Chapter 2 Creating Marketing Strategies for Customer-Centric Organizations

Chapter 2
Creating Marketing Strategies for Customer-Centric Organizations
CHAPTER OUT!"E
Opening Vignette
The Century of the Consumer
From Market Analysis to Market Strategy !here "oes Consumer #eha$ior Fit%
Customer &oyalty an' (etention Strategies
)lo*al Marketing Strategy
Summary
(e$ie+ an' "iscussion ,uestions
-otes
ECTURE "OTES
Chapter !ntro#uction$ This is the last chapter in .art /0 This chapter 'escri*es ho+ to create
customer-centric organizations1 incorporating consumer *eha$ior into strategic planning for *oth
nonprofit an' for-profit organizations0 2t 'eals +ith the competiti$e *usiness en$ironment an' the
customer-centric concept0
Opening %ignette$ The Opening $ignette 'iscusses !al-Mart an' the rock group 32SS as
effecti$e merchan'isers0 #oth organizations starte' in the /456s an' 'eal +ith their successes0
Customer-centric strategies are 'iscusse' for *oth organizations0
Teaching Tip: 7se the $ignette to in$ol$e stu'ents in class 'iscussion *y asking ho+
many of them ha$e kno+le'ge of !al-Mart1 ho+ many kno+ a*out 32SS1 an' ho+ they
feel as customers a*out one or *oth of the organizations0 Then ask them for their personal
'efinition of customer-centric8not using the 'efinition in the te9t0
The Centur& of the Consumer This section of the chapter in'icates that this is calle' the
century of the consumer *ecause +hat consumers *uy 'etermines +hich firms sur$i$e or thri$e0
Concepts1 metho's an' skills +ill *e 'iscusse' throughout the chapter that the rea'er as a
consumer analyst +ill nee' to *e effecti$e0
What is Strategy? Marketing is 'iscusse' relati$e to consumers an' the organization0
Strategy is 'efine' as :a 'ecisi$e allocation of resources ;capital1 technology1 an' people<
in a particular 'irection0= The customer-centric concept says that resource allocation is
'etermine' *y consumers as interprete' *y the consumer analyst0 Marketing strategy is
'iscusse' as a long-range1 time-phase' plan 'esigne' to achie$e market position1 causing
competitors to spen' much more money to get consumers0
What Are Customer-Centric Organizations? Customer-centricity is further 'efine' as :a
strategic commitment to focus e$ery resource of the firm on ser$ing an' 'elighting
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Consumer #eha$ior1 /6
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profita*le customers0= Amazon0com is use' to illustrate customer-centricity0 A summit of
lea'ing retailers1 technology firms1 an' aca'emic researchers 'iscusse' customer-centric1
in'icating the characteristics of such an organization inclu'e the follo+ing
Share# %ision an# %a'ues is :a *elief that the future of the firm is em*e''e' in
the min's of consumers0=
Cross-(unctiona' !ntegration focuses all employees on core customers an'
pro$i'es all functional areas +ith information on all other *usiness functions0
S&stem-)i#e Simu'taneous Training in$ol$es face-to-face interaction of all the
mem*ers of the company from the C?O 'o+n to frontline sales people an' truck
'ri$ers0
Customer-*ase# Metrics re@uires changing from metrics *ase' on pro'uct lines1
geographic 'i$isions1 or *usiness units to metrics *ase' on core customers an'
segments0
(rom Market Ana'&sis to Market Strateg&$ )here +oes Consumer *eha,ior (it- "iscusses
,a'ue as the :'ifference *et+een +hat consumers gi$e up ;time1 money1 or other resources< for a
pro'uct an' the *enefits they recei$e0 2t in'icates that @uality is not synonymous +ith $alue1 *ut
a com*ination of other components of $alue such as *ran'1 image1 price1 etc0 "iscussion of -ike
an' (ee*ok athletic shoes centers on the 'ifferent +ay they communicate $alue to customers0
Marketing strateg& is then 'efine' as in$ol$ing :the allocation of resources to 'e$elop an' sell
pro'ucts or ser$ices that consumers +ill percei$e to pro$i'e more $alue than competiti$e
pro'ucts or ser$ices0=
(igure 2./ 0 Customer-Centric Marketing Strateg& pro$i'es a 'iagram
sho+ing ho+ the consumer is relate' to 'ifference concepts of this strategy0 ?ach
of the factors in the customer-centric marketing strategy is represente'0
Market Analysis is 'efine' as :the process of analyzing changing consumer tren's1
current an' potential competitors1 company strengths an' resources an' the
technological1 legal1 an' economic en$ironments0=
Consumer !nsight an# Pro#uct +e,e'opment relates failure rates of *usiness
an' 'iscusses +hy the failure rate of ABC of companies failing to meet marketing
o*Decti$es is so high1 e9plaining that a ne+ pro'uct must satisfy customersE nee's1
+ants1 an' e9pectations1 not those of a management team0 They must also 'o it
*etter than e9isting pro'ucts0 Consumer insight is 'efine' as :an un'erstan'ing
of consumersE e9presse' an' unspoken nee's an' realities that affect ho+ they
make life1 *ran'1 an' pro'uct choices0= .art of the 'iscussion in$ol$es ho+
?astman 3o'ak came up +ith the i'ea to open film containers +ith one han' an'
in'icates that anyone from the C?O on 'o+n can con'uct research0
