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


Market segmentation

  • Dividing a market into smaller segments of buyers with distinct needs, characteristics, or behaviors that might require separate marketing strategies or mixes


Market targeting

  • The process of evaluating each market segment’s attractiveness and selecting one or more segments to enter


Differentiation

  • Differentiating the market offering to create superior customer value


Positioning

  • Arranging for a market offering to occupy a clear, distinctive, and desirable place relative to competing products in the minds of target consumers


Geographic Segmentation

  • ​​Dividing a market into different geographical units, such as nations, states, regions, counties, or cities

  • Companies are localizing their products, advertising, promotion, and sales efforts to fit the needs of individual regions

Note to Instructor: One example of localization is Walmart, which operates virtually everywhere but has developed special formats tailored to specific types of geographic locations. In strongly Hispanic neighborhoods, Walmart operates Supermercado de Walmart stores, which feature signage, product assortments, and bilingual staff that are more relevant to local Hispanic customers. In markets where full-size superstores are impractical, Walmart has opened smaller Walmart Market supermarkets and even smaller Walmart Express and Walmart on Campus stores. 


Demographic Segmentation

  • Dividing the market into segments based on variables such as age, life-cycle stage, gender, income, occupation, education, religion, ethnicity, and generation

    • Age and life-cycle segmentation

    • Gender segmentation

    • Income segmentation


Age and Life-Cycle Segmentation

  • Dividing a market into different age and life-cycle groups

  • Marketers must guard against using stereotypes

Disney Cruise Lines targets primarily families with children—most of its destinations and shipboard activities are designed with parents and their children in mind

Note to Instructor: Marketers must be careful to guard against stereotypes when using age and life-cycle segmentation. Although some 80-year-olds fit the doddering stereotypes, others ski and play tennis. Similarly, whereas some 40-year-old couples are sending their children off to college, others are just beginning new families. Thus, age is often a poor predictor of a person’s life cycle, health, work or family status, needs, and buying power. 


Gender Segmentation

  • Dividing a market into different segments based on gender

Harley-Davidson has traditionally targeted men between 35 and 55 years old, but women are now among its fastest-growing customer segments. Female buyers account for 12 percent of new Harley-Davidson purchases

Note to Instructor: An underdeveloped gender segment can offer new opportunities in markets ranging from consumer electronics to motorcycles. Ask students to suggest other products or services traditionally targeted to a single gender that could be profitably targeted to all consumers.


Income Segmentation

  • Dividing a market into different income segments

  • Some marketers target high-income segments

  • Retailers who target low- and middle-income groups are thriving


Psychographic Segmentation

  • Dividing a market into different segments based on social class, lifestyle, or personality characteristics

  • The products people buy reflect their lifestyles

Note to Instructor: Marketers also use personality variables to segment markets. For example, different soft drinks target different personalities. Ask students to contrast the personality types targeted by different brands of similar products, such as Apple and Microsoft, or Coke and Pepsi.


Behavioral Segmentation

  • Dividing a market into segments based on consumer knowledge, attitudes, uses, or responses to a product

    • Occasions

    • Benefits sought

    • User status

    • Usage rate

    • Loyalty status


Occasion Segmentation

  • Dividing the market into segments according to occasions when buyers get the idea to buy, actually make their purchase, or use the purchased item

M&M’s Brand Chocolate Candies runs special ads and packaging for holidays and events such as Easter


Benefit Segmentation and User Status

  • Benefit segmentation: Dividing the market according to the different benefits that consumers seek from the product

  • User status – Segments include nonusers, ex-users, potential users, first-time users, and regular users

  • Usage Rate - Markets can also be segmented into light, medium, and heavy product users


Loyalty Status

  • Buyers can be divided into groups according to their degree of loyalty

Loyal to a store--Nordstrom’s

Loyal to a brand--Ralph Lauren

Loyal to a Family of Brands--Apple products

“Mac Fanatics”—fanatically loyal Apple users are at the forefront of Apple’s empire


Using Multiple Segmentation Bases

  • The Nielsen PRIZM system 

    • Based on demographic factors

    • Classifies U.S. households into 66 demographically and behaviorally distinct segments


