Customer Value-Driven Marketing Strategy Chapter 7 PDF

PART 1: Defining Marketing and the Marketing Process (Chapters 1–2) PART 2: Understanding the Marketplace and Consumer Value (Chapters 3–6) PART 3: Designing a Customer Value–Driven Strategy and Mix (Chapters 7–17)...

PART 1: Defining Marketing and the Marketing Process (Chapters 1–2) PART 2: Understanding the Marketplace and Consumer Value (Chapters 3–6) PART 3: Designing a Customer Value–Driven Strategy and Mix (Chapters 7–17) PART 4: Extending Marketing (Chapters 18–20) 7 Customer Value–Driven Marketing Strategy: Creating Value for Target Customers Chapter preview So far, you’ve learned what marketing is and about follow explore the tactical marketing tools—the four Ps—by which the importance of understanding consumers and the marketers bring these strategies to life. marketplace. With that as a background, we now To open our discussion of segmentation, targeting, differen- delve deeper into marketing strategy and tactics. This tiation, and positioning, let’s look at Henkel. For nearly 140 years, chapter looks further into key customer value–driven Henkel has wielded a leader’s influence with its varied offering of marketing strategy decisions—dividing up markets into meaning- products that address the specialized needs of global customers. ful customer groups (segmentation), choosing which customer Henkel’s brand Persil has revolutionized the Middle Eastern market groups to serve (targeting), creating market offerings that best through sophisticated segmentation and targeting, with each prod- serve targeted customers (differentiation), and positioning the of- uct line offering a unique value proposition to a distinct segment of ferings in the minds of consumers (positioning). The chapters that customers. Henkel’s Persil: A “Glocal” Marketing success H enkel AG & Company, KGaA, a well-known Persil. For over 109 years, Persil has been regarded as the expert German multinational company active both in in sparkling clean laundry. Its name has stood for quality and the consumer and industrial sector, was founded trust, making it, for example, Germany’s most trusted laundry in September 1876 by Fritz Henkel in Aachen, detergent. The Persil product line has included many successful Germany. The first product it launched was a silicate-based products since it was first introduced in the market back in 1907 universal detergent; ever since, the company has been suc- and revolutionized the laundry process. The product combined cessful through continuous innovation in new products that sodium silicate with sodium perborate, which releases fine satisfy a range of diverse customers and their different needs pearling oxygen when the laundry is boiled. The result is an and preferences across the globe. Today, Henkel—which is especially textile-friendly and odorless bleach, in contrast headquartered in Düsseldorf, Germany—is globally ranked to the chlorine used till then. It also reduces the strenuous among the Fortune Global 500 companies. In the fiscal year and time-consuming rubbing, swinging, and scrubbing of 2015, Henkel reported sales of $18.97 billion and an oper- laundry that had hitherto been the norm. The first self-acting ating profit of $3.06 billion. In Fortune’s recent “World’s detergent was born: Persil. Most Admired Companies” ranking, Henkel was confirmed Over its history, Henkel has wielded a leader’s influ- as one of the most reputable ence through different brands and companies in its industry cat- By focusing on generating insights to technology, enabling people to live egory, finishing in fourth place. easier and better lives. The com- understand market trends and customers’ In 2016, Henkel was again the pany has managed to successfully special needs in different regions, Henkel only German company in the capitalize on its customer-driven Top 50 of the world’s biggest found huge success with its brands. “glocal” marketing strategy, consumer-goods manufactur- blending global understanding ers worldwide according to consulting firm OC&C’s study with local implementation, as in Saudi Arabia, which is “Trends and Strategies on the Consumer-goods Market.” one of the Gulf Cooperation Council (GCC) countries. The Henkel’s force of around 50,000 employees worldwide other member states are Bahrain, Kuwait, Oman, Qatar, and is working hard to gain the trust of a customer base in more the United Arab Emirates. Each of these countries has very than 120 countries with several successful brands, particularly different needs based on its culture. Saudi Arabia offers an  CHapter 7 | Customer Value–Driven Marketing Strategy 211 excellent example that illustrates Henkel’s marketing strat- egy in more depth. Since its foundation, Henkel Saudi Arabia has enjoyed tremendous growth, and its workforce is currently com- prised of more than 300 people, making the brand the no. 2 market player in the home-care category. As Amitabh Bose, the former Marketing Head of Henkel Saudi Arabia, notes, Henkel’s brand presence is epitomized by the success of its premium laundry detergent Persil, which has revolution- ized the Middle Eastern market with its focus on devel- oping strong brand equity, generating consumer insights, and evolving outstanding marketing campaigns. The Saudi Arabia region was targeted by Henkel a couple of years ago across two main segments—men and women—with three ex- ceptionally innovative and, later, extremely successful prod- ucts: Persil Abaya Shampoo for women, and Persil White liquid detergent and Persil Starch Spray for men. The introduction of both lines of products was based on extensive market research on regional consumer insights and preferences. Research by Henkel proved that nearly 75 per- cent of GCC consumers wash thobes (long white dresses tra- ditionally worn by men in the region) with a mix of detergent and bleach, which, in time, negatively affects the brightness of the garments’ white color. Research also revealed the lack of a suitable starch spray in the detergent market that would give thobes the right level of firmness preferred by local con- sumers. Persil White and Persil Starch Spray, the first range of laundry products aimed at GCC men, achieved an enormous market share and sales 90 percent above forecasts within only four months after its launch. This success as a new laundry product was predominantly based on a deep understanding Persil’s success in the Middle East is predominantly due to a deep of the regional consumers’ needs and preferences. understanding of the regional consumers’ needs and preferences. Newscast Online Limited/Alamy Stock Photo In addition, women traditionally wear abayas, loose robe- like garments that are typically black. As local men take pride in the brightness of their thobes’ white color and the fabric’s firmness, women exercise great care in maintain- The marketing strategy applied by Henkel serves as an ing the depth of their abayas’ black color and the richness excellent example of how the mix of common global tech- of the fabric. Amal Murad, a well-known fashion designer, nology and scale (economies of scale or low-cost produc- emphasizes that it is paramount that women take care of tion) can be combined with a local and regional marketing their abayas in order to maintain its look, feel, and color. strategy. The Persil brands have common product formula- As a result, Persil Abaya Shampoo (also known as Persil tions, but with regionally tailored product strategies in the Black) was developed to offer the perfect retention of the form of different packaging and marketing communication. black color by using the revolutionary Henkel technology Persil Abaya was launched in the Gulf States through a mix “black color lock.” The liquid detergent combines true clean- of TV commercials and a very successful online viral cam- ing power with special color protection for black and dark paign. An interactive website was set up and Henkel also garments—particularly important if these