Chapter 5 Market Segmenting, Targeting, and Positioning

Benefits of Segmenting and Targeting Markets

The story of General Motors raises an important point, which is that segmenting and targeting markets doesn’t necessarily mean “skinnying down” the number of your customers. In fact, it can help you enlarge your customer base by giving you information with which to successfully adjust some component of your offering—the offering itself, its price, the way you service and market it, and so on. More specifically, the process can help you do the following:

• Avoid head-on competition with other firms trying to capture the same customers
• Develop new offerings and expand profitable brands and products lines
• Remarket older, less-profitable products and brands
• Identify early adopters
• Redistribute money and sales efforts to focus on your most profitable customers
• Retain “at-risk” customers in danger of defecting to your competitors

The trend today is toward more precise, targeted marketing. Figuring out “who’s who” in terms of your customers involves some detective work, though—often market research. A variety of tools and research techniques can be used to segment markets. Government agencies, such as the U.S. Census Bureau, collect and report vast amounts of population information and economic data that can reveal changing consumption trends. We will talk more about market research in Chapter 10 "Gathering and Using Information: Marketing Research and Market Intelligence".

Technology is also making it easier for even small companies and entrepreneurs to gather information about potential customers. For example, the online game company GamePUMA.com originally believed its target market consisted of U.S. customers. But when the firm looked more closely at who was downloading games from its Web site, they were people from all over the globe.

The great product idea you had? As we explained in Chapter 3 "Consumer Behavior: How People Make Buying Decisions", companies are now using the Internet to track people’s Web browsing patterns and segment them into groups that can be marketed to. Even small businesses are able to do this cost effectively now because they don’t need their own software and programs. They can simply sign up online for products like Google’s AdSense and AdWords programs. You can locate potential customers by looking at blog sites and discussion forums on the Web. Big-boards.com has thousands of discussion forums you can mine to find potential customers interested in your product. Do you have a blog? Go to BlogPoll.com, and you can embed a survey in your blog to see what people think of your idea. If you have a Web site, you can download an application onto your iPhone that will give you up-to-the-minute information and statistics on your site’s visitors.

Getting a read on potential target markets doesn’t necessarily have to involve technology, though. Your own personal experience and talking to would-be buyers is an important part of the puzzle. Go where you think would-be buyers go—restaurants, malls, gyms, subways, grocery stores, daycare centers, and offices. Ask questions: What do they do during the day? What do they talk about? What products or services do you see them using? Are they having an enjoyable experience when using those products or are they frustrated?

Figure 5.2

The Healthy Choice line of frozen dinners was launched by a heart attack victim.

Healthy Choice frozen dinners were conceived as a result of questioning potential customers. The food-maker ConAgra launched the dinners in the late 1980s after its CEO, Charlie Harper, suffered a heart attack. One day a colleague complimented Harper on his wife’s tasty low-fat turkey stew. That’s when Harper realized there were people like him who wanted healthy convenience foods, so he began talking to them about what they wanted. Two years after the Healthy Choice line was launched, it controlled 10 percent of the frozen-dinner market.John Birchall, “Out to Launch in a Downturn,” Financial Times, June 4, 2009, 10.

Segmenting and Targeting a Firm’s Current Customers

Finding and attracting new customers is generally far more difficult than retaining your current customers. People are creatures of habit. Think about how much time and energy you spend when you switch your business from one firm to another—even when you’re buying something as simple as a haircut. If you aren’t happy with your hair and want to find a new hairdresser, you first have to talk to people with haircuts you like or read reviews of salons. Once you decide to go to a particular salon, you have to look it up on the Internet or your GPS device and hope you don’t get lost on the way. When you get to the salon, you must try to explain to the new hairdresser how you want your hair cut and hope he or she gets it right. You might also have to jump through some different hoops when you pay the bill. Perhaps the new salon won’t accept your American Express card or won’t let you put the tip on your card. However, once you have learned the ropes at the new salon, doing business with it gets much easier.

The same is true for firms when it comes to finding new customers. Finding customers, getting to know them, and figuring out what they really want is a difficult process—one that’s fraught with trial and error. That’s why it’s so important to get to know and form close relationships with your current customers. Broadly speaking, your goal is to do as much business with each one of them as possible.

The most recent economic downturn drove home the point of making the most of one’s current customers. During the downturn, new customers were hard to find, and firms’ advertising and marketing budgets were cut. Expensive, untargeted, shotgunlike marketing campaigns that would probably produce spotty results were out of the question. Consequently, many organizations chose to focus their selling efforts on their current customers.John Birchall, “Value Trend Tests Brand Loyalty,” Financial Times, March 31, 2009, 12.

This is the situation in which the adventure-based travel firm Backroads found itself in 2009. The California-based company increased its revenues by creating a personalized marketing campaign for people who had done business with Backroads in the past. The firm looked at information such as customers’ past purchases, the seasons in which they took their trips, the levels of activity associated with them, and whether or not the customers tended to vacation with children. The company then created three relevant trip suggestions for each customer based on the information. The information was sent to customers via postcards and e-mails with links to customized Web pages reminding them of the trips they had previously booked with Backroads and suggesting new ones. “In terms of past customers, it was like off-the-charts better [than past campaigns],” says Massimo Prioreschi, the vice president of Backroads’ sales and marketing group.“Lift Sales with Personalized, Multi-channel Messages: 6 Steps,” July 9, 2009, http://www.marketingsherpa.com/article.php?ident=31299 (accessed December 2, 2009).

