Sharpening the Focus: Target Marketing Strategies and Customer Relationship Management

Chapter 7 Sharpening the Focus: Target Marketing Strategies and Customer Relationship Management

CHAPTER OVERVIEW

As small children, we are often taught to treat everyone alike. But after reading this chapter, students will quickly learn that this strategy doesn’t work in marketing. The goal of marketing is to create value and satisfy needs. However, everyone’s needs are not the same. Understanding needs is a complex task.

In this chapter, students learn why segmentation is important and the different dimensions used by marketers to segment the population. How marketers evaluate and select potential market segments is explained as is the development of a targeting strategy. Students understand how a firm develops and implements a positioning strategy and creates a customer relationship management strategy to increase long-term success and profits. After careful study, students will learn that it’s not only okay to treat people differently but is a requirement in successful marketing.

CHAPTER OBJECTIVES

 Understand the need for market segmentation in today’s business environment.  Know the different dimensions marketers use to segment consumer and industrial markets.  Explain how marketers evaluate and select potential market segments.  Explain how marketers develop a targeting strategy.  Understand how a firm develops and implements a positioning strategy.  Know how marketers practice customer relationship management to increase long- term success and profits.

CHAPTER OUTLINE

1. DECISION TIME AT REEBOK Reebok became known in the 1980s primarily for its aerobics shoes. Women were buying the shoes but not men. At the same time, Nike became known as the shoe for champions, signing world-class athletes to endorse its shoes. Reebok was slow to react and saw its overall market share quickly decline.

174 Part II: Understanding Consumers’ Needs

To effectively target the youth market, Reebok signed Allen Iverson. Iverson was a bundle of energy, movement, and coolness with whom kids could identify. The more adults hated Iverson and said he was bad news; the more youth around the world embraced him and accepted him as their own. Over a period of six years, Reebok used Iverson to connect with youth and did a good job of changing its image from a brand worn by moms.

Still, Reebok languished in the number 2 position without a clear identity other than being the shoe worn by Allen Iverson. Their star endorser was a key asset but not strong enough to single-handedly win the dollars of youth culture. The Reebok brand still wasn’t clicking with the young target market the company needed to attract. Senior management considered three options:

 Mimic Nike’s moves with Michael Jordan.  Build off of Reebok’s success with Iverson while separating the brand from other performance sneaker brands like Nike.  Maintain the Iverson emphasis for basketball, and increase Reebok’s marketing efforts to build credibility as the performance shoe of choice for the other two major global sports categories of soccer and track.

The vignette ends by asking the student which option he/she would choose.

2. SELECTING AND ENTERING A MARKET Understanding people’s needs is an even more complex task today because technological and cultural advances in modern society have created a condition of market fragmentation. This condition occurs when people’s diverse interests and backgrounds divide them into numerous different groups with distinct needs and wants. Because of this diversity, the same good or service will not appeal to everyone.

Marketers must balance the efficiency of mass marketing, serving the same items to everyone, with the effectiveness of offering each individual exactly what they want.

Marketers select a target marketing strategy in which they divide the total market into different segments based on customer characteristics, select one or more segments, and develop products to meet the needs of those specific segments.

3. STEP 1: SEGMENTATION Segmentation is the process of dividing a larger market into smaller pieces based on one or more meaningful, shared characteristic. Segmentation is often necessary in both consumer and industrial markets. In each case, the marketer must decide on one or more useful segmentation variables, that is, dimensions that divide the total market into fairly homogenous groups, each with different needs and preferences.

3.1 Ways to Segment Consumer Markets

175 Chapter 7: Sharpening the Focus: Target Marketing Strategies and Customer Relationship Management

A total market can be sliced into smaller pieces in a number of ways, including demographic, psychological, and behavioral differences. Following is a discussion. 3.1.1 Segmenting by Demographics Demographics are measurable characteristics such as gender and age, family structure, income and social class, race and ethnicity, and geography.

3.1.1.1 Age Consumers of different age groups have different needs and wants. The following is a breakdown of same of the groups as well as the ages that marketers are concerned with:

Children are considered between the ages of 4 and 12. This group has a say in family- related purchases of more than $130 billion a year.

Teens are considered between the ages of 12 and 17. This is an attractive market segment, spending an average of $3,000 per year and as a group is growing nearly twice as fast as the general population. Much of their money goes toward “feel-good” products such as cosmetics, posters, and fast food.

Generation Y are those consumers born between the years 1977 and 1994. They also are known as the baby “boomlet.” Generation Y is made up of the 71 million children of the baby boomers. They are the first generation to grow up online and are more ethnically diverse than earlier generations. Generation Y is an attractive market for a host of consumer products because of their size (approximately 26 percent of the population) and because of their free spending nature. As a group they spend about $200 billion annually. Marketers have had to use creative methods to reach this group as they resist reading and turn off the TV regularly.

