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- The term market means different things to different people. We are all familiar with the supermarket, stock market, labor market, fish market, and flea market.
- All these types of markets share several characteristics:
- First, they are composed of people (consumer markets) or organizations (business markets).
- Second, these people or organizations have wants and needs that can be satisfied by particular product categories.
- Third, they have the ability to buy the products they seek.
- Fourth, they are willing to exchange their resources, usually money or credit, for desired products.
- In sum, a market 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 organization that lacks any one of these characteristics is not a market.
- Within a market, a market segment is a subgroup of people or organizations sharing one or more characteristics that cause them to have similar product needs. At one extreme, we can define every person and every organization in the world as a market segment because each is unique. At the other extreme, we can define the entire consumer market as one large market segment and the business market as another large segment. All people have some similar characteristics and needs, as do all organizations.
- From a marketing perspective, market segments can be described as somewhere between the two extremes.
- The process of dividing a market into meaningful, relatively similar, and identifiable segments or groups is called market segmentation . The purpose of market segmentation is to enable the marketer to tailor marketing mixes to meet the needs of one or more specific segments.
The Importance of Market Segmentation (history)
- Until the 1960s, few firms practiced market segmentation. When they did, it was more likely a haphazard effort than a formal marketing strategy. Before 1960, for example, the Coca-Cola Company produced only one beverage and aimed it at the entire soft drink market. Today, Coca-Cola offers more than a dozen different products to market segments based on diverse consumer preferences for flavors and calorie and caffeine content. Coca-Cola offers traditional soft drinks, energy drinks (including POWERade), flavored teas, fruit drinks (Fruitopia), and water (Dasani).
- Market segmentation plays a key role in the marketing strategy of almost all successful organizations and is a powerful marketing tool for several reasons:
- Most important, nearly all markets include groups of people or organizations with different product needs andpreferences.
- Market segmentation helps marketers define customer needs and wants more precisely.
- Because market segments differ in size and potential, segmentation helps decision makers to more accurately define marketing objectives and better allocate resources. In turn, performance can be better evaluated when objectives are more precise.
- Ex: Chico's, a successful women's fashion retailer, thrives by marketing to women ages 35 to 55 who like to wear comfortable, yet stylish, clothing. It sells private label clothing that comes in just a few nonjudgmental sizes: zero (standard sizes 4 to 6), one (8 to 10), two (10 to 12), and three (14 to 16). Nestlé has modified its portfolio to increase its market share in emerging economies, such as China, India, Malaysia, and Thailand. It sells food goods enriched with vitamins and has seen sales of enhanced milk products increase.
Criteria for Successful Segmentation
- Marketers segment markets for three important reasons:
- 1. First, segmentation enables marketers to identify groups of customers with similar needs and to analyze the characteristics and buying behavior of these groups.
- 2. Second, segmentation provides marketers with information to help them design marketing mixes specifically matched with the characteristics and desires of one or more segments.
- 3. Third, segmentation is consistent with the marketing concept of satisfying customer wants and needs while meeting the organization's objectives.
- To be useful, a segmentation scheme must produce segments that meet four basic criteria:
- 1. Substantiality: A segment must be large enough to warrant developing and maintaining a special marketing mix. This criterion does not necessarily mean that a segment must have many potential customers. Marketers of custom-designed homes and business buildings, commercial airplanes, and large computer systems typically develop marketing programs tailored to each potential customer's needs. In most cases, however, a market segment needs many potential customers to make commercial sense. In the 1980s, home banking failed because not enough people owned personal computers. Today, a larger number of people own computers, and home banking is a thriving industry.
- 2. Identifiability and measurability: Segments must be identifiable and their size measurable. Data about the population within geographic boundaries, the number of people in various age categories, and other social and demographic characteristics are 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 readiness to participate in a drug and alcohol program or in prenatal care. Unless the agency can measure how many people are willing, indifferent, or unwilling to participate, it will have trouble gauging whether there are enough people to justify setting up the service.
- 3 Accessibility: The firm must be able to reach members of targeted segments with customized marketing mixes. Some market segments are hard to reach—for example, senior citizens (especially those with reading or hearing disabilities), individuals who don't speak English, and the illiterate.
- 4 Responsiveness: Markets can be segmented using any criteria that seem logical. Unless one market segment responds to a marketing mix differently than other segments, however, that segment need not be treated separately. EX, if all customers are equally price conscious about a product, there is no need to offer high-, medium-, and low-priced versions to different segments.
Segmentation Bases (variables)
- Marketers use segmentation bases , or variables, which are characteristics of individuals, groups, or organizations, to divide a total market into segments.
- The choice of segmentation bases is crucial because an inappropriate segmentation strategy may lead to lost sales and missed profit opportunities.
