Market Segmentation and Targeting

Key Terms: undiferentiated marketing, market segmentation, market positioning, micromarketing, market niche strategies, concentrated marketing, family life cycle, psychographics, AIOs, geodemographic segmentation,  benefit segmentation, resonance marketing, ethnic marketing.

Undifferentiated marketing is using one marketing strategy to go after an entire market, i.e., mass marketing. This does not usually work too well since it is unlikely that every individual will have the same needs. The shampoo that I desire (I am bald) is probably quite different than the shampoo a young lady with a full head of hair wishes to purchase.

Steps in market segmentation:

Step 1: Market segmentation – divide the market into relatively homogeneous segments of customers; each of these groups, to be fully satisfied, needs its own marketing mix or product.

Step 2: Market targeting – In this step, a firm evaluates each of the segments in order to determine which one(s) to enter.

Step 3: Market positioning – A firm has to decide how it wants its brand perceived relative to other brands in the marketplace. This involves creating a distinct image for the brand relative to other brands. For instance, suppose you introduce a new kind of granola bar. You can position it as a good-tasting candy bar, a relatively healthy bar or, possibly, a low-fat ("lite") bar. Similarly, a new brand of cookie could be positioned using health, diet, or good taste. When a college refers to itself as the "poor man’s Harvard" it is also positioning itself.

Some reasons for segmentation:

a. Market segments are generally relatively large, but there is going to be more competition than with a subsegment, i.e., a niche. A relatively small firm should use market segmentation to find a niche in the marketplace. By concentrating its resources on one small segment that is not thoroughly satisfied with the available products, a firm might be able to succeed. It is obviously very difficult for a small firm to fight against a large firm. Imagine the difficulties in developing a new brand of cola and competing against Coke and Pepsi. This would be suicide. The way to succeed is to find a small niche in the marketplace, i.e., niche marketing. This is what Snapple did. Also, Tom’s of Maine toothpaste.

b. A large firm that desires to reach several different target markets and thereby dominate a market has to make sure that the different brands compete with competitors’ brands rather than each other (cannibalization). For instance, Procter and Gamble markets the following soaps: Ivory, Camay, Safeguard, Coast, Zest, and Oil of Olay. Each of these brands has a different target market.

Micromarketing includes individual marketing and local marketing.

Individual marketing, also known as one-to-one marketing, is an example of micromarketing. Today, it is possible for firms to customize products to order. Using computers and the Web, it is possible for firms to manufacture custom-made products. For instance, a company might allow customers to design the bookcase they desire on the Web, i.e., select a color, style, size, etc.

Ways to segment consumer markets:

(1) Geographic segmentation-- by country, by region within the country, by state, by neighborhood, or rural/suburban/urban.

(a) For instance, a firm might market different beers for different regions in the United States -- e.g., South, Northeast, and West.
(b) Or, a firm selling bicycles might sell one bicycle for rural areas (mountain bike) and another kind of bike for urban areas.
(c) Most firms recognize that they have to use segmentation when marketing their products to foreign countries. Marketing strategies that work in the United States may have to be modified for other countries. This will be discussed further in the lecture dealing with international marketing.

(2) Demographic segmentation - demographics refers to physical characteristics of people such as sex, age, ethnicity, income, family size, occupation, education, marital status, social class, and stage of the family life cycle.

Sex: shampoos, hairsprays, deodorants, vitamins, and cigarettes for men and women.

Age: cereals, vitamins, and games (e.g., Scrabble) for young people and older people.

Ethnicity: cosmetics and hairsprays for African-Americans, Asians, and Caucasians; television shows for Caucasians, African-Americans.

Income: luxury cars for high-income individuals; restaurants that cater to high-income and low-income people.

Family Size: condominiums for small families. Indeed, there are a large number of households consisting of one or two people in the United States because of divorce and the large number of singles who choose not to get married.

Occupation: calculators for engineers, accountants, and stockbrokers.

Education: newspapers for different levels of education.

Marital Status: resorts that cater to single people, married couples (Poconos), and families.

Family Life Cycle: 9 stages
Bachelor stage (Single men and women living on their own-- spend on fashion, vacations, and recreation),
Newly married couples (spend on vacations, cars, and clothing)
Full Nest I (youngest child under 6 -- spend on baby food, toys; buy home and furniture)
Full Nest II (youngest child is older than 6 -- spending money on children)
Full Nest III (older children, -- major expense is college; may travel and replace furniture)
Empty Nest I (children have left home; family income at peak -- travel, cruises, vacation)
Empty Nest II (head of household has retired -- may move to warmer climate and purchase a condominium)
Solitary Survivor in Labor Force (travel, vacations, medical expenses)
The Retired Solitary Survivor (medical expenses)

Builders might use family life cycle to segment the market for condominiums. It should be noted that family life cycle is somewhat dated and many people do not fit into any of the categories, e.g., unmarried people living together and gay couples.

