UV7286

t
Rev. Oct. 23, 2017

os
A Note on Market Definition, Segmentation, and Targeting:

rP
Three (of Four) Steps in Developing Marketing Strategy

Marketing Strategy

Marketing strategy, part of the marketing planning process, flows directly from a company’s goals and helps

yo
define how the marketing organization will help the firm achieve its objectives.1 As a result, marketing strategy
is guided by the goals and objectives of the organization, the business unit, or the particular product or service
for which the plan is developed. The choice of which marketing strategy (or strategies) to pursue then guides
the marketing mix decisions (i.e., the product, distribution, promotion, and price decisions), which, taken
together, become the value proposition offered to the target market segment(s). Understanding how the plan
impacts the firm financially is the last step in the marketing planning process.2
op
Marketing strategy, within Figure 1. The marketing planning process.
the broader marketing planning
process, involves four steps:
(1) defining the market (also
referred to as establishing a frame
of reference), (2) segmenting the
market, (3) choosing the segments
tC

to target, and (4) positioning for

target customers vis-à-vis
competitors within each chosen
segment (see Figure 1). This note
addresses the first three steps in
marketing strategy. Positioning is
addressed in a separate note.3
No

Source: All figures created by author unless otherwise noted.

1 In this note, the term “firm” is used to designate the entity for which a brand strategy is being developed, regardless of whether it is a company, a

brand, a business unit, an idea, or a person.

2 Robert E. Spekman, “Marketing Plan Development,” UVA-M-0848 (Charlottesville, VA: Darden Business Publishing, 2013).
Do

3 Marian Chapman Moore and Richard F. Helstein, “Positioning: The Essence of Marketing Strategy,” UVA-M-0754 (Charlottesville, VA: Darden

Business Publishing, 2007).

This technical note was prepared by Marian Chapman Moore, Professor Emeritus of Business Administration, and Kimberly A. Whitler, Assistant
Professor of Business Administration. Copyright  2016 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights
reserved. To order copies, send an e-mail to sales@dardenbusinesspublishing.com. No part of this publication may be reproduced, stored in a retrieval system, used in a
spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Darden School Foundation.
Our goal is to publish materials of the highest quality, so please submit any errata to editorial@dardenbusinesspublishing.com.

This document is authorized for educator review use only by Mohammad Ekhlaque Ahmed, Institute of Business Management until December 2018. Copying or posting is an infringement of
copyright. Permissions@hbsp.harvard.edu or 617.783.7860
 Page 2 UV7286

t
os
Step 1: Market Definition

The first step in developing a marketing strategy is to define the market within which the firm wishes to
compete. This choice is important because defining a market identifies the consumers and competitors of
interest and establishes the frame of reference within which marketing goals and objectives are determined and

rP
evaluated. Ideally, the market will be defined in terms of customer needs rather than particular products or
services.

Market definition has been called the Achilles’ heel of strategy because of the tension that exists in defining
a market either too broadly or too narrowly. A narrow definition of who the firm’s consumers are (or could
be), what benefit the firm is providing (or could provide), and what products and services the firm can offer to
meet consumers’ needs can cause the firm to ignore competitors in adjacent markets or segments and may see
the same customers as potential growth opportunities. On the other hand, if the firm uses too broad a

yo
definition, there is the possibility that the firm may lose focus and appeal directly to no one or may overlook
significant niche-market opportunities. While a market definition that is too narrow may fail to identify key
competitors and potential consumers, a market definition that is too broad will lack focus and clarity, resulting
in the inability to understand key competitors/consumers and therefore preventing the firm from effectively
marketing to the target.

Defining the market broadly

op
In perhaps the first version of the “job to be done”4 notion, Theodore Levitt wrote:

The railroads are in trouble today not because the need was filled by others (cars, trucks, airplanes,
even telephones), but because it was not filled by the railroads themselves...They let others take
customers away from them because they assumed themselves to be in the railroad business rather than
in the transportation business. “Transportation” is a very broad definition of a market, focusing on
tC

consumer needs without any reference to a particular way to do so.5

Levitt implored managers to answer the question “what business are we in?” in terms of customer needs
being satisfied without any reference to particular products or services as the means to satisfy those needs. A
broad market definition ensures that the marketer stays attuned to environmental shifts and trends that may
eventually lead to shifts in the competitive landscape.

