3.4 Market Segmentation, targeting and positioning

Question 1

Why businesses today recognise that they cannot appeal to all customers in the market? [2]

Answer 1

• There are too many customers, widely
  scattered and too varied in their needs and buying practices.
• Moreover, businesses
  vary in their abilities to serve the different types of customers.

Question 2

What is target marketing? [3]

Answer 2

1. Identifying market segments
2. Selecting one or more of them
3. Developing products and marketing programmes tailored to each.

Question 3

What is market segmentation?

Answer 3

Market segmentation refers to the identifying of different segments within a market
and targeting different products or services to them.

Question 4

What is market segmentation in layman terms?

Answer 4

Instead of trying to sell only one product to the entire market, different products are targeted at different segments.

Question 5

How to make market segmentation effective?

Answer 5

In order for market segmentation to be effective, businesses must research and
analyse the entire market carefully to identify the specific consumer groups that
exist within it.

Question 5

Why do some businesses only market to one segment?

Answer 5

Such businesses make a virtue of concentrating on one segment and developing an image and brand that suit that
segment.

Question 5

What are some advantages of market segmentation? [4]

Answer 5

 Business can define their target market precisely, and design and produce goods
that are specifically aimed at these groups, leading to increased sales.
 Businesses are able to identify groups of customers that are currently not being
targeted in the market, and businesses would gain higher market share and
customer loyalty if these groups are successfully targeted and sold products.
 Businesses could focus on the use of differentiated marketing strategies on the
target market groups. This minimises wasting money on trying to sell products
to the entire market, since some consumer groups will have no intention of
buying the product.
 SMEs that are unable to compete in the whole market are able to specialise in
one or two market segments.

Question 6

What is the effect of market segmentation? [2]

Answer 6

• Customers in any markets differ in their wants, resources, locations, buying
  attitudes and buying practices.
• Through market segmentation, businesses divide
  large, hetrogeneous markets into smaller segments that can be reached more
  efficiently and effectively with goods and services that match their unique needs.

Question 6

What are the limitations of market segmentation? [4]

Answer 6

 Research and development and production costs might be high as a result of
marketing several different product variations.
 Promotional costs might be high as different advertisements and promotions
might be needed for different segments. Thus businesses might not benefit
from marketing economies of scale.
 Production and inventory-holding costs might be higher than for the option of
just producing and stocking one undifferentiated product.
 By focusing on one or two limited market segments there is a danger that
excessive specialisation could lead to problems if consumers in those segments
change their purchasing habits significantly.

Question 7

What is geographical segmentation?

Answer 7

Geographical segmentation is to divide the market into different geographical units such as nations, regions, states, counties, cities or even neighbourhoods.

Question 7

What are the common bases for segmentation? [3]

Answer 7

1. Geographical segmentation
2. Demographic segmentation
3. Behavioral segmentation

Question 8

What will a business act from cultural differences? [4]

Answer 8

1. For example in
   Arab Muslim countries, businesses are not permitted to promote alcohol.
2. Businesses might also have to adjust the way products are promoted. In some
   countries, competitions or lottery-type promotions are illegal. 3. Advertising of
   apparal with photographs of semi-naked models would not be tolerated in some countries.
3. To suit the appropriate use of language in some countries, businesses
   might have to change product names.

Question 8

Where is gegraphical differences stem from?

Answer 8

Cultural differences.

Question 9

What happens during geographical segmentation? [2]

Answer 9

1. A business
   may decide to operate in one or a few geographical areas; or to operate in all areas,
   but would need to pay attention to geographical differences in needs and wants.
2. Many businesses localise their products, advertising, promotion and sales efforts to
   fit the needs of individual regions and cities.

Question 10

Why is detailed and accurate market intelligence essential?

Answer 10

Hence, detailed and accurate market intelligence is essential for businesses that aim to expand the geographical spread
of the markets in which their goods are sold.

Question 11

What is demographic segmentation?

