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Marketsegmentation involves dividing amarketinto smaller segments ofbuyers with distinct needs,characteristics,or behaviors that might require separate marketingstrategies or mixes.The companyidentifies different ways to segment the marketand develops profiles ofthe resulting marketsegments.Markettargeting consists ofevaluating each marketsegment’s attractiveness and selectingone or more marketsegments to enter.In the finaltwo steps,the company decides onavalueproposition—howitwill create value for target customers.Differentiation involves actuallydifferentiating the firm’s marketoffering to create superior customer value.Positioning consists ofarranging for amarketoffering to occupy aclear,distinctive,and desirable place relative to competingproducts inthe minds oftarget consumers.

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Geographicsegmentation:Manycompaniestodayarelocalizingtheirproducts,services,advertising,promotion,andsaleseffortstofittheneedsofindividualregions,cities,andneighborhoods.Demographicsegmentation:Demographicfactorsarethemostpopularbasesforsegmentingcustomergroups.Onereasonisthatconsumerneeds,wants,andusageratesoftenvarycloselywithdemographicvariables.Anotheristhatdemographicvariablesareeasiertomeasurethanmostothertypesofvariables.Evenwhenmarketersfirstdefine segmentsusingotherbases,suchasbenefitssoughtorbehavior,theymustknowasegment’sdemographiccharacteristicstoassessthesizeofthetargetmarketandreachitefficiently.Psychographicsegmentation:Peopleinthesamedemographicgroupcanhaveverydifferentpsychographiccharacteristics.Theproductspeoplebuyreflecttheirlifestyles.Asaresult,marketersoftensegmenttheirmarketsbyconsumerlifestylesandbasetheirmarketingstrategiesonlifestyleappeals.Marketersalsousepersonalityvariablestosegmentmarkets.Forexample,differentsoftdrinkstargetdifferentpersonalities.Marketerssometimesrefertobrand-focusedpsychographicsegmentsasbrand“tribes”—communitiesofcorecustomerswithsharedcharacteristics,brandexperiences,andstrongaffinitiesforaparticularbrand.ForexampletheAppletribeconsistsofstylish,tech-savvynonconformists.Behavioral segmentation:Buyerscanbegroupedaccordingtooccasionswhentheygettheideatobuy,actuallymaketheirpurchases,orusethepurchaseditems.Forexample,formorethanadecade,StarbuckshaswelcomedtheautumnseasonwithitsPumpkinSpiceLatte.Anotherpowerfulformofsegmentationisgroupingbuyersaccordingtothedifferentbenefitsthattheyseekfromaproduct.Benefitsegmentationrequiresfindingthemajorbenefitspeoplelookforinaproductclass,thekindsofpeoplewholookforeachbenefit,andthemajorbrandsthatdelivereachbenefit.Marketscanbesegmentedintononusers,ex-users,potentialusers,first-timeusers,andregularusersofaproduct.Marketerswanttoreinforceandretainregularusers,attracttargetednonusers,andreinvigoraterelationshipswithex-users.Marketscanalsobesegmentedaccordingtousageratesuchaslight,medium,andheavyproductusers.Lastly, a marketcanalsobesegmentedbyconsumerloyalty.

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Companies cansegment international markets using one or acombination ofseveral variables.Theycansegment by geographic location,grouping countries by regions such asWesternEurope,thePacificRim,SouthAsia,or Africa.Geographic segmentation assumes that nations close to one anotherwill have many common traits and behaviors.Worldmarkets canalso besegmented based oneconomic factors.Countries might begrouped by population income levels or by their overall level ofeconomic development.Acountry’s economic structure shapes its population’s product and serviceneeds,and therefore the marketingopportunities itoffers.Countries canalso besegmented bypolitical and legalfactors such asthe type and stability ofgovernment,receptivity to foreign firms,monetary regulations,and amount ofbureaucracy.Cultural factors canalso beused,grouping marketsaccording to common languages,religions,values and attitudes,customs,and behavioral patterns.

Segmenting international markets based ongeographic,economic,political,cultural,and other factorspresumes that segments should consist ofclusters ofcountries.However,asnew communicationstechnologies,such assatellite TVand the Internet,connect consumers around the world,marketerscandefineand reach segments oflike-minded consumers no matter where inthe world they are.Usingintermarket segmentation (also called cross-marketsegmentation),they formsegments ofconsumers who have similar needs and buying behaviors even though they are located indifferentcountries.

