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C H A P T E R
7
Segmenting
and
Targeting Markets
Learning Outcomes
LO 1
LO
2
LO
3
LO
4
Describe the characteristics of markets and market
segments
Explain the importance of market segmentation
Discuss criteria for successful market segmentation
Describe the bases commonly used to segment consumer
markets
LO 5
Describe the bases for segmenting business markets
LO 6
List the steps involved in segmenting markets
LO 7
Discuss alternative strategies for selecting target markets
LO 8
Explain one-to-one marketing
LO 9
Explain how and why firms implement positioning strategies
and how product differentiation plays a role
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“
Market segmentation plays a key role
in the marketing strategy of almost all
successful organizations.
”
LO1 Market Segmentation
The term market means different things to different
people. We are all familiar
with the supermarket, stock
market, labour market, fish
I have a hard time living on my budget.
market, and flea market. All
Strongly Disagree
Strongly Agree
1
2
3
4
5
6
7
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.
What do youthink?
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© 2008 JUPITERIMAGES CORPORATION
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
market
described as somewhere between the two extremes. The process
people or organizations
of dividing a market into meaningful, relatively similar, and idenwith needs or wants
tifiable segments or groups is called market segmentation. The
and the ability and willingness to buy
purpose of market segmentation is to enable the marketer to
tailor marketing mixes to meet the needs of one or more specific
market segment
a subgroup of people or
segments.
LO2 The Importance
organizations sharing
one or more characteristics that cause them to
have similar product
needs
of Market Segmentation
market
segmentation
Until the 1960s, few firms practised 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
the process of dividing a
market into meaningful,
relatively similar, and
identifiable segments or
groups
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it at the entire soft drink
market. Today, Coca-Cola
characteristics of indioffers over a dozen different
viduals, groups, or
organizations
products to market segments based on diverse
consumer preferences for flavours and calorie
and caffeine content. Coca-Cola offers traditional
soft drinks, energy drinks (such as POWERade),
flavoured teas, fruit drinks (Fruitopia), and water
(Dasani).
segmentation
bases (variables)
cally 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.
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.
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.
Market segmentation plays a key role in
the marketing strategy of almost all
successful organizations and is
A successful segment is
a powerful marketing tool for
4 Responsiveness: Markets can
several reasons. Most imporsubstantial, identifiable
be segmented using any criteria that
tantly, nearly all markets
seem
logical. Unless one market segand measurable, accessible, and
include groups of people or
ment responds to a marketing mix difresponsive.
organizations with different prodferently from other segments, however, that
uct needs and preferences. Market
segment need not be treated separately. For
segmentation helps marketers define cusinstance, if all customers are equally price-conscious about a
tomer needs and wants more precisely. Because
product, there is no need to offer high-, medium-, and low-priced
market segments differ in size and potential, segversions to different segments.
mentation helps decision makers more accurately
define marketing objectives and better allocate
4
resources. In turn, performance can be better evaluated when objectives are more precise.
LO Bases for Segmenting
Consumer Markets
LO3 Criteria for
Successful Segmentation
Marketers segment markets for three important
reasons. First, segmentation enables marketers to
identify groups of customers with similar needs
and to analyze the characteristics and buying
behaviour of these groups. Second, segmentation
provides marketers with information to help them
design marketing mixes specifically matched with
the characteristics and desires of one or more segments. Third, segmentation is consistent with
the marketing concept of satisfying customer
wants and needs while meeting the organization’s
objectives.
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 using 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 multiplevariable segmentation. The disadvantages of
multiple-variable segmentation are that it is often
To be useful, a segmentaharder to use than singletion scheme must produce
variable segmentation; usable
segments that meet four basic
The current trend is
secondary data are less likely
criteria:
to be available; and as the
toward using more rather
number of segmentation bases
1 Substantiality: A segment
increases, the size of individual
than fewer variables to
must be large enough to warrant
segments decreases. Neverdeveloping and maintaining a spesegment most markets.
theless, the current trend is
cial marketing mix. This criterion
toward using more rather than
does not necessarily mean that a
fewer variables to segment
segment must have many potential
most markets. Multiple-variable segmentation is clearly
customers. Marketers of custom-designed homes and business
more precise than single-variable segmentation.
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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
© 2008 JUPITERIMAGES CORPORATION
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 behaviour. Snowblowers, water and snow
skis, clothing, and air-conditioning and heating systems
are products with varying appeal, depending on climate.
