Principles of Marketing

Eighteenth Edition

Chapter 5
Customer Value-Driven Marketing
Strategy: Creating Value for Target
Customers

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Learning Objectives
7.1 Define the major steps in designing a customer-driven
marketing strategy: market segmentation, targeting,
differentiation, and positioning.
7.2 List and discuss the major bases for segmenting
consumer and business markets.
7.3 Explain how companies identify attractive market
segments and choose a market-targeting strategy.
7.4 Discuss how companies differentiate and position their
products for maximum competitive advantage.

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Customer-Driven Marketing Strategy

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1. Segmentation

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Market Segmentation
Market segmentation requires dividing a market into
smaller segments with distinct needs, characteristics, or
behaviors that might require separate marketing strategies
or mixes.

 The company identifies different ways to segment the

market and develops profiles of the resulting market
segments.

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1. Market Segmentation
Segmenting Consumer Markets
• Geographic segmentation: divides the market into different
geographical units such as nations, regions, states,
counties, cities, or even neighborhoods.
• Demographic segmentation: divides the market into
segments based on variables such as age, life-cycle stage,
gender, income, occupation, education, religion, ethnicity,
and generation.
• Psychographic segmentation: divides a market into
different segments based on social class, lifestyle, or
personality characteristics.
• Behavioral segmentation: divides a market into segments
based on consumer knowledge, attitudes, uses of a
product, or responses to a product.
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1. Market Segmentation
Psychographic segmentation

Lifestyle segmentation: Panera caters to a healthy eating lifestyle

segment of people who want more than just good-tasting food—they
want food that’s good for them, too.

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1. Market Segmentation
Behavioral Segmentation Benefit segmentation: Schwinn
• Occasions makes bikes for every benefit
• Benefits sought segment. For example, its e-
• User status bikes “help make the morning
• Usage rate commute or ride around town a
• Loyalty status little bit easier.”

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1. Market Segmentation
Multiple segmentation is used to identify smaller, better-defined target groups.
Experian’s Mosaic USA system classifies U.S. households into one of 71
lifestyle segments and 19 levels of affluence.

Using Acxiom’s Personicx segmentation system, marketers paint a surprisingly

precise picture of who you are and what you buy. Personicx clusters carry such
colorful names as “Skyboxes and Suburbans,” “Shooting Stars,” “Hard Chargers,”
“Soccer and SUVs,” “Raisin’ Grandkids,” “Truckin’ and Stylin’,” “Pennywise
Mortgagees,” and “Cartoons and Carpools.”

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1. Market Segmentation
Segmenting Business Markets
Consumer and business marketers use many of the same
variables to segment their markets.
Additional variables include:
• Customer operating characteristics
• Purchasing approaches
• Situational factors
• Personal characteristics

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1. Market Segmentation

Segmenting International Markets

• Geographic location involves grouping countries by regions such as
Western Europe, the Pacific Rim, the Middle East, or Africa.
Geographic segmentation assumes that nations close to one another
will have many common traits and behaviors, however there are many
exceptions:
The Dominican Republic and Brazil
Italy and Sweden
Many Central and South Americans don’t even speak Spanish.

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1. Market Segmentation
Segmenting International Markets
• Economic factors involve grouping countries 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.

• Political and legal factors involve segmenting by the type and

stability of the government, government receptivity to foreign firms,
monetary regulations, and the amount of bureaucracy.

• Cultural factors involve grouping markets according to common

languages, religions, values and attitudes, customs, and behavioral
patterns.

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1. Market Segmentation
Segmenting International Markets

Intermarket segmentation involves forming segments of

consumers who have similar needs and buying behaviors
even though they are located in different countries.
Also called cross-market segmentation

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1. Market Segmentation

Requirements for Effective Segmentation

• 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.
• 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.
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2. Targeting

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Customer-Driven Marketing Strategy

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2. Market Targeting
The firm now has to evaluate the various segments and decide how many
and which segments it can serve best.

Evaluating Market Segments

• Segment size and growth

• Segment structural attractiveness
• Company objectives and resources

A target market is a set of buyers who share common

needs or characteristics that the company decides to
serve.

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2. Market Targeting
Figure 7.2 Market-Targeting Strategies

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2. Market Targeting
Selecting Target Market Segments
Undifferentiated marketing targets the whole market with
one offer.
• Mass marketing
• Focuses on common needs rather than what’s different

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2. Market Targeting
Selecting Target Market Segments
Differentiated marketing targets several different market segments and designs
separate offers for each.
• Goal: to achieve higher sales and stronger position
• More expensive than undifferentiated marketing
• Differentiated marketing: With more than 30 differentiated hotel brands,
Marriott International dominates the hotel industry, capturing a much larger
share of the travel and hospitality market than it could with any single brand
alone.

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2. Market Targeting
Selecting Target Markets Concentrated marketing: Nicher
Harry’s concentrates its resources
Concentrated (niche) marketing on direct-to-consumer sales of high-
targets a large share of a smaller quality razors and shaving products
market. to a value- and convenience-
• Limited company resources oriented segment of buyers
• Knowledge of the market previously not well served by giant
• More effective and efficient competitors like Gillette.

