MARKETING
Real People, Real Choices
Fourth Edition
CHAPTER 7
Sharpening the Focus:
Target Marketing Strategies and
Customer Relationship Management
Step 1: Segmentation
• Segmentation is the process of dividing
a larger market into smaller pieces
based on one or more meaningful,
shared characteristics
• Segmentation variables are used to
divide the market into smaller slices
• Identifying homogeneity in a sea of
heterogeneity
7-2
STP Marketing
• Constant trade-off between efficiencies
of mass marketing and productivity of
customized marketing
• Consumer
– Distinctive wants
– Increasingly demand customization
– E.g. selling cars then and now
• Why do marketers segment markets?
7-3
Why do we segment markets
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Maximize the probability of sale
Focus our energies and resources
Meet segment needs more completely
At the extreme – segment of one
7-4
Segmenting Consumer Markets
• Consider the market for athletic shoes.
How many different ways can you
identify for segmenting this market?
• Demographics
• Psychographics
• Behavior
7-5
Demographic Dimensions
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Age
Gender
Family structure
Income and social class
Race and ethnicity
Geography
7-6
Age
• Children
– Ages 4 to 12 – influence $130 billion worth of
purchases annually
• Teens
– Ages 13 – 17 spend $3000 annually on ‘feel good’
products (cosmetics, fast food, music, etc.)
– E.g. Avon targets young teen girls
• Generation Y
– Born between 1977 and 1994, young adults
– 26% of the population
– Spend 200 billion dollars annually
7-7
Age
• Generation X
– Born between 1965 and 1976
– 46 million
– Cynical attitude to marketing
– Responsible for 70% of startup
businesses
– Save regularly, want stability and
settle down
7-8
Age
• Baby Boomers
– Born between 1946 and 1964
– Wealthiest segment
– “they never age”
• Elderly
– 35 million age 65 and older
– Active lifestyles, good health and
plenty of free time.
7-9
Gender
• Intrinsic appeal to one or the other
group
• Marketers choose one group over the
other (e.g. “The best a man can get”)
• The Metrosexual
7-10
Income
• Important variable as it determines who
has the buying power
• Easy credit has weakened its effect
somewhat
• Brands aimed at high net worth
individuals? Mass market?
7-11
Ethnicity
• National origin strongly influences
preferences for products, magazines,
TV shows, food etc.
• By 2050 – Caucasians will make up
50% of the US population (74% in 1995)
• African Americans – 12% of population
– “Rasheed & the Bacon Whopper”
• Asian Americans – 20 million by 2020
7-12
The Hispanic Market Segment
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Largest minority segment
Brand loyalty
Highly concentrated by national origin
Youthful (median age is 23.6)
3.5 people in average household
Receptive to relationship building
“Got Milk” to “And you, have you given
them enough milk today?”
7-13
Geography
• Location in the country
• Consumers like to patronize local /
regional products
• Heileman Distilleries sells Lone Star
beer in Texas and Samuel Adams beer
in Boston
• Geodemographics – combine location
with other demographic variables
• “Birds of a feather flock together”
7-14
PRIZM clusters
• Widely used geodemographic system
developed by Claritas
• Divides all US zip codes into one of 62
clusters based on demographic and
lifestyle variables
• E.g. Urban Gold Coast are elite urban
singles, 45-64 yrs, average incomes
73500 dollars. Live in Marina Del Ray,
CA, Lincoln Park, IL and Upper east
side, NY, etc.
7-15
Psychographics
• Segments markets in terms of shared
attitudes, interests, and opinions (e.g. HOGs
are thrill seekers and counter cultural)
• Segments include demographic information
such as age and income, but also includes
richer descriptions
– E.g. do you prefer a perfume because it
makes you feel sexy or athletic?
• Proprietary segments
• National systems (VALS)
7-16
VALS by SRI Consulting Business
Intelligence
• Values, Attitudes and Lifestyles
• Find your VALS type on their website
• Three primary motivators
– ideals motivated are guided by knowledge and
principles
– Achievement motivated want products which
exhibit their success
– Self-expression motivated want products which
facilitate self-expression
• 12% of American adults are experiencers and tend to
be thrill seekers
• What should marketers do to sell successfully to
specific VALS types?
7-17
4
Taxonomy of Porsche Buyers
7-18
Segmenting by Behavior
• Behavioral segmentation slices consumers
on the basis of how they act toward, feel
about, or use a product
– Users versus nonusers
– Heavy, moderate, light users
– Usage occasions
• E.g. Cereal Bars eaten at breakfast,
anytime snack, alternative to a meal,
midnight snack, etc.
7-19
4
Benefit Segmentation
of the Snack-Food Market
7-20
Segmenting Industrial Markets
• Organizational demographics
– firm size
– number of facilities
– domestic or multinational
– type of business
– production technology utilized
• NAICS characteristics
7-21
Step 2: Targeting
• Evaluating Market Segments
• Developing Segment Profiles
• Choosing a Targeting Strategy
7-22
Evaluating Market Segments
• A viable target segment should satisfy these
requirements:
– Are members of the segment similar to each
other but different from other segments?
