MARKETING PRICIPLES AND CONCEPTS
SEGMENTING, TARGETING, POSITIONING.
Mass marketing.
Segment vs. sector.
Flexible marketing offering.
How to form segments?
I. BROAD vs. NARROW.
A. Preference segments.
Homogeneous, diffused, clustered preferences.
B. Niche marketing. Requires clear and deep understanding of consumer needs and
company’s recognition from consumer’s part.
C. Local marketing. (Marketing programs tailored to the needs and wants of local
customer groups; e.g. taking demographic characteristics into account).
<pros and cons>
D. Customerization. (One-to-one marketing).
II. DESCRIPTIVE CHARACTERISTICS vs. BEHAVIORAL. (Recognition of consumer
preferences).
Major segmentation variables for consumer markets.
Geographic region
Pacific, Mountain, West North Central, West South Central, East North Central,
East South Central, South Atlantic, Middle Atlantic, New England
City or metro size
Under 5,000; 5,000-20,000; 20,000-50,000; 50,000-100,000;
100,000-250,000; 250,000-500,000; 500,000-1,000,000;
1,000,000-4,000,000; 4,000,000 or over
Density
Urban, suburban, rural
Climate
Northern, southern
Demographic age
Under 6, 6-11,12-19, 20-34, 35-49, 50-64, 65+
Family size
1-2,3-4,5+
Family life cycle
Young, single; young, married, no children; young, married, youngest child under
6; young, married, youngest child 6 or over; older, married, with children; older,
married, no children under 18; older, single; other
Gender
Male, female
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Income
Under $10,000; $10,000-$14,999; $15,000-$19,999; $20,000-$29,999;
$30,000-$49,999; $50,000-$99,999; $100,000 and over
Occupation
Professional and technical; managers, officials, and proprietors; clerical sales;
craftspeople; forepersons; operatives; farmers; retired; students; homemakers;
unemployed
Education
Grade school or less; some high school; high school graduate; some college;
college graduate
Religion
Catholic, Protestant, Jewish, Muslim, Hindu, other
Race
White, Black, Asian, Hispanic
Generation
Baby boomers, Generation Xers
Nationality
North American, South American, British, French, German, Italian, Japanese
Social class
Lower lowers, upper lowers, working class, middle class, upper middles, lower
uppers, upper uppers
Psychographic lifestyle
Culture-oriented, sports-oriented, outdoor-oriented
Personality
Compulsive, gregarious, authoritarian, ambitious
Behavioral occasions
Regular occasion, special occasion
Benefits
Quality, service, economy, speed
User status
Nonuser, ex-user, potential user, first-time user, regular user
Usage rate
Light user, medium user, heavy user
Loyalty status
None, medium, strong, absolute
Readiness stage
Unaware, aware, informed, interested, desirous, intending to buy
Attitude toward product
Enthusiastic, positive, indifferent, negative, hostile
Profiles of US society
G.l. generation (16 million people). Born 1901-1924. Shaped by hard times and the Great
Depression, financial security is one of their core values. Conservative spenders and civicminded, they are team-oriented and patriotic.
Silent Generation (35 million people). Born 1925-1945. Trusting conformists who value
stability, they are now involved in civic life and extended families.
Baby Boomers (78 million people). Born 1946-1964. Great acquisitors, they are valueand cause-driven despite indulgences and hedonism (pleasure maximization).
Generation X (57 million people). Born 1965-1977. Cynical and media-savvy, they are
more alienated and individualistic.
—2—
Generation Y (60 million). Born 1978-1994. Edgy, focused on urban style, they are more
idealistic than Generation X.
Millennials (42 million people). Born 1995-2002. Multicultural, they will be tech-savvy,
educated, grow up in affluent society, and have big spending power.
TYPICAL SEGMENTATIONS
Geographic
Demographic
Age and life-cycle stage
Life stage
Gender
Income
Generation
Social class
Psychographic
(VALS framework. Values, Attitudes and Lifestyles – VALS classifies U.S. adults
into eight primary groups based on personality traits and key demographics. The
segmentation system is based on responses to a questionnaire featuring 4
demographic and 35 attitudinal questions).
