Strategic Market Analysis

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So far, you’ve learned what marketing involves and the importance of gaining insights into consumers and the marketplace environment. With that as background, you’re now ready to delve deeper into marketing strategy and tactics. This chapter takes us further into key customer-driven marketing strategy decisions – the bases upon which markets are broken up into meaningful customer groups (segmentation), how we choose which customer groups to serve (targeting), create market offerings that best serve targeted customers (differentiation), and position the offerings in the minds of consumers (positioning). The chapters that follow explore the tactical marketing tools – the extended marketing mix – by which marketers bring these strategies to life.

For a visual representation of the chapter, please see the diagram on the following page.

6C H A P T E R C U S T O M E R - D R I V E N M A R K E T I N G S T R AT E G Y : C R E AT I N G V A L U E F O R T A R G E T C U S T O M E R S

Learning Objective 1 De�ne the main steps in designing a customer-driven marketing strategy: Market segmentation, targeting, di�erentiation and positioning.

Customer-driven marketing strategy p. 174

Learning Objective 2 List and discuss the main bases for segmenting consumer and business markets.

Market segmentation pp. 175–84

Learning Objective 3 Explain how companies identify attractive market segments and choose a market-targeting strategy.

Market targeting pp. 184–89

Learning Objective 4 Discuss how companies di�erentiate and position their products for maximum competitive advantage.

Di�erentiation and positioning pp. 189–95

Learning Objectives

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Armstrong, Gary, et al. Principles of Marketing, P.Ed Australia, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/cdu/detail.action?docID=5220573. Created from cdu on 2020-02-18 20:28:51.

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Ch oo

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Select target

market segments

Decide on value proposition

LO 1 De�ne the main steps in

designing a customer-driven marketing strategy: market

segmentation, targeting, di�erentiation and

positioning. (p. 174)

LO 2 List and discuss the main

bases for segmenting consumer and business

markets. (pp. 175–84)

LO 3 Explain how companies

identify attractive market segments and choose a

market-targeting strategy. (pp. 184–89)

LO 4 Discuss how companies

di�erentiate and position their products for maximum

competitive advantage. (pp. 189–95)

Undi�erentiated (mass) marketing

Di�erentiated (segmented)

marketing

Concentrated (niche)

marketing

Micromarketing (local or individual)

marketingTa rg

et in

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ra te

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com pe

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ad va

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Identifying possible value di�erences and competitive advantages

Create value for targeted customers

Targeting Segmentation Di�erentiate the market o�eringDivide the total market into

to create superior customer value smaller segments

Using perceptual positioning maps Deciding a value propositionPositioning Di�erentiation Deciding which di�erences are • more for more • m

ore for th e same

good di�erentiators • more for less • th e same for less

• less for much less

Geographical Demographic Psychographic Behavioural

Ba se

s f or

se gm

en ta

tio n

Select customers to serve

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Part 3 Designing a customer-driven strategy and mix 174

Customer-driven marketing strategy (p. 174)

Companies today recognise that they cannot appeal to all buyers in the marketplace, or at least not to all buyers in the same way. Buyers are too numerous, too widely scattered, and too varied in their needs and buying practices. Moreover, the companies themselves vary widely in their ability to serve different segments of the market. Instead, like any sound marketer, a company must identify the parts of the market that it can serve best and most pro�tably. It must design customer-driven marketing strategies that build the right relationships with the right customers.

Thus, most companies have moved away from mass marketing and towards target marketing – identifying market segments, selecting one or more of them, and developing products and marketing programs tailored to each. Instead of scattering their marketing efforts (the ‘shotgun’ approach), �rms are focusing on the buyers who have greater interest in the values they create best (the ‘ri�e’ approach).

Figure 6.1 shows the four main steps in designing a customer-driven marketing strategy. In the �rst two steps, the company selects the customers that it will serve. Market segmentation involves dividing a market into smaller segments of buyers with distinct needs, characteristics or behaviours that might require separate marketing strategies or mixes. The company identi�es different ways to segment the market and develops pro�les of the resulting market segments. Market targeting (or targeting) consists of evaluating each market segment’s attractiveness and selecting one or more market segments to enter.

In the �nal two steps, the company decides on a value proposition – on how it will create value for target customers. Di�erentiation involves actually differentiating the �rm’s market offering to create superior customer value. Positioning consists of arranging for a market offering to occupy a clear, distinctive and desirable place relative to competing products in the minds of target consumers. We discuss each of these steps in turn.

S E L F C H E C K Q U E S T I O N � Explain the process of market segmentation, targeting and positioning. Why do marketers engage in this

activity?

Market segmentation The process of analysing a market with the aim of directing marketing focus towards smaller segments of buyers with distinct characteristics or behaviours that might require separate marketing strategies or mixes.

Market targeting (targeting) The process of evaluating each market segment’s attractiveness and selecting one or more segments to enter.

Di�erentiation Di�erentiating the market o�ering to create superior customer value.

Positioning Arranging for a market o�ering to occupy a clear, distinctive and desirable place relative to competing products in the minds of target consumers.

FIGURE 6.1 Designing a customer-driven marketing strategy

In concept, marketing boils down to two questions: (1) Which customers will we serve? and (2) How will we serve them? Of course, the tough part is coming up with good answers to these simple-sounding but di�cult questions. The goal is to create more value for the customers we serve than our competitors do.

Create value for targeted

customers

Select customers to serve

Segmentation Divide the total market into

smaller segments

Targeting Select the segment or

segments to enter

Decide on a value proposition

Di�erentiation Di�erentiate the market o�ering to create superior customer value

Positioning Position the market o�ering in the minds of target customers

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Chapter 6 Customer-driven marketing strategy: Creating value for target customers 175

Market segmentation (pp. 175–84)

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 ef�ciently and effectively with products and services that match their unique needs. In this section, we discuss four important segmentation topics: segmenting consumer markets, segmenting business markets, segmenting international markets, and requirements for effective segmentation.

Segmenting consumer markets There is no single way to segment a market. A marketer has to try different segmentation variables, alone and in combination, to �nd the best way to view the market structure. Table 6.1 outlines the main variables

Table 6.1 Bases for identifying and analysing consumer market segments

Variable Typical breakdowns

Geographical

Region Far North Queensland, South-Eastern Queensland, Far North Coast of NSW, NSW Tablelands, Western NSW, Lakes District – Victoria

City size Under 5000; 5000–20 000; 20 000–50 000; 50 000–100 000; 100 000–250 000; 250 000–500 000; 500 000–1 000 000; 1 000 000–2 000 000; 2 000 000 or over

Density Urban, suburban, rural Climate Northern, Eastern seaboard, Southern and Western

Demographic

Age Under 6, 7–11, 12–19, 20–34, 35–49, 50–64, 65+ Sex Male, female Family size 1–2, 3–4, 5+ Family life cycle Young, single; young, married, no children; young, married, youngest child under 6; young, married, youngest

child 6 or over; older, married, with children; older, married, no children under 18; older, single; other Income Under $10 000; $10 000–$14 999; $15 000–$19 999, $20 000–$29 999; $30 000–$49 999; $50 000–$99 999;

$100 000 and over Occupation Professional and technical; managers, o�cials and proprietors; clerical, sales; craftspeople, supervisors;

operatives; farmers; retired; students; homemakers; unemployed Education Primary school or less; some high school; high school graduate, some TAFE college; TAFE college graduate;

some university; university graduate Religion Catholic, Protestant, Orthodox, Jewish, Muslim, other Nationality Australian, British, New Zealander, American, Chinese, French, German, Scandinavian, Italian, Greek, Middle

Eastern, Japanese, Taiwanese, Vietnamese, South African

Psychographic

Socioeconomic Quintiles: AB, C, D, E, FG Status Where education, income and occupation levels are used in combination to indicate status Values, attitudes and lifestyle groupings

Visible Achievement, Something Better, Young Optimists, Socially Aware, Look at Me, A Fairer Deal, Basic Needs, Real Conservatism, Traditional Family Life and Conventional Family Life

Personality Compulsive, gregarious, authoritarian, ambitious

Behavioural

Purchase occasion Regular occasion, special occasion Bene�ts sought Quality, service, economy User status Non-user, ex-user, potential user, �rst-time user, regular user Usage rate Light user, medium user, heavy user Loyalty status None, medium, strong, absolute Readiness stage Unaware, aware, informed, interested, desirous, intending to buy Attitude towards product Enthusiastic, positive, indi�erent, negative, hostile

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Part 3 Designing a customer-driven strategy and mix 176

that might be used in segmenting consumer markets. Here we look at the main geographic, demographic, psychographic and behavioural variables.

Geographic segmentation Geographic segmentation calls for dividing the market into different geographical units such as nations, regions, states, local government areas, cities or even neighbourhoods. A company may decide to operate in one or a few geographical areas, or to operate in all areas but pay attention to geographical differences in needs and wants.

Many companies today are localising their products, advertising, promotion and sales efforts to �t the needs of individual regions, cities and even neighbourhoods. For example, retailers such as Coles and Woolworths operate virtually everywhere but sometimes stock specialised products for speci�c types of geographic locations. For example, a shopper in the Sydney suburb of Double Bay would �nd smoked eel in the deli cabinet, whereas this product might not be stocked in Melbourne’s Caroline Springs.

Demographic segmentation Demographic segmentation divides the market into segments based on variables such as age, gender, family size, family life cycle, income, occupation, education, religion, race, generation and nationality. Demo- graphic factors are the most popular bases for segmenting customer groups. One reason is that consumer needs, wants and usage rates often vary closely with demographic variables. Another is that demographic variables are easier to measure than most other types of variables. Even when marketers �rst de�ne segments using other bases, such as bene�ts sought or behaviour, they must know segment demographic characteristics in order to assess the size of the target market and to reach it ef�ciently.

AGE AND LIFE-CYCLE STAGE Consumer needs and wants change with age. Some companies use age and life-cycle segmentation, offering different products or using different marketing approaches for different age and life-cycle groups. Some companies focus on a speci�c age of life-stage groups. For example, Scienceworks offers young children with inquisitive minds an opportunity to see how various mechanical and scienti�c apparatus work, including an insight into the workings of the universe through a visit to the planetarium.

Marketers must be careful to guard against stereotypes when using age and life-cycle segmentation. Although some 80-year-olds �t the doddering stereotypes, others play tennis. Similarly, whereas some

Geographic segmentation Dividing a market into di�erent geographical units such as nations, regions, states, local government areas, cities or neighbourhoods.

Demographic segmentation Dividing the market into segments based on variables such as age, gender, family size, family life cycle, income, occupation, education, religion, race, generation and nationality.

Age and life-cycle segmentation Analysing a market with the aim of directing marketing focus based on di�erent age and life-cycle groups.

Age and life-cycle segmentation: Victoria’s Scienceworks museum and planetarium targets those with enquiring young minds. www.museumvictoria.com.au/ scienceworks

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Chapter 6 Customer-driven marketing strategy: Creating value for target customers 177

40-year-old couples are sending their children off to university, others are just beginning new families. Thus, age is often a poor predictor of a person’s life-cycle, health, work or family status, needs and buying power. Companies marketing to mature consumers usually employ images and appeals such as those we see broadcast on afternoon television. An example of such segmented advertising is an ad for burial insurance, where the focus is on unburdening the remaining family members.