- The key is to identify bases that will produce substantial, measurable, and accessible segments that exhibit different response 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 is often harder to use than single-variable segmentation; usable secondary data are less likely to be available; and as the number of segmentation bases increases, the size of individual segments decreases. Nevertheless, the current trend is toward using more rather than fewer variables to segment most markets.
- Multiple-variable segmentation is clearly more precise than single-variable segmentation.
- Consumer goods marketers commonly use one or more of the following characteristics to segment markets: geography, demographics, psychographics, benefits sought, and usage rate.
- Geographic segmentation refers to segmenting markets by region of a country or the world, market size, market density, or climate.
- Market density means the number of people within a unit of land, such as a census tract.
- Climate is commonly used for geographic segmentation because of its dramatic impact on residents’ needs and purchasing behavior. EX: Snowblowers, water and snow skis, clothing, and air-conditioning and heating systems are products with varying appeal, depending on climate.
- Consumer goods companies take a regional approach to marketing for four reasons.
- 1. First, many firms need to find new ways to generate sales because of sluggish and intensely competitive markets.
- 2. Second, computerized checkout stations with scanners give retailers an accurate assessment of which brands sell best in their region.
- 3. Third, many packaged-goods manufacturers are introducing new regional brands intended to appeal to local preferences.
- 4. Fourth, a more regional approach allows consumer goods companies to react more quickly to competition. For many years, all Macy's stores carried the same merchandise, regardless of location. Now, the chain's “My Macy's” program tailors each store's merchandise mix to reflect local tastes. For example, the stores in Columbus, Ohio, carry more golf clothing than a typical store because of the area's many golf courses. The strategy has paid off for Macy's; total sales increased by almost 5 percent between 2009 and 2010 in spite of the troubled economy during this time.
- Marketers often segment markets on the basis of demographic information because it is widely available and often related to consumers’ buying and consuming behavior.
- Some common bases of demographic segmentation are age, gender, income, ethnic background, and family life cycle.
- 1. Age Segmentation Marketers use a variety of terms to refer to different age groups. Examples include newborns, infants, young children, tweens, Generation Y (teens, young adults), Generation X, baby boomers, and seniors. Age segmentation can be an important tool, as a brief exploration of the market potential of several age segments illustrates. Through allowances, earnings, and gifts, children account for and influence a great deal of consumption. EX, young shoppers in the United States spend more than $200 billion of their own money and their parents’ money each year on purchases for themselves and also have considerable influence over major family purchase decisions.
- Teens in particular are technology savvy and very social consumers.
- Tweens desire to be kids but also want some of the fun of being a teenager. Many retailers serve this market with clothing that is similar in style to that worn by teenagers and young adults.
- The members of the Generation Y market, or the millennial generation, were born between 1982 and 2003 and make up almost one-third of the U.S. population. This group not only has formidable purchasing power but is also more civic-minded than the baby boom generation. Seventy-four percent of millennials say they are more likely to pay attention to a company's overall message if the company has a deep commitment to a cause. The teens in this group are interested in apparel that enhances personalization and self-expression because they want their look to reflect their personalities and style. College students (also part of the millennials) all have mobile phones and use them constantly to communicate and connect. Despite the potential marketing gold mine such a connected audience presents, a study showed many people in this group were highly negative toward ads on their phones. This age group engages in its own peer-to-peer marketing through YouTube videos of unboxing or hauls. Unboxing, popular with new technology, is a video or article describing and reviewing new products. Hauls are videos in which the shopper (usually a female) shows off and reviews her purchases from the day. These videos reap millions of views and promote enough sales that some companies send free samples to the haulers for review or offer gift cards for them to shop at their stores.
- Generation X is the group that was born after the baby boomers. Members of Generation X tend to be disloyal to brands and skeptical of big business. Many of them are parents, and they make purchasing decisions with thought for and input from their families. Xers desire an experience, not just a product. The desire to have an experience has led to an increase in multifunctional boutiques, particularly in Manhattan's Lower East Side, where the small shops vie for high-end shoppers. The Dressing Room, for example, is a bi-level store with a boutique upstairs, vintage clothing downstairs, and a full bar where customers can hang out.
- People born between 1946 and 1964 are often called “baby boomers.” Boomers spend $2.1 trillion a year and represent half of all spending in the United States. For the next 18 years, one baby boomer will turn 60 every seven seconds. Boomers make up 49 percent of affluent households, and they want attention and service when they shop. This group spends big money on goods and services such as travel, electronics, and automobiles. Baby boomers are not particularly brand loyal, and they are a very diverse group. Some are parents to infant children, and others are empty nesters.
