Class.5/1 Segmentation, Targeting , Differentiation & Positioning

Procter & Gamble (P&G) sells :

• eight brands of laundry detergent in the United States (Tide, Cheer, Bold, Gain, Era, Oxydol, Dreft, and Ivory Snow).
• six brands each of hand soap (Ivory, Safeguard, Camay, Oil of Olay, Zest, Coast) and shampoo (Pantene, Head & Shoulders, Ivory, Pert Plus, Vidal Sassoon, and Prell);
• four brands each of liquid dishwashing detergent (Dawn, Ivory, Joy, and Cascade),
• toothpaste (Crest, Gleam, Complete, and Denquel),
• tissues and towels (Charmin, Bounty, Puffs, Royale);
• three brands each of floor cleaner (Spic & Span, Top Job, and Mr. Clean),
• deodorant (Secret, Sure, and Old Spice),
• skin care potions (Oil of Olay, Noxema, and Clearasil);
• two brands each of fabric softener (Downy and Bounce), disposable diapers (Pampers and Luvs),
• cosmetics (Cover Girl and Max Factor).

Moreover, P&G has many additional brands in each category for different international markets. For example, it sells 16 different laundry product brands in Latin America and 19 in Europe, the Middle East, and Africa. (See Procter & Gamble's Web site at pg.com for a full glimpse of the company's impressive lineup of familiar brands.)

These P&G brands compete with one another on the same supermarket shelves. But why would P&G introduce several brands in one category instead of concentrating its resources on a single leading brand? … The answer lies in the fact that different people want different mixes of benefits from the products they buy.

Take laundry detergents as an example. People use laundry detergents to get their clothes clean. But they also want other things from their detergents—such as economy, bleaching power, fabric softening, fresh smell, strength or mildness, and lots of suds or only a few. We all want some of every one of these benefits from our detergent, but we may have different priorities for each benefit. To some people, cleaning and bleaching power are most important; to others, fabric softening matters most; still others want a mild, fresh-scented detergent. Thus, there are groups—or segments—of laundry detergent buyers, and each segment seeks a special combination of benefits.

Procter & Gamble has identified at least eight important laundry detergent segments, along with numerous subsegments, and has developed a different brand designed to meet the special needs of each. The eight P&G brands are positioned for different segments as follows:

• Tide "helps keep clothes looking like new." It's the all-purpose family detergent that is "tough on greasy stains." Tide with Bleach is "so powerful, it whitens down to the fiber."
• Cheer with Triple Color Guard is the "color expert." It guards against fading, color transfer, and fuzzy buildup. Cheer Free is "dermatologist tested . . . contains no irritating perfume or dye."
• Bold is the detergent with built-in fabric softener. It's "for clean, soft, fresh-smelling clothes." Bold liquid adds "the fresh fabric softener scent."
• Gain, originally P&G's "enzyme" detergent, was repositioned as the detergent that gives you clean, fresh-smelling clothes. It "cleans and freshens like sunshine. It's not just plain clean, it's Gain clean."
• Era has "built-in stain removers." It's "the power tool for stains."
• Oxydol contains "stain-seeking bleach." It "combines the cleaning power of detergents with the whitening power of nonchlorine bleach, so your whites sparkle and your clothes look bright." So "don't reach for the bleach—grab a box of Ox!"
• Dreft also "helps remove tough baby stains . . . for a clean you can trust." It's "pediatrician recommended and the first choice of mothers." It "doesn't remove the flame resistance of children's sleepwear."
• Ivory Snow is "ninety-nine and forty-four one hundredths percent pure." It "gently cleans fine washables and baby clothes . . . leaving them feeling soft." It provides "safe and gentle care in the gentle cycle."
  Within each segment, Procter & Gamble has identified even narrower niches. For example, you can buy regular Tide (in powder or liquid form) or any of several formulations:
• Tide with Bleach helps to "keep your whites white and your colors bright," "kills 99.9 percent of bacteria."
• Tide Clean Rinse "goes beyond stain removal to prevent dingy buildup on clothes."
• Tide Mountain Spring lets you "bring the fresh clean scent of the great outdoors inside—the scent of crisp mountain air and fresh wildflowers."
• Tide High Efficiency is "formulated for high efficiency top-loading machines"—it prevents oversudsing.
• Tide Free "provides all the stain removal benefits without any dyes or perfumes."