GENDER Gender segmentation has long been used as a segmentation variable by clothing, cosmetics, toiletries and magazines marketers. More recently, many mostly women’s cosmetics makers have begun marketing men’s lines. For example, Unilever’s Lynx brand of body washes and deodorant sprays targets men with names like Click, VooDoo and Africa to denote its various fragrances. Nivea markets the Nivea Men range, which includes moisturisers, shaving and shower gels, post-shave balms and more. Crabtree and Evelyn has evolved from a small �ne soaps maker to an international marketer of fragrances, toiletries and more, in a range that includes many products for men.

An underdeveloped gender segment can offer new opportunities in markets ranging from consumer electronics to motorcycles. For example, Harley-Davidson has traditionally targeted men aged between 35 and 55, but women are now among its fastest growing customer segments. Female buyers now account for 12 per cent of new Harley-Davidson purchases, up from only 2 per cent in 1995. In response, the company is boosting its appeal to women buyers. It recently introduced the SuperLow, a lower-to-the-ground, lighter model geared towards women. And it hired Victoria’s Secret and Sports Illustrated swimsuit edition model Marisa Miller as a spokesperson. Her riding exploits can be seen in videos on the Harley-Davidson website and on YouTube. ‘It says, look, this is real stuff,’ says Harley-Davidson CEO Keith Wandell. ‘A lot of women ride bikes, and here’s a Victoria’s Secret supermodel riding bikes and doing burnouts.’1

INCOME The marketers of products and services such as automobiles, clothing, cosmetics, �nancial services and travel have long used income segmentation. Many companies target af�uent consumers with luxury goods and convenience services. For example, for a price, luxury hotels provide amenities to attract speci�c groups of af�uent travellers, such as families, expectant mums and even pet owners. The 196 metre ship The World ‘is the largest privately owned residential yacht on the planet’ and enables its af�uent residents to sleep on deck Balinese-style and ‘wake up in a new destination every few days’.2

However, not all companies that use income segmentation target the af�uent. For example, many retailers – such as the Best for Less and Harris Scarfe – successfully target low- and middle-income groups. The core market for such stores is lower-income families.

While the recent Global Financial Crisis affected Australia less than most countries at the time, more recently, consumers at all income levels – including af�uent consumers – have cut back on their spending and sought greater value from their purchases. In many cases, luxury marketers targeting high- income consumers have been the hardest hit (see Marketing in Action 6.1).3

Psychographic segmentation Psychographic segmentation divides buyers into different segments based on social class, lifestyle or personality characteristics. People in the same demographic group can have very different psychographic pro�les.

In Chapter 5, we discussed how the products people buy

Gender segmentation Dividing a market into di�erent segments based on gender.

Income segmentation Dividing a market into di�erent income segments.

Psychographic segmentation Dividing a market into di�erent segments based on social class, lifestyle or personality characteristics.

Income segmentation: The World successfully markets itself as ‘the largest privately owned yacht on the planet’. The World

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Part 3 Designing a customer-driven strategy and mix 178

M A

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A L D I : O F F E R I N G A ‘ S A M E - F O R - L E S S ’ V A L U E P R O P O S I T I O N

Whether selling fresh food, clothing, personal computers or mobile phones, to be successful in the marketplace organisations need to understand and then satisfy their customers. Some players in the Australian retail arena have been able to leverage segmentation, targeting and positioning concepts to support their market entry strategies.

For many years, the large retail chains Coles and Woolworths have dominated the Australian supermarket industry, with the latter considered the market leader. These companies were able to segment the marketplace successfully in the knowledge that Australian consumers could be divided into three broad groups – premium, convenience and discount buyers. Armed with this segmentation information, each player in the market was able to position itself based on its ability to appeal to speci�c customer segments.

At one time, a third retailer, Franklins, competed with Coles and Woolworths but at the price-conscious end of the market. In the early 1990s, Franklins’ senior executives decided they wanted to reposition the business by copying the fresh-food- retailing positioning concept that Coles and Woolworths were successfully applying, but to o�er it at a discount price. It was thought that this new target segment for the business would grow its market share and its pro�tability.

Franklins launched a series of fresh-food stores and added fresh-food departments to many of its existing stores. While this strategy seemed a positive move, problems soon arose. It could not match the buying power of its rivals, and management was

not e�ective in containing the higher costs (and therefore the resulting selling prices) associated with fresh-food retailing. In early 2001, Franklins lost share in the four states in which it operated (Queensland, New South Wales, Victoria and South Australia). In its key NSW market, its share fell from 25.6 per cent to 24.2 per cent. In the retail market, where pro�ts are based on large-volume sales and very small margins per item sold, the loss of one percentage point in market share equates to a substantial pro�t reduction, or even �nancial disaster. Additionally, Franklins’ fresh-food concept was too highly priced relative to its stated positioning, and so the price-sensitive core segment became alienated. At the same time, neither potential nor existing shoppers accepted that Franklins could sell fresh food. As a consequence, the retailer failed to gain the anticipated new customers while also losing its loyal core of discount-sensitive buyers.

Franklins became a victim of its ambition to emulate Woolworths and Coles, revealing its poor understanding of the requirements of repositioning a strongly entrenched brand and retailing concept. One of the original appeals of Franklins to price-conscious consumers was the way in which you had to ‘�ght’ your way through the narrow aisles, strain your back to reach items high on the shelves, line up and wait at checkouts and, �nally, pack your own groceries into a carton (if you could �nd one) and carry it to your car. This heroic e�ort was rewarded by substantial price savings. But you earned it!

ALDI Australia

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Chapter 6 Customer-driven marketing strategy: Creating value for target customers 179

Franklins found that it had created an o�er that did not appeal to the market. It had become confused in its segmentation strategy and, as a result, the brand became

incorrectly positioned in the minds of its core segments. In 2001, Franklins was broken up and the parts were sold to other companies, including Coles, Woolworths and a newcomer, ALDI.

A L D I S P O T S T H E G A P D O W N U N D E R

Franklins’ inability to reposition itself successfully in the marketplace provided a perfect opportunity for the large German retail conglomerate ALDI to enter the market. ALDI – the secret grocer in this story – could see that one part of the Australian retail market (formerly serviced by Franklins), the discount segment, was now not serviced by any of the large retail players.

Established in the town of Essen in Germany’s Ruhr Valley, with the �rst foundation stone laid in 1913, the privately owned ALDI operates some 7000 stores in Europe, the US and Australia. The company operates as two separate groups: ALDI North and ALDI South. ALDI North comprises the northern region of Germany, Belgium, Denmark, France, Luxembourg and the Netherlands. ALDI South comprises southern Germany, Austria, the UK, Ireland, the US and Australia. The company has an annual sales turnover of about 35 billion euros (approximately A$55 billion, depending on exchange rates). It di�ers from local retailers by o�ering a limited range of about 700 of the most popular products, mainly under its private label, ‘ALDI’. By comparison, Coles Supermarkets and Woolworths o�er up to 20 000 items, largely national brands, but with increasing numbers of products carried under retailer brands. From the outset, ALDI was successful in gaining consumer acceptance of private-label brands.

While the overall market share of private-label brands stood at about 28 per cent in the UK in 2006, in Australia it was much lower until recent times, when it has risen to some 23 per cent. This is explained in consumer research by Grey Advertising and Sweeney Research – ‘Eye on Australia’ – which indicates that 60 per cent of those surveyed believe that house brands o�ered the same quality as ‘regular’ brands. However, in ALDI stores, national brands represent less than 5 per cent of its �oor stock. ALDI’s o�er includes limited choice but well-presented stock at a low price in a smaller, more accessible store, and this appeals to the discount-prone consumer. ALDI’s stores are situated mainly in areas where the price-conscious congregate, such as adjacent to the direct factory outlets at Moorabbin airport in Melbourne – in other words, in the heartland of its selected target market. However, ALDI also locates in shopping centres when the opportunity presents itself.

Given its experience and timing, ALDI was able to enter the Australian market in 2001 with ease since the needs and wants of a large group of consumers were not being met by the existing retailers. If Franklins had been able to continue to service its natural market segment, ALDI’s penetration of the Australian market would have been much slower and its potential more limited.

So, too, did the Coles Group’s loss of focus and confused supermarket positioning help ALDI to grow in 2006/07. The Coles Group made the decision to switch nearly all its Bi-Lo stores to the perceived more upmarket Coles Supermarkets brands, and in so doing vacated the price-conscious end of the market. Partway through this change, the Coles Group was purchased by Wesfarmers – owners of the highly successful ‘big box’ hardware retailer Bunnings – bringing to a halt what would prove to be a poor marketing decision owing to the loss of brand asset value involved.

The lesson for marketers is that market segmentation is essential. But, just as importantly, organisations need to assess critically their capabilities to satisfy a selected market segment and determine whether there is a competitive advantage that will enable them to fend o� potential new entrants. ALDI has stuck very closely to its position as a discounter of packaged food items, and has used its position to develop and maintain its competitive advantage over its rivals. It can a�ord to do this, as neither Coles nor Woolworths has directly challenged ALDI’s discounting position – quite the contrary, as the attempted withdrawal of Bi-Lo illustrates. Neither does ALDI have any intention of competing at the upmarket end of Australian grocery retailing. The company recognises that a move into that arena would lead it into the same trap that Franklins fell into and that such a move would in all likelihood provoke the much stronger chains to retaliate.

While Wesfarmers has successfully digested its acquisition of the Coles Group, Woolworths nevertheless appears to be able continually to lift its sales and pro�t growth. ALDI may not face its traditional market segments with everything going its way forever. Costco’s arrival in Australia may portend the arrival of international giants such as Tesco and Walmart after they conquer the more populous markets of China, India and Russia.

Sources: See ‘Aldi History’ at <corporate.aldi.com.au/en/about-aldi/aldi-history/>, accessed 21 November 2013. Also see Neil Shoebridge, ‘A new brand spanking’, BRW, 6 May 2010; Eli Greenblat, ‘Costco gets another $110 million from US parent for Australian expansion’, The Sydney Morning Herald, 30 December 2013; Je�rey Hutton, ‘Corbett’s fresh

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Part 3 Designing a customer-driven strategy and mix 180

re�ect their lifestyles. As a result, marketers often segment their markets by consumer lifestyles and base their marketing strategies on lifestyle appeals. For example, although both Gloria Jean’s and Starbucks are coffee shops, they offer very different product assortments and store atmospheres. Yet each succeeds because it creates just the right value proposition for its unique mix of customer lifestyles. Starbucks targets more ‘high-brow’ young professionals, whereas Gloria Jean’s targets the ‘average person’.

We see lifestyle differences emerging in attitudes to car ownership as city-dwelling professionals turn to sharing cars and bicycles. These are not rental activities in the usual sense, as they involve hourly rentals with pickups and drop- off points scattered around cities. GreenShareCar offers many bene�ts to private car users, while

Melbourne Bike Share caters to those wanting to make short city trips. In both cases, Australian lifestyles differ from European and North American lifestyles in this regard.4

Marketers also use personality variables to segment markets. For example, cruises to the Kimberley region or to West Papua and Papua New Guinea target adventure seekers. While some cruises to the Kimberley region appeal to high-energy couples and families, with their many outdoor activities, True North (pictured) is designed to allow discerning adventurers to experience the wilderness in surroundings more akin to one of the world’s most exclusive hotels. By contrast, P&O Cruises are varied and the three ships in the �eet offer choices for outgoing families, young couples and active older people, depending on their needs.5

Behavioural segmentation Behavioural segmentation divides buyers into segments based on their knowledge, attitudes, uses or responses to a product. Many marketers believe that behaviour variables are the best starting point for building market segments.

