Chapter 7: CUSTOMER-DRIVEN MARKETING STRATEGY

Chapter 7

CUSTOMER-DRIVEN MARKETING STRATEGY:

CREATING VALUE FOR TARGET CUSTOMERS

MARKETING STARTER: CHAPTER 7

Dunkin’ Donuts: Targeting the Average Joe

Synopsis

Dunkin’ Donuts is rapidly expanding into a national coffee powerhouse on par with Starbucks, the nation’s largest

coffee chain. Its research has confirmed a simple fact: Dunkin’ is not Starbucks. To succeed, Dunkin’ must have its

own clear vision of just which customers it wants to serve and how to serve them. Dunkin’ and Starbucks target very

different customers, who want very different things. Dunkin’ Donuts built itself on serving simple fare at a

reasonable price to working-class customers. To broaden its appeal and fuel expansion, the chain has recently been

spiffing up its stores and adding new menu items. However, as it inches upscale, Dunkin’ Donuts is being careful

not to alienate its traditional customer base. Dunkin’ Donuts’ research has shown that although loyal customers want

nicer stores, they are bewildered and turned off by the atmosphere at Starbucks. And they can’t understand why

anyone would pay so much for a cup of coffee. The Starbucks customers that Dunkin’ studied were equally uneasy

in Dunkin’ shops. In refreshing its positioning, Dunkin’ Donuts has stayed true to the needs and preferences of the

Dunkin’ tribe. Dunkin’ Donuts’ positioning and value proposition are pretty well summed up in its popular ad

slogan ―America Runs on Dunkin’.‖

Discussion Objective

A focused discussion of the chapter–opening Dunkin’ Donuts story will illustrate the basics of segmentation,

targeting, differentiation, and positioning. Dunkin’ knows that it can’t make all of its customers happy all the time.

Instead, it has segmented its market carefully and concentrates on serving its best customers better. The discussion

should emphasize that Dunkin’ Donuts not only knows which customers it wants— it also knows which customers it

doesn’t want. Once it identified its best target segments, Dunkin’ updated its stores, menu offerings and other

marketing mix elements that position it strongly among these customers.

Starting the Discussion

To

get

a

feel

for

the

―

Dunkin’

Trib

e‖

and

how

Dunkin’

Donuts

targets

them,

show

several

of

the

many

―Am

erica

Runs on Dunkin’‖ YouTube videos and relate them to company’s different customer segments. What do students

notice about the store settings, product choices, customers and customer preferences depicted in the videos? Which

key

messages

clearly

stand

out

in

each

segment?

What

makes

members

of

the

―

Dunkin’

Trib

e‖

so

different

from

the

―

Starbucks

Tribe?

‖

You

should

also

spend

time

discussing

how

Dunkin’

Donuts

works

to

give

―

trib

e‖

members

exactly what they want.

Discussion Questions

1.

How would you describe Dunkin’s Donuts’ approach to market segmentation? (As with most marketers,

Dunkin’ Donuts uses a combination of different segmentation variables. Discuss how the company might

draw upon geographic, demographic, psychographic, and behavioral variables in determining its market

structure. Ask students to provide some examples of each type. As a class, try to determine which variables

appear to be most important to Dunkin’ in targeting the ―Average Joe.‖)

2.

Picture a typical member of the ―Dunkin’ Tribe.‖ How does he/she dress? In what type of neighborhood

does he/she live? What kind of job might he/she have? What kind of vehicle does he/she drive? What might

be

his/her

attitude

toward

spending

money?

Now,

do

the

same

thing

for

a

typical

member

of

the

―

Starbucks

Tribe.‖ What key differences can you find, and how are they important to Dunkin’ Donuts? (Answers will

vary. However, it should be clear that Dunkin’ Donuts customers tend to be ―Average Joes‖ – working men

and women who want to be part of a crowd. They want fresh, tasty food and beverages for their money

without all of the frills. Broadly speaking, Starbucks’ customers tend to view themselves as upwardly

mobile individuals who spend money at Starbucks because they can afford it. They enjoy the couches,

eclectic music, and art-splashed walls. To Dunkin’ Donuts, these differences are profound, and powerfully

shape its market segmentation strategy.)

3.