Southwest Airlines provides a legendary example of the benefits of such broad thinking about a market.
No

Southwest’s entry into the airline market was not based on serving existing airline customers who were flying
between Texas cities on existing airlines. Rather, Southwest looked at the market from a “transportation”
perspective and found a set of potential customers who were not being served by the existing airline
competitors—travelers with a need for convenient, affordable, reliable, efficient travel between a few cities in
Texas. Perhaps those travelers would fly if the price were right. Southwest entered the market as a low-cost,
no-frills airline designed to serve a specific niche of travelers; the rest is history.
Do

4 Clayton M. Christensen, Scott D. Anthony, Gerald Berstell, and Denise Nitterhouse, “Finding the Right Job for Your Product,” MIT: Sloan

Management Review (Spring 2007): 38–47.

5 Theodore Levitt, “Marketing Myopia,” Harvard Business Review 38 (July–August 1960): 45–56.

This document is authorized for educator review use only by Mohammad Ekhlaque Ahmed, Institute of Business Management until December 2018. Copying or posting is an infringement of
copyright. Permissions@hbsp.harvard.edu or 617.783.7860
 Page 3 UV7286

t
os
Defining the market more narrowly

In order to plan effectively, marketers often limit themselves to a narrower, more practical definition of
the market: “those who currently engage in exchange...with us or with our direct competitors.”6 A specific way
of doing so is to use the “served market” metric. Farris et al. explain served market as “…that portion of the

rP
total market for which the firm competes. This may exclude geographic regions or product types. In the airline
industry, for example, as of mid-2005, Ryanair did not fly to the United States. Consequently, the U.S. would
not be considered part of its served market.”7 Again, care is advised. While a more narrow definition of the
market allows the marketer to focus on customers more specifically, too narrow a definition of the market
could mean missing out on the many ways consumers may seek to satisfy a need. See Figure 2 for an example
of how to think about defining a market using Lender’s Bagels.

Figure 2. Defining the market for Lender’s Bagels.

yo
Consider Lender’s Bagels, a company that has been offering fresh refrigerated and frozen bagels since 1927. Imagine you are the
brand manager for Lender’s Bagels. How should you define your market? Anyone who purchases bagels from a grocery store?
Anyone who purchases breakfast products from a grocery store? Anyone who purchases ready-to-eat breakfast products from a
grocery store? Anyone who eats breakfast products purchased at a grocery store? Anyone who eats breakfast? Anyone who eats
bagels? Anyone who eats snacks? Anyone who eats food? Should you limit the market to consumers who want “premium” bagels
with “authentic” taste as part of their breakfast diet, as Lender’s Bagels has described itself? Should you limit your competitive set
to those who also offer premium, authentic bagels in grocery stores? There are many potential ways to define a market. Working
through the options is something teams should spend time trying to get right.
op
Oatmeal

Muffins/
Bread Bagel Cereal
Hole

Bodo’s Murray’s
Breakfast Items in Bagels Thomas’ Bagels
Grocery Store
Lender’s
tC

Granola Yogurt
Sara Lee
The
BB’s Private Bagel
Bagels in Eateries Bagels Label Factory

Kaufman’s
Breakfast Bagels Breakfast
Bar Sandwich

Bagels in
Grocery Store Smoothies
No

Market Definition Options for Lender’s Bagels

As firms work through the process of determining how to define their markets, they may narrow or broaden
their frames of reference—or both. Marketers should consider several definitions and the implications of each.
Some companies choose to use a very broad definition for strategic thinking and strategy formulation and a
narrower definition for strategic planning and implementation. For instance, Southwest Airlines might include
Harley-Davidson or Amtrak when thinking strategically about consumers’ transportation needs but limit itself
to other airlines (or other no-frills airlines) when actually planning its marketing strategy and measuring its
Do

market share (see Figure 3). Defining the market is a useful process, requiring both internal strategic insight as
well as insight anchored in understanding both consumers and competitors. The discussions can be very

6 When a “market definition” includes competitors, the term “industry” or “market space” is often used rather than market. For instance, “the market

is growing at 10%” usually refers to the rate of growth in sales across the entire marketplace, including all competitors. “The industry is very competitive”
usually refers to the actions of competitors. In context, the intent is generally clear.
7 Paul W. Farris, Neil T. Bendle, Phillip E. Pfeifer, and David J. Reibstein, Marketing Metrics: The Definitive Guide to Measuring Marketing Performance, 2nd

ed. (Upper Saddle River, NJ: Pearson Education, 2010), 34.

