56203 00 fm pi-xxx - Cengage · Segmenting and CHAPTER7 Targeting Markets ... LO 5 Describe the bases for segmenting business ... LO 9 Explain how and why firms implement positioning

Charles W. LambM.J. Neeley School of Business

Texas Christian University

Joseph F. Hair, Jr.Department of Marketing

Kennesaw State University

Carl McDanielChair, Department of MarketingUniversity of Texas at Arlington

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Copyright 2009 Cengage Learning, Inc. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part.

Essentials of Marketing, 6e

Charles W. Lamb, Joseph F. Hair, Jr.,

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Segmenting and Targeting MarketsC H A P T E R

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L e a r n i n g O u t c o m e sLO1 Describe the characteristics of markets and market segments

LO 2 Explain the importance of market segmentation

LO 3 Discuss criteria for successful market segmentation

LO 4 Describe the bases commonly used to segment consumer markets

LO5 Describe the bases for segmenting business markets

LO6 List the steps involved in segmenting markets

LO7 Discuss alternative strategies for selecting target markets

LO8 Explain one-to-one marketing

LO9 Explain how and why firms implement positioning strategies andhow product differentiation plays a role

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Please note your opinion on each of the following questions.

Using the following scale, enter your opinion.

1 2 3 4 5 6

Strongly Stronglyagree disagree

__ I frequently have problems making ends meet.

__ My budgeting is always tight.

__ I often have to spend more money than I have available.

__ I do not consider myself financially well off.

__ I am generally on a tight budget.

__ Meeting an unexpected expense of $1,000 would be a financial hardship.

Total your score. Now, read the chapter and find out what your score means at the end.

Marketing& You

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Text not available due to copyright restrictions

LO1Market Segmentation

The term market means different things to different people. We areall familiar with the supermarket, stock market, labor market, fish market, and flea mar-ket. All these types of markets share several characteristics. First, they are composed ofpeople (consumer markets) or organizations (business markets). Second, these people ororganizations have wants and needs that can be satisfied by particular product cate-gories. Third, they have the ability to buy the products they seek. Fourth, they are willingto exchange their resources, usually money or credit, for desired products. In sum, amarket is (1) people or organizations with (2) needs or wants and with (3) the ability and

(4) the willingness to buy. A group of people or an organiza-tion that lacks any one of these characteristics is not amarket.

Within a market, a market segment is a subgroup ofpeople or organizations sharing one or more characteristicsthat cause them to have similar product needs. At oneextreme, we can define every person and every organizationin the world as a market segment because each is unique. Atthe other extreme, we can define the entire consumer mar-ket as one large market segment and the business market asanother large segment. All people have some similar charac-teristics and needs, as do all organizations.

From a marketing perspective, market segments can bedescribed as somewhere between the two extremes. Theprocess of dividing a market into meaningful, relativelysimilar, and identifiable segments or groups is called mar-ket segmentation. The purpose of market segmentationis to enable the marketer to tailor marketing mixes tomeet the needs of one or more specific segments.

Exhibit 7.1 illustrates the concept of market segmenta-tion. Each box represents a market consisting of seven persons. This market might varyas follows: one homogeneous market of seven people, a market consisting of seven indi-vidual segments, a market composed of two segments based on gender, a market com-posed of three age segments, or a market composed of five age and gender market

segments. Age and gender and manyother bases for segmenting markets areexamined later in this chapter.

LO2The Importance of MarketSegmentationUntil the 1960s, few firms prac-ticed market segmentation.When they did, it was more likely a hap-hazard effort than a formal marketingstrategy. Before 1960, for example, the Coca-Cola Company produced only one beverageand aimed it at the entire soft drink mar-ket. Today, Coca-Cola offers over a dozendifferent products to market segmentsbased on diverse consumer preferences forflavors and calorie and caffeine content.

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Descr ibe the character-is t ics of markets and market segments

LO 1

Market

Segm

ent

REVIEW LEARNING OUTCOME

No market segmentation Fully segmented market

Market segmentation by gender: M, F

F

M

M

MF

F

Market segmentation by age group: 1, 2, 3

M

3

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2

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Market segmentation by gender and age group

3M

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2F

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Exhibit 7.1Concept of MarketSegmentation

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Coca-Cola offers traditional soft drinks, energy drinks (such as POWERade), flavored teas,fruit drinks (Fruitopia), and water (Dasani).

Market segmentation plays a key role in the marketing strategy of almost all suc-cessful organizations and is a powerful marketing tool for several reasons. Most impor-tantly, nearly all markets include groups of people or organizations with different

product needs and preferences.Market segmentation helps mar-keters define customer needs andwants more precisely. Because mar-ket segments differ in size andpotential, segmentation helps deci-sion makers more accurately definemarketing objectives and better allo-cate resources. In turn, performancecan be better evaluated when objec-tives are more precise.

Chico’s, a successful women’sfashion retailer, thrives by marketingto women aged 35 to 55 who like towear comfortable, yet stylish cloth-ing. It sells private-label clothing thatcomes in just a few nonjudgmentalsizes: zero (regular sizes 4–6), one(8–10), two (10–12), and three (14–16).

LO3Criteria for Successful Segmentation

Marketers segment markets for three important reasons. First, seg-mentation enables marketers to identify groups of customers with similar needs and toanalyze the characteristics and buying behavior of these groups. Second, segmentation pro-vides marketers with information to help them design marketing mixes specificallymatched with the characteristics and desires of one or more segments. Third, segmentationis consistent with the marketing concept of satisfying customer wants and needs whilemeeting the organization’s objectives.

To be useful, a segmentation scheme must produce segments that meet four basiccriteria:

• Substantiality: A segment must be large enough to warrant developing and main-taining a special marketing mix. This criterion does not necessarily mean that asegment must have many potential customers. Marketers of custom-designedhomes and business buildings, commercial airplanes, and large computer systemstypically develop marketing programs tailored to each potential customer’s needs.In most cases, however, a market segment needs many potential customers tomake commercial sense. In the 1980s, home banking failed because not enoughpeople owned personal computers. Today, a larger number of people own comput-ers, and home banking is a growing industry.

• Identifiability and measurability: Segments must be identifiable and their size mea-surable. Data about the population within geographic boundaries, the number ofpeople in various age categories, and other social and demographic characteristicsare often easy to get, and they provide fairly concrete measures of segment size.Suppose that a social service agency wants to identify segments by their readi-ness to participate in a drug and alcohol program or in prenatal care. Unless theagency can measure how many people are willing, indifferent, or unwilling to par-ticipate, it will have trouble gauging whether there are enough people to justifysetting up the service.

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Expla in the importance of market segmentat ionLO 2

Marketsegmentation

More precisedefinition ofconsumer needsand wants

More accuratemarketingobjectives

Improved resourceallocation

Better marketingresults

marketPeople or organizationswith needs or wants andthe ability and willingnessto buy.

market segmentA subgroup of people ororganizations sharing oneor more characteristicsthat cause them to havesimilar product needs.

market segmentationThe process of dividing amarket into meaningful,relatively similar, andidentifiable segments orgroups.

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• Accessibility: The firm must be able to reach members of targeted segments with cus-tomized marketing mixes. Some market segments are hard to reach—for example,

senior citizens (especially thosewith reading or hearing disabili-ties), individuals who don’t speakEnglish, and the illiterate.

• Responsiveness: As Exhibit 7.1 onpage 206 illustrated, markets canbe segmented using any criteriathat seem logical. Unless onemarket segment responds to amarketing mix differently fromother segments, however, thatsegment need not be treatedseparately. For instance, if allcustomers are equally price-conscious about a product, thereis no need to offer high-,medium-, and low-priced ver-sions to different segments.

LO4Bases for Segmenting Consumer Markets

Marketers use segmentation bases, or variables, which are characteris-tics of individuals, groups, or organizations, to divide a total market into segments. Thechoice of segmentation bases is crucial because an inappropriate segmentation strategymay lead to lost sales and missed profit opportunities. The key is to identify bases thatwill produce substantial, measurable, and accessible segments that exhibit differentresponse patterns to marketing mixes.

Markets can be segmented using a single variable, such as age group, or several variables, such as age group, gender, and education. Although it is less precise, single-variable segmentation has the advantage of being simpler and easier to use than multiple-variable segmentation. The disadvantages of multiple-variable segmentation are that it isoften harder to use than single-variable segmentation; usable secondary data are lesslikely to be available; and as the number of segmentation bases increases, the size ofindividual segments decreases. Nevertheless, the current trend is toward using morerather than fewer variables to segment most markets. Multiple-variable segmentation isclearly more precise than single-variable segmentation.

Consumer goods marketers commonly use one or more of the following characteris-tics to segment markets: geography, demographics, psychographics, benefits sought, andusage rate.

GEOGRAPHIC SEGMENTATIONGeographic segmentation refers to segmenting markets by region of a country or theworld, market size, market density, or climate. Market density means the number of peo-ple within a unit of land, such as a census tract. Climate is commonly used for geo-graphic segmentation because of its dramatic impact on residents’ needs and purchasingbehavior. Snowblowers, water and snow skis, clothing, and air-conditioning and heatingsystems are products with varying appeal, depending on climate.

Consumer goods companies take a regional approach to marketing for four reasons.First, many firms need to find new ways to generate sales because of sluggish andintensely competitive markets. Second, computerized checkout stations with scannersgive retailers an accurate assessment of which brands sell best in their region. Third,

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segmentation bases(variables)Characteristics of individuals, groups, or organizations.

geographic segmentationSegmenting markets byregion of a country or theworld, market size, marketdensity, or climate.


Discuss cr i ter ia for successfu l marketsegmentat ionLO 3

Substantial

Identifiable and measurable

Accessible

Responsive

Usefulsegment?

Then, yes: Useful segmentation scheme

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many packaged-goods manufacturers are intro-ducing new regional brands intended to appealto local preferences. Fourth, a more regionalapproach allows consumer goods companies toreact more quickly to competition. For example,Cracker Barrel, a restaurant known in the Southfor home-style cooking, is altering its menu out-side its core southern market to reflect localtastes. Customers in upstate New York can orderReuben sandwiches, and those in Texas can geteggs with salsa. Miller Lite developed the “MillerLite True to Texas” marketing program, a state-wide campaign targeting Texas beer drinkers.

DEMOGRAPHIC SEGMENTATIONMarketers often segment markets on the basisof demographic information because it is widelyavailable and often related to consumers’ buy-ing and consuming behavior. Some commonbases of demographic segmentation are age,gender, income, ethnic background, and familylife cycle.

