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Part 2: Determine the Value Propositions Different Customers Want

Chapter 7

Segmentation, Target Marketing, and Positioning

I. CHAPTER OVERVIEW

As small children, we are often taught to treat everyone alike. However, after reading this

chapter, students will quickly learn that this strategy does not work in marketing. The goal of

marketing is to create value and satisfy needs. However, everyone’s needs are not the same.

Understanding needs is a complex task.

In this chapter, students learn why segmentation is important and the different dimensions used

by marketers to segment the population. How marketers evaluate and select potential market

segments is explained, as is the development of a targeting strategy. Students understand how a

firm develops and implements a positioning strategy.

II. CHAPTER OBJECTIVES

1. Identify the steps in the target marketing process.

2. Understand the need for market segmentation and the approaches available to do it.

3. Explain how marketers evaluate segments and choose a targeting strategy.

4. Understand how marketers develop and implement a positioning strategy.

III. CHAPTER OUTLINE

►MARKETING MOMENT INTRODUCTION

Ask students to identify two magazines—one for women and one for men. How does the

marketing mix for each magazine differ? How does the marketing mix reflect the preferences of

the target market?

p. 203 REAL PEOPLE, REAL CHOICES─HERE’S MY

PROBLEM AT LEVI-STRAUSS

The Levi’s brand was losing relevance and market share. Although

technically we were the leader in denim in terms of market share,

it didn’t necessarily feel like we were leading; our market share

was being eaten up by premium brands and then most recently

fast fashion. We needed to reposition for success—in terms of

both financial and equity performance and the overall future

health of the brand. We needed to create a clear brand value

proposition that was relevant and differentiated, broadly appealing

and globally viable. My job was to lead this process and create a

long-standing marketing campaign off of this positioning, while

inspiring the organization more broadly with this brand direction.

Jen Sey considered her options:

Part 2: Determine the Value Propositions Different Customers Want

p. 203

1. Levi’s is THE original blue jean. This positioning asserts the brand’s

innovator status. Millennials value authenticity, but we need to either

promote this attribute more forcefully or give them additional reasons to

choose our brand.

2. Levi’s is as original as you are. The brand has long told a story

about individuality. On the other hand, this link with originality no

longer makes the statement it used to.

3. You wear other jeans but you live your life in Levi’s. This claim

makes an emotional connection with customers. The down side is

that today blue jeans are more fashion-oriented than they used to

be.

The vignette ends by asking the student which option he/she

would choose.

Jen Sey chose option #3.

Use website here: www.levistrauss.com

p. 204 1. TARGET MARKETING STRATEGY: SELECT AND

ENTER A MARKET

Understanding people’s needs is an even more complex task today

because technological and cultural advances in modern society

have created a condition of market fragmentation. This means

that people’s diverse interests and backgrounds divide them into

numerous groups with distinct needs and wants.Because of this

diversity, the same good or service will not appeal to everyone.

Marketers must balance the efficiency of mass marketing where

they serve the same items to everyone, with effectiveness that

comes when they offer each individual exactly what she wants.

Marketers select a target marketing strategy in which they

divide the total market into different segments based on customer

characteristics, select one or more segments, and develop

products to meet the needs of those specific segments.

Activity:

List the criteria used for determining whether a segment may

be a good candidate for targeting.

Figure 7.1

Process: Steps in

the Target

Marketing

Process

p. 205 2. STEP 1: SEGMENTATION

Segmentation is the process of dividing a larger market into

smaller pieces based on one or more meaningfully shared

characteristics. Segmentation is often necessary in both consumer

and industrial markets. The marketer must decide on one or more

Chapter 7: Segmentation, Target Marketing, and Positioning

p. 205

useful segmentation variables—that is, dimensions that

divide the total market into homogeneous groups, each with

different needs and preferences.

2.1 Segment Consumer Markets

We can slice the larger consumer “pie” into smaller pieces in a

number of ways, including demographic, psychographic, and

behavioral differences. In the case of demographic segmentation

there are several key sub-categories of demographics: age

(including generational differences), gender, family life cycle,

income and social class, ethnicity, and place of residence—

sometimes referred to separately as geographic segmentation.

Figure 7.2

Snapshot:

Segmenting

Consumer

Markets

p. 206

p. 207

2.1.1 Segment by Demographics: Age

Demographics are statistics that measure observable aspects

of a population, including size, age, gender, ethnic group, income,

education, occupation, and family structure. These descriptors are

vital to identify the best potential customers for a good or service.

Because they represent objective characteristics they usually are

easy to identify, and then it is just a matter of tailoring messages

and products to relevant groups.

