1. Sharpen the Focus: Target Marketing Strategies and Customer Relationship Management
Chapter Seven

2. Chapter Objectives Identify the steps in the target marketing process
Understand the need for market segmentation and the approaches available to do it
Explain how marketers evaluate segments and choose a targeting strategy
Understand how marketers develop and implement a positioning strategy
Explain how marketers increase long-term success and profits by practicing customer relationship management
LECTURE NOTES:
By the end of this chapter, students should be able to:
Identify the steps in the target marketing process
Understand the need for market segmentation and the approaches available to do it
Explain how marketers evaluate segments and choose a targeting strategy
Understand how marketers develop and implement a positioning strategy
Explain how marketers increase long-term success and profits by practicing customer relationship management
© 2012 Pearson Education, Inc. publishing as Prentice-Hall.

3. Real People, Real Choices: Decision Time at PBS KIDS Sprout
Which strategy should Jim select for Sprout’s first ever consumer-oriented brand campaign?
Option 1: Target only Sprout viewers with the marketing campaign
Option 2: Produce a campaign that is specifically designed for nonviewers
Option 3: Target both those who view or are aware of Sprout, as well as nonviewers, with the same campaign
INSTRUCTOR NOTE:
Time permitting, this would be a good time to play the full-length video related to the PBS KIDS Sprout case.
LECTURE NOTES:
Jim Multari is the director of research for PBS Kids Sprout, the first 24-hour preschool destination available on TV, on demand, and online for kids ages 2–5 and their parents and caregivers.
Sprout’s programming is designed to foster parent-preschooler interaction through gold-standard, curriculum-based shows and short-form original programs. It inspires conversation, activities (i.e., making crafts), exploration/discovery, play, learning, exercise, healthy eating, etc.
In early 2007, Sprout began work on its first-ever consumer-targeted brand awareness advertising campaign. The critical marketing decision was to decide which audience to target: Should the upstart channel target viewers of Sprout, nonviewers of Sprout (a substantial number, as the Sprout brand was not widely distributed throughout the US), or should it somehow find a way of reaching both audiences with the same campaign?
OPTION 1: Target Sprout viewers with the marketing campaign. This option would enable the channel to develop a tightly focused campaign that its core audience could rally behind and hopefully motivate them to tell their friends and family about Sprout, invite them to further participate in the Sprout experience, and so on.
OPTION 2: Produce a campaign that was specifically designed for nonviewers of Sprout. This would require a more functionally descriptive campaign which would attract a much larger audience. The purpose would be to introduce consumers to the network, its unique programming format, the different usage platforms, and so forth.
OPTION 3: Target both Sprout viewers/awares as well as nonviewers, all within the same creative campaign. An all-inclusive campaign would maximize Sprout’s exposure and attract families in general. However, speaking to two audience segments with the same campaign would be complicated.
© 2012 Pearson Education, Inc. publishing as Prentice-Hall.

4. Target Marketing Strategy: Selecting and Entering a Market
Market fragmentation:
The creation of many consumer groups due to the diversity of their needs and wants
LECTURE NOTES:
The marketing concept dictates that firms should make every effort to understand and satisfy customer needs. Unfortunately, understanding needs is an increasingly complex task because of market fragmentation. Technological and cultural changes in our society have increased the diversity of people’s interests and backgrounds, leading to the creation of many consumer groups, each with its own set of needs.
As a result of market fragmentation, mass marketing efforts are not as effective as they were twenty years ago, or even ten years ago for that matter. For the vast majority of brands, targeting everyone is not an option.
DISCUSSION NOTE:
The instructor may wish to challenge students to identify the specific needs and wants shared by older consumers who are looking for cell phones and cell service. The ad to the right of the slide targets this group, and demonstrates how the advertised brand satisfies the following needs: 1) ease of phone use (large buttons, bright screen, emergency alert feature); 2) simple calling plan (no contract required, simple rate plans).
© 2012 Pearson Education, Inc. publishing as Prentice-Hall.

