Targeting Attractive

Market Segments

Blue Ribbon Sports Targe~ Distance Runners

It was 1964. Phil Knight, a recent g~duate of Stanford~ G~duate School of Business and a former
Unwe~ity of O~gon runner with a 4:10 personal
best in the mile, and the ~genda~ Bill Bowerman,
Knight~ former track coach at the Unwe~ity of
O~gon, we~ pas~onate about di~ance running.
They believed that the German-made shoes that
most competitive runners wore at the time were
too expen~ve and not designed with distance runners needs in mind. They saw an oppo~unky to
design better running shoes in the United States,
have them manufactu~d in Asia, and sell them in
America at prices lower than the German shoes.

The Unique Needs

of Distance Runners
Di~ance runne~ such as Knight and Bowerman
had diffe~nt footwear needs than other athletes.
To become cond~oned enough to run a 26-mile
ma~thon or even a one-mile or two-mile race at
an inte~legiate track meet, di~ance runne~ ~n
several miles per day and sometimes more than
100 miles in a week. O~en, these miles we~ spent
on rough trails, whe~ rocks and other natu~l obstacles led to ankle sp~ins and other iquries, or
along count~ roads, whe~ the miles and miles of
impact led sometimes to shin splints or even stress
fractures of the bones in their legs and ankles.
Bowerman, a lifelong innovator who made shoes
in his garage for his runners, believed that distance

runne~ needed lighter and more flexible shoes,

not heavy leather or ~iff soles. They needed shoes
with better lateral ~ability, to protect against
ankle sprains, and more cush~n~g, to help the
runner~ body cope with miles and miles of repetitive impact.

The Waffle Revolu~on

Though ~al success took several yea~ to
matedal~< the sto~ of Bowerman~ vision
of a better shoe for distance runners is
now entrepreneurial Iota With his wife~ waffle
iron and some latex, Bowerman invented the wa&
fie ou~ole that would u~mate~ ~v~ution~e the
running shoe. The I~htweght, yet du~Me and ~able sole set a new standard for shoe performance
for di~ance runners. Knighb the business person
and ~onary, had wri~en in a class assignment at
Stanfo~ a plan for dev~o~ng a business to sell
American-des~ned, A~an-made shoes lo di~ance
runners. Knight and Bowerman each chipped in
$500 to form Blue Ribbon Spots and found a
Japanese compan~ Oni~uka Tige~ to manufadu~
the shoes they designed. For yea~, whe~ver the~
was running going on, Knight could be found selling his shoes out of the back of his ~ation wagon.
By 1969, Knight was able to quit his day job as an
accountant and devote all of his energies to the
growing business, which had grown to 20 employees and several ~tail outlets.
133

Launching and Expanding the

Nike Brand
In 1972, Blue Ribbon Spots launched Ks
Nike brand at the U.S. Olympic trials after
a dispute between Blue Ribbon and Tiger
led to a b~akup of their relationsMp. In the 1972
Olympic marathon, four of the top seven finishe~
wore Nike shoes. By 1974, aker 10 yea~ of
dogged effo~ to build the compan~ the Nike shoe
w~h Bowerman% waffle sole was America~ besb
selling t~ining shoe, and the Nike b~nd was on i~
way to ~a~om. In 1978, tennis g~at John McEnroe signed with the compan~ which had changed
i~ name to Nike, Inc., and tennis shoes became a
prominent pa~ of the produ~ line. In 1985, a
promising Chicago Bulls basketball rookie named
Michael Jonah endowed a line of Air Jo~an shoes
and appall. By 1986, Nike~ worldwide sales
passed the billion-d~r mark and Nike had become the acknowledged techn~og~al leader in
the footwear indu~ry. Befo~ long, Nike e~ended
~s produ~ lines to include athletic appall.

World Cup 2002

Among Nike~ target markets by the turn of the
m~en~um was football--soccer to Ame~cans-the world~ most-played spot. Wkh World Cup
2002 scheduled in Korea and Japan, Nike% product
dev~ope~ knew that ext~me heat and humidity
would call for uniforms that would help players
compete at top speed and ~ill keep their body
temperatu~ down. Working for two yea~ with
the Korean team, Nike developed iB new Cool Motion techn~og~ a material with a "two-layer structure designed to ma~mize thermal comfo~ and
ventilation," said Nike% C~ative Produ~ Designer
for Football, Craig Buglass. The uniform~ inner
layer pulled perspiration away from the skin and
spread it over a wide area for quick evaporation, ts
water-rep~nt outer layer helped to keep the uniform d~ under ext~me humidity during intense
aerobic adMty.
Did the uniforms perform? Ko~a, never known
as a football powe~ surprised many by winning
third place. Their relentle~ p~u~ and unending
team speed impressed many obse~e~. And the
h~hAech uniforms su~ly didn~ hu~.

STRATEGIC CHALLENGES ADDRESSED IN CHAPTER 6

The examp~ of Nike, Inc.~, ofiNns and early deve~pmem ~vN~ points out how a ~w
relative~ simp~ dedsons m deafly ~emify a markN ~gmem with unma or poorly m~
needs--~stance runn~s--and then develop innovaNe goods or services that meet the
needs of the targemd ~gme~ can provide entrde i~o a market n~he and serve as a ~undation for subsequem expansion ~a can mvo~fioNze a m~kN or ~duary
Wha Phil KhaN, Bill Bow~ma~ and ~e manageme~ ~am ~ey ~mbled unde~
~ood so w~l N ~ NffemN groups of consume~--~ffem~ markN segme~s--have &~
~m~ warns and needs, bo~ ~ngible and intanDNe, ~ aNetic %~wea and ~ aN~ app~. In vKmN~ any makN, if ~ffemm ~gmems can be c~afly ~emNe~ spec~c
produas wi~ specffic maket~g programs can be dev~oped m meet b~h ~e phys~al
needs of~e consum~ ~.g., ~e lateral stabili~ and ~e extra cushioNng ~a ~stance rum
nets need ~ ~ek shoeQ as we~ as ~e em~%nN needs ~a consumes attach to ~eK pu~
sui~ ~.g., to ~ tha ~ey reign someday soar tNough ~e Nr and dunk a b~ke~N1 wi~
the panache of Michael JoNa~.
In ChaN~ 6, we draw on the %unda~n of market knowledge and cu~om~ undeP
aan~ng e~aNNhed ~ the fir~ five chap~ to introduce what ae probab~ ~e mo~ impo~a~ and ~ndame~N runs ~ the m~kN~N toolkit: mark~ segmentation and target
marketin~ TogNh~ wi~ pmdu~ po~fioNng, wh~h we address ~ Chap~r 7, ~e~ ~Ms
pin, de ~e Na%rm on wh~h mog effe~Ne marketing programs ~e b~R. Learning m
app~ these tools effectively, however, ~quims addres~ng serum importam questions.

Cha~er Six ~e~ng A~ Manet ~gm~ 135

Why do m~kN segmem~ion and mtg~ marking make sen~? Why nm sell ~e same ~hlefic shoes---or b~yde~ Nriine ficke~, beverages, or whateve~m everyone? How can
p~entially ~a~Ne m~k~ ~gments be Nentified and defined? Finally, how can these
segments be priorit~ed so th~ the mo~ a~racfive ones ~e pursued? Answering these que~
fions shoed enaNe an entrep~neu~ a ventu~ cap~M investor in Silicon Valley, or a ma~
kefing manager in a multin~nN firm to deNde which m~k~ segments should be ~
ge~d and wh~h ~vestments should be made.

WHY DO MARKET SEGMENTATION

AND TARGET MARKETING MAKE SENSE?
M~t segment~n is the process by which a mark~ ~ dNided ~o ~ subse~ of
cu~om~s ~ s~fl~ needs and charac~risfics ~ ~ad them to respond ~ ~mfl~ w~s
~ a ~c~ Wo~ o~g ~d ~g program. ~ ma~ ~s ~
~ng ~e ~ a,racfiveness of various ~gments On mrms of m~k~ ~m~N, gro~h
r~e, comp~ifive ~si~ and o~ ~o~) and ~e firm~ ~ and capab~fi~ m defiver ~at each ~gment wants, ~ order to choose wNch ~s R ~ serve. Product
po~ entails ~g~ng ~odu~ o~ ~d ma~ programs ~ ~c~e~
es~N~h an enduring compline advantage ~ the ~rg~ maN~ by ~e~ a uNque
imag~ or poMfio~ ~ ~e cu~om~ ~nd. ~igN and Bow~man ~unded B~e ~bbon
Spots ~ pa~ because ~ey saw a mark~ s~~e runners~ose needs were
not berg NI~ m~. They chose to target ~s ~gment because ruing was gmw~g in
pop~ariW and because ~ey had pa~Nr knoM~ and expe~ise ~ey could bring to the
par~ They poNfioned ~dr i~Ne shoes as ~e ones th~ e~d ~e p~rman~ of
the be~ m~e~ ~ ~e world an@ by i~~ of a~one rise who cared about Ns or

Strategic Issue
Are all ~e anNys~
and con~us chNces
abo~ wNch ~gme~s ~
serve ~al~ necessary?

Thee t~ee dedNon ~~ ~~ ~ m~k~ and p~Nom

~ are c~sdy ~d and h~e s~ong ~&~M~. AH ~ be ~H consN~ed and
~~d X~ ~ is m be ~s~ ~ manaNng a gN~ pm~cbm~t ml~.
No ma~er h~ NNe the ~, ~g ~s resources are usually l~ed ~d ~th the
~ of a~nafi~ m~t ~gments ~aNe ~r i~L TMs, a fi~ mug ma~
choices. Even ~ the u~suN case where a fi~ can a~rd to serve ~ m~k~ ~ R
mug &m~ ~e mo~ appmpfi~e aHocafion of ~s maN~ e~ a~v~ ~s. But
are N1 these ana~s and con~us chNc~ ~ ~ ~s to serve m~y ~~
Most Markets Are Heterogeneous
Because m~k~s ~e ~ homogeneous in bene~s wante~ pu~h~e rates, and price and
promotion dasticit~s, the~ response rates to produc~ and m~k~g programs Nffe~
Variation among m~k~ ~gments ~ grodu~ preferences, size and growth ~ deman~
mesa hab~s, and comp~Nve ~rucmms N~h~ affect ~e Nffemnces and response rates.
Thu~ m~k~s are complex entNes ~at can be defined (~gmented) in a vafie~ of ways.
The crificN issue is to find an appropri~e ~gmentation ~heme ~ will ~d~e mrgN
m~k~g, produ~ posNoNn~ and ~e ~rm~ation of su~s~l m~k~g s~eNes and
programs. By ~cus~g ~ek inifiN effo~s on Ngh~rmance Nstance ~nn~s, a dearly
defined and very n~mw m~k~ ~gment, KnNN and Bow~man pm ~emsdv~ ~ p~
fion to deNgn shoes e~ecNHy well suRed to these runn~s needs. The~ ~gmemation
~heme, ~guably, pNyed ju~ as important a role in ~ek early success as Nd Bowerman~
wife~ waffle iro!!

136

Section Two

Today~ Market Realities Often Make Segmenta~on Irnpera~ve

Mwk~ segmentation has become ~creasing~ impo~ant in the devdopment of mwketing
~r~eg~s for several reasons. Fir~, popul~n grmvth has ~owe and more produ~mwkms an maturing. TNs sparks mort intense comp~ition as fim~s seek gm~vth via gains
in market shwe (the situ~n in ~e automob~e indus~y) as well as in an incnase in brand
extensions (Stwbucks coffee ice ~eam, Colg~e ~mhbrushes, Visa ~aveler~ checks).
Secon such social and economic forces as expan~ng ~sposable incomes, higher edncationN levels, and more awweness of the world have produced cusmm~s with more va>
~d and sopN~amd needs, ~sms, and li~sUles ~an ever befon. This has led to an ou>
pouting of goods mad serv~es th~ compme wRh one anther for the opporR~nity of
s~isfying some group of consumes.
Thk< ~em is an in~easin~y important ~end ~wwd microsegmentation in which ex~eme~ small markN segments an ~rgemd. For a ~scusdon of how one company built itserf into a multim~lion-dollar business wh~e ser~ng a very small Nche see ExNbR 6.1.
This ~end has been accd~amd in some indu~fies by new mchndogy such as compnte>
aided defig~ wNch has enabled ilrms to mass~u~om~e many products as Nv~se as designer jeans and cars For exampE, many antomobHe compaNes are using a fleMble production sy~em th~ can produce Offerent modds on the same production line. This
enables the company to produce cars made to order as does Gen~N M~ors in the UNmd
~ams, which is using its online presence to free rune its build-to-ord~ wocess?
Finally, many mwkNing orgaNz~ns have made R easier m imp~ment sharp~ focused mwkming programs by mere sharp~ targeting thek own ser~ces. For example,
many new meOa have sprung up m appeN to narrow ~mre~ groups. In the Uinted Kingdom, lhese inc~de spedal int~e~ maga~nes, such as Wcmcte~t and Au~c~7 md~ ~afions with form,s m~gemd m Offennt demograpNc groups, such as das~cN mu~< mcM
countrL and jaz~ n~ m mention ch~ shows of various Mnds; and cable TV channeN, such
as Sloj Spo~ and ~e Discovery Channd. Also more broad-based magazines, such as The
Economist and Hello, offer advertise~ the oppor~Nty to target specific groups of people
within thek subscription base. An adve~er can mrg~ specific regions, c~ies, or Z~
codes, or even selemed income groups.

EXHIBIT 6.1 Can Under Atvnour Become Another Nike?

Kevin Plank did not set out to create a cult around athletic underwear--he simp~ wanted a comfo~ab~ Tshi~
to wear under his football pads that would wick moistu~ away from his skin and proted him from heat e~
hausflon during p~ctice. Aker hunting through all the
sporing goods shops, Kevin ~alized that the~ was not
a ~ngle produd on the market that met his needs. He
set out to create one. In Ma~h 1996, ju~ before g~duation, Kevin had some TshiRs sewn up in Lycra and
found that he had solved a common problem for all of
his teammates.
Under Armouq the company that was soon born in
his g~ndmothers basemenb made i~ fi~t sale of 200
shiRs for $12 apiece to the football team at Georgia
Tech. Kevin ended his company~ fi~t year w~h sales of
$17,000. Under Armour was marketed by wo~-ofmouth from happ~ sa6sfied cuAome~, and g~w with
sales to athle~c teams in colleges. The company got iB

big break due to a produ~ p~cement in the Oliver Stone

football movie Any Given Sunday Buzz from the movie,
and a first-time ad in ESPN Magazine during the movie
premier< boo~ed Under Armour sales to $1.35 million
in 1999. Under Armour~ sales in 2001 drove tripe-d~
growth in its catego~ and led indu~ pee~ at Sporing
Goods Business to ~cogn~e the company as "Apparel
Supplier of the Yean" Under Armour po~ed sales of
US$55 million in 2002.
The small unde~e~ed manet segment that Kevin
Plank d~covemd and his success have not gone unnoticed. Iron~al~ recent entrants to this market are Nike
and Reebok. Kevin Plank~ ~a~n? "Ill never let them
see me sweat."
Sources: Company Web ~te http://www.unde~rmouncom; Elaine
Shannon, "Tig~ Skiwies; Theyre Wh~ Eve~one~ Wea~ng This
Season. Hem~ Why," Tim Janua~ 13, 2003, p. A1. 2003 Time
Inc. Pe~in~d by permiss~n.

Chapter Six ~rgeting Attractive Market Segmen~ 137

HOW ARE MARKET SEGMENTS BEST DEFINED?

Strategic Issue
TI~ ~e ~me impo~
tant o~ectives ~ai~d
in ~e m~k~ ~gme~
tion process.

Then we ~ne important o~e~s entN~d in ~e mann ~gment~n wocess:

Identify a homogeneous segment that differs from other segments: The process
should identify one or more rel~Ne~ homogeneous gmnps of prospec~ve buye~ with
regard to their wan~ and needs and!or thek like~ responses to Nfferences in the elemen~ of the marketing mix--the 4 Ps (pmodud, p~ce, promotion, and place. For Bowerman and Knight, Ngh-performance Osmnce runners was such a segment. Differences
within one markm segment should be small compared ~ ~fferences across various segments (most high-performance Nsmnce runne~ probab~ have athlOic footwear needs
th~ are quite similar to one anotheL but quire different from, sa the needs of baskmball players).
Spedfy erReria that define the segment: The segmentation c~mtia should measure or
describe lhe segments cMarly enough so lha members can be reaN~ identified and accesse< in order for the markmer to know whmher a gNen prospective cu~omer is or is
not in the target markm and in order m reach the pmspectNe cumomer with adve~ising
or other malkming commuNcation messages. Knight and Bowerman defined their initial targm market as being comptised of members of running c~bs cr di~ance runners
on cdMN~e ~ack and cros~coun~y roams.
Determine segment ~ze and po~ntiM: Finally, the segmentmion process should demrmine the size and market pomntiM of each segment for use in pfiotifizing wNch segments to pursue, a topic we address in more detail Nmr in this chapma Knight and Bmvennan could easi~ ascertain how many such runners there were in Oregon or the
western UNmd States, and they probably knew how many paks of shoes per year the
typ~al Nsmnce runner boughk at what average ptice.
GNen ~ese o~ective~ what Mnds of ~gment~n ctimtia, or desctiNo~, am mog
useful? Markem~ Nvide ~gmentation d~ctiNws into tNee m~or ca~go~es Nr bo~
consum~ and oNaNzationM marke~: demographk de~Hpto~ (which reflect who the
target cumom~s are), geographic d~eHpm~ ~w ~ey are), and behavioral descHptors of vatious Mnds @ow ~ey behave wi~ ngwd to ~ek use and/or purcha~s ofa Nven
camgory of goods or ~r~ceO. We examine each of O~e camgofies below.

