What is Market Segmentation? Basis, Types, Steps, Target

What is Market Segmentation?

Market segmentation means how the organisation divides customer into the smaller group which is relatively similar and identifiable. The main purpose of the marketing segmentation is to meet the needs of the one or more specific segments.

Table of Content

Identifiable : Differentiating attributes of segments must be measurable so that they can be identified

Accessible : The segments must be reachable through communication and distribution channels.

Substantial : The segments should be sufficiently large to justify resources required to target them.

Unique needs : Justify separate offering, segments must respond differently to different marketing mixes.

Durable : the segments should be relatively stable to minimize the cost of frequent changes.

Segmentation, Targeting and Positioning (STP) is an approach that you can use to identify your most valuable market segments, and then sell to them successfully with carefully targeted products and marketing. We will also study growth and various competitive strategies.

Every product has its life. Industrial goods may have a longer life than consumer goods. When a product is commercialised, the product enters into the market and competes with the rivals, for making sales and earning profits.

Basis of Market Segment


The world market is basically divided into two parts i.e. Male and Female on the basis of gender. As preference of both male and female are different, so marketer needs different strategies for both. E.gs. : Cosmetic, Apparel, Jewellery Industries.

Age Group

The choice and preference change according to age.For E.g. Teenagers likes fashionable cloth, whereas the adult like simple and sober clothes.


There exist various income groups of people in the society. Their choice and preference varies on the basis of the income they earn. The ones that fall under high income, prefer to purchase a branded product and live a very lavish life. Whereas, the ones who earn mid income may not be able to afford the branded things. Marketers has to keep both type of customers in mind while defining their strategies.

Marital Status

Bachelor has different preference and married couple have different choice. For E.g. : Travel Packages for both status will be different.


According to the occupation, the preference also differs. People in Blue Collar job and White Collar job have different choices for the clothes. Office goers and school children have different choices.

Types of Market Segmentation


Division of the market is on the basis of region or area. People residing in two different region have different choice. Marketers have to design strategy keeping two different areas in mind.

For E.g. : McDonald’s in India do not sell beef products as it is against the religious beliefs of the majority of the countrymen, whereas in US it freely sells and promotes beef products.


The basis of segmentation is done on the basis of social class, lifestyle, or personality. Eg., Women making heavy use of Credit Card are said to be leading an active lifestyle.


The segmentation is done on the basis of how loyal customer is towards brand. Eg., Airline travellers can be segregated by offering them cards – blue, silver, gold etc.

Steps in Market Segmentation

Select a Market/Identify the target market

In this step, Market and should be identified. It may be the market in which the firm already competes, a new but related market or a totally new one. The marketers must be very clear to whom they should includ in a segment, making sure the individuals have something in common.

Identify the expectations of Target Audience

In this step it is essential to find out the needs of the target audience. The marketers interacts with the target audience in order to identify the needs, demand and interest.

Create Subgroups

Once the target market is identified create a subgroup within the group. For E.g., In India girls between 20–25 years focus more on fairness creams and lotions, whereas girls between 25 to 35 years are keen to reduce the signs of ageing Marketers will have to have cosmetics for both the categories.

Review the needs of the target audience

It is essential for the marketer to review the needs and preferences of individuals in each segment and sub–segment. The consumers of a particular segment must respond to similar fluctuations in the market and similar marketing strategies.

Name your market Segment

In this step, marketer should give proper name to each segment, which helps to implement strategy easily.

Marketing Strategies

Relevant strategies should be devised in order to promote brands amongst each segment. Same Strategies cannot be used for all the segments. Marketer should make sure that there is a connect between the product and the audience.

Review the Behavior

Marketer should keep on reviewing the behavior of the target audience as the needs keep on changing and individual would not have same requirement throughout the year.

Size of the Target Market

It is essential to know the target market size. Collect necessary data for the same. It helps in saler planning and forecasting.

Target Market

Target market is set of buyers who have share common needs or characteristics that the company decides to serve. After the firm has identified its market segment opportunities, it must decide how many and which buyers to target. A firm can adopt any one strategy from the following.

Undifferentiated Marketing

In this strategy, whole market is considered ignoring the market segment. Here the firm will design a product and programe that will appeal to the whole market. The focus is on the common needs of the whole market. Most modern marketers have doubts about this strategy.

