CHAPTER 7

MARKET SEGMENTATION AND TARGETING

TEACHING OBJECTIVES

After reading this chapter, you should be able to:

1. Define and explain market segmentation, target markets, and product differentiation
and positioning.

2. Understand the criteria used for evaluating the likely success of a segmentation
strategy.

3. Know the role of market segmentation in the development of marketing strategies and
programs.

4. Describe the issues involved in product and brand positioning.

5. Understand the alternative bases for segmenting consumer and business-to-business

markets.

6. Evaluate alternative approaches for pursuing segmentation strategies.

OPENING VIGNETTE: WWW.SRIC-BI.COM

The VALS topology offers firms that employ this approach a unique understanding of
differences in consumer segments identified using a combination of survey segments responses
to questions about individual lifestyles, values, and demographics. The system extends the use
of demographic data, such as age, income, and gender, to provide a richer description of
market segments.

A firm’s researchers can use the variables to group consumers into eight market segments and
then examine those segments for differences in product preferences and desires. As described
on SRI’s Web site, typical applications of VALS are in areas such as product development,
advertising effectiveness, and corporate image.

In a recent version of SRI International’s segmentation scheme, VALS, is positioned as a tool

for understanding new-product acceptance and innovation. VALS is a new service that focuses
on the attitudes and preferences of online services and Internet users. The Web site for this
product allows visitors to take the VALS2 questionnaire and get their own VALS type.
Consequently, VALS captures the psychographic profile of people who use the site.

1. What does the VALS topology accomplish?

The VALS topology offers firms that employ the approach a unique understanding of
differences in consumer segments identified using a combination of survey segments
identified using a combination of survey responses to questions about individual lifestyles,

Bearden, Marketing, Fourth Edition 95

 values, and demographics. The system extends the use of demographic data, such as age,
income, and gender, to provide a richer description of market segments.

2. What does new service does VALS offer?

VALS is a new service that focuses on the attitudes and preferences of online services and
Internet users. The Web site for this product allows visitors to take the VALS
questionnaire and get their own VALS type. Consequently, VALS captures the
psychographic profile of people who use the site.

CHAPTER OUTLINE

I. MARKET SEGMENTATION, TARGET MARKETS, AND PRODUCT DIFFEREN-

TIATION

Definition: Market segmentation–groups of prospective customers who share

similar needs and wants.

Target segments–those groups the firm selects to focus on with

separate marketing mixes

A. Market Segmentation

1. Divides a market into subsets of prospective customers who behave in the

same way, have similar wants, or have similar characteristics that
relate to purchase behavior

2. Factors for understanding market segmentation

a. slower rates of market growth

b. social and economic forces

c. technological advances

d. minority buyer behavior

e. no longer mainstream America

3. Appropriate for tangible products, nonprofit and service organizations

4. Market segmentation in international markets (Use “Speaking from

Experience” example here)

B. Target Markets

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 1. A firm tailors or develops products and strategies to appeal to the preferences
and unique needs of specific groups of customers

2. Target markets: groups of consumers or organizations with whom a firm

wants to create marketing exchanges

3. A firm should focus only on those groups it can effectively reach and serve.

C. Product Differentiation

1. The firm’s offerings differ or are perceived to differ from those of competing
firms or any attribute, including price.

2. Position a product or service in the customer’s mind–to convince customers

the product has unique and desirable characteristics

II. FROM MASS MARKETING TO MASS CUSTOMIZATION

A. Mass customization

B. Collaborative customizers

C. Cosmetic customization

D. Niche marketing

1. Data mining

III.WHEN IS MARKET SEGMENTATION APPROPRIATE?

A. Criteria for Effective Segmentation

1. Measurability

2. Accessibility

3. Substantialness

4. Durability

5. Differential responsiveness (Use Exhibit 7-1 here)

B. Satisfying the Segmentation Criteria

IV. STAGES IN DEVELOPING MARKET SEGMENTATION STRATEGIES (Use

Exhibit 7-2 here)

