.BSLFUFSTSBSFMZMJNJUUIFJSTFHNFOUBUJPOBOBMZTJTUPPOMZPOFPSBGFXWBSJBCMFT3BUIFSUIFZ PGUFOVTFNVMUJQMFTFHNFOUBUJPOCBTFTJOBOFGGPSUUPJEFOUJGZTNBMMFSCFUUFS defi ned target groups. Several business information services—such as Nielsen, Acxiom, and Experian—
provide multivariable segmentation systems that merge geographic, demographic, life style, and behavioral data to help companies segment their markets down to zip codes, neighborhoods, and even households.
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classifies every American household based on a host of demographic factors—such as age, educational level, income, occupation, family composition, ethnicity, and hous ing—and behavioral and lifestyle factors—
TVDI BT QVSDIBTFT GSFFUJNF BDUJWJUJFT BOE NFEJB QSFGFSFODFT 13*;. DMBTTJGJFT U.S. households into 66 demographically and behaviorally distinct segments, or HBOJ[FE JOUP Ň EJGGFSFOU TPDJBM HSPVQT 13*;. TFHNFOUT DBSSZ TVDI FYPUJD OBNFT BT i,JET $VMEF4BDTu i(SBZ 1PXFSu i.BZCFSSZWJMMFu i4IPUHVOT 1JDLVQTu i0ME(MPSJFTui.VMUJ$VMUJ.PTBJDui#JH City Blues,” and “Brite Lites L’il City.” The colorful names help to bring the segments to life.
13*;. BOE PUIFS TVDI TZTUFNT DBO help marketers segment people and lo DBUJPOT JOUP NBSLFUBCMF HSPVQT PG MJLF minded consumers. Each segment has its own pattern of likes, dislikes, lifestyles, and purchase behaviors. For example, Winner’s Circle neighborhoods, part of the Elite Suburbs social group, are suburban areas popu MBUFE CZ XFMMPGG DPVQMFT CFUXFFO UIF BHFT PG BOE XJUI MBSHF GBNJMJFT JO OFX money neighborhoods. People in this segment are more likely to own a Mercedes GL Class, go jogging, shop at Neiman Marcus, and read the Wall Street Journal. In contrast, the Bedrock America TFHNFOU QBSU PG UIF 3VTUJD -JWJOH TPDJBM HSPVQ JT QPQVMBUFE CZ young, economically challenged families in small, isolated towns located throughout the nation’s heartland. People in this segment are more likely to order from Avon, buy toy cars, and read Parents Magazine.
Such segmentation provides a powerful tool for marketers of all kinds. It can help com panies identify and better understand key customer segments, reach them more effi ciently, and tailor market offerings and messages to their specifi c needs.
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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 benefi ts sought, user status, usage rate, and loyalty status. Yet, business market ers also use some additional variables, such as customer operating characteristics, purchasing approaches, situational factors, and personal characteristics.
Almost every company serves at least some business markets. For example, Starbucks has developed distinct marketing programs for each of its two business segments: the offi ce coffee and food service segments. In the offi ce coffee and vending segment, Star bucks 0GàDF$PGGFF4PMVUJPOTNBSLFUTBWBSJFUZPGXPSLQMBDFDPGGFFTFSWJDFTUPCVTJOFTTFT of any size, helping them to make Starbucks coffee and related products available to their employees in their workplaces. Starbucks helps these business customers design the best offi ce solutions involving its coffees (the Starbucks or Seattle’s Best brands), teas (Tazo), 6TJOH/JFMTFOT13*;.TZTUFNNBSLFUFSTDBOQBJOUBTVSQSJTJOHMZQSFDJTFQJDUVSF
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syrups, and branded paper products and methods of serving them—portion packs, sin gle cups, or vending. The Starbucks Foodservice division teams up with businesses and other organizations—ranging from airlines, restaurants, colleges, and hospitals to baseball TUBEJVNTUPIFMQUIFNTFSWFUIFXFMMLOPXO4UBSCVDLTCSBOEUPUIFJSPXODVTUPNFST Starbucks provides not only the coffee, tea, and paper products to its food service partners, CVUBMTPFRVJQNFOUUSBJOJOHBOENBSLFUJOHBOENFSDIBOEJTJOHTVQQPSU
.BOZDPNQBOJFTFTUBCMJTITFQBSBUFTZTUFNTGPSEFBMJOHXJUIMBSHFSPSNVMUJQMF location customers. For example, Steelcase, a major producer of offi ce furniture, fi rst divides custom ers into seven segments: biosciences, higher education, U.S. and Canadian governments, state and local governments, health care, professional services, and retail banking. Next, company salespeople work with independent Steelcase dealers to handle smaller, local, or SFHJPOBM 4UFFMDBTF DVTUPNFST JO FBDI TFHNFOU #VU NBOZ OBUJPOBM NVMUJQMF location cus tomers, such as ExxonMobil or IBM, have special needs that may reach beyond the scope of individual dealers. Therefore, Steelcase uses national account managers to help its dealer networks handle national accounts.