are washed fre- sponsored a reality TV designer competition in cooperation quently. Persil Abaya Shampoo also safeguards the fabric and with Swarovski Elements in order to show that the abaya has gives the abaya an enduring floral scent. Research on local transcended the traditional garment to become an individual consumers revealed that almost 50 percent of them adopt in- fashion and personality statement. By focusing on generating appropriate and damaging practices in cleaning their abayas, insights to understand market trends and customers’ special such as using powdered detergents, fabric softeners, or even needs in different regions, Henkel found huge success with its hair and body shampoo. That’s why Persil Abaya Shampoo brands. Its marketing strategy has been considered a successful was viewed as revolutionary in the regional world of laundry. example of a totally customer-driven strategy.1 212 | part 3 Designing a Customer Value–Driven Strategy and Mix Objectives Outline Objective 7-1 Define the major steps in designing a customer value–driven marketing strategy: market segmentation, targeting, differentiation, and positioning. Marketing Strategy (pp 212–213) Objective 7-2 List and discuss the major bases for segmenting consumer and business markets. Market Segmentation (pp 213–221) Objective 7-3 explain how companies identify attractive market segments and choose a market-targeting strategy. Market Targeting (pp 221–228) Objective 7-4 Discuss how companies differentiate and position their products for maximum competitive advantage. Differentiation and Positioning (pp 228–236) CoMPAniES ToDAy RECognizE ThAT they cannot appeal to all buyers in the marketplace—or at least not to all buyers in the same way. Buyers are too numerous, widely scattered, and varied in their needs and buying practices. Moreover, companies themselves vary widely in their abilities to serve different market segments. Instead, like Henkel, companies must identify the parts of the market they can serve best and most Market segmentation profitably. They must design customer-driven marketing strategies that build the right Dividing a market into distinct groups relationships with the right customers. Thus, most companies have moved away from of buyers who have different needs, mass marketing and toward target marketing: identifying market segments, selecting one characteristics, or behaviors and who or more of them, and developing products and marketing programs tailored to each. might require separate marketing strategies or mixes. Market targeting (targeting) Marketing Strategy Evaluating each market segment’s Figure 7.1 shows the four major steps in designing a customer value–driven marketing attractiveness and selecting one or more strategy. In the first two steps, the company selects the customers that it will serve. Market segments to serve. segmentation involves dividing a market into distinct groups of buyers who have different Differentiation needs, characteristics, or behaviors and who might require separate marketing strategies or Actually differentiating the market offering mixes. The company identifies different ways to segment the market and develops profiles of to create superior customer value. the resulting market segments. Market targeting (or targeting) consists of evaluating each market segment’s attractiveness and selecting one or more market segments to enter. In the final two steps, the company decides on a value proposition—how it will create value for target customers. Differentiation involves actually differentiating the Figure | 7.1 Designing a Customer-Driven Marketing Strategy Selectcustomers Select customers to toserve serve Decideon Decide on aa value value proposition proposition In concept, marketing boils down to two questions: Segmentation Differentiation (1) Which customers will we Divide the total market into Differentiate the market offering serve? and (2) How will we serve them? Of course, the smaller segments Create value to create superior customer value tough part is coming up with for targeted good answers to these Targeting customers Positioning simple-sounding yet difficult questions.The goal is to create Select the segment or Position the market offering in more value for the customers we segments to enter the minds of target customers serve than competitors do.  CHapter 7 | Customer Value–Driven Marketing Strategy 213 positioning firm’s market offering to create superior customer value. Positioning consists of ar- Arranging for a market offering to occupy ranging for a market offering to occupy a clear, distinctive, and desirable place relative a clear, distinctive, and desirable place to competing products in the minds of target consumers. We discuss each of these steps relative to competing products in the in turn. minds of target consumers. Author Market segmentation Comment addresses the first simple- Market Segmentation sounding marketing question: What Buyers in any market differ in their wants, resources, locations, buying attitudes, and buy- customers will we serve? ing practices. Through market segmentation, companies divide large, diverse markets into smaller segments that can be reached more efficiently and effectively with products and services that match their unique needs. In this section, we discuss four important segmen- tation topics: segmenting consumer markets, segmenting business markets, segmenting international markets, and the requirements for effective segmentation. Segmenting Consumer Markets There is no single way to segment a market. A marketer has to try different segmenta- tion variables, alone and in combination, to find the best way to view market structure. Table 7.1 outlines variables that might be used in segmenting consumer markets. Here we look at the major geographic, demographic, psychographic, and behavioral variables. Geographic Segmentation geographic segmentation geographic segmentation calls for dividing the market into different geographical Dividing a market into different units, such as nations, regions, states, counties, cities, or even neighborhoods. A company geographical units, such as nations, may decide to operate in one or a few geographical areas or operate in all areas but pay at- states, regions, counties, cities, or even tention to geographical differences in needs and wants. Moreover, many companies today neighborhoods. are localizing their products, services, advertising, promotion, and sales efforts to fit the needs of individual regions, cities, and other localities. For example, many large retailers—from Target and Walmart to Kohl’s and Staples— are now opening smaller-format stores designed to fit the needs of densely packed urban neighborhoods not suited to their typical large suburban superstores. Target’s CityTarget stores average about half the size of a typical Super Target; its TargetExpress stores are even smaller at about one-fifth the size of a big-box outlet. These smaller, conveniently located stores carry a more limited assortment of goods that meet the needs of urban residents and commuters, such as groceries, home essentials, beauty products, and consumer electronics. They also offer pick-up-in-store services and a pharmacy.2 Beyond adjusting store size, many retailers also localize product assortments and services. For example, department store chain Macy’s has a localization program called MyMacy’s in which merchandise is customized under 69 different geographical districts. At stores around the country, Macy’s sales clerks record local shopper requests and pass them along to district managers. In turn, blending the customer requests with store Table 7.1 | Major Segmentation Variables for Consumer Markets Segmentation Variable Examples Geographic Nations, regions, states, counties, cities, neighbor- hoods, population density (urban, suburban, rural), climate Demographic Age, life-cycle stage, gender, income, occupation, education, religion, ethnicity, generation Psychographic