3Marketing Basics

PRINCIPLES OF MARKETING
Unit - III
Recommended Text Book: Philip Kotler, Gary Armstrong, Ahmed Tolba, &
Anwar Habib “Principles of Marketing” (2011), Arab World Edition, Pearson
Prentice Hall, 8e ISBN 978-1-4082-5568-1 and E-TEXT BOOK (Kotler &
Armstrong)
For BSBA/BBA/MBA Students; Notes prepared
only for general studies purpose & reference
By Dr. Sandeep S. Solanki
(Ph.D., MBA, M.Com)
Jodhpur, Rajasthan, India
1
All notes from recommended Arab World Edition book of Philip Kotler

UNIT – III
(Market Segmentation, Targeting, Positioning & Product Differentiation)
TOPICs:
1. Need For Segmenting Market
2. Bases of Segmentation – Consumer (Geographic - Demographic-Psychographic -
Behavioral), Business and International
3. Target Market Selection Process: Evaluating the Market Segments-Selecting the
Market Segments (and Patterns)
4. Positioning - Getting Into The Minds Of Consumer
5. Types of Positioning - Positioning Errors, Differentiation – Products And Services
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UNIT – III
NEED FOR SEGMENTING MARKET (Why companies need market segmentation?):
Ans. Companies cannot appeal to all buyers in the marketplace, or at least not to all buyers in the same
way. Buyers are too numerous, too widely scattered, and too varied in their needs and buying practices.
Moreover companies themselves vary widely in their abilities to serve different segments of the
market. Instead, a company must identify the parts of the market that it can serve best and most
profitably. And that’s why a need for segmenting the market is felt. For this, the company must design
customer driven marketing strategies, that build the right relationships with the right customers. Now
the next question arises that how can it be achieved systematically? The following figure – Designing
a Customer-driven Marketing Strategy – shows the major two steps with four actions:
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UNIT – III
In the previous figure the major two steps are:
1. Select Customers to Serve, having two actions – A) Market Segmentation and B) Market
Targeting,
2. Decide on a Value Proposition, having two actions – C) Differentiation and D) Positioning
Lets understand the four basic terms of ‘Customer-Driven Marketing Strategy’:
A) MARKET SEGMENTATION: involves dividing a market into smaller groups of buyers with
distinct needs, characteristics, or behaviors that might require separate marketing strategies or mixes.
Through market segmentation, companies divide large, heterogeneous markets into smaller segments
that can be reached more efficiently and effectively with product and services that match their unique
needs.
B) MARKET TARGETING: is the process of evaluating each market segment’s attractiveness and
selecting one or more market segments to enter.
C) DIFFERENTIATION: involves actually differentiating the firm’s market offering to create
superior customer value.
D) POSITIONING: consists of arranging for a market offering to occupy a clear, distinctive, and
desirable place relative to competing products in the minds of target consumers.
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UNIT – III
BROAD CRITERIA or BASES FOR ‘MARKET SEGMENTATION’ ARE:
i) Business Markets; ii) International Markets; iii) Consumer Markets
[Note: Our main focus will be ‘Consumer Markets’]
i) BUSINESS MARKETS: Business buyers can be segmented geographically, demographically
(industry size and/or company size), or by benefits sought, user status, usage rate, loyalty status,
customer operating characteristics, purchasing approaches, situational factors and personal
characteristics. For example, Visa targets business at four merchant levels based on Visa transaction
volumes over a 12-month period.
ii) INTERNATIONAL MARKETS: Companies can segment international markets using one or a
combination of several variables i.e., geographic location, economic factors, political & legal factors,
and cultural factors. International segmentation assumes that segments should consist of clusters of
countries. For example, when Coca-Cola wants to target teens all over the world, it links itself with the
local pop music scene; such as Coke is the official sponsor of American Idol – the country’s number
one TV show. In the Arab world, Coke sponsors world tour of Nancy Ajram – the pop star.
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UNIT – III
iii) CONSUMER MARKETS: Bases for Consumer Market Segmentation: There is no single way to
segment a market. A marketer has to try different segmentation variables, alone and in combination, to
find the best way to view the market structure. Major variables that might be used in segmenting
consumer markets are: 1) Geographic; 2) Demographic; 3) Psychographic; 4) Behavioral; and 5)
Multiple Segmentation Bases.
1) Geographic Segmentation: calls for dividing the market into different geographical units such as
nations, regions, provinces, cities or even neighborhoods. Many companies today are localizing their
product, advertising, promotion and sales efforts. For example, Ice-cream maker Baskin Robbins
emphasizing local events and promotions close to its local store locations. On a global scale video
game companies create different versions of their games depending on the world regions in which the
game is sold.
2) Demographic Segmentation: divides the market into groups based on variables such as age, gender,
family size, family life cycle, income, occupation, education, religion, race, generation and nationality.