Answer 11

Demographic segmentation divides the market into groups based on variables such
as age, gender, family size, income, occupation, education level, religion, race etc.

Question 12

How can age affect the business? [3]

Answer 12

• Consumer needs and wants change with age. - Some businesses segment the market by age, offering different products or using different marketing
  approaches for different age groups.
• For example, Nintendo, known for its youth-oriented video games, has a sub-brand called Touch Generations which targets ageing baby boomers. Touch Generations aims to attract older non-gamers by
  offering skill-building or less violent games that might appeal to older
  consumers.

Question 12

How can income affect business? [3]

Answer 12

• Marketers of goods and services such as automobiles, clothing,
  cosmetics, financial services and travel typically segment the market using
  income.
• Many businesses target rich customers with luxury goods and
  convenience services.
• For example, credit card companies offer premium credit
  cards with perks, such as VISA’s Signature card, MasterCard’s World card and
  the Centurion card by American Express.

Question 13

What is demographic segmentation beneficial?

Answer 13

• Businesses typically prefer to segment customer groups using demographics
  because consumer needs, wants and usage rates vary closely with demographic
  variables.
• Another reason is that demographic variables are easier to measure
  compared to other types of variables.

Question 13

How can gender affect business? [3 – 2 + 1 example]

Answer 13

• Typically, businesses dealing in clothing, cosmetics, toiletries and
  magazines segment the market with gender.
• Recent trend suggests that businesses which used to focus on one gender have expanded their focus to
  target the opposite gender.
• For example, Nike has increased its efforts to
  capture the women’s sports apparel market. It overhauled its women’s apparel
  line, called Nikewomen, to create better fitting, more colourful, more
  fashionable workout clothes for women.

Question 13

What are some common demographic variables? [3]

Answer 13

1. Age
2. Gender
3. Income

Question 14

What are some behavioural variables? [4]

Answer 14

1. Occasion
2. Benefits
3. User status
4. Loyalty

Question 14

What is behavioural segmentation? [2]

Answer 14

• Behaviourial segmentation divides the market into groups based on their
  knowledge, attitudes, uses of or responses to a product.
• Behaviour variables are deemed to be a good starting point for building market segments.

Question 15

How can user status affect business decisions? [2]

Answer 15

• Markets can be segmented into non-users, ex-users, potential users, first-time users and regular users of a product.
• For example, when
  Unilever introduced deodorant in China, it had to explain to non-users why they
  should buy the product. Many Chinese do not recognise the need for deodorant as they do not believe people suffer from body odour. Hence, Unilever had to
  educate non-users to convert them into new users.

Question 15

How can occasion affect business decisions? [3]

Answer 15

• Businesses may divide a market into groups according to occasions
  where customers concieve the idea to buy, actually make their purchase or use
  the purchased item.
• Segmenting the market by occasions could help businesses build up product usage. - Occasions such as Valentine’s Day were promoted
  partly to increase the sale of flowers, cards and other gifts.

Question 16

How can benefits affect business decisions? [3]

Answer 16

• Businesses may divide the market into groups based on the different
  benefits consumers may seek from the product.
• This requires businesses to
  conduct research on the major benefits people look for in the product class, the
  types of people who look for each benefit, and the major brands providing each
  benefit.
• For example, a toothpaste manufacturer might segment the market
  according to benefits such as gum care, sensitive teeth and teeth whitening.

Question 17

What is one example of using multiple segmentation bases? [2]

Answer 17

• Marketers are increasingly using multiple segmentation bases to identify smaller, better defined target groups.
• For example, a bank may not only identify a group of
  wealthy retirees, but also within that group distinguish several segments based on
  their assets, savings, risk preferences, housing and lifestyles.