Consumers of different age groups have different needs and

wants. Members of a generation tend to share the same outlook

and priorities. We call such a focus generational

marketing.

Generation Y, often also called millennials or “Echo Boomers”,

consists of people born between the years 1979 and 1994.

They are the first generation to grow up online and are more

ethnically diverse than earlier generations. Generation Y is an

attractive market for a host of consumer products because of its

size (approximately 26 percent of the population) and

free-spending nature—as a group they spend about $200 billion

annually. Marketers refer to individuals born after 1994 as

Generation Z. This is the first generation of the 21st century and

it’s the most diverse: 55 percent are Caucasian, 24 percent are

Hispanic, 14 percent are African American, and 4 percent are

Asian. They are accustomed to responsibilities that don’t split

along traditional gender lines. They are digital natives who spend

time online, so they expect brands to engage them in two- way

digital conversations. The 13- to 18-year-old age group spends more

than $200 billion on different products.

The group of consumers born between 1965 and 1978 consists of

46 million Americans known as Generation X. They have

developed an identity for being an entrepreneurial group. One

Part 2: Determine the Value Propositions Different Customers Want

p. 208

study revealed that Xers are already responsible for 70 percent of

new start-up businesses in the United States. Many people in this

segment seem to be determined to have stable families after being

latchkey children themselves. Seven out of ten regularly save

some portion of their income, a rate comparable to that of their

parents. Xers tend to view the home as an expression of

individuality rather than material success.

Baby boomers, consumers born between 1946 and 1964 and

who are now in their 40s, 50s, and 60s are an important segment

to many marketers—if for no other reason than that there are so

many of them who make a lot of money. Boomers are willing to

invest a ton of money, time, and energy to maintain their youthful

image.

Currently, there are over 46 million Americans aged 65 or older—

an increase from prior years. Many mature consumers enjoy

leisure time and continued good health. It isn’t age but rather

lifestyle factors, including mobility, that best define this group.

p. 209 2.1.2 Segment by Demographics: Gender

Many products, from fragrances to footwear, specifically appeal

to men or women. Segmenting by gender starts at a very early age

—even diapers come in pink for girls and blue for boys. In some

cases, manufacturers develop parallel products to appeal to each

sex.

Metrosexual is a straight, urban male who is keenly interested in

fashion, home design, gourmet cooking, and personal care.

Metrosexuals are usually well-educated urban dwellers that are in

touch with their feminine side.

An interesting trend related to gender segmentation has been

fueled by the recent recession. Men now are increasingly likely to

marry wives with more education and income than they have, and

the reverse is true for women.

Exhibit: SHE

Beer

Use website here: www.avon.com

Avon targeting metrosexual males

p. 210 2.1.3 Segment by Demographics: Family Life Cycle

Because family needs and expenditures change over time, one

way to segment consumers is to consider the stage of the family

life cycle they occupy. Consumers in different life cycle segments

are unlikely to need the same products, or at least they may not

need these things in the same quantities. As family’s age and

move into new life stages, different product categories ascend and

descend in importance.

Chapter 7: Segmentation, Target Marketing, and Positioning

p. 210 2.1.4 Segment by Demographics: Income and Social Class

The distribution of wealth is of great interest to marketers because

it determines which groups have the greatest buying power.

Marketers, obviously, are often more interested in high-income

consumers. In the past, it was popular for marketers to consider

social class segments, such as upper class, lower class, and lower

class. However, many consumers buy not according to where they

may fall in the schema but rather according to the image they

wish to portray.

p. 211 2.1.5 Segment by Demographics: Ethnicity

A consumer’s national origin is often a strong indicator of his

preferences for specific magazines or TV shows, foods, apparel,

and choice of leisure activities. Marketers need to be aware of

these differences and sensitivities—especially when they invoke

outmoded stereotypes to appeal to consumers of diverse races and

ethnic groups.

African Americans, Asian Americans, and Hispanic Americans

are the largest ethnic groups in the United States. The Census

Bureau projects that by the year 2050, non-Hispanic whites will

make up just less than 50 percent of the population (compared to

74 percent in 1995) as these other groups grow.

Asian Americans are the fastest-growing minority group in the

U.S. Between 2002 and 2014, the Asian American population

grew by 46 percent to reach 19.4 million individuals with an

expected growth of 150 percent between 2015 and 2050. Content

marketing is the strategy of establishing thought leadership in the

form of bylines, blogs, commenting opportunities, videos,

sharable social images, and infographics.

