Priciples of Marketing

by Philip Kotler and Gary Armstrong

Chapter 7
Customer-Driven Marketing
Strategy
Creating Value for Target Customers
PEARSON

Objective Outline
Customer-Driven Marketing Strategy
1

Define the major steps in designing a customer-driven

marketing strategy: market segmentation, targeting,
differentiation, and positioning.

Market Segmentation
2

List and discuss the major bases for segmenting

consumer and business markets.

Objective Outline

Market Targeting
Explain how companies identify attractive market
segments and choose a market-targeting strategy.

Differentiation and Positioning

4

Discuss how companies differentiate and position

their products for maximum competitive advantage.

Customer-Driven Marketing Strategy

Differentiation
Market
Segmentation
Market
It involves
actually differentiating
the Targeting
firms market offering to create superior
customer value.
It involves dividing a market
It consists of evaluating each
into smaller segments of
market segments attractivebuyers with distinct needs,
characteristics, or behaviors
Positioning ness and selecting one or
more market segments to
that might
require separate
It consists
of arranging for a market
enter.
marketing
strategies
or mixes.
offering
to occupy
a clear, distinctive,
and desirable place relative to competing
products in the minds of target
consumers.

Market Segmentation
Through market segmentation, companies divide large, he
terogeneous markets into smaller segments that can be re
ached more efficiently and effectively with products and s
ervices that match their unique needs.
We discuss four important segmentation topics:

segmenting consumer markets

segmenting business markets
segmenting international markets
requirements for effective segmentation

Segmenting Consumer Markets

There is no single way to segment a market.
A marketer has to try different segmentation variables, al
one and in combination, to find the best way to view mar
ket structure.

Geographic Segmentation
Geographic segmentation calls for dividing the market i
nto different geographical units, such as nations, regions,
states, counties, cities, or even neighborhoods.
A company may decide to operate in one or a few geogra
phical areas or operate in all areas but pay attention to ge
ographical differences in needs and wants.

Demographic Segmentation
Demographic
segmentation
divides the market
into seg
Age and Life-Cycle
Stage
Gender
ments
baseda on
variables
life-cycle
stage, into
ge
Dividing
Dividing
market
into such as age,
a market
nder,
income,
education, religion,
ethnicity,based
a
different
ageoccupation,
and lifedifferent segments
groups
on gender
nd cycle
generation.
There are two reasons:
Consumer needs, wants, and usage rates often
Incomevariables.
vary closely with demographic
Dividing a market into
different income
segments
Demographic variables are easier to measure
than most other types of variables.

Psychographic Segmentation
Psychographic segmentation divides buyers int
o different segments based on social class, lifesty
le, or personality characteristics.
People in the same demographic group can have
very different psychographic characteristics.

Behavioral Segmentation
Behavioral segmentation divides buyers into segments b
ased onOccasions
their knowledge, attitudes, uses, or responses con
Occasion
Benefits Sought
cerning asegmentation
product.

Benefit segmentation divides

divides the market into
segments according to
the market into segments
Usage
occasions
whenRate
buyers get the
according to the different
User Status
Markets
can actually
also be segmented
idea to buy,
make their
benefits that consumers seek
Markets can be segmented into nonusers,
into
light, medium,
heavy
purchase,
or use
theand
purchased
from the product.
product
item. users. ex-users, potential users, first-time users,
and regular users of a product.Loyalty Status
Marketers want to reinforce
and retain
A market
can also be
regular users, attract targeted
nonusers,
segmented
by consumer
and reinvigorate relationships
loyalty.with exusers.
Consumers can be loyal to
brands (Tide), stores (Target),
and companies (Apple).

Using Multiple Segmentation Bases

Marketers rarely limit their segmentation analysis to only
one or a few variables.
Rather, they often use multiple segmentation bases in an e
ffort to identify smaller, better-defined target groups.
Such segmentation provides a powerful tool for marketers
of all kinds.
It can help companies identify and better understand key
customer segments, reach them more efficiently, and tailo
r market offerings and messages to their specific needs.