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• First,acompany wants to select segments that have the right sizeand growth characteristics.But“right sizeand growth”isarelative matter.The largest,fastest-growing segments are notalwaysthe most attractive ones for every company.Smaller companies may lack the skills and resourcesneeded to serve larger segments.Or they may find these segments too competitive.Suchcompanies may target segments that are smaller and less attractive,inanabsolute sense,butthatare potentially more profitable for them.

• Thecompanyalsoneedstoexaminemajorstructuralfactorsthataffectlong-runsegmentattractiveness.Forexample,asegmentislessattractiveifitalreadycontainsmanystrongandaggressivecompetitorsorifitiseasyfornewentrantstocomeintothesegment.Theexistenceofmanyactualorpotentialsubstituteproductsmaylimitpricesandtheprofitsthatcanbeearnedinasegment.Therelativepowerofbuyersalsoaffectssegmentattractiveness.Buyerswithstrongbargainingpowerrelativetosellerswilltrytoforcepricesdown,demandmoreservices,andsetcompetitorsagainstoneanother—allattheexpenseofsellerprofitability.Finally,asegmentmaybelessattractiveifitcontainspowerfulsuppliersthatcancontrolpricesorreducethequalityorquantityoforderedgoodsandservices.

• Evenifasegmenthastherightsizeandgrowthandisstructurallyattractive,thecompanymustconsideritsownobjectivesandresources.Someattractivesegmentscanbedismissedquicklybecausetheydonotmeshwiththecompany’slong-runobjectives.Orthecompanymaylacktheskillsandresourcesneededtosucceedinanattractivesegment.Forexample,theeconomysegmentoftheautomobilemarketislargeandgrowing.Butgivenitsobjectivesandresources,itwouldmakelittlesenseforluxury-performancecarmaker BMWtoenterthissegment.Acompanyshouldonlyentersegmentsinwhichitcancreatesuperiorcustomervalueandgainadvantagesoveritscompetitors.

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Undifferentiated Marketing: Usinganundifferentiated marketing(or mass marketing)strategy,afirmmight decide to ignore marketsegment differences and target the whole marketwith one offer.Suchastrategy focuses onwhat iscommon inthe needs ofconsumers rather than onwhat isdifferent.Thecompany designs aproduct and amarketingprogramthat will appeal to the largest number ofbuyers.Differentiated (Segmented)Marketing:Usingadifferentiated marketingstrategy,afirm decides totarget several marketsegments and designs separate offers for each.P&Gmarkets atleast sixdifferent laundry detergent brands inthe UnitedStates (Tide,Gain,Cheer,Era,Dreft,and Bold),whichcompete with each other onsupermarket shelves.By offering product and marketingvariations tosegments,companies hope for higher sales and astronger position within each marketsegment.Developing astronger position within several segments creates more totalsales than undifferentiatedmarketingacross all segments.Butdifferentiated marketingalso increases the costs ofdoing business.Afirm usually finds itmore expensive to develop and produce,say,10units of10different productsthan 100units ofasingle product.Developing separate marketingplans for separate segmentsrequires extra marketingresearch,forecasting,sales analysis,promotion planning,and channelmanagement.And trying to reach different marketsegments with different advertising campaignsincreases promotion costs.Thus,the company must weigh increased sales against increased costswhen deciding onadifferentiated marketingstrategy.Concentrated (Niche)Marketing:When using aconcentrated marketingstrategy,instead ofgoingafter asmall share ofalarge market,afirm goes after alarge share ofone or afew smaller segmentsor niches.Throughconcentrated marketing,the firm achieves astrong marketposition because ofitsgreater knowledge ofconsumer needs inthe niches itserves and the special reputation itacquires.Itcanmarketmore effectively by fine-tuning its products,prices,and programs to the needs ofcarefullydefined segments.It canalso marketmore efficiently,targeting its products or services,channels,and

