7C H A P T E R

Segmenting

Targeting Marketsand

Learning OutcomesLO1 Describe the characteristics of markets and market

segments

LO2 Explain the importance of market segmentation

LO3 Discuss criteria for successful market segmentation

LO4 Describe the bases commonly used to segment consumermarkets

LO5 Describe the bases for segmenting business markets

LO6 List the steps involved in segmenting markets

LO7 Discuss alternative strategies for selecting target markets

LO8 Explain one-to-one marketing

LO9 Explain how and why firms implement positioning strategiesand how product differentiation plays a role

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CHAPTER 7 Segmenting and Targeting Markets 9 7

“Market segmentation plays a key role in the marketing strategy of almost all

successful organizations.”

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Market SegmentationThe term market means dif-ferent things to differentpeople. We are all familiarwith the supermarket, stockmarket, labour market, fishmarket, and flea market. Allthese types of markets shareseveral characteristics. First,they are composed of people(consumer markets) or organizations (business markets). Second, thesepeople or organizations have wants and needs that can be satisfied by par-ticular product categories. Third, they have the ability to buy the productsthey seek. Fourth, they are willing to exchange their resources, usuallymoney or credit, for desired products. In sum, a market is (1) people ororganizations with (2) needs or wants and with (3) the ability and (4) thewillingness to buy. A group of people or an organization that lacks any oneof these characteristics is not a market.

Within a market, a market segment is a subgroup of people or organizationssharing one or more characteristics that cause them to have similar product needs.At one extreme, we can define every person and every organization in the world asa market segment because each is unique. At the other extreme, we can define theentire consumer market as one large market segment and the business market asanother large segment. All people have some similar characteristics and needs, as doall organizations.

From a marketing perspective, market segments can bedescribed as somewhere between the two extremes. The processof dividing a market into meaningful, relatively similar, and iden-tifiable segments or groups is called market segmentation. Thepurpose of market segmentation is to enable the marketer totailor marketing mixes to meet the needs of one or more specificsegments.

The Importance of Market SegmentationUntil the 1960s, few firms practised market segmentation.When they did, it was more likely a haphazard effort than aformal marketing strategy. Before 1960, for example, theCoca-Cola Company produced only one beverage and aimed

LO 1

marketpeople or organizationswith needs or wantsand the ability and will-ingness to buy

market segmenta subgroup of people ororganizations sharingone or more characteris-tics that cause them tohave similar productneeds

marketsegmentationthe process of dividing amarket into meaningful,relatively similar, andidentifiable segments orgroups

I have a hard time living on my budget.Strongly Disagree Strongly Agree1 2 3 4 5 6 7

What do youthink?

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cally develop marketing programs tailored to each potential cus-tomer’s needs. In most cases, however, a market segment needsmany potential customers to make commercial sense.

2 Identifiability and measurability: Segments must be identi-fiable and their size measurable. Data about the population within geo-graphic boundaries, the number of people in various age categories,and other social and demographic characteristics are often easy to get,and they provide fairly concrete measures of segment size.

3 Accessibility: The firm must be able to reach members oftargeted segments with customized marketing mixes. Some marketsegments are hard to reach, for example, senior citizens (especially

those with reading or hearing disabilities), individualswho don’t speak English, and the illiterate.

4 Responsiveness: Markets canbe segmented using any criteria thatseem logical. Unless one market seg-

ment responds to a marketing mix dif-ferently from other segments, however, that

segment need not be treated separately. Forinstance, if all customers are equally price-conscious about aproduct, there is no need to offer high-, medium-, and low-pricedversions to different segments.

Bases for SegmentingConsumer MarketsMarketers use segmentation bases, or variables,which are characteristics of individuals, groups,or organizations, to divide a total market intosegments. The choice of segmentation bases iscrucial because an inappropriate segmentationstrategy may lead to lost sales and missed profitopportunities. The key is to identify bases thatwill produce substantial, measurable, and acces-sible segments that exhibit different responsepatterns to marketing mixes.

Markets can be segmented using a single variable,such as age group, or using several variables, such asage group, gender, and education. Although it is lessprecise, single-variable segmentation has the advan-tage of being simpler and easier to use than multiple-variable segmentation. The disadvantages ofmultiple-variable segmentation are that it is often

harder to use than single-variable segmentation; usablesecondary data are less likelyto be available; and as thenumber of segmentation basesincreases, the size of individualsegments decreases. Never-theless, the current trend istoward using more rather thanfewer variables to segment

most markets. Multiple-variable segmentation is clearlymore precise than single-variable segmentation.

it at the entire soft drinkmarket. Today, Coca-Colaoffers over a dozen differentproducts to market seg-ments based on diverse

consumer preferences for flavours and calorieand caffeine content. Coca-Cola offers traditionalsoft drinks, energy drinks (such as POWERade),flavoured teas, fruit drinks (Fruitopia), and water(Dasani).

Market segmentation plays a key role inthe marketing strategy of almost allsuccessful organizations and isa powerful marketing tool forseveral reasons. Most impor-tantly, nearly all marketsinclude groups of people ororganizations with different prod-uct needs and preferences. Marketsegmentation helps marketers define cus-tomer needs and wants more precisely. Becausemarket segments differ in size and potential, seg-mentation helps decision makers more accuratelydefine marketing objectives and better allocateresources. In turn, performance can be better evalu-ated when objectives are more precise.

Criteria for Successful SegmentationMarketers segment markets for three importantreasons. First, segmentation enables marketers toidentify groups of customers with similar needsand to analyze the characteristics and buyingbehaviour of these groups. Second, segmentationprovides marketers with information to help themdesign marketing mixes specifically matched withthe characteristics and desires of one or more seg-ments. Third, segmentation is consistent with the marketing concept of satisfying customerwants and needs while meeting the organization’sobjectives.

To be useful, a segmenta-tion scheme must producesegments that meet four basiccriteria:

1 Substantiality: A segmentmust be large enough to warrantdeveloping and maintaining a spe-cial marketing mix. This criteriondoes not necessarily mean that asegment must have many potentialcustomers. Marketers of custom-designed homes and businessbuildings, commercial airplanes, and large computer systems typi-

NEL9 8 PART 2 Analyzing Marketing Opportunities

segmentationbases (variables)characteristics of indi-viduals, groups, ororganizations

A successful segment issubstantial, identifiable

and measurable, accessible, andresponsive.