Age SegmentationMarketers use a variety of terms to refer to different age groups. Examples include new-borns, infants, young children, tweens, teens, young adults, baby boomers, Generation X,Generation Y, and seniors. Age segmentation can be an important tool, as a brief explo-ration of the market potential of several age segments illustrates.

Through allowances, earnings, and gifts, children account for, and influence, a greatdeal of consumption. For example, there are about 20 million so-called tweens (ages9–12) in the United States. This group spends over $20 billion per year and influenceshow another $200 billion is spent.2 Tweens desire to be kids, but also want some of thefun of being a teenager. Many retailers such as Limited Too and Abercrombie serve thismarket with clothing that is similar in style to that worn by teenagers and young adults.

The teenage market includes about 22 million individuals3 and accounts for over$100 billion in purchasing power.4 Teens spend most of their money on clothing, enter-tainment, and food. Boost Mobile and Virgin Mobile USA market cell phone services toteens. The handsets come in funky colors or are cobranded with edgy companies such aswomen’s surf-gear maker Roxy. Both Boost and Virgin avoid traditional distributionchannels, selling instead at surf shops, record stores, and other places where teens hangout. Customers don’t have to worry about credit checks or binding contracts—the com-pany relies on pay-as-you-go plans. Rather than receive a monthly bill, customers canpurchase prepaid chunks of airtime, in increments ranging from $20 to $50, at places like7-Eleven and Target. Communicating to this group is also different from communicatingto their parents. Teens spend an average of 17 hours per week online and 14 hourswatching television.5 They don’t visit the same Web sites, watch the same TV programs,or read the same magazines as their parents. Magazines specifically designed to appealto teenage girls include Teen Vogue, Teen People, CosmoGIRL!, Elle Girl, and Seventeen.6

Clothing marketers such as Ralph Lauren, Guess, DKNY, Dior, Giorgio Armani, andDooney & Bourke advertise heavily in these magazines.7

People born between 1946 and 1964 are often called “baby boomers.” Together, babyboomers and the older generation—seniors—form a large and very lucrative market.Every 7.5 seconds one or more of the 77 million baby boomers in the United States turns50. Individuals 50 years old and older own 80 percent of the financial assets in theUnited States and account for 50 percent of discretionary income.8 As a group, they rep-resent more than $2 trillion in spending power per year, or almost half of total consumer

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demographic segmentationSegmenting markets byage, gender, income, eth-nic background, and fam-ily life cycle.

Avon, a brand associated with older generations, is attempting to break into a more youthful market with its Mark brand of beauty products. CarleighKrubiner, a sophomore at the University of Pennsylvania and sales representa-tive for Mark, holds a sample of the new products. She sells the brightly colored makeup in funky packaging from her dorm room.

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GLOBAL Perspectives

spending in the United States.9 Like the other age groups we have discussed, babyboomers represent tremendous market potential for a wide range of products includingretirement properties, health and wellness products, automobiles with features designedfor them, and other goods and services you might not expect. For example, customers 50years old and older account for one-fourth of all Vespa motor scooters sold in the UnitedStates. Not only are baby boomers often nostalgic and eager to continue their activelives, but they now can afford to buy top-of-the-line models of these products from theiryouth.10 For those looking for a retirement home, Pulte Homes Inc. and Del Webb’sretirement community divisions focus on communities for senior citizens.11 As the“Global Perspectives” box in this chapter illustrates, Japanese automaker Toyota is intro-ducing a variety of new products to appeal to older consumers in Japan and elsewhere.Nissan is also developing new features and products for older consumers such as wheel-chair ramps for big vans, swivel seats, and motorized cranes to lift walkers and wheel-chairs into car trunks.12 The challenges facing marketers who target boomers are great.Unlike yesterday’s generation of 60-year-olds, today’s boomers refuse to believe they’reaging, so marketers who want to appeal to this segment cannot use any kind of messag-ing that refers to aging. Rather, they must appeal to boomers’ interests, lifestyles, andvalues—anything but age. Companies as diverse as Whirlpool, Gap, Moen, Fila, and OXOare doing this with great success.

The president of OXO, the company that makes Good Grips cooking utensils with thethick black handles, says, “The last thing they want is the kind of patronizing, help-me-do-something kind of tools. We have almost a cult-like following among older con-sumers. At the same time, we have just as strong a following from people in the 20-to-40age range because the products look cool.”13

OXO is not the only company to find the 20-to-40 age group appealing. The approxi-mately 58 million people classified as young adults, between 20 and 34 years of age, arefrequently targeted by beer, wine, and spirits companies. For example, Bacardi, Ltd., hireda young marketing team to develop ads for Dewars Scotch. The team dropped the “mixa-

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For a hint at what Toyota Motor Corporationsees when it peers into the future, have a lookat the TAO-Light II, a sleek new addition to itslineup with a top speed of four miles per hour.That may be slow, but the TAO-Light II isn’t acar. It is a wheelchair made from car parts,

developed by Aisin Seiki Company, a member of the Toyota familyof businesses that supplies transmissions and drive trains. TheTAO is among a slew of new products from Toyota and its hun-dreds of affiliated suppliers that tap the market of elderly Japaneseand the families who care for them. Though executives won’t sayhow much Toyota has invested in products for the graying market,the company is clearly intent on turning Japan’s stark demo-graphic trends into a growth opportunity.

Toyota’s efforts amount to a case study on maneuveringaround a tricky marketing challenge: How does a company growsales as the population begins to age rapidly? According to gov-ernment projections, a quarter of Japan’s population will be 65years or older by 2015. By the year 2050, 35 percent will beover 65. Japanese families are having fewer children, so thenumber of youths is shrinking, and the overall population peakedin 2006 at 128 million. Japan’s average life expectancy of 82

years is one of the highest in the world. And while Japan isaging faster than other countries, the trend is global: the UnitedNations forecasts that the world population of people 65 andover, currently at 472 million, will reach 598 million by 2015 and 823 million by 2025.

Few doubt the potential of the burgeoning elderly market.Expenditures for medical care and welfare services are expectedto reach $650 billion by 2010, more than a 25 percent increaseover 2002, according to Japanese government figures. What’smore, since 2000, Japan has offered financial incentives for prod-ucts like wheelchairs and reclining beds in an effort to encouragemore families to take care of the elderly at home and reducenational health-care costs.

Toyota engineers continue to hone their lineup of products tar-geting the elderly. These include an upgraded version of the TAO-Light II wheelchair. Aisin, working with electronics companyFujitsu, Ltd., has developed the TAO Aicle, a new electric wheel-chair that can be programmed to carry the driver to destinationson autopilot mode.14

Define the target market for Toyota’s TAO-Light II. Why hasToyota selected this target market? Is this a good idea? What doyou think about an automobile company marketing wheelchairs?

Adapting to an Aging Population

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bility” angle stressed in previous ads and revived the famous Dewars profiles campaign,showing adventure-seeking 25- to 34-year-olds. In the United States and the UnitedKingdom, the average Bordeaux wine drinker is between 35 and 45 years of age. Thisregion’s wine association would like to target drinkers as young as 25, says the presidentof Sopexa, the trade association for French food and wine. The group is backing fashionshows in Los Angeles, London, and Paris and organizing wine tasting courses, called“Wine Uncorked,” for law and business school students at Ivy League universities. It hasalso launched an ad campaign featuring attractive young guests at a cocktail party withthe slogan “Be Seduced” that is running in women’s magazines such as Harper’s Bazaar.15

Gender SegmentationIn the United States, women handle 75 percent of family finances, make or influence 80percent of consumer purchases, and buy 51 percent of the new electronics sold, 75 per-cent of over-the-counter drugs, and 65 percent of new cars. That means that women aremaking decisions when it comes to the purchase of a huge variety of goods and services,not just the packaged goods that have traditionally been marketed to them.16

Historically, women took two-thirds of the home photographs and ordered most ofthe prints. Digital technology changed that. As men assumed the lead role in taking pic-tures, sales of film and printing fell dramatically. To reverse this trend, Kodak developedmore female-friendly cameras, stand-alone photo printers, retail kiosks, and onlinedevelopment services. The result has been a slow but steady turnaround as women havebecome more involved in digital photography.17

Other marketers that traditionally focused most of their attention on males are alsorecognizing the potential of the female market segment. For example, Ameritraderecently launched its first print and online campaign directed to women.18 The numberof women shopping at hardware stores such as Home Depot and Lowe’s Home

Improvement Warehouse has been rising in recent years. Asurvey by Ace Hardware revealed that 42 percent of its cus-tomers are women and that they spend 30 to 40 percentmore than men per visit. Home improvement stores arereaching out to women by creating a grocery store–typeexperience with wider, well-lit aisles, clear signage, andinstructions on product use.19

Similarly, other brands that have been targeted to men,such as Gillette razors and Rogaine baldness remedy, areincreasing their efforts to attract women. For example, ath-letic apparel manufacturers like Nike and Reebok have typi-cally targeted men, and when they did target women, justcopied the hard-edged, sports-marketing strategies thatmade them so popular with men. Mindy Grossman, vice pres-ident of global apparel for Reebok, says, “We were taking themen’s formula—big athlete, big marketing—and trying toapply it to women. But that’s not how she [sic] reponds.”Reebok is developing apparel for the variety of activitieswomen do, which more often than not, include fitness danceand yoga instead of traditional, competitive sports.20

At the same time that marketers of traditionally maleproducts are reaching out to women, marketers that tradi-tionally focused almost exclusively on women have nowrecognized the importance and potential of the male seg-ment. For example, males are increasingly involved in wed-ding planning, deciding on everything from the site, seatingplans, and table decorations to the wedding cake and keep-sakes for guests. As males get more involved with theirweddings, businesses such as engagement consultants,resorts, and spas are beginning to create special packagesdesigned to attract men.21 To illustrate, the Fairmont

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Many companies have profited from redesigning traditionallyfeminine products and marketing them towards men. Here,Lancôme advertises an anti-wrinkle cream that has beenpackaged to appeal to men.

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Princess Resort in Scottsdale, Arizona, wanted to target men in addition to its femaleclientele and hired a cultural anthropologist who uncovered intrinsic differences in theway men and women approached a spa. Research led the resort to:

• Use darker woods and colors to create a club-like ambiance so men wouldn’t feelthey were entering female territory

• Install televisions in locker rooms (to reduce awkwardness felt by males in spawear)

• Develop customized packages, including “Keep Your Shorts On” and “GolfPerformance Treatment”

• Reposition the “European Facial,” as translated for men into “Barber Facial”22

Marketers of products such as clothing, cosmetics, personal-care items, magazines,jewelry, and footwear still commonly segment markets by gender. Sports Clips is a hairsalon designed to appeal to men and boys. The waiting room features a TV with a 52-inch screen, and customers can buy sports memorabilia, pro team caps, and collegecharcoal grills as well as hair-care products. Men aged 18 to 49 are the segment mostlikely to purchase goods online. Many Internet companies advertise to this group tobuild their brands and get exposure for their sites. For example, Blue Nile, one of themost successful online jewelry retailers, targets men who dislike jewelry stores, eventhough most of the jewelry it sells is for women.

