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Chapter 6 Customer-Driven Marketing Strategy: Creating Value for Target Customers CHAPTER 6 CUSTOMER-DRIVEN MARKETING STRATEGY: CREATING VALUE FOR TARGET CUSTOMERS PREVIEWING THE CONCEPTS – CHAPTER OBJECTIVES 1. Define the major steps in designing a customer-driven marketing strategy: market segmentation, market targeting, differentiation, and positioning. 2. List and discuss the major bases for segmenting consumer and business markets. 3. Explain how companies identify attractive market segments and choose a market-targeting strategy. 4. Discuss how companies differentiate and position their products for maximum competitive advantage. JUST THE BASICS CHAPTER OVERVIEW This chapter looks further into key customer-driven marketing strategy decisions—how to divide up markets into meaningful customer groups (segmentation), choose which customer groups to serve (targeting), create market offerings that best serve targeted customers (differentiation), and position the offerings in the minds of consumers (positioning). Then, the chapters that follow explore the tactical marketing tools—the Four Ps—by which marketers bring these strategies to life. ANNOTATED CHAPTER NOTES/OUTLINE FIRST STOP Copyright © 2015 Pearson Education, Inc. 6-1

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Page 1: Customer-Driven Marketing Strategy : Creating Value for Target Customers

Chapter 6 Customer-Driven Marketing Strategy: Creating Value for Target Customers

CHAPTER 6CUSTOMER-DRIVEN MARKETING STRATEGY: CREATING VALUE FOR TARGET

CUSTOMERS

PREVIEWING THE CONCEPTS – CHAPTER OBJECTIVES

1. Define the major steps in designing a customer-driven marketing strategy: market segmentation, market targeting, differentiation, and positioning.

2. List and discuss the major bases for segmenting consumer and business markets.

3. Explain how companies identify attractive market segments and choose a market-targeting strategy.

4. Discuss how companies differentiate and position their products for maximum competitive advantage.

JUST THE BASICS

CHAPTER OVERVIEW

This chapter looks further into key customer-driven marketing strategy decisions—how to divide up markets into meaningful customer groups (segmentation), choose which customer groups to serve (targeting), create market offerings that best serve targeted customers (differentiation), and position the offerings in the minds of consumers (positioning).

Then, the chapters that follow explore the tactical marketing tools—the Four Ps—by which marketers bring these strategies to life.

ANNOTATED CHAPTER NOTES/OUTLINE

FIRST STOP

P&G: Competing with Itself—and Winning

Proctor & Gamble is the world’s premier consumer products company.

P&G invented brand management, and few companies do it better.

Interestingly, many of the P&G brands compete directly with each other on the same supermarket shelves.

Why would P&G introduce several brands in one category instead of concentrating its resources on a single leading brand? The answer lies in the concepts of segmentation and positioning.

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Part 3 Designing a Customer-Driven Strategy and MixP&G’s brands and sub-brands do compete head to head in the crowded detergents market. But thanks to careful market segmentation and positioning, P&G has something special to offer consumers in each important preference group.

By competing with itself, P&G wins!

Use Chapter Objective 1 here.Use Figure 6.1 here.

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.

Market targeting (or targeting) consists of evaluating each market segment’s attractiveness and selecting one or more market segments to enter.

Use Key Terms Market Segmentation and Market Targeting (Targeting) here.

Differentiation involves actually differentiating the firm’s market offering to create superior customer value.

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.

Use Key Terms Differentiation and Positioning here.Use Discussion Question 6-1 here.

MARKET SEGMENTATION

Through market segmentation, companies divide large, heterogeneous markets into smaller segments that can be reached more efficiently and effectively with products and services that match their unique needs.

Use Chapter Objective 2 here.

Segmenting Consumer Markets

Table 6.1 outlines the major variables that might be used in segmenting consumer markets.

Use Key Term Geographic Segmentation here.Use Table 6.1 here.

Use Discussion Question 6-2 here.

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Chapter 6 Customer-Driven Marketing Strategy: Creating Value for Target CustomersGeographic Segmentation

Geographic segmentation calls for dividing the market into different geographical units such as nations, regions, states, counties, cities, or even neighborhoods.

Demographic Segmentation

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.

Demographic factors are the most popular bases for segmenting customer groups.

Use Key Term Demographic Segmentation here.

With age and life-cycle segmentation, firms offer different products or use different marketing approaches for different age and life-cycle groups.

Gender segmentation has long been used in clothing, cosmetics, toiletries, and magazines.

Income segmentation has long been used by the marketers of products and services such as automobiles, clothing, cosmetics, financial services, and travel.

Psychographic Segmentation

Psychographic segmentation divides buyers into different groups based on social class, lifestyle, or personality characteristics.

Marketers use personality variables to segment markets.

Use Key Terms Age and Life-Cycle Segmentation, Gender Segmentation, Income Segmentation, and Psychographic Segmentation here.

Use Marketing at Work 6.1 here.

Behavioral Segmentation

Use Key Term Behavioral Segmentation here.

Behavioral segmentation divides buyers into groups based on their knowledge, attitudes, uses, or responses concerning a product.