This document is authorized for educator review use only by Mohammad Ekhlaque Ahmed, Institute of Business Management until December 2018. Copying or posting is an infringement of
copyright. Permissions@hbsp.harvard.edu or 617.783.7860
 Page 4 UV7286

t
os
illuminating. Spending time to “get it right” is not wasted time! After all, the “market” is the divisor in the
market-share metric.

Figure 3. Market definition: The Achilles’ heel of marketing strategy.

rP
Step 2: Market Segmentation
yo
Now that the market of interest has been defined, we turn to market segmentation—dividing the market
op
into groups of consumers who share similar characteristics. It’s rare that a market is homogeneous (i.e., that
everyone in the market is the same and has identical needs, wants, habits, and practices). Segmenting a market
into smaller subsegments enables a marketer to understand the characteristics that differentiate consumers
within a market and to identify the potential segments that may be a good fit for the company, given its
capabilities and goals.

The process of segmenting a market forces marketers to recognize that not everyone who purchases a
tC

particular product or service wants or needs the same thing to satisfy their need.8 In addition, not everyone
responds to marketing activities in exactly the same way (e.g., not everyone responds to marketing
communications in the same way, wants to pay the same price, or wants to shop for the product/service in the
same place and in the same manner). Note the references to the four elements of the marketing mix in Figure 4.

Figure 4. Segmenting the market for Lender’s Bagels.

No

Continuing the Lender’s Bagels example from above: (1) There are many dimensions on which one might segment bagel consumers.
There may be consumers who consider themselves bagel aficionados and who want a true, authentic, New York bagel (i.e., it must
be large; it must be boiled and then baked; it must be fresh and not frozen; it should be crunchy on the outside but chewy on the
inside). (2) There may be a health-conscious segment for whom the size of the bagel, calories, and perhaps the ingredients are as or
more important attributes than the style of bagel. (3) There may be a segment of bagel eaters who prioritize price over any other
attribute. (4) There may be a segment of parents who want convenient, small(er)-size bagels that don’t lose their freshness (i.e.,
prefer frozen bagels) for their family; and so forth. Which is the best way to divide the market into segments?

Segmenting a market is critical because it enables firms to compare and contrast each of the potential
segments and then choose the segment(s) of the market the firm is best able to satisfy given its skills, resources,
Do

and capabilities. Consider an automobile manufacturing company. Imagine the cost associated with trying to
serve all consumer needs: energy-efficient vehicles, safe vehicles, high-performance vehicles, industrial vehicles,
family-oriented vehicles, and so on. Very few companies have the ability and resources to be all things to all
people, so a firm must identify the segment(s) of consumers (1) that fit the company’s competencies best,

8 For guidance on one way to identify needs, see Marian Chapman Moore, “Linking Products and Consumers: The Consumer Benefit Ladder

Approach,” UVA-M-0750 (Charlottesville, VA: Darden Business Publishing, 2007).

This document is authorized for educator review use only by Mohammad Ekhlaque Ahmed, Institute of Business Management until December 2018. Copying or posting is an infringement of
copyright. Permissions@hbsp.harvard.edu or 617.783.7860
 Page 5 UV7286

t
os
(2) whose needs the firm believes it can do a better job of addressing than its competitors, and (3) that will
ensure the firm can achieve its financial goals. Segmenting the market well is a prerequisite to making good
targeting decisions (Step 3), positioning decisions (Step 4), and marketing-mix decisions.

There are three important steps in a segmentation analysis: dividing the market into segments, profiling the

rP
segments, and then determining the attractiveness of each segment.

Divide the market into meaningful segments

Segments are meaningful if the variable(s) chosen to divide the market make a difference in how consumers
make choices among products within the frame of reference defined earlier. If Lender’s Bagels segments the
bagel market on flavors but the consumer makes decisions based on type of bagel (preferring, say, an authentic
bagel or a bagel for the health-conscious consumer) or on the basis of price, the flavor-based segmentation

yo
scheme is flawed. To reiterate, just as the market definition should be anchored on an understanding of the
consumer, so should a firm’s segmentation scheme.