Income SegmentationIncome is a popular demographic variable for segmenting markets because income levelinfluences consumers’ wants and determines their buying power. Many markets are seg-mented by income, including the markets for housing, clothing, automobiles, and food.For example, wholesale clubs Costco and Sam’s Club appeal to different income seg-ments. Costco attracts more upscale customers with warehouse prices for gourmet foodsand upscale brands like Waterford crystal, Raymond Weil watches, and Ralph Laurenclothing. Sam’s Club, on the other hand, originally focused more on members’ businessneeds, offering bulk packages of the kinds of items sold in Wal-Mart’s discount storesand supercenters. Sam’s Club is trying to win more upscale customers by adding itemslike jewelry and gourmet food.

Ethnic SegmentationIn the past, ethnic groups in the United States were expected to conform to a homoge-nized, Anglo-centric ideal. This was evident both in the marketing of mass-marketedproducts and in the selective way that films, television, advertisements, and popularmusic portrayed America’s diverse population. Until the 1970s, ethnic foods were rarelysold except in specialty stores. The racial barrier in entertainment lasted nearly as long,except for supporting movie and TV roles—often based on stereotypes dating back to thenineteenth century.23 Increasing numbers of ethnic minorities in the U.S. along withincreased buying power have changed this. Hispanic Americans, African Americans, andAsian Americans are the three largest ethnic groups in the United States. According toprojections, these three groups collectively will make up one-third of the country’s popu-lation by 2010 and have a combined buying power of more than $1 trillion annually.Today, companies such as Procter & Gamble, Allstate Insurance, Bank of America, andReebok have developed multicultural marketing initiatives designed to better under-stand and serve the wants and preferences of U.S. minority groups. Many consumergoods companies spend 5 to 10 percent of their marketing budgets specifically targetingmulticultural consumers. This proportion will likely increase in the future as ethnicgroups represent larger and larger percentages of the U.S. population.

Experts say that regardless of the segment being targeted, marketers need to stayeducated about the consumer they are pursuing, convey a message that is relevant toeach particular market, use the Internet as a vehicle to educate ethnic markets aboutbrands and products, and use integrated marketing techniques to reinforce the message

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in various ways.24 As Catherine Linder, Walgreens divisional vice president and generalmerchandise manager for beauty and fashion, noted, “Our customers are as diverse asthe communities we serve.”25

Keeping a finger on the pulse of ethnic communities is one of the most challenging,and most important, tasks of a multicultural marketer. AT&T stays abreast of the AfricanAmerican, Asian American, and Hispanic communities through its involvement withnational organizations, including the National Council of La Raza (NCLR), a private, non-profit Hispanic organization based in Washington; Organization of Chinese Americans(OCA), also in Washington; Chicago-based Rainbow/PUSH Coalition, a multiracial, multi-issue, international membership organization founded by Rev. Jesse L. Jackson Sr.;National Association for the Advancement of Colored People (NAACP), based inBaltimore; and Chicago-based U.S. Hispanic Leadership Institute. AT&T’s involvementwith such national and political groups is an extension of its long-standing grassrootsefforts within ethnic communities.26 The company supports these organizations finan-cially both to show its commitment to diversity and to learn about the unique needs,preferences, and lifestyles of each group.

Some companies have found that segmenting by ethnicity is not precise enough. Inmany instances, the Hispanic market segment is not one segment but several. There areroughly 42 million Hispanics in the United States. Latinos of Mexican, Puerto Rican, andCuban ancestry comprise roughly three-quarters of this group. Latinos from differentancestry respond to marketing messages differently. Marketers should ask the followingquestions:

• What are the general characteristics of your total target Latino population (size,growth rate, and spending power)?

• Who exactly are they (demographics, psychographics, attitudes, values, beliefs,and motivations)?

• What are their behaviors, in terms of products, services, media, language, and so on?

• How are they different from the general market and each other, based on countryof origin?27

This applies to all ethnic groups that are generally segmented on the basis of ancestry.Alternatively, some companies have abandoned the notion that ethnic group youths

require separate marketing mixes. Instead, they are focusing on “urban youth,” regard-less of race or ethnicity, in cities such as New York and Los Angeles, because these arethe places where trends typically start.28

Family Life-Cycle SegmentationThe demographic factors of gender, age, and income often do not sufficiently explainwhy consumer buying behavior varies. Frequently, consumption patterns among peopleof the same age and gender differ because they are in different stages of the family lifecycle. The family life cycle (FLC) is a series of stages determined by a combination ofage, marital status, and the presence or absence of children.

The life-cycle stage consisting of the married-couple household, used to be consid-ered the traditional family in the United States. Today, however, married couples makeup just 50.7 percent of households, down from nearly 80 percent in the 1950s. Thismeans that the 86 million single adults in the United States could soon define the newmajority. Already, unmarried Americans make up 42 percent of the workforce, 40 percentof home buyers, and one of the most potent consumer groups on record.29

Exhibit 7.2 on the next page illustrates numerous FLC patterns and shows howfamilies’ needs, incomes, resources, and expenditures differ at each stage. The hori-zontal flow shows the traditional family life cycle. The lower part of the exhibit givessome of the characteristics and purchase patterns of families in each stage of the tradi-tional life cycle. The exhibit also acknowledges that about half of all first marriages endin divorce. When young marrieds move into the young divorced stage, their consumptionpatterns often revert back to those of the young single stage of the cycle. About four out

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family life cycle (FLC)A series of stages deter-mined by a combinationof age, marital status, andthe presence or absenceof children.

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of five divorced persons remarry by middle age and reenterthe traditional life cycle, as indicated by the “recycled flow”in the exhibit.

Consumers are especially receptive to marketing effortsat certain points in the life cycle. Soon-to-be-married couplesare typically considered to be most receptive because they aremaking brand decisions about products that could last longerthan their marriages. To illustrate, research shows that 67 per-cent of women wear the same fragrance they wore when theygot married, 96 percent shop at the same stores they usedwhen engaged, and 81 percent are using the same brands.30

Furthermore, U.S. newlyweds spend a total of $70 billion inthe first year after marriage.

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Young married ordivorced without childrenBetter off financially than they will be in near futureHighest purchase rate and highest average purchase of durablesBuy: cars, refrigerators, stoves, sensible and durable furniture, vacations

Young marriedor divorced with childrenHome purchasing at peakLiquid assets low Dissatisfied with financial position and amount of money savedInterested in new productsLike advertised productsBuy: washers, dryers, televisions, baby food, chest rubs, cough medicine, vitamins, dolls, wagons, sleds, skates

Middle-aged married ordivorced with or without childrenFinancial position still better More wives work Some children get jobsHard to influence with advertisingHigh average purchase of durablesBuy: new and more tasteful furniture, auto travel, unnecessary appliances, boats

Middle-aged married or divorced without childrenHome ownership at peakMost satisfied with financial position and money savedInterested in travel, recreation, self-educationMake gifts and contributionsNot interested in new productsBuy: vacations, luxuries, home improvements

Older marriedDrastic cut in income Keep home Buy: medical appliances, medical care, products that aid health, sleep, and digestion

Older unmarriedDrastic cut in income Special need for attention, affection, and securityBuy: same medical and product needs as other retired group

Recycled flow

Traditional flow

Usual flow

Middle-aged married without children

Middle-aged married

withchildren

Older married

Older unmarried

Young singleFew financial burdensFashion opinion leadersRecreation- orientedBuy: basic kitchen equipment, basic furniture, cars, equipment for mating game, vacations

Middle-aged divorced without children

Young divorced without children

Middle-aged divorced without

dependent children

Middle-aged divorced

withchildren

Young married

with children

Young married without children

Youngdivorced

withchildren

Young single

Middle-aged marriedwithout

dependent children

Exhibit 7.2Family Life Cycle

Online

Martha Stewart LivingGood HousekeepingUse psychographic segmentation to classify thekinds of consumers who would be interested in theproducts offered by Martha Stewart and GoodHousekeeping online.http://www.marthastewart.comhttp://www.goodhousekeeping.com

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PSYCHOGRAPHIC SEGMENTATIONAge, gender, income, ethnicity, family life-cycle stage, and other demographic variablesare usually helpful in developing segmentation strategies, but often they don’t paint theentire picture. Demographics provides the skeleton, but psychographics adds meat to thebones. Psychographic segmentation is market segmentation on the basis of the fol-lowing variables:

• Personality: Personality reflects a person’s traits, attitudes, and habits. According toa national survey by Roper, almost half of Americans believe their cars matchtheir personalities. For example, SUVs deliver the heady feeling of being inde-pendent and above it all. Convertibles epitomize wind-in-the-hair freedom, andoff-roaders convey outdoor adventure. About 25 percent of people surveyed saythat their cars make them feel powerful.31

• Motives: Marketers of baby products and life insurance appeal to consumers’ emo-tional motives—namely, to care for their loved ones. Using appeals to economy,reliability, and dependability, carmakers like Subaru and Suzuki target customerswith rational motives. Carmakers like Mercedes-Benz, Jaguar, and Cadillac appealto customers with status-related motives.

• Lifestyles: Lifestyle segmentation divides people into groups according to the waythey spend their time, the importance of the things around them, their beliefs,and socioeconomic characteristics such as income and education. For example, arecent study of the women’s market places women into four categories based onlifestyle distinctions that drive their behavior. Explorers are comfortable withthemselves and are not obsessed with physical appearance. They also expressstrong or old-fashioned values such as admiring classical art, literature, and his-tory. Achievers care about balance in their lives as much as they do about achiev-ing their goals. They care much more about their own individual view of whatsuccess means than about society’s expectations. Builders struggle between theirneed for material possessions to support their lives and the desire for simplicityand balance. They also take more time for themselves, even with families to carefor. Masters are living simplified lives but are not internally settled. They have anactive interest in health and beauty, but don’t want to be told how they can stayyoung; they want support in being beautiful and living life to the fullest.32

• Geodemographics: Geodemographic seg-mentation clusters potential customersinto neighborhood lifestyle categories. Itcombines geographic, demographic, andlifestyle segmentations. Geodemographicsegmentation helps marketers develop mar-keting programs tailored to prospective buy-ers who live in small geographic regions,such as neighborhoods, or who have veryspecific lifestyle and demographic charac-teristics. H-E-B Grocery Company, a 304-store, Texas-based supermarket chain,specializes in developing its own brandedproducts designed to meet the needs andtastes of specific communities. In the RioGrande Valley, where summers are hot andmany residents don’t have air conditioning,H-E-B markets its own brand of rubbing oilthat helps cool the skin while adding mois-turizers. Along the southern border, the gro-cer stocks discos, large metal disks thatMexican Americans use to cook their

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psychographic segmentationMarket segmentation onthe basis of personality,motives, lifestyles, andgeodemographics.

geodemographic segmentationSegmenting potential cus-tomers into neighborhoodlifestyle categories.