By segmenting the market and having several detergent brands, Procter & Gamble has an attractive offering for consumers in all important preference groups.

As a result, P&G is really cleaning up in the $4.3 billion U.S. laundry detergent market. Tide, by itself, captures a whopping 38 percent market share. All P&G brands combined take a 57 percent share of the market—two and one-half times that of nearest rival Unilever and much more than any single brand could obtain by itself.

Again .. why to do that????…

Companies today recognize 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 abilities to serve different segments of the market. Rather than trying to compete in an entire market, sometimes against superior competitors, each company must identify the parts of the market that it can serve best and most profitably.

Thus, most companies are being more choosy about the customers with whom they wish to connect. Most have moved away from mass marketing and toward market segmentation and targeting—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), firms are focusing on the buyers who have greater interest in the values they create best (the "rifle" approach).

Figure 7.1 shows the three major steps in target marketing:

1.  The first is market segmentation—dividing a market into smaller groups of buyers with distinct needs, characteristics, or behaviors who might require separate products or marketing mixes. The company identifies different ways to segment the market and develops profiles of the resulting market segments.
2. The second step is market targeting—evaluating each market segment's attractiveness and selecting one or more of the market segments to enter.
3. The third step is market positioning—setting the competitive positioning for the product and creating a detailed marketing mix. We discuss each of these steps in Market Segmentation.
   

1- Market Segmentation

Markets consist of buyers, and buyers differ in one or more ways. They may differ in their wants, resources, locations, buying attitudes, and buying practices. Through market segmentation, companies divide large, heterogeneous markets into smaller segments that can be reached more efficiently and effectively with products and services that match their unique needs.

Levels of Market Segmentation

Market segmentation can be carried out at several different levels. companies can practice no segmentation (mass marketing), complete segmentation (micromarketing), or something in between (segment marketing or niche marketing).

1- Mass Marketing

Companies have not always practiced target marketing. In fact, for most of the 1900s, major consumer products companies held fast to mass marketing—mass producing, mass distributing, and mass promoting about the same product in about the same way to all consumers.

• Henry Ford epitomized this marketing strategy when he offered the Model T Ford to all buyers; they could have the car "in any color as long as it is black." 
• Coca-Cola at one time produced only one drink for the whole market, hoping it would appeal to everyone.

The traditional argument for mass marketing is that it creates the largest potential market, which leads to the lowest costs, which in turn can translate into either lower prices or higher margins. However, many factors now make mass marketing more difficult. Today, marketers find it very hard to create a single product or program that appeals to all of these diverse groups.

2- Segment Marketing

A company that practices segment marketing isolates broad segments that make up a market and adapts its offers to more closely match the needs of one or more segments.

• Thus, Marriott markets to a variety of segments—business travelers, families, and others—with packages adapted to their varying needs.
• GM has designed specific models for different income and age groups.

Segment marketing offers several benefits over mass marketing:

• The company can market more efficiently, targeting its products or services, channels, and communications programs toward only consumers that it can serve best and most profitably.
• The company can also market more effectively by fine-tuning its products, prices, and programs to the needs of carefully defined segments.
• The company may face fewer competitors if fewer competitors are focusing on this market segment.

3- Niche Marketing

Market segments are normally large, identifiable groups within a market—for example, luxury car buyers, performance car buyers, utility car buyers, and economy car buyers.

 A niche is a more narrowly defined group, usually identified by dividing a segment into subsegments or by defining a group with a distinctive set of traits who may seek a special combination of benefits.