There are many bases for segmenting markets: geography, demographics (e.g., age, income, life-cycle stage,
or gender), psychographics (e.g., lifestyle, personality, values, and attitudes), benefits sought, and usage pattern
(e.g., heavy users, light users, nonusers, and users’ loyalty status). The long list of possible segmentation bases
can be partitioned into two general categories:
op
a. Characteristics that define/describe a consumer or customer independent of their relationship with the
product/service (e.g., demographics, geography, psychographics—lifestyle, personality, activities,
interests, and opinions).
b. Characteristics that describe the consumers or customers with respect to the product or service
(e.g., usage patterns, loyalty status, benefits desired from using the product or service, involvement
with product and category, stage in the buying process, and role in the decision-making process).
tC

The best segmentation schemes result from considering elements of both categories. In practice, companies
regularly combine different methods of segmenting a market to better understand different customer groups
in detail. Each method of segmentation tends to offer useful information, so when aggregated, the marketer
has a stronger understanding of the consumers based on an integration of consumers’ demographic,
psychographic, and usage characteristics as well as their needs. For instance, bagel eaters in New York City may
prefer authentic bagels, while those in California prefer a healthier bagel. Those who consume bagels more than
average may be more concerned about price.
No

Nevertheless, there is usually a primary segmentation variable, which should be as directly related as
possible to the customer need to be satisfied. For example, Procter & Gamble (P&G) had multiple laundry
detergent brands in the 1990s. Tide was for consumers who wanted superior performance; Cheer was designed
for consumers who were concerned about the color integrity of their clothes; Bold went beyond cleaning to
help soften clothing; Era was designed to provide good cleaning at a great value; Ivory was designed to provide
gentle cleaning of fine washables; Gain was designed to provide cleaning reinforced with stronger perfumes for
scent-seeking consumers; Dreft was designed to provide specialized cleaning for baby clothes (see
Appendix 1). Each product in the company’s laundry portfolio was designed to address a unique consumer
Do

need. In addition to addressing different needs, the target consumers were different (e.g., moms with older kids
versus moms with younger kids), the amount of laundry they did each week differed (i.e., usage patterns), where
they lived differed (e.g., some brands skewed to Northeastern consumers, some to Southern consumers), and
consumer habits and practices differed (e.g., the media they consumed and the hobbies they participated in).
Similarly, Marriott has segmented the lodging industry by identifying a diverse range of customer needs and
then designing an appropriate offering for each: from luxurious retreats (e.g., Ritz-Carlton and Bulgari) to

This document is authorized for educator review use only by Mohammad Ekhlaque Ahmed, Institute of Business Management until December 2018. Copying or posting is an infringement of
copyright. Permissions@hbsp.harvard.edu or 617.783.7860
 Page 6 UV7286

t
os
specific lifestyles (e.g., Edition and Moxy) to extended-stay hotels (e.g., Residence Inn and Marriott Executive
Apartments)9 The more completely a marketer can define the segment, the better he or she is able to design
and market products that create real value for the target.

For segments to be truly meaningful, the needs of consumers in one segment must be distinct from those

rP
in other segments on dimensions that affect the purchase or use of a given product. If consumers in one
segment would respond just as well to an offering made to a different segment, the benefits of segmenting will
not be realized. In fact, designing two different market offerings will likely waste money when one would satisfy
both segments of consumers. The P&G example demonstrates how critical it is to effectively segment a
marketplace when competing within the firm for market share, not just with other companies. The more
distinctive the segments are, the less likely it is that marketers will cannibalize their own firm’s brands. The acid
test of a good segmentation scheme is whether the customers are homogeneous within a segment and
heterogeneous across segments on dimensions that are meaningful to their purchase decision. And, importantly,

yo
the segmentation scheme must make it easy for the firm to find the consumers. For example, if an attribute
that differentiates laundry consumers is their love of nature, this isn’t useful unless the firm can effectively find
the target consumers. A segmentation scheme that passes these tests will result in meaningful segments.

A final caveat: for marketing purposes, market segments are segments of consumers, not products,
although, in practice, marketers often use product-based language when referring to a segment. Marketers must
remember that P&G’s detergent purchasers are people who do laundry; Marriott’s market consists of hotel
op
guests, not hotels. Importantly, any one person can fall into more than one segment depending on the need
being addressed. For instance, a customer may want to clean the kids’ grimy soccer clothes (with Tide) one day
and a baby’s bedding (with Dreft) the next day. The same consumer may stay at the Courtyard by Marriott
while on a business trip and at the Ritz-Carlton when on vacation. This is an important and often-overlooked
aspect of segmentation.