Differentiated Marketing

In this strategy, firm decides to target several markets and design separate offers for each. For E.g. : Maruti Car Caters to every “purse, purpose and personality”. Most of teh firms firm adopt differentiated marketing.

Concentrated Marketing

A concentrated marketing strategy goes after the large share of one or a few submarkets. This strategy is very appealing when the firm have limited resources. In single segment, it can concentrate on understanding the needs, motives, and satisfactions of that segments members and on developing and maintaining a highly specialized marketing mix.

E.g., the manufacturer of Rolex watches chose to concentrate on the luxury segment of the watch market.


Positioning can be defined as the place occupied in consumers mind regarding the firm’s product(s) or brand(s), distinguishing on the basis of products attributes. Positioning can also be defined as the act of designing a company’s offering and image to occupy a distinctive place in the mind of the target market. The goal is to place the brand in the.

For example

A handbag maker may position its brand as a luxury status symbol

  • A car maker may position itself as fuel efficient and innovative design.
  • A hotel may position itself as the provider of economy room with free breakfast.

A well–positioned brand should be distinctive in its meaning and execution. A good positioning should also keep future positioning in mind. Marketer should define and communicate similarities and differences between their brand and its competitors.

For creating Effective Positioning Strategies following steps are to be followed.

  • Identifing Competitors
  • Analysing Competitors
  • Identifying Potential Points of Difference and Points of Parity
  • Brand Mantra

Identify Competitors

In this step identify who all are your competitors. A Product or set of product that brand competes and function as close substitutes.

For example

Pepsi–Co and Coca–Cola, Star buck and Café Coffee Day.

Analysing Competitors

In this step companies needs to gather information about each competitor and their strengths and weaknesses.

Identifying Potential Point of Differentiation, Point of Parity (POP) and Point of Association :

Points of differentiation

Are the attributes that make your brand unique. It is your brand’s value proposition, its competitive advantage. The points of differentiation are the reasons why consumers should choose your brand over competition. These attributes must be consistently reflected in the brand slogan, and advertising.

The attributes or benefits that consumers strongly associate with a brand, and evaluate that they could not find the same attributes in a competitive brand are the points of differentiation.

Points of Parity (POP)

Points of parity are the “must–haves” of any brand to be considered a legitimate competitor in its category. Points of parity are the reasons consumers add your brand to the list of alternatives for consideration. The attributes or benefits are not necessarily unique to the brand but may in fact be shared with other brands.

The Point of Association

The Point of Association comes in three basic forms Category, Correlation, and Competitive Point of Parity.

Category POP

Category means attributes and benefits that consumers view as essential to a legitimate and credible offering within a certain product or service category. Eg., Consumer might not consider a travel agency truly “a travel agency” unless it is able to give the entire package of air and hotel reservations, as will as advice about leisure packages, and ticket payment options.

Correlation POP

Are potentially negative associations that arise from the existence of positive associations for the brand. If your brand is good in one feature, such as being inexpensive, consumers cannot see it as also good at other thing, like being of “the highest quality”. Warranty coverage beyond the typical 3 years, at no extra cost is another example of correlation POP.

Competitive POP

Are associations designed to overcome perceived weaknesses of the brand in light of competitor point of difference. Eg., Alloy wheels provided for better fuel average in car vs. the better average giving engines offered by competitors.

Case 1

A split air conditioner for residence purpose, Brand 1 is a world leader. Brand 2 is a new entrant. Brand 2 should ensure that it positions itself firstly to the category POP to be considered by consumers for purchase. Usage of Cooper coiled condensers used to be a Point of Difference for ACs and the top manufactures used to boast it as a POD.

It is now become mandatory for the category. Your brand will be out of Consideration list from the customer if you do not have copper coil in your condenser. So, as a brand you should be aware of what is the minimum POP’s required in a category to make yourself relevant in the category. When entering a category or segment make sure that the product is positioned on the category POP’s first.

Case 2

Competitive POPs are designed to negate a competitor’s Point of Difference. Many brands have, for example, the problem that their offer is perceived as inferior in quality in comparison to the competition. In the 90s, Hyundai built cars of low quality. When the quality problem was resolved around ten years later, the customers continued to forgo the brand, as the image of poor quality.

It took Hyundai years, but eventually with different communication programs using a variety of channels, the company succeeded to communicate the new level of quality and could catch up in this point with the competition. The quality was at least perceived as good enough to draw attention to PODs, such as price, design, gas mileage and warranty.