For example many companies target customers are based on age or life-cycle stage, say, babies,
children, adolescents, adults, middle-age and seniors. Clothing, cosmetics, toiletries, and magazines
have long been used gender as basis of segmenting their potential customers. For example, Galaxy
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UNIT – III
targeted women with its chocolate and emphasized that in its adverting campaigns. The marketers of
products and services such as automobiles, financial services and travel have long been used income as
basis of segmentation. For example, companies like Zain, Qtel, STC and Etisalat earn most of their
revenues from countries where the population is large with low income in the Arab world.
3) Psychographic Segmentation: divides buyers into different groups based on social class, lifestyle
or personality traits. For example, Sprite launched a new campaign called – ‘This is who I am….’
targeting teenagers who are independent and unique.
4) Behavioral Segmentation: divides buyers into groups based on their knowledge, attitudes, uses, or
responses to a product. It can be further divided into: a) Occasion Segmentation; b) Benefits sought;
c) User Status; d) Usage Rate; and e) Loyalty Status.
a) Occasion Segmentation can group buyers based on the occasion when they get the idea or
opportunity to buy and make their actual purchase and use the item(s). For example, at the times of
Ramadan in Arab world and Christmas in Western world.
b) Benefits segmentation: requires finding the major benefits people look for in the product class, the
kinds of people who look for each benefit, and the major brands that deliver each benefit. For example,
Champion athletic wear segments its markets based on benefits sought – some consumers seeking for
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UNIT – III
function & style, others seeking for performance, durability and value.
c) User Status: Markets can be segmented into non-users, ex-users, potential users, first-time users,
and regular users of a product. For example – products for newly-wed couples and new parents.
d) Usage Rate: Market can also be segmented into light, medium, and heavy product users. Heavy
users are often a small percentage of the market but account a high percentage of total consumption.
For example, Burger Kings’s have ‘super fans’ who eat burger at least 16 times a month.
e) Loyalty Status: A market can also be segmented by consumer loyalty. Some consumers are
completely loyal to brands (Apple), stores (Carrefour), and companies (Toyota). Others are somewhat
loyal – they are loyal to two-three brands at a time (mobile instruments) and still others show no
loyalty to any brand (toothpaste).
5) Multiple Segmentation Bases: Marketers often use multiple segmentation bases in an effort to
identify smaller, better-defined target groups. For example, a bank have various categories of
customers – wealthy businessman, retired group, investment risk taking, assets possessed, savings-
prone, and lifestyles.
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UNIT – III
‘MARKET TARGETING’ [Which customers will the company serve? ]
The firm now has to evaluate the various segments and decide how many and which segments it can
serve best. For this the company must take two steps:
1) Evaluating Market Segments; and then 2) Selecting Target Market Segments
1) Evaluating Market Segments: In evaluating different market segments, a firm must look a three
factors: segment size and growth, segment structural attractiveness, and company objectives and
resources. The company must first collect and analyze data on current segment sales, growth rates, and
expected profitability for various segments. The companies may target segments that are smaller and
less attractive but potentially more profitable for them. The company should also analyze the existence
of actual substitute products and relative bargaining power of the buyers as well as suppliers. And
finally the company has to evaluate its own available resources that the target segment would be
suitable to meet long term objectives or not.
2) Selecting Target Market Segment: After evaluating different segments, the company must decide
which and how many segments it will target. A target market consists of a set of buyers who share
common needs or characteristics that the company decides to serve. Companies can target
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UNIT – III
very broadly (mass-marketing or undifferentiated), vary narrowly (micromarketing), and somewhere in
between (differentiated or concentrated), as shown in following figure:
Choosing a targeting strategy depends on many factors such as company resources, degree of product
variability, product life-cycle stage, market variability, and competitor’s marketing strategies. Potential
market segments that can be targeted are:
a) Undifferentiated or Mass Marketing b) Differentiated or Segmented Marketing
c) Concentrated or Niche Marketing and d) Micro-Marketing (Local and Individual)
Let's understand it one by one:
a) Undifferentiated or Mass Marketing: A firm might decide to ignore market segment differences
and target the whole market with one offer. This mass-marketing strategy focuses on what is common
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UNIT – III
and not on what is different. The company designs a product and a marketing program that will appeal
to the largest number of buyers. For example, generic products such as steel, fruits, etc.
b) Differentiated or Segmented Marketing: A firm decides to target several market segments and
designs separate offers for each. For example, General Motors tries to produce a care for every ‘purse,
purpose, and personality’. Also, P&G markets its six different laundry detergent brands, which
compete with each other on supermarket shelves.
c) Concentrated or Niche Marketing: Instead of going after a small share of a large market, the firm
goes after a large share of one or a few smaller segments or niches. It can market more effectively by
fine-tuning its products, prices, and programs to the needs of carefully defined segments. For example,
Bindawood, a local supermarket chain in the KSA, has many stores in different areas in Mecca and
Madinah that target mainly the visitors of the holy sites.
