Market Segmentation PDF

Untitled Document http://gmx.xmu.edu.cn/ews/business/pmarketing/chapter07.
htm
Chapter 7: Market Segmentation, Targeting, and Positioning

What's Ahead
Market Segmentation
Levels of Market Segmentation
Segmenting Consumer Markets
Segmenting Business Markets
Segmenting International Markets
Requirements for Effective Segmentation
Market Targeting
Evaluating Market Segments
Selecting Market Segments
Socially Responsible Target Marketing
Positioning for Competitive Advantage
Choosing a Positioning Strategy
Communicating and Delivering the Chosen Position
Chapter Wrap-Up
Review of Concept Connections
Key Terms
Issues for Discussion
Marketing Applications
Company Case
Comprehensive Case
What's Ahead
Procter & Gamble (P&G) sells eight brands of laundry detergent in the United States
(Tide, Cheer, Bold, Gain, Era, Oxydol, Dreft, and Ivory Snow). It also sells six brands
each of hand soap (Ivory, Safeguard, Camay, Oil of Olay, Zest, Coast) and shampoo
(Pantene, Head & Shoulders, Ivory, Pert Plus, Vidal Sassoon, and Prell); four brands
each of liquid dishwashing detergent (Dawn, Ivory, Joy, and Cascade), toothpaste (Crest,
Gleam, Complete, and Denquel), and tissues and towels (Charmin, Bounty, Puffs, Royale);
three brands each of floor cleaner (Spic & Span, Top Job, and Mr. Clean), deodorant
(Secret, Sure, and Old Spice), and skin care potions (Oil of Olay, Noxema, and
Clearasil); and two brands each of fabric softener (Downy and Bounce), disposable
diapers (Pampers and Luvs), and cosmetics (Cover Girl and Max Factor). Moreover, P&G has
many additional brands in each category for different international markets. For
example, it sells 16 different laundry product brands in Latin America and 19 in Europe,
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Untitled Document http://gmx.xmu.edu.cn/ews/business/pmarketing/chapter07.htm
the Middle East, and Africa. (See Procter & Gamble's Web site at pg.com for a full
glimpse of the company's impressive lineup of familiar brands.)
These P&G brands compete with one another on the same supermarket shelves. But why would
P&G introduce several brands in one category instead of concentrating its resources on a
single leading brand? The answer lies in the fact that different people want different
mixes of benefits from the products they buy. Take laundry detergents as an example.
People use laundry detergents to get their clothes clean. But they also want other
things from their detergents—such as economy, bleaching power, fabric softening, fresh
smell, strength or mildness, and lots of suds or only a few. We all want some of every
one of these benefits from our detergent, but we may have different priorities for each
benefit. To some people, cleaning and bleaching power are most important; to others,
fabric softening matters most; still others want a mild, fresh-scented detergent. Thus,
there are groups—or segments—of laundry detergent buyers, and each segment seeks a
special combination of benefits.
Procter & Gamble has identified at least eight important laundry detergent segments,
along with numerous subsegments, and has developed a different brand designed to meet
the special needs of each. The eight P&G brands are positioned for different segments as
follows:
Tide "helps keep clothes looking like new." It's the all-purpose family detergent
that is "tough on greasy stains." Tide with Bleach is "so powerful, it whitens down
to the fiber."
Cheer with Triple Color Guard is the "color expert." It guards against fading,
color transfer, and fuzzy buildup. Cheer Free is "dermatologist tested . . .
contains no irritating perfume or dye."
Bold is the detergent with built-in fabric softener. It's "for clean, soft, fresh-
smelling clothes." Bold liquid adds "the fresh fabric softener scent."
Gain, originally P&G's "enzyme" detergent, was repositioned as the detergent that
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gives you clean, fresh-smelling clothes. It "cleans and freshens like sunshine.
It's not just plain clean, it's Gain clean."
Era has "built-in stain removers." It's "the power tool for stains."
Oxydol contains "stain-seeking bleach." It "combines the cleaning power of

detergents with the whitening power of nonchlorine bleach, so your whites sparkle
and your clothes look bright." So "don't reach for the bleach—grab a box of Ox!"
Dreft also "helps remove tough baby stains . . . for a clean you can trust." It's
"pediatrician recommended and the first choice of mothers." It "doesn't remove the
flame resistance of children's sleepwear."
Ivory Snow is "ninety-nine and forty-four one hundredths percent pure." It "gently
cleans fine washables and baby clothes . . . leaving them feeling soft." It
provides "safe and gentle care in the gentle cycle."
Within each segment, Procter & Gamble has identified even narrower niches. For
example, you can buy regular Tide (in powder or liquid form) or any of several
formulations:
Tide with Bleach helps to "keep your whites white and your colors bright," "kills
99.9 percent of bacteria."
Tide Clean Rinse "goes beyond stain removal to prevent dingy buildup on clothes."
Tide Mountain Spring lets you "bring the fresh clean scent of the great outdoors
inside—the scent of crisp mountain air and fresh wildflowers."
Tide High Efficiency is "formulated for high efficiency top-loading machines"—it

prevents oversudsing.
Tide Free "provides all the stain removal benefits without any dyes or perfumes."
By segmenting the market and having several detergent brands, Procter & Gamble has an
attractive offering for consumers in all important preference groups. As a result, P&G
is really cleaning up in the $4.3 billion U.S. laundry detergent market. Tide, by
itself, captures a whopping 38 percent market share. All P&G brands combined take a 57
percent share of the market—two and one-half times that of nearest rival Unilever and
much more than any single brand could obtain by itself.
Companies today recognize that they cannot appeal to all buyers in the marketplace, or
at least not to all buyers in the same way. Buyers are too numerous, too widely
scattered, and too varied in their needs and buying practices. Moreover, the companies
themselves vary widely in their abilities to serve different segments of the market.
Rather than trying to compete in an entire market, sometimes against superior
competitors, each company must identify the parts of the market that it can serve best
and most profitably.
Thus, most companies are being more choosy about the customers with whom they wish to
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connect. Most have moved away from mass marketing and toward market segmentation and
targeting—identifying market segments, selecting one or more of them, and developing
products and marketing programs tailored to each. Instead of scattering their marketing
efforts (the "shotgun" approach), firms are focusing on the buyers who have greater
interest in the values they create best (the "rifle" approach).
Figure 7.1 shows the three major steps in target marketing. The first is market
segmentation—dividing a market into smaller groups of buyers with distinct needs,
characteristics, or behaviors who might require separate products or marketing mixes.
The company identifies different ways to segment the market and develops profiles of the
resulting market segments. The second step is market targeting—evaluating each market
segment's attractiveness and selecting one or more of the market segments to enter. The
third step is market positioning—setting the competitive positioning for the product
and creating a detailed marketing mix. We discuss each of these steps in turn.
Steps in market segmentation, targeting, and

Figure 7.1
positioning
-TOP-
Market Segmentation
Markets consist of buyers, and buyers differ in one or more ways. They may differ in
their wants, resources, locations, buying attitudes, and buying practices. 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. In this section, we discuss five important segmentation
topics: levels of market segmentation, segmenting consumer markets, segmenting business
markets, segmenting international markets, and requirements for effective segmentation.
Levels of Market Segmentation

Because buyers have unique needs and wants, each buyer is potentially a separate market.
Ideally, then, a seller might design a separate marketing program for each buyer.
However, although some companies attempt to serve buyers individually, many others face
larger numbers of smaller buyers and do not find complete segmentation worthwhile.
Instead, they look for broader classes of buyers who differ in their product needs or
buying responses. Thus, market segmentation can be carried out at several different
levels. Figure 7.2 shows that companies can practice no segmentation (mass marketing),
complete segmentation (micromarketing), or something in between (segment marketing or
niche marketing).
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Figure 7.2 Levels of marketing segmentation
Mass Marketing
Companies have not always practiced target marketing. In fact, for most of the 1900s,
major consumer products companies held fast to mass marketing—mass producing, mass
distributing, and mass promoting about the same product in about the same way to all
consumers. Henry Ford epitomized this marketing strategy when he offered the Model T
Ford to all buyers; they could have the car "in any color as long as it is black."
Similarly, Coca-Cola at one time produced only one drink for the whole market, hoping it
would appeal to everyone.
The traditional argument for mass marketing is that it creates the largest potential
market, which leads to the lowest costs, which in turn can translate into either lower
prices or higher margins. However, many factors now make mass marketing more difficult.
For example, the world's mass markets have slowly splintered into a profusion of smaller
segments—the baby boomers here, the GenXers there; here the Hispanic segment, there the
African American segment; here working women, there single parents; here the Sun Belt,
there the Rust Belt. Today, marketers find it very hard to create a single product or
program that appeals to all of these diverse groups.
The proliferation of distribution channels and advertising media has also made it
difficult to practice "one-size-fits-all" marketing. Today's consumers can shop at
megamalls, superstores, or specialty shops; through mail catalogs or virtual stores on
the Internet. They are bombarded with messages delivered via media ranging from old
standards such as television, radio, magazines, newspapers, and telephone to newcomers
like the Internet, fax, and e-mail. No wonder some have claimed that mass marketing is
dying. Not surprisingly, many companies are retreating from mass marketing and turning
to segmented marketing.
Segment Marketing
A company that practices segment marketing isolates broad segments that make up a market
and adapts its offers to more closely match the needs of one or more segments. Thus,
Marriott markets to a variety of segments—business travelers, families, and
others—with packages adapted to their varying needs. GM has designed specific models
for different income and age groups. In fact, it sells models for segments with varied
combinations of age and income. For instance, GM designed its Buick Park Avenue for
older, higher-income consumers.
Segment marketing offers several benefits over mass marketing. The company can market
more efficiently, targeting its products or services, channels, and communications
programs toward only consumers that it can serve best and most profitably. The company
can also market more effectively by fine-tuning its products, prices, and programs to
the needs of carefully defined segments. The company may face fewer competitors if fewer
competitors are focusing on this market segment.
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Segment marketing: Marriott markets to a variety of segments with

packages adapted to their varying needs. Here it offers the
business traveler a "king-sized desk, an ergonomic chair, and
outlets and dataports at eye level." For the family traveler, it
offers "Together time from Marriott: Kids eat and stay free."
Niche Marketing
Market segments are normally large, identifiable groups within a market—for example,
luxury car buyers, performance car buyers, utility car buyers, and economy car buyers.
Niche marketing focuses on subgroups within these segments. A niche is a more narrowly
defined group, usually identified by dividing a segment into subsegments or by defining
a group with a distinctive set of traits who may seek a special combination of benefits.
For example, the utility vehicles segment might include light-duty pickup trucks and
sport utility vehicles (SUVs). The sport utility vehicles subsegment might be further
divided into standard SUV (as served by Ford and Chevrolet) and luxury SUV (as served by
Lincoln and Lexus) niches.
Whereas segments are fairly large and normally attract several competitors, niches are
smaller and normally attract only one or a few competitors. Niche marketers presumably
understand their niches' needs so well that their customers willingly pay a price
premium. For example, the luxurious Bentley gets a high price for its cars because its
loyal buyers feel that no other automobile comes close to offering the product–
service–membership benefits that Bentley does.
Niching offers smaller companies an opportunity to compete by focusing their limited

resources on serving niches that may be unimportant to or overlooked by larger
competitors. However, large companies also serve niche markets. For example, American
Express offers not only its traditional green cards but also gold cards, corporate
cards, and even platinum cards aimed at a niche consisting of the top-spending 1 percent
of its 28 million cardholders. Nike makes athletic gear for basketball, running, and
soccer but also for smaller niches such as biking and street hockey.
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In many markets today, niches are the norm. As an advertising agency executive observed,
"There will be no market for products that everybody likes a little, only for products
that somebody likes a lot." Other experts assert that companies will have to "niche or
be niched."
Micromarketing
Segment and niche marketers tailor their offers and marketing programs to meet the needs
of various market segments. At the same time, however, they do not customize their
offers to each individual customer. Thus, segment marketing and niche marketing fall
between the extremes of mass marketing and 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
Local marketing involves tailoring brands and promotions to the needs and wants of local
customer groups—cities, neighborhoods, and even specific stores. Thus, retailers such
as Sears and Wal-Mart routinely customize each store's merchandise and promotions to
match its specific clientele. Citibank provides different mixes of banking services in
its branches depending on neighborhood demographics. Kraft helps supermarket chains
identify the specific cheese assortments and shelf positioning that will optimize cheese
sales in low-income, middle-income, and high-income stores and in different ethnic
communities.
Local marketing has some drawbacks. It can drive up manufacturing and marketing costs by
reducing economies of scale. It can also create logistics problems as companies try to
meet the varied requirements of different regional and local markets. Further, a brand's
overall image might be diluted if the product and message vary too much in different
localities. Still, as companies face increasingly fragmented markets, and as new
supporting technologies develop, the advantages of local marketing often outweigh the
drawbacks. Local marketing helps a company to market more effectively in the face of
pronounced regional and local differences in community demographics and lifestyles. It
also meets the needs of the company's first-line customers—retailers—who prefer more
fine-tuned product assortments for their neighborhoods.
Individual Marketing
In the extreme, micromarketing becomes individual marketing—tailoring products and