Profile the segments

tC

The next step in segmentation is to profile the segments in order to better understand the opportunities in
each segment. The objective is to estimate the size of each segment, understand the nature of competition in
each segment, and generate deeper insight into the nature of consumers in each segment. Rich descriptions of
each segment will make targeting and positioning easier and will lead to a more appropriately focused marketing
mix for each chosen target market.

Most of the variables used to segment markets are useful for profiling segments as well. Demographic,
No

psychographic, and geographic characteristics (among others) are useful for fleshing out an understanding of
consumers in the segment (see Figure 5 for some helpful questions). Here the purpose is descriptive.
Continuing the P&G example above, each of the “needs” segments had slightly different demographic,
geographic, usage, and psychographic profiles. For example, the target consumers for Dreft were mothers with
babies who washed clothes several times a week, while the target consumers for Tide had children of all ages
and washed many loads per week. (See Appendix 1 for an example.)
Do

9 See “Brands,” Marriott website, https://hotel-development.marriott.com/brands-dashboard/ (accessed Feb. 17, 2017), for a full description of

Marriott’s lodging offerings and the needs each is designed to fill.

This document is authorized for educator review use only by Mohammad Ekhlaque Ahmed, Institute of Business Management until December 2018. Copying or posting is an infringement of
copyright. Permissions@hbsp.harvard.edu or 617.783.7860
 Page 7 UV7286

t
os
Figure 5. Profiling segments.
How big is the segment?
How fast is the segment growing?
Who is in the segment?
What are their demographics, psychographics, and so forth?

rP
Where do they shop?
How do they buy?
Who makes/influences the decision?
How often do they buy?
How much do they buy?
How do they use the product?
What benefits are they seeking?

yo
…and so forth

During the process of profiling a segment, marketers may discover a more powerful way to segment the
overall market based on a deeper understanding of the market. A recent McKinsey report provides an excellent
example.10 McKinsey’s Global Concept Consumer Life Survey added information regarding financial behavior
to its survey of customer demographics and card-usage behavior. Doing so resulted in a better understanding
of customers and a new segmentation scheme (see Figure 6). The new scheme is much richer than the former
(which categorized cardholders as transactors, revolvers, or subprime), leading to substantial insights regarding
op
the attractiveness of segments and to “fine-tuning offers to meet distinct customer needs.”11 This reinforces a
critical point: while the process described in this note is linear, in reality, the output from each step may evolve
based on learning that occurs in subsequent steps. This is normal and reflects the reality that learning isn’t
stagnant; as a result, marketers should be prepared to evolve the market definition, segmentation scheme, and
target understanding accordingly.
tC

One way to develop deeper insight into the behavior of customers in a segment is to create a persona that
captures segment characteristics that are difficult to express in charts and graphs. A persona is a fictionalized
description of the typical, average, or even the ideal customer within a segment. Personas are usually given a
name (e.g., Deal Shopping Daniel), fleshed out in an interesting manner that captures the marketer’s
imagination, and distributed widely to those in the company (and its collaborators, such as advertising agencies).
Using a persona ensures that everyone making decisions that affect the brand has a shared understanding of
the consumer as a person.12 Appendix 2 provides an example of a (fictional) persona that was developed to
help a company identify new possibilities for snack foods. Personas are as useful in a business-to-business (B2B)
No

environment as in a business-to-consumer (B2C) context.13 Developing personas is integral to design-thinking

10 Luke Fiorio, Robert Mau, Jonathan Steitz, and Thomas Weilander, “New Frontiers in Credit Card Segmentation: Tapping Unmet

Consumer Needs,” McKinsey & Company, http://www.mckinsey.com/~/media/mckinsey/dotcom/client_service/financial%20services/

latest%20thinking/payments/mop19_new%20frontiers%20in%20credit%20card%20segmentation.ashx (accessed Jun. 5, 2017).
Do

11 http://www.mckinsey.com/~/media/mckinsey/dotcom/client_service/financial%20services/

latest%20thinking/payments/mop19_new%20frontiers%20in%20credit%20card%20segmentation.ashx.
12 For more reading on personas, see Charles E. Gaudet II, “How to Develop Your Buyer Persona and Reel In Better Customers,” Forbes, October