Question 17

How can loyalty affect business decisions? [6]

Answer 17

• A market can be segmented by customer loyalty.
• Customers can be
  loyal to brands such as Samsung, or stores such as Isetan.
• Customers can be
  divided into groups according to their degree of loyalty.
• Some customers are
  completely loyal, they purchase the same brand all the time.
• Others are
  somewhat loyal, they favour one brand but sometimes buy others.
• The last group shows no loyalty to any brand, buying something different each time or
  whatever that is on sale.

Question 18

Why are marketers using multiple segmentation bases? [2]

Answer 18

• Marketers are increasingly using multiple segmentation bases to identify smaller, better defined target groups.
• For example, a bank may not only identify a group of wealthy retirees, but also within that group distinguish several segments based on their assets, savings, risk preferences, housing and lifestyles.

Question 19

How do businesses decide on which and how many segments it will sell?

Answer 19

• A set of customers who share common needs or characteristics that the business decides to serve must be determined

Question 20

What are the two types of segmentation?

Answer 20

1. Mass marketing (broadly defined)
2. Niche marketing (narrowly defined)

Question 21

What is mass marketing?

Answer 21

Mass marketing means selling the same product to the entire market with no
attempt to target groups within it.

Question 22

Why do businesses use mass marketing? [3]

Answer 22

• Businesses using mass marketing would ignore
  market segment differences and target the entire market with one product
  offering.
• The mass marketing strategy focuses on what is common in the needs of consumers instead of what is different.
• The business designs a product and a
  marketing programme that will appeal to the largest number of buyers.

Question 23

What are examples of mass marketing? [2]

Answer 23

Examples of mass marketed products include the classic Coca Cola as well as Toyota Corolla vehicles.

Question 24

What are some advantages of mass marketing? [2]

Answer 24

1. Lower cost of production
2. Fewer risks

Question 25

Why is low cost of production an advantage of mass marketing? [2]

Answer 25

• Mass-market businesses are likely to benefit from
  economies of scale and enjoy lower average costs of production.
• The business
  can thus turn its lower costs into lower prices to win the price-sensitive segment
  of the market.

Question 26

Why are fewer risks an advantage of mass marketing? [2]

Answer 26

• Mass market strategies contain fewer risks.
• As mass markets
  contain large number of customers, any change in consumer buying behaviour would not lead to a rapid decline in sales.

Question 27

What is niche marketing?

Answer 27

Niche marketing refers to identifying and exploiting a small segment of a larger
market by developing products to suit it.

Question 27

When is niche marketing appealing?

Answer 27

Niche marketing is appealing when the
resources of the business are limited.

Question 28

What can business achieve through niche marketing? [3]

Answer 28

• Through niche marketing, the business achieves a strong market position because of its greater knowledge of consumer needs in the niches it serves and the special reputation it acquires.
• Niche markets are typically smaller and may attract only one or a few competitors.
• This offers smaller
  businesses the opportunity to compete by focusing their resources on serving
  niches that may be unimportant or overlooked by larger businesses.

Question 29

What are examples of niche market products? [2]

Answer 29

Examples of niche market products include no-frills budget airline Air Asia as well as luxury super
cars such as Ferrari.

Question 30

What are some advantages of niche marketing? [2]

Answer 30

1. High profit margins
2. Status and image

Question 30

Why are high profit margins an advantage of niche marketing? [3]

Answer 30

• If the niche market is currently unexploited by competitors,
  then filling in a niche can offer businesses the opportunity to sell at high prices
  and high profit margins. - This will be so until competitors react by entering the market.
• Consumers are willing to pay more for an exclusive product in general.

Question 31

Why are status and image an advantage of niche marketing?

Answer 31

Niche market products could also be used by large businesses
to create status and image, where their mass market products would lack such
qualities.

Question 32

What is market targeting?

Answer 32

Targeting occurs when marketers evaluate each market segment and determine which segment or segments present the most attractive opportunity to maximise sales.

Question 33

What is a target market?

Answer 33

A target market is the group of customers in which the business has decided to direct marketing efforts.