- Consumers born before 1946 represent people who are part of the war generation (ages 61 to 66), the Great Depression generation (ages 67 to 76), and the G.I. generation (age 77 and up). Many in this group view retirement not as a passive time, but as an active time they use to explore new knowledge, travel, volunteer, and spend time with family and friends. They are living longer and are healthier than older consumers 20 years ago. As consumers age, the do require some shopping modifications. Tesco, a British grocery store chain, is considering designing a store specifically to meet the needs of older shoppers. Music, nonslip floors, extra-wide aisles, brighter than usual lighting, and steps to assist older consumers in reaching high shelves are some the features being examined for inclusion.
- In the United States, women make over 70 percent of purchases of consumer goods each year. They are an experienced purchasing group with the responsibility of purchasing the majority of household items. They also are increasingly part of what were once considered all-male markets, such as video games. In 2008, women made 48 percent of all video game purchases. The video game industry has been forced to respond by developing more games with female protagonists and changing its advertising strategy. Design, fashion, and weight-loss games such as Style Savvy or The Biggest Loser are increasingly popular among women.
- Marketers of products such as clothing, cosmetics, personal-care items, magazines, jewelry, and gifts still commonly segment markets by gender, and many of these marketers are going after the less-traditional male market. EX, L'Oreal and Procter & Gamble are focusing on the growing market of men's cosmetics with moisturizers, bronzers, hair dye, and shaving accessories. Men's grooming products sales reached $5.6 billion in 2009, up from $3.8 billion in 2004. Even weight-loss programs, which currently have 90 percent female consumption, are starting to target men. Weight Watchers is trying to increase the number of men using its program to lose weight by offering a men-only version of its Web site and mobile applications, which research shows men prefer over the traditional Weight Watchers meetings. Men's programs have higher point totals (reflecting the male tendency to have leaner body mass) and more “cheat sheets” telling them how many points various foods cost.
- Income is a popular demographic variable for segmenting markets because income level influences consumers’ wants and determines their buying power.
- Many markets are segmented by income, including the markets for housing, clothing, automobiles, and food. Wholesale clubs Costco and Sam's Club appeal to many income segments. Harrison Group researchers found that the favorite stores of affluent households (those that earn more than $100,000 annually) are Costco and Target. High-income customers looking for luxury want outstanding customer service.
- EX, fashion companies use computer technology to customize upscale products that are designed specifically for their wealthy customers’ needs. Other companies try to appeal to low-income customers. Walmart plans for more of its stores to offer financial services in “Money Centers” to its lower-income customers who do not have banks. These Money Centers will provide services such as cashing checks, paying bills and filling out tax forms.
- In the past, ethnic groups in the United States were expected to conform to a homogenized, Anglo-centric ideal. This was evident both in the marketing of mass-marketed products and in the selective way that films, television, advertisements, and popular music portrayed America's diverse population. Until the 1970s, ethnic foods were rarely sold except in specialty stores. The racial barrier in entertainment lasted nearly as long, except for supporting movie and television roles—often based on stereotypes dating back to the 19th century.
- Increasing numbers of ethnic minorities and increased buying power have changed this. Hispanic Americans, African Americans, and Asian Americans are the three largest ethnic groups in the United States. In the American Southwest, Caucasian populations comprise less than half the population and have become the minority to other ethnic groups combined. To meet the needs and wants of expanding ethnic populations, some companies, such as McDonald's and Kmart, make products geared toward a specific group. Kmart has teamed up with Sofia Vergara, a popular Colombian actress, to develop a clothing line to appeal to Hispanics.
Family Life Cycle Segmentation
The demographic factors of gender, age, and income often do not sufficiently explain why consumer buying behavior varies.
- Frequently, consumption patterns among people of the same age and gender differ because they are in different stages of the family life cycle.
- The family life cycle (FLC) is a series of stages determined by a combination of age, marital status, and the presence or absence of children.The life cycle stage consisting of the married-couple household used to be considered the traditional family in the United States. Today, however, married couples make up less than half of households, down from nearly 80 percent in the 1950s.
- Single adults are increasingly in the majority. Already, unmarried Americans make up 42 percent of the workforce, 40 percent of home buyers, and one of the most potent consumer groups on record.
- Research has found that the overriding factor in describing baby boomer subsegments is the presence of children in the house.
- A Nielsen study discovered eight specific segments: four segments with children younger than 18 represented about 40 percent of the boomers, and four segments without children represented 60 percent. Consumers are especially receptive to marketing efforts at certain points in the life cycle.
- Age, gender, income, ethnicity,
- FLC stage, and other demographic variables are usually helpful in developing segmentation strategies, but often they don't paint the entire picture.
- Demographics provide the skeleton, but psychographics add meat to the bones.
