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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:
Copyright © 2018 Pearson Education, Inc.
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
Copyright © 2018 Pearson Education, Inc.
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
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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
Copyright © 2018 Pearson Education, Inc.
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.
Copyright © 2018 Pearson Education, Inc.
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
Copyright © 2018 Pearson Education, Inc.
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
Copyright © 2018 Pearson Education, Inc.
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
Copyright © 2018 Pearson Education, Inc.
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
Copyright © 2018 Pearson Education, Inc.
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. 217
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:
Copyright © 2018 Pearson Education, Inc.
Part 2: Determine the Value Propositions Different Customers Want
p. 219
p. 220
p. 220
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
Copyright © 2018 Pearson Education, Inc.
Chapter 7: Segmentation, Target Marketing, and Positioning
p. 221
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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
Copyright © 2018 Pearson Education, Inc.
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
Copyright © 2018 Pearson Education, Inc.