In addition to studying their buying patterns, firms also try to get a better read on their customers by surveying them or hiring marketing research firms to do so. (A good source for finding marketing research companies is http://www.greenbook.org.) Firms also utilize loyalty programs to find out about their customers. For example, if you sign up to become a frequent flier with a certain airline, the airline will likely ask to you a number of questions about your likes and dislikes. This information will then be entered into a customer relationship management (CRM) system, and you might be e-mailed special deals based on the routes you tend to fly. British Airways goes so far as to track the magazines its most elite fliers like to read so the publications are available to them on its planes.

Many firms—even small ones—are using Facebook to develop closer relationships with their customers. Hansen Cakes, a Beverly Hills (California) bakery, has about two thousand customers who visit its Facebook page. During her downtime at the bakery, employee Suzi Finer posts “cakes updates” and photos of the goodies she’s working on to the site. Along with information about the cakes, Finer extends special offers to customers and mixes in any gossip about Hollywood celebrities she’s spotted in the area. After Hansen Cakes launched its Facebook page, the bakery’s sales shot up 15–20 percent. “And that’s during the recession,” notes Finer, who is obviously proud of the results she’s gotten.Jefferson Graham, “Cade Decoratero Finds Twitter a Sweet Recipe for Success,” USA Today, April 1, 2009, 5B. Twitter is another way companies are keeping in touch with their customers and boosting their revenues. For example, when the homemaking maven Martha Stewart schedules a book signing, she tweets her followers, and voilà—many of them show up at the bookstore she’s appearing at to buy copies. Finding ways to interact with customers that they enjoy—whether it’s meeting or “tweeting” them, or putting on events and tradeshows they want to attend—is the key to forming relationships with them.

Remember what you learned in Chapter 3 "Consumer Behavior: How People Make Buying Decisions", however: not all customers are created equal, including your current customers. Some customers are highly profitable, and others aren’t. Still others will actually end up costing your firm money to serve. Consequently, you will want to interact with some of them more than others.

Believe it or not, some firms deliberately “untarget” unprofitable customers. That’s what Best Buy did. In 2004, Best Buy got a lot of attention (not all of it good) when it was discovered the company had categorized its buyers into “personas,” or types of buyers, and created customized sales approaches for each. For example, an upper-middle-class woman was referred to as a “Jill.” A young urban man was referred to as a “Buzz.” And pesky, bargain-hunting customers that Best Buy couldn’t make much of a profit from? They were referred to as “devils” and taken off the company’s mailing lists.Meg Marco, “LEAKS: Best Buy’s Internal Customer Profiling Document,” The Consumerist, March 18, 2008, http://consumerist.com/368894/leaks-best-buys-internal-customer-profiling-document (accessed December 2, 2009).

The knife cuts both ways, though. Not all firms are equal in the minds of consumers, who will choose to do business with some companies rather than others. To consumers, market segmentation means: meet my needs—give me what I want.“Market Segmentation,” The Market Segmentation Company, http://www.marketsegmentation.co.uk/segmentation_tmsc.htm (accessed December 2, 2009).

Figure 5.3

Are you a “high maintenance” customer? Always trying to “work a deal”? Then don’t call Best Buy. They’ll call you.

© 2010 Jupiterimages Corporation

“Steps in One-to-One Marketing” outlines the steps companies can take to target their best customers, form close, personal relationships with them, and give them what they want—a process called one-to-one marketingForming close, personal relationships with customers and giving them exactly what they want.. In terms of our shotgun versus rifle approach, you can think of one-to-one marketing as a rifle approach, but with an added advantage: now you have a scope on your rifle.

One-to-one marketing is an idea proposed by Don Peppers and Martha Rogers in their 1994 book The One to One Future. The book described what life would be like after mass marketing. We would all be able to get exactly what we want from sellers, and our relationships with them would be collaborative, rather than adversarial. Are we there yet? Not quite. But it does seem to be the direction the trend toward highly targeted marketing is leading.

Types of Segmentation Bases

Table 5.1 "Common Ways of Segmenting Buyers" shows some of the different types of buyer characteristics used to segment markets. Notice that the characteristics fall into one of four segmentation categories: behavioral, demographic, geographic, or psychographic. We’ll discuss each of these categories in a moment. For now, you can get a rough idea of what the categories consist of by looking at them in terms of how marketing professionals might answer the following questions:

• Behavioral segmentation. What benefits do customers want, and how do they use our product?
• Demographic segmentation. How do the ages, races, and ethnic backgrounds of our customers affect what they buy?
• Geographic segmentation. Where are our customers located, and how can we reach them? What products do they buy based on their locations?
• Psychographic segmentation. What do our customers think about and value? How do they live their lives?

Segmenting by Behavior

Behavioral segmentationDividing people and organization into groups according to how they behave with or act toward products. divides people and organization into groups according to how they behave with or act toward products. Benefits segmentation—segmenting buyers by the benefits they want from products—is very common. Take toothpaste, for example. Which benefit is most important to you when you buy a toothpaste: The toothpaste’s price, ability to whiten your teeth, fight tooth decay, freshen your breath, or something else? Perhaps it’s combination of two or more benefits. If marketing professionals know what those benefits are, they can then tailor different toothpaste offerings to you (and other people like you). For example, Colgate 2-in-1 Toothpaste & Mouthwash, Whitening Icy Blast is aimed at people who want the benefits of both fresher breath and whiter teeth.