28, 2014, Josh Steimle, “What CMOs Need to Know About Buyer Personas,” Forbes, August 18, 2015,
http://www.forbes.com/sites/theyec/2014/10/28/how-to-develop-your-buyer-persona-and-reel-in-better-customers/;
http://www.forbes.com/sites/joshsteimle/2015/08/18/what-cmos-need-to-know-about-buyer-personas/; and “Persona Templates,” HubSpot,
http://offers.hubspot.com/free-template-creating-buyer-personas (all accessed Feb. 17, 2017).
13 HubSpot offers examples of personas and templates for developing them. See Pamela Vaughan, “How to Create Detailed Buyer Personas for Your

Business [Free Persona Template],” Hubspot, May 28, 2015, http://blog.hubspot.com/blog/tabid/6307/bid/33491/Everything-Marketers-Need-to-

Research-Create-Detailed-Buyer-Personas-Template.aspx (accessed Feb. 17, 2017).

This document is authorized for educator review use only by Mohammad Ekhlaque Ahmed, Institute of Business Management until December 2018. Copying or posting is an infringement of
copyright. Permissions@hbsp.harvard.edu or 617.783.7860
 Page 8 UV7286

t
os
methodology and concept development in marketing. In design, however, personas are not necessarily linked
to segments.14

Figure 6. McKinsey’s credit card customer segmentation.

rP
 Prosperous and Content: People in this segment keep their finances in order, use credit cards for 59%
of their purchases, and love rewards; they dislike revolving debt. They look for convenience and
minimum effort, preferring to “set it and forget it” rather than getting closely involved with banks
or card issuers. This is the wealthiest segment in the McKinsey segmentation, with an average of
$503,000 in household financial assets, five times the average for credit card holders. It also has
the highest concentration of premium-network card users at 17%, twice the average.
 Deal Chasers: With revolving debt of $3,802—twice the average—these cardholders move their

yo
balances around to chase the best transfer rates. This segment is the most likely to have a
cobranded card (24% compared with 17% overall) and to pay an annual fee for a reward card (19%
compared with 13%). Deal chasers are highly involved with financial products and are nearly as
satisfied with their financial situation as the prosperous and content segment (34% and 37%
respectively, compared with 20% overall), and rank second in both income ($65,000 median) and
financial assets ($150,000). Despite carrying higher debt, they are confident about managing it and
view the economic outlook as positive. They use online banking frequently, with half making
op
online transactions three times a week.
 Financially Stressed: People in this segment carry heavy credit card debt—nearly four times the
average, at $7,453—and consider themselves unable to control their spending or stick to a budget.
Some are chronic spendthrifts; others are mired in circumstances that force them to borrow on
credit cards to pay for essentials. They seldom shop around for better places to put their
outstanding balances and doubt they will ever get out from under their burden of debt. They expect
tC

financial trouble for themselves and the wider economy. This is the poorest among the segments,
with just a quarter of the financial assets ($44,000) of the average cardholder.
 Recovering Credit Users: These individuals have become avid budgeters who pride themselves on
keeping their financial house in order, although they still revolve an average balance of $1,726.
Wary of financial institutions, they avoid the stock market as too risky, fear their bank deposits are
unsafe, and blame issuers when consumers accumulate debts and fees they are unable to pay off.
Cardholders in this segment avoid using credit cards for routine purchases and seldom respond to
No

0% teasers or high-reward offers. They prefer to deal with bank staff in person and are less likely
than other segments to use online banking, with just 49% doing so.
 Self-Aware Avoiders: Like Recovering Credit Users, members of this segment avoid using credit cards,
although they blame themselves rather than issuers for their debt problems and worry about the
damage they could do to themselves with a credit card. They use debit cards and cash for three-
quarters of their POS purchases, but still carry an average revolving debt load of $1,969 per
household. They are slightly better off than Recovering Credit Users—and, for that matter, average
cardholders—in terms of income and wealth.
Do

Source: Luke Fiorio, Robert Mau, Jonathan Steitz, and Thomas Weilander, “New Frontiers in Credit Card Segmentation: Tapping Unmet Consumer
Needs,” McKinsey & Company, May 2014, http://www.mckinsey.com/~/media/mckinsey/dotcom/client_service/financial%20services/
latest%20thinking/payments/mop19_new%20frontiers%20in%20credit%20card%20segmentation.ashx (accessed Jun. 5, 2017).