Not all Pizza Hut restaurants around the world serve the
same pizza toppings that are commonly available in
Canada. For example, Pizza Hut in Japan offers squid and
other seafood toppings in order to meet the regional
food preferences of its customers there.
behaviour. Some common bases
of demographic segmentation
are age, gender, income, ethnic
background, and family life
cycle.
geographic
segmentation
Age Segmentation
demographic
segmentation
segmenting markets by
region of a country or
the world, market size,
market density, or
climate
segmenting markets by
Marketers use a variety of
age, gender, income,
terms to refer to different age
ethnic background, and
groups: newborns, infants,
family life cycle
preschoolers, young children,
tweens, teens, young adults,
baby boomers, Generation X, Generation Y, 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. Tweens (ages 9–14), of which there are estimated
to be around 2 million in Canada, have direct spending
power of $1.7 billion and an influence over how their
families spend another $20 billion.1 Tweens desire to
Demographic Segmentation
be kids, but also want some of the fun of being a
Marketers often segment markets on the basis of teenager. Many retailers such as Old Navy and
demographic information because it is widely available Abercrombie serve this market with clothing that is
and often related to consumers’ buying and consuming similar in style to that worn by teenagers and young
adults.
The teenage market (ages 15–19) includes more than
2 million individuals2 and, like the tweens, accounts for
substantial purchasing power, most of which it spends
on clothing, entertainment, and food. Teens spend an
average of 17 hours per week online and 14 hours
watching television.3 Magazines specifically designed to
appeal to teenage girls include Teen Vogue, Teen People,
CosmoGIRL!, Elle Girl, and Seventeen.4 Clothing marketers
such as Ralph Lauren, Guess, DKNY, Dior, Giorgio
Armani, and Juicy Couture advertise heavily in these
magazines.5
The baby boom generation, born between 1947 and
1965, makes up the largest age segment with 9.2 million
people in the group, approximately 30 percent of
the entire Canadian population.6
4 Reas
Together, baby boomers and the
to Go Rons
older generation, seniors, form a
egiona
large and very lucrative market.
l
1. To find
Individuals 50 years old and older
new wa
ys to gen
sales in
are continuing to lead active, fully
erate
sluggish
and inte
competi
involved lifestyles. Baby boomers
nsely
ti
2. Scann ve markets.
represent tremendous current and
er-based
chec
give reta
future market potential for a wide
ilers an a kout stations
cc
ment of
range of products, including retirewhich bra urate assessnds sell
their reg
ment properties, health and wellness
best in
ion.
3. To ap
products, automobiles with features
peal to lo
cal
4. To be
designed for them, and other goods
able to re preferences.
act more
to comp
quickly
and services you might not expect. Not
etition.
only are baby boomers often nostalgic
and
eager to continue their active lives,
but they now can afford to buy top-of
the-line models of products from their
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© MIKE MERGEN/
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Avon, a brand associated with older generations, is
>>
attempting to break into a more youthful market with its Mark brand
of beauty products. College and university students sell the brightly
coloured makeup in funky packaging from the dorms.
Gender Segmentation
Marketers of products such as clothing, cosmetics, personal-care items, magazines,
jewellery, and footwear commonly still segment markets by gender. Many marketers
that traditionally focused almost exclusively
on women have now recognized the importance and potential of the male segment. For
example, males are increasingly involved in
wedding planning, deciding on everything
from the site, seating plans, and table decorations to the wedding cake and keepsakes
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PART 2 Analyzing Marketing Opportunities
© 2008 JUPITERIMAGES CORPORATION
youth, North Vancouver–
Tweens, those
based A&W is bringing back
between the ages
Chubby Chicken to appeal to
of 9 and 14, have a
the baby boom generation.7
spending power of
Seniors (ages 65 and over)
$1.7 billion and
are especially attracted to
they influence how
companies that build relationships through taking the time
their families
to get to know them and their
spend another $20
preferences. Canadian senbillion.8
iors, who number 4.3 million,
do not, however, think of themselves as old or as seniors despite their demands for traditional “senior” products. Mississauga-based Block
Drug Company realized that today’s seniors are
“healthier and perceive themselves to be
younger” than any seniors before and
launched a very different promotional campaign for its Polident brand of denture
cleanser. Senior shoppers also prefer catalogue shopping over retail outlets because of
their dissatisfaction with service at retail
stores. Seniors are more likely than most to
have the combination of free time, money,
and good health that allows them to pursue
leisure-time activities, especially education
and travel.9
for guests. As men get more involved with their weddings, businesses such as engagement consultants,
resorts, and spas are beginning to create special packages designed to attract men.10