LO 3

LO 4

The current trend is toward using more ratherthan fewer variables tosegment most markets.

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Consumer goods marketers commonly use one ormore of the following characteristics to segment mar-kets: geography, demographics, psychographics, bene-fits sought, and usage rate.

Geographic SegmentationGeographic segmentation refers to segmenting marketsby region of a country or the world, market size, marketdensity, or climate. Market density means the number ofpeople within a unit of land, such as a census tract.Climate is commonly used for geographic segmentationbecause of its dramatic impact on residents’ needs andpurchasing behaviour. Snowblowers, water and snowskis, clothing, and air-conditioning and heating systemsare products with varying appeal, depending on climate.Not all Pizza Hut restaurants around the world serve thesame pizza toppings that are commonly available inCanada. For example, Pizza Hut in Japan offers squid andother seafood toppings in order to meet the regionalfood preferences of its customers there.

Demographic SegmentationMarketers often segment markets on the basis ofdemographic information because it is widely availableand often related to consumers’ buying and consuming

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behaviour. Some common basesof demographic segmentationare age, gender, income, ethnicbackground, and family lifecycle.

Age Segmentation

Marketers use a variety ofterms to refer to different agegroups: newborns, infants,preschoolers, young children,tweens, teens, young adults,baby boomers, Generation X, Generation Y, and sen-iors. Age segmentation can be an important tool, as abrief exploration of the market potential of severalage segments illustrates.

Through allowances, earnings, and gifts, childrenaccount for, and influence, a great deal of consump-tion. Tweens (ages 9–14), of which there are estimatedto be around 2 million in Canada, have direct spendingpower of $1.7 billion and an influence over how theirfamilies spend another $20 billion.1 Tweens desire tobe kids, but also want some of the fun of being ateenager. Many retailers such as Old Navy andAbercrombie serve this market with clothing that issimilar in style to that worn by teenagers and youngadults.

The teenage market (ages 15–19) includes more than2 million individuals2 and, like the tweens, accounts forsubstantial purchasing power, most of which it spendson clothing, entertainment, and food. Teens spend anaverage of 17 hours per week online and 14 hourswatching television.3 Magazines specifically designed toappeal to teenage girls include Teen Vogue, Teen People,CosmoGIRL!, Elle Girl, and Seventeen.4 Clothing marketerssuch as Ralph Lauren, Guess, DKNY, Dior, GiorgioArmani, and Juicy Couture advertise heavily in thesemagazines.5

The baby boom generation, born between 1947 and1965, makes up the largest age segment with 9.2 million

people in the group, approximately 30 percent ofthe entire Canadian population.6

Together, baby boomers and theolder generation, seniors, form alarge and very lucrative market.Individuals 50 years old and olderare continuing to lead active, fullyinvolved lifestyles. Baby boomersrepresent tremendous current andfuture market potential for a widerange of products, including retire-ment properties, health and wellnessproducts, automobiles with featuresdesigned for them, and other goodsand services you might not expect. Notonly are baby boomers often nostalgicand eager to continue their active lives,but they now can afford to buy top-of-the-line models of products from their

geographicsegmentationsegmenting markets byregion of a country orthe world, market size,market density, orclimate

demographicsegmentationsegmenting markets byage, gender, income,ethnic background, andfamily life cycle

CHAPTER 7 Segmenting and Targeting Markets 9 9

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4 Reasons to Go Regional1. To find new ways to generate sales in sluggish and intensely competitive markets. 2. Scanner-based checkout stations

give retailers an accurate assess- ment of which brands sell best in their region. 3. To appeal to local preferences.

4. To be able to react more quickly to competition.

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youth, North Vancouver–based A&W is bringing backChubby Chicken to appeal tothe baby boom generation.7

Seniors (ages 65 and over)are especially attracted tocompanies that build relation-ships through taking the timeto get to know them and theirpreferences. Canadian sen-iors, who number 4.3 million,

do not, however, think of them-selves as old or as seniors despite their demands for tra-ditional “senior” products. Mississauga-based BlockDrug Company realized that today’s seniors are“healthier and perceive themselves to beyounger” than any seniors before andlaunched a very different promotional cam-paign for its Polident brand of denturecleanser. Senior shoppers also prefer cata-logue shopping over retail outlets because oftheir dissatisfaction with service at retailstores. Seniors are more likely than most tohave the combination of free time, money,and good health that allows them to pursueleisure-time activities, especially educationand travel.9

Gender Segmentation

Marketers of products such as clothing, cos-metics, personal-care items, magazines,jewellery, and footwear commonly still seg-ment markets by gender. Many marketersthat traditionally focused almost exclusivelyon women have now recognized the impor-tance and potential of the male segment. Forexample, males are increasingly involved inwedding planning, deciding on everythingfrom the site, seating plans, and table deco-rations to the wedding cake and keepsakes

for guests. As men get more involved with their wed-dings, businesses such as engagement consultants,resorts, and spas are beginning to create special pack-ages designed to attract men.10

Other brands that have traditionally been targetedto men, such as Gillette razors and Rogaine baldnessremedy, are increasing their efforts to attract womenand vice versa. Interactive Digital SoftwareAssociation, a trade group, found that women arebuying just as much game software as men. As aresult, more game companies and websites arefocusing their marketing efforts on girls andwomen.11 Conversely, several Internet sites provideguidance for grooms: the WeddingChannel.com’sgroom-centric content includes proposal dos anddon’ts.12

Income Segmentation

Income is a popular demographic variable for seg-menting markets because income level influencesconsumers’ wants and determines their buyingpower. Many markets are segmented by income,

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In Search of SpendingTreasure Hunt, a book by Michael

Silverman, examines how income affects con-sumer behaviour. His conclusion is that income segmentation is increasinglydifficult because of the trading-up and trading-down habits of American con-sumers. That is, Americans are willing to splurge on luxury items in someareas but look for rock-bottom prices in other categories. Trading up accountsfor $535 million in annual consumer spending; trading down, for over $1 trillionper year.14

Hot Pursuit

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The average Canadian familyincome is $78,400 per year while

average family spending is $66,857;of this, 20.4 percent is spent on

shelter while 18.9 percent goes totransportation costs.13

Tweens, thosebetween the ages

of 9 and 14, have aspending power of

$1.7 billion andthey influence how

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billion.8

>>Avon, a brand associated with older generations, isattempting to break into a more youthful market with its Mark brandof beauty products. College and university students sell the brightlycoloured makeup in funky packaging from the dorms.