Question 34

What are some criteria in selecting a target market? [3]

Answer 34

1. Potential sales, costs and profits
2. Alignment with business objectives and availability of resources
3. Competition in the market

Question 34

What does potential sales, costs and profits refer to?

Answer 34

This refers to the potential growth in size of the segment.

Question 34

What does the business need to do to measure the potential growth?

Answer 34

The business must collect and analyse data on current segment sales, growth rates, and expected profitability
for various segments.

Question 35

What does the growth rate trend tell us?

Answer 35

Typically, the higher the growth rate, the more attractive the segment is.

Question 36

What is one example for potential sales, costs and profits? [3]

Answer 36

• For example, Singtel’s existing residential landline is still a profitable business.
• However, revenue and profits have declined over the years as more and more consumers use their mobile phones exclusively and no longer use their house phones.
• While a marketer would look at the residential phone business and see
  large sales potential, the growth potential is very limited, making the segment far less attractive.

Question 37

What do Canon act upon with the new potential growth? [4]

Answer 37

• Conversely, Canon found out that 25 percent of its DSLR camera users were women and they were a new growing market segment.
• Hence, it launched its ‘Be Empowered’ campaign, targeting primarily at women, and youths secondarily. - In Singapore, activities that have been organised include a photography seminar for women only.
• Its advertising campaign was fronted by famous professional female photographers.

Question 37

What should marketers ensure about the target markets? [3]

Answer 37

• Marketers should ensure that the target markets selected is aligned with the vision
  and mission statement of the business.
• Essentially, the business must consider its own objectives and resources.
• Businesses may dismiss attractive segments if they
  do not align well with its long-term objectives.

Question 38

What is an example of a hotel chain in regard to gamblers?

Answer 38

For example, a hotel chain may decide not to target recreational gamblers and enter the gambling/ casino industry as it preaches wholesomeness in its vision and mission statement.

Question 38

What does more competition indicate for marketers? [3]

Answer 38

• The more intense the competition is within a segment, the less attractive it is to
  marketers.
• Competitors tend to fight extremely hard to prevent loss of market
  share, and the potential for price wars could negatively impact success.
• In general, a business has to work harder and invest more in advertising and promotion to earn
  sales revenue and increase market share if there are more competitors in the
  market.

Question 39

What are some instances the business lack in attractive segment? [2]

Answer 39

• At times, the business may lack the skills and resources required to do well in an
  attractive segment.
• For example, even though organic food products are a growing
  market, businesses may lack the financial resources and technological capability to enter into this target market.

Question 40

What happens when other factors are constant? [2]

Answer 40

• When considering two market segments in which other factors such as size and
  growth potential are constant, the one with less competitors would be more attractive.
• For example, American fast food chain A&W might want to reconsider
  reentering the Singapore market where there are already a large number of fast
  food chains such as McDonald’s, KFC, Burger King, Jolibee etc.

Question 41

What is positioning?

Answer 41

Positioning refers to the activities a business undertakes to create a perception of its products in the eyes of the target market.

Question 41

What does success within a target market depend on?

Answer 41

Success within a target market depends, to some extent, on how a business positions its products.

Question 42

What can business rely on for market positioning?

Answer 42

A business could
rely on the use of a perceptual map, and at the same time, create a unique selling
proposition for its product.

Question 43

What is perceptual map?

Answer 43

A perceptual map, also known as a positioning map, captures consumers’
perceptions of the business in relation to competitors.

Question 44

What is the function of perceptual map? [4]

Answer 44

• Before deciding on which product to develop and launch, businesses would often analyse how the new
  product would relate to the other brands in the market, in the minds of consumers.
• To do so, a perceptual map is created, and the business must first establish two
  features of this type of product that are considered important to consumers, based
  on market research.
• These features could be price, quality, perceived image, level
  of comfort etc, and will be different for each product category.
• The two features
  would then form two axis and products from various competitors would be placed
  on the axis to form the perceptual map.

