Here is the assignment.  You should print it off and hand it in to me by the start of class...

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Market segmentation divides a market into well-defined slices. A market segment consists of a group of customers who share a similar set of needs and wants. The marketer’s task is to identify the appropriate number and nature of market segments and decide which one(s) to target. The major segmentation variables—geographic, demographic, psychographic, and behavioral segmentation—are summarized in Table 9.1.

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The company can operate in one or a few areas, or it can operate in all but pay attention to local variations. In that way it can tailor marketing programs to the needs and wants of local customer groups in trading areas, neighborhoods, even individual stores. In a growing trend called grassroots marketing, marketers concentrate on making such activities as personally relevant to individual customers as possible.

More and more, regional marketing means marketing right down to a specific zip code. Nielsen Claritas has developed a geoclustering approach called PRIZM (Potential Rating Index by Zip Markets) NE that classifies more than half a million U.S. residential neighborhoods into 14 distinct groups and 66 distinct lifestyle segments called PRIZM Clusters. The groupings take into consideration 39 factors in five broad categories. The clusters have descriptive titles such as Blue Blood Estates, Winner’s Circle, Hometown Retired, Shotguns and Pickups, and Back Country Folks. The inhabitants in a cluster tend to lead similar lives, drive similar cars, have similar jobs, and read similar magazines. Table 9.2 has examples of three PRIZM clusters.

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Geoclustering captures the increasing diversity of the U.S. population. PRIZM has been used to answer questions such as: Which neighborhoods or zip codes contain our most valuable customers? How deeply have we already penetrated these segments? Which distribution channels and promotional media work best in reaching our target clusters in each area?

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One reason demographic variables such as age, family size, family life cycle, gender, income, occupation, education, religion, race, generation, nationality, and social class are so popular with marketers is that they’re often associated with consumer needs and wants. Another is that they’re easy to measure.

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Age and life cycle can be tricky variables. The target market for some products may be the psychologically young.

People in the same part of the life cycle may still differ in their life stage. Life stage defines a person’s major concern, such as going through a divorce, going into a second marriage, taking care of an older parent, deciding to cohabit with another person, buying a new home, and so on.

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Research shows that women have traditionally tended to be more communal-minded and men more self-expressive and goal-directed; women have tended to take in more of the data in their immediate environment and men to focus on the part of the environment that helps them achieve a goal. Gender differences are shrinking in some other areas as men and women expand their roles.

Income does not always predict the best customers for a given product. Blue-collar workers were among the first purchasers of color television sets; it was cheaper for them to buy a television than to go to movies and restaurants. Many marketers are deliberately going after lower income groups, in some cases discovering fewer competitive pressures or greater consumer loyalty. Increasingly, companies are finding their markets are hourglass-shaped, as middle-market U.S. consumers migrate toward both discount and premium products.

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Each generation or cohort is profoundly influenced by the times in which it grows up—the music, movies, politics, and defining events of that period. Members share the same major cultural, political, and economic experiences and often have similar outlooks and values. Marketers may choose to advertise to a cohort by using the icons and images prominent in its experiences. They can also try to develop products and services that uniquely meet the particular interests or needs of a generational target.

Although different age splits are used to define Millennials, or Gen Y, the term usually means people born between 1977 and 1994. Also known as the Echo Boomers, “digital native” Millennials have been wired almost from birth—playing computer games, navigating the Internet, downloading music, and connecting with friends via texting and social media. Although they may have a sense of entitlement and abundance from growing up during the economic boom and being pampered by their boomer parents, Millennials are also often highly socially conscious, concerned about environmental issues, and receptive to cause marketing efforts.

Often lost in the demographic shuffle, the 50 million or so Gen X consumers, named for a 1991 novel by Douglas Coupland, were born between 1964 and 1978. Gen Xers prize self-sufficiency and the ability to handle any circumstance. Technology is an enabler for them, not a barrier. Unlike the more optimistic, team-oriented Gen Yers, Gen Xers are more pragmatic and individualistic. As consumers, they are wary of hype and pitches that seem inauthentic.