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Few companies have either the resources or the will to operate in all, or even most, of the DPVOUSJFTUIBUEPUUIFHMPCF"MUIPVHITPNFMBSHFDPNQBOJFTTVDIBT$PDB$PMBPS4POZ sell products in more than 200 countries, most international fi rms focus on a smaller set.
0QFSBUJOHJONBOZDPVOUSJFTQSFTFOUTOFXDIBMMFOHFT%JGGFSFOUDPVOUSJFTFWFOUIPTFUIBU are close together, can vary greatly in their economic, cultural, and political makeup. Thus, just as they do within their domestic markets, international fi rms need to group their world markets into segments with distinct buying needs and behaviors.
Companies can segment international markets using one or a combination of several variables. They can segment by geographic location, grouping countries by regions such as 8FTUFSO&VSPQFUIF1BDJàD3JNUIF.JEEMF&BTUPS"GSJDB(FPHSBQIJDTFHNFOUBUJPOBT sumes that nations close to one another will have many common traits and behaviors. Al though this is often the case, there are many exceptions. For example, some U.S. marketers MVNQBMM$FOUSBMBOE4PVUI"NFSJDBODPVOUSJFTUPHFUIFS)PXFWFSUIF%PNJOJDBO3FQVC lic is no more like Brazil than Italy is like Sweden. Many Central and South Americans don’t FWFOTQFBL4QBOJTIJODMVEJOHNPSFUIBONJMMJPO1PSUVHVFTFTQFBLJOH#SB[JMJBOTBOE the millions in other countries who speak a variety of Indian dialects.
World markets can also be segmented based on economic factors. Countries might be grouped by population income levels or by their overall level of economic development.
"Ň DPVOUSZT FDPOPNJD TUSVDUVSF TIBQFT JUT QPQVMBUJPOT QSPEVDU BOE TFSWJDF OFFET BOE therefore, the marketing opportunities it offers. For example, many companies are now UBSHFUJOH UIF #3*$ DPVOUSJFT#SB[JM 3VTTJB *OEJB BOE $IJOBXIJDI BSF GBTUHSPXJOH developing economies with rapidly increasing buying power.
Countries can also be segmented by political and legal factors such as the type and sta bility of government, receptivity to foreign fi rms, monetary regulations, and amount of bureaucracy. Cultural factors can also be used, grouping markets according to common lan guages, religions, values and attitudes, customs, and behavioral patterns.
Segmenting international markets based on geographic, economic, political, cul tural, and other factors presumes that segments should consist of clusters of countries.
However, as new communications technologies, such as satellite TV and the Inter net, connect consumers around the world, marketers can defi ne and reach segments PGMJLFNJOEFEDPOTVNFSTOPNBUUFSXIFSFJOUIFXPSMEUIFZBSF6TJOHintermarket segmentation (also called DSPTTNBSLFU TFHNFOUBUJPO), they form segments of consumers who have similar needs and buying behaviors even though they are located in different countries.