OCCASIONS Buyers can be grouped according to occasions when they get the idea to buy, actually make their purchase or use the purchased item. Occasion segmentation can help �rms build up product usage. For example, most

Behavioural segmentation Dividing a market into segments based on consumer knowledge, attitudes, uses or responses to a product. Occasion segmentation Dividing the market into segments according to occasions when buyers get the idea to buy, actually make their purchase or use the purchased item.

idea for rival’, BRW, 18–22 August 2007, p. 9; Jason Baker, GM IBISWorld, ‘Brand in the house’, BRW – ‘Economy Watch’, 19 April 2007; Adelle Ferguson, ‘Envy’, BRW, 14 January 2002; Neil Shoebridge, ‘Franklins’ chief has a job ahead’, BRW, 1 February 1999; Michelle Hannen, ‘Patient ALDI is buying carefully’, BRW, 27 September 2001; ALDI International website, <www.aldi.com>, accessed 21 November 2013.

Q u e s t i o n s � Do you believe that shoppers at ALDI see the brands o�ered there as retailer (private-label) brands or as ‘regular’ brands? � How is ALDI positioned relative to its competitors in the minds of people you know? � How do the various grocery market segments perceive private-label brands in your country? Is there room for growth? � What are the reasons behind your answer to question 3? Do they apply equally to all market segments?

M A R K E T I N G I N A C T I O N 6 . 1 continued

Personality variables: True North o�ers enhanced levels of comfort and luxury to those wanting to experience luxury adventure cruises in a style akin to one of the world’s most exclusive hotels. North Star Cruises

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Chapter 6 Customer-driven marketing strategy: Creating value for target customers 181

consumers of fruit juice drink it in the morning, but marketers such as Boost Juice want juices to be seen as a part of a healthy lifestyle and consumed throughout the day.

Some holidays, such as Mother’s Day and Father’s Day, were originally promoted partly to increase the sale of chocolates and sweets, �owers, cards and other gifts. And many marketers prepare special offers and ads for holiday occasions. For example, chocolate marketers with impulse lines like Cherry Ripe, Mars bars and Violet Crumble bars, and specialty lines such as Lindt balls, make up special Easter egg look-alike products to take advantage of the Easter selling period.

BENEFITS SOUGHT A powerful form of segmentation is to group buyers according to the different bene�ts they seek from the product. Bene�t segmentation requires �nding the main bene�ts people look for in the product class, the kinds of people who look for each bene�t, and the main brands that deliver each bene�t. The Athlete’s Foot markets its product lines in Australia and New Zealand according to bene�ts that different consumers seek from their sporting, leisure and comfort footwear, and must target the bene�t segment or segments that it can serve best and most pro�tably, using appeals that match each segment’s bene�t preferences.

USER STATUS Markets can be segmented into non-users, ex-users, potential users, �rst-time users and regular users of a product. Marketers want to reinforce and retain regular users, attract targeted non-users, and reinvigorate relationships with ex-users.

Included in the potential user group are consumers facing life-stage changes – such as newlyweds and new parents – who can be turned into heavy users. For example, Bounty Bags are distributed to Australian mothers-to-be and new mothers by hospital staff or at antenatal classes. The bags contain product samples the new mother may not have used before, as well as parenting magazines and a Bounty Pregnancy Book.6

USAGE RATE Markets can also be segmented into 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 example, smartphone users who access the internet may be classi�ed as heavy users based on their use of high-bandwidth services such as peer-to-peer �le sharing, or on the amount of time they spend in social media communication. Heavy users may require more expensive data plans than light users of these services. Either way, the telecommunications companies (telcos) target heavy users, as they provide a higher return on investment.

LOYALTY STATUS A market can also be segmented by consumer loyalty. Consumers can be loyal to brands (ColdPower), stores (Target) and companies (Toyota). Buyers can be divided into groups according to their degree of loyalty.

Some consumers are completely loyal – they buy one brand all the time. For example, as we discussed in the previous chapter, Apple has an almost cult-like following of loyal users. Sony PlayStation users can be almost as fanatical, judging by the fact that some 1 million PS4s were sold in the �rst 24 hours following its release in November 2013.7 Other consumers are somewhat loyal – they are loyal to two or three brands of a given product, or favour one brand while sometimes buying others. Still other

Bene�t segmentation Analysing a market with the aim of directing marketing focus based on the di�erent bene�ts that consumers seek from the product.

Consumer loyalty: “Mac Fanatics” – fanatically loyal Apple users – helped keep Apple a�oat during the lean years, and they are now at the forefront of Apple’s burgeoning iPod, iPhone, and iTunes empire. Doug Hardman

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buyers show no loyalty to any brand. Either they want something different each time they buy, or they buy whatever is a price special.

A company can learn a lot by analysing loyalty patterns in its market. It should start by studying its own loyal customers. For example, by studying PS3 and PS4 fanatics, Sony can better pinpoint its target market and develop marketing appeals. By studying its less-loyal buyers, the company can detect which brands are most competitive with its own. By looking at customers who are shifting away from its brand, the company can learn about its marketing weaknesses.

Using multiple segmentation bases Marketers rarely limit their segmentation analysis to only one or a few variables. Rather, they mostly use multiple segmentation bases in an effort to identify smaller, better-de�ned target groups.

Thus, a bank may not only identify a group of wealthy retired adults but also, within that group, distinguish several segments based on their current income, assets, savings and risk preferences, housing and lifestyles.

Business information services such as ACNielsen and Roy Morgan provide multivariable segmentation systems that merge geographic, demographic, lifestyle and behavioural data to help companies segment their markets down to postcodes, neighbourhoods and even households. Such segmentation provides a powerful tool for marketers of all kinds. It can help companies to identify and better understand key customer segments, target them more ef�ciently, and tailor market offerings and messages to their speci�c needs.

Segmenting business markets Consumer and business marketers use many of the same variables to segment their markets. Business buyers can be segmented geographically, demographically (industry, company size), or by bene�ts sought, user status, usage rate and loyalty status. Yet, business marketers also use some additional variables, such as customer operating characteristics, purchasing approaches, situational factors and personal characteristics.

Almost every company serves at least some business markets. For example, American Express targets businesses in three segments – merchants, corporations and small businesses. It has developed distinct marketing programs for each segment. In the merchants segment, American Express focuses on convincing new merchants to accept the card, and on managing relationships with those that already do. For larger corporate customers, the company offers a corporate card program that includes extensive employee expense and travel management services. It also offers this segment a wide range of asset management, retirement planning and �nancial education services.

Many companies set up separate systems for dealing with larger or multiple-location customers. For example, Progressive, a marketer of of�ce furniture, �rst segments customers into four industries, including aged care, commercial, hospitality and health care. Some national, multiple-location customers have special needs that may reach beyond the scope of their individual �ve stores. So, Progressive uses national account managers to help its stores handle its national accounts.

Within a given target industry and customer size, the company can segment by purchase approaches

Behavioural segmentation extended: Using multiple segmentation bases, Roy Morgan Values Segments assist marketing organisations to �nd out what segments think, feel and aspire to, and how they act. Source: Roy Morgan Single Source July 2009–June 2010. Devised by Michele Levine of Roy Morgan Research and Colin Benjamin of the Horizons Network.

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and criteria. As in consumer segmentation, many marketers believe that buying behaviour and bene�ts provide the best basis for segmenting business markets.

Segmenting international markets Few companies have either the resources or the will to operate in all, or even most, of the countries that dot the globe. Although some large companies, such as Coca-Cola or Sony, sell products in more than 200 countries, most international �rms focus on a smaller set. Operating in many countries presents new challenges. Different countries, even those that are close together, can vary greatly in their economic, cultural and political makeup. Thus, just as they do within their domestic markets, international �rms need to group their world markets into segments with distinct buying needs and behaviours.

Companies can segment international markets using one or a combination of several variables. They can segment by geographic location, grouping countries by regions such as Western Europe, the Paci�c Rim, the Middle East or Africa. Geographic segmentation assumes that nations close to one another will have many common traits and behaviours. Although this is often the case, there are many exceptions. For example, although the countries in South-East Asia have much in common, they differ culturally and economically. For example, Malaysia and the island state of Singapore are connected, and are interdependent in some ways, but differ both culturally and economically from each other and from the many other adjacent countries, such as Thailand.

World markets can also be segmented on the basis of economic factors. Countries might be grouped by population income levels or by their overall level of economic development. A country’s economic structure shapes its population’s product and service needs and, therefore, the marketing opportunities it offers. For example, many companies are now targeting the BRIC countries – Brazil, Russia, India and China – fast-growing developing economies with rapidly increasing buying power.

Countries can also be segmented by political and legal factors such as the type and stability of government, receptivity to foreign �rms, monetary regulations and amount of bureaucracy. Cultural factors can also be used, grouping markets according to common languages, religions, values and attitudes, customs and behavioural patterns.

Segmenting international markets based on geographic, economic, political, cultural and other factors assumes that segments should consist of clusters of countries. However, as communications technologies such as satellite TV and the internet continue to connect consumers around the world, marketers can de�ne and reach segments of like-minded consumers no matter where in the world they are. Using intermarket segmentation (also called cross-market segmentation), they form segments of consumers who have similar needs and buying behaviours even though they are located in different countries. For example, Lexus targets the world’s well-to-do – the ‘global elite’ segment – regardless of their country. Coca-Cola creates special programs to target teens, core consumers of its soft drinks the world over. And Swedish furniture giant IKEA targets the aspiring global middle class – it sells good-quality furniture that ordinary people worldwide can afford.

Requirements for e�ective segmentation Clearly, there are many ways to segment a market, but not all segmentations are effective. For example, buyers of table salt could be divided into blond and brunette customers. But hair colour obviously does not affect the purchase of salt. Furthermore, if all salt buyers bought the same amount of salt each month, believed that all salt is the same, and wanted to pay the same price, the company would not bene�t from segmenting this market.

To be useful, market segments must be: • Measurable: The size, purchasing power and pro�les of the segments can be measured. Certain

segmentation variables are dif�cult to measure. For example, there are approximately 30.5 million

Intermarket segmentation Forming segments of consumers who have similar needs and buying behaviour even though they are located in di�erent countries.

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left-handed people in the United States – almost equalling the entire population of Canada. Yet, few products are targeted towards this left-handed segment. The main problem may be that the segment is hard to identify and measure. There are no data on the demographics of lefties, and neither the US Census Bureau, the Australian Bureau of Statistics nor Statistics New Zealand keep track of left- handedness in their surveys. Private data companies keep reams of statistics on other demographic segments but not on left-handers.

• Accessible: The market segments can be effectively reached and served. Suppose a fragrance company �nds that heavy users of its brand are single men and women who stay out late and socialise a lot. Unless this group lives or shops at certain places and is exposed to certain media, its members will be dif�cult to reach.