- Psychographic segmentation is market segmentation on the basis of the following psychographic segmentation variables:
- Personality: Personality reflects a person's traits, attitudes, and habits. Clothing is the ultimate personality descriptor. Fashionistas wear high-end, trendy clothes, and hipsters enjoy jeans and T-shirts with tennis shoes. People buy clothes that they feel represent their personalities and give others an idea of who they are.
- Motives: Marketers of baby products and life insurance appeal to consumers’ emotional motives—namely, to care for their loved ones. Using appeals to economy, reliability, and dependability, carmakers like Subaru and Suzuki target customers with rational motives. Carmakers like Mercedes-Benz, Jaguar, and Cadillac appeal to customers with status-related motives.
- Lifestyles: Lifestyle segmentation divides people into groups according to the way they spend their time, the importance of the things around them, their beliefs, and socioeconomic characteristics such as income and education. EX, record stores specializing in vinyl are targeting young people who are listening to independent labels and often pride themselves on being independent of big business. LEED-certified appliances appeal to environmentally conscious “green” consumers. PepsiCo is promoting its no-calorie, sugar-free, flavored water, Aquafina Sparkling, to consumers who are health conscious.
- Geodemographics: Geodemographic segmentation clusters potential customers into neighborhood lifestyle categories. It combines geographic, demographic, and lifestyle segmentations. Geodemographic segmentation helps marketers develop marketing programs tailored to prospective buyers who live in small geographic regions, such as neighborhoods, or who have very specific lifestyle and demographic characteristics. For example, companies looking to win government manufacturing or technology contracts post cryptic billboards and posters on Washington, D.C. buses and Metro trains, as well as advertising their capabilities on local radio stations. The average commuter doesn't understand the cryptic acronyms, but government decision makers who see or hear the ads understand them and will award federal projects based on the ads—or so companies such as Northrop Grumman hope. Such a campaign could work only in an area where high levels of government decision makers commute regularly. Psychographic variables can be used individually to segment markets or be combined with other variables to provide more detailed descriptions of market segments. One approach is for marketers and advertisers to purchase information from a collector, such as eXelate Media, in order to reach the audience they want. eXelate, part of consumer research firm Nielsen, gathers information about Web-browsing habits through cookies placed on Web sites. Nielsen, using eXelate, organizes groups according to this information.
- One group, the “young digerati,” includes 24- to 44-year-olds whoare
- tech savvy,
- are affluent,
- live in trendy condos,
- read the Economist,
- have an annual income of $88,000.
- An automaker can purchase that list and the list of people who visit car blogs and then target ads to the “young digerati” interested in cars.
- Benefit segmentation is the process of grouping customers into market segments according to the benefits they seek from the product.
- Most types of market segmentation are based on the assumption that this variable and customers’ needs are related. Benefit segmentation is different because it groups potential customers on the basis of their needs or wants rather than some other characteristic, such as age or gender. The snack-food market, for example, can be divided into six benefit segments: nutritional snackers, weight watchers, guilty snackers, party snackers, indiscriminate snackers, and economical snackers.Customer profiles can be developed by examining demographic information associated with people seeking certain benefits. This information can be used to match marketing strategies with selected target markets. The many different types of performance energy bars with various combinations of nutrients are aimed at consumers looking for different benefits. For example, PowerBar is designed for athletes looking for long-lasting fuel, while PowerBar Protein Plus is aimed at those who want extra protein for replenishing muscles after strength training. Carb Solutions High Protein Bars are for those on low-carb diets; Luna Bars are targeted to women who want a bar with fewer calories, soy protein, and calcium; and Clif Bars are for people who want a natural bar with ingredients like rolled oats, soybeans, and organic soy flour.
- Usage-rate segmentation divides a market by the amount of product bought or consumed.
- Categories vary with the product, but they are likely to include some combination of the following:
- former users, potential users, first-time users, light or irregular users, medium users, and heavy users. Segmenting by usage rate enables marketers to focus their efforts on heavy users or to develop multiple marketing mixes aimed at different segments. Because heavy users often account for a sizable portion of all product sales, some marketers focus on the heavy-user segment.
- The 80/20 principle holds that 20 percent of all customers generate 80 percent of the demand. Although the percentages usually are not exact, the general idea often holds true. For example, in the fast-food industry, the heavy user accounts for only one of five fast-food patrons but makes about 60 percent of all visits to fast-food restaurants. The needs of heavy users differs from the needs of other usage-rate groups. They have intense needs for product and service selection and a variety of types of information, as well as an emotional attachment to the product category. Developing customers into heavy users is the goal behind many frequency/loyalty programs like the airlines’ frequent flyer programs. Many supermarkets and other retailers have also designed loyalty programs that reward the heavy-user segment with deals available only to them, such as in-store coupon dispensing systems, loyalty card programs, and special price deals on selected merchandise.