Generation X is the group of consumers born between 1965 and 1976, consisting of 46 million Americans. They are also known as slackers or busters and have a cynical attitude toward marketing. However, one study revealed that this group has mellowed with age and is responsible for 70 percent of new start-up business in the United States. Seven out of ten regularly save some portion of their income. The slacker name may be fading.

Baby boomers are consumers born between 1946 and 1964. Baby boomers never age and invest a ton of money, time, and energy to maintain their youthful image. Because there are so many of them, baby boomers are clogging the upward mobility pipeline in employment.

Americans, 65 and older are 35 million in number. This is a 12 percent increase in this age segment since 1990. This group is enjoying leisure time and continued good health. More and more marketers are offering products that have strong appeal to active lifestyle seniors.

3.1.1.2 Gender

Starting with diapers, segmenting by sex occurs at a very early age. Many products appeal to men or women either because of the nature of the product or because the marketer chose to appeal to one sex or the other. In some cases, manufacturers develop parallel products to appeal to each sex.

3.1.1.3 Family Structure Because family needs and expenditures change over time, one way to segment consumers is to consider the stage of the family life cycle they occupy. Consumers in different life cycle segments are unlikely to need the same products, or at least they may not need these things in the same quantities. As family’s age and move into new life stages, different product categories ascend and descend in importance.

3.1.1.4 Income The distribution of wealth is of great interest to marketers because it determines which groups have the greatest buying power. Marketers, obviously, are often more interested in high-income consumers. In the past, it was popular for marketers to consider social class segments, such as upper class, lower class, and the like. However, many consumers buy not according to where they may fall in the schema but rather according to the image they wish to portray.

3.1.1.5 Race and Ethnicity A consumer’s national origin is often a strong indicator of his preferences for specific magazines or TV shows, foods, apparel, and choice of leisure activities. Marketers need to be aware of these differences and sensitivities. Given the United States increasingly ethnically diverse culture, cultural/religious issues must be addressed.

African Americans, Hispanic Americans, and Asian Americans are the three fastest- growing ethnic groups in the United States. The Census Bureau projects that by the year 2050, non-Hispanic whites will make up only 50.1 percent of the population (compared to 74 percent in 1995).

African Americans account for about 12 percent of the U.S. population. This percentage has held steady for 20 years.

Asian Americans are the fastest-growing minority group in the United States. The Asian American population is projected to grow from 11.3 million in 2000 to 19.6 million in 2020. Marketers in the United States are just beginning to recognize the potential of this segment.

The Hispanic American population is a sleeping giant, a segment that mainstream marketers largely ignored until recently. Because of this segment’s high birthrate, the Census Bureau projects that Hispanics have overtaken African Americans as the nation’s

177 Chapter 7: Sharpening the Focus: Target Marketing Strategies and Customer Relationship Management largest minority group. Following are five factors making the Hispanic segment attractive to marketers:

 Hispanics tend to be brand loyal, especially to products made in their country of origin.

 Hispanics tend to be highly concentrated by national origin, which makes it easy to fine-tune the marketing mix to appeal to those who come from the same country.

 This segment is young (the median age of Hispanic Americans is 23.6, compared with the U.S. average of 32), which is attractive to marketers because it is a great potential for youth-oriented products.

 The average Hispanic household contains 3.5 people, compared to only 2.7 people for the rest of the United States. For this reason, Hispanic households spend 15 to 20 percent more of their disposable income than the national average on groceries and other household products.

 In general, Hispanic consumers are very receptive to relationship-building approaches to marketing and selling. As such, strong opportunities exist to build loyalty to brands and companies through emphasizing relationship aspect of the customer encounter.

Latino youth are changing mainstream culture. By the year 2020, the Census Bureau estimates that the number of Hispanic teens will grow by 62 percent compared with 10 percent growth in teens overall.

The term “Hispanic” is a misnomer. For example, Cuban Americans, Mexican Americans, and Puerto Ricans may share a common language, but their history, politics, and culture have many differences. Marketing to them as a homogeneous segment can be a big mistake.

3.1.1.6 Geography Recognizing that people’s preferences often vary depending on where they live, many marketers tailor their offerings to appeal to different regions.

When marketers want to segment regional markets even more precisely, they sometimes combine geography with demographics by using a technique called geodemography. A basic premise of geodemography is that people who live near one another share similar characteristics.

3.1.2 Segmenting by Psychographics Psychographic data are useful to understand differences among consumers who may be statistically similar to one another but whose needs and wants vary. Psychographics segments market in terms of shared attitudes, interests, and opinions as well as lifestyles.

VALS™ (Values and Lifestyles), is a psychographic technique, used to classify consumers. The newer VALS2™ divides U.S. adults into eight groups that are determined both by primary motivation and by resources/innovation.

Three primary consumer motivations are key to the system: ideals, achievement, and self- expression. Consumers who are motivated primarily by ideals are guided by knowledge and principles. Consumers who are motivated primarily by achievement look for products and services that demonstrate success to their peers. And consumers who are motivated primarily by self-expression desire social or physical activity, variety, and risk.

The VALS2™ system helps identify consumers who are most likely to be interested in certain types of products, services, or experiences.