How does the chapter-opening Dunkin’ Donuts story relate to the segmentation and positioning concepts

that follow in Chapter 7? (Dunkin’ knows that it can’t serve kind every customer, or every customer in the

same way. Instead, it succeeds by segmenting its market, targeting the best segments, and differentiating

and positioning itself to best serve the needs of target consumers. That’s pretty much what this chapter is all

about.)

CHAPTER OVERVIEW

Use Power Point Slide 7-1 Here

This chapter looks further into key customer-driven marketing strategy decisions—how to divide

up markets into meaningful customer groups (segmentation), choose which customer groups to

serve (targeting), create market offerings that best serve targeted customers (differentiation), and

position the offerings in the minds of consumers (positioning).

Then, the chapters that follow explore the tactical marketing tools—the Four Ps—by which

marketers bring these strategies to life.

CHAPTER OBJECTIVES

Use Power Point Slide 7-2 Here

1.

Define the four major steps in designing a customer-driven marketing strategy:

market segmentation, market targeting, differentiation, and positioning.

2.

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

3.

Explain how companies identify attractive market segments and choose a market

targeting strategy.

4.

Discuss how companies differentiate and position their products for maximum

competitive advantage.

CHAPTER OUTLINE

p. 190

INTRODUCTION

Dunkin’ Donuts is rapidly expanding into a national coffee

powerhouse on par with Starbucks, the nation’s largest

coffee chain.

Its research has confirmed a simple fact: Dunkin’ is not

Starbucks. To succeed, Dunkin’ must have its own clear

vision of just which customers it wants to serve and how to

serve them.

Dunkin’ and Starbucks target very different customers, who

want very different things. Dunkin’ Donuts’ research has

shown that although loyal customers want nicer stores, they

are bewildered and turned off by the atmosphere at

Starbucks.

In refreshing its positioning, Dunkin’ Donuts has stayed

true to the needs and preferences of the Dunkin’ tribe.

P. 191

Ad: Dunkin’Donuts

vs. Starbucks

➢ Opening Vignette Questions

1.

Consider yourself as a coffee and pastry

consumer. Do you think you fall into the

Dunkin’ Tribe or the Starbucks’ Tribe? Explain.

2.

Recall the slogan,

―

America Runs on Dunkin’

.‖

What does it mean, and how is it central to

Dunkin’s segmentation strategy?

3.

Think of another company that sells a product or

service you enjoy. What are some possible ways

that company might separate the angels from the

demons in their market segment?

p. 192

PPT 7-3

PPT 7-4

Most companies have moved away from mass marketing

and toward target marketing—identifying market segments,

selecting one or more of them, and developing products and

marketing programs tailored to each.

Figure 7.1 shows the four major steps in designing a

customer-driven marketing strategy.

Market segmentation involves dividing a market into

smaller groups of buyers with distinct needs, characteristics,

or behaviors that might require separate marketing

strategies or mixes.

Objective 1

p. 192

Key Terms: Market

Segmentation,

Market Targeting

(Targeting),

Differentiation,

Positioning

Market targeting (or targeting) consists of evaluating

each market segment’s attractiveness and selecting one or

more market segments to enter.

Differentiation involves actually differentiating the firm’s

market offering to create superior customer value.

Positioning consists of arranging for a market offering to

occupy a clear, distinctive, and desirable place relative to

competing products in the minds of target consumers.

➢ Assignments, Resources

Use Discussion Question 1 here

Use Think-Pair-Share 1 here

Use Web Resource 1 here

p. 193

MARKET SEGMENTATION

Objective 2

PPT 7-5

p. 193

PPT 7-6

Through market segmentation, companies divide large,

heterogeneous markets into smaller segments that can be

reached more efficiently and effectively with products and

services that match their unique needs.

• Segmenting consumer markets

• Segmenting business markets

• Segmenting international markets

• Requirements for effective segmentation

Segmenting Consumer Markets using Geographic

segmentation, Demographic segmentation,

Psychographic segmentation, and Behavioral

segmentation

p. 193

Figure 7.1

Designing a

Customer-Driven

Marketing Strategy

p. 191

Photo: Walmart

p. 192

Table 7.1: Major

Segmentation

Variables for

Consumer Markets

PPT 7-7

Table 7.1 outlines the major variables that might be used in

segmenting consumer markets.