Baby boomers are the approximately 76 million U.S. consumers born between 1946 and 1964. Though they represent a wealthy target, possessing $1.2 trillion in annual spending power and controlling three-quarters of the country’s wealth, marketers often overlook them. With many baby boomers approaching their 70s and even the last and youngest wave cresting 50, demand has exploded for products to turn back the hands of time.

Those born between 1925 and 1945—the “Silent Generation”—are redefining what old age means. To start with, many people whose chronological age puts them in this category don’t see themselves as old. Advertisers have learned that older consumers don’t mind seeing other older consumers in ads targeting them, as long as they appear to be leading vibrant lives. But marketers have learned to avoid clichés like happy older couples riding bikes or strolling hand in hand on a beach at sunset.

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Multicultural marketing is an approach recognizing that different ethnic and cultural segments have sufficiently different needs and wants to require targeted marketing activities and that a mass market approach is not refined enough for the diversity of the marketplace. The Hispanic American, African American, and Asian American markets are all growing at two to three times the rate of nonmulticultural populations, with numerous submarkets, and their buying power is expanding.

Accounting for more than half the growth in the U.S. population from 2000 to 2010, Hispanic Americans have become the largest minority in the country. It’s projected that by 2020, 17 percent of U.S. residents will be of Hispanic origin. With annual purchasing power of more than $1 trillion in 2010—and expected to rise to $1.5 trillion by 2015—Hispanic Americans would be the world’s ninth-largest market if they were a separate nation. Hispanic Americans often share strong family values—several generations may reside in one household—and strong ties to their country of origin.

According to the U.S. Census Bureau, “Asian” refers to people having origins in any of the original peoples of the Far East, Southeast Asia, or the Indian subcontinent. Six countries represent 79 percent of the Asian American population: China (21 percent), the Philippines (18 percent), India (11 percent), Vietnam (10 percent), Korea (10 percent), and Japan (9 percent). Telecommunications and financial services are a few of the industries more actively targeting Asian Americans. Asian Americans tend to be more brand-conscious than other minority groups yet are the least loyal to particular brands. They also tend to care more about what others think (for instance, whether their neighbors will approve of them) and share core values of safety and education.

African Americans are projected to have a combined spending power of $1.1 trillion by 2015. Like many cultural segments, they are deeply rooted in the U.S. landscape while also proud of their heritage and respectful of family ties. African Americans are the most fashion-conscious of all racial and ethnic groups but are strongly motivated by quality and selection. They’re also more likely to be influenced by their children when selecting a product and less likely to buy unfamiliar brands. African Americans watch television and listen to the radio more than other groups and are heavy users of mobile data. Nearly three-fourths have a profile on more than one social network, with Twitter being extremely popular.

The lesbian, gay, bisexual, and transgender (LGBT) market is estimated to make up 5 percent to 10 percent of the population and have approximately $700 billion in buying power. Many firms have recently created initiatives to target this market. Some firms worry about backlash from organizations that will criticize or even boycott firms supporting gay and lesbian causes. Although Pepsi, Campbell’s, and Wells Fargo all experienced such boycotts in the past, they continue to advertise to the gay community.

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Psychographics is the science of using psychology and demographics to better understand consumers. People within the same demographic group can exhibit very different psychographic profiles.

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One of the most popular commercially available classification systems based on psychographic measurements is Strategic Business Insight’s (SBI) VALS™ framework. VALS is based on psychological traits for people and classifies U.S. adults into eight primary groups based on responses to a questionnaire featuring four demographic and 35 attitudinal questions. The VALS system is continually updated with new data from more than 80,000 surveys per year (see Figure 9.1).