One new segmentation buzzword is metrosexual. A metrosexual is a man who is heterosexual, sensitive, educated, and an urban dweller who is in touch with his feminine side.

3.1.3 Segmenting by Behavior Behavioral segmentation slices consumers on the basis of how they act toward, feel about, or use a product. One way to segment based on behavior is to divide the market into users and nonusers of a product. In addition, users can be segmented into heavy, moderate, and light users.

Many marketers abide by a rule of thumb called the 80/20 rule: 20 percent of purchasers account for 80 percent of the product’s sales. This means that it often makes more sense to focus on the smaller number of people who are really into a product rather than on the larger number who are just casual users.

Another way to segment a market based on behavior is to look at usage occasions, or when consumers use the product most. Most products are associated with specific occasions, whether time of day, holidays, business functions, or casual get-togethers. Businesses often divide up their markets according to when and how their offerings are in demand.

3.2 Segmenting Industrial Markets Segmentation is also used in industrial markets. Organizational demographics include the size of the firms either in total sales or number of employees, the number of facilities, whether they are a domestic or a multinational company, policies on how they purchase, and the types of business they are in. Business-to-business markets may also be segmented on the basis of the production technology they use and whether the customer is a user or nonuser of the product.

4. STEP 2: TARGETING In targeting, the marketers evaluate the attractiveness of each potential segment and decide which of these groups they will invest resources against to try to turn them into customers. The customer group or groups selected are the firm’s target market.

4.1 Evaluating Market Segments Just because a marketer identifies a segment does not necessarily mean that it’s a useful one to target. A viable target segment should satisfy the following requirements:

 Are members of the segment similar to each other in their product needs and wants and, at the same time, different from consumers in other segments?  Can marketers measure the segment?  Is the segment large enough to be profitable now and in the future?  Can marketing communications reach the segment?  Can the marketer adequately serve the needs of the segment?

4.2 Developing Segment Profiles A segment profile is a profile or description of a “typical” customer in that segment. A segment profile might include customer demographics, location, lifestyle information, and a description of how frequently the customer buys the product.

4.3 Choosing a Targeting Strategy A basic targeting decision is how finely tuned the target should be.

4.3.1 Undifferentiated Marketing An undifferentiated targeting strategy is one that appeals to a wide-spectrum of people. If successful, this type of operation can be very efficient, especially because production, research, and promotion costs benefit from economies of scale—it’s cheaper to develop one product or one advertising campaign than to choose several targets and create separate products or messages for each. The company must be willing to bet that people have similar needs or differences among them that are trivial.

4.3.2 Differentiated Marketing A company that chooses a differentiated targeting strategy develops one or more products for each of several customer groups with different product needs. A differentiated strategy is called for when consumers are choosing among brands that are well known in which each has a distinctive image in the marketplace and in which it’s possible to identify one or more segments that have distinct needs for different types of products.

Differentiated marketing can also involve connecting ones products with different segments by communicating differently to appeal to those segments.

4.3.3 Concentrated Marketing When a firm focuses its efforts on offering one or more products to a single segment, it is using a concentrated targeting strategy. A concentrated strategy is often useful for smaller firms that do not have the resources or the desire to be all things to all people.

4.3.4 Customized Marketing Ideally, marketers should be able to define segments so precisely that they can offer products and services that exactly meet the unique needs of each individual or firm. A custom marketing strategy is common in industrial contexts in which a manufacturer often works with one or a few large clients and develops products and services that only these clients will use.

In most cases this level of segmentation is neither practical nor possible when mass- produced products are sold. However, advances in computer technology, coupled with the new emphasis on building solid relationships with customers, have focused managers’ attention on devising a new way to tailor specific products and the messages about them to individual customers.

Mass customization is the modification of a basic good or service to meet the needs of an individual.

5. STEP 3: POSITIONING Positioning means developing a marketing strategy aimed at influencing how a particular market segment perceives a good or service in comparison to the competition. Developing a positioning strategy entails gaining a clear understanding of the criteria target consumers use to evaluate competing products and then convincing them that your product will meet those needs. Positioning can be done in many ways.

5.1 Developing a Positioning Strategy Marketers must devise a marketing mix that will effectively target the segment’s members by positioning their products to appeal to that segment. A first step is to analyze the competitors’ positions in the marketplace. Who are the direct competitors and what products or services are they providing? Indirect competition can also be important.

Marketers must also develop a positioning strategy that includes offering a good or service with a competitive advantage, providing a reason why consumers will perceive the product as better than the competition.

Once a positioning strategy is set, marketers must finalize the marketing mix by putting all the pieces into place. The elements of the marketing mix must match the selected segment. This means that the goods or services must deliver benefits that the segment values, such as convenience or status. Furthermore, marketers must price this offering at a level these consumers will pay, make the offering available at places consumers are likely to go, and correctly communicate the offering’s benefits in locations where consumers are likely to take notice.