For example, the utility vehicles segment might include light-duty pickup trucks and sport utility vehicles (SUVs). The sport utility vehicles subsegment might be further divided into standard SUV (as served by Ford and Chevrolet) and luxury SUV (as served by Lincoln and Lexus) niches.

Whereas segments are fairly large and normally attract several competitors, niches are smaller and normally attract only one or a few competitors. Niche marketers presumably understand their niches' needs so well that their customers willingly pay a price premium. For example, the luxurious Bentley gets a high price for its cars because its loyal buyers feel that no other automobile comes close to offering the product–service–membership benefits that Bentley does.

Niching offers smaller companies an opportunity to compete by focusing their limited resources on serving niches that may be unimportant to or overlooked by larger competitors.

However, large companies also serve niche markets. For example, American Express offers not only its traditional green cards but also gold cards, corporate cards, and even platinum cards aimed at a niche consisting of the top-spending 1 percent of its 28 million cardholders. Nike makes athletic gear for basketball, running, and soccer but also for smaller niches such as biking and street hockey.

In many markets today, niches are the norm. As an advertising agency executive observed, "There will be no market for products that everybody likes a little, only for products that somebody likes a lot." Other experts assert that companies will have to "niche or be niched."

4- Micromarketing

Micromarketing is the practice of tailoring products and marketing programs to suit the tastes of specific individuals and locations. Micromarketing includes individual markets and local markets.

A-Individual Marketing

• Individual marketing— is tailoring products and marketing programs to the needs and preferences of individual customers.
• Individual marketing has also been labeled one-to-one marketing, customized marketing, and markets-of-one. 
•  Mass customization is the process through which firms interact one-to-one with masses of customers to design products and services tailor-made to individual needs.

Thus, Dell Computer can deliver computers to individual customers loaded with customer-specified hardware and software.

Peapod, the online grocery shopping and delivery service,  lets customers create the virtual supermarket that best fits their individual needs.

www.peapod.com

Ritz-Carlton Hotels creates custom-designed experiences for its delighted guests:

Check into any Ritz-Carlton hotel around the world, and you'll be amazed at how well the hotel's employees anticipate your slightest need. Without ever asking, they seem to know that you want a nonsmoking room with a king-size bed, a nonallergenic pillow, and breakfast with decaffeinated coffee in your room.

How does Ritz-Carlton work this magic? The hotel employs a system that combines information technology and flexible operations to customize the hotel experience. At the heart of the system is a huge customer database, which contains information about guests gathered through the observations of hotel employees. Each day, hotel staffers—from those at the front desk to those in maintenance and housekeeping—discreetly record the unique habits, likes, and dislikes of each guest on small "guest preference pads." These observations are then transferred to a corporatewide "guest history database." Every morning, a "guest historian" at each hotel reviews the files of all new arrivals who have previously stayed at a Ritz-Carlton and prepares a list of suggested extra touches that might delight each guest. Guests have responded strongly to such markets-of-one service. Since inaugurating the guest-history system in 1992, Ritz-Carlton has boosted guest retention by 23 percent. An amazing 95 percent of departing guests report that their stay has been a truly memorable experience.

Moreover , some pharmaceutical companies started to customize its products according to individual needs , ex. customize your daily required multi vitamin

 

 

Business-to-business marketers are also finding new ways to customize their offerings. For example, Becton-Dickinson, a major medical supplier, offers to customize almost anything for its hospital customers.

It offers custom-designed labeling, individual packaging, customized quality control, customized computer software, and customized billing.

Motorola salespeople use a handheld computer to custom-design pagers following individual business customer wishes. The design data are transmitted to the Motorola factory and production starts within 17 minutes. The customized pagers are ready for shipment within two hours.