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including the markets for housing, clothing, automo-biles, and food. For example, wholesale clubs Costcoand Sam’s Club (now defunct) appeal to differentincome segments. Costco attracts more upscale cus-tomers with warehouse prices for gourmet foods andupscale brands like Waterford crystal, Raymond Weilwatches, and Ralph Lauren clothing. Sam’s Club wasoriginally focused more on members’ business needs,offering bulk packages of the kinds of items sold inWal-Mart’s discount stores and supercentres.

Ethnic Segmentation

Canada is, culturally, a very diverse country andCanadian marketers are strongly aware of the multi-cultural makeup of the market. When considering theethnic communities, marketers might first focus onFrench-Canadian and English-Canadian markets,which are the largest, but they will then consider theother ethnic populations. Many companies are seg-menting their markets according to ethnicity, and anumber of marketers are developing uniqueapproaches to sizable segments such as the Asiancommunity. For example, the Toronto SymphonyOrchestra (TSO) discovered that Chinese families hadhigher levels of musical literacy than is average forNorth Americans. The TSO decided to develop aChinese-language promotional campaign thatincluded, among other things, season brochures inChinese.15

Regardless of the segment being targeted, mar-keters need to stay educated about the consumerthey are pursuing; convey a message that is relevantto each particular market; use the Internet as avehicle to educate ethnic markets about brands andproducts; and use integrated marketing techniquesto reinforce the message in various ways. Trackingethnic communities is one of the most challenging,and most important, tasks of a multicultural mar-keter. Some companies have found that segmentingaccording to the main ethnicities is not preciseenough because, for example, the Asian-Canadian

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segments comprise numerousother segments. The Asian-Canadian market is furtherdivided into those of Chinese,South Asian, Southeast Asian,Korean, and Japanese origin.

Alternatively, some compa-nies have abandoned the notion that ethnic groupyouths require separate marketing mixes. Instead,they are focusing on “urban youth,” regardless of raceor ethnicity, because larger cities are the places wheretrends typically start.17

Family Life-Cycle Segmentation

The demographic factors of gender, age, and incomeoften do not sufficiently explain why consumerbuying behaviour varies. Frequently, consumptionpatterns among people of the same age and genderdiffer because they are in different stages of thefamily life cycle. The family life cycle (FLC) is a seriesof stages determined by a combination of age, maritalstatus, and the presence or absence of children.

Traditional families, that is, married couples withchildren under 24 years, constituted 34.6 percent offamilies according to 2006 census data. The averagenumber of persons in a family has been falling over theyears. In 1961, the average family included 3.9 people,a number that has fallen to 2.5 persons per house-hold.18 Currently, household size seems to be stabilizing.

Exhibit 7.1 illustrates numerous FLC patterns andshows how families’ needs, incomes, resources, andexpenditures differ at each stage. The horizontal flowshows the traditional family life cycle. The lower partof the exhibit gives some of the characteristics andpurchase patterns of families in each stage of the tra-ditional life cycle. The exhibit also acknowledges that

CHAPTER 7 Segmenting and Targeting Markets 1 0 1

family life cycle (FLC)a series of stages deter-mined by a combinationof age, marital status,and the presence orabsence of children

Questions to Ask . . .. . . When Segmenting by Heritage

What are the general characteristics of your total target population (size, growth rate, and spending power)?

Who exactly are they (demographics, psychographics, attitudes,values, beliefs, and motivations)?

What are their behaviours, in terms of products, services,media, language, and so on?

How are they different from the general market and each other,based on country of origin?16

These recommendations apply to all ethnic groups that are gen-erally segmented on the basis of ancestry.

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riages. Similarly, young parents are the target of com-panies promoting baby products, as these parentsexpect to have higher expenses. A thorough under-standing of the FLC can help marketers design,develop, and successfully sell their products in themost competitive manner.

Psychographic SegmentationAge, gender, income, ethnicity, family life-cycle stage,and other demographic variables are usually helpfulin developing segmentation strategies, but often theydon’t paint the entire picture. Demographics providesthe skeleton, but psychographics adds meat to the

about half of all first marriagesend in divorce. When youngmarrieds move into the young-divorced stage, their consump-tion patterns often revert tothose of the young-single stageof the cycle. About four out of

five divorced persons remarry by middle age and re-enter the traditional life cycle, as indicated by the“recycled flow” in the exhibit.

Consumers are especially receptive to marketingefforts at certain points in the life cycle. Soon-to-be-married couples are typically considered to be mostreceptive because they are making brand decisionsabout products that could last longer than their mar-

NEL1 0 2 PART 2 Analyzing Marketing Opportunities

psychographicsegmentationmarket segmentationon the basis of person-ality, motives, lifestyles,and geodemographicscategories

Young married ordivorced without childrenBetter off financially than they will be in near futureHighest purchase rate and highest average purchase of durablesBuy: cars, refrigerators, stoves, sensible and durable furniture, vacations

Young marriedor divorced with childrenHome pur-chasing at peakLiquid assets low Dissatisfied with financial position and amount of money savedInterested in new productsLike advertised productsBuy: washers, dryers, televisions, baby food, chest rubs, cough medicine, vitamins, dolls, wagons, sleds, skates

Middle-aged married ordivorced with or without childrenFinancial position still better More wives work Some children get jobsHard to influence with advertisingHigh average purchase of durablesBuy: new and more tasteful furniture, auto travel, unnecessary appliances, boats

Middle-aged married or divorced without childrenHome ownership at peakMost satisfied with financial position and money savedInterested in travel, recreation, self-educationGive gifts and make contributionsNot interested in new productsBuy: vacations, luxuries, home improvements

Older marriedDrastic cut in income Keep home Buy: medical appliances, medical care, products that aid health, sleep, and digestion