Geodemographic segmentation, sometimes called clustering, combines demographics (age, education, ethnicity, family life cycle,  housing type, income, occupation, etc.), lifestyles, and geography.  You probably noticed that the people in your neighborhood are somewhat similar to you. There is an adage:  "birds of a feather flock together" and that seems to be true of people living in the same geographic areas.  Firms such as Claritas (they call this PRIZM) create market segments or clusters consisting of similar individuals.  Claritas has segmented the US into 62 clusters.  These include:

S1 – ELITE SUBURBS
01 Blue Blood Estates: Elite Super Rich Families
02 Winner’s Circle: Executive Suburban Families
03 Executive Suites: Upscale White-Collar Couples
04 Pools & Patios: Established Empty Nesters
05 Kids & Cul-de-Sacs: Upscale Suburban Families

C1 – 2nd CITY SOCIETY
11 Second City Elite: Upscale Executive Families
12 Upward Bound: Young Upscale White-Collar Families
13 Gray Power: Affluent Retirees in Sunbelt Cities

U3 – URBAN CORES
45 Single City Blues: Ethnically-Mixed Urban Singles
46 Hispanic Mix: Urban Hispanic Singles & Families
47 Inner Cities: Inner City, Solo-Parent Families

If you want to see the rest, go to:  http://www.tetrad.com/pcensus/usa/prizmlst.html

A marketer can determine the types of people that live in various zip codes, neighborhoods, and even blocks.  Suppose you want to market a product to Hispanics.  You can use the Claritas PRIZM service and find out which zip codes consist of cluster 46 ("Hispanic Mix").  

(3) Lifestyle segmentation, which is sometimes called psychographics. This is measured by studying the activities, interests, and opinions (AIOs) of customers. It considers how people spend their leisure-- what do we do with our time?  What kind of hobbies do you have?  Are you more likely to spend your free time watching television, reading a book, at a party, or knitting?  Are you more likely to be engaged in gardening or hunting?   What is important to you (interests)?  How do you see the world (opinions)?  Some examples of lifestyle traits include: homebody, arts enthusiast, community minded, and fashion conscious. Lifestyle is thus a person's way of living. Knowing the psychographics of one’s customers enables a firm to create the correct advertising message. Suppose you determine that the typical drinker of your brand of beer loves the outdoors, likes to hunt and fish, enjoys bowling with the boys, reads magazines such as Playboy and Penthouse, and is not interested in religion. How successful would an ad be if it showed a group of nuns enjoying your beer after teaching Sunday school? Please note that extrovert (outgoing), introvert, compulsive, etc. are examples of personality traits; they are not psychographic traits. Psychographics deals with life style and personality deals with the qualities/traits that are peculiar to a particular individual.  Commercials showing close-knit, happy families enjoying themselves at Pizza Hut after a fun day at the beach are using lifestyle segmentation.  As noted above, lifestyle deals with how people spend their leisure time.  

The SRI Company has developed a questionnaire that is used for psychographic segmentation called VALS (Values and Lifestyles). Take a few minutes, fill out their survey. Go to the SRI website at   http://www.sric-bi.com/    Click on VALS Survey.  Here are a sample of some of the questions in the VALS survey  -- first 5 questions; the last 4 are demographic questions (Sex, Age, Education, and household income).  

(4) Behavioral segmentation - Usage rate, occasions, user status, loyalty rate, and benefit segmentation.
Usage rate:  heavy, medium, light, and nonusers of a product.  For instance, some people drink one cup of coffee per day (light user) while others drink 6 or more cups per day (heavy users).  Some copying machines are targeted to the light users of copying machines--small offices. In fact, a very successful product is the multifunction machine that copies, faxes, scans, and prints.  It is perfect for the small office that does a little of each.  Many beers are targeted to men who are between 18 and 30-years since they are the heavy users and drink the most beer.  Women drink very little beer and generally are non-users or light users of beer.  