Who They Are: Demographic Descdpto~

W~le firm ~mo~Mcs (age of firm, si~ of ~m, in~s~ ~c.) we use~l in ~gn~enting ~inz~al mwkds, we u~M~ ~ink of ~mogmpNcs in ~rms of a~tibntes of in ~duM columns, as ~own in Exh~it 6.2. Some ~ampMs of ~mo~Mc &~riptws
used to ~gment co~um~ mwk~s we as ~ows:
Age: Since mobiM phone penetration has reached almo~ saturation levels in Europe
and the United Kingdom, mob~e service provide~ are focusing on the 55-65 and 65p~s segment to imwove usage and pene~ation respectively. Thek high Nsposable
incomes and thek ability to devote time to new habhs is seen as a lucrative markm
opportunity.4 At the other end of the demograpMc scale, Red Bull has b~lt a foRowing among youth wo~dwide (see ExNbit 6.3).
Sex: In AustrM~, Toyota launched an oNine information service aimed ~ women,
recogNNng th~ women make up 50 percent ofToyotaN saMs and Orem~ influence 8
out of 10 veNcM purchases?
b~come: H~he>income households purchase a Nsproportion~e number of celluNr
phones, expensNe ca~, and fl~e~er t~ke~. In 2000, NoMa ~a~ed a whol~ owned

138

Section Two OpportunityAnalys~

EXHIBIT 6.2 Some of the More Common~ Used Demographic Descriptor*

DemogBphk Descdpto~ Exam~es of Categories
Age

Under 2, 2-5, 6-11, 12-17, 18-2~ 25-3~ 35-49, 50-6~ 65 and over

Sex

Male, female

Ho~eh~d life ~cle

Young, single; newly married no child~ youngest child under 6; younge~ child 6 or
oveu ~der coupes with dependent chi~ ~der coupes w~hout dependent chi~
o~er coup~s ~ olde~ single

Income

Under $15,000, $1 ~000-2~99~ $2~000-7~99~ etc.

Occupa~on

Professiona~ manage6 cleHca~ sale~ supervisoL blue colla~ homemakeL ~uden~

unem~oyed

Educa~on

Some high school, g~duated high ~hool, some college, g~duated college

Events

Bi~hdays, g~dua~on~ annNe~aHe~ na~onal h~ays, sporing even~

Race and ethnic origin

Ang~axo~ African-America~ ~alian, Jewish, Scandina~a~ H~paniq Asian

sub~O~y Verm, to create an O~>exc~sNe mobUe m~phone and services buiR

around the phone, targm~g ~e same cu~om~s who buy ~xury w~ches and cu~ommade cars?
Ocm~a~t: The sNes of ce~a~ Mnds ofproduc~ ~.g., wcrk shoes, amomoN~s,
unarms, and ~ade magaz~eO are fled do~ to occupationN Upe. The increase in
the nnmber of working women has created needs for specialized goods and services
~c~ng fmandN ~r~ce~ bus~s w~dmb~, convemence ~ods, amomobUes, and
specmbintem~ magaNn~.
Education: There is a ~rong posRNe correlation bmween ~e level of education and
the purcha~ of ~avd, books, magaNn~, ~sumnce, the~er tickets, and phmograpNc
equ~mem.
Race and eNn~ ~qgin: More and morn compaN~ ~e t~gefing ~e~ ~gmeNs via
spedalized m~keting plogmms. In %e UNmd States, c~ compames have ~und ways
to caer to the needs of ~e multicOmrN ~gme~, which is ~tim~ed to be 32 peme~
of%e U.S. popOation ~ 2010. A ~ctive gend th~ had akeady em~ged by 2002
was ~e Ashn-AmericanN affinity ~r upscNe c~s--~ey accou~ed ~r 15 peme~ of
BMW and 9 p~ce~ of M~cedes Benz sales]
Strateg~ Issue
Demograp~c de~fiptors are also impo~am
in ~e ~gmemation of
~du~fi~ m~k~s.

DemograpNc de~riN~s ~e also impo~a~ ~ ~e ~gmem~n of ~du~fiN m~kms,

wNch are ~gmemed ~ two stages. The first, macrosegmenmtiom N~des the m~km accoring m ~e ch~a~eristics of ~e bu~ng o~aNzation us~g such d~cfipm~ as age of
firm, firm size, and ~du~ry affihation (SIC code ~ ~e UNmd St~eO. The int~nationN
coum~pa~ of ~C is %e gadmcmegory code.
The second stage, microsegm~tmtion, gmnps cu~om~s by ~e ch~acmristics of~e ~~duNs who ~fluence the purchaNng decision--for in~ance, age, sex, and posNon
witNn Ne orgaNz~n. Nmm~ional m~k~s ~e ~gmemed ~ a Omilar hierarchical Nshion, ~a~ing wi~ cou~ri~, ~llowed by groups of ~dNNuNs or bu~ng o~aNzations.

Who They Are: Geographic Descriptors

Diffemm ~c~ns v~y ~ ~ek sNes pmentiN, growth r~es, cusmm~ needs, cOmms, clim~es, ~r!ce needs, and compmitive ~rucmms, as wall ~ purch~e rNes ~r a varieU of
goods. For example, more p~kup trucks are sold in ~e sou~we~ Um~d States, mwe vans

h-

Chapter Six TargeUng A~mcUve Market 5egmen~ 139

EXHIBIT 6.3 Red BuH~ TargetedAppmach Winsa~vss the Globe

Aus~ia-based Red Bull is a company with one produ~, said Nancy E Koehn, professor of business administraan energy drink contain~g the amino-ac~ lau~ne. tion at Ha~a~ Business School and author of B~nd
While wo~ing for Unilevec Dietrich MateschEz traveled New." How Entrepreneurs Earned Consume~" ~ust from
oken to Asia, whe~ he tried syrups that Asian bu~nes~ Wedgwood to D~L* Red Bull used C~giate Brand
men d~nk to ~tal~e. His expe~ence the~ led him to Manage~ to p~mote the drink via f~e samples handed
spot a manet oppo~unR~ and after modifying the drink out at ~udent pa~ies. The company also o~an~ed e~
to appeal to Western palates, he launched Red Bull in t~me spots even~, for e~ample d~ dMng in Hawaii or
1987. I~ signature, a slim, ~e~c~o~ 8.3 ounce can, sk~eboa~ing in San F~nd~ reinforcing the b~nd~
has been an enormous hit with i~ target youth segment e~me, on~h~edge image.
acro~ the globe. For the year 2001, Red Bull had sales
The beve~ge indu~ gian~ we~ ~Mng note. Coke
of $51 million in the United States alone and captu~d ~n a s~alth ma~eting campa~ whe~ Coke was
70 pe~ent of the energ~d~nk manet woddw~e.
packaged in a slim can, ~min~cem of Red Bull~ packFrom Stanfo~ Un~e~ity on C~fforn~ We~ Coa~ aging, and offend to cu~ome~ in hip, t~ndy ba~ and
to the beaches of Au~l~ and Th~n~ Red Bull has clubs in Manh~n and New York City.
managed to maintain its hip, cool image, with ~u~
no mas~ma~et adverti~ng. It has in~ead opted for a
g~-roots campaign. "In terms of att~cting new cusJill 8russ, "Alternatively SpeaMng: AlternatNe Beve~ges
tome~ and enhandng consumer loyalty, Red Bull has a Source:
Keep the ~du~ Abuzz with New P~du~s (Catego~ FocuS, Be~
mo~ effective branding campaign than Coke or Pepsi," erage ~dustry 1, November 2002.
*Nancy E Koehn, Brand New: How Entrepreneu~ Earned Consume~ Trust from Wedgwood ~ Deft (Boston: Ha~a~ Busine~
School P~ss, 2001).

in the No~heast, and mine high-priced impo~s in the We~. More and more adve~Ners are
taldng advantage of geograph~ media buys, and Uni-Ma~s, Inc., a convenience store operator of over 400 stores, focuses on small towns and rural areas, thereby avoiding big
competitors. In the fir~ 25 years of its histor> R never recorded a loss?
Geographic segment~ion is used in both consumer and organizationN markets and is
palticula~y important in lemihng and many services bu~nesse< where cu~omers are unwilling to ~avd very far to obtNn the goods or services they requke. Thus, one way to segment retail marke~ is by di~ance or driving time ~om a pa~ular location. The area ineluded within such a geographicNly defined region is called a trade area.

Geodemographic Descriptors
Strategic Issue
Low-co~ repots based
on census dam show ~e
demographic profi~ of
e popul~ion mMNng
~vi~in any gNen radius
of a part~ street
corner or shopphg cenmr ~c~n ~ ~e
United States.

Many segme~afion ~hem~ invoke bo~ demograp~c and geog~p~c ~c~. Thu~ ~ta~e~ usuN~ warn ~ lcnow mmething about the people who 1Ne wkNn, say, a twmmi~
or fiv~mi~ ra~us of thek proposed new ~ore. Ndman M~cus, ~e upsca~ dep~tmem
~e, migM ~Nm one demographic gm~p wRNn a gNn ~ade ~ea, and Wal-Mart, a Nscoumeg migN target anothe~ C~fims (wwmelaritas.com) and other sources offer lowco~ repots based on census d~a that show ~e demograpNc profile of ~e popOation resiNng within any gNen raOus of a partic~ s~eet corner or shopp~g center ~c~n m
e UN~d States. These repots am useN1 M ~g ~e size a~d m~k~ po~mN1 of
a m~km ~gmem defined by a particO~ ~ade area. GeodemogmpNcs also a,emNs ~
pmOm con~m~ behavi~ by maMng demogmpNc, psychogmpNc, and consum~ ~>
m,ion avN~Ne at ~e Nock and Z~ code or po~code levels. Clarit~ PRIZM service
clas~fies all ~S. households imo 62 demogmpNcN~ and behaviwM~ Nstin~ c~sm~,

each of wNch, in turn, is assigned to one of 15 social groups2 Clarit~ offers similar
dams~s ~r F~nce and d~wh~e,

140 Se~ion Two

Strateg~ Issue
G~orade~ ~mp~ segmenmtmn scheme
~ea~d a wlm~ new
c~egory of "spots
bevemges

How They Behave: Behavioral Descriptors

Them is no limk ~ He numb~ of ins~ht~l ways succ~s~l ma~e~ have ~gme~ed
m~ke~ ~ beha~orM terms. Kn~N and Bowerman orig~N~ targemd Ng~p~rmance
~stmme runne~. SpeNN~ed and Gary Fisher ~N~ bicyclists who wish to fide on Nn~e~ack ~a~s or bac~coumry ~Nn. EuropeN EasyJ~ airl~e odg~al~ ~rgNed ~isure
~avM~s. G~omdeN oHg~al ~ mark~ con~ed of ~NNes who needed m mp~Nsh
w~ and salts ~ tNough perspiration. TNs sim~e ~gmentation scheme ~e~ed a who~
new camgory of"~orts beverages] wNch g~w to ~c~de emries ~om Coke (Powemde)
and Pep~ (All Sport), ~ough G~omde s~ll dom~es the c~egory w~h an 80 p~ce~
m~k~ shoe. TNs on~ime Nche m~k~ has grown into a $2.2 Nll~n mark~ ~ ~e UNmd
States alone?
These exam~ Nl demons~e the power of NgNy spe~fic beha~N descriN~s ~
defiNng sharp~ ~cused m~k~ ~gmems, ba~d nm on u~o ~e ~rg~ consumes ~e er
u~ ~ey ~ve, but based on wh~ ~ey do. In virtually ev~y consum~ and orgaNz~nN
m~k~ H~e ~e pmbab~ ~gmems l~e ~e ju~ wNfing ~ be Ne~ed and targ~ed by
~ggNN1 m~k~s. Beha!orN de~rip~ can ~ke many ~rms, ~c~Nng ~o~ ba~d
on consum~ needs; on morn general behav~ral patterns, inc~ding lifes~le or social class;
an< ~ o~anizationM m~kNs, on ~e s~ucm~ of firms pu~ha~ng activit~s and He ~pes
of bu~ng situations ~ey encou~e~
Consumer Needs
C~m~ n~ are ex~d ~ benefi~ ~ug~ from a particular ~oduct ~ ser~. D~
~reN ~dNidual cu~om~s have Nffere~ needs and ~us aaach ~ffe~ degrees of impo~ance to ~e benefi~ offered by dift?mm produc~. In the en& ~e Noduct Nat No,des
e b~t bun~e of bene~s--~ven he cugom~ part~ needs--is mog 1Ne~ m be
purchased. For an examp~ of how t~gefing a ~ set of consum~ needs has taken a
late emmm to ~e top of ~e car remal ~dus~ see ExNb~ 6.4.

EXHIBIT 6.4
in ~963, Jack Tabor added car rentals to his small automovie lea~ng bu~ness. Ta~or~ ~tegy was to serve a
com~ete~ diffe~nt target manet than the m~ors,
HeRz and A~ and pro~de ~p~cement ca~ for people
invoked in acdden~ or b~akdowns and those who we~
grounded while their ca~ were being se~iced. Se~ing
th~ manet ~qui~d a complete~ different so~ of se~
vice--delivering the car to the cu~ome~ for example-than the m~o~ prodded. "This ~uff is a lot mo~ complicated than handing out keys at the airport," says
Andy Taylo~ Jack~ son and now chairman and CEO. The
business g~w steadi~ ff unexcep~onal~ un~l the 1990s,
when the younger Tabor ~epped on the gas and cruised
par He~z and Avis to lake the number one spot in the
U.S. market, w~h a fleet of 500,000 vehicles and more
than $6 billion in revenue for the ~ill pr~ate~ held cornpang Europe is Ta~or~ next target, and the inkial ent~
has al~ady begun, into the U.K., I~land, and Germang
While Enterprise now se~es taNet segmen~ beyond
the ca~mNacement market, ~s clear focus on a narrowly

defined segment that the m~o~ had ignored provided

the beachhead and an impregnaNe foundatbn on
which the company was able to grow. Equal~ important,
the ~rong cu~omer se~ice cuRum and decen~al~ed
derision making that were crucial to the initial ~tegy
have become the ~nchpin of the companyg wider su~
cess. Enterprise measures each of i~ b~nches each
month in terms of both profitaNlity and cu~omer seF
~ce (Two questions are asked of each cu~omer: Are you
sa~sfied with our se~ice? Would you come back?) and
no one ge~ promoted from b~nches that have belowaverage cu~omer ser~ce scores, no ma~er how strong
their finand~ performance. Enterprise has found that
cu~omers who answer "complete~ sa~sfied" on que~
~on one are thee ~mes more likely to come back.
Clear targeting. Except~nal cu~omer se~ice. R; a
com~na~on thatg kept Enterprise rolling for 40 yea~.
Source: ~mon Londo~ "Dd~ng Home the SeHice Dhic," Financial Times, June 3, 2003. Reprinted by p~mission.

Chapter Six Targedng A~racdve Market Segmen~ 141

Since purcha~ng ~ a problem-solving proces~ consumers eva~e product or brand aN

mrna~ves on the ba~s of desked chara~e~s~cs and how valuaNe each cham~e~sfic is to
the consumer--choice c~Nm Marke~ can define segments according ~ these Nf~E~
ent cho~e c~ria in ~rms of He presence or absence ofce~ain charac~s~cs and the impo~ance aaached m each. Firms typical~ s~gle out a Hmimd number of benefit segments
to mrg~. Thus, for example, Nfferent automobile manuNcmm~ have emphasized diffe~
ent benefits over the years, such as Volvo~ salty (presence of fide-door akbag~ versus
Jaguar~ stylin~ quicknes~ and ~atus.
In organiz~ionM markms, cu~omers con~der relevant benefits th~ include produ~
performance in NftErent use Ntuations. For example, Cray computers are bought because
Hey meet ~e high-speed compu~fionM ~q~rements of a sm~l group of cu~omers such
as governments, unNe~ities, and research labs. Other consecrations in the purchase ofindu~ri~ products/services include on-time d~NerN creNt mrm~ economy, spa~ paffs
avaihbH~ and ~NNng.
Product-Related Behavioral Descripto~
In addition m Ngh~ specific behav~ral descripto~ such as those just discusse there are
more general produ~-mlamd desc~ptors as well. They include product usage, ~ya~ pu~
chase pre~spositio~ and purchase ~fluence, a~ of which can be used to segment both
consumer and industrial marke~. Product usage ~ important because fl~ many mark, s a
small propo~ion of pmenthl cu~omers makes a Ngh percentage of aH purchases. In o~
ganizationN marke~, the cu~omers are be~er know~ and heavy use~ (often cNled key
account) are easier to Nentify.
Mmket segmentation based on sources of purchase influence for the product c~egory
~ re~vant for both consumer and orgaNzationN mark, s. Many pmduc~ used by various
fami~ members are purchased by the wi~, but joint husband-wi~ dedNons are becoming morn cmnmon. CNNren~ pmduc~, prescNp~on drugs, and ~fis am clearly influenced
by a variety of inOviduaN. In orgaNzational marke~, several ~N%duNs or uN~ w~h
var~ng degrees of influence partic~aW in the bu~ng cen~

L6resty/e
Segmentation by li~sUle, or psychogmpNc~ ~gments m~ke~ on the baos of consumps acfiv~ intact, and opinions--in o~er words, wh~ ~ey do or befieve, rmher
an who Oey are in a demograpNc sense. From such ~formation ~ is possible to in~r
wha Upes of produms and ~r~ces appeN to a p~ficO~ group, as well as how be~ to
commu~c~e wiO ~duNs ~ the group. For examN< Goodye~ ~m and Rubber and
Og~W and M~her (an advertising agency), worMng sep~amly, have devdoped several
clas~fications ~r ~cb~ ~e ~gmen~. ~m Good)e~ effo~ cons~ ofs~ groups-the pm~e buyer, ~e com~naNe con~ative, the vMue shoppec the pmmndeg the
~usting p~m~ and ~e b~gaM hunter. O~Ny and MaH~ propo~s 10 g~bN ~gments
based on li~sWle chamcm~stics--basic needs, ~ d~l, tradit~nal ~mi~ li~, conventional ~mi~ li~, ~o~a>me, mmebody bmm~ md con~rv~ism, young opfimi~, ~sN~
achieveg and sochl~ aw~e.~
~an~N Re~ch N~knte (SRI) has ~e~ed a U.S. segmentation service ~alled VALS
2~ wldch b~lds on ~e concept of sel~orientation and mmumes ~r the ~dN~ual. Se~
~4en~on is based on how consumes pursue and ~q~m ploduc~ and s~ces H~ prm
~de s~~n and ~epe He:r Menfifi~. M dd~g s< ~ey ~e mctiva~d by He orien~fions of princ~E, ~ams, and action. Princ~le-ofiented consumes are motiv~ed by
ab~ra~ and idea~zed crimria, whi~ ~a~>oriented consumes shop ~r produ~s Hat
demons~e ~e consum~ suc~. Actiomofiented consumes ~e g~ded by ~e need ~r
~dal ~ phy~l acfi~ty, vafi~ ~nd risk mMn~

142 Section Two

Strateg~ Issue
Those i~e~ed ~ he
VALS ~gme~n
~heme can comNme a
short survey on he
VALS Web sRe and ~scov~ he VALS
~gment m w~ch ~y
belong.