marketing programs to the needs and preferences of individual customers. Individual
marketing has also been labeled one-to-one marketing, customized marketing, and markets-
of-one marketing.
The widespread use of mass marketing has obscured the fact that for centuries consumers
were served as individuals: The tailor custom-made the suit, the cobbler designed shoes
for the individual, the cabinetmaker made furniture to order. Today, however, new
technologies are permitting many companies to return to customized marketing. More
powerful computers, detailed databases, robotic production and flexible manufacturing,
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and immediate and interactive communication media such as e-mail, fax, and the
Internet—all have combined to foster "mass customization." Mass customization is the
process through which firms interact one-to-one with masses of customers to design
products and services tailor-made to individual needs.
Thus, Dell Computer can deliver computers to individual customers loaded with customer-
specified hardware and software. Peapod, the online grocery shopping and delivery
service, lets customers create the virtual supermarket that best fits their individual
needs. Ritz-Carlton Hotels creates custom-designed experiences for its delighted guests:
Check into any Ritz-Carlton hotel around the world, and you'll be amazed at
how well the hotel's employees anticipate your slightest need. Without ever
asking, they seem to know that you want a nonsmoking room with a king-size
bed, a nonallergenic pillow, and breakfast with decaffeinated coffee in your
room. How does Ritz-Carlton work this magic? The hotel employs a system that
combines information technology and flexible operations to customize the hotel
experience. At the heart of the system is a huge customer database, which
contains information about guests gathered through the observations of hotel
employees. Each day, hotel staffers—from those at the front desk to those in
maintenance and housekeeping—discreetly record the unique habits, likes, and
dislikes of each guest on small "guest preference pads." These observations
are then transferred to a corporatewide "guest history database." Every
morning, a "guest historian" at each hotel reviews the files of all new
arrivals who have previously stayed at a Ritz-Carlton and prepares a list of
suggested extra touches that might delight each guest. Guests have responded
strongly to such markets-of-one service. Since inaugurating the guest-history
system in 1992, Ritz-Carlton has boosted guest retention by 23 percent. An
amazing 95 percent of departing guests report that their stay has been a truly
memorable experience.
Business-to-business marketers are also finding new ways to customize their offerings.
For example, Becton-Dickinson, a major medical supplier, offers to customize almost
anything for its hospital customers. It offers custom-designed labeling, individual
packaging, customized quality control, customized computer software, and customized
billing. Motorola salespeople use a handheld computer to custom-design pagers following
individual business customer wishes. The design data are transmitted to the Motorola
factory and production starts within 17 minutes. The customized pagers are ready for
shipment within two hours. John Deere manufactures seeding equipment that can be
configured in more than 2 million versions to individual customer specifications. The
seeders are produced one at a time, in any sequence, on a single production line.
The move toward individual marketing mirrors the trend in consumer self-marketing.
Increasingly, individual customers are taking more responsibility for determining which
products and brands to buy. Consider two business buyers with two different purchasing
styles. The first sees several salespeople, each trying to persuade him to buy his or
her product. The second sees no salespeople but rather logs onto the Internet; searches
for information on available products; interacts electronically with various suppliers,
users, and product analysts; and then makes up her own mind about the best offer. The
second purchasing agent has taken more responsibility for the buying process, and the
marketer has had less influence over her buying decision.
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As the trend toward more interactive dialogue and less advertising monologue continues,
self-marketing will grow in importance. As more buyers look up consumer reports, join
Internet product discussion forums, and place orders via phone or online, marketers will
have to influence the buying process in new ways. They will need to involve customers
more in all phases of the product development and buying processes, increasing
opportunities for buyers to practice self-marketing. We will examine the trends toward
one-to-one marketing and self-marketing further in chapter 17.
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Segmenting Consumer Markets

There is no single way to segment a market. A marketer has to try different segmentation
variables, alone and in combination, to find the best way to view the market structure.
Table 7.1 outlines the major variables that might be used in segmenting consumer
markets. Here we look at the major geographic, demographic, psychographic, and
behavioral variables.
Table 7.1 Major Segmentation Variables for Consumer Markets
Geographic
World region North America, Western Europe, Middle East, Pacific
or country Rim, China, India, Canada, Mexico
Country Pacific, Mountain, West North Central, West South
region Central, East North Central, East South Central,
South Atlantic, Middle Atlantic, New England
City or metro Under 5,000; 5,000–20,000; 20,000–50,000;
size 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, 651
Gender Male, female
Family size 1–2, 3–4, 51
Family life Young, single; young, married, no children; young,
cycle married with children; older, married with
children; older, married, no children under 18;
older, single; other
Income Under $10,000; $10,000–$20,000; $20,000–$30,000;
$30,000–$50,000; $50,000–$100,000; $100,000 and
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over
Occupation Professional and technical; managers, officials,
and proprietors; clerical, sales; craftspeople;
supervisors; 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 Asian, Hispanic, Black, White
Generation Baby boomer, Generation X, echo boomer
Nationality North American, South American, British, French,
German, Italian, Japanese
Psychographic
Social class Lower lowers, upper lowers, working class, middle
class, upper middles, lower uppers, upper uppers
Lifestyle Achievers, strivers, strugglers
Personality Compulsive, gregarious, authoritarian, ambitious
Behavioral
Occasions Regular occasion, special occasion
Benefits Quality, service, economy, convenience, speed
User status Nonuser, ex-user, potential user, first-time user,
regular user
Usage rate Light user, medium user, heavy user
Loyalty None, medium, strong, absolute
status
Readiness Unaware, aware, informed, interested, desirous,
stage intending to buy
Attitude Enthusiastic, positive, indifferent, negative,
toward hostile
product
Geographic Segmentation
Geographic segmentation calls for dividing the market into different geographical units
such as nations, regions, states, counties, cities, or neighborhoods. A company may
decide to operate in one or a few geographical areas, or to operate in all areas but pay
attention to geographical differences in needs and wants.
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Many companies today are localizing their products, advertising, promotion, and sales
efforts to fit the needs of individual regions, cities, and even neighborhoods. For
example, Campbell sells Cajun gumbo soup in Louisiana and Mississippi and makes its
nacho cheese soup spicier in Texas and California. P&G sells Ariel laundry detergent
primarily in Los Angeles, San Diego, San Francisco, Miami, and south Texas—areas with
larger concentrations of Hispanic consumers. In the South, where customers tend to
arrive later in the day and stay longer, Starbucks offers more desserts and larger, more
comfortable coffee shops.
Other companies are seeking to cultivate as-yet untapped territory. For example, many
large companies are fleeing the fiercely competitive major cities and suburbs to set up
shop in small-town America. Hampton Inns has opened a chain of smaller-format motels in
towns too small for its standard-size units. For example, Townsend, Tennessee, with a
population of only 329, is small even by small-town standards. But looks can be
deceiving. Situated on a heavily traveled and picturesque route between Knoxville and
the Smoky Mountains, the village serves both business and vacation travelers. Hampton
Inns opened a unit in Townsend and plans to open 100 more in small towns. It costs less
to operate in these towns, and the company builds smaller units to match lower volume.
The Townsend Hampton Inn, for example, has 54 rooms instead of the usual 135. Retailers
from Home Depot to Saks Fifth Avenue are following suit. For example, Home Depot is
testing four pint-size Villager's Hardware stores in New Jersey. Saks is implementing a
new "Main Street" strategy, opening smaller stores in affluent suburbs and small towns
that cannot support full-line Saks stores. Its new store in Greenwich, Connecticut, is
less than one-third the size of regular stores found in malls and big cities.
Geographic segmentation: Home Depot is opening pint-size Villager's Hardware

shops in smaller towns.
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,
and nationality. Demographic factors are the most popular bases for segmenting customer
groups. One reason is that consumer needs, wants, and usage rates often vary closely
with demographic variables. Another is that demographic variables are easier to measure
than most other types of variables. Even when market segments are first defined using
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other bases, such as benefits sought or behavior, their demographic characteristics must
be known in order to assess the size of the target market and to reach it efficiently.
Age and Life-Cycle Stage
Consumer needs and wants change with age. Some companies use age and life-cycle
segmentation, offering different products or using different marketing approaches for
different age and life-cycle groups. For example, McDonald's targets children, teens,
adults, and seniors with different ads and media. Its ads to teens feature dance-beat
music, adventure, and fast-paced cutting from scene to scene; ads to seniors are softer
and more sentimental. Procter & Gamble boldly targets its Oil of Olay ProVital Series
subbrand at women over 50 years of age. It's "specially designed to meet the increased
moisturization needs of more mature skin."
Sega, the computer games giant, which has typically focused on the teen market, is now
targeting older customers. According to a Sega licensing executive, Sega's core market
of 10- to 18-year-olds "sit in their bedrooms playing games for hours." Then, however,
"they turn 18 and discover girls . . . and the computer gets locked away." To retain
these young customers as they move into new life-cycle stages, Sega is launching a range
of products for adults under its Sega Sports brand, including clothing, shoes, watches,
and sports equipment such as Sega Sports–;branded footballs and basketballs.
Marketers must be careful to guard against stereotypes when using age and life-cycle
segmentation. For example, although some 70-year-olds require wheelchairs, others play
tennis. Similarly, whereas some 40-year-old couples are sending their children off to
college, others are just beginning new families. Thus, age is often a poor predictor of
a person's life cycle, health, work or family status, needs, and buying power. Companies
marketing to mature consumers usually employ positive images and appeals. For example,
ads for Oil of Olay ProVital feature attractive older spokeswomen and uplifting
messages. "Many women 50 and older have told us that as they age, they feel more
confident, wiser, and freer than ever before," observes Olay's marketing director.
"These women are redefining beauty."
Gender
Gender segmentation has long been used in clothing, cosmetics, toiletries, and
magazines. For example, Procter & Gamble was among the first with Secret, a brand
specially formulated for a woman's chemistry, packaged and advertised to reinforce the
female image. Recently, other marketers have noticed opportunities for gender
segmentation. For example, Merrill Lynch offers a Financial Handbook for Women Investors
who want to "shape up their finances." Owens-Corning consciously aimed a major
advertising campaign for home insulation at women after its study on women's role in
home improvement showed that two-thirds were involved in materials installation, with 13
percent doing it themselves. Half the women surveyed compared themselves to Bob Vila,
whereas less than half compared themselves to Martha Stewart.
The automobile industry also uses gender segmentation extensively. Women buy half of all
new cars sold in the United States and influence 80 percent of all new car purchasing
decisions. "Selling to women should be no different than selling to men," notes one
analyst. "But there are subtleties that make a difference." Women have different frames,
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less upper-body strength, and greater safety concerns. To address these issues,
automakers are designing cars with hoods and trunks that are easier to open, seat belts
that fit women better, and an increased emphasis on safety features. Male car designers
at Cadillac now go about their work with paper clips on their fingers to simulate what
it feels like to operate buttons, knobs, and other interior features with longer
fingernails. The Cadillac Catera features an air-conditioned glove box to preserve such
items as lipstick and film. Under the hood, yellow markings highlight where fluid fills
go.
A growing number of Web sites also target women. For example, the Girls On Network
appeals to 18- to 34-year-old women with hip, twenty somethings-style film, television,
and book reviews and features. After only two years, this site has 100,000 members and
averages 5 million page views per month. The leading women's online community, iVillage,
offers "real solutions for real women" and entreats visitors to "Join our community of
smart, compassionate, real women." Various iVillage channels cover topics ranging from
babies, food, fitness, pets, and relationships to careers, finance, and travel. The site
now claims a membership of more than 1 million women across a broad demographic
spectrum.
Income
Income segmentation has long been used by the marketers of products and services such as
automobiles, boats, clothing, cosmetics, financial services, and travel. Many companies
target affluent consumers with luxury goods and convenience services. Stores such as
Neiman Marcus pitch everything from expensive jewelry and fine fashions to glazed
Australian apricots priced at $20 a pound. Prada's hot-selling black vinyl backpack
sells for $450, and a front-row seat at a New York Knicks game at Madison Square Garden
goes for $1,000.
However, not all companies that use income segmentation target the affluent. Despite
their lower spending power, the 25 percent of the nation's households that earn less
that $25,000 per year offer an attractive market. For example, Greyhound Lines, with its
inexpensive nationwide bus network, targets lower-income consumers. Almost half of its
revenues come from people with annual incomes under $15,000. Many retailers also target
this group, including chains such as Family Dollar, Dollar General, and Dollar Tree
stores. When Family Dollar real estate experts scout locations for new stores, they look
for lower-middle-class neighborhoods where people wear less expensive shoes and drive
old cars that drip a lot of oil. The typical Family Dollar customer's household earns
about $25,000 a year, and the average customer spends only about $8 per trip to the
store. Yet the store's low-income strategy has made it one of the most profitable
discount chains in the country.
Psychographic Segmentation
Psychographic segmentation divides buyers into different groups based on social class,
lifestyle, or personality characteristics. People in the same demographic group can have
very different psychographic makeups.
In chapter 5, we discussed how the products people buy reflect their lifestyles. As a
result, marketers often segment their markets by consumer lifestyles. For example, Duck
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Head apparel targets a casual student lifestyle claiming, "You can't get them old until
you get them new." One forward-looking grocery store found that segmenting its
self-service meat products by lifestyle had a big payoff:
Walk by the refrigerated self-service meat cases of most grocery stores and
you'll usually find the offering grouped by type of meat. Pork is here, lamb
is there, and chicken is over there. However, a Nashville, Tennessee, Kroger
supermarket decided to experiment and offer groupings of different meats by
lifestyle. For instance, the store had a section called "Meals in Minutes,"
one called "Cookin' Lite," another, filled with prepared products like hot
dogs and ready-made hamburger patties, called "Kids Love This Stuff," and one
called "I Like to Cook." By focusing on lifestyle needs and not on protein
categories, Kroger's test store encouraged habitual beef and pork buyers to
consider lamb and veal as well. As a result, the 16-foot service case has seen
a substantial improvement in both sales and profits.
Marketers also have used personality variables to segment markets. For