Another way in which businesses segment buyers is by their usage rates—that is, how often, if ever, they use certain products. For example, the entertainment and gaming company Harrah’s gathers information about the people who gamble at its casinos. High rollers, or people who spend a lot of money, are considered “VIPs.” VIPs people get special treatment, including a personal “host” who looks after their needs during their casino visits. Companies are interested in frequent users because they want to reach other people like them. They are also keenly interested in nonusers and how they can be persuaded to use products.

The way in which people use products is also be a basis for segmentation. Avon Skin So Soft was originally a beauty product. But after Avon discovered that some people were using it as a mosquito repellant, the company began marketing it for that purpose. Eventually, Avon created a separate product called Skin So Soft Bug Guard, which competes with repellents like Off! Similarly, Glad, the company that makes plastic wrap and bags, found out customers were using its Press ’n Seal wrap in ways the company could never have imagined. The personnel in Glad’s marketing department subsequently launched a Web site called 1000uses.com that contains both the company and consumer’s use tips. Some of the ways in which people use the product are pretty unusual, as evidenced by the following comment posted on the site: “I have a hedgehog who likes to run on his wheel a lot. After quite a while of cleaning a gross wheel every morning, I got the tip to use ‘Press ’n Seal wrap’ on his wheel, making clean up much easier! My hedgie can run all he wants, and I don’t have to think about the cleanup. Now we’re both GLAD!”

Figure 5.4

Encouraging consumers to use your products for multiple purposes is a smart marketing strategy.

© 2010 Jupiterimages Corporation

Although we doubt Glad will ever go to great lengths to segment the Press ’n Seal market by hedgehog owners, the firm has certainly gathered a lot of good consumer insight about the product and publicity from its 1000uses.com Web site. (Incidentally, one rainy day, the author of this chapter made “rain boots” out of Press ’n Seal for her dog. But when she later tried to tear them off of the dog’s paws, he bit her. She is now thinking of trading him in for a hedgehog.)

Segmenting by Demographics

Segmenting buyers by tangible, personal characteristics such as their ages, incomes, ethnicity, family sizes, and so forth is called demographic segmentationSegmenting buyers by tangible, personal characteristics such as their ages, incomes, ethnicity, family sizes, and so forth.. This section will discuss some prominent demographic characteristics used to segment buyers, including age, income, gender, and family life cycles. Other demographic characteristics include occupation, education, nationality, religion, and social class.

Demographics are commonly utilized to segment markets because a mountain of demographic information is publicly available in databases around the world. You can obtain a great deal of demographic information on the U.S. Census Bureau’s Web site (http://www.census.gov). Other government Web sites you can tap include FedStats (http://www.fedstats.gov) and The World Factbook (http://www.cia.gov/cia/publications/factbook), which contains statistics about countries around the world. In addition to current statistics, the sites contain forecasts of demographic trends, such as whether some segments of the population are expected to grow or decline.

Income

Tweens might appear to be a very attractive market when you consider they will be buying products for years to come. But would you change your mind if you knew that baby boomers account for 50 percent of all consumer spending in the United States? Americans over sixty-five now control nearly three-quarters of the net worth of U.S. households; this group spends $200 billion a year on major “discretionary” (optional) purchases such as luxury cars, alcohol, vacations, and financial products.Tim Reisenwitz, Rajesh Iyer, David B. Kuhlmeier, and Jacqueline K. Eastman, “The Elderly’s Internet Usage: An Updated Look,” Journal of Consumer Marketing, 24, no. 7 (2007): 406–18.

Income is used a segmentation variable because it indicates a group’s buying power. People’s incomes also tend to reflect their education levels, occupation, and social classes. Higher education levels usually result in higher paying jobs and greater social status.

The makers of upscale products such as Rolexes and Lamborghinis aim their products at high-income groups. However, a growing number of firms today are aiming their products at lower-income consumers. The fastest-growing product in the financial services sector is prepaid debit cards, most of which are being bought and used by people who don’t have bank accounts. Firms are finding that this group is a large, untapped pool of customers who tend to be more brand loyal than most. If you capture enough of them, you can earn a profit.Constantine von Hoffman, “For Some Marketers, Low Income Is Hot,” Brandweek, September 11, 2006, http://www.allbusiness.com/marketing-advertising/branding-brand-development/4670054-1.html (accessed December 2, 2009).

Figure 5.5

Do you ever wonder if your neighbors can really afford to drive the cars they do?

© 2010 Jupiterimages Corporation

Sometimes income isn’t always indicative of who will buy your product, however. Companies are aware that many consumers want to be in higher income groups and behave like they are already part of them (recall the reference groups discussed in Chapter 3 "Consumer Behavior: How People Make Buying Decisions"). Mercedes Benz’s cheaper line of “C” class vehicles is designed to appeal to these consumers.

Gender

Gender is another way to segment consumers. As we explained in Chapter 3 "Consumer Behavior: How People Make Buying Decisions", men and women have different physiological and other needs. They also shop differently. Consequently, the two groups are often, but not always, segmented and targeted differently. Marketing professionals don’t stop there, though. For example, because women make many of the purchases for their households, market researchers sometimes try to further divide them into subsegments. (Men are also often subsegmented.) For women, those segments might include stay-at-home housewives, plan-to-work housewives, just-a-job working women, and career-oriented working women. Women who are solely homemakers tend to spend more money research has found—perhaps because they have more time.