5. Figure 7.1 Steps in the Target Marketing Process
LECTURE NOTES:
Market fragmentation, and the reduced effectiveness of mass marketing efforts in turn underscores the importance of developing a true target marketing strategy.
The target marketing strategy process consists of three separate yet interrelated steps:
Marketers first divide the market into segments based on needs and other customer characteristics
The marketer then selects one or more segments to serve,
For each segment chosen, the marketer develops products specifically to meet the needs of the selected group, and customizes all other aspects of the marketing mix in a manner which most effectively and efficiently sells the product to the segment.
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6. Figure 7.2 Segmenting Consumers Markets
LECTURE NOTES:
Segmentation is word used to describe the process of dividing a larger market into smaller pieces based on one or more meaningful shared characteristics.
In addition to needs, marketer’s use one or more segmentation variables to segment consumer markets. Segmentation variables can be defined as dimensions that divide the total market into fairly homogeneous groups, each with different needs and preferences.
Segmentation variables can be broadly classified as demographic, psychographic, or behavioral in nature, as shown in Figure 7.2.
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7. Segmenting by Demographics: Age and Generational Marketing
Children
Teens
Tweens
Generation Y: born between 1979 and 1994
LECTURE NOTES:
Age is a popular demographic segmentation base because different age groups have different needs and wants; specifically, members of a generation tend to share the same outlook and priority. For this reason, many marketers engage in generational marketing.
Children: It may surprise you to learn that American children aged 4 to 12 have a say in family-related purchases of more than $130 billion a year. The purchase of toys, games, and even food items are heavily influenced by children, while parents purchase a variety of items (diapers, car seats, clothing, etc.) for use by their children.
When advertising to children, marketers use cartoons and shows such as Hannah Montana, American Idol, and others.
Teens: Teens are defined as people falling within the year old age group. Marketers are particularly interested in teens because this group is growing nearly twice as fast as the general population. Furthermore, this group (as well as the “tweens”, kids 8-14 years old), spend nearly $3000 of their own money on cosmetics, fast foods, and other feel good products.
Apple has had exceptional success marketing to teens, particularly via products such as the iPod which allows teens to create their own content and control every aspect of their music consumption. Teens have a strong need for individuality, which Apple caters to. Teens don’t particularly like to be marketed to, which is a great fit for Apple’s approach of letting fans and the media do their marketing for them. The iPod and iPhone are iconic symbols of modern youth— stylish, nonconforming, and an expression of a clear difference from the past.
Generation Y is also called “Millennials” or the “Baby Boomlet” by some. This free-spending group is highly attractive, as they represent approximately 26% of the population. They are the first generation to grow up in a wired world, and are ethnically diverse. Unfortunately, Gen Y is somewhat difficult to reach because they resist reading (meaning newspapers and magazines can’t reach them easily) and don’t watch a lot of TV. When they do, they gravitate towards alternative fare such as the late-night lineup on Adult Swim. Better methods of reaching this group include social networking, , online chat rooms, and other digital and social networking methods.
WEB SITE NOTE:
Ford Fiesta has been targeting Gen Y since 2009 “where they live” via the Ford Fiesta Movement campaign. Generation Y “Agents” complete missions in their respective cities, as assigned by Ford, and chronicle their experiences through social networks and the web site linked above.
The goal of the campaign is to build excitement and spread the word about the Ford Fiesta to the next generation of customers – Gen Y – who as of 2010 accounted for 28% of the country’s driving population.
According to the website as of March, 2011, “For the next chapter of the Fiesta Movement – and in anticipation of Fiesta arriving in the U.S. – we’re letting its fans take a crack at the advertising. They’ll use their creativity to promote the new 2011 Fiesta. And you get to be the judge. Agents who participate will get to use a Ford Fiesta over the program period. We’ll pay for the gas. Team members will compete for prizes (of varying dollar amounts) and will have an equal chance to win a Ford Fiesta.”
Ford Fiesta Movement
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8. Segmenting by Demographics: Age and Generational Marketing
Generation X: born between 1965 and 1976
Baby boomers: born between 1946 and 1964
Older consumers
LECTURE NOTES:
Generation X: Some members of Gen X have historically been negatively portrayed in the media as slackers, based on the fact that a small portion of this group moved back in with their parents after graduating from college, rather than getting a job and leaving the nest. The slacker subgroup within Gen X was actually relatively small, so this gross generalization is unfair. However, it is true that many Gen Xers are skeptical of marketing claims and maintain a cynical outlook towards marketing.
Over time, Gen X has changed in many ways. On a positive note, Gen Xers are highly entrepreneurial and are responsible for a great number of start-up businesses.
Gen X seems determined in many ways to do things differently – while many Gen Xers were “latch key children” growing up, meaning that they let themselves in the house after school, got their own snacks, etc., because either both parents worked or they lived in single parent homes, Gen Xers seem determined to have stable families. More than half are involved in home improvement, and homes express their individuality, rather than serve as symbols of material success.
Baby Boomers are an important market for many businesses because this group is in its prime earning years. For example, many leisure destinations rely heavily on business provided by baby boomers – not only does this group have a high disposable income, but working members of this generation typically have a lot of vacation time available, and few worries about what to do with the kids (since most have graduated college and have moved out on their own).
Baby boomers are also a fantastic market for any product or service that disguises or compensates for the fact that are aging. Cosmetics, wrinkle creams, clothing, cars, plastic surgery You name it!
Older Consumers: Currently there are more than 40 million Americans ages 65 or older, and this group will only get larger as the baby boomers continue to age. Often called “mature consumers”, this group
LINK INFORMATION:
Nintendo has developed a line of video games (wii and Nintendo DS formats) that are designed to appeal to people of all generations, which they have labeled “Touch Generations.” Their premise is that “gaming doesn’t have an age” and the games promoted are those which allegedly can be enjoyed by the young and old alike. It might be interesting to discuss this concept with students to get their take. Are the games promoted on the Web site likely to appeal to people of different ages, or is this simply wishful thinking on Nintendo’s part? Is the Touch Generations premise contrary to the essence of segmentation and targeting?
GENERATIONAL MARKETING INFORMATION:
A wealth of information is available related to Baby Boomers, Generation X, and Generation Y. Instructors may wish to embed a link in the PPT to one of the following videos available from the CBS News Web site, or review one of the articles referenced below:
Videos: “The Millennials are Coming, Morley Safer On The New Generation Of American Workers,” May 25, 2007
Funerals, Baby Boomer Style, February 25, 2008 CBS News
Recent articles about Generation Y accessible online include:
The Generation Y Hotel, By Deirdre Van Dyk, Time magazine, Posted Thursday, June. 12, 2008, available at
* Can be used to illustrate how the hotel related the needs of Generation Y from those of Baby Boomers.
What Gen Y Really Wants, By Penelope Trunk, Time magazine, posted, Thursday, July 05, 2007, available at
Visit Nintendo
© 2012 Pearson Education, Inc. publishing as Prentice-Hall.