The main dimensions of the VALS segmentation framework are consumer motivation (the horizontal dimension) and consumer resources (the vertical dimension). Consumers are inspired by one of three primary motivations: ideals, achievement, and self-expression. Those primarily motivated by ideals are guided by knowledge and

principles. Those motivated by achievement look for products and services that demonstrate success to their peers. Consumers whose motivation is self-expression desire social or physical activity, variety, and risk. Personality traits such as energy, self-confidence, intellectualism, novelty seeking, innovativeness, impulsiveness, leadership, and vanity—in conjunction with key demographics—determine an individual’s resources. Different levels of resources enhance or constrain a person’s expression of his or her primary motivation.

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Although psychographic segmentation can provide a richer understanding of consumers, some marketers fault it for being somewhat removed from actual consumer behavior.

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Needs-based or benefit-based segmentation identifies distinct market segments with clear marketing implications.

People play five roles in a buying decision: Initiator, Influencer, Decider, Buyer, and User. For example, assume a wife initiates a purchase by requesting a new treadmill for her birthday. The husband may then seek information from many sources, including his best friend who has a treadmill and is a key influencer in what models to consider. After presenting the alternative choices to his wife, he purchases her preferred model, which ends up being used by the entire family. Different people are playing different roles, but all are crucial in the decision process and ultimate consumer satisfaction.

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Many marketers believe variables related to users or their usage—occasions, user status, usage rate, buyer-readiness stage, and loyalty status—are good starting points for constructing market segments.

Occasions mark a time of day, week, month, year, or other well-defined temporal aspects of a consumer’s life. We can distinguish buyers according to the occasions when they develop a need, purchase a product, or use a product.

Every product has its nonusers, ex-users, potential users, first-time users, and regular users. Included in the potential-user group are consumers who will become users in connection with some life stage or event.

We can segment markets into light, medium, and heavy product users. Heavy users are often a small slice but account for a high percentage of total consumption.

Some people are unaware of the product, some are aware, some are informed, some are interested, some desire the product, and some intend to buy. To help characterize how many people are at different stages and how well they have converted people from one stage to another, recall from Chapter 5 that marketers can employ a marketing funnel to break the market into buyer-readiness stages.

Loyalty Status Marketers usually envision four groups based on brand loyalty status:

1. Hard-core loyals—Consumers who buy only one brand all the time

2. Split loyals—Consumers who are loyal to two or three brands

3. Shifting loyals—Consumers who shift loyalty from one brand to another

4. Switchers—Consumers who show no loyalty to any brand

Five consumer attitudes about products are enthusiastic, positive, indifferent, negative, and hostile.

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Combining different behavioral bases can provide a more comprehensive and cohesive view of a market and its segments. Figure 9.3 depicts one possible way to break down a target market by various behavioral segmentation bases.

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There are many statistical techniques for developing market segments. Once the firm has identified its market-segment opportunities, it must decide how many and which ones to target. Marketers are increasingly combining several variables in an effort to identify smaller, better-defined target groups. Thus, a bank may not only identify

a group of wealthy retired adults but within that group distinguish several segments depending on current income, assets, savings, and risk preferences. This has led some market researchers to advocate a needs-based market segmentation approach. Roger Best proposed the seven-step approach shown in Table 9.6.

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To be useful, market segments must rate favorably on five key criteria:

Measurable. The size, purchasing power, and characteristics of the segments can be measured.

Substantial. The segments are large and profitable enough to serve. A segment should be the largest possible homogeneous group worth going after with a tailored marketing program. It would not pay, for example, for an automobile manufacturer to develop cars for people who are under four feet tall.

Accessible. The segments can be effectively reached and served.

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

Actionable. Effective programs can be formulated for attracting and serving the segments.

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Michael Porter has identified five forces that determine the intrinsic long-run attractiveness of a market or market segment: industry competitors, potential entrants, substitutes, buyers, and suppliers.

Threat of intense segment rivalry—A segment is unattractive if it already contains numerous, strong, or aggressive competitors. These conditions will lead to frequent price wars, advertising battles, and new-product introductions and will make it expensive to compete.