The major tendencies of the four groups with higher resources are:
1. Innovators - Successful, sophisticated, active, "take-charge" people with high
self-esteem. Purchases often reflect cultivated tastes for relatively upscale, nicheoriented products and services.
2. Thinkers - Mature, satisfied, and reflective people who are motivated by ideals
and value order, knowledge, and responsibility. Favor durability, functionality, and
value in products.
3. Achievers - Successful goal-oriented people who focus on career and family.
Favor premium products that demonstrate success to their peers.
4. Experiencers - Young, enthusiastic, impulsive people who seek variety and
excitement. Spend a comparatively high proportion of income on fashion,
entertainment, and socializing.
The major tendencies of the four groups with lower resources are:
—3—
1. Believers - Conservative, conventional, and traditional people with concrete
beliefs. Favor familiar, American products and are loyal to established brands.
2. Strivers - Trendy and fun-loving people who are resource-constrained. Favor
stylish products that emulate the purchases of those with greater material wealth.
3. Makers - Practical, down-to-earth, self-sufficient people who like to work with
their hands. Favor American-made products with a practical or functional purpose.
4. Survivors - Elderly, passive people who are concerned about change. Loyal to
their favorite brands.
<visit the VALS web site>
Behavioral. (In behavioral segmentation, buyers are divided into groups on the basis of
their knowledge of, attitude toward, use of, or response to a product).
Decision roles
Initiator, Influencer, Decider, Buyer, User.
Behavioral variables
Occasions, Benefits perceived, User status, Usage rate, Buyer-readiness
stage, Loyalty status (hardcore, split, shifting, switchers), Attitude
(enthusiastic, positive, indifferent, negative, hostile).
Conversion model
(The Conversion Model has been developed to measure the strength of the
psychological commitment between brands and consumers and their
openness to change).
SEGMENTING BUSINESS MARKETS
Bonoma & Shapiro Model (the extended in 1984 Wind & Cardozo Model, which was
based on 2-stage macro- and then micro-segmentation).
5 general criteria, arranged in a nested hierarchy.
Demographic
1. Industry: Which industries should we serve?
2. Company size: What size companies should we serve?
3. Location: What geographical areas should we serve?
Operating Variables
4. Technology: What customer technologies should we focus on?
5. User or nonuser status: Should we serve heavy users, medium users, light users, or
nonusers?
6. Customer capabilities: Should we serve customers needing many or few services?
Purchasing Approaches
7. Purchasing-function organization: Should we serve companies with highly
centralized or decentralized purchasing organizations?
8. Power structure: Should we serve companies that are engineering dominated,
financially dominated, and so on?
9. Nature of existing relationships: Should we serve companies with which we have
strong relationships or simply go after the most desirable companies?
10. General purchase policies: Should we serve companies that prefer leasing? Service
contracts? Systems purchases? Sealed bidding?
11. Purchasing criteria: Should we serve companies that are seeking quality? Service?
Price?
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Situational Factors
12. Urgency: Should we serve companies that need quick and sudden delivery or
service?
13. Specific application: Should we focus on certain applications of our product rather
than all applications?
14. Size of order: Should we focus on large or small orders?
Personal Characteristics
15. Buyer-seller similarity: Should we serve companies whose people and values are
similar to ours?
16. Attitudes toward risk: Should we serve risk-taking or risk-avoiding customers?
17. Loyalty: Should we serve companies that show high loyalty to their suppliers?
One of the problems with the nested approach “is that there is no clear-cut distinction
between purchasing approaches, situational factors and demographics". Bonoma and
Shapiro are aware of these overlaps and argue that the nested approach is intended to be
used flexibly with a good deal of managerial judgment” (Webster, 2003).
NEEDS-BASED MARKET SEGMENTATION APPROACH. (A typical process of
segmenting, targeting, and positioning, followed by development of a custom
marketing mix).
1. Needs-Based Segmentation
Group customers into segments based on similar needs and benefits sought by
customer in solving a particular consumption problem.
2. Segment Identification
For each needs-based segment, determine which demographics, lifestyles, and usage
behaviors make the segment distinct and identifiable (actionable).