Lifestyle, personality Behavioral Occasions, benefits, user status, usage rate, loyalty status 214 | part 3 Designing a Customer Value–Driven Strategy and Mix transaction data, the district managers customize the mix of merchandise in their stores. So, for instance, Macy’s stores in Michigan stock more locally made Sanders chocolate can- dies. In Orlando, Macy’s carries more swimsuits in stores near waterparks and more twin bedding in stores near condominium rentals. The chain stocks extra coffee percolators in its Long Island stores, where it sells more of the 1960s must-haves than anywhere else in the country. In all, the “MyMacy’s” strategy is to meet the needs of local markets, making the giant retailer seem smaller and more in touch.3 Demographic Segmentation Demographic segmentation Demographic segmentation divides the market into segments based on variables such Dividing the market into segments based as age, life-cycle stage, gender, income, occupation, education, religion, ethnicity, and gen- on variables such as age, life-cycle stage, eration. Demographic factors are the most popular bases for segmenting customer groups. gender, income, occupation, education, One reason is that consumer needs, wants, and usage rates often vary closely with demo- religion, ethnicity, and generation. graphic variables. Another is that demographic variables are easier to measure than most other types of variables. Even when marketers first define segments using other bases, such as benefits sought or behavior, they must know a segment’s demographic characteris- tics to assess the size of the target market and reach it efficiently. Age and Life-Cycle Stage. Consumer needs and wants change with age. Some compa- age and life-cycle segmentation nies use age and life-cycle segmentation, offering different products or using different Dividing a market into different age and marketing approaches for different age and life-cycle groups. For example, Kraft’s Oscar life-cycle groups. Mayer brand markets Lunchables, convenient prepackaged lunches for children. To extend the substantial success of Lunchables, however, Oscar Mayer later introduced Lunchables gender segmentation Uploaded, a version designed to meet the tastes and sensibilities of teenagers. Most re- Dividing a market into different segments cently, the brand launched an adult version, but with the more adult-friendly name P3 based on gender. (Portable Protein Pack). Now, consumers of all ages can enjoy one of America’s favorite noontime meals. Marketers must be careful to guard against stereotypes when using age and life-cycle segmentation. For example, although some 80-year-olds fit the stereotypes of doddering shut-ins with fixed incomes, others ski and play tennis. Similarly, whereas some 40-year-old couples are sending their children off to college, others are just beginning new families. Thus, age is often a poor predictor of a person’s life cycle, health, work or family status, needs, and buying power. Gender. gender segmentation has long been used in marketing clothing, cosmetics, toiletries, toys, and magazines. For example, P&G was among the first to use gender segmentation with Secret, a deodorant brand specially for- mulated for a woman’s chemistry, packaged and advertised to reinforce the female image. More recently, the men’s personal care industry has exploded, and many cosmetics brands that previously catered mostly to women—from L’Oréal, Nivea, and Sephora to Unilever’s Dove brand—now successfully market men’s lines. For example, Dove’s Men+Care line calls itself “The authority on man maintenance.” The brand provides a full line of body washes (“skin care built in”), body bars (“fight skin dryness”), antiperspirants (“tough on sweat, not on skin”), face care (“take better care of your face”), and hair care (“3X stronger hair”).4 Going in the other direction, brands that have traditionally targeted men are now targeting women. For example, in line with the “athleisure” trend in which more women are wearing workout gear as everyday fashion, sports apparel makers and retailers—from Nike and Under Armour to Dick’s Sporting Goods—are boosting their marketing efforts aimed at women buy- ers. Women now make up half of all sporting good shoppers. Dick’s Sporting gender segmentation: in line with the “athleisure” trend that has more women wearing workout gear Goods recently launched its first-ever ads aimed directly at fitness-minded as everyday fashion, Dick’s Sporting goods recently women, as part of its broader “Who Will You Be?” campaign. The ads feature launched its first-ever ads aimed directly at fitness- women who must juggle their busy lives to meet their fitness goals. The first minded women. ad in the series shows one mom jogging rather than driving to pick up her DICK’S Sporting Goods sons at school. Another mom jogs on a treadmill while listening to her baby  CHapter 7 | Customer Value–Driven Marketing Strategy 215 monitor. “Who will you be?” asks the ad. “Every run. Every workout. Every day. Every choice. Every season begins with Dick’s Sporting Goods.” Dick’s want women buyers to know that “we understand the choices that they have to make every single day... to fit in fitness,” says the retailer’s chief marketer.5 Income. The marketers of products and services such as automobiles, clothing, cosmet- income segmentation ics, financial services, and travel have long used income segmentation. Many compa- Dividing a market into different income nies target affluent consumers with luxury goods and convenience services. Other market- segments. ers use high-touch marketing programs to court the well-to-do. Upscale retailer Saks Fifth Avenue provides exclusive services to its elite clientele of Fifth Avenue Club members, some of whom spend as much as $150,000 to $200,000 a year on clothing and accessories from Saks alone. For example, Fifth Avenue Club members have access to a Saks Personal Stylist. The fashion-savvy, well-connected personal consultant gets to know and helps to shape each client’s personal sense of style, then guides him or her “through the maze of fashion must-haves.” The personal stylist puts the customer first. For example, if Saks doesn’t carry one of those must-haves that the client covets, the personal stylist will find it elsewhere at no added charge.6 However, not all companies that use income segmentation target the affluent. For example, many retailers—such as the Dollar General, Family Dollar, and Dollar Tree store chains—successfully target low- and middle-income groups. The core market for such stores is represented by families with incomes under $30,000. When Family Dollar real es- tate experts scout locations for new stores, they look for lower-middle-class neighborhoods where people wear less-expensive shoes and drive old cars that drip a lot of oil. With their low-income strategies, dollar stores are now the fastest-growing retailers in the nation. Psychographic Segmentation psychographic segmentation Psychographic segmentation divides buyers into different segments based on lifestyle Dividing a market into different segments or personality characteristics. People in the same demographic group can have very differ- based on lifestyle or personality ent psychographic characteristics. characteristics. In Chapter 5, we discussed how the products people buy reflect their lifestyles. As a result, marketers often segment their markets by consumer life- styles and base their marketing strategies on lifestyle appeals. For example, retailer Anthropologie, with its whimsical, “French flea market” store atmo- sphere, sells a Bohemian-chic lifestyle to which its young women customers aspire. And Athleta sells an urban-active lifestyle to women with its yoga, running, and other athletic clothing along with urban-causal, post-workout apparel. Royal Dutch Gazelle produces several types of bikes for different kinds of customers. City bikes are made for short trips to nearby locations, to work, or for a regular shopping