7

Principles of Marketing

Customer-Driven Marketing
Strategy: Creating Value for
Target Customers
Learning Objectives
After studying this chapter, you should be able to:
1. Define the three steps of target marketing: market
segmentation, target marketing, and market
positioning
2. List and discuss the major bases for segmenting
consumer and business markets
3. Explain how companies identify attractive consumer
and business markets
4. Discuss how companies position their products for
maximum competitive advantage in the
marketplace

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Chapter Concepts:

1. Market Segmentation
2. Marketing Target
3. Differentiation and Positioning
4. Positioning for Competitive Advantage

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Market Segmentation

1. Discuss the need to understand competitors

as well as customers through competitor
analysis
2. Explain the fundamentals of competitive
marketing strategies based on creating value
for customers
3. Demonstrate the need for balancing customer
and competitor orientations in becoming a
truly market-centered organization

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Market Segmentation

Market segmentation is the process that

companies use to divide large
heterogeneous markets into small markets
that can be reached more efficiently and
effectively with products and services that
match their unique needs

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Market Segmentation

• Segmenting consumer markets

• Segmenting business markets
• Segmenting international markets
• Requirements for effective
segmentation

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Market Segmentation

Segmenting Consumer Markets

• Geographic
• Demographic
• Psychographic
• Behavioral

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Market Segmentation

Segmenting Consumer Markets

Geographic segmentation divides the

market into different geographical units such
as nations, regions, states, counties, or
cities

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Market Segmentation

Segmenting Consumer Markets

Demographic segmentation divides the

market into groups based on variables such
as age, gender, family size, family life cycle,
income, occupation, education, religion,
race, generation, and nationality

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Market Segmentation

Segmenting Consumer Markets

Demographic segmentation is the most

popular segmentation method because
consumer needs, wants, and usage often
vary closely with demographic variables and
are easier to measure than other types of
variables

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Market Segmentation

Segmenting Consumer Markets

Age and life-cycle stage segmentation is

the process of offering different products or
using different marketing approaches for
different age and life-cycle groups

Gender segmentation divides the market

based on sex (male or female)

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 Market Segmentation
Segmenting Consumer Markets

Income segmentation divides the

market into affluent or low-income
consumers

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 Market Segmentation
Segmenting Consumer Markets

Psychographic segmentation divides

buyers into different groups based on
social class, lifestyle, or personality
traits

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Market Segmentation
Segmenting Consumer Markets

Behavioral segmentation divides buyers into

groups based on their knowledge, attitudes,
uses, or responses to a product
• Occasion
• Benefits sought
• User status
• Usage rate
• Loyalty status

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Market Segmentation
Segmenting Consumer Markets

Occasion segmentation divides buyers into

groups according to occasions when they get the
idea to buy, actually make purchases, or respond
to a product

Benefit segmentation requires finding the major

benefits people look for in the product class, the
kinds of people who look for each benefit, and
the major brands that deliver each benefit

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Market Segmentation
Segmenting Consumer Markets

User status divides buyers into ex-users, potential

users, first-time users, and regular users of a
product

Usage rate divides buyers into light, medium, and

heavy product users

Loyalty status divides buyers into groups according to

their degree of loyalty
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Market Segmentation
Segmenting Consumer Markets

Loyalty status divides buyers into groups

according to their degree of loyalty

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Market Segmentation
Using Multiple Segmentation Bases
Multiple segmentation is used to identify
smaller, better-defined target groups

Geodemographic segmentation is an
example of multivariable segmentation
that divides groups into consumer lifestyle
patterns

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Market Segmentation

Using Multiple Segmentation Bases

PRIZM NE classifies every American

household into 66 unique segments
organized into 14 different social groups.
These groups segment people and
locations into marketable groups of like-
minded consumers that exhibit unique
characteristics and buying behavior based
on a host of demographic factors.
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Market Segmentation
Using Multiple Segmentation Bases
Prizm classifications include

• Age
• Ethnicity
• Educational level • Housing
• Income • Behavioral and lifestyle
• Occupation factors
• Family composition • Purchases
• Free-time activities
• Media preferences

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Market Segmentation

Segmenting Business Markets

In addition to the same segmentation

variables as consumers, business can also
be segmented by:
• Customer-operating characteristics
• Purchasing approaches
• Situational factors
• Personal characteristics
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Market Segmentation

Segmenting Business Markets

Segmenting international markets

• Geographic location
• Economic factors
• Political and legal factors
• Cultural factors

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 Market Segmentation
Segmenting Business Markets

Intermarket segmentation divides

consumers into groups with similar
needs and buying behaviors even
though they are located in different
countries

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Market Segmentation

Requirements for Effective Segmentation

To be useful, a market segment must be:

• Measurable
• Accessible
• Substantial
• Differentiable
• Actionable
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Market Segmentation