Occasion segmentation:  Some products or services are seen as being appropriate for a particular situation or occasion.  Take orange juice as an example.  Most of us think of it as a product that is mainly a breakfast drink.  This limits the market for this product.  Indeed, orange growers are trying to convince the public that orange juice is a beverage for any occasion.  How about a pizza and orange juice for lunch?  Or, hamburger and orange juice for dinner?  If the orange growers are successful in this campaign, they can greatly expand the market for orange juice.  Interestingly, Pepsi at one time was trying to market a cola product for breakfast (I think the name of the beverage they were testing was Pepsi AM).  This makes sense since many people eat breakfast at a fast food restaurant such as McDonald's or Burger King. However, most people do not think cola beverages make sense for breakfast and the product did not succeed. 

The major method employed to segment markets is benefit segmentation. To use this method, you have to determine the benefits sought by customers when buying the generic product. For instance, some benefits desired when purchasing shampoo include, dandruff prevention, making hair smell nice, making hair soft and manageable, inexpensive, preventing baldness, being mild and gentle, restoring luster, etc. The reason that benefit segmentation is so popular is because it is the method that is the most consistent with the marketing concept.

How would you segment the market for vitamins? Some possibilities:
By sex: vitamins for men and for women. Women need more iron and calcium than men.
By age: older people have different needs than children. You might need several different products: for babies, growing children, teens, adults, and senior citizens.

How would you segment the market for films? Some possibilities:

By sex: films aimed at women. Some studios making films are trying to attract women—a major target. Action films are made that are women-friendly. This means less violence and strong female stars in major roles (remember Sigourney Weaver in the Alien films).
By age: movies for children and movies for adults.

How would you segment the market for cruises? Some possibilities:
By stage in the family life cycle: You might market cruises for empty nesters (middle-aged couples whose children have moved out), for newlyweds, and for bachelors (cruises aimed at singles). Club Med has vacations for couples, families, and singles.

A builder of condominiums might segment the market for homes by stage in the family life cycle:
Very small apartments with tiny kitchens for singles. You might have a swimming pool and some tennis courts. In fact, these are the kind of apartments being built in areas filled with unmarried people.  Larger apartments with three or four bedroom for full nesters.Small apartments with ramps for older empty-nesters. Instead of tennis courts, shuffle board and bingo rooms.

Now that you know something about market segmentation, let us look at some interesting things that are happening today.  There was a fascinating article in The New York Times (May 20, 2004; "In the Era of Cheap DVD's, Anyone can be a Producer" by Peter Wayner, p. G1).  Wayner's article indicates that "even the most specialized video can find a niche audience, thanks to easy-to-duplicate discs and the U.S. mail."   One university sells DVD's of its college football games to fans around the country.  Clearly, this DVD is too specialized to get distribution in stores. A poetry group sells a DVD containing poems for $20 as part of a subscription series.  Primedia Workplace Learning sells programs of continuing education for firefighters and police officers on DVD.  There are firms (e.g., CustomFlix) that are similar to custom book publishers that will duplicate DVDs and help market them for a fee.  This is all possible because DVDs cost less than one dollar to make and can be mailed to customers for the price of one stamp. 

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Resonance Marketing and Hyperdifferentiation:
(see article by Eric K. Clemons and Rick Spitler, "The New Language of Consumer Behavior")

Today, it is possible to make products that are absolutely perfect for a consumer.  This is possible because consumers can use the Internet to acquire a great deal of information about available brands.  Consumers are willing to pay a premium for products that are exactly what they want rather than settle for a product that is ok.  Resonance marketing is about giving your customer exactly what s/he wants rather than making products that are basically ok. When you get a product that is just right, it will resonate.  To create such products, you need to hyperdifferentiate.  Today, there are microbreweries that make beer that resonate with consumers.  A beer made by a microbrewery might only have 75,000 customers but these consumers will be very, very excited about the beer.  A beer such as Budweiser is made to appeal to millions of consumers but how many of them are excited about it.  A hyperdifferentiated beer that is consumed by 75,000 extremely loyal customers will cost more.  Advertising will be too expensive so you will not see any ads for it.  Word of mouse (buzz marketing on the web) is the way people find out about it.  The goal is to create several brands, each targeted to a small segment, and each with no competition.  Hyperdifferentiated products are so unique and special that they have virtually no competition.  On the other hand, a large number of people may hate the product. 

Eric Clemons in his paper entitled "The Challenges of Resonance Marketing:  Managing Complexity While Creating Profits Through Differentiation and Delight"  makes the following key points:  (1) hyperdifferentiation requires a whole new way of thinking.  What you read in the textbooks is not appropriate when using extreme differentiation. (2) Companies using resonance marketing should be concerned about getting a smaller number of customers to love its product rather than getting a large number of customers to like the product.  As noted above, if you want to charge more for a product, it should not be seen as a commodity (i.e., all are the same).  You want your customers to love the product so much that they will pay more for it.  In fact, they will not only pay more for it but tell everyone about it. (3)  Don't worry if a large number of people hate your product.  This is normal when you use hyperdifferentiation.  The people that hate your product are of no concern.    (4)  People look for the lowest possible prices for products that do not matter very much to them.  On the other hand, if something is really important  and gets them excited (i.e., makes them resonate), they will pay a premium. 

