Chapter 7 - Segmentation, target marketing, and positioning

buying power

A concept in segmentation that can help marketers to determine how to better match different products and versions of products to different consumer groups based on an understanding of what discretionary and nondiscretionary allocations of funds they are able to make.

7.1 target marketing: select and enter a market

7.1 Identify the steps in the target marketing process. Way back in Chapter 1, we defined a market as all the customers and potential customers who share a common need that can be satisfied by a specific product, who have the resources to exchange for it, who are willing to make the exchange, and who have the authority to make the exchange. At this point in your study of marketing, you know that key goals of the marketer are to create value, build customer relationships, and satisfy needs. But in our modern, complex society, it's naive to assume that everyone's needs are the same—even for a pair of blue jeans. Today, it's a complex task to understand people's differing needs because technological and cultural advances create a condition of market fragmentation. This means that people's diverse interests and backgrounds naturally divide them into numerous groups with distinct needs and wants. Because of this diversity, the same good or service will not appeal to everyone. Consider, for example, the effects of fragmentation in higher education. Before you faced the big decision of which classes to register for, including this one, you had the even bigger task of deciding which one of the numerous types of colleges or universities you would attend. Not only did you have the more traditional schools to choose from—community or technical colleges and public or private four-year schools. You also had for-profit schools, such as Kaplan University and Capella University, as well as numerous online-only schools, such as Western Governors University. Each of these institutions of higher learning serves a different market need, and what may meet your needs currently might not meet your needs in the future. Fortunately, there are plenty of options to choose from, depending on your abilities, background, and of course the old checkbook! In Chapter 3, you learned the term mass market, meaning all possible customers in a market regardless of the differences in their specific needs and wants. Marketers must balance the efficiency of mass marketing, where they can offer the same items to everyone, with the effectiveness that comes when they offer each individual exactly what he or she wants. Mass marketing certainly costs much less—when we offer one product to everyone, we eliminate the need for separate advertising campaigns and distinctive packages for each item. However, consumers see things differently. From their perspective, the best strategy would be to offer the perfect product just for them. Unfortunately, that's often not realistic. For 40 years, Burger King's motto was "Have it your way," which basically was a dig at McDonald's "one size fits all" burger menu. However, fast-forward to fast food in today's market—everything is about meal bundling, price menus, and convenience. Burger King's recent slogan is "Take a break from boredom," which, decoded, means they flame grill their burgers and that makes them different!1 Creating differences in products in order to meet different consumer needs and wants is the theme of this chapter. That is, instead of trying to sell the same thing to everyone, marketers select a target marketing strategy in which they divide the total market into different segments based on customer characteristics, select one or more segments, and develop products to meet the needs of those specific segments. Figure 7.1 illustrates the three-step process of segmentation, targeting, and positioning, and it's what we're going to check out in this chapter. Let's start with the first step—segmentation.