B- Local Markets

• Local marketing involves tailoring brands and promotions to the needs and wants of local customer groups—cities, neighborhoods, and even specific stores. Thus, retailers such as Sears and Wal-Mart routinely customize each store's merchandise and promotions to match its specific clientele. Citibank provides different mixes of banking services in its branches depending on neighborhood demographics. Kraft helps supermarket chains identify the specific cheese assortments and shelf positioning that will optimize cheese sales in low-income, middle-income, and high-income stores and in different ethnic communities.

Local marketing has some drawbacks:

1. It can drive up manufacturing and marketing costs .
2. It can also create logistics problems as companies try to meet the varied requirements of different regional and local markets.
3. Further, a brand's overall image might be diluted if the product and message vary too much in different localities.

the advantages of local marketing often outweigh the drawbacks.

1. Local marketing helps a company to market more effectively in the face of pronounced regional and local differences in community demographics and lifestyles.
2. It also meets the needs of the company's first-line customers—retailers—who prefer more fine-tuned product assortments for their neighborhoods.

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 find the best way to view the market structure. Table 7.1 outlines the major variables that might be used in segmenting consumer markets. Here we look at the major geographic, demographic, psychographic, and behavioral variables.

Table 1
Major Segmentation Variables for Consumer Markets

Geographic
World region or country	North America, Western Europe, Middle East, Pacific Rim, China, India, Canada, Mexico
Country region	Pacific, Mountain, West North Central, West South Central, East North Central, East South Central, South Atlantic, Middle Atlantic, New England
City or metro size	Under 5,000; 5,000–20,000; 20,000–50,000; 50,000–100,000; 100,000–250,000; 250,000–500,000; 500,000–1,000,000; 1,000,000–4,000,000; 4,000,000 or over
Density	Urban, suburban, rural
Climate	Northern, southern
Demographic
Age	Under 6, 6–11, 12–19, 20–34, 35–49, 50–64, 651
Gender	Male, female
Family size	1–2, 3–4, 51
Family life cycle	Young, single; young, married, no children; young, married with children; older, married with children; older, married, no children under 18; older, single; other
Income	Under $10,000; $10,000–$20,000; $20,000–$30,000; $30,000–$50,000; $50,000–$100,000; $100,000 and over
Occupation	Professional and technical; managers, officials, and proprietors; clerical, sales; craftspeople; supervisors; operatives; farmers; retired; students; homemakers; unemployed
Education	Grade school or less; some high school; high school graduate; some college; college graduate
Religion	Catholic, Protestant, Jewish, Muslim, Hindu, other
Race	Asian, Hispanic, Black, White
Generation	Baby boomer, Generation X, echo boomer
Nationality	North American, South American, British, French, German, Italian, Japanese
Psychographic
Social class	Lower lowers, upper lowers, working class, middle class, upper middles, lower uppers, upper uppers
Lifestyle	Achievers, strivers, strugglers
Personality	Compulsive, gregarious, authoritarian, ambitious
Behavioral
Occasions	Regular occasion, special occasion
Benefits	Quality, service, economy, convenience, speed
User status	Nonuser, ex-user, potential user, first-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 toward product	Enthusiastic, positive, indifferent, negative, hostile

1- Geographic Segmentation

Geographic segmentation calls for dividing the market into different geographical units such as nations, regions, states, counties, cities, or neighborhoods. 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 localizing their products, advertising, promotion, and sales efforts to fit the needs of individual regions, cities, and even neighborhoods. For example, Campbell sells Cajun gumbo soup in Louisiana and Mississippi and makes its nacho cheese soup spicier in Texas and California. P&G sells Ariel laundry detergent primarily in Los Angeles, San Diego, San Francisco, Miami, and south Texas—areas with larger concentrations of Hispanic consumers. In the South, where customers tend to arrive later in the day and stay longer, Starbucks offers more desserts and larger, more comfortable coffee shops.