Occasion segmentation involves grouping buyers according to occasions when they get the idea to buy, actually make their purchase, or use the purchased item.

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Benefit segmentation is grouping buyers according to the different benefits that they seek from the product.

Use Key Terms Benefit Segmentation and Occasion Segmentation here.

User status refers to segmenting markets into nonusers, ex-users, potential users, first-time users, and regular users of a product.

Usage rate involves grouping markets into light, medium, and heavy product users.

Loyalty status is dividing buyers into groups according to their degree of loyalty.

Use Critical Thinking Exercise 6-7 here.

Using Multiple Segmentation Bases

Marketers rarely limit their segmentation analysis to only one or a few variables.

PRIZM (one of the leading segmentation systems) classifies every American household based on a host of demographic factors.

Segmenting Business Markets

Consumer and business marketers use many of the same variables to segment their markets.

Business marketers also use some additional variables, such as customer operating characteristics, purchasing approaches, situational factors, and personal characteristics.

Segmenting International Markets

Companies can segment international markets using one or a combination of several variables.

Geographic factors: Nations close to one another will have many common traits and behaviors.

Economic factors: Countries may be grouped by population income levels or by their overall level of economic development.

Political and legal factors: Type and stability of government, receptivity to foreign firms, monetary regulations, and the amount of bureaucracy should be considered.

Cultural factors: Markets can be grouped according to common languages, religions, values and attitudes, customs, and behavioral patterns.

Intermarket segmentation is segmenting consumers who have similar needs and buying

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Chapter 6 Customer-Driven Marketing Strategy: Creating Value for Target Customersbehaviors even though they are located in different countries.

Use Discussion Question 6-3 here.Use Online, Mobile, and Social Media Marketing here.

Use Key Term Intermarket (cross-market) Segmentation here.

Requirements for Effective Segmentation

To be useful, market segments must be:

Measurable: The size, purchasing power, and profiles of the segments can be measured.

Accessible: The market segments can be effectively reached and served.

Substantial: The market segments are large or profitable enough to serve.

Differentiable: The segments are conceptually distinguishable and respond differently to different marketing mix elements and programs.

Actionable: Effective programs can be designed for attracting and serving the segments.

Use Linking the Concepts here.Use Marketing by the Numbers here.

MARKET TARGETING

Evaluating Market Segments

In evaluating different market segments, a firm must look at three factors:

1. Segment size and growth, 2. Segment structural attractiveness, and 3. Company objectives and resources.

The largest, fastest-growing segments are not always the most attractive ones for every company.

The company also needs to examine major structural factors that affect long-run segment attractiveness.

A segment is less attractive if it already contains many strong and aggressive competitors.

The existence of many actual or potential substitute products may limit prices and the

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Part 3 Designing a Customer-Driven Strategy and Mixprofits.

The relative power of buyers also affects segment attractiveness. A segment may be less attractive if it contains powerful suppliers who can control prices.

Selecting Target Market Segments

A target market consists of a set of buyers who share common needs or characteristics that the company decides to serve. (Figure 6.2)

Use Figure 6.2 here.Use Key Term Target Market here.

Use Critical Thinking Exercise 6-8 here.

Undifferentiated Marketing

Using an undifferentiated marketing (or mass-marketing) strategy, 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 in the needs of consumers rather than on what is different.

Differentiated Marketing

Using a differentiated marketing (or segmented marketing) strategy, a firm decides to target several market segments and designs separate offers for each.

Concentrated Marketing

When using a concentrated marketing (or niche marketing) strategy, 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.

It can market more efficiently, targeting its products or services, channels, and communications programs toward only consumers that it can serve best and most profitably.

Use Key Terms Undifferentiated (Mass) Marketing, Differentiated (Segmented) Marketing, and Concentrated (Niche) Marketing here.

Use Discussion Question 6-4 here.

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Chapter 6 Customer-Driven Marketing Strategy: Creating Value for Target Customers

Micromarketing

Micromarketing is the practice of tailoring products and marketing programs to suit the tastes of specific individuals and locations.

Micromarketing includes local marketing and individual marketing.

Local marketing involves tailoring brands and promotions to the needs and wants of local customer groups—cities, neighborhoods, and even specific stores.

Local marketing has drawbacks.

It can drive up manufacturing and marketing costs by reducing economies of scale. It can create logistics problems. The brand’s overall image might be diluted if the product and message vary too much in

different localities.

Use Marketing at Work 6.2 here.

Individual marketing is the tailoring of products and marketing programs to the needs and preferences of individual customers.

Individual marketing has also been labeled one-to-one marketing, mass customization, and markets-of-one marketing.

Use Discussion Question 6-4 here.Use Key Terms Micromarketing, Local Marketing, and Individual Marketing here.

Choosing a Targeting Strategy

Which strategy is best depends on:

Company resources; Product variability; Product’s life-cycle stage; Market variability; and Competitors’ marketing strategies.

Socially Responsible Target Marketing

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Part 3 Designing a Customer-Driven Strategy and MixTarget marketing sometimes generates controversy and concern. Issues usually involve the targeting of vulnerable or disadvantaged consumers with controversial or potentially harmful products.