Threat of new entrants—The most attractive segment is one in which entry barriers are high and exit barriers are low. Few new firms can enter the industry, and poorly performing firms can easily exit. When both entry and exit barriers are high, profit potential is high, but firms face more risk because poorer-performing firms stay in and fight it out. When both entry and exit barriers are low, firms easily enter and leave the industry, and returns are stable but low. The worst case occurs when entry barriers are low and exit barriers are high: Here firms enter during good times but find it hard to leave during bad times.

Threat of substitute products—A segment is unattractive when there are actual or potential substitutes for the product. Substitutes place a limit on prices and on profits. If technology advances or competition increases in these substitute industries, prices and profits are likely to fall.

Threat of buyers’ growing bargaining power—A segment is unattractive if buyers possess strong or growing bargaining power. Buyers’ bargaining power grows when

they become more concentrated or organized, when the product represents a significant fraction of their costs, when the product is undifferentiated, when buyers’ switching costs are low, or when they can integrate upstream. To protect themselves, sellers might select buyers who have the least power to negotiate or switch

suppliers. A better defense is developing superior offers that strong buyers cannot refuse.

Threat of suppliers’ growing bargaining power—A segment is unattractive if the company’s suppliers are able to raise prices or reduce quantity supplied. Suppliers tend to be powerful when they are concentrated or organized, when they can integrate downstream, when there are few substitutes, when the supplied product is an important input, and when the costs of switching suppliers are high. The best defenses are to build win-win relationships with suppliers or use multiple supply sources.

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The goal is to locate the brand in the minds of consumers to maximize the potential benefit to the firm. A good brand positioning helps guide marketing strategy by clarifying the brand’s essence, identifying the goals it helps the consumer achieve, and showing how it does so in a unique way. One result of positioning is the successful creation of a customer-focused value proposition, a cogent reason why the target market should buy a product or service. As introduced in Chapter 1, a value proposition captures the way a product or service’s key benefits provide value to customers by satisfying their needs.

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Table 10.1 shows how three companies—Hertz, Volvo, and Domino’s—have defined their value proposition through the years with their target customers.

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Decisions about the competitive frame of reference are closely linked to target market decisions. Deciding to target a certain type of consumer can define the nature of competition because certain firms have decided to target that segment in the past (or plan to do so in the future) or because consumers in that segment may already look to certain products or brands in their purchase decisions.

A good starting point in defining a competitive frame of reference for brand positioning is category membership—the products or sets of products with which a brand competes and that function as close substitutes. The range of a company’s actual and potential competitors, however, can be much broader than the obvious. Using the market approach, we define competitors as companies that satisfy the same customer need. Chapter 2 described how to conduct a SWOT analysis that includes a

competitive analysis. A company needs to gather information about each competitor’s real and perceived strengths

and weaknesses. Once a company has identified its main competitors and their strategies, it must ask: What is each competitor seeking in the marketplace? What drives each competitor’s behavior?

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Table 10.2 shows the results of a company survey that asked customers to rate its three competitors, A, B, and C, on five attributes. Competitor A turns out to be well known and respected for producing high-quality products sold by a good sales force, but poor at providing product availability and technical assistance. Competitor B is good across the board and excellent in product availability and sales force. Competitor C rates poor to fair on most attributes. This result suggests that in its positioning, the company could attack Competitor A on product availability and technical assistance and Competitor C on almost anything, but it should not attack B, which has no glaring weaknesses. As part of this competitive analysis for positioning, the firm should also ascertain the strategies and objectives of its primary competitors.

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Associations that make up points-of-difference can be based on virtually any type of attribute or benefit. Strong brands often have multiple points-of-difference.

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Three criteria determine whether a brand association can truly function as a point-of-difference: desirability, deliverability, and differentiability. Desirable to consumer. Consumers must see the brand association as personally relevant to them. Deliverable by the company. The company must have the internal resources and commitment to feasibly and profitably create and maintain the brand association in the minds of consumers. The product design and marketing offering must support the desired association. Differentiating from competitors. Finally, consumers must see the brand association as distinctive and superior to relevant competitors.

