Lecture Note-1: Marketing, Market Segmentation, Targeting and Positioning

Chapter 1
1. Understanding Marketing
Introduction
Marketing deals with identifying and meeting human and social needs. One of the shortest
definitions of marketing is meeting needs profitably. Marketing is essentially the activity, set
of institutions, and processes for creating, communicating, delivering, and exchanging offerings
that have value for customers, clients, partners, and society at large. Marketing is not only much
broader than selling; it also encompasses the entire companys market orientation toward
customer satisfaction in a competitive environment.
'Marketing is so basic that it cannot be considered as separate function. According to Peter
Drucker, marketing is, the whole business seen from the point of view of its final result, that is,
from the customer's point of view. Today, it has become the most vital function in the world of
business. Marketing is the business function that identifies unfulfilled needs and wants, define
and measures their magnitude, determines which target market the organization can best
serve, decides on appropriate products, services and programmes to serve these markets, and
calls upon everyone in the organization to think and serve the customer. Marketing is the force
that harnesses a nation's industrial capacity to meet the society's material wants.

1.1.

Definition of Marketing

There are as many definitions of marketing as many scholars or writers in this field. It has been
defined in various ways by different writers. We can distinguish between a social and a
managerial definition for marketing. According to a social definition, marketing is a societal
process by which individuals and groups obtain what they need and want through creating,
offering, and exchanging products and services of value freely with others.

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Lecture Note-1: Marketing, Market Segmentation, Targeting and Positioning

As a managerial definition, marketing has often been described as the art of selling products.
The aim of marketing is to know and understand the customer so well that the product or
service fits him and sells itself. Ideally, marketing should result in a customer who is ready to
buy.
The American Marketing Association offers this managerial definition:
Marketing (management) is the process of planning and executing the conception, pricing,
promotion, and distribution of ideas, goods, and services to create exchanges that satisfy
individual and organizational goals. Coping with exchange processespart of this definition
calls for a considerable amount of work and skill. We see marketing management as the art and
science of applying core marketing concepts to choose target markets and get, keep, and grow
customers through creating, delivering, and communicating superior customer value.
Some More definitions of Marketing:
Marketing is the process by which an organization relates creatively, productively
and profitably to the market place.
Marketing is the art of creating and satisfying customers at a profit.
Marketing is getting the right goods and services to the right people at the right
places at the right time at the right price with the right communication and
promotion.
Marketing is the phenomenon brought about by the pressures of mass production
and increased spending power.
Marketing is the performance of business activities that direct the flow of goods
and services from the producer to the customer.
Marketing is the economic process by which goods and services are exchanged
between the maker and the user and their values determined in terms of money
prices.
It is obvious from the above definitions of marketing that marketing has been viewed from
different perspective. Now it is imperative to discuss the important terms on which definition of
marketing rests: needs, wants, and demands; products; value, cost, and satisfaction; exchange,
transactions and relationships; markets; and marketers. These terms are also known as the core
concepts in marketing.
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1.2.

Core Concepts of Marketing

1.2.1. Needs, wants and demands

Marketing starts with the human needs and wants. People need food, air, water, clothing and
shelter to survive. They also have a strong desire for recreation, health, education, and other
services. They have strong performances for particular versions and brands of basic goods and
services. A human need is a state of felt deprivation of some basic satisfaction. People require
food, clothing, shelter, safety, belonging, esteem and a few other things for survival. These needs
are not created by their society or by marketers; they exist in the very texture of human biology
and the human condition. Wants are desires for specific satisfiers of these deeper needs. For
example, one needs food and wants a pizza, needs clothing and wants a Raymond shirt. These
needs are satisfied in different manners in different societies. While people needs are few, their
wants are unlimited. Human wants are continually shaped and reshaped by social forces and
institutions.
Demands are wants for specific products that are backed up by an ability and willingness to buy
them. For example, many people want to buy a luxury car but they lack in purchasing power.
Companies must therefore measure not only how many people want their products, but, how
many would actually be willing to buy and finally able to buy it. Marketers do not create need,
they simply influence wants. They suggest to consumers that a particular product or brand would
satisfy a persons need for social status. They do not create the need for social status but try to
point out that a particular product would satisfy that need. They try to influence demand by
making the product attractive, affordable, and easily available.

Products
People satisfy their needs and wants with products. Product can be defined as anything that
can be offered to someone to satisfy a need or want. The word product brings to mind a
physical object, such as T.V., Car, and Camera etc. The expression products and services are used
distinguish between physical objects and intangible ones. The importance of physical products

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does not lie in owning them rather using them to satisfy our wants. People do not buy beautiful
cars to look at, but because it supply transportation service.

1.2.2. Value, cost, and satisfaction

How do consumers choose among the various products that may satisfy a given need is very
interesting phenomenon. If a student needs to travel five kilometers to his college every day, he
may choose a number of products that will satisfy this need: a bicycle, a motorcycle, bajaj, taxi,
and a bus. These alternatives constitute product choice set. Assume that the student wants to
satisfy different needs in traveling to his college, namely speed, safety, ease and economy. These
are called the need set. Each product has a different capacity to satisfy different needs. For
example, bicycle will be slower, less safe and more effortful than a bajaj, but it would be more
economical. Now, the student has to decide on which product delivers the most satisfaction. Here
comes the concept of value. The student will form an estimate of the value of each product in
satisfying his needs. He might rank the products from the most need satisfying to the least need
satisfying. Value is the consumers estimate of the products overall capacity to satisfy his or her
needs. The student can imagine the characteristics of an ideal product that would take him to his
college in a split second with absolute safety, no effort and less cost. The value of each actual
product would depend on how close it came to this ideal product. Assume the student is
primarily interested in the speed and case of getting to college. If the student was offered any of
the above mentioned products at no cost, one can predict that he would choose a bajaj. Here
comes the concept of cost. Since each product involves a cost, the student will not necessarily
buy a bajaj. The bajaj costs substantially more than bicycle or motorcycle. Therefore, he will
consider the products value and price before making a choice. He will choose the product that
will produce the most value per birr. Todays consumer behaviour theorists have gone beyond
narrow economic assumptions of how consumers form value in this mind and make product
choices. These modern theories on consumer behavior are important to marketers because the
whole marketing plan rests on assumptions about how customers make choices. Therefore the
concept of value, cost and satisfaction are crucial to the discipline of marketing.

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Lecture Note-1: Marketing, Market Segmentation, Targeting and Positioning

Exchange, Transactions and Relationships

The fact that people have needs and wants and can place value on products does not fully explain
the concept of marketing. Marketing emerges when people decide to satisfy needs and wants
through exchange. Exchange is one of the four ways people can obtain products they want. The
first way is self production. People can relieve hunger through hunting, fishing, or fruit
gathering. In this case there is no market or marketing. The second way is coercion. Hungry
people can steal food from others. The third way is begging. Hungry people can approach others
and beg for food. They have nothing tangible to offer except gratitude. The fourth way is
exchange. Hungry people can approach others and offer some resource in exchange, such as
money, another food, or service. Marketing arises from this last approach to acquire products.
Exchange is the act of obtaining a desired product from someone by offering something in
return. For exchange to take place, five conditions must be satisfied:
1)
2)
3)
4)
5)

There are at least two parties.

Each party has something that might be of value to the other party.
Each party is capable of communication and delivery.
Each party is free to accept or reject the offer.
Each party believes it is appropriate or desirable to deal with the other party.