Figure 5.6

Considering the rising number of U.S. women who live without spouses, should some smart entrepreneur consider launching a “hunky handyman” service?

© 2010 Jupiterimages Corporation

In addition to segmenting by gender, market researchers might couple people’s genders along with their marital statuses and other demographic characteristics. For, example, did you know that more women in America than ever before (51 percent) now live without spouses? Can you think of any marketing opportunities this might present?Thomas Barry, Mary Gilly, and Lindley Doran, “Advertising to Women with Different Career Orientations,” Journal of Advertising Research 25 (April–May 1985): 26–35.

Family Life Cycle

Family life cycleThe stages families go through over time and how it affects people’s buying behavior. refers to the stages families go through over time and how it affects people’s buying behavior. For example, if you have no children, your demand for pediatric services (medical care for children) is likely to be slim to none. But if you have children or adopt them, your demand might be very high because children frequently get sick. You will be part of the target market not only for pediatric services but also for a host of other products, such as children’s clothing, entertainment services, and educational products. A secondary segment of interested consumers might be grandparents who are likely to spend less on day-to-day childcare items but more on special-occasion gifts for children. In fact, many markets are segmented based on the special events in people’s lives. Think about brides (and wannabe brides) and all the products targeted at them, including Web sites and television shows such as Platinum Weddings, Married Away, Whose Wedding Is It Anyway, and Bridezilla.

Figure 5.7

Many markets are segmented based on people’s family life cycle needs.

© 2010 Jupiterimages Corporation

Resorts also segment vacationers depending on where they are in their family life cycles. When you think of family vacations, you probably think of Disney resorts. Some vacation properties, such as Sandals, exclude children from some of their resorts. Perhaps they do so because some studies show that the market segment with greatest financial potential is married couples without children.Brian J. Hill, Carey McDonald, and Muzzafer Uysal, “Resort Motivations for Different Family Life Cycle Stages,” Visions in Leisure and Business Number 8, no. 4 (1990): 18–27.

Keep in mind that although you might be able to isolate a segment in the marketplace, including one based on family life cycle, you can’t make necessarily make assumptions about what the people in it will want. Just like people’s demographics change, so do their tastes. For example, over the past few decades U.S. families have been getting smaller. Households with a single occupant are more commonplace than ever. But until recently, that hasn’t stopped people from demanding bigger cars (and more of them) as well as larger houses, or what some people jokingly refer to as “McMansions.”

But like the trend toward larger cars, the trend toward larger houses appears to be reversing. High energy costs, the credit crunch, and concern for the environment are leading people to demand smaller houses. To attract people such as these, D. R. Horton, the nation’s leading homebuilder, and other construction firms are now building smaller homes.

Segmenting by Geography

Where will your customers come from? Suppose your great new product or service idea involves opening a local store. Before you open the store, you will probably want to do some research to determine which geographical areas have the best potential. For instance, if your business is a high-end restaurant, should it be located near the local college or country club? If you sell ski equipment, you probably will want to locate your shop somewhere in the vicinity of a mountain range where there is skiing. You might see a snowboard shop in the same area but probably not a surfboard shop. By contrast, a surfboard shop is likely to be located along the coast, but you probably would not find a snowboard shop on the beach.

Geographic segmentationSegmenting buyers by where they are located. explains why the checkout clerks at stores sometimes ask you what your zip code is. It’s also why businesses print codes on coupons that correspond to zip codes. When the coupons are redeemed, the store can then find out where its customers are located—or not located. GeocodingThe process of plotting geographic marketing information takes on a map. is a process that takes data such as this and plots it on a map. Geocoding can help businesses see where prospective customers might be clustered and target them with various ad campaigns, including direct mail, for example. One of the most popular geocoding software programs is PRIZM NE, which is produced by a company called Claritas. PRIZM NE uses zip codes and demographic information to classify the American population into segments. The idea behind PRIZM is that “you are where you live.” Combining both demographic and geographic information is referred to as geodemographicsCombining both demographic and geographic information for marketing purposes.. To see how geodemographics works, visit the following page on Claritas’ Web site: http://www.claritas.com/MyBestSegments/Default.jsp?ID=20.

Type in your zip code, and you will see customer profilesThe description of a type of customer based on market segmentation criteria. of the types of buyers who live in your area. Table 5.4 "An Example of Geodemographic Segmentation for 76137 (Fort Worth, TX)" shows the profiles of buyers who can be found the zip code 76137—the “Brite Lites, Li’l City” bunch, Home Sweet Home” set, and so on. Click on the profiles on the Claritas site to see which one most resembles you.

The tourism bureau for the state of Michigan was able to identify different customer profiles and target them using PRIZM. Michigan’s biggest travel segment are Chicagoans in certain zip codes consisting of upper-middle-class households with children—or the “kids in cul-de-sacs” group, as Claritas puts it. The bureau was also able to identify segments significantly different from the Chicago segment, including blue-collar adults in the Cleveland area who vacation without their children. The organization then created significantly different marketing campaigns to appeal to each group.

City size and population densityThe number of people per square mile. (the number of people per square mile) are also used for segmentation purposes. Have you ever noticed that in rural towns, McDonald’s restaurants are hard to find? But Dairy Queens are usually easy to locate. McDonald’s generally won’t put a store in a town of fewer than five thousand people. However, this is prime turf for the “DQ”—for one, because it doesn’t have to compete with bigger franchises like McDonald’s.