A. Bases for Segmentation (Use Exhibit 7-3 and the “Being Entrepreneurial”
example here)

Bearden, Marketing, Fourth Edition 97

 1. Demographics

a. Demographic makeup of the typical American household

b. Trends

1. Generation Y–the 71 million children of baby boomers now coming of

age

2. The millennial generation–born between 1977 and 1994, 70 million

3. Generation X–born between 1965 and 1976

4. Baby-boom generation–born between 1946 and 1964, largest single

generation of America

5. Swing generation–born between 1933 and 1945

6. World War II generation–born before 1933

2. Geographics (Use “Thinking Critically” example here)

a. Metropolitan areas

1. metropolitan statistical areas (MSAs)

2. primary Metropolitan statistical areas (PMSAs)

3. consolidated metropolitan statistical areas (CMSAs)

b. Geodemographics

c. Geographic clusters

3. Psychographics and lifestyles

a. AIO statements

b. Psychographic research

c. Values and Lifestyles Program (VALS, VALS2) (Use Exhibit 7-4 here)
4. Benefit segmentation

a. Customer value

b. Using benefit segmentation in services

5. Economic segmentation (Use Exhibit 7-3 here)

98 Chapter 7 Market Segmentation and Targeting

 a. Profit potential based on individual accounts

b. Low revenue/low profit customers

c. High revenue/high profit customers

d. demographics

e. purchasing approaches (buying centers)

f. purchase characteristics (specific applications, product urgency, order

size)

6. International segmentation

a. Single standardized strategy

b. Customized strategies

c. Clusters

B. Combining Bases for Market Segmentation (Use Exhibits 7-5 and 7-6 here)

1. A two-stage segmentation example

2. Segmentation bases and related product purchases: A lifestage analysis

C. Segmentation Strategies (Use Exhibit 7-7 here)

1. Undifferentiated strategy

2. Differentiated strategy

3. Concentrated strategy

4. Countersegmentation strategy

5. Factors influencing segmentation strategy

a. product-related factors

1. Stage in product life cycle

2. Degree to which the product may be varied or modified

b. competitive factors

c. firm’s size and financial position

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V. TARGETING-- MARKET SEGMENTS AND POSITIONING PRODUCTS

A. Estimating Segment Potentials (Use Exhibit 7-8 and 7-9 here)

1. Market potential

2. Market forecast

3 Sales potential

4. Steps used in estimating potential for a segment

B. Developing Forecasts (Use “Thinking Critically” example here)

1. Forecasts

a. Qualitative procedures

b. Quantitative procedures

2. Survey of buyer intentions

3. Expert opinion

4. Composite of salesforce estimates

5. Trend analysis (time-series analysis)

6. Market tests

7. Statistical demand analysis

a. Regression analysis

C. Targeting Market Segments

D. Positioning (Use “Building Customer Equity” example here)

1. Positioning

2. Repositioning

3. Perceptual maps (Use Exhibit 7-10 here)

E. Micromarketing

1. Micromarketing
2. PRIZM

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VI. MARKET SEGMENTATION AND ETHICS

A. Advertising to Children

B. Harmful Products

C. Privacy Issues

D. Product Proliferation

VII. SUMMARY

UNDERSTANDING MARKETING TERMS AND CONCEPTS

1. Market segmentation: Dividing the market for a product into subsets of customers who
behave in the same way, have similar needs, or have similar characteristics that relate to
purchase behavior.

2. Intermarket segments: Well-defined, similar clusters of customers across national

boundaries that let firms standardize marketing programs and offerings for each segment
globally.

3. Targeting: Selecting which segments in a market are appropriate to focus on and

designing the means of reaching them.

4. Product differentiation: Circumstance in which a firm's offerings differ or are perceived

to differ from those of competing firms on any attribute, including price.

5. Mass customization: The seller combines basic modules in different ways for each
customer.

6. Data mining: Companies develop markets by examining their databases using analytical
and statistical procedures to develop patterns from the information derived from
customers.

7. Measurability: The degree to which the size and purchasing power of segments can be
assessed.
8. Accessibility: The degree to which a firm can reach intended target segments efficiently
with its products and communications.

9. Substantialness: The degree to which identified target segments are large enough or have
sufficient sales and profit potential to warrant unique or separate marketing programs.

10. Durability: The stability of segments and whether distinctions between them will diminish
or disappear as the product category or the markets themselves mature.

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11. Differential responsiveness: The degree to which market segments exhibit varying
responses to different marketing mix combinations.

12. Bases of segmentation: The distinguishing characteristics in a market around which

market segments (such as demographics, benefits sought) within a firm’s overall product or
service market.