Problems arise when marketing adult products to kids, whether intentionally or unintentionally.

The growth of the Internet and other carefully targeted direct media has raised concerns about potential targeting abuses.

The issue is not so much who is targeted, but how and for what. Controversies arise when marketers attempt to profit when they unfairly target vulnerable segments or target them with questionable products or tactics.

Socially responsible marketing calls for segmentation and targeting that serve not just the interests of the company, but also the interests of those targeted.

Use Linking the Concepts 2 here.Use Marketing Ethics here.

DIFFERENTIATION AND POSITIONING

Value proposition: How a company will create differentiated value for targeted segments and what positions it wants to occupy in those segments.

A product’s position is the way the product is defined by consumers on important attributes.

Use Key Term Product Position here.Use Chapter Objective 4 here.

Use Discussion Question 6-5 here.

Positioning Maps

Perceptual positioning maps show consumer perceptions of their brands versus competing products on important buying dimensions.

Choosing a Differentiation and Positioning Strategy

The differentiation and positioning task consists of three steps:

1. Identifying a set of differentiating competitive advantages upon which to build a position,

2. Choosing the right competitive advantages, and 3. Selecting an overall positioning strategy.

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Chapter 6 Customer-Driven Marketing Strategy: Creating Value for Target Customers

Use Figure 6.3 here.Use Key Term Competitive Advantage here.

1. Identifying Possible Value Differences and Competitive Advantages

To the extent that a company can differentiate and position itself as providing superior customer value, it gains competitive advantage.

It can differentiate along the lines of product, services, channels, people, or image.

2. Choosing the Right Competitive Advantages

How Many Differences to Promote

Ad man Rosser Reeves believes a company should develop a unique selling proposition (USP) for each brand and stick to it.

Other marketers think that companies should position themselves on more than one differentiator.

Which Differences to Promote

A difference is worth establishing to the extent that it satisfies the following criteria:

Important: The difference delivers a highly valued benefit to target buyers.

Distinctive: Competitors do not offer the difference, or the company can offer it in a more distinctive way.

Superior: The difference is superior to other ways that customers might obtain the same benefit.

Communicable: The difference is communicable and visible to buyers.

Preemptive: Competitors cannot easily copy the difference.

Affordable: Buyers can afford to pay for the difference.

Profitable: The company can introduce the difference profitably.

3. Selecting an Overall Positioning Strategy

The full positioning of a brand is called the brand’s value proposition. (See Figure 6.4)

Use Figure 6.4 here.

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Use Key Term Value Proposition here.Use Critical Thinking Exercise 6-9 here.

More for More positioning involves providing the most upscale product or service and charging a higher price to cover the higher costs.

More for the Same positioning involves introducing a brand offering comparable quality but at a lower price.

The Same for Less positioning can be a powerful value proposition—everyone likes a good deal.

Less for Much Less positioning is offering products that offer less and therefore cost less.

“Less-for-much-less” positioning involves meeting consumers’ lower performance or quality requirements at a much lower price.

More for Less positioning is the winning value proposition.

In the long run, companies will find it very difficult to sustain such best-of-both positioning.

Use Discussion Question 6-6 here.

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).

Communicating and Delivering the Chosen Position

Once it has chosen a position, the company must take strong steps to deliver and communicate the desired position to target consumers. All the company’s marketing mix efforts must support the positioning strategy.

Use Key Term Positioning Statement here.

END OF CHAPTER MATERIAL

Discussion and Critical Thinking

Discussion Questions

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Chapter 6 Customer-Driven Marketing Strategy: Creating Value for Target Customers6-1 How does market segmentation differ from market targeting? (AACSB: Written and oral

communication)

Answer:

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. The company identifies different ways to segment the market and develops profiles of the resulting market segments. Market targeting (or targeting) consists of evaluating each market segment’s attractiveness and selecting one or more market segments to enter.

6-2 How can marketers use behavioral segmentation in consumer markets? Discuss, using an example for each method of behavioral segmentation. (AACSB: Written and oral communication; Reflective thinking)

Answer:

Behavioral segmentation divides buyers into segments based on their knowledge, attitudes, uses, or responses concerning a product. Many marketers believe that behavior variables are the best starting point for building market segments. Behavioral segmentation uses the following to segment consumers:

Occasion segmentation: Buyers can be grouped according to occasions when they get the idea to buy, actually make their purchase, or use the purchased item. For example, flowers are often purchased for Valentine’s gifts.

Benefit segmentation requires finding the major benefits people look for in a product class, the kinds of people who look for each benefit, and the major brands that deliver each benefit. For example, some consumers buy on price while others seek quality.

User Status:  Markets can be segmented into nonusers, ex-users, potential users, first-time users, and regular users of a product. Marketers want to reinforce and retain regular users, attract targeted nonusers, and reinvigorate relationships with ex-users.

Usage Rate:  Markets can also be segmented into light, medium, and heavy product users. Heavy users are often a small percentage of the market but account for a high percentage of total consumption.