Segmenting Business Markets

Business buyers can be segmented geographically, demog
raphically (industry, company size), or by benefits sought
, use status, usage rate, and loyalty status.
Yet, business marketers also use some additional variable
s, such as operating characteristics, purchasing approach
es, situational factors, and personal characteristics.

Segmenting International Markets

Geographic segmentation assumes that nations close to o
ne another will have many common traits and behaviors.
Using intermarket segmentation (also called cross-mar
ket segmentation), they form segments of consumers wh
o have similar needs and buying behaviors even though t
hey are located in different countries.

Requirements for Effective Segmentation

Market Targeting
The firm now has to evaluate the carious segment
s and decide how many and which segments it ca
n serve best.

Evaluating Market Segments

In evaluating different market segments, a firm m
ust look at three factors:

Segment size and

growth

Segment
structural
attractiveness

Company
objectives and
resources

A segment is less attractive if it already

contains many strong and aggressive
competitors or if it is easy for new
entrants to come into the segment.

Selecting Target Market Segments

A target market consists of a set of buyers who
share common needs or characteristics that the co
mpany decides to serve.

Undifferentiated Marketing
Using an undifferentiated marketing (or mass marketi
ng) strategy, a firm might decide to ignore market segme
nt differences and target the whole market with one offer.
Such a strategy focuses on what is common in the needs o
f consumers rather than on what is different.

Differentiated Marketing
Using a differentiated marketing (or segmented marke
ting) strategy, a firm decides to target several market seg
ments and designs separate offers for each.
By offering product and marketing variations to segments
, companies hope for higher sales and a stronger position
within each market segment.
Developing a stronger position within several segments c
reates more total sales than undifferentiated marketing acr
oss all segments.

Concentrated Marketing
When using a concentrated marketing (or niche marke
ting) strategy, instead of going after a small share of a lar
ge market, a firm goes after a large share of one or a few
smaller segments or niches.
Today, the low cost of setting up shop on the Internet mak
es it even more profitable to serve seemingly miniscule ni
ches.

Micromarketing
Micromarketing is the tailoring and marketing p
rograms to the needs and wants of specific indivi
duals and local customer segments; it includes lo
cal marketing and individual marketing.

Micromarketing
Local Marketing.
It involves tailoring brands and promotions to the needs
and wants of local customer groups cities, neighborho
ods, and even specific stores.
Drawbacks

It can drive up manufacturing and

marketing costs by reducing the
economies of scale.
It also create logistics problems as
companies try to meet the varied
requirements of different regional and
local markets.

Micromarketing
Individual Marketing.
It is the tailoring products and marketing programs to the
needs and preferences of individual customers.
Individual
Individual
marketing
marketing

Mass customization
One-to-one marketing
Markets-of-one marketing

It is the process by which

firms interact one-to-one
with masses of customers
to design products and
services tailor-made to
individual needs.

Choosing a Targeting Strategy

Firms resources are limited

Concentrated
marketing

Uniform products
A firm introduces a new product

Undifferentiated
marketing

Mature stage of the product

Buyers have the same tastes,
buy the same amounts, and
react the same way to
marketing efforts

Differentiated
marketing

Socially Responsible Target Marketing

Targeting also benefits consumers companies s
erve specific groups of consumers with others car
efully tailored to their needs.
Thus, in target marketing, the issue is not really who is
targeted but rather how and for what.
Controversies arise when marketers attempt to profit at the
expense of targeted segments when they unfairly target
vulnerable segments or target them with questionable
products or tactics.
Socially responsible marketing calls for segmentation and
targeting that serve not just the interests of the company but
also the interests of those targeted.

Differentiation and Positioning

A product position is the way a product is define
d by consumers on important attributes the pla
ce the product occupies in consumers minds relat
ive to competing products.
Consumers are overloaded with information
about products and services.
They cannot reevaluate products every time
they make a buying decision.
To simplify the buying process, consumers
organize products, services, and companies
into categories and position them in their
minds.

Positioning Maps
In planning their differentiation and positioning strategies
, marketers often prepare perceptual positioning maps tha
t show consumer perceptions of their brands versus comp
eting products on important buying dimensions.