Brand Mantra

A brand mantra is three to four words that encapsulate the entire positioning platform (the competitive frame of reference, the Points of Difference, the Points of Parity) and everything else about your brand into one thought. The purpose of the brand mantra is to ensure that all stockholders understand what the brand most fundamentally represent, so all can adjust their actions accordingly.

Dr. Kevin Keller has shared his favorite brand mantras which are as :

Nike Authentic Athletic Performance

One of the best brand mantras of all time was developed by Nike’s marketing guru Scott Bed-bury in the late 1980s (he later become Starbucks’ marketing guru). Bed bury coined the phrase “brand mantra”. It did everything you would want a brand to do–kept the Nike brand on track, differentiated the brand from its main competitor at that time (Reebok), and genuinely inspired Nike employees.

Disney : Fun Family Entertainment

dding the word “Magical” would have probably made it even better, but this brand mantra–also created in the late 1980s–was crucial in ensuring the powerful Disney marketing machine didn’t overextend the brand. Establishing an office of brand management at that same time with a mission to “inform and enforce” the brand mantra gave it real teeth.

Ritz–Carlton : Ladies & Gentlemen Serving Ladies & Gentlemen

The Ritz–Carlton brand mantra has a clear internal and external message, especially important consideration for services brands. It is simple but univ-universally applicable in all that Ritz–Carlton does and highly aspirational.

BMW : Ultimate Driving Machine

BMW’s brand mantra is noteworthy in two ways. One, it reveals the power of a straddle branding strategy by combining two seemingly incompatible sets of attributes or benefits. When launched in North America, there were cars that offered either luxury or performance, but not both. Two, it is also good example of how a brand mantra can be used as a slogan if its descriptive nature is compelling enough.

Designing a Brand Mantra

There are three criteria for designing a brand mantra


A good brand mantra should clarify what is unique about the brand, defined categories of business for brand, and set the brand boundaries.

Simplify : Brand Mantra should be crisp, short and vivid.

Inspire : Brand Mantra should be meaningful and relevant to as many employees as possible.

Steps to Product Positioning

Following are the steps which marketers have to follow in order to create a unique identity of the product or services in the mind of customers.

Identify your target audience

In this step marketer need to identify the target audience to understand their needs and preference. What is the customer expectation from you ?

Identify the product features

Marketer must be aware of the product and service benefit and features then only they can sell the product and service efficiently. If one is convinced with the product than he will have more confidence to sell. If a marketer is using Apple iPhone then be can sell it with more confidence as he is fully aware about the product.

Unique Selling Propositions

The organisations must create USPs of their brands and effectively communicate the same to the target audience.

Let see few examples

Anti–Dandruff Shampoo : People purchase this particular type shampoo to get rid of dandruff. This is how the product is positioned in the minds of the individuals.

Dabur Chyawanprash

To strengthen their body’s internal defense mechanism and fight against germs, infections and stress.” That’s the image of Dabur Chyawanprash in the minds of consumers. It is very important for the marketer to communicate the USP to the audience by advertising, slogans, hoardings etc.

Know your competitors

Marketer must know who are their competitors, and what they are offering ? How different is your product than the competitor’s ? Marketer must also try to distinguish their product from their competitors, without underestimating then, and observing them regularly.

Ways to promote brands

There are several ways through which brands can be promoted. Marketer must select right theme, catchy taglines, and highlight the benefits of the products.

Maintain the position of the brand

Marketer must fulfill the expectation of the consumer. It must never compromise on quality or drastically fluctuage the price of products.

Competition and Driving Growth

Growth is an important function of marketing which drive growth in sales and revenue for a company.

Phil and Milton Kotler stress the following strategies

  • Grow by building your market share.

  • Grow by developing committed customers and stakeholders.

  • Grow by building a powerful brand.

  • Grow by innovating new products, services, and experiences.

  • Grow by international expansion.

  • Grow by acquisitions, mergers, and alliances.

  • Grow by building an outstanding reputation for social responsibility.

  • Grow by partnering with government and NGOs

Growing the Core

Means focusing on their most successful existing products and markets. It can be less risky alternative than expansion into new product categories. Marketing Guru David Taylor advocates three main strategies.

  • Make the core of the brand as distinctive as possible
  • Drive distribution through both existing and new channels
  • Offer the core product in new formats or versions.

Almost every firm is seeking success by focusing on their core business. Growth Strategies are not necessarily “either/or” propositions. A focus on core business does not mean foregoing new market opportunities.