d) Micro-Marketing (Local and Individual): Micromarketing is the practice of customizing the
offers, tailoring products and marketing programs to suit the tastes of specific individuals and
locations. Two types of micromarketing is possible: Local and Individual. Local micromarketing
involves tailoring brands and promotions to the needs and wants of local customer groups – cities,
neighborhoods, and even specific stores. For example, McDonald’s introduced a new sandwich,
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UNIT – III
McArabia, which suited the local culture and taste in the Arab world. And when a mobile phone
service company offers GPS devices. Individual micromarketing, tailors or customizes the product of
services as per the needs and wants of individual customer. Individual micromarketing is also said as
one-to-one marketing, mass customization and markets-of-one marketing. For example, visitors to
Nike’s NikeID website can personalize their sneakers by choosing from hundreds of colors.
Following is another way of segmenting the market(s):
2.A.) Selecting Target Market Segment through Patterns (Patterns of Market Segmentation):
i. Homogenous Preferences (Same culture, religion etc.)
ii. Diffused Preferences (Each customer has a different preference, dressing style, color etc.)
iii. Clustered Preferences (Group of customers have same preference, KAHVAA-kind of coffee
drink taken in Arab)
This figure is in the
Context Of Ice-Cream and
its level CREAMINESS.
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UNIT – III
DIFFERENTIATION AND POSITIONING:
After understanding the segmentation aspect of marketing strategy, now the next question is: How the
company will serve these market segments or target customers? The answer lies in first
differentiating the product (or services) and then positioning the product (or services) in the market.
Meaning of Positioning of a product: Product position is the way the product is defined by
consumers on important attributes – the place the product occupies in the consumer’s mind relative to
competing products. Products are created in the factory, but brands are created in the mind. A product’s
position is the complex set of perceptions, impressions, and feelings that consumers have for the
product compared with competing products. For example: At Subway restaurants, you “Eat Fresh”,
Mercedes and Cadillac are positioned on luxury and Porsche and BMW on performance. Volvo
positions itself powerfully on safety and Toyota as fuel-efficient.
How to choose a Differentiation and Positioning Strategy?
The differentiation and positioning task consists of three major steps:
A. Identifying Possible Value Differences and Competitive Advantages
B. Choosing the Right Competitive Advantages
C. Selecting on Overall Positioning Strategy
D. Developing a Positioning Statement 13

UNIT – III
Following figure shows POSITIONING MAP:
A. Identifying Possible Value Differences and Competitive Advantages:
Meaning of Competitive Advantage: An advantage over competitors gained by offering greater
customer value, either through lower prices or by providing more benefits that justify higher prices.
Say, if a company positions its product as offering the best quality and service, it must actually
differentiate the product so that it delivers the promised quality and service.
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UNIT – III
An alert company can find ways to differentiate itself at every customer-contact point. In what specific
ways can a company differentiate itself or its market offer? It can differentiate along the lines of
product, services, channels, people and image.
a) Product Differentiation: Brands can be differentiated on features, performance, or style and design.
For example: Panasonic positions its Toughbook PC, designed to stand up to rugged use on the road or
in the field.
b) Services Differentiation: Based on the services that accompany a product such as through speedy,
convenient, or careful delivery. For example, Al-Baraka Bank positions itself as, ‘the commercial
Islamic Bank – it offers retail, corporate and investment banking, treasury services which should abide
by the principles of Islamic Shari’a.’
c) Channel Differentiation: Firms that practice channel differentiation gains competitive advantage
through the way they design their channel’s coverage, expertise, and performance. For example,
Amazon’s direct channels of product sale and delivery.
d) People Differentiation: Through hiring and training people better then the competitors. Each
employee is carefully trained to understand customers and to ‘make people happy’. For example, flight
attendants of Singapore airlines are well trained in handling customer-contact carefully.
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UNIT – III
e) Image Differentiation: A company’s brand image should convey the product’s distinctive benefits
and positioning and this calls for creativity and hard work. For example, McDonald’s arches, and
Nike’s swoosh symbols. As Tiger Woods associated with golf products. Red color associated with
Coca-Cola and blue color associated with IBM.
B. Choosing the Right Competitive Advantages:
In the previous step we learnt that a competitive advantage can be created on the basis of
differentiation of product, services, channels, people or image. In this step, the question arises that
after discovering several potential differentiations, now the company must decide how many
differences to promote and which ones?
How many differences to promote and position? Some companies focus on promoting only one
differentiation benefit to the target market to be positioned. In the words of Rosser Reeves, it is said as
unique selling proposition (USP) and stick to it. For example, Wal-Mart promotes itself, ‘always low-
prices’ and Burger King promotes personal choice – ‘have it your way’. Whereas some companies
believe to position more than one benefits or attributes to appeal more segments. For example, S.C.