Other brands that have traditionally been targeted
to men, such as Gillette razors and Rogaine baldness
remedy, are increasing their efforts to attract women
and vice versa. Interactive Digital Software
Association, a trade group, found that women are
buying just as much game software as men. As a
result, more game companies and websites are
focusing their marketing efforts on girls and
women.11 Conversely, several Internet sites provide
guidance for grooms: the WeddingChannel.com’s
groom-centric content includes proposal dos and
don’ts.12
Income Segmentation
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,
The average Canadian family
income is $78,400 per year while
average family spending is $66,857;
of this, 20.4 percent is spent on
shelter while 18.9 percent goes to
transportation costs.13
Hot Pursuit
In Search
of Spending
Treasure Hunt, a book by Michael
Silverman, examines how income affects consumer behaviour. His conclusion is that income segmentation is increasingly
difficult because of the trading-up and trading-down habits of American consumers. That is, Americans are willing to splurge on luxury items in some
areas but look for rock-bottom prices in other categories. Trading up accounts
for $535 million in annual consumer spending; trading down, for over $1 trillion
per year.14
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including the markets for housing, clothing, automobiles, and food. For example, wholesale clubs Costco
and Sam’s Club (now defunct) appeal to different
income segments. Costco attracts more upscale customers with warehouse prices for gourmet foods and
upscale brands like Waterford crystal, Raymond Weil
watches, and Ralph Lauren clothing. Sam’s Club was
originally focused more on members’ business needs,
offering bulk packages of the kinds of items sold in
Wal-Mart’s discount stores and supercentres.
Ethnic Segmentation
Canada is, culturally, a very diverse country and
Canadian marketers are strongly aware of the multicultural makeup of the market. When considering the
ethnic communities, marketers might first focus on
French-Canadian and English-Canadian markets,
which are the largest, but they will then consider the
other ethnic populations. Many companies are segmenting their markets according to ethnicity, and a
number of marketers are developing unique
approaches to sizable segments such as the Asian
community. For example, the Toronto Symphony
Orchestra (TSO) discovered that Chinese families had
higher levels of musical literacy than is average for
North Americans. The TSO decided to develop a
Chinese-language promotional campaign that
included, among other things, season brochures in
Chinese.15
Regardless of the segment being targeted, marketers need to stay educated about the consumer
they are pursuing; convey a message that is relevant
to each particular market; use the Internet as a
vehicle to educate ethnic markets about brands and
products; and use integrated marketing techniques
to reinforce the message in various ways. Tracking
ethnic communities is one of the most challenging,
and most important, tasks of a multicultural marketer. Some companies have found that segmenting
according to the main ethnicities is not precise
enough because, for example, the Asian-Canadian
family life
segments comprise numerous
cycle (FLC)
other segments. The Asiana series of stages deterCanadian market is further
mined by a combination
divided into those of Chinese,
of age, marital status,
and the presence or
South Asian, Southeast Asian,
absence of children
Korean, and Japanese origin.
Alternatively, some companies have abandoned the notion that ethnic group
youths require separate marketing mixes. Instead,
they are focusing on “urban youth,” regardless of race
or ethnicity, because larger cities are the places where
trends typically start.17
Family Life-Cycle Segmentation
The demographic factors of gender, age, and income
often do not sufficiently explain why consumer
buying behaviour 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.
Traditional families, that is, married couples with
children under 24 years, constituted 34.6 percent of
families according to 2006 census data. The average
number of persons in a family has been falling over the
years. In 1961, the average family included 3.9 people,
a number that has fallen to 2.5 persons per household.18 Currently, household size seems to be
stabilizing.
Exhibit 7.1 illustrates numerous FLC patterns and
shows how families’ needs, incomes, resources, and
expenditures differ at each stage. The horizontal flow
shows the traditional family life cycle. The lower part
of the exhibit gives some of the characteristics and
purchase patterns of families in each stage of the traditional life cycle. The exhibit also acknowledges that
Questions to Ask . . .
. . . When Segmenting by Heritage
What are the general characteristics of your total target
population (size, growth rate, and spending power)?
Who exactly are they (demographics, psychographics, attitudes,
values, beliefs, and motivations)?
What are their behaviours, in terms of products, services,
media, language, and so on?
How are they different from the general market and each other,
based on country of origin?16
These recommendations apply to all ethnic groups that are generally segmented on the basis of ancestry.