trip. Gazelle also produces a traditional city bike known as the Robust Classic. Trekking bikes are for people who want a sporty and lightweight bike. These bikes come with high-grade components, a sleekly shaped aluminum frame and carbon front fork. The light weight makes for easy transport, so you could take with it you on a holiday trip. Lifestyle bikes, on the other hand, with tough, wide tires and a robust frame, are for the rider to cruise through the town in style. Gazelle also produces e-bikes for daily use, but the Gazelle Ultimate e-bike belongs to a top-flight range: made from lightweight high-end carbon or aluminum parts and frames, it is meant to combine sportiness and speed with great comfort.7 Marketers also use personality variables to segment markets. For example, ads for Sherwin Williams paint—headlined “Make the most for your color with the very best paint”—seem to appeal to older, more practical do-it-your- self personalities. By contrast, Benjamin Moore’s ads and social media pitches appeal to younger, more outgoing fashion individualists. One Benjamin Moore print ad—consisting of a single long line of text in a crazy quilt of fonts—de- scribes Benjamin Moore’s Hot Lips paint color this way: “It’s somewhere Lifestyle segmentation: gazelle caters to a range between the color of your lips when you go outside in December with your of lifestyle segments, from daily users to the Dutch hair still wet and the color of a puddle left by a melted grape popsicle mixed royal family. with the color of that cough syrup that used to make me gag a little. Hot lips. Patrick Van Katwijk/dpa picture alliance/Alamy Stock Photo Perfect.” 216 | part 3 Designing a Customer Value–Driven Strategy and Mix Behavioral Segmentation Behavioral segmentation Behavioral segmentation divides buyers into segments based on their knowledge, at- Dividing a market into segments based titudes, uses, or responses to a product. Many marketers believe that behavior variables are on consumer knowledge, attitudes, uses the best starting point for building market segments. of a product, or responses to a product. Occasions. Buyers can be grouped according to occasions when they get the idea to buy, Occasion segmentation actually make their purchases, or use the purchased items. occasion segmentation can Dividing the market into segments help firms build up product usage. Campbell’s advertises its soups more heavily in the cold according to occasions when buyers winter months. And for more than a dozen years, Starbucks has welcomed the autumn sea- get the idea to buy, actually make their son with its pumpkin spice latte (PSL). Sold only in the fall, PSLs pull in an estimated $100 purchase, or use the purchased item. million in revenues for Starbucks each year.8 Still other companies try to boost consumption by promoting usage during nontra- ditional occasions. For example, most consumers drink orange juice in the morning, but orange growers have promoted drinking orange juice as a cool, healthful refresher at other times of the day. Similarly, whereas consumers tend to drink soft drinks later in the day, Mountain Dew introduced Mtn Dew A.M. (a mixture of Mountain Dew and orange juice) to increase morning consumption. And Taco Bell’s First Meal campaign attempts to build busi- ness by promoting Mtn Dew A.M. (available only at Taco Bell) along with the chain’s A.M. Crunchwrap and other breakfast items as a great way to start the day. Benefits Sought. A powerful form of segmentation is grouping buyers according to the Benefit segmentation different benefits that they seek from a product. Benefit segmentation requires finding Dividing the market into segments the major benefits people look for in a product class, the kinds of people who look for each according to the different benefits that benefit, and the major brands that deliver each benefit. consumers seek from the product. For example, people who buy wearable health and activity trackers are looking for a variety of benefits, everything from counting steps taken and calories burned to heart rate monitoring and high-performance workout tracking and reporting. To meet these varying benefit preferences, Fitbit makes health and fitness tracking devices aimed at buyers in three major benefit segments: Everyday Fitness, Active Fitness, and Performance Fitness:9 Everyday Fitness buyers want only very basic fitness tracking. So Fitbit’s simplest device, the Fitbit Zip, offers these consumers “A fun, simple way to track your day.” It tracks steps taken, distance traveled, calories consumed, and active minutes. The Fitbit One, also aimed at Everyday Fitness buyers, does all that and also monitors how long and well they sleep; the Fitbit Charge adds a wristband and watch. At the other extreme, for the Performance Fitness segment, the high-tech Fitbit Surge helps serious athletes “Train smarter. Go Farther.” The Surge is “the ultimate fitness super watch,” with GPS tracking, heart rate monitoring, all-day activity track- ing, automatic workout tracking and recording, sleep monitoring, text notification, music control, and wire- less synching to Fitbit’s smartphone and computer app. In all, within Fitbit’s family of fitness products, no matter what bundle of benefits one seeks, “There’s a Fitbit product for everyone.” User Status. Markets can be segmented into non- users, ex-users, potential users, first-time users, and regular users of a product. Marketers want to rein- force and retain regular users, attract targeted non- users, and reinvigorate relationships with ex-users. Included in the potential users group are consumers facing life-stage changes—such as new parents and newlyweds—who can be turned into heavy users. For example, to get new parents off to the right start, P&G makes certain that its Pampers Swaddlers are the diaper most U.S. hospitals provide for new- borns and then promotes them as “the #1 choice of hospitals.” Benefit segmentation: Within Fitbit’s family of health and fitness tracking products, no matter what bundle of benefits one seeks, “There’s a Fitbit for Usage Rate. Markets can also be segmented into Everyone.” light, medium, and heavy product users. Heavy users Paul Marotta/Stringer/Getty Images are often a small percentage of the market but account  CHapter 7 | Customer Value–Driven Marketing Strategy 217 for a high percentage of total consumption. For instance, Carl’s Jr. and Hardee’s restaurants, both owned by parent company CKE Restaurants, focus on a target of “young, hungry men.” These young male customers, ages 18 to 34, fully embrace the chain’s “If you’re gonna eat, eat like you mean it” positioning. That means they wolf down a lot more Thickburgers and other indulgent items featured on the chains’ menus. To attract this audience, the company is known for its steamy hot-mod- els-in-bikinis commercials, featuring models such as Kate Up- ton, Charlotte McKinney, Nina Agdal, and Hannah Ferguson to heat up the brands’ images. Such ads clearly show “what our target audience of young, hungry guys like,” says CKE’s chief executive.10 Loyalty Status. A market can also be segmented by con- sumer loyalty. Consumers can be loyal to brands (Tide), stores (Target), and companies (Apple). Buyers can be divided into Targeting heavy users: Sister chains hardee’s and Carl’s Jr. use groups according to their degree of loyalty. Some consumers steamy hot-models-in-bikinis commercials to attract an audience are completely loyal—they buy one brand all the time and can’t of “young, hungry men,” who wolf down a lot more of the chains’ wait to tell others about it. For example, whether they own a featured Thickburgers and other indulgent items than consumers MacBook Pro, an iPhone, or an iPad, Apple devotees are gran- in other segments. itelike in their devotion to the brand. At one end are the quietly CKE Restaurants/Splash News/Newscom satisfied Apple users, folks who own one or several Apple de- vices and use them for browsing, texting, email, and social