Consumer Behavior an Marketing !"#: $etail Strategy %s &ot 'is( )lay uses
Toys :(= 7s as an e9ample of using market statistics in Australia +ithout
kno+ing the consumers in the market +ell enough0 O$er F/66 million +as lost
*ecause they also 'i'nEt consi'er the response of local competition in Australia0
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Chapter 2 Creating Marketing Strategies for Customer-Centric Organizations
Other companies there inclu'e' 3mart1 Target an' #ig ! ;!ool+orthEs of
Australia<0 There +ere similar pro*lems in 'ealing +ith !al-Mart in the 70S0
Consumer En,ironment consi'ers such things as 'emographic tren'sG personal
an' group influencesG consumersE kno+le'ge1 attitu'es1 an' moti$ationsG the
process *y +hich consumers make their purchase an' consumption 'ecisionsG an'
changing consumer nee's1 +ants1 an' lifestyles0 Figure 20/ is also 'iscusse' again
in the conte9t of the market analysis stage0
Corporate Strengths an# Resources are 'iscusse' as a :process of *alancing
market opportunities +ith corporate resources an' strengths0= T+o @uestions are
'iscusse' Ho+ much can the company in$est of its resources in the 'e$elopment
an' marketing of the pro'uct% !hat resources 'oes the company nee' an' +hat
internal +eaknesses must *e o$ercome%
Current an# Potentia' Competitors shoul' inclu'e current an' potential
competitors relating the process to the tra'itional approach1 +hich focuses on
staying ahea' of the competition +hile more inno$ati$e firms focus on using
inno$ation to +eaken or make competitors irrele$ant in the marketplace0
Teaching Tip: Consi'er the comment in the te9t on consi'ering ho+ the Toys :(=
7s strategy might ha$e *een 'ifferent if it un'erstoo' *etter the competition it
face' in Australia0
Market En,ironment such as the state of the economy1 go$ernment regulations1
physical con'itions1 an' technology are consi'ere' as relating to the success of a
pro'uct or ser$ice0 A poor economy1 natural 'isasters1 an' other elements are
'iscusse' in light of ho+ they can affect consumer nee's an' a*ility to *uy0
Market *acts !"#: Consumer Moo A++ects Marketing Strategy 'escri*es some
tren's that affect consumer moo' an' marketing tactics in the 70S0 market0
Factors that are liste' are the stock market1 me'ia1 +orkplace1 peers an' family1
changing self-concepts1 an' personal security0
Teaching Tip: Ask stu'ents to come up +ith other factors that coul' *e moo'
'eterminants for consumers0 Ask stu'ents +hat causes them to *e in a goo' moo'
or a *a' moo'1 an' then ask them if that might affect +hat they purchase at the
time0
(igure 2.2 - Consumer-Centric Marketing Strateg&$ Market Segmentation
This is a similar graphic 'escription to Figure 20/ *ut instea' starts +ith market
segmentation ;the right si'e of the graphic representation<0
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Consumer #eha$ior1 /6
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Market Segmentation ;see Figure 202< is 'efine' as :the process of i'entifying groups of
people +ho *eha$e in similar +ays to each other1 *ut some+hat 'ifferently than other
groups0=
(igure 2.1 - )hat Other *eha,iors Can 2ou !nfer- The authors suggest that
stu'ents consi'er ho+ they +oul' 'escri*e ho+ these people +oul' *eha$e in
situations other than using the pro'ucts sho+n in the a's0
A market segment is then 'efine' as :a group of consumers +ith similar *eha$ior an'
nee's that 'iffers from those of the entire or mass market0= !hat is the goal in measuring
market segments% 2t is :to allocate consumers into categories that minimize $ariance
+ithin groups an' ma9imize $ariance *et+een groups0=
Market aggregation or mass marketing is the opposite of market segmentation :+hich
occurs +hen organizations choose to market an' sell the same pro'uct or ser$ice to all
consumers0= Some firms choose a market aggregation approach1 *ut these are in'icate'
as :going the +ay of the 'inosaur= in in'ustrially a'$ance' countries0
!#entif&ing Segments is *ase' on i'entifying similar *eha$ior1 not necessarily
similar consumer characteristics0
Ta3'e 2./ - Ho4 to Segment Consumer Markets in'icates consumer
characteristics that may *e use' for consumer market segments0
(igure 2.5 - +efining Markets on Mu'tip'e Characteristics sho+s a graphic
in'icating ho+ the 'ifferent segments may o$erlap0
Teaching Tip: "iscuss ho+ all four characteristic pieces o$erlap at point " +hile
t+o of the characteristics o$erlap at points A# an' A" an' only single
characteristics e9ist at points A1 #1 an' C0
A##ressing the "ee#s of Market Segments suggests that consumers are
*ecoming more sophisticate' an' 'eman'ing0 Many firms respon' *y offering
pro'ucts or ser$ices tailore' to 'ifferent market segments that are $ery e9pensi$e
an' accomplishe' +ith comple9 strategy0 Mass customization is 'efine' as
:customizing goo's or ser$ices for in'i$i'ual customers in high $olumes an' at
relati$ely lo+ costs0= The *ook The One To One Future *y Martha (ogers an'
"on .epper is use' to relate a story a*out a flo+er shop in #o+ling )reen1 Ohio1
