Ch.

7: Customer Value-Driven Marketing Strategy

- Marketing Segmentation: The process of dividing a market into distinct groups of buyers who have different needs,
characteristics, or behaviors, and who might require separate products or marketing programs
- Market Targeting: evaluates each market segment’s attractiveness & selecting 1 or more market segments to enter
- Differentiation: involves differentiating the firm’s market offering to create superior customer value
- Positioning: arranging for a market offering to occupy a clear, distinctive, and desirable place relative to competing
products in the minds of target customers

Market Segmentation
 Buyers in any market differ in their wants, resources, locations, buying attitudes and practices
 Market segmentation is the process that companies use to divide large heterogeneous markets into small markets
that can be reached more efficiently and effectively with products and services that match their unique needs.

Segmenting Consumer Markets

Geographic Segmentation
Divides the market into different geographical units: nations, regions, provinces, parishes, cities or neighborhoods
Demographic Segmentation
 Divides the market based on age, life-cycle stage, gender, income, occupation, education, religion, race, generation
& ethnicity
 Most popular bases for segmenting customer markets because:
- Consumer needs, wants & usage rates vary closely with demographic variables
- It is the easiest to measure
 Age & Life-Cycle Stage:
- Consumer needs & wants change with age
- Some companies offer different products or use different marketing approaches for diff. age & life-cycle groups
- Other companies offer brands that target specific age & life-cycle groups
- Companies must be careful of stereotypes (40 y.o. couple sending their kids to Uni. Vs one beginning a family)
 Gender: Has long been used in clothing, cosmetics, toiletries & magazines
 Income: Many companies target wealthy consumers with luxury goods & convenience services; others target low or
middle-income groups
Psychographic Segmentation
 Divides buyers into groups based on social class, lifestyle, or personality characteristics
 People buy products that reflect their lifestyles
Behavioral Segmentation
 Divides buyers into groups based on their knowledge, attitudes, uses or responses to a product
 Occasions: when customers get the idea to buy, actually make their purchase, or use the purchased item (ex: holidays)
 Benefits Sought: Groups buyers according to the different benefits that they seek from the product
 User Status
- Markets can be segmented: nonusers, ex-users, potential users, first time users, & regular users of a product
- Marketers want to reinforce & retain regular users, attract targeted nonusers, & revive rs with ex-users
 Usage Rate: Markets can also be segmented into light, medium & heavy product users
 Loyalty Status: Consumers can be loyal to brands, stores, & companies  they can be divided into groups according
to their degree of loyalty
Using Multiple Segmentation Bases
Marketers rarely limit their segmentation analysis to only one or a few variables
They often use multiple segmentation bases in an effort to identify smaller, better-defined target groups
Segmenting International Markets
 Few companies have either the resources or the will to operate in all, or even most, of the countries on the globe.
Operating in many countries presents new challenges.
 International firms need to group their world markets into segments with distinct buying needs & behavior:
- Geographic location (by region)
- Economic factors (income level, level of economic development)
- Political & legal factors (type & stability of government, amount of bureaucracy)
- Cultural factors (language, religion, behavioral patterns)
 Intermarket (cross-market) segmentation involves forming segments of consumers who have similar needs and
buying behaviors even though they are located in different countries.

Requirement for Effective Segmentation

 To be useful, market segment must be:
- Measurable
- Accessible
- Substantial (large or profitable enough to serve)
- Differentiable
- Actionable

Market Targeting
Evaluating Market Segments  a firm must look at 3 factors:
- Segment size & growth
- Segment structural attractiveness
- Company objectives & resources

 The largest & fastest growing segments are not always the most attractive —
Smaller companies may lack skills & resources needed to serve the larger segments or may find them competitive
 The company should examine structural factors that affect long-run segment attractiveness—
A segment is less attractive:
- If it contains many strong & aggressive competitors
- If the relative power of buyer is high, since buyers bargaining power will force the prices down, demand more
services & set competitors against one another (at the expense of profitability)
- If it contains powerful suppliers who can control prices & reduce the quality and quantity
 Even if a segment has a right size & is structurally attractive, the company must consider its objectives & resources.
 Some segments do not lock with a company’s long-run objectives, or it may lack the skills needed to succeed.