Marketers need to tailor their products and advertising to the lifestyle anddemographic characteristics of the group they are trying to sell to. For exam-ple, this ad for Tractor Supply Company targets consumers who live in thecountry and maintain rural lifestyles.

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NY

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brisket. Further north it sells gas grills that appeal to Anglo Americans.33 Storesin predominant Asian, Latino, or African American neighborhoods carry merchan-dise specifically selected for each geodemographic target market.

Psychographic variables can be used individually to segment markets or be combinedwith other variables to provide more detailed descriptions of market segments. One combi-nation approach is the Claritas PRIZM Lifestyle software program that divides Americansinto 66 “clusters,” or consumer types, all with catchy names. The clusters combine basicdemographic data such as age, ethnicity, and income with lifestyle information, such asmagazine and sports preferences, taken from consumer surveys. For example, the “Kids andCul-de-Sacs” group consists of upscale, married couples with children who live in recentlybuilt subdivisions. These families have a median household income of $70,233, tend to owna Honda Odyssey, and are likely to spend large sums of money for child-centered productsand services such as video games and Chuck E. Cheese. The “Bohemian Mix” cluster ismade up of urbanites under age 35. These young singles and couples, students, and profes-sionals have a median income of $51,100, are early adopters in many product categories,tend to shop at Banana Republic, and are likely to read Vanity Fair magazine.34 The programalso predicts to which neighborhoods across the country the clusters are likely to gravitate.

BENEFIT SEGMENTATIONBenefit segmentation is the process of grouping customers into market segmentsaccording to the benefits they seek from the product. Most types of market segmentationare based on the assumption that this variable and customers’ needs are related. Benefitsegmentation is different because it groups potential customers on the basis of their needsor wants rather than some other characteristic, such as age or gender. The snack-foodmarket, for example, can be divided into six benefit segments, as shown in Exhibit 7.3.

Customer profiles can be developed by examining demographic information associ-ated with people seeking certain benefits. This information can be used to match mar-keting strategies with selected target markets. Procter & Gamble introduced PampersRash Guard, a diaper designed to combat diaper rash. The many different types of per-formance energy bars with various combinations of nutrients are aimed at consumers

216

benefit segmentationThe process of groupingcustomers into marketsegments according to thebenefits they seek fromthe product.

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Lifestyle Segmentation of the Snack-Food Market

Exhibit 7.3

Nutritional Weight Guilty Party Indiscriminate EconomicalSnackers Watchers Snackers Snackers Snackers Snackers

% of Snackers 22% 14% 9% 15% 15% 18%

Lifestyle Self-assured, Outdoorsy, Highly Sociable Hedonistic Self-assured,Characteristics controlled influential, anxious, price-oriented

venturesome isolated

Benefits Nutritious, Low in Low in Good to serve Good tasting, Low in price,Sought without calories, calories, guests, served satisfies hunger best value

artificial quick energy good tasting with pride, goesingredients, well withnatural beverages

Consumption Light Light Heavy Average Heavy AverageLevel of Snacks

Type of Snacks Fruits, Yogurt, Yogurt, Nuts, potato Candy, ice cream, No specificUsually Eaten vegetables, vegetables cookies, chips, crackers, cookies, potato products

cheese crackers, pretzels chips, pretzels,candy popcorn

Demographics Better Younger, Younger or Middle-aged, Teenager Have largeeducated, single older, female, nonurban family, betterhave younger lower socio- educatedchildren economic

status

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looking for different benefits. For example, PowerBar is designed for athletes looking forlong-lasting fuel, while PowerBar Protein Plus is aimed at those who want extra proteinfor replenishing muscles after strength training. Carb Solutions High Protein Bars are forthose on low-carb diets; Luna Bars are targeted to women who want a bar with fewercalories, soy protein, and calcium; and Clif Bars are for people who want a natural barwith ingredients like rolled oats, soybeans, and organic soy flour.35

USAGE-RATE SEGMENTATIONUsage-rate segmentation divides a market by the amount of product bought or con-sumed. Categories vary with the product, but they are likely to include some combina-tion of the following: former users, potential users, first-time users, light or irregularusers, medium users, and heavy users. Segmenting by usage rate enables marketers tofocus their efforts on heavy users or to develop multiple marketing mixes aimed at dif-ferent segments. Because heavy users often account for a sizable portion of all productsales, some marketers focus on the heavy-user segment.

The 80/20 principle holds that 20 percent of all customers generate 80 percent ofthe demand. Although the percentages usually are not exact, the general idea often holdstrue. For example, in the fast-food industry, the heavy user accounts for only one of fivefast-food patrons, but makes about 60 percent of all visits to fast-food restaurants. Fewerthan 10 percent of the subscribers to Time Warner’s cable unit consume more than 75 per-cent of its bandwidth.36

Developing customers into heavy users is the goal behind many frequency/loyaltyprograms like the airlines’ frequent flyer programs. Manysupermarkets andother retailers havealso designed loyaltyprograms that rewardthe heavy-user seg-ment with deals avail-able only to them,such as in-storecoupon dispensingsystems, loyalty cardprograms, and specialprice deals on selectedmerchandise.

LO5Bases for Segmenting Business Markets

The business market consists of four broad segments: producers,resellers, government, and institutions (for a detailed discussion of the characteristics ofthese segments, see Chapter 6). Whether marketers focus on only one or on all four ofthese segments, they are likely to find diversity among potential customers. Thus, fur-ther market segmentation offers just as many benefits to business marketers as it doesto consumer-product marketers.

COMPANY CHARACTERISTICSCompany characteristics, such as geographic location, type of company, company size,and product use, can be important segmentation variables. Some markets tend to be

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usage-rate segmentationDividing a market by theamount of product boughtor consumed.

80/20 principleA principle holding that 20percent of all customersgenerate 80 percent of thedemand.


Descr ibe the bases commonly used to segmentconsumer marketsLO 4

• Region

• Market size

• Market density• Climate

• Age

• Gender

• Income• Race/ethnicity

• Family life cycle

• Personality

• Motives

• Lifestyle

• Geodemo- graphics

• Benefits sought

• Former

• Potential

• 1st time• Light or irregular

• Medium

• Heavy

Geography Demographics Psychographics Benefits Usage Rate

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regional because buyers prefer to purchase from local suppliers, and distant suppliersmay have difficulty competing in terms of price and service. Therefore, firms that

sell to geographically concentrated industries benefit by locating close to theirmarkets.Segmenting by customer type allows business marketers to tailor their market-

ing mixes to the unique needs of particular types of organizations or industries.Many companies are finding this form of segmentation to be quite effective. For

example, Home Depot, one of the largest do-it-yourself retail businesses in the UnitedStates, has targeted professional repair and remodeling contractors in addition to consumers.

Volume of purchase (heavy, moderate, light) is a commonly used basis for businesssegmentation. Another is the buying organization’s size, which may affect its purchasingprocedures, the types and quantities of products it needs, and its responses to differentmarketing mixes. Banks frequently offer different services, lines of credit, and overallattention to commercial customers based on their size.

Many products, especially raw materials like steel, wood, and petroleum, havediverse applications. How customers use a product may influence the amount they buy,their buying criteria, and their selection of vendors. For example, a producer of springsmay have customers that use the product in applications as diverse as making machinetools, bicycles, surgical devices, office equipment, telephones, and missile systems.

BUYING PROCESSESMany business marketers find it helpful to segment customers and prospective customerson the basis of how they buy. For example, companies can segment some business mar-kets by ranking key purchasing criteria, such as price, quality, technical support, and ser-

vice. Atlas Corporation has developed a commandingposition in the industrial door market by providing cus-tomized products in just 4 weeks, which is much fasterthan the industry average of 12 to 15 weeks. Atlas’s pri-mary market is companies with an immediate need forcustomized doors.

The purchasing strategies of buyers may provide use-ful segments. Two purchasing profiles that have beenidentified are satisficers and optimizers. Satisficers con-tact familiar suppliers and place the order with the firstone to satisfy product and delivery requirements.Optimizers consider numerous suppliers (both familiarand unfamiliar), solicit bids, and study all proposals care-fully before selecting one.

The personal characteristics of the buyers them-selves (their demographic characteristics, decision style,tolerance for risk, confidence level, job responsibilities,etc.) influence their buying behavior and thus offer aviable basis for segmenting some business markets. IBMcomputer buyers, for example, are sometimes character-ized as being more risk averse than buyers of less expen-sive computers that perform essentially the same func-tions. In advertising, therefore, IBM stressed its reputationfor high quality and reliability.

LO6Steps in Segmenting a Market

The purpose of market segmentation, in both consumer and busi-ness markets, is to identify marketing opportunities.

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Descr ibe the bases for segment ing business markets

LO 5

Buying Process

Institutions

Producers Resellers

Governments

Company Characteristics


satisficersBusiness customers whoplace an order with thefirst familiar supplier tosatisfy product and deliv-ery requirements.

optimizersBusiness customers whoconsider numerous suppli-ers, both familiar andunfamiliar, solicit bids, andstudy all proposals care-fully before selecting one.

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1. Select a market or product category for study: Define the overall market or productcategory to be studied. It may be a market in which the firm already competes, anew but related market or product category, or a totally new one. For instance,Anheuser-Busch closely examined the beer market before introducing MichelobLight and Bud Light. Anheuser-Busch also carefully studied the market for saltysnacks before introducing the Eagle brand.

2. Choose a basis or bases for segmenting the market: This step requires managerialinsight, creativity, and market knowledge. There are no scientific procedures forselecting segmentation variables. However, a successful segmentation schememust produce segments that meet the four basic criteria discussed earlier in thischapter.

3. Select segmentation descriptors: After choosing one or more bases, the marketermust select the segmentation descriptors. Descriptors identify the specific seg-mentation variables to use. For example, if a company selects demographics as abasis of segmentation, it may use age, occupation, and income as descriptors. Acompany that selects usage segmentation needs to decide whether to go afterheavy users, nonusers, or light users.