7.2 step 1: segmentation

7.2 Understand the need for market segmentation and the approaches available to do it. Segmentation is the process of dividing a larger market into smaller pieces based on one or more meaningful, shared characteristics. This process is a way of life for almost all marketers in both consumer and business-to-business markets. The truth is that you can't please all the people all the time, so you need to take your best shot. Marriott, for example, segments its market as it offers 30 separate brands that range from the value-oriented Courtyard to the deluxe Ritz-Carlton. Newer brands include the Moxy chain in partnership with IKEA and the uber-hip Edition hotels it is opening in partnership with Ian Schrager, who created the boutique hotel concept in the 1980s and is most famous for his Studio 54 disco.2 Just how do marketers segment a population? How do they divide the whole pie into smaller slices they can "digest"? The marketer must decide on one or more useful segmentation variables—that is, dimensions that divide the total market into fairly homogeneous groups, each with different needs and preferences. In this section, we'll take a look at this process, beginning with the types of segmentation variables that marketers use to divide up end-user consumers. Then, we'll move on to business-to-business segmentation. Segment Consumer Markets At one time, it was sufficient to divide the sports shoe market into athletes and non-athletes. But take a walk through any sporting goods store today and you'll quickly see that the athlete market has fragmented in many directions. Shoes designed for jogging, basketball, tennis, cycling, cross-training, and even skateboarding beckon us from the aisles. We need several segmentation variables if we want to slice up the market for all the shoe variations available today. First, not everyone is willing or able to drop several hundred bucks on the latest sneakers, so marketers consider income. (Note: A pair of Chanel x Pharrell Williams x adidas Originals will set you back almost $11,000!).3 Second, men may be more interested in basketball shoes for shooting hoops with the guys, whereas women snap up the latest Pilates styles, so marketers also consider gender. Because not all age groups are equally interested in buying specialized athletic shoes, we slice the larger consumer "pie" into smaller pieces in a number of ways, including demographic, psychographic, and behavioral differences. In the case of demographic segmentation, there are several key subcategories of demographics: age (including generational differences), gender, family life cycle, income and social class, ethnicity, and place of residence, sometimes referred to separately as geographic segmentation. Figure 7.2 summarizes the dominant approaches to segmenting consumer markets. In the sections that follow, we'll consider each of these segmentation approaches in turn, but first a note of caution. When it comes to marketing to some groups—in particular, lower-income individuals, the poorly educated, nonnative-language speakers, and children—it is incumbent on marketers to exercise the utmost care not to take undue advantage of their circumstances. In Chapter 2, we introduced a global segment called the bottom of the pyramid (BOP), which is the collective name for the group of more than 4 billion consumers throughout the world who live on less than $2 a day. Ethical marketers must be sensitive to the different conditions in which people find themselves and proactively work to uphold a high level of honesty and trust with all segments of the public. Doing so is nothing short of marketing's social responsibility. One other caveat is needed before we jump into our discussion of different market segments. Identifying segments is not, repeat not, intended by marketers as a form of stereotyping. The idea of segmenting markets is to identify groups of consumers with similar needs so that marketing to them can be done more efficiently and effectively versus a mass-market approach. That doesn't necessarily mean that we want to pigeonhole a group of people because they happen to share an important characteristic, such as gender or race. Demographic Segmentation: By Age As we stated in Chapter 2, demographics are statistics that measure observable aspects of a population, including size, age, gender, ethnic group, income, education, occupation, and family structure. These descriptors are vital to identify the best potential customers for a good or service. Because they represent objective characteristics, they usually are easy to identify, and then it's just a matter of tailoring messages and products to relevant age groups. Consumers of different age groups have different needs and wants. Members of a generation tend to share the same outlook, values, and priorities. When these characteristics are combined for purposes of market segmentation and targeting, such an approach is called generational marketing. For example, children are an attractive age segment for many marketers. Although kids obviously have a lot to say about purchases of toys and games, they influence other family purchases as well (just watch them at work in the grocery store!). According to a recent YouGov Omnibus survey, 42 percent of parents said that they gave in to a child's request to buy a product when the child put substantial effort into arguing for the purchase. Savvy children are famous for negotiation tactics such as promising to do more chores or to work harder in school to get better grades.4 It's not hard to see how these persuasive little guys could quickly wear down a parent's resistance—buying the item is easier than fighting the fight. For Netflix, developing content to win over children to the platform has become a key strategy. The company developed 20 out of 70 "Netflix Original" programs specifically for children. Netflix recognizes the importance of this segment in cementing its position as the main source of entertainment for families and as a key source of growth in delivering long-term customer value.5 Generation Z (or iGen) describes individuals who were born after 1994. This is the first generation of the 21st century, and it's the most diverse we've ever experienced: 55 percent are Caucasian, 24 percent are Hispanic, 14 percent are African American, and 4 percent are Asian. They are accustomed to blurred gender roles, where household responsibilities don't split along traditional lines. And, of course, they are digital natives who spend a big chunk of their time online, so they expect brands to engage them in two-way digital conversations. Marketers are just starting to figure out what this new group of youngsters will be like as consumers. Having grown up during the Great Recession, they are not as likely to believe in an idealized, carefree world. They research brands via their devices before they shop, and then they seek out retailers that offer new technologies in-store, such as smartphone self-checkout, interactive shopping screens, and virtual try-on for clothing.6 They learn about new styles from around the globe via social media, so they are equally at home watching The Hunger Games or listening to Korean K-pop. Their idols are "self-made" Internet stars like the Swedish video producer PewDiePie, who has the world's most subscribed-to YouTube channel, and the teenage video sensation Evan, who has 25 million followers.7 Generation Z wields up to $143 billion in spending power, without accounting for their influence on other household purchases. Their peers inspire many of these purchases, so online and social media reviews are more important than ever to retailers.8 Much of this money goes toward "feel-good" products: music, video games, cosmetics, and fast food—with the occasional tattoo or hookah pen thrown in as well. Because this generation is so interested in many different products and have the resources to obtain them, many marketers avidly court the teen market.9 Snapchat has designed a platform that contains cool features that appeal heavily to a younger crowd, including teenagers (for example, a feature that allows you to manipulate selfies by incorporating features of a unicorn into your face). The platform is designed to make it hard for one user (say, for instance, a parent) to eavesdrop on the activity of another user (say, for instance, the child of that parent) without knowing their username. Reliable tracking reports that 47 percent of U.S. teens claim Snapchat as their most important social app, followed by Instagram at a distant second at 24 percent.10 Generation Y, often called millennials or "echo boomers," consists of people born between the years 1979 and 1994. This age segment is the first generation to grow up online. Generation Y is an attractive market for a host of consumer products because of its size (approximately 25 percent of the population) and free-spending nature—as a group, it spends about $1.3 trillion annually.11 But Generation Y consumers can be hard to reach through traditional media because they resist reading and increasingly turn off the TV to opt instead for streaming video and digital video recordings. As a result, many marketers have had to develop other ways to reach this generation "where they live," which is in large measure through their smartphones and tablets, using social media and related technology. We'll talk more about the shift to new-age marketing communications techniques later in this book. We already know that Gen Yers are tech savvy, but what else defines them as a generation compared to past generations? A Pew Research study shows that compared to past generations (when they were in the same age range), Gen Yers are more racially diverse and more highly educated. In addition, a greater proportion of them have never been married when compared to other generations (68 percent compared to 56 percent for Generation X, which is the next closest generation).12 The group of consumers born between 1965 and 1978 consists of 46 million Americans known as Generation X, who unfortunately and undeservedly came to be called slackers or busters (for the "baby bust" that followed the "baby boom"). Many of these people have a cynical attitude toward marketing—a chapter in a famous book called Generation X is titled "I Am Not a Target Market!"13 Despite this tough reputation, members of Generation X, the oldest of whom are now in their early 50s, have mellowed with age. In retrospect, they also have developed an identity for being an entrepreneurial group. One study revealed that Gen Xers led much of the modern technology revolution, and now firms seek them out for their entrepreneurial talents. Many people in this segment were determined to have stable families after being brought up as latchkey children themselves as both their parents put in long days at work. Gen Xers tend to view the home as an expression of individuality rather than material success. More than half are involved in home improvement and repair projects.14 So much for Gen Xers as slackers! Baby boomers, consumers born between 1946 and 1964 and who are now in their 50s and 60s, are an important segment to many marketers—if for no other reason than that there are so many of them who have a lot of money. The baby boom occurred when soldiers came flooding home after World War II and there was a rush to get married and start families. Back in the 1950s and 1960s, couples started having children younger and had more of them