Bases for Segmenting Business Markets
- Company Characteristics
- Buying Processes
- The business market consists of four broad segments: producers, resellers, government, and institutions.
- Whether marketers focus on only one or on all four of these segments, they are likely to find diversity among potential customers. Thus, further market segmentation offers just as many benefits to business marketers as it does to consumer product marketers.
- Company characteristics, such as geographic location, type of company, company size, and product use, can be important segmentation variables.
- Some markets tend to be regional because buyers prefer to purchase from local suppliers, and distant suppliers may have difficulty competing in terms of price and service. Therefore, firms that sell to geographically concentrated industries benefit by locating close to their markets.
- Segmenting by customer type allows business marketers to tailor their marketing mixes to the unique needs of particular types of organizations or industries. For example, Round-Table Companies teamed with SmarterComics to produce 50-page illustrated versions of the most popular business books such as The Long Tail by Chris Anderson and How to Master the Art of Selling by Tom Hopkins. Corey Michael Blake, founder of Round-Table, wanted to make the most-read business books available to time-pressed businesspeople. By condensing and illustrating popular business texts, Blake found a new market for comic books and extended the business book market.
- Volume of purchase (heavy, moderate, light) is a commonly used basis for business segmentation.
- Another is the buying organization's size, which may affect its purchasing procedures, the types and quantities of products it needs, and its responses to different marketing mixes. Banks frequently offer different services, lines of credit, and overall attention to commercial customers based on their size. Many products, especially raw materials like steel, wood, and petroleum, have diverse 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 springs may have customers who use the product in applications as diverse as making machine tools, bicycles, surgical devices, office equipment, telephones, and missile systems.
- Many business marketers find it helpful to segment customers and prospective customers on the basis of how they buy.
- For example, companies can segment some business markets by ranking key purchasing criteria, such as price, quality, technical support, and service. Atlas Corporation has developed a commanding position in the industrial door market by providing customized products in just 4 weeks, which is much faster than the industry average of 12 to 15 weeks. Atlas's primary market is companies with an immediate need for customized doors.The purchasing strategies of buyers may provide useful segments.
- Two purchasing profiles that have been identified are satisficers and optimizers.
- 1. Satisficers contact familiar suppliers and place the order with the first one to satisfy product and delivery requirements.
- 2. Optimizers consider numerous suppliers (both familiar and unfamiliar), solicit bids, and study all proposals carefully before selecting one.
- The personal characteristics of the buyers themselves (their demographic characteristics, decision style, tolerance for risk, confidence level, job responsibilities, and so on) influence their buying behavior and thus offer a viable basis for segmenting some business markets. IBM computer buyers, for example, are sometimes characterized as being more risk averse than buyers of less expensive computers that perform essentially the same functions. In advertising, therefore, IBM stresses its reputation for high quality and reliability.
Steps in Segmenting a Market
The purpose of market segmentation, in both consumer and business markets, is to identify marketing opportunities
- 1 Select a market or product category for study: Define the overall market or product category to be studied. It may be a market in which the firm already competes, a new but related market or product category, or a totally new market.
- 2 Choose a basis or bases for segmenting the market: This step requires managerial insight, creativity, and market knowledge. There are no scientific procedures for selecting segmentation variables. However, a successful segmentation scheme must produce segments that meet the four basic criteria discussed earlier in this chapter.
- 3 Select segmentation descriptors: After choosing one or more bases, the marketer must select the segmentation descriptors. Descriptors identify the specific segmentation variables to use. For example, if a company selects demographics as a basis of segmentation, it may use age, occupation, and income as descriptors. A company that selects usage segmentation needs to decide whether to go after heavy users, nonusers, or light users.
- 4 Profile and analyze segments: The profile should include the segments’ size, expected growth, purchase frequency, current brand usage, brand loyalty, and long-term sales and profit potential. This information can then be used to rank potential market segments by profit opportunity, risk, consistency with organizational 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 outcome of the segmentation process. It is a major decision that influences and often directly determines the firm's marketing mix. This topic is examined in greater detail later in this chapter.
- 6 Design, implement, and maintain appropriate marketing mixes: The marketing mix has been described as product, place (distribution), promotion, and pricing strategies intended to bring about mutually satisfying exchange relationships with target markets. These topics are explored in detail in Chapters 10 through 20.Markets are dynamic, so it is important that companies proactively monitor their segmentation strategies over time. Often, once customers or prospects have been assigned to a segment, marketers think their task is done. Once customers are assigned to an age segment, for example, they stay there until they reach the next age bracket or category, which could be ten years in the future. Thus, the segmentation classifications are static, but the customers and prospects are changing. Dynamic segmentation approaches adjust to fit the changes that occur in customers’ lives. BCBG uses BCBGeneration to target a younger crowd, and Aéropostale owns P.S., which sells clothing for children ages 7 to 12. However, some segments have too many players, and choosing to enter those kinds of segments can be particularly challenging. High-end denim has so many boutiques and brands that customers are tired of the volume.