example, the marketing campaign for Honda's Helix and Elite motor scooters
appears to target hip and trendy 22-year-olds. But it is actually aimed at a
much broader personality group. One ad, for example, shows a delighted child
bouncing up and down on his bed while the announcer says, "You've been trying
to get there all your life." The ad reminds viewers of the euphoric feelings
they got when they broke away from authority and did things their parents told
them not to do. It suggests that they can feel that way again by riding a
Honda scooter. Thus, Honda is appealing to the rebellious, independent kid in
all of us. As Honda notes on its Web page, "Fresh air, freedom, and flair—on
a Honda scooter, every day is independence day!" In fact, more than half of
Honda's scooter sales are to young professionals and older buyers—15 percent
are purchased by the over-50 group.
Lifestyle segmentation: Duck Head targets a casual student

lifestyle, claiming, "You can't get them old until you get them
new."
Behavioral Segmentation
Behavioral segmentation divides buyers into groups based on their knowledge, attitudes,
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uses, or responses to a product. Many marketers believe that behavior variables are the
best starting point for building market segments.
Occasions
Buyers can be grouped according to occasions when they get the idea to buy, actually
make their purchase, or use the purchased item. Occasion segmentation can help firms
build up product usage. For example, orange juice is most often consumed at breakfast,
but orange growers have promoted drinking orange juice as a cool and refreshing drink at
other times of the day. In contrast, Coca-Cola's "Coke in the Morning" advertising
campaign attempts to increase Coke consumption by promoting the beverage as an early
morning pick-me-up. Some holidays, such as Mother's Day and Father's Day, were
originally promoted partly to increase the sale of candy, flowers, cards, and other
gifts. Many food marketers prepare special offers and ads for holiday occasions. For
example, Beatrice Foods runs special Thanksgiving and Christmas ads for Reddi-wip during
November and December, months that account for 30 percent of all whipped cream sales.
Kodak, Konica, Fuji, and other camera makers use occasion segmentation in designing and
marketing their single-use cameras. By mixing lenses, film speeds, and accessories, they
have developed special disposable cameras for about any picture-taking occasion, from
underwater photography to taking baby pictures.
Standing on the edge of the Grand Canyon? Try Konica's Panoramic, which
features a 17mm lens that takes in nearly 100 degrees horizontally. Going
rafting, skiing, or snorkeling? You need Kodak's Max Sport, a rugged camera
that can be used underwater to 14 feet. It has big knobs and buttons that let
you use it with gloves. Want some pictures of the baby? Kodak offers a model
equipped with a short focal-length lens and fast film requiring less light for
parents who would like to take snapshots of their darlings without the
disturbing flash. Need to check out your golf swing? Just point and shoot the
QuickSnap Golf disposable camera, which snaps off eight frames per click
showing how your body and club do during the swing. In one Japanese catalog
aimed at young women, Kodak sells a package of five pastel-colored cameras,
including a version with a fish-eye lens to create a rosy, romantic glow.
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Occasion segmentation: Beatrice Foods runs special Thanksgiving and

Christmas ads for Reddi-wip during November and December, months
that account for 30 percent of all whipped cream sales.
Benefits Sought
A powerful form of segmentation is to group buyers according to the different benefits

that they seek from the product. Benefit segmentation requires finding the major
benefits people look for in the product class, the kinds of people who look for each
benefit, and the major brands that deliver each benefit. For example, one study of the
benefits derived from travel uncovered three major market segments: those who travel to
get away and be with family, those who travel for adventure or educational purposes, and
people who enjoy the "gambling" and "fun" aspects of travel.
One of the best examples of benefit segmentation was conducted in the toothpaste market
(see Table 7.2). Research found four benefit segments: economic, medicinal, cosmetic,
and taste. Each benefit group had special demographic, behavioral, and psychographic
characteristics. For example, the people seeking to prevent decay tended to have large
families, were heavy toothpaste users, and were conservative. Each segment also favored
certain brands. Most current brands appeal to one of these segments. For example, Crest
toothpaste stresses protection and appeals to the family segment, whereas Aim looks and
tastes good and appeals to children.
Table 7.2 Benefit Segmentation of the Toothpaste Market
Benefit Brands
Demographics Behavior Psychographics
Segments Favored
Economic Men Heavy High autonomy, Brands on
(low price) users value oriented sale
Medicinal Large Heavy Hypochondriacal, Crest
(decay families users conservative
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prevention)
Cosmetic Teens, young Smokers High Aqua-Fresh,
(bright adults sociability, Ultra Brite
teeth) active
Taste Children Spearmint High Colgate,
(good lovers self-involvement Aim
tasting) hedonistic
Source: Adapted from Russell J. Haley, "Benefit Segmentation: A

Decision-Oriented Research Tool," Journal of Marketing, July 1968,
pp. 30–;35. Also see Haley, "Benefit Segmentation: Backwards and
Forwards," Journal of Advertising Research, February–;March 1984,
pp. 19–;25; and Haley, "Benefit Segmentation—20 Years Later,"
Journal of Consumer Marketing Vol. 1, 1984, pp. 5–;14.
User Status
Markets can be segmented into groups of nonusers, ex-users, potential users, first-time
users, and regular users of a product. For example, one study found that blood donors
are low in self-esteem, low risk takers, and more highly concerned about their health;
nondonors tend to be the opposite on all three dimensions. This suggests that social
agencies should use different marketing approaches for keeping current donors and
attracting new ones. A company's market position also influences its focus. Market share
leaders focus on attracting potential users, whereas smaller firms focus on attracting
current users away from the market leader.
Usage Rate
Markets can also be segmented into light, medium, and heavy product users. Heavy users
are often a small percentage of the market but account for a high percentage of total
consumption. Marketers usually prefer to attract one heavy user to their product or
service rather than several light users. For example, a recent study of U.S.-branded ice
cream buyers showed that heavy users make up only 18 percent of all buyers but consume
55 percent of all the ice cream sold. On average, these heavy users pack away 13 gallons
of ice cream per year versus only 2.4 gallons for light users. Similarly, a travel
industry study showed that frequent users of travel agents for vacation travel are more
involved, more innovative, more knowledgeable, and more likely to be opinion leaders
than less frequent users. Heavy users take more trips and gather more information about
vacation travel from newspapers, magazines, books, and travel shows. Clearly, a travel
agency would benefit by directing its marketing efforts toward heavy users, perhaps
using telemarketing and special promotions.
Loyalty Status
A market can also be segmented by consumer loyalty. Consumers can be loyal to brands
(Tide), stores (Wal-Mart), and companies (Ford). Buyers can be divided into groups
according to their degree of loyalty. Some consumers are completely loyal—they buy one
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brand all the time. Others are somewhat loyal—they are loyal to two or three brands of
a given product or favor one brand while sometimes buying others. Still other buyers
show no loyalty to any brand. They either want something different each time they buy or
they buy whatever's on sale.
A company can learn a lot by analyzing loyalty patterns in its market. It should start
by studying its own loyal customers. Suppose Colgate finds that its loyal toothpaste
buyers are more middle class, have larger families, and are more health conscious. These
characteristics pinpoint the target market for Colgate. By studying its less loyal
buyers, the company can detect which brands are most competitive with its own. If many
Colgate buyers also buy Crest, Colgate can attempt to improve its positioning against
Crest, possibly by using direct-comparison advertising. By looking at customers who are
shifting away from its brand, the company can learn about its marketing weaknesses. As
for nonloyals, the company may attract them by putting its brand on sale.
Using Multiple Segmentation Bases
Marketers rarely limit their segmentation analysis to only one or a few variables.
Rather, they are increasingly using multiple segmentation bases in an effort to identify
smaller, better-defined target groups. Thus, a bank may not only identify a group of
wealthy retired adults but also, within that group, distinguish several segments
depending on their current income, assets, savings and risk preferences, and lifestyles.
Companies often begin by segmenting their markets using a single base, then expand using
other bases. Consider PageNet, the paging services provider, which found itself
competing against communications giants such as Southwestern Bell and Pacific Telesis in
the pager market:
PageNet couldn't boast unique technology. Moreover, it was already competing

on price, charging about 20 percent less than competitors. Instead, PageNet
used smart segmentation to boost its competitive advantage. At first, it used
geographic segmentation, targeting markets in Ohio and its home state of Texas
where local competitors were vulnerable to PageNet's aggressive pricing. Once
these markets were secure, the company targeted new geographical segments that
promised the best growth potential. But PageNet's segmenting strategy didn't
end with geography. The company next profiled major paging service user groups
and targeted the most promising ones, such as salespeople, messengers, and
service people. Flush with success, PageNet next used lifestyle segmentation
to target additional consumer groups, such as parents who leave their babies
with sitters, commuters who are out of reach while traveling to and from work,
and elderly people living alone whose families want to keep an eye on them.
The results of this multiple segmentation strategy: PageNet's subscriber base
has expanded at a rate of 50 percent annually over the past 10 years. Now,
with 10 million subscribers and sales approaching $1 billion, PageNet is the
nation's largest wireless messaging and information services company.
One of the most promising developments in multivariable segmentation is "geodemographic"

segmentation. Several business information services have arisen to help marketing
planners link U.S. Census data with lifestyle patterns to better segment their markets
down to zip codes, neighborhoods, and even city blocks.
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Segmenting Business Markets

Consumer and business marketers use many of the same variables to segment their markets.
Business buyers can be segmented geographically, demographically (industry, company
size), or by benefits sought, user status, usage rate, and loyalty status. Yet, as Table
7.3 shows, business marketers also use some additional variables, such as customer
operating characteristics, purchasing approaches, situational factors, and personal
characteristics. The table lists major questions that business marketers should ask in
determining which customers they want to serve.
Table 7.3 Major Segmentation Variables for Business Markets
Demographics
Industry: Which industries that buy this product should we focus
on?
Company size: What size companies should we focus on?
Location: What geographical areas should we focus on?

Operating Variables
Technology: What customer technologies should we focus on?
User–nonuser status: Should we focus on heavy, medium, or light

users or nonusers?
Customer capabilities: Should we focus on customers needing many

services or few services?
Purchasing Approaches
Purchasing function organization: Should we focus on companies
with highly centralized or decentralized purchasing?
Power structure: Should we focus on companies that are

engineering dominated, financially dominated, or marketing
dominated?
Nature of existing relationships: Should we focus on companies

with which we already have strong relationships or simply go
after the most desirable companies?
General purchase policies: Should we focus on companies that

prefer leasing? Service contracts? Systems purchases? Sealed
bidding?
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Purchasing criteria: Should we focus on companies that are

seeking quality? Service? Price?
Situational Factors
Urgency: Should we focus on companies that need quick delivery or
service?
Specific application: Should we focus on certain applications of

our product rather than all applications?
Size of order: Should we focus on large or small orders?

Personal Characteristics
Buyer–seller similarity: Should we focus on companies whose
people and values are similar to ours?
Attitudes toward risk: Should we focus on risk-taking or

risk-avoiding customers?
Loyalty: Should we focus on companies that show high loyalty to

their suppliers?
Source: Adapted from Thomas V. Bonoma and Benson P. Shapiro,

Segmenting the Industrial Market (Lexington, MA: Lexington Books,
1983). Also see John Berrigan and Carl Finkbeiner, Segmentation
Marketing: New Methods for Capturing Business (New York:
HarperBusiness, 1992).
By going after segments instead of the whole market, companies have a much better chance
to deliver value to consumers and to receive maximum rewards for close attention to
consumer needs. Thus, Hewlett-Packard's Computer Systems Division targets specific
industries that promise the best growth prospects, such as telecommunications and
financial services. Its "red team" sales force specializes in developing and serving
major customers in these targeted industries. Within the chosen industry, a company can
further segment by customer size or geographic location. For example, Hewlett-Packard's
"blue team" telemarkets to smaller accounts and to those that don't fit neatly into the
strategically targeted industries on which HP focuses.
A company might also set up separate systems for dealing with larger or multiple-
location customers. For example, Steelcase, a major producer of office furniture, first
segments customers into 10 industries, including banking, insurance, and electronics.
Next, company salespeople work with independent Steelcase dealers to handle smaller,
local, or regional Steelcase customers in each segment. But many national, multiple-
location customers, such as Exxon or IBM, have special needs that may reach beyond the
scope of individual dealers. So Steelcase uses national accounts managers to help its
dealer networks handle its national accounts.
Within a given target industry and customer size, the company can segment by purchase
approaches and criteria. As in consumer segmentation, many marketers believe that buying
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behavior and benefits provide the best basis for segmenting business markets.
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Segmenting International Markets