an' ho+ the store uses its 'ata*ase for proacti$e marketing0
Profita3i'it& of Market Segmentation in'icates that the :ultimate goal of
segmentation is increase' customer satisfaction an' profita*ility0=
Consumer Behavior an Marketing !"!: Chico(s 'iscusses ho+ ChicoEs is
uni@ue *ase' on uni@ue sizing1 comfort construction1 e9clusi$ity1 easy +ear an'
easy care1 an' starterEs kits0 ChicoEs .assport Clu* mem*ership is 'iscusse' along
+ith a ta*le sho+ing the num*er of permanent mem*ers an' mem*ers +ho can
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Chapter 2 Creating Marketing Strategies for Customer-Centric Organizations
mo$e to permanent status as +ell as the a$erage purchase an' purchase fre@uency
relate' to the percentage of total sales0
Criteria for Choosing Segments Four criteria are liste' as 'etermining the
attracti$eness of a market segment /< measura*ility1 2< accessi*ility1 B<
su*stantiality1 an' J< congruity0 ?ach is 'efine' in this section0
Bayesian Analysis is a statistical techni@ue that helps to ans+er :+hy people *uy0= 2t is a
:tool for e9ploring the human min' an' 'efining market segments0= These techni@ues can
analyze huge amounts of 'ata0
Market *acts !"!: Bayesian Analysis )ro,es the -uman Min consi'ers ho+
#ayesian statistics replaces comple9 e@uations +ith simple ones that computers
can perform repeate'ly0 A goo' e9ample of the kin's of @uestions1 +hich may *e
ans+ere' using #ayesian Analysis using the intro'uction of a ne+ *ran' of
ketchup1 is pro$i'e'0
Teaching Tip: Ask stu'ents if they can think of @uestions that coul' *e aske' of
stu'ents +ho ha$e enrolle' in their maDor to 'etermine ho+ to market the maDor to
in'i$i'uals +ho are not alrea'y enrolle'0
Marketing Mi. Strategies This section suggests mo$ing to Figure 20> to see this section
an' ho+ it relates to the other concepts of consumer-centric marketing strategy0 ?ach
element pro'uct1 price1 place1 promotion is 'iscusse' in 'etail0 #ran' strategy is also
'iscusse' as part of this strategy0 The I(s of the marketing mi9 are liste' an' are
'iscusse' *elo+0
(igure 2.6 - Consumer-Centric Marketing Strateg&$ Marketing Mi7 an#
!mp'ementation
The /alue o+ Brans in Marketing Strategy #uil'ing *ran's is consi'ere' in this section
as an essential part of a marketing career0 The authors in'icate that this is :perhaps the
greatest asset of a company that 'oesnEt appear on its *alance sheet0= The 3ran# is
'efine' as :a pro'uct or pro'uct line1 store1 or ser$ice +ith an i'entifia*le set of *enefits1
+rappe' in a recogniza*le personality1 carrying +ith it a connection *et+een pro'uct an'
customers0=
#ran' e@uity is 'iscusse' in terms of functiona' e'ements ;:performance1 @uality1 price1
relia*ility1 logistics1= etc0=< an' emotiona' e'ements ;:image1 personality1 style1 an'
e$oke' feelings=<0 The *ran' promise is also consi'ere' ;:+hat consumers can e9pect in
e9change for their money=<0 A 'iscussion of the perception among accountants that a
*ran' is a marketing e9pense inclu'es the fact that *ran'ing affects the financial +ell-
*eing of the entire company0
Ta3'e 2.2 - Con,erting Customers !nto (ans sho+s ho+ to 'e$elop repeat
customers ;calle' frien's in the ta*le< an' fans0
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Consumer #eha$ior1 /6
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Teaching Tip: Ha$e stu'ents get into small groups1 choose a pro'uct1 an' tell
+here that pro'uct fits in the ta*le ;'oes it ha$e customers1 frien's1 an'Kor fans%<0
Then ha$e them tell +hy it fits into that category;ies<0 Alternati$ely1 you can
choose a pro'uct an' ha$e stu'ents in'icate the same information0
The Seven $s o+ the Marketing Mi. are research1 rate1 resources1 retailing1 relia*ility1
re+ar'1 an' relationship0 The :(= in this stan's for relationship marketing the science
an' art of ac@uiring an' retaining customers0
Ta3'e 2.1 - The Se,en Rs of the Marketing Mi7 graphically represents the
Se$en (s *y organization an' consumers0
%mplementation is the final stage of marketing strategy0 Opportunities an' threats for
marketers to consi'er are likely to inclu'e the follo+ing characteristics0
Customer o&a't& an# Retention Strategies are consi'ere' in this section0 The @uestion a*out
+hat is causing a 'ecline in loyalty an' +hat it means to organizations is consi'ere'0
Customer $elationship Management :is a process for managing all the elements of the
relationship a firm has +ith its customers an' potential customers=0 The soft+are to
manager process is 'iscusse'0
Ta3'e 2.5 - Strengthening Customer Re'ationships e9amines some of the
strategies to ac@uire1 retain1 an' 'elight an organizationEs *est customers0
Teaching Tip: (an'omly choose 'ifferent stu'ents to 'iscuss each of the sections
in the Ta*le ;> sections< an' summarize the section for the class0
Se$eral +e*sites are pro$i'e' +hich can *e pursue' in this section for up-to-'ate1 current
C(M information0 #enefits of C(M are 'iscusse' as +ell as the customer lifetime $alue
;C&V<0
Consumer Behavior an Marketing !"0: Serving the 1!23444 Customer at Ma.