Competitive Strategy for Market Leaders

Expanding Total Market Demand : When the total market expands, the dominant firm usually gains the most. In general, the market leader should look for new customers or more usage from existing customers.

New Customers

A company can search for new user among three groups : those who might use it but do not (market penetration strategy), those who have never used it (new market segment strategy) or those who live elsewhere (geographical–expansion strategy). In targeting new customers, the firm should not lose sight of existing ones.

More Usage

Marketer can try to increase the amount, level, or frequency of consumption. They can sometimes boost the amount through packaging or product redesign. Larger package sizes increase the amount of product consumers use at one time.

Consumers use more of impulse products such as soft drinks and snacks when the product is more available

Another Opportunities to use the brand

Marketer Programme can communicate the appropriateness and advantage of using the brand. Provide consumers with better information about when they first used the product or need to replace it or gauge of the current level of product performance.

New ways to use the brand

This approach to increasing frequency of consumption is to identify completely new and different applications.

Protecting Market Share

While trying to expand total market size, the dominant firm must actively defend its current business. Most constructive response is continuous innovation. The front runner should lead the industry in developing new products and customer services, distribution effectiveness and cost cutting.

Comprehensive solutions increase competitive strength and value to customers so they feel appreciative or even privileged to be a customer as opposed to feeling trapped or taken advantage of.

Proactive Marketing

To satisfy customer needs, a distinction can be drawn between : Responsive Marketing, Anticipative Marketing and Creative Marketing.

Responsive Marketing

A responsive marketer finds a stated need and fills it.

Anticipative Marketing

A anticipative marketer looks ahead to needs customers may have in near future.

Creative Marketing

A creative marketer discovers solutions customers did not ask for but to which they enthusiastically respond. Creative marketers are the proactive market driving firms, not just market driven ones. These Proactive Companies create new offers to serve ‘unmet’ or even ‘unknown–to–consumer’ needs.

Defensive Marketing

The aim of defensive strategy is to reduce the probability of attack, divert attacks to less–threatened areas, and lessen their intensity. A leader would like to do anything it legally and ethically can to reduce competitors’ ability to launch a new product, secure distribution, and customer awareness, trial and repeat.

A dominant firm can make use of the six defense strategies. Decision about which strategy to adopt will depend in part on the company’s resources and goals and its expectations about how competitors will react.

Position Defense

means occupying the most desirable position in consumers mind, making the brand almost impregnable

Flank Defense

The market leader should erect outposts to protect a weak front or support a possible counter attack.

Pre–emptive Defense

A more aggressive manoeuvre is to attack first, perhaps with guerrilla action across the market–hitting one competitor here, another there–and keeping everyone off balance. Another is to achieve broad market envelopment that signals competitors not to attack.

Counteroffensive defense

Is the exercise of economic or political clout. The leader may try to crush a competitor by subsidizing lower prices for a vulnerable product with revenue from its more profitable product, or it may prematurely announce a product upgrade to prevent customers from buying the competitors product.

Mobile defense

In mobile defense, the leader stretches its domain over new territories through market broadening and market diversification. Market broadening shifts the company’s focus from the current product to the underlying generic need. Market diversification shifts the company’s focus into unrelated industries.

Contraction defense

Sometimes large companies can no longer defend all their territory. In planned contraction they give up weaker markets and reassign resources to stronger ones.

Increasing Market Share

Increased share does not automatically produce higher profits, however–especially for a labour–intensive company that may not experience many economies of scale.

Much depends on the company strategy. Because the cost of buying higher market share through acquisition may far exceed its revenue value, a company should consider four factors first.

  • The possibility of provoking antitrust action
  • Economic cost
  • The danger of pursuing the wrong marketing activities
  • The effect of increased market share on actual and perceived quality

Other Competitive Strategies

Firm can attack the leader and other competitors in an aggressive bid for further market share as market challengers, or they can choose to not “rock the boat” as market followers Market Challenger Strategies : Many market challengers have gained ground or even overtaken the leader.

Challenger set high aspirations, while market leaders can fall prey to running business as usual. Challenger can also tap into public perceptions that they are the underdog Let’s examine the competitive attack strategies available to them.

Defining the strategic objective and opponents

A market challenger must first define its strategic objective, which is usually to increase market share. It then must decide whom to attack.