Resomves ~c~de all of ~e psychNog~al, phy~cN, demograpNc, and m~eriN means

consnmers have to draw on. They recede education, income, ~lf-confidence, heNth, eagerness to bu> imdl~ence, and energy level~n a cont~uum ~om minimN m abundaN.
Based on these two Omen~ons, VALS 2 defines eight segmen~ that exh~R ~stinctive
behavior and decision maMng--acmalizers, fiflfillers, acNevers, experiencer~ befievers,
~rive~, makers, and ~rugg~. Claritas and similar commercial orgaNz~ns Nemify
each of the mspondems as m thek VALS type, ~emby permitt~g a ~o~mla~ific~n of
VALS type w~h the wodu~ usage and personN ~formation cd~cmd by such compaNes.
Thus, users can dmermine what each VALS segment bought, what ~ek mesa habRs are,
and simil~ dam. The VALS sy~em has been further developed ~ Europe and Asia)~ Those
interested in the VALS segmem~ion scheme can complete a sho~ survey on the VALS
Web si~ (log onto http://fuure.sri.eom/VALS/VALSinde~shtml) and O~ov~ the
VALS segment m which ~ey bdong.
Social Class
Every sodety has Rs st~us groupings based large~ on simi~rities in income, educ~n,
and occupation.~ Because researchers have long documented the values of the various
classes, ~ is possible to in~r ce~a~ behavior concerning a given wodum. For example,
the midge Oasses ~nd to place mine va~e on education, fami~ activities, cleanliness, and
being upqo-d~e than do ~we~dass ~milies. In the inmrn~ion~ fide one has to be careful in using sod~ class as a segmentation variable since the Offerences among classes can
become ~u~e as they are in the Scandinav~n countries.~ In Americ~ many of the cri~fia used to define class ~atus seem to some to be no ~nger appl~aNe as the nation becomes incmaongly ~agmented into dozens of distinct subcultures, each with its own
unique ta~es and ambitions. As nomd ea~ieg Clarims, Inc., has ~entified 62 ~inct
classes in the U~md St~es, each with i~ own set ofbd~ and aspkations.~
O~gan&aKonal or Firm Beha~oml Descripto~w
Purchasing ~ru~ure and buying sRu~n ~gmem~ion de~fiNws are uNque to orgaNzationN m~kms. Purehafing structure is the degree to wNch the purcha~ng a~NRy is
cemmEzed. In such a ~rucmm ~e buyer is l~e~ to consider all transactions with a gNen
supN~r on a Nobal basis, to emphasize co~ savings, and to minimize risk. In a decen~aEzed situation, ~e buyer is apt to be more sen~five to the user~ nee< to emphas~e
wodum quafiU and ~ drink> and m be less cos>con~us.
The bufing sRuafion de~riNor ~c~des three N~ types of ~mations: s~a~N
mbu a recurring situation handled on a mm~e basis; moNfied tabu> wNch occurs when
some demem, such as price or delNery ~hedOes, has changed in a cfient-supN~r relationsNp; and a new buying fim~ which may require ~e g~hering of consN~aNe in~rm~n and an eva~ation of Nmrn~Ne suppliers.

Innovagve Segmentadon: A Key to Marketing Breakthroughs

At the beginning of this section, we identified three o~ectives of the m~k~ ~gment~ion
process.

Strategk Issue
Insight~l ~d inn~
five ma~
~gment~on ~ ofl~
the key m m~k~g
b~a~oughs.

Identify a homogeneous segment ~ Nffers ~om others.

Specify crimria th~ define ~e segment.
DNermine segment si~e and pmentiN.
Effective markOers, such as the creators of Nike ~Nm~ shoes, Red Bull energy drinks,
and Enterpri~ Rentm-Cag know th~ meeting these o~ectives through insNhtful and innov~Ne mark~ segmentation is o~en lhe key ~ markOing breakthroughs. O~en, combinations of ~ffemnt de~fipto~ are used to more pmdse~ target an aUramNe segment:

Cha~er Six ~efingA~ Ma~gm~G 143

EXHIBIT 6.5
Two broad kinds of softwa~ app~ations are used in
segmenting mark,s. Data mining ap~<ations enable
the marke~r to examine a cu~omer database to ide~i~
paRerns of variables that pmdi~ which cu~omem buy or
dont bu> as well as how much they bu> CART and
MARSTM from Salfo~ Sy~ems, Inc. (www.salfordsys~ms.com) a~ two such ap~ation> Various tools for
ana~ng the demog~ph~ makeup of a proposed ~

~tegk Issue
At he ~mM~n of
many a m~km~g
bmaMDough one often
finds an ~gN~l segmemnon scheme ~
~ ~p~ ~cu~d in a
b&a~ way.

is

get market am also av~b~. National Derision Sy~ems

(www.ends.com) is one such supplier. Various analytical
procedures in SPSS MR or other sta~s~cal software packages are also useful for market segmentation purposes,
Souse: "~doW ~ MaAeting ~n~og~ S~twa~ & I~em~
~. Ma~eting News, July 17, 2000. Used ~ ~rm~bn of
e Amed~n Ma~ing A~od~n.

perhaps some beha~al Nmen~on mg~h~ wi~ a camful~ defined demoglapNc groNe
wRNn some geogmpNc region. Genially, ~ is u~N1 m know ~e demoglapNc prone of
e mNm m~km m be pursue~ even ~ ~e drN~g ~me beNnd ~e ~gmeN~n ~heme
is geogmpNcN an~or beha~orN ~ n~um, because unde~nOng the demograpNc profi~ of a target m~km enabEs ~e m~k~ m be~er choose mrgemd advertiNng media or
o~ markm~g commuNcation vends.
As is ~e case ~r many kinds of m~keting decision maMn~ various compme>b~ed
decision suppo~ sy~ems have been developed to aid m~ke~ as ~ey wrestle with ma~
k~ ~gmentation dedNons. Some wide~ used sy~ems are Nentified in ExNbR 6.5.
As several examp~s ~ this section have show~ ~ ~e ~und~n of many a m~kefing
bmaMhrough one often finds an ~MgNN1 ~gmem~n ~heme %~ is sh~p~ ~cu~d ~
a beha~l way. M~kem~ wi~ superior m~k~ knowledge am pmbab~ morn l~e~ ~
generic the in~g~s necessary to define m~k~ ~gme~s ~ ~ese innovaNe and meaningful ways. Kn~hr and Bow~ma~ as runn~s ~em~N~, had the necessary m~kO
knowledge to see hmv di~ance runners, as a m~km ~gment, were underserved. Thek ~sN~, mge~ w~h ~e developmem of innovaNe pmdums and ~e c~ation of effemive
m~keting programs, led the growth of the ~Nm~ ~mwe~ m~km, as consumes pu>
chased ~ffem~ shoes ~r ~eir ~ffemm ~Nm~ pu~uRs, and ultim~e~ mvolutioNzed ~e
aNm~ ~mwear ~dus~

CHOOSING ATTRACTIVE MARKET SEGMENTS: A FIVE-STEP PROCESS

Strategk Issue
Most firms no longer
aim a ~ngle pmdu~
and mak~Mg program
at fl~e mass make.

Moa firms no long~ Nm a sin~e produ~ and maketing program a ~e m~s make. In~ea ~ey break ~at makm into a numb~ of homogeneous ~gmems on ~e basis of
meaNng~fl ~ffemnc~ in ~e benefits sougN by ~ffemm groups of cusmm~s. Then ~ey
~Hor produms and marketing programs m ~e partic~ deoms and idiosyncrasies of each
~gme~. But not aN segmen~ rep~sent eq~mlly am~cfi~.e opportunities for ~e firm. To
pfiorifize m~et ~gmems by ~eir po~ntiM, matkN~s must eva~ae ~eir Nmm a~actNen~s and ~dr Nm~ stren~hs and capab~Ries mhtNe m ~e ~gmems needs and compline Mmations.
W~hin an eaaNished firm, raher than allowing each bus~ess uMt or produa manag~
to develop an approach to evaluate ~e pmentiM of alt~native mak~ ~gmems, ~ is often
be~er to app~ a common anal~ical ~amework acm~ ~gmems. WRh ~N approach, manages can compare the Nmm pomntial of ~ffemm ~gmems us~g ~e same set of cri~ria
and then priorifize them to decide which ~gmems to ~rget and how resources and ma~
keting efforts should be MMcae& One riseN1 analytical Kamework manages cr emmpmneurs can use for this purpose is the market-attractiveness/competitive-position mar[x.
As we saw M Chap~r 2, manages use such modds at the corpom~ level to MMcae resources acm~ busmes~s, or at ~e bus~>un~ ~vd to ~gn ~sources across producN
make~. We are concerned wi~ ~e second appl~ation here.

144 Section Two

ExhibR 6.6 outhnes ~e ~cps invoNed in devdop~g a mark~Um~Nene~/

competitive~osition matrix for ana~Nng current and p~ent~l ~rget m~ke~. Undefly~g
such a m~rix is the n~ion that manages can judge ~e a~mcfiveness of a markN (its profit
potential) by examining market, competitive, end env~onmenml factors th~ may ~fluence
profitabilit~ Similafl~ they can estim~e the ~mn~h of the firmN competitive pos~ion by
Mok~g at the firmN capaNlities or shortcomings relative to the needs of the m~kN and
e comp~enc~s of like~ competing. By comNMng the resuRs of these ana~ses w~h
other consecrations, ~c~ng risk, file misMon of the firm, and ethical issues (see Ethical P~spe~Ne 6.1), conclusions about which markets and mark~ segments should be pursued can be reached.
The first ~eps in developing a market-attra~iveness/competitive-po~tion m~rix, then,
~e ~ identify the mo~ relevant variabks for evMuating a~ern~Ne m~k~ ~gmems and
e firm~ competitive position mgard~g them and ~ w~ght each variabk in impo~ance.
No~, too, th~ Exh~R 6.6 sugges~ condu~g a forecast of futu~ changes in mark~ ~ffacfiveness or comp~itive portion ~ addition ~, but separ~e~ from, an as~ment of
the current Nm~n. TNs reflects the Nct that a decision to target a pa~ul~ segment is
a sff~e~c choice th~ the firm ~viU have ~ 1re wi~ for some time.

Strategic Issue
Bofl~ m~km and compm~Ne perspectives am
necessar~

EXHIBIT 6.6
S~ps in Con~rucfing
a Market
A~ractiven~
Compefitiv~Position
M~fix ~r Evaluating
Potential Target
Mark.s

Step 1: Select Market-Attractiveness

and Compe~ve-Position Factors
An evasion of the a~racfiveness of a particu~r m~k~ or market segment and of the
s~en~h of~e firm~ cu~em or po~ntiN competitive position in R b~lds nammHy on the
Mnd of oppo~uNty ana~sN developed ~ Chap~r 4. Manage~ can assess bo~ Nmens~ns
on the basis of ~formation obta~ed from ana~ses of the envkonmem, ~dus~y and comp~itive situation, mark~ p~entiN estimnes, and cu~omer needs. To make ~ese assessments, they need to esmNish criteria, such as those shown ~ Exh~R 6.7, aga~ wNch
Wospective mark,s or m~kN segments can be ~v~uned. Both mark~ and competitive
p~spe~Nes are necessar~

1. Choose c~efia ~ measure mark~

~mctiveness and ~etitive ~sition.

2. W~gh maA~ ~m~

~d ~mp~e po~Uon M~o~ ~
~ ~r ~five impodance.

3. Assess the curre~ position of each potenfi~

target market on each facton

4. P~ ~e N~ ~ ~ ~ ma~
based on ~ed ~mnm~, ~s~me~
and compline t~nds.

5. [vNu~e imN~ns ~ p~Ne ~u~

changes ~r business ~ategi~ ~
resources ~qNmmen~.

C~ SN ~eting Attra~ Ma~ ~gmenG 145

Over the years, marketing manage~ have confronted

a number of ethical problems relating to the selection of target marke~. Problems can arise from ta~
geting consumers who because of their indu~on in
the targeted group may be influenced to make decisions thought by some to be not in their best inte~
e~. Some would argue that adverting $150 sneake~ to inne~c~y teenage~ is et~cal~ dubiou~ othe~
that the advertising of snack foods and soft drinks to
children is ques~ona~ In other case~ exclusion issues are raised because the firm~ marke~ng effo~s
do not include a particuMr grou~
In the area of indus~n issue~ adve~ise~ oken reso~ to unde~rab~ ~ereotypes in an effo~ to simplify
adve~ising messages. These include sex-rol~ race, or
age ~ereotypes. Thu~ the po~rayal of women as sex
o~e~s (biMni-clad models in beer ads) o6 in general,
subordinate to male authority figures is thought by
many to be dehumanizing and offen~v~ Revere se~
ism with men shown as sex o~ec~ has also been on
the increase to the dismay of some groups.
For exdu~on issue~ the concern is not only that
ce~ain groups are deprived of produc~ and services

but also that they may pay more for those they do receive. There is conNderab~ evidence to suppo~ the
latter claim. A survey in New York City found that
food prices are highe~ in ne~hborhoods that can
lea~ afford them. Lowqncome shoppe~ ~amily of
fouO paid 8.8 percent more for their groceries--S350
per yean Fu~he5 inne~c~y ~ores were on average
poorly ~ocked, had inferior food~uffg and offered
poorer service.
Companies o~en face the ethical problem of
whether they may exclude ce~Nn groups they would
rather not serve. For exampl~ insurance compaNes
want only low-risk policyholders, credit-card companies only low-risk cardholderg and hospitaN only patients with insuranc~
Souses: N. C~ig Smith and John A. Quetc~ E~ics ~ Ma~
ke~ng ~uw ~dg~ IL: Richard D. Irwin, 1993~ pp. 183-95.
Reprinted wffh permission from The McG~w-HHI Compm
nies; Felix M. F~edma~ "The Poor Pay Mo~ for Food in
New York, Su~ey Finds," The Wa~StreetJourna~ April 15,
1991. Copyright 1991 by Dow Jones & Co., Inc. Reprinted
by permission of Dow Jones & Co., Inc. via the Copyright
Clearance Centen

Market-Attractiveness Factot~
As we showed in Chapter 4, assesNng Ne a~m~Nene~ of r~arkets or market segments
involves de~rmimng the mark~ size and growth r~e and asse~g various trends-demograpNc, soc~culmrN, economY, political/legal, ~chnNogical, and natural--th~ influence demand in that markN. An even more critical ~ctor in determiNng wh~her to
enter a new mark~ or markm se~nent, howevec is the degree to which m~m~ c~mmo"
needs, or needs that are cu~ent~ not being well serve& can be identified. In the absence
of unmet or underserved needs, ~ is likely to be difficult to win customer loyah~ regardless of how large the mark~ or how fa~ R is gmw~ "M~mo" products o~en Nce Nfficult going in md~y~ highly comp~e mark, s.

Competitive-Position Facto~
As we showed in Chapter 4, unde~n~ng ~e a~m~Neness of the industry ~ which one
comp~es is also important. Entering a ~gment th~ wo~d place the firm ~ an una~racfive indu~ry or ~ease its exposure ~ an una~ractive indu~ry ~ which R akeady comp~es may not be wise. Of more immeNate and sal~nt concern, howeveg is the degree to
w~ch the firm~ proposed produm emry ~to the new m~k~ or segment will be suffi~e~
d~fe~ntiated from competitor, gNen the criticN success N~ors and product life<yale
con~fions already wevaknt ~ the c~egorg NmiNfl~ decision makers need to know
whether thek firm has or will be able to acquke the resources it will take--human, financial, and othe~vise--to effective~ compe~ in the new segmem. Simp~ put, mog new

146

S~ion ~o O~o~Ana~

EXHIBIT 6.7 Fadors Underling Market A~racfiveness and Competitive Position

Marke~A~ene~ FacJo~

Compe~ve-Position Factors

Cu~omer needs and behavior

Oppo~un&y for compet~Ne advantage

Are there unmet or unde~e~ed needs we can

sa~#y?
Market or market segment size and growth rate

Can we differen~ate?

Market potent~l in unit~ revenu~ number of

prospective cu~ome~

Can we perform again~ critical success fa~o~?

Stage of compe~ng produc~ in produ~ life cyd~
Is the timing dght?
Firm and compe~tor capa~l~es and resources

Growth rate in unit~ revenu~ number of

prospective cu~ome~

~nandal and func~onal resource~ marke~n~

di~dbu~o& manufactudn~ R&D, etc.

Might the target segment const~ute a pla#orm

for later expan~on into related segmen~ in the
market as a whole?

Macro trends: Are they favo~ on balance?

Demog~phk
Sodocu~u~l
Economic
P~ca~egal
Techn~ogical
Natural

Management ~rength and depth

B~nd image
Relative market share
A~Neness of indu~ in which we would compete
Threat of new entran~
Threat of subs~tutes

Buyer power

Supplier power
Compet~Ne rivalry

goods or ~r~ces need to be e~her be~er ~n a consumer point of !ew or cheap~ than
ose ~ey hope to ~place. Emefing a new mark~ or markN segment witho~ a source of
competit~e adva~age is a ~ap.
Step 2: Weight Each Factor
Ne~, a numeric~ weig~ is assigned to each ~c~r m ~c~e ~s relative importance in
the overaB ~me~. Weights ~ Phil KnigN and Bffi Bow~man migN have assigned
to the m~or ~o~ ~ ExNb~ 6.7 are shown ~ Exh~ 6.8. Some users would rate each
bull~ pN~ m ExNNt 6.7 ~depende~ly, as~gNng a weig~ m each one.
Step 3: Rate Segments on Each Facto~ Plot Results on Matrices
This s~p ~q~s ~at evidence--typical~ bo~ qualitative and qua~itatNe data--be collec~d m o~ective~ as~ss each of~e cfi~fia identified in Stop 1. For B~e Ribbon Spw~
~ 1964, ~e as~ssme~ of ~e ~afious N~ors migN have looked as shown in ExNb~ 6.8.
WNle more d~a~ed e~dence ~an we N~u~ here should have been, and no doubt was,
ga~e~ KnigN and Bow~man mig~ have reached ~e ~owing conc~Nons:
Marke#atWadiveness fadors
Unmet cu~omer needs for l~erM smbil~ cushioning, and ~ghtw~ght shoe have been
identified. Score: 10.
The dimance runner segment is q~ smM1, though growin# but ff might lead to other
segments N the future. Score: 7.
Macro Wends are ~rge~ favorable: fitness is "in~ number of people in demographic
groups like~ to run is growing, global wade is increafing. Score: 8.