than the previous generation. The resulting glut of kids really changed the infrastructure of the country: more single-family houses, more schools, migration to the suburbs, and freeways to commute from home to work. More recently, some research has suggested that it may be beneficial for marketers to treat this generational segment as two different groups for the purpose of considering their discretionary and nondiscretionary spending capabilities. A survey by Gallup indicates that there are significant differences between baby boomer spending for those born in the first half of the generation's age range ("leading-edge boomers") compared to those born in the second half of the generation's age range ("trailing-edge boomers"). In general, the trailing-edge boomers find themselves spending significantly more on nondiscretionary items (e.g., house maintenance, groceries, etc.) than their leading-edge boomer counterparts. One explanation for this difference in spending capabilities between these two groups may relate to differences in financial obligations. The older group of baby boomers (over age 60) may have reached a point where they are no longer paying off mortgages or higher education debts. For marketers that sell nondiscretionary products, this knowledge provides important guidance to develop marketing strategies.15 Currently, the U.S. Census Bureau estimates that there are slightly more than 49 million Americans aged 65 or older and they account for just over 15 percent of the population, an increase from prior years.16 To better accommodate the senior market, companies are changing their stores and their products. CVS, for example, introduced carpeting in its stores to reduce slipping, and Walgreens added magnifying glasses in aisles that featured products with fine print. Kimberly-Clark not only redesigned its Depends line to look more like regular underwear but also now shelves the product among other general hygiene products rather than in an "old person's" section of the store.17 Many mature consumers enjoy leisure time and continued good health. Indeed, a key question today is, "Just what is a senior citizen when people live longer and 80 is the new 60?" As we will see later in the chapter, perhaps it isn't age but rather lifestyle factors, including mobility, that best define this group. More and more marketers offer products that appeal to active-lifestyle seniors. And they often combine the product appeal with a nostalgic theme that includes music popular during the seniors' era of youth. People tend to prefer music that was released when they were teenagers or young adults. For years, Sandals Resorts, whose advertising imagery tends to favor boomers, has used the song "(I've Had) The Time of My Life" in commercials for its romantic vacation destinations in the Caribbean. The song, recorded by Bill Medley and Jennifer Warnes, was made famous in the classic 1987 movie Dirty Dancing. As nostalgia, it does double duty because the movie itself was set in 1963, so it conjures up memories of both the 1980s and the 1960s for this key boomer demographic segment for Sandals.18 And more recently, history repeated itself, as ABC presented a three-hour remake of the show starring Abigail Breslin of Little Miss Sunshine fame. Unfortunately, the attempt fell flat with both viewers and critics alike.19 Demographic Segmentation: By Gender Many products, from fragrances to fashion apparel and accessories, specifically appeal to men or women. Segmenting by gender starts at an early age—even diapers come in pink for girls and blue for boys. While society's perspective on gender has changed in recent years and there's been a shift toward less rigid and binary definitions of gender, most marketing continues to categorize products for men or for women. We'll explore this demographic segmentation as it stands now and has stood for many years, but take note of any marketing trends you see that reflect changing cultural attitudes in this realm. In some cases, manufacturers develop parallel products to appeal to each sex. For example, male grooming products have traditionally been Gillette's priority since the company's founder, King Gillette (yes, his first name was actually King), introduced the safety razor in 1903. But today, the Venus line by Gillette is a top-selling razor for women of all ages. A small microbrewer in California called SHE Beverage Co. applied to register with the U.S. Patent and Trademark Office the phrase "Queen of Beer," which it has been using on its website as well as in its social media communications. "The King of Beers"—Budweiser—contested the application and general use of the phrase on the grounds that it might cause confusion for consumers, resulting in drawing the incorrect conclusion that the beer is affiliated with the Anheuser-Busch company (and all of the brand benefits that come along with that association). SHE Beverage Co. recently has begun to sell its beers in restaurants and stores with a focus on the female consumer and the claim that its beers are made to better fit to female taste and style preferences that are underserved within the male-dominated beer market. SHE Beverage continues to pursue its trademark, vowing to keep up the fight so the company can communicate to female beer drinkers that this is beer formulated specifically with their preferences in mind.20 Metrosexual as a marketing buzzword gained steam beginning in the late 2000s. The term describes a straight, urban man who is keenly interested in fashion, home design, gourmet cooking, and personal care. Metrosexuals are usually well-educated urban dwellers who are in touch with their feminine side. Although many men are reluctant to overtly identify with the metrosexual, there's no denying that a renewed interest in personal care products, fashion accessories, and other "formerly feminine" product categories creates many marketing opportunities. Mainstream newspapers such as the New York Times offer regular segments dedicated to male fashion and grooming. And the Netflix show Queer Eye is a popular vehicle for the gay "Fab Five" cast to educate straight men about the metrosexual lifestyle. Recently, there's been broad acceptance and assimilation of the values and behaviors ascribed to metrosexuals within the mainstream market. Retailers have been making an extra effort to provide a more pleasurable experience to men who are spending more time on extensive in-store browsing and purchasing across product lines, in stark contrast to the quick in-and-out style of shopping primarily associated with men before. For instance, Kith, a men's sneaker store in New York, boasts ceramic Air Jordans hanging from the ceiling, shoes in glass cases like museum displays, and a walk-up bar that serves cereal and ice cream exclusively.21 The Great Recession that began in late 2007 was a shock to marketers, who had to quickly scramble to understand its impact on purchasing habits. An interesting trend related to gender segmentation fueled by the recession and its aftermath is that men now are increasingly likely to marry wives with more education and income than they have, and the reverse is true for women. In recent decades, with the rise of well-paid working wives, the economic gains of marriage have been a greater benefit for men. The education and income gap has grown even more in the latest recession, when men held about three in four of the jobs that were lost. In 1960, 13.5 percent of wives had husbands who were better educated, and 6.9 percent were married to men with less education. By 2012, the comparable figures were 19.9 percent and 20.7 percent—for the first time in history, more women "married down," educationally speaking, than men.22 In 1960, 6.2 percent of husbands had wives who made more money; in 2015, 38 percent did.23 Demographic Segmentation: By FamilyLife Cycle Because family needs and expenditures change over time, one way to segment consumers is to consider the stage of the family life cycle they occupy. (You learned about the family life cycle in Chapter 6.) Not surprisingly, consumers in different life cycle segments are unlikely to need the same products, or at least they may not need these things in the same quantities. Single-person households have grown over the years, influenced by such factors as changing views toward marriage and other shifting lifestyle choices. This trend is expected to continue to grow over time and is projected to have an impact on marketing in many industries, including housing and health care.24 A report from the research firm the NPD Group noted that recent growth in snack food consumption could be attributed largely to the growth in single-person households.25, 26 But not all attempts at marketing to the family life cycle succeed. Gerber once tried to market single-serving food jars to single seniors—a quick meal for one person who lives alone. The manufacturer called these containers "Singles." However, Gerber's strong identification with baby food worked against it: The product flopped because their target market was embarrassed to be seen buying baby food.27 As families age and move into new life stages, different product categories ascend and descend in importance. Young bachelors and newlyweds are the most likely to exercise, go to bars and movies, and consume alcohol (in other words, party while you can). Older couples and bachelors are more likely to use maintenance services. Seniors are a prime market for resort condominiums and golf products. Marketers need to identify the family life cycle segment of their target consumers by examining purchase data by family life cycle group. Cultural changes continually create new opportunities as people's roles change. For example, boomer women in their 60s are a hot new market for what the auto industry calls "reward cars": sexy and extravagant vehicles. Says president of Women-Drivers.com Anne Fleming, "As they graduate from baseball and ballerina mom, they are seizing their new-found freedom and buying sexy, indulgent 'me-mobiles.'"28 Demographic Segmentation: By Income and Social Class The distribution of wealth is of great interest to marketers because it determines which groups have the greatest buying power. Buying power can help marketers to determine how to better match different products and versions of products to different consumer groups based on an understanding of what discretionary and nondiscretionary allocations of funds they are able to make. After a more than 50-year run during which the truly wealthy just kept getting richer, the Great Recession took some of the wind out of their sails because of heavy investment losses. While at this writing, the losses have been moderated by a rebound in the stock market, that history of risk and volatility in investments has likely impacted the consumer behavior of the rich, just as it has other income segments. Twenty percent of U.S. households have an average income of $177,851, and marketers relish their discretionary spending. This group is far less likely than everyone else to be restrained by tight credit markets and a downturn in the economy. When compared to the lowest 20 percent of households based on income, the wealthy spend six times as much on education, four times more on both food and apparel, and three times more on housing.29 In the past, it was popular for marketers to consider social class segments, such as upper class, middle class, and lower class. However, many consumers buy not