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regardless of their country. 3FUBJMFS).UBSHFUTGBTIJPODPOTDJPVTCVUGSVHBMTIPQQFST JODPVOUSJFTXJUIJUTMPXQSJDFEUSFOEZBQQBSFMBOEBDDFTTPSJFT"OE$PDB$PMBDSFBUFT special programs to target teens, core consumers of its soft drinks the world over. By 2020, POFUIJSE PG UIF XPSMET QPQVMBUJPOTPNF CJMMJPO QFPQMFXJMM CF VOEFS ZFBST PG BHF5PSFBDIUIJTJNQPSUBOUHMPCBMTFHNFOU$PDB$PMBSFDFOUMZMBVODIFEUIF$PDB$PMB .VTJDDBNQBJHOJONPSFUIBONBSLFUT
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The campaign opened with “24hr Session,” in which singing group Maroon 5 holed up in a London studio for ŇIPVSTUPDSFBUFBOFXPSJHJOBMTPOH:PVOHDPOTVNFST worldwide attended the studio session virtually, sharing UIFJS JEFBT GPS MZSJDT BOE SIZUINT $PDB$PMB FYUFOEFE these efforts to engage the world’s teens with a “Move to UIF #FBUu DBNQBJHO DFOUFSFE PO UIF -POEPO 0MZN pics, inspired by the sounds, spirit, and culture of the host city. “The number one passion point for teens is music,”
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$PMBT$&0i0VSTVDDFTTUPEBZEFQFOETPOPVSBCJM ity to grow and connect with teens, the generation of tomorrow.”
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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 blonde 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 benefi t from segmenting this market.
To be useful, market segments must be
r Measurable: The size, purchasing power, and profi les of the segments can be mea sured.
r Accessible: The market segments can be effectively reached and served.
r Substantial: The market segments are large or profi table enough to serve. A segment should be the largest possible homogeneous group worth pursuing with a tailored marketing program. It would not pay, for example, for an automobile manufacturer to develop cars especially for people whose height is greater than seven feet.
r Differentiable: The segments are conceptually distinguishable and respond differently to different marketing mix elements and programs. If men and women respond simi larly to marketing efforts for soft drinks, they do not constitute separate segments.
r Actionable: Effective programs can be designed for attracting and serving the segments.
For example, although one small airline identifi ed seven market segments, its staff was too small to develop separate marketing programs for each segment.
Market Targeting
Market segmentation reveals the fi rm’s market segment opportunities. The fi rm now has to evaluate the various segments and decide how many and which segments it can serve best.
We now look at how companies evaluate and select target segments.
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In evaluating different market segments, a fi rm must look at three factors: segment size and growth, segment structural attractiveness, and company objectives and resources. First, a company wants to select segments that have the right size and growth characteristics. But iSJHIUTJ[FBOEHSPXUIuJTBSFMBUJWFNBUUFS5IFMBSHFTUGBTUFTUHSPXJOHTFHNFOUTBSFOPU always the most attractive ones for every company. Smaller companies may lack the skills BOESFTPVSDFTOFFEFEUPTFSWFMBSHFSTFHNFOUT0SUIFZNBZàOEUIFTFTFHNFOUTUPPDPN petitive. Such companies may target segments that are smaller and less attractive, in an absolute sense, but that are potentially more profi table for them.
5IFDPNQBOZBMTPOFFETUPFYBNJOFNBKPSTUSVDUVSBMGBDUPSTUIBUBGGFDUMPOHSVOTFH ment attractiveness. For example, a segment is less attractive if it already contains many
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Objective 3
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strong and aggressive competitors or if it is easy for new entrants to come into the segment.
The existence of many actual or potential substitute products may limit prices and the profi ts that can be earned in a segment. The relative power of buyers also affects segment attractiveness. Buyers with strong bargaining power relative to sellers will try to force prices down, demand more services, and set competitors against one another—all at the expense of seller profi tability. Finally, a segment may be less attractive if it contains pow erful suppliersUIBUDBODPOUSPMQSJDFTPSSFEVDFUIFRVBMJUZPSRVBOUJUZPGPSEFSFEHPPET and services.
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 DBOCFEJTNJTTFERVJDLMZCFDBVTFUIFZEPOPUNFTIXJUIUIFDPNQBOZTMPOHSVOPC KFDUJWFT 0S UIF DPNQBOZ NBZ MBDL UIF TLJMMT BOE SFTPVSDFT OFFEFE UP TVDDFFE JO BO attractive segment. For example, the economy segment of the automobile market is large and growing. But given its objectives and resources, it would make little sense GPSMVYVSZQFSGPSNBODFDBSNBLFS#.8UPFOUFSUIJTTFHNFOU"DPNQBOZTIPVMEPOMZ enter segments in which it can create superior customer value and gain advantages over its competitors.