Loyalty Status:  Some consumers are completely loyal—they buy one brand all the time and can’t wait to tell others about it. Other consumers are somewhat loyal—they are loyal to two or three brands of a given product or favor one brand while sometimes buying others. Still other buyers show no loyalty to any brand—they either want something different each time they buy, or they buy whatever’s on sale.

6-3 Compare and contrast consumer market segmentation and business market segmentation. (AACSB: Written and oral communication)

Answer:

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Consumer and business marketers use many of the same variables to segment their markets. Business buyers can be segmented geographically, demographically (industry, company size), or by benefits sought, user status, usage rate, and loyalty status. Yet, business marketers also use some additional variables, such as customer operating characteristics, purchasing approaches, situational factors, and personal characteristics.

6-4 How do marketers use local marketing and individual marketing? Do these terms mean the same thing? (AACSB: Written and oral communication; Reflective thinking)

Answer:

Local marketing and individual marketing are both applications of micromarketing, which is the practice of tailoring products and marketing programs to suit the tastes of specific individuals and locations. Local marketing involves tailoring brands and promotions to the needs and wants of local customer groups—cities, neighborhoods, and even specific stores. In the extreme, micromarketing becomes individual marketing—tailoring products and marketing programs to the needs and preferences of individual customers. Individual marketing has also been labeled one-to-one marketing, mass customization, and markets-of-one marketing. Therefore, local marketing focuses on tailoring offerings to geographic locations, whereas individual marketing focuses on individuals irrespective of where they are located.

6-5 How can a company gain competitive advantage through differentiation? Describe an example of a company that illustrates each type of differentiation discussed in the chapter. (AACSB: Written and oral communication)

Answer:

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. It can differentiate along the lines of product, services, channels, people, or image. Through product differentiation, brands can be differentiated on features, performance, or style and design. Beyond differentiating its physical product, a firm can also differentiate the services that accompany the product. Some companies gain services differentiation through speedy, convenient, or careful delivery. Firms that practice channel differentiation gain competitive advantage through the way they design their channel’s coverage, expertise, and performance. Companies can also gain a strong competitive advantage through people differentiation—hiring and training better people than their competitors do. Even when competing offers look the same, buyers may perceive a difference based on company or brand image differentiation. A company or brand image should convey a product’s distinctive benefits and positioning. Developing a strong and distinctive image calls for creativity and hard work.

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Chapter 6 Customer-Driven Marketing Strategy: Creating Value for Target Customers

6-6 Discuss the criteria that should be evaluated in determining which differences a company should promote in its products. (AACSB: Written and oral communication)

Answer:

A difference is worth establishing to the extent that it satisfies the following criteria:• Important: The difference delivers a highly valued benefit to target buyers.• Distinctive: Competitors do not offer the difference, or the company can offer it in a

more distinctive way.• Superior: The difference is superior to other ways that customers might obtain the same

benefit.• Communicable: The difference is communicable and visible to buyers.• Preemptive: Competitors cannot easily copy the difference.• Affordable: Buyers can afford to pay for the difference.• Profitable: The company can introduce the difference profitably.

Critical Thinking Exercises

6-7 Advertisers use market segmentation when promoting products to consumers. For each major consumer segmentation variable, find an example of a print ad that appears to be based on that variable. For each ad, identify the target market and explain why you think the advertiser is using the segmentation variable you identified for that ad. (AACSB: Written and oral communication; Reflective thinking)

Answer:

Student’s examples will vary. Most will realize, however, that marketers often use multiple segmentation bases, merging geographic, demographic, lifestyle, and behavioral aspects.

6-8 Perceptual positioning maps are useful for showing consumer perceptions of brands in a product category. Search the Internet for guides on creating perceptual maps and create a map of your perceptions of brands in a product category of your choice. How can the brand you perceived least favorably improve? (AACSB: Written and oral communication; Reflective thinking)

Answer:

Students should be able to find examples of and directions for creating perceptual maps. For example, www.segmentationstudyguide.com/understanding-perceptual-maps/a-step-by-step-guide-to-constructing-a-perceptual-map/ provides a useful step-by-step approach for creating perceptual maps. This site even provides a free Excel spreadsheet for download, but students can create a map without the software following the steps given.

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Part 3 Designing a Customer-Driven Strategy and Mix

6-9 In a small group, create an idea for a new business. Using the steps described in the chapter, develop a customer-driven marketing strategy. Describe your strategy and conclude with a positioning statement for this business. (AACSB: Written and oral communication; Reflective thinking)

Answer:

Figure 6.1 shows the four major steps in designing a customer-driven marketing strategy. Students should identify the target market for their business and identify the competitive advantage. That is, what does their business offer that others do not? A difference is worth establishing and promoting to the extent that it is important, distinctive, superior, communicable, preemptive, affordable, and profitable. Once value differences and competitive advantages are identified, the positioning statement should follow the form: To (target segment and need) our (brand—business in this case) is (concept) that (point of difference).