2- Demographic Segmentation

Demographic segmentation divides the market into groups based on variables such as age, gender, family size, family life cycle, income, occupation, education, religion, race, and nationality. Demographic 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 market segments are first defined using other bases, such as benefits sought or behavior, their demographic characteristics must be known in order to assess the size of the target market and to reach it efficiently.

Age and Life-Cycle Stage

Some companies offering different products or using different marketing approaches for different age and life-cycle groups. For example, McDonald's targets children, teens, adults, and seniors with different ads and media. Its ads to teens feature dance-beat music, adventure, and fast-paced cutting from scene to scene; ads to seniors are softer and more sentimental.

Gender

Gender segmentation has long been used in clothing, cosmetics, toiletries, and magazines. For example, Merrill Lynch offers a Financial Handbook for Women Investors who want to "shape up their finances."

The automobile industry also uses gender segmentation extensively. Women buy half of all new cars sold in the United States and influence 80 percent of all new car purchasing decisions. "Selling to women should be no different than selling to men," notes one analyst. "But there are subtleties that make a difference." Women have different frames, less upper-body strength, and greater safety concerns. To address these issues, automakers are designing cars with hoods and trunks that are easier to open, seat belts that fit women better, and an increased emphasis on safety features.

A growing number of Web sites also target women. For example, the Girls On Network appeals to 18- to 34-year-old women with hip, twenty somethings-style film, television, and book reviews and features. After only two years, this site has 100,000 members and averages 5 million page views per month. The leading women's online community, iVillage, offers "real solutions for real women" and entreats visitors to "Join our community of smart, compassionate, real women." Various iVillage channels cover topics ranging from babies, food, fitness, pets, and relationships to careers, finance, and travel. The site now claims a membership of more than 1 million women across a broad demographic spectrum.

Income

Income segmentation has long been used by the marketers of products and services such as automobiles, boats, clothing, cosmetics, financial services, and travel. Many companies target affluent consumers with luxury goods and convenience services. Stores such as Neiman Marcus pitch everything from expensive jewelry and fine fashions to glazed Australian apricots priced at $20 a pound. Prada's hot-selling black vinyl backpack sells for $450, and a front-row seat at a New York Knicks game at Madison Square Garden goes for $1,000.

3- Psychographic Segmentation

Psychographic segmentation divides buyers into different groups based on social class, lifestyle, or personality characteristics.  One forward-looking grocery store found that segmenting its self-service meat products by lifestyle had a big payoff:

Walk by the refrigerated self-service meat cases of most grocery stores and you'll usually find the offering grouped by type of meat. Pork is here, lamb is there, and chicken is over there. However, a Nashville, Tennessee, Kroger supermarket decided to experiment and offer groupings of different meats by lifestyle. For instance, the store had a section called "Meals in Minutes," one called "Cookin' Lite," another, filled with prepared products like hot dogs and ready-made hamburger patties, called "Kids Love This Stuff," and one called "I Like to Cook." By focusing on lifestyle needs and not on protein categories, Kroger's test store encouraged habitual beef and pork buyers to consider lamb and veal as well. As a result, the 16-foot service case has seen a substantial improvement in both sales and profits.

4- Behavioral Segmentation

Behavioral segmentation divides buyers into groups based on their knowledge, attitudes, uses, or responses to a product. Many marketers believe that behavior 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 firms build up product usage. For example, orange juice is most often consumed at breakfast, but orange growers have promoted drinking orange juice as a cool and refreshing drink at other times of the day. In contrast, Coca-Cola's "Coke in the Morning" advertising campaign attempts to increase Coke consumption by promoting the beverage as an early morning pick-me-up. Some holidays, such as Mother's Day and Father's Day, were originally promoted partly to increase the sale of candy, flowers, cards, and other gifts. Many food marketers prepare special offers and ads for holiday occasions. For example, Beatrice Foods runs special Thanksgiving and Christmas ads for Reddi-wip during November and December, months that account for 30 percent of all whipped cream sales.

