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Chapter 7 CUSTOMER-DRIVEN MARKETING STRATEGY: CREATING VALUE FOR TARGET CUSTOMERSMARKETING STARTER: CHAPTER 7 Dunkin’ Donuts: Targeting the Average Joe Synopsis Dunkin’ Donuts is rapidly expanding into a national coffee powerhouse on par with Starbucks, the nation’s largest coffee chain. Its research has confirmed a simple fact: Dunkin’ is not Starbucks. To succeed, Dunkin’ must have its own clear vision of just which customers it wants to serve and how to serve them. Dunkin’ and Starbucks target very different customers, who want very different things. Dunkin’ Donuts built itself on serving simple fare at a reasonable price to working-class customers. To broaden its appeal and fuel expansion, the chain has recently been spiffing up its stores and adding new menu items. However, as it inches upscale, Dunkin’ Donuts is being careful not to alienate its traditional customer base. Dunkin’ Donuts’ research has shown that although loyal customers want nicer stores, they are bewildered and turned off by the atmo sphere at Starbucks. And they can’t understand why anyone would pay so much for a cup of coffee. The Starbucks customers that Dunkin’ studied were equally uneasy in Dunkin’ shops. In refreshing its positioning, Dunkin’ Donuts has stayed true to the needs a nd preferences of the Dunkin’ tribe. Dunkin’ Donuts’ positioning and value proposition are pretty well summed up in its popular ad slogan ―America Runs on Dunkin’.‖ Discussion Objective A focused discussion of the chapter-opening Dunkin’ Donuts story will illustrate the basics of segmentation, targeting, differentiation, and positioning. Dunkin’ knows that it can’t make all of its customers happy all the time. Instead, it has segmented its market carefully and concentrates on serving its best customers better. The discussion should emphasize that Dunkin’ Donuts not only knows which customers it wants— it also knows which customers it doesn’t want. Once it identified its best target segments, Dunkin’ updated its stores, menu offerings and other marketing mix elements that position it strongly among these customers. Starting the Discussion To get a feel for the ―Dunkin’ Tribe‖ and how Dunkin’ Donuts targets them, show several of the many ―America Runs on Dunkin’‖ YouTube videos and relate them to company’s different customer segments. What do students notice about the store settings, product choices, customers and customer preferences depicted in the videos? Which key messages clearly stand out in each segment? What makes members of the ―Dunkin’ Tribe‖ so diff erent from the ―Starbucks Tribe?‖ You should also spend time discussing how Dunkin’ Donuts works to give ―tribe‖ members exactly what they want. Discussion Questions 1. How would you describe Dunkin’s Donuts’ approach to market segmentation? (As with most marketers, Dunkin’ Donuts uses a combination of different segmentation variables. Discuss how the company might draw upon geographic, demographic, psychographic, and behavioral variables in determining its market structure. Ask students to provide some examples of each type. As a class, try to determine which variables appear to be most important to Dunkin’ in targeting the ―Average Joe.‖) Picture a typical member of the ―Dunkin’ Tribe.‖ How does he/she dress? In what type of neighborhood does he/she live? What kind of job might he/she have? What kind of vehicle does he/she drive? What might be his/her attitude toward spending money? Now, do the same thing for a typical member of the ―Starbucks Tribe.‖ What key differences can you find, and how are they important to Dunkin’ Donuts? (Answers will vary. However, it should be clear that Dunkin’ Donuts customers tend to be ―Average Joes‖ – working men and women who want to be part of a crowd. They want fresh, tasty food and beverages for their money without all of the frills. Broadly speaking, Starbucks’ customers tend to view themselves as upwardly mobile individuals who spend money at Starbucks because they can afford it. They enjoy the couches, 2. Copyright©2014 Pearson Education eclectic music, and art-splashed walls. To Dunkin’ Donuts, these differences are profound, and powerfully shape its market segmentation strategy.) 3. How does the chapter-opening Dunkin’ Donuts story relate to the segmentation and positioning concepts that follow in Chapter 7? (Dunkin’ knows that it can’t serve kind every customer, or every customer in the same way. Instead, it succeeds by segmenting its market, targeting the best segments, and differentiating and positioning itself to best serve the needs of target consumers. That’s pretty much what this chapter is all about.) CHAPTER OVERVIEW Use Power Point Slide 7-1 Here This chapter looks further into key customer-driven marketing strategy decisions—how to divide up markets into meaningful customer groups (segmentation), choose which customer groups to serve (targeting), create market offerings that best serve targeted customers (differentiation), and position the offerings in the minds of consumers (positioning). Then, the chapters that follow explore the tactical marketing tools—the Four Ps—by which marketers bring these strategies to life. CHAPTER OBJECTIVES Use Power Point Slide 7-2 Here 1. Define the four major steps in designing a customer-driven marketing strategy: market segmentation, market targeting, differentiation, and positioning. 2. List and discuss the major bases for segmenting consumer and business markets. 3. Explain how companies identify attractive market segments and choose a market targeting strategy. 4. Discuss how companies differentiate and position their products for maximum competitive advantage. Copyright©2014 Pearson Education ―America Runs on Dunkin’. 190 INTRODUCTION Dunkin’ Donuts is rapidly expanding into a national coffee powerhouse on par with Starbucks. Do you think you fall into the Dunkin’ Tribe or the Starbucks’ Tribe? Explain. 192 Key Terms: Market Figure 7. and how is it central to Dunkin’s segmentation strategy? 3. characteristics. Dunkin’ Donuts has stayed true to the needs and preferences of the Dunkin’ tribe. 2. 192 Most companies have moved away from mass marketing Objective 1 and toward target marketing—identifying market segments. Recall the slogan. To succeed.1 shows the four major steps in designing a Segmentation. 191 Ad: Dunkin’Donuts vs. Market Targeting (Targeting). and developing products and marketing programs tailored to each. who want very different things. Dunkin’ must have its own clear vision of just which customers it wants to serve and how to serve them.  Opening Vignette Questions 1.CHAPTER OUTLINE p. In refreshing its positioning. Market segmentation involves dividing a market into Differentiation. Consider yourself as a coffee and pastry consumer. Dunkin’ and Starbucks target very different customers. Dunkin’ Donuts’ research has shown that although loyal customers want nicer stores. selecting one or more of them. Think of another company that sells a product or service you enjoy. the nation’s largest coffee chain. smaller groups of buyers with distinct needs. p. they are bewildered and turned off by the atmosphere at Starbucks. Its research has confirmed a simple fact: Dunkin’ is not Starbucks. customer-driven marketing strategy. What are some possible ways that company might separate the angels from the demons in their market segment? p. Positioning or behaviors that might require separate marketing strategies or mixes.