7 Strategies for Selecting Target Markets
So far, this chapter has focused on the market segmentation process, which is only the first step in deciding whom to approach about buying a product. The next task is to choose one or more target markets. A target market is a group of people or organizations for which an organization designs, implements, and maintains a marketing mix intended to meet the needs of that group, resulting in mutually satisfying exchanges. Because most markets will include customers with different characteristics, lifestyles, backgrounds, and income levels, it is unlikely that a single marketing mix will attract all segments of the market. Thus, if a marketer wishes to appeal to more than one segment of the market, it must develop different marketing mixes. For example, Subaru's customer base consists of eco-conscious individuals who value freedom and buy experiences, not things. To attract younger, sportier consumers with similar values, Subaru is developing a small car, as well as a hybrid.27 The three general strategies for selecting target markets—undifferentiated, concentrated, and multi-segment targeting—are illustrated on the next page in Exhibit 8.2, which also illustrates the advantages and disadvantages of each targeting strategy.
Advantages: Potential savings on production/marketing costs
Disadvantages: Unimaginative product offeringsCompany more susceptible to competition
A firm using an undifferentiated targeting strategy essentially adopts a mass-market philosophy, viewing the market as one big market with no individual segments. The firm uses one marketing mix for the entire market. A firm that adopts an undifferentiated targeting strategy assumes that individual customers have similar needs that can be met with a common marketing mix.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 preferences of market segments. Henry Ford's famous comment about the Model T is a classic example of an undifferentiated targeting strategy: “They can have their car in any color they want, as long as it's black.” At one time, Coca-Cola used this strategy with a single product 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 production and marketing. Because only one item is produced, the firm should be able to achieve economies of mass production. Also, marketing costs may be lower when there is 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 failure to consider the advantages of a segmented approach. The result is often sterile, unimaginative product offerings that have little appeal to anyone.Another problem associated with undifferentiated targeting is that it makes the company more susceptible to competitive inroads. Hershey lost a big share of the candy market to Mars and other candy companies before it changed to a multisegment targeting strategy. Coca-Cola forfeited its position as the leading seller of cola drinks in supermarkets to PepsiCo in the late 1950s, when Pepsi began offering several sizes of containers.You might think a firm producing a standard product such as toilet tissue would adopt an undifferentiated strategy. However, this market has industrial segments and consumer segments. Industrial buyers want an economical, single-ply product sold in boxes of a hundred rolls. The consumer market demands a more versatile product in smaller quantities. Within the consumer market, the product is differentiated with designer print or no print, cushioned or non-cushioned, and economy priced or luxury priced. Fort Howard Corporation, the market share leader in industrial toilet paper, does not even sell to the consumer market.Undifferentiated marketing can succeed in certain situations, though. A small grocery store in a small, isolated town may define all of the people who live in the town as its target market. It may offer one marketing mix and generally satisfy everyone in town. This strategy is not likely to be as effective if there are three or four grocery stores in town.
Advantages: Concentration of resources, Can better meet the needs of a narrowly defined segment, Allows some small firms to better compete with larger firms, Strong positioning
Disadvantages: Segments too small or changing, Large competitors may more effectively market to niche segment
With a concentrated targeting strategy , a firm selects a market niche (one segment of a market) for targeting its marketing efforts. Because the firm is appealing to a single segment, it can concentrate on understanding the needs, motives, and satisfactions of that segment's members and on developing and maintaining a highly specialized marketing mix. Some firms find that concentrating resources and meeting the needs of a narrowly defined market segment is more profitable than spreading resources over several different segments.Intelligentsia, a Chicago-based coffee roaster/retailer, targets serious coffee drinkers with hand-roasted, ground, and poured super-gourmet coffee or tea served by seriously educated baristas. The company also offers training classes for the at-home or out-of-town coffee aficionado. Starting price—$200 per class. America Online became one of the world's leading Internet providers by targeting Internet newcomers.Small firms often adopt a concentrated targeting strategy to compete effectively with much larger firms. For example, Enterprise Rent-A-Car rose to number one in the car rental industry by catering to people with cars in the shop. It then expanded into the airport rental market. Some other firms use a concentrated strategy to establish a strong position in a desirable market segment. Porsche, for instance, targets an upscale automobile 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, the firm may suffer negative consequences. For instance, OshKosh B'gosh was highly successful selling children's wear in the 1980s. It was so successful, however, that the children's line came to define OshKosh's image to the extent that the company could not sell clothes to anyone else. Attempts at marketing older children's clothing, women's casual clothes, and maternity wear were all abandoned. Recognizing it was in the children's wear business, the company expanded into products such as kids’ shoes, children's eyewear, and plush toys.A concentrated strategy can also be disastrous for a firm that is not successful in its narrowly defined target market. Before Procter & Gamble introduced Head & Shoulders shampoo, several small firms were already selling antidandruff shampoos. Head & Shoulders was introduced with a large promotional campaign, and the new brand captured over half the market immediately. Within a year, several of the firms that had been concentrating on this market segment went out of business.
