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Credit Sprint's Guide to Marketing Unit 5: Segmentation, Targeting and Positioning

CLEP® weight 10%

No product is right for everyone. Segmentation divides a market into groups, targeting chooses which groups to serve, and positioning fixes the place the product holds in buyers' minds. These three steps connect research to the marketing mix.

Segmentation, targeting and positioning1 Segmentdivide the market 2 Targetchoose segments 3 Positionown a place in minds Then build a marketing mix for the targetBases: geographic · demographic · psychographic · behavioral

What you need to know

  • A market is people or organizations with needs, money to spend and willingness to buy. Market segmentation divides a heterogeneous market into smaller groups with similar needs.
  • Bases for segmenting consumer markets: geographic (region, climate, urban or rural), demographic (age, gender, income, family size), psychographic (lifestyle, values, personality) and behavioral (usage rate, benefits sought, loyalty, occasion).
  • A useful segment is measurable, accessible, substantial (large enough to be profitable) and responsive (differentiable and actionable).
  • Targeting strategies: undifferentiated (mass marketing, one mix), differentiated (several segments, a mix for each), concentrated or niche (one segment), and micromarketing or customization (individuals or local groups).
  • Benefit segmentation groups people by the benefit they want, such as toothpaste for cavities, whitening or fresh breath.
  • The 80/20 rule: a small share of customers (heavy users) often produces most of the sales. Usage-rate segmentation targets them.
  • Positioning is the place a product occupies in customers' minds relative to competitors. A perceptual map plots brands on two attributes, such as price and quality, to reveal gaps.
  • Positioning strategies: by attribute, by price and quality, by use or application, by user, against a competitor, by product class, and by cultural symbol.
  • A unique selling proposition (USP) is the distinctive benefit that sets a brand apart. Repositioning changes how buyers see an existing product.
  • Market potential is the maximum possible sales for an industry. A sales forecast estimates what one firm will sell. Market share is the firm's portion of actual industry sales.
  • Product differentiation tries to make the product seem different; segmentation tries to match a product to a group. A firm can use both.

Formulas and rules

Market share = company sales ÷ industry sales × 100
Sales forecast ≤ market potential
Segment usefulness = measurable + accessible + substantial + responsive

Exam traps

Watch forTargeting chooses the segment; positioning chooses the image within it.
Watch forPsychographics are about lifestyle and values, not demographics like age or income.
Watch forA niche strategy is concentrated marketing: one segment, not 'no segmentation.'
Watch forUndifferentiated marketing ignores segment differences; it is the opposite of segmentation.

Key terms

  • Market segmentation: Dividing a market into groups with similar needs.
  • Geographic segmentation: Segmenting by region, climate, city size or density.
  • Demographic segmentation: Segmenting by age, gender, income, family size or education.
  • Psychographic segmentation: Segmenting by lifestyle, values and personality.
  • Behavioral segmentation: Segmenting by usage, benefits sought, loyalty or occasion.
  • Benefit segmentation: Grouping buyers by the benefit they want.
  • Undifferentiated marketing: One marketing mix for the whole market.
  • Differentiated marketing: A different mix for each of several segments.
  • Concentrated marketing: Focusing on one segment, often a niche.
  • Micromarketing: Tailoring offers to individuals or small local groups.
  • Positioning: The place a product holds in buyers' minds relative to competitors.
  • Perceptual map: A chart plotting brands on two attributes to show positions and gaps.
  • Unique selling proposition (USP): The distinctive benefit that sets a brand apart.
  • Repositioning: Changing how buyers see an existing product.
  • Market potential: The maximum possible sales for all sellers in a market.
  • Sales forecast: An estimate of one firm's sales for a period.
  • Market share: A firm's sales as a percent of industry sales.
  • Heavy users: A small group of buyers who account for a large share of sales (the 80/20 rule).

Practice questions

Five of the 48 Unit 5 questions in Credit Sprint. Every choice is explained in the app.

1. Dividing a market into groups of buyers with similar needs is called
  1. market segmentation
  2. market penetration
  3. market positioning
  4. market development
Show answer

market segmentation. Segmentation breaks a heterogeneous market into smaller groups.

2. A toothpaste firm identifies groups that want cavity protection, whiter teeth or fresh breath. This is
  1. geographic segmentation
  2. undifferentiated marketing
  3. demographic segmentation
  4. benefit segmentation
Show answer

benefit segmentation. Groups are defined by the benefits they seek.

3. Tailoring offers to individual customers or small local groups is known as
  1. market development
  2. micromarketing
  3. mass marketing
  4. price discrimination
Show answer

micromarketing. Very fine segmentation.

4. On a perceptual map of price and quality, a large empty space in the high-quality, low-price corner might suggest
  1. that the market is saturated
  2. that quality does not matter
  3. a possible positioning opportunity
  4. that the firm should exit
Show answer

a possible positioning opportunity. A gap may signal an unmet need, or no market.

5. Market potential is
  1. industry profit
  2. a firm's market share
  3. a firm's sales forecast
  4. the maximum possible sales for an entire industry
Show answer

the maximum possible sales for an entire industry. It is the upper limit for all sellers.