‖ What does it mean. Starbucks PPT 7-3 PPT 7-4 Copyright©2014 Pearson Education . P. Resources Use Discussion Question 1 here Use Think-Pair-Share 1 here Use Web Resource 1 here p. Geographic Segmentation.  Segmenting consumer markets  Segmenting business markets  Segmenting international markets  Requirements for effective segmentation Objective 2 p.  Assignments. Age into different geographical units such as nations. 192 Segmenting Consumer Markets using Geographic Table 7. cities. counties. heterogeneous markets into smaller segments that can be reached more efficiently and effectively with products and services that match their unique needs. Segmentation Psychographic segmentation. 193 Figure 7. 194: Domino’s Pizza PPT 7-7 PPT 7-8 Demographic Segmentation Demographic segmentation divides the market into Copyright©2014 Pearson Education . and Behavioral Variables for Consumer Markets segmentation Table 7. and desirable place relative to competing products in the minds of target consumers. 193 PPT 7-6 p. or even neighborhoods. Differentiation involves actually differentiating the firm’s market offering to create superior customer value. Positioning consists of arranging for a market offering to occupy a clear. 193 PPT 7-5 MARKET SEGMENTATION Through market segmentation. companies divide large.1 outlines the major variables that might be used in p. and Life-Cycle Segmentation states. Geographic Segmentation Demographic Geographic segmentation calls for dividing the market Segmentation. 193-194 Key Terms: segmenting consumer markets.1 Designing a Customer-Driven Marketing Strategy p. 191 Photo: Walmart p. p.1: Major segmentation. distinctive. regions.Market targeting (or targeting) consists of evaluating each market segment’s attractiveness and selecting one or more market segments to enter. Demographic segmentation. 194 Age and Life-Cycle Stage means offering different Ad: Kia Soul products or using different marketing approaches for different age and life-cycle groups. Psychographic Psychographic Segmentation Segmentation Psychographic segmentation divides buyers into different groups based on social class. and travel. Usage Rate means grouping markets into light. 195-196 Key Terms: Income clothing. Segmentation. Income segmentation has long been used by the marketers of products and services such as automobiles. and regular users of a product. 196 Ad: VF Corporation Marketers also use personality variables to segment markets. or personality characteristics. p. generation. medium. exusers. religion. 195 Photo: Mënaji cosmetics. family life cycle. occupation. lifestyle. and nationality. cosmetics. or responses to a Behavioral product. Gender segmentation has long been used in clothing. toiletries. financial services. gender. User Status means segmenting markets into nonusers. p. first-time users. attitudes. or use the purchased item. uses. and magazines. p. family size. and heavy product users. income. Segmentation. Segmentation Benefit segmentation means grouping buyers according to the different benefits that they seek from the product. education. 198 Behavioral segmentation divides buyers into groups Key Terms: based on their knowledge. p. p. according to occasions when they get the idea to buy. potential users. race.PPT 7-9 groups based on variables such as age. PPT 7-10 PPT 7-11 Copyright©2014 Pearson Education . Behavioral Segmentation p. 193 Key Term: Gender Demographic factors are the most popular bases for Segmentation segmenting customer groups. Benefit actually make their purchase. Occasion Occasion segmentation means grouping buyers Segmentation. 200 PPT 7-15 Intermarket segmentation is segmenting of consumers p. 202 who have similar needs and buying behavior even though Ad: H&M Tokyo they are located in different countries. such as customer operating characteristics. p. 201 Key Term: Intermarket Copyright©2014 Pearson Education .   p. situational factors. p. purchasing approaches. religions. values and attitudes. or by their overall level of economic development. and behavioral patterns.Loyalty Status means dividing buyers into groups according to their degree of loyalty. Segmenting International Markets Companies can segment international markets using one or a combination of several variables. monetary regulations. Business marketers also use some additional variables. 199 Ad: Apple p. receptivity to foreign firms. and the amount of bureaucracy. 200 every American household based on a host of demographic Photo: Nielsen’s factors. Cultural factors: Grouping markets according to common languages. PRIZM Segmenting Business Markets Consumer and business marketers use many of the same variables to segment their markets. Political and legal factors: Type and stability of government. 201 PPT 7-14   Geographic location: Nations close to one another will have many common traits and behaviors. Using Multiple Segmentation Bases Marketers rarely limit their segmentation analysis to only one or a few variables. 200 PPT 7-12 PPT 7-13 p. customs. PRIZM is a leading segmentation systems that classifies p. and personal characteristics. Economic factors: Countries may be grouped by population income levels. Resources Use Discussion Questions 2 and 3 here Use Critical Thinking Exercise 1 here Use Marketing Technology here Use Additional Projects 1. Accessible: The market segments can be effectively reached and served. and profiles of the segments can be measured. and 4 here Use Outside Example 1 here p. purchasing power. 202 PPT 7-16 Requirements for Effective Segmentation To be useful. market segments must be: p.   Assignments. Breaking down a market. and 4 here Troubleshooting Tip  Understanding the concept of a market segment can be difficult for students. and then breaking the box down into separate sections to represent pieces of a larger market. p. as can drawing a big box on the board. 200     Measurable: The size.Segmentation  Assignments. Substantial: The market segments are large or profitable enough to serve. 3. 3. Actionable: Effective programs can be designed for attracting and serving the segments. Resources Use Critical Thinking Exercise 2 here Use Individual Assignment 1 here Use Think-Pair-Share 2. 202 PPT 7-17 MARKET TARGETING Objective 3 Copyright©2014 Pearson Education . such as their own university. Differentiable: The segments are conceptually distinguishable and respond differently to different marketing mix elements and programs. 2 and 3 here Use Small Group Assignment 1 here Use Outside Example 2 here Use Web Resource 2. into separate groups can help tremendously. The existence of many actual or potential substitute products may limit prices and the profits. Segment structural attractiveness 3.2: Undifferentiated Marketing Marketing Using an undifferentiated marketing (or mass. 202 Evaluating Market Segments In evaluating different market segments. Undifferentiated Selecting Target Market Segments (Mass) Marketing A target market consists of a set of buyers who share common needs or characteristics that the company decides to serve. Market. 203 Key Terms: Target suppliers who can control prices.    A segment is less attractive if it already contains many strong and aggressive competitors. . (Segmented) Marketing Differentiated Marketing Using a differentiated marketing (or segmented p. 203 This mass-marketing strategy focuses on what is common in Key Term: Differentiated the needs of consumers rather than on what is different. PPT 7-18 PPT 7-19 PPT 7-20 A segment may be less attractive if it contains powerful p. a firm might decide to ignore market segment differences and target the whole market with one offer. 