– Can marketers measure the segment?
– Is the segment large enough to be profitable?
– Can marketing communications reach the
segment?
– Can the marketer serve the segment’s
needs?
7-23
Developing Segment Profiles
• A profile is a description of the typical
customer in that segment
– RJ Reynolds’ Dakota Profile of the
“Virile Female”: Her favorite pastimes
are cruising, partying, going to hot-rod
shows and tractor pulls with her
boyfriend, and watching evening soap
operas. Her chief aspiration is to get
married in her early twenties.”
7-24
Segment profiles
• Profile of the Marlboro smoker
– Loves the outdoors, likes to be
mobile, is a bit of a loner, strong,
silent type, wears jeans, not used to
taking orders, aggressive when
provoked, considers women need to
be protected and looked after, does
not easily accept women as an equal
partner.
7-25
Choosing a Targeting Strategy
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Undifferentiated Marketing
Differentiated Marketing
Concentrated Marketing
Customized Marketing
7-26
Undifferentiated Marketing
• Appeals to a broad spectrum of people
• Efficient due to economies of scale
• Effective when most consumers have
similar needs
• Example: Wal-Mart
7-27
Differentiated Marketing
• Develops one or more products for each
of several customer groups with
different product needs
• Appropriate when consumers are
choosing among well-known brands
with distinctive images and it is possible
to identify one or more segments with
distinct needs for different types of
products
• E.g. Nike shoes
7-28
Concentrated Marketing
• Entails focusing efforts on offering one
or more products to a single segment
• Useful for smaller firms that do not have
the resources to serve all markets
• Example: Hard Candy sells its funky nail
polishes and other cosmetics to only 20
something women.
7-29
Customized Marketing
• Segments are so precisely defined that
products are offered to exactly meet the
needs of each individual
• Mass customization is a related
approach in which a company modifies
a basic good to meet the needs of an
individual
• E.g. Dell computers
7-30
Developing a Positioning Strategy
• Analyze the competitors’ positions in the
marketplace. How do you do it?
– Perceptual Mapping
• Look for gaps in the perceptual map
• Position your product in the best gap
available
– Your product must have the feature the
dimensions suggest
• Evaluate the target market’s response so
modifications to the positioning strategy can
be made (repositioning)
7-31
Perceptual Mapping
• A representation of the consumers’
mind space along at least two
dimensions and the position of brands
along these dimensions.
• When considering more than two
dimensions – Multi-Dimensional Scaling
– a statistical procedure for determining
clusters of similar brands.
7-32
The Perceptual Map – Cars – functional
benefit based
safety
volvo
mercedes
savings
ferrari
Ford festiva
prestige
Corolla
Civic
Camry
Accord
mercedes
Rolls
Riding comfort
7-33
7-34
Information from the map
• Which brands compete with each other
(Tylenol & Motrin; Anacin & Excedrin)
– Positioned close to each other
– Greater brand switching between
them
• Strategy implications
– Differentiate better
7-35
Information from the map
• How is every brand perceived on each
attribute – the current positioning
• Tylenol – most ‘gentle’
• Excedrin – most ‘effective’
• Strategy implications
– Reinforce positioning
7-36
Information from the map
• Length of attribute line – how well does the
attribute differentiate between brands
• ‘Gentle’ and ‘Effective’ differentiate the brands
best
• Consumers have a harder time differentiating
the brands on other attributes.
• Strategy implications
– Explore repositioning on best
differentiators
7-37
Information from the map
• Angle between lines
• Smaller angles – attributes are closely
related
• Larger angles – attributes are unrelated
• ‘Long lasting’ and ‘Effective’ are seen to
be closely related
• Strategy implications
– Exploit small angle relationships
7-38
Information from the map
• Brand located close to the center
(origin) e.g. Panadol
• No real positioning – seen to be
mediocre
7-39
Perceptual mapping worked for
• Chrysler first spotted the dimension
where a car can comfortably move a
larger family and carry stuff – the
minivan
• Liz Claiborne – the dimension of
comfortable yet formal clothing for
working women
• ICICI in India – the dimension of
customers and bankers as being
partners in business
7-40
Brand Personality
• The attempt to give the brand a human
dimension
• Often achieved through the use of endorsers
e.g. Jason Alexander & KFC; Cindy Crawford
and Pepsi
• Also achieved through the use of animated or
fictional characters (e.g. Pillsbury doughboy,
Betty Crocker, Keebler elves, Mr. Clean, Mr.
Peanut, California Raisins, etc.)
7-41
Exercise
• What is the brand personality of
– Polo
– Levis
– Pepsi
– Apple
– Toyota
7-42
Customer Relationship Management
• A CRM strategy allows a company to
identify its best customers, stay on top
of their needs, and increase their
satisfaction
• CRM is about communicating with
customers one on one
• CRM views customers as partners
7-43
Characteristics of CRM
• Share of Customer not share of market
– Focus on supplying different products to
the same customer
• Lifetime Value of the Customer
– The amount the customer would spend
buying from the firm over his/her lifetime
• Customer Equity
– The lifetime value of the customer
• A Greater Focus on High-Value Customers
7-44