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From Mass Marketing to Mass Customization by Philip Kotler From Mass Marketing to Mass Customization By Philip Kotler This famous marketing guru tells how to create a differentiation strategy specifically for the mass market, segmented markets, micromarkets, and—the latest evolution—individual markets of just one customer. 10 Planning Review |oday, sophisticated segmentation is a critical mark so well that they went on back order. (Of course, marketing skill, but many practitioners are back ordering isn't a particularly good situation—it Tconfused about how to integrate segmentation and means you didn't raise the price high enough.) planning. The term "market segmentation" was introduced into Four Levels of Market Segmentation the marketing literature in 1956 by Wendell R. Smith in an article entitled, "Product Differentiation and Market Segmentation: Alternative Strategies." Smith used the Next, let's consider the four levels of segmentation, phrase to label a strategy, just as product differentiation which I will call: would be a strategy. But it really isn't a strategy—it's an ■ Dealing with the mass market. analytical act that precedes the development of strategy. ■ Dealing with segmented markets. One way to understand this is to learn the four "Ps" ■ Dealing with micromarkets (as distinct from of strategic marketing. Everyone knows about the four segmented markets). "Ps" of tactical marketing: Product, Price, Place, and ■ Dealing with individual markets, down to the Promotion. But you don't really get down to tactical individual customer as a segment. brass tacks until you perform the strategic marketing My first introduction to the mass market concept task. So let me introduce you to what I call the four "Ps" occurred in Japan some years ago. I noticed that the of strategic marketing, and show you the role that marketing researchers were taking very small samples of segmentation plays. the consumers when measuring their attitude toward a new product. A market researcher would take a new The Four Ps of Strategic Marketing product to just one or two Japanese households and ask, The first step we always need to take when "How do you like it?" This didn't seem right to me. approaching the marketplace is to analyze it. Although "How can you generalize from the sample of one?" I we tend to call this "market research," my term for this complained. And the answer was, "We Japanese are process is "Probing." homogeneous. We're all alike. If this family likes the The second step is segmentation, or "Partitioning" the product, everyone will like the product." (While I doubt market. This commences when you begin to notice that that this was ever true, nowadays the Japanese market clusters of your customers want different things. So you has certainly become too diverse to approach in this begin to treat each cluster separately. simplistic way.) The third step is to target the clusters where you feel Mass marketing in the U.S. used to aim products at you have a preeminent position. I call this the typical American family, which consisted of a "Prioritizing"—ranking the segments you want to focus working husband, a homemaker wife, and two children. on because you have a potentially superior advantage for But today, this ''archetypal" American family makes up satisfying them. just 7 percent of the population. The fourth step is "Positioning"—pinpointing the I remember talking to Professor Paul Green at the competitive options in each segment that you're going to Wharton School about an assignment he'd received from target. a food company to design the optimum pizza for the To reiterate, the four steps of market segmentation are: American family. "Optimum for whom?" I asked. No Probing, Partitioning, Prioritizing, and Positioning. one brand or formulation can satisfy this mythical Once you finish developing the four "Ps" of strategic market. It's become an elusive and futile target, marketing, as well as carrying out the four "Ps" of especially when competitors are using a niche strategy. tactical marketing, your job will be much easier. As Peter A company chasing the "mass market" loses it. It's a Drucker reminded us several years ago: "The aim of paradox, but that's what my research has found. marketing is to make selling unnecessary." You want to In discussions of market segmentation we often hear do such a good job of figuring out what your target about manufacturers aiming at women ages 18 to 34, market wants that your product sells itself. For example, with household incomes over $20,000. In my opinion, the Mazda RX-7 and the new Lincoln Continental hit the the internal heterogeneity of that group makes targeting it en masse impossible. Women between 18 and 34 will read quite different magazines, have different lifestyles, Philip Kotler, professor of marketing in the Kellogg Gradu• different ambitions, and quite different brand ate School of Management at Northwestern