204 Copyright©2014 Pearson Education . p. a firm must look at three factors: 1. The relative power of buyers also affects segment attractiveness.p. Company objectives and resources The largest.Targeting Strategies marketing) strategy. p. Segment size and growth 2. The company also needs to examine major structural factors that affect long-run segment attractiveness. 203 Figure 7. fastest-growing segments are not always the most attractive ones for every company. 205 Photos: Nike individual customers. Local marketing involves tailoring brands and promotions to the needs and wants of local customer groups—cities. and programs to the needs of carefully defined ModCloth. and markets-of-one marketing. Choosing a Targeting Strategy  PPT 7-22 PPT 7-23 PPT 7-24 Copyright©2014 Pearson Education . neighborhoods. Photo: Local Micromarketing includes local marketing and individual Marketing marketing. Local marketing has drawbacks. It can market more efficiently. only consumers that it can serve best and most profitably. 205 services. It can drive up manufacturing and marketing costs p. 205 It can market more effectively by fine-tuning its products. p. Marketing Individual marketing is the tailoring of products and marketing programs to the needs and preferences of p. targeting its products or p. 208 by reducing economies of scale. Concentrated Marketing p. and even specific stores. channels. 204 Using a concentrated marketing (or niche marketing) Key Term: strategy. mass customization.com segments. and communications programs toward Key Terms: Micromarketing. 205 and locations. instead of going after a small share of a large Concentrated market. Individual marketing has also been labeled one-to-one marketing. Local Marketing Micromarketing Micromarketing is the practice of tailoring products and marketing programs to suit the tastes of specific individuals p. Key Term: Individual  It can create logistics problems.PPT 7-21 marketing) strategy. the firm goes after a large share of one or a few (Niche) Marketing smaller segments or niches. Web Site: prices. a firm decides to target several market Photo: Hallmark segments and designs separate offers for each. 1 here Use Discussion Questions 4 here Use Small Group Assignment 2 here Use Individual Assignment 2 here Troubleshooting Tip  It may also be difficult for students to understand the concept that there is no one. 209 or disadvantaged consumers with controversial or Photo: Barbie potentially harmful products. Bic could very well look at lifestyle or even age. occasion (such as graduations). Problems arise when marketing adult products to kids. not understanding that the concept is much broader than that. Issues usually involve the targeting of vulnerable p. The issue is not so much who is targeted. but how and for Copyright©2014 Pearson Education .PPT 7-25 Which strategy is best depends on:      Company resources Product variability Product’s life-cycle stage Market variability Competitors’ marketing strategies  Assignments. and lifestyle that a pen manufacturer could study to determine effective segments. 209 PPT 7-26 Socially Responsible Target Marketing Target marketing sometimes generates controversy and concern. Marketers of a wide range of industries have been criticized for their marketing efforts directed toward children. The growth of the Internet and other carefully targeted direct media has raised new concerns about potential targeting abuses. whether intentionally or unintentionally. Although Mont Blanc might segment based on income and occasion factors. you can point out the various segmentation variables. p. Students will often point out that companies segment on a single variable frequently. single way to segment a market. such as income. Resources Use Real Marketing 7. Using a simple pen as an example. Selecting an overall positioning strategy Advantage Identifying Possible Value Differences and Competitive Advantages To the extent that a company can differentiate and position itself as providing superior customer value. it gains competitive advantage. 212 It can differentiate along the lines of product. 211 of their brands versus competing products on important Figure 7. people. Identifying a set of differentiating competitive p. p.  Assignments. Resources Use Marketing Ethics here p. Controversies arise when marketers attempt to profit by unfairly targeting vulnerable segments or target them with questionable products or tactics. 210 DIFFERENTIATION AND POSITIONING Objective 4 PPT 7-27 Value proposition: How a company will create differentiated value for targeted segments and what positions it wants to occupy in those segments. 210 Key Term: Product A product position is the way the product is defined by Position consumers on important attributes.3: Positioning Map buying dimensions. Positioning Maps Perceptual positioning maps show consumer perceptions p. 210 PPT 7-28 PPT 7-29 Choosing a Differentiation and Positioning Strategy The differentiation and positioning task consists of three steps: 1. Socially responsible marketing calls for segmentation and targeting that serve not just the interests of the company.what. service. Choosing the right competitive advantages Competitive 3. or image. Airlines Copyright©2014 Pearson Education . 212 Ad: Singapore channel. PPT 7-30 p. but also the interests of those targeted. 210 advantages upon which to build a position Key Term: 2. p. p. Profitable: The company can introduce the difference profitably. The Same for Less positioning can be a powerful value proposition—everyone likes a good deal. Superior: The difference is superior to other ways that customers might obtain the same benefit. Copyright©2014 Pearson Education . 213 PPT 7-32 Which Differences to Promote 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. 215 upscale product or service and charging a higher price to Figure 7.4: Possible cover the higher costs. PPT 7-33 p. (see Figure 7. Affordable: Buyers can afford to pay for the difference. Communicable: The difference is communicable and visible to buyers.PPT 7-31 Choosing the Right Competitive Advantages How Many Differences to Promote p. p. or the company can offer it in a more distinctive way. 213 Ad man Rosser Reeves believes a company should develop Ad: Gatorade a unique selling proposition (USP) for each brand and stick to it. Distinctive: Competitors do not offer the difference. Value Propositions More for the Same positioning involves introducing a brand offering comparable quality but at a lower price. 214 Selecting an Overall Positioning Strategy p. Other marketers think that companies should position themselves on more than one differentiator. Preemptive: Competitors cannot easily copy the difference. 214 Key Term: Value The full positioning of a brand is called the brand’s value Proposition proposition.4) More for More positioning involves providing the most p. companies will find it very difficult to sustain such best-of-both positioning. This involves meeting p. Key Term: Positioning The statement should follow the form: To (target segment Statement and need) our (brand) is (concept) that (point of difference). How does market segmentation differ from market targeting? (AACSB: Communication) Copyright©2014 Pearson Education . 216 PPT 7-34 Company and brand positioning should be summed up in a p. 215 Less for Much Less positioning is offering products that offer less and therefore cost less. 216 positioning statement. the company must take strong steps to deliver and communicate the desired position to target consumers. In the long run. Communicating and Delivering the Chosen Position Once it has chosen a position. 