Customer Value-Driven Marketing Strategy PDF

# Chapter 7 Customer Value-Driven Marketing Strategy ## Chapter Preview * **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...

# Chapter 7 Customer Value-Driven Marketing Strategy ## Chapter Preview * **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)** ## Customer Value-Driven Marketing Strategy: Creating Value for Target Customers So far you've learned what marketing is and about the importance of understanding consumers and the marketplace. Now with that as a background we delve deeper into marketing strategy and tactics. This chapter looks further into key customer value-driven marketing strategy decisions -- dividing up markets into meaningful customer groups (segmentation), choosing which customer groups to serve (targeting), creating market offerings that best serve targeted customers (differentiation), and positioning the offerings in the minds of consumers (positioning). The chapters that follow explore the tactical marketing tools -- the four Ps -- by which marketers bring these strategies to life. To open our discussion of segmentation, targeting, differentiation, and positioning, let's look at Dunkin' Donuts. Dunkin' has expanded rapidly in recent years into a national powerhouse, on par with Starbucks. But Dunkin' is no Starbucks. In fact, it doesn't want to be. It targets a very different kind of customer with a very different value proposition. Grab yourself a cup of coffee and read on. ## Dunkin' Donuts: Targeting the Average Joe A few years back, Dunkin' Donuts paid dozens of faithful customers in cities around the country $100 a week to buy coffee at Starbucks instead. At the same time, the coffee chain paid Starbucks customers to make the opposite switch. When it later debriefed the two groups, Dunkin' says it found them so polarized that company researchers dubbed them "tribes", each of which loathed the very things that made the other tribe loyal to their coffee shop. Dunkin' fans viewed Starbucks as pretentious and trendy, whereas Starbucks loyalists saw Dunkin' as plain and unoriginal. "I don't get it," one Dunkin' regular told researchers after visiting Starbucks. "If I want to sit on a couch, I stay at home." Dunkin' Donuts has rapidly expanded into a national coffee powerhouse, on par with Starbucks, the nation's largest coffee chain. But the research confirmed a simple fact: Dunkin' is not Starbucks. In fact, it doesn't want to be. To prosper, Dunkin' must have its own clear vision of just which customers it wants to serve and how. Dunkin' and Starbucks target very different customers who want very different things from their favorite coffee shops. Starbucks is strongly positioned as a sort of high-brow "third place" -- outside the home and office -- featuring couches, eclectic music, and art-splashed walls. Dunkin' has a decidedly more low-brow, "everyman" kind of appeal. Dunkin' Donut's research showed that its brand fans were largely bewildered and turned off by the atmosphere at Starbucks. They groused that crowds of laptop users made it difficult to find a seat. They didn't like Starbucks's "tall", "grande", and "venti" lingo for small, medium, and large coffees. And they couldn't understand why anyone would pay so much for a cup of coffee. "It was almost as though they were a group of Martians talking about a group of Earthlings", says an executive from Dunkin's advertising agency. The Starbucks customers that Dunkin' paid to switch were equally uneasy in Dunkin' shops. "The Starbucks people couldn't bear that they weren't special anymore", says the ad executive. Dunkin' Donuts targets the "Dunkin' tribe" -- not the Starbucks coffee snob but the average Joe. Dunkin' isn't like Starbucks; it doesn't want to be. Such opposing opinions aren't surprising, given the differences in the two stores' customers. Dunkin's customers include more middle-income, blue- and white-collar workers across all age, race, and income demographics. By contrast, Starbucks targets a higher-income, more professional group. But Dunkin' researchers concluded that it was more the ideal, rather than income, that set the two tribes apart: Dunkin's tribe members want to be part of a crowd, whereas members of the Starbucks tribe want to stand out as individuals. "You could open a Dunkin' Donuts right next to Starbucks and get two completely different types of consumers", says one retailing expert. ## Objectives Outline * **Objective 7-1:** Define the major steps in designing a customer value-driven marketing strategy: market segmentation, targeting, differentiation, and positioning. * **Objective 7-2:** List and discuss the major bases for segmenting consumer and business markets. * **Objective 7-3:** Explain how companies identify attractive market segments and choose a market-targeting strategy. * **Objective 7-4:** Discuss how companies differentiate and position their products for maximum competitive advantage. ## Marketing Strategy Companies today realize 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 Dunkin’ Donuts, companies must identify the parts of the market they can serve best and most profitably. They must design customer-driven marketing strategies that build the right relationships with the right customers. Thus, most companies have moved away from mass marketing and toward **target marketing**, identifying market segments, selecting one or more of them, and developing products and marketing programs tailored to each. **Figure 7.1 Designing a Customer-Driven Marketing