14 For an example of using personas along with segmentation in the context of content marketing, see Jodi Harris, “How to Create Easy, Yet

Actionable, Content Marketing Personas,” Content Marketing Institute, April 27, 2015, http://contentmarketinginstitute.com/2015/04/content-
marketing-personas/ (accessed Feb. 17, 2017).

This document is authorized for educator review use only by Mohammad Ekhlaque Ahmed, Institute of Business Management until December 2018. Copying or posting is an infringement of
copyright. Permissions@hbsp.harvard.edu or 617.783.7860
 Page 9 UV7286

t
os
Determine the attractiveness of each segment

It is not likely that a firm has the resources or the interest to serve every segment it identifies. In order to
sort out the possibilities, the segments’ attractiveness must be considered. Popular criteria for assessing segment
attractiveness include size, growth rate, competitive intensity, synergy with other aspects of the organization,

rP
match with the company’s competencies, consistency with the firm’s overall strategy and vision, and so forth.
If a marketer has done a good job profiling the market, this step is much easier.

Step 3: Choosing Target Market(s)

Having identified potential segments within the market and assessed the attractiveness of each, it is time to
choose which segments to serve and which not to serve. The segments the firm chooses to serve become the

yo
target markets (or target segments) (see Figure 7). Ideally, the firm will develop a positioning statement for
each of the chosen targets and will design a marketing mix (four Ps) to satisfy each target as precisely as possible.
There are several approaches to choosing a target market or markets:

1. Mass Marketing: Henry Ford, for instance, chose to build a car for the mass (essentially
undifferentiated) market by offering one car, in one style, and in one color. Ford is famous for stating
that the Model T came in any color a consumer wanted, as long as that color was black. Ford’s goal
was to use economies of scale to build an affordable automobile. Given the size of the market at the
op
time, the only way he could achieve the scale necessary to build an automobile the masses could afford
was to build only one model. This approach is also referred to as undifferentiated marketing. In modern
times, it is difficult to find a true mass market (i.e., where one product or marketing mix will serve the
needs of most consumers). More often we see this approach when a firm chooses to target a very large
segment, perhaps even realizing there may be subsegments but focusing on the largest segment or on
the largest need. For example, Wal-Mart’s strategy of “Everyday low prices on a broad assortment—
tC

anytime, anywhere” is directed to everyone.15 Wal-Mart sells everything from groceries to dog food to
clothing to electronics to housewares. Every week, more than 60% of all Americans shop at Wal-
Mart.16
2. Multitarget Marketing: Some companies choose to cover more than one segment with a different value
proposition designed for each segment.17 This approach is also referred to as differentiated marketing
or a multisegment strategy. Companies choosing to serve several, all, or most segments of a market
with a differentiated offering for each segment—as in the P&G and Marriott examples above—must
No

have sufficient resources to do so. It is extremely important not only to differentiate the firm’s products
from competitors within a target segment (e.g., P&G’s Tide versus Sun Products’ Wisk) but to
differentiate the firm’s products from one another across segments the company has chosen to serve
(e.g., P&G’s Tide versus P&G’s Gain) and within a target segment within the company (e.g., Tide
versus Tide with Febreze Sport). The resources required for multitargeting are substantial.
3. Niche Marketing: BMW recognizes that there are many segments in the auto market, but it chooses to
serve only one of those segments: “We build cars for the 5% of automobile owners who love to drive.”
Of note, the “love to drive” target is a psychographic description that centers on the personality,
Do

15 “Our Business,” Wal-Mart website, http://corporate.walmart.com/our-story/our-business (accessed Oct. 23, 2015).

16 “Walmart Launches National Advertising Campaign to Show ‘The Real Walmart,’ Wal-Mart website, May 4, 2013,
http://corporate.walmart.com/_news_/news-archive/2013/05/04/walmart-launches-national-advertising-campaign-to-show-the-real-walmart.
(accessed Feb. 17, 2017).
17 In sharp contrast to Ford’s choice, General Motors (GM), at its beginning, targeted many (some would say all) segments in the automobile market.

When Alfred Sloan started GM, he declared that GM would have an automobile for “every purse, purpose, and personality.” The original stable of GM
brands included Chevrolet, Pontiac, Oldsmobile, Buick, and Cadillac.