Cha~er Six ~edng A~ Ma~ ~gm~ 147

EXHIBIT 6.8 A~essing the DNtance Runnel" Market Segment in 1964

Weight

Rating
(0-10 Scale)

Total

Cu~omer needs and beha~oE unmet need~

.5

10

5.0

Segment size and growth rate

.3

2.1

Macro trends

.2

1.6

Market-a~ra~eness fa~o~

Total: Market attrac~veness

1.0

8.7

Compe~ve-po~on fa~o~
Oppo~un~y for compe~ve advantage

.6

4.2

Capabil~es and resou~es

.2

1.0

Indu~ attractiveness

.2

1.4

Total: Compe~ve pos~ion

1.0

6.6

Compefifiv~position favors
Opportunity for competitNe advantage is somewh~ favorable; proposed shoes will be
~ffe~ntiated, but shoe c~egory seems m~ure, and B~e Ribbon Spots, as a new firm,
has no Wack record. Score: 7.
o Resou~es are ex~eme~ limite~ though management knows runners and di~ance running; Bowerman has ~rong mpm~n. Score: 5.
Five forces are Nrge~ favorable (low buyer and suppher poweL little threat of substitutes, ~w riv~ry amcng e~g firm~. Score: 7.
Strategk Issue
Compe~g evidence
~ a propo~d entry
imo a new ~gmem wN
s~isfy some previously
unmet need~ and do so
~ a way ~at can bring
about sus~aNe competitNe advantage, is
cN~d ~

Mere ~mchNr judgments about each cfimfion are not very ~e~Ne and run the risk of
taNng ~e manag~ or ent~p~neur into a m~k~ ~gment ~at may turn o~ not ~ be ~able. It is e~ecNl~ important to unde~ake a d~N~d ana~Ns of key competitors, especial~ w~h regard m thek o~ective~ s~a~gN resource~ and m~kefing wograms. Similad~ comp~lMg e!dence ~ a groposed entry ~ a new ~gment will satis~ some
pm~ous~ unm~ needs, and do so ~ a way ~at can bring abo~ su~a~aNe compline
advantage, is ca~ed ~c Both qualitative and quant~Ne m~keting research msN~ are
typ~al~ u~d ~r this purpose. Once ~ese a~e~ments h~ve been made, ~e w~gMed ~suks can be ploaed on a markel-attracliven~s/competitive-position matrN like the one
shown M Exh~ 6.9.
Step 4: Project Future Position for Each Segment
Forecasting a mark~ futu~ is more difficult than asses~ng its current state. Managers or
ent~pren~n~ should fir~ d~ermine ho~v the mark~ aam~Neness N lik~y to change over
the next three to five yea~. The ~arting point for this assessment is to consider possible
shifts in customer needs and behav~L the entry or exit of competitors, and changes in the~
swamgies. Managers must also address several broader issues, such as posNNe changes in
produ~ or process ~chnNog~ shifts in the economic ~im~e, the impa~ of social or po~tical Wends, and shifts in the bargNning power or vertical integration of cu~omers.
Manage~ mu~ next determine how the bu~ne~ comp~itive position ~ the mark~ is
lik~y to change, assuming th~ it responds effective~ to preened environmentN changes
but the firm does not unde~ake any initi~Nes requiring a change in basic ~r~egg The expeered changes in both mark~ aaractiveness and competitive posRion can then be plowed

148

SecOon Two Oppo~unityAnalys~

EXHIBIT 6.9
Mar~
A~racfiven~
Compefifiv~Pos~on

Market
A~racUveness
H~h
(8-I~

Mod~_~ I
Low
High
Moderate
(8-10)
(4-7)
Oompan~s Competitive Pos~on
= Ma~ attm~ and comp~ve po~on ~ ~s~nce ~nne~ segme~
Low

on the matrix N the form ofa vedor to refleG the Nrecfion and magnitude of~e expe~ed
changes. Antic~ating such changes may be impodant N today~ In~rn~ age.

Step 5: Choose Segments to Targe~ Allocate Resources

S~ategic Issue
M~age~ ~ouN co~
sN~ a m~k~ ~gmem
m be a deskab~ targd
oNy ~ ~ is s~on~y
poMfive on at lea~ one
cf &e two ~menMons
of m~kd ~adNen~s
and p~e~ial ~mpetitNe poNfion and ~ ~t
moderate~ positive on
e othec

Managers should consNer a m~kd ~gment m be a des~aNe ~rgd on~ ~ ~ is ~rong~

poshNe on ~ ~a~ one of the two ~mens~ns of markd a~dNeness and pmentiM compd~Ne posit~n a~d ~ ~a~ moderate~ positNe on ~e cthe~ In ExMbit 6.9, this Ndudes
m~k~s posk~ned in any of ~e th~ze cells in the upper dgN-hand corner of ~e matrix.
HoweveK a buMness may decide to m~er a m~kd &~ currently ~Hs into one of the midd~ cdN under these condNons: (1) managers beheve th~ &e m~kd~ a~mdNeness or
the# competitNe s~en~h is like~ to improve over the next ~w yea~; (2) they see such
mark,s as ~eppNg-~ones to emedng large~ more attmdNe m~kds in the future; or (3)
shared co~s or synergies ~e present, &ereby benefitNg anther e~rb
The markd-a~racfivenesdcompetitNe poMfion matrix offe~ genial guidance for
s~e~c oNectives and allocation of resources for segments cu~e~ targ~ed and sugge~s which new se#nents m enma Thus, fl can also be use~tl, especNl~ under chan#ng
m~kd condit~ns, for asking m~k~s cr m~kd se#nents #om wNch ~ wi~draw or
to wh~h allocations of resource& financial and othe~vise, might be reduced. Exhibk 6.10
summa~zes gene~c guiddines for str~e~c o~ectives and resource allocations for m~k~s
in each of the m~rix cells.

DIFFERENT TARGETING STRATEGIES SUIT

DIFFERENT OPPORTUNITIES
S~egic Issue
M~t ~s~l ~treN~euriN ~nm~s
~rgN ~owly defined
m~k~ ~gmems.

Mo~ snccessful eutrepreneurial ventures mlgO na~ow~ defined markO segments ~ the
outseL as Od Ph~ Knight and Bill Bowerman, for two reasons. One, doing so puts the
nascent firm in pos~ion to achieve early success in a market segmem that ~ unders~nds
part~ular~ well. Secon& such a sff~egy conserves prec~us msource~ both financial and
~herwise. But segmenting the mark~ into na~mv niches and th~a choo~ng one Nche to
~tg~ is not always the beg s~eg> palt~Oarly for e~aNNhed firms having substantiM
resourcem Three common mrg~g stra~es are niehomarkeK mas~market, and
grow{h-markO str~e~es.

Chapter Six ~rgedng A~cfive Market Segmen~ 149

EXHIBIT 6.10 Im~kafio~ ofA~ernafive Pos~ons wi~ the Ma~e#AO~ONenesdCompe~N~Pofifion Matrix
~r Ta~et Mark~ Selectiom ~c O~fi~ and R~ou~e Al~fion
Comp~ve ~osition
Medium

Strong

B~ ~
Sped~e a~und limi~d
str~
Seek ways to ove~ome
weaknesses
W~aw ff i~ons ~
~naMe g~h a~
~cNng

DESIRABLE POTEN~AL TARGET

Inve~ ~ build:
Ch~nge ~r ~ade~p
Bu~ se~v~y on ~mn~Ps
R~n~me v~nemMe areas

DESIRABLE POTEN~AL TARGET

Prote~ ~sition:
Inve~ ~ g~w ~ ma~mum
~ge~Me r~e
C~rate on m~
~n~h

Umited expan~on or harveY:

Look for ways to expand w~hout
high dsk; otherwise, minim~e
inve~ment and focus operations

Manage ~r ear~ng~
P~ exi~ing ~n~hs
Inve~ ~ imp~ve posRbn
on~ in a~as whe~ dsk is bw

DESIRABLE POTEN~AL TARGET

B~d s~e~v~F

D~est:
Sell when possible to
ma~m~e cash v~ue
Meantime, cut fixed costs and
avdd fu~her ~vestment

Manage ~r eam~gs:
Prote~ position
M~m~e inve~me~

Prote~ and r~ocus:

D~end streng~s
Seek ways ~ increase cu~e~
e~ngs ~o~ speeding
maAets ded~e

Weak

High

Medium

Emphasize profitab,~ W
i~a~ng p~du~M~
Build up abilky to counter
~mpetit~

Sources: Adapt~ ~om Geo~e S. Da5 Ana(rsis./br Sn~teg~ Market D~on~ St. P~I: \Ve~ I ~ ~ 20~ 198& Reprinted by permission. S. Z R~son, R K ~m~,
~d ~ R \Vad~ The Directional Policy MaN~ To~ ~r Strat~k PNnni~2 L~ Range Phmning 11 ( 1978L ~. ~15. 1~ Reprinted by ~rmission.

Niche-Market Strategy
This ~ra~gy involves serving one or more segments that, while not the larges~ consist of
subsmntN1 numbers of cu~omers seeking somewhat-special~ed benefits ~om a grodud cr
service. Such a s~ategy is designed to avoid direct compNition ~vith larger firms that are
pursuing the bigger segments. For example, overNl coffee consumption N down in some
countries, but the saks of gourmet coffees in coffee ba~ such as Starbucks have boomed
in recent years.
Mass-Market Strategy
A bu~n~s can ptrsue a ma~-m~k~ ~gy ~ two ways. ~rst, ~ can igno~ any ~gment
~ft~nces and des~n a s~e pmdu~n~m~k~g program ~ wiU ~ppe~ m ~e
Nrge~ numb~ of consumes. The primary o~e~ of ~N ~m~gy is m capture suffidem
vo~me to g~n econmn~s of scak and a co~ advamage. TNs s~amgy requires substantiN
resources, ~c~ng production capacity, and good mass-m~keting capaN1N~. Consequentl> R is ~vored by N~er companies or bu~ness unRs or by those who~ p~em co>
potation pm~d~ sttbstantiN suppo~. For examNe, when Honda fi~t en~md the American and European motorcycle m~kms, R m~med Oe Ngho~me ~gment con~sting of
buye~ of Mw-NspNcemem, low,riced cycles. Honda subsequem~ u~d ~e sNes vdume
and scale economies R acNeved ~ that ma~-m~k~ segment to he~ R expand into
smNleg mw~specNfized ~gmems of ~e m~km.
A second approach to the mass m~km is to deign ~p~e produms and m~kefing
programs ~r ~e ~ffering ~gments. TNs is often cNkd ~fferentiaed markefinD For

150 Sec~on Two

examp~, Marrio~ and EuropeN Accor do this wRh thdr various hotd chNns. Although
such a ~r~egy can generic more sa~s than an un~fferentiated s~eg~ k also ~creases
co~s in produ~ deign, manufacturing, inventory, and marketing, espec~l~ promotion.

Growth-Market Strategy
Bu~ne~es pursu~g a growth-market s~egy often ~rget one or more ~st-growth segments, even though ~ey may not cur~ntly be very Nrge. R is a s~egy often favored by
smaH~ compNRors 1o ~vNd ~ confrontations with Nrgel firms wNle b~lNng v~ume
and share. Mo~ venture capkN fitms invest on~ ~ firms pu~ng growth-market ~ra~g~s, because doing so N the oNy way ~ey can earn the 30 pement to 60 p~cent annuN
rates of return on inve~ment th~ they seek for portfofio companies. Such a ~mmgy usuN~ req~s ~rong R&D and m~kN~g capaNlities to identify and develop produ~s appearing to new~ emerNng user segments, plus the resources to finance rapid growth. The
woNem, howevec is lh~ ~ growth, if susmine~ a~rac~ Nrge competitors. TNs h~ppened to Apple when IBM enmred the pe~onN computer business. The goN of the early
enfant N to have devdoped an enduring competitive position via ks products, serv~e, N~
tribution, and ccs~ by the time comp~ors enter.

GLOBAL MARKET SEGMENTATION

St~tegic Issue
The tradit~nal ~woach
to NobN m~kN segmemafion has been to
v~w a cou~w or a
group of cou~fi~ ~ a
s~Oe ~gme~ compfi~
ing NI consumes. TNs
~pm~h ~ ~fio~
flawe~

The tradit~nal approach ~ ~obN m~km segmenta~n has been m v~w a country cr a
group of countries as a ~n~e segment compiling N1 consumers. This approach ~ seriously flawed because R reEes on country vafiaNes r~her than consum~ beha~og assumes
homogeneky wiNN the coumry segmem, and ignores the po~ilky of the e~smnce of
homogeneous groups of consumes aovss country segments.~7
More and more compames ~e approacNng NobN mark~ segmentation by attempting
~ identify consumers wkh ~mH~ needs and wants reflexed ~ lhek beha!or ~ ~e marke~ce ~ a range of co~nnies. TNs ~temoun~y segmem~n enaNes a company m deveMp masonab~ ~and~zed programs requiring li~k change across locN marke~, thereby
resulting ~ scale economies. Star TV~ launch of a Pan-AMan s~dl~e tele!Mon servke
broadcasting throughout AsN ~ En~ish and CNnese is an examp~ of such a s~eg>~
There are many reasons--beyond mere ambitions m grow--why companies expand ~mrn~naH~ Some compaNes go internationN ~ de~nd thdr home position aga~
NobN compmkors who ~e constantly Mok~g for vulnerabilit> For example, C~elNHag
through a joint venture with MitsuNshi Heavy Industries, has for the past 30 yea~ made a
substantiM inve~ment in Japan to deny ks Japanese compO~og Komatsu, s~en~h ~
home, thereby ~king away ks profit sanctuar> Had Cat not been successful in doing so,
Komatsu wood have been aNe m compe~ more aggm~Ne~ wkh C~, n~ only in ~e
United States but also ~ o~er m~or world markets.~
Another reason a firm may go overseas and ~rg~ a specific country is to service cus~mers who are Nso engag~g ~ ~obN expansion. In recent yea~ Japanese automobHe
compaNes that have crewed U.S. manuNcturing Ncilities have encouraged some of thdr
pa~s suppliers m do the same. Fkms Nso enter overseas markms to earn fom~n exchange
an& ~ some cases, are subsNked by %ek governments m do so.
In generN, with the exception of these s~eNc spec~l ckcum~ances, the se~n of
overseas ~rgm markets follows essentiN~ the same patterns as for domestic m~kms, Nthough gNen the magNtude of economic, sodal, and pohficN change in the world mda>
compaNes ~e pay~g consN~ab~ more attention m political risk.

Chapter Six ~rgedng A~cfive Manet Segmen~ 151

Marketing
Plan Exercise

1. E~en~ve manta ~gme~ation ~ a relative~ m~ phenomenon. Until abo~ ~e mMd~ of ~

cenmw many firms offered a s~g~ ~a~c pmdum aimed ~ ~e emke m~s markm ~uch ~ Coc>
Cola or Le! jeanO. But ~ m~m years many N-ms~ncluding ~du~fiM goods manuNcmm~
and ~ produ~ as web as con~m~ products companies have begun segmenting the~
m~ke~ and devdop~g Nffem~ produc~ and maN~g programs ~ed ~ N~?m~ segme~s. WNch env~onme~M changes have he~ed ~k ~is increased interest M m~k~ segmentation? Wh~ advam~g~ ~ bene~s can a firm gMn ffmn pmgefly ~gmemmg its markm?
2. Exactly whN N the relationship between m~k~ ~gmeNatiom m~ m~ket~ and po~fion~g?
Wh~ damage \vi~ be done ~ a company~ targN maNN~g and positioMng efforts ffm~ke~ ~e
~co~ectly ~ n~ effe~Ne~ ~ ~NgNN~y ~gmemec?
3. Can m~ket ~gme~Mn be ~ken ~o NW Wh~ ~e ~e pomntiM ~dva~ag~ of ove~eD
me~g a m~k~? Wh~ ~r~egy reign a firm pu~ue wlmn ~ befieves th~ the mark~ has been
broken i~o too many small ~gment~
4. What N the ~?mnce between a ~owN-market ~eting strategy and a niche targeting sgategy?
Wha capabilN~ or s~engths ~oOd a bu~ness possess to imp~me~ a grmvth-maNet targeting
s~egy effe~Ne~?
AdNtionN ~lgNagno~ questions to ~ your aN~y m app~ ~e anMyticN mrs and conceNs in
thN chap~r ~ stra~oc decision maMng may be ~und at the bookN Web site at ww~v.mhhe.com/
walk~O&

Etadnotes

1.In~rmation to prepare this section was taken ~om ~e N~e, ~c., Web ske at ~mm~nikeb~co,d
sto~y/chmnashtm# w~nikebiz.com/s~o,~_bfigh~shtm# u~m~nikebiz.comis~o~_bow~an.
shm~# and nnmanike.com/nikebiz/nmvs/p~ssreleasejhmd?year=2OO2&monN 02&&U~=h.
2.Joseph P~e H, Ba~ Vi~og and Andrew C. Boy~on, ~ ~e article "MaMng M~s Cu~om~afion
WoN$ Ha~wff Bz~hwss Revimg SeNembm~Oc~ber 1993, pp. 108 19, dNcuss stone of ~e
woNems invoNed ~ ~e imNeme~ation of a NgNy ~gmeme customized ~r~eg~
3.David Welch, "Q&A wi~ ~GM~ M~k Hogan: Buil&to-Order N Sti~ ~e End Game... It Takes
Om a Lot of~e Cost," Bt~N~sWeek Onlin< M~ch 26, 2001.
4.NMA WIRELESS--Silver mxtersg New Media Age, Ncvemb~ 28, 2002, p. 35.
5."S~ce for Women] NorN ~1~ News, Oc~b~ 1~ 2001, p. 20.
6.M~k Levee, "The $19N50 Phone$ New ~ Times, De~mb~ 1, 2002, p. 66.
7.Jean HN1Na~ "Semor Survey: NnNng Down the Numb~s: Aummakers AuemN to Quami~
Thek Sham of~e M~ket," Adve~Tisi~gAge, D~emb~ 2, 2002, p. 50.
8.M~a Som~nd~m, "UN-M~ Inc.~ SmN1 Town S~aegy ~r Conven~nce Stores Is Paying
Off," The lYa~ Street Jom~al, Novemb~ 20, 1995, p. B5A; Tom Dochat, "UN-Marts Ponde~ OD
fions$ Hanisbmg Pao4o< Novemb~ 5, 2002, p. D02.
9.Jon Go~, "We Know Who You Are and We Know Where You LNe: The ~s~ume~M RafionMiw of Geodemo~aph~s7 Econom~ Geography 71, no. 2 (1995), p. 171.
10.JeanMarc P~h~> "Iris Opens Ey~ m Ge~a~g," ~ec~n Market,g, Sep~mb~ 27, 2002,
p. 9.
11.MMmd Arndt, "Quak~ O~s Is Thirs~ for Even More Ga~mde HRs, ~mmeN~Nes~veekcond
Nvda&,/&~ash/feb2OOO/~!~O2<htm, February 2, 2000.