Did you ever hear of East India Pale Ale?  It is made by Brooklyn Brewery. 

Go to Corey and Nate's Beerlabels.com website to see ratings of  microbrews.  http://www.beerlabels.com/reviews/
One of the great hyperdifferentiated beers is Sierra Nevada Pale Ale.  I think  that beer sounds better than Blind Pig English Style Ale.  These websites take the place of advertising.

Question to think about:  What would you rather make:  (a) a product that is acceptable (they like it but do not love it) to 1,000,000 consumers but has 10 competitors. or (b) a product that is loved and resonates with 100,000 consumers and has 0 competitors. 
To answer this question, please remember that (a) needs a great deal of advertising to convince consumers that your brand is better than the competition; (b) should not need any advertising. Also, you can charge considerably more for (b) than (a) since it "resonates" with consumers.

After you finish this chapter, sit down and have a bottle of Hop Devil beer! You deserve it.  (I am not kidding; Clemons mentions this beer by name.)

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Films with Christian Values

Making films that are targeted to those with Christian values (see article by Sharon Waxman "Fox Unveils a Division for Religious-Oriented Films," NY Times, September 20, 2006, pp. E1, E8).

Fox has a new division, FoxFaith, that will distribute religious-oriented films to the vast Christian market.  Many of these films will not not be released in theaters but will go straight to DVD.  Fox has already had some success selling films with Christian themes on DVD.  This has been going on in the music business for quite a while-- music with Christian themes. The films will "tap into Christian values"; it is believed that this market is underserved and growing.  The budget for the films will be $3 - $20 million. Walt Disney went after the Christian market with "The Chronicles of Narnia:  The Lion, The Witch, and The Wardrobe" and took in $774 million worldwide.  A number of Christian-oriented films were made in the last several years and have been quite successful despite poor production quality and amateurish acting.  Jeff Yordy, a marketing executive at Fox stated:  "That's the mission:  quality, story-driven entertainment that meshes with the values of the target audience.  But it's entertainment first.  We are not in the business of proselytizing." Fox built a network with 90,000 Christian congregations; they will receive promotional materials about films.  This is a great way to generate word of mouth.

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Ethnic Marketing:  Some examples.

(see article by Stuart Elliott in NY Times, July 7, 2006, C7--"Manischewitz Wants to Move to a Mainstream Aisle")

The major marketer of kosher products is Manischewitz (owned by R.A.B. Holdings).  According to Elliott, Americans spend more than $50 Billion per year on kosher food; only 20% of kosher food buyers are the traditional Jewish consumer who is concerned about dietary laws. The others purchase it because of the belief that kosher products are purer and of better quality than nonkosher products.   Manischewitz is trying to move the product from the ethnic aisle to mainstream aisle.  This is not easy since Manischewitz does not want to lose its traditional customer. 

Hebrew National uses this belief regarding kosher products in their ads.  One ad for Hebrew National hot dogs targeted to mothers positions the franks as being more nutritious-- "We answer to a higher authority." Another ad for Morton Coarse Kosher Salt uses the line-- "It's the secret ingredient chefs have always used to make their dishes gourmet.  Morton Coarse Kosher Salt.  Now you know."

General Electric sells ovens that have a feature that is important for Orthodox Jews that do not turn ovens on or off on the Sabbath.  They call it the Sabbath mode feature. The ovens have special programming that can be set before the Sabbath begins. GE also makes ranges with a "fifth burner" that looks like a long griddle and can be used by Hispanics to make quesadillas (it is also good for pancakes).

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For those of you interested in entrepreneurship:  If you check the eSmallOffice website below, you will find some information on several emerging markets:  They include:  African-American Entrepreneurs, Asian-American Entrepreneurs, Hispanic Entrepreneurs, Minority Entrepreneurs, Senior Entrepreneurs, and Women Entrepreneurs. You will also find some interesting material on how to measure customer satisfaction.

http://www.esmalloffice.com/SBR_template.cfm?docNumber=PL12_1200.htm#sampsurvey

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The American Demographics Magazine has several articles dealing with segmentation:
http://www.demographics.com/

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