networking. At the other extreme, however, are the Apple zealots—the so-called MacHeads or Macolytes—who can’t wait to tell anyone within earshot of their latest Apple gadget. Such loyal Apple devotees helped keep Apple afloat during the lean years a decade ago, and they are now at the forefront of Apple’s huge iPhone, iPad, iPod, and iTunes empire. Other consumers are somewhat loyal—they are loyal to two or three brands of a given product or favor one brand while sometimes buying others. Still other buyers show no loyalty to any brand—they either want something different each time they buy, or they buy whatever’s on sale. A company can learn a lot by analyzing loyalty patterns in its market. It should start by studying its own loyal customers. Highly loyal customers can be a real asset. They often promote the brand through personal word of mouth and social media. Instead of just mar- keting to loyal customers, companies should engage them fully and make them partners in building the brand and telling the brand story. For example, Mountain Dew has turned its loyal customers into a “Dew Nation” of passionate superfans who have made it the na- tion’s number-three liquid refreshment brand behind only Coca-Cola and Pepsi (see Real Marketing 7.1). Some companies actually put loyalists to work for the brand. For example, Patagonia re- lies on its most tried-and-true customers—what it calls Patagonia ambassadors—to field-test products in harsh environments, provide input for “ambassador-driven” lines of apparel and gear, and share their product experiences with others.11 In contrast, by studying its less-loyal buyers, a company can detect which brands are most competitive with its own. By looking at customers who are shifting away from its brand, the company can learn about its marketing weaknesses and take actions to correct them. Using Multiple Segmentation Bases Marketers rarely limit their segmentation analysis to only one or a few variables. Rather, they often use multiple segmentation bases in an effort to identify smaller, better-defined target groups. Several business information services—such as Nielsen, Acxiom, Esri, and Experian—provide multivariable segmentation systems that merge geographic, demo- graphic, lifestyle, and behavioral data to help companies segment their markets down to zip codes, neighborhoods, and even households. One of the leading consumer segmentation systems is Experian Marketing Services’ Mosaic USA system. It classifies U.S. households into one of 71 lifestyle segments and 19 overarching groups based on income, age, buying habits, household composition, and life events. Mosaic USA segments carry exotic names such as Birkenstocks and Beemers,  218 | part 3 Designing a Customer Value–Driven Strategy and Mix 7.1 Mountain Dew: “Doin’ the Dew” Real Marketing with Brand Superfans Perhaps no brand has built a according to Mountain Dew’s chief marketer, Offline, for more than a decade, Mountain more passionately loyal and en- the slogan is “more about enjoying the mo- Dew has teamed with NBC Sports to spon- gaged following than PepsiCo’s ment you’re in,” something highly relevant sor The Dew Tour, a slate of summer and high-flying Mountain Dew. For ex- to the brand’s young, largely millennial-male winter action sports events in major cities ample, take Jason Hemperly, the target market. across the country. At a Dew Tour, super- shy high school kid who had his But marketing to the Dew Nation explains fans can experience the adrenaline-packed grandmother make him a tuxedo only one part of Mountain Dew’s success. Mountain Dew lifestyle firsthand and share for his prom out of flattened Mountain Dew The real story revolves around the brand’s their experiences with others in the Dew cans. And Chester Atkins and his wife Amy skill in fueling customer loyalty by actively Nation. who sport matching Mountain Dew tattoos engaging brand superfans and creating close Online, Mountain Dew’s dozens of and who toasted their marriage proposal brand community. Mountain Dew doesn’t just web, mobile, and social media sites pro- with champagne flutes filled with the citrusy market to loyal customers; it makes them vide more by way of entertainment and green drink. Then there’s Chris Whitley from partners in building the brand and being part community building than product informa- Jackson, Mississippi, who drinks some 40 of the brand story. tion. For example, the main “Do the Dew” cans of Mountain Dew a week, keeps a For example, over the years, through sev- website serves as a lifestyle hub where copious collection of Mountain Dew T-shirts eral “DEWmocracy” campaigns, the com- super-passionate fans can check out the and hats, and absolutely worships NASCAR pany has involved Mountain Dew lovers latest #dothedew programs, ads, and vid- driver and Mountain Dew spokesman Dale in shaping the brand at all levels. Under eos; hang out in the gaming section; and Earnhardt Jr. “It’s pretty much a religious ob- DEWmocracy, the Dew Nation has partici- follow the adventures of Mountain Dew’s session for me, I guess,” says Whitley about pated via online and social media in every- action sports athletes in skateboarding (Paul Mountain Dew. “I just don’t drink anything thing from choosing and naming new flavors Rodriguez, Sean Malto, and Trevor Colden), else.” and designing the cans to submitting and snowboarding (Danny Davis and Scotty Such fiercely loyal customers—who col- selecting TV commercials and even picking Lago), basketball (Russell Westbrook), rac- lectively make up the “Dew Nation”—have an ad agency and media. DEWmocracy has ing (Dale Earnhardt Jr.), and even fishing made Mountain Dew one of PepsiCo’s largest produced hit flavors such as Voltage and (Gerald Swindle). and fastest-growing brands. Mountain Dew’s White Out. More important, DEWmocracy But the ultimate digital hangout for avid superfans make up only 20 percent has been a perfect forum for getting youthful, Mountain Dew superfans is a place called of its customers but consume a mind- digitally-savvy Dew drinkers engaged with Green Label, a web and social media com- boggling 70 percent of the brand’s total each other and the company, making the munity created by Mountain Dew as a hub volume. Thanks to such fans, even as overall brand their own. for youth culture, covering Dew-related con- soft drink sales have lost their fizz during In creating engagement and community tent on sports, music, art, and style. Green the past decade, Mountain Dew’s sales are among loyal brand fans, Mountain Dew Label “welcomes all kinds: derelict skaters, bubbling over. The hugely popular $9 billion views itself as the ultimate lifestyle brand. music nerds, and art doodlers, and focuses brand is now the nation’s number-three liquid refreshment, behind only behemoths Coca- Cola and Pepsi. Such loyalty and sales don’t just flow automatically out of bottles and pop-top cans. Mountain Dew markets heavily to its super- fans. The brand’s long-running “Do the Dew” slogan—what Mountain Dew calls its “iconic rallying cry and brand credo”—headlines the extreme moments and excitement behind the brand’s positioning. Mountain Dew spent an estimated $76 million on “Do the Dew” ad- vertising and other brand content last year, 45 percent of it in digital media. One recent action-packed “Do the Dew” ad features pro- fessional skateboarder Sean Malto igniting a beach party bonfire by grinding over a line of matches. In another ad, Dale Earnhardt Jr., smokes his tires on a winding, wooded coun- try road to lay down a smoke screen for his Mountain Dew has turned its loyal customers into a “Dew nation” of passionate paintball team. The “Do the Dew” campaign superfans who avidly adhere to the brand’s iconic “Do the Dew” rallying cry. is loaded with high-octane stunts. However, PepsiCo  CHapter 7 | Customer Value–Driven Marketing Strategy 219 on the genetically modified cross-pollination Mountain Dew flowing even as competitors Mountain Dew every day since eighth grade. that