9. It’s Debatable Class Discussion Question
As the baby boomers age, many marketers are going to have to decide whether or not they should adapt their products so they continue to appeal to the baby boomer segment as it grows older.
Choose a particular product or service that currently appeals to baby boomers. What types of adaptations might be necessary to make this product or service appeal to those 65 years and older?
DISCUSSION NOTES:
Answers will vary. Some general considerations that might be pointed out as students consider this question include:
As people age, their eye sight becomes poorer and taste buds lose their ability to distinguish subtle taste differences. Restaurants who choose to continue to target the boomers may need to redesign their menu (larger type), their lighting and decor (higher light levels, more comfortable seating, more room for wheelchairs, scooters, and/or walkers), and their cuisine (more defined flavors).
As people age, they lose mobility in their joints; arthritis becomes more common. Certainly there are implications for clothing and shoe manufacturers. Baby boomers, like many segments of the population, are fond of wearing comfortable walking shoes. Yet manipulating laces through tiny holes can be chore for people with stiff fingers. Some shoe manufacturers may choose to abandon laces in favor of Velcro. Similarly, small button holes can be difficult for more mature consumers. Larger button holes, or zippered fastenings may be more attractive to people of this age group.
As people age, health-related problems increase. Clearly the aging of the baby boomers is an opportunity for pharmaceutical marketers, as well as marketers of retirement villages, assisted living facilities, physical therapy, in-home care, physician’s services, etc.
© 2012 Pearson Education, Inc. publishing as Prentice-Hall.

10. Segmenting by Demographics: Gender
Many products appeal to one sex or the other
Metrosexual: A straight, urban male who is keenly interested in fashion, home design, gourmet cooking, and personal care
DISCUSSION NOTE:
ASK students to identify some products that are specifically targeted to one gender or another. Likely responses may include perfume, cologne, feminine hygiene products, clothing, shoes, wigs, etc. The ad also shows how deodorant can be targeted to a specific gender.
LECTURE NOTES:
In addition to products that are only sold to one gender or another, many marketers develop parallel products which each appeal to a different sex. Pink and blue diapers, men and women’s razors, and men and women’s Nikes are just a few examples.
Until recently, purses and many types of grooming products were marketed exclusively to women. However, growing recognition of the “metrosexual” has led many marketers to target this group when selling fashion accessories, personal care items, and “man-bags”.
© 2012 Pearson Education, Inc. publishing as Prentice-Hall.