4. Profile and analyze segments: The profile should include the segments’ sizes,expected growth, purchase frequencies, current brand usage, brand loyalty, andlong-term sales and profit potential. This information can then be used to rankpotential market segments by profit opportunity, risk, consistency with organiza-tional mission and objectives, and other factors important to the firm.

5. Select target markets: Selecting target markets is not a part of but a natural out-come of the segmentation process. It is a major decision that influences and oftendirectly determines the firm’s marketing mix. This topic is examined in greaterdetail later in this chapter.

6. Design, implement, and maintain appropriate marketing mixes: The marketing mix hasbeen described as product, place (distribution), promotion, and pricing strategiesintended to bring about mutually satisfying exchange relationships with targetmarkets. Chapters 9 through 15 explore these topics in detail.

Markets are dynamic, so it is important that companies proactively monitor theirsegmentation strategies over time. Often, once customers or prospects have beenassigned to a segment, marketers think their task is done. Once customers are assignedto an age segment, for example, they stay there until they reach the next age bracket orcategory, which could be ten years in the future. Thus, the segmentation classificationsare static, but the customers and prospects are changing. Dynamic segmentationapproaches adjust to fit the changes that occur in customers’ lives. Tesco, a British

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L ist the steps invo lved in segment ing marketsLO 6

Select a

market or

product

category

for study.

Choose a

basis or bases

for segmenting

the market.

Select

segmentation

descriptors.

Profile

and analyze

segments.

Select

target

markets.

Design,

implement,

and maintain

appropriate

marketing

mixes.

1 2 3 4 5 6

Note that steps 5 and 6 are actually marketing activities that follow market segmentation (steps 1 through 4).

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supermarket company, has a frequent shopper card that gathers data and tracks thepurchases of 7 million customers on every shopping occasion. Using these data, Tescocan reclassify every customer every week. Some customers move to different segments,and some don’t, but all are evaluated, allowing the company to understand changes incustomer behavior on a real-time, ongoing basis. Based on these changes, Tesco can con-tinuously update its marketing programs to accommodate customers’ behaviors. Tescohas become number one in food store sales in the United Kingdom primarily by knowingmore about its customers than its competitors do.37

LO7Strategies for Selecting Target Markets

So far this chapter has focused on the market segmentationprocess, which is only the first step in deciding whom to approach about buying a prod-uct. The next task is to choose one or more target markets. A target market is a group ofpeople or organizations for which an organization designs, implements, and maintains amarketing mix intended to meet the needs of that group, resulting in mutually satisfyingexchanges. Because most markets will include customers with different characteristics,lifestyles, backgrounds, and income levels, it is unlikely that a single marketing mix willattract all segments of the market. Thus, if a marketer wishes to appeal to more than onesegment of the market, it must develop different marketing mixes. For example, SunlightSaunas makes saunas that retail at various prices between $1,695 and $5,595. The com-pany segments its customer base into luxury and health markets based on data it gathersfrom visits to its Web site and conversations with potential customers. The same saunasappeal to both market segments, but the different groups require different marketing mes-sages.38 The three general strategies for selecting target markets—undifferentiated, con-centrated, and multisegment targeting—are illustrated in Exhibit 7.4. Exhibit 7.5 on page221 illustrates the advantages and disadvantages of each targeting strategy.

UNDIFFERENTIATED TARGETINGA firm using an undifferentiated targeting strategy essentially adopts a mass-marketphilosophy, viewing the market as one big market with no individual segments. The firmuses one marketing mix for the entire market. A firm that adopts an undifferentiatedtargeting strategy assumes that individual customers have similar needs that can be metwith a common marketing mix.

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target marketA group of people ororganizations for which an organization designs,implements, and main-tains a marketing mixintended to meet theneeds of that group,resulting in mutually satisfying exchanges.

undifferentiated targeting strategyA marketing approach that views the market asone big market with noindividual segments andthus uses a singlemarketing mix.

Undifferentiatedstrategy

Concentratedstrategy

Multisegmentstrategy

Exhibit 7.4Three Strategies forSelecting Target Markets

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The first firm in an industry sometimes uses an undifferentiated targeting strategy.With no competition, the firm may not need to tailor marketing mixes to the prefer-ences of market segments. Henry Ford’s famous comment about the Model T is a classicexample of an undifferentiated targeting strategy: “They can have their car in any colorthey want, as long as it’s black.” At one time, Coca-Cola used this strategy with a singleproduct and a single size of its familiar green bottle. Marketers of commodity products,such as flour and sugar, are also likely to use an undifferentiated targeting strategy.

One advantage of undifferentiated marketing is the potential for saving on produc-tion and marketing. Because only one item is produced, the firm should be able toachieve economies of mass production. Also, marketing costs may be lower when thereis only one product to promote and a single channel of distribution. Too often, however,an undifferentiated strategy emerges by default rather than by design, reflecting a failureto consider the advantages of a segmented approach. The result is often sterile, unimagi-native product offerings that have little appeal to anyone.

Another problem associated with undifferentiated targeting is that it makes the com-pany more susceptible to competitive inroads. Hershey lost a big share of the candy mar-ket to Mars and other candy companies before it changed to a multisegment targetingstrategy. Coca-Cola forfeited its position as the leading seller of cola drinks in supermar-kets to Pepsi-Cola in the late 1950s, when Pepsi began offering several sizes of containers.

You might think a firm producing a standard product like toilet tissue would adoptan undifferentiated strategy. However, this market has industrial segments and con-sumer segments. Industrial buyers want an economical, single-ply product sold in boxesof a hundred rolls. The consumer market demands a more versatile product in smallerquantities. Within the consumer market, the product is differentiated with designerprint or no print, cushioned or noncushioned, and economy priced or luxury priced. FortHoward Corporation, the market share leader in industrial toilet paper, does not evensell to the consumer market.

Undifferentiated marketing can succeed in certain situations, though. A small grocerystore in a small, isolated town may define all of the people that live in the town as its tar-get market. It may offer one marketing mix and generally satisfy everyone in town. Thisstrategy is not likely to be as effective if there are three or four grocery stores in the town.

CONCENTRATED TARGETINGWith a concentrated targeting strategy, a firm selects a market niche (onesegment of a market) for targeting its marketing efforts. Because the firm isappealing to a single segment, it can concentrate on understanding the needs,motives, and satisfactions of that segment’s members and on developing andmaintaining a highly specialized marketing mix. Some firms find that concen-

trating resources and meeting the needs of a narrowly defined market segmentis more profitable than spreading resources over several different segments.

For example, Starbucks became successful by focusing on consumers whowant gourmet coffee products. America Online (AOL) became one of the world’s

leading Internet providers by targeting Internet newcomers. By making the Internet

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TargetingStrategy Advantages Disadvantages

Undifferentiated • Potential savings on production/ • Unimaginative product offeringsTargeting marketing costs • Company more susceptible to

competition

Concentrated • Concentration of resources • Segments too small, orTargeting • Can better meet the needs of a narrowly changing

defined segment • Large competitors may more• Allows some small firms to better compete effectively market to niche

with larger firms segment• Strong positioning

Multisegment • Greater financial success • High costsTargeting • Economies of scale in producing/marketing • Cannibalization

Exhibit 7.5Advantages andDisadvantages of TargetMarketing Strategies

concentrated targetingstrategyA strategy used to selectone segment of a marketfor targeting marketingefforts.

nicheOne segment of a market.

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interface easy to use, AOL was able to attract millions of people who otherwise might nothave subscribed to an online service. Watch makers Patek Philippe, Rolex, and Breguet sell-ing watches priced at $200,000 or more are definitely pursuing a concentrated targetingstrategy. AARP pursues a concentrated strategy if you consider people over 50 years old tobe a single market segment of the overall population.

Small firms often adopt a concentrated targeting strategy to compete effectivelywith much larger firms. For example, Enterprise Rent-A-Car rose to number one in thecar rental industry by catering to people with cars in the shop. It has now expanded intothe airport rental market. Majestic Athletic is able to compete with apparel makers sev-eral times its size by focusing its attention on one market segment—professional base-ball. It recently beat out adidas, Nike, and Reebok to become the sole supplier to MajorLeague Baseball and its exclusive licensee.39

Some firms, on the other hand, use a concentrated strategy to establish a strongposition in a desirable market segment. Porsche, for instance, targets an upscale auto-mobile market through “class appeal, not mass appeal.”

Concentrated targeting violates the old adage “Don’t put all your eggs in one basket.”If the chosen segment is too small or if it shrinks because of environmental changes, thefirm may suffer negative consequences. For instance, OshKosh B’Gosh, Inc., was highlysuccessful selling children’s wear in the 1980s. It was so successful, however, that thechildren’s line came to define OshKosh’s image to the extent that the company could notsell clothes to anyone else. Attempts at marketing older children’s clothing, women’scasual clothes, and maternity wear were all abandoned. Recognizing it was in the chil-dren’s wear business, the company expanded into products such as kids’ shoes, chil-dren’s eyewear, and plush toys.

A concentrated strategy can also be disastrous for afirm that is not successful in its narrowly defined tar-get market. Before Procter & Gamble introduced Headand Shoulders shampoo, several small firms werealready selling antidandruff shampoos. Head andShoulders was introduced with a large promotionalcampaign, and the new brand captured over half themarket immediately. Within a year, several of the firmsthat had been concentrating on this market segmentwent out of business.

MULTISEGMENT TARGETINGA firm that chooses to serve two or more well-definedmarket segments and develops a distinct marketingmix for each has a multisegment targeting strategy.Many universities offer full-time (day) MBA programs,professional (evening) programs, and executive (week-end) programs, each targeted at a distinctly differentmarket segment. Many programs are targeting mothersreturning to the workplace. Cosmetics companies seekto increase sales and market share by targeting multipleage and ethnic groups. Maybelline and Cover Girl, forexample, market different lines to teenage women,young adult women, older women, and AfricanAmerican women. CitiCard offers its Upromise Card tothose who want to earn money to save for college, itsPlatinum Select Card to those who want no annual feeand a competitive interest rate, its Diamond PreferredRewards Card to customers who want to earn freerewards like travel and brand-name merchandise, andits Citi AAdvantage Card to those who want to earn

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Brands with a multisegment targeting approach develop marketingmixes for more than one distinct market segment. In this advertise-ment, Ralph Lauren displays the versatility of its brand by pointingout that it makes clothing for children as well as for teenagers andyoung adults.

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multisegment targeting strategyA strategy that choosestwo or more well-definedmarket segments anddevelops a distinct mar-keting mix for each.