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Regardless of the source of perceived weaknesses, if, in the eyes of consumers, a brand can “break even” in those areas where it appears to be at a disadvantage and achieve advantages in other areas, it should be in a strong—and perhaps unbeatable—competitive position. Consider the introduction of Miller Lite beer—the first major light beer in North America.

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Michael Porter urged companies to build a sustainable competitive advantage. Competitive advantage is a company’s ability to perform in one or more ways that competitors cannot or will not match. But few competitive advantages are inherently sustainable. At best, they may be leverageable. A leverageable advantage is one that a company can use as a springboard to new advantages, much as Microsoft has leveraged its operating system to Microsoft Office and then to networking applications. In general, a company that hopes to endure must be in the business of continuously inventing new advantages that can serve as the basis of points-of-difference.

Any product or service benefit that is sufficiently desirable, deliverable, and differentiating can serve as a point-of-difference for a brand. The obvious, and often the most compelling, means of differentiation for consumers are benefits related to performance (Chapters 13 and 14). For choosing specific benefits as POPs and PODs to position a brand, perceptual maps may be useful. Perceptual maps are visual representations of consumer perceptions and preferences. They provide quantitative pictures of market situations and the way consumers view different products, services, and brands along various dimensions. By overlaying consumer preferences with brand perceptions, marketers can reveal “holes” or “openings” that suggest unmet consumer needs and marketing opportunities. Many marketing experts believe a brand positioning should have both rational and emotional components. In other words, it should contain points-of-difference and points-of-parity that appeal to both the head and the heart. A person’s emotional response to a brand and its marketing will depend on many factors. An increasingly important one is the brand’s authenticity.

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Once they have fashioned the brand positioning strategy, marketers should communicate it to everyone in the organization so it guides their words and actions. One helpful schematic with which to do so is a brand-positioning bull’s-eye. “Marketing Memo: Constructing a Brand Positioning Bull’s-eye” outlines one way marketers can formally express brand positioning without skipping any steps.

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Often a good positioning will have several PODs and POPs. Of those, often two or three really define the competitive battlefield and should be analyzed and developed carefully. A good positioning should also follow the “90–10” rule and be highly applicable to 90 percent (or at least 80 percent) of the products in the brand. Attempting to position to all 100 percent of a brand’s product often yields an unsatisfactory “lowest common denominator” result. The remaining 10 percent or 20 percent of products should be reviewed to ensure they have the proper branding strategy and to see how they could be changed to better reflect the brand positioning.

When a product is new, marketers must inform consumers of the brand’s category membership. Sometimes consumers may know the category membership but not be convinced the brand is a valid member of the category. Brands are sometimes affiliated with categories in which they do not hold membership. There are three main ways to convey a brand’s category membership:

• Announcing category benefits—To reassure consumers that a brand will deliver on the fundamental reason for using a category, marketers frequently use benefits to announce category membership.
• Comparing to exemplars—Well-known, noteworthy brands in a category can also help a brand specify its category

Membership.

3. Relying on the product descriptor—The product descriptor that follows the brand name is often a concise means of conveying category origin.

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Rather than outlining specific attributes or benefits, some marketing experts describe positioning a brand as telling a narrative or story. Companies like the richness and imagination they can derive from thinking of the story behind a product or service. Based on literary convention and brand experience, the following framework is offered for a brand story:

Setting. The time, place, and context

Cast. The brand as a character, including its role in the life of the audience, its relationships and responsibilities, and its history or creation myth

Narrative arc. The way the narrative logic unfolds over time, including actions, desired experiences, defining events, and the moment of epiphany

Language. The authenticating voice, metaphors, symbols, themes, and leitmotifs

Douglas Holt believes that for companies to build iconic, leadership brands, they must assemble cultural knowledge, strategize according to cultural branding principles, and hire and train cultural experts. Experts who see consumers actively cocreating brand meaning and positioning even refer to this as “Brand Wikification,” given that wikis are written by contributors from all walks of life and points of view.

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