Kodak, Konica, Fuji, and other camera makers use occasion segmentation in designing and marketing their single-use cameras. By mixing lenses, film speeds, and accessories, they have developed special disposable cameras for about any picture-taking occasion, from underwater photography to taking baby pictures.

Standing on the edge of the Grand Canyon? Try Konica's Panoramic, which features a 17mm lens that takes in nearly 100 degrees horizontally. Going rafting, skiing, or snorkeling? You need Kodak's Max Sport, a rugged camera that can be used underwater to 14 feet. It has big knobs and buttons that let you use it with gloves. Want some pictures of the baby? Kodak offers a model equipped with a short focal-length lens and fast film requiring less light for parents who would like to take snapshots of their darlings without the disturbing flash. Need to check out your golf swing? Just point and shoot the QuickSnap Golf disposable camera, which snaps off eight frames per click showing how your body and club do during the swing. In one Japanese catalog aimed at young women, Kodak sells a package of five pastel-colored cameras, including a version with a fish-eye lens to create a rosy, romantic glow.

Benefits Sought

A powerful form of segmentation is to group buyers according to the different benefits that they seek from the product. Benefit segmentation requires finding the major benefits people look for in the product class, the kinds of people who look for each benefit, and the major brands that deliver each benefit. For example, one study of the benefits derived from travel uncovered three major market segments: those who travel to get away and be with family, those who travel for adventure or educational purposes, and people who enjoy the "gambling" and "fun" aspects of travel.

One of the best examples of benefit segmentation was conducted in the toothpaste market (see Table 7.2). Research found four benefit segments: economic, medicinal, cosmetic, and taste. Each benefit group had special demographic, behavioral, and psychographic characteristics. For example, the people seeking to prevent decay tended to have large families, were heavy toothpaste users, and were conservative. Each segment also favored certain brands. Most current brands appeal to one of these segments. For example, Crest toothpaste stresses protection and appeals to the family segment, whereas Aim looks and tastes good and appeals to children.

Table 7.2
Benefit Segmentation of the Toothpaste Market

Benefit Segments	Demogra-phics	Behavior	Psychographics	Brands Favored
Economic (low price)	Men	Heavy users	High autonomy, value oriented	Brands on sale
Medicinal (decay prevention)	Large families	Heavy users	Hypochondriacal, conservative	Crest
Cosmetic (bright teeth)	Teens, young adults	Smokers	High sociability, active	Aqua-Fresh, Ultra Brite
Taste (good tasting)	Children	Spearmint lovers	High self-involvement hedonistic	Colgate, Aim

User Status

Markets can be segmented into groups of nonusers, ex-users, potential users, first-time users, and regular users of a product. Market share leaders focus on attracting potential users, whereas smaller firms focus on attracting current users away from the market leader.

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. Marketers usually prefer to attract one heavy user to their product or service rather than several light users. For example, a recent study of U.S.-branded ice cream buyers showed that heavy users make up only 18 percent of all buyers but consume 55 percent of all the ice cream sold. On average, these heavy users pack away 13 gallons of ice cream per year versus only 2.4 gallons for light users. Similarly, a travel industry study showed that frequent users of travel agents for vacation travel are more involved, more innovative, more knowledgeable, and more likely to be opinion leaders than less frequent users. Heavy users take more trips and gather more information about vacation travel from newspapers, magazines, books, and travel shows. Clearly, a travel agency would benefit by directing its marketing efforts toward heavy users, perhaps using telemarketing and special promotions.

Loyalty Status

A market can also be segmented by consumer loyalty. Consumers can be loyal to brands (Tide), stores (Wal-Mart), and companies (Ford). Buyers can be divided into groups according to their degree of loyalty. Some consumers are completely loyal—they buy one brand all the time. Others are somewhat loyal—they are loyal to two or three brands of a given product or favor one brand while sometimes buying others. Still other buyers show no loyalty to any brand. They either want something different each time they buy or they buy whatever's on sale.