216 Ad: Evernote p. Resources Use Real Marketing 7. 214 consumers’ lower performance or quality requirements at a Photo: Hearts on much lower price.2 here Use Discussion Questions 5 and 6 here Use Company Case here Use Critical Thinking Exercise 3 here Use Marketing by the Numbers here Use Additional Project 4 here Use Video Case here END OF CHAPTER MATERIAL Discussion Questions 1. PPT 7-35  Assignments. Developing a Positioning Statement p. Fire More for Less positioning is the winning value proposition. All the company’s marketing mix efforts must support the positioning strategy.p. characteristics. actually make their purchase. Demographic segmentation divides the market into groups based on variables such as age. so Starbucks in not targeting every consumer. attitudes. and nationality. Starbucks Coffee uses a combination of geographic. family life cycle. counties. (2) the benefits people look for in the product class. states. income. or use the purchased item. Psychographic segmentation divides buyers into different groups based on social class. Buyers can be grouped according to (1) occasions when they get the idea to buy. generation. and (5) loyalty status. Geographic segmentation calls for dividing the market into different geographical units such as nations. 2. Market targeting (or targeting) consists of evaluating each market segment’s attractiveness and selecting one or more market segments to enter. or responses to a product. Behavioral segmentation divides buyers into groups based on their knowledge. demographic. uses. behavioral. Behavioral segmentation is being used as well. listen to and purchase trendy music. and satisfy cultural interests. Psychographic segmentation is being used as well. (3) user status (nonusers.Answer: Market segmentation involves dividing a market into smaller groups of buyers with distinct needs. Name and describe the four major sets of variables that might be used in segmenting consumer markets. psychographic. by offering variety in different coffee drinks as well as rewarding loyalty with its new loyalty program. or even neighborhoods. medium. or behaviors that might require separate marketing strategies or mixes. and regular users of a product). family size. Reflective Thinking) Answer: Consumer markets are typically segmented using four major variables: geographic. by which Copyright©2014 Pearson Education . encouraging customers to hang around the neighborhood barista. and behavioral variables. or personality characteristics. regions. The company identifies different ways to segment the market and develops profiles of the resulting market segments. potential users. ex-users. gender. firsttime users. (4) usage rate (light. race. and heavy product users). Which segmenting variables does Starbucks use? (AACSB: Communication. People in the same demographic group can have very different psychographic makeups. and psychographic segmentation. demographic. such as environmentalism and movies that are often promoted through Starbucks outlets. cities. occupation. lifestyle. religion. education. It started primary in urban locations (in some cases locating two or more outlets within sight of each other) but now has expanded into suburbs as well. Paying $3 or more for a cup of coffee is beyond many consumers’ means. 000 ways to ―configure a HarleyDavidson motorcycle to create your own masterpiece—a truly one-of-a-kind ride. monetary regulations. the Middle East. 4. a firm decides to target several market segments and designs separate offers for each. Explain how companies segment international markets. Segmenting international markets based on geographic. Rather than seeing a customer in every individual. Countries might be grouped by population income levels or by their overall level of economic development. or Africa. Using a concentrated marketing (or niche marketing) strategy. micromarketers see the individual in every customer. grouping markets according to common languages. cultural. The company designs a product and a marketing program that will appeal to the largest number of buyers. (AACSB: Communication) Answer: Companies can segment international markets using one or a combination of several variables. Name and describe the levels at which market targeting can be carried out. customs. A country’s economic structure shapes its population’s product and service needs and. For example. Countries can also be segmented by political and legal factors such as the type and stability of government. and other factors assumes that segments should consist of clusters of Copyright©2014 Pearson Education . therefore. Geographic segmentation assumes that nations close to one another will have many common traits and behaviors. Micromarketing includes local marketing and individual marketing. and behavioral patterns. economic. grouping countries by regions such as Western Europe. 3. For example. Companies can target very broadly (undifferentiated marketing). Such a strategy focuses on what is common in the needs of consumers rather than on what is different. values and attitudes. (AACSB: Communication. Harley-Davidson’s H-D1 factory customization program lets customers explore some 8. or somewhere in between (differentiated or concentrated marketing). World markets can also be segmented on the basis of economic factors. Reflective Thinking) Market targeting can be carried out at several different levels. Give an example of a company using each. Cultural factors can also be used. the Pacific Rim. Using an undifferentiated marketing (or mass marketing) strategy. This allows Starbucks to capture behavioral data and reward loyal customers. a firm might decide to ignore market segment differences and target the whole market with one offer. very narrowly (micromarketing). And P&G markets six different laundry detergent brands in the United States. Toyota Corporation produces several different brands of cars—from Scion to Toyota to Lexus—each targeting its own segments of car buyers. instead of going after a small share of a large market. which compete with each other on supermarket shelves. Whole Foods thrives by catering to affluent customers that the Walmarts of the world can’t serve well. political. Using a differentiated marketing (or segmented marketing) strategy. religions. Micromarketing is the practice of tailoring products and marketing programs to suit the tastes of specific individuals and locations. and amount of bureaucracy. They can segment by geographic location.customers can load a Starbucks card and register it on the Starbucks Web site. the marketing opportunities it offers. a firm goes after a large share of one or a few smaller segments or niches. receptivity to foreign firms. marketers can define and reach segments of like-minded consumers no matter where in the world they are. Advertisers use market segmentation when promoting products to consumers. such as satellite TV and the Internet. services. as new communications technologies. In the context of marketing. or image. people. buyers may perceive a difference based on company or brand image differentiation. or style and design. Critical Thinking Exercises 1. find an example of a print ad that appears to be based Copyright©2014 Pearson Education . 