Finally, marketers must evaluate the target market’s responses so they can modify strategies as needed. Over time, the firm may find that it needs to change which segments it targets or even redo a product’s position to respond to marketplace changes. An example of such a makeover is called repositioning.

5.2 Bringing a Product to Life: The Brand Personality A positioning strategy often tries to create a brand personality for a good or service—a distinctive image that captures its character and benefits. Part of creating a brand personality is developing an identity for the product that the target market will prefer over competing brands. How do marketers determine where their product actually stands in the minds of consumers? One solution is to ask consumers what characteristics are important and how competing alternatives would rate on these attributes. Marketers use this information to construct a perceptual map, which is a vivid way to construct a picture of where products or brands are “located” in consumers’ minds.

Creating a positioning strategy is the last step in the target marketing process.

6. CUSTOMER RELATIONSHIP MANAGEMENT: TOWARD A SEGMENT OF ONE Today many highly successful marketing firms embrace customer relationship management (CRM) programs that allow companies to talk to individual customers and adjust elements of their marketing programs in light of how each customer reacts to elements of the marketing mix.

Don Peppers and Martha Rogers popularized a term called one-to-one marketing. They identified four steps in one-to-one marketing:

 Identify customers and get to know them in as much detail as possible.  Marketers need to differentiate these customers in terms of both their needs and their value to the company.  Marketers must interact with customers and find ways to improve cost efficiency and the effectiveness of the interaction.  Marketers need to customize some aspect of the products or services they offer to each customer.

A CRM strategy allows a company to identify its best customers, stay on top of their needs, and increase their satisfaction.

6.1 CRM: A New Perspective on An Old Problem CRM is about communicating with customers and about customers being able to communicate with a company one-to-one. CRM systems are applications that, through computers, CRM computer software, databases, and often the Internet, capture information at each touch point (or interaction) between customers and companies to allow for overall better customer care. CRM helps firms communicate with and serve customers by better understanding their needs.

Firms that practice CRM have found that this level of individualized attention results in a much higher rate of customer retention and satisfaction, so CRM creates a win-win situation for everyone.

CRM has become a driving philosophy in many successful firms. It is a more efficient way to serve new customers who may have been overlooked by prior marketing efforts. CRM presents a new way of looking at how to effectively compete in the marketplace. This begins with looking at customers as partners. CRM proponents suggest that the traditional relationship between customers and marketers is an adversarial one where marketers try to sell their products to customers and customers seek to avoid buying.

CRM is widely used to strengthen business-to-business relationships as well as end consumers.

Many firms today look at their relationships with customers as a financial asset. A firm’s goal is always to bring in a high return on the investment made in customer relationship and to maximize the value of customer equity. For this reason, it is very important for the firm to invest in the right customers. Loyalty plays a big role as loyal customers are more likely to deliver a greater financial return to the company because they tend to pay higher prices for the same products and services, and engage in more positive word of mouth.

6.2 Characteristics of CRM CRM marketers look at their share of the customer, at the lifetime value of a customer, at customer equity, and at focusing on high-value customers. A discussion follows.

6.2.1 Share of the Customer Historically, marketers have measured success in a product category by their share of market. Because it is always easier and less expensive to keep an existing customer than to get a new customer, CRM firms focus on increasing their share of customer, not share of market.

6.2.2 Lifetime Value of a Customer Lifetime value of a customer is the potential profit generated by a single customer’s purchase of a firm’s products over the customer’s lifetime. With CRM, a customer’s lifetime value is identified and is the true goal, not an individual transaction.

Lifetime value is calculated by estimating a customer’s future purchases across all products from the firm over the next 20 or 30 years. The goal is to try to figure out what profit the company could make from the customer in the future.

6.2.3 Customer Equity Today an increasing number of companies are considering their relationships with customers as financial assets. Such firms measure success by calculating the value of the customer equity—the financial value of customer relationships throughout the lifetime of the relationships.

6.2.4 A Greater Focus on High-Value Customers Using a CRM approach, customers must be prioritized and communication customized accordingly.

CHAPTER REVIEW

MARKETING CONCEPTS: TESTING YOUR KNOWLEDGE

1. What is market segmentation, and why is it an important strategy in today’s marketplace?

Market segmentation is a process whereby marketers divide a large customer group into segments that share important characteristics. Market segmentation and target marketing are important strategies in today’s marketplace because of market fragmentation—that is, the splintering of a mass society into diverse groups due to technological and cultural differences. Thus, marketers must determine if they can better satisfy customers with a mass-marketing strategy or target marketing based on strategy efficiency and effectiveness.

2. List and explain the major demographic characteristics frequently used in segmenting consumer markets.

 Age: consumers of different age groups have very different needs and wants.

 Gender: segmenting by sex starts at a very early age. Many marketers are looking to gender segmentation as a means of expanding markets. For example, hair dryers sold to men dramatically expanded the industry’s sales.

 Family structure: using the family life cycle, marketers can segment based on family status and position occupied. Newlyweds will have different needs and desires than empty nesters.