• Substantial: The market segments are large or pro�table enough to serve. A segment should be the largest possible homogeneous group worth pursuing with a tailored marketing program. It would not pay, for example, for an automobile manufacturer to develop cars especially for people whose height is greater than two metres.

• Differentiable: The segments are conceptually distinguishable and respond differently to different marketing mix elements and programs. If married and unmarried women respond similarly to a sale on perfume, they do not constitute separate segments.

• Actionable: Effective programs can be designed for attracting and serving the segments. For example, although one small airline identi�ed seven market segments, its staff was too small to develop separate marketing programs for each segment.

S E L F C H E C K Q U E S T I O N S � List the main bases for market segmentation. � Describe behavioural segmentation.

Market targeting (pp. 184–89)

Market segmentation reveals the �rm’s market segment opportunities. The �rm now has to evaluate the various segments and decide how many and which segments it can serve best. We now look at how companies evaluate and select target segments.

Evaluating market segments In evaluating different market segments, a �rm must look at three factors: segment size and growth, segment structural attractiveness, and company objectives and resources. The company must �rst collect and analyse data on current segment sales, growth rates, and expected pro�tability for various segments. It will be interested in segments that have the right size and growth characteristics.

But ‘right size and growth’ is a relative matter. The largest, fastest-growing segments are not always the most attractive ones for every company. Smaller companies may lack the skills and resources needed to serve the larger segments. Or they may �nd these segments too competitive. Such companies may target segments that are smaller and less attractive, in an absolute sense, but that are potentially more pro�table for them.

The company also needs to examine major structural factors that affect long-run segment attractiveness.8 For example, a segment is less attractive if it already contains many strong and aggressive competitors. The existence of many actual or potential substitute products may limit prices and the pro�ts that can be earned in a segment. The relative power of buyers also affects segment attractiveness. Buyers with strong bargaining power relative to sellers will try to force prices down, demand more services, and set competitors against one another – all at the expense of seller pro�tability. Finally, a segment may be less attractive if it contains powerful suppliers who can control prices or reduce the quality or quantity of ordered goods and services.

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Even if a segment has the right size and growth and is structurally attractive, the company must consider its own objectives and resources. 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. For example, given current economic and resource conditions, the economy segment of the motor vehicle market is large and growing. But given its objectives and resources, it would make little sense for luxury-performance car maker BMW to enter this segment and compete head-on with the likes of Hyundai and Proton. A company should enter only segments in which it can create superior customer value and gain advantages over competitors.

Selecting target market segments After evaluating different segments, the company must decide which and how many segments it will target. A target market consists of a set of buyers who share common needs or characteristics that the company decides to serve. Market targeting can be carried out at several different levels. Figure 6.2 shows that companies can target very broadly (undifferentiated marketing), very narrowly (micromarketing), or somewhere in between (differentiated or concentrated marketing).

Undi�erentiated marketing Using an undi�erentiated marketing (or mass marketing) strategy, a �rm might decide to ignore market segment differences and target the whole market with one offer. This mass-marketing strategy focuses on what is common in the needs of consumers, rather than on what is different. The company designs a product and a marketing program that will appeal to the largest number of buyers.

As noted earlier in the chapter, most modern marketers have strong doubts about this strategy. Dif�culties arise in developing a product or brand that will satisfy all consumers. Moreover, mass marketers often have trouble competing with more-focused �rms that do a better job of satisfying the needs of speci�c segments and niches.

Di�erentiated marketing Using a di�erentiated marketing (or segmented marketing) strategy, a �rm decides to target several market segments and designs separate offers for each. Toyota Corporation produces several brands of cars – from Toyota (Corolla, Camry and Aurion) and Lexus (IS, GS and LS models) – each targeting its own segments of car buyers. Procter & Gamble markets various household care brands, not to mention such beauty and grooming brands as Head & Shoulders, Olay, Pantene and Wella, which compete with each other and with competitor Unilever’s brands on supermarket shelves. Unilever’s personal care brands include Dove, Impulse, Lifebuoy, Lux, Lynx, Pears, Rexona, Sunsilk and Vaseline. Multibrand distributor Unilever uses differential marketing to offer a range of personal care brands that tap into consumer lifestyles and aspirations; check out its website at <www.unilever.com.au/brands/>.

Target market A set of buyers sharing common needs or characteristics that the company decides to serve.

Undi�erentiated (mass) marketing A market-coverage strategy in which a �rm decides to ignore market segment di�erences and go after the whole market with one o�er.

Di�erentiated (segmented) marketing A market-coverage strategy in which a �rm decides to target several market segments and designs separate o�ers for each.

FIGURE 6.2 Market targeting strategies

This �gure covers a pretty broad range of targeting strategies, from mass marketing (virtually no targeting) to individual marketing (customising products and programs to individual customers). An example of individual marketing: At myMMs.com you can order a batch of M&Ms with your face and personal message printed on each piece.

Undi�erentiated (mass) marketing

Di�erentiated (segmented)

marketing

Concentrated (niche)

marketing

Micromarketing (local or individual

marketing)

Targeting broadly

Targeting narrowly

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By offering product and marketing variations to segments, companies like Toyota, P&G and Unilever, among others, hope for higher sales and a stronger position within each market segment. Developing a stronger position within several segments creates more total sales than undifferentiated marketing across all segments.

But differentiated marketing also increases the costs of doing business. A �rm usually �nds it more expensive to develop and produce, say, ten units of ten different products than 100 units of one product. Developing separate marketing plans for the separate segments requires extra marketing research, forecasting, sales analysis, promotion planning and channel management. And trying to reach different market segments with different advertising campaigns increases promotion costs. Thus, the company must weigh increased sales against increased costs when deciding on a differentiated marketing strategy.

Concentrated marketing Using a concentrated marketing (or niche marketing) strategy, instead of going after a small share of a large market, the �rm goes after a large share of one or a few smaller segments or niches. For example, NightOwl’s vision is ‘To be the most successful and envied convenience retailer in the Australian market’.9 It has been in business for some 30 years and has stores in Queensland, New South Wales and Victoria. The segment the �rm targets is buyers of grocery and convenience demand products who may buy at any time in the 24 hours that most stores are open.

Through concentrated marketing, the �rm achieves a strong market position because of its greater knowledge of consumer needs in the niches it serves and the special reputation it acquires. It can market more effectively by �ne-tuning its products, prices and programs to the needs of carefully de�ned segments. It can also market more ef�ciently, targeting its products or services, channels and communications programs towards only consumers that it can serve best and most pro�tably.

Whereas segments are fairly large and normally attract several competitors, niches are smaller and may attract only one or a few competitors. Niching lets smaller companies focus their limited resources on serving niches that may be unimportant to or overlooked by larger competitors. Many companies start as nichers to get a foothold against larger, more-resourceful competitors and then grow into broader competitors.

In contrast, as markets change, some megamarketers develop niche products to create sales growth. For example, in recent years, as consumers have grown more health conscious, the demand for carbonated soft drinks has declined while the market for energy drinks and juices has grown. To meet this shifting demand,

mainstream cola marketers PepsiCo and Coca-Cola have both developed or acquired their own niche products, ranging from low-kilojoule carbonated soft drinks (CSDs) to enhanced waters, energy drinks and juices.10

Today, the low cost of setting up shop on the internet makes it even more pro�table to serve seemingly minuscule niches. Small businesses, in particular, are realising riches from serving small niches on the web. Consider Etsy:

Etsy is ‘the world’s handmade marketplace’ – selling everything from handmade soaps to Conan O’Brien cuf�inks. Sometimes referred to as eBay’s funky little sister, the Etsy online crafts fair site is a far cry from the old-fashioned street-corner �ea market. Thanks to the reach and power of the Web, Etsy now counts 8 million members and 8.5 million listings in 150 countries. The Web site has 5 million monthly visitors. In just the past three

Concentrated (niche) marketing A market-coverage strategy in which a �rm goes after a large share of one or a few segments or niches.

Concentrated marketing: NightOwl’s franchise stores serve the market segment seeking grocery and convenience products 24 hours a day. NightOwl

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years, Etsy more than tripled its gross sales to $314 million. Etsy’s vibrant handmade marketplace is more than an e-business site; it’s a thriving community. For example, it sponsors actual and virtual meet- ups organized by location (from Syracuse to Saskatchewan and Singapore), medium (papier-mâché, mosaic), and interest area (Chainmailers Guild, Lizards, and Lollipops). Etsy’s mission is ‘to enable people to make a living making things, and to reconnect makers with buyers.’ It aims ‘to build a new economy and present a better choice: Buy, Sell, and Live Handmade.’11

Concentrated marketing can be highly pro�table. 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.

Micromarketing Differentiated and concentrated marketers tailor their offers and marketing programs to meet the needs of various market segments and niches. At the same time, however, they do not customise their offers to each individual customer. Micromarketing is the practice of tailoring products and marketing programs to suit the tastes of speci�c individuals and locations. Rather than seeing a customer in every individual, micro- marketers see the individual in every customer. Micromarketing includes local marketing and individual marketing.

LOCAL MARKETING Local marketing involves tailoring brands and promotions to the needs and wants of local customer groups – cities, neighbourhoods and even speci�c stores. For example, large retailers customise their merchandise on a regional basis to meet the needs of local shoppers.

Advances in communications technology have given rise to a new high-tech version of location-based marketing. By coupling mobile phone services with GPS devices, many marketers are now targeting customers wherever they are with what they want.12

Local marketing has some drawbacks, particularly in relatively small markets such as Australia and New Zealand. It can drive up manufacturing and marketing costs by reducing economies of scale. It can also create logistics problems as companies try to meet the varied requirements of different regional and local markets. Further, a brand’s overall image might be diluted if the product and message vary too much in different localities.

Still, as companies face increasingly fragmented markets, and as new supporting technologies develop, the advantages of local marketing often outweigh the drawbacks. Local marketing helps a company to market more effectively in the face of pronounced regional and local differences in demographics and lifestyles. It also meets the needs of the company’s �rst-line customers – retailers – who prefer more �nely tuned product assortments for their neighbourhoods.

INDIVIDUAL MARKETING In the extreme, micromarketing becomes individual marketing – tailoring products and marketing programs to the needs and preferences of individual customers. Individual marketing has also been labelled one-to- one marketing, mass customisation and markets-of-one marketing.

The widespread use of mass marketing has obscured the fact that for centuries consumers were served as individuals: The tailor custom-made a suit, the cobbler designed shoes for an individual, the cabinetmaker made furniture to order. Today, however, new technologies are permitting many companies to return to customised marketing. More detailed databases, robotic production and �exible manufacturing, and interactive communication media such as mobile phones and the internet have all combined to foster ‘mass customisation’. Mass customisation is the process through which �rms interact one-to-one with masses of customers to design products and services tailor-made to individual needs.

Micromarketing The practice of tailoring products and marketing programs to the needs and wants of speci�c individuals and local customer segments – includes local marketing and individual marketing

Local marketing Tailoring brands and promotions to the needs and wants of local customer segments – cities, neighbourhoods, and even speci�c stores.

Individual marketing Tailoring products and marketing programs to the needs and preferences of individual customers – also labelled ‘one-to-one marketing’, ‘customised marketing’ and ‘markets-of- one marketing’.