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about half of all first marriages
end in divorce. When young
market segmentation
marrieds move into the youngon the basis of persondivorced stage, their consumpality, motives, lifestyles,
tion patterns often revert to
and geodemographics
categories
those of the young-single stage
of the cycle. About four out of
five divorced persons remarry by middle age and reenter the traditional life cycle, as indicated by the
“recycled flow” in the exhibit.
Consumers are especially receptive to marketing
efforts at certain points in the life cycle. Soon-to-bemarried couples are typically considered to be most
receptive because they are making brand decisions
about products that could last longer than their marpsychographic
segmentation
riages. Similarly, young parents are the target of companies promoting baby products, as these parents
expect to have higher expenses. A thorough understanding of the FLC can help marketers design,
develop, and successfully sell their products in the
most competitive manner.
Psychographic Segmentation
Age, gender, income, ethnicity, family life-cycle stage,
and other demographic variables are usually helpful
in developing segmentation strategies, but often they
don’t paint the entire picture. Demographics provides
the skeleton, but psychographics adds meat to the
Exhibit 7.1
Family Life Cycle
Usual flow
Middle-aged
divorced
without
children
Recycled flow
Traditional
flow
Young
divorced
without
children
Young
single
Young single
Few financial
burdens
Fashion
opinion
leaders
Recreation
oriented
Buy: basic
kitchen
equipment,
basic
furniture,
cars,
equipment
for mating
game,
vacations
102
Middle-aged
married
without
children
Young
married
with
children
Middle-aged
married
with
children
Middle-aged
married
without
dependent
children
Young
divorced
with
children
Middle-aged
divorced
with
children
Middle-aged
divorced
without
dependent
children
Young
married
without
children
Young married or
divorced without
children
Better off
financially
than they
will be in
near future
Highest
purchase rate
and highest
average
purchase of
durables
Buy: cars,
refrigerators,
stoves,
sensible and
durable
furniture,
vacations
Young married
or divorced with
children
Home purchasing at peak
Liquid assets
low
Dissatisfied with
financial
position and
amount of
money saved
Interested in
new products
Like advertised
products
Buy: washers,
dryers,
televisions,
baby food,
chest rubs,
cough
medicine,
vitamins, dolls,
wagons, sleds,
skates
PART 2 Analyzing Marketing Opportunities
Middle-aged
married or
divorced with
or without
children
Financial
position still
better
More wives
work
Some children
get jobs
Hard to
influence
with
advertising
High average
purchase of
durables
Buy: new and
more tasteful
furniture,
auto travel,
unnecessary
appliances,
boats
Middle-aged
married or
divorced
without children
Home
ownership
at peak
Most satisfied
with financial
position and
money saved
Interested in
travel,
recreation,
self-education
Give gifts and
make
contributions
Not interested in
new products
Buy: vacations,
luxuries, home
improvements
Older
married
Older married
Drastic cut in
income
Keep home
Buy: medical
appliances,
medical care,
products that
aid health,
sleep, and
digestion
Older
unmarried
Older
unmarried
Drastic cut in
income
Special need for
attention,
affection, and
security
Buy: same
medical and
product needs
as other
retired
group
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bones. Psychographic segmentation is market
segmentation on the basis of the following variables:
• Personality: Personality reflects a person’s traits, attitudes, and
habits. Porsche Cars North America Inc. understood well the demographics of the Porsche owner: a 40-something, male, university
graduate earning over $100,000 per year. However, research discovered that this general demographic category actually included five
personality types that more effectively segmented Porsche buyers.
As a result, Porsche refined its marketing and the company’s sales
rose by 48 percent.19
• 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.
• 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.
• Geodemographics: Geodemographic segmentation clusters potential customers into neighbourhood 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 neighbourhoods, or who have very
specific lifestyle and demographic characteristics.
geodemographic
Psychographic variables
segmentation
can be used individually to
segmenting potential
segment markets or be comcustomers into neighbined with other variables to
bourhood lifestyle
provide
more
detailed
benefit
descriptions of market segsegmentation
the process of grouping
ments.
One
combination
customers into market
approach is the Claritas PRIZM
segments according to
Lifestyle software program
the benefits they seek
that divides North Americans
from the product
into 62 “clusters,” or consumer
types, all with catchy names.
The clusters combine basic demographic data such
as age, ethnicity, and income with lifestyle information, such as magazine and sports preferences, taken
from consumer surveys. For example, the “Kids and
Cul-de-Sacs” group are upscale, suburban families
with a median household income of $68,900 who
tend to shop online and visit Disney theme parks.