152

Se~ion ~o O~o~A~

12. Salah S. Haman and Lea E K~afi~ "Ident~cation of G~bN Consum~ Segments: A Beha!oml
FramewoNY Jomwd oflnterna#onM Consumer Marketing 3, no. 2 (1991), p. 16.
13.From ~rm~n prov~ed by ~an~N Resea~h In~R~e.
14.The reline weigN of ~e vary across coumfi~. In Chin~ ~r examNe, more weigN is gNen
to occup~n and education, whe~ Western countries emph~e re~denc~ ~com~ and Nmi~ background. See John D. Darien and Lee H. Radebaug~ Nte~wationM Dim~tsi~ of Co~
ten&ot~w Nte~wational Bt~N~s (Boron: PWS-Kent, 1993), p. 136.
15. ~mon M~o, "InternationN Marketing--the M~or Issue~ in The Marke~ Book, M~ha~ L
Bakec ed. (Oxfor~ EnNand: Bu~eavo~H~nemann, 1992), p. 430.
16.Ned Gl~coc~ ~eo~e Profile~y The Neu~ & Obs~v~: Decemb~ 6, 2000.
17.H~n and K~afis, "Identification of GlobM Consum~ Segmemsy p. 16.
18. Henry Laurenc~ Michael K Yoshino, and Peter Williamso~ STAR TV (A) (Bosto~ Ha~d Business SchoN Publishing, 1994).
19.Dou~ Lamo~, Winning Worldwide (Burr Ridge, IL: BuNness One Irwin, 1991), pp. 59-69.

Differentiation and Positioning

Fast Food Turns Healthy

Them am many masons why consumers around the

world have made the fas>food indu~ one of the
world~ fastest growing over the pa~ four decades,
but healthy ea~ng isnt one of them. At lea~, not
until Subwa~ the u~quRous Ame~can sandwich
chain, decided in the late 1990s that its downscale
image had to go. Subway had grown from a single
store in 1965 to a na~onwide chain of stores whose
sales volume had long since surpa~ed $1 billion.
But it was known more for its belly-busting foo>
long sandwiches and i~ gaudy yellow dOcor than
for anything else. Subway needed a makeover--a
new positioning in the ma~etplace--something
that would distingu~h Subway from its fa> and
suga~pu~e~ng competitor.

The Jared Diet

Fo~uRous~ for Subwa~ at about the same time as
the company decided to remake its image by
adding some healthier sandwiches, a rotund college student at Indiana University who happened
to live next door to the local Subway ouget decided that getting winded by dragging his 425pound body across campus wasn~ much fun. Jamd
Fogle, a mgu~r cu~omer of the Subway ~om, saw
the new healthier sandwiches--less than seven
g~ms of fat, the signs proclaimed--and decided it
was time to go on a diet. For lunch, it would be a
si>inch turke> no mayo, no oil, and hold the
cheese, please. For dinneE a footlong veggie sub, a
bag of baked potato chips, and a diet beve~ge.
The other element in his we~ht-loss ~tegy
was walking. No more riding the campus bus. No
more ~evato~. "Walking was the ke>" said Fogle.
"1 walked an average of 1.5 miles a da~ five days

a week. It may not sound like a lot, but it sure was

be~er than what I was doing." A year latec he was
down to 180 pounds on his 6-foo>2-inch f~me.
An editor at the ~udent newspaper wrote about
Jamd~ feat, the national media picked up the
~ory, and before long Fogle was Subway%
spokesman--"Jam~ the Subway Gu~"

ReposRioning Fuels Subway~ Growth

To mfle~ the new positioning, the ~oms inlefio~
were updated. The dated g~phics de~cting the
New York CiW subway sy~em were dumped, and
images of fresh tomatoes and other vegetables took
their place. New heart-healthy sandwiches and,
latec At~ns-friendly wraps--bowing to the growing
popu~rity of the carbohydrate-controlled Atkins
diet--were ingoduced. And Jamd went on a na~onal tou~ appea~ng in morn than two dozen hea~
walks a yea~ as well as on talk shows everywhere.
Subwayg new image as a place where you could
get healthy fast food and all the hoopla that Jamd
generated paid the chain and its kanch~ees a
twofold dividend. It helped stores grow their sales,
as concerns over obesity became a compiling
public health issue at the dawn of the new millennium. And it enticed mo~ people to sign up as
f~nchgees and open new Subway ~oms, in the
United States and abroad. The msul~?
In 2001 Subway surpassed McDonaM~ as the
mo~ ubiqu~ous fas>food ope~tor in the United
States, with 13,247 stores at yea~end, opening
904 ~oms in 2001 to McDonaMg 295. Now the
world~ large~ submarine sandwich chain, Subway
by mid-2004 had mo~ than 21,000 ~oms in 75
countries.
153

STRATEGIC CHALLENGES ADDRESSED IN CHAPTER 7

Strategk Issue
The po~fioNng derision is a s~eNc one,
~vi~ implicat~ns ~ct
on~ ~r how ~e firm~
goods or serv~es
shoNd be dedgne bm
aim ~r deve~Dng ~e
otlmr demems of ~e
m~kefing s~egg

As the Subway exalnp~ ~s~es, the success of a product offered to a gNen target ma>
ket depends on how well R is posR~ned wi%in th~ market segment--that is, how well ~
p~forms ~wNtive to competitive offerings and to ~e needs of the ~rget audience. Po~fioning (or mpo~fion~N ~ the case of Subway) rears to both the place a plodu~ or brand
occupies M cu~omers minds relative to thek needs and competing produc~ or brands and
m the m~k~el~ ded~on maMng intended m creae such a pos~ion. Thus, ~e positioning
notion comprises bmh competitive and cu~omer need con~derafions.
Portioning ~ ba~cally concerned with ~ffemntiation. Ries and Trout, who popOarized
the concept of positioning, v~w R as a creative undertaking whereby an existing brand in
an ov~crowded mark~place of ~milar brands can be gNen a ~Ne posRion in the
minds of t~gmed prospers. WN~ ~ek concept was concerned with an existing bran ~
is equN~ appl~ab~ for new produ~s.~ While typ~ally thought of in relation to the ma>
kefing of consumer goods, ~ has equal vNue for indu~riN goods and for ser~ces, wNch
require esseNiN~ the same procedure as consumer goods? Because services are characmrized by ~ek iman~bifity, perishabiliW, consumer participation ~ thek delN~> and the
simultaneous na~m of thek production and consumptio~ they are more ~fficOt for ma>
keters m position successfldly, not~vithstanding SubwayN success.
In Chapter 7, we rake the final ~ep in preparing the foundation on which effective ma>
kefing programs are based. Dmw~g on dedoons made about target mark,s, as discussed
in Chapter 6, we address the cfificN question, "How shoOd a bu~ness position its product
offering--whether goods cr services--so cu~om~s in the mrgN markm pemeNe tt~e o9
~ring as pro~d~g the benefits they seek, thereby gNing the product an adva~age over
cu~ent and p~entN1 future compmim~?" As we shall see, ~e positioNng decision is a
~rme~c one, wRh imitations not oNy for how the firm~ goods or ser%ces should be de~gne but also for devdop~g the ~hel" dements of the marking ~mmg> Pfic~g decisions, promotion ded~on~ and decisions about how ~e product is to be OStl-ibuted a~ follow ~om, and comfibute m the effectivene~ og the positioNng of the pmdum in Rs
comp~RNe space. Thus, ~e m~iN ~ tNs chapt~ provides a foundation for ~rtual~ all
of the ~r~eg~ decision mak~g that fo~ows ~ ~e bance of tNs book.

DIFFERENTIATION: ONE KEY TO CUSTOMER PREFERENCE

AND COMPETITIVE ADVAN~GE
Why do cu~omers we~r one product over another? In today~ highly competitive mark, s,
consumers have numerous opt~ns. They can choose ~om dozens of best-selling novels to
rake along on an upcoming vacation. They can buy the novel they choose from an onfine
merchant such as Amazon.corn, ~om large chain booksel~ such as Barnes and Noble or
the~ online counterpa~s, ~om book clubs, ~om a ~cN bookstore, or in some cases ~om
their nearby supermark~ or mass merchant. They can even borrow the book at their local
l~rary and not buy R at all! Wh~her ~ goods such as books or ser~ces such as l~rafies,
consumers make choices such as these nearly every day. In mo~ cases, consumers or o~
ganizational customers choose wh~ they buy for one of two reasons: wh~ they choose is
be~o; in some sense, or cheape~: In ~ther case, the good or serv~e they choose is, in some
wa~ almo~ Nways d~fe~vnt from others they could have chosen.
Differentiation is a powerful theme in developing busine~ Stl~e~es, as wall as in marketing. As M~had Po~er points out, "A company can outperform its rivals on~ ff R can
e~aNNh a Nfference th~ ~ can preserve. ~ mu~ ddiver gre~er value to customers or cre-

Chapter Seven Differentiation and Po~tion~g 155

Strategk Issue
Di~?mntiation is why
people bu~

~e cmnp~aNe va~e a a lmv~ co~, or both?" Mo~ of the time, ~fferentiation is why
people bu> They buy ~e lam~ Jolm Grisham novel because they know it will be a pageturnec N~mnt ~om %e last Grisham ~ey rea< and hard to pm down. They buy R ~om
Amazon.corn because ~ey Maow Amazon~ selection is enolmou~ and ~s onmd~k o>
d~ing sy~em takes oNy a minum. Or they buy it ~om ~ae megasmm because it~ fun to
browse there or ~om thek ~cal bookseller because they ~el good about supposing their
local merchants. They buy it at the superm~k~ because ~ convenient. All these book~Hing stla~es are ~ffemnt, and they appeN m ~ffemm consumes (i.e., Nffemnt ma>
ket segmemO at Nffemnt points in time, for Offemnt book-bu~ng purposes. If these
s~eNes ~d not var consumers would have no reason to use some of ~em, and ~ey
would buy ~dr books where they were cheapest or mo~ conveinent, though even in such
a case, the cheaper pricing or gm~er conveNence wouN gill con~itum Nffermmes.
Dffferen~a~on in Business Strategies
Michael Po~er~ das~c book on competitive advamage idemified ~e generic str~e~es:
cost leade~h~, Offemntiation, and focus, as shown in ExNb~ 7.1 .s These ~r~eg~s, wNch
Offer in the scope of the target markN and market needs ~ey serve (broad or narrow compmifive scope) and on whmh~ they base their competitNe advamage on low cost 0ower
prices m Oe cusmm~ for equNa~nt products) or Nffemntiation (pmdums tha ~e superior on some impo~am Omens~nO mpmsem ~stinctly Nffemnt ways in which compaNes
can comp~e for the minds and wNlms of cu~omers in thdr ~rg~ m~kms. Po~er argues
that the wor~ ~r~egy is to be %tuck in the mN~e] to be nether Nfferent nor lower in
cost than one~ competitors. Compaines in such a position offer cu~omers 1Rtle reason not
to take thek business dsewh~e. But cu~om~s dont real~ buy s~eNes. They buy specific goods and services and effective execut~n: on4ime ddNer> proper inmNhtion, responsNe cusmm~ ser~ce, and so on. Thus, s~egy is imp~mented ~ the product markm
level, where ~ffemntiation lies at the heart of positioning.

Dffferen~a~on among Goods and Services

As we saw in ~e pm!ous chapmg cu~om~s in one m~k~ ~gmem have wa~s and needs
~a ~ffer in rome way from ~ose of customers in ~her ~gments. PosNomng allows ~e
m~k~ to rake advaNage of and be msponsNe to such Offemnces and position pa~ular goods and services so as to bmmr m~t ~e nee~ of consumes in one w m~e of~e
~gmems. These Nffemnc~ are o~en phyNcal. NikeN original wane sole was such a dig
Strategic Issue
~mnce, as we ~w in Chapmr 6. But Offemnces can alto be p~ceNuN, as ~vi~ NNeN later
Cma~g boN phy~cN woduc~ N~ benefi~d ~om end~mems by John McEnroe, M~had Jordan, and other
and p~cepmN Nffe>
~mous afl~etes. Creating boN physical and p~ceptuN ~ffemnc~, using all the demems
ences is wh~ effe~Ne
of the m~keting mix--product, pficin~ promotion, and ~fibution decisions--~ wh~
positioNng seeks to
accomNish.
effe~ive positioning seeks to ~compli~.

EXHIBIT 7.1
Ge~ric Competiti~
~ra~es
S~t~z~ A~p~d wi~ Ne pernfis~on of~e Free Pm~, a
Division of Smmn & Schuster
AdOt PuNi~mg Gmu~ ~om
Competi~ A~antage: Oeating
and ~m~h~ ~perior Pel~flol~
mance by M~h~l Pome~
Cop~N 1985, 1998 by
M~ E. Poge~

Compe~ve
Scope

Lower Cost

Diffe~n~a~on

Broad Target

Co~ Leade~hip
~gy

~ffe~n~a~on
~gy

Narrow Target

Focus ~gy
(Cos~Based)

Focus ~gy

156

Se~ion ~o ~n~ A~lysis

PHYSICAL POSITIONING
One way to assess the current posflion of a pmdu~ offering relative to compmflo~ is on
the basis of how the various offerings compare on some s~ of o~ective physic~ characmrisfics. For example, an article ~ The fKH Sower Jomwal Nscu~ed the introduction of
XC90, Volvo~ fi~t entry in the very profitable spots utility vehicle (SUV) segment in the
Un~ed St~es. R compared the XC90 with modds from the competing luxury brands,
BMW, Mercedes-Ben~ Acum, and Ford. R compared the models on en~n~ho~epowec
wdght, tmving capacR> mikage, and price ~ee Exhibit 7.2)? In many cases a physical positioning ana~sg can provide useful ~formation to a marketing manageg particuNfly in
the early stages of identifying and design~g new product offerings.
Despim being based primari~ on ~clm~N r~her than on markm d~a, physical comparisons can be an e~entN1 step in unde~aking a posRioning anNy~s. This is espedN~
~ue with the competitive offerings of many industriN goods and service~ wNch buye~
typ~ evaN~e large~ on the basis of such charac~ristics. In add~ion, ~ contributes to
a b~er markm~R&D inter~ce by d~elmining key phys~M product chara~efi~s;
he~s define the ~ructure of compOition by revealing the degree to wNch the various
brands compae with one another; and may inOcae the presence of meaNngful produO
gaps 0he lack of products having ce~Nn desked physical chara~efisticO, which, in turn,
may reveal oppo~un~s for a new produa entry

,I

I_im~a~ons of Physical Positioning

~k Issue
A s~p~ ~mp~mn
of oMy ~e physical dimenMo~ of aRernafive
o~ u~al~ does
not p~ide a ~m~e
p~e ~ ~
~s~

A simp~ comparison of only ~e phy~cal ~mens~ns of a~ern~e offerings usuM~ does

not pro!de a complNe p~ture of relaive positions because, as we nomd eafliec positioning ultimate~ occu~ in cusmm~s minds. Even though a produO~ phy~cal ch~acmristics, package, brand name, price, and ancillary services can be deigned to acNeve a pa>
t~Oar position ~ ~e marka, cu~om~s may a~ach less impo~ance to some of ~ese
chaac~ristics ~an, or peEeNe them ~ffemnt~ from, what the firm expect. Also, customers a~itudes mwad a produ~ am often based cn sodN or psychologicN attr~utes not
amenaNe to oNective compaNon, such as perceptions of the produa~ ae~hetic appeal,
sportiness, or aatus image (for examp~, in the UNmd Stores, French wine has ~adkional~ been thought of as very expensNe or as an accompaniment to French foo~. Consequemly, perceptu~ positioning analys~--wh~her aimed ~ ~scovering oppo~unities for
new product entries or eva~ating and a~u~g the poskion of a current offering~s crib
ical~ important.

EXHIBIT 7.2 2003 Vo~o XC90 ~. O~ AIPWh~PDr~e SUVs

En~ne/Ho~epower

Weight
(pound~

Towing
CapacRy
(pound~

EPA Mileage
(City/H~hway}

$35,100

5-cylJ208

~450

5,000

18/24

BMW X5 3.0

$39,500

6<ylJ225

~533

6,000

1 ~20

Mercede~Benz
ML350

$36,950

VU232

4,819

5,000

1 ~18

Acura MDX

$35,700

V7~60

~420

~500

17~3

Ford Explorer

$3~785

V6/210

~434

5,380

1 ~20

Make/Mod~

Base Price
(USD)

Volvo XC90 2.5T AWD

Som~ I~H Street ~ Ea~n E&ficn ~ff ~odu~d ~py onl~ by J~Mn Welsh. Copyright ~ ~ Dow Jon~ & Co., ~c, Rewod~ ~ p~mission & Dow
~n~ & C~ ~ ~ ~e ~rm~ ~book !a Copyfig~ CD~a~e Ceme~

Chapter Seven Differentiation and Po~tion~g 157

PERCEPTUAL POSITIONING
Consumers often know very little about the essential physical a~mes of many produc~,
especial~ household products, and even if ~ey di& they would not understand the physical aHributes well enough to use lhem as a basis for choosing between cmnp~A~e offe>
ings. (For the m~or ~fferences b~ween physical and pemepmal product pos~ioning
analyses, see Exhib~ 7.3.) Many consumers do not want to be bothered about a product~
phyMcal charac~stics because they are not buying these physical prope~s but raher the
benefits they provide. While the physical prope~s of a produ~ ce~n~ influence fire
benefits provide~ a consumer can typical~ evaluae a product be~er m~ the basis of wha
~ does than what it is. Thus, for example, a headache remedy may be judged on hmv
quickly K brings rehe~ a ~hpa~e on the freshness of breafl~ pro~de~ a beer on its taste,
and a vehic~ on how comfo~ab~ it rides.
The eva~ation of many products is su~ecfive because it is ~fluenced by favors other
than physical properties, inOu~ng the way produc~ are pmsente~ our past experiences
with them, and the opinions of other. Thus, phy~cal~ ~mHar producB may be pemeived
as being different because of ~fferent histories, names, and advertis~g camp~gns. For examp~, some people will pay conMderab~ more for Bayer aspirin than for an unadve~ed
priv~e label aspirin even though they are essentiM~ the same product.

