Market segmentation, targeting, and postioning (04)

Question 1

SUMMARY

Answer 1

In summary, the following are covered in this topic:
1. Market segmentation refers to the identifying of different segments within a
market and targeting different products or services to them.
2. 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.
3. Commonly used bases for segmentation include geographical, demographic and
behavioral segmentation.
4. Geographical segmentation is to divide the market into different geographical
units such as nations, regions, states, counties, cities or even neighbourhoods.
5. Demographic segmentation divides the market into groups based on variables
such as age, gender, family size, income, occupation, education level, religion,
race etc.
6. Behaviourial segmentation divides the market into groups based on their
knowledge, attitudes, uses of or responses to a product.
7. Mass marketing means selling the same product to the entire market with no
attempt to target groups within it.
8. Niche marketing refers to identifying and exploiting a small segment of a larger
market by developing products to suit it.
9. Some criteria in selecting a target market include potential sales, costs and
profits; alignment with business objectives and availability of resources; and
competition in the market.
10. A perceptual map, also known as a positioning map, captures consumers’
perceptions of the business in relation to competitors.
11. 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 2

Advantages of market segmentation

Answer 2

 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 3

limitations of market segmentation

Answer 3

 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 4

Usefulness of perceptual maps

Answer 4

 Check reality. To see how the target consumers actually perceive the various
competitors’ offerings and positions.
 Impact of campaigns. To measure or track the impact of recent promotional or
advertising campaign.
 Monitor new products. To identify how well any new products have been
positioned into the market.
 Monitor competition. To monitor the impact of various offerings by competitors
over time.
 Look for gaps. To assist the business in identifying any gaps in the market, as a
source of information in developing new products.
 Understand segments. To provide information that will help further understand
different market segments.
 Track preference changes. To track any changes in consumer preferences over
time.

Question 5

Limitations of perceptual maps

Answer 5

 Number of variables used. A perceptual map only uses two variables/ features,
and assumes that there are only two major factors affecting consumers’ buying
decision.
 Misalignment with business offering. 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.
 Data gathering. The data needed to form a perceptual map is usually obtained
through surveys, and can be difficult to obtain.