5 6rma(s is a casual restaurant chain kno+n for its foo' an' emphasis on
customer ser$ice0 C&V is 'iscusse' in this Consumer #eha$ior feature0
Teaching Tip: 2n$ol$e stu'ents in the 'iscussion *y asking them if they kno+ of a
restaurant that has e9cellent customer ser$ice an' ha$e them 'escri*e +hat
e9cellent customer ser$ice in$ol$es at a restaurant ;such things as the length of
the +ait for foo'1 for e9ample<0
8'o3a' Marketing Strateg& Se$eral corporations are liste' that 'eri$e more than >6C of their
sales outsi'e their countries of origin an' therefore must ha$e a glo*al perspecti$e +hen creating
strategic planning 'ocuments0 They in'icate that thinking glo*ally in$ol$es the a*ility to
un'erstan' markets *eyon' the country of origin an' inclu'e the follo+ing
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Chapter 2 Creating Marketing Strategies for Customer-Centric Organizations
/0 :Sources of 'eman' selling to markets throughout the +orl'
20 Sources of supply sourcing materials1 e9pertise1 an' management from aroun' the +orl'
B0 Metho's of effecti$e management an' marketing learning from firms aroun' the +orl'
ho+ *est to manage an' market glo*ally=
7lo,al Market Analysis an Strategy suggest that markets must *e un'erstoo' on a
glo*al *asis in or'er to complete glo*al market analysis an' strategy0
Customer Behavior an Marketing !"8: A Snapshot o+ 7lo,al $etailing
'iscusses ?nglish retailers as +ell as +hat they sell since the ?nglish market
inclu'es many other cultures0
Teaching Tip: Ask stu'ents to pro$i'e e9amples of the influence of other cultures
in their local area ;for e9ample1 are signs in other languages%<0
Can Marketing Be Stanarize? 2n'icates that the @uestion :2s it possi*le to use one
marketing program in all target countries% Or are 'istinct marketing programs re@uire'
for each country%= must *e ans+ere'0 Cross-cu'tura' ana'&sis is then 'efine' as :the
comparison of similarities an' 'ifferences among consumers of 'ifferent countries an'
'ifferent cultures0= An' cu'tura' empath& is inclu'e' as referring to :the a*ility to
un'erstan' the inner logic an' coherence of other +ays of life an' refrain from Du'ging
other $alue systems0= Finally ethnograph& is :'escri*ing an' un'erstan'ing consumer
*eha$ior *y inter$ie+ing an' o*ser$ing consumers in real-+orl' situations=
%ntermarket Segmentation suggests that :the i'entification of groups of customers +ho
transcen' tra'itional market or geographic *oun'aries= is ho+ many successful glo*al
marketers i'entify an' reach consumers0
9ocalization Base on :i++erences this section in'icates that the ?uropean 7nion ;?7< is
fin-tuning its functioning as a single market an' 'iscusses +hether in'i$i'ual cultures
+ill change if treate' as ?uropean rather than as 'ifferent cultures0 This section also
consi'ers the fact that pro'ucts may nee' to *e reengineere' +hen intro'uce' in other
markets using Lapanese cars as an e9ample0
7lo,al Avertising 6++ectiveness consi'ers ho+ communication +ith ne+ consumers
may *e helpe' +ith a'$ertising0 Characteristics consi'ere' inclu'e
/0 The communications message is *ase' on similar lifestyles0
20 The appeal of the a' is to *asic human nee's an' emotions0
B0 The pro'uct satisfies uni$ersal nee's an' 'esires0
Ta3'e 2.6 - )hich (orm of A#,ertising +o 2ou (in# Most Effecti,e-
Consi'ers eight 'ifferent countries to the form of a'$ertising each fin's most
effecti$e0 Forms inclu'e tele$ision1 ra'io1 ne+spaper or magazine1 2nternet1
*ill*oar' or posters1 an' inserts0
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Consumer #eha$ior1 /6
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O,ercoming anguage Pro3'ems pro$i'es e9amples of ho+ translations from
one language to another can 'e$elop @uite strange information an' suggests that
3ack-trans'ation ;:a message is translate' from its original language to the
translate' language an' then *ack to the original *y se$eral translators=< *e use'
to help in o$ercoming language pro*lems0
8'o3a' *ran#ing suggests that *ran' names shoul' *e e$aluate' from a cross-
cultural perspecti$e *efore intro'ucing to the country of origin in case the pro'uct
might *e markete' more +i'ely in the future0 Some suggeste' @uestions are
pro$i'e'0
Summar&
Ans4ers to the Re,ie4 an# +iscussion 9uestions
/. )hat #oes it mean to 3e a :customer-centric; organization-
To *e :customer-centric= means that e$ery resource in an organization8people1 pro'ucts1
systems an' logistics8is focuse' on ser$ing an' 'elighting profita*le customers0 Customer-
centric organizations are characterize' *y a set of share' $alues that put customers first1
integration of all functional areas in meeting customer nee's1 system-+i'e training in
customer ser$ice1 an' customer-*ase' performance metrics0 2nformation technology1
inclu'ing C(M1 often facilitates the flo+ of customer information across the organization0
!hen marketing is successful1 organizations un'erstan' an' respon' to the nee's an' 'esires
of consumers0 Value is 'eli$ere' +hen the *enefits that consumers recei$e from a pro'uct or
ser$ice is greater than +hat consumers pay for it0 Consumer-centric organizations fin' ne+