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American Airlines Advantage frequent flyer miles to redeem for travel. Many credit-cardcompanies even have programs specifically designed for tweens, teens, and college stu-dents.40 Wal-Mart has historically followed a concentrated strategy that targeted lower-income segments. Recently, however, the company has made a bold effort to target upscaleshoppers in Plano, Texas, by opening a pilot store that stocks plasma televisions, fine jew-elry, hundreds of types of wine (including some priced at $500 a bottle), and even boasts asushi bar, an espresso bar, and free wireless Internet access—but no layaways. Wal-Mart’score middle-class customer base is slipping, so the company must expand its strategy toattract upper-end consumers, who define value differently than shoppers of moderateincome.41

Sometimes organizations use different promotional appeals, rather than completelydifferent marketing mixes, as the basis for a multisegment strategy. Beer marketers suchas Adolph Coors and Anheuser-Busch advertise and promote special events targetedtoward African American, Hispanic American, and Asian American market segments.The beverages and containers, however, do not differ by ethnic market segment.

Multisegment targeting is used for stores and shopping formats, not just brands. Inthe past, Best Buy treated all its customers as if they were the same, according to CEOBradbury Anderson. But its customers aren’t the same.42 The company has identifiedfive types of customers and has given each type a name: “Jill,” a busy suburban mom;“Buzz,” a focused, active younger male; “Ray,” a family man who likes his technologypractical; “BB4B” (short for Best Buy for Business), a small employer; and “Barry,” an afflu-ent professional male who’s likely to drop tens of thousands of dollars on a home the-ater system.

Over the next few years, each of Best Buy’s 608 stores will focus on one or two of the five segments.43 Gap, Inc., takes a different approach. It uses family and indi-vidual branding for its alternative format outlets that target different market seg-ments. Stores operating under the family brand include Gap, Gapkids, babyGap,GapBody, and Gap Outlet. Individual brands other than Gap include Banana Republic,Old Navy, and Forth & Towne. The newest addition, Forth & Towne, caters to womenover 35 with clothes for all occasions. The nearly 40 million American female babyboomers are a demographic group that hasn’t had many apparel stores created solelyfor them.44 This group represents a $41 billion business with $27 billion of that spenton themselves.45

Multisegment targeting offers many potential benefits to firms, including greatersales volume, higher profits, larger market share, and economies of scale in manufactur-ing and marketing. Yet it may also involve greater product design, production, promo-tion, inventory, marketing research, and management costs. Before deciding to use thisstrategy, firms should compare the benefits and costs of multisegment targeting to thoseof undifferentiated and concentrated targeting.

Another potential cost of mul-tisegment targeting is cannibal-ization, which occurs when salesof a new product cut into sales of afirm’s existing products. In manycases, however, companies preferto steal sales from their ownbrands rather than lose sales to acompetitor. Also, in today’s fast-paced world of Internet business,some companies are willing tocannibalize existing business tobuild new business. Code Red, partof PepsiCo’s multisegmentationapproach, gets a quarter of its vol-ume from existing Mountain Dewdrinkers.46

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Discuss a l ternat ive st rategies forse lect ing target marketsLO 7

Undifferentiated ConcentratedMultisegment

cannibalizationA situation that occurswhen sales of a new prod-uct cut into sales of afirm’s existing products.

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LO8One-to-One Marketing

Most businesses today use a mass-marketing approach designed toincrease market share by selling their products to the greatest number of people. Formany businesses, however, it is more efficient and profitable to use one-to-one market-ing to increase share of customer—in other words, to sell more products to each customer.One-to-one marketing is an individualized marketing method that utilizes customerinformation to build long-term, personalized, and profitable relationships with each cus-tomer. The goal is to reduce costs through customer retention and increase revenuethrough customer loyalty. For example, Tesco, the British supermarket chain, sends out amailing each quarter to 11 million households—but it produces 4 million different ver-sions, tailored to the interests of its diverse customer base.47

The difference between one-to-one marketing and the traditional mass-marketingapproach can be compared to shooting a rifle and a shotgun. If you have good aim, arifle is the more efficient weapon to use. A shotgun, on the other hand, increases yourodds of hitting the target when it is more difficult to focus. Instead of scattering mes-sages far and wide across the spectrum of mass media (the shotgun approach), one-to-one marketers look for opportunities to communicate with each individual customer(the rifle approach).

Anya Hindmarch, one of Britain’s leading handbag and accessory designers, invitesher customers to participate in the creation of their handbags by providing a personalphotograph that she expertly transposes onto one of her beautifully designed bags.Customers may also participate in the design process in other ways to create a unique,one-of-a-kind, customer-designed handbag.48

Lands’ End also engages in one-to-one marketing by custom designing clothing. OnLands’ End’s Web site, customers provide information by answering a series of questionsthat takes about 20 minutes. Customer sizing information is saved, and reordering issimple. Customers who customize have been found to be more loyal. Reorder rates forLands’ End custom-clothing buyers are 34 percent higher than for buyers of its standard-sized clothing.49

Is one-to-one marketing just the latest fad, or will it continue to grow and spread?Several factors suggest that personalized communications and product customizationwill continue to expand as more and more companies understand why and how theircustomers make and execute purchase decisions. At least four trends will lead to thecontinuing growth of one-to-one marketing.

First, the one-size-fits-all marketing of yesteryearno longer fits. Consumers do not want to be treatedlike the masses. Instead, they want to be treated asthe individuals they are, with their own unique setsof needs and wants. By its personalized nature, one-to-one marketing can fulfill this desire.

Second, more direct and personal marketingefforts will continue to grow to meet the needs ofconsumers who no longer have the time to spendshopping and making purchase decisions. With thepersonal and targeted nature of one-to-one market-ing, consumers can spend less time making purchasedecisions and more time doing the things that areimportant.

Third, consumers will be loyal only to those com-panies and brands that have earned their loyalty andreinforced it at every purchase occasion. One-to-onemarketing techniques focus on finding a firm’s bestcustomers, rewarding them for their loyalty, andthanking them for their business.

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one-to-one marketingAn individualized market-ing method that utilizescustomer information to build long-term, person-alized, and profitable rela-tionships with eachcustomer.

How serious are companies about giving customers individualizedattention? Levi Strauss has a shrink tub in its San Francisco megastoreso that customers can shrink their jeans to fit. After the shrink tub,they pass through the human dryer before leaving the store.

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Fourth, mass-media approaches will decline in importance as advances in marketresearch and database technology allow marketers to collect detailed information on theircustomers, not just the approximation offered by demographics but the specific namesand addresses. New technology offers one-to-one marketers a more cost-effective way toreach customers and enables businesses to personalize their messages. For example,MyYahoo.com greets each user by name and offers information in which the user hasexpressed interest. Similarly, RedEnvelope.com helps customers keep track of special occa-

sions and offers personalized gift recom-mendations. Dell, Inc., and Starbucks arewell-known examples of one-to-one prod-uct customization, but more and morecompanies are making it possible for cus-tomers to customize their purchases.With the help of database technology,one-to-one marketers can track their cus-tomers as individuals, even if they num-ber in the millions.

One-to-one marketing is a hugecommitment and often requires a 180-degree turnaround for marketers whospent the last half of the twentieth cen-tury developing and implementingmass-marketing efforts. Although massmarketing will probably continue to beused, especially to create brand aware-ness or to remind consumers of a prod-uct, the advantages of one-to-onemarketing cannot be ignored.

LO9Positioning

The development of any marketing mix depends on positioning, aprocess that influences potential customers’ overall perception of a brand, product line,or organization in general. Position is the place a product, brand, or group of productsoccupies in consumers’ minds relative to competing offerings. Consumer goods mar-keters are particularly concerned with positioning. Procter & Gamble, for example, mar-kets 11 different laundry detergents, each with a unique position, as illustrated inExhibit 7.6 on page 226.

Positioning assumes that consumers compare products on the basis of importantfeatures. Marketing efforts that emphasize irrelevant features are therefore likely to mis-fire. For example, Crystal Pepsi and a clear version of Coca-Cola’s Tab failed because con-sumers perceived the “clear” positioning as more of a marketing gimmick than a benefit.

Effective positioning requires assessing the positions occupied by competing prod-ucts, determining the important dimensions underlying these positions, and choosing aposition in the market where the organization’s marketing efforts will have the greatestimpact. For example, Campbell’s “Select” brand targets what the company calls “FoodExplorers.” This line of products is positioned as a brand for upscale adults who adven-turously seek new taste experiences.50 ProFlowers’ business model is to ship flowersdirectly from growers to consumers, which allows bouquets to stay fresh longer. Thecompany’s position statement is, “The art of fresher flowers.”51

As the previous examples illustrate, product differentiation is a positioning strat-egy that many firms use to distinguish their products from those of competitors. Thedistinctions can be either real or perceived. Tandem Computer designed machines withtwo central processing units and two memories for computer systems that can neverafford to be down or lose their databases (for example, an airline reservation system). In

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positioningDeveloping a specific mar-keting mix to influencepotential customers’ over-all perception of a brand,product line, or organiza-tion in general.

positionThe place a product,brand, or group of prod-ucts occupies in con-sumers’ minds relative tocompeting offerings.

product differentiationA positioning strategythat some firms use todistinguish their productsfrom those ofcompetitors.


Expla in one -to -one market ingLO 8

ABC

CompanyABC

ABCABC

Market

TraditionalMarketing

One-to-OneMarketing

Increase market share

Increase share of customer

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this case, Tandem used productdifferentiation to create a prod-uct with very real advantagesfor the target market. However,many everyday products, suchas bleaches, aspirin, unleadedregular gasoline, and somesoaps, are differentiated bysuch trivial means as brandnames, packaging, color, smell,or “secret” additives. The mar-keter attempts to convince con-sumers that a particular brandis distinctive and that theyshould demand it over compet-ing brands.

Some firms, instead ofusing product differentiation,

position their products as being similar to competing products or brands. Artificial sweet-eners advertised as tasting like sugar or margarine tasting like butter are two examples.

PERCEPTUAL MAPPINGPerceptual mapping is a means of displaying or graphing, in two or more dimensions,the location of products, brands, or groups of products in customers’ minds. For exam-ple, after several years of decreasing market share and the perception of teenagers thatLevi’s were not “cool,” Levi Strauss developed a number of youth-oriented fashions, as wellas apparel appealing to adults by extending the Dockers and Slates casual-pants brands. Totarget high-end customers, Levi offers styles such as its Vintage line. These jeans sell for$85 to $220 in stores like Neiman Marcus. The perceptual map in Exhibit 7.7 shows Levi’sdozens of brands and subbrands, from cheap basics to high-priced fashion.