6. Students should understand that marketers actively try to influence a product’s position through their selection of a differentiation and positioning strategy. Explain how a company differentiates its products from competitors’ products. connect consumers around the world. Even when competing offers look the same. 5.3 is an illustration. and the position of each circle on the map indicates the brand’s perceived positioning on two dimensions and the size of each circle indicates the brand’s relative market share. Figure 7.countries. For each major consumer segmentation variable. Companies can also gain a strong competitive advantage through people differentiation—hiring and training better people than their competitors do. performance. A company or brand image should convey a product’s distinctive benefits and positioning. Firms that practice channel differentiation gain competitive advantage through the way they design their channel’s coverage. or careful delivery. Some companies gain services differentiation through speedy. Beyond differentiating its physical product. expertise. they form segments of consumers who have similar needs and buying behaviors even though they are located in different countries. brands can be differentiated on features. Through product differentiation. Using intermarket segmentation (also called cross-market segmentation). convenient. Developing a strong and distinctive image calls for creativity and hard work. what is a product’s ―position‖? How do marketers know what it is? (AACSB: Communication) Answer: A product’s position is the way the product is defined by consumers on important attributes—the place the product occupies in consumers’ minds relative to competing products. (AACSB: Communication) Answer: A company can differentiate itself from competitiors along the lines of product. and performance. However. Marketers often prepare perceptual positioning maps to show consumer perceptions of their brands versus competing products on important buying dimensions. channels. a firm can also differentiate the services that accompany the product. Describe your strategy and conclude with a positioning statement for your business. shop online. identify the target market and explain why you think the advertiser is using the segmentation variable you identified for that ad. pp. ―Toyota’s Large-Pickup Identity Crisis. For each ad. each thought it would sell around 200. the ―big three‖ American manufacturers averaged sales in this market of almost 2 million trucks per year. Reflective Thinking) Answer: Students’ examples will vary.000 vehicles per year and had planned capacity for hundreds of thousands more because of the huge U. discuss possible reasons for the dismal sales of the Titan and the Tundra in the U. They tend to be very patriotic and perhaps not as open to foreign brands. Toyota truck owners are more refined than GM and Ford truck owners. Form a small group and create an idea for a new business. 2010). market potential. When Nissan introduced its large Titan pickup truck in the United States and Toyota introduced the Tundra. Copyright©2014 Pearson Education . market. merging geographic.htm. It can be found at Jeff Green and Alan Ohnsman (October 11. One possibility why the foreign trucks sold so poorly in this market is because the manufacturers didn’t understand the American buyers of large pickup trucks. American truck owners were more likely to have a gun rack in their truck because they are avid hunters. An interesting article profiling the demographic and psychographic differences between Toyota Tundra owners and American pickup truck owners can be found at www. They should examine the consumers in the large pickup truck market segment. however. whereas the Toyota owners were more likely to have a bike rack to pursue their active lifestyles. Some of them might even own an American pickup truck and feel very passionate about their vehicle and understand why the new entrants had difficulty cracking this market. and subscribe to Runner’s World. Reflective Thinking) Answer: Figure 7. (AACSB: Communication. Most will realize. choosing to dine at steakhouses. Reflective Thinking) Answer: Students’ responses will vary.on that variable. that marketers often use multiple segmentation bases. demographic. Using the steps described in the chapter. But the two Japanese brands missed their sales goals by a wide margin. After all. Businessweek. (AACSB: Communication.S.) 3. (Note: The print version of this article had a nice graphic depicting the differences between the two types of buyers. develop a customer-driven marketing strategy.S. In a small group.businessweek. 2.com/magazine/content/10_42/b4199024791233. and behavioral aspects.1 shows the four major steps in designing a customer-driven marketing strategy. (AACSB: Communication. own golf clubs. lifestyle. GM and Ford owners dine at restaurants like Cracker Barrel and are less tech-savvy than Toyota owners. 2425. Marketing Ethics: Targeting Young Consumers You would never know that consumers are more frugal these days if you look at the new children’s lines from fashion houses such as Fendi. the positioning statement should follow the form: To (target segment and need) our (brand—business in this case) is (concept) that (point of difference). That’s because the required headgear has been uncomfortable. battlefields. and art objects. The only product close to Google’s glasses currently on the consumer market is a GPS device that skiers and snowboarders insert into goggles that displays speed information. Marketing Technology: Google’s Glasses Consumers enjoy having Google’s search power at their fingertips. The sleek wraparound glasses place a single lens above a person’s right eye that displays digital information that can be voice. and profitable. Toddler high fashion is not new.S. Versace. Marketing to consumers based on lifestyle could focus on sports activities or cultural interests. Consumers interested in history can receive information about buildings. what does their business offer that others do not? A difference is worth establishing and promoting to the extent that it is important. However. 1. preemptive. Once value differences and competitive advantages are identified. Connecting the device to a smartphone opens up a world of possibilities. but designers are taking it to new levels and extending it beyond special-occasion clothing to everyday wear. skiers might want to know more than just speed information. we’ll have that Google power right before our very eyes. communicable. distinctive. For example. The ideas are limited only by students’ imaginations. affordable. and where other skiers are located on a mountain. trail maps. no fingers necessary. But Google is peering into the future and has tentative plans to sell its Google Glasses device to consumers in 2013. ―Augmented reality‖—the ability to project information in front of our eyes—is now being used in commercial and military operations. Augmented reality can give information on weather conditions. Someone cooking can see a video on how to prepare a meal. How would you market the Google Glass device in a 30-second commercial to consumers based on one of the segmenting variables you identified in the previous question? (AACSB: Communication. That is. unattractive. and Gucci. Reflective Thinking) Answer: Students’ answers will vary. and expensive. For examples. the U. it has yet to take off in the consumer market.and gesture-controlled. Air Force uses it to display weapons information in fighter pilot helmets. In the past. superior. some of the little girls marching down fashion runways Copyright©2014 Pearson Education . but if things go as planned.Students should identify the target market for their business and identify the competitive advantage. slope conditions. 