Chapter 7

Customer Value-Driven Marketing Strategy:

Creating Value for Target Customers
Learning Objectives

• Define the major steps in designing a customer value-driven marketing

strategy: market segmentation, targeting, differentiation, and positioning.
• Discuss the major bases for segmenting consumer and business markets.
• Explain how companies identify attractive market segments and choose a
market-targeting strategy.
• Discuss how companies differentiate and position their products for
maximum competitive advantage.
Customer-Driven Marketing Strategy
Market Segmentation
Market segmentation requires dividing a market into smaller segments with
distinct needs, characteristics, or behaviors that might require separate marketing
strategies or mixes.

Buyers in any market differ in their wants, resources, locations, buying attitudes,
and buying practices. Through market segmentation, companies divide large,
heterogeneous markets into smaller segments that can be reached more efficiently
and effectively with products and services that match their unique needs.
Market Segmentation
• Segmenting consumer markets

• Segmenting business markets

• Segmenting international markets

• Requirements for effective segmentation

 Market Segmentation
Segmenting Consumer Markets

Geographic Demographic
segmentation segmentation

Psychographic Behavioral
segmentation segmentation
 Market Segmentation
Segmenting Consumer Markets
Geographic segmentation divides the market into different geographical
units such as nations, regions, states, counties, cities, or even
neighborhoods.
A company may decide to operate in one or a few geographical areas or
operate in all areas but pay attention to geographical differences in needs
and wants.

Many companies today are localizing their products, advertising, promotion,

and sales efforts to fit the needs of individual regions, cities, and
neighborhoods.

For example, Domino’s Pizza, the nation’s largest pizza delivery chain,
keeps its marketing and customer focus decidedly local. Customers
anywhere in the nation can use the online platform or smartphone app to
track down local coupon offers, locate the nearest store with a GPS store
locator, and quickly receive a freshly-made pizza. They can even use
Domino’s Pizza Tracker to follow their pies locally from store to door.
Market Segmentation
Segmenting Consumer Markets

Demographic segmentation divides the market into segments based on variables

such as age, life-cycle stage, gender, income, occupation, education, religion,
ethnicity, and generation.
• Demographic variables are easier to measure than most other types of variables.

• Even when marketers first define segments using other bases, such as benefits
sought or behavior, they must know a segment’s demographic characteristics to
assess the size of the target market and reach it efficiently.
Market Segmentation
Segmenting Consumer Markets
Age and life-cycle stage segmentation divides a market into different age and
life-cycle groups.
Gender segmentation divides a market into different segments based on
gender.
Income segmentation divides a market into different income segments.
Amazon targeted a younger tablet market for using the Kindle Fire tablet, introducing FreeTime
Unlimited, a multimedia subscription service targeted toward 3- to 8-year-olds. Marketers must
be careful to guard against stereotypes when using age and life-cycle segmentation.

Gender segmentation: Toy company LEG O Group

announced recently that it will work harder to remove
gender stereotypes from its products and marketing.
Creativa Images/Shutterstock
 Market Segmentation
Segmenting Consumer Markets
Psychographic segmentation divides a market into different segments based on
lifestyle or personality characteristics.
• Dunkin’ Donuts successfully targets the “Dunkin’ tribe”—not the Starbucks coffee
snob but the average Joe. Dunkin’ Donuts isn’t like Starbucks—it doesn’t want to be.”

• People in the same demographic group can have very different psychographic
characteristics.

Lifestyle segmentation: Rocky Mountain Tiny Houses

caters to the “tiny house” lifestyle segment of
consumers seeking “a place of pride and comfort, yet
one of simplicity and affordability.” “Live Simply,”
advises the company.

p p a/Shutterstock
Market Segmentation
Segmenting Consumer Markets
Behavioral segmentation divides a market into segments based on
consumer knowledge, attitudes, uses of a product, or responses to a
product.
Many marketers believe that behavior variables are the best starting
point for building market segments.
 Market Segmentation
Segmenting Consumer Markets
Behavioral Segmentation
• Occasions
• Benefits sought
• User status
• Usage rate
• Loyalty status Used with permission of Pacific Cycle Inc

Benefit segmentation: Schwinn makes bikes for every benefit segment. “No
matter what you’re looking for,” says Schwinn, “we’ve got a line of bikes for you.”
• Benefit segmentation: Schwinn makes bikes for every benefit segment. For example, Schwinn’s urban bikes are
“for riders who want a functional, durable, and stylish bike to commute or ride casually in urban areas.”