LEVERS MARKETERS CAN USE TO ESTABLISH POSITIONING

Customers or prospective customers perceive some physical as well as other differences
between goods or services w~hin a product caegorE of course. Marketiug decision makers seeldng to win a particular position in cu~omers minds will seek to endow their product with various kinds of attributes, which may be camgorized as follows:
Simple plo~sical~v based am4bute~ These are directly related to a single phy~cal dimenfion such as qualR> poweg or size. While there may be a direct correspondence between a phys~al dimenfion and a perceptual a~fibute, an analysis of consumers pe~
cepfion of products on these attributes may unveil phenomena of intele~ to a marketing
~rateg~ For in~ance, two cars with estimated gasofine mileage of 23.2 and 25.8 miles
per gallon may be perceived as having ~m~ar gasofine consumption.

EXHIBIT 7.3 Comparison of Phyfical and P~p~N Pofifio~ng Ana~s

Physical Positioning

P~ce~u~ Pos~o~ng

Technical oHenta~on

Consumer oHenta~on

Physical characteH~ks

Pe~eptual attributes

O~ectNe measures

Pe~e~ual measu~s

Data readily av~e

Need for ma~ing research

Physical brand properties

Pe~eptual brand p~o~ and positio~ng intens~ies

Large number of dimen~ons

UmKed number of ~men~o~

Represents impact of product specs

Represents impa~ of p~du~ ~e~ and commu~on

Dire~t R&D im~a~ons

R&D im~katio~ need to be i~e~d

158 Se~ion Two

Complex ph3~ically based attributes. Because of the presence of a large number of

physicN characterizes, consumers may use composke at~ibutes to evalu~e competifive offerings. The development of such summary indicators is usuNly su~e~ive because of the relative impo~ance a,ached to different cues. Examp~s of composke ~ttributes are the speed of a computer sysmm, roominess of a ca~ and a productN or
serviceN being user friendl~
Essentially absO~ct attHbuW~ Akhough these perceptual a~ributes are influenced by
phy~cN charactefi~ they are not related to them in any direct way Examples include the sexiness of a perfume, qualky of a French wine, and pre~ige of a ca~ All of
these a~fibutes are highly subjective and difficult to relate to physical charac~risfics
other than by experience.
PHca A product~ price may infer other att~butes, such as high or lo~v quarry.

Strategk Issue
PerceptuM attributes
mu~ be considered
in posR~Nng mo~
produc~.

The impo~ance of perceptuN a,ribu~s with thdr suNective component varies across
consumers and produ~ classes. Thus, k can be argued that consumers familiar w~h a gNen
product class are apt to t~ly more on physical charac~ristics and less on perceptuM a~ributes than consumers who are less ~miliar wkh th~ produ~ class. It can also be argued
that while perceptual product positioning is essential for nondurahle consumer goods, such
is not necessarily the case for durables (such as spo~ utilky vehicles) and many industrial
goods.
Even though them is cons~erable ~uth in these sm~ment~ pemeptuN attrNutes mu~
be considered ~ poskioning mo~ produ~s. One reason is the growing ~m~arity of the
physicN chara~eristics of more and more produ~s. This increases the impo~ance of othe~
large~ suNecfive dimen~ons. Conside~ for example, wh~her NikeN Air Jordan baske~
bN1 shoes would have sold as well wkhout bask~bN! ace M~hael Jordan~ endorsement
and his presence in their ads.

PREPARING THE FOUNDATION FOR MARKETING STRATEGIES:

THE POSITIONING PROCESS
PoNtioNng a new produ~ ~ cusmm~s m~ds or ~posNoNng a ctrmm produ~ invoNes
a series of ~eps, as omfined in ExNbk 7.4. These ~eps are app~cable to goods and se~
~ces, ~ domestic or int~nationN markets, and m new or e~sting wodu~s. TNs is nm m
sugge~ th~ the demrm~ant product a,r~mes and ~e perceptions of consumes of ~e
various cmnpetitive offerings will remain cm~mnt across coumfi~ or o~ ma~ segmeres; r~heg ~ey are l~dy to vary with most produ~s. Afi~ manages have selected a
~am ~t of comp~mg offerings ~r~ng a mrg~ ma~k~ (S~p 1), ~ey must identify a
s~ of cfificN or determ~am wodu~ a,r~mes important m cu~om~s ~ ~ mrg~ ma~
ket (S~p 2).
Stop 3 inv~ves collecting ~rmation from a samp~ of cu~om~s abom ~eir pe~eptions of ~e various offerings, and ~ Stop 4 researchers ana~ze tNs ~rmation to dem~
mine ~e pmdu~N current poskion ~ cu~om~s minds and ~e i~ensky ~eof (Does k
occupy a dominam posNon?), as well as those of competitors.
Manages ~en ~ce~a~ ~e cus~m~s most p~ed comb~ations of de~rm~a~ ~tribm~, wNch requires ~e cM~n of fur~ data (Step 5). TNs allows an examination
of ~e fit between ~e p~nces of a gNen m~ ~gmem of cu~om~s and ~e curare
posNons of comp~Nve offerings (Step 6). And finally, ~ Step 7, manages wfi~ a concise ~a~mem ~at cormm~cates ~e po~tio~ng de~on ~ey have ~ached. A di~us~on
of these stops ~ ~e posNoNng process takes up mo~ of the mma~d~ of ~is chap~

Chapter Seven

EXHIBIT 7.4
S~ps in the
Positio~ng
Process

Differentiation and Positioning

159

sewing a ~ maA~.

5. De~rm~e c~me~ mo~ p~ed

po~tb& nEXam~of e~ ~ ~ ~of ~pmduth ~e ~n P~m~( ~m~k~ p~on~. ~-~l

~e~i~ pos~Ona Sdd~on~ nero w~~ be ~acedP.mdu~w shere

pmpo~bn ~ gu~e dev~opmei nt~n~ ~~ ~i~ ~tof ~maA~~ ~yV .alU~nd I

Step 1: Identify a Relevant Set of Compe~ve Products

Pos~ioning ana~ses are useful ~ many levels: company, business unit, produ~ c~egor~
and specific product l~e or biand. At the company or business-uNt level, such ana~ses are
useful to demrmine how an entire company or bufiness unit is positioned rdative to ~s
competitor. The results of such ana~ses are sometimes disphyed graphica~y by plotting
competing companies or bu~nesses in thek respective quadrants of the generic ~r~e~es
grid shown in Exhibit 7.1. Larger or smN~r dots or ckdes are used to indic~e reline
s~es of competing firms.
At the produ~ c~egory level, the anNy~s exam~es cu~ome~ percept~ns about Upes
ofproduc~ they might consider as substitu~s to satisfy the same basic need. Suppos~ for
example, a company is con~dering introducing a new instant b~ak~ drink. The new
produ~ would have to comp~e with other breakfa~ foods, such as bacon and eggs, breakN~ cereals, and even Ns~food drive-throughs. To unde~tand the new produ~ position
in the mm~e~ a mark~er could ob~in customer p~epfions of ~e new product concept
rehtNe to like~ substitute products on various crificN determinant attributes, as we describe in Stops 3 and 4 of the positioning proce~ (see ExhibR 7.4). A poNtioning ana~s
at the produ~ or brand level can be he~ful to be~er under~and how various brands appeN
to cu~omers, to position proposed new produ~s or brands or reposition current ones, and
to identify where new comp~itive opportunities m~ht be found.

Strategk Issue
M~k~s who omit impotato substitute
pmdu~s or pmemiN
competim~ ~sk being
N~ds~ed by unPinseen c~npeti~on,

At whichever level the positioning analysN is to be done, the ana~ cho~e of competing products (or product categories or firms) is critical. Marke~rs who omit important substitu~ pmduc~ or pomntiN compe6m~ risk being blindNded by unforeseen competition.

Step 2: Identify Determinant A~ributes

PosNoNng can be based on a varify of ~mes--~me ~ the ~rm ~ ~s ~at
imp~ d~imNe ~amms ~ bmm~s as a poisoning base. Stone ~ bases am ~e
Features are often used ~ phys~N produ~ pos~ioning an@ hence, wi~ ~dustriM
pmdu~s. An example of ~s use w~h a consum~ good is U.S. high-end home apphance
maker Jerm-Air~ claim, "This is ~e quiem~ ~shwash~ made in Ame~ca?
Amazomcom has a uNque "l-d~k" ordering sy~em.
Benefit, l~e ~ums am Nmcfly ml~ed m a pmdu~. Examp~s he~ ~c~de Volvo~
~mphaMs on ~fet~ Toyom~ emphasis cn MNbility, znd Nordco~ promiMng a "close
and comfo~aNe shave?
Parentage ~c~des who makes it (bottled by a French ~ntner; "At Fidd~ you~e not
just bufing a fun& a ~ock, or a bond--youre bu~ng a be,er way to manage it") and
prior produ~s ~Buying a c~ is like getting m~ed. ~ a good Nea m know ~e ~mi~ firsC followed by a ~cmre of the ancestors of the Mercede~Benz S class modal).
ManufaetuNng p~ee~ is often ~e su~ect ofa firm~ positioning efforts. An examNe
is Jaege~LeCoult~ ~ement about Rs w~ches, "We know RN perfect, but we take another 1,000 hou~ ju~ m be sure?
Ingredien~ as a positioning concept is ~s~amd by some doing manu~cmm~ say~g thek spo~ shirts a~ made o~y of pure co,on.
Endorsements are of two types--those by expels ~Discover why over 5,000 American docto~ and meNcal pm~sNonNs prescribe this SweNsh ma~res~---TemporPeNc) and fl~ose via em~ation as wRh Michael Jordan using Nike shoes.
Comparison wi~ a competitor~ produ~ is common ~Te~s prove PeNgme ~ more nutri6ous than IAMS, cos~ less than IAMS, and tastes grea~ too"~PeNgree Mealtime
pm food).
Proenv~onment positioNng seeks to po~ray a company as a good citizen ~Because
we recycle over 100 miH~n plastic bo~les a yea~ landfills can be filled with other
things, like lan~ for ~stanc~~Phillips Pe~Neum, now pa~ of Conoco PhillipS.
PNeNquMity is used ~ cases such as WabMa~ successfully poMtioNng itself as the
~wes~price seller of househoN pmduc~.
Theoretically, cm~umers can use many aa~bmes ~ eva~a~ pmduc~ or brands, but lhe
number ac~N~ influencing a consum~N choice is ty~cal~ small, part~ because consumps can consider oNy attributes of wNch they are aware. The more variaNes used in
po~fioNng a gwen produc~ the greater the chance of confuMon and even Nsbelief on the
pa~ of the consume~ The po~tion~g effo~ mu~ be kept as ~mp~ as poss~ and complexity should be av~ded ~ M1 costs.
In using one or more a~fibutes as the basis of a brandN posNoNng effort, it is impo~
tant to ~cogNze th~ the impo~ance a~ached to these ~tributes often varies. For example,
while ~e brands of soap or shampoo provided by a hotel may be an a~ribme ~at some
consumers use ~ evaNating h~s, mog are uulike~ ~ attach much importance ~ R when
deciding which howl cha~ to p~ronize. Even an impotent a~ribnte may not greatly ~fluence a consumer~ preference if M1 the aRern~Ne brands are perceived to be about equal
on th~ NmenNon. Deposit ~fety is an important attribute in ban~ng, bnt mo~ consumers

Chapter Seven Differentiation and Po~on~g 161

p~ceNe all ba~9;s ~ be about equally ~l?. Consequen0L deposit ~fety is not a d~erm~
nant a~Hbu~: ~ does n~ pl~ a m~ m~ in he~g cu~om~s ~ ~ffe~ntiate among
the aR~nmN~ and m d~m~e which ba~fl~ they pre~a
M~ke~ should m~ prim~i~ on determinant attributes, v,he~ benefi~ ~ fea~r~,
~ defiNng the product space in a p~NoNng ana~Ms. The question is, "How can a ma~
keter find out which product dimenMons am det~rm~ant attr~utes?" Doing so tyNcN~
requires conducting some ~nd of maN~g research. This brin~ us to Step 3.

Step 3: Collect Data about Customers PercepOons for Products

in the Compe~ve Set
Ha~ng ident~ed a s~ of comping pmdu~s, ~e m~ke~r ~eeds ~ know what a~ribmes
are determ~ant ~r ~e ~Net manet and ~e pmdu~ ca~gory under cons~ion. He or
she also needs to know how ~fferent produ~s in ~e compe~Ne set are !ewed on ~ese
a~ributes. TyN~I~ this m~ket knowledge is developed by fir~ conducting quali~five repack p~haps ~r~ews ~ ~cus groups, ~ ~n which a~ribu~s am de~n~nant. Then
quanti~tNe research ~llows, pe~aps a survey of consumers about ~e~ perceptions, to
g~her d~a on how comp~ing pmduc~ sco~ on ~ese a~ributes. L~ ~ this chaNe~ we
discuss several ~atisti~l and anal~ical tools ~ are use~] in this portion of ~e posifio~ng pm~.
Step 4: Analyze the Current Po~ons of Products in the

Competitive Set
Whe~er ~e positioning process is ~ed ~ a new product n~ yet introduced or ~posifioning one ~at Nmady exits, it is impo~ant to develop a clear unders~nd~g of ~e positioNng of ~e products that have been de~rmined m be in ~e comp~itive set (see Step
1). Thffe are two useful runs for do~g so. One is ~e portioning g~d, also calkd a p~reeptual map? The o~ N ~e valne curve. The po~fioNng grid provides a !sual representation of the portions of various produ~s or brands ~ the competitive set in ~rms of
(tyNcally) two dNerminant attribu~ Where mo~ than two attributes am m be consMemd
in a positioNng ana~ m~fi~mens~nN grids, or mu~pk grids, are produced. AI~
natively, a va~e curve, which comprises morn than ju~ two Nmen~ons, can be genermed
(see b~ow).
But not aH products or brands exist in the minds of most consumers. A brand N~ is not
known by a consumer canno~ by defiNfio~ occupy a position ~ ~m consum~ mind.
Often ~e awarene~ set for a gNen product class is ~me cr ~w~ brands even Nough ~e
number of avaiNNe brands is gm~er than 20. Thus, many if not mo~ b~nds have littk or
no poNtion in the minds of many consumers. For example, in ~e last 10 or so years, more
an 200 new soft drinks have been introduce& most of which were not noticed or rememb~ed by consumers. An examp~ of a brand wi~ a ~rong positiomng is BMW and
~s powerful c~s as ~e "Ultima~ Dri~ng Mac~ne~ De~n~in~g ~e a~ributes on which
e product~ positioning will be based is a key outcome of the portioning process and a
driver of the marketing communication ~mmg~ as well as the marketing s~egy overall,
th~ will ultima~ be developed. Wi~ont clear gNdance about ~e ~mnded portion of
e pmdu~, adverting agendes, sNesfomes, and others charged with buil~ng the awareness and recognition of the pmdu~ ~ ~e m~ke~ce will be ill-equipped m do ~is impo~ant job.
BnHding a Positionh~ Grid
An ~amp~ of what can be done wi~ dma gmh~ed in S~p 3 is ~und in Exh~R 7.5,
which shows ~e ms~ oNNned from a study done by Babson College ~m portr~s how
a samNe ofcon~m~s p~No~d a nmnb~ ~wom~b clothing ~tailers in the Washington,

162 Sec~on Two

W~hi~n 1~0 Womeffs ~n mark~

~: A~ ~m D~
~gen and S~ph~ Amol&
"Nords~om: How Good A~
TheyT ~bson ~llege R~h~ R~r~h R~
~ptemb~ 1~ ~ sko\~n ~
M~ L~y ~d B~
Weitz, Relailing AMn~n~l
~urr N~ K: Richard ~
I~M 1~2~ p. 205. ~pdmed

The Umi~d
N~man Marcus
Bloomingd~#s

| Saks

Mac~s

No~mm

Hit or M~s

Ga~nk~s
Casu~ Corner

Dress Barn
~J. Maxx

The Gap
Sass~s

Loehmanffs

L&T ~ Ma~h~
Hechfs

| Kma~

Bd~hes

Sea~

JC Penney

Woodwa~

L~hmp

Talb~s
Women~we~ value ~r the
Worst v~ue (

~ Be~v~ue

D.C., ~ea." Re~onde~s rated ~e vafions ~es on ~e two determinam a~fib~es of vNue
and ~naN~ty. Some ~ores, such as N~ds~om and Kraal, occupy mlative~ ~a~
positions from one ano~e~ ~cating th~ consumes see them as very ~ffem~. Other
~es occupy posNons comp~aNe ~ one ~n~h~ (N~man M~cus, Saks) and ~us ~e
consN~ed relative~ aloe, meaNng ~e intensity of comp~Non between ~ese ~oms is
l~e~ ~ be con~d~ab~ gma~r ~an ~r ~ose ~ occupy wide~ dNe~em pos~ions.
The store posNoNng shown m ExNbR 7.5 also pin, des use~l ~rm~n about pos~Ne oppormnit~s ~r ~e huncNng of a new ~e ~ ~e mposNon~g of an e~sting one.
PosNoNng ~r a new ~ore could be done by examin~g the posNoNng map ~r emp~
spaces @ompetitive gapQ where no existing ~ore is currently ~d. There is such a gap
~ ~e upper rigN qua&am of~e ~MuU~sNonaN1Rf map ~ ExNbR 7.5. This gap may
mpr~e~ an opp~mnity ~r dev~op~g a new e~y or mpoNfiomng an old one ~ is pe~
ceNed to offer greater ~shionability ~an N~dstrom ~ a ~wer price. Of coupe, such gaps
may exist simp~ because a particul~ position is eRher (1) impossible ~r any brand ~ ~~ b~ause of ~chNcal constraints or (2) undes~aNe s~ce ~em ~e ~w pm~ective cus~m~s ~r a brand wi~ ~ ~t of attfib~es.
Buildittg a Value Curve
GNen ~at ~aft~g s~e~es invMves ma~ng choic~---chNces abom what not ~ do, as
well ~ wh~ to do--another useNl tool ~r posR~Nng decision is the value curve.~ Va~e
curves ~c~e how produ~s witNn a c~egcry cmnp~e ~ ~rms of ~e level--high or
~w--of as many a~fibm~ as ~e m~vam. Thus, uNike p~cepmN m~ps, wNch ~e mo~
e~i~ !ewed in just two ~men~ons, vNue curves ~e morn m~fi~mens~nM.