The “Bohemian Mix” cluster is professionals aged 22
to 44 with a median income of $38,500 who are likely
to shop at the Gap and read Elle magazine. The program also predicts to which neighbourhoods across
the country the clusters are likely to gravitate.
Benefit Segmentation
Benefit segmentation is the process of grouping customers into market segments according to the benefits they seek from the product. Most types of market
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segmentation are based on
the assumption that this varidividing a market by the
able and customers’ needs are
amount of product
related. Benefit segmentation
bought or consumed
is different because it groups
80/20 principle
potential customers on the
a principle holding that
basis of their needs or wants
20 percent of all customers generate 80 perrather than some other charcent of the demand
acteristic, such as age or
gender.
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.20
usage-rate
segmentation
LO5 Bases for Segmenting
Business Markets
The business market consists of four broad
segments: producers, resellers, government,
and institutions (for a detailed discussion of the
characteristics of these segments, see Chapter
6). 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
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
/
IAN
local suppliers, and disBOS
Usage-Rate Segmentation
PILI O.COM
E
V
T
A
O
tant suppliers may have
© D CKPH
O
IST
Usage-rate segmentation divides a market by the difficulty competing in
amount of product bought or consumed. Categories terms of price and service. Therefore, firms that sell to
vary with the product, but they are likely to include geographically concentrated industries benefit by
some combination of the following: former users,
locating
close
to
their
potential users, first-time
markets.
users, light or irregular users,
Segmenting by customer
20 percent of all
medium users, and heavy
type allows business marusers. Segmenting by usage
keters to tailor their marcustomers generate
rate enables marketers to
keting mixes to the unique
focus their efforts on heavy
80 percent of the demand.
needs of particular types of
users or to develop multiple
organizations or industries.
marketing mixes aimed at difMany companies are finding
ferent segments. Because heavy users often account this form of segmentation to be quite effective. For
for a sizable portion of all product sales, some mar- example, Rona, one of the largest do-it-yourself retail
keters focus on the heavy-user segment. Developing businesses in Canada, has targeted professional
customers into heavy users is the goal behind many repair and remodelling contractors in addition to confrequency/loyalty programs.
sumers.
The 80/20 principle holds that 20 percent of all cusVolume of purchase (heavy, moderate, light) is a
tomers generate 80 percent of the demand. Although commonly used basis for business segmentation.
the percentages usually are not exact, the general idea Another is the buying organization’s size, which may
often holds true. For example, in the fast-food affect its purchasing procedures, the types and quanindustry, the heavy user accounts for only one of five tities of products it needs, and its responses to diffast-food patrons but makes about 60 percent of all ferent marketing mixes. Many products, especially
visits to fast-food restaurants. Thus, according to raw materials like steel, wood, and petroleum, have
Statistics Canada, heavy users account for $9.36 billion diverse applications. How customers use a product
of the $15.6 billion spent on fast food at Canada’s may influence the amount they buy, their buying cri25,000 fast-food restaurants.21
teria, and their selection of vendors.
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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.
Satisficers contact familiar
suppliers and place the order
with the first one to satisfy
product and delivery requirements. Optimizers consider
Buying Processes
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 developed a commanding
position in the industrial door market by providing
customized products in just 4 weeks, which was
much faster than the industry average of 12 to 15
weeks. Atlas’s primary market is companies with an
satisficers
business customers who
place an order with the
first familiar supplier to
satisfy product and
delivery requirements
optimizers
business customers who
consider numerous suppliers, both familiar and
unfamiliar, solicit bids,
and study all proposals
carefully before
selecting one
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 one.
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, 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. Chapters 9 through 18 explore
these topics in detail.
© MICHAEL K. MCCANN/FIRST LIGHT
Six Steps to a Segment
Tourism Vancouver uses all of these steps to
keep the city a top destination for convention
and meeting planners and tourists alike.
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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, etc.) influence
undifferentiated
their buying behaviour and
targeting strategy
thus offer a viable basis for
a marketing approach
that views the market
segmenting some business
as one big market with
markets. IBM computer buyers,
no individual segments
for example, are sometimes
and thus uses a single
characterized as being more
marketing mix
risk averse than buyers of less
expensive computers that perform essentially the same functions. In advertising,
therefore, IBM stressed its reputation for high quality
and reliability.
target market
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
LO6 Steps in Segmenting
a Market
The purpose of market segmentation, in both consumer and business markets, is to identify marketing opportunities. 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 10
years in the future. Thus, the segmentation classifications are static, but the customers and
prospects are changing.
behaviours. Tesco has become number one in food store
sales in the United Kingdom primarily by knowing more
about its customers than its competitors do.22
LO7 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,
Sunlight Saunas makes saunas that retail at various prices between $1,695 and $5,595. The company segments its customer base into luxury and
health markets based on data it gathers from
visits to its website and conversations with potential customers. The same saunas appeal to both
market segments, but the different groups require
different marketing messages. There are three
general strategies for selecting target markets—
undifferentiated, concentrated, and multisegment
targeting. Exhibit 7.2 illustrates the advantages
and disadvantages of each targeting strategy.