• Occasions refer to when consumers get the idea to buy, actually make their purchase, or use the purchased item.
Occasion segmentation can help firms build up product usage. Campbell’s advertises its soups more heavily in the
cold winter months, and Home Depot runs special springtime promotions for lawn and gardens products. Other
marketers prepare special offers and ads for holiday occasions or nontraditional occasions.

• Benefits sought refers to finding the major benefits people look for in a product class, the kinds of people who look
for each benefit, and the major brands that deliver each benefit.

• Markets can be segmented by user status: nonusers, ex-users, potential users, first-time users, and regular users
of a product. Marketers want to reinforce and retain regular users, attract targeted nonusers, and reinvigorate
relationships with ex-users.

• Markets can also be segmented by usage rate: light, medium, and heavy product users. Heavy users are often a
small percentage of the market but account for a high percentage of total consumption. For instance, a recent study
showed that heavy seafood consumers in the United States are a small but hungry bunch. Less than 5 percent of all
shoppers buy nearly 64 percent of unbreaded seafood consumed in the United States.

• Consumers can be loyal to brands, and buyers can be divided into groups according to their degree of loyalty.
Some consumers are completely loyal—they buy one brand all the time and can’t wait to tell others about it. Other
consumers are somewhat loyal—they are loyal to two or three brands of a given product or favor one brand while
sometimes buying others. Still other buyers show no loyalty to any brand—they either want something different each
time they buy, or they buy whatever’s on sale. A company can learn a lot by analyzing loyalty patterns in its market,
starting with its own loyal customers.
Market Segmentation
Segmenting Consumer Markets
Multiple segmentation is used to identify
smaller, better-defined target groups.

Experian’s Mosaic US A system classifies Acxiom Corporation

U.S. households into one of 71 lifestyle

segments and 19 levels of affluence.
Market Segmentation
Segmenting Business Markets

Consumer and business marketers use many of the same variables to

segment their markets.

Additional variables include:

• Customer operating characteristics
• Purchasing approaches
• Situational factors
• Personal characteristics
Bases for Segmenting B2B Markets
 Market Segmentation
Segmenting International Markets

Geographic Economic
location factors
(nations close to one another will have (population income levels or by their
many common traits and behaviors) overall level of economic development)

Political and Cultural

legal factors factors
(type and stability of the government,
government receptivity to foreign firms, (common languages, religions, values and
monetary regulations, and the amount of attitudes, customs, and behavioral
bureaucracy) patterns)
Market Segmentation
Segmenting International Markets
Intermarket segmentation involves forming segments of consumers who have similar
needs and buying behaviors even though they are located in different countries.

• As new communications technologies, such as satellite TV and the Internet, connect

consumers around the world, marketers can define and reach segments of like-minded
consumers no matter where in the world they are using intermarket segmentation (also
called cross-market segmentation.)

Intermarket segmentation: Today’s technologies let fast-fashion

retailer Zara target like-minded style conscious but value-seeking
consumers anywhere in the world they live.

Eyal Dayan Photography

 Market Segmentation
Requirements for Effective Segmentation

Measurable Accessible Substantial

Differentiabl
Actionable
e
 Effective Segmentation Criteria
Measurable
Measurable • Size, purchasing power, profiles
of segments can be measured.

Accessible
Accessible • Segments can be effectively
reached and served.

Substantial
Substantial • Segments are large and profitable enough to
serve.

• Segments are conceptually distinguishable and

Differentiable
Differentiable respond differently to different marketing mix
elements & programs.

Actionable
Actionable • Effective programs can be designed for attracting
and serving the segments.
Market Targeting
Evaluating Market Segments
• Segment size and growth
• Segment structural attractiveness
• Company objectives and resources
• Selecting segments that have the right size and growth characteristics is a
relative matter. The largest, fastest-growing segments are not always the most
attractive ones for every company. Smaller companies may target segments
that are smaller and less attractive, in an absolute sense, but that are
potentially more profitable for them.