Figure 5.8

Virgin Mobile is helping stores capitalize on proximity marketing by sending text messages to Virgin Mobile users when they opt to receive them. Billboards outside stores tell Virgin Mobile users to “switch your Bluetooth on to get free stuff here!” (Who wouldn’t want free stuff?)

© 2010 Jupiterimages Corporation

Proximity marketingThe process of segmenting buyers geographically and target them within a few hundred feet of a business businesses using wireless technology. is an interesting new technology firms are using to segment buyers geographically and target them within a few hundred feet of their businesses using wireless technology. In some areas, you can switch your mobile phone to a “discoverable mode,” while you’re shopping and, if you want, get ads and deals from stores as you pass by them. And it’s often less expensive than hiring people to hand you a flier as you walk by.“Bluetooth Proximity Marketing,” April 24, 2007, http://bluetomorrow.com/bluetooth-articles/marketing-technologies/bluetooth-proximity-marketing.html (accessed December 2, 2009).

In addition to figuring out where to locate stores and advertise to customers in that area, geographic segmentation helps firms tailor their products. Chances are you won’t be able to find the same heavy winter coat you see at a Walmart in Montana at a Walmart in Florida because of the climate differences between the two places. Market researchers also look at migration patterns to evaluate opportunities. TexMex restaurants are more commonly found in the southwestern United States. However, northern states are now seeing more of them as more people of Hispanic descent move northward.

Segmenting by Psychographics

If your offering fulfills the needs of a specific demographic group, then the demographic can be an important basis for identifying groups of consumers interested in your product. But what if your product crosses several market segments? Take cereal, for example. The group of potential consumers could be “almost” everyone. However, there are groups of people who have different needs with regard to their cereal. Some consumers might be interested in the fiber, some consumers (especially children) may be interested in the prize that comes in the box, other consumers may be interested in the added vitamins, and still other consumers may be interested in the type of grains. Associating these specific needs with consumers in a particular demographic group could be difficult. Marketing professionals often desire more information about consumers than just demographic data. You want to know why consumers behave the way they do, what is of high priority to them, or how they rank the importance of specific buying criteria. Think about some of your friends who seem a lot like you. Have you ever gone their homes and been shocked by their lifestyles and how vastly different they are from yours? Why are their families so much different from yours?

Psychographic segmentationSegmenting people by their activities, interests, opinion, attitudes, values, and lifestyles. can help fill in some of the blanks. Recall that we first mentioned psychographics in Chapter 3 "Consumer Behavior: How People Make Buying Decisions". Psychographic information is frequently gathered via extensive surveys that ask people about their activities, interests, opinion, attitudes, values, and lifestyles. One of the most well-known psychographic surveys is VALS (which originally stood for “Values, Attitudes, and Lifestyles”), developed by a company called SRI International in the late 1980s. Thousands of Americans were asked by the California company the extent to which they agreed or disagreed with questions similar to the following ones: “My idea of fun at a national park would be to stay at an expensive lodge and dress up for dinner” and “I could stand to skin a dead animal.”James H. Donnelly, preface to Marketing Management, 9th ed., by J. Paul Peter (New York: McGraw-Hill Professional, 2002), 79. (Which category do you fall into?) Consumers were then divided up into the following categories, each characterized by certain buying behaviors.

• Innovators. Innovators are successful, sophisticated, take-charge people with high self-esteem. Because they have such abundant resources, they exhibit all three primary motivations in varying degrees. They are change leaders and are the most receptive to new ideas and technologies. Innovators are very active consumers, and their purchases reflect cultivated tastes for upscale, niche products and services. Image is important to Innovators, not as evidence of status or power but as an expression of their taste, independence, and personality. Innovators are among the established and emerging leaders in business and government, yet they continue to seek challenges. Their lives are characterized by variety. Their possessions and recreation reflect a cultivated taste for the finer things in life.
• Thinkers. Thinkers are motivated by ideals. They are mature, satisfied, comfortable, and reflective people who value order, knowledge, and responsibility. They tend to be well educated and actively seek out information in the decision-making process. They are well informed about world and national events and are alert to opportunities to broaden their knowledge. Thinkers have a moderate respect for the status quo institutions of authority and social decorum but are open to consider new ideas. Although their incomes allow them many choices, Thinkers are conservative, practical consumers; they look for durability, functionality, and value in the products they buy.
• Achievers. Motivated by the desire for achievement, Achievers have goal-oriented lifestyles and a deep commitment to career and family. Their social lives reflect this focus and are structured around family, their place of worship, and work. Achievers live conventional lives, are politically conservative, and respect authority and the status quo. They value consensus, predictability, and stability over risk, intimacy, and self-discovery. With many wants and needs, Achievers are active in the consumer marketplace. Image is important to Achievers; they favor established, prestige products and services that demonstrate success to their peers. Because of their busy lives, they are often interested in a variety of timesaving devices.
• Experiencers. Experiencers are motivated by self-expression. As young, enthusiastic, and impulsive consumers, Experiencers quickly become enthusiastic about new possibilities but are equally quick to cool. They seek variety and excitement, savoring the new, the offbeat, and the risky. Their energy finds an outlet in exercise, sports, outdoor recreation, and social activities. Experiencers are avid consumers and spend a comparatively high proportion of their income on fashion, entertainment, and socializing. Their purchases reflect the emphasis they place on looking good and having “cool” stuff.
• Believers. Like Thinkers, Believers are motivated by ideals. They are conservative, conventional people with concrete beliefs based on traditional, established codes: family, religion, community, and the nation. Many Believers express moral codes that are deeply rooted and literally interpreted. They follow established routines, organized in large part around home, family, community, and social or religious organizations to which they belong. As consumers, Believers are predictable; they choose familiar products and established brands. They favor American products and are generally loyal customers.
• Strivers. Strivers are trendy and fun loving. Because they are motivated by achievement, Strivers are concerned about the opinions and approval of others. Money defines success for Strivers, who don’t have enough of it to meet their desires. They favor stylish products that emulate the purchases of people with greater material wealth. Many see themselves as having a job rather than a career, and a lack of skills and focus often prevents them from moving ahead. Strivers are active consumers because shopping is both a social activity and an opportunity to demonstrate to peers their ability to buy. As consumers, they are as impulsive as their financial circumstance will allow.
• Makers. Like Experiencers, Makers are motivated by self-expression. They express themselves and experience the world by working on it—building a house, raising children, fixing a car, or canning vegetables—and have enough skill and energy to carry out their projects successfully. Makers are practical people who have constructive skills and value self-sufficiency. They live within a traditional context of family, practical work, and physical recreation and have little interest in what lies outside that context. Makers are suspicious of new ideas and large institutions such as big business. They are respectful of government authority and organized labor but resentful of government intrusion on individual rights. They are unimpressed by material possessions other than those with a practical or functional purpose. Because they prefer value to luxury, they buy basic products.
• Survivors. Survivors live narrowly focused lives. With few resources with which to cope, they often believe that the world is changing too quickly. They are comfortable with the familiar and are primarily concerned with safety and security. Because they must focus on meeting needs rather than fulfilling desires, Survivors do not show a strong primary motivation. Survivors are cautious consumers. They represent a very modest market for most products and services. They are loyal to favorite brands, especially if they can purchase them at a discount.“U.S. Framework and VALS™ Type,” Strategic Business Insights, http://www.strategicbusinessinsights.com/vals/ustypes.shtml (accessed December 2, 2009).