 Income and social class: the distribution on wealth has great interest to marketers because it determines what groups have the greatest buying power and market potential. Social class designations also affect purchasing patterns based on one’s appreciation of status in his or her life.

 Race and ethnicity: membership in the various racial and ethnic groups within our country accounts for many changes in the way a consumer receives information, develops tastes, and makes purchases. Submarkets (such as the Hispanic market) are receiving increased attention from marketers because of their size and increased affluence.

 Geography: though not as dynamic as the other categories, geography does affect tastes and purchase behavior. Many marketers use geography to tailor their offerings to appeal to different regions of the country.

3. Explain consumer psychographic segmentation.

Psychographics is useful to help understand differences among consumers who may be statistically similar to one another but whose needs vary. Psychographic segmentation examines shared attitudes, interests, and opinions. VALS (Values and Lifestyles) is the most well-known system used to divide the American population into eight groups.

4. What is behavioral segmentation?

Consumer markets may also be segmented based on how consumers behave toward the product—brand loyalty, usage rates (heavy, moderate, or light), usage occasions, product type purchased, and/or reasons for using a product (benefit segmentation) are all options that can be used to more narrowly define segments.

5. What are some of the ways marketers segment industrial markets?

Categories similar to those in the consumer market are frequently used for segmenting industrial markets. Industrial demographics include industry and/or company size, North American Industry Classification System (NAICS), or geographic location. Industrial markets may also be segmented based on operating variables, purchasing approaches, and end-use applications.

6. List the criteria used for determining whether a segment may be a good candidate for targeting.

There are several criteria for determining whether a segment may be a good candidate for targeting. To choose one or more segments to target, marketers examine each segment and evaluate its potential for success as a target market. A viable target segment should have positive answers to the following requirements:

 Are members of the segment similar to each other in their product needs and wants and, at the same time, different from consumers in other segments?  Can marketers measure the segment?  Is the segment large enough to be profitable now and in the future?  Can marketing communications reach the segment?  Can the marketer adequately serve the needs of the segment?

7. Explain undifferentiated, differentiated, concentrated, and customized marketing strategies. What is mass customization? See Figure 7.3 for more information and explanation.

Strategies include:

 Undifferentiated marketing strategy: a marketing strategy that 1) assumes the majority of customers have similar needs and 2) attempts to appeal to a broad spectrum of people.

 Differentiated marketing strategy: a market strategy in which a firm develops one or more products for each of several distinct customer groups.

 Concentrated marketing strategy: a marketing strategy in which a firm focuses its efforts on offering one or more products to a single segment.

 Custom marketing strategy: a marketing strategy in which a firm develops a separate marketing mix for each customer.

 Mass customization: a marketing strategy in which a firm modifies a basic good or service to meet an individual customer’s needs.

8. What is product positioning? Describe the three approaches that marketers use to create product positions.

Product positioning is the marketing practice of determining and influencing how a brand is perceived by consumers relative to the competition. Three approaches used to create the product positions are to position the product like the competition, against the competition, or away from the competition.

9. What is CRM? How do firms practice CRM?

Customer Relationship Management are programs that allow companies to talk to the individual customers and adjust elements of their marketing programs in light of how each customer reacts to elements of the marketing mix. Firms practice CRM by communicating with customers and customers being able to communicate with the company one-to-one.

There are four steps in CRM marketing:

 Identify customers and get to know them in as much detail as possible.  Differentiate these customers in terms of both their needs and their value to the company.

 Interact with customers to find ways to improve cost efficiency and the effectiveness of the interaction.  Customize some aspect of the products or services they offer to each customer.

10. Explain the concepts of share of customer, lifetime value of a customer, and customer equity.

Because it is always easier and less expensive to keep an existing customer than to get a new customer, CRM firms focus on increasing their share of customer, not share of market. With CRM, a customer’s lifetime value is identified and it the true goal. How is lifetime value of a customer measured?

 The market first estimates a customer’s future purchases across all products from the firm over the next 20 or 30 years.  The lifetime value of the customer would be the total profit generated by the revenue stream over time.

MARKETING CONCEPTS: DISCUSSING CHOICES AND ISSUES

1. Some critics of marketing have suggested that market segmentation and target marketing lead to an unnecessary proliferation of product choices, which wastes valuable resources. These critics suggest that if marketers didn’t create so many different product choices, there would be more resources to feed the hungry and house the homeless and provide for the needs of people around the globe. Are the results of segmentation and target marketing harmful or beneficial for society as a whole? Should these criticisms be of concern to firms?

As far back as 1920 Al Sloan (a pioneering marketer at Ford’s rival General Motors), realized that consumer’s tastes and needs are different. There are many ways to deal with the need to improve the social environment but the dissolution of product choice for the American consumer is probably not one of the better alternatives. For many years the Soviet Union followed a policy of one product fits all needs. That solution did not satisfy consumers nor did it fix their social system. In fact, one could argue that by striving to match the needs and wants of the individual consumer more social good will be the result because the consumer would be able to better direct their resources and use the remainder for social causes (if they so choose).