1. a belt with the trademark double-G. Finally. These schools rely heavily on students receiving federal financial aid. A Burberry children’s double-breasted trench coat for a baby runs $335. Jennifer Lopez and her little ones helped Gucci launch a line for babies and children aged 2 to 8 years old. actively target military veterans. and the University of Phoenix. There are several veterans’ organizations and career fairs targeted toward this group. 1. purchasing power.carried dolls with matching outfits. based on luxury lifestyles. What segmentation variables are marketers using in this example? (AACSB: Communication. But now. It is also psychographic segmentation. Discuss the factors used to evaluate the usefulness of the military veteran segment. Reflective Thinking) Answer: This is an example of using multiple segmentation bases. The CEO of the Young Versace brand sees growth in this market and anticipates this brand making up 10 percent of the company’s global sales in only a few years. And a family has to have a significant household income to purchase this clothing for their children. skinny jeans.195 trench coat. But enrolling veterans helps them stay below this threshold because the law does not count GI benefits as government assistance. In fact. and federal law limits the proportion of for-profit university revenue that can be derived from federal aid to 90 percent. increasing its enrollment of veterans by almost 30 percent in just one year. such as Kaplan University. Reflective Thinking) Answer: To be useful. and boots will set mom and dad back about $1. market segments must be:  Measurable: The size. With federal spending on veterans’ education more than doubling to almost $10 billion between 2009 and 2010. many of the little children’s fashions are geared around matching mom and dad clothing. DeVry University. The number of military veterans is measured and can be obtained through public information. this market is even more attractive. Kaplan University is one of the most aggressive with a team of 300 representatives focused solely on recruiting military veterans.‖ and perhaps ―benefits sought‖ might include status from wearing high-fashion everyday clothing. One is demographic segmentation because the clothing is created for children. this is an application of behavioral segmentation because the clothing is now ―all-occasion‖ instead of ―special occasion. and Copyright©2014 Pearson Education . the University of Phoenix has more veterans enrolled than any other college. A Gucci children’s outfit with a t-shirt.000.  Accessible: The market segments can be effectively reached and served. and profiles of the segments can be measured. Marketing by the Numbers: Kaplan University Recruits Veterans For-profit universities. a raincoat. a bargain compared to mom’s matching $1. (AACSB: Communication. The aim of this exercise is not to come up with the ―correct answer‖ per se—there is no single correct answer. A segment should be the largest possible homogenous group worth pursuing with a tailored marketing program. this number must be discounted because some veterans already have Copyright©2014 Pearson Education .800. universities may have personnel devoted to helping veterans receive their GI Bill education benefits. These universities deliver their service online. estimate the market potential for undergraduate education in the veteran market. Using the chain ratio method described in Appendix 2: Marketing by the Numbers. 2. Differentiable: The segments are conceptually distinguishable and respond differently to different marketing mix elements and programs. For example. These students are older than traditional college students and likely have families and jobs precluding them from pursuing a traditional college education. so is it easy to serve this market. It is possible to design programs specifically for this segment of students. Substantial: The market segments are large or profitable enough to serve.S. Census Bureau reports there are 21. the U. Students will have to research and justify the numbers they use. Actionable: Effective programs can be designed for attracting and serving the segments. However. Be sure to state any assumptions. The chain-ratio method described in Appendix 2 for estimating total market demand uses three variables: a) number of prospective buyers b) quantity purchased by an average buyer per year c) price of an average unit Market demand can be determined as follows: Q=nqp where Q = total market demand n = number of buyers in the market q = quantity purchased by an average buyer per year p = price of an average unit For example. Use of IT. and instructors can use this exercise as an illustration that estimating market potential is not an exact science. Analytical Reasoning) Answer: Students’ assumptions and estimates will vary.000 veterans in the United States as of 2010. There are millions of veterans and the majority does not have college degrees. (AACSB: Communication.   for-profit universities have utilized all of these channels for reaching veterans. There are several acceptable answers. so the discount factor would be 72. another source indicates that the percentage of veterans 25 and older with at least a bachelor’s degree in 2010 was 26%. Thus.html.894. 2012). students will have to research these institutions.000 × 0.college degrees and are not in the schools’ target market.506. One way to discount this number is to multiply it by the percentage of the U. so the total number could be discounted by a factor of 0.990 veterans. then the ―quantity purchased‖ will be the number of years or semesters to complete a degree.html). Census also reports that 27.S.com/news/2010-11-01/kaplan-quest-for-profit-at-taxpayer-expense-ensnaresdisabled-u-s-veteran. But Olive Garden. However. In that case. See http://quickfacts. which would limit the market potential because most students drop out before receiving a degree (see www. Company Case Notes Darden Restaurants: Balancing Standardization and Differentiation Synopsis Darden isn’t a well-known name. population that does not have bachelor’s degrees. For example. accessed June 19.800.578 × 0. Depending on assumptions students make.721 = 16. or the number of veterans who are younger than 35.census.65 = 10.com/spot/veteranscensus1.35): 16. Darden runs these and a few other restaurant brands – a total of 1.000. 35% of all veterans served during the Vietnam-era (1964-1975) and are likely not seeking to earn a bachelor’s degree.S.7 million (see www.com/spot/veteranscensus1.‖ then the ―quantity purchased‖ would be 1 because most veterans will likely only earn one degree. The U.65 (that is.0. Copyright©2014 Pearson Education . and LongHorn Steakhouse are. For example. Darden differentiates across each of its restaurant chains in ways that they appeal to different types of customers for different occasions. that graduation rates are a dismal 22 percent at for-profit colleges. To determine costs and time taken to graduate. However. Red Lobster. the number of potential veterans would be higher: 21. In many respects.1% (that is.gov/qfd/states/00000. which is 1. if the ―average price per unit‖ is the cost for one year or one semester. Another factor that could discount this number is when the veterans served. The story in this case is Darden’s ability to standardize restaurant purchasing and operations in a way that customers don’t know it. accessed June 19. To determine the other elements of the chain ratio method. 