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Dell creates custom-con�gured computers. Visitors to Nike’s NikeID website can personalise their sneakers by choosing from hundreds of colours and putting an embroidered word or phrase on the tongue. Marketers are also �nding new ways to personalise promotional messages. For example, in overseas markets, plasma screens placed in shopping malls can now analyse shoppers’ faces and place ads based on an individual shopper’s gender, age or ethnicity:

Watch an advertisement on a video screen in a mall, health club, or grocery store and there’s a growing chance that the ad is watching you too. Small cameras can now be embedded in or around the screen, tracking who looks at the screen and for how long. With surprising accuracy, the system can determine the viewer’s gender, approximate age range and, in some cases, ethnicity – and change the ads accordingly. That could mean razor ads for men, cosmetics ads for women, and videogame ads for teens. Or a video screen might show a motorcycle ad for a group of men, but switch to a minivan ad when women and children join them. ‘This is proactive merchandising,’ says a media executive. ‘You’re targeting people with smart ads.’13

Business-to-business marketers are also �nding new ways to customise their offerings. For example, John Deere manufactures seeding equipment that can be con�gured in more than 2 million versions to individual customer speci�cations. The seeders are produced one at a time, in any sequence, on a single production line. Mass customisation provides a way to stand out against competitors.

Unlike mass production, which eliminates the need for human interaction, one-to-one marketing has made relationships with customers more important than ever. Just as mass production was the marketing principle of the past century, interactive marketing is becoming a marketing principle for the 21st century. The world appears to be coming full circle – from the good old days when customers were treated as individuals, to mass marketing when nobody knew your name, and back again.

Choosing a targeting strategy Companies need to consider many factors when choosing a market-targeting strategy. Which strategy is best depends on company resources. When the �rm’s resources are limited, concentrated marketing makes the most sense. The best strategy also depends on the degree of product variability. Undifferentiated marketing is more suited to uniform products such as grapefruit or steel. Products that can vary in design, such as cameras and cars, are more suited to differentiation or concentration. The product’s life-cycle stage also must be considered. When a �rm introduces a new product, it may be practical to launch only one version, and 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.

Another factor is market variability. If most buyers have the same tastes, buy the same amounts and react the same way to marketing efforts, undifferentiated marketing is appropriate. Finally, competitors’ marketing strategies are important. When competitors use differentiated or concentrated marketing, undifferentiated marketing can be suicidal. Conversely, when competitors use undifferentiated marketing, a �rm can gain an advantage by using differentiated or concentrated marketing, focusing on the needs of buyers in speci�c segments.

Socially responsible target marketing Smart targeting helps companies to be more ef�cient and effective by focusing on the segments that they can satisfy best and most pro�tably. Targeting also bene�ts consumers – companies serve speci�c groups of consumers with offers carefully tailored to their needs. However, target marketing sometimes generates controversy and concern. The biggest issues usually involve the targeting of vulnerable or disadvantaged consumers with controversial or potentially harmful products.

For example, over the years, marketers in a wide range of industries – from cereal and toys to fast food and fashion – have been heavily criticised for their marketing efforts directed towards children.

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Critics worry that premium offers and high-powered advertising appeals presented through the mouths of lovable animated characters will overwhelm children’s defences.

Various state and Commonwealth consumer affairs departments and citizen action groups have accused tobacco and beer companies of targeting underage smokers and drinkers. One US study found that more than a third of alcohol radio ads are more likely to be heard by underage listeners than adults on a per capita basis.14 To encourage responsible advertising, the Australian Association of National Advertisers (AANA) publishes a Code of Ethics, and the Advertising to Children Code and the Commercial Television Industry Code of Practice is a second code to which all accredited agencies are expected to adhere.15 In effect, they have published extensive children’s advertising guidelines that recognise the special needs of child audiences. Still, critics feel that more should be done. Some have even called for a complete ban on advertising to children. Cigarette, beer, carbonated soft-drink and fast-food marketers have also generated controversy in recent years by their attempts to target inner-city minority consumers.

The growth of the internet and other carefully targeted direct media has raised fresh concerns about potential targeting abuses. The internet allows increased pinpointing of audiences and, in turn, more precise targeting. This might help makers of questionable products or deceptive advertisers to more readily victimise the most vulnerable audiences. Unscrupulous marketers may send tailor-made deceptive messages directly to the computers of millions of unsuspecting consumers despite spam �lters and government legislation.

Not all attempts to target children, minorities or other special segments draw such criticism. In fact, most provide bene�ts to targeted consumers. Samsung markets the Jitterbug phone directly to seniors who need a simpler mobile phone that is bigger and has a louder speaker.16 And Colgate makes a large selection of toothbrush shapes and toothpaste �avours for children. Such products help make tooth brushing more fun and get children to brush for longer and more often.

Thus, in target marketing, the issue is not really who is targeted but, rather, how and for what. Contro- versies arise when marketers attempt to pro�t at the expense of targeted segments – when they unfairly target vulnerable segments or target them with questionable products or tactics. Socially responsible marketing calls for segmentation and targeting that serve not just the interests of the company but also the interests of those targeted.

S E L F C H E C K Q U E S T I O N S � Compare and contrast di�erentiated marketing and concentrated marketing. � Provide an example of micromarketing.

Differentiation and positioning (pp. 189–95)

Beyond deciding which segments of the market it will target, the company must decide on a value proposition – or how it will create differentiated value for targeted segments and what positions it wants to occupy in those segments. A product’s position is the way the product is de�ned by consumers on important attributes – the place the product occupies in consumers’ minds relative to competing products. ‘Products are created in the factory, but brands are created in the mind,’ says a positioning expert.17

In the motor vehicle market, the Nissan Micra and Suzuki Swift are positioned on economy, Lexus and Mercedes on luxury, and Audi, BMW and Porsche on performance. Volvo positions powerfully on safety. And Toyota positions its fuel-ef�cient, hybrid Camry and Prius models as a high-tech solution to the energy shortage.

Consumers are overloaded with information about products and services. They cannot re-evaluate products every time they make a buying decision. To simplify the buying process, consumers organise products, services and companies into categories and ‘position’ them in their minds. A product’s position is

Product position The way the product is de�ned by consumers on important attributes; the place the product occupies in consumers’ minds relative to competing products.

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the complex set of perceptions, impressions and feelings that consumers have for the product compared with competing products.

Consumers position products with or without the help of marketers. But marketers do not want to leave their products’ positions to chance. They must plan positions that will give their products the greatest advantage in selected target markets, and they must design marketing mixes to create these planned positions.

Positioning maps In planning their differentiation and positioning strategies, marketers often prepare perceptual positioning maps, which show consumer perceptions of their brands versus competing products on important buying dimensions. Figure 6.3 shows a hypothetical positioning map for carbonated beverages in the 15- to 18-year- old segment. The position of each circle on the map indicates the brand’s perceived positioning on two dimensions – social acceptability with peers, and sweetness. The size of each circle indicates the brand’s relative market share.

Thus, this age group perceives Coca-Cola as being the carbonated beverage to be seen consuming when drinking with friends. Pepsi is seen as being sweeter and less socially acceptable by this age group, while Solo is seen as low on sweetness and less socially acceptable. The perception of the Solo brand is perhaps understandable given its positioning in advertising with an older age group. Given the larger market share achieved by Coke, as shown by the size of the circle, we could conclude that among this age group, Coke is closest to the ideal brand.

Choosing a di�erentiation and positioning strategy Some �rms �nd it easy to choose a differentiation and positioning strategy. For example, a �rm well known for quality in certain segments will go for this position in a new segment if there are enough buyers seeking quality. But in many cases, two or more �rms will go after the same position. Then, each will have to �nd

FIGURE 6.3 Positioning map: Carbonated beverages (15- to 18-year-olds)

So cia

l a cce

pt ab

ilit y

Low High

High

Sweetness

Coca-Cola

Pepsi

Solo

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other ways to set itself apart. Each �rm must differentiate its offer by building a unique bundle of bene�ts that appeals to a substantial group within the segment. Above all else, a brand’s positioning must serve the needs and preferences of well-de�ned target markets.

The differentiation and positioning task consists of three steps: (1) identifying a set of differentiating competitive advantages upon which to build a position; (2) choosing the right competitive advantages; and (3) selecting an overall positioning strategy. The company must then effectively communicate and deliver the chosen position to the market.

Identifying possible value di�erences and competitive advantages To build pro�table relationships with target customers, marketers must understand customer needs better than competitors do and deliver more customer value. To the extent that a company can differentiate and position itself as providing superior customer value, it gains competitive advantage.

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 in ad slogans and taglines. They must �rst live the slogan. For example, if a department store conducts research and �nds that customers place high value on an easier shopping experience, then it should ensure that the stores do indeed offer this experience. It would be wise to remake the stores to actually deliver the promised positioning – even if this meant a long delay to get it right.18

To �nd points of differentiation, marketers must think through the customer’s entire experience with the company’s product or service. An alert company can �nd ways to differentiate itself at every customer contact point. In what speci�c ways can a company differentiate itself or its market offer? It can differentiate along the lines of product, services, channels, people or image.

Through product differentiation brands can be differentiated on features, performance, or style and design. Thus, Bose positions its speakers on their striking design and sound characteristics. By using the Heart Foundation’s Heart Smart tick, retailers differentiate different cuts of meat as a healthy food choice. And so do brands like McCain with their Potato Cubes, among other products.

Beyond differentiating its physical product, a �rm can also differentiate the services that accompany the product. Some companies gain services differentiation through speedy, convenient or careful delivery. For example, Lexus makes �ne cars but is perhaps even better known for the quality service that creates outstanding ownership experiences for Lexus owners. In an age where customer satisfaction with airline service is in constant decline, Singapore Airlines sets itself apart through extraordinary customer care and the grace of its �ight attendants. ‘Everyone expects excellence from us,’ says the international airline. ‘[So even] in the smallest details of �ight, we rise to each occasion and deliver the Singapore Airlines experience.’19

Firms that practise channel differentiation gain competitive advantage through the way they design their channel’s coverage, expertise and performance. Amazon.com sets itself apart with its smooth-functioning direct channel. Companies can also gain a strong competitive advantage through people differentiation – hiring and training better people than their competitors do. Singapore Airlines enjoys an excellent reputation, largely because of its �ight attendants. People differentiation requires that a company selects its customer-contact people carefully and trains them well. For example, Disney trains its theme park people thoroughly to ensure that they are competent, courteous and friendly – from the hotel check-in agents, to the monorail drivers, to the ride attendants, to the people who sweep Main Street, USA. Each employee is carefully trained to understand customers and to ‘make people happy’.

Even when competing offers look the same, buyers may perceive a difference based on company or brand image differentiation. A company or brand image should convey the product’s distinctive bene�ts and positioning. Developing a strong and distinctive image calls for creativity and hard work. A company

Competitive advantage An advantage over competitors gained by o�ering greater customer value, either through lower prices, or by providing more bene�ts that justify higher prices.

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cannot develop an image in the public’s mind overnight using only a few advertisements. If So�tel means quality, this image must be supported by everything the company says and does in its luxury hotels.