2. One of the criteria for a usable market segment is its size. This chapter suggested that to be usable a segment must be large enough to be profitable now and in the future and some very small segments get ignored because they can never be profitable. So how large should a segment be? How do you think a firm should go about determining if a segment is profitable? Have technological advances made it possible for smaller segments to be profitable? Do firms ever have a moral or ethical obligation to develop products for small, unprofitable segments?

The students may produce a variety of answers to the questions cited above. Some of their answers will be the result of the role that they perceive that marketing plays in the firm and in society in general. With respect to size of market segments, demand must be measured and applied to short- and long-term goals and profit projections. There is no magic number. Profitability is a question of costs, resources, and competition. Most firms today are in business to make a profit and are responsible to their owners or shareholders for their performance record. Some unprofitable activities can be undertaken as long as they are subsidized by profitable activities (the unprofitable activities of today may become the profitable activities of tomorrow). Technology (such as the Internet, computer information systems, and databases) have certainly helped the firm to be able to profitably deal with small customer segments. The moral or ethical obligation is part of the corporate management and cultural structure of the firm.

3. Some firms have been criticized for targeting unwholesome products to certain segments of the market—the aged, ethnic minorities, the disabled, and others. What other groups deserve special concern? Should a firm use different criteria in targeting such groups? Should the government oversee and control such marketing activities?

The question of governmental control is dependent on one’s viewpoint of government’s role in business. Is government a rule maker and enforcer or a referee? Protection of groups such as children is accepted but a “hands-off policy” is used for most other groups. In addition to the groups mentioned above, children, AIDS victims, disaster victims (such as natural catastrophes or terrorist events like 9/11), families of the recently deceased, and mental health situations are sometimes mentioned as groups that also need special attention and should probably have different rules for targeting members of these groups. What criteria can you name that would indicate caution in targeting a group?

4. Customer Relationship Management (CRM) focuses on share of customer, life-time value of the customer, and high value customers. What do you think are some problems with replacing older concepts such as share of market with these concepts?

One obvious problem is that of measurement. Marketers worked for years to build a system of measurement techniques that would accurately assess competitive market share (some executive bonuses were even tied to improvements in this number). It is much more difficult to measure any of the CRM factors, much less determine who is and who is not a valued customer. However, with improvements in database measurement, data mining, and other techniques to appraise the value of a loyal customer, customer retention will improve as a marketing field of study. What other problems can the students think of?

MARKETING PRACTICE: APPLYING WHAT YOU’VE LEARNED

1. Assume you have been hired to develop a marketing plan for a small regional beer brewery. In the past, the brewery has simply produced and sold a single beer brand to the entire market—a mass-marketing strategy. As you begin your work for the firm, you feel that the firm could be more successful if it developed a target marketing strategy. The owner of the firm, however, is not convinced. Write a memo to the owner outlining:

 The basic reasons for target marketing.  The specific advantages of a target marketing strategy for the brewery.

This question asks students to review what they have learned about target marketing and the justifications for target marketing. Implied in this question is the idea that the brewery must consider a change in its basic approach to the marketplace. Some firms do quite well with a niche strategy (where a unique market is found and exploited). A small firm will have a great deal of trouble following a mass-marketing strategy where it tries to be all things to all people. This could be a competitive misstep. To aid the students in their answer, suggest that they consider local or regional breweries that have rejected the mass-marketing approach (i.e., Samuel Adams or Shiner Bock in Texas). Visit Web sites to explore strategic approaches.

2. As the marketing director for a company that is planning to enter the industrial market for photocopy machines, you are attempting to develop an overall marketing strategy. You have considered the possibility of using mass-marketing, concentrated marketing, differentiated, and custom marketing strategies.

 Write a report explaining what each type of strategy would mean for your marketing plan in terms of product, price, promotion, and distribution channel.  Evaluate the desirability of each type of strategy.  What are your final recommendations for the best type of strategy?

First, students should get some basic information on the photocopy industry (see Canon or Xerox on the Web). Next, consider the industrial side of the market. Call a local supplier if necessary. Once information has been obtained, the students should move to matching the information with the different types of marketing strategies mentioned. Students are free to choose (just as businesses are free to choose), however, no matter what their choice is, justification must be supplied. Be sure that students state any assumptions that might affect understanding of the issue at hand. A firm recommendation should be reached.

3. As an account executive for a marketing consulting firm, your newest client is a university—your university. You have been asked to develop a positioning strategy for the university. With a group of classmates, develop an outline of your ideas, including the following:

 Who are your competitors?  What are the competitor’s positions?  What target markets are most attractive to the university?  How will you position the university for those segments relative to the competition? Present your results to the class.

This is an excellent exercise to get the class involved with a real issue. Have students do research on the university by examining documents, literature, brochures, advertisements, Web sites, and/or conduct interviews with appropriate university officials. Examine pertinent competitive Web sites for an idea of what they are doing. Next, students must make an appraisal of potential target markets for the university. The Admissions Office is an excellent place to begin. Recruiters are often even willing to come to class to discuss the issue. Should the university continue its present strategy, reposition, or devise a new strategy? The students should be challenged to find the answer.