Older unmarriedDrastic cut in income Special need for attention, affection, and securityBuy: same medical and product needs as other retired group

Recycled flow

Traditional flow

Usual flow

Middle-aged married without children

Middle-aged married

withchildren

Older married

Older unmarried

Young singleFew financial burdensFashion opinion leadersRecreation orientedBuy: basic kitchen equipment, basic furniture, cars, equipment for mating game, vacations

Middle-aged divorced without children

Young divorced without children

Middle-aged divorced without

dependent children

Middle-aged divorced

withchildren

Young married

with children

Young married without children

Youngdivorced

withchildren

Young single

Middle-aged marriedwithout

dependent children

Exhibit 7.1Family Life Cycle

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Psychographic variablescan be used individually tosegment markets or be com-bined with other variables toprovide more detaileddescriptions of market seg-ments. One combinationapproach is the Claritas PRIZMLifestyle software programthat divides North Americansinto 62 “clusters,” or consumertypes, all with catchy names.The clusters combine basic demographic data suchas age, ethnicity, and income with lifestyle informa-tion, such as magazine and sports preferences, takenfrom consumer surveys. For example, the “Kids andCul-de-Sacs” group are upscale, suburban familieswith a median household income of $68,900 whotend to shop online and visit Disney theme parks.The “Bohemian Mix” cluster is professionals aged 22to 44 with a median income of $38,500 who are likelyto shop at the Gap and read Elle magazine. The pro-gram also predicts to which neighbourhoods acrossthe country the clusters are likely to gravitate.

Benefit SegmentationBenefit segmentation is the process of grouping cus-tomers into market segments according to the bene-fits they seek from the product. Most types of market

bones. Psychographic segmentation is marketsegmentation on the basis of the following variables:

• Personality: Personality reflects a person’s traits, attitudes, andhabits. Porsche Cars North America Inc. understood well the demo-graphics of the Porsche owner: a 40-something, male, universitygraduate earning over $100,000 per year. However, research discov-ered that this general demographic category actually included fivepersonality types that more effectively segmented Porsche buyers.As a result, Porsche refined its marketing and the company’s salesrose by 48 percent.19

• Motives: Marketers of baby products and life insuranceappeal to consumers’ emotional motives—namely, to care fortheir loved ones. Using appeals to economy, reliability, anddependability, carmakers like Subaru and Suzuki target customerswith rational motives.

• Lifestyles: Lifestyle segmentation divides people into groupsaccording to the way they spend their time, the importance of thethings around them, their beliefs, and socioeconomic characteris-tics such as income and education.

• Geodemographics: Geodemographic segmentation clus-ters potential customers into neighbourhood lifestyle categories. Itcombines geographic, demographic, and lifestyle segmentations.Geodemographic segmentation helps marketers develop mar-keting programs tailored to prospective buyers who live in smallgeographic regions, such as neighbourhoods, or who have veryspecific lifestyle and demographic characteristics.

NEL CHAPTER 7 Segmenting and Targeting Markets 1 0 3

geodemographicsegmentationsegmenting potentialcustomers into neigh-bourhood lifestyle

benefitsegmentationthe process of groupingcustomers into marketsegments according tothe benefits they seekfrom the product

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and XM™ Satellite Radio2 is ready for city living. To learn more about the Nissan Rogue visit nissan.ca

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Bases for SegmentingBusiness MarketsThe business market consists of four broadsegments: producers, resellers, government,and institutions (for a detailed discussion of thecharacteristics of these segments, see Chapter6). Whether marketers focus on only one or onall four of these segments, they are likely tofind diversity among potential customers.Thus, further market segmentation offers justas many benefits to business marketers as itdoes to consumer-product marketers.

Company CharacteristicsCompany characteristics, such as geographic location, type ofcompany, company size,and product use, can beimportant segmenta-tion variables. Somemarkets tend to beregional because buyersprefer to purchase fromlocal suppliers, and dis-tant suppliers may havedifficulty competing interms of price and service. Therefore, firms that sell togeographically concentrated industries benefit by

locating close to their markets.

Segmenting by customertype allows business mar-keters to tailor their mar-keting mixes to the uniqueneeds of particular types oforganizations or industries.Many companies are finding

this form of segmentation to be quite effective. Forexample, Rona, one of the largest do-it-yourself retailbusinesses in Canada, has targeted professionalrepair and remodelling contractors in addition to con-sumers.

Volume of purchase (heavy, moderate, light) is acommonly used basis for business segmentation.Another is the buying organization’s size, which mayaffect its purchasing procedures, the types and quan-tities of products it needs, and its responses to dif-ferent marketing mixes. Many products, especiallyraw materials like steel, wood, and petroleum, havediverse applications. How customers use a productmay influence the amount they buy, their buying cri-teria, and their selection of vendors.

segmentation are based onthe assumption that this vari-able and customers’ needs arerelated. Benefit segmentationis different because it groupspotential customers on thebasis of their needs or wantsrather than some other char-acteristic, such as age or gender.

Customer profiles can be developed by examiningdemographic information associated with peopleseeking certain benefits. This information can be usedto match marketing strategies with selected targetmarkets. The many different types of performanceenergy bars with various combinations of nutrientsare aimed at consumers looking for different benefits.For example, PowerBar is designed for athletes lookingfor long-lasting fuel, while PowerBar Protein Plus isaimed at those who want extra protein for replen-ishing muscles after strength training. Carb SolutionsHigh Protein Bars are for those on low-carb diets; LunaBars are targeted to women who want a bar with fewercalories, soy protein, and calcium; and Clif Bars are forpeople who want a natural bar with ingredients likerolled oats, soybeans, and organic soy flour.20

Usage-Rate SegmentationUsage-rate segmentation divides a market by theamount of product bought or consumed. Categoriesvary with the product, but they are likely to includesome combination of the following: former users,potential users, first-timeusers, light or irregular users,medium users, and heavyusers. Segmenting by usagerate enables marketers tofocus their efforts on heavyusers or to develop multiplemarketing mixes aimed at dif-ferent segments. Because heavy users often accountfor a sizable portion of all product sales, some mar-keters focus on the heavy-user segment. Developingcustomers into heavy users is the goal behind manyfrequency/loyalty programs.