If the above conditions exist, there is a potential for exchange. Exchange is described as a value
creating process and normally leaves both the parties better off than before the exchange. Two
parties are said to be engaged in exchange if they are negotiating and moving towards an
agreement. The process of trying to arrive at naturally agreeable terms is called negotiation. If an
agreement is reached, we say that a transaction takes place.
Transactions are the basic unit of exchange. A transaction consists of a trade of values between
two parties. A transaction involves several dimensions; at least two things of value, agreed upon
conditions, a time of agreement, and a place of agreement. Usually a legal system arises to
support and enforce compliance on the part of the transaction. A transaction differs from a
transfer.
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In a transfer A gives X to B but does not receive anything tangible in return. When A gives B a
gift, a subsidy, or a charitable contribution, we call this a transfer. Transaction marketing is a part
of longer idea, that of relationship marketing. Smart marketers try to build up long term, trusting,
win-win relationships with customers, distributors, dealers and suppliers. This is accomplished
by promising and delivering high quality, good service and fair prices to the other party over
time. It is accomplished by strengthening the economic, technical, and social ties between
members of the two organizations. The two parties grow more trusting, more knowledgeable,
and more interested in helping each other. Relationship marketing cuts down on transaction costs
and time. The ultimate outcome of relationship marketing is the building of a unique company
asset called a marketing network. A marketing network consists of the company and the firms
with which it has built solid, dependable business relationships.

Markets
The concept of exchange leads to the concept of market. A market consists of all the potential
customers sharing a particular need or want who might be willing and able to engage in
exchange to satisfy that need or want. The size of market depends upon the number of persons
who exhibit the need, have resources that interest others, and are willing to offer these resources
in exchange for what they want. Originally the term market stood for the place where buyers and
sellers gathered to exchange their goods, such as a village square. Economists use the term
market to refer to a collection of buyers and sellers who transact over a particular product or
product class; i.e. the housing market, the grain market, and so on. Marketers, however, see the
sellers as constituting the industry and the buyers as constituting the market.
Target Markets and Segmentation
A marketer can rarely satisfy everyone in a market. Not everyone likes the same soft drink,
automobile, college, and movie. Therefore, marketers start with market segmentation. They
identify and profile distinct groups of buyers who might prefer or require varying products and
marketing mixes. Market segments can be identified by examining demographic, psychographic,
and behavioral differences among buyers. The firm then decides which segments present the

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greatest opportunitythose whose needs the firm can meet in a superior fashion. For each
chosen target market, the firm develops a market offering.
As discussed above, now marketers view the sellers as the industry and the buyers as the market
(see Figure below). The sellers send goods and services and communications (ads, direct mail,
e-mail messages) to the market; in return they receive money and information (attitudes, sales
data). The inner loop in the diagram shows an exchange of money for goods and services; the
outer loop shows an exchange of information.

A Simple Marketing System

A global industry is one in which the strategic positions of competitors in major geographic or
national markets are fundamentally affected by their overall global positions. Global firmsboth
large and smallplan, operate, and coordinate their activities and exchanges on a worldwide
basis. Today we can distinguish between a marketplace and a marketspace. The marketplace is
physical, as when one goes shopping in a store; market space is digital, as when one goes
s+hopping on the Internet. E-commercebusiness transactions conducted on-linehas many
advantages for both consumers and businesses, including convenience, savings, selection,
personalization, and information. However, the e-commerce market space is also bringing
pressure from consumers for lower prices and is threatening intermediaries such as travel agents,
stockbrokers, insurance agents, and traditional retailers.

1.2.3. Marketing, Marketers, and Marketing Management

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Marketing means human activities taking place in relation to markets. Marketing means
working with markets to actualize potential exchanges for the purpose of satisfying human needs
and wants. If one party is more actively seeking an exchange than the other party, we call the
first party a marketer and the second party a prospect. A marketer is someone seeking a
resource from someone else and willing to offer something of value in exchange. The marketer
is seeking a response from the other party, either to sell something or to buy something.
Marketing management takes place when at least one party to a potential exchange gives
thought to objectives and means of achieving desired responses from other parties. According to
American Marketing Association, Marketing Management is the process of planning and
executing the conception, pricing, promotion, and distribution of ideas, goods, and services to
create exchanges that satisfy individual and organizational objectives.

1.3. Marketing Management Philosophies

1.3.1. Different philosophies of marketing management
Marketing management is the conscious effort to achieve desired exchange outcomes with target
markets. Clearly, marketing activities should be carried out under a well-thought-out philosophy
of efficient, effective, and socially responsible marketing. In fact, there are five competing
concepts under which organizations conduct marketing activities:
1.
2.
3.
4.
5.

Production Concept,
Product Concept,
Selling Concept,
Marketing Concept, And
Societal Marketing Concept.

1. The Production Concept

The production concept, one of the oldest in business, holds that consumers prefer products
that are widely available and inexpensive. Managers of production-oriented businesses
concentrate on achieving high production efficiency, low costs, and mass distribution. This
orientation makes sense in developing countries, where consumers are more interested in

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obtaining the product than in its features. It is also used when a company wants to expand the
market.
2. The Product Concept
Other businesses are guided by the product concept, which holds that consumers favor those
products that offer the most quality, performance, or innovative features. Managers in these
organizations focus on making superior products and improving them over time, assuming that
buyers can appraise quality and performance. Product-oriented companies often design their
products with little or no customer input, trusting that their engineers can design exceptional
products. A General Motors executive said years ago: How can the public know what kind of
car they want until they see what is available?
The product philosophy holds that the organization knows its product better than anyone or any
organization. The company knows what will work in designing and producing the product and
what will not work. In much of the product philosophy era, organizations were able to sell all of
the products that they made. The success of the product philosophy era is due mostly to the time
and level of technology in which it was dominant. However, the product concept can lead to
marketing myopia. Railroad management thought that travelers wanted trains rather than
transportation and overlooked the growing competition from airlines, buses, trucks, and
automobiles. Colleges, department stores, and the post office all assume that they are offering the
public the right product and wonder why their sales slip. These organizations too often are
looking into a mirror when they should be looking out of the window.
3. The Selling Concept
The selling concept, another common business orientation, holds that consumers and
businesses, if left alone, will ordinarily not buy enough of the organizations products. The
organization must, therefore, undertake an aggressive selling and promotion effort. This
concept assumes that consumers must be coaxed into buying, so the company has a battery of
selling and promotion tools to stimulate buying. The selling concept is practiced most
aggressively with unsought goodsgoods that buyers normally do not think of buying, such as
insurance and funeral plots. The selling concept is also practiced in the nonprofit area by fund9

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raisers, college admissions offices, and political parties. Most firms practice the selling concept
when they have overcapacity. Their aim is to sell what they make rather than make what the
market wants. In modern industrial economies, productive capacity has been built up to a point
where most markets are buyer markets (the buyers are dominant) and sellers have to scramble for
customers.
Prospects are bombarded with sales messages. As a result, the public often identifies marketing
with hard selling and advertising. But marketing based on hard selling carries and if they dont,
that they wont bad-mouth it or complain to consumer organizations and will forget their
disappointment and buy it again. These are indefensible assumptions. In fact, one study showed
that dissatisfied customers may bad-mouth the product to 10 or more acquaintances; bad news
travels fast, something marketers that use hard selling should bear in mind. The selling
philosophy assumes that a well-trained and motivated sales force can sell any product. However,
more companies began to realize that it is easier to sell a product that the customer wants, than to
sell a product the customer does not want. When many companies began to realize this fact, the
selling era gave way to the marketing era of the marketing concept and philosophy.
4. The Marketing Concept
The marketing concept, based on central tenets crystallized in the mid-1950s, challenges the
three business orientations we just discussed. The marketing concept holds that the key to
achieving organizational goals consists of the company being more effective than its
competitors in creating, delivering, and communicating customer value to its chosen target
markets. Theodore Levitt of Harvard drew a perceptive contrast between the selling and
marketing concepts: Selling focuses on the needs of the seller; marketing on the needs of the
buyer. Selling is preoccupied with the sellers need to convert his product into cash; marketing
with the idea of satisfying the needs of the customer by means of the product and the whole
cluster of things associated with creating, delivering and finally consuming it.
The marketing concept rests on four pillars: target market, customer needs, integrated
marketing, and profitability. The selling concept takes an inside-out perspective. It starts with
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the factory, focuses on existing products, and calls for heavy selling and promoting to produce
profitable sales. The marketing concept takes an outside-in perspective. It starts with a welldefined market, focuses on customer needs, coordinates activities that affect customers, and
produces profits by satisfying customers.