Jhonson introduced a new Pledge (offer) multi-surface cleaner. Known mainly as a brand for cleaning
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UNIT – III
and dusting wood furniture, the new Pledge (offer) is positioned as a cleaner that works on wood ,
electronics, glass, marble, stainless steel and other surfaces.
Which differences to promote and position? Not all brand differences are meaningful but each
difference has the potential to create company costs as well as customer benefit(s). A difference is
worth establishing to the extent that it satisfies the following criteria:
a) Important: The difference delivers a highly valued benefit to target buyers.
b) Distinctive: Competitors do not offer the difference, or the company can offer it in a more
distinctive way.
c) Superior: The difference is superior to other ways that customers might obtain the same benefit.
d) Communicable: The difference is communicable and visible to buyers.
e) Preemptive: Competitors cannot easily copy the difference.
f) Affordable: Buyers can afford to pay for the difference.
g) Profitable: The company can introduce the difference profitably.
C. Selecting on Overall Positioning Strategy (or Types of Positioning): The full positioning of a
brand is called the brand’s value proposition (offer) – the full mix of benefits upon which the brand is
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UNIT – III
differentiated and positioned. It is the answer to the customer’s question “Why should I buy your
brand?”. For example, Volvo’s value proposition hinges on safety but also includes reliability,
roominess and styling, all for a price that a higher than average but seems fair for this mix of benefits.
There are five possible value propositions (types of positioning strategies) upon which a company
might position its products: i) More for More; ii) More for Same; iii) The Same for Less; iv) Less for
Much Less; and v) More for Less.
i) More for More: ‘More-for-more’ positioning involves providing the most upscale product or service
and charging a higher price to cover the higher costs. For example, Mercedes automobiles – each
claims superior quality, craftsmanship, durability, performance, or style and charges a price to match.
It also gives prestige to the buyers.
ii) More for Same: Companies can attack a competitors more-for-more positioning by introducing a
brand offering comparable quality but at a lower price. For example, Toyota introduced its Lexus line
with a ‘more-for-the-same’ value proposition versus Mercedes and BMW.
iii) The Same for Less: Everyone likes a good deal, meaning that companies do not claim to offer
different or better products. Instead they offer many of the same brands but at deep discounts. For
example, many supermarkets and hypermarkets (like Carrefour) offer heavy discounts based on low-
cost operations. 18

UNIT – III
iv) Less for Much Less: There are always products existing in the market that offer less and therefore
costs less for the customers. In many cases, consumers gladly settle for less than optimal performance
or give up some of the extra features in exchange for a lower price. For example, Nokia has a series of
mobile phones with limited features for lower prices targeting consumers who are not willing to pay
for features they will not use.
v) More for Less: This is one of the winning value proposition to offer ‘more-for-less’ as the consumer
increase his consumption. For example, several mobile operators have build consumption segments
where the more minutes a user consumes talking on the phone, the cheaper each minute becomes. Say,
for a one-day unlimited usage, the user pays US$5.4 per day but for a week usage, he pays US$3.6 per
day and so on.
This figure shows five green cells representing
winning value propositions – that gives the company
a competitive advantage from its positioning strategy.
the red cells represent losing value propositions. And
the center yellow cell represents at best a marginal
proposition.
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UNIT – III
D. Developing a Positioning Statement:
Company and brand positioning should be summed up in a positioning statement. The
statement should follow the form: To (target segment and need) our (brand) is (concept) that (point-of-
difference). For example, ‘To busy mobile professionals who need to always be in the loop,
BlackBerry is a wireless connectivity solution that gives you an easier, more reliable way to stay
connected to data, people, and resources while on the go.’ Placing a brand in a specific category
suggests similarities that it might share with other products in the category. But the case for the brand’s
superiority is made on its points of difference.
TYPES OF POSITIONING ERRORS (four types):
Under Positioning; Over Positioning; Confused Positioning; and Doubtful Positioning.
1) Under Positioning: Failure to present a strong central benefit or reason to buy the product. It
occurs when customers cannot readily identify the brand or brand features. For example: a Solar
Lamp.
2) Over Positioning: Marketers makes the product too special, so the potential customer group
becomes too small. It means that buyers believe that the product is meant for a very select
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UNIT – III
audience because it is premium prices. For example, Aqua-Sure for clean water.
3) Confused Positioning: By claiming two or more benefits that contradict each other. Too many
benefits or claims, or when the brand attempts to position in too many segments. For example, NeXT
computers.
4) Doubtful Positioning: Claiming a benefit that customers will doubt that the brand can actually
deliver. For example, Fair and Handsome – fairness cream for male.
HERE ENDS UNIT-III
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