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2. Market Targeting
Selecting Target Market Segments
Micromarketing is the practice of tailoring products and
marketing programs to suit the tastes of specific individuals
and locations. It includes:
• Local marketing
• Individual marketing

An example of individual marketing is candy lovers can buy M&M’s embossed

with images of their kids or pets.

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2. Market Targeting
Selecting Target Market Segments
Local marketing involves tailoring brands and promotions to
the needs and wants of local customer segments.
• Cities
• Neighborhoods
• Stores

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2. Market Targeting
Selecting Target Markets Individual marketing: The
Individual marketing Rolls-Royce Bespoke design
involves tailoring products team works closely with
and marketing programs to individual customers to help
the needs and preferences of them create their own unique
individual customers. Rolls-Royces.
Also known as:
• One-to-one marketing
• Mass customization

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2. Market Targeting
How to Select Target Market Segments
Choosing a targeting strategy depends on
• Company resources: When the firm’s resources are limited,
concentrated marketing makes the most sense.
• Product variability: Undifferentiated marketing is more suited for
uniform products, such as grapefruit or steel.
• Product life-cycle stage: When a firm introduces a new product, it may
be practical to launch one version only, as undifferentiated marketing
or concentrated marketing may make the most sense. In the mature
stage of the product life cycle, however, differentiated marketing often
makes more sense.
• Market variability: Undifferentiated marketing is appropriate where
there is little market variability – most buyers have the same tastes,
buy the same amounts, and react the same way to marketing efforts.
• Competitor’s marketing strategies: When competitors use
undifferentiated marketing, a firm can gain an advantage by using
differentiated or concentrated marketing, focusing on the needs of
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buyers in specific segments.
Socially Responsible Target Marketing

Smart targeting helps companies become more efficient and

effective by focusing on the segments that they can satisfy
best and most profitably.
Targeting also benefits consumers: companies serve specific
groups of consumers with offers carefully tailored to their
needs.

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3&4. Differentiation and Positioning

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Customer-Driven Marketing Strategy

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3&4. Differentiation and Positioning
Product position is the way the product is defined by
consumers on important attributes.
Beyond deciding which segments of the market it will target,
the company must decide on a value proposition—how it will
create differentiated value for targeted segments and what
positions it wants to occupy in those segments.

Positioning: Sonos does more

than just sell speakers; it
unleashes “All the music on
earth, in every room of your
house, wirelessly.”

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3&4. Differentiation and Positioning
• Positioning maps
• In planning their differentiation and positioning strategies,
marketers often prepare perceptual positioning maps that
show consumer perceptions of their brands versus those of
competing products on important buying dimensions
• Eg., price and orientation (luxury versus performance).
• The size of each circle indicates the brand’s relative market
share.

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3&4. Differentiation and Positioning
Positioning maps show consumer perceptions of
marketer’s brands versus competing products on important
buying dimensions.
Figure 7.3 Positioning map: Large luxury SUVs

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3&4. Differentiation and Positioning
Choosing a Differentiation and Positioning Strategy
• Identifying a set of possible competitive advantages to
build a position
• Choosing the right competitive advantages
• Selecting an overall positioning strategy
• Communicating and delivering the chosen position to the
market

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3&4. Differentiation and Positioning
Choosing a Differentiation and Positioning Strategy
Competitive advantage is an advantage over competitors
gained by offering consumers greater value, either through
lower prices or by providing more benefits that justify higher
prices.
How Many Differences to Promote.
Many marketers think that companies should aggressively
promote only one benefit to the target market. Former
advertising executive Rosser Reeves, for example, said a
company should develop a unique selling proposition (USP)
for each brand and stick to it.

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3&4. Differentiation and Positioning
Choosing a Differentiation Services differentiation:
and Positioning Strategy Quicken Loans’ Rocket
Identifying a set of possible Mortgage doesn’t just offer
competitive advantages to mortgage loans; its online-
differentiate along the lines of: only interface lets users get a
loan decision in only minutes.
• Product
• Services
• Channels
• People
• Image

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3&4. Differentiation and Positioning
Choosing a Differentiation and Positioning Strategy
A competitive advantage should be:
• Important: The difference delivers a highly valued benefit
to target buyers.
• Distinctive: Competitors do not offer the difference, or the
company can offer it in a more distinctive way.
• Superior: The difference is superior to other ways that
customers might obtain the same benefit.
• Communicable: The difference is communicable and
visible to buyers.
• Preemptive: Competitors cannot easily copy the difference.
• Affordable: Buyers can afford to pay for the difference.
• Profitable: : The company can introduce the difference
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profitably
3&4. Differentiation and Positioning
Choosing a Differentiation and Positioning Strategy
Value proposition is the full mix of benefits upon which a
brand is positioned.
Figure 7.4 Possible Value Propositions

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3&4. Differentiation and Positioning
Choosing a Differentiation and Positioning Strategy
Positioning statement summarizes company or brand
positioning using this form: To (target segment and need)
our (brand) is (concept) that (point of difference)

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3&4. Differentiation and Positioning
Communicating and Delivering the Chosen Position
Choosing the positioning is often easier than implementing
the position.
Establishing a position or changing one usually takes a long
time.
Maintaining the position requires consistent performance
and communication.

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