Few companies have either the resources or the will to operate in all, or even most, of
the countries that dot the globe. Although some large companies, such as Coca-Cola or
Sony, sell products in as many as 200 countries, most international firms focus on a
smaller set. Operating in many countries presents new challenges. Different countries,
even those that are close together, can vary dramatically in their economic, cultural,
and political makeup. Thus, just as they do within their domestic markets, international
firms need to group their world markets into segments with distinct buying needs and
behaviors.
Companies can segment international markets using one or a combination of several

variables. They can segment by geographic location, grouping countries by regions such
as Western Europe, the Pacific Rim, the Middle East, or Africa. Geographic segmentation
assumes that nations close to one another will have many common traits and behaviors.
Although this is often the case, there are many exceptions. For example, although the
United States and Canada have much in common, both differ culturally and economically
from neighboring Mexico. Even within a region, consumers can differ widely. For example,
many U.S. marketers think that all Central and South American countries are the same,
including their 400 million inhabitants. However, the Dominican Republic is no more like
Brazil than Italy is like Sweden. Many Latin Americans don't speak Spanish, including
140 million Portuguese-speaking Brazilians and the millions in other countries who speak
a variety of Indian dialects.
World markets can also be segmented on the basis of economic factors. For example,
countries might be grouped by population income levels or by their overall level of
economic development. Some countries, such as the United States, Britain, France,
Germany, Japan, Canada, Italy, and Russia, have established, highly industrialized
economies. Other countries have newly industrialized or developing economies (Singapore,
Taiwan, Korea, Brazil, Mexico). Still others are less developed (China, India). A
company's economic structure shapes its population's product and service needs and,
therefore, the marketing opportunities it offers.
Countries can be segmented by political and legal factors such as the type and stability
of government, receptivity to foreign firms, monetary regulations, and the amount of
bureaucracy. Such factors can play a crucial role in a company's choice of which
countries to enter and how. Cultural factors can also be used, grouping markets
according to common languages, religions, values and attitudes, customs, and behavioral
patterns.
Segmenting international markets on the basis of geographic, economic, political,

cultural, and other factors assumes that segments should consist of clusters of
countries. However, many companies use a different approach called intermarket
segmentation. Using this approach, they form segments of consumers who have similar
needs and buying behavior even though they are located in different countries. For
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example, Mercedes-Benz targets the world's well-to-do, regardless of their country. MTV
targets the world's teenagers. One study of more than 6,500 teenagers from 26 countries
showed that teens around the world live surprisingly parallel lives. As one expert
notes, "From Rio to Rochester, teens can be found enmeshed in much the same regimen: . .
. drinking Coke, . . . dining on Big Macs, and surfin' the Net on their computers." The
world's teens have a lot in common: They study, shop, and sleep. They are exposed to
many of the same major issues: love, crime, homelessness, ecology, and working parents.
In many ways, they have more in common with each other than with their parents. MTV
bridges the gap between cultures, appealing to what teens around the world have in
common.
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Requirements for Effective Segmentation

Clearly, there are many ways to segment a market, but not all segmentations are
effective. For example, buyers of table salt could be divided into blond and brunette
customers. But hair color obviously does not affect the purchase of salt. Furthermore,
if all salt buyers bought the same amount of salt each month, believed that all salt is
the same, and wanted to pay the same price, the company would not benefit from
segmenting this market.
To be useful, market segments must be:
Measurable: The size, purchasing power, and profiles of the segments can be
measured. Certain segmentation variables are difficult to measure. For example,
there are 32.5 million left-handed people in the United States—almost equaling the
entire population of Canada. Yet few products are targeted toward this left-handed
segment. The major problem may be that the segment is hard to identify and measure.
There are no data on the demographics of lefties, and the U.S. Census Bureau does
not keep track of left-handedness in its surveys. Private data companies keep reams
of statistics on other demographic segments but not on left-handers.
Accessible: The market segments can be effectively reached and served. Suppose a
fragrance company finds that heavy users of its brand are single men and women who
stay out late and socialize a lot. Unless this group lives or shops at certain
places and is exposed to certain media, its members will be difficult to reach.
Substantial: The market segments are large or profitable enough to serve. A segment
should be the largest possible homogenous group worth pursuing with a tailored
marketing program. It would not pay, for example, for an automobile manufacturer to
develop cars for persons whose height is under four feet.
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 designed for attracting and serving the
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segments. For example, although one small airline identified seven market segments,
its staff was too small to develop separate marketing programs for each segment.
-TOP-
Market Targeting
Market segmentation reveals the firm's market segment opportunities. The firm now has to
evaluate the various segments and decide how many and which ones to target. We now look
at how companies evaluate and select target segments.
Evaluating Market Segments

In evaluating different market segments, a firm must look at three factors: segment size
and growth, segment structural attractiveness, and company objectives and resources. The
company must first collect and analyze data on current segment sales, growth rates, and
expected profitability for various segments. It will be interested in segments that have
the right size and growth characteristics. (Appendix 1 discusses approaches for
measuring and forecasting market demand.) But "right size and growth" is a relative
matter. The largest, fastest-growing segments are not always the most attractive ones
for every company. Smaller companies may lack the skills and resources needed to serve
the larger segments or may find these segments too competitive. Such companies may
select segments that are smaller and less attractive, in an absolute sense, but that are
potentially more profitable for them.
The company also needs to examine major structural factors that affect long-run segment
attractiveness. For example, 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 that can be earned in a segment. The relative
power of buyers also affects segment attractiveness. Buyers with strong bargaining power
relative to sellers will try to force prices down, demand more services, and set
competitors against one another—all at the expense of seller profitability. Finally, a
segment may be less attractive if it contains powerful suppliers who can control prices
or reduce the quality or quantity of ordered goods and services.
Even if a segment has the right size and growth and is structurally attractive, the
company must consider its own objectives and resources in relation to that segment. Some
attractive segments could be dismissed quickly because they do not mesh with the
company's long-run objectives. Even if a segment fits the company's objectives, the
company must consider whether it possesses the skills and resources it needs to succeed
in that segment. If the company lacks the strengths needed to compete successfully in a
segment and cannot readily obtain them, it should not enter the segment. Even if the
company possesses the required strengths, it needs to employ skills and resources
superior to those of the competition in order to really win in a market segment. The
company should enter only segments in which it can offer superior value and gain
advantages over competitors.
-TOP-
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Selecting Market Segments

After evaluating different segments, the company must now decide which and how many
segments to serve. This is the problem of target market selection. A target market
consists of a set of buyers who share common needs or characteristics that the company
decides to serve. Figure 7.3 shows that the firm can adopt one of three market-coverage
strategies: undifferentiated marketing, differentiated marketing, and concentrated
marketing.
Figure 7.3 Three alternative market-coverage strategies
Undifferentiated Marketing
Using an undifferentiated marketing (or mass-marketing) strategy, a firm might decide to

ignore market segment differences and go after 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. The company designs a product and a marketing program that will
appeal to the largest number of buyers. It relies on mass distribution and mass
advertising, and it aims to give the product a superior image in people's minds. As
noted earlier in the chapter, most modern marketers have strong doubts about this
strategy. Difficulties arise in developing a product or brand that will satisfy all
consumers. Moreover, mass marketers often have trouble competing with more focused firms
that do a better job of satisfying the need of specific segments and niches.
Differentiated Marketing
Using a differentiated marketing strategy, a firm decides to target several market

segments or niches and designs separate offers for each. General Motors tries to produce
a car for every "purse, purpose, and personality." Nike offers athletic shoes for a
dozen or more different sports, from running, fencing, and aerobics to bicycling and
baseball. Estée Lauder offers dozens of different products aimed at carefully defined
niches:
The four best-selling prestige perfumes in the United States belong to Estée
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Lauder. So do seven of the top ten prestige makeup products and eight of the
ten best-selling prestige skin care products. Estée Lauder is an expert in
creating differentiated brands that serve the tastes of different market
segments. There's the original Estée Lauder brand, which appeals to older,
junior league types. Then there's Clinique, perfect for the middle-aged mom
with a GMC Suburban and no time to waste. Then there's the hip M.A.C. line,
which boasts as its spokesmodel RuPaul, a 6-foot, 7-inch drag queen. For the
New Age type, there's upscale Aveda, with its aromatherapy line and earthy
Origins, which the company expects will become a $1 billion brand. The company
even offers downscale brands, such as Jane by Sassaby, for teens at Wal-Mart
and Rite Aid.
By offering product and marketing variations, these companies hope for higher sales and
a stronger position within each market segment. Developing a stronger position within
several segments creates more total sales than undifferentiated marketing across all
segments. Procter & Gamble gets more total market share with eight brands of laundry
detergent than it could with only one. But differentiated marketing also increases the
costs of doing business. A firm usually finds it more expensive to develop and produce,
say, 10 units of 10 different products than 100 units of one product. Developing
separate marketing plans for the separate segments requires extra marketing research,
forecasting, sales analysis, promotion planning, and channel management. Trying to reach
different market segments with different advertising increases promotion costs. Thus,
the company must weigh increased sales against increased costs when deciding on a
differentiated marketing strategy.
Concentrated Marketing
A third market-coverage strategy, concentrated marketing, is especially appealing when

company resources are limited. Instead of going after a small share of a large market,
the firm goes after a large share of one or a few segments or niches. For example,
Oshkosh Truck is the world's largest producer of airport rescue trucks and front-loading
concrete mixers. Tetra sells 80 percent of the world's tropical fish food, and Steiner
Optical captures 80 percent of the world's military binoculars market.
Today, the low cost of setting up shop on the Internet makes it even more profitable to
serve seemingly minuscule niches. Small businesses, in particular, are realizing riches
from serving small niches on the Web. Here are two "Webpreneurs" who achieved
astonishing results:
Ostrichesonline.com. Whereas Internet giants like music retailer CDnow and

bookseller Amazon.com have yet to even realize a profit, Steve Warrington is
earning a six-figure income online selling ostriches and every product derived from
them. Launched for next to nothing on the Web, Warrington's business generated $4
million in sales last year. The site tells visitors everything they ever wanted to
know about ostriches and much, much more—it supplies ostrich facts, ostrich
pictures, an ostrich farm index, and a huge ostrich database and reference index.
Visitors to the site can buy ostrich meat, feathers, leather jackets, videos,
eggshells, and skin care products derived from ostrich body oil.
Mesomorphosis.com. At the age of 26, Millard Baker, a clinical psychology graduate
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student at the University of South Florida, launched a Web-based business selling

body building supplements and oils. Although other Web sites peddled similar
products, few offered articles and content, so Millard Baker added these elements
to his site. Mesomorphosis.com has now grown into a full-fledged Internet
publication as well as an online store. It provides subscribers with
"scientifically-based articles about body building so that [they] can make informed
decisions about training, nutrition, and supplementation." How successful is this
Web nicher? Baker now pulls in more than $25,000 a month.
Concentrated marketing provides an excellent way for small new businesses to get a
foothold against larger, more resourceful competitors. For example, Southwest Airlines
began by concentrating on serving intrastate, no-frills commuters. PageNet got off to a
successful start by concentrating on limited geographic areas. Wal-Mart got its start by
bringing everyday low prices to small town and rural areas.
Through concentrated marketing, firms achieve strong market positions in the segments or
niches they serve because of their greater knowledge of the segments' needs and the
special reputations they acquire. They also enjoy many operating economies because of
specialization in production, distribution, and promotion. If the segment is well
chosen, firms can earn a high rate of return on their investments.
At the same time, concentrated marketing involves higher-than-normal risks. The

particular market segment can turn sour. Or larger competitors may decide to enter the
same segment. For example, California Cooler's success in the wine cooler segment
attracted many large competitors, causing the original owners to sell to a larger
company that had more marketing resources. For these reasons, many companies prefer to
diversify in several market segments.
Concentrated marketing: Oshkosh Truck has found its niche as the world's
largest producer of airport rescue trucks and front-loading concrete mixers.
Choosing a Market-Coverage Strategy
Many factors need to be considered when choosing a market-coverage strategy. Which

strategy is best depends on company resources. When the firm's resources are limited,
concentrated marketing makes the most sense. The best strategy also depends on the
degree of product variability. Undifferentiated marketing is more suited for uniform
products such as grapefruit or steel. Products that can vary in design, such as cameras
and automobiles, are more suited to differentiation or concentration. The product's
life-cycle stage also must be considered.
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When a firm introduces a new product, it is practical to launch only one version, and
undifferentiated marketing or concentrated marketing makes the most sense. In the mature
stage of the product life cycle, however, differentiated marketing begins to make more
sense. Another factor is market variability. If most buyers have the same tastes, buy
the same amounts, and react the same way to marketing efforts, undifferentiated
marketing is appropriate. Finally, competitors' marketing strategies are important. When
competitors use differentiated or concentrated marketing, undifferentiated marketing can
be suicidal. Conversely, when competitors use undifferentiated marketing, a firm can
gain an advantage by using differentiated or concentrated marketing.
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Socially Responsible Target Marketing