This document is authorized for educator review use only by Mohammad Ekhlaque Ahmed, Institute of Business Management until December 2018. Copying or posting is an infringement of
copyright. Permissions@hbsp.harvard.edu or 617.783.7860
 Page 10 UV7286

t
os
attitude, and psychological needs of the consumer. While BMW focuses on one niche in the automobile
market, BMW actually has several product lines that serve aspects of that niche. If the market is defined
as performance automobiles (rather than automobiles), BMW’s niches might be “performance luxury,”
“sports performance,” “city car performance,” and so forth. What can be considered a niche by one
definition of the market could be considered the entire market using a different market definition.

rP
Notice that while these are, technically, product-based market definitions, the underlying differences
are based on satisfying different customer needs (e.g., a need for high performance).

Figure 7. Choosing target segments.

yo
op
Evaluating Segmentation and Targeting Choices
tC

Before developing positioning statements for each target and developing the appropriate marketing mix
for each target, it’s important to evaluate the chosen segmentation scheme (i.e., the variables used to segment
the market) and targeting choice across several dimensions, ensuring that the resulting segment(s) and target(s)
meet the following criteria:

1. Measurable: Are the segment’s members identifiable? Can the size of the segment be measured? If not,
No

are there good proxies for doing so?

2. Substantial: Is the segment large enough and profitable enough to meet the organization’s goals for the
segment given the incremental cost of a tailored approach?
3. Accessible: Is it possible to effectively reach and serve the target segment?
4. Differentiable: Can the segments be distinguished from each other, conceptually and in terms of the
way they will respond to the organization’s marketing offering?
5. Actionable: Does the organization have the skills and resources to develop effective programs for
Do

attracting and serving the segments?

What’s Next? Positioning and the Four Ps

Marketing strategy is developed in stages and should be reviewed and perhaps updated regularly as
circumstances shift, corporate priorities change, or new information is gathered. Periodic assessment of

This document is authorized for educator review use only by Mohammad Ekhlaque Ahmed, Institute of Business Management until December 2018. Copying or posting is an infringement of
copyright. Permissions@hbsp.harvard.edu or 617.783.7860
 Page 11 UV7286

t
os
marketing strategy statements ensure that the firm’s chosen direction and ensuing activities remain appropriate.
Determining the marketing strategy is part of the art of marketing. There is no one right way to do it and in
most cases, no “right” answer. This technical note covered the first three steps in the marketing strategy
process—market definition, segmentation, and targeting. The final aspect of the marketing strategy process is
positioning (see “Positioning: The Essence of Marketing Strategy” [UVA-M-0754]).18

rP
Once the positioning statement is established, the marketing manager will move to implementation and
the marketing planning process. At this point, the objective is to determine the marketing mix elements
(i.e., product, price, place, and promotion) that are consistent with the positioning statement (i.e., with the
promise the firm has chosen to make to customers). Implementation is as important as strategy and so the
insight gathered during the marketing strategy process will be converted into action plans during the marketing
planning process. Finally, taking into account insight accumulated throughout the strategy and implementation
processes, the last step is to consider the financial implications of the plan.

yo
op
tC
No
Do

18 Moore and Helstein.

This document is authorized for educator review use only by Mohammad Ekhlaque Ahmed, Institute of Business Management until December 2018. Copying or posting is an infringement of
copyright. Permissions@hbsp.harvard.edu or 617.783.7860
 Page 12 UV7286

t
os
Appendix 1
A Note on Market Definition, Segmentation, and Targeting:
Three (of Four) Steps in Developing Marketing Strategy
Segmentation Examples

rP
yo
op
tC
No
Do

Source: Created by author.

This document is authorized for educator review use only by Mohammad Ekhlaque Ahmed, Institute of Business Management until December 2018. Copying or posting is an infringement of
copyright. Permissions@hbsp.harvard.edu or 617.783.7860
 Page 13 UV7286

t
os
Appendix 2
A Note on Market Definition, Segmentation, and Targeting:
Three (of Four) Steps in Developing Marketing Strategy
Persona Example

rP
yo
op
tC
No
Do

Source: Marian Chapman Moore and Jeanne M. Liedtka, “Design Thinking at Great Lakes: The
Search for Growth,” UVA-S-0248 (Charlottesville, VA: Darden Business Publishing, 2015).

This document is authorized for educator review use only by Mohammad Ekhlaque Ahmed, Institute of Business Management until December 2018. Copying or posting is an infringement of
copyright. Permissions@hbsp.harvard.edu or 617.783.7860