1.3.2. Meeting Customer Needs While Meeting Organizational Goals

Sometimes in the zeal to satisfy a customer's wants and needs, the marketing concept is
construed to mean that the customer is always right. However, the marketing concept also
states that it is important to meet organizational goals as well as satisfy customer wants and
needs. Satisfying customer needs and organizational goals may involve conflicts that sometimes
cannot be resolved. The organization that adopts the marketing concept will do everything in
its power to meet the needs of its customers, but it must also make a profit. Sometimes the
wants of the customers may include a low price or features that are not attainable for the
organization if it is to make a profit. Consequently, the organization must hope for a compromise
between what the consumer wants and what is practical for the business to provide.

1.3.3. Criticism of the Marketing Concepts

Interpreted literally, the marketing concept only advocates discovering consumers' wants and
needs and satisfying them. Critics assert that consumers may not be aware of all of their wants
and needs. In the 1950s, were consumers aware of a need to cook their food by sending
microwaves through their food? In the 1960s, were consumers aware of a need to have personal
computers in their homes? Critics argue that the marketing concept's concentration on
consumers' wants and needs stifle innovation. Organizations will no longer concentrate on
research and development in hopes that one product in ten might meet with consumer
acceptance, and will less likely come up with innovative products such as microwaves and
personal computers.

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Supporters of the marketing concept have contended that it does not stifle innovation and that it
does recognize that consumers cannot conceive of every product that they may want or need.
However, need is defined in a very broad sense. In the microwave and personal computer
examples, the need was not for the specific product, but there was a need to cook food faster and
a need for writing and calculating. The microwave and personal computer satisfied those needs
though the consumer never imagined these products. The marketing concept does not stifle
creativity and innovation. It seeks to encourage creativity to satisfy customer needs.
5. The Societal Marketing Concept
Some have questioned whether the marketing concept is an appropriate philosophy in an age of
environmental deterioration, resource shortages, explosive population growth, world hunger and
poverty, and neglected social services.
The marketing concept sidesteps the potential conflicts among consumer wants, consumer
interests, and long-run societal welfare. Yet some firms and industries are criticized for
satisfying consumer wants at societys expense. Such situations call for a new term that enlarges
the marketing concept. We propose calling it the societal marketing concept, which holds that
the organizations task is to determine the needs, wants, and interests of target markets and to
deliver the desired satisfactions more effectively and efficiently than competitors in a way that
preserves or enhances the consumers and the societys well-being. Societal marketing
concept, which not only uses the same philosophy as the marketing concept, but also focuses
around the products benefit to the betterment of society as a whole. Greater emphasis is put on
environmental impacts, population growth, resource shortages, and social services.

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The societal marketing concept calls upon marketers to build social and ethical considerations
into their marketing practices. They must balance and juggle the often conflicting criteria of
company profits, consumer want satisfaction, and public interest. Yet a number of companies
have achieved notable sales and profit gains by adopting and practicing the societal marketing
concept.

1.4.

Marketing Mix

Marketing Mix is the set of marketing tools that the firm uses to pursue its marketing objectives
in the target market. It is the sole vehicle for creating and delivering customer value. It was
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James Culliton, a noted marketing expert, who coined the expression marketing mix and
described the marketing manager as a mixer of ingredients. To quote him, The marketing man
is a decider and an artist a mixer of ingredients, who sometimes follow a recipe developed by
others and sometimes prepares his own recipe. And, sometimes he adapts his recipe to the
ingredients that are readily available and sometimes invents some new ingredients, or,
experiments with ingredients as no one else has tried before. The dynamics of the marketing
process and the versatility of the marketing process and the versatility of the marketing mix tool
cannot be described any better. Subsequently Niel H. Borden, another noted marketing expert,
popularized the concept of marketing mix.

It was Jerome McCarthy, the well known American Professor of marketing, who first described
the marketing mix in terms of the four Ps. The classified the marketing mix variables under four
heads, each beginning with the alphabet p.
1) Product
2) Price
3) Place (referring to distribution)
4) Promotion
McCarthy has provided an easy to remember description of the marketing mix variables. Over
the years, the terms-Marketing mix and four Ps of marketing-have come to be used
synonymously.

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Product: The most basic marketing mix tool is product, which stands for the
firms tangible offer to the market including the product quality, design, variety
features, branding, packaging, services, warranties etc.

Price: A critical marketing mix tool is price, namely, the amount of money that
customers have to pay for the product. It includes deciding on wholesale and retail
prices, discounts, allowances, and credit terms. Price should be commensurate
with the perceived value of the offer, or else buyer will turn to competitors in
choosing their products.

Place: This marketing mix tool refers to distribution. It stands for various
activities the company undertakes to make the product easily available and
accessible to target customers. It includes deciding on identify, recruit, and link
various middlemen and marketing facilitators so that products are efficiently
supplied to the target market.

Promotion: The fourth marketing mix tool, stands for the various activities the
company undertakes to communicate its products merits and to persuade target
customers to buy them. It includes deciding on hire, train, and motivates
salespeople to promote its products to middlemen and other buyers. It also
includes setting up communication and promotion programs consisting of
advertising, personal selling, sales promotion, and public relations.

Chapter 2
2.
2.1.

Marketing Environment

Introduction

A company's marketing environment consists of the factors and forces that affect the
company's ability to develop and maintain successful transactions and relationships with its
target customers. Every business enterprise is generally confronted with a set of internal factors
and a set of external factor.

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The internal factors are generally regarded as controllable factors because the company has a
fair amount of control over these factors, it can alter or modify such factors as its personnel,
physical facilities, marketing-mix etc. to suit the environment. The external factors are by and
large, beyond the control of a company. The external environmental includes factors such as the
economic factors, socio cultural factors, government and legal factors, demographic factors,
geophysical factors etc. As the environmental factors are beyond the control of a firm, its
success will depend to a very large extent on its adaptability to the environment, i.e. its ability to
properly design and adjust internal variables to take advantages of the opportunities and to
combat the threats in the environment. The marketing environment can also be viewed from the
micro and macro environmental level as will be discussed in the following sections.

2.1.1. The Companys Microenvironment

The micro environment consists of the actors in the company's immediate environment that
affects the ability of the marketers to serve their customers. These include the suppliers,
marketing intermediaries, competitors, customers and publics.
1.

Suppliers: Suppliers are those who supply the inputs like raw materials and components
etc. to the company. Uncertainty regarding the supply or other supply constraints often
compels companies to maintain high inventories causing cost increases. It is very risky to
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depend on a single supplier because a strike, lock out or any other production problem
with that supplier may seriously affect the company. Hence, multiple sources of supply
2.

often help reduce such risks.

Customers: The major task of a business is to create and sustain customers. A business
exists only because of its customers and hence monitoring the customer sensitivity is a
prerequisite for the business to succeed. Depending on a single customer is often too

3.

risky because it may place the company in a poor bargaining position.