+ays to constantly increase $alue for targete' groups of consumers0 !hen consumer-centric
organizations are successful1 they not only +in the repeat *usiness of their customers1 *ut they
create loyal :fans= +ho tell others a*out the organization0
2. )hat are some of the most important changes in the consumer en,ironment in the
Unite# States- Ho4 are these 'ike'& to impact marketing strateg&- Ho4 4ou'# &ou
e7pect them to #iffer in other nations-
Changes to the consumer en$ironment inclu'e 'emographic tren'sG personal an' group
influencesG consumersE kno+le'ge1 attitu'es an' moti$ationsG the process *y +hich consumers
make purchase an' consumption 'ecisionsG an' changing consumer +ants1 nee's1 an'
lifestyles0 Stu'ents may pro$i'e e9amples from any of these categories0
For e9ample1 in regar's to 'emographic tren's1 a relati$ely large segment of the 7nite' States
population is mo$ing into retirement0 2n response to the aging *a*y *oomer cohort1 marketers
+ill ha$e to appeal to consumers +ho ha$e greater free time1 greater health challenges1 an'
perhaps less 'iscretionary income0 These changes +ill affect the 'e$elopment of pro'ucts an'
ser$ices0 Marketers of pharmaceuticals1 +ellness programs1 an' home impro$ement ser$ices
22
Chapter 2 Creating Marketing Strategies for Customer-Centric Organizations
+ill likely fin' success +hereas marketers of package' foo's1 electronic me'ia1 an' fashion
apparel may struggle in the changing market0
1. )h& #oes market segmentation e7ist- !s the use of market segmentation strategies 3&
organizations harmfu' or he'pfu' to consumers an# to societ&-
Market segmentation1 or i'entifying groups of consumers +ho *eha$e in similar +ays to each
other *ut 'ifferently than other groups1 e9ists *ecause consumers are heterogeneous0 2f all
consumers ha' the same preferences an' *eha$iors1 there +oul' *e no *asis for segmenting a
market0 Similarly1 if consumers +ere uni@ue an' 'i' not share any characteristics +ith other
consumers1 there +oul' *e no economies of scale in pro'uction an' marketing0 As a result1
market segmentation is most effecti$e +hen consumers ha$e a com*ination of uni@ue an'
common characteristics0
As note' in this chapter1 the goal of market segmentation is to i'entify su* groups in such a
+ay that the $ariance +ithin a group can *e minimize' an' the $ariance *et+een groups can
*e ma9imize'0 Compare' to market aggregation or mass marketing that ser$es all consumers
in the same +ay +ith the same pro'uct1 companies using market segmentation can pro$i'e
greater $alue to consumers *y respon'ing to the precise moti$ations of each segment0 From
the consumersE perspecti$e1 market segmentation is *eneficial *ecause it results in pro'ucts
an' ser$ices that *etter meet their nee's0
&ike+ise1 compare' to ser$ing in'i$i'ual customers in a uni@ue +ay +ith custom pro'ucts1
companies using market segmentation can re'uce pro'uction an' 'istri*ution costs *y
*uil'ing economies of scale1 +hich lea's to lo+er prices for consumers an' increase' profits
for sharehol'ers0
The 'o+nsi'e of market segmentation is that smaller or less profita*le segments may *e
neglecte' as many marketers focus on the market segments that pro$i'e the greatest returns0
To attract marketers to small or un'erser$e' niches1 higher prices may *e re@uire'1 resulting
in an ine@uality among consumer segments0
5. )hat are some of the most common 3ases use# for market segmentation-
This @uestion asks ho+ to segment consumer markets0 The te9t presents three *ases for
market segmentation consumer characteristics1 geographical characteristics1 an' situational
characteristics0
Consumer characteristics are the most common *ases of market segmentation0 They inclu'e
'emographics ;e0g0 age1 gen'er1 income1 an' e'ucation<1 psychographics ;e0g0 acti$ities1
interests1 an' opinions<1 purchase an' consumption *eha$iors ;e0g0 fre@uency of purchase1
price sensiti$ity an' *ran' loyalty<1 $alues1 culture1 an' personality0
)eographical characteristics are also use' in market segmentation0 These characteristics
consi'er +hether consumers li$e1 +ork or shop +ithin national1 state an' local *oun'aries1
ur*an $ersus rural settings1 an' specific zip co'es0 Many times resi'ents of a particular area
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Consumer #eha$ior1 /6
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share the same moti$ations an' *eha$iors1 such as the resi'ents of an upscale su*ur*an
neigh*orhoo' caring for their yar's or the resi'ents of Arizona using air con'itioning in the
summer months0 Catalog an' 'irect mail companies emphasizing 'ata*ase marketing
fre@uently i'entify segments using geographical characteristics *ecause this information is
easily o*taine' an' mo'ele'0
&ast1 situational characteristics such as +here an' +hen pro'ucts are use'1 can *e use' to
segment markets0 2n'i$i'uals +ho use a cellular phone in their Do* or on the high+ay may *e
segmente' 'ifferently *y marketers than in'i$i'uals +ho use a cellular phone for personal
reasons or only in one city1 for instance0