11. Segmenting by Demographics: Other Variables
Family life cycle:
Family needs change over time
Different product categories ascend or descend in importance over the life cycle
Income
Strongly correlated with buying power
Social Class
Consumers buy according to image they wish to portray rather than where they fall in the framework
LECTURE NOTES:
Family Life Cycle: Family needs change dramatically for many products over time, creating the opportunity to segment by family life cycle.
Furniture is product category that varies with the family life cycle. Singles living away from home for the first time may purchase very small refrigerators to serve as beverage coolers in their dorm room, or inexpensive press wood furniture for an apartment. Young married couples purchase a greater number of items, but quality is likely to be relatively low because cost is a concern. As children join the family, parents purchase cribs, baby changing tables, and later on, twin beds or bunk beds. As family income rises, families may move to larger homes in more affluent neighborhoods, and purchase higher-quality furniture. After the kids have moved out of the house, couples in their prime working years may acquire a second (vacation) home, or upgrade their primary home furnishings to even higher-quality items (Ethan Allen; leather sofas, etc.).
As families age and move through the cycle, some product categories gain in importance while others decline in importance. (Singles 21+ year old would be more likely to consumer alcohol and go out to bars than would a young married couple with a newborn.)
Income: The importance of income is self-evident. The more discretionary money available, the more likely it is that certain types of products and services will be consumed. {Ask students to NAME some products that are targeted to higher-income classes.} It should be noted though that the recent economic turmoil has resulted in some important changes – many individuals who were comfortable before the financial meltdown now find that they can’t retire, while others are spending more cautiously and in some cases, “downshopping”, meaning that higher income consumers are more likely to shop at stores like K-Mart and Walmart.
On the other end of the spectrum, some businesses such as WalMart, pawn shops, and payday loan places actively target individuals at the lower end of the income spectrum.
Social Class: While historically some marketers have chosen to segment by social class (such as upper class, middle class, and lower class), fewer do so today because research has shown that consumers are more likely to buy according to the image they wish to portray rather than where they actually fall within the social class framework. Of course in doing so, many of these consumers got themselves into trouble by buying on readily available credit; it will be interesting to see whether this trend reverses itself now that lending guidelines have tightened somewhat.
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12. Segmenting by Demographics: Race and Ethnicity
African Americans
Asian Americans
Hispanic Americans
Cultural diversity is increasing
LECTURE NOTES:
A consumer’s ethnicity often plays a strong role in preferences for products, services, and media. Understanding the unique needs of each group, as well as the media preferences that indicate how they can best be reached, is essential for marketers who target on the basis of race or ethnicity.
African-Americans comprise about 12% of the U.S. population. A variety of specialized media, such as Urban sound, rap, or hip-hop radio stations and Ebony, Vibe, or The Source magazines are valued by this group, and provide marketers with an excellent opportunity to reach this segment.
Asian Americans are the fastest growing minority in the U.S. Though the overall size of the sample is small, they earn more than other minority groups, and serve as an excellent target for technology products.
Hispanic Americans overtook African Americans as the largest minority group following the 2010 census. Commanding over $200 billion in purchase power, Hispanics are also an attractive market due to their brand loyalty, geographic concentration by national origin (e.g., Mexican-American, Cuban-American, Puerto Rican), youth, larger household size, and receptivity to relationship based selling and marketing approaches.
Cultural differences need to be taken into account when trying to reach Hispanics; family is very important to this group. By 2020, the growth in Latino youth (62%) is projected outstrip the growth of traditional teens (10%) by 52%. Latino teens seek spirituality, stronger family ties, and more in color in their lives.
One implication of the growth in minorities is that cultural diversity is increasing in the workplace and elsewhere. Cultural diversity is the management practice that actively seeks to include people of different genders, races, ethnic groups, and religions as employees, customers, suppliers, or other members of the value chain.
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13. Segmenting by Demographics: Place of Residence
Geodemography:
Combines geography with demographics
PRIZM website
Geocoding:
Customizes Web advertising so people who log on in different places see ad banners for local businesses
Search engine marketing example: Google
LECTURE NOTES:
Recognizing that consumer preferences often vary depending on where they live, many marketers tailor their offers to geographic regions. Census data can be helpful in learning about the demographics of different state, cities or zip codes, but most marketers prefer geodemographic segmentation systems that offer more precise methods of reaching targeted consumers.
PRIZM by Claritas, is a geodemographic targeting system, which combines not only demographics and geography, but also lifestyle traits and product purchase behavior. The basic assumption is that “birds of a feather, flock together” meaning that people who live in the same neighborhood share many characteristics. Prizm identifies 66 clusters, and assigns each neighborhood to a cluster. Marketers can purchase mailing lists based on Prizm data; other forms of media are also Prizm coded, allowing marketers to select the optimal media vehicles to reach their target market markets.
WEBSITE NOTE:
Visit the link referenced on this slide ( The landing page, “My Best Segments,” gives the instructor the opportunity to 1) select the “You Are Were You Live” USA Today special interactive report (click the round button toward the right-hand side of the page). This interactive video explains the PRISM system in greater detail and automatically progresses from the first to third segments. The third segment of the video is interactive; instructors can ask students which colored segment they would like to learn more about. Clicking on a particular segment will launch a video clip in which members of a particular cluster (e.g., Greenbelt Sports) are interviewed.
The second exercise requires clicking on the zip code look-up button at the top of the menu, from the my best segments web page (instructors must exit the You Are Where You Live demo). Students generally enjoy entering familiar zip codes and learning which Prizm clusters are among the top five found within that zip code. This exercise also helps the instructor to underscore the fact that using Prizm for targeting purposes is more precise than relying on zip codes alone. A marketer targeting a particular Prizm cluster could purchase a mailing list restricted to just those households found in neighborhood characterized by the cluster, while buying a list by zip code would result in wasted contacts to households that fall outside the desired cluster. Students might also be interested to see the clusters associated with Beverly Hills – 90120, as this is one of the wealthiest zip codes in America.
Geocoding of ads changes web advertising so people who log in different geographic locations see ad banners for local businesses.
WEBSITE NOTES:
It should also be noted that geocoding underscores much of paid search advertising. For example, visiting Google, and searching on a term such as “dentist,” “chiropractor,” “pest control,” or “vet” will likely yield at least some paid search ads for local businesses. Paid search ads are shown either at the top of the natural search results (usually against a colored background to distinguish them as paid ads), or in the far right-hand column, next to the natural search results (the long list of search results spanning multiple columns along the left and middle portions of the page). A demonstration may help students to better understand this concept.
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14. Segmenting by Psychographics
LECTURE NOTES:
Psychographics: The use of psychological, sociological, and anthropological factors to construct market segments
Members of psychographic segments typically share activities, interests, and opinions, often abbreviated as AOI. For example Harley-Davidson’s customers include thrill-seekers as well as weekend warriors who have an affinity for counterculture. Even doctors and lawyers may be members of the Harley Owners groups (HOGS). Understanding psychographics is important; while the average age of Harley riders has risen to about 46, older than the industry average of 38, Harley-Davidson knows better than to emphasis safety features or conservatism in their advertising. Thrill seekers aren’t that concerned with safety and those who enjoy a counter culture would not be receptive to ads equating Harleys with conservatism.
Psychographics use psychological, sociological, and anthropological factors to segment a market
© 2012 Pearson Education, Inc. publishing as Prentice-Hall.