2012). 1 – 0. Darden has pulled off the perfect blend of standardization and differentiation.html for this information (accessed June 19.132. 2012).279).485. 1 .html. if using the cost of a degree as the ―average price per unit.74 = 16.8 million.132.800. an estimate could be made as simply as using the number of veterans who served from 1990-present.bloomberg.infoplease. one estimate of the number of potential veterans without college degrees is 22. It is interesting to note.800 restaurants a year that serve up over 400 million meals each year producing over $7 billion a year in revenue.9% of persons age 25+ in the United States hold bachelor’s degrees.000 × 0.infoplease. students will have to state their assumptions. which is 4. which is lower than the total population rate (see www. Certain things should be considered here. In this respect. and ―steak‖ customers. Most of Darden’s targeting is the same across all three of its main restaurant chains.  Geographic – Olive Garden and Red Lobster are nationwide.S. Using the full spectrum of segmentation variables. the biggest way that Darden segments customers across its chains is by the type of food that a customer likes or is in the mood for. It is looking to expand to other countries as well. Allow students to develop positioning strategies. ensuring that Darden has a little something for everyone. Darden is targeting the same segments of customers as far as income goes. a great deal of differentiation is based on cuisine. 2. Thus. targeting. To provide students the opportunity to consider what companies in stagnant industries can do to fuel growth. and positioning. a clean ―authentic‖ atmosphere.Teaching Objectives The teaching objectives for this case are to: 1. Consider the ways to segment the consumer market for dining. there is not much differentiation here. However. 2. In this case. the chain is targeting based on what a customer wants on a specific day or occasion. describe how Darden segments and targets the sit-down dining market.  Country – The U..S. Has Darden differentiated and positioned its brands effectively? Explain. ―seafood‖ customers. customers are looking for convenience of location. 4. 3. Allow students to apply the concepts of market segmentation. and a consistent product. Longhorn Steakhouse is in the eastern half of the U. In the restaurant business. is the primary market. information not contained in the case reveals that Darden has struck a recent deal with American Group to develop at least 60 of its restaurants in the Middle East. Other customers may only like one or two of the chains. quality personalized service. although Darden is moving to change that. Discussion Questions 1. Some Darden customers will go to all three chains. In this Copyright©2014 Pearson Education . Darden segments across its chains.  Occasions – While all Darden restaurants cater to regular occasions and special occasions. Darden is segmenting by ―Italian‖ customers. in some ways.  Benefits – Across all Darden restaurants. However. In this respect.  Income – The price range of Darden’s ―Big Three‖ is relatively similar and is moderate by sit-down dining standards. will Darden Restaurants continue to dominate the market? Why or why not? The case presents some compelling information on this.S. Red Lobster is now positioned as ―wood-grilled‖ seafood. Red Lobster – Seafood available nationwide for middle-America. 3. Olive Garden – positioned as an Italian family-style restaurant with décor and menu items to suggest such. it does not seem that Darden faces that danger. Each of these chains is very different in that respect. there is still plenty of room for more Darden restaurants. Thus. So long as menus and atmosphere are kept distinct. same thing.respect. Darden would have to take share from other companies to fuel future growth. Darden is the biggest. much of the appeal of a Darden restaurant is familiarity and a reputation for consistency. But even the other two chains would like do well even in places where there is another restaurant of the same chain within a distance that is too far for most people to run out and get a bite to eat. how might such practices backfire? The only thing that could backfire is that at some point. In the past couple of decades. these are clearly three very different brands each with menu items specific to itself. 5. What recommendations would you make that will help Darden’s future growth? Saturate markets . All things equal. the first recommendation is to continue building restaurants in places where they do not have any. more companies in a declining market makes things very difficult as far as growth is concerned. 4. Longhorn Steakhouse – positioned as a classic western-style steakhouse. Darden has applied a standardized formula to three different cuisines. not frozen. the restaurant industry has swung noticeably toward the national chain over local flavor. That may sound Copyright©2014 Pearson Education . Most notably. Scale of operations. Longhorn Steakhouse certainly has plenty of room for expansion in the western states. To say that Darden will continue to dominate is speculative at best. And because people only want to drive so far to go to dinner. sharing across chains. They don’t want to take chances.In spite of the comments for question 4. this should not be an issue. expertise in execution. Many people want what they know.). the number of casual-dining restaurants has grown twice as fast as the U. Given current conditions. One of the benefits for Darden is that even if similar items are sourced (meat. One would need to scrutinize very carefully in order to determine the similarities and common ownership. Meats are fresh. But Darden certainly has certain things going for it that play well. seafood. etc. but it is certainly not the only player in a massive industry that is comprised of many small companies. there is a lot of flexibility in how those things are prepared. During that time. Known as a fried seafood place. Thus. International expansion – The move into the Middle East is a good one. too much standardization would make all three restaurant experiences seem like ―same place. Beyond that. population.‖ Thus far. Although Darden’s efforts to standardize across brands have contributed to its success. sit-down dining has been declining for at least 17 years. and other strengths. Collect advertisements that demonstrate the positioning of different watch brands.rhapsody. and probable company resources. Assign three students (one per chain) to report to the class on their experience. Red Lobster has its cheesy biscuits. The American Group. Most of them are American chains. structural attractiveness.apple. You’ve agreed to help a friend with a home furnishings business segment her market. After these presentations. or Longhorn Steakhouse. AND EXAMPLES Projects 1. already runs more than 1. There are many ways to segment a market. Darden should heavily invest there and other places that represent growth markets for dining. the company that is licensing Darden operations. What unique market segments appear to be the target of specific genres of music? How did you determine the segments? (Objective 2) 2. Suggest a way to segment the market for her. on what worked and what didn’t. (Objective 4) Small Group Assignments Copyright©2014 Pearson Education . Proprietary items – Olive Garden has its