Dynamic segmentation approaches adjust to fit the
changes that occur in customers’
lives. Tesco, a British super- Exhibit 7.2
market company, has a frequent Advantages and Disadvantages of Target Marketing Strategies
shopper card that gathers data
Targeting
on the purchases of 7 million
Strategy
Advantages
customers on every shopping
occasion. Using these data, Tesco
Undifferentiated
• Potential savings on production/
Targeting
marketing costs
can reclassify every customer
every week. Some customers
move to different segments and
Concentrated
• Concentration of resources
some don’t, but all are evaluated,
Targeting
• Can better meet the needs of a narrowly
allowing the company to underdefined segment
stand changes in customer
• Allows some small firms to better compete
behaviour on a real-time,
with larger firms
• Strong positioning
ongoing basis. Based on these
changes, Tesco can continuously
Multisegment
• Greater financial success
update its marketing programs
Targeting
• Economies of scale in producing/marketing
to accommodate customers’
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PART 2 Analyzing Marketing Opportunities
Disadvantages
• Unimaginative product
offerings
• Company more susceptible to
competition
• Segments too small, or changing
• Large competitors may more
effectively market to niche
segment
• High costs
• Cannibalization
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PR NEWSWIRE/ASSOCIATED PRESS
Undifferentiated Targeting
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. As such, marketers of commodity
products, such as flour and sugar, are likely to use an
undifferentiated targeting strategy.
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. At one time,
Coca-Cola used this strategy with a single product
and a single size of its familiar green bottle.
Undifferentiated marketing allows companies to save
on production and marketing and 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. Coca-Cola forfeited its
position as the leading seller of cola drinks in supermarkets to Pepsi-Cola in the late 1950s, when Pepsi
began offering several sizes of containers.
Undifferentiated marketing
can succeed. A small grocery
store in a small, isolated
town may define all of the
people that 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.
Concentrated
Targeting
Starbucks became
successful focusing
on the niche of
gourmet coffee
drinkers.
NEL
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 seg-
concentrated
ment, it can concentrate on
targeting strategy
understanding
the
needs,
a strategy used to select
motives, and satisfactions of
one segment of a
that segment’s members and on
market for targeting
marketing efforts
developing and maintaining a
highly specialized marketing
niche
one segment of a market
mix. Some firms find that concentrating
resources
and
multisegment
targeting strategy
meeting the needs of a narrowly
a strategy that chooses
defined market segment is more
two or more well-defined
profitable
than
spreading
market segments and
resources over several different
develops a distinct marsegments.
keting mix for each
Small firms often adopt a
concentrated targeting strategy
to compete effectively with much larger firms.
Fatburger, which recently opened stores in Vancouver
and Calgary, describes itself as “the last great hamburger stand.”23 Similarly, Starbucks became successful
by focusing on customers who wanted gourmet coffee
products.
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. 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 and Shoulders shampoo, several
small firms were already selling antidandruff shampoos. Head and 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.
Multisegment Targeting
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.
Maple Leaf Foods offers many different kinds of bacon,
such as regular and salt-reduced bacon. For convenience-seeking consumers, the company has developed
Ready Crisp microwaveable bacon. For healthconscious segments it has turkey- and chicken bacon.
Cosmetics companies, on the other hand, seek to
increase sales and market share by targeting multiple
age and ethnic groups. Maybelline and CoverGirl, for
example, market different lines catering to tween
girls, teenage women, young adult women, older
women, and visible minority women.
Multisegment targeting is used for stores and shopping formats, not just for brands. Marketers at Best Buy
have identified five customer segments, which they
have personalized by naming: “Jill,” a busy suburban
mom; “Buzz,” a focused, active younger male; “Ray,” a
family man who likes his technology practical; “BB4B”
(Best Buy for Business), a small-business employer; and
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“Barry,” an affluent professional
male who’s likely to drop tens of
thousands of dollars on a home
theatre system.