• Structural factors that affect long-run segment attractiveness include strong

and aggressive competitors, new entrants, substitute products, power of
buyers relative to sellers, and powerful suppliers who can control prices,
quality, or quantity of ordered goods and services.

• Some attractive segments can be dismissed quickly because they do not

mesh with the company’s long-run objectives. Or the company may lack the
skills and resources needed to succeed in an attractive segment. A company
should only enter segments in which it can create superior customer value
and gain advantages over its competitors.
Market Targeting
Selecting Target Market Segments
A target market is a set of buyers who share common needs or
characteristics that the company decides to serve.
Market Targeting
Figure 7.2 Market-Targeting Strategies.
Market Targeting
Selecting Target Market Segments
Undifferentiated marketing targets the whole market with one offer.
• Mass marketing
• Focuses on common needs rather than what’s different
Most modern marketers have strong doubts about this strategy. Difficulties arise in
developing a product or brand that will satisfy all consumers. Moreover, mass marketers
often have trouble competing with more-focused firms that do a better job of satisfying the
needs of specific segments and niches.
Market Targeting
Selecting Target Market Segments
Differentiated marketing targets several
different market segments and designs separate
offers for each.
• Goal is to achieve higher sales and stronger
position
• More expensive than undifferentiated
marketing

Differentiated marketing increases the costs of The InterContinental Hotels Group (IH G)
doing business. The company must weigh serves a wide range of customer segments
increased sales against increased costs when through 16 differentiated hotel brands. It
deciding on a differentiated marketing strategy. offers something for every travel segment,
from the Holiday Inn (for customers looking
for essentials) to Hotel Indigo (for those
who want to be “part of the pulse and
rhythm of a place”).
Market Targeting
Selecting Target Markets
Concentrated marketing targets a larger share of one or a few smaller segments or niches.
• Limited company resources
• Knowledge of the market
• More effective and efficient

Today, the low cost of setting up shop on the Internet makes it even more profitable to serve seemingly
minuscule niches. Small businesses, in particular, are realizing riches from serving small niches on the
Web.

Concentrated marketing can be highly profitable. At the same time, it involves higher-than-normal risks.
Companies that rely on one or a few segments for all of their business will suffer greatly if the segment
turns sour. Or larger competitors may decide to enter the same segment with greater resources. For
these reasons, many companies prefer to diversify in several market segments. In fact, many large
 Market Targeting
Selecting Target Markets
Concentrated marketing
Marketing effort directed at overlooked
small group of target customers.

Sub-zero fridge

“Super-premium segment” under the luxury segment

Market Targeting
Selecting Target Market Segments

Micromarketing is the practice of tailoring products and marketing programs

to suit the tastes of specific individuals and local customer segments.
• Local marketing
• Individual marketing
Market Targeting
Selecting Target Market Segments
Local marketing involves tailoring brands and marketing to the needs and wants of local customer
segments.
• Cities
• Neighborhoods
• Stores

Local marketing has some drawbacks.

It can drive up manufacturing and marketing costs by reducing the economies of scale. It can
also create logistics problems as companies try to meet the varied requirements of different
regional and local markets.
Still, as companies face increasingly fragmented markets, and as new supporting technologies
develop, the advantages of local marketing often outweigh the drawbacks. In addition, a
brand’s overall image might be diluted if the product and message vary too much in different
localities.
Market Targeting
Selecting Target Markets
Individual marketing involves tailoring products and marketing programs to the needs
and preferences of individual customers.
Also known as:
• One-to-one marketing
• Mass customization

Individual marketing: Based on images

submitted by a customer using its
smartphone app, FitMyFoot 3-D prints
footwear that fits that customer and no one
else.

FitMyFoot
The most expensive automobile in the world

The vehicle, which was produced

by special order of a pearl
merchant businessman, won the
title of "the most expensive car in
the world" with a price of 28
million dollars.

Rolls-Royce, “Boat Tail II”

$ 28 million
• More detailed databases, robotic production and flexible
manufacturing, and interactive media such as mobile phones
and the Internet have combined to foster mass customization.