Strategy** Companies today recognize that they cannot appeal to all buyers in the marketplace -- or at least not to all buyers in the same way. Instead, they must identify the parts of the market they can serve best and most profitably. They must design customer-driven marketing strategies that build the right relationships with the right customers. Thus, most companies have moved away from mass marketing and toward target marketing, identifying market segments, selecting one or more of them, and developing products and marketing programs tailored to each. ## Market Segmentation Buyers in any market differ in their wants, resources, locations, buying attitudes, and buying 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 segmentation topics: segmenting consumer markets, segmenting business markets, segmenting international markets, and the requirements for effective segmentation. **Table 7.1 Major Segmentation Variables for Consumer Markets** | Segmentation Variable | Examples | |---|---| | Geographic | Nations, regions, states, counties, cities, neighborhoods, 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 | ### Segmenting Consumer Markets There is no single way to segment a market. A marketer has to try different segmentation variables, alone and in combination, to find the best way to view 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** calls for dividing the market into different geographical units such as nations, regions, states, counties, cities, or even neighborhoods. A company may decide to operate in one or a few geographical areas or operate in all areas but pay attention to geographical differences in needs and wants. Moreover, many companies today 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 foods 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. 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 transaction data, the district managers customize the mix of merchandise in their stores. #### Demographic Segmentation **Demographic segmentation** divides the market into segments based on variables such as age, life-cycle stage, gender, income, occupation, education, religion, ethnicity, and generation. Demographic factors are the most popular bases for segmenting customer groups. One reason is that consumer needs, wants, and usage rates often vary closely with demographic variables. Another is that demographic variables are easier to measure than most other types of variables. Even when marketers first define segments using other bases, such as benefits sought or behavior, they must know a segment's demographic characteristics to assess the size of the target market and reach it efficiently. ##### Age and Life-Cycle Segmentation Consumer needs and wants change with age. Some companies use age and life-cycle segmentation, offering different products or using different marketing approaches for different age and life-cycle groups. For example, Kraft's Oscar Mayer brand markets **Lunchables**, convenient prepackaged lunches for children. To extend the substantial success of Lunchables, however, Oscar Mayer later introduced **Lunchables Uploaded**, a version designed to meet the tastes and sensibilities of teenagers. Most recently, the brand launched an adult version, but with the more adult-friendly name **P3 (Portable Protein Pack)**. Now, consumers of all ages can enjoy one of America's favorite noontime meals. Marketers should 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 Segmentation **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 formulated for a woman's chemistry, packaged and advertised to reinforce the feminine 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"). 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, apparel makers and retailers from Nike and Under Armour to Dick's Sporting Goods are boosting their marketing efforts aimed at women. Women now make up half of all sporting good shoppers. Dick's Sporting Goods recently launched its first-ever ads aimed directly at fitness-minded women, as part of its broader "Who Will You Be?" campaign. The ads target women who must juggle their busy lives to meet their fitness goals. ##### Income Segmentation The marketers of products and services such as automobiles, clothing, cosmetics, financial services, and travel have long used **income segmentation**. Many companies target affluent consumers with luxury goods and convenience services. Other marketers 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. 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 estate experts scout locations for new stores, they look for lower-middle-class neighborhoods where people wear less expensive shoes and drive old cars that drip a lot of oil. With their low-income strategies, dollar stores are now the fastest-growing retailers in the nation. #### Psychographic Segmentation **Psychographic segmentation** divides buyers into different segments based on lifestyle or personality characteristics. People in the same demographic group can have very different psychographic characteristics. In Chapter 5, we discussed how the products people buy reflect their lifestyles. As a result, marketers often segment their markets by consumer lifestyles and base their marketing strategies on lifestyle appeals. For example, retailer Anthropologie, with its whimsical, "French flea market" store atmosphere, 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. Fast-casual restaurant Panera caters to a lifestyle segment of people who want more than just good-tasting food -- they want food that's good for them, too. To better meet the needs of this healthy-living lifestyle segment, Panera recently announced that it would soon banish more than 150 artificial preservatives, sweeteners, colors, and flavors from its food. It then launched a marketing campaign tagged "Food as it should be", showing happy customers eating better at Panera. "Eat clean", says one ad, "because clean food just tastes better. According to Panera, food should do more than just fill your stomach. "Food should taste good. It should feel good. It should do good things for you and the world around you. That's food as it should be." If that kind of thinking fits your lifestyle, suggests Panera's head of marketing, "then yeah, come on in...that's why we're here." Marketers also use personality variables to segments 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-yourself personalities. By contrast, Benjamin Moore's ads and social media pitches appeal to younger, more outgoing fashion individualists. #### Behavioral Segmentation **Behavioral segmentation** divides buyers into segments based on their knowledge, attitudes, uses, or responses to a product. Many marketers believe that behavior variables are the best starting point for building market segments. ##### Occasion Segmentation Buyers can be grouped according to occasions when they get the idea to buy, actually make their purchases, or use the purchased items. **Occasion segmentation** can help firms build up product usage. Campbell's advertises its soups more heavily in the cold winter months. And for more than a dozen years, Starbucks has welcomed the autumn season with its pumpkin spice latte (PSL). Sold only in the fall, PSLs pull in an estimated $100 million in revenues for Starbucks each year. Still other companies try to boost consumption by promoting usage during nontraditional 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 business 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. ##### Benefit Segmentation A powerful form of segmentation is grouping buyers according to the different benefits that they seek from a product. **Benefit segmentation** requires finding the major benefits people look for in a product class, the kinds of people who look for each benefit, and the major brands that deliver each benefit. 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: * **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 Change 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 tracking, automatic workout tracking and recording, sleep monitoring, text notification, music control, and wireless 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 nonusers, ex-users, potential users, first-time users, and regular users of a product. Marketers want to reinforce 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 US. hospitals provide for newborns and then promotes them as "the #1 choice of hospitals". ##### Usage Rate Markets can also be segmented into light, medium, and heavy product users. Heavy users are often a small percentage of the market but account for a high percentage of total consumption. 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-models-in-bikinis commercials, featuring models such as Kate Upton, 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. ##### Loyalty Status A market can also be segmented by consumer loyalty. Consumers can be loyal to brands (Tide), stores (Target), and companies (Apple). Buyers can be divided into groups according to their degree of loyalty. Some consumers are completely loyal -- they buy one brand all the time and can't wait to tell others about it. For example, whether they own a MacBook Pro, an iPhone, or an iPad, Apple devotees are granitelike in their devotion to the brand. At one end are the quietly satisfied Apple users, folks who own one or several Apple devices 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 marketing 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 nation'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 relies 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. 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, demographic, 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, Bohemian Groove, Sports Utility Families, Colleges and Cafes, Heritage Heights, Small Town Shallow Pockets, and True Grit Americans. Such colorful names help bring the segments to life. For example, the **Birkenstocks and Beemers** group is located 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 communities 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 themselves. They are often employed as support or service staff related to a university. They don't make much money and tend to not have any savings. Mosaic USA and other such systems can help marketers to segment people and locations into marketable groups of like-minded consumers. Each segment has its own pattern of likes, dislikes, lifestyles, and purchase behaviors. For example, Bohemian Groove consumers, part of the Significant Singles group, are urban singles ages 45 to 65 living in 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 active 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 efficiently, 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 (industry, company size), or by benefits sought, user status, usage rate, and loyalty status. Yet business marketers also use some additional variables, such as customer operating characteristics, 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 segment, 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 available to their employees in their workplaces. Starbucks helps these business customers design 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 businesses 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 service partners but also equipment, training, and marketing and merchandising support. 