Multisegment
targeting
offers
many
potential
benefits
one-to-one
to firms, including greater
marketing
an individualized marsales volume, higher profits,
keting method that utilarger market share, and
lizes customer
economies of scale in manuinformation to build
facturing and marketing. Yet
long-term, personalized,
it may also involve greater
and profitable relationships with each
product design, production,
customer
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. In
many cases, however, companies prefer to steal sales
from their own brands
rather than lose sales to a
competitor. Marketers may
also be willing to cannibalize
existing business to build
new business.
cannibalization
a situation that occurs
when sales of a new
product cut into sales
of a firm’s existing
products
“
LO8 One-to-One Marketing
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. One of the best-known examples of
one-to-one marketing is Dell, which lets each
buyer customize the computer they want to order.
The difference between
one-to-one marketing and
the traditional mass marketing approach can be compared to shooting 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). Anya
One-to-one marketers
look for opportunities to
communicate with each
individual customer.
Jill
”
{
}
Standard Tissue
© 2008 JUPITERIMAGES CORPORATION
You might think a firm producing a
standard product like 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 noncushioned, scented or unscented, economy
priced or luxury priced, and single, double, or triple roll. Fort Howard
Corporation, the market share leader in industrial toilet paper, does not
even sell to the consumer market.
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© REUTERS/CORBIS
Hindmarch, one of Britain’s leading handbag and accessory designers, invites her customers to participate in
the creation of their handbags by providing a personal
photograph that she then expertly transposes onto one
of her beautifully designed bags. Customers may also
participate in the design process in other ways to create
a unique, customer-designed handbag.24
Several factors suggest that personalized communications and product customization will continue to
expand as more and 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: The one-size-fits-all marketing of
yesteryear no longer fits. Consumers do not want to
be treated like the masses. Instead, they 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: Consumers will have little or no 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: Advances in marketing research and
database technology will allow marketers to collect
detailed information on their customers, not just the
approximation offered by demographics but the specific names and addresses. Mass-media approaches will
decline in importance as new technology offers one-toone marketers a more cost-effective way to reach customers and enables businesses to personalize their
messages to customers. 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 twentieth 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.
LO9 Positioning
The development of any marketing mix depends
on positioning, a process that influences
Levi Strauss has a shrink tub in its
San Francisco megastore so that
customers can shrink their jeans
to fit.
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positioning
developing a specific
marketing mix to influence potential customers’ overall
perception of a brand,
product line, or organization in general
position
the place a product,
brand, or group of
products occupies in
consumers’ minds relative to competing
offerings
product
differentiation
a positioning strategy
that some firms use to
distinguish their products from those of
competitors
11:55 AM
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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.
Some firms, instead of
using product differentiation,
position their products as
being similar to competing
products or brands. Artificial
sweeteners advertised as
tasting like sugar, or margarine tasting like butter,
are two examples.
Ch o ose a p o
s it io n
w h e re m a r
k e t ing
e f f o rt s w il
l ha
g re ate s t im ve
p ac t.
Perceptual
Mapping
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, after several years of decreasing
market share and the perception of teenagers that
Levi’s were not “cool,” Levi Strauss developed a
number of youth-oriented fashions, as well as apparel
appealing to adults by extending the Dockers and
Slates casual-pants brands to include styles ranging
from oddly cut jeans to nylon pants that unzip into
shorts. The perceptual map in Exhibit 7.3 shows Levi’s
dozens of brands and subbrands, from cheap basics to
high-priced fashion.
Positioning assumes that
consumers compare products
perceptual
on the basis of important feamapping
tures. Marketing efforts that
a means of displaying
or graphing, in two or
emphasize irrelevant features
more dimensions, the
are therefore likely to misfire.
location of products,
For example, Crystal Pepsi and
brands, or groups of
a clear version of Coca-Cola’s
products in customers’
Tab failed because consumers
minds
perceived the “clear” positioning as more of a marketing
Positioning Bases
gimmick than a benefit.
Effective positioning requires assessing the posiFirms use a variety of bases for positioning, including
tions occupied by competing products, determining the
the following:
important dimensions underlying these positions, and
choosing a position in the market where
the organization’s marketing efforts will Exhibit 7.3
have the greatest impact. For example, Perceptual Map and Positioning Strategy for Levi Strauss Products
Toyota Canada presents a philosophy of
Positioning Bases
“make things better” and positions itself
High
price
as environmentally friendly. With this
Vintage
$125+
positioning, Toyota is using product differentiation to create the perception that
their product has very real advantages
Dockers
Red Line
for the target market.