15. Figure 7.3 VALSTM Framework
Learn more about each segment by visiting Strategic Business Insights (VALS types)
Take the VALSTM survey by visiting Strategic Business Insights (survey link)
LECTURE NOTES:
The best known general psychographic segmentation system is named VALS, which stands for values and lifestyles. The VALS system segments U.S. consumers into eight unique groups based on 1) their primary motivation and 2) their level of resources and innovation.
Primary motivations include ideals (meaning consumers are motivated by knowledge and principles); achievement (purchases reflect status and achievement to their peers), and self-expression, (purchases reflect a desire for social/physical activity, variety, and risk.
According to the VALS website, “A person's tendency to consume goods and services extends beyond age, income, and education. Energy, self-confidence, intellectualism, novelty seeking, innovativeness, impulsiveness, leadership, and vanity play a critical role. These psychological traits in conjunction with key demographics determine an individual's resources. Various levels of resources enhance or constrain a person's expression of his or her primary motivation.”
WEBSITE NOTES:
The link shown on the left hand side of Figure 7.3 will open a web page showing an identical figure. To the right of the figure, the instructor may wish to click on each of the links shown, each of which leads to a detailed description of one of the eight VALS segments.
The link to the right of Figure 7.3 on this slide launches a gateway page from which visitors can take the VALS survey. It might be beneficial to launch the survey, for the purpose of illustrating to students the type of questions which are used to classify students.
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16. Segmenting by Psychographics
Niche markets may be defined by a single characteristic
Psychographic segmentation can be industry specific
Situations, such as a bad economy, can create opportunities for psychographic segmentation
LECTURE NOTES:
Some manufacturers choose a single, critically important activity, interest, or opinion as the basis for defining a niche market.
For example, the ad on this slides illustrates how Toyota targets consumers who prioritize environmental issues with their Prius hybrid vehicle. As of 2011, most marketers would still consider the hybrid category to be a niche market.
Sometimes firms contract with research firms to develop customized psychographic segmentations systems for their industry. As a result of the research commissioned by BMW, the luxury car market was segmented into groups called “upper liberals”, “ postmoderns”, “upper conservatives’ and “ modern mainstream”. As explained in the text, each group was characterized by specific needs and a preference for difference car types (SUVs, roadsters, convertibles, etc.). This segmentation system inspired BMW to redesign and expand their product line to tap into each segment.
As a final example, the recent economic recession has led to the identification of four distinct segments stemming from a bad economy: steadfast frugalists, involuntary penny pinchers, pragmatic spenders, and apathetic materialists.
Each group differs from the others in significant ways. The steadfast frugalists are the least brand loyal and also the most likely to discount marketing messages, making them the most challenging group to target.
The involuntary penny-pincher segment has also been severely impacted by the recession, and behave in a thrifty fashion similar to the steadfast frugalists. However, they don’t like doing so. For example, only 17% of involuntary penny-pinchers found buying store brands satisfying, compared to a 59% satisfaction rate found among the steadfast frugalists.
Pragmatic spenders have high spending power, making them an attractive segment to target in tough times while the apathetic materialists appear to be relatively unaffected by the recession.
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17. Segmenting by Behavior
Behavioral segmentation:
Segments consumers based on how they act toward, feel about, or use a product
User status
80/20 rule and segmentation by usage status
Long tail concept
Usage occasions
LECTURE NOTES:
One way to segment on the basis of behavior is to divide the marketing into users and non-users. While this can be helpful, further segmenting the market according to usage status (heavy, medium, and light users) allows for more effective targeting, as the 80/20 rule dominates the majority of situations.
The 80/20 rule suggests the 20% of the purchasers (a small portion of the target market) account for 80% (or the majority) of the volume. This underscores the importance of targeting heavy users, as it implies that the majority of purchases are made by a minority of the consumers.
The long tail concept takes the opposite approach to segmentation. This approach is based on the idea that firms can make money by selling small amounts of items that only a few people want (e.g., targeting small volume segments), provided that they sell enough different items. Examples of firms that have embraced the long tail form of segmentation include Amazon.com (3.7 billion titles, many of which will only sell a few hundred or thousand copies) and Netflix (infrequently rented older, foreign, and obscure films are kept in inventory in addition to blockbusters).
Finally, usage occasions represent a final type of behavioral segmentation. Many products such as Christmas cards and Easter egg coloring kits are associated with holidays. Other products are associated with specific times of the day (orange juice / breakfast), business functions (party platters/catering by restaurants), or casual get togethers.
The Biltmore Estate, pictured on this slide, increased attendance during its annual Christmas celebration as part of a strategy to segment on the basis of usage occasion. As part of this strategy, heavy users (defined as families who have made the Christmas pilgrimage an annual event) received a different invitation and a customized package design to appeal to them which differed from that sent to the other three segments. By catering to the differences between these segments, visits increased by 300% in a single season.
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18. Segmenting B2B Markets
Segmentation helps B2B firms understand the needs and characteristics of potential customers
Firms can be segmented by:
Organizational demographics
Production technology used
Whether targeted business firm is a user/nonuser of product
LECTURE NOTES:
Segmentation helps B2B firms understand the needs and characteristics of potential customers. The underlying logic to segmentation in the B2B market is the same as with consumers, but the variables used to form segments typically differ.
For example, firms can be segmented by organizational demographics, as opposed to the demographics associated with individual employees. Organizational demographics include the size of the firm (in sales or number of employees); number of facilities, whether they are a domestic or international firm, among others.
Additional characteristics could include the type of production technology used by the firm, and behavioral characteristics such as whether a given business firm is user or nonuser of the selling firm’s product.
Production technology used
Whether customer is a user/nonuser of product
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19. Figure 7.4 Phases of Targeting
LECTURE NOTES:
Targeting is characterized by three phases in which marketers evaluate the attractiveness of each potential segment, profile each segment, and decide in which of these groups they will invest resources in order to turn them into customers.
The customer group(s) selected are referred to as the target market.
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20. Evaluation of Market Segments
A viable target segment should:
Have members with similar product needs/wants who are different from members of other segments
Be measurable in size and purchasing power
Be large enough to be profitable
Be reachable by marketing communications
Have needs the marketer can adequately serve
LECTURE NOTES:
The first phase in targeting is to evaluate the potential of each market segments. The purpose is to weed out non-viable alternatives at the beginning of this process. To be useful, a segmentation scheme must yield at least one viable segment.
Viable segments display each of the characteristics shown here. Without a real difference in consumer needs, a firm might just as well mass market their brand. Determining the size and purchasing power of a potential segment allows the marketer to forecast sales, and based on forecasts, determine if pursing the segment is worth the time and effort. Trends pertaining to growth in the segment and must also be considered, as it is critical that the segment be large enough now, and in the future, to justify targeting. Sometimes segments determined by unique psychographics prove less than useful when purchasing media time and space. Marketing communications must be able to reach the segment. Finally, it goes without saying that the marketer must be able to satisfy the needs of the segment by means of superior resources or expertise, compared to the competition.
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21. Developing Segment Profiles
After segments are identified, profiles or descriptions of the “typical” customer in a segment are developed
Segment profiles might include demographics, location, lifestyle, and product-usage characteristics
LECTURE NOTES:
Segments that “pass” each step of the viability test progress to the second phase of targeting, in which segment profiles are developed. Segment profiles provide a detailed description of the typical customer in terms of key demographic, lifestyle, geographic, and product-usage behaviors.
DISCUSSION NOTE:
It might be helpful to break the class into small groups, and challenge students to develop a profile of the typical “college” consumer for your University. It would probably be beneficial to remind students that most Universities cater to more than one segment. Actual answers will vary depending upon the University in question.
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22. Figure 7.5 Choose a Target Marketing Strategy
LECTURE NOTES:
The final phase in targeting is to choose a target strategy to follow. A fundamental decision must be made as to whether the firm will pursue a single large segment or focus on meeting the needs of multiple, smaller markets.
In an undifferentiated targeting strategy, the marketer assumes that people have similar needs, and an attempt is made to appeal to a broad spectrum of people. An example of a firm that follows a somewhat undifferentiated targeting strategy is Walmart. Efficiency occurs because of enhanced economies of scale. But in today’s day and age, following a purely undifferentiated strategy is risky; markets are fragmenting and for most products, needs are not similar enough to justify this technique.
Instead, the more common practice is to follow a differentiated targeting strategy in which the firm develops one or more products (and marketing strategies) for each of several customer groups. A differentiated strategy might also involve marketing a single product differently to different segments, by changing marketing communications to appeal to each targeted group.
Firms that focus their efforts on a single segment use to follow a concentrated targeting strategy. One or more products may be promoted to the segment.
Finally, a firm may choose to follow a custom marketing strategy which is explained in more detail on the following slide. : Tailoring specific products to individual customers
Common in personal and professional services, and in industrial marketing
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23. Choosing a Targeting Strategy
Customized marketing strategy
Tailoring specific products to individual customers
Common in personal and professional services, and in industrial marketing
Mass customization Modifying a basic good or service to meet the needs of an individual
LECTURE NOTES:
As the name suggests, a customized marketing strategy tailors specific products to individual customers. Ideally, marketers should be able to define segments so precisely that they meet the exact needs of each individual or firm. Mass customization is the term used to describe the process that modifies a basic product to meet the needs of an individual.
DISCUSSION NOTES:
Students may ask whether or not services can be mass-customized. The answer is yes, and a visit to the Capital One Credit Lab may help to prove the point ( Customers can customize their credit level and interest rate, reward program, and the picture on the card itself.
© 2012 Pearson Education, Inc. publishing as Prentice-Hall.