Choosing a Differentiation and Positionin

g Strategy
The differentiation and positioning task consists of three s
teps:
1. Identifying a set of differentiating competitive advantages
on which to build a position

2. Choosing the right competitive advantages

3. Selecting an overall positioning strategy

The company must then effectively communicate and deliver the
chosen position to the market.

Identifying Possible Value Differences and

Competitive Advantages
The competitive advantage is an advantage over compet
itors gained by offering greater customer value, either by
having lower prices or providing more benefits that justif
y higher prices.
To find points of differentiation, marketers must think thr
ough the customers entire experience with the company
s product or service.
An alert company can find ways to differentiate itself at e
very customer contact point.

Choosing the Right Competitive Advant

ages
How Many Differences to Promote.
A company should develop a unique selling proposition (US
P) for each brand and stick to it.

Which differences to Promote.

A difference is worth establishing to the extent that it satisfies
the following criteria:

Important
Distance
Superior
Communicable
Preemptive
Affordable
Profitable

Selecting an Overall Positioning Str

ategy
The
Thus,
any market,
there
isfor
usually
room
for many
fullinpositioning
of
a
brand
called
the
brand
The
Same
Lessis
More
for
More
The
Same
for
Less
More
for
More
different
companies,
each
successfully
occupying
s value proposition the full mix
of benefits on
different positions.
which
It
can
beaabrand
powerful
value
proposition

everyone
likes
is
differentiated
and
positioned.
involves
providing
the
most
upscale
product
or
service
ItItcan
be
a
powerful
value
proposition

everyone
likes
The important thing is that each company must
It ainvolves
providing the most upscale product or service
good
deal.
and
charging
aown
higher
price to cover thestrategy,
higher costs.
aand
good
deal. its
develop
winning
one that
charging
a higher
price topositioning
cover the higher costs.
It not onlythe
offers
higherspecial
quality,
ititsalso
gives prestige to
company
to
target
It notmakes
only offers
higher quality,
it also
givesconsumers.
prestige to
the buyer.
the buyer.

Less for Much Less

Less for Much Less
More
for Less
A market almost always
exists
for products that offer less
More
for
Less
A market almost always
exists
for
products that offer less
More
for
the
Same
therefore
cost
less.value
More
theproposition
Same would be to offer
and
Ofand
course,
thecost
winning
therefore
less. for

Of
the winning
value
proposition
would
bebest
to offer
course,
Few
people
need,
want,
or
can
afford
the
very
in
morepeople
for less.
Companies
can
attack
a competitors
more-for-more

Few
need,
want,
or
can
afford
the
very
best
in
Companies
more
for less.
canthey
attack
a competitors more-for-more
everything
buy.
everything
Many
companies
claim
to do
this. And,
in short
run, some
positioningthey
by introducing
a brand
offering
comparable
buy.
positioning
Many
companies
claim
to do
this.
And,
insettle
short
run,
some
by
introducing
a brand
offering
comparable
In many
cases,
consumers
will such
gladly
for
less
than
companies
can
actually
achieve
lofty
positions.
quality
at
a
lower
price.
In
many
cases,
consumers
will
gladly
settle
for
less
than
companies
actually
loftyofpositions.
quality
at a can
lower
price. achieve
optimal
performance
or give such
up some
the bells and
optimal performance or give up some of the bells and
whistles in exchange for a lower price.
whistles in exchange for a lower price.

Developing a Position Statement

The positioning statement is a statement that summarize
company or brand positioning using this form: To (target
segment and need) our (brand) is (concept) that (point of
difference).
Note that the positioning statement first states the product
s membership in a category (digital content management
application) and then shows its point of difference from o
ther members of the category (easily capture moments an
d ideas and remember them later).

Communicating and Delivering the

Chosen Position
Once a company has built the desired position, it must tak
e care to maintain the position through consistent perform
ance and communication.
It must closely monitor and adapt the position over time t
o match changes in consumer needs and competitors strat
egies.

The End