13. Metropolitan statistical areas (MSA): A geographic area identified by census data to
contain a city with a population of at least 50,000 or an "urbanized area" with 50,000
people that is part of a county of at least 100,000 residents.

14. Primary metropolitan statistical area (PMSA): A major urban area, often located within
a CMSA, that has at least one million inhabitants.

15. Consolidated metropolitan statistical areas (CMSA): The largest designation of

geographic areas based on census data; the 20 largest market areas in the U.S. that contain
at least two PMSAs.

16. Geodemographics: The combination of geographic information and demographic

characteristics; used in segmenting and targeting specific segments.

17. Psychographic or lifestyle research: A concept for dividing a market into lifestyle
segments on the basis of consumer interests, values, opinions, personality traits, attitudes,
and demographics to develop marketing communications and product strategies.

18. AIO statements: Survey responses concerning activities, interests, and opinions (AIO),
used in psychographic research.

19. Values and Lifestyles Program (VALS2): A lifestyle program from SRI International that
segments consumers into eight groups: actualizers, fulfillers, believers, achievers, strivers,
experiencers, makers, and strugglers.

20. Benefit segmentation: Segmenting the market by the attributes or benefits consumers
need or desire, such as quality, service, or unique features.

21. Undifferentiated strategy: Marketing a single product using a single promotional mix
for the entire market; most often used early in the life of a product category.
22. Differentiated strategy: Using different marketing strategies for different segments;
either marketing a unique product and communications campaign to each segment , or
marketing a common product to different segments with various communication strategies.

23. Concentrated strategy: A strategy in which a firm seeks a large share of one or a few
profitable segments of the total market; often concentrating on serving the selected
segments innovatively and creatively.

24. Countersegmentation: Combining market segments to appeal to a broad range of

consumers and assuming an increasing consumer willingness to accept fewer product and
service variations for lower prices.

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25. Majority fallacy: Pursuing large “majority” market segments because they offer potential
gains, while overlooking the fact that they also may attract overwhelming competition.

26. Market potential: The maximum amount of industry sales possible for a product or
service over a specific period.

27. Market forecast: The amount of sales predicted based on the amount of marketing effort
(expenditures) put forth by all companies competing to sell a particular product or service
in a specific period.

28. Sales potential: The maximum amount of sales a specific firm can obtain for a specified
time period.

29. Surveys of buyers' intentions: Sales forecast based on surveys of what either consumers
or organizational buyers say they will do; such are most reliable when the buyers have well-
formed intentions and are willing to disclose them accurately.

30. Expert opinion: A qualitative approach to forecasting sales in which analysts ask
executives within the company or other experts to provide forecasts based on their own
judgments.

31. Composite of salesforce estimates: A means of forecasting sales in which sales reps give
their forecasts for their territories, which can then be combined.

32. Trend analysis: A quantitative forecasting approach that examines historical sales data
patterns (also known as time-series analysis).

33. Market tests: Marketing a new product in test locations using the planned promotion,
pricing, and distribution strategies.

34. Statistical demand analysis: Sales forecasting method from equations in which price
promotion, distribution, competition, and economic factors are independent variables.

35. Positioning: Developing an overall image for a product or brand by designing a marketing
program, including the product mix, that a segment's customers will perceive as desirable.
36. Repositioning: Developing new marketing programs to shift consumer beliefs and
opinions about an existing brand..

37. Perceptual maps: Spatial representations of consumer perceptions of products or brands,

used to evaluate brand positions in a market.

38. Micromarketing: Using computer analysis of census and demographic data to identify
clusters of households that share similar consumption patterns (for example, the PRIZM
market segmentation system).

39. Efficient assortment: Reducing the number of brands and brand sizes available at the
retail level have been shown to improve operating profit but does not appear to impact the
consumer’s satisfaction level.

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THINKING ABOUT MARKETING

1. What is market segmentation, and how does it differ from product differentiation?

Market segmentation is the division of a market into subsets of customers who behave in
the same way, have similar needs, or have similar characteristics that relate to purchase
behavior. Whereas market segmentation divides a market into subsets based on
distinguishing characteristics, product differentiation distinguishes a product from
competing products based on some differentiating attribute.