Advantages: Greater financial success, Economies of scale in producing/marketing
Disadvantages: High costs, Cannibalization
A firm that chooses to serve two or more well-defined market segments and develops a distinct marketing mix for each has a multisegment targeting strategy . Walmart has historically followed a concentrated strategy that targeted lower-income segments. Recently, however, the company has segmented its customers into three core groups based on the type of value they seek at the stores. “Brand Aspirationals” are low-income customers who like to buy brand names such as KitchenAid, “Price-Sensitive Affluents” are wealthier shoppers who love deals, and “Value-Price Shoppers” like low prices and can't afford much more.28 Multisegment targeting offers many potential benefits to firms, including greater sales volume, higher profits, larger market share, and economies of scale in manufacturing and marketing. Yet it may also involve greater product design, production, promotion, inventory, marketing research, and management costs. Before deciding to use this strategy, firms should compare the benefits and costs of multisegment targeting to those of undifferentiated and concentrated targeting.Another potential cost of multisegment targeting is cannibalization , which occurs when sales of a new product cut into sales of a firm's existing products. For example, Apple's iPhone and iPad may be causing sales of the iPod to drop, and there is some fear that the iPad will take away Mac sales, Apple's cash cow. The only evidence of those fears being realized is the 17 percent drop in sales of iPods since the release of the iPad.29 In many cases, however, companies prefer to steal sales from their own brands rather than lose sales to a competitor. Also, in today's fast-paced world of Internet business, some companies are willing to cannibalize existing business to build new business.
Most businesses today use a mass-marketing approach designed to increase market share by selling their products to the greatest number of people. For many businesses, however, it is more efficient and profitable to use one-to-one marketing 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 customer information to build long-term, personalized, and profitable relationships with each customer. The goal is to reduce costs through customer retention and increase revenue through customer loyalty.The difference between one-to-one marketing and the traditional mass-marketing approach can be compared to the difference between a rifle and a shotgun. If you have good aim, a rifle is the more efficient weapon to use. A shotgun, on the other hand, increases your odds of hitting the target when it is more difficult to focus. Instead of scattering messages 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).A Dog's Life, a California company that makes organic pet treats, holds a monthly competition in which users upload photos of their pets and vote on their favorites. The winning photo is featured for a month on bags of the dog treats. Customers can also pay $3 to $4 for customized treats, which include a photo of their choice on the package. Winners of the contest buy several bags, and the contests keep the brand in the social media news circuit.30 Customers who customize have been found to be more loyal. Several factors suggest that personalized communications and product customization will continue to expand as more companies understand why and how their customers make and execute purchase decisions. At least four trends will lead to the continuing growth of one-to-one marketing: personalization, time savings, loyalty, and technology.Personalization: One-size-fits-all marketing is no longer relevant. Consumers want to be treated as the individuals they are, with their own unique sets of needs and wants. By its personalized nature, one-to-one marketing can fulfill this desire.Time savings: Direct and personal marketing efforts will continue to grow to meet the needs of consumers who no longer have the time to spend shopping and making purchase decisions. With the personal and targeted nature of one-to-one marketing, consumers can spend less time making purchase decisions and more time doing the things that are important.Loyalty: Consumers will be loyal only to those companies and brands that have earned their loyalty and reinforced it at every purchase occasion. One-to-one marketing techniques focus on finding a firm's best customers, rewarding them for their loyalty, and thanking them for their business.Technology: Mass-media approaches will decline in importance as advances in market research and database technology allow marketers to collect detailed information on their customers. New technology offers one-to-one marketers a more cost-effective way to reach customers and enables businesses to personalize their messages. For example, MyYahoo.com greets each user by name and offers information in which the user has expressed interest. Similarly, RedEnvelope.com helps customers keep track of special occasions and offers personalized gift recommendations. With the help of database technology, one-to-one marketers can track their customers as individuals, even if they number in the millions.One-to-one marketing is a huge commitment and often requires a 180-degree turnaround for marketers who spent the last half of the 20th century developing and implementing mass-marketing efforts. Although mass marketing will probably continue to be used, especially to create brand awareness or to remind consumers of a product, the advantages of one-to-one marketing cannot be ignored.
