978-0134492513 Chapter 7 Lecture Notes

Chapter 7

CUSTOMER-DRIVEN MARKETING STRATEGY:

CREATING VALUE FOR TARGET CUSTOMERS

MARKETING STARTER: CHAPTER 7

DUNKIN’ DONUTS: Targeting the Average Joe

Synopsis

Dunkin’ Donuts has expanded into a national coffee powerhouse, competitive with Starbucks, the nation’s largest

coffee chain. However, Dunkin’ does not intend to attract customers from Starbucks. It recognizes that the

characteristics of Dunkin’ customers are very different from those of Starbucks’ customers. In a bit of a nod to the

competitive factors, though, Dunkin’ has added a few non-breakfast items to its menu and refreshed the look and

feel of its stores. At the same time, Dunkin’ is being careful to not alienate its core customer base. Apparently, the

changes have led to success because Dunkin’ has topped the coffee category in a leading customer loyalty and

engagement survey for the past nine years. It consistently meets or exceeds customer expectations with respect to

taste, quality, and customer service. So, while Dunkin’ Donuts has a relatively limited menu, and is not fancy, it

meets the needs of its customers.

Discussion Objective

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

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

Instead, it has segmented its market carefully and concentrated on serving as many of its customers as possible. The

discussion should emphasize that Dunkin’ not only knows which customers it wants— it also knows what those

customers want.

Starting the Discussion

To get a feel for the breadth of Dunkin’ Donuts product offerings, go to the Dunkin’ Web site

(https://www.dunkindonuts.com/dunkindonuts/en.html) and the corporate Dunkin’ Brands website, as Dunkin’

Donuts is a subsidiary (http://www.dunkinbrands.com/). Begin by looking at the Responsibility tab. After noticing

the focus on consumers, explore the About Us pages. Look at the categories in which Dunkin’ leads. Notice how

focused its products are.

Discussion Questions

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

Dunkin’ 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 examples of each type. As a class, try to determine which variables

appear to be most important to Dunkin’ in targeting its customers. Look at its expansion plan. What

variables will play into its expansion as it has a long-term goal of 17,000 U.S. locations, double the current

number?

2. Look at the typical Dunkin’ menu. Many quick-service restaurants have a more extensive menu. Are there

positive aspects to a relatively limited menu? What are they? Are there any negatives to consumers? Why

does Dunkin’ believe it makes sense to structure its menu this way?

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

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

customer in the same way. It doesn’t even want to try to appeal to all possible customers. It succeeds by

segmenting its market, targeting the best segments for it, 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

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 major steps in designing a customer value-driven marketing strategy:

market segmentation, 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. 186

INTRODUCTION

Dunkin’ Donuts is a fast-growing coffee powerhouse. To

appeal to customers, it offers a specific look, feel, and

menu. It knows who its customers are and what they want

from Dunkin’.

It requires careful market segmentation and positioning to

succeed with this strategy and to offer something valuable

to consumers in each important preference group.

Dunkin’ Donuts has figured out what it takes to not just

hold its own against Starbucks and the other competitors in

an increasingly competitive coffee market, but to grow and

be the best in important categories such as customer loyalty.

P. 187

Photo: Dunkin’

Donuts

Opening Vignette Questions

1. Where do you go for your coffee fix? Starbucks?

Dunkin’ Donuts? McDonald’s? An independent

coffeehouse? Why? What keeps you coming

back?

2. Do people check around and try the coffee or

food at the various coffeehouses and fast-food

restaurants? What makes them choose their

favorite, the one that keeps them coming back?

3. Dunkin’ Donuts has expanded its product line so

that its coffee can be purchased in grocery stores

in K-cups and other packages. What are the

benefits and risks of broadening the use of the

brand name?

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p. 188

PPT 7-4

Define the major steps in designing a customer

value-driven marketing strategy: market segmentation,

targeting, differentiation, and positioning.

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.

Marketing Strategy

Figure 7.1 shows the four major steps in designing a

customer value-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.