2. How might a marketer attempt to differentiate a product from competing products?

A marketer may attempt to differentiate a product by making any attribute of the product
different, or appear to be different (in the minds consumers), from the competing products.
For example, Pepsi Cola's "freshness dating" of Diet Pepsi is an attempt to differentiate its
market offer from other cola companies.

3. What are the criteria for segmenting a market, and what is meant by each one?
Contrast differential responsiveness with segment accessibility.

The criteria for segmenting a market include the following: measurability, accessibility,
substantialness, durability, and differential responsiveness. Measurability is a reference to
the degree to which the size and purchasing power of segments can be assessed.

Accessibility is a reference to the degree to which a firm can reach intended target
segments efficiently. Substantialness is a reference to the degree to which identified target
segments are large enough or have sufficient sales and profit potential to warrant unique or
separate marketing programs.

Durability is a reference to the stability of segments (whether distinctions between

segments will diminish or disappear as the product category or the markets themselves
mature). Differential responsiveness is a reference to the degree to which market segments
exhibit varying responses to different marketing mix combinations.

Segment accessibility refers to the extent that market segments can be reached, while
differential responsiveness refers to the extent these segments, once reached, respond
differently.

4. Describe the different bases for segmentation. In doing so, explain the differences
between user-related and behavior-related characteristics. How does the PRIZM
described in Case 7-1 make use of these bases?

The different bases for segmentation include: demographics, geographics, psychographics,

product benefits, and country. Briefly, demographic segmentation is based on the
measurable characteristics (age, race, stage in family life cycle, etc.) of a market.
Geographic segmentation is based on geographic grouping of the market. Psychographic
segmentation is based on the lifestyles of the market. Benefit segmentation is the grouping

104 Chapter 7 Market Segmentation and Targeting

 of members of a market based on similar desired product benefits. And, country
segmentation is based on grouping countries with similar characteristics.

PRIZM combines demographic, psychographic, and geographic data to form a very

powerful segmentation tool. The program is capable of grouping people with similar
demographic and psychographic profiles by nine-digit zip code.

5. What bases might be used to define segments for these products: cassette recorders,
hand calculators, personal computers, and public universities?

Consumers use cassette recorders for a variety of functions: recording and playing music,
recording business notes, recording lectures, etc. Because of the many different uses for
these devices, marketers of cassette recorders use psychographics information and benefit
segmentation to segment the market.

Similar to cassette recorders, hand calculators come in a variety of styles, colors, and
capabilities. The varying degree of specialization among hand calculators requires
marketers to use psychographic and benefit segmentation strategies.

Consumers use personal computers (PC) for a variety of tasks: home finances, games,
education, desktop publishing, word processing, etc. However, unlike the cassette recorder
industry, the PC industry is in a constant state of change and products usually experience a
relatively short life-cycle. Accordingly, marketers of PCs personal computers utilize benefit
segmentation and price sensitivity to organize the market.

Finally, public universities offer a defined range of products (degrees) and must depend on
consumers traveling to them when receiving the purchased service. Most universities
accept that a large number of consumers make decisions regarding which school to attend
based on proximity, reputation, and majors offered. Hence, marketers of universities use
demographic and psychographic bases for segmentation.

6. What is benefit segmentation? How does demographic segmentation differ from

psychographic segmentation ?

Benefit segmentation is the process of segmenting a market based on the particular

attributes of benefits of a product that consumers want. Demographic segmentation groups
people by measurable characteristics such as age, occupation, race, and stages in the family
life cycle without direct consideration for lifestyle. In contrast, psychographic segmentation
groups people by lifestyle-independent of demographic characteristics. Marketers
interested in psychographic segmentation need information such as that provided by AIO
statements (activities, interests, opinions) to be successful.

7. Define the different segmentation strategies. Compare and contrast each strategy
with the others, and explain the conditions under which each may be appropriate.

An undifferentiated strategy attempts to market a single product using a single promotional

mix for the entire market. A differentiated strategy is used when a firm markets multiple
product variations, each with its own promotional theme. A concentrated strategy attempts
to capture a large share one or of a few profitable segments. Finally, countersegmentation

Bearden, Marketing, Fourth Edition 105

 attempts to combine market segments. It assumes an increasing consumer willingness to
accept fewer products and service variations in exchange for lower prices.