Chapter Seven Differentiation and Positioning 163

EXHIBIT 7.6
Value Curves ~r
Ndman Marcu~
JCPenney, and Sears

Level of each
a~dbu~
High

~ JCPenney

~1~ NeimanMamus

Sometimes, value is best delivered by eliminating or reducing the level of some attributes, espeNNly those not really desked or apprechted by the target cu~ome~ and increasing the level of others, the ones the customer really wants. LetN imagine Ihat in addition to the data shown on the perceptuN map in Exhibk 7.5, we have data about several
other variables for two stores: Neiman Marcus and JCPenney. We could build value curves
for the two retailers by plotting these hypothetical data as shown in Exhib~ 7.6.
The value curves show that, among other things, JCPenney chooses to compete by reducing ks level of customer service, ambiance, category depth, and fashionabHkE presumably in order to deliver increased value for mone~ Neiman Marcus offers higher levels ofcuaomer service, ambiance, category depth, and fashionabi~ty, presumably because
the target cu~omer k seeks to serve is willing to pay for these attributes.

5t~tegk Issue
C~npeting hea~on
agNn~ ~e leaders on
e basis of aUfibm~
appropfi~ed by Nrger
comp~i~ is n~ l~y
m be efl?ctive.

Marketit,g Opportunities W Gain a Distina PoMtion

In Nmations where one or a lim~ed numb~ of brands dominam a product class (or Upe)
~ the minds of consume~, ~e mare oppwmN~ ~r competim~ gen~N~ lies ~ oNa~~g a profitab~ posit~n within a mak~ segmem not dom~aed by a Ea~ng brand. Competing head-on against the leade~ on ~e basis of a~fibm~ appropfiaed by larger competim~ is not lke~ m be effective.
A b~mr option is to concenV~e on an a~fibu~ prized by memb~s of a ~ven mak~
~gmem. Thus in ~e UN~d ~aes, For~ ha%ng targeted women and young Nm~es, posNoned ks new W~d~a m~Nan primafi~ on the basis of ~U and cargo space ghe
most of any miNva~. In~oduced ~ ~e ~ring of 1994, W~&~r was come~g ~e
Dodge Caavan %r the mp4eH~g miNvan ~m a year lae~"
Co,tstraitt~ Imposed by an Itttettse Positiott
Although mark~s shoed gen~N~ seek a ~sfin~Ne and imen~ posNon ~r thek
brands, a~a~g such a posNon impo~s con~mims on N~re Stl~eNes. If shifts in ~e
mark~ environment cau~ cus~m~s to reduce ~e importance ~ey a~ach to a cuwent de~rminam attfibme, m~k~s may have Nffic~ repositioning a brand w~h an imen~
p~ceNed position on ~at a~ribme. ReposNon~g carries w~h ~ the threat of alienating
pa~ or all of the product~ currem users regardless of succe~ ~vith ~s new~ mrg~ed group.
Success in ~s mpoMtioNng effo~s may well ensure ~smg ~s current group of users.

164 Sec~on Two

Another concern is the dilution of an exi~ing intense position as a resu~ of consolidation. For example, British Leyland was formed through a series of merge~ involving a
number of British car manufacturers. For years, the company did not have a clear identity
because it was new and manufactured a variety of brands, including Roveg Triump~ and
Austin-Morris. Mo~ Europeans had difficuRy recalling spontaneously any British car
manufacturer Nnce once-strong brand names such as AuXin and Morris had lo~ the~ identity and meaning. Since Ley~nd~ 1994 acquisition by BMW and the reintrodu~ion of the
Mini Coope~ the brand~ weak positioning may have strengthened some~vhat?~
Another danger assoc~wd with an in~nsely positioned brand is the temp~fion to ove~
exploR th~ posRion by using the brand name on line ex~nsions and new products. The
danger here is that the new products may not fit the ofiginN posRioning and the brand~
s~ong image is d~uted. For examp~, in the late 1990s, the Holiday Inn Group offered travelers the cho~e of gaying in Holiday Imp, Holiday Im~ Express, Ho~day Inn Select, or Holiday hm Garden Court, each of which was at a differem price point and service offering.~
Such a dive~e offering can be very confuNng to consumers.
Lim#ations of Product Positioning Analys&
The anNy~s depicted ~ Exh~R 7.5 is usuM~ m~wed to as productpositio~fing because
it ~Oc~es how aRern~Ne produ~s or brands are positioned mNfive to one m~mh~ ~ customers n~nds. The proNmn with ~is ana~d~ ~ougK is Oat it does not WR ~e markemr
which portions are mo~ appeN~g m cugmne~.~ Thus, ~e is no way m demrm~e if
there is a markm for a new brand or ~ore ~ reign locNe ~ an "open" posR~n or
whe~er the cu~om~s in mh~ market segme~s pm~r brands or smms wRh ~ffemnt attributes and positions. To salve such problems ~ is neeess~y m measure cus~m~s pro>
erences and loc~e them ~ the product space along with the~ pemeptions of ~e positions
of e~sting brands. This is called a market positioning analysis. We deal wi~ Nis issue
in Stop 5.

Step 5: Determine Customers Most Preferred Combina~on

of Attributes

There are several ways ana~s can measu~ cu~om~ p~nces and ~c~de them in a
positioning ana~sis. For instance, survey respondents can be asked to think of ~e ideal
product or brand within a product category--a hypo~eficN brand posse~g the perfect
comb~n of a~ributes (~om ~he cu~omer~ !ewpoint). Respondents co~d ~en m~
ek ideN produ~ and e~sti~g produ~s on a number of a~ributes. An aR~n~Ne ~pproach
is to ask ~spondents not on~ m judge the degree of ~mi~fity among paks of existing
brands but also to ~c~e ~ek degree of pm~nce for each. In e~her case, ~e ana~g,
us~g the appropri~e ~afisfical ~chNques, can locam the respondents ideal poi~s relative to ~e posNons of the various e~sting brands on ~e product space map.
Ano~ mNhod of asses~ng cu~omers p~mnces and trade-offs among them is a
~atistical mctmNue ca~ed co~oint anNysis.~ Cu~omers are surveyed and asked ~ek
pm~rences among various real or hypmheticN produ~ configur~ions, each w~h a~ribums
that are systematically varied. By ana~Nng the ~sult~g d~a, the m~kNer can learn
wNch of serum attribums are more impo~ant than ~e others. These ~s~ can then be
used ~ po~fioNng ana~ses such as ~ose described here.
Whichev~ approach is use~ the ms~ will look som~hmg like Exh~R 7.7, which
shows a hyp~heticN c~ of ideal points for one segment of womens-~othing consumps. As a group, this segment wo~d seem ~ p~r Nords~om ov~ any mh~ women~
c~g ~mi~r on the map.
There are, howeve~ several reasons not all cu~omers m ~is segnmnt are like~ to pre~r Nord~mm. Fi~ ~e ideal points of some customers a~ actual~ closer ~ Macy~ ~an
Nord~mm. Secon~ cu~omers whose ideN point is equiN~ant b~ween ~e two ~ores may

Chapter Seven Difforentiation and Positioning 165

EXHIBIT 7.7
P~p~M Map ~
Women~ C~thing
R~afle~ in
Washington, ~C.,

W~h~ 1990 Womeffs ~bn ma~

Showing the Ideal

Poin~ of a Segme~

of Consumes
Sot~ A~pted ~m ~ougl~
~g~ ~d S~en AmN&
~d~o~ How G~d A~
~ey?" ~hson College Reta~
~g R~rdl R~
SeNemb~ I~0. ~ntcd ~
Nrm~.

~ The Umi~d
~ N~man Mamus
Sa~

~oomingd~e~
Macy~

No~m

H~ or M~s

Ga~nk~s
Casu~ Com~

D~ssB~n ~J. Ma~

The Gap

Sa~afras

Loehmann~

L&T ~ Ma~h~
Heeh~s
Kmad

B~ches

Sea~

JC Penney

W~dwa~

&

Lo~p

~o~
Wo~ ~ ~

Womeff~wear v~ue br ~e
~ Be~ v~ue

be relative~ inNffemnt in the~ choice of which store to p~ronize. And finally, customers

smn~imw eShen buyin~12w-invlvemeP nt~mMze s~mSnnduraNS emeWh~gdfu s~he~raWase

Strate~k Issue
Using price as one
dimenNon of a positioning grid is ty~cal~ nct
very usefifl.

new stores, to reassess older st~s from time to time, or ju~ for the sake of variety.
Using price as one ~mension of a poNfion~g g~ or as a key dimensMn on which a
pmdu~ is poMtione& is typicM~ not very useful unle~ price is a key d6ver of the ma~
kefing s~ateg~ This is the case for t~vo reasons. FirsB price is easi~ imi~Ne by competi~rs. Unless the firm has a clear cost advantage over its competitor, by vi~ue of its
processes or o~r sources ofeffickncL using low price as a basis for poMfion~g can be a
fast mad m a price war that no one ~xcept consumerM will win. Secon& claims th~ one~
product--whether a good or a ser~ce is low-priced me sometimes not very cre~Ne, because so many marke~ make such chinas. It is often be~er to poMfion around mo~ enduring dift~mnti~ors, and let price speak more subtly for Rsel~ Wal-Mart, an exception,
hac Sompareb deen ablte i~Ochief competitorsS ,ustain ~s Mw-PriaCectuM~ ap reOSitioninl gowei~ the Uni~d States because its cons,

Step 6: Consider Fit of Possible Po~ons with Customer

Needs and Segment Attrac~veness
bAny ~ffe~im mportant criterion for defining m~c ketu~om~s Because ~ffe~gmentsb iSetween cus~me~th,e ~ffe~ncid eea~pointth se benefire tSfle~ ~ris a_Ught
findi S~n~ market ~grneni~ tsthe benefi~ ~ey a~eekw~l~a~aNth ~e pemeNed p~oP ~sNMng ana~f ~ffemC ntan Mm~neousb lYrands. When cui s-demi~
mm~s ideal points c~s~r ~ t~vo w more locations on ~e product @~e map, ~e ana~

166

Section Two Oppo~unityAnalys~

WasMn~on 1990 Women% fashion market

EXHIBIT 7.8
P~p~ Map of
Wom~N ~othi~
Reties ~

Washington, ~C.
S~ ~ve

~ The UmRed

Segmen~ Based on
Ide~ Po~ts
~ ~ ~m Dou~

~ ~d S~ ~n~&
~a: How Good Are

~ N~man Mamus
2Saks

~oom~gd~gs

Mac~s

~e~ Babson College ~tail-

~~
=
m

ONResearChsepmmber 1~ ~nted~R~

~~

permi~m

~~

4
No~mm

H~ or M~s

Ga~nk~s
Casu~ Comer

Dress Barn ZJ. Maxx

The Gap
Sass~ms

~ , Loehman~s

L&T ~ Ma~h~

Hec~s
1
| Kma~

Bd~hes

Sea~

dC Penney

Wo~w~d
L~hmp

Talb~s
Womens-wear v~ue ~r the
Wor~value ~

~ Be~value

can consider each clu~er a distinct market segment?~ For anNytical purpose~ each clu~er
is represented by a circle that encloses most of the ideal points for that segment; the size
of the drde reflects the rdative proportion of customers within a particular segment.
Exhib~ 7.8 groups the sample of Washington, D.C., respondents into five di~inct segments on the basis of clugels of ideal points.~ Segment 5 contains the largest proportion
of cu~omers; segment 1, the smallest?* By examining the preferences of cu~omers in dig
ferent segments along w~h thek perceptions of the positions of existing brands, anNy~s
can ~arn much about (1) the comp~itive ~rength of different brands in different segments,
(2) the intensity of the fivaky between brands in a given segment, and (3) the opportunities for gaining a differentiamd pos~ion wRhin a specific target segment.
Step 6 not only concludes the analy~s portion of the positioning process and crygab
lizes the decision about the positioning a product should hol~ but R also can uncover locations in the product space where additionN new products could be positioned to serve
customer needs not wall served by current comp~Rors. Thus, ExhibR 7A shows that a possible side benefit of the positioning process is recognition of underserved positions where
additionN new products might be placed.

Step 7: Write Positioning Statement or Value Proposi~on

to Guide Development of Marketing Strategy
The fin~ deci~on about where to poskion a new brand or repos~ion an existing one should
be based on bmh the markN targeting ana~Ns Oscu~ed in Chapter 6 and the results of a
market positioning analysis. The position chosen should m~ch the pre~rences of a particular mark~ segment and should take into account the current positions of competing brands.

ion

Chapter Seven Differentiation and Positioning 167

Under constant and ever in,easing pressure to perform, the pharmaceutical indu~ is ffequent~ cited
for pra~kes that are ethically ques~ona~& An article in the Bdtish journal The Lancet is an asse~ment
of adve~isemen% in Spanish medical journals in 1997
for an~hype~ensNe (drugs used to treat high blood
pressure) and lipid lowering (i.e., cholesterol IoweF
ing) drugs. The adve~emen~ ~udied in a ~month
period (264 different ads for antihypertensNes and
23 different ads for li~d-lowering drug~ made a
total of 125 referenced claims. After excluding the
23 claims that did not have publNhed data, the

Strategic Issue
Most successRfl products are positioned
based on one og at
mo~, two demrminant
aUfibutes.

researchers found that 44 percent of the I~erature

did not suppo~ the ~atemen% made in the ads. This
~udy was a note of caution for doctors who prescribe medicines based on the evidence of reposed
research on drugs.
Is such marketing really in the best ~ng-term interests of the shareh~ders?
Source: ~lar Vil~nuev~ Salvador PeirO, Julian Librero,
~macu~da Pereir& "Accu~cy of Pharmaceutical Adve~
~sements in Medkal Journal~" The Lancet, January &
2003. RepHnted by permiss~n.

It should Nso reflect the current and,filtum a~racfiveness of the target markm (its size,
expected growth, and envkonmentN constraintO and the rehtive s~engths and weaknesses
of competitors. Such information, together with an analysis of the costs required to acquire
and mNntain these position~ allows an assessment of the econom~ implications of dig
ferent markm positioning ~rategies.
Most successful products are positioned based on one og at mo~, two determinant attributes, whether physicd or perceptuN. Using more simply confuses cu~omers. Domino ~
Pizza in the Uni~d States, in its eaHy days, focused its positioning solely on its fa~ ddiver since that was the p~ncipN dimen~on on which it e~ab~shed its competitive advantage. While there are many things Domino~ could have said about the p~za ~selg for examp~, R chose to focus ks positioning on its key point of differentiation: fast deliver~
RecentlN when fa~ delivery became common in the p~za indu~ry, Domino~ added a heat remntion dev~e to ks ddivelT containers and added a second positioning attribute: hot. Papa
John~, a more recent enfant in the p~za bu~nes~ positions ~s offering around a single attribute, the quality of ks pizz< with ks promotionN phrase, "Be~er ingredients. BeRet p~za?
Where there are no real product differences, as in so-cN~d me-too produc~, or no dig
felentiN benefits to the user, not only N success hard to achieve, but aNo ethical issues may
arise. For an exampE of ethical issues involving positioning in the pharmaceutical indus~> see Ethical Perspective 7.1.
Once the desked positioning for the product has been determine& it~ a good idea to
write ~ down so those charged with developing and imp~menting the marketing ~rmegy
have a clear understanding of what is intended for the product and where it will fit in ks
COlnpmitive set. Two approaches are commonly used for doing so. In the clasficN approach, a positioning statement is wfi~en. A more recent approach, one being adop~d in
a growing number of firms, involves w~ting a value proposition for the product.
Writing a Positioning Statement or a Value Proposition
A portioning ~atement is a sucdnct matement that identifies the target market for which
the product is intended and the product category in which ff competes and ~ates the unique
benefit the product offers. An example of a positioning ~atement that reflects Volvo~ marketing ~rategy in the United States is shown in Exhib~ 7.9.
A v~ue proposition is simihrly exphcR about what the product does for the cu~omer
(and sometimes, what ~ does not do) and typically Mso includes information about pfidng

168

Sec~on Two OpportunityAnalys~

EXHIBIT 7.9 P~itio~ng St~ement and Va~e Propofition ~r VoNo A~omobiles in lhe Un~ed Sta~s
Positioning Statement