A company can learn a lot by analyzing loyalty patterns in its market. It should start by studying its own loyal customers. Suppose Colgate finds that its loyal toothpaste buyers are more middle class, have larger families, and are more health conscious. These characteristics pinpoint the target market for Colgate. By studying its less loyal buyers, the company can detect which brands are most competitive with its own. If many Colgate buyers also buy Crest, Colgate can attempt to improve its positioning against Crest, possibly by using direct-comparison advertising. By looking at customers who are shifting away from its brand, the company can learn about its marketing weaknesses. As for nonloyals, the company may attract them by putting its brand on sale.

Using Multiple Segmentation Bases

Marketers rarely limit their segmentation analysis to only one or a few variables. Rather, they are increasingly using multiple segmentation bases in an effort to identify smaller, better-defined target groups. Thus, a bank may not only identify a group of wealthy retired adults but also, within that group, distinguish several segments depending on their current income, assets, savings and risk preferences, and lifestyles.

Companies often begin by segmenting their markets using a single base, then expand using other bases.

One of the most promising developments in multivariable segmentation is "geodemographic" segmentation. Several business information services have arisen to help marketing planners link U.S. Census data with lifestyle patterns to better segment their markets down to zip codes, neighborhoods, and even city blocks.

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 benefits sought, user status, usage rate, and loyalty status. Yet, as Table 7.3 shows, business marketers also use some additional variables, such as customer operating characteristics, purchasing approaches, situational factors, and personal characteristics. The table lists major questions that business marketers should ask in determining which customers they want to serve.

Table 7.3
Major Segmentation Variables for Business Markets

• Demographics

Industry: Which industries that buy this product should we focus on?
Company size: What size companies should we focus on?
Location: What geographical areas should we focus on?

• Operating Variables

Technology: What customer technologies should we focus on?
User–nonuser status: Should we focus on heavy, medium, or light users or nonusers?
Customer capabilities: Should we focus on customers needing many services or few services?

• Purchasing Approaches

Purchasing function organization: Should we focus on companies with highly centralized or decentralized purchasing?
Power structure: Should we focus on companies that are engineering dominated, financially dominated, or marketing dominated?
Nature of existing relationships: Should we focus on companies with which we already have strong relationships or simply go after the most desirable companies?
General purchase policies: Should we focus on companies that prefer leasing? Service contracts? Systems purchases? Sealed bidding?
Purchasing criteria: Should we focus on companies that are seeking quality? Service? Price?

• Situational Factors

Urgency: Should we focus on companies that need quick delivery or service?
Specific application: Should we focus on certain applications of our product rather than all applications?
Size of order: Should we focus on large or small orders?

• Personal Characteristics

Buyer–seller similarity: Should we focus on companies whose people and values are similar to ours?
Attitudes toward risk: Should we focus on risk-taking or risk-avoiding customers?
Loyalty: Should we focus on companies that show high loyalty to their suppliers?

Source: Adapted from Thomas V. Bonoma and Benson P. Shapiro, Segmenting the Industrial Market (Lexington, MA: Lexington Books, 1983). Also see John Berrigan and Carl Finkbeiner, Segmentation Marketing: New Methods for Capturing Business (New York: HarperBusiness, 1992).

By going after segments instead of the whole market, companies have a much better chance to deliver value to consumers and to receive maximum rewards for close attention to consumer needs.

Thus, Hewlett-Packard's Computer Systems Division targets specific industries that promise the best growth prospects, such as telecommunications and financial services. Its "red team" sales force specializes in developing and serving major customers in these targeted industries. Within the chosen industry, a company can further segment by customer size or geographic location. For example, Hewlett-Packard's "blue team" telemarkets to smaller accounts and to those that don't fit neatly into the strategically targeted industries on which HP focuses.