You can take a VALS survey at http://www.sric-bi.com/vals/surveynew.shtml to find out which category you’re in. VALS surveys have been adapted and used to study buying behavior in other countries, too. Note that both VALS and PRIZM group buyers based on their values and lifestyles. But PRIZM also overlays the information with geographic data. As a result, you can gauge what the buying habits of people in certain zip codes are, which can be helpful if you are trying to figure out where to locate stores and retail outlets.

The segmenting techniques we’ve discussed so far in this section require gathering quantitative information—data, in other words. Quantitative information can be improved with and qualitative information you gather by talking to your customers and getting to know them. (Recall that this is how Healthy Choice frozen dinners were created.) Consumer insightAn understanding of consumers that results when both quantitative and qualitative information are gathered about them. is what results when you use both types of information. You want to be able to answer the following questions:

• Am I looking at the consumers they way they see themselves?
• Am I looking at life from their point of view?

Best Buy asked store employees to develop insight about local consumer groups in order to create special programs and processes for them. Employees in one locale invited a group of retirees to their store to explain how to make the switch to digital television. The store sold $350,000 worth of equipment and televisions in just two hours’ time. How much did it cost? Ninety-nine dollars in labor costs plus coffee and donuts.

Intuit, the company that makes the tax software Quicken, has a “follow me home” program. Teams of engineers from Intuit visit people’s homes and spend a couple of hours watching consumers use Quicken. Then they use the insights they gain to improve the next version of Quicken. Contrast this story with that of a competing firm: When a representative of the firm was asked if he had ever observed consumers installing or using his company’s product, he responded, “I’m not sure I’d want to be around when they were trying to use it.”Eric Nee, “Due Diligence: The Customer Is Always Right,” CIO Insight, May 23, 2003. This company is now struggling to stay in business.

To read about some of the extreme techniques Nokia uses to understand cell phone consumers around the world, click on the following link: http://www.nytimes.com/2008/04/13/magazine/13anthropology-t.html?pagewanted=all.

Segmentation in B2B Markets

Many of the same bases used to segment consumer markets are also used to segment B2B markets. Demographic criteria are used. For example, Goya Foods is a U.S. food company that sells different ethnic products to grocery stores, depending on the demographic groups the stores serve—Hispanic, Mexican, or Spanish. Likewise, B2B sellers often divide their customers by geographic areas and tailor their products to them accordingly. Segmenting by behavior is common as well. B2B sellers frequently divide their customers based on their product usage rates. Customers that order many goods and services from a seller often receive special deals and are served by salespeople who call on them in person. By contrast, smaller customers are more likely to have to rely on a firm’s Web site, customer service people, and salespeople who call on them by telephone.

However, researchers Matthew Harrison, Paul Hague, and Nick Hague have theorized that there are fewer behavioral and needs-based segments in B2B markets than in business-to-consumer (B2C) markets for two reasons: (1) business markets are made up of a few hundred customers whereas consumer markets can be made up of hundreds of thousands of customers, and (2) businesses aren’t as fickle as consumers. Unlike consumers, they aren’t concerned about their social standing, influenced by their families and peers, and so on. Instead, businesses are concerned solely with buying products that will ultimately increase their profits.

