Chapter 6: Identifying Market Segments and Target Customers

IPMX Marketing Management — Comprehensive Study Notes

📌 Chapter Overview

Opening Case: Taj Hotels — Lost market leadership to Marriott, threatened by Airbnb/OYO among millennials. Response: multi-brand segmentation strategy (Taj Palaces, SeleQtions, Vivanta, Ginger, amã Stays & Trails), digital infrastructure, Taj.Live social listening. Result: #1 Strongest Global Hotel Brand (Brand Finance, 2021).

This chapter answers the most fundamental question in marketing strategy: Who are our customers? and Which ones should we prioritize?

Effective targeting requires three steps:

1. Segment → Identify distinct buyer groups
2. Target → Select which segments to serve
3. Position → Design the right value proposition (covered in Ch. 7)

🧠 Key Concepts

What is Targeting?

Targeting = The process of identifying customers for whom the company will optimize its offering.

It reflects a deliberate choice: which customers to prioritize AND which to ignore.

🔷 Framework 1: The Logic of Targeting

Professor Insight (Session #11): "Brand competition is same-category rivalry. Form competition is different-category, same-need competition. Strategic priority = track STRONG competitors, not just close ones."

🔷 Framework 2: Strategic vs Tactical Targeting

STRATEGIC TARGETING                    TACTICAL TARGETING
─────────────────────────────────     ─────────────────────────────
WHO to serve (and who to ignore)       HOW to reach them
Focus on VALUE creation                Focus on COMMUNICATION & DELIVERY
Answer: "Can we satisfy them better?" Answer: "How do we find/reach them?"
Uses: Target Compatibility +           Uses: Customer Profile (4 factors)
      Target Attractiveness            

Strategic Targeting: 2 Key Criteria

A) Target Compatibility — Can we create superior value for them? Resources needed:

• Business infrastructure (manufacturing, CRM, supply chain)
• Scarce resources (locations, domains, patents)
• Skilled employees (R&D, technology, consulting)
• Technological expertise
• Strong brands
• Collaborator networks

Core Competency must be: (1) source of competitive advantage, (2) applicable across many markets, (3) difficult to imitate.

B) Target Attractiveness — Can they create value for us?

⚠ Common Mistake: Companies focus only on monetary value — missing the strategic value of influential customers who may generate zero direct revenue but enormous indirect impact.

🔷 Framework 3: Tactical Targeting — The Customer Profile

Four observable characteristics used to REACH strategically chosen customers:

B2B Firmographics: Size, organizational structure, industry, growth rate, revenues, profitability.

Session #12 Insight: "TAM = total target population × avg revenue/person/year. SAM = reachable portion given constraints. SOM = realistic capture with competition factored in. TAM ≠ SAM when distribution/regulation constrains reach."

🔷 Framework 4: The 5 Targeting Criteria (MADAP)

A good target segment must be:

🔷 Framework 5: Personas

Persona = A detailed, humanized profile of one hypothetical target customer.

Segment Profile (group-level) → drives sizing, targeting, marketing mix Persona (individual-level) → drives messaging, UX, sales enablement

Session #12 Example: Best Buy built 5 personas for GeekSquad.com:

• Jill (suburban mom), Charlie (curious 50+), Daryl (tech experimenter), Luis (time-pressed SME owner), Nick (prospective agent)

🔷 Framework 6: Single vs Multi-Segment Targeting

Single Segment (Concentrated)

• Niche: Small, distinct need; premium pricing; low competition
• Example: Allegiant Air (leisure flyers from small cities to vacation spots; avoided competition on 100+ routes)
• Niche characteristics: Distinct needs + premium acceptance + small but profitable + few competitors + specialization economies

Multi-Segment (Selective Specialization)

• Select multiple attractive segments; may lack synergy between them
• Example: P&G's Crest Whitestrips targeted newly engaged women AND gay males

Product Specialization

• One product → multiple segments (e.g., microscope maker serving university, government, commercial labs)

Market Specialization

• Multiple products → one segment (e.g., Hallmark serving greeting card buyers across all occasions)

