There is really no one “best” method to segment a market. Firms choose from various methods
on the basis of the type of product/service they offer and their goals for the segmentation
strategy. For instance, if the firm wants to identify its customers easily, demographic or
geographic segmentation likely will work best. But if it is trying to dig deeper into why
customers might buy its offering, then psychographic, geodemographic, benefits, or behavioral
segmentation (occasion and loyalty) work best. Typically, a combination of several segmentation
methods is most effective.
LO2 Describe how firms determine whether a segment is attractive and therefore worth
Marketers use several criteria to assess a segment’s attractiveness. First, the customer should be
identifiable—companies must know what types of people are in the market so they can direct
their efforts appropriately. Second, the market must be substantial enough to be worth pursuing.
If relatively few people appear in a segment, it is probably not cost-effective to direct special
marketing mix efforts toward them. Third, the market must be reachable—the firm must be able
to reach the segment through effective communications and distribution. Fourth, the firm must be
responsive to the needs of customers in a segment. It must be able to deliver a product or service
that the segment will embrace. Finally, the segment must be profitable, both in the near term and
over the lifetime of the customer.
LO3 Articulate the differences among targeting strategies: undifferentiated,
differentiated, concentrated, or micromarketing.
Firms use a targeting strategy after they have identified its segments. An undifferentiated strategy
uses no targeting at all and works only for products or services that most consumers consider to
be commodities. The difference between a differentiated and a concentrated strategy is that the
differentiated approach targets multiple segments, whereas the concentrated targets only one.
Larger firms with multiple product/service offerings generally use a differentiated strategy;
smaller firms or those with a limited product/service offering often use a concentrated strategy.
Firms that employ a micromarketing or one-to-one marketing strategy tailor their product/service
offering to each customer—that is, it is custom made. In the past, micromarketing was reserved
primarily for artisans, tailors, or other craftspeople who would make items exactly as the
customer wanted. Recently, however, larger manufacturers and retailers have begun
experimenting with custom-made merchandise as well. Service providers, in contrast, are largely
accustomed to customizing their offering.
LO4 Determine the value proposition.
A firm’s value proposition communicates the customer benefits to be received from a product or
service and thereby provides reasons for wanting to purchase it. It consists of the attributes of a
product or service that are desired by the target market, but not available from competitors. Firms
could attempt to offer attributes that are important to its customers, whether or not they are
offered by competitors. For attributes that are not important to its customers, it should either
educate its customers about the importance of those attributes, deemphasize them, or not offer
those product or service attributes.