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REV: APRIL 17, 2006

MODULE NOTE

Market Segmentation, Target Market Selection, and
Positioning
As described in the “Note on Marketing Strategy” (HBS No. 598-061), after the marketing analysis
phase, the next stage in the marketing process consists of the following three steps:
•

Market segmentation

•

Target market selection

•

Positioning

These steps are theprerequisites for designing a successful marketing strategy. They allow the
firm to focus its efforts on the right customers and also provide the organizing force for the
marketing-mix elements. Product positioning, in particular, provides the synergy among the four Ps
(product, price, place, and promotion) of the marketing plan.
This note elaborates on each of the three steps.

MarketSegmentation
Market segmentation consists of dividing the market into groups of (potential) customers—called
market segments—with distinct characteristics, behaviors, or needs. The aim is to cluster customers
in groups that clearly differ from one another but show a great deal of homogeneity within the
group. As such, compared with a large, heterogeneous market, those segments can be served moreefficiently and effectively with products that match their needs.
It is important that the segments are sufficiently different from one another. In addition, it is
critical that the segmentation is based on one or more customer characteristics relevant to the firm’s
marketing effort. A thorough analysis of the customers is essential in that regard. We can distinguish
two (related) types ofsegmentation:
•

Segmentation based on benefits sought by customers

•

Segmentation based on observable characteristics of customers

In an ideal scenario, marketers will typically want to segment customers based on the benefits
they seek from a particular product. That is, they will try to group customers based on their needs.
Take the example of nonprescription drugs treating pain,inflammation, and fever. Market research
________________________________________________________________________________________________________________
Professor Miklos Sarvary wrote the original version of this note (“Market Segmentation, Target Market Selection, and Product Positioning,”
HBS No. 501-018). This version was prepared by Professors Miklos Sarvary and Anita Elberse.
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Module Note—Market Segmentation, Target Market Selection, and Positioning

has revealed that people evaluate these drugs along two dimensions: effectiveness and gentleness.
There are two basic segments, each valuing one of these dimensions more than the other. Thus, there
is one segment thatprefers an effective drug even if it has side effects, while the other segment
prefers a less effective drug provided that it is gentler, that is, without side effects. The two segments
represent benefit segments in that they are based on differences in consumers’ preferences or needs.
In practice, marketers tend to delineate segments based on some observable characteristics. Most
often, marketersuse consumer demographics (such as gender, age, and income), consumers’
geographic location, their lifestyles, or behavioral characteristics (such as usage occasions) to create
segments. The motivation is clear. Segments created in such a way are easy to identify and address
with a marketing message. It is important to realize, however, that such segmentation only works to
the extent that it...