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communications programs toward only consumers that itcanserve best and most profitably.Concentrated marketingcanbehighly profitable.Atthe same time,itinvolves higher-than-normalrisks.Companies that rely onone or afew segments for all oftheir business will suffer greatly if thesegment turns sour.Or larger competitors may decide to enter the same segment with greaterresources.Micromarketing:Micromarketing isthe practice oftailoring products and marketingprograms to suitthe tastes ofspecific individuals and locations.Rather than seeing acustomer inevery individual,micromarketers see the individual inevery customer.Micromarketing includes local marketingandindividual marketing.Local Marketing: Local marketinginvolves tailoring brands and promotions to the needs and wants oflocal customer groups—cities,neighborhoods,and even specific stores.Increasingly,location-basedmarketingisgoing mobile,reaching on-the-go consumers asthey come and go inkey local marketareas.It’s called SoLoMo (social+local+mobile)marketing.Local marketinghassome drawbacks,however.It candrive up manufacturing and marketingcosts by reducing the economies ofscale.It canalso create logistics problems ascompanies try to meet the varied requirements ofdifferent localmarkets.Still,ascompanies face increasingly fragmented markets,and asnew supporting technologiesdevelop,the advantages oflocal marketingoften outweigh the drawbacks.Individual Marketing:In the extreme,micromarketing becomes individual marketing—tailoringproducts and marketingprograms to the needs and preferences ofindividual customers.Individualmarketinghasalso been labeled one-to-one marketing,mass customization,and markets-of-onemarketing.Individual marketinghasmade relationships with customers more important than ever.Just asmass production was the marketingprinciple ofthe twentieth century,interactive marketingisbecoming amarketingprinciple for the twenty-first century.

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Companies need to consider many factors when choosing amarket-targeting strategy.Which strategyisbest depends onthe company’s resources.When the firm’s resources are limited,concentratedmarketingmakes the most sense.The best strategy also depends onthe degree ofproduct variability.Undifferentiated marketingismore suited for uniform products,such asgrapefruit or steel.Productsthat canvary indesign,such ascameras and cars,are more suited to differentiation or concentration.The product’s life-cycle stage also must beconsidered.When afirm introduces anew product,itmaybepractical to launch one version only,asundifferentiated marketingor concentrated marketingmaymake the most sense.In the mature stage ofthe product lifecycle,however,differentiated marketingoften makes more sense.Another factor ismarketvariability.If most buyers have the same tastes,buythe same amounts,and react the same way to marketingefforts,undifferentiated marketingisappropriate.Finally,competitors’marketingstrategies should beconsidered.When competitors usedifferentiated or concentrated marketing,undifferentiated marketingcanbesuicidal.Conversely,when competitors use undifferentiated marketing,afirm cangain anadvantage by usingdifferentiated or concentrated marketing,focusing onthe needs ofbuyers inspecific segments.

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Consumers are overloaded with information about products and services.They cannot reevaluateproducts every timethey make abuying decision.To simplify the buying process,consumers organizeproducts,services,and companies into categories and “position”them intheir minds.Aproduct’sposition isthe complex setofperceptions,impressions,and feelings that consumers have for theproduct compared with competing products.

Consumers position products with or without the help ofmarketers.Butmarketers donotwant toleave their products’positions to chance.They must planpositions that will give their products thegreatest advantage inselected target markets,and they must design marketingmixes to create theseplanned positions.

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Productdifferentiation:Throughproductdifferentiation,brandscanbedifferentiatedonfeatures,performance,orstyleanddesign.Servicesdifferentiation:Beyonddifferentiatingitsphysicalproduct,afirmcanalsodifferentiatetheservicesthataccompanytheproduct.Somecompaniesgainservicesdifferentiationthroughspeedy,convenient,orcarefuldelivery. Forexample,FirstConvenienceBankofTexasoffers“RealHoursforRealPeople”;itisopensevendaysaweek,includingevenings.Channels differentiation:Firmsthatpracticechanneldifferentiationgaincompetitiveadvantagethroughthewaytheydesigntheirchannel’scoverage,expertise,andperformance.Amazon.com andGEICO,forexample,setthemselvesapartwiththeirsmooth-functioningdirectchannels.Peopledifferentiation:Companiescanalsogainastrongcompetitiveadvantagethroughpeopledifferentiation— hiringandtrainingbetterpeoplethantheircompetitorsdo.Peopledifferentiationrequiresthatacompanyselectitscustomer-contactpeoplecarefullyandtrainthemwell.Imagedifferentiation:Evenwhencompetingofferslookthesame,buyersmayperceiveadifferencebasedoncompanyorbrandimagedifferentiation.Acompanyorbrandimageshouldconveyaproduct’sdistinctivebenefitsandpositioning.Symbols,suchastheMcDonald’sgoldenarches,thecolorfulGooglelogo,theTwitterbird,theNikeswoosh,orApple’s“bitemark”logo,canprovidestrongcompanyorbrandrecognitionandimagedifferentiation.Thecompanymightbuildabrandaroundafamousperson,asNikedidwithitsMichaelJordan,KobeBryant,andLeBronJamesbasketballshoeandapparelcollections.Somecompaniesevenbecomeassociatedwithcolors,suchasCoca-Cola(red),IBM(blue),orUPS(brown).Thechosensymbols,characters,andotherimageelementsmustbecommunicatedthroughadvertisingthatconveysthecompany’sorbrand’spersonality.

