are directed where they'll yield the most returns. This prevents wastage of
resources on audiences less likely to convert, maximising the efficiency of marketing
campaigns.

b. Tailor Messages: Knowing your target market allows you to create marketing messages
and content that resonate with their needs, preferences, and pain points. Tailored
messaging increases the likelihood of capturing the audience's attention and engaging
them effectively.

c. Improve Product Development: Understanding the target market's preferences and

demands provides valuable product or service development insights. This helps create
offerings better aligned with customer expectations, ultimately leading to higher
satisfaction and sales.

d. Enhance Customer Relationships: Focusing on a specific target market allows

businesses to build deeper and more meaningful customer relationships. By consistently
catering to their needs, businesses can establish trust and loyalty, fostering long-term
customer relationships.

e. Maximize ROI: Targeted marketing efforts result in higher returns on investment. When
marketing messages and strategies are aligned with the interests and behaviors of the
target market, the conversion rate and overall effectiveness of campaigns increase,
delivering a better ROI for the business.
STEPS TO FIND TARGET MARKET
a. Market Research: Businesses gather data through surveys and focus groups in marketing
research. For instance, a smartphone company surveys to identify features and
preferences consumers value most in their phones.

b. Segmentation: The market is divided into smaller, homogeneous groups based

on demographics or psychographics. For instance, a skincare brand may segment its
market by age, skin type, or lifestyle to offer tailored products.

c. Target Selection: Businesses select the segments that align with their goals and show
potential for profitability. For example, a company targeting health-conscious consumers
may focus on the organic snacks segment.

d. Positioning: In Positioning, businesses create a unique selling proposition to stand out and
resonate with the chosen target market. For instance, a new sneaker brand is the most
durable and comfortable choice for long-distance runners.

TYPES OF TARGET MARKET STRATEGY

a. Mass Marketing: Mass marketing, or undifferentiated marketing, involves creating a
single marketing strategy and product for the entire market without considering specific
segments or demographics.Eg: Coca-Cola is a classic example of mass marketing. It targets a
broad audience and doesn't customize its product or advertising for specific groups. The
same Coca-Cola product and brand are promoted worldwide, appealing to many consumers.

b. Differentiated Marketing: In differentiated marketing, a company creates multiple

marketing strategies and products to cater to different market segments. Each segment
receives unique marketing efforts and products. Eg: Parle Products targeting both urban and
rural markets with different products. For urban consumers, it markets premium biscuits
like Hide & Seek. In contrast, for rural markets, it focuses on affordable options like Parle-G,
ensuring tailored pricing and messaging for each audience.

c. Niche Marketing:Niche marketing concentrates on serving a very specific, often small,

and well-defined market segment with specialized products or services. It's about meeting the
unique needs of a particular group. Eg: Royal Enfield, which targets motorcycle
enthusiasts who are passionate about vintage-style bikes with robust performance. Their
 campaigns focus on adventure, rugged terrains, and the lifestyle of owning a classic
motorcycle, appealing to a specific group of loyal customers.

d. Micro Marketing: Micro marketing takes personalization to the extreme, tailoring

products and marketing messages to individual consumers. It uses data and technology to
deliver highly customized experiences. Eg: Zomato tailors its app notifications to individual
users based on location, order history, and food preferences. For instance, it promotes
discounts on local favourite cuisines or restaurants, creating a highly personalized experience
for every customer.

PRODUCT POSITIONING
Product positioning in marketing is a strategy that explains how a product or service fits
into the market and why it's better than competitors. It helps determine the target audience and
how the product can meet their needs.

Product positioning is the process of determining new products’ position in the minds
of consumers. It includes analyzing the market and competitors’ positions, defining the position
of a new product among the existing ones, and communicating a particular brand’s product
image.

At its simplest, product positioning is where your product or service fits into its market,
what features make it unique and why it’s better than competitors’ offerings. It takes into
account your target market’s needs and wants, and aims to fulfil them. It’s the marketing
strategy that sets your business apart from all the rest.

TYPES OF PRODUCT POSITIONING

a. Competitive positioning: Shows that the product is better than competitors.

b. Quality positioning: Emphasizes the superior quality of the product compared to

competitors.

c. Price positioning: Determined by whether consumers perceive product prices as

expensive, neutral, or cheap.

d. Aesthetic positioning: Focuses on emphasizing how the look and appearance of a

product fits a unique image
ADVANTAGES OF PRODUCT POSITIONING

a. identifying key benefits of a product and matching them with customers’ needs

b. Helps create a distinct and desirable space for the product in the market

c. finding a competitive advantage even when the market changes

d. meeting customers’ expectations

e. Helps clarify the unique value a product offers

f. reinforcing your brand’s name and its products

g. Ensures that customers understand why the product is important to their lives

h. winning customer loyalty

i. creating an effective promotional strategy

j. attracting different customers

k. improving competitive strength

l. launching new products

m. presenting new features of existing products.