Smart targeting helps companies to be more efficient and effective by focusing on the
segments that they can satisfy best and most profitably. Targeting also benefits
consumers—companies reach specific groups of consumers with offers carefully tailored
to satisfy their needs. However, target marketing sometimes generates controversy and
concern. Issues usually involve the targeting of vulnerable or disadvantaged consumers
with controversial or potentially harmful products.
For example, over the years, the cereal industry has been heavily criticized for its
marketing efforts directed toward children. Critics worry that premium offers and
high-powered advertising appeals presented through the mouths of lovable animated
characters will overwhelm children's defenses. The marketers of toys and other
children's products have been similarly battered, often with good justification. Some
critics have even called for a complete ban on advertising to children. To encourage
responsible advertising to children, the Children's Advertising Review Unit, the
advertising industry's self-regulatory agency, has published extensive children's
advertising guidelines that recognize the special needs of child audiences.
Cigarette, beer, and fast-food marketers have also generated much controversy in recent
years by their attempts to target inner-city minority consumers. For example, McDonald's
and other chains have drawn criticism for pitching their high-fat, salt-laden fare to
low-income, inner-city residents who are much more likely than suburbanites to be heavy
consumers. R.J. Reynolds took heavy flak in the early 1990s when it announced plans to
market Uptown, a menthol cigarette targeted toward low-income blacks. It quickly dropped
the brand in the face of a loud public outcry and heavy pressure from black leaders. G.
Heileman Brewing made a similar mistake with PowerMaster, a potent malt liquor. Because
malt liquor had become the drink of choice among many in the inner city, Heileman
focused its marketing efforts for PowerMaster on inner-city blacks. However, this group
suffers disproportionately from liver diseases brought on by alcohol, and the inner city
is already plagued by alcohol-related problems such as crime and violence. Thus,
Heileman's targeting decision drew substantial criticism.
The meteoric growth of the Internet and other carefully targeted direct media has raised
fresh concerns about potential targeting abuses. The Internet allows increasing
refinement of audiences and, in turn, more precise targeting. This might help makers of
questionable products or deceptive advertisers to more readily victimize the most
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vulnerable audiences. As one expert observes, "In theory, an audience member could have
tailor-made deceptive messages sent directly to his or her computer screen."
Not all attempts to target children, minorities, or other special segments draw such
criticism. In fact, most provide benefits to targeted consumers. For example, Colgate-
Palmolive's Colgate Junior toothpaste has special features designed to get children to
brush longer and more often—it's less foamy, has a milder taste, contains sparkles, and
exits the tube in a star-shaped column.
Golden Ribbon Playthings has developed a highly acclaimed and very successful black
character doll named "Huggy Bean" targeted toward minority consumers. Huggy comes with
books and toys that connect her with her African heritage. Many cosmetics companies have
responded to the special needs of minority segments by adding products specifically
designed for African American, Hispanic, or Asian women. Black-owned ICE theaters
noticed that although moviegoing by blacks has surged, there are few inner-city
theaters. The chain has opened a theater in Chicago's South Side as well as two other
Chicago theaters, and it plans to open in four more cities this year. ICE partners with
the black communities in which it operates theaters, using local radio stations to
promote films and featuring favorite food items at concession stands.
Thus, in market targeting, the issue is not really who is targeted but rather how and
for what. Controversies arise when marketers attempt to profit at the expense of
targeted segments—when they unfairly target vulnerable segments or target them with
questionable products or tactics. Socially responsible marketing calls for segmentation
and targeting that serve not just the interests of the company but also the interests of
those targeted.
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Positioning for Competitive Advantage
Once a company has decided which segments of the market it will enter, it must decide
what positions it wants to occupy in those segments. A product's position is the way the
product is defined by consumers on important attributes—the place the product occupies
in consumers' minds relative to competing products. Positioning involves implanting the
brand's unique benefits and differentiation in customers' minds. Thus, Tide is
positioned as a powerful, all-purpose family detergent; Ivory Snow is positioned as the
gentle detergent for fine washables and baby clothes. In the automobile market, Toyota
Tercel and Subaru are positioned on economy, Mercedes and Cadillac on luxury, and
Porsche and BMW on performance. Volvo positions powerfully on safety.
Consumers are overloaded with information about products and services. They cannot
reevaluate products every time they make a buying decision. To simplify the buying
process, consumers organize products into categories—they "position" products,
services, and companies in their minds. A product's position is the complex set of
perceptions, impressions, and feelings that consumers have for the product compared with
competing products. Consumers position products with or without the help of marketers.
But marketers do not want to leave their products' positions to chance. They must plan
positions that will give their products the greatest advantage in selected target
markets, and they must design marketing mixes to create these planned positions.
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Choosing a Positioning Strategy

Some firms find it easy to choose their positioning strategy. For example, a firm well
known for quality in certain segments will go for this position in a new segment if
there are enough buyers seeking quality. But in many cases, two or more firms will go
after the same position. Then, each will have to find other ways to set itself apart.
Each firm must differentiate its offer by building a unique bundle of benefits that
appeals to a substantial group within the segment.
The positioning task consists of three steps: identifying a set of possible competitive
advantages upon which to build a position, choosing the right competitive advantages,
and selecting an overall positioning strategy. The company must then effectively
communicate and deliver the chosen position to the market.
Identifying Possible Competitive Advantages
The key to winning and keeping customers is to understand their needs and buying
processes better than competitors do and to deliver more value. To the extent that a
company can position itself as providing superior value to selected target markets it
gains competitive advantage. But solid positions cannot be built on empty promises. If a
company positions its product as offering the best quality and service, it must then
deliver the promised quality and service. Thus, positioning begins with actually
differentiating the company's marketing offer so that it will give consumers more value
than competitors' offers do.
To find points of differentiation, marketers must think through the customer's entire
experience with the company's product or service. An alert company can find ways to
differentiate itself at every point where it comes in contact with customers. In what
specific ways can a company differentiate its offer from those of competitors? A company
or market offer can be differentiated along the lines of product, services, channels,
people, or image.
Competitive advantages: Volvo positions powerfully on safety: All

most people want from a car seat is "a nice, comfy place to put
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your gluteus maximus." However, when a Volvo is struck from behind,

a sophisticated system "guides the front seats through an intricate
choreography that supports the neck and spine, while helping to
reduce dangerous collision impact forces."
Product differentiation takes place along a continuum. At one extreme we find physical
products that allow little variation: chicken, steel, aspirin. Yet even here some
meaningful differentiation is possible. For example, Perdue claims that its branded
chickens are better—fresher and more tender—and gets a 10 percent price premium based
on this differentiation. At the other extreme are products that can be highly
differentiated, such as automobiles, commercial machinery, and furniture. Such products
can be differentiated on features, performance, or style and design. Thus, Volvo
provides new and better safety features; Whirlpool designs its dishwasher to run more
quietly; Bose speakers are positioned on striking design characteristics. Similarly,
companies can differentiate their products on such attributes as consistency,
durability, reliability, or repairability.
Beyond differentiating its physical product, a firm can also differentiate the services
that accompany the product. Some companies gain services differentiation through speedy,
convenient, or careful delivery. For example, BancOne has opened full-service branches
in supermarkets to provide location convenience along with Saturday, Sunday, and
weekday-evening hours. Installation can also differentiate one company from another, as
can repair services. Many an automobile buyer will gladly pay a little more and travel a
little farther to buy a car from a dealer that provides top-notch repair service. Some
companies differentiate their offers by providing customer training service or
consulting services—data, information systems, and advising services that buyers need.
For example, McKesson Corporation, a major drug wholesaler, consults with its 12,000
independent pharmacists to help them set up accounting, inventory, and computerized
ordering systems. By helping its customers compete better, McKesson gains greater
customer loyalty and sales.
Firms that practice channel differentiation gain competitive advantage through the way
they design their channel's coverage, expertise, and performance. Caterpillar's success
in the construction-equipment industry is based on superior channels. Its dealers
worldwide are renowned for their top-notch service. Dell Computer and Avon distinguish
themselves by their high-quality direct channels. Iams pet food achieves success by
going against tradition, distributing its products only through veterinarians and pet
stores.
Companies can gain a strong competitive advantage through people differentiation—hiring

and training better people than their competitors do. Thus, Disney people are known to
be friendly and upbeat. Singapore Airlines enjoys an excellent reputation largely
because of the grace of its flight attendants. IBM offers people who make sure that the
solution customers want is the solution they get: "People Who Think. People Who Do.
People Who Get It." People differentiation requires that a company select its customer-
contact people carefully and train them well. For example, Disney trains its theme park
people thoroughly to ensure that they are competent, courteous, and friendly. From the
hotel check-in agents, to the monorail drivers, to the ride attendants, to the people
who sweep Main Street USA, each employee understands the importance of understanding
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customers, communicating with them clearly and cheerfully, and responding quickly to
their requests and problems. Each is carefully trained to "make a dream come true."
Even when competing offers look the same, buyers may perceive a difference based on
company or brand image differentiation. A company or brand image should convey the
product's distinctive benefits and positioning. Developing a strong and distinctive
image calls for creativity and hard work. A company cannot plant an image in the
public's mind overnight using only a few advertisements. If Ritz-Carlton means quality,
this image must be supported by everything the company says and does. Symbols—such as
McDonald's golden arches, the Prudential rock, or the Pillsbury doughboy—can provide
strong company or brand recognition and image differentiation. The company might build a
brand around a famous person, as Nike did with its Air Jordan basketball shoes. Some
companies even become associated with colors, such as IBM (blue), Campbell (red and
white), or Kodak (red and yellow). The chosen symbols, characters, and other image
elements must be communicated through advertising that conveys the company's or brand's
personality.
Choosing the Right Competitive Advantages
Suppose a company is fortunate enough to discover several potential competitive

advantages. It now must choose the ones on which it will build its positioning strategy.
It must decide how many differences to promote and which ones.
How Many Differences to Promote?
Many marketers think that companies should aggressively promote only one benefit to the
target market. Ad man Rosser Reeves, for example, said a company should develop a unique
selling proposition (USP) for each brand and stick to it. Each brand should pick an
attribute and tout itself as "number one" on that attribute. Buyers tend to remember
number one better, especially in an overcommunicated society. Thus, Crest toothpaste
consistently promotes its anticavity protection and Volvo promotes safety. A company
that hammers away at one of these positions and consistently delivers on it probably
will become best known and remembered for it.
Other marketers think that companies should position themselves on more than one
differentiating factor. This may be necessary if two or more firms are claiming to be
the best on the same attribute. Today, in a time when the mass market is fragmenting
into many small segments, companies are trying to broaden their positioning strategies
to appeal to more segments. For example, Unilever introduced the first three-in-one bar
soap—Lever 2000—offering cleansing, deodorizing, and moisturizing benefits. Clearly,
many buyers want all three benefits, and the challenge was to convince them that one
brand can deliver all three. Judging from Lever 2000's outstanding success, Unilever
easily met the challenge. However, as companies increase the number of claims for their
brands, they risk disbelief and a loss of clear positioning.
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Unilever positioned its best-selling Lever 2000 soap on three