Minicases and Applications

Online, Mobile, and Social Media Marketing: Google Glass

Consumers enjoy having Google’s search power at their fingertips, but if things go as planned, they’ll have that Google power right before their very eyes, no fingers necessary. “Augmented reality”—the ability to project information in front of our eyes—is now being used in commercial and military operations. For example, the U.S. Air Force uses it to display weapons information in fighter pilot helmets. However, the technology has yet to take off in the consumer market. That’s because the required headgear has been uncomfortable, unattractive, and expensive. But Google is peering into the future and has tentative plans to sell its Google Glass device to consumers in 2013. The sleek wraparound glasses place a single lens above a person’s right eye that displays digital information that can be voice and gesture controlled. Connecting the device to a smartphone opens up a world of possibilities. The only product close to Google’s glass currently on the consumer market is a GPS device that skiers and snowboarders insert into goggles that displays speed information.

6-10 Research “augmented reality” on the Internet. Discuss the most appropriate variables for segmenting the consumer market for products based on this technology. Explain why those variables are appropriate. (AACSB: Written and oral communication; Reflective thinking)

Answer:

Students’ answers will vary. They should be able to find ample information on augmented reality. An interesting video to show in class can be found at www.youtube.com/watch?

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Chapter 6 Customer-Driven Marketing Strategy: Creating Value for Target Customersv=Vb2uojqKvFM depicting what consumers will be able to do with Google Glass.

Behavioral segmentation and lifestyle segmentation appear most appropriate for segmenting the consumer market for this type of product. Behavioral segmentation could be based on benefits sought, such as greater access to information or connection with friends. Lifestyle segmentation could be based on sports or cultural interests.

Marketing Ethics: K.G.O.Y.

K.G.O.Y. stands for “kids getting older younger,” and marketers are getting much of the blame. Kids today see all types of messages, especially on the Internet, that they would never have seen in the past. Whereas boys may give up their G.I. Joe’s at an earlier age to play war games on their xBox 360s, the greater controversy seems to surround claims of how girls have changed, or rather, how marketers have changed girls. Critics describe clothing designed for young girls aged 8-11 as “floozy” and sexual, with department stores selling youngsters thongs and T-shirts that say “Naughty Girl!” Although Barbie’s sexuality has never been subtle, she was originally targeted to girls 9-12 years old. Now, Barbie dolls target primarily 3-7 year old girls! And Barbie’s competitor, Bratz dolls, has an “in-your-face” attitude that has some parents complaining that they are too sexual.

6-11 Do you think marketers are to blame for kids getting older younger? Give some other examples that could support marketing’s responsibility in K.G.O.Y. (AACSB: Written and oral communication; Ethical understanding and reasoning)

Answer:

Many students will probably agree that marketers are at least partly to blame for this phenomenon. However, parents are usually involved in the purchase of these products and are allowing them to happen, so some students may argue that parents are to blame. Others may argue it’s the media’s fault. Other examples of kids growing older younger include kids with iPods, iPhones, iPads, laptop computers, and televisions in their rooms.

6-12 Give an example of a company that is countering this trend by offering age-appropriate products for children. (AACSB: Written and oral communication; Reflective thinking)

Answer:

One example that stands out is the American Girl company (www.americangirl.com). This company offers several dolls for girls 8-12 years old that are historically-based. The dolls offered come from different eras and cultures. There are books, games, clothing for both dolls and girls, and a store that provides a wholesome experience for young girls. Kit Kittredge: An American Girl was a tremendously successful G-rated movie.

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Part 3 Designing a Customer-Driven Strategy and MixMarketing by the Numbers: Man’s Furry Friends

Americans love their pets, with 62 percent of households spending more than $50 billion on them last year. You may have one or more furry, feathery, or scaly friends yourself, so you know how much money you spend each year. Marketers need to know that information to estimate the size of a potential market segment, and past market sales are often used as a baseline to estimate next year’s market sales. The National Pet Products Manufacturers Association (NPPMA) conducts a yearly survey of pet owners that provides useful information for estimating market size and potential.

6-13 Refer to Appendix 3: Marketing by the Numbers and use the information available from the NPPMA survey (www.americanpetproducts.org/press_industrytrends.asp) to develop an estimate of the market potential for dog food in the United States. Do the same for cat food. (AACSB: Written and oral communication; Information technology; Analytical thinking)

Answer:

This practical method described in Appendix 3 for estimating total market demand uses three variables:

a) number of prospective buyersb) quantity purchased by an average buyer per yearc) price of an average unit

Market demand can be determined as follows:

Q = n q p

where

Q = total market demand n = number of buyers in the marketq = quantity purchased by an average buyer per yearp = price of an average unit

In the NPPMA survey, the number of households (HHS) owning various types of pets and the annual expenditures for food for these animals are given. The amount spent on food incorporates the q x p element of the equation above. So, based on the 2011-2012 NPPMA survey the market potential estimates for food in the dog and cat markets are:

Qdogs = number HHS owning dogs x annual expenditures on dog food per HHS

= 46.3 million x $254 per HHS = $11,760,200,000

Qcats = number HHS owning dogs x annual expenditures on dog food per HHS

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Chapter 6 Customer-Driven Marketing Strategy: Creating Value for Target Customers

= 38.9 million x $220 per HHS = $8,558,000,000

6-14 Evaluate the usefulness of these market segments. (AACSB: Written and oral communication; Information technology; Reflective thinking)

Answer:To be useful, market segments must be:

Measurable: The size, purchasing power, and profiles of the segments can be measured.