Competitors: A firm's competitors include not only the other firms which market the
same or similar products but also all those who compete for the discretionary income of
the consumers. For example, the competition for a company making televisions may
come not only from other TV manufacturers but also from refrigerators, stereo sets, twowheelers, etc. This competition among these products may be described as desire

4.

competition as the primary task here is to influence the basic desire of the consumer.
Marketing Intermediaries: The immediate environment of a company may consist of a
number of marketing intermediaries which are "firms that aid the company in promoting,
selling and distributing its goods to final buyers. Marketing intermediaries are vital link
between the company and final consumers. A dislocation or disturbance of this link, or a

5.

wrong choice of the link, may cost the company very heavily.
Public: A company may encounter certain publics in its environment. "A public is any
group that has actual or potential interest in or impact on an organizations ability to
achieve its interests". Media, citizens, action publics and local publics are some
examples. Some companies are seriously affected by such publics, e.g. one of the leading
daily that was allegedly bent on bringing down the share price of the company by
tarnishing its image. Many companies are also affected by local publics. However, it is
wrong to think that all publics are threats to business. Some publics are opportunity for
business. Some businessmen e.g. regard consumerism as an opportunity for their
business. The media public may be used to disseminate useful information.

2.1.2. The Companys Macro Environment

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A company and the forces in its micro environment operate in larger macro environment of
forces that shape opportunities and pose threats to the company. The macro forces are, generally,
more uncontrollable than the micro forces. The macro environmental forces are given below:
1.

Economic environment: Economic conditions, economic policies and the economic

system are the important external factors that constitute the economic environment of a
business. The economic conditions of a country e.g., the nature of the economy, the stage
of development of the economy, economic resources, the level of income, the distribution
of income and assets etc. are among the very important determinants of business
strategies. In a developing economy, the low income may be the reason for the very low
demand for a product. In countries where investment and income are steadily and rapidly
rising, business prospects are generally bright, and further investments are encouraged.
The economic policy of the government, needless to say, has a very strong impact on
business. Some types of businesses are favorably affected by government policy, some
adversely affected, while it is neutral in respect of others.

2.

Political and Government environment: Political and government environment has a

close relationship with the economic system and economic policy. In most countries,
there are a number of laws that regulate the conduct of the business. These laws cover
such matters as standards of product, packaging, promotion etc. In many countries, with a
view to protecting consumer interests, regulations have become stronger. Regulations to
protect the purity of the environment and preserve the ecological balance have assumed
great importance in many countries. In most nations, promotional activities are subject to
various types of controls. Media advertising is not permitted in Libya. Thus, marketing
policies are definitely influenced by government policies and controls throughout the
world.

3.

Socio-cultural environment: The socio-cultural environment includes the customs,

traditions, taboos, tastes, preferences etc. of the members of the society, which cannot be
ignored at any cost by any business unit. For a business to be successful, its strategy
should be the one that is appropriate in the socio-cultural environment. The marketingmix will have to be so designed as to suit the environmental characteristics of the market.
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The differences in language sometimes pose a serious challenge and even necessitate a
change in the brand name. The values and beliefs associated with color vary significantly
across different cultures e.g. white is a color which indicates death and mourning in
countries like China, Korea and India but in many countries it is a color expressing
happiness and often used as a wedding dress color.
4.

Demographic environment: Demographic factors like the size, growth rate, age
composition, sex composition, family size, economic stratification of the population,
educational levels, language, caste, religion etc. are all factors relevant to business. All
these demographic variables affect the demand for goods and services. Markets with
growing population and income are growth markets. But the decline in birth rates in
countries like United States, etc. has affected the demand for baby products. Johnson and
Johnson had to overcome this problem by repositioning their products like baby shampoo
and baby soaps, and promoting them to the adult segment particularly females. A rapidly
increasing population indicates a growing demand for many products. High population
growth rates also indicate an enormous increase in labor supply. Cheap labor and a
growing market have encouraged many multinational corporations to invest in
developing countries like India.

5.

Natural environment: Geographical and ecological factors such as natural resources

endowments, weather and climate conditions, topographical factors, location aspects in
the global context, port facilities etc. are all relevant to business. Geographical and
ecological factors also influence the location of certain industries, e.g. industries with
high material index tend to be located near the raw material sources. Climate and weather
conditions affect the location of certain industries like the cotton textile industry.
Topographical factors may affect the demand pattern, e.g. in hilly areas with a difficult
terrain, jeeps may be in greater demand than cars. Ecological factors have recently
assumed greater importance. The depletion of natural resources, environmental pollution
and the disturbance of the ecological balance has caused great concern.

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6.

Physical facilities and technological environment: Business prospects depend on the

availability of certain physical facilities. The sale of television sets e.g. is limited by the
extent of coverage of telecasting. Similarly, the demand for refrigerators and other
electrical appliances is affected by the extent of electrification and the reliability of power
supply. Technological factors sometimes pose problems. A firm which is unable to cope
with the technological changes may not survive.

7.

International environment: The international environment is very important from the

point of view of certain categories of business. It is particularly important for industries
directly depending on exports or imports. E.g. a recession in foreign markets or the
adoption of protectionist policies may help the export-oriented industries. Similarly,
liberalization of imports may help some industries which use imported items, but may
adversely affect import-competing industries. Similarly, international bodies like WTO,
IMF, WHO, ILO etc. have had a major impact on influencing the policies and trade of
many countries, especially India.

2.1.3. Marketing Information System (MIS)

Marketing information system (MIS) consists of people, equipment and procedures to gather, sort,
analyze, evaluate and distribute needed, timely and accurate information to marketing decision makers.
Companies are required to study their managers information needs and design the flow of marketing
information system to meet these needs. The marketing information will be illustrated in the following
figure here under. Accordingly, to carry out their analysis, planning, implementation and control
responsibility (shown at the far left in the figure), marketing managers need information about
developments in the marketing environment (shown at the far right). The role of MIS is to assess the
managers information needs, develop the needed information and distribute the information in a timely
fashion to the marketing managers. The needed information is developed through internal company
records, marketing intelligence activities, marketing research and marketing decision support analysis.

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Marketing information system diagram

a) Internal Records system: In most basic in function system used by marketing
management is internal records system. The internal system includes reports on orders,
sales, prices, inventory levels, receivables, payables and so on. By analyzing this
information, marketing managers can spat important opportunities and problems.
b) The order-to-payment cycle: The heart of the internal records system is the orderto-payment cycle. Sales representatives, dealers and customers dispatch orders to the
firm. The order department prepares invoices and sends copies to various departments out
of stock items are backordered. Shipped items are accompanied by shipping and billing
documents that are also multi-copied and sent to various departments.
c) Sales Reporting system: Marketing managers need up-to-date reports of their
current sales. Computer technology has revolutionized sales representatives jobs by
turning the art of sales into an engineered business process. Armed with laptop
computers, sales reps now have immediate access to information about their prospects
and customers and can give their companies immediate feedback and sale reports.
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Therefore, sales managers can monitor everything in their territories and get current sales
forecasts any time.
d) Marketing intelligence system: What is marketing intelligence system? A marketing
intelligence system is a set of procedures and sources used by managers to obtain their everyday
information about pertinent developments in the marketing environment. Marketing managers
often carry on marketing intelligence by reading books, newspapers, and trade publications;
talking to customers, suppliers, distributors and other outsiders; and talking with other managers
and personnel within the company. Yet if the system is too casual (informal), valuable information
could be lost or arrive too late. When this is the case, managers might learn of a competitive
move, a new customer need of a dealer problem too late to make the best response.
e) Marketing Research System: Marketing managers often commission marketing research,
formal studies of specific problems and opportunities. They may request a market survey, a
product reference tests, sales forecast by region, or research on advertising effectiveness.
Marketing research may be defined as, the systematic design, collection, analysis and reporting of
data and findings relevant to a specific marketing situation facing the company. Marketing
research and market research should not be confused. Market research is a research into a
particular market. Market research is just one component of marketing research.

Chapter3
3. Types of Markets and Buying Behavior
3.1Markets and their Classification
Markets are broadly classified as consumer or business-to-business markets. These
classifications are based on the characteristics of the individuals and organizations within each
market. Because marketing efforts vary depending on the intended market, marketers should
understand the general characteristics of these two groups.