occurs at the intersection of skate, music, face declines. “The thing that really makes it Kearney has a collection of 80 vintage cans and art.” different from a lot of other drinks, certainly and bottles—he collects a new can as a Green Label produces a constant flow of from a lot of other carbonated soft drinks, is memento every time a new flavor is released. engaging content that gets superfans inter- its incredibly loyal and passionate consumer He always starts the show he hosts on his acting with the brand. Green Label has also base,” says Mountain Dew’s top marketer. To college radio station by popping open a can spawned ambitious projects such Mountain such loyal fans, Mountain Dew is more than of Mountain Dew, and he hangs out with a Dew’s Green Label Experience—a cable TV just a something you drink. In the words of group of friends he calls “The Mountain Dew series showcasing action sports from The PepsiCo’s CEO, to Dew fans, Mountain Dew buddies.” Will he ever outgrow his yen to “Do Dew Tour—and We Are Blood—a feature- is “an attitude. It’s a fantastic attitude.” the Dew”? “I feel like it will definitely be some- length film that follows amateur and pro skat- Just ask a superfan like 20-year- thing I’m going to drink for the rest of my life,” ers around the world, “celebrating the uncon- old Steven Kearney, who’s been drinking he says. ditional bond created by the simple act of skateboarding.” The main GreenLabel.com Sources: Nathalie Tadena, “Mountain Dew Ads Go Global with Return of ‘Do The Dew,’” Wall Street Journal, March site now draws five times more traffic than 29, 2015, http://blogs.wsj.com/cmo/2015/03/29/mountain-dew-ads-go-global-with-return-of-do-the-dew/; Jillian MountainDew.com. Berman, “Here’s Why Mountain Dew Will Survive the Death of Soda,” Huffington Post, January 25, 2015, www. In all, few brands can match Mountain huffingtonpost.com/2015/01/26/mountain-dew-regions_n_6524382.html; Venessa Wong, “Nobody Knows What Dew when it comes to engaging loyal custom- Mountain Dew Is, and That’s the Key to Its Success,” Buzzfeed, November 1, 2015, www.buzzfeed.com/venes- ers and involving them with the brand. In turn, sawong/what-is-mountain-dew#.ikdN7aw8X; and www.mountaindew.com and www.greenlabel.com, accessed the cult-like loyalty of the Dew Nation has kept September 2016. Bohemian Groove, Sports Utility Families, Colleges and Cafes, Heritage Heights, Small Town Shallow Pockets, and True Grit Americans.12 Such colorful names help bring the segments to life. For example, the Birkenstocks and Beemers group is lo- cated in the Middle-Class Melting Pot level of affluence and consists of 40- to 65-year-olds who have achieved financial security and left the urban rat race for rustic and artsy com- munities located near small cities. They find spirituality more important than religion. Colleges and Cafes consumers are part of the Singles and Starters affluence level and are mainly white, under-35 college graduates who are still finding them- selves. They are often employed as support or service staff re- lated to a university. They don’t make much money and tend to not have any savings. Using Experian’s mosaic USA segmentation system, marketers Mosaic USA and other such systems can help marketers can paint a surprisingly precise picture of who you are and what to segment people and locations into marketable groups of you might buy. Mosiac USA segments carry colorful names such as like-minded consumers. Each segment has its own pattern Colleges and Cafes, Birkenstocks and Beemers, Bohemian groove, of likes, dislikes, lifestyles, and purchase behaviors. For ex- hispanic harmony, Rolling the Dice, Small Town Shallow Pockets, ample, Bohemian Groove consumers, part of the Significant and True grit Americans that help bring the segments to life. Singles group, are urban singles ages 45 to 65 living in zeljkodan/Shutterstock apartments in smaller cities such as Sacramento, CA, and Harrisburg, PA. They tend to be laid back, maintain a large circle of friends, and stay ac- tive in community groups. They enjoy music, hobbies, and the creative arts. When they go out to eat, they choose places such as the Macaroni Grill or Red Robin. Their favorite TV channels are Bravo, Lifetime, Oxygen, and TNT, and they watch two times more CSI than the average American. Using the Mosaic system, marketers can paint a surprisingly precise picture of who you are and what you might buy. Such rich segmentation provides a powerful tool for marketers of all kinds. It can help companies identify and better understand key customer segments, reach them more effi- ciently, and tailor market offerings and messages to their specific needs. Segmenting Business Markets Consumer and business marketers use many of the same variables to segment their markets. Business buyers can be segmented geographically, demographically (indus- try, company size), or by benefits sought, user status, usage rate, and loyalty status. Yet 220 | part 3 Designing a Customer Value–Driven Strategy and Mix business marketers also use some additional variables, such as customer operating charac- teristics, purchasing approaches, situational factors, and personal characteristics. Almost every company serves at least some business markets. For example, Starbucks has developed distinct marketing programs for each of its two business segments: the office coffee segment and the food service segment. In the office coffee and vending seg- ment, Starbucks Office Coffee Solutions markets a variety of workplace coffee services to businesses of any size, helping them to make Starbucks coffee and related products avail- able to their employees in their workplaces. Starbucks helps these business customers de- sign the best office solutions involving its coffees (the Starbucks or Seattle’s Best brands), teas (Tazo), syrups, and branded paper products and methods of serving them—portion packs, single cups, or vending. The Starbucks Foodservice division teams up with busi- nesses and other organizations—ranging from airlines, restaurants, colleges, and hospitals to baseball stadiums—to help them serve the well-known Starbucks brand to their own customers. Starbucks provides not only the coffee, tea, and paper products to its food ser- vice partners but also equipment, training, and marketing and merchandising support.13 Many companies establish separate systems for dealing with larger or multiple-location customers. For example, Steelcase, a major producer of office furniture systems, first divides customers into several segments: health-care, education, hospitality, legal, U.S. and Canadian governments, and state and local governments. Next, company salespeople work with in- dependent Steelcase dealers to handle smaller, local, or regional Steelcase customers in each segment. But many national, multiple-location customers, such as ExxonMobil or IBM, have special needs that may reach beyond the scope of individual dealers. Therefore, Steelcase uses national account managers to help its dealer networks handle national accounts. Segmenting International Markets Few companies have either the resources or the will to operate in all, or even most, of the countries that dot the globe. Although some large companies, such as Coca-Cola or Unilever, sell products in more than 200 countries, most international firms focus on a smaller set. Different countries, even those that are close together, can vary greatly in their economic, cultural, and political makeup. Thus, just as they do within their domestic mar- kets, international firms need to group their world markets into segments with distinct buying needs and behaviors. Companies can segment international markets using one or a combination of several variables. They can segment by geographic location, grouping countries by regions such as Western Europe, the Pacific Rim, South Asia, or Africa. Geographic segmentation assumes that nations close to one another will have many common traits and behaviors. Although