African Americans account for more than 13 percent of the U.S.

population. The Hispanic American population is a real emerging

segment that marketers cultivate. Hispanics have overtaken African

Americans as the nation’s largest minority group. Hispanic buying

power is estimated to exceed $1.5 trillion—a greater than 50

percent increase from 2010. In addition to its rapid growth, five

factors make the Hispanic segment attractive to marketers:

Hispanics tend to be brand loyal, especially to

products made in their country of origin.

Hispanics tend to be highly concentrated by national

origin, which makes it easy to fine-tune the marketing

mix to appeal to those who come from the same

country.

This segment is young (the median age of Hispanic

Americans is 23.6, compared with the U.S. average of

32), which is attractive to marketers because it is a

Part 2: Determine the Value Propositions Different Customers Want

p. 212

great potential for youth-oriented products.

The average Hispanic household contains 3.5 people,

compared to only 2.7 people for the rest of the United

States. For this reason, Hispanic households spend 15

to 20 percent more of their disposable income than the

national average on groceries and other household

products.

In general, Hispanic consumers are very receptive to

relationship-building approaches to marketing and

selling. As such, strong opportunities exist to build

loyalty to brands and companies through emphasizing

relationship aspect of the customer encounter.

Hispanic buying power is estimated to exceed $1.5 trillion—a

greater than 50 percent increase from where the segment’s buying

power was in 2010.

The term “Hispanic” is a misnomer. For example, Cuban

Americans, Mexican Americans, and Puerto Ricans may share a

common language, but their history, politics, and culture have

many differences. Marketing to them as a homogeneous segment

can be a big mistake. By 2020, the U.S. Census Bureau estimates, the

number of Hispanic teens will grow by 62 percent, compared with 10

percent growth in teens overall.

An important outcome of the increase in U.S. multiethnicity is the

opportunity for increased cultural diversity in the workplace and

elsewhere. Cultural diversity, a management practice that

actively seeks to include people of different sexes, races, ethnic

groups, and religions in an organization’s employees, customers,

suppliers, and distribution channel partners, is today business as

usual rather than an exception. Marketing organizations benefit

from employing people of all kinds because they bring different

backgrounds, experiences, and points of view that help the firm

develop strategies for its brands that will appeal to diverse

customer groups.

Exhibit: Marc

Anthony

►Marketing Moment In-Class Activity

Ask students to look around at their classmates and determine how they might segment the class.

What products might be appropriate for the different segments they develop?

Use website here: www.hnmagazine.com Hispanic Network online newsletter for Latinos

p. 213 2.1.6 Segment by Demographics: Place of Residence

Geographic segmentation is an approach in which marketers tailor

their offerings to specific geographic areas because people’s

preferences often vary depending on where they live. A

geographic information system (GIS) is a system that combines

a geographic map with digitally stored data about the consumers

Chapter 7: Segmentation, Target Marketing, and Positioning

p. 214

in a particular geographic area.

When marketers want to segment regional markets even more

precisely, they sometimes combine geography with demographics

by using a technique called geodemography. A basic premise of

geodemography is that people who live near one another share

similar characteristics.

Geotargeting refers to determining the geographic location of a

website visitor and delivering different content to that visitor

based on his or her location. Micromarketing is the ability to

identify and target very small geographic segments that

sometimes amount to individuals.

► METRICS MOMENT

Use website here: PRIZM (geodemographic system):

https://segmentationsolutions.nielsen.com/mybestsegments/Default.jsp?ID=70

Apply the Metrics

Click on Zip Code Lookup, and then type in your own ZIP code along with the provided

security code, then click SUBMIT.

Several segments should then come up that comprise your ZIP code. Click on each for

more detail.

You will also see some quick facts in a box that further describe some basic

demographics of your ZIP code (population, median age, median income, and consumer

spend total and per household).

What is your reaction to the segment profiles and other information about your ZIP code?

Are you surprised with the results, or was it what you expected?

Given the profile provided, what sort of products and services do you think are most

likely to be particularly attractive to the segments represented?

p. 215 2.1.7 Segment by Psychographics

Psychographics is the use of psychological, sociological, and

anthropological factors to construct market segments.

Psychographics segments consumers in terms of shared

activities, interests, and opinions, or AIOs

VALS™ (Values and Lifestyles) is based on

psychological traits that correlate with consumer behavior.

VALS™ divides U.S. adults into eight groups according to what

drives them psychologically as well as by their economic

resources.