Geographic Segmentation

Geographic segmentation calls for dividing the market

into different geographical units such as nations, regions,

states, counties, cities, or even neighborhoods.

p. 193-194

Key Terms:

Geographic

Segmentation,

Demographic

Segmentation, Age

and Life-Cycle

Segmentation

p. 194: Domino’s

Pizza

PPT 7-8

Demographic Segmentation

Demographic segmentation divides the market into

PPT 7-9

PPT 7-10

PPT 7-11

groups based on variables such as age, gender, family size,

family life cycle, income, occupation, education, religion,

race, generation, and nationality.

Demographic factors are the most popular bases for

segmenting customer groups.

Age and Life-Cycle Stage means offering different

products or using different marketing approaches for

different age and life-cycle groups.

Gender segmentation has long been used in clothing,

cosmetics, toiletries, and magazines.

Income segmentation has long been used by the

marketers of products and services such as automobiles,

clothing, cosmetics, financial services, and travel.

Psychographic Segmentation

Psychographic segmentation divides buyers into

different groups based on social class, lifestyle, or

personality characteristics.

Marketers also use personality variables to segment

markets.

Behavioral Segmentation

Behavioral segmentation divides buyers into groups

based on their knowledge, attitudes, uses, or responses to a

product.

Occasion segmentation means grouping buyers

according to occasions when they get the idea to buy,

actually make their purchase, or use the purchased item.

Benefit segmentation means grouping buyers according to

the different benefits that they seek from the product.

User Status means segmenting markets into nonusers, ex-

users, potential users, first-time users, and regular users of a

product.

Usage Rate means grouping markets into light, medium,

and heavy product users.

p. 193

Key Term: Gender

Segmentation

p. 194

Ad: Kia Soul

p. 195

Photo: Mënaji

p. 195-196

Key Terms: Income

Segmentation,

Psychographic

Segmentation

p. 196

Ad: VF Corporation

p. 198

Key Terms:

Behavioral

Segmentation,

Occasion

Segmentation,

Benefit

Segmentation

p. 200

PPT 7-12

PPT 7-13

p. 200

p. 201

PPT 7-14

PPT 7-15

Loyalty Status means dividing buyers into groups

according to their degree of loyalty.

Using Multiple Segmentation Bases

Marketers rarely limit their segmentation analysis to only

one or a few variables.

PRIZM is a leading segmentation systems that classifies

every American household based on a host of demographic

factors.

Segmenting Business Markets

Consumer and business marketers use many of the same

variables to segment their markets.

Business marketers also use some additional variables, such

as customer operating characteristics, purchasing

approaches, situational factors, and personal character-

istics.

Segmenting International Markets

Companies can segment international markets using one or

a combination of several variables.

• Geographic location: Nations close to one another

will have many common traits and behaviors.

• Economic factors: Countries may be grouped by

population income levels, or by their overall level of

economic development.

• Political and legal factors: Type and stability of

government, receptivity to foreign firms, monetary

regulations, and the amount of bureaucracy.

• Cultural factors: Grouping markets according to

common languages, religions, values and attitudes,

customs, and behavioral patterns.

Intermarket segmentation is segmenting of consumers

who have similar needs and buying behavior even though

they are located in different countries.

p. 199

Ad: Apple

p. 200

Photo: Nielsen’s

PRIZM

p. 202

Ad: H&M Tokyo

p. 201

Key Term:

Intermarket

Segmentation

➢ Assignments, Resources

Use Discussion Questions 2 and 3 here

Use Critical Thinking Exercise 1 here

Use Marketing Technology here

Use Additional Projects 1, 2 and 3 here

Use Small Group Assignment 1 here

Use Outside Example 2 here

Use Web Resource 2, 3, and 4 here

Troubleshooting Tip

➢ Understanding the concept of a market segment can

be difficult for students. Breaking down a market,

such as their own university, into separate groups

can help tremendously, as can drawing a big box on

the board, and then breaking the box down into

separate sections to represent pieces of a larger

market.

p. 202

PPT 7-16

Requirements for Effective Segmentation

To be useful, market segments must be:

p. 200