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.

Review Learning Objective 1: Define the major steps in

designing a customer value-driven marketing strategy:

market segmentation, targeting, differentiation, and

positioning.

Learning Objective

1

p. 188

Key Terms: Market

segmentation,

Market targeting

(targeting),

Differentiation

p. 188

Figure 7.1

Designing a

Customer-Driven

Marketing Strategy

p. 189

Key Term:

Positioning

Assignments, Resources

Use Discussion Question 7-1 here

Use Think-Pair-Share 1 here

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p. 189

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p. 189

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p. 190

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p. 191

List and discuss the major bases for segmenting

consumer and business markets.

MARKET SEGMENTATION

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. They may require

separate marketing strategies or mixes.

Segmenting consumer markets

Segmenting business markets

Segmenting international markets

Requirements for effective segmentation

Segmenting Consumer Markets

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.

Demographic Segmentation

Demographic segmentation divides the market into 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 segmentation 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

Learning Objective

2

p. 189

Table 7.1: Major

Segmentation

Variables for

Consumer Markets

p. 189

Key Term:

Geographic

segmentation

p. 190

Key Terms:

Demographic

segmentation, Age

and life-cycle

segmentation,

Gender

segmentation

p. 190

Ad: Dick’s Sporting

Goods

p. 191

Key Term: Income

segmentation

p. 191

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p. 192

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p. 193

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p. 196

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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 involves 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.

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.

Experian’s Mosaic USA is a leading segmentation system

that classifies every American household based on a host of

demographic factors.

Segmenting Business Markets

p. 191

Ad: Panera

p. 191

Key Term:

Psychographic

segmentation

p. 192

Key Terms:

Behavioral

segmentation,

Occasion

segmentation,

Benefit

segmentation

p. 192

Photo: Fitbit

p. 193

Photo: Hardee’s and

Carl’s Jr.

p. 194

Photo: Mountain

Dew

p. 195

Photo: Market

segmentation

p. 196

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Consumer and business marketers use many of the same

variables to segment 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 involves segmenting

consumers with similar needs and buying behavior even

though they are located in different countries.

p. 196

Key Term:

Intermarket

(Cross-market)

segmentation

p. 197

Ad: Coca-Cola

Assignments, Resources

Use Real Marketing 7.1 here

Use Discussion Questions 7-2 and 7-3 here

Use Critical Thinking Exercise 7-6 here

Use Additional Projects 1, 2 and 3 here

Use Small Group Assignment 1 here

Use Outside Example 2 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. 197

Requirements for Effective Segmentation

To be useful, market segments must be:

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Measurable: The size, purchasing power, and

profiles of the segments can be measured.

Accessible: The market segments can be effectively

reached and served.

Substantial: The market segments are large or

profitable enough to serve.

Differentiable: The segments are conceptually

distinguishable and respond differently to different

marketing mix elements and programs.

Actionable: Effective programs can be designed for

attracting and serving the segments.

Review Learning Objective 2: List and discuss the major

bases for segmenting consumer and business markets

Assignments, Resources

Use Critical Thinking Exercise 7-8 here

Use Individual Assignment 1 here

Use Think-Pair-Share 2, 3, and 4 here

Use Outside Example 1 here

PPT 7-20

p. 197

PPT 7-21

p. 198

Explain how companies identify attractive market

segments and choose a market-targeting strategy.

MARKET TARGETING

Evaluating Market Segments

In evaluating different market segments, a firm must look at

three factors:

1. Segment size and growth

2. Segment structural attractiveness

3. Company objectives and resources

The largest, fastest-growing segments are not always the

most attractive ones for every company.

The company also needs to examine major structural factors

that affect long-run segment attractiveness.

A segment is less attractive if it already contains

many strong and aggressive competitors.

The existence of many actual or potential substitute

products may limit prices and the profits.

The relative power of buyers also affects segment

Learning Objective

3

p. 198

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p. 199

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attractiveness.

A segment may be less attractive if it contains powerful

suppliers who can control prices.