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 independent 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 markets, international firms need to group their world markets into segments with distinct buying needs and behaviors. Companies can segment international markets using one or a combination of several variables. They can segment by **geographic location**, grouping countries by regions such as Western Europe, the Pacific Rim, 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 US. 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. Segmenting international markets based on geographic, economic, political, cultural, and other factors presumes that segments should consist of clusters of countries. However, as new communications technologies, such as satellite TV and online and social media, connect consumers around the world, marketers can define and reach segments of like-minded consumers no matter where in the world they are. Using **intermarket segmentation** (also called **cross-market segmentation**), they form segments of consumers who have similar needs and buying behaviors even though they are located in different countries. For example, retailer H&M targets fashion-conscious but frugal shoppers in 43 countries with its low-priced, trendy apparel and accessories. And Coca-Cola create special programs to target teens, core consumers of its soft drinks the world over. By 2020, one-third of the world's population -- some 2.5 billion people -- will be under 18 years of age. Coca-Cola reaches this important market through the universal teen themes, such as music. For example, it joined forces with Spotify to provide a global music network that helps teens discover new music, connect with other music-loving teens, and share their experiences with friends worldwide both online and offline. And its teen-focused "The Ahh Effect" digital campaign serves up "snackable pieces of content" -- games, videos, and music -- designed to engage the world's teens with the Coca-Cola brand. "The Aah Effect" is "that multidimensional feeling of happiness, satisfaction and delicious refreshment one experiences after drinking an ice-cold Coke the sound a smile would make if smiles made sounds." ### 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. * **Differentiable:** The segments are conceptually distinguishable and respond differently to different marketing mix elements and programs. * **Actionable:** Effective programs can be designed for attracting and serving the segments. ### Market Targeting Market segmentation reveals the firm's market segment opportunities. The firm now has to evaluate the various segments and decide how many and which segments it can 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 "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 competitive. 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. 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 automaker 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 segments it will target. A **target market** consists of a set of buyers who share common needs or characteristics that a company decides to serve. Market targeting can be carried out at several different levels. **Figure 7.2 Market-Targeting Strategies** shows that companies can target very broadly (undifferentiated marketing), very narrowly (micromarketing), or somewhere in between (differentiated or concentrated marketing). ##### Undifferentiated Marketing Using an **undifferentiated marketing** (or **mass marketing**) strategy, a firm might decide to ignore market segment differences and target the whole market with one offer. Such 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. As noted earlier in the chapter, most modern marketers have strong doubts about this strategy. Difficulties arise in developing a product or brand that will satisfy all consumers. Moreover, mass marketers often have trouble competing with more-focused firms that do a better job of satisfying the needs of specific segments and niches. ##### 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 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 segments, companies hope for higher sales and a stronger position within each market segment. Developing a stronger position within several segments creates more total sales than undifferentiated marketing across all segments. 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. 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 marketing research, forecasting, sales analysis, promotion planning, and channel management. And trying to reach different market segments with different advertising campaigns increases promotion costs. Thus, the company must weigh increased sales against increased costs when deciding on a differentiated marketing strategy. ##### Concentrated Marketing When using a **concentrated marketing** (or **niche marketing**) strategy, instead of going after a small share of a large market, a firm goes after a large share of one or a few smaller segments or niches. For example, consider nicher Stance Socks. "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 CBO 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