Three primary consumer motivations are key to the system:

ideals, achievement, and self-expression. Consumers who are

motivated primarily by ideals are guided by knowledge and

principles. Consumers who are motivated primarily by

achievement look for goods and services that demonstrate success

to their peers. In addition, consumers who are motivated primarily

Exhibit: Harley

Riders

Part 2: Determine the Value Propositions Different Customers Want

by self-expression desire social or physical activity, variety, and

risk.

VALS™ helps match products to particular types of people.

One segment that combines a psychographic/lifestyle component

with a heavy dose of generational marketing is the gamer

segment, sometimes referred to as the gamer generation

—“gamer” as in “video games.” A badge is a milestone or reward

earned for progressing through a video game.

►Marketing Moment In-Class Activity

If you go to www.strategicbusinessinsights.com and click on “VALS™ Survey”, you can

complete a brief questionnaire free to find out your own VALS™ type (you might be surprised).

Use website here: www.strategicbusinessinsights.com VALS survey

p. 215

p. 216

2.1.8 Segment by Behavior

Behavioral segmentation slices consumers based on how they

act toward, feel about, or use a product. One way to segment

based on behavior is to divide the market into users and nonusers

of a product. In addition to distinguishing between users and

nonusers, marketers can describe current customers as heavy,

moderate, and light users. They often do this according to a rule

of thumb we call the 80/20 rule: 20 percent of purchasers

account for 80 percent of the product’s sales (the ratio is an

approximation, not gospel). This rule means that it often makes

more sense to focus on the smaller number of people who are

really into a product rather than on the larger number who are just

casual users.

An approach called the long tail turns traditional thinking

about the virtues of selling in high volume on its head. The basic

idea is that we need no longer rely solely on big hits (like

blockbuster movies or best-selling books) to find profits.

Companies can also make money when they sell small amounts of

items that only a few people want—if they sell enough different

items.

Another way to segment a market based on behavior is to look at

usage occasions, or when consumers use the product most.

We associate many products with specific occasions, whether time

of day, holidays, business functions, or casual get-togethers.

Businesses often divide their markets according to when and how

their offerings are in demand.

Exhibit:

Biltmore photo

p. 216

p. 217

2.2 Segmenting B2B Markets

Organizational demographics also help a business-to-business

marketer to understand the needs and characteristics of its

Chapter 7: Segmentation, Target Marketing, and Positioning

potential customers. These classification dimensions include the

size of the firms either in total sales or number of employees, the

number of facilities, whether they are a domestic or a

multinational company, purchasing policies, and the type of

business they are in. Business-to-business markets may also be

segmented based on the production technology they use and

whether the customer is a user or a nonuser of the product.

Use website: Hoovers Online ( http://www.hoovers.com), which provides subscribers with

up-to-date information on private and public companies worldwide.

p. 217

p. 218

3. STEP 2: TARGETING

The next step is targeting, in which marketers evaluate the

attractiveness of each potential segment and decide in which of

these groups they will invest resources to try to turn them into

customers. The customer group or groups they select are the

firm’s target market.

3.1 Targeting in Three Steps

The three phases of targeting are: evaluate market segments,

develop segment profiles, and choose a targeting strategy.

3.1.1 Evaluate Market Segments

Just because a marketer identifies a segment does not necessarily

mean that it is a useful one to target. A viable target segment

should satisfy the following requirements:

Are members of the segment similar to each other in

their product needs and wants and, at the same time,

different from consumers in other segments?

Can marketers measure the segment?

Is the segment large enough to be profitable now and

in the future?

Can marketing communications reach the segment?

Can the marketer adequately serve the needs of the

segment?

3.1.2 Develop Segment Profiles

Once a marketer identifies a set of usable segments, it is helpful to

generate a profile of each to really understand segment members’

needs and to look for business opportunities. This segment profile

is a description of the “typical” customer in that segment. For

example, a segment profile includes customer

demographics, location, lifestyle information, and a description of

how frequently the customer buys the product.

Figure 7.3

Process: Phases

of Targeting

p. 218 3.1.3 Choose a Targeting Strategy

A basic targeting decision is how finely tuned the target should

be.

Exhibit:

Part 2: Determine the Value Propositions Different Customers Want

p. 219

p. 220

An undifferentiated targeting strategy is one that appeals to a

wide-spectrum of people. If successful, this type of operation can

be very efficient, especially because production, research, and

promotion costs benefit from economies of scale—it’s cheaper to

develop one product or one advertising campaign than to choose

several targets and create separate products or messages for each.

The company must be willing to bet that people have similar

needs or differences among them that are trivial.