according to where they actually fall in that framework but rather according to the image they wish to portray. In recent years, luxury car manufacturers such as Mercedes, BMW, and Audi have developed versions of cars that are priced at less than half the price they charge for one of their traditional models. Seeking to attract consumers who view the brands as aspirational purchases, the approach has been so successful at increasing sales and market share that avant-garde electric car manufacturer Tesla unveiled a "low-end" Model III for less than half the price of its roadster to compete for these consumers, and the company can't keep up with the demand after getting blanketed with preorders.30 Demographic Segmentation: By Ethnicity A consumer's national origin is often a strong indicator of his or her preferences for specific magazines or TV shows, foods, apparel, and leisure activities. Marketers need to be aware of these differences and sensitivities—especially when they invoke outmoded stereotypes—to appeal to consumers of diverse races and ethnic groups. African Americans, Asian Americans, and Hispanic Americans are the largest ethnic groups in the U.S. The Census Bureau projects that by the year 2050, non-Hispanic whites will make up just less than 50 percent of the population (compared to 74 percent in 1995) as these other groups grow. Let's take a closer look at each of these important ethnic segments. African Americans comprise more than 13 percent of the U.S. population.31 Many marketers recognize the huge impact of this racial subculture and work hard to identify products and services that will appeal to these consumers. The movie industry is no exception—the blockbuster film Black Panther, starring a full African and African American cast, quickly earned over $1 billion worldwide within less than two months of its U.S. release, challenging the total revenues of both Star Wars: The Last Jedi and The Avengers. Its success reflects demographic changes in the U.S. that create opportunities for a diversity of ethnic characters.32 Although their numbers are still small relative to several other ethnicities, Asian Americans are the fastest-growing minority group in the U.S. Between 2000 and 2015, the Asian American population grew by 72 percent to reach over 20 million individuals. By 2055, Asian Americans are projected to make up a whopping 38 percent of all U.S. immigrants, making them the nation's largest immigrant group.33 Of course projections of this nature depend heavily on the direction in which U.S. immigration laws go over the next several years. For marketers, the Asian American segment is especially attractive given its substantial buying power, which is estimated to be $1 trillion. The average family income of Asian American households is $20 thousand higher than the U.S. average!34 BuzzFeed makes an effort to court Asian Americans by publishing content on topics and experiences highly relatable to this group, such as posts tailored to specific Asian subsegments, like "22 Signs You Grew up with Immigrant Chinese Parents" and "21 Annoying Comments Filipinos Are Tired of Hearing." This approach to delivering fresh and specifically relatable content to different segments enables BuzzFeed to connect with distinct cultural groups of Asian Americans as well as other types of consumer segments.35 It also makes BuzzFeed attractive to marketers who want to develop content marketing that will resonate with specific customer groups. This term refers to the strategy of establishing thought leadership in the form of bylines, blogs, commenting opportunities, videos, sharable social images, and infographics. A key departure is that these messages look like the kind of content that "ordinary" people post rather than the traditional advertising messages consumers are used to seeing. The Hispanic American population is a real emerging superstar segment for this decade, a segment that mainstream marketers today actively cultivate. Hispanics have overtaken African Americans as the nation's largest minority group, although the growth rate has leveled off.36 In the United States, Hispanic buying power has reached $1.4 trillion—nearly three times where the segment's buying power was in 2010. Hispanics now represent nearly 10 percent of total U.S. buying power!37 In addition to its rapid growth, five other factors make the Hispanic segment attractive to marketers: Hispanics tend to be brand loyal, especially to products made in their country of origin. They tend to be highly concentrated by national origin, which makes it easy to fine-tune the marketing mix to appeal to those who come from the same country. This segment is young (the median age of Hispanic Americans is 23.6, compared with the U.S. average of 32), which is attractive to marketers because it is a great potential market for youth-oriented products, such as cosmetics and music. The average Hispanic household contains 3.5 people, compared to only 2.7 people for the rest of the U.S. For this reason, Hispanic households spend 15 to 20 percent more of their disposable income than the national average on groceries and other household products. In general, Hispanic consumers are receptive to relationship-building approaches to marketing and selling. For this reason, there are many opportunities to build loyalty to brands and companies by emphasizing relationship aspects of the customer encounter.38 As with any ethnic group, appeals to Hispanic consumers need to take into account cultural differences. For example, Hispanics didn't appreciate the successful mainstream "Got Milk?" campaign because biting, sarcastic humor is not part of their culture. In addition, the notion of milk deprivation is not funny to a Hispanic mother—if she runs out of milk, this means she has failed her family. To make matters worse, "Got Milk?" translates as "Are you lactating?" in Spanish. Thus, new Spanish-language versions were changed to "And you, have you given them enough milk today?" with tender scenes centered on cooking flan (a popular pudding) in the family kitchen. And Taco Bell's "Yo quiero Taco Bell" uttering Chihuahua dog was put out to pasture years ago. It is not an overstatement to say that Latino youth are changing mainstream culture. Many of these consumers are "young biculturals" who bounce back and forth between hip-hop and rock en Español, blend Mexican rice with spaghetti sauce, and spread peanut butter and jelly on tortillas. In fact, we find many bicultural Hispanics in both younger and older age groups—one study reported that fully 44 percent of the Hispanic American population identifies as bicultural. Within that group there are those who place a greater emphasis on preserving their heritage and those who are more open to experimenting with it in the context of new cultural influences.39 One caution about the Hispanic market is that the term Hispanic itself actually is a misnomer. For example, Cuban Americans, Mexican Americans, and Puerto Ricans may share a common language, but their history, politics, and culture have many differences. Marketing to them as though they are a homogeneous segment can be a big mistake. However, the term is still widely used as a demographic descriptive. By 2020, the U.S. Census Bureau estimates, the number of Hispanic teens will grow by 62 percent, compared with 10 percent growth in teens overall. They seek spirituality, strong family ties, and color in their lives—three hallmarks of Latino culture. Music crossovers from the Latin charts to mainstream lead the trend, including pop idols Shakira, Enrique Iglesias, Marc Anthony, Jennifer Lopez, and Reggaeton sensation Daddy Yankee. An important outcome of the increase in multiethnicity is the opportunity for increased cultural diversity in the workplace and elsewhere. Cultural diversity—a management practice that actively seeks to include people of different sexes, races, ethnic groups, and religions in an organization's employees, customers, suppliers, and distribution channel partners—is now business as usual rather than an exception. Marketing organizations benefit from employing people of all kinds because they bring different backgrounds, experiences, and points of view that help the firm develop strategies for its brands that will appeal to diverse customer groups. Geographic Segmentation Recognizing that people's preferences often vary depending on where they live, many marketers tailor their offerings to specific geographic areas, an approach called geographic segmentation. Google Earth and other similar applications of a geographic information system (GIS) have ramped up geographic approaches to segmentation. A GIS system can elegantly combine a geographic map with digitally stored data about the consumers in a geographic area. Thus, market information by geographic location is much more convenient for use in market planning and decision making than ever before. When marketers want to segment regional markets even more precisely, they sometimes combine geography with demographics using the technique of geodemography. A basic assumption of geodemography is that "birds of a feather flock together"—people who live near one another share similar characteristics. Sophisticated statistical techniques identify geographic areas that share the same preferences for household items, magazines, and other products. This lets marketers construct segments of households with a common pattern of preferences. This way, they can hone in on those customers most likely to be interested in its specific offerings, in some cases so precisely that families living on one block will belong to a segment, whereas those on the next block will not. One widely used geodemographic system is PRIZM, which is a large database developed by Nielsen Claritas. This system classifies the U.S. population into 68 segments based on various socioeconomic data, such as income, age, race, occupation, education, and household composition as well as lifestyle attributes that are critical to marketing strategies; shopping patterns such as where they vacation, what they drive, and their favorite brands; and media preferences. The 68 segments range from the highly affluent "Young Digerati" and "Country Squires" to the lower-income "Family Thrifts" and "Park Bench Seniors" neighborhoods. To give you a flavor of what the profiles are like, here's one for Group 34, "Young & Influential," who are profiled as "midscale younger mostly without kids." Young & Influential is a segment of younger, lower middle-class households that might not have high incomes but are nonetheless influential in their communities and social networks and are very tech savvy. The segment is a common address for middle-class singles and couples who are more preoccupied with balancing work and leisure pursuits and who live in apartment complexes surrounded by ball fields, health clubs, and casual-dining restaurants. Sound like anyone you know? One interesting specific approach to location-based targeting is geotargeting, which is marketing to a set of specific users based on their current real-time location.40 A great example of this concept in action is a successful use of geotargeting by Campari America, a U.S.