3. Segment Attractiveness
Using predetermined segment attractiveness criteria (market growth, competitive
intensity, and market access), determine the overall attractiveness of each segment.
4. Segment Profitability
Determine segment profitability.
5. Segment Positioning
For each segment, create a "value proposition" and product-price positioning strategy
based on that segment's unique customer needs and characteristics.
6. Segment "Acid Test"
Create "segment storyboards" to test the attractiveness of each segment's positioning
strategy.
7. Marketing-Mix Strategy
Expand segment positioning strategy to include all aspects of the marketing mix:
product, price, promotion, and place.
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SEGMENT IDENTIFICATION
A. Grouping customers according to descriptive characteristics and then comparing
response differences across the groups.
B. Forming groups based on response differences (e.g. frequency of purchase) and
determining whether the groups can be identified based on differences in their
characteristics.
A and B are used interchangeably.
EFFECTIVE SEGMENTING CRITERIA
Measurable. The size, purchasing power, and characteristics of the segments can be
measured.
Substantial. The segments are large and profitable enough to serve.
Accessible. The segments can be effectively reached and served.
Differentiable. The segments are conceptually distinguishable and respond differently to
different marketing-mix elements and programs. (If married and unmarried women
respond similarly to a sale on perfume, they do not constitute separate segments).
Actionable. Effective programs can be formulated for attracting and serving the segments.
TARGETING APPROCHES
Single segment <pros and cons>
Selective specialization (different products for different segments).
Product specialization (same product for every segment).
Market specialization (serving many needs of a particular customer group).
Full market coverage (e.g. Este Lauder: Este Lauder, Clinique, M.A.C., Aveda, Origins).
Differentiated marketing creates more sales, but also generates more costs.
Product modification costs
Manufacturing costs
Administrative costs
Inventory costs
Promotion costs
SEGMENTING/TARGETING/POSITIONING TOOLS
Empirical/Qualitative
Cluster analysis
MDS
Perceptual maps
Regression
Factor analysis
(other)
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(PRE-POSITIONING)
BRANDING
A brand is "a name, term, sign, symbol, or design, or a combination of them, intended to
identify the goods or services of one seller or group of sellers and to differentiate them
from those of competitors."
Brand equity is the added value endowed to products and services besides the nominal
functions. (Can be both positive and negative). <Discuss>.
The power of a brand lies in the minds of existing or potential customers and what they
have experienced directly and indirectly about the brand.
Branding can be applied virtually anywhere a consumer has a choice. It is possible to
brand a physical good (Campbell's soup, Pantene shampoo, or Ford Mustang
automobiles), a service (Singapore Airlines, Bank of America, or BlueCross/BlueShield
medical insurance), a store (Nordstrom department store, Foot Locker specialty store, or
Safeway supermarket), a person (Tom Clancy, Britney Spears, or Andre Agassi), a place
(the city of Sydney, state of Texas, or country of Spain), an organization (UNICEF,
American Automobile Association, or The Rolling Stones), or an idea (abortion rights, free
trade, or freedom of speech).
Brands must create strong, favorable, and unique brand associations with customers, as
has been the case with Volvo (safety), Hallmark (caring), and Harley-Davidson
(adventure).
- Michelob, Miller Lite, and 7Up saw sales decline in the 1990s despite sizable marketing
support, arguably because of poorly targeted and delivered marketing campaigns.
- New products such as Crystal Pepsi, Levi's Tailored Classic suits, Fruit of the Loom
laundry detergent, and Cracker lack cereal failed because consumers found them
inappropriate.
Brand equity models <contact other sources>.
1. Brand Asset Valuator (Differentiation-Relevance vs. Esteem-Knowledge).
2. Aaker model. ((1) Brand loyalty, (2) brand awareness, (3) perceived quality, (4) brand
associations, and (5) other proprietary assets such as patents, trademarks, and
channel relationships either add or subtract from brand equity).
3. BRANDZ. (5 sequential steps in building a brand: presence, relevance, performance,
advantage, bonding).
4. Brand resonance.
BRAND EQUITY DRIVERS.