University, is a preferences. one-man marketing literature industry. His book, The New Another example of an overly broad market slice Competition (co-authored with Planning Review editor Liam would be the luxury car market, consisting of high- Fahey), is mentioned respectfully in the Books section. income households buying cars. It is true that if an auto September/October 1989 11 company decides to go after the luxury car market, it will manager—to reformulate the product and to help the have less competition than if it went after the bigger company respond appropriately to the customer's market that buys cars at an average price. But in the requirements. When Heinz did this, they ended up using luxury car market there's quite a difference between their second-grade tomatoes to formulate a lower cost making and selling a Rolls, a Jaguar, a Ferrari, and a product for prisons. And they also packaged the product Porsche. Researching and focusing on the micro- in barrels with spigots, instead of the potentially lethal segmentation of that market is crucial. glass bottles. And yet, there are times when broad segmenting Heinz also wanted to make sure that the salespeople works. Let's take industry focusing, for example. The dealing with prisons knew the industry well, so it AT&Ts and the IBMs are setting up sales branches that recruited wardens who wanted a new career. The are specialized by industry. However, this approach wardens, of course, network with other wardens. They creates a dilemma of its own. Suppose your computer can talk shop and really win preference for the firm has a branch located in a city where there are many company's product. As Heinz discovered, industry banks but only one manufacturing plant. It's highly likely specialization and focusing gives a strong competitive that everyone in your branch office will be a bank advantage. specialist. They'll be expert on the competitive problems of bankers, and will try to sell these customers computers Zip Code Micromarketing that will add value to the banking business and enhance Next let's study microsegmentation, or micromarket­ their ability to outdistance the competition. ing—I'll give you two illustrations, one consumer, and But what about that manufacturing plant? Who on your one industrial. The most exciting recent development in team is capable of handling this customer in a town with consumer marketing is the geo-demographic analysis a lot of banks? Should you send in one of your system. (The Prism system by Claritas, or the Cluster specialized banking salespersons to "talk shop?" No. Plus system by Donnelley, are commercial examples). If What you do is fly in a manufacturing specialist from you want to learn more about these systems, read the new another branch who can establish a relationship that will book called The Clustering of America by Michael convert the prospect into a customer. To be effective in Weiss. today's market, your salespeople must have an intimate The developer of the Prism system, Jonathan Robbin, knowledge of their customers' businesses; they must was a computer expert, and also an entrepreneur. specialize by industry. Working with census data, he identified 40 socioeconomic groups that make up the lifestyles of the Ketchup for Jail Birds United States. He characterized each by a sobriquet, such Heinz ketchup's success in the institutional market is as the "fur and station wagon crowd." Robbin's one of my favorite illustrations of specializing by classification is based on the assumption that people in a industry. Years ago a Heinz product manager of ketchup given area are relatively alike, and that this alikeness would handle grocery sales, restaurant sales, sales to shows itself through similar media habits and brand hospitals, and colleges. More recently, Heinz has choices. Using his 40 lifestyle groups, you can zero in organized itself by end-use markets, designating on zip code areas, or even city blocks, where you'll find managers to devise sales strategies for ketchup and the best prospects for your products. mustard by industry. For instance, zip 85254 in northeast Phoenix, Arizona, For example, let's take Heinz' approach in selling to is a "fur and station wagon" neighborhood. According prisons, which is both a growth market and a captive to this theory, you can predict that the members of this market—if you'll forgive the pun. Can you imagine a group probably belong to a country club, drink sales rep from Heinz walking in with a bottle of this vermouth, read Gourmet magazine, and vote leading brand ketchup, and pitching to the purchasing Republican. In addition, Robbin believes this zip has agent: "Your prisoners deserve the best. And our much more in common with geographically distant premium product will do the best job of covering up the Glenview, Illinois, than it does with its own neighboring lousy food you serve." (By the way, ketchup is an zips in Phoenix.
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