Selecting Target Market Segments

A target market consists of a set of buyers who share

common needs or characteristics that the company decides

to serve.

Figure 7.2: Market-targeting strategies

Undifferentiated Marketing

Using an undifferentiated marketing (or

mass-marketing) strategy, a firm might decide to ignore

market segment differences and target the whole market

with one offer.

This mass-marketing strategy focuses on what is common in

the needs of consumers rather than on what is different.

Differentiated Marketing

Using a differentiated marketing (or segmented market–

ing) strategy, a firm decides to target several market

segments and designs separate offers for each.

It hopes for higher sales and a stronger position within each

market segment. But it also increases the cost of doing

business.

Concentrated Marketing

Using a concentrated marketing (or niche marketing)

strategy, instead of going after a small share of a large

market, the firm goes after a large share of one or a few

smaller segments or niches.

It can market more effectively by fine-tuning its products,

prices, and programs to the needs of carefully defined

segments.

It can market more efficiently, targeting its products or

services, channels, and communications programs toward

p. 198

Figure 7.2:

Market-Targeting

Strategies

p. 198

Key Terms: Target

market,

Undifferentiated

(mass) marketing,

Differentiated

(segmented)

marketing

p. 199

Photo: P&G

p. 199

Key Term:

Concentrated

(niche) marketing

p. 199

Photo: Stance Socks

p. 200

Photo: Stitch Fix

p. 200

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p. 200

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p. 202

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p. 203

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only consumers that it can serve best and most profitably.

Micromarketing

Micromarketing is the practice of tailoring products and

marketing programs to suit the tastes of specific individuals

and locations.

Micromarketing includes local marketing and individual

marketing.

Local marketing involves tailoring brands and promotions

to the needs and wants of local customer groups—cities,

neighborhoods, and even specific stores.

Local marketing has drawbacks.

It can drive up manufacturing and marketing costs

by reducing economies of scale.

It can create logistics problems.

Individual marketing is the tailoring of products and

marketing programs to the needs and preferences of

individual customers.

Individual marketing has also been labeled one-to-one

marketing, mass customization, and markets-of-one

marketing.

Choosing a Targeting Strategy

Which strategy is best depends on:

Company resources

Product variability

Product’s life-cycle stage

Market variability

Competitors’ marketing strategies

p. 200

Key Terms:

Micromarketing,

Local marketing

p. 201

Photo: Local

Marketing, Marriott

p. 202

Key Term:

Individual

Marketing

p. 202

Photos:

Rolls-Royce

Assignments, Resources

Use Discussion Questions 7-4 here

Use Online, Mobile, and Social Media Marketing

here

Use Small Group Assignment 2 here

Use Individual Assignment 2 here

Troubleshooting Tip

It may be difficult for students to understand the

concept that there is no one, single way to segment a

market. Students will often point out that companies

segment on a single variable frequently, not

understanding that the concept is much broader than

that. Using a simple pen as an example, you can

point out the various segmentation variables, such as

income, occasion (such as graduation), and lifestyle

that a pen manufacturer could study to determine

effective segments. Although Mont Blanc might

segment based on income and occasion factors, Bic

might consider lifestyle or age.

p. 203

Socially Responsible Target Marketing

Target marketing sometimes generates controversy and

concern. Issues usually involve the targeting of vulnerable

or disadvantaged consumers with controversial or

potentially harmful products.

Marketers in a wide range of industries have been criticized

for their marketing efforts directed toward children.

Problems arise when marketing adult products to kids,

whether intentionally or unintentionally.

The growth of the Internet and other carefully targeted

direct media has raised new concerns about potential

targeting abuses.

The issue is not so much who is targeted, but how and for

what. Controversies arise when marketers attempt to profit

by unfairly targeting vulnerable segments or targeting them

with questionable products or tactics.

Socially responsible marketing calls for segmentation and

targeting that serves not just the interests of the company,

but also the interests of those targeted.