An undifferentiated strategy is unique among the various strategies in that there is no real
segmentation of the market. Instead, one promotional mix for one product is used for the
entire market. In sharp contrast, a differentiated strategy segments the market and attempts
to reach those market segments with multiple products and promotional mixes. A
concentrated segmentation lies between undifferentiated and differentiated by focusing on a
few, profitable, market segments. Finally, countersegmentation (as the name implies) is
different from differentiated and concentrated in that it combines existing segments of
instead of creating more.

An undifferentiated strategy is appropriate under the following conditions:

 When consumers are not very sensitive to product differences.

 When or if the firm is attempting to develop primary demand.

A differentiated strategy is appropriate under the following conditions:

 If the firm is selling to a market with several different segments.

 If the product is in the later stages of the product life cycle.

 If its major competitors are following an undifferentiated strategy.

A concentrated strategy is appropriate under the following conditions:

 If the firm is selling to a market with several different segments.

 If the product is in the later stages of the product life cycle.

 If its major competitors are following a differentiated strategy.

A countersegmentation strategy is appropriate when the maintenance of existing segments

is inefficient.

8. What implications does the majority fallacy hypothesis have for the pursuit of a
concentrated segmentation strategy?

The majority fallacy hypothesis suggests that firms attempting to pursue only the largest
market segments risk substantial competition. The majority fallacy hypothesis is applicable
to firms following a concentrated segmentation strategy because they seek only a few
segments. Firms following a concentrated strategy should take steps to prevent easy
entrance of competitors.

9. How might Fingerhut use its databases to strengthen its marketing efforts?

The purpose of this question is to help students begin to explore the versatility and power
customer databases can provide to marketers. Depending on the detail of the database,
106 Chapter 7 Market Segmentation and Targeting
 Fingerhut could use it to strengthen its marketing efforts in a variety of way. For example,
it could group product categories (clothing, electronics, collectibles, furniture, etc.) by
customer age. Using this information, Fingerhut could adapt its marketing communications
for different categories based on the characteristics of the age groups to which those
practical product types would most greatly appeal.

10. Why is the practice of market segmentation and targeting now more important than
ever?

Market segmentation and targeting are now more important than ever for several reasons
including:

 Slower rates of market growth, coupled with increased foreign competition.

 Social and economic forces including a more educated consumer and greater
inter-cultural exposure have created consumers with more varied and sophisticated
needs, tastes, and lifestyles.

 Technological improvements are providing more powerful tools for segmenting and
subsequently serving new market segments.

 An increase in demands unique to minority consumers allowing marketers to segment

and serve these markets.

APPLYING MARKETING SKILLS

1. Compare the audiences of Time and Rolling Stone magazines. How does advertising
in these magazines relate to market segmentation?

The purpose of this exercise is to actively involve students in discovering how marketers
attempt to reach their target markets. Time and Rolling Stone each appeal to different
consumer groups. By advertising in these magazines, marketers limit market coverage of
their ads to specific, or segmented, consumer groups. These are exactly the target markets
that the advertisers intend to reach.

2. A large U.S. manufacturer of heavy-duty carpet for use in office buildings is

considering expanding its marketing efforts to include European countries. The
company has segmented its marketing efforts geographically and by company size.
What market segmentation decisions does the company face as it expands its efforts
to include both Eastern and Western European countries?

The carpet manufacturer must decide the basis for segmentation in Eastern and Western
European countries. Possible alternatives include:

 Segment all markets geographically and by company size. This may lead to some
market segments covering two or more countries.
Bearden, Marketing, Fourth Edition 107
  Segment by country or groups of countries (country segmentation).

 Segment by country, then geographically and by company size.

 Factors affecting the segmentation decision include how well each proposed
segmentation strategy meets the criteria for effective segmentation (measurability,
accessibility, substantialness, durability, and differential responsiveness.)

3. Air Canada (Canada’s national airline) has recently introduced a new level of service
(Tango), which is a full-fledged airline catering to more economy-minded passengers
seeking no-frills service (an alternative to its service-based core brand). It also
operates Air Canada Jazz (short haul routes) and Air Canada Jetz (charter service
for groups such as sports teams and corporate clients). How likely can one company
effectively appeal to a mass market and a more narrowly defined market at the same
time?