-based spirits company whose signature product is SKYY vodka. Campari targeted consumers between the ages of 21 and 34 while they were in neighborhoods with a high proportion of bars and restaurants during times when consumers are known to have a few drinks. The hook was a promotion for $5 off of a future Lyft ride. The deal was offered through carefully selected mobile apps that this targeted segment is known to use while out unwinding at restaurants and bars. The overall intention of the campaign was to both promote responsible behavior while out drinking and to increase awareness and favorable attitudes toward Campari and some of its staple brands of alcohol. More than 20 percent of those who received the offer chose to accept it, a very high rate of acceptance by digital advertising standards.41, 42 Metrics Moment It should be clear from your reading that geodemographic and related approaches to segmentation can be powerful and allow for a high level of precision in identifying potentially fruitful segments to target. When it comes to metrics, good data about the characteristics of the various consumer segments that you may wish to ultimately target is critical because target marketing is ultimately a strategic investment of resources in the segments that appear to have the best return on investment. To make the power of the geodemographic technique and resulting information for decision making come alive, let's try a demonstration of the PRIZM database that gets close to home. Apply the Metrics Go to the Claritas MyBestSegments website (search for the phrase "Claritas MyBestSegments" on any search engine). Click ZIP Code Look-up, and then type in your own ZIP Code and click Submit. Several segments should then come up that comprise your ZIP Code. Click each for more detail. You will also see some basic statistics on the segment, lifestyle and media traits, and demographics relative to your ZIP Code. What is your reaction to the segment profiles and other information about your ZIP code? Are you surprised with the results, or was it what you expected? Given the profile provided, what sort of products and services do you think are most likely to be particularly attractive to the segments represented? Ultimately, highly precise geodemographic segmentation enables marketers to practice micromarketing, which is the ability to identify and target small geographic segments that sometimes amount to just one or a few individuals—a concept closely related to that of one-to-one marketing, which you read about in Chapter 5. These elements are both enabled by CRM (customer relationship management), another topic in that chapter. Segment by Psychographics Demographic and geographic information is useful, but it does not always provide enough information to divide consumers into meaningful segments. Although we can use demographic variables to discover, for example, that on family visits to Walt Disney World in Orlando younger kids prefer the Magic Kingdom while mom and dad might rather spend the day country-hopping at EPCOT, savvy marketers (which Disney surely is!) know that preferences are more complex than just the demographic variable of customer age. In fact, really successful firms often combine approaches to segmentation, and one of the most useful and more sophisticated methods is to segment customers by psychographics. As we said in Chapter 6, psychographics segment consumers in terms of psychological and behavioral similarities, such as shared activities, interests, and opinions, or AIOs.43 Marketers often develop profiles of the typical customers for whom they desire to paint a more vivid picture. Although some marketers and their creative agencies develop their own psychographic techniques to classify customers, others subscribe to services that divide the entire U.S. population into segments and then provide this information to clients for use in proprietary marketing project applications, such as strategy planning. The best known of these systems is VALS™, which is a product of Strategic Business Insights (SBI). VALS™ divides U.S. adults into eight groups according to what drives them psychologically as well as by their economic resources. One segment that combines a psychographic/lifestyle component with a heavy dose of generational marketing is the gamer segment, sometimes referred to as the gamer generation—"gamer" as in "video games," of course. This group grew up playing video games as second nature for primary recreation, and as they have entered college and the workforce, they continue to carry many gaming sensibilities with them. Video gaming is clearly a lifestyle, and much as the company Google turned into the generic verb to google in the 2000s, in this decade, the buzz term du jour is gamification, which, as we saw in Chapter 6, is a strategy in which marketers apply game design techniques, often by awarding points or badges to nongame experiences, to drive consumer behavior (e.g., the gamification of practice exams where you might earn badges for getting right answers and then move to the next level of difficulty in your homework). And, by the way, just in case you didn't know, a badge is some type of milestone or reward a player earns when he or she progresses through a gamified application. And . . . you're a participant in a gamification strategy if you're a Starbucks Rewards member. In that case you accumulate "stars" with each latte you buy that you can redeem for prizes, like free refills. Marketers would be wise to think about what sorts of badges might appeal to the gamer segment as this segment becomes more and more engaged as consumers who are highly likely to do much of their shopping online. Segment by Behavior People may use the same product for different reasons, on different occasions, and in different amounts. So, in addition to demographics and psychographics, it is useful to study what consumers actually do with a product. Behavioral segmentation slices consumer segments on the basis of how they act toward, feel about, or use a product. One way to segment on the basis of behavior is to divide the market into users and nonusers of a product. Then, marketers may attempt to reward current users or try to win over new ones. In addition to distinguishing between users and nonusers, marketers can describe current customers as heavy, moderate, and light users. They often do this according to a rule of thumb we call the 80/20 rule: 20 percent of purchasers account for 80 percent of the product's sales (the ratio is an approximation, not gospel). This rule means that it often makes more sense to focus on the smaller number of people who are really into a product rather than on the larger number who are just casual users. The 80/20 rule brings the concept of customer loyalty to the forefront. In many product categories, we see fierce competition among rival firms to keep their critical 20 percent loyalists highly engaged and connected with the brand and thus much less likely to switch to a competitor's offering. The competitive intensity to attract and keep loyal customers is very high, and Starbucks remains one of the trend setters. The Starbucks Rewards program we just mentioned blends loyalty, convenience, and services by offering rewards for customer behaviors the firm wants to see reinforced. Members earn stars for the frequency and amount of purchase, and receive benefits such as customized beverages, free upgrades, members-only happy hours and "jumping the line" perks. Starbucks Rewards ensures that customers are fully integrated with the Starbucks app for mobile payment. The goal is to make these top customers as "sticky" to Starbucks as possible. In fact, customer stickiness has actually become part of common lexicon in marketing, and it means just what you'd expect: that you have a strong bond to a particular brand. In the end, Starbucks Rewards members spend an incredible three times more with the company than the average customer!44 Such deep attention through their loyalty programs to not just increased purchase but also to enhancing the broader customer experience has sparked the new buzzword experiential loyalty. Marketers crave this because customers who have a very close relationship-driven experience with a brand and offering tend to yield the highest customer lifetime value (CLV), which was discussed in Chapter 5. The concept of CLV may sound similar to that of ROMI (return on marketing investment), which you learned about in Chapter 3, but there's actually a big difference. ROMI is about the success of marketing investments on a large scale at the overall firm level. In contrast, CLV tracks data at the individual customer level. This is accomplished when firms can link engagement level and purchases to specific customers, and a key way firms do this is through customer data from their loyalty programs. A related concept to the 80/20 rule and customer loyalty and stickiness in behavioral segmentation is usage rate, which reflects the quantity purchased or frequency of use among consumers of a particular product or service. The highest-use segments are often incredibly profitable over the long run and may contribute the majority of profits to a particular offering's bottom line. Although the 80/20 rule and its related concepts still hold true in the majority of situations, the Internet's ability to offer an unlimited choice of goods to billions of people has changed how marketers think about segmentation. An approach called the long tail turns traditional thinking about the virtues of selling in high volume on its head. The basic idea is that we need no longer rely solely on big hits (like blockbuster movies or best-selling books) to find profits. Companies can also make money when they sell small amounts of items that only a few people want—if they sell enough different items. For many companies, the selling of digital products that can be transferred to purchasers through an Internet connection helps to support a long-tail approach because it reduces the cost of storage of products and allows for the fulfillment of consumer demand on an as-needed basis. Amazon, the Apple iTunes Store, and the Google Play Store are prime examples of sites that are set up to be able to benefit from the large and small sales of a wider array of goods, which should also benefit both the big and small sellers that offer products through their platforms. Another way to segment a market on the basis of behavior is to look at usage occasions, or when consumers use the product most. We associate many products with specific occasions, whether time of day, holidays, business functions, or casual get-togethers. Businesses often divide up their markets according to when and how their offerings are in demand. Ruth's Chris Steakhouse is by far the market leader in the high-end steak restaurant category, featuring USDA prime beef as its signature dish. Ruth's is well aware that it is a special-occasion location—graduations, birthdays, promotions, you name it—and folks want to celebrate at Ruth's. And they are all too happy to accommodate, often surprising guests with special table decorations for the occasion and a nice dessert treat, compliments of the chef. And in the online space, Google enables its advertising clients to target certain ads to certain segments of search engine users based on data such as Google domain, query entered, IP address, and language preference. This way, companies can have Google automatically sort and send the intended ad to certain market segments. Thus, it is possible for advertisers on Google to tailor their automatically targeted ads based on seasonality—you will see more TurboTax ads on Google pages during tax season, even if people aren't querying about tax software.45