Requirements for Effective Segmentation

Measurable examples include the size,

purchasing power, and profiles of the
segments

Accessible refers to the fact that the market

can be effectively reached and served

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Market Segmentation

Requirements for Effective Segmentation

Substantial refers to the fact that the markets

are large and profitable enough to serve

Differentiable refers to the fact that the

markets are conceptually distinguishable and
respond differently to marketing mix
elements and programs

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Market Segmentation

Requirements for Effective Segmentation

Actionable refers to the fact that effective

programs can be designed for attracting and
serving the segments

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Market Targeting

Evaluating Market Segments

• Segment size and growth

• Segment structural attractiveness
• Company objectives and resources

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Market Targeting

Evaluating Market Segments

• Segment size and growth

• Smaller versus larger segments
• Growth potential

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Market Targeting

Evaluating Market Segments

• Segment structural attractiveness

• Competition
• Substitute products
• Power of buyers
• Power of suppliers

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Market Targeting

Evaluating Market Segments

• Company objectives and resources

• Competitive advantage
• Availability of resources
• Consistent with company objectives

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Market Targeting

Selecting Target Market Segments

• Undifferentiated marketing
• Differentiated marketing
• Concentrated marketing
• Micromarketing

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Market Targeting

Target Marketing Strategies

Undifferentiated marketing targets the

whole market with one offer
• Mass marketing
• Focuses on common needs rather than what’s
different

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Market Targeting

Selecting Target Market Segments

Differentiated marketing targets several

different market segments and designs
separate offers for each
• Goal is to achieve higher sales and stronger
position
• More expensive than undifferentiated marketing

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Market Targeting

Selecting Target Market Segments

Concentrated marketing targets a small

share of a large market
• Limited company resources
• Knowledge of the market
• More effective and efficient

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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
• Local marketing
• Individual marketing

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Market Targeting

Selecting Target Market Segments

Local marketing involves tailoring

brands and promotion to the needs
and wants of local customer groups
• Cities
• Neighborhoods
• Stores
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Market Targeting

Selecting Target Market Segments

Local Marketing
• Benefits:
• Increased marketing effectiveness in competitive
markets
• More customer-specific offerings

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Market Targeting

Selecting Target Market Segments

Local marketing
• Challenges:
• Increased manufacturing and marketing costs
• Less economy of scale
• Logistics
• Dilution of company image

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 Marketing Targeting

Selecting Target Market Segments

Individual marketing involves tailoring

products and marketing programs to the
needs and preferences of individual
customers
• Also known as:
• One-to-one marketing
• Mass customization
• Markets-of-one marketing
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Market Targeting

Selecting Target Market Segments

Mass customization is the process through which

firms interact one-to-one with masses of customers
to design products and services tailor-made to meet
individual needs. Has made relationships with
customers important in the new economy.
• Provides a way to distinguish the company against
competitors

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Market Targeting

Choosing a Targeting Strategy

Depends on:
• Company resources
• Product variability
• Product life-cycle stage
• Market variability
• Competitor’s marketing strategies

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Market Targeting

Socially Responsible Target Marketing

Benefits customers with specific needs

Concern for vulnerable segments
• Children
• Alcohol
• Cigarettes

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Differentiation and Positioning

Product position is the way the product is

defined by consumers on important
attributes—the place the product occupies in
consumers’ minds relative to competing
products
• Perceptions
• Impressions
• Feelings
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Differentiation and Positioning

Positioning maps show consumer perceptions

of their brands versus competing products
on important buying dimensions
• Price and orientation

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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

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Differentiation and Positioning

Choosing a Differentiation and Positioning

Strategy

Identifying a set of possible competitive advantages to

build a position by providing superior value from:
• Product differentiation
• Service differentiation
• Channels
• People
• Image

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Differentiation and Positioning

Identifying Possible Value Differences and

Competitive Advantage

Competitive Advantage is the advantage over

competitors gained by offering greater value either
through lower prices or by providing more benefits
that justify higher prices

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Differentiation and Positioning

Choosing the Right Competitive Advantages

A difference is worth establishing to the extent

that it satisfies the following criteria:
• Important
• Distinctive
• Superior
• Communicable
• Preemptive
• Affordable
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Differentiation and Positioning

Selecting an Overall Strategy

Value proposition is the full mix of benefits upon

which a brand is positioned
• More for more
• More for the same
• Same for less
• Less for much less
• More for less

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Positioning for Competitive
Advantage

Developing a Positioning Statement

Positioning statement states the product’s

membership in a category and then shows
its point-of-difference from other members
of the category.

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PowerPoint created by:
Ronald Heimler
 Dowling College, MBA
 Georgetown University, BS Business
Administration
 Adjunct Professor, LIM College, NY
 Adjunct Professor, Long Island University,
NY
 Lecturer, California Polytechnic State
University, Pomona, CA
 President, Walter Heimler, Inc.