Requirements for Effective Segmentation

  • To be useful, market segments must be:

    • Measurable

    • Accessible

    • Substantial

    • Differentiable

    • Actionable


Market Targeting

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

    • Segment size and growth

    • Segment structural attractiveness

    • Company objectives and resources


Target market

  • A set of buyers sharing common needs or characteristics that the company decides to serve


Undifferentiated Marketing

  • A firm decides to ignore market segment differences and go after the whole market with one offer—Diet Coke

  • Focuses on what is common in the needs of consumers

  • Designs a product that will appeal to the largest number of buyers


Differentiated Marketing

  • A firm decides to target several market segments and designs separate offers for each (ethnic or religious-based greeting cards)

Hallmark’s three ethnic lines—Mahogany, Sinceramente Hallmark, and Tree of Life—target African-American, Hispanic, and Jewish consumers, respectively

Note to Instructor: By offering product and marketing variations to segments, companies hope for higher sales and a stronger position within each market segment. Developing a stronger position within several segments creates more total sales than undifferentiated marketing across all segments. But differentiated marketing also increases the costs of doing business.


Concentrated Marketing

  • ​​A firm goes after a large share of one or a few segments or niches (fish food)

  • Can fine-tune its products, prices, and programs to the needs of carefully defined segments

Thanks to the reach and power of the Web, online nicher Etsy—sometimes referred to as eBay’s funky little sister—is thriving

Note to Instructor: Niching lets smaller companies focus their limited resources on serving niches that may be unimportant to or overlooked by larger competitors. Many companies start as nichers to get a foothold against larger, more-resourceful competitors and then grow into broader competitors. For example, Southwest Airlines began by serving intrastate, no-frills commuters in Texas but is now one of the nation’s largest airlines. Today, the low cost of setting up shop on the Internet makes it even more profitable to serve seemingly miniscule niches. Small businesses, in particular, are realizing riches from serving small niches on the Web.


Micromarketing

  • Tailoring products and marketing programs to the needs and wants of specific individuals and local customer segments

    • Local marketing

    • Individual marketing


Local Marketing

  • Tailoring brands and promotions to the needs and wants of local customer segments—cities, neighborhoods, and even specific stores

Yankees and Met’s tee shirts in Modell’s 

The North Face uses “geo-fencing” to send localized text messages to consumers who get near one of its stores


Individual Marketing

  • Tailoring products and marketing programs to the needs and preferences of individual customers Made-to-order clothing or shoes

Companies such as CaféPress are hyper-personalizing everything from artwork, earphones, and sneakers to yoga mats, water bottles, and food

Note to Instructor: The widespread use of mass marketing has obscured the fact that for centuries consumers were served as individuals: The tailor custom-made a suit, the cobbler designed shoes for an individual, and the cabinetmaker made furniture to order. Today, new technologies are permitting many companies to return to customized marketing. More detailed databases, robotic production and flexible manufacturing, and interactive communication media such as cell phones and the Internet have combined to foster mass customization. Mass customization is the process by which firms interact one-to-one with masses of customers to design products and services tailor-made to individual needs. 


Competitive advantage

  • An advantage over competitors gained by offering greater customer value, either by having lower prices or providing more benefits that justify higher prices


Differentiation and Positioning

  • A firm can create differentiation on: 

    • Product 

    • Services

    • Channels 

    • People 

    • Image

Seventh Generation, a maker of household cleaning supplies, differentiates itself not by how its products perform but by the fact that its products are greener

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


Choosing the Right Competitive Advantages

  • Choose whether to promote a single benefit or multiple benefits

  • Promote differences that are:

    • Important

    • Distinctive

    • Superior

    • Communicable

    • Pre-emptive

    • Affordable

    • Profitable


Value proposition

  • The full positioning of a brand—the full mix of benefits on which it is positioned

Note to Instructor: The value proposition is the answer to the customer’s question “Why should I buy your brand?” Volvo’s value proposition hinges on safety but also includes reliability, roominess, and styling, all for a price that is higher than average but seems fair for this mix of benefits.