📊 Segmentation Variables

Consumer Markets

Demographic Segmentation

• Age/Generation: Silent Gen → Baby Boomers → Gen X → Millennials (1982-2000) → Gen Z (2001+)
• Life Stage: Going through divorce, second marriage, elderly parent care, new home purchase
• Gender: Gillette Venus razor (designed from scratch for women's shaving needs — 9× more shaving surface, 30 grip changes per session)
• Income: Indian ISEC system (SEC predecessor) — Occupation × Education levels → 12 ISEC classes → 5 categories (High/Upper Middle/Middle/Lower Middle/Low)

Geographic Segmentation

• National/regional/city/neighborhood
• Geoclustering: PRIZM Perimeter (68 segments by demographics + behavior)
• Example: Yelp.com — targets "local-searchers" by geography, generates revenue through geo-targeted ads

Behavioral Segmentation

Psychographic Segmentation

• VALS Framework: 8 groups based on primary motivation (Ideals/Achievement/Self-Expression) × Resources (High/Low)
• LGBT segment: ~7% of US population; $917B buying power; 75% would switch to LGBT-friendly brands

Business Markets (B2B)

Case: Timken (bearings manufacturer) — Analyzed customer profitability; shifted away from auto industry into aerospace/defense; maintained premium pricing for profitable customers, redirected unprofitable ones to competitors. Result: record revenue despite recession.

💡 Key Insight: Long Tail Theory

Chris Anderson's theory: E-commerce shifts demand from "head" (hits) to "tail" (niches). The 80/20 rule evolves toward 50/50 as more niche products become viable online.

Critical view: Not every market transforms. High production complexity industries (auto, aircraft) still rely on mass-produced offerings. Poor recommendation systems can make long-tail products impossible to find.

❌ Common Mistakes

1. Segmenting without benefit sought — Creates descriptive profiles, not actionable strategy
2. Confusing "close" with "strong" competitors — A close competitor can be weak; a distant one can be strong (Session #11: Camera/smartphone example)
3. Targeting "attractive" segments you can't reach — Distribution constraints can be decisive (solar lantern rural example from Session #12)
4. Multi-segment confusion — Not differentiating offerings enough; segments compete for same customers
5. Focusing only on monetary value — Missing strategic value (social influence, scale, information)
6. Demographic-only segmentation — Ignoring benefit sought; Honda Element targeting 21-year-olds attracted Baby Boomers

🏢 Real-World Examples

📋 Quick Revision

The 3-step process:

1. Segment → divide heterogeneous market into homogeneous groups
2. Target → apply MADAP criteria; check compatibility AND attractiveness
3. Position → design value proposition (Chapter 7)

Strategic targeting: Target Compatibility + Target Attractiveness Tactical targeting: Effectiveness (reach all target customers) + Cost Efficiency (don't waste on non-targets)

Segmentation types: Geographic | Demographic | Behavioral | Psychographic "Benefit sought" is mandatory in any segmentation scheme — it ties the segment to your value proposition.

🎯 Self-Quiz Questions

1. What is the difference between strategic and tactical targeting?
2. A close competitor can be weak. Explain why with an example.
3. What makes a target segment "attractive" beyond monetary value?
4. Why must "benefit sought" always be included in segmentation?
5. Distinguish between market, product, and selective specialization strategies.
6. Using MADAP, evaluate whether Gen Z health-conscious urban Indians are a viable segment for a premium protein bar brand.
7. What is the difference between TAM, SAM, and SOM? When does TAM ≈ SAM?

🧪 Exam Tips

• Always include "benefit sought" when writing any segmentation — examiners specifically check for this.
• POP/POD language: Be clear about what differentiates vs what qualifies (this connects Chapters 6-7).
• For case questions: Structure answer as: (1) Identify segments with profile + benefit, (2) Apply MADAP, (3) Recommend target with justification.
• Never say "all customers" — this signals you haven't done real targeting.
• Connect segmentation → marketing mix: Show how segment choice changes product/price/promotion/place decisions.

⚡ Exam Tips from Session Notes

From Session #11 (Professor's emphasis):

"Segmentation is a STRATEGIC choice, not a descriptive exercise. The market is heterogeneous; strategy requires choosing homogeneous segments."

From Session #12 (Professor's emphasis):

"Benefits sought must anchor segmentation. A segment profile without benefit is just customer profiling — it can't translate to a value proposition."

Key nuance for exams:

"Accessibility can DOMINATE attractiveness. A highly attractive rural segment may be hard to reach — distribution strategy becomes the real bottleneck."