4. Assume you have been hired as marketing manager for a chain of retail bookstores. You feel that the firm should develop a CRM strategy. Outline the steps you would take in developing that strategy.

In order to successfully accomplish this project, students should first review material in the text on the CRM process. Next, go to Amazon.com, Barnes & Noble at www.bn.com or other online booksellers to examine how these companies use CRM to their advantage. Now students are ready to proceed with the construction of a CRM plan. The plan should include an appraisal of who customers are at present, services provided for the customer, how the company ensures information flow, how the company can keep track of customers and their expenditures (such as a reading club card, credit card purchases, online purchases, etc.), how customers are kept in a database, and what is done with database information, and specific plans for gaining feedback, meeting needs, providing services, and stimulating sales and loyalty of customers. If students can get all these topics incorporated into a report, they will be well on their way to understanding CRM.

MARKETING MINIPROJECT: LEARNING BY DOING

This miniproject will help you to develop a better understanding of how target marketing decisions are made. The project focuses on the market for women’s beauty care product.

1. Gather ideas about different dimensions useful for segmenting the women’s beauty products market. You may use your own idea, but you probably will also want to examine advertising and other marketing communications developed by different beauty care brands.

2. Based on the dimensions for market segmentation that you have identified, develop a questionnaire and conduct a survey of customers. You will have to decide which questions should be asked and which consumers should be surveyed.

3. Analyze the data from your research and identify the different potential segments.

4. Develop segment profiles that describe each potential segment.

5. Generate several ideas for how the marketing strategy might be different for each segment based on the profiles. Develop a presentation (or write a report) outlining your ideas, your research, your findings, and your marketing strategy recommendations.

Through five specific questions (or exercises) individuals (or marketing teams) are asked to review the different dimensions useful for segmenting the women’s beauty products market, develop a questionnaire and conduct a survey of consumers, analyze data and identify potential segments, develop segment profiles that describe each potential segment, and to generate ideas on how marketing strategy might be applied to each segment based on profiles.

Students (or student teams) should research this industry carefully before proceeding with the miniproject. Before conducting any human subject research, students or teams should familiarize themselves with the rules for interviewing and conducting research (see any appropriate university or college guidelines).

Instructors may wish to extend the deadline for this assignment so students have ample opportunity to conduct the research and report the findings.

REAL PEOPLE, REAL SURFERS, EXPLORING THE WEB

In this chapter, we learned about VALS2™, a popular market segmentation system developed by SRI International. Visit the SRI Web site at www.sric-bi.com. When you follow the VALS links, you will discover that SRI has also developed at least two other segmentation systems: Geo-VALS and Japan-VALS. Follow the links to find out the following:

1. How has VALS2 been used by various SRI clients?

2. Describe Geo-VALS and Japan-VALS. What are some ways these segmentation systems might be used by organizations?

3. What is your opinion of the VALS2 Web site? Whom do you think SRI is targeting with its site? Do you think the site is an effective way to promote its product to potential customers? What suggestions do you have for improving the Web site? Write a report of your findings.

The answer to this question is somewhat judgmental, however, the SRI Web site usually displays client comments and students can infer from these comments (and company statements) how VALS2 has been used. There may be differing answers, however, VALS2 applications in consumer research and promotion are far reaching.

SRI has expanded its original VALS studies, and extended to the global arena with Geo-VALS. The have also studied the Japanese marketplace with Japan-VALS. Once each of these areas is examined, students will be prepared to speculate on how VALS might be used. A good discussion should be generated.

In question 3 students are asked to evaluate the SRI Web site. The students will note that the information supplied is not really for the general public (unless one just wants to learn more about the VALS system). The site is really designed for prospective clients. What suggestions do students have?

MARKETING PLAN EXERCISE

Check out a Web site for a company that manufacturers a product that you like and are familiar with. Pay special attention to the company’s product lines and how it describes its products and product uses. Select one particular product and answer the following questions.

1. What market segmentation approaches do you believe are most relevant for your chosen product given the type of product it is? Why do you recommend these over other possible approaches?

2. Describe the top three target markets for the product you selected. What makes these particular targets so attractive?

3. From your review of the Web site as well as your knowledge of the product, write out a positioning statement for the product. Keep it to a few sentences; start out with “Product X is positioned as…”

4. In what ways could CRM help the company conduct successful target marketing and positioning of the product?

This is a good exercise to put to practice many of the concepts introduced in Chapter 7. Students will think about segmentation strategies, pick a target market, and write a positioning statement. They will develop CRM strategies to aid in the marketing of the product.

STUDENT PROJECTS

1. Using the following list of products, identify potential market segments based on demographics, psychological, and behavioral differences. Make sure to explain your segmentation variables.