Consumer markets consist of

purchasers and/or household members who intend to consume or benefit from the purchased
products and who do not buy products to make profits. Business-to-business markets, also
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called industrial markets, are grouped broadly into producer, reseller, governmental, and
institutional categories. These markets purchase specific kinds of products for use in making
other products for resale or for day-to-day operations.

3.1.1. How and Why Consumers Buy

The starting point for understanding consumer buying behavior is the stimulus response model.
According to this model, both marketing and environmental stimuli enter the buyers
consciousness. In turn, the buyers characteristics and decision process lead to certain purchase
decisions. The marketers task is to understand what happens in the buyers consciousness
between the arrival of outside stimuli and the buyers purchase decisions. As this model
indicates, a consumers buying behavior is influenced by cultural, social, personal, and
psychological factors.
A. Cultural Factors Influencing Buyer Behavior
Culture, subculture, and social class are particularly important influences on consumer buying
behavior.

Culture. Culture is the most fundamental determinant of a persons wants and behavior.
A child growing up in the United States is exposed to these broad cultural values:
achievement and success, activity, efficiency and practicality, progress, material comfort,
individualism, freedom, external comfort, humanitarianism, and youthfulness.

Social class. Social classes are relatively homogeneous and enduring divisions in a
society. They are hierarchically ordered and their members share similar values, interests,
and behavior. Social classes reflect income as well as occupation, education, and other
indicators. Those within each social class tend to behave more alike than do persons from
different social classes. Also, within the culture, persons are perceived as occupying
inferior or superior positions according to social class. Social class is indicated by a
cluster of variables rather than by any single variable. Still, individuals can move from
one social class to anotherup or downduring their lifetime. Because social classes
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often show distinct product and brand preferences, some marketers focus their efforts on
one social class.
B. Social Factors Influencing Buyer Behavior
In addition to cultural factors, a consumers behavior is influenced by such social factors as
reference groups, family, and social roles and statuses.

Reference Groups: Reference groups consist of all of the groups that have a direct
(face-to-face) or indirect influence on a persons attitudes or behavior. Groups that have a
direct influence on a person are called membership groups. Some primary membership
groups are family, friends, neighbors, and co-workers, with whom individuals interact
fairly continuously and informally. Secondary groups, such as professional and tradeunion groups, tend to be more formal and require less continuous interaction. Reference
groups expose people to new behaviors and lifestyles, influence attitudes and selfconcept, and create pressures for conformity that may affect product and brand choices.
People are also influenced by groups to which they do not belong. Aspirational groups
are those the person hopes to join; dissociative groups are those whose values or behavior
an individual rejects. Although marketers try to identify target customers reference
groups, the level of reference-group influence varies among products and brands.
Manufacturers of products and brands with strong group influence must reach and
influence the opinion leaders in these reference groups.
An opinion leader is the person in informal product related communications who offers
advice or information about a product or product category. Marketers try to reach opinion
leaders by identifying demographic and psychographic characteristics associated with
opinion leadership, identifying the preferred media of opinion leaders, and directing
messages at the opinion leaders. For example, the hottest trends in teenage music and
fashion start in Americas inner cities, then spread to youth in the suburbs. As a result,
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clothing companies that target teens carefully monitor the style and behavior of urban
opinion leaders.

Family: The family is the most important consumer-buying organization in society, and it
has been researched extensively. The family of orientation consists of ones parents and
siblings. From parents, a person acquires an orientation toward religion, politics, and
economics as well as a sense of personal ambition, self-worth, and love. A more direct
influence on the everyday buying behavior of adults is the family of procreation
namely, ones spouse and children. Marketers are interested in the roles and relative
influence of the husband, wife, and children in the purchase of a large variety of products
and services. These roles vary widely in different cultures and social classes.

Roles and Statuses: A person participates in many groups, such as family, clubs, or
organizations. The persons position in each group can be defined in terms of role and
status. A role consists of the activities that a person is expected to perform. Each role
carries a status. A Supreme Court justice has more status than a sales manager, and a
sales manager has more status than an administrative assistant. In general, people choose
products that communicate their role and status in society. Thus, company presidents
often drive Mercedes, wear expensive suits, and drink Chivas Regal scotch. Savvy
marketers are aware of the status symbol potential of products and brands.

C. Personal Factors Influencing Buyer Behavior

Cultural and social factors are just two of the four major factors that influence consumer buying
behavior. The third factor is personal characteristics, including the buyers age, stage in the life
cycle, occupation, economic circumstances, lifestyle, personality, and self-concept.
a) Age and Stage in the Life Cycle: People buy different goods and services over a
lifetime. They eat baby food in the early years, most foods in the growing and mature
years, and special diets in the later years. Taste in clothes, furniture, and recreation is also
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age-related, which is why smart marketers are attentive to the influence of age. Similarly,
consumption is shaped by the family life cycle.
b) Occupation and Economic Circumstances: Occupation also influences a persons
consumption pattern. A blue-collar worker will buy work clothes and lunchboxes, while a
company president will buy expensive suits and a country club membership. For this
reason, marketers should identify the occupational groups that are more interested in their
products and services, and consider specializing their products for certain occupations.
Software manufacturers, for example, have developed special programs for lawyers,
physicians, and other occupational groups.
c) Lifestyle: People from the same subculture, social class, and occupation may actually
lead quite different lifestyles. A lifestyle is the persons pattern of living in the world as
expressed in activities, interests, and opinions. Lifestyle portrays the whole person
interacting with his or her environment. Successful marketers search for relationships
between their products and lifestyle groups. For example, a computer manufacturer might
find that most computer buyers are achievement-oriented. The marketer may then aim its
brand more clearly at the achiever lifestyle. Psychographics is the science of measuring
and categorizing consumer lifestyles.
d) Personality and Self-Concept: Each person has a distinct personality that influences
buying behavior. Personality refers to the distinguishing psychological characteristics
that lead to relatively consistent and enduring responses to environment. Personality is
usually described in terms of such traits as self-confidence, dominance, autonomy,
deference, sociability, defensiveness, and adaptability. Personality can be useful in
analyzing consumer behavior, provided that personality types can be classified accurately
and that strong correlations exist between certain personality types and product or brand
choices. For example, a computer company might discover that many prospects show
high self-confidence, dominance, and autonomy, suggesting that computer ads should
appeal to these traits. Self-concept (or self-image) is related to personality. Marketers
often try to develop brand images that match the target markets self-image.
D. Psychological Factors Influencing Buyer Behavior
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Psychological factors are the fourth major influence on consumer buying behavior (in addition to
cultural, social, and personal factors). In general, a persons buying choices are influenced by the
psychological factors of motivation, perception, learning, beliefs, and attitudes.
a) Motivation: A person has many needs at any given time. Some needs are biogenic; they
arise from physiological states of tension such as hunger, thirst, discomfort. Other needs
are psychogenic; they arise from psychological states of tension such as the need for
recognition, esteem, or belonging. A need becomes a motive when it is aroused to a
sufficient level of intensity. A motive is a need that is sufficiently pressing to drive the
person to act.
b) Perception: A motivated person is ready to act, yet how that person actually acts is
influenced by his or her perception of the situation. Perception is the process by which
an individual selects, organizes, and interprets information inputs to create a meaningful
picture of the world. Perception depends not only on physical stimuli, but also on the
stimulis relation to the surrounding field and on conditions within the individual. The
key word is individual.
c) Learning: When people act, they learn. Learning involves changes in an individuals
behavior that arise from experience. Most human behavior is learned. Theorists believe
that learning is produced through the interplay of drives, stimuli, cues, responses, and
reinforcement. A drive is a strong internal stimulus that impels action. Cues are minor
stimuli that determine when, where, and how a person responds. Suppose you buy an
IBM computer. If your experience is rewarding, your response to computers and IBM
will be positively reinforced. Later, when you want to buy a printer, you may assume that
because IBM makes good computers, it also makes good printers. You have now
generalized your response to similar stimuli.
d) Beliefs and Attitudes: Through doing and learning, people acquire beliefs and attitudes
that, in turn, influence buying behavior. A belief is a descriptive thought that a person
holds about something. Beliefs may be based on knowledge, opinion, or faith, and they
may or may not carry an emotional charge. Of course, manufacturers are very interested
in the beliefs that people have about their products and services. These beliefs make up
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product and brand images, and people act on their images. If some beliefs are wrong and
inhibit purchase, the manufacturer will want to launch a campaign to correct these
beliefs. Particularly important to global marketers is the fact that buyers often hold
distinct beliefs about brands or products based on their country of origin.
An attitude is a persons enduring favorable or unfavorable evaluations, emotional
feelings, and action tendencies toward some object or idea. People have attitudes toward
almost everything: religion, politics, clothes, music, food. Attitudes put them into a frame
of mind of liking or disliking an object, moving toward or away from it. Attitudes lead
people to behave in a fairly consistent way toward similar objects. Because attitudes
economize on energy and thought, they are very difficult to change; to change a single
attitude may require major adjustments in other attitudes. Thus, a company would be
well advised to fit its product into existing attitudes rather than to try to change
peoples attitudes.
3.1.1.1. The Stages of the Buying Decision Process
Starting with problem recognition, the consumer passes through the stages of information
search, evaluation of alternatives, purchase decision, and post purchase behavior.
Stage 1: Problem Recognition
The buying process starts when the buyer recognizes a problem or need. This need can be
triggered by internal stimuli (such as feeling hunger or thirst) or external stimuli (such as seeing
an ad) that then becomes a drive. By gathering information from a number of consumers,
marketers can identify the most frequent stimuli that spark interest in a product category. They
can then develop marketing strategies that trigger consumer interest and lead to the second stage
in the buying process.
Stage 2: Information Search
An aroused consumer who recognizes a problem will be inclined to search for more information.
We can distinguish between two levels of arousal. At the milder search state of heightened
attention, a person simply becomes more receptive to information about a product. At the active
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information search level, a person surfs the Internet, talks with friends, and visits stores to learn
more about the product.
Stage 3: Evaluation of Alternatives
There are several evaluation processes; the most current models view the process as being
cognitively oriented, meaning that consumers form judgments largely on a conscious and rational
basis. Some basic concepts underlie consumer evaluation processes. As noted earlier, the
consumer is trying to satisfy a need. In seeking certain benefits from the product solution, the
consumer sees each product as a bundle of attributes with varying abilities of delivering the
benefits to satisfy this need.
Stage 4: Purchase Decision
In the evaluation stage, the consumer forms preferences among the brands in the choice set and
may also form an intention to buy the most preferred brand. However, two factors can intervene
between the purchase intention and the purchase decision. The first factor is the attitudes of
others. The extent to which another persons attitude reduces ones preferred alternative depends
on two things:
(1) the intensity of the other persons negative attitude toward the consumers
preferred alternative, and
(2) the consumers motivation to comply with the other persons wishes.
Stage 5: Post purchase Behavior
After purchasing the product, the consumer moves into the final stage of the consumer buying
process, in which he or she will experience some level of satisfaction or dissatisfaction. This is
why the marketers job does not end when the product is bought. In particular, marketers must
monitor post purchase satisfaction, post purchase actions, and post purchase product uses.