• Mass customization is the process by which firms interact one-

to-one with masses of customers to design products and
services tailor-made to individual needs. Individual marketing
has made relationships with customers more important than
ever.
Market Targeting

Selecting Target Market Segments

Choosing a targeting strategy depends on

• Company resources
• Product variability
• Product life-cycle stage Cagkan Sayin/Shutterstock
• Market variability
• Competitor’s marketing strategies

Socially responsible targeting: In this era of increased social responsibility, marketers

must consider not just whether targeted consumers buy and like their products but
also whether they use them wisely.
• When the firm’s resources are limited, concentrated marketing makes the most sense.
Undifferentiated marketing is more suited for uniform products, such as grapefruit or steel.

• When a firm introduces a new product, it may be practical to launch one version only, as
undifferentiated marketing or concentrated marketing may make the most sense. In the mature
stage of the product life cycle, however, differentiated marketing often makes more sense.

• Undifferentiated marketing is appropriate where there is little market variability - most buyers have
the same tastes, buy the same amounts, and react the same way to marketing efforts.

• When competitors use differentiated or concentrated marketing, undifferentiated marketing can

be risky. When competitors use undifferentiated marketing, a firm can gain an advantage by
using differentiated or concentrated marketing, focusing on the needs of buyers in specific segments.
 Differentiation and Positioning
Product position is the way the product is defined
by consumers on important attributes.
Positioning: IKEA does more than just sell affordable
home furnishings; it’s the “Life improvement store.”

The company must decide on a value proposition-

how it will create differentiated value for targeted
segments and what positions it wants to occupy in
those segments. The place the product occupies in
consumers’ minds relative to competing products
is the position. Products are made in factories, but
brands happen in the minds of consumers.
Positioning: Spotify does more than just stream music. It gives
you “Music for every mood.”
Differentiation and Positioning
Positioning maps show consumer perceptions of marketer’s brands versus
competing products on important buying dimensions.

Positioning Map: Large Luxury SUV s

The size of each circle indicates

the brand’s relative market share.

rafapress/Shutterstock
Differentiation and Positioning
Positioning maps
Differentiation and Positioning
Choosing a Differentiation and Positioning Strategy
• Identifying a set of possible competitive advantages to build a position
• Choosing the right competitive advantages
• Selecting an overall positioning strategy
• Communicating and delivering the chosen position to the market
 Differentiation and Positioning
Choosing a Differentiation and Positioning Strategy
Competitive advantage is an advantage over competitors gained by offering
consumers greater value, either through lower prices or by providing more benefits
that justify higher prices.

But solid positions cannot be built on empty promises. If a company positions its
product as offering the best quality and service, it must actually differentiate the
product so that it delivers the promised quality and service. Companies must do
much more than simply shout out their positions with slogans and taglines. They
must first live the slogan.
Differentiation and Positioning
Choosing a Differentiation and Positioning Strategy
Identifying a set of possible competitive advantages to
differentiate along the lines of:

Product
Services
Channels
People
Image
Differentiation and Positioning
Choosing a Differentiation and Positioning Strategy
A competitive advantage should be:

Important Distinctive Superior

Communicable Preemptive Affordable

Profitable
 Differentiation and Positioning
Choosing a Differentiation and Positioning Strategy

Value proposition is the full mix of benefits

upon which a brand is positioned.
Differentiation and Positioning

Choosing a Differentiation and Positioning Strategy

Positioning statement summarizes company or brand positioning using this
form: To (target segment and need) our (brand) is (concept) that (point of
difference)
The case for the brand’s superiority is made on its points of difference. For
example, the U.S. Postal Service ships packages just like UPS and FedEx,
but it differentiates its priority mail from competitors with convenient, low-
price, flat-rate shipping boxes and envelopes. “If it fits, it ships,” promises
USPS
Differentiation and Positioning
Choosing a Differentiation and Positioning Strategy
Positioning Statement Example for Evernote:
“To busy multitaskers who need help remembering things, Evernote is a digital
content management application that makes it easy to capture and remember
moments and ideas from your everyday life using your computer, phone, tablet,
and the Web.”
Differentiation and Positioning
Communicating and Delivering the Chosen Position
Choosing the positioning is often easier than implementing the position.
Establishing a position or changing one usually takes a long time.
Maintaining the position requires consistent performance and communication.