The 80/20 principle holds that 20 percent of all cus-tomers generate 80 percent of the demand. Althoughthe percentages usually are not exact, the general ideaoften holds true. For example, in the fast-foodindustry, the heavy user accounts for only one of fivefast-food patrons but makes about 60 percent of allvisits to fast-food restaurants. Thus, according toStatistics Canada, heavy users account for $9.36 billionof the $15.6 billion spent on fast food at Canada’s25,000 fast-food restaurants.21

NEL1 0 4 PART 2 Analyzing Marketing Opportunities

usage-ratesegmentationdividing a market by theamount of productbought or consumed

80/20 principlea principle holding that20 percent of all cus-tomers generate 80 per-cent of the demand

© DAVE PILIBOSIAN/

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20 percent of all customers generate

80 percent of the demand.

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immediate need for cus-tomized doors.

The purchasing strategiesof buyers may provide usefulsegments. Two purchasing pro-files that have been identifiedare satisficers and optimizers.Satisficers contact familiarsuppliers and place the orderwith the first one to satisfyproduct and delivery require-ments. Optimizers consider

Buying ProcessesMany business marketers find it helpful to segmentcustomers and prospective customers on the basis ofhow they buy. For example, companies can segmentsome business markets by ranking key purchasingcriteria, such as price, quality, technical support, andservice. Atlas Corporation developed a commandingposition in the industrial door market by providingcustomized products in just 4 weeks, which wasmuch faster than the industry average of 12 to 15weeks. Atlas’s primary market is companies with an

NEL CHAPTER 7 Segmenting and Targeting Markets 1 0 5

Six Steps to a Segment

1. SELECT A MARKET OR PRODUCT CATEGORY FORSTUDY: Define the overall market or product categoryto be studied. It may be a market in which the firmalready competes, a new but related market or productcategory, or a totally new one.

2. CHOOSE A BASIS OR BASES FOR SEGMENTINGTHE MARKET: This step requires managerial insight,creativity, and market knowledge.There are no scien-tific procedures for selecting segmentation variables.However, a successful segmentation scheme must pro-duce segments that meet the four basic criteria dis-cussed earlier in this chapter.

3. SELECT SEGMENTATION DESCRIPTORS: Afterchoosing one or more bases, the marketer must selectthe segmentation descriptors. Descriptors identify thespecific segmentation variables to use. For example, acompany that selects usage segmentation needs todecide whether to go after heavy users, nonusers, orlight users.

4. PROFILE AND ANALYZE SEGMENTS:The profileshould include the segments’ size, expected growth,pur-chase frequency,current brand usage,brand loyalty, andlong-term sales and profit potential.This information canthen be used to rank potential market segments by profitopportunity, risk, consistency with organizational missionand objectives, and other factors important to the firm.

5. SELECT TARGET MARKETS: Selecting target marketsis not a part of but a natural outcome of the segmenta-tion process. It is a major decision that influences andoften directly determines the firm’s marketing mix.This topic is examined in greater detail later in thischapter.

6. DESIGN, IMPLEMENT, AND MAINTAINAPPROPRIATE MARKETING MIXES: The marketingmix has been described as product, place (distribu-tion), promotion, and pricing strategies intended tobring about mutually satisfying exchange relationshipswith target markets. Chapters 9 through 18 explorethese topics in detail.

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Tourism Vancouver uses all of these steps tokeep the city a top destination for conventionand meeting planners and tourists alike.

satisficersbusiness customers whoplace an order with thefirst familiar supplier tosatisfy product anddelivery requirements

optimizersbusiness customers whoconsider numerous sup-pliers, both familiar andunfamiliar, solicit bids,and study all proposalscarefully beforeselecting one

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1 0 6 PART 2 Analyzing Marketing Opportunities

behaviours.Tesco has become number one in food storesales in the United Kingdom primarily by knowing moreabout its customers than its competitors do.22

Strategies for SelectingTarget MarketsSo far this chapter has focused on the market seg-mentation process, which is only the first step indeciding whom to approach about buying aproduct. The next task is to choose one or moretarget markets. A target market is a group ofpeople or organizations for which an organizationdesigns, implements, and maintains a marketingmix intended to meet the needs of that group,resulting in mutually satisfying exchanges.Because most markets will include customerswith different characteristics, lifestyles, back-grounds, and income levels, it is unlikely that asingle marketing mix will attract all segments ofthe market. Thus, if a marketer wishes to appealto more than one segment of the market, it mustdevelop different marketing mixes. For example,Sunlight Saunas makes saunas that retail at var-ious prices between $1,695 and $5,595. The com-pany segments its customer base into luxury andhealth markets based on data it gathers fromvisits to its website and conversations with poten-tial customers. The same saunas appeal to bothmarket segments, but the different groups requiredifferent marketing messages. There are threegeneral strategies for selecting target markets—undifferentiated, concentrated, and multisegmenttargeting. Exhibit 7.2 illustrates the advantagesand disadvantages of each targeting strategy.

numerous suppliers (bothfamiliar and unfamiliar), solicitbids, and study all proposalscarefully before selecting one.

The personal characteris-tics of the buyers themselves(their demographic character-istics, decision style, tolerancefor risk, confidence level, jobresponsibilities, etc.) influencetheir buying behaviour andthus offer a viable basis forsegmenting some businessmarkets. IBM computer buyers,for example, are sometimescharacterized as being morerisk averse than buyers of lessexpensive computers that per-

form essentially the same functions. In advertising,therefore, IBM stressed its reputation for high qualityand reliability.

Steps in Segmenting a MarketThe purpose of market segmentation, in both con-sumer and business markets, is to identify mar-keting opportunities. Markets are dynamic, so it isimportant that companies proactively monitortheir segmentation strategies over time. Often,once customers or prospects have been assignedto a segment, marketers think their task is done.Once customers are assigned to an age segment,for example, they stay there until they reach thenext age bracket or category, which could be 10years in the future.Thus, the segmentation classi-fications are static, but the customers andprospects are changing.