Symbols – such as the McDonald’s golden arches, the Nike swoosh, the Commonwealth Bank’s yellow-and-black rendition of the Southern Cross constellation, or Google’s colourful logo – can provide strong company or brand recognition and image differentiation. The company might build a brand around a famous person, as Nike did with its Air Jordan basketball shoes and Tiger Woods gol�ng products. Some companies even become associated with colours, such as IBM (blue), Cadbury (purple) or Coca-Cola (red). The chosen symbols, characters

and other image elements must be communicated through advertising that conveys the company’s or brand’s personality.

Choosing the right competitive advantages Suppose a company is fortunate enough to discover several potential differentiations that provide competi- tive advantages. It now must choose the ones on which it will build its positioning strategy. It must decide how many differences to promote and which ones.

HOW MANY DIFFERENCES TO PROMOTE Many marketers think that companies should aggressively promote only one bene�t to the target market. Advertising executive Rosser Reeves, for example, believes a company should develop a unique selling proposition (USP) for each brand and stick to it. Each brand should pick an attribute and tout itself as ‘number one’ on that attribute. Buyers tend to remember number one better, especially in our society where we receive so many communications each day.20 Thus, Big W promotes its everyday low prices and Commonwealth Bank promotes its positive power for customers with its ‘can’ campaign.

Other marketers think that companies should position themselves on more than one differentiator. This may be necessary if two or more �rms are claiming to be best on the same attribute. Today, in a time when the mass market is fragmenting into many small segments, companies are trying to broaden their positioning strategies to appeal to more segments. For example, SC Johnson recently introduced a new Pledge multi-surface cleaner. Known mainly as a brand for cleaning and dusting wood furniture, the new Pledge is positioned as a cleaner that works on wood, electronics, glass, marble, stainless steel and other surfaces, as the range of products under the brand name testi�es. Says its website, ‘No need to keep switching products – this multi-surface cleaner is perfect for a quick and easy cleanup of the whole room!’ Clearly, many buyers want these multiple bene�ts. The challenge was to convince them that one brand can do it all. However, as companies increase the number of claims for their brands, they risk disbelief and a loss of clear positioning.

WHICH DIFFERENCES TO PROMOTE Not all brand differences are meaningful or worthwhile; not every difference makes a good differentiator. Each difference has the potential to create company costs as well as customer bene�ts. A difference is worth establishing to the extent that it satis�es the following criteria: • Important: The difference delivers a highly valued bene�t to target buyers. • Distinctive: Competitors do not offer the difference, or the company can offer it in a more distinctive way. • Superior: The difference is superior to other ways that customers might obtain the same bene�t. • Communicable: The difference is communicable and visible to buyers.

Commonwealth Bank logo: One of Australia’s most widely recognised brands is a rendition of the Southern Cross constellation. Commonwealth Bank

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Chapter 6 Customer-driven marketing strategy: Creating value for target customers 193

• Preemptive: Competitors cannot easily copy the difference. • Affordable: Buyers can afford to pay for the difference. • Pro�table: The company can introduce the difference pro�tably.

Many companies have introduced differentiations that failed one or more of these tests. When the Westin Stamford Hotel in Singapore once advertised that it was the world’s tallest hotel, it was a distinction that was not important to most tourists – in fact, it turned many off. Polaroid’s Polarvision, which produced instantly developed home movies, bombed, too. Although Polarvision was distinctive and even preemptive, it was inferior to another way of capturing motion – namely, camcorders.

Thus, choosing competitive advantages upon which to position a product or service can be dif�cult, yet such choices may be crucial to the brand’s success. Choosing the right differentiators can help a brand to stand out from the pack of competitors, as the example of Accor Group’s Formule 1 Hotel, which offers a ‘less-for-much-less’ value strategy, illustrates (see Mini Case 6.3 on p. 199).

Selecting an overall positioning strategy The full positioning of a brand is called the brand’s value proposition – the full mix of bene�ts upon which the brand is differentiated and positioned. It is the answer to the customer’s question, ‘Why should I buy your brand?’ Volvo’s value proposition hinges on safety but also includes reliability, roominess and styling, all for a price that is higher than average but seems fair for this mix of bene�ts.

Figure 6.4 shows possible value propositions upon which a company might position its products. In the �gure, the �ve green cells represent winning value propositions – differentiation and positioning that gives the company competitive advantage. The blue cells, however, represent losing value propositions. The centre yellow cell represents at best a marginal proposition. In the following sections, we discuss the �ve winning value propositions upon which companies can position their products: more for more, more for the same, the same for less, less for much less, and more for less.

MORE FOR MORE ‘More-for-more’ positioning involves providing the most upscale product or service and charging a higher price to cover the higher costs. So�tel Luxury Hotels, Mont Blanc writing instruments, Mercedes motor

Value proposition The full positioning of a brand – the full mix of bene�ts upon which it is positioned.

Less-for-much less: Accor revolutionised the budget hotel sector by launching the standardised Formule 1 product, emphasising value and consistency. Nik Wheeler/Corbis

FIGURE 6.4 Possible value propositions

These are losers.

These are winning value propositions.More

The same

Less

More The same Less

More for

More for the same

More for less

The same for less

Less for much less

Be ne �t s

Price

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Part 3 Designing a customer-driven strategy and mix 194

vehicles, Miele cooking appliances – each claims superior quality, craftsmanship, durability, performance or style, and charges a price to match. The market offering is not only high in quality, but also gives prestige to the buyer. It symbolises status and a loftier lifestyle. Often, the price difference exceeds the actual increment in quality.

Sellers offering ‘only the best’ can be found in every product and service category, from hotels, restaurants, food and fashion, to cars and household appliances. Consumers are sometimes surprised, even delighted, when a new competitor enters a category with an unusually high-priced brand. While not as successful in Australia as elsewhere in the world, Starbucks coffee entered as a very expensive brand in a largely commodity category. When Apple premiered its iPhone, it offered higher-quality user features than a traditional mobile phone with a hefty price tag to match.

In general, companies should be on the lookout for opportunities to introduce a ‘more-for-more’ brand in any underdeveloped product or service category. Yet, ‘more-for-more’ brands can be vulnerable. They often invite imitators who claim the same quality but at a lower price. For example, Android mobile phones from HTC, such as the Google Nexus One, and from Motorola, such as the Droid/Milestone, offer even more desirable features than the iPhone in the eyes of many users. Also, luxury goods that sell well during good times may be at risk during economic downturns, when buyers become more cautious in their spending. The gloomy economy of recent years hit premium brands, such as Starbucks, the hardest.

MORE FOR THE SAME Companies can attack a competitor’s more-for-more positioning by introducing a brand offering comparable quality but at a lower price. For example, Toyota introduced its Lexus line with a ‘more-for-the-same’ value proposition versus Mercedes and BMW. Its �rst North American ad headline read: ‘Perhaps the �rst time in history that trading a $72,000 car for a $36,000 car could be considered trading up.’ It communicated the high quality of its new Lexus through rave reviews in car magazines and through a widely distributed videotape showing side-by-side comparisons of Lexus and Mercedes automobiles. It published surveys showing that Lexus dealers were providing customers with better sales and service experiences than were Mercedes dealerships. Many Mercedes owners switched to Lexus, and the Lexus repurchase rate has been 60 per cent, twice the industry average. More recently, by introducing super-fast IS-F and metal drop-top cabriolet models, not to mention its hybrid technology models, Lexus is targeting those who might seek greater performance and fun who might otherwise have become an Audi or BMW customer.

THE SAME FOR LESS Offering ‘the same for less’ can be a powerful value proposition – everyone likes a good deal. Discount stores such as Big W and ‘category killers’ such as Bunnings use this positioning. They do not claim to offer different or better products. Instead, they offer many of the same brands as department stores and specialty stores but at deep discounts based on superior purchasing power and lower-cost operations. Other companies develop imitative but lower-priced brands in an effort to lure customers away from the market leader. For example, AMD makes less-expensive versions of Intel’s market-leading microprocessor chips.

LESS FOR MUCH LESS A market almost always exists for products that offer less and therefore cost less. Few people need, want or can afford ‘the very best’ in everything they buy. In many cases, consumers will gladly settle for less than optimal performance or give up some of the bells and whistles in exchange for a lower price. For example, many travellers seeking lodgings prefer not to pay for what they consider unnecessary extras, such as a pool, attached restaurant, or mints on the pillow. Hotel chains such as Accor suspend some of these amenities and charge less accordingly in their Formule 1 hotels (see Mini Case 6.3 on p. 199).

‘Less-for-much-less’ positioning involves meeting consumers’ lower performance or quality require- ments at a much lower price. For example, Two Dollar shops offer more affordable goods at very low prices. Sam’s Warehouse and Costco warehouse stores offer less merchandise selection and consistency and much

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lower levels of service; as a result, they charge rock-bottom prices. Tigerair and Jetstar also practise less-for- much-less positioning.

MORE FOR LESS Of course, the winning value proposition would be to offer ‘more for less’. Many companies claim to do this. And, in the short run, some companies can actually achieve such lofty positions.

Yet, in the long run, companies will �nd it very dif�cult to sustain such best-of-both positioning. Offering more usually costs more, making it dif�cult to deliver on the ‘for-less’ promise. Companies that try to deliver both may lose out to more focused competitors. When all is said and done, each brand must adopt a positioning strategy designed to serve the needs and wants of its target markets. ‘More for more’ will draw one target market, ‘less for much less’ will draw another, and so on. Thus, in any market, there is usually room for many different companies, each successfully occupying different positions. The important thing is that each company must develop its own winning positioning strategy, one that makes it special to its target consumers.

Developing a positioning statement Company and brand positioning should be summed up in a positioning statement. The statement should follow the form: To (target segment and need) our (brand) is (concept) that (point of difference).21 For example: ‘To busy, mobile professionals who need always to be in the loop, BlackBerry is a wireless connectivity solution that gives you an easier, more reliable way to stay connected to data, people and resources while on the go.’

Note that the positioning �rst states the product’s membership in a category (wireless connectivity solution) and then shows its point of difference from other members of the category (easier, more reliable connections to data, people and resources). Placing a brand in a speci�c category suggests similarities that it might share with other products in the category. But the case for the brand’s superiority is made on its points of difference.

Communicating and delivering the chosen position Once it has chosen a position, the company must take strong steps to deliver and communicate the desired position to target consumers. All the company’s marketing mix efforts must support the positioning strategy.

Positioning the company calls for concrete action, not just talk. If the company decides to build a position on better quality and service, it must �rst deliver that position. Designing the marketing mix involves working out the tactical details of the positioning strategy. Thus, a �rm that seizes on a more-for- more position knows that it must produce high-quality products, charge a high price, distribute through high-quality dealers, and advertise in high-quality media. It must hire and train more service people, �nd retailers who have a good reputation for service, and develop sales and advertising messages that broadcast its superior service. This is the only way to build a consistent and believable more-for-more position.

Companies often �nd it easier to come up with a good positioning strategy than to implement it. Establishing or changing a position usually takes a long time. In contrast, positions that have taken years to build can quickly be lost. Once a company has built the desired position, it must take care to maintain it through consistent performance and communication. It must closely monitor and adapt the position over time to match changes in consumer needs and competitors’ strategies. However, the company should avoid abrupt changes that might confuse consumers. Instead, a product’s position should evolve gradually as it adapts to the ever-changing marketing environment.

S E L F C H E C K Q U E S T I O N S � In what speci�c ways can a company di�erentiate itself or its market o�er? � What is a brand’s value position?