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Exhibit 7.6Positioning of Procter & Gamble Detergents

Brand Positioning Market Share

Tide Tough, powerful cleaning 31.1%

Cheer Tough cleaning and color protection 8.2%

Bold Detergent plus fabric softener 2.9%

Gain Sunshine scent and odor-removing formula 2.6%

Era Stain treatment and stain removal 2.2%

Dash Value brand 1.8%

Oxydol Bleach-boosted formula, whitening 1.4%

Solo Detergent and fabric softener in liquid form 1.2%

Dreft Outstanding cleaning for baby clothes, safe for tender skin 1.0%

Ivory Snow Fabric and skin safety on baby clothes and fine washables 0.7%

Ariel Tough cleaner, aimed at Hispanic market 0.1%

Highprice

Vintage$125+

Red Line$100

DockersEquipmentfor Legs$100+

Lowprice

Sta-Prest$75

Red Tab Elesco$60

Slates$65

DockersPremium$50

Dockers K-1 $65

Slates Collection$60

Red Tab Dry Goods$45

Silver Tab$45

Designer

L2$30

501$35

Red TabBasics$30

DockersClassic$30

Classic

Old product

New product

New product,Europe only

SOURCE: Nina Munk, “How Levi’s Trashed a Great American Brand,” Fortune, April 12, 1999, p. 84.

Exhibit 7.7Perceptual Map andPositioning Strategy forLevi Strauss Products

perceptual mappingA means of displaying orgraphing, in two or moredimensions, the locationof products, brands, orgroups of products in cus-tomers’ minds.

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POSITIONING BASESFirms use a variety of bases for posi-tioning, including the following:

• Attribute: A product is associ-ated with an attribute, productfeature, or customer benefit.Rockport shoes are positionedas an always comfortablebrand that is available in arange of styles from workingshoes to dress shoes.

• Price and quality: This position-ing base may stress high price as a signal of quality or emphasize low price as anindication of value. Neiman Marcus uses the high-price strategy; Wal-Mart hassuccessfully followed the low-price and value strategy. The mass merchandiserTarget has developed an interesting position based on price and quality. It is an“upscale discounter,” sticking to low prices but offering higher quality and designthan most discount chains.

• Use or application: Stressing uses or applications can be an effective means of posi-tioning a product with buyers. Kahlúa liqueur used advertising to point out 228ways to consume the product. Snapple introduced a new drink called “Snapple aDay” that is intended for use as a meal replacement.

• Product user: This positioning base focuses on a personality or type of user. ZaleCorporation has several jewelry store concepts, each positioned to a differentuser. The Zale stores cater to middle-of-the-road consumers with traditionalstyles. Its Gordon’s stores appeal to a slightly older clientele with a contemporarylook. Guild is positioned for the more affluent 50-plus consumer.

• Product class: The objective here is to position the product as being associated witha particular category of products; for example, positioning a margarine brand withbutter. Alternatively, products can be disassociated with a category; for example,the “We’re not your father’s Oldsmobile” ad campaign.

• Competitor: Positioning against competitors is part of any positioning strategy. TheAvis rental car positioning as number two exemplifies positioning against specificcompetitors.

• Emotion: Positioning using emotion focuses on how the product makes customersfeel. A number of companies use this approach. For example, Nike’s “Just Do It”campaign didn’t tell consumers what “it” was, but most got the emotional messageof achievement and courage. Budweiser’s advertising featuring talking frogs andlizards emphasized fun. Kodak has long used emotional positioning revolvingaround family and memories when advertising its cameras and film.

It is not unusual for a marketer to use more than one of these bases. A print ad inthe “Got Milk?” campaign featuring Joan Lunden sporting a milk mustache read as follows:

Most people think I must drink at least 10 cups of coffee to be so perky in themorning. But the truth is, I like skim milk first thing. It has all the same nutri-ents as whole milk without all the fat. And, besides, my husband got the cof-fee maker.

This ad reflects the following positioning bases:

• Product attribute/benefit: The “same nutrients as whole milk without all the fat”describes a product attribute, and that skim milk makes her “perky” is a benefit.

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Online

MotorolaNokiaVisit the Web sites where Motorola and Nokia pitchtheir cell phones and examine the Web pages designedto target customers in the United States, South Korea,and at least one Latin American or European country.Explore some of the links and determine if they use dif-ferent segmentation strategies. Who do they appear totarget? How do you think consumer preferences varyby country or culture?http://www.hellomoto.comhttp://www.nokia.com

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• Use or application: Lunden drinks milk first thing inthe morning.

• Product user: The use of Lunden, a successful, inde-pendent woman, shows that milk is not just forkids.

• Product class (disassociation): The ad differentiatesskim milk from whole milk, showing that skim milkis healthier.

• Competitor (indirect): She drinks milk instead of coffee.

• Emotion: The ad conveys an upbeat, contemporaryattitude.52

REPOSITIONINGSometimes products or companies are repositioned inorder to sustain growth in slow markets or to correctpositioning mistakes. Repositioning is changing con-sumers’ perceptions of a brand in relation to competingbrands. For example, Gap, Inc., is trying to repositionBanana Republic as a more fashion-oriented retailer.Management hopes that this repositioning will helpdistinguish Banana Republic from its sister store Gap,which is known for khakis and other basics. The four-pronged strategy entails emphasizing trendier stylesand colors over basics and neutrals, making stores feelmore upscale, persuading fashion editors to use thechain’s clothes in their editorial pages, and depictingordinary, real-world settings in ads so that clothesappear accessible and wearable.53

An entire industry of firms that need to think aboutrepositioning is the supermarket industry. For over adecade, Wal-Mart has been expanding in both rural andmetro areas. The result has generally been devastating

to competitors, especially independent grocers. Consulting firm Retail Forward predictsthat two supermarkets will go out of business for every Wal-Mart supercenter that opensin the United States. The Strategic Resource Group adds that 27 leading national andregional supermarket operators have either gone bankrupt or have liquidated since Wal-Mart went national with supercenters.54 So what are competitors to do? Wal-Mart ownsthe low price position. Successful competitors will have to establish viable alternativepositions.

Safeway is trying to avoid Wal-Mart by repositioning itself as upscale with more pro-duce, organics, prepared food, and wine. H-E-B stores in Hispanic areas in Texas are tai-loring their product mix to appeal to this market segment. H-E-B has also opened Asianwet markets in some stores. Its Central Market format is definitely upscale with uniqueproducts and very high-quality perishables. Research shows that over half of all familieswith incomes between $50,000 and $100,000 are willing to pay more for high-quality itemsin a more pleasant shopping environment.55 Other chains are also experimenting withnew positioning strategies. Publix is testing new Hispanic-oriented stores called PublixSabor and GreenWise, an organic/natural foods format. Stop & Shop is also focusing moreon organics.56

It is too early to tell which, if any, of these repositioning strategies will be successful.Clearly, though, competing head-on with Wal-Mart is not a good idea.

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repositioningChanging consumers’ per-ceptions of a brand in rela-tion to competing brands.

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Repositioning can help companies attract new customers. This Wal-Mart ad is part of the company’s effort to reposition into the upscalediscounting segment dominated by Target. Wal-Mart’s change instrategy reflects the company’s need to sell to higher-income cus-tomers, like those who can afford a higher-priced vacuum.

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Review and Applications

Describe the characteristics of markets and market segments. A market iscomposed of individuals or organizations with the ability and willingness tomake purchases to fulfill their needs or wants. A market segment is a group ofindividuals or organizations with similar product needs as a result of one ormore common characteristics.

1.1 Mercedes-Benz is thinking about advertising its cars to college students. Do you thinkthat college students are a viable potential market for Mercedes? Why or why not?

1.2 Go to the Web site http://www.careermag.com. How are visitors to the site seg-mented when seeking relevant job openings? Report your results.

Explain the importance of market segmentation. Before the 1960s, few busi-nesses targeted specific market segments. Today, segmentation is a crucialmarketing strategy for nearly all successful organizations. Market segmentationenables marketers to tailor marketing mixes to meet the needs of particular

population segments. Segmentation helps marketers identify consumer needs and prefer-ences, areas of declining demand, and new marketing opportunities.

2.1 Describe market segmentation in terms of the historical evolution of marketing.

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Expla in how and why f i rms implement pos i t ion ing st rategies and how product d i f ferent iat ion p lays a ro leLO 9

ClassyDistinctive

PracticalAffordable

Lincoln

Mercedes

SportyConservative

Chrysler

Cadillac Cadillac

Buick

Ford

Dodge

BMW

Porsche

Pontiac

Nissan

POSITIONREPOSITIONING

Chevy

Toyota

VW

Plymouth

POSITIONING BASES

Each car occupies a position in consumers’ minds.Cars can be positioned according to attribute (sporty, conservative, etc.), to price/quality (affordable, classy, etc.) or other bases.Cadillac has repositioned itself as a car for younger drivers with edgier ads.

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Discuss criteria for successful market segmentation. Successful market seg-mentation depends on four basic criteria: (1) a market segment must be sub-stantial and have enough potential customers to be viable; (2) a marketsegment must be identifiable and measurable; (3) members of a market

segment must be accessible to marketing efforts; and (4) a market segment mustrespond to particular marketing efforts in a way that distinguishes it from other segments.

3.1 As a marketing consultant for a chain of hair salons, you have been asked to evaluatethe kids’ market as a potential segment for the chain to target. Write a memo to yourclient discussing your evaluation of the kids’ segment in terms of the four criteria forsuccessful market segmentation.

Describe the bases commonly used to segment consumer markets. Fivebases are commonly used for segmenting consumer markets. Geographicsegmentation is based on region, size, density, and climate characteristics.Demographic segmentation is based on age, gender, income level, ethnicity,

and family life-cycle characteristics. Psychographic segmentation includes personality,motives, and lifestyle characteristics. Benefits sought is a type of segmentation thatidentifies customers according to the benefits they seek in a product. Finally, usagesegmentation divides a market by the amount of product purchased or consumed.

4.1 Choose magazine ads for five different consumer products. For each ad, write adescription of what you think the demographic characteristics of the targeted marketare.

4.2 Is it possible to identify a single market for two distinctly different products? Forexample, how substantial is the market comprised of consumers who use Apple andwho drive Volkswagens? Can you think of other product combinations that wouldinterest a single market? (Do not use products that are complementary, like a bikeand a bike helmet. Think of products, like the iPod and the car, that are very differ-ent.) Complete the following sentences and describe sentences and describe themarket for each set of products you pair together.

Consumers of:

Propel fitness water could also be a target market for ____________.

Proactiv Solution skin care products could also be a target market for ____________.

Alienware computers could also be a target market for ____________.

Specialty luggage tags could also be a target market for ____________.