breadsticks. Sort the various brands into categories of brands with similar positions. Using the four segmentation variables discussed in the chapter. Then. keeping in mind segment size and growth. Red Lobster. What target marketing strategy would you use? Explain your answers. have them work on questions in groups. Teaching Suggestions Prior to assigning this case. Select a target market to go after. Explain your choices.200 restaurants in the Middle East region.com). but the Middle East alone is experiencing a massive expansion of American dining brands.odd. (Objective 2) 4. (Objective 2) 3. have the students read the case in class (this only takes about 5 minutes). discuss which variables would be most important for segmenting (a) candidates for cataract surgery and (b) possible enrollees in a culinary school. ASSIGNMENTS. assign students (optional) to eat out at Olive Garden. Have them take notes on their experience there.com) or Rhapsody (www. Do the student experiences at the actual restaurants reflect the information in the case? This case could also be used with the marketing research chapter (Chapter 4) and the retailing chapter (Chapter 13). ADDITIONAL PROJECTS. A few items like this per chain gets people coming back again and again. on the things they like or disliked. TGI Friday’s is one casual dining chain that has made inroads there. Go to iTunes (www. ―The message we’re telling our girls is a simple one. which segmentation variables might you use to best understand your market structure? b. (Objective 3) a. Consider the following comments by a reporter regarding Victoria’s Secret Pink line. Considering the foregoing. pair with the student on your right. Bud Light and Budweiser ads ranked first through fourth in popularity among viewers under the age of 17. Form students into groups of three to five. in the most recent Super Bowl. Review the requirements for effective market segmentation. formulate an answer. What do you think of W Hotels’ strategy of integrating art. What are some possible market segmentation strategies the company might pursue? 2. underage listeners hear more than a third of radio ads for alcoholic beverages. As a marketing manager for W Hotels.1: W Hotels: Not Just a Room – It’s a Trendsetter Lifestyle. The Federal Trade Commission (FTC) and citizen action groups have accused tobacco and beer companies of targeting underage smokers and drinkers. 1. (Objective 2) Outside Examples 1. Then have them answer the following questions and share their answers with the class.rhapsody. What market segments would you encourage them to pursue and why? (Objective 2) 2. fashion and entertainment into the hotel experience? Which market segments does this address. Each group should read Real Marketing 7. How would you define market segmentation? (Objective 1) How do geographic segmentation and demographic segmentation differ? (Objective 2) Which one segmentation form do you consider the most valuable? Why? (Objective 2) What is benefit segmentation? Give a good example. share your thoughts with one another. answer the following questions. Also. How are they attempting to segment their markets? Rate Copyright©2014 Pearson Education .1. Think of another company that sells a product or service you enjoy. 3. You’ll have a great life if people find you sexually attractive… Do we really need to start worrying about it at 11?‖ Do you believe this criticism is justified? Why or why not? (Objective 3) Think-Pair-Share Consider the following questions. log on to Rhapsody (www. and how does it uniquely position the hotel in the minds of guests? c. and respond to questions from the instructor. (Objective 2 and 4) a. Now. 4. You have been asked by your college/university to help develop a market segmentation strategy for them. What do you believe to be the most effective manner to advertise these products without exposing underage consumers? Individual Assignments 1. Do you believe the criticism that tobacco and alcohol companies have received is justified? Why or why not? b. 2.com/). For instance.  Actionable—effective programs can be designed for attracting and serving the segments. Do you believe they are doing a good job on each? What suggestions for improvement would you recommend? (Objective 2) Possible Solution: Rhapsody uses a differentiated marketing strategy. Lifestyle segmentation has many potential advantages.Rhapsody on each of the five requirements for effective segmentation. The requirements for effective segmentation and how well Rhapsody is doing in meeting each are:  Measurable—the size.com/) appeals to the value-oriented consumer as well as the cruiser looking for fun. some of the older and/or less computer-savvy users may not be adequately reached. Carnival states ―Fun for All and All for Fun. Rhapsody does not appear to be effectively designing unique program to attract each segment. and profiles of the segments can be measured. the segments do seem sustainable.‖ which allows their guest to dine ―with whom they want and when they Copyright©2014 Pearson Education . however. Rhapsody should concentrate more on designing marketing programs to reach underserved portions of its market. Additionally. Possible Solution: Students may come up with any number of examples.   Carnival Cruise Line (www.‖ Norwegian Cruise Line (www.com/nclweb/home. Your text discusses how lifestyle segmentation has been used by the cruise industry by citing Royal Caribbean and Regent Seven Seas as examples. and (to a lesser extent) behavioral-based segmentation variables. Through a review of their Web site.html) promotes ―Freestyle Cruising. Here Rhapsody appears to be having a bit of a problem.ncl. separate and unique. More specifically. 2. As a follow-up to point above. Go to the home pages of three additional cruise lines and discuss how each uses lifestyle segmentation (Objective 2).  Differentiable—the segments are conceptually distinguishable and respond differently to different marketing mix elements and programs. purchasing power. programs should be designed to reach each. psychographic. Given that the costs of accessing each segment are minimal. Each of the targeted segments is reachable. if the segments are unique and viable.carnival.  Accessible—the market segments can be effectively reached and served. it appears Rhapsody uses basically the same marketing program to reach each segment. they are using demographic.  Substantial—the market segments are large or profitable enough to serve. Rhapsody has a good idea as to the size of each of its targeted segments. 5.com) appeals to a more refined or ―well-heeled‖ traveler through the use of the line ―A Signature of Excellence.lowes. www. 4.com Go here to see how this electronics giant is segmenting its markets.com/) refers to their ships as ―yachts. 3.seabourn. by allowing them the power to choose the ―design‖ of their own individual dining options.‖ This appeals to the individualist. 2.  want. www. Web Resources 1.‖ thus giving their adventures an air of exclusivity appealing to those searching for elegance and relaxation.com Take a look at this page and compare the differences in Lowes’ and Home Depot’s approach to segmentation.homedepot. Copyright©2014 Pearson Education . http://chandon.com/ Chandon illustrates how benefit segmentation can be used effectively.prenhall. Holland America Cruise Line (www.dunkindonuts. www. http://247.com This is the link to the Prentice Hall support link.hollandamerica.com Here you can learn all about the world of Home Depot.‖ Seabourn Cruises (www.