1. The initial choices for the brand elements or identities making up the brand (e.g.,
brand names, URLs, logos, symbols, characters, spokespeople, slogans, jingles,
packages, and signage). Old Spice uses bright-red packaging and its familiar ocean
schooner to reinforce its nautical theme while also launching deodorant and antiperspirant
extensions adding the High Endurance and Red Zone brand names.
2. The product and service and all accompanying marketing activities and
supporting marketing programs. Joe Boxer made its name selling colorful underwear
with its signature yellow smiley face, Mr. Licky, in a hip, fun way. The company spent
—7—
almost zero on advertising; clever stunts and events garnered publicity and word of mouth.
An exclusive deal with Kmart has generated strong retail support.
3. Other associations indirectly transferred to the brand by linking it to some other
entity (e.g., a person, place, or thing). Subaru used the rugged Australian Outback and
actor Paul Hogan of Crocodile Dundee movie fame in ads to help craft the brand image of
the Subaru Outback line of sports utility wagons.
1. Developing brand elements. <A separate area of marketing research>.
1.1. Memorable.
1.2. Meaningful.
1.3. Likable.
1.4. Transferable (i.e. used across geographic boundaries and different products).
1.5. Adaptable (and updatable).
1.6. Protectible.
2. Holistic marketing approach to building brands. (“Holistic” means “everything matters”).
2.1. Personalization (mass-market practices are being abandoned).
2.2. Integrated marketing (all communications, 4P, management, activities, etc. work
coherently).
2.3. Internalization (employees must understand the brand).
3. Leveraging secondary associations. (“Borrowing” equity from other sources).
The brand may be linked to certain source factors, such as:
- the company (through branding strategies),
- countries or other geographical regions (through identification of product origin),
- and channels of distribution (through channel strategy);
- as well as to other brands (through ingredient or co-branding),
- characters (through licensing),
- spokespeople (through endorsements),
- sporting or cultural events (through sponsorship),
- or some other third-party sources (through awards or reviews).
Measuring brand equity.
Brand audit is a consumer-focused exercise that involves a series of procedures to
assess the health of the brand, uncover its sources of brand equity, and suggest ways to
improve and leverage its equity. (Usually, performed once a year).
Brand tracking studies are a means of understanding where, how much, and in what
ways brand value is being created. (Continuous program).
Brand valuation is the total financial value of the brand. Brand equity, sometimes, is more
than a half of a brand’s capitalization. (U.S. companies do not list brand equity on their
balance sheets because of the arbitrariness of the estimate. However, brand equity is
given a value by some companies in the United Kingdom, Hong Kong, and Australia).
Managing brand equity.
Brand reinforcement. Brand equity is reinforced by marketing actions that consistently
convey the meaning of the brand to consumers in terms of: (1) What products the brand
represents; what core benefits it supplies; and what needs it satisfies; as well as (2) how
—8—
the brand makes those products superior and which strong, favorable, and unique brand
associations should exist in the minds of consumers.
Brand Revitalization. To refresh old sources of brand equity or create new sources, two
main approaches are possible:
1. Expand the depth and/or breadth of brand awareness by improving consumer
recall and recognition of the brand during purchase or consumption settings.
2. Improve the strength, favorability, and uniqueness of brand associations making
up the brand image. This approach may involve programs directed at existing or
new brand associations.
Brand crisis. General rule – to respond as quick as possible, while being “sincere”.
Devising a Branding Strategy (i.e. deciding the nature of new and existing brand elements
to be applied to new and existing products).
(Either old or new, there are plentiful of approach to develop, extend, mix, license, etc.
brands to realize corporate goals <contact other sources>).
- Individual brand names (even for similar products; e.g., Delta Airlines and its lowcost Song subsidiary).
- Blanket family names (GE products, Campbell’s soups).
- Separate family names for all products (almost like individual names, but the
produced product categories are different; e.g. Sears [Kenmore for appliances,
Craftsman for tools, and Homart for major home installations]).
- Corporate name combined with individual product names (Kellogg's Rice Krispies,
Kellogg's Raisin Bran, and Kellogg's Corn Flakes).
Two key components of virtually any branding strategy are brand extensions and brand
portfolios.