Review Learning Objective 3: Explain how companies

identify attractive market segments and choose a

market-targeting strategy.

p. 204

Photo:

Hypertargeting

Assignments, Resources

Use Real Marketing 7.1 here

Use Marketing Ethics here

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p. 204

Discuss how companies differentiate and position their

products for maximum competitive advantage.

DIFFERENTIATION AND POSITIONING

Learning Objective

4

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p. 205

PPT 7-33

p. 206

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p. 207

Value proposition: How a company will create

differentiated value for targeted segments and what

positions it wants to occupy in those segments.

A product position is the way the product is defined by

consumers on important attributes.

Positioning Maps

Perceptual positioning maps show consumer perceptions

of their brands versus competing products on important

buying dimensions.

Choosing a Differentiation and Positioning Strategy

The differentiation and positioning task consists of three

steps:

1. Identifying a set of possible competitive advantages

upon which to build a position

2. Choosing the right competitive advantages

3. Selecting an overall positioning strategy

Identifying Possible Value Differences and Competitive

Advantages

To the extent that a company can differentiate and position

itself as providing superior customer value, it gains

competitive advantage.

It can differentiate along the lines of product, service,

channel, people, or image.

Choosing the Right Competitive Advantages

How Many Differences to Promote

Ad man Rosser Reeves believes a company should develop

a unique selling proposition (USP) for each brand and stick

to it.

Other marketers think that companies should position

themselves on more than one differentiator.

Which Differences to Promote

A competitive advantage should be:

p. 204

Key Term: Product

position

p. 205

Ad: IKEA

p. 205

Figure 7.3:

Positioning Map

p. 206

Key Term:

Competitive

advantage

p. 206

Ad: Jimmy John’s

p. 207

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p. 208

p. 209

p. 211

Important: The difference delivers a highly valued

benefit to target buyers.

Distinctive: Competitors do not offer the difference, or

the company can offer it in a more distinctive way.

Superior: The difference is superior to other ways that

customers might obtain the same benefit.

Communicable: The difference is communicable and

visible to buyers.

Preemptive: Competitors cannot easily copy the

difference.

Affordable: Buyers can afford to pay for the difference.

Profitable: The company can introduce the difference

profitably.

Selecting an Overall Positioning Strategy

The full positioning of a brand is called the brand’s value

proposition. (see Figure 7.4)

More for more positioning involves providing the most

upscale product or service and charging a higher price to

cover the higher costs.

More for the same positioning involves introducing a

brand offering comparable quality but at a lower price.

The same for less positioning can be a powerful value

proposition—everyone likes a good deal.

Less for much less positioning involves offering products

that offer less and therefore cost less. This involves meeting

consumers’ lower performance or quality requirements at a

much lower price.

More for less positioning is the winning value proposition.

In the long run, companies will find it very difficult to

sustain such best-of-both positioning.

Developing a Positioning Statement

Company and brand positioning should be summed up in a

positioning statement.

p. 208

Key Term: Value

proposition

p. 208

Figure 7.4: Possible

Value Propositions

p. 209

Ad: Hearts On Fire

p. 210

Photo: ALDI

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p. 211-212

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The statement should follow the form: To (target segment

and need) our (brand) is (concept) that (point of

difference).

Communicating and Delivering the Chosen Position

Once it has chosen a position, the company must take strong

steps to deliver and communicate the desired position to

target consumers. All the company’s marketing mix efforts

must support the positioning strategy. Once a company has

built the desired position, it must take care to maintain the

position through consistent performance and

communication.

Review Learning Objective 4: Discuss how companies

differentiate and position their products for maximum

competitive advantage.

p. 211

Key Term:

Positioning

statement

p. 211

Ad: Evernote

Assignments, Resources

Use Real Marketing 7.2 here

Use Discussion Questions 7-4 and 7-5 here

Use Company Case here

Use Critical Thinking Exercise 7-7 and 7-8 here

Use Marketing by the Numbers here

Use Additional Project 4 here

Use Video Case here