Positioning statement A statement that summarises company or brand positioning – it takes this form: To (target segment and need) our (brand) is (concept) that (point of di�erence).

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196 Part 3 Designing a customer-driven strategy and mix

R E V I E W I N G T H E L E A R N I N G O B J E C T I V E S In this chapter, you have learned about the main elements of a customer-driven marketing strategy: segmentation, targeting, di�erentiation and positioning. Marketers know that they cannot appeal to all buyers in their markets, or at least not to all buyers in the same way. Therefore, most companies today practise target marketing – identifying market segments, selecting one or more of them, and developing products and marketing mixes tailored to each.

LEARNING OBJECTIVE 1. De�ne the main steps in design ing a customer-driven marketing strategy: market segmentation, targeting, di�erentiation and positioning. (p. 174) Customer-driven marketing strategy begins with selecting which customers to serve and deciding on a value proposition that best serves the targeted customers. It consists of four steps. Market segmentation is the act of analysing the bases upon which it might be best to divide a market into distinct segments of buyers with di�erent needs, characteristics or behaviours who might require separate products or marketing mixes. Once the groups have been identi�ed, market targeting evaluates each market segment’s attractiveness and selects one or more segments to serve. Market targeting consists of designing strategies to build the right relationships with the right customers. Di�erentiation involves actually di�erentiating the market o�ering to create superior customer value. Positioning consists of positioning the market o�ering in the minds of target customers.

LEARNING OBJECTIVE 2. List and discuss the main bases for segmenting consumer and business markets. (pp. 175–84) There is no single way to segment a market. Therefore, the marketer tries di�erent variables to see which provide the best segmentation opportunities. For consumer marketing, the main segmentation variables are geographic, demographic, psychographic and behavioural. In geographic segmentation, the market is divided into di�erent geographical units such as nations, regions, states, local government areas, cities or neighbourhoods. In demographic segmentation, the market is divided into groups based on demographic variables, including age, gender, family size, family life cycle, income, occupation, education, religion, race, generation and nationality. In psychographic segmentation, the market is divided into di�erent groups based on social class, lifestyle or personality characteristics. In behavioural segmentation, the market is divided into groups based on consumers’ knowledge, attitudes, uses, or responses to a product.

Business marketers use many of the same variables to segment their markets. But business markets also can be

segmented by business consumer demographics (industry, company size), operating characteristics, purchasing approaches, situational factors and personal characteristics. The e�ectiveness of segmentation analysis depends on �nding segments that are measurable, accessible, substantial, di�erentiable and actionable.

LEARNING OBJECTIVE 3. Explain how companies identify attractive market segments and choose a market- targeting strategy. (pp. 184–89) To target the best market segments, the company �rst evaluates each segment’s size and growth characteristics, structural attractiveness, and compatibility with company objectives and resources. It then chooses one of four market-targeting strategies – ranging from very broad to very narrow targeting. The seller can ignore segment di�erences and target broadly using undi�erentiated (or mass) marketing. This involves mass- producing, mass-distributing and mass-promoting the same product in much the same way to all consumers. Or the seller can adopt di�erentiated marketing – developing di�erent market o�ers for several segments. Concentrated (or niche) marketing involves focusing on only one or a few market segments. Finally, micromarketing is the practice of tailoring products and marketing programs to suit the tastes of speci�c individuals and locations. Micromarketing includes local marketing and individual marketing. Which targeting strategy is best depends on company resources, product variability, product life-cycle stage, market variability and competitive marketing strategies.

LEARNING OBJECTIVE 4. Discuss how companies dif- ferentiate and position their products for maximum competitive advantage. (pp. 189–95) Once a company has decided which segments to enter, it must decide on its di�erentiation and positioning strategy. The di�erentiation and positioning task consists of three steps: (1) identifying a set of possible di�erentiations that create competitive advantage; (2) choosing advantages upon which to build a position; and (3) selecting an overall positioning strategy.

The brand’s full positioning is called its value proposition – the full mix of bene�ts upon which the brand is positioned. In general, companies can choose from one of �ve winning value propositions upon which to position their products: more for more, more for the same, the same for less, less for much less, or more for less. Company and brand positioning are summarised in positioning statements that state the target segment and need, positioning concept and speci�c points of di�erence. The company must then e�ectively communicate and deliver the chosen position to the market.

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Chapter 6 Customer-driven marketing strategy: Creating value for target customers 197

D I S C U S S I O N Q U E S T I O N S 1 Market segmentation and market targeting. How does market

segmentation di�er from market targeting? (Learning Objective 1) (AACSB: Communication; Re�ective Thinking)

2 Marketers do not segment markets … they are already segmented. Do you agree with this statement? Explain your reasoning. (Learning Objective 1) (AACSB: Communication; Re�ective Thinking)

3 Demographic and psychographic segmentation. Compare and contrast demographic and psychographic segmentation. Which is more useful to marketers? (Learning Objective 2) (AACSB: Communication; Re�ective Thinking)

4 Positioning strategies. Some managers say that positioning is far more important than segmentation or targeting. What

is your view of this statement? (Learning Objectives 1, 2, 3 and 4) (AACSB: Communication; Re�ective Thinking)

5 Market targeting levels. Name and describe the levels at which market targeting can be carried out. Give an example of a company using each. (Learning Objective 3) (AACSB: Communication; Re�ective Thinking)

6 Target market of one. The argument some put forward is that by using the internet and the web, every customer can be treated as an individual and receive a custom-made product. Do you agree or disagree? (Learning Objectives 2, 3 and 4) (AACSB: Communication; Use of IT; Re�ective Thinking)

C R I T I C A L T H I N K I N G E X E R C I S E S 1 Visit a supermarket and examine the brands of breakfast

cereal on o�er. Using the bases for segmenting consumer markets, identify the segmentation variables a speci�c brand such as Uncle Toby’s Calcium Plus appears to be using. Summarise the segmentation and targeting strategy for this brand. Identify other brands with a similar positioning strategy(ies). (Learning Objective 1) (AACSB: Communication; Re�ective Thinking)

2 Various companies such as Toyota, Nissan and BMW are introducing hybrid technology-powered cars to suit the needs of various target markets. In a small group, identify the various models of hybrid cars o�ered in your marketplace. Discuss the likely pro�les of the target markets for these vehicles. For

example, do you think that BMW’s i3 is targeting a di�erent target market from Mitsubishi Motor’s MiEV electric car? (Learning Objective 2) (AACSB: Communication; Analytical Thinking; Re�ective Thinking)

3 Hydrographics presents an idea for a new business in Australia and New Zealand. First, research hydrographics at <www. hydroconcepts.com.au/indexnew.htm>. Using the steps described in the chapter, identify relevant target markets, then develop a customer-driven marketing strategy. Describe your strategy and conclude with a positioning statement for this business. (Learning Objectives 3 and 4) (AACSB: Communication; Use of IT; Analytical Thinking; Re�ective Thinking)

N A V I G A T I N G T H E K E Y T E R M S

LEARNING OBJECTIVE 1 (See Figure 6.1 for abridged de�nitions) Market segmentation (p. 174) Market targeting (targeting) (p. 174) Di�erentiation (p. 174) Positioning (p. 174)

LEARNING OBJECTIVE 2 Geographic segmentation (p. 176) Demographic segmentation (p. 176) Age and life-cycle segmentation (p. 176) Gender segmentation (p. 177)

Income segmentation (p. 177) Psychographic segmentation (p. 177) Behavioural segmentation (p. 180) Occasion segmentation (p. 180) Bene�t segmentation (p. 181) Intermarket segmentation (p. 183)

LEARNING OBJECTIVE 3 Target market (p. 185) Undi�erentiated (mass) marketing

(p. 185)

Di�erentiated (segmented) marketing (p. 185)

Concentrated (niche) marketing (p. 186) Micromarketing (p. 187) Local marketing (p. 187) Individual marketing (p. 187)

LEARNING OBJECTIVE 4 Product position (p. 189) Competitive advantage (p. 191) Value proposition (p. 193) Positioning statement (p. 195)

E T H I C A L R E F L E C T I O N 6 . 1 Targeting very young consumers You would never know that consumers are more frugal these days if you looked at the new children’s lines from fashion houses such as Fendi, Versace and Gucci. Toddler high fashion is not new, but designers are taking it to new levels and extending it beyond

special-occasion clothing to everyday wear. In the past, some of the little girls marching down fashion runways carried dolls with matching out�ts. But this year, many of the children’s fashions are geared around matching their parents’ clothing. Jennifer Lopez and her little ones helped Gucci launch a line for babies and

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198 Part 3 Designing a customer-driven strategy and mix

children aged 2 to 8 years. A Gucci children’s out�t with a T-shirt, skinny jeans, a belt with the trademark double-G, a raincoat and boots will set Mum and Dad back about $1000. A Burberry double-breasted trench coat for a baby runs at $335, a bargain compared to Mum’s matching $1195 trench coat. The CEO of the Young Versace brand sees growth in this market and anticipates

this brand making up 10 per cent of the company’s global sales in only a few years.

Are there ethical issues relevant to this type of target marketing? How do you feel about this from a personal point of view?

Mini Cases 6.1 Target marketing Targeting markets of one to make many Australia’s population really is much more homogeneous than many other countries, even the US. Yes, there are conclaves of various cultural groups in both urban and regional areas. For example, Gri�th in regional NSW has a large Italian population, which explains the focus on such agricultural pursuits as vineyards and wine production. However, there are so many cultural groups that there is more of a blending than occurs in the US, where one might �nd even Walmart – the world’s largest chain – o�ering special formats tailored to speci�c types of geographic locations. For example, in strongly Hispanic neighbourhoods, Walmart operates Supermercado de Walmart stores, which feature signage, product assortments and bilingual sta� that are more relevant to Hispanic customers. Australian retailers do follow some US practices, such as o�ering smaller Woolworths stores and even smaller Coles Express stores where full-size stores would not be sustainable due to the size and composition of the local market.

US department stores also allow customisation to suit local markets. For example, Macy’s – the second-largest US department- store chain – permits its 1600 distant managers around the country to meet local needs with specialised assortments. In one Christmas trading period, Macy’s in Memphis stocked Elvis Presley Christmas ornaments, as it seems that the locals still cannot get enough of their hometown King of Rock ’n’ Roll.

Today, though, many organisations practise mass cus- tomisation – using technology to tailor o�ers made to a mass market. If you visit the website of Macy’s Memphis from a country such as Australia or New Zealand, you will �nd that their web servers use the IP lookup services to identify where you are located and o�er you �at-fee shipping on a Christmas present purchase.

Catering to markets of one is a similar value-adding marketing strategy, as Amazon.com’s marketing exempli�es. If you buy kindle (digital) books on a regular basis, you will no doubt develop a list of favourite authors and favourite genres. Let us take the example of a digital book reader who is hooked on books set in the Florida Keys – Key West, in particular – and the surrounding Caribbean islands. Having read one of the Bluewater series by H. Terrell Gri�n, the reader will �nd that Amazon uses collaborative

�ltering technology to generate a list of recommended books by various authors, and then uses this information to recommend similar books to other readers of any books set in the Keys and the Caribbean. Amazon will even advise the reader when a new book is to be published, thus allowing pre-orders. In this way, target markets of one add up to become many.