  • It can attack the market leader
  • It can attack firms its own size that are not doing the job and are under-financed.
  • It can attack small local and regional firms
  • It can attack the status quo

Choosing a General Attack Strategy

Frontal Attack

The attacker matches its opponent’s product, advertising, price and distribution. The principle of force says that the side with the greater resources will win. A modified frontal attack, such as cutting price, can work if the market leader doesn’t retaliate and if the competitor convinces the market its product is equal to the leaders.

Flank Attack

A flanking strategy is another name for identifying shifts that cause gaps to develop in the market, then rushing to fill the gaps. Flanking is particularly attractive to a challenger with fewer resources and can be more likely to succeed than frontal attacks. Another Flanking strategy is to uncover the market needs.

Encirclement Attack

Encirclement attempts to capture a wide slice of territory by launching a grand offensive on several fronts. It makes sense when the challenger commands superior resources.

Bypass Attack

By passing the enemy altogether to attack easier markets instead offers three lines of approach : diversifying into unrelated products, diversifying into new geographical markets and leapfrogging into new technologies.

In technological leapfrogging, the challenger patiently researches and develops the next technology, shifting the battleground to its own territory where it has an advantage.

Guerrilla Attack

Consist of small, intermittent attack, conventional and unconventional, including selective price cut, intense promotional blitzes, and occasional legal action, to harass the opponent and eventually secure permanent footholds. A guerrilla campaign can be expensive, though less so than a frontal, encirclement or flank attack, but it typically must be backed by a stronger attack to beat the opponent.

Choosing a Specific Attack Strategy

Any aspect of the marketing program can serve as the basis for attack – such as – lower–priced or discounted products, new or improved products and services, wider variety of offerings, and innovative distribution strategies.

A Challenger’s success depends on combining several, more specific strategies to improve its position over time. Once successful, a challenger brand must retain a challenger’s mentality even if it becomes a market leader, highlighting the way it does things differently.

Market Follower Strategies

According to the Theodore Levitt, strategy of product imitation might be as profitable as a strategy of product innovation. In “innovative imitation”, the innovator bears the expense of developing the new product, getting it into distribution and informing and educating the market.

The reward for all this work and risk is normally market leadership. However, another firm can come along and copy or improve on the new product. Although it may not overtake the leader, the follower can achieve high profits because it did not bear any of the innovation expense.

Many companies prefer to follow rather than challenge the market leader. Market follower should hold current customers and win a fair share of new ones. Each follower tries to bring distinctive advantages to its target market–location, services, financing– while defensively keeping its manufacturing cost low and its product quality and service high. It must enter into new markets as they open up.

Followers must define a growth path, but one that doesn’t invite competitive retaliation. We distinguish into three broad categories.


Cloner emulates the leader’s products, name, and packaging with slight variations. Eg., timesjobs. com is an imitator of naukri. com, but then timesjobs. com has its own unique product characteristics as well.


Copies something from the leader but differentiates on packaging, advertising, pricing, or location. The leader doesn’t mind as long as the imitator doesn’t attack aggressively. Eg., Tata Sky brought digital TV revolution to India but was soon imitated by Airtel and Reliance.


The adapter takes the leader’s products and adapts or improves them. The adapter may choose to sell to different markets, but often it grows into a future challenger. Eg., Cars like Maruti 800, Alto, Zen, Brio, are adapters and they adapt the best qualities from each other by changing the style of the automobile.


The best example of counterfeiting is selling the originals via piracy. The best example is DVD’s and CD’s of music and movies.

Market –Nichers’ Strategies

An alternative to being a follower in a large market is to be a leader in a small or niche market. Smaller firms normally avoid competing with larger firms by targeting small markets of little or no interest to the larger firms.

Firms with low shares of total market can become highly profitable through smart niching.They know their target customers so well they can meet their needs better than other firms by offering high value.

They can also charge premium price, achieve lower manufacturing costs, and shape a strong corporate culture and vision. The nicher achieves high margin, whereas the mass marketer achieves high volume.

Nichers have three tasks : Creating niches, expanding niches, and protecting niches. The risk is that the niche might dry up or attacked. The company is then stuck with highly specialized resources that may not have high– value alternative uses. Because the niche can weaken, the firm must continually create new ones.


What is Market Segmentation?

Market segmentation means how the organisation divides customer into the smaller group which is relatively similar and identifiable. The main purpose of the marketing segmentation is to meet the needs of the one or more specific segments.

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