Value Pmpos~on

For upsca~ American families, Volvo ~ the automobi~

that offe~ the utmo~ in safet~

Ta~ ma~: U~le AmeH~n Families

Ben~its offend: Safety
Price range: 20% p~mium over similar cars

mlafive ~ competitors. B~h positioMng ~ements and va~e propositions shoOd gen~al~
totem a unique selling proportion (USP) lh~ ~e pmdum embo~es. In this sense, they
reflect ~e basis on which ~e markemr intends to win susmina~e compm~ve advan~ge
by ~ffemnti~Mg the pmdu~ Dom mhers in its competitive space.
The notion of the USP has been ove~ol howeveg as in maW pmdu~ c~egories, especial~ mature ones, cu~omels are more impeded in the degree to which pa~
produc~ meO ~eff ah=ady well-established needs m~er ~an the degree to which they ~ff
~r ~om o~s. Newness and ~ffemntiation ~e nm always wh~ the cu~omer wan~! We
address this issue ~ the next section of this chapte~
A va~e proposition is anmher way to ckafly and succinctly ~e a produm~ position~g. h~ i~ sbo~e~ form, a value propoMfion ty~cal~ looks like this:
Ta~m ma~
Benefits offered (and not offere~
Price range ~daNe m comp~R~O
ExhibR 7.9 also provides a vNue proposition for Volvo. More ful~ developed value
propositions sometimes identify ~e be~ competing almm~Nes avNNNe to ~e cu~omer
and specify the benefits, ~ measumNe ~rms, th~ the cu~omer can expect ~ mceNe by
using ~e proposed product.~ DmN~d value proposRions such as ~ese are particularly
he~ful in position~g indu~N goods and service~ where quantifiaNe customer benefits
are often essentiN m make the sNe.
S~ategk Issue
It is impo~am ~ the positioNng ~ement or vahie proposition ~es benefits th~ the
D is impo~am ~ ~e
~ser of ~e product will obta~, ~r ~an ~atures cr a~bums of ~e product i~d~ or
positioning aatement w vague or amNguous ~udes about high quah~ or excd~m service. By benefits, we
value pmp~Non s~s
bmmfiB ~at ~e u~r of mean the resulting end-use measurable conseqnences th~ the user will experience ~rough
e pmdu~ will ohms, e use of ~e produm, ~ comparison to o~s.
~ ~an ~at~ ~
The markm~ genem~y ~vrites positioning sta~ments and value propositions for use ina~Hb~ of the product mrnN~ and by ~h~s, such as advelti~ng agende~ engaged to deve~p the marketing
RselE
~r~egg They are sho~ and succ~ct, and are tyNca~y not wfi~en ~ c~chy consum~ language, though c~chy s~gans and tag fines for communication with cu~omers often follow. They are commonly w~en for a product fine or a bran< as is fl~e case in our Volvo
exam~e, but sommimes for a sin~e produ~ or for a business as a whale. For produc~ or
brands, they play severn important ro~s. They provide ~mction for R&D and produ~ deveMpment about wh~ ~nd ofa~ribu~s shoed be b~ ~m ~e produ~ ~door affbags,
for examp~, ~ Volvo~ case). They pro~de ~m~ion for those who cre~e adve~N~g campNgns about what ~e focus of those campNgns should be (for examp~, VoNo~ ads Nmo~ always focus on sa~, even though VoNo could say oth~ ~gs about ~s c~O. The
value proportion also pro~des Nrecfion for pfic~g ded~ons.
Thus, in a very mN ~n~, the posit~n~g ~emem or vahe proposNon constitutes the
round,ion upon which the marketing s~amgy is bmR. More broaO> when used ~ the
business ~vel, as ~ey sommimes ~e, these ~eme~s a~N~e ~he ~r~eNc Nmction mxvard which the company~ acfi~fies ~ all arenas should be Nmem& Promis~g a ce~a~

Chapter Seven Differentiation and Positioning 169

sort of positioning, or valne, to the m~get markm is one ~ing. DelNering it is anothm: Clear
and concise po~fioNng ~Nements and value propos~ions can play important ro~s in e~
fecfively executing Oe intended s~eg~

SOME CAVEATS IN POSITIONING DECISION MAKING

We no~d earlier in ~is chapmr ~ it~ generally deskaNe to identify a unique selling
proportion ~at cla~fies how the product is ~ffemntiated from o~s. A new book by
Patrick Barwise and Sefin Meehan mEu~, howeveg teat contrary m conventional wisdom,
buye~ oNy rare~ look ~r uNquene~. They argue %at the degree to which a brand can
grow to dominme its cmegory is a reflection of how many use~ in %e camgory be~eve it
dehvers ~e main ca~gory benefit.~ The infini~mal ~ffemntiators Oat some m~kem~
worry so much about make ~e ~ ~fl~nc~ ~ey say. Thus, marketing strategists should
~cus ~eir effo~s on ddNe~ng ~e benefits ~ ma~ most ~ ~e ~Net customer---even
if other compe~tors do so as well--and not wo~y so much about invem~g tribal ~ffe>
ences ~ don~ ~d~ m~
A second cavea is the ques~on of whether, ~ one is to ~fferentiate, the ~cus should
be on features--tangible a~butes of ~e good or s~!ce i~elg such as VoNo~ Nde-door
ai~Sags and o~er sa~ features~r ~e benefts ~e ~atums deliver--~fet in Volvo~
case. At the end of the day, cu~om~s buy what ~ey bu~ whe~ goods or ~r~ce~ ~
order to ob~in c~ bene~s. They could care less about ~a~ms ~r thdr own sake.
Thus, ~ the bene~s th~ ma~e~
But words a~ cheap, ~r markem~ as well ~ for politicians dec~om>e~ promi~s. To
be ~eNNe ~ telling %e benefits s~r~ markO~s must back up ~dr words wiO ~a~ms
~ actuary ddN~ ~e benefits ~a ~e promi~& The chal~nge ~r marketing str~eNsts,
en, is to keep benefits as ~e ~cus of ~e va~e propo~on and at ~e top of ev~yone~
m~d-~eopywriters, sN~peoN< everyone who sells ~ one w~y cr another--but find a
way to emONy support and effe~Ne~ commuNcam ~e benefts ~at am c~imed. Doing
st21~SabouN tr mrfeeam~di sNCUR ~alN n~ead of bene~sit,sunds wNch is why so many ads and so many ~speoNe

ANALYTICAL TOOLS FOR POSITIONING DECISION MAKING

Throughout the positioning process, we have advocated collecting marketing research data
so positioning derisions are anchored in solid evidence, not mere supposition or naive
opinion. Advances in computing power and smtis6cal techniques have made possible a
broad range oftooN to help the marketing dedMon maker make the be~ use of marketing
research. We briefly outline a few of these tools in Exhib~ 7.10. It is beyond the scope of
this book to provide detai~d instruction in the use of these and other ~afisticN ~chniques.
Texts on marketing research and new product devdopment a~ good sources for additional
depth in this areaY

170

Se~ion Two

OpportunityAnalys~

EXHIBIT 7.10

Sofm~ ~ols for Position~g D~n Making

DBcriminant analysis ~qui~s the same input data as

Soffwa~ tools useful for making pos~oning ded~ons
factor
analysB. The d~criminant analysis prog~m then
include appl~ations that identify impo~ant determinant
attributes, as well as statistical appl~ations that can plot determines consume~ pe~eptual ~men~ons on the
basis of which attributes be~ diffe~ntiat< or ~scrimP
positioning grids from market ~sea~h data.
Conjo~t analysis." As was men~oned in Step 5 of the hate, among b~nds. Once again, those under,rig dipos~oning proce~, it is impo~ant to ~arn wh~h key ab men~ons can be used to constru~ a produd space map,
tdbutes are impo~ant to consumer~ Co~oint analysis is but they a~ usual~ not so early interpretable as the facone tool for doing so. Co~oint analysis determines to~ identified through factor analysB. Also, as with facwhich comMnation of a lim~ed number of at~ibutes tor anJys~ the underlying ~men~ons may be mo~ a
consumers mo~ p~fen The techn~ue B helpful for iden- fund~n of the attributes used to collect consumer rab
tifying appea~ng new produd designs and impo~ant ings than of the product cha~edstics that consumers
poinb that might be included in a produG~ adve~ng. adual~ consider to be mo~ impo~ant.
Multidimendonal scaling: Unlike the other techniques
A~hough it can pro~de some insigh~ about consumer
in
which
the underling ~men~ons identified depend on
prefe~nces, it cannot pro~de information about how
consumers pe~e~e the pos~oning of e~sting produds the attributes supplied by the ~sea~her when c~ding
in ~lation to produd ~men~ons. Conjoint analysis is data, mu~men~on~ scaling produces ~men~ons
one way to na~ow down a set of produd attributes to based on consumer judgments about the ~milarity of, or
those mo~ impo~ant to consider in produ~ design and their prefe~nces fo~ the actual brands. These underling
positioning ded~on~ Mo~ often, it is used with physical ~men~ons a~ thought to be the basic ~men~ons that
attributes, nct pe~eptual ones. Seve~l wide~ used con- consumers adual~ use to evaluate akerna~ve brands in
joint analysis ap~ations a~ av~b~ from Sawtooth the produ~ class. Mu~men~ona scaling prog~ms
that use data on ~mihdties construct geometrical~
Soflwa~, Inc. (www.sawtoothso~ware.~om).
Factor analys~ and discriminant analysis: Factor spaced maps on which the b~nds petered to be mo~
analysis and discriminant analysis are two ~atistical tech- similar are placed close together. Those that use conniques useful in constructing positioning grids based on sumer prefe~nces produce joint space maps that show
actual ma~eting ~sea~h data. They are included in consumer ideal points and then position the mo~most broad-based sta~stical packages, such as SPSS MR preferred brands close to those ideal points.
Unfo~unate~ the under,rig ~men~ons of the
(www.sp~s.om/spssm~. To employ factor ana~
the analyst must first identi~ the salient at~butes con- maps produced by mu~men~onJ scaling can be diffisume~ use to evaluate products in the catego~ under cult to interpret. Also, the ~men~ons identified a~ on~
~ud~ The ana~ then colle~s data from a sample of those that al~ady exi~ for cu~entiy ava~b~ b~nds.
consumers concerning their ~ngs of each produ~ or This makes the tech~que less useful for investigating
b~nd on all attributes. The factor analysis prog~m next new produG concepts that might invoke new cha~
determines which attributes are ~lated to the same un- tefistics. Rnally, the tech~que is su~e~ to statistical limderlying construd ("bad" on the same fadoO. The ana- kation% when the number of akernative brands being
lyst uses those underling constructs of fado~ as the di- investigated is small. As a rule, such techn~ues should
mensbns for a produd space map, and the prog~m be applied only when at lea~ eight or mo~ dfffe~nt
ind~ates whe~ each produG or b~nd is petered to be produds or brands are being examined.
located on each facton

M~kedng
Plan Exercise

Wrim a positioNng sm~me~ and a value plopoMfion for ~e product(O m be m~k~e& Con~ru~
one or more p~ceptuM maps or a va~e curve to clarify ~s positioNng versus compmim~.

1. GNen %e chM~n~s inh~em ~ mpo~Nng a N~-~od cha~, how wouN you N~Mr updme
~e Subww pmdu~ line and advertising ~mpaign in fig~ of c~mm macro ~ends?
2. WMt ~ m~m ky a de~Nant attribute for a N~n pmdu~? Explain why the identification of
such aufibutes is so important. Wh~ wood be an exam~e of a d~m~m~ a~r~me ~r each of
e ~ow~g products and service~
a, A ~ li~e
b. A la~op compm~

Chapter Seven

Differentiation and Position~g

171

c. French wine
d. Women~ ~ortswe~
e. A ho~ital
A I~N a~s college
g. A ~acmr
3. ShoOd positioning be based on product ~a~ms ~ beneN~ Why? Und~ wh~ ckcum~ances
shoed ~amms be Oe ~c~s of an adveN~ng ~mpNgn?
4. ~ mrms of pmNo~ng s~meg> whm is ~e mfionNe ~r ~e N~ ~m Nabi~o offe~ many dig
~re~ brands wiNin &e cmck~ ca~gory, each of wNch is p~ceNed ~ berg on~ Ng~ dig
~mm ~om ~e mh~ WEar ~e ~e advamages and limitat~ns of such a s~aegy?
Ad~fionM ~l~Nagnosfic questions to m~ your aNli~ to ap~y ~e analytical ~Ms and concep~ ~
tNs chaN~ to ~rmeg~ decision maMng may be ~und at the book~ Web si~ at www.mhhe.com/
wNk~0@
1.The Subway c~e examNe is drawn Dom ~a Pas~ ~ared of Subway Fame Toms HeaRhy
Li~sUle a Hea~ Walk Kickoff," The R~te~: Vande~ MeN~I Cemeg Ocmb~ 3, 2003;
CNN.com, gamd ~e Subw~ Guy, Supe~ff November 17, 2003, ~mme~n.~m/200M
SHOWBIZ/TV/ll/17/subw~y/g~o~ap/; and ~e Sub~vay Resta~a~ts Web si~ at ~su~vaj~com.
2. A1 Ries and ~ck Trout, Pos~on~ The Ba~efor )btw Mind (New Yo~: Wam~ Book~ 1982).
3.For a ~u~n of ~e p~o~ng of industri~ goods, see Fr~erick E. We~ter, ~, ~&~a#ial
Marke~gSn~te~, (New Yo~: ~hn Wil~ & Sons, 1991L pp. 102-3.
4.M~had Po~eg "Wh~ ~ S~ategy?" Ham,a~ Business Rm,iem November-Decemb~ 1996, p. 62.
5. M~had Po~e~ Competiti~ Advantage (Ne~v Yo~: The Free Press, 1985).
6.Jonathan Wel~, "Drive Bud/Volvo XC90 An SUV Morn Sa~ than Sport~ The Wall Street Jom~
hal (U.S. Edit~, Novemb~ 29, 2002, p. W11C.
7.Adapted flora C. Merle Craw~r~ New Pro&mtManagem~t (Burr ~ge, IL: ~chard ~ I~vin,
199~, ~ 348.
8.For a description of a p~c~m~ mapp~g w~edure ~ allows co~um~s ~ ~fibe and m~
e ~an~ invol~d ~ thek own term~olog> see ~mB~e~ E M. Sm~kam~ Hans C. M. Van
Tripp, and ~s M. E Ten Be~e, "Perceptual Mapp~g Ba~d on Idiown~atic Sets of A~ibutes$
Jo~mtal ofMarke~g R~e~w& February 1994, p. 15.
9.Dou~as ~gert and S~phen Arnd& "N~&~om: How Good Are They?" Babson College Rem~
hg R~ewwh Rep~ts, Se~emb~ 1990.
l~For mo~ on sgamg~maMng as choices, see Constanfinos C. Markides, Ad ~e Right Moves: A
Guide ~ ~i~ ~ea~hmugh St~e~y (Cambridge, MA: H~v~d Bu~n~s Scho~ P~ss,
2000). For more on value curves, see W. Chart Kim ~d Ren~e Mauborgn< "Va~e Innovation:
The S~a~g~ Logic of H~h Growth," Hatw~ff ~e~ Re~mv 0anuaw-Fe~u~ 1997L
pp. 103-12.
11.S~ve Lyons, "The Ma~m~g 100--Fo~ Windstaff Adve~7~gAge, ~ne 26, 1995, p. S-27.
12.Lindsw Brooke, "Mini: The Re~ Story," Autot,mtive h~&~#qe& April 2002.
13.B~ce O~vall, "Mu~ng Ho~l Brands Puz~e Tr~de~ The IctH SO~ Jot~mL Ap~ 17,
1996, p. B1.
14.EM~ng Dan& a~mctiven~s ~n be ~rred ~om currem ~les vo~m~ and ma~ ~. The
position ~cupied by ~e share leader is obvious~ more appeM~g to a gmm~ numb~ of cus~m~s ~an are the pos~ions occup~d by Msser brands.
15. S~ PaO E. Gm~, k Dou#~ C~mR, and S~phen M. GoNb~ ~ Genial Apwoach m Do&
uct DeMgn Optimization v~ CoNoint A~lys~7 Jo~m~al of Marketing R~eww~ May 1985,
pp. 168-84; and L Dou~ Ca~Nl and Paul E. Green, ~w~ommfic M~hods in MaNeting
Re~amh: P~t I, Conjoint Analysis7 Journal of Marketing R~eww& No~mb~ 1995, p. 385.
16.When us~g pm~mnce dam m define market ~gmen~, howell ~e ana~ should also collect
~formation about customers demogaphic ~arameri~cs, fi~s~ woduct ~ag< and o~ po~nfial ~gmemation variant. TNs enaN~ ~e analyst m develop a more complete p~mm of~e

172

Section Two Opportunity Analysis

differences among benefit segments. Such information can be useful for developing advertising
appeals, selecting media, focusing personal selling efforts, and designing many of the other elements of a marketing program that can be effective in appealing to a particular segment.
17.The size of the individual circles in Exhibit 7.8 is fictitious and designed for illustrative purposes
only.
18.The map in Exhibit 7.8 shows five distinct preference segments but only one set of perceived
product positions. The implication is that consumers in this sample were similar in the way they
perceived existing brands but different in the product attributes they preferred. This is the most
cormnon situation; customers tend to vary more in the benefits they seek than in how they perceive available products or brands. Sometimes, however, various segments may perceive the positions of existing brands quite differently. They may even use different determinant attributes in
assessing these positions. Under such circumstances, a marketer should construct a separate
market-positioning map for each segment.
19. Michael J. Lamming, Delivering Prqfitable liable (Cambridge, MA: Perseus Books, 1998).
20.Patrick Bar,vise and Sefin Meehan, Simply Better: Wim~ing and Keeping Customers by Delivering gqtat Matters Most (Cambridge, MA: Harvard Business School Press, 2004).
21. For extensive critical reviews of past marketing applications of these different approaches, see
John R. Hauser and Frank S. Koppleman, "Alternative Perceptual Mapping Techniques: Relative
Accuracy and Usefulness," Journal qfMarketing Research, November 1979, pp. 495-506; John W.
Keon, "Product Positioning: TRINODAL Mapping of Brand Images, Ad Images, and Consumer
Preference," Jomwal of Marketing Researck, November 1983, pp. 380-92; Paul E. Green, J. Douglas Carroll, and Stephen M. Goldberg, "A General Approach to Product Design Optimization via
Conjoint Analysis," Journal of Marketing Research, May 1985, pp. 168-84; Thomas W. Leigh,
David M. McKay, and John O. Summers, "Reliability and Validity of Conjoint Analysis and SelfExplicated Weights," Journal of Marketing Research, November 1984, pp. 456-63; Paul E.
Green, "Hybrid Models for Conjoint Analysis: An Expository Review," Journal of Marketing Reseamh, May 1984, pp. 184-93; E. M. Steenkamp, Jan-Benedict, Hans C. M. Van Trijp, and Jos
M. E Ten Berge, "Perceptual Mapping Based on Idiosyncratic Sets of Attributes," Journal of
Marketing Research, February 1994, p. 15; and J. Douglas Carroll and Paul E. Green, "Psychometric Methods in Marketing Research: Part I, Conjoint Analysis," Journal qflMarketing Researck, November 1995, p. 385.