7.3 step 2: targeting

7.3 Explain how marketers evaluate segments and choose a targeting strategy. We've seen that the first step in a target marketing strategy is segmentation, in which the firm divides the market into smaller groups that share certain characteristics. The next step is targeting, in which marketers evaluate the attractiveness of each potential segment and decide in which of these groups they will invest resources to try to turn them into customers. The customer group or groups they select are the firm's target market, which, as you learned in Chapter 1, is the segment(s) on which an organization focuses its marketing plan and toward which it directs its marketing efforts. In this section, we'll review the three phases of targeting: evaluate market segments, develop segment profiles, and choose a targeting strategy. Figure 7.3 illustrates these three phases. Phases of Targeting Phase 1: Evaluate Market Segments Just because a marketer identifies a segment does not necessarily mean that it's a useful target. A viable target segment should satisfy the following requirements: Are members of the segment similar to each other in their product needs and wants and, at the same time, different from consumers in other segments? Without real differences in consumer needs, firms might as well use a mass-marketing strategy. It's a waste of time to develop two separate lines of skin care products for working women and nonworking women if both segments have the same complaints about dry skin. Can marketers measure the segment? Marketers must know something about the size and purchasing power of a potential segment before they decide if it's worth their efforts. Is the segment large enough to be profitable now and in the future? For example, a graphic designer who hopes to design web pages for Barbie doll collectors must decide whether there are enough hard-core aficionados to make this business worthwhile and whether the trend will continue. Can marketing communications reach the segment? It is easy to select TV programs or magazines that will efficiently reach older consumers, consumers with certain levels of education, or residents of major cities because the media they prefer are easy to identify. However, it is unlikely that marketing communications can reach only left-handed blondes with multiple piercings who listen to Taylor Swift overdubbed in Mandarin Chinese. Can the marketer adequately serve the needs of the segment? Does the firm have the expertise and resources to satisfy the segment better than the competition? Some years ago venerable consumer-packaged-goods manufacturer P&G decided there was money to be made in salty snacks, so with great fanfare, it entered the market with Pringles. Pringles came with the unique twist of being sold in vacuum-packed cans instead of in bags like most potato chips. But Frito-Lay has dominated the salty snack space for decades, and while P&G had some degree of success with the novel Pringles, there was just no way to beat Frito-Lay's distribution and marketing expertise. A few years ago, Pringles was acquired by snack food giant Kellogg's, which, as the second-largest snack company in the world, is in a much better position to compete with Frito-Lay. Phase 2: Develop Segment Profiles Once a marketer identifies a set of usable segments, it is helpful to generate a profile of each to really understand segment members' needs and to look for business opportunities. This segment profile is a description of the "typical" customer in that segment. A segment profile might, for example, include customer demographics, location, lifestyle information, and a description of how frequently the customer buys the product. When the marketers of General Mills' product Hamburger Helper decided to target cash-strapped millennials, they had to adjust the image they presented on social media. On one April Fools' Day, the packaged food company announced through social media the release of a mixtape titled "Watch the Stove" containing five light-hearted Hamburger Helper-themed rap songs created by a group of college students at McNally Smith's College of Music. The mixtape was well received and was played more than 270,000 times on SoundCloud by 5 p.m. on the day of release. One of the company's marketing communications planners describes the target segment of consumers as "a young, urban, millennial guy making Hamburger Helper in his dorm room."46 Phase 3: Choose a Targeting Strategy A basic targeting decision centers on how finely tuned the target should be: Should the company go after one large segment or focus on meeting the needs of one or more smaller segments? Let's look at four targeting strategies: undifferentiated, differentiated, concentrated, and customized. A company like Walmart that selects an undifferentiated targeting strategy appeals to a broad spectrum of people. If successful, this type of operation can be efficient because production, research, and promotion costs benefit from economies of scale—it's cheaper to develop one product or one advertising campaign than to choose several targets and create separate products or messages for each. But the company must be willing to bet that people have similar needs so that the same product and message will appeal to many customers. A company that chooses a differentiated targeting strategy develops one or more products for each of several customer groups with different product needs. A differentiated strategy is called for when consumers choose among well-known brands that have distinctive images and the company can identify one or more segments that have distinct needs for different types of products. General Motors (GM) historically has been a leader in differentiated strategy with distinct product lines that satisfy the needs of multiple customer groups. Its Cadillac product line caters to consumers who want tradition and luxury, and its Buick product line has recently been targeted to the millennial crowd looking for nice style and performance at a moderate price. The Chevrolet Volt plug-in hybrid provides value to drivers who want to save gas money and the environment. And finally, the GMC product line appeals to drivers who need an everyday truck, crossover, or SUV that is both dependable and stylish. Differentiated marketing can also involve connecting one product with multiple segments by communicating differently to appeal to those segments. Again, using the venerable "Got milk?" campaign as an example, one of the campaign's most classic ads featured Aerosmith's Steven Tyler to appeal to both aging boomers who got into the band in the 1970s and Gen Xers who discovered the band in the 1990s as a result of Run-DMC's remake of "Walk This Way." Then, amazingly, millennials discovered Tyler during his run as a judge on American Idol. Talk about multigenerational appeal! When a firm offers one or more products to a single segment, it uses a concentrated targeting strategy. Smaller firms that do not have the resources or the desire to be all things to all people often do this. The company GreatCall Wireless developed a cell phone known as the Jitterbug back in the mid-2000s. This product ran counter to the trend toward increasingly technologically sophisticated cell phones (and smartphones) by offering a flip cell phone with fewer and larger buttons, as well as a focused range of capabilities. The original Jitterbug was primarily targeted toward seniors with a desire for a simpler communication device. But over the years, it has evolved to offer options including a model that "resembles" a smartphone in appearance (important for today's seniors to "look hip") but with a streamlined range of choices on its touchscreen interface and features such as an urgent care button that are of particular value to this older segment.47 Ideally, marketers should be able to define segments so precisely that they can offer products that exactly meet the unique needs of each individual or firm. This level of concentration does occur (we hope) in the case of personal or professional services we get from doctors, lawyers, and hairstylists. A customized marketing strategy also is common in industrial contexts where a manufacturer often works with one or a few large clients and develops products that only these clients will use. Of course, in most cases, this level of segmentation is neither practical nor possible when mass-produced products such as computers or cars enter the picture. However, advances in computer technology, coupled with the new emphasis on building solid relationships with customers, have focused managers' attention on devising new ways to tailor specific products and the messages about them to individual customers. Adidas launched the first mass-produced 3D printable shoe, the Futurecraft 4D, which will customize the size to the customer's foot—perhaps traditional shoe sizes will become a thing of the past?48 This is an extreme example of the growing trend of mass customization, where a manufacturer modifies a basic good or service to meet an individual's specific needs.49 Levi Strauss was a pioneer in this area. Company researchers found that 80 percent of women around the world fall into three distinct body shapes, so it's physically impossible to offer a one-size-fits-all product. The Levi's Curve ID program employs an interactive custom fit experience to tell a customer whether she should buy a Slight Curve, Demi Curve, or Bold Curve version of the jeans.50