Accessible: The market segments can be effectively reached and served.

Substantial: The market segments are large or profitable enough to serve. A segment should be the largest possible homogenous group worth pursuing with a tailored marketing program.

Differentiable: The segments are conceptually distinguishable and respond differently to different marketing mix elements and programs.

Actionable: Effective programs can be designed for attracting and serving the segments.

Students will probably agree that both the dog and cat market segments are very viable market segments. Data are available to measure them, and they appear to be substantial segments with market potentials of almost $12 billion and $9 billion, respectively. Dog and cat owners are certainly accessible through media and distribution channels. These segments of consumers respond differently than consumers not owning pets.

Video Case Teaching Notes

Video Case Chapter 6 – Boston Harbor Cruises

Running timeIntro: 1:33Problem: 1:55Solution: 2:58Total: 6:27

Video Summary

Since 1926, Boston Harbor Cruises has been providing customers with memorable experiences on ocean-going vessels in and around the Boston area. But these days, the term “cruise” has different meanings to a four-generation family business. To thrive in strong economic times and

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Part 3 Designing a Customer-Driven Strategy and Mixin bad, Boston Harbor Cruises has progressively targeted various types of customers with its different boats and different services.

Sight-seeing trips around Boston Harbor, whale-watching tours, fast ferry service to Cape Cod, dinner and wedding cruises, and a high-speed thrill ride are among Boston Harbor Cruises offerings. It even offers commuter services and offshore construction support. Targeting this diverse customer base has become even more challenging as Boston Harbor Cruises has further differentiated the market into local customers, domestic vacationers, and international travelers.

Questions and Answers

6-15 On what main variables had Boston Harbor Cruises focused in segmenting its markets? Initially, Boston Harbor approached the market from a “local” perspective. It had many different cruise services for various customer segments. And it certainly catered to customer differences with those different services (commuter ferries, whale watching tours, thrill rides, historic tours, dinner tours). But it considered all those customers as “local” in that they all came to Boston and used the service there. This is evident in how Alison Nolan tells of the company’s former practice of advertising in the Boston yellow pages and Boston newspapers, and by putting promotional materials in Boston hotels.

6-16 Which target-marketing strategy best describes the efforts of Boston Harbor Cruises? Support your choice.Differentiated – Boston Harbor Cruises clearly “targets several market segments and designs separate offers for each.” Boston Harbor Cruises has taken this to a new level by recognizing the differences between locals, U.S. tourists, and international tourists.

6-17 How does Boston Harbor Cruises use the concepts of differentiation and positioning to build relationships with the right customers?Boston Harbor Cruises has identified different customer segments. It has also identified the unique needs of those segments. It should be noted and discussed that Boston Harbor Cruises has identified how fluctuations in the economy affect consumer needs. As the largest private fleet of ocean going vessels, Boston Harbor Cruises has a lot of boats that serve a lot of purposes. It has catered these services to the needs of different customers.

The biggest way that Boston Harbor Cruises has changed its positioning strategy is by adjusting its promotional strategy. In down times, it knows that it has a better market among international travelers. As a result, it has increased both online efforts and the budget for foreign travel partners.

Teaching Ideas

This video begins with an introductory segment, followed by a problem segment, and ends with a solution segment. The intention here is to provide flexibility and multiple options for using the

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Chapter 6 Customer-Driven Marketing Strategy: Creating Value for Target Customersvideo. The following are some of the ways that instructors may utilize these three video segments.

1. Introduction only - Instructors may choose to use the introduction segment alone as a means of highlighting the company. As a stand-alone video, the introduction segment supplements material in many of the chapters of the text. The introduction of this video makes it very clear that Boston Harbor Cruises targets various customer segments with different services.

2. Problem challenge - The instructor may show the problem segment, either with or without the introduction segment, and with or without the solution segment. This may be done in the interest of time. It may also be done strategically. An ideal way to challenge students is to require them to develop possible solutions to the presented problem before they have seen the solution segment. The instructor then has the option of whether or not to show the solution segment. This solution segment identifies the effects of the economy on the demand emanating from different customer segments.

3. Solution only – This may be done to illustrate a specific concept in the chapter. Rather than taking the time to perform a problem/solution exercise, the solution segment may be shown to demonstrate how a company overcame a specific problem. Boston Harbor Cruises has made a very simply shift – allocate promotional dollars to the segments where demand is greatest.