this is sometimes the case, there are many exceptions. For example, some U.S. marketers lump all Central and South American countries together. However, the Dominican Republic is no more like Brazil than Italy is like Sweden. Many Central and South Americans don’t even speak Spanish, including more than 200 million Portuguese-speaking Brazilians and the millions in other countries who speak a variety of Indian dialects. World markets can also be segmented based on economic factors. Countries might be grouped by population income levels or by their overall level of economic development. A country’s economic structure shapes its population’s product and service needs and therefore the marketing opportunities it offers. For example, many companies are now targeting the BRIC countries—Brazil, Russia, India, and China—which are fast-growing developing economies with rapidly increasing buying power. Countries can also be segmented by political and legal factors such as the type and stability of government, receptivity to foreign firms, monetary regulations, and amount of bureaucracy. Cultural factors can also be used, grouping markets according to common languages, religions, values and attitudes, customs, and behavioral patterns. intermarket (cross-market) Segmenting international markets based on geographic, economic, political, cultural, segmentation and other factors presumes that segments should consist of clusters of countries. However, Forming segments of consumers who as new communications technologies, such as satellite TV and online and social media, con- have similar needs and buying behaviors nect consumers around the world, marketers can define and reach segments of like-minded even though they are located in different consumers no matter where in the world they are. Using intermarket segmentation countries. (also called cross-market segmentation), they form segments of consumers who have  CHapter 7 | Customer Value–Driven Marketing Strategy 221 similar needs and buying behaviors even though they are located in different countries. Since 1919, Bentley Motors has produced luxury automobiles known for their distinctive design, handcrafted luxury, and a refined but exhilarating driving experience. Given its high price, Bentley Motors has focused on economi- cally developed markets such as the United States and Europe, positioning itself on luxury, pres- tige, and exclusivity, but most importantly its “Britishness.” When sales slumped in response to the 2008 financial crisis, Bentley began a search for new markets. Using cross-market segmenta- tion, Bentley shifted its focus from targeting af- fluent markets to targeting affluent consumers. This allowed the company to identify and then capitalize on the burgeoning purchasing power in the high-income segments of emerging markets intermarket segmentation: Bentley Motors targets high-income consumers such as Russia and China, markets that Bentley around the world with its focus on luxury, prestige, heritage, and exclusivity. had previously not considered given their overall WENN Ltd/Alamy Stock Photo low per capita incomes. Bentley Motors now tar- gets affluent consumers regardless of the market, who demand and are willing to pay for the superior-quality, quintessentially British luxury automobiles and driving experi- ence the company has always produced. Requirements for Effective Segmentation Clearly, there are many ways to segment a market, but not all segmentations are effective. For example, buyers of table salt could be divided into blonde and brunette customers. But hair color obviously does not affect the purchase of salt. Furthermore, if all salt buyers bought the same amount of salt each month, believed that all salt is the same, and wanted to pay the same price, the company would not benefit from segmenting this market. To be useful, market segments must be Measurable. The size, purchasing power, and profiles of the segments can be measured. Accessible. The market segments can be effectively reached and served. Substantial. The market segments are large or profitable enough to serve. A segment should be the largest possible homogeneous group worth pursuing with a tailored marketing program. It would not pay, for example, for an automobile manufacturer to develop cars especially for people whose height is greater than seven feet. Differentiable. The segments are conceptually distinguishable and respond differently to different marketing mix elements and programs. If men and women respond simi- larly to marketing efforts for soft drinks, they do not constitute separate segments. Actionable. Effective programs can be designed for attracting and serving the segments. For example, although one small airline identified seven market segments, its staff was too small to develop separate marketing programs for each segment. Author After dividing the market Comment into segments, it’s time to answer that first seemingly simple Market Targeting marketing strategy question we raised Market segmentation reveals the firm’s market segment opportunities. The firm now has in Figure 7.1: Which customers will the to evaluate the various segments and decide how many and which segments it can serve company serve? best. We now look at how companies evaluate and select target segments. Evaluating Market Segments In evaluating different market segments, a firm must look at three factors: segment size and growth, segment structural attractiveness, and company objectives and resources. First, a company wants to select segments that have the right size and growth characteristics. But 222 | part 3 Designing a Customer Value–Driven Strategy and Mix “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 larger segments. Or they may find these segments too com- petitive. Such companies may target segments that are smaller and less attractive, in an absolute sense, but that are potentially more profitable for them. The company also needs to examine major structural factors that affect long-run segment attractiveness.14 For example, a segment is less attractive if it already contains many strong and aggressive competitors or if it is easy for new entrants to come into the segment. 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 that can control prices or reduce the quality or quantity of ordered goods and services. Even if a segment has the right size and growth and is structurally attractive, the company must consider its own objectives and resources. Some attractive segments can be dismissed quickly because they do not mesh with the company’s long-run objectives. Or the company may lack the skills and resources needed to succeed in an attractive segment. For example, the economy segment of the automobile market is large and growing. But given its objectives and resources, it would make little sense for luxury- performance carmaker Mercedes-Benz to enter this segment. A company should only enter segments in which it can create superior customer value and gain advantages over its competitors. Selecting Target Market Segments After evaluating different segments, the company must decide which and how many seg- target market ments it will target. A target market consists of a set of buyers who share common needs A set of buyers who share common or characteristics that a company decides to serve. Market targeting can be carried out needs or characteristics that a company at several different levels. Figure 7.2 shows that companies can target very broadly decides to serve. (undifferentiated marketing), very narrowly (micromarketing), or somewhere in between (differentiated or concentrated marketing). undifferentiated (mass) marketing Undifferentiated Marketing A market-coverage strategy in which a Using an undifferentiated marketing (or mass marketing) strategy, a firm might de- firm decides to ignore market segment cide to ignore market segment differences and target the whole market with one offer. Such differences and go after the whole market with one