Dynamic segmentation approaches adjust to fit thechanges that occur in customers’lives. Tesco, a British super-market company, has a frequentshopper card that gathers dataon the purchases of 7 millioncustomers on every shoppingoccasion. Using these data,Tescocan reclassify every customerevery week. Some customersmove to different segments andsome don’t, but all are evaluated,allowing the company to under-stand changes in customerbehaviour on a real-time,ongoing basis. Based on thesechanges, Tesco can continuouslyupdate its marketing programsto accommodate customers’

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target marketa group of people ororganizations for whichan organizationdesigns, implements,and maintains a mar-keting mix intended tomeet the needs of thatgroup, resulting inmutually satisfyingexchanges

undifferentiatedtargeting strategya marketing approachthat views the marketas one big market withno individual segmentsand thus uses a singlemarketing mix

Exhibit 7.2Advantages and Disadvantages of Target Marketing Strategies

TargetingStrategy Advantages Disadvantages

Undifferentiated • Potential savings on production/ • Unimaginative productTargeting marketing costs offerings

• Company more susceptible tocompetition

Concentrated • Concentration of resources • Segments too small, or changingTargeting • Can better meet the needs of a narrowly • Large competitors may more

defined segment effectively market to niche• Allows some small firms to better compete segment

with larger firms • Strong positioning

Multisegment • Greater financial success • High costsTargeting • Economies of scale in producing/marketing • Cannibalization

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ment, it can concentrate onunderstanding the needs,motives, and satisfactions ofthat segment’s members and ondeveloping and maintaining ahighly specialized marketingmix. Some firms find that con-centrating resources andmeeting the needs of a narrowlydefined market segment is moreprofitable than spreadingresources over several differentsegments.

Small firms often adopt aconcentrated targeting strategyto compete effectively with much larger firms.Fatburger, which recently opened stores in Vancouverand Calgary, describes itself as “the last great ham-burger stand.”23 Similarly, Starbucks became successfulby focusing on customers who wanted gourmet coffeeproducts.

Concentrated targeting violates the old adage“Don’t put all your eggs in one basket.” If the chosensegment is too small or if it shrinks because of envi-ronmental changes, the firm may suffer negative con-sequences. A concentrated strategy can also bedisastrous for a firm that is not successful in its nar-rowly defined target market. Before Procter & Gambleintroduced Head and Shoulders shampoo, severalsmall firms were already selling antidandruff sham-poos. Head and Shoulders was introduced with a largepromotional campaign, and the new brand capturedover half the market immediately. Within a year, sev-eral of the firms that had been concentrating on thismarket segment went out of business.

Multisegment TargetingA firm that chooses to serve two or more well-definedmarket segments and develops a distinct marketingmix for each has a multisegment targeting strategy.Maple Leaf Foods offers many different kinds of bacon,such as regular and salt-reduced bacon. For conven-ience-seeking consumers, the company has developedReady Crisp microwaveable bacon. For health-conscious segments it has turkey- and chicken bacon.Cosmetics companies, on the other hand, seek toincrease sales and market share by targeting multipleage and ethnic groups. Maybelline and CoverGirl, forexample, market different lines catering to tweengirls, teenage women, young adult women, olderwomen, and visible minority women.

Multisegment targeting is used for stores and shop-ping formats, not just for brands. Marketers at Best Buyhave identified five customer segments, which theyhave personalized by naming: “Jill,” a busy suburbanmom; “Buzz,” a focused, active younger male; “Ray,” afamily man who likes his technology practical; “BB4B”(Best Buy for Business), a small-business employer; and

CHAPTER 7 Segmenting and Targeting Markets 1 0 7

Undifferentiated TargetingA firm using an undifferentiated targeting strategyessentially adopts a mass-market philosophy, viewingthe market as one big market with no individual seg-ments.The firm uses one marketing mix for the entiremarket. A firm that adopts an undifferentiated tar-geting strategy assumes that individual customershave similar needs that can be met with a commonmarketing mix. As such, marketers of commodityproducts, such as flour and sugar, are likely to use anundifferentiated targeting strategy.

The first firm in an industry sometimes uses anundifferentiated targeting strategy. With no competi-tion, the firm may not need to tailor marketing mixesto the preferences of market segments. At one time,Coca-Cola used this strategy with a single productand a single size of its familiar green bottle.Undifferentiated marketing allows companies to saveon production and marketing and achieve economiesof mass production. Also, marketing costs may belower when there is only one product to promote anda single channel of distribution.

Too often, however, an undifferentiated strategyemerges by default rather than by design, reflectinga failure to consider the advantages of a segmentedapproach. The result is often sterile, unimaginativeproduct offerings that have little appeal to anyone.Another problem associated with undifferentiatedtargeting is that it makes the company more suscep-tible to competitive inroads. Coca-Cola forfeited itsposition as the leading seller of cola drinks in super-markets to Pepsi-Cola in the late 1950s, when Pepsibegan offering several sizes of containers.

Undifferentiated marketingcan succeed. A small grocery

store in a small, isolatedtown may define all of thepeople that live in thetown as its target market.It may offer one marketingmix and generally satisfyeveryone in town. Thisstrategy is not likely to beas effective if there arethree or four grocery storesin town.

ConcentratedTargeting

With a concentrated tar-geting strategy, a firmselects a market niche(one segment of amarket) for targeting itsmarketing efforts.Because the firm isappealing to a single seg-

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concentratedtargeting strategya strategy used to selectone segment of amarket for targetingmarketing efforts

nicheone segment of a market

multisegmenttargeting strategya strategy that choosestwo or more well-definedmarket segments anddevelops a distinct mar-keting mix for each

Starbucks becamesuccessful focusing

on the niche ofgourmet coffee

drinkers.

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One-to-One MarketingMost businesses today use a mass-marketingapproach designed to increase market share byselling their products to the greatest number ofpeople. For many businesses, however, it is moreefficient and profitable to use one-to-one mar-keting to increase share of customer—in otherwords, to sell more products to each customer.One-to-one marketing is an individualized mar-keting method that utilizes customer informa-tion to build long-term, personalized, andprofitable relationships with each customer. Thegoal is to reduce costs through customer reten-tion and increase revenue through customer loy-alty. One of the best-known examples ofone-to-one marketing is Dell, which lets each

buyer customize the com-puter they want to order.