benefits in one: cleansing, deodorizing, and moisturizing benefits.
It's good "for all your 2000 parts."
In general, a company needs to avoid three major positioning errors. The first is
underpositioning—failing to ever really position the company at all. Some companies
discover that buyers have only a vague idea of the company or that they do not really
know anything special about it. The second error is overpositioning—giving buyers too
narrow a picture of the company. Thus, a consumer might think that the Steuben glass
company makes only fine art glass costing $1,000 and up, when in fact it makes
affordable fine glass starting at around $50. Finally, companies must avoid confused
positioning—leaving buyers with a confused image of a company. For example, over the
past decade, Burger King has fielded six separate advertising campaigns, with themes
ranging from "Herb the nerd doesn't eat here" to "Sometimes you've got to break the
rules" and "BK Tee Vee." This barrage of positioning statements has left consumers
confused and Burger King with poor sales and profits.
Which Differences to Promote?
Not all brand differences are meaningful or worthwhile; not every difference makes a
good differentiator. Each difference has the potential to create company costs as well
as customer benefits. Therefore, the company must carefully select the ways in which it
will distinguish itself from competitors. A difference is worth establishing to the
extent that it satisfies the following criteria:
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.
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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.
Many companies have introduced differentiations that failed one or more of these tests.
The Westin Stamford hotel in Singapore advertises that it is the world's tallest hotel,
a distinction that is not important to many tourists—in fact, it turns many off.
Polaroid's Polarvision, which produced instantly developed home movies, bombed too.
Although Polarvision was distinctive and even preemptive, it was inferior to another way
of capturing motion, namely, camcorders. When Pepsi introduced clear Crystal Pepsi some
years ago, customers were unimpressed. Although the new drink was distinctive, consumers
didn't see "clarity" as an important benefit in a soft drink. Thus, choosing competitive
advantages upon which to position a product or service can be difficult, yet such
choices may be crucial to success.
Selecting an Overall Positioning Strategy
Consumers typically choose products and services that give them the greatest value.
Thus, marketers want to position their brands on the key benefits that they offer
relative to competing brands. The full positioning of a brand is called the brand's
value proposition—the full mix of benefits upon which the brand is positioned. It is
the answer to the customer's question "Why should I buy your brand?" Volvo's value
proposition hinges on safety but also includes reliability, roominess, and styling, all
for a price that is higher than average but seems fair for this mix of benefits.
Figure 7.4 shows possible value propositions upon which a company might position its
products. In the figure, the five green cells represent winning value propositions
—positioning that gives the company competitive advantage. The orange cells, however,
represent losing value propositions, and the center cell represents at best a marginal
proposition. In the following sections, we discuss the five winning value propositions
companies can use to position their products: more for more, more for the same, the same
for less, less for much less, and more for less.
Figure 7.4 Possible value propositions
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More for More
"More for more" positioning involves providing the most upscale product or service and
charging a higher price to cover the higher costs. Ritz-Carlton Hotels, Mont Blanc
writing instruments, Mercedes-Benz automobiles—each claims superior quality,
craftsmanship, durability, performance, or style and charges a price to match. Not only
is the marketing offer high in quality, it also offers prestige to the buyer. It
symbolizes status and a lofty lifestyle. Often, the price difference exceeds the actual
increment in quality.
Sellers offering "only the best" can be found in every product and service category,
from hotels, restaurants, food, and fashion to cars and kitchen appliances. Consumers
are sometimes surprised, even delighted, when a new competitor enters a category with an
unusually high-priced brand. Starbucks coffee entered as a very expensive brand in a
largely commodity category; Häagen-Dazs came in as a premium ice cream brand at a price
never before charged. In general, companies should be on the lookout for opportunities
to introduce a "much more for much more" brand in any underdeveloped product or service
category. For example, William-Sonoma's hottest-selling item this year is the $369
Dualit Toaster, a hand-assembled appliance that keeps toast warm for 10 minutes.
Yet "more for more" brands can be vulnerable. They often invite imitators who claim the
same quality but at a lower price. Luxury goods that sell well during good times may be
at risk during economic downturns when buyers become more cautious in their spending.
More for the Same
Companies can attack a competitor's more for more positioning by introducing a brand
offering comparable quality but at a lower price. For example, Toyota introduced its
Lexus line with a "more for the same" value proposition. Its headline read: "Perhaps the
first time in history that trading a $72,000 car for a $36,000 car could be considered
trading up." It communicated the high quality of its new Lexus through rave reviews in
car magazines, through a widely distributed videotape showing side-by-side comparisons
of Lexus and Mercedes-Benz automobiles, and through surveys showing that Lexus dealers
were providing customers with better sales and service experiences than were Mercedes
dealerships. Many Mercedes-Benz owners switched to Lexus, and the Lexus repurchase rate
has been 60 percent, twice the industry average.
The Same for Less
Offering "the same for less" can be a powerful value proposition—everyone likes a good
deal. For example, Amazon.com sells the same book titles as its brick-and-mortar
competitors but at lower prices, and Dell Computer offers equivalent quality at a better
"price for performance." Discounts stores such as Wal-Mart and "category killers" such
as Best Buy, Circuit City, and Sportmart also use this positioning. They don't claim to
offer different or better products. Instead, they offer many of the same brands as
department stores and specialty stores but at deep discounts based on superior
purchasing power and lower-cost operations.
Other companies develop imitative but lower-priced brands in an effort to lure customers
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away from the market leader. For example, Advanced Micro Devices (AMD) and Cyrix make
less expensive versions of Intel's market-leading microprocessor chips. Many personal
computer companies make "IBM clones" and claim to offer the same performance at lower
prices.
Less for Much Less
A market almost always exists for products that offer less and therefore cost less. Few
people need, want, or can afford "the very best" in everything they buy. In many cases,
consumers will gladly settle for less than optimal performance or give up some of the
bells and whistles in exchange for a lower price. For example, many travelers seeking
lodgings prefer not to pay for what they consider unnecessary extras, such as a pool,
cable television, attached restaurant, or mints on the pillow. Motel chains such as
Motel 6 suspend some of these amenities and charge less accordingly.
"Less for much less" positioning involves meeting consumers' lower performance or
quality requirements at a much lower price. For example, Family Dollar and Dollar
General stores offer more affordable goods at very low prices. Sam's Club warehouse
stores offer less merchandise selection and consistency, and much lower levels of
service; as a result, they charge rock-bottom prices. Southwest Airlines, the nation's
most profitable air carrier, also practices less for much less positioning. It charges
incredibly low prices by not serving food, not assigning seats, and not using travel
agents.
More for Less
Of course, the winning value proposition would be to offer "more for less." Many
companies claim to do this. For example, Dell Computer claims to have better products
and lower prices for a given level of performance. Procter & Gamble claims that its
laundry detergents provide the best cleaning and everyday low prices. In the short run,
some companies can actually achieve such lofty positions. For example, when it first
opened for business, Home Depot had arguably the best product selection and service and
at the lowest prices compared to local hardware stores and other home improvement
chains.
Yet in the long run, companies will find it very difficult to sustain such best-of-both
positioning. Offering more usually costs more, making it difficult to deliver on the
"for less" promise. Companies that try to deliver both may lose out to more focused
competitors. For example, facing determined competition from Lowes stores, Home Depot
must now decide whether it wants to compete primarily on superior service or on lower
prices.
All said, each brand must adopt a positioning strategy designed to serve the needs and
wants of its target markets. "More for more" will draw one target market, "less for much
less" will draw another, and so on. Thus, in any market, there is usually room for many
different companies, each successfully occupying different positions.
The important thing is that each company must develop its own winning positioning
strategy, one that makes it special to its target consumers. Offering only "the same for
the same" provides no competitive advantage, leaving the firm in the middle of the pack.
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Companies offering one of the three losing value propositions—"the same for more,"
"less for more," and "less for the same"—will inevitably fail. Here, customers soon
realize that they've been underserved, tell others, and abandon the brand.
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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. Positioning the company calls for
concrete action, not just talk. If the company decides to build a position on better
quality and service, it must first deliver that position. Designing the marketing
mix—product, price, place, and promotion—essentially involves working out the tactical
details of the positioning strategy. Thus, a firm that seizes on a "for more" position
knows that it must produce high-quality products, charge a high price, distribute
through high-quality dealers, and advertise in high-quality media. It must hire and
train more service people, find retailers who have a good reputation for service, and
develop sales and advertising messages that broadcast its superior service. This is the
only way to build a consistent and believable "more for more" position.
Companies often find it easier to come up with a good positioning strategy than to
implement it. Establishing a position or changing one usually takes a long time. In
contrast, positions that have taken years to build can quickly be lost. Once a company
has built the desired position, it must take care to maintain the position through
consistent performance and communication. It must closely monitor and adapt the position
over time to match changes in consumer needs and competitors' strategies. However, the
company should avoid abrupt changes that might confuse consumers. Instead, a product's
position should evolve gradually as it adapts to the ever-changing marketing
environment.
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Chapter Wrap-Up
Now that you've reached the end of the chapter, you may wish to explore the concepts
you've been reading about in greater detail, or test yourself to see how well you've
comprehended the material. In the box below you'll find a number of links. Click on any
one of these links to find additional chapter resources.
Review of Concept Connections
Marketers know that they cannot appeal to all buyers in their markets, or at least not
to all buyers in the same way. Buyers are too numerous, too widely scattered, and too
varied in their needs and buying practices. Therefore, most companies today are moving
away from mass marketing. Instead, they practice target marketing—identifying market
segments, selecting one or more of them, and developing products and marketing mixes
tailored to each. In this way, sellers can develop the right product for each target
market and adjust their prices, distribution channels, and advertising to reach the
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target market efficiently.
1. Define the three steps of target marketing: market segmentation, market

targeting, and market positioning.
Market segmentation is the act of dividing a market into distinct groups of buyers
with different needs, characteristics, or behavior who might require separate
products or marketing mixes. Once the groups have been identified, market targeting
evaluates each market segment's attractiveness and suggests one or more segments to
enter. Market positioning consists of setting the competitive positioning for the
product and creating a detailed marketing plan.
2. List and discuss the major levels of market segmentation and bases for
segmenting consumer and business markets.
Market segmentation can be carried out at several different levels, including no
segmentation (mass marketing), complete segmentation (micromarketing), or something
in between (segment marketing or niche marketing). Mass marketing involves mass
producing, mass distributing, and mass promoting about the same product in about
the same way to all consumers. Using segmented marketing, the company tries to
isolate broad segments that make up a market and adapts its offers to more closely
match the needs of one or more segments. Niche marketing focuses on more narrowly
defined subgroups within these segments, groups with distinctive sets of traits
that may seek a special combination of benefits. 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.
There is no single way to segment a market. Therefore, the marketer tries different
variables to see which give the best segmentation opportunities. For consumer
marketing, the major segmentation variables are geographic, demographic,
psychographic, and behavioral. In geographic segmentation, the market is divided
into different geographical units such as nations, states, regions, counties,
cities, or neighborhoods. In demographic segmentation, the market is divided into
groups based on demographic variables, including age, gender, family size, family
life cycle, income, occupation, education, religion, race, and nationality. In
psychographic segmentation, the market is divided into different groups based on
social class, lifestyle, or personality characteristics. In behavioral
segmentation, the market is divided into groups based on consumers' knowledge,
attitudes, uses, or responses to a product.
Business marketers use many of the same variables to segment their markets. But
business markets also can be segmented by business consumer demographics (industry,
company size), operating characteristics, purchasing approaches, situational
factors, and personal characteristics. The effectiveness of segmentation analysis
depends on finding segments that are measurable, accessible, substantial,
differentiable, and actionable.
3. Explain how companies identify attractive market segments and choose a market-
coverage strategy.
To target the best market segments, the company first evaluates each segment's size
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and growth characteristics, structural attractiveness, and compatibility with

company objectives and resources. It then chooses one of three market-coverage
strategies. The seller can ignore segment differences (undifferentiated marketing),
develop different market offers for several segments (differentiated marketing), or
go after one or a few market segments (concentrated marketing). Much depends on
company resources, product variability, product life-cycle stage, and competitive
marketing strategies.
4. Discuss how companies can position their products for maximum competitive
advantage in the marketplace.
Once a company has decided which segments to enter, it must decide on its market
positioning strategy—on which positions to occupy in its chosen segments. The
positioning task consists of three steps: identifying a set of possible competitive
advantages upon which to build a position, choosing the right competitive
advantages, and selecting an overall positioning strategy. The brand's full
positioning is called its value proposition—the full mix of benefits upon which
the brand is positioned. In general, companies can choose from one of five winning
value propositions upon which to position their products: more for more, more for
the same, the same for less, less for much less, or more for less. They must then
effectively communicate and deliver the chosen position to the market.
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Key Terms
market segmentation
Dividing a market into distinct groups of buyers on the basis of needs,
characteristics, or behavior who might require separate products or marketing
mixes.
market targeting
The process of evaluating each market segment's attractiveness and selecting one or
more segments to enter.
market positioning
Arranging for a product to occupy a clear, distinctive, and desirable place
relative to competing products in the minds of target consumers.
segment marketing
Isolating broad segments that make up a market and adapting the marketing to match
the needs of one or more segments.
niche marketing
Focusing on subsegments or niches with distinctive traits that may seek a special
combination of benefits.
micromarketing
The practice of tailoring products and marketing programs to suit the tastes of
specific individuals and locations—includes local marketing and individual
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marketing.
local marketing
Tailoring brands and promotions to the needs and wants of local customer groups
—cities, neighborhoods, and even specific stores.
individual marketing
Tailoring products and marketing programs to the needs and preferences of
individual customers—also labeled one-to-one marketing, customized marketing, and
markets-of-one marketing.
geographic segmentation
Dividing a market into different geographical units such as nations, states,
regions, counties, cities, or neighborhoods.
demographic segmentation
Dividing the market into groups based on demographic variables such as age, gender,
family size, family life cycle, income, occupation, education, religion, race, and
nationality.
age and life-cycle segmentation

Dividing a market into different age and life-cycle groups.
gender segmentation
Dividing a market into different groups based on sex.
income segmentation
Dividing a market into different income groups.
psychographic segmentation
Dividing a market into different groups based on social class, lifestyle, or
personality characteristics.
behavioral segmentation
Dividing a market into groups based on consumer knowledge, attitude, use, or
response to a product.
occasion segmentation
Dividing the market into groups according to occasions when buyers get the idea to
buy, actually make their purchase, or use the purchased item.
benefit segmentation
Dividing the market into groups according to the different benefits that consumers
seek from the product.
intermarket segmentation
Forming segments of consumers who have similar needs and buying behavior even
though they are located in different countries.
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target market
A set of buyers sharing common needs or characteristics that the company decides to
serve.
undifferentiated marketing
A market-coverage strategy in which a firm decides to ignore market segment
differences and go after the whole market with one offer.
differentiated marketing
A market-coverage strategy in which a firm decides to target several market
segments and designs separate offers for each.
concentrated marketing
A market-coverage strategy in which a firm goes after a large share of one or a few
submarkets.
product position
The way the product is defined by consumers on important attributes—the place the
product occupies in consumers' minds relative to competing products.
competitive advantage
An advantage over competitors gained by offering consumers greater value, either
through lower prices or by providing more benefits that justify higher prices.
value proposition
The full positioning of a brand—the full mix of benefits upon which it is
positioned.
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Issues for Discussion
1. Describe how the Ford Motor Company over the years has moved from mass marketing to
segment marketing. Do you think the company will be able to move toward niche
marketing or micromarketing? If so, how? How is the company using the Internet to
change its market segmentation approach.
2. Several years ago Samuel Adams Brewery led a charge of microbreweries in an attack
on the brands of established brewers. How might such microbreweries use
micromarketing? Evaluate the merits of such a strategy. (For more information, see
the Sam Adams Web site.)
3. How can a company devise a marketing strategy that will have a mass appeal yet
recognize individual differences? One solution is to construct a strategy based on
gender segmentation. Construct a brief gender-based strategy for a company
attempting to market the following items: (a) a new blade razor, (b) a denim
overshirt, (c) a Mazda Miata sports car, (d) life insurance, and (e) Oakley
40 of 51 5/24/2012 1:46 PM
sunglasses.
4. Using Table 7.2 as a model, along with information found in the chapter-opening
vignette, construct a benefit segmentation table for laundry detergent. Identify
the major benefit segments, their characteristics, and their favored brands.
Explain how you constructed your table and the potential benefits of your approach.
5. There are many ways to segment a market. However, not all segmentations are
effective. Apply the five attributes listed in the text for effective segmentation
to assess the usefulness of each of the following segments: (a) Internet users, (b)
pager owners, (c) registered voters, and (d) adult students who return to college
to get an undergraduate degree.
6. In 1994 Netscape appeared to be just another Silicon Valley start-up headed down
the road to ruin. This was before the World Wide Web exploded to become the center
of a generation's universe. As a result of this explosive Internet growth,
Netscape's position in the marketplace has changed dramatically during the past
several years. Choose one of the three market-coverage strategies described in the
chapter and design a marketing strategy for Netscape for the next five years.
Consider the market-coverage strategy of archrival Microsoft and other important
competitors. Explain why your market-coverage strategy is best for the company.
(See Netscape for additional information.)
7. Social responsibility will be an important factor affecting the targeting marketing