The purpose of this exercise is to get students thinking critically about the challenges of
applying a multiple segmentation strategy. With unlimited resources anything is possible –
almost. In this case, you have a fully developed marketing strategy for each segment you
seek to serve. The primary service might be mass marketed. Consumers in the Tango
segment are price sensitive, but what else do we know about them? How can we create a
promotional strategy that will be focused primarily upon on them? Beyond a budget-price,
what else is important to them in buying air transport services?

The short-haul segment probably has some unique characteristics that we can use to
develop a market offering that is exactly suited to satisfying their needs.

The charter service is easy. There aren’t all that may consumers that have the need for
dedicated air service and have the capacity to pay for it. Identify that target market and
you can almost offer each consumer a customized market offering.

Students need to understand that market segmentation strategy: identification of the market
segment, determination of the segment’s needs, and development of a market offering
(combination of product/service, price, promotional strategy, and channel system) suited to
that particular need. And delivery of the offering are all required steps to marketing
success. You usually ask the same questions, you just get different answers.

USING THE WWW IN MARKETING

INSTRUCTOR’S NOTE: Before assigning these projects, the instructor is advised to

visit the Web site mentioned to ensure the Web address has not changed. In addition,
the instructor will find additional activities on the site. Creative assignments can be
derived from the information found there.

Activity One: This chapter’s opening discussed the VALS web site (http://www.sric-
bi.com). Select the Values and Lifestyles Program, and then at the bottom of the page
click on “Find your own VALS-type now.”
108 Chapter 7 Market Segmentation and Targeting
1. What demographic descriptors are used to define the VALS segment?

By clicking to the Web site students will be able to record the demographic descriptors that
are used by the VALS system. In December 2002, the demographic descriptors were age,
sex, education, and family income. The instructor should be aware that these descriptors
occasionally change.

Demographic variables are not really the predictors of behavior or classification drivers in
VALS; it is psychographic characteristics such as, energy, self-confidence, intellectualism,
novelty-seeking, innovativeness, impulsiveness, leadership and vanity.

2. Comment on the number and nature of the agree-disagree attitude statements. Do

your responses reflect stable or temporary opinions about yourself? Were you
surprised by your own VALS categorization? How do your own values and lifestyles
compare with others?

There are about 35 questions relating to individual preferences in attitudes and activities.

A useful way to proceed with this question is to have the students prepare a transparency
of their answers and results (a summary along with the categorization category) so that
these can be shown to the class for discussion and comment. Obviously, students can
choose not to participate if they desired privacy. Another approach is to have the
instructor take the test and use those results for comment.

3. What other information must companies have before this segmentation scheme is
useful in a practical sense?

Answers to this question may vary. Most students will see that many facets of purchasing
and purchasing intent are missing from the survey. In addition, various elements of
lifestyles and other AIO measures could be added. Most of these are relevant for product
specific usage. Ask students to prepare a list of missing features and discuss the material in
class.

In order for any segmentation strategy to be useful it is necessary to know how to reach
members of the segment with a promotional message. The VALS on-line survey asks for
no information that would be helpful in contacting prospective consumers.

Activity Two: Many e-commerce companies are now using heavy advertising to market
their on-line services. Consider the Barnes and Noble site
(http://www.barnesandnoble.com):

5. What aspects of this site are designed to develop a “loyal” segment?

Once a customer is registered, they are “remembered” when they subsequently log in.
Their preferences are scanned and suggestions made for new selections that they might
enjoy.

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6. How does Barnes and Noble compete with Amazon.com?

Amazon.com offers a broader array of merchandise and services. Barnesandnoble.com

seems to be trying to be the better book-seller. They have a deeper selection of categories
of books. Barnes and Noble were late to the on-line game, starting only after Amazon.com
had a good lead. B&N has been playing “catch-up” since. They seem to be developing the
book-sales niche as their strength against Amazon.

7. What behavioral segmentation characteristics of on-line book buyers would be helpful in

the design of marketing strategy?

Online shoppers are interested in speed of order fulfillment, shopping convenience, and
competitive pricing. Another characteristic that would be important to marketers is the
development of customer loyalty through the use of “remembering” the customer, even to
the extent of occasionally sending an e-mail regarding new books in their preferred
categories.

Most internet merchants have a wide product selection and it is easier, faster, and more
convenient to do a search for a particular item. Consumers report, “I shop online because I
cannot find the articles I want in a regular retail store.”