Describe the bases for segmenting business markets. Business markets can besegmented on two general bases. First, businesses segment markets based oncompany characteristics, such as customers’ geographic location, type of com-pany, company size, and product use. Second, companies may segment cus-

tomers based on the buying processes those customers use.

5.1 Choose five ads from business publications such as the Wall Street Journal, Fortune,and BusinessWeek. For each ad, write a description of how you think the companyhas segmented its business market.

List the steps involved in segmenting markets. Six steps are involved when segmenting markets: (1) selecting a market or product category for study; (2) choosing a basis or bases for segmenting the market; (3) selecting segmen-tation descriptors; (4) profiling and evaluating segments; (5) selecting target

markets; and (6) designing, implementing, and maintaining appropriate marketing mixes.

6.1 Write a letter to the president of your bank suggesting ideas for increasing profits andenhancing customer service by improving segmentation and targeting strategies.

LO 3

LO 4

LO 5

LO 6

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Discuss alternative strategies for selecting target markets. Marketers selecttarget markets using three different strategies: undifferentiated targeting, con-centrated targeting, and multisegment targeting. An undifferentiated targetingstrategy assumes that all members of a market have similar needs that can

be met with a single marketing mix. A concentrated targeting strategy focuses all mar-keting efforts on a single market segment. Multisegment targeting is a strategy thatuses two or more marketing mixes to target two or more market segments.

7.1 Form a team with two or three other students. Create an idea for a new product.Describe the segment (or segments) you are going to target with the product, andexplain why you chose the targeting strategy you did.

7.2 Go to the Web sites of JCPenney, http://www.jcpenney.com, and Target,http://www.target.com. Compare the presentation of women’s fashions at the Websites. What are the major differences? Which site is more designer focused, andwhich is more brand focused? Which company’s approach do you think will appealmore to the “Holy Grail” target market of 25- to 35-year-old women?

Explain one-to-one marketing. One-to-one marketing is an individualized mar-keting method that utilizes customer information to build long-term, personal-ized, and profitable relationships with each customer. Successful one-to-onemarketing comes from understanding customers and collaborating with them,

rather than using them as targets for generic messages. Database technology makes itpossible for companies to interact with customers on a personal, one-to-one basis.

8.1 You are the marketing manager for a specialty retailer that sells customized handbags.Write a memo to your boss describing how the company could benefit from one-to-one marketing.

Explain how and why firms implement positioning strategies and how prod-uct differentiation plays a role. Positioning is used to influence consumer per-ceptions of a particular brand, product line, or organization in relation tocompetitors. The term position refers to the place that the offering occupies

in consumers’ minds. To establish a unique position, many firms use product differentia-tion, emphasizing the real or perceived differences between competing offerings.Products may be differentiated on the basis of attribute, price and quality, use or appli-cation, product user, product class, or competitor.

9.1 Choose a product category (e.g., pick-up trucks), and identify at least three differentbrands and their respective positioning strategies. How is each position communi-cated to the target audience?

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Key Terms

benefit segmentation 216cannibalization 223concentrated targeting strategy 221demographic segmentation 20980/20 principle 217family life cycle (FLC) 213geodemographic segmentation 215geographic segmentation 208market 207

market segment 207market segmentation 207multisegment targeting strategy 222niche 221one-to-one marketing 224optimizers 218perceptual mapping 226position 225positioning 225

product differentiation 225psychographic segmentation 215repositioning 228satisficers 218segmentation bases (variables) 208target market 220undifferentiated targeting strategy 220usage-rate segmentation 217

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Application ExerciseHow tightly do you fit into a particular market segment? Do you think you can be neatlyclassified? If you think your purchasing habits make you an enigma to marketers, youmay need to think again.57

Activities

1. Go to the Claritas Web site (http://www.claritas.com) and follow its “You Are WhereYou Live” link to find out what your ZIP code says about you. The database will gener-ate many cluster descriptions based on your ZIP code. Depending on the functionality ofthe Web site at the time you access the database, you may need to reenter your ZIPcode multiple times if you want to read all the cluster descriptions.

2. Now pick a product category, like automobiles, athletic shoes, beverages, or health andbeauty products. Then think about which products in that category would appeal toeach of the clusters generated by your ZIP code search. For example, a car that appealsto a cluster titled “Young Bohemians” may not be the car of choice for the cluster“Pools and Patios.” If your search generated only one cluster type, you may wish toenter other ZIP codes for your area of town or for your region.

3. Create a perceptual map for the product you chose. Write a short statement thatdescribes the overall position of each product with an explanation of why you located itwhere you did on the perceptual map.

Entrepreneurship CaseVIVA LAS VEGASIn 2003, more than 35.5 million travelers made Las Vegas their destination of choice. Itwas the second largest volume of visitors the city has ever entertained, lagging justslightly behind the 35.8 million recorded for the year 2000. Those numbers are remark-able given the recent slump in the travel industry, and the city has the Las VegasConvention and Visitors Authority to thank. For almost 50 years, the LVCVA has beenpromoting Las Vegas in an effort to maximize occupancy for the city’s hoteliers whosuffer from the cyclical demand in the travel industry. The authority’s marketing of thecity’s convention, lodging, and entertainment facilities to convention organizers, meet-ing planners, and leisure travelers plays an integral role in keeping hotel rooms and con-vention facilities occupied during off-peak times of the year.

Many types of visitors go to Las Vegas for a variety of reasons, and the LVCVA usesa multilevel promotions strategy to reach them all. The organization’s promotional mixincludes national television advertising, grassroots marketing, and relationship buildingwith a variety of organizations. Each element is specifically designed to address issueswithin particular segments of its growing target market, such as changes in the compo-sition of the visitor pool, shifts in visitors’ travel preferences, the emergence of poten-tially lucrative metropolitan markets, and trends in foreign visitors.

An LVCVA study of the area’s visitors for 2001, for example, found that AfricanAmericans, Hispanics, and Asian Americans accounted for 9, 5, and 4 percent, respec-tively, of the total visitor pool. The same study also revealed that the number of visitorsfrom each of those groups had been steadily rising and that all U.S. visitors were begin-ning to prefer two- or three-day stays to weeklong vacations. With those data in hand,the LVCVA produced its award-winning “Vegas Stories” series of TV commercials.These irreverent ads poke fun at the sticky situations travelers may find themselves inas a result of too much revelry in the desert.

Using the tagline, “What happens here, stays here,” the spots from the “VegasStories” campaign include an older Asian woman trying to alter an after-the-trip love let-ter while Roy Orbison’s “Only the Lonely” plays in the background and a bacheloretteparty of African American women riding quietly in a limousine until the group is slowlyovercome with sheepish laughter. Other commercials depict elderly couples, business-

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women, and young professional males. The LVCVA also produced its first-ever commer-cial recorded entirely in Spanish, which was written specifically to appeal to Hispanics’historical preference for family or group activities for vacations. Additionally, the author-ity’s director of diversity began promoting Las Vegas to ethnic chambers of commerceand organizations like the International Association of Hispanic Meeting Planners andthe National Coalition of Black Meeting Planners.

Other research performed by the LVCVA identified Portland, Oregon, and Atlanta asemerging regional markets based on their median household incomes, their availableflights to Las Vegas, the cost of advertising in those markets, and the propensity of theircitizens to gamble. The LVCVA then bought billboards in each city, cruised the towns ina specially prepared van featuring an Elvis impersonator and a traditional Vegas show-girl, and offered special travel deals to promote the entertainment options that LasVegas offers in addition to gambling.

The authority’s message carries beyond the borders of the United States, too. Whenit noticed significant drops in the visitor volume from Canada—Las Vegas’s leadingsource of international travelers—the LVCVA sent an official delegation to Toronto. Thegroup canvassed Toronto’s Canadian Meeting & Incentive Travel Symposium & TradeShow to persuade convention operators to host their future productions in the desert.Representatives also met with private convention and leisure travel planners andattended events in Montreal and Vancouver to promote their cause.

Las Vegas is clearly on the rise again thanks to the tireless work of the LVCVA, andthe authority has the hard data to prove it. As long as the LVCVA continues to under-stand its many diverse customers and communicate with them appropriately, the city oflights should continue to shine brightly for many years to come.58

Questions

1. What bases does the LVCVA use for segmenting its target market?

2. Does the LVCVA use an undifferentiated, a concentrated, or a multisegment targetingstrategy? Why? Should the LVCVA be concerned with cannibalization?

3. Think of the many reasons a person might want to travel to Las Vegas. Given a targetmarket of all U.S. citizens aged 18 to 75, speculate how you might segment that mar-ket by lifestyle.

4. What do you think makes the LVCVA so successful?

COMPANY CLIPS

ReadyMade—Focus and SegmentationReadyMade markets itself as a magazine catering to GenNest, the group of consumers ages25 to 35 who are just settling down after college. These young couples are buying their firsthouses and taking on domestic and decorating roles for the first time. They are interested inbeing stylish, while at the same time maintaining their own unique personalities. ButReadyMade appeals to a wide variety of readers beyond GenNest. The magazine has sub-scribers in all age groups, from teens looking to spruce up their rooms to retirees looking forprojects to enliven their homes. This diversity offers a unique challenge to ReadyMade as ittries to promote itself to advertisers who need to know what sort of people will be reachedthrough advertisements appearing in the publication.

Questions

1. How does ReadyMade communicate the demographics of its reader base to advertiserswho want to see specific statistics that do not easily represent ReadyMade’s target market?

2. What sort of segmentation does ReadyMade use when it markets to businesses andinvestors?

3. What ideas do you have that would help ReadyMade reach out to new subscribers withoutalienating its loyal base?

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The Breakfast ClubCarefully review this chapter’s discussion of segmenting and targeting markets, especiallynoting Exhibit 7.1, “Concept of Market Segmentation.” The scene is an edited version of the“Lunchtime” sequence that appears in the first third of the film. John Hughes’s careful lookat teenage culture in a suburban Chicago High School focuses on a group of teenagers fromthe school’s different subcultures. View this film scene as a metaphor for market segmenta-tion. What market segments can you identify in the scene? What are your criteria or basesfor those segments or divisions? Why would market segmentation be important if you weremarketing products or services to the people shown in the scene?

A high score indicates that you operatewithin budget constraints. Living on abudget doesn’t necessarily mean thatyou change your shopping behavior oryour price comparison behavior, how-ever. Low scores relate to financial dis-tress and a tendency to be brand loyal.After reading Chapter 7, you can seewhy income and financial situation canbe an important segmentation variable!

Marketing You Results&

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56203 00 fm pi-xxx - Cengage · Segmenting and CHAPTER7 Targeting Markets ... LO 5 Describe the bases for segmenting business ... LO 9 Explain how and why firms implement positioning