Customer Value–Driven

Marketing Strategy
Creating Value for Target Customers
Course: Principles of Marketing
Marketing Strategy
Figure 7.1 shows the four major steps in designing a customer value–driven marketing strategy. In the
first two steps, the company selects the customers that it will serve.

• Market segmentation: Dividing a market into distinct groups of buyers who have different needs,
characteristics, or behaviors and who might require separate marketing strategies or mixes.

• Market targeting (targeting): Evaluating each market segment’s attractiveness and selecting one
or more segments to serve.
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In the final two steps, the company decides on a value proposition—how it will create value for target
customers.

• Differentiation: Designing the market offering to create superior customer value that is distinct
from that offered by competitors.

• Positioning: Creating a clear, distinctive, and desirable place for a marketing offer relative to
competing products in the minds of target consumers.
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Market Segmentation
Segmenting Consumer Markets:
Table 7.1 outlines bases that might be used in segmenting consumer markets.
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Geographic Segmentation:

Geographic segmentation calls for dividing the market into different geographical units, such as
nations, regions, states, counties, cities, or even neighborhoods. A company may decide to operate in
one or a few geographically similar areas. Or it may operate in all areas but adjust for geographical
differences in needs and wants. Companies are increasingly localizing their products, services,
advertising, promotion, and sales efforts to fit the needs of individual regions, cities, and localities.
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Demographic Segmentation

Demographic segmentation divides the market into segments based on variables such as age, life-cycle
stage, gender, income, occupation, education, religion, ethnicity, and generation. Demographic factors
are the most popular bases for segmenting customer groups. One reason is that consumer needs,
wants, and usage rates often vary strongly with demographic variables. Another is that demographic
variables are easier to measure than other useful segmentation variables.

• Age and Life-Cycle Stage. Consumer needs and wants change with age. Some companies use age
and life-cycle segmentation, offering different products or using different marketing approaches for
different age and life-cycle groups.
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• Gender and Gender Identity. Gender segmentation has long been used in marketing clothing,
cosmetics, toiletries, toys, and magazines.

• Income. The marketers of products and services such as automobiles, clothing, cosmetics, financial
services, and travel have long used income segmentation. Many companies target affluent
consumers with luxury goods and convenience services.
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Psychographic Segmentation

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

Behavioral Segmentation

Behavioral segmentation divides buyers into segments based on their knowledge, attitudes, uses, or
responses to a product.

• Occasions. Buyers can be grouped according to occasions when they get the idea to buy, actually
make their purchases, or use the purchased items.
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• Benefits Sought. A powerful form of segmentation is grouping buyers according to the different
benefits that they seek from a product. Benefit segmentation requires finding the major benefits
people look for in a product class, the kinds of people who look for each benefit, and the major
brands that deliver each benefit.

• User Status. Markets can be segmented into nonusers, ex-users, potential users, first-time users,
and regular users of a product. Marketers want to reinforce and retain regular users, attract targeted
nonusers, and reinvigorate relationships with ex-users. Included in the potential user groups are
consumers facing life-stage changes—such as new parents and newlyweds—who can be turned into
heavy users.
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• 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.

• Loyalty Status. A market can also be segmented by consumer loyalty. Buyers can be divided into
groups according to their degree of loyalty. Some consumers are completely loyal—they buy one
brand all the time and can’t wait to tell others about it. Other consumers 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.
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 business marketers also use some additional
variables, such as customer operating characteristics, purchasing approaches, situational factors, and
personal characteristics.
Requirements for Effective Segmentation
Clearly, there are many ways to segment a market, but not all segmentations are effective.

To be useful, market segments must be

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

• Accessible. The market segments can be effectively reached and served.

• Substantial. The market segments are large or profitable enough to serve. A segment should be the
largest possible homogeneous group worth pursuing with a tailored marketing program. It would
not pay, for example, for an automobile manufacturer to develop cars especially for people whose
height is greater than seven feet.
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• Differentiable. The segments are conceptually distinguishable and respond differently to different
marketing mix elements and programs. If men and women respond similarly to marketing efforts
for soft drinks, 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.
Market Targeting
Evaluating Market Segments
In evaluating different market segments, a firm must look at three factors:

• First, a company wants to select segments that have the right size and growth characteristics.

• The company also needs to examine major structural factors that affect long-run segment
attractiveness.