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Many companies have introduced differentiations that failed one or more ofthese tests.When theWestin Stamford HotelinSingapore once advertised itself asthe world’s tallest hotel,itwas adistinction that was notimportant to most tourists;infact,itturned many off.Similarly,Coca-Cola’snow classic product failure—NewCoke—failed the superiority and importance tests among core Coca-Coladrinkers.Extensive blind taste tests showed that 60percent ofall soft drink consumers chose anew,sweeter Coca-Colaformulation over the original Coke,and 52percent chose itover Pepsi.So thebrand dropped its original formula Coke and,with much fanfare,replaced itwith NewCoke,asweeter,smoother version.However,inits research,Coca-Colaoverlooked the many intangibles that havemade Coca-Colaso popularfor 125years.To loyal Coke drinkers,the original beverage standsalongside baseball,apple pie,and the Statue ofLiberty asanAmerican institution.Asitturns out,Coca-Coladifferentiates its brand notjust by taste,butby tradition.By dropping the original formula,Coca-Colatrampled onthe sensitivities ofthe huge core ofloyal Coke drinkers who loved Coke just theway itwas.After only three months,the company brought the classic Coke back.Thus,choosing competitive advantages onwhich to position aproduct or servicecanbedifficult,yetsuch choices may becrucial to success.Choosing the right differentiators canhelp abrand stand outfrom the pack ofcompetitors.

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More-for-more positioning involves providing the most upscale product or serviceand charging ahigher price to cover thehigher costs.Amore-for-more marketoffering notonly offers higher quality,italso gives prestige to the buyer.It symbolizesstatus and aloftier lifestyle.Four Seasons hotels,Rolex watches,Starbucks coffee,Mercedesautomobiles—each claims superiorquality,craftsmanship,durability,performance,or style,and therefore charges ahigher price.When Applepremiered itsiPhone,itoffered higher-quality features than atraditional mobilephone,with ahefty price tag to match.More for the Same:Acompany canattack acompetitor’s value proposition by positioning its brand asoffering more for thesame price.Toyotaintroduced its Lexus line with amore-for-the-same (or even more-for-less)value proposition versusMercedesand BMW.Its first headline read:“Perhaps the first timeinhistory that trading a$72,000carfor a$36,000carcouldbeconsidered trading up.”It communicated the higher quality ofits new Lexus through rave reviews incarmagazines and awidely distributed videoshowing side-by-side comparisons ofLexus and Mercedesautomobiles.It published surveys showingthat Lexus dealers were providing customers with better sales and serviceexperiences.Many Mercedesowners switched toLexus,and the Lexus repurchase rategrew to 60percent,twice the industry average.More for Less:Ofcourse,the winning value proposition would beto offer more for less.Many companies claim to dothis.And,inthe short run,some companies canactually achieve such lofty positions.For example,when itfirst opened for business,HomeDepot hadarguably the best product selection,the best service,and the lowest prices compared to local hardwarestoresand other home improvement chains.Yetinthe long run,companies will find itvery difficult to sustain such best-of-bothpositioning.Offering more usually costs more,making itdifficult to deliveronthe “for-less”promise.Companies that try todeliverboth may lose out to more focused competitors.The Same for Less:Offering the same for less canbeapowerful value proposition— everyone likes agood deal.Discount storessuch asWalmart and “category killers”such asBestBuy,PetSmart,David’s Bridal,and DSWShoes use this positioning.Theydon’t claim to offer different or better products.Instead,they offer many ofthe same brands asdepartment stores andspecialty stores butatdeep discounts based onsuperior purchasing power and lower-cost operations.Less for Much Less:Amarketalmost always exists for products that offer less and therefore cost less.Few people need,want,or canafford “the very best”ineverything they buy.In many cases,consumers will gladly settle for less-than-optimalperformance or give up some ofthe bells and whistles inexchange for alower price.

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