strategies of most firms in the new millennium. Provide an example of an
organization that you believe takes a socially responsible approach to targeting
markets. Explain your reasoning.
8. Apply the three steps for choosing and implementing a positioning strategy to
assess in depth the positioning of one of the following products: (a) Dodge trucks,
(b) Clausen pickles, (c) Amazon.com, and (d) American Express blue card. Explain
your reasoning.
-TOP-
Marketing Applications
1. "Tweens"—youths aged 8 to 14—face pressures to grow up quickly. Research shows

that the tweens are among the most targeted youth groups by today's marketers. They
surround themselves with computers, electronic gadgets, music, clothing, magazines,
and other gear that expresses their lifestyle. How do marketers reach this
important group? Firms such as Nike, Gap, Sony, Pepsi, and Cover Girl have managed
to strike the right notes. Primary influences on the tweens and their $12 billion
in annual spending include friends, television and movies, and entertainment and
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sports idols. Such spending has commanded the attention of both traditional and
Internet marketers. To learn more about marketing to tweens, visit the following
Web sites: Gap, Tommy Hilfiger, Delia's, the Limited Too, and Nintendo.
a. Using these and other data sources, profile the tweens market segment.
b. How do companies appear to be marketing toward this segment?
c. What strategies seem most popular with the Web sites mentioned above?
d. Choose a company that currently markets to older youths and young adults.
Explain how this company might go about attracting tweens to its products.
e. What types of social responsibility issues might be encountered by a company

targeting this group?
2. Is it time to trade in your highlighter for something more reliable? How many times
during class or while studying do you underline a word, topic, or key phrase? Too
many, right? Siemens is betting that it has found a better way to process and store
information. The Siemens Pocket Reader is a new portable digital highlighter. This
small handheld scanner is easy to operate—you simply drag the battery-powered
"pen" across the text you want to scan. The device stores up to 40,000 characters
(about 20 pages) that you can then transfer to your PC for later processing and
study. At $99.95 this new-age "highlighter" might well be worth the price.
a. What market segments might be interested in this new product?
b. What form of segmentation should Siemens employ?
c. What market-coverage strategy makes the most sense?
d. How should Siemens position the product?
e. Outline the appeals that might be used in an advertising campaign for the
product. What headline would be appropriate for an advertisement in your
university or college newspaper?
-TOP-
42 of 51 5/24/2012 1:46 PM
Company Case
RJR's Eclipse: Rising from Premier's Ashes
Pursuing a Better Cigarette
In 1988, R. J. Reynolds Tobacco Company (RJR) capped a 10-year, $300 million investment
program by introducing the Premier cigarette in several test markets. Reynolds and other
tobacco companies had long dreamed of a better cigarette, one that would satisfy smokers
without threatening their health or irritating others around them. RJR wanted to target
Premier toward sophisticated, upscale, urban, educated, older (over-25) smokers. These
smokers were hooked on smoking, but were looking for an alternative or trying to quit.
Premier was a very complex product to make and to use. It consisted of a small aluminum
capsule that contained beads of glycerin impregnated with tobacco flavorings. The
capsule was surrounded with tobacco. At the front end of the cigarette was a carbon tip
that the smoker had to both light and heat properly during the lighting process. Air
drawn through the cigarette was heated as it passed through the carbon. It then passed
through the aluminum capsule where the heated air caused the glycerin beads to vaporize
and carry the tobacco flavor through the cigarette's cooling filter to the smoker.
Because only the carbon tip burned in the process, the cigarette did not burn down like
a traditional cigarette. Also, because no tobacco was burning, the cigarette did not
emit any "side-stream" smoke. Because of the cigarette's newness, packages carried
instruction booklets that described the cigarette and explained how to light it
properly.
Due to Premier's complexity and development cost, RJR priced it about 25 to 30 cents
more per pack (about 25 percent) than other name-brand cigarettes. The company
introduced the brand in Phoenix and Tucson, Arizona, and St. Louis, Missouri, in order
to test its marketing strategy. It distributed the cigarettes through the normal
cigarette distribution channels.
To promote Premier, RJR launched an expensive campaign. Contrary to most cigarette ads,
Premier's ads contained lots of copy and "just the facts." They used the tag line, "The
Cleaner Smoke," and encouraged smokers to try Premier for a week. To encourage trial,
sales promotions offered two or more packs for the price of one.
However, despite all the time and money RJR put into developing and introducing Premier,
smokers didn't buy it. They didn't like the taste or the difficulty they had in lighting
and smoking the cigarettes. Rather than sticking with Premier for a week in order to get
accustomed to Premier's taste, smokers decided quickly against the brand. After only
five months, following consumer complaints that it smelled like burning lettuce and
smoldering tennis shoes, RJR extinguished Premier.
If At First You Don't Succeed . . .
Despite Premier's costly failure, RJR continued to pursue its dream. During the next
five years, it spent an estimated $200 million additional dollars on research and
development to produce a better smokeless cigarette. During those five years, smokers
increasingly felt like outcasts, as secondhand smoke became a bigger issue and more
43 of 51 5/24/2012 1:46 PM
places banned smoking. In late 1994, the company announced its plan to introduce a new
version in 1995 called Eclipse.
According to RJR, Eclipse targeted adult smokers over 35 with a slight skew toward
women. The target smokers were "people who enjoy smoking but who'd rather not smell like
a smoker" and people who did not want to expose friends and relatives to secondhand
smoke. Reynolds did not, however, see Eclipse as a niche product. It claimed that the
cigarette could eventually capture a 2 percent share of the nation's 46 million smokers.
RJR's top brand, Camel, had just a 5 percent share, and Virginia Slims, a strong Philip
Morris brand, had a 2.4 percent share.
Reynolds tested the new cigarette for more than a year, involving 12,000 smokers in 20
states in its research. It claimed that Eclipse scored well with smokers and their
nonsmoking friends and family members, with more than 80 percent of both groups saying
that the new product was a breakthrough. Although many smokers who tested the product
did not believe it tasted as good as regular cigarettes, they indicated that it was a
reasonable trade-off because there was less secondhand smoke—about 90 percent less than
standard cigarettes.
Like Premier, the Eclipse has a charcoal tip wrapped in fiberglass insulation. When the
consumer lights the charcoal, it heats to about 900 degrees Celsius, similar to a normal
cigarette's burning temperature. However, the insulation contains the burning, so only
hot air escapes as the smoker draws on the cigarette. The hot air passes through
processed tobacco containing more than 50 percent glycerin that vaporizes at
temperatures below those that burn tobacco. Unlike Premier, there is no aluminum
capsule.
The heated glycerin makes a smokelike vapor that carries the tobacco flavor and
nicotine. This is similar to water passing through coffee grounds in a coffee maker,
picking up the coffee flavor but leaving the grounds behind. The vapor then passes
through a standard filter into the smoker's mouth. Like Premier, the cigarette does not
burn down. The tobacco taste simply goes away once the hot air has done its work. The
smoker inhales and exhales smoke, but upon exhaling, the smoke quickly disappears, much
as a person's smoky breath disappears on a cold morning. The company claimed that
someone walking into a room where people were smoking Eclipses would notice only a faint
aroma.
Like Premier, Eclipse does not burn tobacco; therefore it produces little side-stream
smoke. Standard cigarette smoke is about 75 percent tars and related particles and about
25 percent water, glycerol, and nicotine. Eclipse's smoke is about 85 percent water,
glycerol, and nicotine and about 15 percent tar. Observers pointed out, however, that
other ultra-light cigarettes on the market had equally low tar and nicotine levels.
In mid-1996, RJR announced that Eclipse would enter the final testing phase in
Chattanooga, Tennessee, a medium-size city where, it argued, the smokers were under
societal pressure because of secondhand smoke. The company mailed smokers there a
15-minute video in which a female smoker complained that secondhand smoke was affecting
her marriage to a nonsmoker, staining her walls and curtains, and permeating her
clothes. The woman then told viewers about Eclipse's advantages.
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Reynolds offered a free carton of Eclipse to smokers who agreed to participate in the
test and to attend discovery groups of 50–100 people where RJR representatives
explained and demonstrated the product. One spokesperson noted that getting consumers to
try the product was very important. Because Eclipse was not a traditional product, it
required a nontraditional approach.
Due to higher manufacturing costs, RJR priced Eclipse about 10 cents per pack above the
price of premium brands. It spent about $110,000 on measured media in Chattanooga. Early
ads showed a steaming teakettle with the copy, "Imagine a cigarette that smells like
this." Later, the ad copy contained lines such as, "The smoke disappears. Your
girlfriend doesn't."
In mid-1997, Reynolds added a second test market in Lincoln, Nebraska. One newspaper ad
there showed a lone smoker at a table of friends with the taglines: "Smoke that
disappears. Taste that doesn't." and "Less secondhand smoke. More firsthand pleasure."
Billboards encouraged consumers to "Enjoy smoking without smelling like smoke," "Smoke
on your couch, not on your porch," and "Smell like your cologne. Not your cigarettes."
Unlike the Chattanooga market, RJR limited distribution to about half of the tobacco
sellers in Lincoln because it found that the product required explanation. In
Chattanooga, it learned that unaided trial led to disappointed smokers. It also dropped
the videos, realizing that smokers did not want to watch videos, and added more written
instructions to the packs. RJR also priced Eclipse comparably to other premium brands.
Disappointing Results
In late 1998, RJR announced it was rethinking Eclipse's marketing strategy, admitting
that the cigarette was not meeting expectations and posed a vexing marketing challenge.
Although some smokers liked Eclipse's flavor and the fact that it did not leave a
tobacco smell in their homes and cars. Others panned the taste and complained about how
difficult it was to light the cigarette. One tobacco dealer observed, "They were a
novelty for a while. And a lot of people tried them. But now the new has worn off."
One RJR spokesperson noted, "It's a different cigarette. Smokers see its attributes but
they compare it to their current cigarettes. They need to think of it as a different
smoking experience. I think we've set wrong expectations." The spokesperson added,
however, that the company was still committed to Eclipse. "We, by no means, have given
up. We've put too much of an investment in it."
As of late 1999, Reynolds had not announced a decision as to Eclipse's future. However,
it had test marketed the cigarette internationally. RJR tested the brand in Germany with
the name Hi-Q. It licensed the technology in Japan and Sweden to other tobacco companies
that were committed to marketing reduced-smoke cigarettes. In Japan, the cigarettes were
called Airs. In Sweden they were called Inside.
It appears that Japan Tobacco (the Japanese licensee) has more confidence in the product
than many people in the United States. In mid-1999, Japan Tobacco (JT) acquired RJR's
international operations, including its German production facility and the Hi-Q brand.
JT's Web site shows an illustration of the cigarette. Culturally, Japan stresses being
polite and considerate of other people. One observer noted that perhaps the new Japanese
cigarette is really a "considerette."
45 of 51 5/24/2012 1:46 PM
Questions
1. Analyze RJR's marketing strategy for Premier. What segmentation, targeting, and
positioning problems do you see?
2. Analyze RJR's marketing strategy for Eclipse. What segmentation, targeting, and
positioning problems do you see?
3. Compare the company's marketing strategies for the two cigarettes. How did it
change the strategy for Eclipse?
4. Should RJR introduce Eclipse? What marketing recommendations would you make to the
company if it decides to introduce the cigarette?
5. Do you believe Eclipse might be more successful in foreign markets? Why or why not?
Sources: Melanie Wells, "Low-Smoke Cigarette Lacks Sales Spark," USA Today, October 13,
1998, p. 5B; Melanie Wells, "RJR Takes Smokeless Test," USA Today, October 27, 1997, p.
1B; Judann Pollack, "RJR Expands Test of Low-Smoke Eclipse," Advertising Age, August 25,
1997, p. 1; Associated Press, "Smokeless Cigarettes Not Catching On with Consumers,"
Marketing News TM, August 4, 1997, p. 21; John Schwartz, "New Cigarette Clears the
Smoke, but the Heat Is Still On," Washington Post, May 27, 1996, p. A03; Michelle
Williams, "RJR Markets Smokeless Cigarette in Chattanooga," Associated Press, April 30,
1996; Richard Tomkins, "Tobacco's Holy Grail—A Look at the Lure of the Smokeless
Cigarette, "Financial Times (London), December 2, 1994, p. 12; Stuart Elliott, "R.J.
Reynolds Tobacco Renews Its Hope That Where There's Low Smoke, There's Marketing Fire,"
New York Times, November 29, 1994; Philip J. Hilts, "Little Smoke, Little Tar, but Full
Dose of Nicotine," New York Times, November 27, 1994, p. 1; and Chris Burritt, "Don't
Hold Your Breath . . . Low-Smoke Cigarette Still Doesn't Taste Right, Reynolds Says,"
Atlanta Journal and Constitution, November 28, 1994.
-TOP-
Comprehensive Case
Enterprise Rent-A-Car: Selling the Dream
In the Fast Lane
On a bright January 1998 morning, Dean Pittman, Enterprise Rent-A-Car's area rental
manager for Durham/Chapel Hill, North Carolina, got out of his Dodge Intrepid at
Enterprise's new office in Durham. He admired the line of clean cars and the new office
with its green and white Enterprise sign. To Dean, it seemed that dreams really did come
true.
A little over six years ago, Dean had graduated with a degree in industrial relations
46 of 51 5/24/2012 1:46 PM
from the University of North Carolina at Chapel Hill. When he'd first scheduled a job
interview with Enterprise, Dean had been skeptical. Although he didn't know much about
the company, he wasn't certain that he'd like renting cars for a living or working a
retail job that included washing cars. But he'd seen the potential to advance quickly,
to develop strong management skills, and to learn about running a business.
Once hired, Dean had been promoted quickly to management assistant, then to branch
manager at Enterprise's new office in Rocky Mount, North Carolina. A year ago,
Enterprise had made him an area manager, giving him responsibility for the Durham/Chapel
Hill area—supervising three branch offices with 22 employees, 495 cars, and annual
revenues of more than $3 million. Dean felt as though he was running his own business.
Enterprise gave its managers considerable autonomy and paid them based on a percentage
of their branches' profits. Dean's starting salary had been in line with those of his
classmates, but within three years his pay had doubled, and now it had tripled. There
couldn't be many other companies, Dean thought, in which a person his age could have so
much responsibility, so much fun, and such high earnings.
Company Background
Dean's good fortune mirrored that of Enterprise itself. The company's founder Jack
Taylor started Enterprise in 1962 with a single location and 17 cars in St. Louis,
Missouri. Since then, Enterprise had grown dramatically to become the nation's largest
rental car company. In fact, Enterprise had grown at a compound annual rate of 25
percent for the past 11 years. By 1997, the company had more than 3,000 locations,
325,000 cars, $3.1 billion in sales, $5 billion in assets, and 30,000 employees.
A Winning Strategy
Analysts attribute Enterprise's success to several factors. First, cars have become a
more important part in people's lives. They just can't do without their cars, even for a
day or two. And, as more and more families have both adults working or are single-parent
families, there is often no one else in the family who can pick up people when they have
car problems. Tied in to this, the courts ruled in the 1970s that insurance companies
had to offer coverage so that insured motorists could rent a replacement car if they
lost the use of their car. As a result, those insurance companies began to offer rental
replacement coverage in their policies.
Beyond these environmental factors, the company's success resulted from its single-
minded focus on one segment of the rental car market. Instead of following Hertz, Avis,
and other rental car companies by setting up branches at airports to serve national
travelers, Enterprise built an extensive network of neighborhood locations serving the
"home-city" market—people who needed rental cars as replacements when their cars were
wrecked, stolen, or in the shop being repaired. Because these customers were often
stranded at a body shop or repair garage and had no easy way to get to a rental office,
Enterprise offered to pick them up.
However, Enterprise's first customer in the replacement market is often the referral
source—the insurance agent or auto body shop employee who recommends Enterprise to the
stranded customer. Few of Enterprise's customers get up in the morning thinking they'll
need to rent a car—but then they're involved in a wreck. So, employees visit the
47 of 51 5/24/2012 1:46 PM
referral sources frequently, often taking them donuts or pizza as a way of thanking them
for their business. They call on referral sources who may not be doing business with
Enterprise, and they keep insurance agents apprised of a car's repair status.
Auto Rental News, an industry trade publication, estimates that the replacement market
is growing at 10 to 15 percent per year (see Exhibit 1). The entire rental car market,
including airport rentals and the travel segment, is about $14.6 billion.
The Replacement Car Rental Market Competitors,