80/20 rule

A marketing rule of thumb that 20 percent of purchasers account for 80 percent of a product's sales.

vals

A psychographic segmentation system that divides U.S. adults into eight groups according to what drives them psychologically as well as by their economic resources.

undifferentiated targeting strategy

appealing to a broad spectrum of people

positioning

developing a marketing strategy to influence how a particular market segment perceives a good or service in comparison to the competition

segmentation variables

dimensions that divide the total market into fairly homogeneous groups, each with different needs and preferences

perceptual maps

An important aspect of product positioning is to develop an identity for the product that the target market will prefer over competing brands. How do marketers determine where their product actually stands in the minds of consumers? One solution is to ask consumers what characteristics are important and how competing alternatives would rate on these attributes, too. Marketers use this information to construct a perceptual map—a vivid way to construct a picture of where products or brands are "located" in consumers' minds. For example, suppose you want to develop an idea for a new publication that will appeal to American women in their 20s. You might construct a perceptual map of how these target customers perceive the magazines out there now to help you develop an idea for a new publication they would like. After you interview a sample of female readers, you might identify two key questions women ask when they select a magazine: (1) Is it "traditional"—that is, oriented toward family, home, or personal issues—or is it "fashion-forward," or oriented toward personal appearance and fashion? (2) Is it for "upscale" women who are older and established in their careers or for relatively "downscale" women who are younger and just starting out in their careers? The perceptual map in Figure 7.5 illustrates how these ratings might look for a set of major women's magazines. The map provides some guidance as to where you might position your new magazine. You might decide to compete directly with either the cluster of "service magazines" in the lower left or the traditional fashion magazines in the upper right. In this case, you would have to determine what benefits your new magazine might offer that these existing magazines do not. Media firm Condé Nast, for example, positions Allure to compete against other fashion magazines by going into more depth than they do on beauty issues, such as the mental, physical, and emotional dangers of cosmetic surgery. You might try to locate an unserved or underserved area in this perceptual map. Remember, your goal is for a new publication that will appeal to American women in their 20s. Perhaps there is room for a magazine that targets "cutting-edge" fashion for college-age women. This might represent a neglected segment, which is an unserved or underserved market segment for which opportunity may exist for a new product entry. If so, you will want to move quickly to capture the segment and define the standards of comparison for the category. This approach paid off for Chrysler, which first identified the minivan market for soccer moms; JetBlue, which found a spot for low fares and high tech without the poor-boy service attitude and cattle-call boarding procedure of other budget airlines; and Liz Claiborne, which pioneered the concept of comfortable, "user-friendly" clothing for working women. In the magazine category you're interested in entering, perhaps Marie Claire comes closest to this position.

geographic segmentation

an approach in which marketers tailor their offerings to specific geographic areas because people's preferences often vary depending on where they live

mass customization

an approach that modifies a basic good or service to meet the needs of an individual

customized marketing strategy

an approach that tailors specific products and the messages about them to individual customers

positioning statement

an expression of a product's positioning that is internally developed and maintained in order to support the development of marketing communication that articulates the specific value offered by a product

usage occasions

an indicator used in behavioral market segmentation based on when consumers use a product most

neglected segment

an unserved or underserved market segment for which opportunity may exist for a new product entry

differentiated targeting strategy

developing one or more products for each of several distinct customer groups and making sure these offerings are kept separate in the marketplace

target marketing strategy

dividing the total market into different segments on the basis of customer characteristics, selecting one or more segments, and developing products to meet the needs of those specific segments

concentrated targeting strategy

focusing a firm's efforts on offering one or more products to a single segment

customer stickiness

highly cultivated customers that are likely to follow through on an intended purchase, buy the product repeatedly, and recommend it to others

digital natives

individuals who spend a big chunk of their time online, so they expect brands to engage them in two-way digital conversations

geotargeting

marketing to a set of specific users based on their current real-time location

generational marketing

marketing to members of a generation, who tend to share the same outlook, values, and priorities

organizational demographics

organization-specific dimensions that can be used to describe, classify, and organize different organizations for the purpose of segmenting business-to-business markets

repositioning

redoing a product's position to respond to marketplace changes

demographics

statistics that measure observable aspects of a population, including size, age, gender, ethnic group, income, education, occupation, and family structure

micromarketing

the ability to identify and target very small geographic segments that sometimes amount to individuals

market fragmentation

the creation of many consumer groups due to a diversity of distinct needs and wants in modern society

Generation Z (or iGen)

the group of consumers born after 1994

generation x

the group of consumers born between 1965 and 1978

generation y

the group of consumers born between 1979 and 1994

Target Market

the market segments on which an organization focuses its marketing plan and toward which it directs its marketing efforts

segmentation

the process of dividing a larger market into smaller pieces based on one or more meaningfully shared characteristics

baby boomers

the segment of people born between 1946 and 1964

content marketing

the strategy of establishing thought leadership in the form of bylines, blogs, commenting opportunities, videos, sharable social images, and infographics

psychographics

the use of psychological, sociological, and anthropological factors to construct market segments

segment profile

a description of the "typical" customer in a segment

cultural diversity

a management practice that actively seeks to include people of different sexes, races, ethnic groups, and religions in an organization's employees, customers, suppliers, and distribution channel partners

usage rate

a measurement that reflects the quantity purchased or frequency of use among consumers of a particular product or service

badge

a milestone or reward earned for progressing through a video game

long tail

a new approach to segmentation based on the idea that companies can make money by selling small amounts of items that only a few people want, provided they sell enough different items

retro brands

a once-popular brand that has been revived to experience a popularity comeback, often by riding a wave of nostalgia

Geodemography

a segmentation technique that combines geography with demographics

metrosexual

a straight, urban male who is keenly interested in fashion, home design, gourmet cooking, and personal care

Geographic Information System (GIS)

a system that combines a geographic map with digitally stored data about the consumers in a particular geographic area

Behavioral Segmentation

a technique that divides consumers into segments on the basis of how they act toward, feel about, or use a good or service

perceptual map

a technique to visually describe where brands are "located" in consumers' minds relative to competing brands