This form of consumer-to-consumer advocacy is also practised by Tripadvisor.com, when travellers advise of their positive and negative experiences in places they have stayed, eaten and played. So, when you next buy a digital book, visit a restaurant, or engage in some other activity and leave a review, remember that you are helping others as well as yourself, and turning markets of one into many.22

David Grossman/Alamy

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Chapter 6 Customer-driven marketing strategy: Creating value for target customers 199

1 Do you agree with the authors’ contention that Australia’s population is much more homogeneous that the US? (Hint: See <www.nationmaster.com/index.php>) (Learning Objec tives 1, 2 and 3) (AACSB: Analytical Thinking; Re�ective Thinking; Diverse and Multicultural Environments)

2 Can you provide other examples of mass customisation? If so, what is/are the basis(es) for identifying segments that are targeted by the marketing organisations concerned? (Learning

Objectives 1, 2 and 3) (AACSB: Analytical Thinking; Re�ective Thinking)

3 Have you experienced ‘target markets of one’, either as a marketer or a consumer? In what ways are they similar to or di�erent from the examples provided in this mini case study? (Learning Objectives 1, 2 and 3) (AACSB: Communication; Analytical Thinking; Re�ective Thinking)

6.2 Product di�erentiation The Australian Financial Review turns 50 Like most newspaper publishers around the world, Fairfax Media – publishers of Australia’s pre-eminent national business and �nancial daily The Australian Financial Review (AFR, Fin or FinReview) – have long grappled with the disruptive e�ects of the internet. Since its inception in 1951 as a weekly newspaper, and then its change to a daily in 1963, the AFR has met the business, �nancial and political information needs of its readers. Doing so for 50 years is no mean feat.

Editor-in-chief Michael Stutchbury provides us with a market positioning statement when he writes:

The Financial Review starts from the assumption that wealth creation is central to a prosperous society. More than other publications, we think business is a good thing – as long as it is disciplined by competition and the rigorous and independent journalism we will continue to pursue over the next half century.

As Australia’s �nancial markets have prospered and matured, so too have the journalism standards and styles o�ered by the AFR. Over time, it has augmented the basic o�ering with such

weekly sections as Review and Life and Leisure, not to mention periodic magazine inserts such as Boss and Luxury. To stay relevant to its served market, the AFR surveys readers on the value o�ered by such supplements. It also surveys subscribing readers as to their preferred method of content delivery, as this continues to change with technological advances.23 1 Are you able to identify the target markets that the Fairfax

Media serves with the AFR from reading editions from a single week of your choice? List and describe these target markets. (Learning Objectives 2, 3 and 4) (AACSB: Communication; Analytical Thinking; Re�ective Thinking)

2 Does the quote from Michael Stutchbury adequately position the AFR to meet the needs of each of the target markets you have identi�ed in Question 1? Why or why not? (Learning Objectives 2, 3 and 4) (AACSB: Communication; Analytical Thinking; Re�ective Thinking)

3 Given that all daily newspapers o�er a business section, why might the identi�ed target markets subscribe to the AFR in paper or online forms, or buy it from newsagents? Is it only a matter of the AFR providing better value for target customers? (Learning Objectives 2, 3 and 4) (AACSB: Communication; Analytical Thinking; Re�ective Thinking)

6.3 Di�erentiation Formule 1 o�ers a ‘less-for-much-less’ value proposition Not everyone can a�ord to stay at three- to �ve-star hotels. What are the alternatives – caravan parks, motels, pubs, or bed and breakfast places? As good as these can be, we can never foresee the standard of the next accommodation as we travel from place to place. The market segmentation and positioning studies of key hotel chains have indicated a series of distinctive segments in the marketplace – for example, the luxury segment, the business- traveller segment, the value-for-money segment, the segment that values leisure activities, and those who value proximity to main city landmarks and attractions. Are there other segments? Yes!

The Accor Group realised some years ago that the need for budget accommodation was not successfully serviced by any of

the large hotel groups. And, as the tourism market expanded with low airfares, an ever-growing number of travellers were those with young children on a shoestring budget. France-based Accor is one of the world’s largest hotel groups with over 4000 hotels in 100 countries, including 180 in Australia and New Zealand under the brands of So�tel, Pullman, MGallery, Grand Mercure, Novotel, Mercure, All Seasons, Ibis and Formule 1.

While Accor is unique among hotel groups in that it covers the full spectrum of the market, the group has, in particular, been a pioneer in the mid-market, economy and budget sectors. After identifying a signi�cant gap and opportunity in the budget travel segment, Accor developed a brand-new concept, �rst in France (its home base), speci�cally targeted and positioned for this market segment. The Formule 1 concept, which culminated in the opening of hotels in Australia, Belgium, the United Kingdom,

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200 Part 3 Designing a customer-driven strategy and mix

R E F E R E N C E S 1 Mark Clothier, ‘Why Harley is showing its feminine side’, Bloomberg

Businessweek, 4–10 October 2010, pp. 25–6; and <www.harley- davidson.com/en_US/Content/Pages/2010c/ss/start-something. html> and <www.harley-davidson.com/wcm/Content/Pages/ women_riders/landing.jsp>, accessed September 2011.

2 Quotes from ‘The World: Residences at Sea’ website. See <aboardtheworld.com/our_story>, accessed 21 November 2013.

3 John Waggoner, ‘Even the wealthy feel tapped out’, USA Today, 2 February 2009, p. B1.

4 See Emily Stewart, ‘Bike sharing … why Europe is streets ahead of Australia’, ABC News, 7 August 2013.

5 Information from P&O Cruises, <www.pocruises.com.au/ NewToCruising/Pages/QuickTour.aspx>, accessed 22 November 2013.

6 See Bounty Bags, <www.bountybags.com.au>, accessed 22 November 2013.

7 See James Vincent, ‘PS4 sales top one million in most successful console launch ever’, Belfast Telegraph, 19 November 2013.

8 See Michael Porter, Competitive Advantage, Free Press: New York, 1985, pp. 4–8, 234–6. For more recent discussions, see Kenneth Sawka & Bill Fiora, ‘The four analytical techniques every analyst must know: 2. Porter’s �ve forces analysis’, Competitive Intelligence Magazine, May–June 2003, p. 57; and Philip Kotler & Kevin Lane Keller, Marketing Management, 14th edn, Prentice Hall: Upper Saddle River, NJ, 2012, p. 232.

9 See NightOwl at <www.nightowl.com.au/vision-and-values>, accessed 21 November 2013.

10 For the full range of Coca-Cola Amatil’s products, see <ccamatil.com/ OurBrands/Pages/Australia.aspx>, accessed 21 November 2013.

11 Adapted from information found in Linda Tischler, ‘The Fast Company 50 – 2009: Etsy’, Fast Company, 11 February 2009; Max Chafkin, ‘Rob’s World’, Inc., April 2011, pp. 56–64; and <www.etsy. com/press/kit/>, accessed October 2011.

12 See Arundhati Parmar, ‘On the map’, Marketing News, 15 February 2008, pp. 13–15; and information from <http://mysbuxinteractive. com>, accessed July 2009. For more examples, see Nitasha Tiku, ‘We see you: Want a list of nearby stores?’, Inc., October 2008, p. 55; and Stephen Baker, ‘The next Net’, Businessweek, 9 March 2009, p. 42.

13 Adapted from information found in ‘When you watch these ads, the ads check you out’, New York Times, 31 January 2009.

14 Katy Bachman, ‘Study: Radio alcohol ads reaching young ears’, Mediaweek, 18 September 2007.

15 See the Communication Council’s ‘Advertising Codes and Regulations’ concerning standards under self-regulation which complement government regulations, <www.afa.org.au/public/content/ viewCategory.aspx?id=619>, accessed 3 May 2010.

16 See ‘New Jitterbug phone for seniors arrives!’, <cellphonesforseniorcitizens.blogspot.com/2009/06/new-jitterbug- phone-for-seniors-arrives.html>, accessed 8 May 2010.

17 Jack Trout, ‘Branding can’t exist without positioning’, Advertising Age, 14 March 2005, p. 28.

18 Based on information found in Michael Myser, ‘Marketing made easy’, Business 2.0, June 2006, pp. 43–4; ‘Staples, Inc.’, Hoover’s Company Records, <http://premium.hoovers.com/subscribe/co/ factsheet.xhtml?ID=rcksfrhr�cxtr>, April 2011; and <www.staples. com>, accessed August 2011.

19 Quote from ‘Singapore Airlines: Company information’, accessed at <www.singaporeair.com>, November 2011.

20 Also see Andrew SC Ehrenberg, Gerald J Goodhardt & T Patrick Barwise, ‘Double jeopardy revisited’, Journal of Marketing, 54, July 1990, pp. 82–91.

21 See Bobby J Calder & Steven J Reagan, ‘Brand design’, in Dawn Iacobucci (ed.), Kellogg on Marketing, John Wiley & Sons: New York, 2001, p. 61. For more discussion, see Kotler & Keller, Marketing Management, Chapter 10.

Spain and India, is based on providing a highly a�ordable and standardised product in key commercial areas, close to major transport arteries.

The brand has been called the ‘McDonald’s of hotel accommodation’, with most rooms identical (o�ering a queen- size bed and bunk beds plus en suite bathroom) and a daily tari� displayed in front of the hotel’s entry. The Formule 1 o�er is based on price per room. Each room can sleep up to three (sometimes four) people and the tari� in Australia is usually between $69 and $99 per night, depending on the location. The main objective behind developing this new concept was to be able to extend into the previously underserviced market of budget travellers. It focuses on individuals, couples and families travelling to a destination and needing to stop over for the night, particularly along major transport routes.

Standard hotel rates would preclude them from booking overnight accommodation or perhaps from planning a holiday trip at all.24

1 Identify the target markets that might �nd Formule 1 appealing. (Learning Objectives 2, 3 and 4) (AACSB: Analytical Thinking; Re�ective Thinking; Diverse and Multicultural Environments)

2 How does Accor di�erentiate its Formule 1 o�ering from others in its portfolio? (Learning Objectives 2, 3 and 4) (AACSB: Communication; Analytical Thinking; Re�ective Thinking)

3 Looking at the range of accommodation options provided by the Accor group (do visit their website), might the positioning of the Formule 1 chain cannibalise sales from other chains managed by this group? Why or why not? (Learning Objec- tives 2, 3 and 4) (AACSB: Communication; Analytical Thinking; Re�ective Thinking)

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Chapter 6 Customer-driven marketing strategy: Creating value for target customers 201

22 See Macy’s Memphis website at <www1.macys.com/store/>. Also see ‘Destinations / Key West’ at <www.islands.com/destination/key- west>, accessed November 2013.

23 Quote from Michael Stutchbury, ‘Serving readers for the next 50 years’, Australian Financial Review, 50 Years | Collector’s Edition, 25 November 2013, p. S2. Also see Gregory Hywood (Fairfax Media CEO), ‘From the CEO: My time with the AFR’, p. S2.

24 ‘Accor launches its �rst Formule 1 hotel in India, plans to open 10 more by the end of 2013’, India Hospitality Review, 2 April 2013; <www.accor.com> and <www.accorhotels.com.au>, accessed 25 November 2013.

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