Exhibit 1
Revenue Estimates, and Other Market Data
Cars in
1996 U.S.
I. Competitor % Replacement Service
Revenue
(U.S.)
Enterprise $2.61
1. 8% 315,000
Rent-A-Car billion
Ford and Chrysler $490
2. 92 82,250
Systems million
$100
3. Snappy Car Rental 100 15,500
million
$115
4. U-Save Auto Rental 60 13,500
million
$ 85
5. Rent-A-Wreck 35 10,942
million
$ 66
6. Premier Car Rental 100 9,500
million
Advantage $ 76
7. 33 9,000
Rent-A-Car million
$ 50
8. Spirit Rent-A-Car 100 7,500
million
Super Star $ 43
9. 100 5,250
Rent-A-Car million
Many independent $750
10. 53
companies million
11. Airport-based
companies:
Hertz, Avis, $360
100
Budget, Dollar, million
National, Thrifty,
Alamo
II. Industry Average Pricing
48 of 51 5/24/2012 1:46 PM
Estimated industry average price per day for replacement rentals,

not including additional insurance coverages or other rentals,
such as cellular phones: Industry average daily rental is $23.
Industry average rental period for replacement rentals is 12
days.
Additional insurance coverages produce about 5% of revenue, with

other rental options producing about 2% of revenue. Per-day
rental rates are often established through rational contracts
with insurance companies or automobile manufacturers' or dealers'
warranty reimbursement programs.
There are approximately 150 major U.S. airport rental markets.

Airport-based rental rates vary widely depending on competition.
Airport rental companies also negotiate corporate rates with
individual companies.
III. Overall Rent-A-Car Market
Overall 1996 U.S. market estimated at $14.62 billion broken down
as follows:
Business rentals—40%, Leisure/Discretionary rentals—33%,
Replacement rentals—27%
IV. Advertising
Advertising Age estimated that U.S. car rental companies spent
$384.4 million in measured advertising in 1994, about 2.8% of
revenue. It estimated that Enterprise spent $22 million in 1994,
up from $13 million in 1993. Enterprise's 1994 spending compared
with $47 million spent by Hertz, $31 million by Alamo, and $24
million by Avis. (Sept. 27, 1995)
Source: Auto Rental News
Enterprise's rental rates in the replacement market tended to be lower than rates for
comparable rentals at airport-based companies—some analysts estimated up to 30 percent
lower. The company tended to locate its offices in city areas where the rent was much
lower than at the airport. It also kept its cars a little longer than the typical
airport-rental company. These two factors, and a focus on efficient operations, helped
it keep rates lower.
A second segment of the home-city market that Enterprise has begun to serve is the
"discretionary" or "leisure/vacation" segment. Friends or relatives may visit and need a
car, or the family may decide to take a vacation and feel that the family car is really
not as dependable or comfortable as they would like. More and more people are renting
for trips just to keep the extra miles off the family car.
Finally, Enterprise is also experiencing growth in the local corporate market. Many
small businesses and some large ones have found that it's cheaper and easier for them to
rent their fleets from Enterprise than to try to maintain their own fleets. Colleges and
49 of 51 5/24/2012 1:46 PM
universities have realized that it's cheaper to rent a 15-passenger van when the soccer
team travels than to keep a van full time for only occasional use.
Enterprise's success in the home-city market has attracted competition. Although

Enterprise had the largest share of that market, a handful of major regional
competitors, such as Spirit and Snappy, when combined, captured a large market share.
The airport rental companies, such as Hertz, Avis, and Alamo, got only a small portion
of the home-city business. Hertz is just starting a small operation that focuses on the
home-city replacement market. Local "mom-and-pop" firms that often have just one office
and a few cars serve the remainder of the market.
Enterprise grew very quietly, depending on its referral sources and word-of-mouth
promotion. It wasn't until 1989 that the company did its first national advertising. At
that time, marketing research demonstrated that if you showed people a list of company
names and asked them to identify the rental car companies, only about 20 percent knew
Enterprise. The company started advertising nationally but kept its ads low key. By
1997, it had more than quadrupled its annual advertising and promotion spending, using
the theme "Pick Enterprise. We'll pick you up." However, although the company's research
shows that Enterprise's overall awareness is up substantially, only about one-third of
those surveyed are aware of the company's pick-up service, and only about one-third are
aware that it has branches nearby.
The Importance of Culture
Although the company's strategy worked well, that strategy was driven by Jack Taylor's
philosophy. Taylor believed that the employees' and the company's first job was to serve
the customer. From the beginning Taylor urged his employees to do whatever they had to
do in order to make the customer happy. Sometimes it meant waiving charges. Other times,
it meant stopping everything and running out to pick up a stranded customer. Employees
knew that they needed to do whatever it took to make customers happy.
Further, Taylor believed that after customers came employees. He believed that to
satisfy customers, a company had to have satisfied, challenged employees who worked as a
team. All of Enterprise's branch employees, from assistant manager on up, earn a
substantial portion of their pay based on branch profitability. In addition, the company
has a profit-sharing plan for all employees. Enterprise hired primarily college
graduates and promoted from within. Ninety-nine percent of its managers started as
management trainees at the branch level, so they understand the customer-oriented
culture. As important, they understand their local markets and the needs of customers in
those markets. Thus, Enterprise is really a collection of small, independent businesses,
with the corporation providing capital and logistical support.
Finally, Taylor believed that if the company took care of its customers and employees,
profits would follow. Sure enough, Enterprise has consistently been profitable in an
industry where many firms have not been.
What's Next?
The question is, how can Enterprise continue to grow and prosper in the face of growing
competition? The company believes it can double its revenues by the year 2001, but to do
so it must wrestle with a number of growth-related issues.
50 of 51 5/24/2012 1:46 PM
First, it must continue to attract and retain college graduates. The company needed to
hire over 5,000 management trainees in 1997 alone, and that number will increase. Yet
many college grads, like Dean Pittman, may know little or nothing about Enterprise and
may have negative feelings about working for a rental car company. How can Enterprise do
a better job of recruiting college graduates?
Second, Enterprise must examine its marketing strategy. Which markets should it target?
How should it position itself in those markets? Are there new services it could offer
that would make sense given its current strategy? How can it do a better job of
increasing Enterprise's awareness among targeted customers? How should it respond as new
competitors, including the airport-based firms such as Hertz, attack the home-city
market?
Perhaps the most important question is how can Enterprise continue to grow without
losing its focus and without losing the corporate culture that has been so important in
helping it and its employees, like Dean Pittman, realize their dreams?
Questions
1. How are the buyer decision processes different for someone renting a replacement
car because of a wreck, for someone renting a car for leisure/vacation purposes,
for a business renting a car, and for a college graduate looking for a job?
2. What are the bases for segmenting the rental car market?
3. What marketing recommendations would you make to Enterprise to help it improve its
recruiting?
4. What marketing recommendations would you make to Enterprise to improve its

marketing strategy?
5. Will Enterprise's strategy work in international markets?
Source:
Enterprise Rent-A-Car supported development of this case. Auto Rental News also
provided information. This case is adapted from a longer case with the same title
authored by Lew Brown, Gary Armstrong, and Philip Kotler, available from
Enterprise.
-TOP-
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Untitled Document http://gmx.xmu.edu.cn/ews/business/pmarketing/chapter07.

Chapter 7: Market Segmentation, Targeting, and Positioning

Oxydol contains "stain-seeking bleach." It "combines the cleaning power of

Tide High Efficiency is "formulated for high efficiency top-loading machines"—it

Steps in market segmentation, targeting, and

Levels of Market Segmentation

Figure 7.2 Levels of marketing segmentation

Segment marketing: Marriott markets to a variety of segments with

Niching offers smaller companies an opportunity to compete by focusing their limited

In the extreme, micromarketing becomes individual marketing—tailoring products and

Segmenting Consumer Markets

Table 7.1 Major Segmentation Variables for Consumer Markets

Geographic segmentation: Home Depot is opening pint-size Villager's Hardware

Age and Life-Cycle Stage

Marketers also have used personality variables to segment markets. For

Lifestyle segmentation: Duck Head targets a casual student

Occasion segmentation: Beatrice Foods runs special Thanksgiving and

A powerful form of segmentation is to group buyers according to the different benefits

Table 7.2 Benefit Segmentation of the Toothpaste Market

Source: Adapted from Russell J. Haley, "Benefit Segmentation: A

Using Multiple Segmentation Bases

PageNet couldn't boast unique technology. Moreover, it was already competing

One of the most promising developments in multivariable segmentation is "geodemographic"

Segmenting Business Markets

Table 7.3 Major Segmentation Variables for Business Markets

Company size: What size companies should we focus on?

Location: What geographical areas should we focus on?

Technology: What customer technologies should we focus on?

User–nonuser status: Should we focus on heavy, medium, or light

Customer capabilities: Should we focus on customers needing many

Power structure: Should we focus on companies that are

Nature of existing relationships: Should we focus on companies

General purchase policies: Should we focus on companies that

Purchasing criteria: Should we focus on companies that are

Specific application: Should we focus on certain applications of

Size of order: Should we focus on large or small orders?

Attitudes toward risk: Should we focus on risk-taking or

Loyalty: Should we focus on companies that show high loyalty to

Source: Adapted from Thomas V. Bonoma and Benson P. Shapiro,

Segmenting International Markets

Companies can segment international markets using one or a combination of several

Segmenting international markets on the basis of geographic, economic, political,

Requirements for Effective Segmentation

To be useful, market segments must be:

Differentiable: The segments are conceptually distinguishable and respond

Evaluating Market Segments

Selecting Market Segments

Figure 7.3 Three alternative market-coverage strategies

Using an undifferentiated marketing (or mass-marketing) strategy, a firm might decide to

Using a differentiated marketing strategy, a firm decides to target several market

A third market-coverage strategy, concentrated marketing, is especially appealing when

Ostrichesonline.com. Whereas Internet giants like music retailer CDnow and

Mesomorphosis.com. At the age of 26, Millard Baker, a clinical psychology graduate

student at the University of South Florida, launched a Web-based business selling

At the same time, concentrated marketing involves higher-than-normal risks. The

Choosing a Market-Coverage Strategy

Many factors need to be considered when choosing a market-coverage strategy. Which

Socially Responsible Target Marketing

Positioning for Competitive Advantage

Choosing a Positioning Strategy

Identifying Possible Competitive Advantages

Competitive advantages: Volvo positions powerfully on safety: All

your gluteus maximus." However, when a Volvo is struck from behind,