According to Harrison, Hague, and Hague, the behavioral, or needs-based, segments in B2B markets include the following:

• A price-focused segment composed of small companies that have low profit margins and regard the good or service being sold as not being strategically important to their operations
• A quality and brand-focused segment composed of firms that want the best possible products and are prepared to pay for them
• A service-focused segment composed of firms that demand high-quality products and have top-notch delivery and service requirements
• A partnership-focused segment composed of firms that seek trust and reliability on the part of their suppliers and see them as strategic partnersMatthew Harrison, Paul Hague, and Nick Hague, “Why Is Business-to-Business Marketing Special?”(whitepaper), B2B International, http://www.b2binternational.com/library/whitepapers/whitepapers04.php (accessed January 27, 2010).

B2B sellers, like B2C sellers, are exploring new ways to reach their target markets. Trade shows, which we discuss in more detail later in the book, and direct mail campaigns are two traditional ways of reaching B2B markets. Now, however, firms are finding they can target their B2B customers more cost effectively via e-mail campaigns, search-engine marketing, and “fan pages” on social networking sites like Facebook. Companies are also creating blogs with cutting-edge content about new products and business trends their customers are interested in. And for the fraction of the cost of attending a trade show to exhibit their products, B2B sellers are holding Webcasts and conducting online product demonstrations for potential customers.

Selecting Target Markets

After you segment buyers and develop a measure of consumer insight about them, you can begin to see those that have more potential. Now you are hunting with a rifle instead of a shotgun. The question is, do you want to spend all day hunting squirrels or ten-point bucks? An attractive market has the following characteristics:

• It’s sizeable enough to be profitable given your operating cost. Only a tiny fraction of the consumers in China can afford to buy cars. However, because the country’s population is so large (nearly 1.5 billion people), more cars are sold in China than in Europe (and in the United States, depending on the month). Three billion people in the world own cell phones. But that still leaves three billion who don’t.Sara Corbett, “Can the Cellphone Help End Global Poverty?” New York Times Magazine, April 13, 2008, http://www.nytimes.com/2008/04/13/magazine/13anthropology-t.html?pagewanted=all (accessed December 2, 2009).
• It’s growing. For example, the middle class of India is growing rapidly, making it a very attractive market for consumer products companies. People under thirty make up the majority of the Indian population, fueling the demand for “Bollywood” (Indian-made) films.
• It’s not already swamped by competitors, or you have found a way to stand out in a crowd. IBM used to make PCs. However, after the marketplace became crowded with competitors, IBM sold the product line to a Chinese company called Lenovo. (Recall from Chapter 2 "Strategic Planning" that this is part of assessing the competitive environment.)
• Either it’s accessible or you can find a find a way to reach it. Accessibility, or the lack of it, could include geographic accessibility, political and legal barriers, technological barriers, or social barriers. For example, to overcome geographic barriers, the consumer products company Unilever hires women in third-world countries to distribute the company’s products to rural consumers who lack access to stores. (See the discussion in Chapter 2 "Strategic Planning" about assessing the external environment.)
• You have the resources to compete in it. You might have a great idea to compete in the wind-power market. However, it is a business that is capital intensive. What this means is that you will either need a lot of money or must be able to raise it. You might also have to compete with the likes of T. Boone Pickens, an oil tycoon who is attempting to develop and profit from the wind-power market. Does your organization have the resources to do this? (See the discussion in Chapter 2 "Strategic Planning" about assessing the internal environment.)
• It “fits in” with your firm’s objectives and mission. Consider TerraCycle, which has made its mark by selling organic products in recycled packages. Fertilizer made from worm excrement and sold in discarded plastic beverage bottles is just one of its products. It wouldn’t be a good idea for TerraCycle to open up a polluting, coal-fired power plant, no matter how profitable the market for the service might be.

Target-Market Strategies: Choosing the Number of Markets to Target

Henry Ford proved that mass marketing can work—at least for a while. Mass marketing is also efficient because you don’t have to tailor any part of the offering for different groups of consumers, which is more work and costs more money. The problem is that buyers are not all alike. If a competitor comes along and offers these groups a product (or products) that better meet their needs, you will lose business.

Multisegment Marketing

Most firms tailor their offerings in one way or another to meet the needs of different segments of customers. Because these organizations don’t have all their eggs in one basket, they are less vulnerable to competition. Marriott International is an example of a company that operates in a multisegment market. The company has fifteen different types of facilities designed to meet the needs of different types of market segments, including the following:

• Marriott Courtyard. Targeted at over-the-road travelers.
• Ritz-Carlton Hotels. Targeted at luxury travelers.
• Marriott Conference Centers. Targeted at businesses hosting small- and midsized meetings.
• Marriott ExecuStay. Targeted at executives needing month-long accommodations.
• Marriott Vacation Clubs. Targeted at travelers seeking to buy timeshares.

A multisegment marketingTargeting multiple groups of consumers. strategy can allow you to respond to demographic and other changes in markets. For example, the growing number of people too old to travel have the option of moving into one of Marriott’s “Senior Living Services” facilities, which cater to retirees who need certain types of care. A multisegment strategy can also help you weather an economic downturn by allowing customers to trade up or down among your brands and products. Suppose you take a pay cut and can’t afford to stay at Marriott’s Ritz-Carlton hotels anymore. A room at a JW Marriott—the most luxurious of the Marriott-brand hotels but cheaper than the Ritz—is available to you. A multisegment strategy can also help you deal with the product life cycle issues discussed in Chapter 2 "Strategic Planning". If one of your products is “dying out,” you have others to fall back on.