Post purchase Satisfaction The buyers satisfaction with a purchase is a function of the
closeness between the buyers expectations and the products perceived performance. If
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performance falls short of expectations, the customer is disappointed; if it meets

expectations, the customer is satisfied; if it exceeds expectations, the customer is
delighted. These feelings of satisfaction influence whether the customer buys the product
again and talks favorably or unfavorably about the product to others.

Post purchase Actions The consumers satisfaction or dissatisfaction with the product
after purchase will influence subsequent behavior. Satisfied consumers will be more
likely to purchase the product again. Dissatisfied consumers, on the other hand, may
abandon or return the product; seek information that confirms its high value; take public
action by complaining to the company, going to a lawyer, or complaining to government
agencies and other groups; or take private actions such as not buying the product or
warning friends. In these cases, the seller has done a poor job of satisfying the customer.

Post purchase Use and Disposal Marketers should also monitor how buyers use and
dispose of the product after purchase. If consumers store the product and never use it, the
product is probably not very satisfying, and word-of-mouth will not be strong. If they sell
or trade the product, new-product sales will be depressed. If consumers throw the product
away, the marketer needs to consider how they dispose of it, especially if it can hurt the
environment.

3.1.2. Business Markets Buying Behavior

Business organizations do not only sell. They also buy vast quantities of raw materials,
manufactured components, plants and equipment, supplies, and business services. Business
buyers purchase goods and services to achieve specific goals, such as making money, reducing
operating costs, and satisfying social or legal obligations. In principle, a business buyer seeks to
obtain for his or her organization the best package of economic, technical, service, and social
benefits in relation to a market offerings costs. In reality, a business buyer (like a consumer) will
have more incentive to choose the offering with the highest ratio of perceived benefits to costs
that is, the highest perceived value. The marketer must therefore provide an offering that delivers
superior customer value to the targeted business buyers and be familiar with the underlying
dynamics and process of business buying.
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Organizational buying, according to Webster and Wind, is the decision-making process by which
formal organizations establish the need for purchased products and services and identify,
evaluate, and choose among alternative brands and suppliers. Just as no two consumers buy in
exactly the same way, no two organizations buy in exactly the same way. Therefore, as they do
for the consumer market, business sellers work hard to distinguish clusters of customers that buy
in similar ways and then create suitable marketing strategies for reaching those targeted business
market segments. However, the business market differs from the consumer market in a number
of significant ways.

3.1.2.1. The Business Market versus the Consumer Market

The business market consists of all of the organizations that acquire goods and services used in
the production of other products or services that are sold, rented, or supplied to other customers.
The major industries making up the business market are agriculture, forestry, and fisheries;
mining; manufacturing; construction; transportation; communication; public utilities; banking,
finance, and insurance; distribution; and services.
In general, more dollars and items are involved in sales to business buyers than to consumers.
The overall business market includes institutional and government organizations in addition to
profit-seeking companies. However, the buying goals, needs, and methods of these two
specialized organizational markets are generally different from those of businesses, something
firms must keep in mind when planning their business marketing strategies.
A. The Institutional Market: The institutional market consists of schools, hospitals,
nursing homes, prisons, and other institutions that provide goods and services to
people in their care. Many of these organizations have low budgets and captive
clienteles. For example, hospitals have to decide what quality of food to buy for their
patients. The buying objective here is not profit, because the food is provided to the
patients as part of the total service package. Nor is cost minimization the sole objective,
because poor food will cause patients to complain and hurt the hospitals reputation. The
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hospital purchasing agent has to search for institutional food vendors whose quality meets
or exceeds a certain minimum standard and whose prices are low. Knowing this, many
food vendors set up a separate division to respond to the special needs of institutional
buyers.
B. The Government Market: In most countries, government organizations are a major
buyer of goods and services. Government organizations typically require suppliers to
submit bids. Normally, they award the contract to the lowest bidder, although they
sometimes take into account a suppliers superior quality or reputation for completing
contracts on time. Because their spending decisions are subject to public review,
government organizations require considerable documentation from suppliers, who often
complain about excessive paperwork, bureaucracy, regulations, decision-making delays,
and shifts in procurement personnel.