Company Case Teaching Notes

Cases appropriate for this chapter include: Case 6, Dove: Building Customer Relationships Everywhere, One Gender at a Time

(Synopsis, Discussion Questions, and Teaching Notes below) Case 7, Zipcar: “It’s Not about Cars—It’s about Urban Life” (see IM Chapter 7 for

instructor material) Case 11, Dollar General: Today’s Hottest Retailing Format (see IM Chapter 11 for

instructor material)

Dove: Building Customer Relationships Everywhere, One Gender at a Time

Synopsis

Can a brand long known for selling personal care products to women succeed in selling the same types of products to men? Dove is succeeding in doing just that. Through a very calculated process of segmentation and targeting, Dove has drawn on the equity of its core brand in establishing Men+Care, a sub-brand that is anything but feminine. In doing so, Dove is educating men on the importance of taking better care of their skin, hair, and bodies. This story illustrates how employing gender and other segmentation variables has allowed Dove to narrow in on a segment of consumers that were previously not candidates for its products.

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Part 3 Designing a Customer-Driven Strategy and MixTeaching Objectives

The teaching objectives for this case are to:

1. Provide a practical application for possible ways that companies can segment markets. 2. Underscore the difference between segmentation and targeting. 3. Show the importance of establishing a positioning for a brand that is consistent with a

targeting strategy. 4. Illustrate that established brands can reinvent themselves through modifications to a

targeting strategy.

Discussion Questions

1. Using the full spectrum of segmentation variables, describe how Dove segments and targets the market for personal care products. Gender – First and foremost, Dove has recognized that personal care products aren’t only for women. With this recognition, the market has been opened up to a huge group of potential customers. Age – Axe targets young men, and Dove targets men in the age range of 25 to 64.

These are the two most overt factors mentioned in the case that Dove uses to segment and target the market for personal care products. Others can be considered. For example, income (it is very unlikely that low-income men would spend money on such products, and high-income men may be going after more luxury brands), geography (by country), or lifestyle (men more concerned about fashion and conspicuous consumption would be more likely to purchase such products).

2. Which market targeting strategy is Dove following? Justify your answer. The strongest case can be made for “differentiated” as a targeting strategy. If Dove were using an undifferentiated strategy, they’d be making soaps, deodorants, and other personal care products that meet the basic needs of all customers everywhere (one brand, one line). If they were following a concentrated strategy, they’d be a more niche oriented brand, finely focused on a very small segment of the market. However, it is clear that by starting with gender, they are looking at two huge segments and going after both of them. Then, based on other factors, they are narrowing that targeting somewhat. There does not appear to be much support for micromarketing or individual marketing.

3. Write a positioning statement for Dove Men+Care. A response to this question should consider Figure 6.4 from the text as a general guide. It would seem that with Men+Care, Dove is claiming to offer more benefits than the types of products that men might normally consider. While pricing is debatable, it would also seem that the average price for Men+Care products is at least moderately higher than for the basic, low-price products most men consider. Thus, Dove is following a

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Chapter 6 Customer-Driven Marketing Strategy: Creating Value for Target Customersmore-for-more strategy.

Students may come up with various positioning statements. But any statement should reflect that with Men+Care, Dove is providing products that are strong and effective while at the same time gentle, thus helping to preserve men’s skin and hair.

4. Can Dove and Dove Men+Care continue to succeed as side-by-side brands? Why or why not? There is no reason at all to justify why these two brands cannot simultaneously succeed. If the issue is brought up that Dove is a feminine brand and by extending the brand to men, it fails on one or both counts, it should be highlighted just how well Dove has done in creating a new sub-brand for men that establishes a masculine image without detracting from the core Dove image as a feminine brand.

Teaching Suggestions

Start by asking all the females in the class how many of them purchase skin care products. Follow this up by asking them why, as well as asking how much they spend on such products. Then, ask the men in the room the same questions. Use this interaction to prompt a discussion as to why the disparity exists. You might follow up by asking the women if they think men should be putting more thought into their skin care and personal hygiene.

GREAT IDEAS

Barriers to Effective Learning

1. Understanding the concept of a market segment can be very difficult for students. Working through breaking down a market, such as their own university, into separate groups can help tremendously, as can drawing a big box on the board, and then breaking the box down into separate sections to represent pieces of a larger market.

2. Also difficult to understand is the concept that there is no one, single way to segment a market. Students will often point out that companies segment on a single variable frequently, not understanding that the concept is much broader than that. Using a simple pen as an example, you can point out the various segmentation variables, such as income, occasion (such as graduations), and lifestyle that a pen manufacturer could study to determine effective segments. While Mont Blanc might segment based on income and occasion factors, Bic could very well look at lifestyle or even age.

3. Segmenting business markets could also pose some problems, particularly in the discussion of operating characteristics and purchasing styles. It would be helpful to contrast large corporations with small, local enterprises or to ask students about their parents’ business lives and any responsibilities they have in purchasing goods and services for their employers.

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Part 3 Designing a Customer-Driven Strategy and Mix4. If anyone knows anything about target marketing before coming to class, they will think

of it as simply selling to one type of customer. But most students will never have heard of this concept, either. Students may understand more clearly if you use the “box” principle in #1 to illustrate how a company could choose one or more of the sections to target. This can also be expanded to show how companies might move from focusing on one target segment to moving along to another when penetration of the first has been accomplished, even though this goes beyond the scope of this textbook.