The difference betweenone-to-one marketing andthe traditional mass mar-keting approach can be com-pared to shooting a rifle anda shotgun. If you have goodaim, a rifle is the more effi-cient weapon to use. Ashotgun, on the other hand,

increases your odds of hitting the target when it ismore difficult to focus. Instead of scattering mes-sages far and wide across the spectrum of massmedia (the shotgun approach), one-to-one marketerslook for opportunities to communicate with eachindividual customer (the rifle approach). Anya

“Barry,” an affluent professionalmale who’s likely to drop tens ofthousands of dollars on a hometheatre system.

Multisegment targetingoffers many potential benefitsto firms, including greatersales volume, higher profits,larger market share, andeconomies of scale in manu-facturing and marketing. Yetit may also involve greaterproduct design, production,promotion, inventory, mar-keting research, and manage-

ment costs. Before deciding to use this strategy,firms should compare the benefits and costs of mul-tisegment targeting to those of undifferentiated andconcentrated targeting.

Another potential cost of multisegment targetingis cannibalization, whichoccurs when sales of a newproduct cut into sales of afirm’s existing products. Inmany cases, however, com-panies prefer to steal salesfrom their own brandsrather than lose sales to acompetitor. Marketers mayalso be willing to cannibalizeexisting business to buildnew business.

cannibalizationa situation that occurswhen sales of a newproduct cut into salesof a firm’s existingproducts

one-to-onemarketingan individualized mar-keting method that uti-lizes customerinformation to buildlong-term, personalized,and profitable relation-ships with eachcustomer

“

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One-to-one marketerslook for opportunities tocommunicate with each

individual customer.

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You might think a firm producing astandard product like toilet tissuewould adopt an undifferentiatedstrategy. However, this market hasindustrial segments and consumersegments. Industrial buyers wantan economical, single-plyproduct sold in boxes of a hun-dred rolls. The consumer marketdemands a more versatile product insmaller quantities. Within the consumer market,the product is differentiated with designer print or noprint, cushioned or noncushioned, scented or unscented, economypriced or luxury priced, and single, double, or triple roll. Fort HowardCorporation, the market share leader in industrial toilet paper, does noteven sell to the consumer market.

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Levi Strauss has a shrink tub in itsSan Francisco megastore so thatcustomers can shrink their jeans to fit.

Hindmarch, one of Britain’s leading handbag and acces-sory designers, invites her customers to participate inthe creation of their handbags by providing a personalphotograph that she then expertly transposes onto oneof her beautifully designed bags. Customers may alsoparticipate in the design process in other ways to createa unique, customer-designed handbag.24

Several factors suggest that personalized commu-nications and product customization will continue toexpand as more and more companies understandwhy and how their customers make and execute pur-chase decisions. At least four trends will lead to thecontinuing growth of one-to-one marketing.

Personalization: The one-size-fits-all marketing ofyesteryear no longer fits. Consumers do not want tobe treated like the masses. Instead, they want to betreated as the individuals they are, with their ownunique sets of needs and wants. By its personalizednature, one-to-one marketing can fulfill this desire.

Time savings: Consumers will have little or no timeto spend shopping and making purchase decisions.With the personal and targeted nature of one-to-onemarketing, consumers can spend less time makingpurchase decisions and more time doing the thingsthat are important.

Loyalty: Consumers will be loyal only to those com-panies and brands that have earned their loyalty andreinforced it at every purchase occasion. One-to-one

marketing techniques focus on finding a firm’s bestcustomers, rewarding them for their loyalty, andthanking them for their business.

Technology: Advances in marketing research anddatabase technology will allow marketers to collectdetailed information on their customers, not just theapproximation offered by demographics but the spe-cific names and addresses. Mass-media approaches willdecline in importance as new technology offers one-to-one marketers a more cost-effective way to reach cus-tomers and enables businesses to personalize theirmessages to customers. With the help of database tech-nology, one-to-one marketers can track their customersas individuals, even if they number in the millions.

One-to-one marketing is a huge commitment andoften requires a 180-degree turnaround for marketerswho spent the last half of the twentieth centurydeveloping and implementing mass-marketingefforts. Although mass marketing will probably con-tinue to be used, especially to create brand awarenessor to remind consumers of a product, the advantagesof one-to-one marketing cannot be ignored.

PositioningThe development of any marketing mix dependson positioning, a process that influences

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1 1 0 PART 2 Analyzing Marketing Opportunities

potential customers’ overallperception of a brand,product line, or organizationin general. Position is theplace a product, brand, orgroup of products occupiesin consumers’ minds rela-tive to competing offerings.Consumer goods marketersare particularly concernedwith positioning. Procter &Gamble, for example, mar-kets 11 different laundrydetergents, each with aunique position.

Positioning assumes thatconsumers compare productson the basis of important fea-tures. Marketing efforts thatemphasize irrelevant featuresare therefore likely to misfire.For example, Crystal Pepsi anda clear version of Coca-Cola’sTab failed because consumersperceived the “clear” posi-tioning as more of a marketing

gimmick than a benefit.Effective positioning requires assessing the posi-

tions occupied by competing products, determining theimportant dimensions underlying these positions, andchoosing a position in the market wherethe organization’s marketing efforts willhave the greatest impact. For example,Toyota Canada presents a philosophy of“make things better” and positions itselfas environmentally friendly. With thispositioning, Toyota is using product dif-ferentiation to create the perception thattheir product has very real advantagesfor the target market.

As the previous example illustrates,product differentiation is a positioningstrategy that many firms use to distin-guish their products from those of com-petitors. The distinctions can be eitherreal or perceived. Companies candevelop products that offer very realadvantages for the target market.However, many everyday products, suchas bleach, Aspirin, unleaded regulargasoline, and some soaps, are differenti-ated by such trivial means as brandnames, packaging, colour, smell, or“secret” additives. The marketerattempts to convince consumers that aparticular brand is distinctive and thatthey should demand it over competingbrands.