Question 45

How can perceptual map be used in terms of chocolate brands? [4]

Answer 45

• The two features used in this perceptual map is price and quality.
• The perceptual map seems to suggest that there is a gap in the market for high
  quality-low price chocolates, as well as high price-low quality chocolates.
• However, it is unlikely any chocolate manufacturers would produce chocolate products to fill
  these two gaps.
• A gap worth exploring though is the high price-high quality segment,
  where the closest competitor is Lindt.

Question 46

What are some reasons why businesses would undertake perceptual mapping? [7]

Answer 46

1. Check reality
2. Impact of campaigns
3. Monitor new products
4. Monitor competition
5. Look for gaps
6. Understand segments
7. Track preference changes

Question 47

What is check reality?

Answer 47

To see how the target consumers actually perceive the various
competitors’ offerings and positions.

Question 48

What is impact of campaigns?

Answer 48

To measure or track the impact of recent promotional or
advertising campaign.

Question 49

What is monitor new products?

Answer 49

To identify how well any new products have been positioned into the market.

Question 50

What is monitor competition?

Answer 50

To monitor the impact of various offerings by competitors over time.

Question 51

What is look for gaps?

Answer 51

To assist the business in identifying any gaps in the market, as a
source of information in developing new products.

Question 52

What is understand segments?

Answer 52

To provide information that will help further understand different market segments.

Question 52

What is track preference changes?

Answer 52

To track any changes in consumer preferences over time.

Question 53

What are the limitations of perceptual maps? [3]

Answer 53

1. Number of variables used
2. Misalignment with business offering
3. Data gathering

Question 54

What is number of variables used?

Answer 54

A perceptual map only uses two variables/ features, and assumes that there are only two major factors affecting consumers’ buying
decision.

Question 55

What is misalignment with business offering?

Answer 55

Due to miscommunication, lack of knowledge, impact from social media etc, what a customer thinks a business could offer may not be the same as what the business could actually offer.

Question 55

What is data gathering?

Answer 55

The data needed to form a perceptual map is usually obtained
through surveys and can be difficult to obtain.

Question 56

What is unique selling proposition (USP)?

Answer 56

A unique selling proposition (USP), also known as unique selling point, is the special
feature of the product that differentiates it from competitors’ products.

Question 57

What are examples of USP? [2]

Answer 57

• Examples of USP include Dyson’s bladeless fan technology and Nox Restaurant’s
  Dine in the Dark concept.
• When Sony first launched it Xperia Z smartphone, its
  waterproof feature was its USP, but other smartphone manufacturers had since caught up with the same feature.

Question 58

What is the importance for businesses to create an effective unique selling proposition (USP)? [5]

Answer 58

 Effective promotion that focuses on the differentiating feature of the product
or service.
 Opportunities to charge higher prices due to exclusive design or service.
 Free publicity from business media reporting on the USP.
 Higher sales than undifferentiated products offered by competitors.
 Customers more willing to be identified with the brand because ‘it’s different’.

Question 58

What is differentiation?

Answer 58

This differentiation makes the product distinctive so that it stands out from competitors’
products in the eyes of consumers.

Question 58

When is USP successful for Sony?

Answer 58

For Sony’s case, once other smartphone manufacturers caught up with the waterproof
feature, sales of the Xperia Z and subsequent models were no longer impressive.

Question 58

When is unique selling proposition likely successful? [3]

Answer 58

• Developing a USP can be expensive but rewarding to the business if successful.
• It is most likely to be achieved by heavy and effective promotion, or by patented technical innovation.
• As consumers become wealthier and more selective in their
  purchasing habits, businesses that are able to create value by developing products
  different from competitors are most likely to capture consumers’ attention and gain higher profits.

Question 59

When is USP unsuccessful (Westin Stamford Hotel)?

Answer 59

For example, when
Westin Stamford Hotel (now known as Swissotel The Stamford) in Singapore advertised that it is the world’s tallest hotel, it was not a USP that was important to most tourists; in fact its occupancy rate fell as many tourists were appalled by it.