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Chapter: Segmentation, Targeting, and Positioning: Building the Right Relationships with the Right Customers |
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Target MarketingComments by Dr. Laukamm
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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.
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Evaluating Market SegmentsComments by Dr. Laukamm
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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 they 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.
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The company also needs to examine major structural factors that affect long-run segment attractiveness.21 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.
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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. 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.
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Selecting Target Market SegmentsComments by Dr. Laukamm
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After evaluating different segments, the company must now decide which and how many segments it will target. A target market consists of a set of buyers who share common needs or characteristics that the company decides to serve.
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Because
buyers have unique needs and wants, a seller could potentially view
each buyer as a separate target market. Ideally, then, a seller might
design a separate marketing program for each buyer. However, although
some companies do attempt to serve buyers individually, most face
larger numbers of smaller buyers and do not find individual targeting
worthwhile. Instead, they look for broader segments of buyers. More
generally, target marketing can be carried out at several different
levels. Figure 8.2 shows that companies can target very broadly
(undifferentiated marketing), very narrowly (micromarketing), or
somewhere in between (differentiated or concentrated marketing).
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Undifferentiated MarketingComments by Dr. Laukamm
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Using an undifferentiated marketing (or mass marketing)
strategy, a firm might decide to ignore market segment differences and
target the whole market with one offer. This mass-marketing strategy
focuses on what is common in the needs of consumers rather than on what is different.
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 needs of specific segments
and niches.
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Differentiated MarketingComments by Dr. Laukamm
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Using a differentiated marketing (or segmented marketing)
strategy, a firm decides to target several market segments 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, golf, and
aerobics to bicycling and baseball. Marriott markets to a variety of
segments—business travelers, families, and others—with hotel formats
and packages adapted to their varying needs. And American Express
offers not only its traditional green cards but also gold cards,
corporate cards, and even a black card, called the Centurian, with a
$1,000 annual fee aimed at a segment of "superpremium customers."
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Estée Lauder offers dozens of different products aimed at carefully defined segments:
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The four best-selling prestige perfumes in the United States belong to Estée 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. For the youthful hipster, there's the hip M.A.C. line. And, 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.22 Comments by Dr. Laukamm
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By
offering product and marketing variations to segments, 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. And Estée Lauder's
combined brands give it a much greater market share than any single
brand could. The Estée Lauder and Clinique brands alone reap a combined
40 percent share of the prestige cosmetics market.
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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. And 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.
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Concentrated MarketingComments by Dr. Laukamm
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A third market-coverage strategy, concentrated marketing (or niche 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.
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Whereas
segments are fairly large and normally attract several competitors,
niches are smaller and may attract only one or a few competitors.
Through concentrated marketing, the firm achieves a strong market
position because of its greater knowledge of consumer needs in the
niches it serves and the special reputation it acquires. It can market
more effectively by fine-tuning its products, prices, and programs to the needs of carefully defined segments. It can also market more efficiently,
targeting its products or services, channels, and communications
programs toward only consumers that it can serve best and most
profitably.
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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. For example, tiny Vans Inc.
specializes in making thick-soled, slip-on sneakers for skateboarders
that can absorb the shock of a five-foot leap on wheels. Although it
captures only a point or two of market share in the overall athletic
shoe market, Vans's small but intensely loyal customer base has made
the company more profitable than many of its larger competitors.23
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Many
companies start as nichers to get a foothold against larger, more
resourceful competitors, then grow into broader competitors. For
example, Southwest Airlines began by concentrating on serving
intrastate, no-frills commuters in Texas but is now one of the nation's
eight largest airlines. Wal-Mart, which got its start by bringing
everyday low prices to small towns and rural areas, is now the world's
largest company.
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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 is a "Webpreneur" who achieved astonishing results:
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Whereas Internet giants like Amazon.com have yet to even realize a consistent profit, Steve Warrington is earning a six-figure income online selling ostriches—and every product derived from them—online (www.ostrichesonline.com). Launched for next to nothing on the Web in 1996, Ostrichesonline.com now boasts that it sends newsletters to 29,000 subscribers and sells 17,500 ostrich products to more than 12,000 satisfied clients in more than 100 countries. 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.24 Comments by Dr. Laukamm
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Concentrated
marketing can be highly profitable. At the same time, it involves
higher-than-normal risks. Companies that rely on one or a few segments
for all of their business will suffer greatly if the segment turns
sour. Or larger competitors may decide to enter the same segment. For
example, California Cooler's early 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.
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MicromarketingComments by Dr. Laukamm
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Differentiated
and concentrated marketers tailor their offers and marketing programs
to meet the needs of various market segments and niches. At the same
time, however, they do not customize their offers to each individual
customer. 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.
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LOCAL MARKETING Local marketing
involves tailoring brands and promotions to the needs and wants of
local customer groups—cities, neighborhoods, and even specific stores.
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.
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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 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.
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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.25
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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, 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
create customer-unique value by designing products and services
tailor-made to individual needs.
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Thus,
Dell Computer delivers 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. And Ritz-Carlton
Hotels creates custom-designed experiences for its delighted guests:
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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 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 preference 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. Comments by Dr. Laukamm
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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. And 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.26
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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 on to the Internet. She
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. Many companies now practice customerization.27
They combine operationally driven mass customization with customized
marketing to empower consumers to design products and services to their
own preferences. They involve customers more in all phases of the
product development and buying processes, increasing opportunities for
buyers to practice self-marketing.
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Choosing a Target-Marketing StrategyComments by Dr. Laukamm
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Companies need to consider many factors when choosing a target-marketing 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.
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The product's life-cycle stage
also must be considered. When a firm introduces a new product, it may
be practical to launch only one version, and undifferentiated marketing
or concentrated marketing may make 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 MarketingComments by Dr. Laukamm
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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.
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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.
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Other
problems arise when the marketing of adult products spills over into
the kid segment—intentionally or unintentionally. For example, the
Federal Trade Commission and citizen action groups have accused tobacco
companies of targeting underage smokers. And a recent FTC study found
that 80 percent of R-rated movies and 70 percent of video games with a
mature rating were targeted to children under 17.28
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.
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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 are 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.
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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 consumers. 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.29
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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 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."30
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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 makes a large selection of toothbrushes
and toothpaste flavors and packages for children—from Colgate Barbie
Sparkling Bubble Fruit, Colgate Barnie Mild Bubble Fruit, and Colgate
Looney Tunes Tazmanian Devil Wild Mint toothpastes to Colgate Pokemon
and Disney Monsters, Inc. character toothbrushes. Such products help make toothbrushing more fun and get children to brush longer and more often.
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Golden
Ribbon Playthings has developed a highly acclaimed and very successful
black character doll named Huggy Bean, which is targeted toward
minority consumers. Huggy comes with books and toys that connect her
with her African heritage. Nacara Cosmetiques markets cosmetics for
"ethnic women who have a thirst for the exotic." The line is specially
formulated to complement the darker skin tones of African American
women and dark-skinned women of Latin American, Indian, and Caribbean
origins. 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.
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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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