Highprice

Vintage$125+

Red Line$100

DockersEquipmentfor Legs$100+

Lowprice

Sta-Prest$75

Red Tab Elesco$60

Slates$65

Positioning Bases

Positions

DockersPremium$50

Dockers K-1 $65

Slates Collection$60

Red Tab Dry Goods$45

Silver Tab$45

Designer

L2$30

501$35

Red TabBasics$30

DockersClassic$30

Classic

Old product

New product

New product,Europe only

Exhibit 7.3Perceptual Map and Positioning Strategy for Levi Strauss Products

SOURCE: Nina Munk, “How Levi’s Trashed a Great American Brand,” Fortune, April 12, 1999, p. 84.

positioningdeveloping a specificmarketing mix to influ-ence potential cus-tomers’ overallperception of a brand,product line, or organi-zation in general

positionthe place a product,brand, or group ofproducts occupies inconsumers’ minds rela-tive to competingofferings

productdifferentiationa positioning strategythat some firms use todistinguish their prod-ucts from those ofcompetitors

perceptualmappinga means of displayingor graphing, in two ormore dimensions, thelocation of products,brands, or groups ofproducts in customers’minds

Some firms, instead ofusing product differentiation,position their products asbeing similar to competingproducts or brands. Artificialsweeteners advertised astasting like sugar, or mar-garine tasting like butter,are two examples.

PerceptualMappingPerceptual mapping is a means of displaying orgraphing, in two or more dimensions, the location ofproducts, brands, or groups of products in customers’minds. For example, after several years of decreasingmarket share and the perception of teenagers thatLevi’s were not “cool,” Levi Strauss developed anumber of youth-oriented fashions, as well as apparelappealing to adults by extending the Dockers andSlates casual-pants brands to include styles rangingfrom oddly cut jeans to nylon pants that unzip intoshorts. The perceptual map in Exhibit 7.3 shows Levi’sdozens of brands and subbrands, from cheap basics tohigh-priced fashion.

Positioning BasesFirms use a variety of bases for positioning, includingthe following:

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CHAPTER 7 Segmenting and Targeting Markets 1 1 1

This ad reflects the fol-lowing positioning bases:

• Productattribute/benefit: The“same nutrients as wholemilk without all the fat” describes a product attribute, and thatskim milk makes her “perky” is a benefit.

• Use or application: Lunden drinks milk first thing in themorning.

• Product user: The use of Lunden, a successful, independentwoman, shows that milk is not just for kids.

• Product class (disassociation): The ad differentiates skimmilk from whole milk, showing that skim milk is healthier.

• Competitor (indirect): She drinks milk instead of coffee.

• Emotion: The ad conveys an upbeat, contemporary attitude.26

RepositioningSometimes products or companies are repositioned inorder to sustain growth in slow markets or to correctpositioning mistakes. Repositioning is changing con-sumers’ perceptions of a brand in relation to com-peting brands.

Recently, Scott Paper had to change the name of itsCottonelle brand of toilet tissues to Cashmere brandbecause the company was losing its licence on theCottonelle brand name. The new name, Cashmere, wasdeveloped from a marketing study of women who wereasked, “What is softer than cotton?” The most commonresponse was “cashmere.” This is the most demandingrepositioning that a company can undertake. Scott Paperdeveloped a multimedia campaign involving TV ads,radio ads, magazines, and point-of-purchase materials.TV advertising was the leading communication device.One ad begins by showing a bathroom with a 1970smotif. A woman wearing bell-bottoms enters the bath-room and puts a clearly marked package of Cottonelle ina cabinet. Fast-forward, and a woman wearing 1980s-style pants enters and does the same thing. Fast-forwardagain to a modern-day bathroom with a woman dressedin contemporary fashion entering the bathroom, butthis time with a package clearly marked “Cashmere.” Asshe puts the Cashmere in the cabinet, the announcer’svoice says, “We’ve changed Cottonelle over the years.Now we are giving it a softer name. Cottonelle ischanging its name to Cashmere.”27

• Attribute: A product is associated with an attribute, productfeature, or customer benefit. Rockport shoes are positioned as analways-comfortable brand that is available in a range of stylesfrom working shoes to dress shoes.

• Price and quality: This positioning base may stress high priceas a signal of quality or emphasize low price as an indication ofvalue. Denmark-based Lego uses a high-price strategy for its toybuilding blocks, whereas Montreal-based Mega Bloks uses a lowprice strategy.25 Similarly, Wal-Mart has successfully followed thelow-price and value strategy. The mass merchandiser Target hasdeveloped an interesting position based on price and quality. It is an“upscale discounter,” sticking to low prices but offering higherquality and design than most discount chains.

• Use or application: Stressing uses or applications can bean effective means of positioning a product with buyers. Snappleintroduced a new drink called “Snapple a Day” that is intended foruse as a meal replacement.

• Product user: This positioning base focuses on a personalityor type of user. Zale Corporation has several jewellery store con-cepts, each positioned to a different user. The Zale stores cater tomiddle-of-the-road consumers with traditional styles. Its Gordon’sstores appeal to a slightly older clientele with a contemporarylook, whereas People’s Jewellers targets a wider market segment.

• Product class: The objective here is to position the productas being associated with a particular category of products, forexample, positioning a margarine brand with butter. Alternatively,products can be disassociated with a category.

• Competitor: Positioning against competitors is part of anypositioning strategy. The Avis rental car positioning as numbertwo exemplifies positioning against specific competitors.

• Emotion: Positioning using emotion focuses on how theproduct makes customers feel. A number of companies use thisapproach. For example, Nike’s “Just Do It” campaign didn’t tell con-sumers what “it” is, but most got the emotional message ofachievement and courage.

It is not unusual for a marketer to use more thanone of these bases. A print ad in the “Got Milk?” cam-paign featuring Joan Lunden sporting a milk mous-tache read as follows:

Most people think I must drink at least 10 cups ofcoffee to be so perky in the morning. But the truth is, Ilike skim milk first thing. It has all the same nutrientsas whole milk without all the fat. And, besides, myhusband got the coffee maker.

repositioningchanging consumers’perceptions of a brandin relation to competingbrands

Number of supermarketsthat go out of business

for each Wal-Mart super-centre built >

2Number of stepsin segmenting a

market > 6< Number of laundry deter-gents marketed by Procter& Gamble, each targeted toa different segment

11

Percentage of customers responsible for 80 percent of a

company’s demand >20%

< Value of consumerspending related totrading down

$1 trillion

< Average number ofhours a teen spendsonline each week17

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