Equipment
$100
for Legs
As the previous example illustrates,
Positions
$100+
product differentiation is a positioning
Sta-Prest
strategy that many firms use to distin$75
Dockers
K-1
$65
Slates
guish their products from those of com$65
Red Tab Elesco
Slates Collection
petitors. The distinctions can be either
$60
$60
real or perceived. Companies can
Dockers
develop products that offer very real
Red
Tab
Dry
Goods
Silver Tab
Premium
$45
$45
$50
advantages for the target market.
Classic
Designer
However, many everyday products, such
501
$35
as bleach, Aspirin, unleaded regular
L2
Red Tab
Dockers
gasoline, and some soaps, are differenti$30
Basics
Classic
ated by such trivial means as brand
$30
$30
names, packaging, colour, smell, or
Old product
“secret” additives. The marketer
Low
New product
attempts to convince consumers that a
price
New product,
particular brand is distinctive and that
Europe only
they should demand it over competing
SOURCE: Nina Munk, “How Levi’s Trashed a Great American Brand,” Fortune, April 12, 1999, p. 84.
brands.
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• Attribute: A product is associated with an attribute, product
feature, or customer benefit. Rockport shoes are positioned as an
always-comfortable brand that is available in a range of styles
from working shoes to dress shoes.
• Price and quality: This positioning base may stress high price
as a signal of quality or emphasize low price as an indication of
value. Denmark-based Lego uses a high-price strategy for its toy
building blocks, whereas Montreal-based Mega Bloks uses a low
price strategy.25 Similarly, Wal-Mart 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. 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. Zale Corporation has several jewellery store concepts, each positioned to a different user. The Zale stores cater to
middle-of-the-road consumers with traditional styles. Its Gordon’s
stores appeal to a slightly older clientele with a contemporary
look, whereas People’s Jewellers targets a wider market segment.
• 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. The Avis rental car positioning as number
two 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.
It is not unusual for a marketer to use more than
one of these bases. A print ad in the “Got Milk?” campaign featuring Joan Lunden sporting a milk moustache read as follows:
Most people think I must drink at least 10 cups of
coffee to be so perky in the morning. But the truth is, I
like skim milk first thing. It has all the same nutrients
as whole milk without all the fat. And, besides, my
husband got the coffee maker.
Percentage of customers
responsible for 80 percent of a
company’s demand >
20%
< Value of consumer
$1
spending related to
trillion trading down
NEL
This ad reflects the following positioning bases:
changing consumers’
perceptions of a brand
in relation to competing
brands
• 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.
• Use or application: Lunden drinks milk first thing in the
morning.
• Product user: The use of Lunden, a successful, independent
woman, shows that milk is not just for kids.
• Product class (disassociation): The ad differentiates skim
milk from whole milk, showing that skim milk is healthier.
• Competitor (indirect): She drinks milk instead of coffee.
• Emotion: The ad conveys an upbeat, contemporary attitude.26
Repositioning
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.
Recently, Scott Paper had to change the name of its
Cottonelle brand of toilet tissues to Cashmere brand
because the company was losing its licence on the
Cottonelle brand name. The new name, Cashmere, was
developed from a marketing study of women who were
asked, “What is softer than cotton?” The most common
response was “cashmere.” This is the most demanding
repositioning that a company can undertake. Scott Paper
developed a multimedia campaign involving TV ads,
radio ads, magazines, and point-of-purchase materials.
TV advertising was the leading communication device.
One ad begins by showing a bathroom with a 1970s
motif. A woman wearing bell-bottoms enters the bathroom and puts a clearly marked package of Cottonelle in
a cabinet. Fast-forward, and a woman wearing 1980sstyle pants enters and does the same thing. Fast-forward
again to a modern-day bathroom with a woman dressed
in contemporary fashion entering the bathroom, but
this time with a package clearly marked “Cashmere.” As
she puts the Cashmere in the cabinet, the announcer’s
voice says, “We’ve changed Cottonelle over the years.
Now we are giving it a softer name. Cottonelle is
changing its name to Cashmere.”27
Number of steps
in segmenting a
market >
17
repositioning
6
< Average number of
hours a teen spends
online each week
Number of supermarkets
that go out of business
for each Wal-Mart supercentre built >
11
2
< Number of laundry detergents marketed by Procter
& Gamble, each targeted to
a different segment
CHAPTER 7 Segmenting and Targeting Markets
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