3.1.2.2. The Purchasing/Procurement Process

Industrial buying passes through eight stages called buy phases, as identified by Robinson and
associates in the buy grid framework shown. In the sections that follow, we examine each of the
eight stages for a typical new-task buying situation.
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Stage 1: Problem Recognition

The buying process begins when someone in the company recognizes a problem or need that can
be met by acquiring a good or service. The recognition can be triggered by internal or external
stimuli. Internally, problem recognition commonly occurs when a firm decides to develop a new
product and needs new equipment and materials, when a machine breaks down and requires new
parts, when purchased material turns out to be unsatisfactory, and when a purchasing manager
senses an opportunity to obtain lower prices or better quality. Externally, problem recognition
can occur when a buyer gets new ideas at a trade show, sees a suppliers ad, or is contacted by a
sales representative offering a better product or a lower price.
Stage 2: General Need Description
Once a problem has been recognized, the buyer has to determine the needed items general
characteristics and the required quantity. For standard items, this is not a very involved process.
For complex items, the buyer will work with othersengineers, users, and so onto define the
needed characteristics. These may include reliability, durability, price, or other attributes. In this
stage, business marketers can assist buyers by describing how their products would meet such
needs.
Stage 3: Product Specification
With a general need description in hand, the buying organization can develop the items technical
specifications. Often, the company will assign a product value analysis (PVA) engineering team
to the project. Product value analysis is an approach to cost reduction in which components are
carefully studied to determine if they can be redesigned or standardized or made by cheaper
methods of production. Tightly written specifications will allow the buyer to refuse components
that are too expensive or that fail to meet the specified standards. Suppliers, too, can use product
value analysis as a tool for positioning themselves to win an account.
Stage 4: Supplier Search
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The buyer now tries to identify the most appropriate suppliers, by examining trade directories,
doing a computer search, phoning other firms for recommendations, scanning trade
advertisements, and attending trade shows. However, these days the most likely place to look is
on the Internet.
Stage 5: Proposal Solicitation
In this stage, the buyer is ready to invite qualified suppliers to submit proposals. When the item
is complex or expensive, the buyer will require a detailed written proposal from each qualified
supplier. After evaluating the proposals, the buyer will invite a few suppliers to make formal
presentations. Business marketers must thus be skilled in researching, writing, and presenting
proposals. Their written proposals should be marketing documents, not just technical documents.
Their oral presentations should inspire confidence, positioning their companys capabilities and
resources so that they stand out from the competition. A suppliers first priority during this stage
is to become qualified or, in some cases, to become certified, so it will be invited to submit
proposals.
Stage 6: Supplier Selection
Before selecting a supplier, the buying center will specify desired supplier attributes (such as
product reliability and service reliability) and indicate their relative importance. It will then rate
each supplier on these attributes to identify the most attractive one. At this point, the buyer may
attempt to negotiate with preferred suppliers for better prices and terms before making the final
selection. As part of the supplier selection process, buying centers must decide how many
suppliers to use.
Stage 7: Order-Routine Specification
After selecting suppliers, the buyer negotiates the final order, listing the technical specifications,
the quantity needed, the delivery schedule, and so on. A blanket contract establishes a long-term
relationship in which the supplier promises to resupply the buyer as needed at agreed-upon prices
over a specified period. Because the seller holds the stock, blanket contracts are sometimes
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called stockless purchase plans. The buyers computer automatically sends an order to the seller
when stock is needed, and the supplier arranges delivery and billing according to the blanket
contract. Blanket contracting leads to more single-source buying and ordering of more items
from that single source. This system locks suppliers in tighter with the buyer and makes it
difficult for out-suppliers to break in unless the buyer becomes dissatisfied with the in-suppliers
prices, quality, or service.
Stage 8: Performance Review
In the final stage of the buying process, the buyer periodically reviews the performance of the
chosen supplier(s). Three methods are commonly used. The buyer may contact the end users and
ask for their evaluations. Or the buyer may rate the supplier on several criteria using a weighted
score method. Or the buyer might aggregate the cost of poor supplier performance to come up
with adjusted costs of purchase, including price. The performance review may lead the buyer to
continue, modify, or end the relationship with the supplier.

Chapter 4
4. Market Segmentation, Targeting and Positioning For
Competitive Advantage
Introduction
Companies usually are more effective when they target their markets. Target marketing involves
three activities: market segmentation, market targeting, and market positioning. Markets can be
targeted at four levels: segments, niches, local areas, and individuals. Market segments are large,
identifiable groups within a market, with similar wants, purchasing power, location, buying
attitudes, or buying habits. A niche is a more narrowly defined group.

4.1. Market Segmentation

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Market segmentation aims to increase a companys precision marketing. In contrast, sellers that
use mass marketing engage in the mass production, distribution, and promotion of one product
for all buyers. The argument for mass marketing is that it creates the largest potential market,
which leads to the lowest costs, which in turn can lead to lower prices or higher margins.
However, many critics point to the increasing splintering of the market, which makes mass
marketing more difficult.
According to Regis McKenna, Consumers have more ways to shop: at giant malls, specialty
shops, and superstores; through mail-order catalogs, home shopping networks, and virtual stores
on the Internet. This proliferation of media and distribution channels is making it difficult to
practice one size fits all marketing. Some observers even claim that mass marketing is dying.
Therefore, to stay focused rather than scattering their marketing resources, more marketers are
using market segmentation.

4.1.1. Levels of Market Segmentation

Regardless of whether they serve the consumer market or the business marketoffering either
goods or servicescompanies can apply segmentation at one of four levels: segments, niches,
local areas, and individuals.
1) Segment Marketing: A market segment consists of a large identifiable group within a
market, with similar wants, purchasing power, geographical location, buying attitudes, or
buying habits. For example, an automaker may identify four broad segments in the car
market: buyers who are primarily seeking;
a. Basic transportation,
b. high performance,
c. luxury, or
d. Safety.
Because the needs, preferences, and behavior of segment members are similar but not
identical, Anderson and Narus urge marketers to present flexible market offerings instead
of one standard offering to all members of a segment.

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2) Niche Marketing: A niche is a more narrowly defined group, typically a small market
whose needs are not being well served. Marketers usually identify niches by dividing a
segment into sub segments or by defining a group seeking a distinctive mix of benefits.
For example, a tobacco company might identify two sub segments of heavy smokers:
those who are trying to stop smoking, and those who dont care. Whereas segments are
fairly large and normally attract several competitors, niches are fairly small and may
attract only one or two rivals.
3) Local Marketing: Target marketing is leading to some marketing programs that are
tailored to the needs and wants of local customer groups (trading areas, neighborhoods,
even individual stores). Citibank, for instance, adjusts its banking services in each branch
depending on neighborhood demographics; Kraft helps supermarket chains identify the
cheese assortment and shelf positioning that will optimize cheese sales in low-, middle-,
and high-income stores and in different ethnic neighborhoods.
4) Individual Marketing: The ultimate level of segmentation leads to segments of one,
customized marketing, or one-to-one marketing. For centuries, consumers were
served as individuals: The tailor made the suit and the cobbler designed shoes for the
individual. Much business-to-business marketing today is customized, in that a
manufacturer will customize the offer, logistics, communications, and financial terms for
each major account. Now technologies such as computers, databases, robotic production,
intranets and extranets, e-mail, and fax communication are permitting companies to
return to customized marketing, also called mass customization. Mass customization is
the ability to prepare individually designed products and communications on a mass basis
to meet each customers requirements.

4.1.2. Market-Segmentation Procedure

Marketers use a three-step procedure for identifying market segments:
1. Survey stage. The researcher conducts exploratory interviews and focus groups to gain
insight into customer motivations, attitudes, and behavior. Then the researcher prepares
a questionnaire and collects data on attributes and their importance ratings, brand
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awareness and brand ratings, product-usage patterns, attitudes toward the product
category, and respondents demographics, geographics, psychographics, and media
graphics.
2. Analysis stage. The researcher applies factor analysis to the data to remove highly
correlated variables, then applies cluster analysis to create a specified number of
maximally different segments.
3. Profiling stage. Each cluster is profiled in terms of its distinguishing attitudes,
behavior, demographics, psychographics, and media patterns, then each segment is
given a name based on its dominant characteristic.