Selecting Target Market Segments

A target market consists of a set of buyers who share common needs & characteristics that a company decides to serve

Undifferentiated Marketing (mass-marketing)

- Is when a firm decides to ignore market segment differences & target the whole market with one offer
- Focuses on what is common in the needs of consumers rather than on what is different
- The company designs a product and marketing program that will appeal to the largest number of buyers
- They face difficulty at finding a product that satisfies all consumers
- They have trouble competing with more focused firms that do a better job of satisfying needs of a specific segment

Differentiated Marketing
- The firm decides to target several market segments and designs separate offers for each
- Companies hope for higher sales & a stronger position with each market segment
- More expensive than undifferentiated marketing
Concentrated Marketing (niche marketing)
- The firm goes after a large share of one or a few smaller markets (segments or niches)
- The firm achieves a strong market position because of its greater knowledge of consumer needs in the niches it
serves & the special reputation it acquires
- It markets more effectively by fine-tuning its products, prices & programs to the needs of defined segments—
- It markets more efficiently by targeting products & services, channels, & communication programs toward only
consumers that it can serve best & most profitably
- Today, the low cost of setting up a shop online makes it even more profitable to serve seemingly miniscule niches
- It can be highly profitable but involves high risks (that’s why many companies diversify in several market segments)

Micromarketing
 Is the practice of tailoring products & marketing programs to suit the tastes of specific individuals & locations
 Rather than seeing a customer in every individual, micro marketers see the individual in every customer
o Local Marketing
 Involves tailoring brands & promotions to the needs & wants of local customer segments—cities,
neighborhoods, and stores
 However local marketing can:
- Drive up the costs by reducing economies of scale
- Create logistic problems as companies try to meet varied requirements of different regional & local markets
- Dilute the overall image if the product varies too much in different localities
o Individual Marketing
 Involves tailoring products and marketing programs to the needs & preference of individual customers
 Also known as one-to-one marketing and mass customization
 Mass customization is the process by which firms interact one-to-one with masses of customers to design
products & services tailor made to individual needs
 Unlike Mass production, which eliminates the need for human interaction, one-to-one marketing has made
relationships with customers more important

Choosing a Targeting Strategy

 Depends on:
- Company resources (when limited concentrated marketing)
- Product variability (uniform products  undifferentiated marketing)
- Product life-cycle stage (new product undiff or concentrated / Mature stage diff)
- Market variability (if same taste undiff)
- Competitor’s marketing strategies (when firm uses diff or concentrated  it can gain advantage)

Differentiation & Positioning

- A company must decide on a value proposition – how it will create differentiated value for targeted segments and
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 consumer’s minds relative to competing products
- Marketers should not leave their product’s position 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

Positioning Maps
- In planning their differentiation & positioning strategies, marketers often prepare perceptual positioning maps,
- They show consumer perceptions of their brands versus competing products on important buying dimensions.

Price and orientation (luxury versus performance). The size of each circle indicates the brand’s relative market share.
Choosing a Differentiation & Position Strategy
- Identifying a set of possible competitive advantages to build a position
- Choosing the right competitive advantages
- Selecting an overall positioning strategy
- Communicating and delivering the chosen position to the market

 Competitive advantage is an advantage over competitors gained by offering consumers greater value, either
through lower prices or by providing more benefits that justify higher prices.
 Companies gain competitive advantage by differentiating and positioning themselves
 A company can differentiate itself along the lines of:
- Product
- Service
- Channels
- People
- Image

 The competitive advantage should be:

- Important
- Distinctive
- Superior
- Communicable
- Preemptive: competitors cannot easily copy
- Affordable
- Profitable

 Value Proposition: is the full mix of benefits upon which a brand is positioned.
The company might position its products by:
- More for more: Although it can be profitable, it can also be vulnerable. It often invites imitators who claim the
same quality but at a lower price.
- More for the same: Companies attack a competitor’s more for more by introducing an offering comparable
quality at a lower price.
- The same for less: powerful value proposition—everyone likes a good deal.
- Less for much less: consumers gladly settle for less or give up some in exchange for a lower price.
- More for less: Offering more costs more, making it difficult to deliver on the “for less” promise in the long run.
 Each company must develop its own winning positioning strategy, one that makes it special to target consumers.

 Positioning statement summarizes company or brand positioning using this form: To (target segment and need) our
(brand) is (concept) that (point of difference)

Communicating & Delivering the Chosen Position

- Choosing the positioning is often easier than implementing the position.
- Establishing a position or changing one usually takes a long time.
- Maintaining the position requires consistent performance and communication.