7.4 step 3: positioning

7.4 Recognize how marketers develop and implement a positioning strategy. The final stage of developing a target marketing strategy is to provide consumers who belong to a targeted market segment with a good or service that meets their unique needs and expectations. Positioning means developing a marketing strategy to influence how a particular market segment perceives a good or service in comparison to the competition. A key word in this definition is perceives—that is, positioning is in the eye of the beholder. A firm may truly believe that its customers think about its offering in a certain way, but unless market research bears this out, what the marketer "thinks" doesn't matter, as it is trumped by what the consumer perceives. To position a brand, marketers must clearly understand the criteria target consumers use to evaluate competing products and then convince them that their product, service, or organization will meet those needs. In addition, the organization has to come up with a plan to communicate this position to its target market. Steps in Positioning Figure 7.4 shows the steps marketers go through to decide just how to position their product or service: analyze competitors' positions, offer a good or service with a competitive advantage, finalize the marketing mix, and evaluate responses and modify as needed. Let's take a closer look at each of these positioning steps. Step 1: Analyze Competitors' Positions The first stage is to analyze competitors' positions in the marketplace. To develop an effective positioning strategy, marketers must understand the current lay of the land. What competitors are out there, and how does the target market perceive them? Aside from direct competitors in the product category, are there other goods or services that provide similar benefits? Sometimes the indirect competition can be more important than the direct, especially if it represents an emerging consumer trend. For years, McDonald's developed positioning strategies based only on its direct competition, which it defined as other large fast-food hamburger chains (translation: Burger King and Wendy's). McDonald's failed to realize that, in fact, many indirect competitors fulfilled consumers' needs for a quick, tasty, convenient meal—from supermarket delis to frozen microwavable single-serving meals to call-ahead takeout from full-service restaurants like Applebee's, Olive Garden, Outback, and Chili's—all of whom have convenient curbside service instead of backed-up drive-through lines. Ultimately, McDonald's began to understand that it must react to this indirect competition by serving up a wider variety of adult-friendly food and shoring up lagging service. These days, the company also offers its McCafé concept, with coffee products aimed squarely at taking business away from morning mainstays Starbucks and Dunkin' Donuts, along with a tasty breakfast menu all day long. Step 2: Define Your Competitive Advantage The second stage is to offer a good or service with a competitive advantage to provide a reason why consumers will perceive the product as better than the competition. Toward this end, a positioning statement can help the company frame internally how a product is positioned so that any associated marketing communication remains focused on articulating to consumers the specific value offered by a product. Positioning statements typically include the segment(s) to which the product is targeted, the most important claim (differentiator) to be attributed to the product for the targeted segment(s), and the most important piece of evidence that supports the claim made about the product. If the company offers only a "me-too product," it can induce people to buy for a lower price. Other forms of competitive advantage include offering a superior image (Giorgio Armani), a unique product feature (Levi's 501 button-fly jeans), better service (Cadillac's roadside assistance program), or even better-qualified people (the legendary salespeople at Nordstrom's department stores). Step 3: Finalize the Marketing Mix Once they settle on a positioning strategy, the third stage for marketers is to finalize the marketing mix as they put all the pieces into place. The elements of the marketing mix must match the selected segment. This means that the good or service must deliver benefits that the segment values, such as convenience or status. Put another way, it must add value and satisfy consumer needs (sound familiar?). Furthermore, marketers must price this offering at a level these consumers will pay, make the offering available at places they are likely to go, and correctly communicate the offering's benefits in locations where these targets are likely to take notice. In other words, the positioning strategy translates into the organization's marketing mix that we discussed in Chapter 1. Beginning with Chapter 8, all the remaining chapters in the book provide you with the details of developing strategies for each element of the marketing mix: product, price, physical distribution, and promotion. The sum of these individual marketing mix strategies results in the overall positioning strategy for your offering. Step 4: Evaluate Responses and Modify as Needed In the fourth and final stage, marketers evaluate the target market's responses so they can modify strategies if necessary. Over time, the firm may find that it needs to change which segments it targets or even alter a product's position to respond to marketplace changes. A change in positioning strategy is repositioning, and it's fairly common to see a company try to modify its brand image to keep up with changing times. Take as an example Charles Schwab, which used to be pegged primarily as a self-service stock brokerage. Competition in the budget broker business, especially from online brokers, prompted Schwab's repositioning to a full-line, full-service financial services firm that still pays attention to frugal prices for its services. Think of it this way: There's not much value Schwab can add as one of a dozen or more online providers of stock trades. In that environment, customers simply view the firm as a commodity (i.e., just a way to buy stocks) with no real differentiation. Schwab still has its no-frills products, but the real growth in sales and profits comes from its expanded product lines and provision of more information—both online and through personal selling—that warrant higher fees and build deeper customer relationships. Repositioning also occurs when a marketer revises a brand thought to be inextricably past its prime. Sometimes these products rise like a phoenix from the ashes to ride a wave of nostalgia and return to the marketplace as retro brands—venerable brands like Oxydol laundry detergent, Breck Shampoo, Ovaltine cereal, Frontier airlines, and Tab cola all are examples of brands that at one point were nearly forgotten but then got a new lease on life.51 If you want to check out an interesting set of retro brands, take a look at RetroBrands USA's website. Their mission is to revive "abandoned" consumer iconic brands they've acquired and to bring them back to the marketplace by partnering with interested investors. Some of the brands they have acquired in a "fire sale" are Chipwich (ice cream sandwich with chocolate chips), Tegrin (dandruff shampoo), Dash (laundry detergent), and Aspergum (that's right—aspirin in gum).52

customer loyalty

A customer's low likelihood of switching to a competitor's offering, especially because of being highly engaged and connected with their current brand.

targeting

A strategy in which marketers evaluate the attractiveness of each potential segment and decide in which of these groups they will invest resources to try to turn them into customers.

experiential loyalty

Customer loyalty that results not just in increased purchases but also in an enhanced broader experience for the customer.

gamer segment

a consumer segment that combines a psychographic/lifestyle component with a heavy dose of generational marketing

Segment B2B Markets

We've reviewed the segmentation variables marketers use to divide up the consumer pie, but how about all those B2B marketers out there? Adding to what you learned about business markets in Chapter 6, it's important to know that segmentation also helps them better understand their customers. Although the specific variables may differ, the underlying logic of classifying the larger market into manageable pieces that share relevant characteristics is the same whether the product you sell is pesto or pesticides. Organizational demographics are organization-specific dimensions that marketers use to describe, classify, and organize different organizations for the purpose of segmenting business-to-business markets. Organizational demographics also help a B2B marketer understand the needs and characteristics of its potential customers. These classification dimensions include the size of the firms (either in total sales or in number of employees), the number of facilities, whether they are a domestic or a multinational company, their purchasing policies, and the type of business they are in. B2B markets may also be segmented on the basis of the production technology they use and whether the customer is a user or a nonuser of the product. Many industries use the North American Industry Classification System (NAICS) we discussed in Chapter 6 to obtain information about the size and number of companies operating in a particular industry. B2B marketers often consult general informational business and industry databases on the web, such as D&B Hoovers, for insight and up-to-date information on private and public companies worldwide.