A company that chooses a differentiated targeting strategy

develops one or more products for each of several customer

groups with different product needs. A differentiated strategy is

called for when consumers are choosing among brands that are

well known in which each has a distinctive image in the

marketplace and in which it is possible to identify one or more

segments that have distinct needs for different types of products.

Differentiated marketing can also involve connecting one product

with different segments by communicating differently to appeal to

those segments.

When a firm offers one or more products to a single segment, it

uses a concentrated targeting strategy. Smaller

firms that do not have the resources or the desire to be all things

to all people often do this.

Ideally, marketers should be able to define segments so precisely

that they can offer products and services that exactly meet the

unique needs of each individual or firm. A custom marketing

strategy is common in industrial contexts in which a

manufacturer often works with one or a few large clients and

develops products and services that only these clients will use.

Of course, in most cases this level of segmentation is neither

practical nor possible when mass-produced products such as

computers or cars enter the picture. However, advances in

computer technology, coupled with the new emphasis on building

solid relationships with customers, have focused managers’

attention on devising new ways to tailor specific products and the

messages about them to individual customers. Thus, some

forward-looking, consumer-oriented companies are moving

toward mass customization in which they modify a basic

good or service to meet the needs of an individual.

Volkswagen

Figure 7.4

Snapshot:

Choose a Target

Marketing

Strategy

Exhibit:

Blacksocks

Exhibit:

New 3-D printing

technology allows

consumers to print

their own car

Chapter 7: Segmentation, Target Marketing, and Positioning

p. 221

p. 222

p. 223

Ethics Check

Find out what other students taking this course would do and why

at www.mymktlab.com

Should fast-food marketing to children be regulated by the

government?

4. STEP 3: POSITIONING

The final stage of developing a target marketing strategy is to

provide consumers who belong to a targeted market segment with

a good or service that meets their unique needs and expectations.

Positioning means developing a marketing strategy to

influence how a particular market segment perceives a good or

service in comparison to the competition. To position a brand,

marketers have to clearly understand the criteria target consumers

use to evaluate competing products and then convince them that

their product, service or organization will meet those needs.

4.1 Steps in Positioning

Marketers use four steps to decide just how to position their

product or service:

4.1.1 Step 1: Analyze Competitors’ Positions

The first stage is to analyze competitors’ positions in the

marketplace. To develop an effective positioning strategy,

marketers must understand the current lay of the land.

4.1.2 Step 2: Define Your Competitive Advantage

The second stage is to offer a good or service with a competitive

advantage to provide a reason to perceive the product as better

than the competition’s. A positioning statement can frame how a

product is positioned so that marketing communication remains

focused on articulating the specific value offered.

4.1.3 Step 3: Finalize the Marketing Mix

Once they settle on a positioning strategy, the third stage is to finalize

the marketing mix as they put all the pieces into place. The elements of

the marketing mix must match the selected segment. The good or

service must deliver benefits that the segment values, such as

convenience or status.

4.1.4 Step 4: Evaluate Responses and Modify as Needed

In the fourth and final stage, marketers evaluate the target market’s

responses so they can modify strategies. The firm may need to change

which segments it targets or alter a product’s position to respond to

marketplace changes.

Ripped from the

Headlines:

Ethical/Sustainab

le Decisions in

the Real World

Figure 7.5

Process: Steps in

Positioning

Part 2: Determine the Value Propositions Different Customers Want

p. 223

p. 224

A change strategy is repositioning, and it is common to see a

company try to modify its brand image to keep up with changing

times. Repositioning also occurs when a marketer revises a brand

thought to be dead or at least near death. Sometimes these

products arise from their deathbeds to ride a wave of nostalgia

and return to the marketplace as retro brands—venerable

brands like Oxydol laundry detergent, Breck Shampoo, Ovaltine

cereal, and Tab cola have gotten a new lease on life in recent

years.

4.2 Bring a Product to Life: The Brand Personality

A positioning strategy often tries to create a brand

personality for a good or service—a distinctive image that

captures its character and benefits. Part of creating a brand

personality is developing an identity for the product that the target

market will prefer over competing brands. How do marketers

determine where their product actually stands in the minds of

consumers? Brand anthropomorphism is the assignment of human

characteristics and qualities to a brand.

One solution is to ask consumers what characteristics are

important and how competing alternatives would rate on these

attributes, too. Marketers use this information to construct a

perceptual map, which is a vivid way to construct a picture

of where products or brands are “located” in consumers’ minds.

Here’s My Choice: Real People, Real Choices

Jen Say chose option 3

Exhibit: SoBe

photo

Figure 7.6

Snapshot:

Perceptual Map