A company might also set up separate systems for dealing with larger or multiple-location customers. For example, Steelcase, a major producer of office furniture, first segments customers into 10 industries, including banking, insurance, and electronics. Next, company salespeople work with independent Steelcase dealers to handle smaller, local, or regional Steelcase customers in each segment. But many national, multiple-location customers, such as Exxon or IBM, have special needs that may reach beyond the scope of individual dealers. So Steelcase uses national accounts managers to help its dealer networks handle its national accounts.

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 as many as 200 countries, most international firms focus on a smaller set. Operating in many countries presents new challenges. Different countries, even those that are close together, can vary dramatically in their economic, cultural, and political makeup. Thus, just as they do within their domestic markets, international firms need to group their world markets into segments with distinct buying needs and behaviors.

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 Pacific Rim, the Middle East, or Africa. Geographic segmentation assumes that nations close to one another will have many common traits and behaviors. Although this is often the case, there are many exceptions. For example, although the United States and Canada have much in common, both differ culturally and economically from neighboring Mexico. Even within a region, consumers can differ widely. For example, many U.S. marketers think that all Central and South American countries are the same, including their 400 million inhabitants. However, the Dominican Republic is no more like Brazil than Italy is like Sweden. Many Latin Americans don't speak Spanish, including 140 million Portuguese-speaking Brazilians and the millions in other countries who speak a variety of Indian dialects.

World markets can also be segmented on the basis of economic factors. For example, countries might be grouped by population income levels or by their overall level of economic development. Some countries, such as the United States, Britain, France, Germany, Japan, Canada, Italy, and Russia, have established, highly industrialized economies. Other countries have newly industrialized or developing economies (Singapore, Taiwan, Korea, Brazil, Mexico). Still others are less developed (China, India). A company's economic structure shapes its population's product and service needs and, therefore, the marketing opportunities it offers.

Countries can be segmented by political and legal factors such as the type and stability of government, receptivity to foreign firms, monetary regulations, and the amount of bureaucracy. Such factors can play a crucial role in a company's choice of which countries to enter and how. Cultural factors can also be used, grouping markets according to common languages, religions, values and attitudes, customs, and behavioral patterns.

Segmenting international markets on the basis of geographic, economic, political, cultural, and other factors assumes that segments should consist of clusters of countries. However, many companies use a different approach called intermarket segmentation. Using this approach, they form segments of consumers who have similar needs and buying behavior even though they are located in different countries. For example, Mercedes-Benz targets the world's well-to-do, regardless of their country. MTV targets the world's teenagers. One study of more than 6,500 teenagers from 26 countries showed that teens around the world live surprisingly parallel lives. As one expert notes, "From Rio to Rochester, teens can be found enmeshed in much the same regimen: . . . drinking Coke, . . . dining on Big Macs, and surfin' the Net on their computers." The world's teens have a lot in common: They study, shop, and sleep. They are exposed to many of the same major issues: love, crime, homelessness, ecology, and working parents. In many ways, they have more in common with each other than with their parents. MTV bridges the gap between cultures, appealing to what teens around the world have in common.

Requirements for Effective 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 color 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 benefit from segmenting this market.

To be useful, market segments must be:

• Measurable: The size, purchasing power, and profiles of the segments can be measured. Certain segmentation variables are difficult to measure. For example, there are 32.5 million left-handed people in the United States—almost equaling the entire population of Canada. Yet few products are targeted toward this left-handed segment. The major problem may be that the segment is hard to identify and measure. There are no data on the demographics of lefties, and the U.S. Census Bureau does not keep track of left-handedness in its 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 finds that heavy users of its brand are single men and women who stay out late and socialize a lot. Unless this group lives or shops at certain places and is exposed to certain media, its members will be difficult to reach.
• Substantial: The market segments are large or profitable enough to serve. A segment should be the largest possible homogenous group worth pursuing with a tailored marketing program. It would not pay, for example, for an automobile manufacturer to develop cars for persons whose height is under four feet.
• 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 identified seven market segments, its staff was too small to develop separate marketing programs for each segment.