Lecture 7: Identifying Market Segments and Targets; Prepared by Zaved Mannan 1 | P a g e
Identifying Market Segments and Targets
At the completion of this lecture, you should be able to :
• explain what it means to ‘segment’ a market;
• list the basic steps in segmenting a market;
• describe the bases used to segment consumer and business markets;
• evaluate and select segments for targeting; and
• understand the importance of positioning to segmenting and targeting.
We have all heard the saying that ‘the company should aim for a market niche’ or
that ‘your company should aim for a different segment’. But what does this mean?
The purpose of this lecture is to introduce you to the concept of market
segmentation and show how intelligent companies rarely try to be ‘all things to all
people’ but instead, deliberately choose which group of customers they wish to
Textbook: Kotler et al. (2009), Chapter 8.
Optional Reading 7.1: Tan, A. Y. F., & Lo, A. S. Y. (2008). A benefit-based approa
to market segmentation: A case study of an American specialty coffeehouse cha
in Hong Kong. Journal of Hospitality and Tourism Research, 32(3), 342-362.
Lecture 7: Identifying Market Segments and Targets; Prepared by Zaved Mannan 2 | P a g e
Organizations can basically adopt the following approaches to a market.
Mass Marketing This is the decision to mass produce and mass distribute
one product and attempt to attract all kinds of buyers.
Segment Marketing Companies identify groups of consumers with broadly
similar needs, then develop products services to meet
such needs. For example baby Boomers (those born
between 1976 to 1961), Generation N (born early 60s to
early 80s) and Generation Y (born mid 80s to mid 90s)
are broad market segments.
Niche Marketing A niche is really a very small group within a segment with
distinctive needs and generally willing to pay a premium
price for products that meet their needs. For example,
vegans or lactose intolerant consumers constitute two
different niche markets.
Local Marketing Perhaps a good example of local marketing is the case of
large real estate chains which target various ethnic
groups in certain suburbs with agents able to speak a
range of Asian languages.
Customerisation Taken to the ultimate level, organization can develop
products and services suitable for a ‘segment of one’. This
type of customisation was not possible in the past due to
the high cost of creating individualised products for each
customer. An example of Customerisation is offered by
Dell where you can basically design your own computer
suitable for your needs including software and even
Kotler et al. (2009, pp. 200-205) provide good coverage of these approaches.
In segmenting a market, the following are the usual steps.
Survey the market gather data on attributes, brand awareness, product
usage patterns, demographics, etc.
Analyse data the data is analysed to reveal clusters of similar groups
with similar preferences.
Lecture 7: Identifying Market Segments and Targets; Prepared by Zaved Mannan 3 | P a g e
Profile each cluster is then profiled along a group of important
variables. The clusters are then usually given a
descriptive label, e.g. young and outgoing, which is
meant to convey the essential characteristics of the
Bases for Segmenting Consumer Markets
There are a number of variables on which consumer markets can be segmented.
These are listed briefly in Table 7.1 below. See Kotler et al. (2009, pp. 206-218) for
a detailed description.
Table 7.1: Segmentation variables for consumer markets
1. Geographic Nations, states, regions, countries, cities
2. Demographics Age & life-cycle, gender, income, social
3. Psychographic Lifestyle, personality
4. Behavioural Purchase occasions, benefits sought,
user status, usage rate, loyalty status,
buyer-readiness stage, attitude
This technique assumes that people who
live near each other exhibit similar traits
in many of the above bases for
Bases for Segmenting Business Markets
Again, Kotler et al. (2009, pp. 218-219) provides more detail in table 8.2. Briefly,
the following (in order of importance) are considered useful means for segmenting
Optional Reading 7.1: Tan, A. Y. F., & Lo, A. S. Y. (2008). A benefit-based approach to market
segmentation: A case study of an American specialty coffeehouse chain in
Hong Kong. Journal of Hospitality and Tourism Research, 32(3), 342-362.
This article gives you a chance to see market segmentation in action. In this case the research has
been carried out on existing customers. The descriptions of the segments
that emerged from the research show clearly the implications for
marketing practice, with clear insight into how products, services, and
promotions could be matched to the preferences of particular segments.
Lecture 7: Identifying Market Segments and Targets; Prepared by Zaved Mannan 4 | P a g e
2. Operating variables.
3. Purchasing approaches.
4. Situational factors
5. Personal characteristics.
Requirements for Effective Segmentation
Regardless of whether segmenting consumer or business markets, useful market
segments should be meet the following criteria.
Assuming that the company has segmented the market, it now has to decide which
segments it should target.
There are two factors of importance:
1. Segment size, growth and structural attractiveness
2. Company objectives and resources.
Essentially, the company has to identify those segments that appear to be
profitable (currently and in the future) and that the company has the resources to
compete effectively in.
Selecting the Market Segments
Basically, there are five broad ways in which the company can select the market
segments as shown in Table 7.2 below.
Table 7.2: Market coverage approaches
1. Single-segment concentration The company decides to serve one
segment of the market only. This is
sound in that the company becomes a
specialist; however, it also means the
company has ‘all its eggs in one basket’.
2. Selective specialisation This is basically an extension of the
above strategy, with the obvious
Lecture 7: Identifying Market Segments and Targets; Prepared by Zaved Mannan 5 | P a g e
difference being that the firm is now
serving more that on specialised
segment. Main benefit is the company is
no longer overexposed by only serving
3. Product specialization Here, the company makes one type of
product only, which it then markets to
more than one segment.
4. Market specialization Here, the company meets the various
needs of one particular market segment.
5. Full market coverage Here, the company, usually a large
organization, attempts to cover all
segments of the market with a varity of
product offerings, known as
differentiated marketing. However, the
firm may also attempt full market
coverage by offering one product to the
whole market, e. g. Gillete Sensor razor
All marketing strategy is built on segmentation, targeting and positioning. A
company discovers different needs in the marketplace, targets those needs it can
satisfy in a superior way and finally, positions its offering so that the target market
recognises the company’s distinctive offering and image. This positioning is based
on a ‘value proposition’ or a set of benefits that meets the target segment’s needs.
An example of this is the Pedigree positioning statement ‘We’re for dogs.’ This
provides a clear, unambiguous message to their consumers about the company
focus and products. Their target segment is dog owners, not pet owners in general.
With this they are establishing themselves as a specialist in the eyes of their
consumers. This important concept of positioning will be expanded in greater depth
in Lecture 8.
Market segmentation is all about identifying groups of people with relatively similar
needs, so that marketers are better able to manage their offerings. A number of
considerations need to be taken into account when segmenting the market
including whether it is manageable, accessible, feasible or profitable. A number of
characteristics of those who comprise the market can be used to segment the
Lecture 7: Identifying Market Segments and Targets; Prepared by Zaved Mannan 6 | P a g e
market. These include psychographic, demographic, behavioural and geographic.
The business market can also be segmented, but usually by different
Adjunct Faculty Member
University of Liberty Arts Bangladesh