 Cake mixes  Coasters for drink glasses  Cd-Rw disks  Picture frames  Wrapping paper

2. Research Generation Y. Develop a report describing in detail their demographic, psychological, and behavioral characteristics. What do they like and dislike? Can this market be segmented beyond age? Explain. List at least ten products targeted to this group.

3. For a long time, marketers lumped all baby boomers together, marketing the same products to the older boomers as to the younger boomers. In the last few years, marketers have realized that those born in 1946 may not have the same needs and interests as boomers born in 1964. Describe the differences within this group and considerations marketers should make.

4. Interview five local business managers. Ask if the 80/20 rule applies to their business. Report back your findings. Be sure to include information about how/if the business managers serve the 20 percent who purchase 80 percent of the products differently than the rest of the market.

5. Survey at least ten friends who own the same brand of computer as you. Develop a segment profile based on the characteristics of the ten people you interviewed.

6. List two businesses for each of the following categories: undifferentiated marketing, differentiated marketing, concentrated marketing, and customized marketing. Explain the marketing strategies that apply specifically to each business.

7. Find three businesses that practice mass customization. Describe their marketing efforts.

ASSIGNMENTS

SMALL GROUP ASSIGNMENTS

1. Pick five television shows. Conduct a search on the Internet to find out who is the defined target market. Compare this information with your own impressions.

2. Find two different advertisements for four separate product classes (eight advertisements in all) for competing products. For example, if one product class is vans, find an advertisement for a van made by Ford and an advertisement for a van made by Pontiac. Explain the differences in segmentation strategies.

3. Divide the class into groups of three to five students. Ask each group to pick a product they are interested in. Ask the students to write a report including the following information;

 What segmentation variables are used to sell this product?  Who is the target market(s)?  What targeting strategy is used?  What is the brand personality?  Can you find the company’s positioning statement? What is it?

4. Ask the students to look at the fast-food hamburger market in their community. The students should then create perceptual maps, trying to identify an opportunity for a new type of hamburger.

INDIVIDUAL ASSIGNMENTS

1. Pick your favorite store. Develop a customer relationship management strategy designed to increase business with your peers.

2. Consider either a store that you really like but rarely shop at or a product that you really like but buy infrequently. Write a report explaining why the business should or should not continue to market to you.

THINK—PAIR—SHARE

1. Think about the following questions and develop an answer. Pair with a student sitting next to you and share your thoughts.

 Is marketing to a specific ethnic group ethical?  Is gender marketing discriminatory?  Is offering perks or benefits to only the 20 percent who make up 80 percent of your business ethical?  Is it fair to label age segments as having a “cynical attitude” or as “slackers or busters”? See the discussion about Generation X.

2. Debate the following question:

If a business focuses its primary marketing efforts on customers they consider loyal, how will they or can they develop loyalty among the remaining consumers?

OUTSIDE EXAMPLES

1. The Coke Web site, www2.coca-cola.com/brands/index.html states, “As the global leaders in the nonalcoholic beverage industry, we offer over 400 brands in 200 countries. Many of these brands … are only available in specific regions of the world, sometimes in just a single country. The reason for this is simple: different people like different beverages, at different times, for different reasons.”

The Mountain Dew Web site www.mountaindew.com/about_dew/product_info/ index.php relates that “Doing the “Dew” is like no other soft drink experience because of its daring, high-energy, high-intensity, active, extreme citrus taste.

Dr. Pepper www.drpepper.com/dp/html/index.html is known for it’s “Be You” campaign.

After reviewing the Web sites listed above, describe each company’s target market. What segmentation strategies are being used? Which site(s) do a better job of positioning their product? Any recommendations?

2. The CRM trend facilitates one-to-one marketing. One-to-one marketing is a term popularized by Don Peppers and Martha Rogers. In one of their recent articles, entitled Unlocking the Value of Your CRM Initiative, they write: “Implementing a CRM strategy is much more than a technology initiative. Companies that view buying CRM technology as “implementing CRM” will fail to realize the significant ROI to be gained from effective CRM. Their efforts will under-perform or fail—not because the technology didn't work, but because they did not establish any or all of the following: (1) a well-planned CRM vision and strategy supported by executive leadership; (2) actionable customer insight based on customer needs and value; (3) customer-focused processes; (4) measures to ensure adoption, such as training, incentives, and metrics.”

Visit their Web site, www.1to1.com/Home.aspx or your local library. Find three articles by Peppers and Rogers regarding their advice on CRM and one-to-one marketing. Abstract these articles. Expand on the authors’ comments (see above).

3. Our textbook tells us that Dell www.dell.com uses mass customization. Lands End www.landsend.com sells custom clothing. Their Web site states: “The clothing you create yourself! Your Lands’ End Custom garment will be individually tailored and delivered to your door in a matter of weeks. And you can make tweaks anytime you reorder.”

Both businesses are practicing customer relationship management. Locate the Web site of two other firms that practice either mass customization or individual customization. Critique all four Web sites. How obvious is the offer of customization? What does this tell you about the company? Compare and contrast their efforts to promote this service.