offer. a 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. Differentiated (segmented) As noted earlier in the chapter, most modern marketers have strong doubts about this marketing strategy. Difficulties arise in developing a product or brand that will satisfy all consumers. A market-coverage strategy in which a Moreover, mass marketers often have trouble competing with more-focused firms that do a firm targets several market segments and designs separate offers for each. better job of satisfying the needs of specific segments and niches. Differentiated Marketing Using a differentiated marketing (or segmented marketing) strategy, a firm decides to target several market segments and designs separate offers for each. For example, P&G Figure | 7.2 Market-Targeting Strategies Differentiated Concentrated Micromarketing This figure covers a broad range Undifferentiated (segmented) (niche) (local or individual of targeting strategies, from mass (mass) marketing marketing (virtually no targeting) to marketing marketing marketing) individual marketing (customizing products and programs to Targeting Targeting individual customers). broadly narrowly  CHapter 7 | Customer Value–Driven Marketing Strategy 223 markets at least six different laundry detergent brands in the United States (Tide, Gain, Cheer, Era, Dreft, and Bold), which compete with each other on supermarket shelves. Then P&G further segments each detergent brand to serve even narrower niches. For example, you can buy any of dozens of versions of Tide—from Tide Original, Tide Coldwater, or Tide Pods to Tide Free & Gentle, Tide Vivid White + Bright, Tide Colorguard, Tide plus Febreze, or Tide with a Touch of Downy. By offering product and marketing variations to seg- ments, companies hope for higher sales and a stronger posi- tion within each market segment. Developing a stronger po- sition within several segments creates more total sales than undifferentiated marketing across all segments. Thanks to its differentiated approach, P&G is really cleaning up in the $15 billion U.S. laundry detergent market. Incredibly, by itself, the Tide family of brands captures a 38 percent share of all North American detergent sales; the Gain brand pulls in another 15 percent. Even more incredible, all P&G detergent brands combined capture a 60 percent U.S. market share.15 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 a single product. Developing separate marketing plans for separate segments requires extra mar- keting research, forecasting, sales analysis, promotion plan- Differentiated marketing: P&g markets multiple laundry detergent ning, and channel management. And trying to reach differ- brands, then further segments each brand to service even narrower niches. As a result, it’s really cleaning up in the U.S. laundry detergent ent market segments with different advertising campaigns market, with an almost 60 percent market share. increases promotion costs. Thus, the company must weigh © Torontonian / Alamy Stock Photo increased sales against increased costs when deciding on a differentiated marketing strategy. Concentrated Marketing Concentrated (niche) marketing When using a concentrated marketing (or niche marketing) strategy, instead of going A market-coverage strategy in which a after a small share of a large market, a firm goes after a large share of one or a few smaller firm goes after a large share of one or a segments or niches. For example, consider nicher Stance Socks:16 few segments or niches. “Rihanna designs them, Jay Z sings about them, and the rest of the world can’t seem to get enough of Stance socks,” says one observer. They’ve even become the official on-court sock of the NBA and a favorite of many professional players on game day. Nicher Stance sells socks and only socks. Yet it’s thriving in the shadows of much larger competitors who sell socks mostly as a sideline. Five years ago, Stance’s founders discovered socks as a large but largely overlooked and undervalued market. While walking through the sock section a local Target store, says Stance’s CEO and cofounder, Jeff Kearl, “It was like, black, white, brown, and gray— with some argyle—in plastic bags. I thought, we could totally [reinvent] socks, because everyone was ignoring them.” So Stance set out to breathe new life into the sock category by creating technically superior socks that also offered fun, style, and status. Mission accomplished. You’ll now find colorful displays of Stance’s comfortable but quirky socks in stores in more than 40 countries, from the local surf shop to Foot Locker to Nordstrom, Bloomingdale’s, and Macy’s. Selling at prices ranging from $10 to $40 a pair, Stance sold an estimated 12 million pairs of socks last year. That’s small potatoes for giant competitors such as Hanes or Nike, but it’s nicely profitable for nicher Stance. Next up? Another often over- looked niche—Stance men’s underwear. Through concentrated marketing, the firm achieves a strong mar- ket 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 ef- Concentrated marketing: innovative nicher Stance ficiently, targeting its products or services, channels, and communica- Socks thrives in the shadows of larger competitors. tions programs toward only consumers that it can serve best and most Stance, Inc. profitably. 224 | part 3 Designing a Customer Value–Driven Strategy and Mix Niching lets smaller companies focus their limited resources on serving niches that may be unimportant to or overlooked by larger competitors. Many companies start as nichers to get a foothold against larger, more resourceful competitors and then grow into broader competitors. For example, Southwest Airlines began by serving intrastate, no-frills commuters in Texas but is now one of the nation’s largest airlines. And Enterprise Rent-A- Car began by building a network of neighborhood offices rather than competing with Hertz and Avis in airport locations. Enterprise is now the nation’s largest car rental company. Today, the low cost of setting up shop on the internet makes it even more profitable to serve seemingly small niches. Small businesses, in particular, are realizing riches from serving niches on the web. Consider online women’s fashion retailer Stitch Fix:17 Stitch Fix offers affordable personal styling services online to busy women on the go. It po- sitions itself as “Your partner in personal style.” Although “personal service” and “online” might seem a contradiction, Stitch Fix pulls it off with a team of more than 2,000 personal stylists who apply a sophisticated algorithm to determine each customer’s unique sense of style. A customer begins by filling out a detailed style profile that goes far beyond the usual sizing charts. It probes personal preferences with questions such as “What do you like to flaunt?” and “How adventurous do you want your Fix selections to be?” (One an- swer choice: “Frequently: Adventure is my middle name, bring it on!”) The customer also rates photo montages of different fashions and can even submit links to her own Pinterest pages or other social media. Combining the algorithm with large doses of human judgment (the stylist may completely override the algorithm), the personal stylist assembles and ships the cus- tomer’s first fashion “Fix”—a box containing five clothing or accessory items pegged to the customer’s special tastes. “Our professional stylists will pick out items they think you’ll love—sometimes a little out of your comfort zone, but that’s part of the fun,” says the company. The customer keeps what she likes and returns the rest, along with detailed feedback. The first Fix is the hardest because the stylist and algorithm are still learning. But after that, the Stitch Fix experience becomes downright addictive for many shoppers. More than 80 percent of customers visit the site within 90 days for a second order, and one-third spend 50 percent of their clothing budget with Stitch Fix. Thanks to the power and personalization qualities of the internet, Stitch