5. Development of a positioning statement is also a difficult concept. It requires students to boil down a company’s strategy into one sentence, which can be quite tricky. Going through the examples in the book, and then applying them to something within the students’ sphere of knowledge (books, soft drinks, breakfast foods, coffee, etc.) can enrich the explanations in the text.

Student Projects

1. Go to iTunes (www.apple.com) or Rhapsody (www.rhapsody.com). What unique market segments appear to be the target of specific genres of music? How did you determine the segments?

2. You’ve agreed to help a friend with a home furnishings business to segment her market. Suggest a way to segment the market for her. Select a target market to go after, keeping in mind segment size and growth, structural attractiveness, and probable company resources. What target marketing strategy would you use (using Figure 6.2)? Explain your answers.

3. There are many ways to segment a market. Using the four segmentation variables discussed in the chapter, discuss which variables would be most important for segmenting (a) candidates for cataract surgery and (b) possible enrollees in a culinary school. Explain your choices.

4. Collect advertisements that demonstrate the positioning of different watch brands. Sort the various brands into categories of brands with similar positions.

5. Find ads for several different types of watches. For instance, select one diver’s watch, one prestige watch, one economy watch, and one avant garde watch. What market is each trying to reach? What type of segmentation is the advertiser using?

Small Group Assignment

Form students into groups of three to five. Each group should read the opening vignette to the chapter on P&G. Each group should then answer the following questions:

1. What is P&G’s strategy?2. What is unique about their market segmentation strategy?3. Are there weaknesses in the P&G strategy? If so, what are they?

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Chapter 6 Customer-Driven Marketing Strategy: Creating Value for Target Customers4. Do you see any uncovered market segments? If so, what are they? How would you

exploit this?

Each group should share its findings with the class.

Individual Assignment

You have been asked by your college/university to help develop a market segmentation strategy for them. What market segments would you encourage them to pursue and why?

Think-Pair-Share

Consider the following questions, formulate answers, pair with the student on your right, share your thoughts with one another, and respond to questions from the instructor.

1. How would you define market segmentation?2. How does geographic segmentation differ from demographic segmentation? 3. Which one segmentation form do you consider the most valuable? Why?4. What is benefit segmentation? Give a good example.5. List the requirements for effective segmentation.

Classroom Exercise/Homework Assignment

Review the requirements for effective market segmentation. Now, log on to Rhapsody (www.rhapsody.com). How are they attempting to segment their markets? Rate Rhapsody on each of the five requirements for effective segmentation. Do you believe they are doing a good job on each? What suggestions for improvement would you recommend?

Classroom Management Strategies

Most students will still be thinking, even at this point in the semester, that marketing is all about getting everyone to buy your product. This chapter will set them straight. It uses three sections to discuss the three important topics of segmentation, targeting, and positioning.

1. Divide this chapter up equally. Spend about 20 minutes on market segmentation, with the majority of that time spent on segmenting consumer markets. Students will understand geographic and demographic segmentation fairly quickly, but benefit and occasion segmentation will take a little more time. Business and international markets can be covered fairly quickly.

2. Target marketing should also take about 20 minutes. It is important for the students to grasp that once they’ve divided the market they then need to decide which of those segments to address. Evaluating and selecting segments to target should be the primary topics in this section.

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Part 3 Designing a Customer-Driven Strategy and Mix3. Finally, positioning should take the remainder of the class. Discussing a brand you are

especially loyal to, so you can speak about it emotionally, often helps the students realize the importance of positioning, and also how dependent positioning is on the responses of the consumer to the product itself as well as the messaging about the product.

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Chapter 6 Customer-Driven Marketing Strategy: Creating Value for Target Customers

PROFESSORS ON THE GO

Customer Driven Marketing Strategy: Creating Value for Target Customers

Key ConceptsSegmenting consumer marketsRequirements for effective segmentation

Briefly define the four sets of primary segmentation variables. If you could only use one set of variables to segment prospective students for the part-time MBA Program at your university or college, which would it be? Why?

The chapter discusses requirements for effective segmentation. Suppose you are a product manager in a regional fast-food restaurant company. You are listening to a presentation on a new sandwich wrap idea (chicken breast and okra), and it is your turn to ask questions. Write five questions that you would ask the person presenting this product idea. Each question should be directed at one of the five segmentation requirements.

Go to a retail bookstore and survey the magazine section. What unique market segments appear to be the target of specialty magazines? How did you determine the segments?

Find ads for several different types of cars. For instance, select one mini-van, one SUV, one sports car, and one sedan. What market is each trying to reach? What type of segmentation is the advertiser using?

Key ConceptsEvaluating marketing segmentsSelecting target market segmentsIdentifying and choosing competitive advantages

Is it a good idea for a small company to adopt a differentiated segmentation strategy? Explain.

You’ve gone to work for a shoe designer who is just launching her business. Suggest a way to segment the market for her. Then, select a target market to go after, keeping in mind segment size and growth, structural attractiveness, and probable company resources.

What is the best way to evaluate a target market? How is competitive advantage obtained? How does a company choose the right competitive advantage to promote?

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