24. Steps in the Target Marketing Process Step 3: Positioning
Positioning: Developing a marketing strategy to influence how a particular market segment perceives a good/service in comparison to the competition
LECTURE NOTES:
Positioning is a strategic level decision that is critical in directing the marketing communication efforts for the brand. Positioning influences consumers’ perceptions of the product, particularly in comparison to the competition. For this reason, many firms focus on a brand’ competitive advantage as the basis of the positioning strategy. Competitive advantages ideally should be sustainable, but rarely are for the long haul. In fact, lack of sustainability is the biggest difficulty faced by those who position themselves as the “low cost” alternative compared to competitors.
Before we discuss the stages in the positioning process in more detail, let’s watch the Sprout video clip to learn how they position their service.
Sprout Video
© 2012 Pearson Education, Inc. publishing as Prentice-Hall.

25. Figure 7.6 Stages in a Positioning Decision
LECTURE NOTES:
The first stage in developing a positioning strategy (or repositioning strategy) is to analyze the positions held by competitors. This is important, because if a competitive brand is already strongly associated with a particular benefit or advantage, it will be difficult to convince consumers to perceive your brand as being superior with respect to the same benefit or advantage, unless you have compelling proof.
In addition to analyze how direct competitors are positioned, it is also important to analyze the positions of indirect competitors. Indirect competitors provide similar benefits but often compete in different product categories. For example, if marketers of a soft drink beverage are considering positioning the product on the basis of its ability to quench thirst, they would analyze not only other soft drinks, but other beverages in general including bottled water, sports drinks, teas, lemonade products, etc.
The second step requires that the marketer define and select a specific competitive advantage to use in the positioning strategy. Competitive advantages are desired because they demonstrate the brand’s superiority over the competition and give consumers a reason to buy the brand. However, to be effective as a positioning strategy, the particular competitive advantage chosen must be important to consumers, and ideally relate to the primary benefits of the product. A more prestigious image, better quality product, superior warranty, or better customer service are just some of the competitive advantages which may be valued by consumers for many types of products. Competitive advantages based on price (lower price) are generally not sustainable, unless lower prices stem from truly lower costs which are realized due to efficiencies in the production process or cheaper access to raw materials which the competition cannot match.
Once a competitive advantage has been identified and selected as the basis of the positioning strategy, the marketing mix is adapted as necessary. The brand’s positioning strategy should come through clearly in all marketing communications, and the product itself must provide the benefits promised at a price the consumer is willing to pay. Finally, the product must be made available in locations where consumers shop.
After implementation of the positioning strategy, it is important that marketers conduct or commission market research to ascertain whether or not consumers are actually perceiving the product in the same way that marketers intended. If not, the marketing mix needs to be adapted or the positioning strategy needs to be changed. Over time, even successfully positioned products may need to change their positioning strategy.
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26. Modifying Positioning Strategies
Repositioning is commonly used to change the brand image
Requires redoing a product’s position in response to marketplace changes
Repositioning may breathe life into Retro brands
A once-popular brand that has been revived to experience a popularity comeback, often by riding a wave of nostalgia
LECTURE NOTES:
Changes in the marketplace, such as evolving needs, changing consumer values and behaviors, or the introduction of a superior competitive product, may indicate the need for product repositioning. For example, a brand may need to modernize its image to keep with current consumer values or shifts in demographic trends. For example, Arm & Hammer baking soda was originally used by women who baked bread, cookies, or cakes from scratch. As more women entered the workplace, baking from scratch declined, and women began buying prepackaged cake and cookie mixes. Arm & Hammer realized that it needed to reposition its brand to reverse its declining market share. The firm did so by looking for ways in which the product could be used, other than baking. As a result, they began positioning the product on the basis of uses such as 1) refrigerator/freezer deodorizer, 2) as an alternative to toothpaste for brushing teeth (this was before the Arm & Hammer toothpaste brand was launched, and 3) as a carpet deodorizer which could be sprinkled on rugs, then vacuumed away (again, before the Arm & Hammer branded carpet deodorizer was introduced).
Repositioning by finding new uses for existing products is different from reviving a “Retro” brand. Retro brands are products which marketers devote resources towards, and the added boost to the marketing budget helps build popularity for the brand again. For example, a campaign for Kool-Aid might appeal to consumers’ nostalgia with copy such as, “Remember when your mother served you Kool-Aid {blah, blah, blah}. Why not share that same great experience with your children?”
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27. Targeting and Positioning Strategies Must Complement Each Other
Sobe’s XTC targets year olds who want a “New Age” beverage that offers an energy boost without unhealthy additives.
SoBe was inspired by “herbal ecstasy” cocktails made popular in the 1990s, but positioned as less risky.
LECTURE NOTES:
SoBe is a small drink manufacturer that offers a line of teas, elixirs, and power drinks.
The company first segmented the market in terms of age and psychographics. Then it targeted a segment of year olds who were interested in new age beverages that would give them a feeling of energy without unhealthy additives.
Sobe created XTC, a drink inspired by “herbal ecstasy” cocktails of extracts and amino acids first made popular at all-night raves in the 1990s. This strategy provided a unique position for XTC. As stated by an industry executive, “People are taking something that provides a four-times-removed high without have to get arrested or wrecking their bodies. It carries the image of being a little further out three without carrying the risk.”
Today SoBe markets a variety of products in various flavors under themed names such as Purify, C-boost, N-Dire, Electrify, Lean Machine, and D-Fence, each of which appeals to a specific niche segment.
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28. The Brand Personality
Brand personality: A distinctive image that captures the brand’s character and benefits
Personality dimensions:
Sincerity Example?
Excitement Example?
Competence Example?
Sophistication Example?
Ruggedness Example?
LECTURE NOTES:
Brands are often described in terms of personality traits as if they were people. People may use adjectives such as “cool” or “elegant” to describe certain brands. In fact, market research has identified five specific personality dimensions* that may be associated with brands to a greater or lesser extent. Let’s do a little exercise. As I describe each personality dimension, try to think of a brand that you strongly associate with that description:
Sincerity: Brands that are perceived as being down-to-earth, honest, wholesome, and cheerful are strongly associated with this personality dimension. {Good examples: Disney, Mrs. Butterworth, Jif Peanut Butter}
Excitement: Includes brands perceived by consumers as being daring, spirited, imaginative, and up-to-date. {Good examples: Apple, Mountain Dew}
Competence: Reliable, intelligent, and successful brands score high on the competence dimension. {Good examples: Maytag, Allstate, Toyota}
Sophistication: These brands are perceived by consumers as being upper-class and charming. {Good examples: Rolex, Cartier, Grey Poupon mustard}
Ruggedness: Tough and outdoorsy are thoughts commonly associated with these brands. {Good examples: Timberland, Samsonite, Ford Trucks}
One final note to bear in mind Brands, like people, often have multiple personality dimensions. You can probably think of a couple of brands off the top of your head that exhibit two of the personality dimensions just described equally. That’s ok. The important thing to remember is that that brand personalities create a distinctive image that incorporate both the brand’s character and key benefits.
* Source: Jennifer L. Aaker, “Dimensions of Brand Personality,” Journal of Marketing Research 34 (August 1997),
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29. Figure 7.7 Perceptual Map 29 LECTURE NOTES:
Recall that one way of positioning a brand is by means of creating a superior brand image. This implies that part of the marketer’s job is to create a brand personality that consumers will prefer over competing products. First, we need to ask consumers what personality characteristics are important, then we need identify how various brands are perceived compared to one another on the basis of these important characteristics.
Perceptual maps, such as the one shown in Figure 7.7, are often used to visually describe where products/brands are “located” in consumers’ minds relative to competing brands.
The perceptual map can sometimes help marketers understand where to position a new brand. The marketer might decide to compete directly with the upscale fashion magazines, shown in the upper right hand quadrant, or locate an underserved area, such as upscale service magazines (or downscale fashion magazines). Generally speaking, underserved segments represent great opportunities AS LONG as the market segment in question meets the tests for viability discussed earlier.
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30. Customer Relationship Management (CRM): Toward a Segment of One
A systematic tracking of consumers’ preferences and behaviors over time in order to tailor the value proposition as closely as possible to each individual’s unique wants and needs
LECTURE NOTES:
Customer relationship management has been embraced by many successful firms. Customer relationship management, or CRM as it usually called in conversation, is defined on this slide. Marketers know that one way to more finely segment consumers is to allow them to personalize products. That’s the idea behind this ad, and one of the reasons why marketers value CRM. A systematic tracking of consumers’ preferences and behaviors over time in order to tailor the value proposition as closely as possible to each individual’s unique wants and needs
CRM facilitates one-to-one marketing
Following the link above leads to the Customer Lifetime Value Tool, which is available from Harvard Business Online. This resource begins with an introduction and conceptual overview (which are a bit long for an in-class demo). However, instructors can skip straight to the Sample Problem to illustrate how lifetime value of the customer is calculated, or use the Tool to work an example interactively during class.
© 2012 Pearson Education, Inc. publishing as Prentice-Hall.