2t is important to point out that although each of these three *ases represents 'ifferent aspects
of market segmentation1 they are not mutually e9clusi$e an' fre@uently o$erlap0 The greater
num*er of characteristics that are use' in market segmentation1 the more focuse' the target
market +ill *e0
6. )hat criteria for se'ecting segments shou'# 3e use# 3& an organization in #eci#ing 4hich
segments to target-
One of the greatest challenges facing marketers is ho+ to select the *est target markets to
ser$e0 #ecause a companyEs marketing resources are limite'1 the *etter Do* that a company
'oes in selecting target markets1 the more profita*le it +ill *e0 Accor'ing to the te9t1 four
criteria are often consi'ere' in market segmentation measura*ility1 accessi*ility1
su*stantiality1 an' congruity0
Measura*ility is concerne' +hether marketers can o*tain information a*out the size1 nature or
*eha$ior of a market segment0 2n or'er for market segmentation to *e meaningful1 there must
*e some +ay of i'entifying an' assessing the mem*ership of target segments0 #efore
*uil'ing a ne+ store1 for instance1 a retailer +ill +ant to kno+ ho+ many potential consumers
li$e +ithin a >- or /6-minute commute an' ho+ those consumers 'iffer from consumers in
other areas0
Accessi*ility refers to the a*ility to access segments through targete' a'$ertising an'
communication programs or 'istri*ution channels0 Although a market segment may other+ise
appeal to a retailer1 if the retailer has no stores that are accessi*le to that segment1 it cannot *e
consi'ere' a target segment for 'irect mail or tele$ision a'$ertising0
Su*stantiality refers to the size of a market segment0 A firm +ith a limite' marketing *u'get
may *e una*le to effecti$ely reach market segments that are too large +hile market segments
that are too small may generate insufficient $olume to Dustify the in$estment re@uire'0
Although there is a market for s+im+ear in Alaska 'uring the +inter months1 the market is
likely too small to *e profita*ly ser$e' *y a location-*ase' retailer0
&ast1 congruity refers to the similarity of consumers +ithin a market segment0 !hat
characteristics 'o mem*ers of a segment share that are similar to one another% "o mem*ers
of a segment *eha$e in similar +ays% The greater congruity of a segment1 the more effecti$e
2J
Chapter 2 Creating Marketing Strategies for Customer-Centric Organizations
marketing programs +ill *e in reaching all mem*ers of that segment0 For e9ample1 if most
resi'ents of a community o+n their o+n homes1 they also likely ha$e Do*s an' carry
homeo+ners insurance0
!hile each of these criteria is useful in selecting target markets1 marketers may consi'er all of
them1 a fe+ of them1 or e$en other criteria in their segmentation strategy0 As the marketplace
*ecomes increasingly fragmente'1 the most successful marketers continually refine their
segmentation strategies1 often using information technology an' multiple segmentation
criteria to track changes in markets o$ertime0
<. Ho4 an# 4h& is *a&esian statistica' ana'&sis usefu' in marketing strateg&-
2n the past1 marketers ha$e use' pro*a*ility theory an' linear programming to ans+er the
@uestion of :+hy people *uy= an' to create market segments0 These techni@ues e9amine the
fre@uency of o*ser$a*le e$ents occurring +ithin a logical se@uence0 #y carefully e$aluating
the choices consumers make in a 'ecision tree1 marketers attempt to increase the precision
+ith +hich they pre'ict consumers +ill make similar 'ecisions in the future0 The limitation1
ho+e$er1 is that pro*a*ilities for future occurrence can *e assigne' only to e$ents of kno+n
fre@uency0 2f consumers ha$e ne$er *een face' +ith a choice *efore1 a pro*a*ly of its
occurrence cannot *e assigne'0
Consumers 'o not al+ays act accor'ing to a logical se@uence an' there are many factors in the
consumerEs min'1 such as feelings an' attitu'es1 +hich cannot *e @uantifie' in e9ternal
o*ser$ations0 Moreo$er1 markets change1 so consumers continually face a 'ifferent set of
'ecisions an' 'ecision making criteria0
Another metho'1 #ayesian statistical analysis allo+s the assignment of pro*a*ility to any
e$ent8e$en ran'omly occurring e$ents0 Once an :e'ucate' guess= is ma'e a*out the +ays
that consumers +ill *eha$e1 these guesses are refine' +ith 'ata from actual e9periments an'
o*ser$ations0 ?9amples of #ayesian analysis inclu'e analysis of .OS or scanner 'ata to look
for *uying patterns that are reflecti$e of the consumerEs min'1 not e9ternally o*ser$a*le
acti$ities0 The $alue is that the #ayesian mo'el is not constraine' *y *eha$iors that ha$e
occurre' in the past *ut rather1 itEs fle9i*le enough to consi'er changes in +hy an' ho+
consumers *uy0
#y merging psychology1 statistics an' marketing into an un'erstan'ing of the human min'1
marketers can i'entify more targete' segments *ase' on the multifacete' reasons consumers
*uy an' pre'ict +ith greater accuracy consumer responses to ne+ pro'ucts an' ser$ices0
=. Using the concept of consumer insight an# marketing mi7> choose a pro#uct that has
3een intro#uce# to the market in the 'ast t4o &ears an# e7p'ain 4h& &ou think it has
succee#e#.