Other behavioral strategies would be based upon whether the targeted segment is
comprised of heavy users, moderate users, or light users. One really beneficial strategy is
to target the market segment that promises high profit potential versus ones that have low
profit potential.

MAKING MARKETING DECISIONS

INSTRUCTOR’S NOTE: The following short cases make great class assignments. It
is suggested that the cases be assigned in advance of the class with which they are to
be used. Answers to questions that follow each case can be in a written or verbal
discussion format. The answers to these questions require a careful reading by the
students, judgment and reasoning, and an appreciation of the concepts from the
chapter.

Case 7-1 PRIZM by Claritas: You Are Where You Live

1. Why is PRIZM software an effective marketing tool?

PRIZM is a micromarketing tool that categories consumers into lifestyle segments.

Overall, the PRIZM is based on the theory that by knowing the location, education level,
traits, and habits of each cluster in a community, retailers and shopping center marketers
can market to specific clusters.

2. How does the PRIZM approach satisfy the criteria for effective segmentation?

The criteria for effective segmentation are:

110 Chapter 7 Market Segmentation and Targeting

 Measurability: Survey data can be aggregated and measurements taken of the sample. The
scale may be mostly ordinal, but some of the questions allow interval scales to be used.

Accessibility: The data is readily accessable to users who are willing to pay Claritas’ fees.

Substantialness: By including demographic data, the size and attractiveness of segments

can be estimated.

Durability: Claritas has been using PRIZM for twenty tears. There have been refinements
from time to time, but the basic concepts still apply.

Differential Responsiveness: By combining psychographic, demographic, and buyer-

behavior information, Claritas can forecast which segments are most likely to respond to a
particular market offering.

The software has been used by restaurant chains, banks, and stores in search of the best
locations for new outlets. The development of workday tracts has been extremely useful to
these retailers. The students should be encouraged to develop a list of potential uses for
the future. Their answers will vary, however, they may want to remember that the cost of
the system must be outweighed by the gain in terms of information and knowledge.

3. How might cultural changes involving the Hispanic and Asian populations affect the
effectiveness of PRIZM

To the extent that Hispanics or Asians or any other group is in some important way
different than other groups, and that difference can be captured, Claritas might need to
consider adding groups to their classification system. On the other hand, if the existing
system adequately captures and classifies Asians, Hispanics, or whatever group, then no
changes are required.

How can you tell whether the current system is adequate? Re-run the original research,
distribute the survey, run multiple-dimensional-scaling on the resulting database and see
how many useful groups emerge. We will never know until we conduct the appropriate
research.

4. What are the advantages of the newly developed Workplace PRIZM software?

This new software compares where people live and shop. In addition, movement might be
addressed. These newly developed workday tracts might be very different from the
traditional population tracts. The idea is that if your population spends all of its day away
from your tract (and probably your business), where are they and how do you reach them?

Case 7-2 Marriott International: “Suite Deals”

1. What are benefits and drawbacks from such a diverse offering of hotel chains?

Multiple segmentation strategy creates a greater revenue producing opportunity than a

mass market offering. The drawback is that it is more costly to have several different
market offerings rather than one mass market offering.

Bearden, Marketing, Fourth Edition 111

2. What segments remain untapped?

The extreme budget-minded shopper, families traveling with children and pets, and senior
citizens are not specifically targeted by Marriott’s offerings. Students can probably think of
others.

3. To what extent does price sensitivity affect choice of alternatives within the line of
hotels and suites?

It all depends upon whether you are paying for it or someone else is footing the bill.
Commercial travelers have an expense account, but within that constraint they want as
much comfort and convenience as possible. Family vacationers, with children and pets in
tow, are very price sensitive. The noted economist, Ann Landers, has noted that there are
two kinds of money, “The kind you spend on vacation and the kind you spend the rest of
the year.” We are a lot more careful about how we spend “regular money.”

4. What are the bases that could be used to segment the market for all types of hotel
patrons?

* Frequency and duration of travel

* Circumstances and reason for travel
* Price sensitivity
* Travel destination
* Accompanied or not
* Mode of transportation used to travel
* Duration of stay in a particular location
* Service expectations

112 Chapter 7 Market Segmentation and Targeting

Bearden, Marketing, Fourth Edition 113