• Even if a segment has the right size and growth and is structurally attractive, the company must
consider its own objectives and resources. Some attractive segments can be dismissed quickly
because they do not mesh with the company’s long-run objectives. Or the company may lack the
skills and resources needed to succeed in an attractive segment.
Selecting Target Market Segments
Market targeting can be carried out at several different levels. Figure 7.2 shows that companies can
target very broadly (undifferentiated marketing), very narrowly (micromarketing), or somewhere in
between (differentiated or concentrated marketing).
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Undifferentiated Marketing:

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

• Difficulties arise in developing a product or brand that will satisfy all consumers. Moreover, mass
marketers often have trouble competing with more focused firms that do a better job of satisfying
the needs of specific segments and niches. Finally, new digital technologies let marketers “have
their cake and eat it too,” targeting large numbers of consumers with more individually tailored
marketing offers and messages.
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Differentiated Marketing:

• Using a differentiated marketing (or segmented marketing ) strategy, a firm targets several market
segments and designs separate offers for each.

• By offering product and marketing variations to segments, companies hope for higher sales and a
stronger position within each market segment. Developing a stronger position within several
segments creates more total sales than undifferentiated marketing across all segments.

• But differentiated marketing also increases the costs of doing business. Developing separate
marketing plans for separate segments requires extra marketing research, forecasting, sales analysis,
promotion planning, and channel management. Trying to reach different market segments with
different advertising campaigns increases promotion costs.
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Concentrated Marketing:

• When using a concentrated marketing (or niche marketing) strategy, instead of going after a small share
of a large market, a firm goes after a larger share of one or a few smaller segments or niches.

• Through concentrated marketing, the company achieves a strong market position because of its greater
knowledge of consumer needs in the niches it serves and the special reputation it acquires. It can market
more effectively by fine-tuning its products, prices, and programs to the needs of carefully defined
segments. It can also market more efficiently, targeting its products or services, channels, and
communications programs toward only consumers that it can serve best and most profitably.

• Companies that rely on one or a few segments for all of their business will suffer greatly if the segment
turns sour. Or larger competitors, threatened by successful nichers, may decide to enter the same
segment with greater resources.
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Micromarketing

Micromarketing is the practice of tailoring products and marketing programs to suit the tastes of
specific individuals and local customer segments. Rather than seeing a customer in every individual,
micromarketers see the individual in every customer. Micromarketing includes local marketing and
individual marketing.

• Local Marketing: Tailoring brands and marketing to the needs and wants of local customer
segments—cities, neighborhoods, and even specific stores.

• Individual Marketing: Tailoring products and marketing programs to the needs and preferences of
individual customers. Individual marketing has also been labeled one-to-one marketing, mass
customization, and markets-of-one marketing.
Choosing a Differentiation and Positioning Strategy
Which Differences to Promote:

Not all brand differences are meaningful or worthwhile, and each difference has the potential to create
company costs as well as customer benefits. A difference is worth establishing to the extent that it
satisfies the following criteria:

• Important. The difference delivers a highly valued benefit to target buyers.

• Distinctive. Competitors do not offer the difference, or the company can offer it in a more
distinctive way.

• Superior. The difference is superior to other ways that customers might obtain the same benefit.
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• Communicable. The difference is communicable and visible to buyers.

• Preemptive. Competitors cannot easily copy the difference.

• Affordable. Buyers can afford to pay for the difference.

• Profitable. The company can introduce the difference profitably.

The full positioning of a brand is called the brand’s value proposition—the full mix of benefits on
which a brand is differentiated and positioned. Figure 7.4 shows possible value propositions on which
a company might position its products. In the figure, the five green cells on the top and right represent
winning value propositions—differentiation and positioning that give the company a competitive
advantage. The red cells at the lower left, however, represent losing value propositions. The center cell
represents at best a marginal proposition.
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In the following sections, we discuss the five winning value propositions:

• More for More. More-for-more positioning involves providing the most upscale product or service
and charging a higher price to cover the higher costs. A more-for-more market offering not only
offers higher quality, it also gives prestige to the buyer. It symbolizes status and a loftier lifestyle.

• More for the Same. A company can attack a competitor’s value proposition by positioning its
brand as offering more for the same price.
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• The Same for Less. Offering the same for less can be a powerful value proposition—everyone likes
a good deal. Discount stores such as Walmart and “category killers” such as Costco use this
positioning. They don’t claim to offer different or better products. Instead, they offer many of the
same brands as department stores and specialty stores but at deep discounts based on superior
purchasing power and lower-cost operations. Other companies develop imitative but lower-priced
brands in an effort to lure customers away from the market leader.

• Less for Much Less. A market almost always exists for products that offer less and therefore cost
less. Few people need, want, or can afford “the very best” in everything they buy. In many cases,
consumers will gladly settle for less-than-optimal performance or give up some of the bells and
whistles in exchange for a lower price. Less-for-much-less positioning involves meeting consumers’
lower performance or quality requirements at a much lower price.
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• More for Less. Of course, the winning value proposition would be to offer more for less. Many
companies claim to do this. And, in the short run, some companies can actually achieve such lofty
positions. For example, when it first opened for business, Home Depot had arguably the best
product selection, the best service, and the lowest prices compared with local hardware stores and
other home-improvement chains.