Stu'ents may choose from a $ariety of pro'ucts to ans+er this @uestion1 *ut they shoul'
inclu'e a goo' 'iscussion an' application of consumer insight an' market acceptance0
2>
Consumer #eha$ior1 /6
th
?'ition
Consumer insight can *e o*taine' from intuition an' facts *ase' on market research0 A goo'
e9ample of creating a pro'uct *ase' on consumer insight is satellite ra'io1 inclu'ing Sirius
an' MM0 Consumer insight theory re@uires that ne+ pro'ucts1 in or'er to *e successful1 must
satisfy consumer nee's1 +ants1 an' e9pectations *etter than e9isting solutions0
Satellite ra'io first *ecame popular +ith truck 'ri$ers +ho +ante' to listen to li$e
programming an' the latest music hits +hile 'ri$ing across a large geographical area0 !hile
truckers coul' listen to cassette tapes an' compact 'iscs1 not only +ere these *ulky an'
'ifficult to fin' an' change +hile 'ri$ing1 *ut they re@uire' a significant in$estment in ne+
tapes an' C"s +hene$er ne+ songs +ere release'0 #y contrast1 using satellite ra'io1 truck
'ri$ers coul' listen to the latest hits +ithout in$esting in a music li*rary0 Moreo$er1 truckers
+ho enDoye' talk ra'io an' other li$e programming +oul' often lose their ra'io signals in the
mi''le of a program0 -ot kno+ing +hich stations carrie' +hat programs at +hat times an' in
+hich markets1 truckers +oul' spen' hours tuning their ra'ios in search of programming they
+oul' enDoy0 !ith satellite ra'io1 ho+e$er1 truckers coul' listen to the same programs or the
same stations1 e$ery 'ay an' +ithout interruption0 An' +ith hun're's of stations1 satellite
ra'io *rought much greater $ariety than the three or four FM stations a trucker may *e a*le to
fin'0
2n a''ition to *etter meeting a consumer nee' than ra'io an' recor'e' me'ia1 the success of
satellite ra'io can also *e e9plaine' *y its marketing mi91 +hich inclu'es pro'uct1 place1
price1 an' promotion as +ell as *ran' an' the :I(Es= of research1 rate1 resources1 retailing1
relia*ility1 re+ar' an' relationship0
To make a'option easy1 Sirius an' MM intro'uce' pro'ucts that are relati$ely easy for
consumers to install themsel$es1 +ithout special e@uipment or training0 To a$oi' re-+iring a
car1 the consumer coul' tune his e9isting car ra'io to a pre-'etermine' station that +oul'
recei$e signals from the satellite ra'io 'e$ice mounte' on the 'ash*oar'0 Music from satellite
ra'io +oul' then play through the carEs e9isting speaker system0 MaDor retailers like #est #uy
an' !al-Mart sol' these 'e$ices as installation kits for a relati$ely lo+ price8in most cases
un'er F/668to minimize consumersE risk0 .rogramming +as then sol' on a su*scription
*asis0
2n or'er to intro'uce consumers to satellite ra'io an' encourage trial1 Sirius an' MM ma'e the
pro'uct a$aila*le as a feature in rental cars0 Consumers +ho ha' a chance to try the pro'uct
+hile out of to+n often choose to purchase it +hen they returne' home0 Through
arrangements +ith For' an' )M1 Sirius an' MM also *egan to place its har'+are in certain
upscale ne+ $ehicles an' to gain acceptance1 offere' a free one year su*scription to the
ser$ice0 These acti$ities +ere also effecti$e in generating positi$e +or'-of-mouth0
The success of satellite ra'io comes from its uni@ue a'$antages o$er ra'io an' recor'e' me'ia
as +ell as its i'entification an' selection of profita*le target segments8i'entifia*le groups
+ho +ant to listening to programming that is not normally a$aila*le in their markets0 Sirius
ma'e hea'lines +hen it signe' an e9clusi$e contract +ith talk ra'io host Ho+ar' Stern to
increase its 'ifferentiation from *roa'cast ra'io that historically censore' many of SternEs
comments0 To target an ur*an au'ience 'esiring to listen to Dazz music1 Sirius place'
25
Chapter 2 Creating Marketing Strategies for Customer-Centric Organizations
a'$ertisements in magazines such as ?*ony an' Let0 Mean+hile1 MM place' *ill*oar's in
rural +estern states such as 7tah an' !yoming ;+here ra'io reception can 'ifficult 'ue to
mountains an' other natural *arriers<1 to emphasize the a$aila*ility of Christian an' country
music programming regar'less of location0
#y un'erstan'ing consumersE potential nee's an' realities *ase' on past e9periences an'