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POSITIONING
A company discovers different needs and groups in the marketplace, targets those needs
and groups that it can satisfy in a superior way, and then positions its offering so that the
target market recognizes the company's distinctive offering and image.
Positioning is the act of designing the company's offering and image to occupy a
distinctive place in the mind of the target market.
The goal is to locate the brand in the minds of consumers to maximize the potential benefit
to the firm.
Competitive Frame of Reference.
A starting point in defining a competitive frame of reference for a brand positioning is to
determine category membership — the products or sets of products with which a brand
competes and which function as close substitutes.
Points-of-Parity and Points-of-Difference.
Points-of-difference (PODs) are attributes or benefits consumers strongly associate with
a brand, positively evaluate, and believe that they could not find to the same extent with a
competitive brand (e.g., FedEx - guaranteed overnight delivery, Nike - performance),
Lexus - quality).
Points-of-parity (POPs), on the other hand, are associations that are not necessarily
unique to the brand but may in fact be shared with other brands.
Category POPs – essential features to be a legitimate offering.
Competitive POPs – matching or surpassing PODs of competitors.
(Often, the key to positioning is not so much in achieving a point-of-difference (POD) as in
achieving points-of-parity!)
Establishing category membership. (e.g., HP digital cameras reinforced with category
membership – i.e. being in the same class as Sony, Canon, etc.).
There are three main ways to convey a brand's category membership:
- Announcing category benefits.
- Comparing to exemplars (established leaders).
- Relying on the product descriptor. (The product descriptor that follows the brand
name is often a concise means of conveying category origin).
Choosing POPs and PODs.
Points-of-parity are driven by the needs of category membership (to create category
POPs) and the necessity of negating competitors' PODs (to create competitive POPs). In
choosing points-of-difference, two important considerations are that consumers find the
POD desirable and that the firm has the capabilities to deliver on the POD.
Three key consumer desirability criteria for PODs.
1. Relevance. (The Westin Stamford hotel in Singapore advertised that it was the world's
tallest hotel, but a hotel's height is not important to many tourists).
2. Distinctiveness. Target consumers must find the POD distinctive and superior.
3. Believability. Target consumers must find the POD believable and credible. (Chanel
No. 5 perfume may claim to be the quintessential elegant French perfume and support
this claim by noting the long association between Chanel and haute couture).
— 10 —
Three key deliverability criteria.
1. The firm must be able to actually create the POD.
2. Communicability. (I.e. the message is consistent with existing knowledge and
consumers have no trouble to believe. E.g. Using patented, branded ingredients, such
as Nivea Wrinkle Control Creme with Q10 co-enzyme or Herbal Essences hair
conditioner with Hawafena).
3. Sustainability. (The positioning that is preemptive, defensible, and difficult to attack,
plus can be reinforced over time).
Positioning can be based on Brand’s attributes, Brand’s benefits, and Brand’s values. The
first is the easiest, but the worst effectively (can be copied, consumers may not seek just
attributes, later it may be impossible to change); stress must be made on two latter
factors).
Creating POPs and PODs.
Major problem: features frequently are negatively correlated, plus may possess both
positive and negative aspects. Development of non-conflicting PODs and POPs become a
mix of science and art (e.g. Gore-Tex was able to overcome the seemingly conflicting
product image of "breathable" and "waterproof" through technological advances).
Remedies to the problem.
Present POPs/PODs separately. (e.g. Head and Shoulders two sequential campaigns on
effective dandruff removal and nice hair looking).
Leverage equity of another entity. (e.g. celebrities or branded ingredients may lend
credibility to a negative POP/POD).
Redefine the relationship. (The most difficult approach. Means, redefining that the
relationship is indeed positive).
Differentiation Strategies.
Product differentiation (“car door making solid sound when they slam shut because many
buyers slam the doors in the showroom to test how well the car is built”).
Personnel differentiation (“McDonald's people are courteous, IBM people are
professional, and Disney people are upbeat”).
Channel differentiation (coverage, expertise, and performance).
Image differentiation (“Marlboro’s cowboy).
Positioning strategies change over a product’s life cycle. (We will review the variety of
positioning and other marketing strategies when will be covering PLC).
— 11 —