4.1.3. Segmenting Consumer and Business Markets

I.

Bases for Segmenting Consumer Markets

In segmenting consumer markets, marketers can apply geographic, demographic, and

psychographic variables related to consumer characteristics as well as behavioral variables
related to consumer responses. Once the segments are formed, the marketer sees whether
different characteristics are associated with each consumer response segment. For example, the
researcher might examine whether car buyers who want quality versus low price differ in
their geographic, demographic, and psychographic makeup. This will determine whether the
segments are useful for marketing purposes.
1. Geographic Segmentation: Geographic segmentation calls for dividing the market
into different geographical units such as nations, states, regions, counties, cities, or
neighborhoods. The company can operate in one or a few geographic areas or operate
in all but pay attention to local variations
2. Demographic Segmentation: In demographic segmentation, the market is divided into
groups on the basis of age and the other variables. One reason this is the most popular
consumer segmentation method is that consumer wants, preferences, and usage rates
are often associated with demographic variables. Another reason is that demographic
variables are easier to measure.
Here is how certain demographic variables have been used to segment consumer markets:
Age and life-cycle stage. Consumer wants and abilities change with age.
Gender
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Income
Generation
Social class
3. Psychographic Segmentation: In psychographic segmentation, buyers are divided into
different groups on the basis of lifestyle or personality and values. People within the
same demographic group can exhibit very different psychographic profiles.
Lifestyle. People exhibit many more lifestyles and the goods they consume
express their lifestyles.
Personality
Values.
4. Behavioral Segmentation: In behavioral segmentation, buyers are divided into groups
on the basis of their knowledge of, attitude toward, use of, or response to a product.
Many marketers believe that behavioral variablesoccasions, benefits, user status,
usage rate, loyalty status, buyer-readiness stage, and attitudeare the best starting
points for constructing market segments.
5. Multi-Attribute

Segmentation

(Geoclustering):

Marketers

are

increasingly

combining several variables in an effort to identify smaller, better defined target groups.
Thus, a bank may not only identify a group of wealthy retired adults, but within that
group may distinguish several segments depending on current income, assets, savings,
and risk preferences. One of the most promising developments in multi-attribute
segmentation is geo-clustering, which yields richer descriptions of consumers and
neighborhoods than does traditional demographics.
II.

Bases for Segmenting Business Markets

Business markets can be segmented with some variables that are employed in consumer market
segmentation, such as geography, benefits sought, and usage rate. Yet business marketers can
also use several other variables. The demographic variables are the most important, followed by
the operating variables down to the personal characteristics of the buyer.

4.1.4. Effective Segmentation

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Even after applying segmentation variables to a consumer or business market, marketers must
realize that not all segmentations are useful.
To be useful, market segments must be:
Measurable: The size, purchasing power, and characteristics of the segments can be
measured.
Substantial: The segments are large and profitable enough to serve. A segment should be
the largest possible homogeneous group worth going after with a tailored marketing
program.
Accessible: The segments can be effectively reached and served.
Differentiable: The segments are conceptually distinguishable and respond differently to
different marketing mixes. If two segments respond identically to a particular offer, they
do not constitute separate segments.
Actionable: Effective programs can be formulated for attracting and serving the
segments.

4.2. Market Targeting

Market segmentation reveals the firms 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.

4.2.1. Evaluating Market Segments

Once the firm has identified its market-segment opportunities, it is ready to initiate market
targeting. Here, marketers evaluate each segment to determine how many and which ones to
target and enter. In evaluating different market segments, a firm must look at three factors:
segment size and growth, segment structural attractiveness, and company objectives and
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resources. The company must first collect and analyze data on current segment sales, growth
rates, and the expected profitability for various segments. It will be interested in 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. 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 anotherall at the expense
of seller profitability. Finally, a segment may be less attractive if it contains powerful suppliers
who can control prices or reduce the quality or quantity of ordered goods and services. Even if a
segment has the right size and growth and is structurally attractive, the company must consider
its own objectives and resources.

4.3.

Market Positioning

Beyond deciding which segments of the market it will target, the company must decide on a
value propositionhow it will create differentiated value for targeted segments and what
positions it wants to occupy in those segments. A products position is the way the product is
defined by consumers on important attributesthe place the product occupies in consumers
minds relative to competing products. Products are made in factories, but brands happen in the
minds of consumers.
A products 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. But marketers do not want to leave their products positions to
chance. They 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.
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Positioning is arranging for a product to occupy a clear, distinctive, and desirable place
relative to competing products in the minds of target consumers. Marketers plan positions that
distinguish their products from competing brands and give them the greatest advantage in their
target markets. Positioning can also be defined as the art and science of fitting the product or
service to one or more segments of the broad market in such a way as to set it meaningfully apart
from competition. Take a few moments to think about how some products are positioned and
how their positions are conveyed to you. For example, what comes to mind when you hear the
name Mercedes, or SONY?

4.3.1. Approaches to Positioning

Positioning strategies generally focus on either the consumer or the competition. While both
approaches involve the association of product benefits with consumer needs, the former does so
by linking the product with the benefits the consumer will derive or creating a favorable brand
image. The latter approach positions the product by comparing it and the benefit it offers with the
competition. Many advertising practitioners consider market positioning the most important
factor in establishing a brand in the marketplace.
Developing a Positioning Strategy to create a position for a product or service, Trout and Ries
suggest that managers ask themselves six basic questions:
1. What position, if any, do we already have in the prospects mind?
2. What position do we want to own?
3. What companies must be outgunned if we are to establish that position?
4. Do we have enough marketing money to occupy and hold the position?
5. Do we have the guts to stick with one consistent positioning strategy?
6. Does our creative approach match our positioning strategy?
A number of positioning strategies might be employed in developing a promotional program
some of these will be discussed below.
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1) Positioning by Product Attributes and Benefits: A common approach to positioning is

setting the brand apart from competitors on the basis of the specific characteristics or
benefits offered. For example, when Apple first introduced its computers, the key benefit
stressed was ease of usean effective strategy, given the complexity of computers in the
market at that time.
2) Positioning by Price/Quality: Marketers often use price/quality characteristics to
position their brands. One way they do this is with ads that reflect the image of a high
quality brand where cost, while not irrelevant, is considered secondary to the quality
benefits derived from using the brand. Premium brands positioned at the high end of the
market use this approach to positioning. Another way to use price/quality characteristics
for positioning is to focus on the quality or value offered by the brand at a very
competitive price.
3) Positioning by Use or Application: Another way to communicate a specific image or
position for a brand is to associate it with a specific use or application. For example,
Black & Decker introduced the Snakelight as an innovative solution to the problem of
trying to hold a flashlight while working. A TV commercial showed various uses for the
product, while creative packaging and in-store displays were used to communicate the
uses. While this strategy is often used to enter a market on the basis of a particular use or
application, it is also an effective way to expand the usage of a product.
Determining the Positioning Strategy Having explored the alternative positioning
strategies available, the marketer must determine which strategy is best suited for the firm
or product and begin developing the positioning platform. Essentially, the development of
a positioning platform can be broken into a six-step process.
1.
2.
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Identifying competitors
Assessing consumers perceptions of competitors

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3.

Determining competitors positions. After identifying the relevant

attributes and their relative importance to consumers, we must determine
how each competitor (including our own entry) is positioned with respect

4.
5.

to each attribute.
Analyzing the consumers preferences
Making the positioning decision. Going through the first four steps

6.

should let us decide which position to assume in the marketplace.

Monitoring the position. Once a position has been established, we want
to monitor how well it is being maintained in the marketplace.

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