The development of any marketing mix depends on positioning , a process 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 products occupies in consumers’ minds relative to competing offerings. Consumer goods marketers are particularly concerned with positioning. Procter & Gamble, for example, markets 11 different laundry detergents, each with a unique position, such as allergen-free, softening, or ultra-concentrated.Positioning assumes that consumers compare products on the basis of important features. Marketing efforts that emphasize irrelevant features are therefore likely to misfire. For example, Crystal Pepsi and a clear version of Coca-Cola's Tab failed because consumers perceived the “clear” positioning as more of a marketing gimmick than a benefit.Effective positioning requires assessing the positions occupied by competing products, determining the important dimensions underlying these positions, and choosing a position in the market where the organization's marketing efforts will have the greatest impact. SuperJam positions itself as superior to other jams because it is 100 percent fruit, has no sugar added, and is made with super fruits such as blueberries and cranberries, which boast added health benefits. The recipe also comes from the creator's grandmother, adding a homespun element that separates it from other jams.31 As the previous example illustrates, product differentiation is a positioning strategy that many firms use to distinguish their products from those of competitors. The distinctions can be either real or perceived. Tandem Computer designed machines with two central processing units and two memories for users who cannot afford for their computer systems to be down or databases to be lost (e.g., an airline reservation system). In this case, Tandem used product differentiation to create a product with very real advantages for the target market. However, many everyday products, such as bleaches, aspirin, unleaded regular gasoline, and some soaps, are differentiated by such trivial means as brand names, packaging, color, smell, or “secret” additives. The marketer attempts to convince consumers that a particular brand is distinctive and that they should demand it over competing brands.Some firms, instead of using product differentiation, position their products as being similar to competing products or brands. Two examples of this positioning are artificial sweeteners advertised as tasting like sugar and margarine tasting like butter.
Perceptual 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 example, Saks Incorporated, the department store chain, stumbled in sales when it tried to attract a younger core customer. To recover, Saks invested in research to determine its core customers in its 54 stores across the country. The perceptual map in Exhibit 8.3 on the next page shows how Saks uses customer demographics, such as age, spending habits, and shopping patterns, to build a matrix that charts the best mix of clothes and accessories to stock in each store.
Firms use a variety of bases for positioning, including the following:Attribute: A product is associated with an attribute, product feature, or customer benefit. In engineering its products, Seventh Generation focuses on removing common toxins and chemicals from household products to make them safe for everyone in the household.Price and quality: This positioning base may stress high price as a signal of quality or emphasize low price as an indication of value. Neiman Marcus uses the high-price strategy; Walmart has successfully followed the low-price and value strategy. The mass merchandiser Target has developed an interesting position based on price and quality. It is an “upscale discounter,” sticking to low prices but offering higher quality and design than most discount chains.Use or application: Stressing uses or applications can be an effective means of positioning a product with buyers. Danone introduced its Kahlúa liqueur using advertising to point out 228 ways to consume the product. Snapple introduced a new drink called “Snapple a Day” that is intended for use as a meal replacement.Product user: This positioning base focuses on a personality or type of user. Gap Inc. has several different brands: Gap stores offer basic casual pieces, such as jeans and T-shirts to middle-of-the-road consumers at mid-level prices; Old Navy offers low-priced, trendy casual wear geared to youth and college-age groups; and Banana Republic is a luxury brand offering fashionable, luxurious business and casual wear to 25- to 35-year-olds.32 Product class: The objective here is to position the product as being associated with a particular category of products—for example, positioning a margarine brand with butter. Alternatively, products can be disassociated with a category.Competitor: Positioning against competitors is part of any positioning strategy. Avis Rent A Car's positioning as number two compared to Hertz exemplifies positioning against specific competitors.Emotion: Positioning using emotion focuses on how the product makes customers feel. A number of companies use this approach. For example, Nike's “Just Do It” campaign didn't tell consumers what “it” is, but most got the emotional message of achievement and courage. The creators of iPhone game Bumpy Road not only created a new way to play a game (by manipulating the world around a car, rather than manipulating the car), but they relied on a simple story about a precious little couple to differentiate Bumpy Road from other games.
Sometimes products or companies are repositioned in order to sustain growth in slow markets or to correct positioning mistakes. Repositioning is changing consumers’ perceptions of a brand in relation to competing brands. Post Foods, in an effort to revive its Grape Nuts cereal, repositioned it from a cereal for families and women to a cereal for men. Advertising in Sports Illustrated magazine featured men doing “tough things” such as walking a poodle with a pink collar and setting up a VCR followed by the new slogan “That Takes Grape Nuts.”