Concentrated Marketing

Some firms—especially smaller ones with limited resources—engage in concentrated marketing. Concentrated marketingTargeting a very select group of customers. involves targeting a very select group of customers. Concentrated marketing can be a risky strategy because you really do have all of your eggs in one basket. The auto parts industry is an example. Traditionally, many North American auto parts makers have supplied parts exclusively to auto manufacturers. But when General Motors, Ford, Chrysler, and other auto companies experienced a slump in sales following the recession that began in 2008, the auto parts makers found themselves in trouble. Many of them began trying to make and sell parts for wind turbines, aerospace tools, solar panels, and construction equipment.Bernad Simon, “Alternative Routes For Survival,” Financial Times, April 23, 2009, 8.

Niche marketingTargeting an extremely select group of consumers. involves targeting an even more select group of consumers. When you’re engaging in niche marketing, your goal is to be a big fish in a small pond instead of a small fish in a big pond.“Niche Marketing,” BusinessDictionary.com, http://www.businessdictionary.com/definition/niche-marketing.html (accessed December 2, 2009). Some examples of companies operating in niche markets include those shown in Table 5.5 "Companies That Operate in Niche Markets".

MicrotargetingThe process of gathering multiple sources of data available on people, everything from their tax and phone records to the catalogs they receive, so as to market to them., or narrowcasting, is a new effort to isolate markets and target them. It was originally used to segment voters during elections, including the 2004 U.S. presidential election. Microtargeting involves gathering all kinds of data available on people—everything from their tax and phone records to the catalogs they receive. One company that compiles information such as this is Acxiom. For a fee, Acxiom can provide you with a list of Hispanic consumers who own two pets, have caller ID, drive a sedan, buy certain personal care products, subscribe to certain television cable channels, read specified magazines, and have income and education levels within a given range.Leon Schiffman and Leslie Kanuk, Consumer Behavior, 10th ed. (Upper Saddle River, NJ: Prentice Hall, 2010), 80. Clearly, microtargeting has ethical implications. Data privacy issues will be discussed more in Chapter 14 "Customer Satisfaction, Loyalty, and Empowerment".

Targeting Global Markets

Firms that compete in the global marketplace can use any combination of the segmenting strategies we discussed or none at all. A microcosm of the targeting strategies used in global markets is shown in Figure 5.9 "Targeting Strategies Used in Global Markets". If you’re a seller of a metal like iron ore, you might sell the same product across the entire world via a metals broker. The broker would worry about communicating with customers around the world and devising different marketing campaigns for each of them.

Figure 5.9 Targeting Strategies Used in Global Markets

Most companies, however, tailor their offerings to some extent to meet the needs of different buyers around the world. For example, Mattel sells Barbie dolls all around the world—but not the same Barbie. Mattel has created thousands of different Barbie offerings designed to appeal to all kinds of people in different countries.

Pizza Hut has franchises around the world, but its products, packaging, and advertising are tailored to different markets. Squid is a popular topping in Asia, for instance. Companies tailor products not only for different countries but also for different customers in different countries. For example, Procter & Gamble’s China division now offers products designed for different local market segments in that country. P&G has an advanced formulation of laundry detergent for the premium segment, a modified product for the second (economy) segment, and a very basic, inexpensive product created for the third (rural) segment.Dan Sewell, “P&G May Make Changes as it Faces Challenges,” The Associated Press, June 9, 2009.

Sellers are increasingly targeting consumers in China, Russia, India, and Brazil because of their fast-growing middle classes. Take the cosmetics maker Avon. Avon’s largest market is no longer the United States. It is Brazil. Brazilians are extremely looks-conscious and increasingly able to afford cosmetic products as well as plastic surgery.Jonathan Wheatley, “Business of Beauty Is Turning Heads in Brazil,” Financial Times, January 20, 2010, 5. So attractive are these countries that firms are changing how they develop goods and services, too. “Historically, American companies innovated in the U.S. and took those products abroad,” says Vjay Govindarahan, a professor at Dartmouth’s Tuck School of Business. Now, says Govindarahan, companies are creating low-cost products to capture large markets in developing countries and then selling them in developed countries. Acer’s $250 laptop and General Electric’s ultrainexpensive $1,000 electrocardiogram device are examples. The world’s cheapest car, the $2,500 Tato Nano, was developed for India but is slated to be sold in the United States.Daniel, McGinn, “Cheap, Cheap, Cheap,” Newsweek, February 2010, 10.

Other strategies for targeting markets abroad include acquiring (buying) foreign companies or companies with large market shares there. To tap the Indian market, Kraft made a bid to buy the candymaker Cadbury, which controls about one-third of India’s chocolate market. Likewise, to compete against Corona beer, the Dutch brewer Heineken recently purchased Mexico’s Femsa, which makes the beer brands Dos Equis, Tecate, and Sol.Michael J. de la Merced and Chris V. Nicholson, “Heineken in Deal to Buy Big Mexican Brewer,” New York Times, January 11, 2010, http://www.nytimes.com/2010/01/12/business/global/12beer.html (accessed January 26, 2010). However, some countries don’t allow foreign firms to buy domestic firms. They can only form partnerships with them. Other regulatory and cultural barriers sometimes prevent foreign firms from “invading” a country. IKEA, the Swedish home-furnishings maker, eventually left Russia because it found it too hard to do business there. By contrast, McDonald’s efforts to expand into Russia have been quite successful. Having saturated other markets, the hamburger chain is hoping to continue to grow by opening hundreds of new stores in the country.