intuition1 an' *y targeting the user segments most intereste' in li$e au'io programming1
satellite ra'io +ill likely continue to *e successful for years to come0
?. Suppose &ou are the marketing manager for a ne4 (or# (ocus h&3ri# automo3i'e. Ho4
4ou'# &ou use intermarket segmentation to #e,e'op marketing strategies for (or#-
2ntermarket segmentation is use' to i'entify groups of consumers1 across tra'itional markets
or geographic *oun'aries1 +ho share similar patterns of *eha$ior0 The result is a ne+
'efinition of markets *ase' on the +ays consumers think an' act rather than +here they li$e0
The challenge1 ho+e$er1 is to *uil' a marketing strategy that emphasizes the similarities
among consumers aroun' the +orl' rather than their 'ifferences0
There are three maDor phases of i'entifying intermarket segments0 The first is to i'entify
market tren's an' opportunities in the glo*al market +hile also segmenting that market0 The
marketing manager for the ne+ hy*ri' automo*ile nee's to analyze consumption patterns an'
other consumer characteristics of the automoti$e market +orl'+i'e0 For e9ample1 on the
*asis of lifestyles an' other psychographic $aria*les1 the manager may +ant to categorize the
market into three su*-segments inclu'ing ur*an commuters1 the en$ironmentally
conscientious1 an' the economically pru'ent0
Secon'1 a manager nee's to select the target market using criteria1 inclu'ing measura*ility1
accessi*ility1 su*stantiality1 an' congruity0 The selecte' segment must *e homogeneous +ith
respect to key characteristics0 For e9ample1 the manager may +ant to target the ur*an
commuter segment *ecause it is su*stantially larger than the other segments0 Consi'ering the
traffic an' pollution pro*lems that plague many large cities1 consumers in ur*an areas
+orl'+i'e are looking for affor'a*le1 relia*le transportation that is efficient to operate in an
era of rising energy costs1 +hile also minimizing the harmful emissions that create smog an'
en'anger their health0 Various marketing programs can target this largely young an'
up+ar'ly mo*ile segment *y emphasizing style an' fashion1 'ri$ing comfort1 fuel efficiency1
an' ease of parking0
&ast1 after selecting an' characterizing the target market1 the marketing manager nee's to
'etermine the le$els of localization re@uire' for each geographic market0 This is *ecause
consumers in the same glo*al segment also ha$e uni@ue characteristics 'epen'ing on +here
they li$e0 For e9ample1 the steering +heel may nee' to *e locate' on the right for consumers
in the 7nite' 3ing'om an' Lapan0 &ocalization may also re@uire that minor 'etails1 such as
icons on the control panel or the use of miles an' gallons $ersus kilometers an' liters1 *e
change' to match local customs0
2I
Consumer #eha$ior1 /6
th
?'ition
@. !n reference to &our ans4er to Auestion 6> ho4 4ou'# &ou 3est communicate to the target
au#ience- +escri3e &our promotion campaign for (or#.
As sho+n in @uestion A1 it is critical for the marketing manager to consi'er the e9tent to +hich
the ne+ hy*ri' $ehicle shoul' *e stan'ar'ize' *efore 'e$eloping marketing programs0 ?$en
though some le$els of localize' mo'ifications in promotion are necessary1 glo*al promotions
+ork +ell +hen they inclu'e communications *ase' on similar lifestyles1 appeal to *asic
human nee's an' emotions1 an' the pro'uct satisfies uni$ersal nee's an' 'esires0
For e9ample1 the marketing campaign for the ne+ hy*ri' automo*ile targeting the ur*an
commuter segment may position it as a car that :makes life easy0= 2f +e assume that this
segment consists of *usy professionals +ith o*ligations to career an' family1 the campaign
shoul' *e 'esigne' to appeal to these nee's +ith appropriate me'ia0 2mages may inclu'e a
car *ypassing the filling station emphasizing fuel efficiency1 chil'ren playing in a green fiel'
emphasizing the en$ironment1 an' a satisfie' 'ri$er sitting rela9e' in hea$y traffic
emphasizing 'ri$ing comfort0
To cope +ith pro*lems resulting from languages an' cultural 'ifferences1 it +oul' *e useful to
employ *ack-translation0 Finally1 regar'ing the me'ia selection1 the 2nternet an' ra'io may *e
most effecti$e *ecause the target au'ienceEs *usy lifestyle 'oesnEt pro$i'e time to rea'
magazines or +atch much tele$ision0
2A