31. Table 7.1 The Four Steps of 1-to-1 Marketing
LECTURE NOTES:
CRM facilitates one-to-one marketing, a process which is composed of four interrelated steps:
Step 1: Identify customers and get to know them in as much detail as possible.
Step 2: Differentiate customers by their needs and value to the company.
Step 3: Interact with customers; find ways to improve cost efficiency and the effectiveness of the interaction.
Step 4: Customize some aspect of the products you offer each customer.
Can you think of any activities other than those shown in Table 7.1 which could be added to any of these steps?
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32. CRM: A New Perspective on an Old Problem
CRM systems capture information
Touchpoints interface customers and businesses
CRM systems include:
Order and delivery tracking websites
Call centers
Automatic reminder systems
Sales contact management software
LECTURE NOTES:
CRM systems use computers, software, databases, and the Internet to capture information at each touchpoint.
Touchpoints are any direct interface between customers and a company (online, by phone, in person, etc.)
Several examples of CRM systems are discussed in the textbook, including web sites that let you check the status of orders, pay or manage your bills online, track FedEx or UPS package deliveries, and even call center systems used by direct marketers who phone you at home or your place of business.
Automatic reminder systems that leave recorded messages about appointments, voting locations, utility outages, or upcoming sales at stores (such as Catherines’s clothing store) are also part of some organization’s CRM.
Sales contact management software makes it easy for B2B or B2C sales people to keep in contact with their client base on a variety of issues.
DISCUSSION NOTE:
Ask students to describe other examples of activities or contacts that they believe may stem from CRM systems. (Example: Banking – notifications of direct deposit, ability to transfer money between accounts or pay bills online, etc.)
© 2012 Pearson Education, Inc. publishing as Prentice-Hall.

33. Figure 7.8 Characteristics of CRM
LVC Tool
LECTURE NOTES:
Firms that successfully make use of CRM have a different mind-set, different goals, different measures of success, and generally look at customers in a different way when compared to firms that don’t use CRM. Four critical characteristics of CRM are shown in Figure 7.8.
Share of customer: Unlike many businesses that focus on increasing a brand’s marketing share, firms that embrace CRM recognize that it is less costly to keep current customers happy then it is to get a new one to take their place. For this reason, CRM focuses on increasing a brand’s share of customer. Share of customer can be defined as the percentage of an individual customer’s purchase of a product (e.g., fast food) that belongs to a particular brand (e.g., Taco Bell). This is where CRM’s ability to customize and personalize marketing promotions to individual consumers can be helpful. For example, if Amazon’s database records indicate that a given patron has purchased three books by a certain author, the CRM aspect of this system would try to increase share of customer by automatically sending an to that individual offering him or her the opportunity to preorder a new book which has been written by the author, but not yet released.
Lifetime value of the customer: Lifetime value is the potential profit a single customer’s purchase of a firm’s products generates over the customer’s lifetime. Estimating LVC requires that the firm first estimate future sales across all products for the next 20 or 30 years, and then that the firm attempt to figure out what profit the company could make from this customer in the future.
INSTRUCTOR NOTE, DO NOT READ ALOUD: To better illustrate the lifetime value of the customer concept, instructors can visit the link provided on this slide during class, or create an assignment that makes use of this resource (
CRM firms view customers differently – as assets. Customer equity is defined as the financial (net) value of a customer throughout the lifetime of the relationship.
The final characteristic that makes CRM unique is the fact that organizations focus on high-value customers. This means the firm prioritizes its customers and customizes communications accordingly. For example, those who patronize casinos frequently will receive more direct mail offers from the casino, and higher value perks or incentives in an attempt to entice them to stay, compared to the that which would be sent to casual or infrequent gamblers. Remember that 80 /20 rule . . .in a CRM world, 80% of the profits often come from 20% of the customers.
© 2012 Pearson Education, Inc. publishing as Prentice-Hall. 33

34. Real People, Real Choices: Decision Made at NutriSystems, Inc.
Jim chose option 3
Why do you think Sprout chose to target both current viewers and nonviewers with the same brand awareness campaign?
LECTURE NOTES:
Student answers will vary.
The “We Share” campaign captured the fresh and playful spirit of Sprout’s brand personality while reinforcing the network’s core vision of bringing parents and kids together. The “Together Time” theme helped to link users to SproutOnline.com.
© 2012 Pearson Education, Inc. publishing as Prentice-Hall.

35. Keeping It Real: Fast-Forward to Next Class Decision Time at Bossa Nova Beverage Company
Meet Palo Hawken, co-founder and VP of research and innovation at Bossa Nova Beverage Company
Firm markets premium guarana flavored carbonated energy drinks
The decision to be made: How to fit the new açai juice into the current product line
LECTURE NOTES:
Chapter 8 describes various issues relevant to the development of new products. The chapter case revolves around Bossa Nova, a firm that makes specialty healthy drinks. Of course most people don’t even know what acai juice is, so Bossa Nova faces a challenge.
© 2012 Pearson Education, Inc. publishing as Prentice-Hall.

36. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America
© 2012 Pearson Education, Inc. publishing as Prentice-Hall.