Customers, CHAPTER Segmentation,and TargetMarketing 5 H I INTRODUCTION G G In this chapter, we begin our discussion of marketing strategy by examining custo- mers, segments, and target markets. In Chapter 1, weS referred to a market as a col- lection of buyers and sellers. Now, we focus our, attention on the buyers who collectively make up the major portion of most markets. From this perspective, we concern ourselves with markets as individuals, institutions, or groups of individuals or institutions that have similar needs that can be metS by a particular product offer- ing. As we shall see, firms can attempt to reach all buyers in a market, smaller groups or segments of the market, or even specific buyers onH an individual level. Whether the firm aims for the entire market or smaller marketA segments, the goal of market- ing strategy is to identify specific customer needs, then design a marketing program that can satisfy those needs. To do this effectively, theN firm must have a comprehen- sive understanding of its current and potential customers,I including their motiva- tions, behaviors, needs, and wants. The ability to determine in-depth information aboutC customers is a fairly recent phenomenon in marketing. Fifty years ago, for example,Q technology and marketing know-how were less sophisticated. Marketers of the dayU were unable to fully under- stand customers’ needs and wants, much less make fine distinctions among smaller segments of the total market. Marketers tended to offerA products that came in only one variety, flavor, or style. Today, market segmentation is critical to the success of most firms. Segmentation allows marketers to more precisely define and understand customer needs, and gives them the ability to tailor1 products to better suit those needs. As discussed in Beyond the Pages 5.1, the level1 of detailed information avail- able about customers today has changed the way firms do business. However, the use of such information raises concerns about consumer0 privacy. Still, without seg- mentation we would not enjoy the incredible variety5 of products available today. Consider the number of choices we have in categories such as soft drinks, cereals, packaged goods, automobiles, and clothing. In manyT respects, segmentation has improved our standard of living. Customers now expectS firms to delve into their needs and wants, and to tailor products accordingly. This fact makes market seg- mentation a vital part of marketing strategy. Until a firm has chosen and analyzed a target market, it cannot make effective decisions regarding other elements of the marketing strategy. In this chapter, we examine issues associated with buyer behavior in both con- sumer and business markets. We also discuss traditional and individualized approaches to market segmentation, the criteria for successful market segmentation, and specific target marketing strategies. The potential combinations of target 119 9781337669078, Marketing Strategy: Text and Cases, Seventh Edition, O.C. Ferrell - © Cengage Learning. All Rights Reserved. No distribution allowed without express authorization. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-240 120 Chapter 5 • Customers, Segmentation, and Target Marketing BEYOND THE PAGES 5.1 Companies Learn Our Secrets Through become pregnant, they buy a lot of supplements 1 such as calcium, magnesium, and zinc. When Data Mining their delivery date is close, pregnant women Consider a world where what you eat, read, tend to buy a lot of scent-free products, large wear, listen to, watch, buy, and do can be bags of cotton balls, hand sanitizer, and wash- reduced to a mathematical formula. Every cloths. Target uses this information to target move you make is tracked with such a level of ads and coupons to the right consumers. Data specificity that your entire life can be captured mining results like these are one of the reasons in a computer model. Sound far-fetched? It’s not. for Target’s incredible growth from $44 billion in Today, the combination of computer science, revenue in 2002 to roughly $72.5 billion in 2013. mathematics, and business is changing our Retailers are not the only companies that view of consumers and their behavior. The abil- use data mining. The advertising and media ity to track consumer behavior has never been Hindustries are perhaps the most affected by this more advanced than it is today. The new I shift. As mass audience advertising has declined, insights gained from the mathematical modeling marketers have been looking for ways to target of consumer behavior is creating new avenues Gcustomers more directly. Google is a pioneer in for business, allowing marketers to develop Gthis effort because the company has amassed an one-to-one relationships with consumers, and unfathomable amount of data on what custo- causing a fair amount of anxiety. It is also caus- S mers do online. Other companies now provide ing a sharp increase in the hiring of math grad- , data mining solutions. In research conducted uates from our nation’s universities. with SPSS, for example, Italian carmaker Fiat Through advanced math, computer model- was able to improve customer relations and ing, and data mining, businesses have been S increase customer retention by 6 to 7 percent. able to track consumer attitudes and behaviors HMicrosoft uses its own analytical techniques to for some time. The difference today is the study the productivity of its workforce. Further- unprecedented access to data made available Amore, Harrah’s Entertainment (a major player in via the Internet and other technologies. Over Nthe casino industry) has increased their annual the past 10 years, a sizable portion of the con- growth rate by using computer models to pre- suming public has moved its work, play, conver- I dict which customers will respond to the com- sation, and shopping online. These integrated Cpany’s targeted advertising and promotional networks collect vast amounts of data and offers. store our lives in databases that can be con- Q Of course, all of this sophistication comes at nected in ways that allow us to capture a more Ua price. The ability of companies to track custo- complete picture of consumer behavior. For mers and model their behavior raises a number example, researchers at companies like Face- Aof privacy concerns. Although most companies book, Yahoo!, Google, and Amazon are develop- take great pains to protect individual consumer ing mathematical models of customers. These 1 identities and their private information, major firms are also working with other companies issues often arise. For example, that same data and government agencies to develop models 1 warehouse Target uses to reach its customers that can predict voting behavior, how patients 0 was hacked in late 2013. The hackers stole per- respond to disease intervention, or which sonal information and credit card numbers for employee is best suited for a job assignment. 5 over 70 million Target customers. Major pro- For example, Target’s data mining expertise T blems like this are still relatively rare; however, raised a few eyebrows when the New York the continuing erosion of consumer privacy is Times uncovered that the retailer was able to S likely to continue. A key question for marketers tell when a customer was pregnant or about to is at what point will consumers say enough is deliver. Target’s statisticians are able to tie mil- enough? How far can firms push the boundaries lions of purchases together to reveal patterns in of data collection and analysis before consu- their data. One of their insights: When women mers mount a backlash? 9781337669078, Marketing Strategy: Text and Cases, Seventh Edition, O.C. Ferrell - © Cengage Learning. All Rights Reserved. No distribution allowed without express authorization. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-240 Chapter 5 • Customers, Segmentation, and Target Marketing 121 markets and marketing programs are essentially limitless. Choosing the right target market from among many possible alternatives is one of the key tests in developing a good marketing strategy. BUYER BEHAVIOR IN CONSUMER MARKETS Trying to understand the buyer behavior of consumers is a very trying and challeng- ing task. The behavior of consumers is often irrational and unpredictable. Consu- mers often say one thing but do another. Still, the effort spent trying to understand consumers is valuable because it can provide needed insight on how to design pro- ducts and marketing programs that better meet consumer needs and wants. One of the most recent trends in learning about customers is the rising use of ethnography, a qualitative research technique designed to understand cultural phenomena such as communication, shared meanings, and personal interests.H Computer maker Lenovo, for example, has used ethnographic research to learn more about how families in India use consumer electronics. One interesting findingI is that the family social cen- ter in Indian homes is the parents’ bedroom. The kitchenG serves the same social func- tion in American homes. Lenovo uses this type of information to develop consumer electronics that better fit differing family lifestyles inG India and the United States. With the continuing growth of the Internet, marketersS have been scouring social media such as Facebook, Twitter, and Instagram to gain cultural insights about con- sumers. One of the most useful of these sites is Pinterest,, where people can “pin” anything that interests them. Pinterest’s phenomenal growth (up 111 percent in 2014) and its open nature make it a treasure trove of information about American culture. Marketers see Pinterest as a great way toS showcase brands, especially among women (42 percent of all women online use Pinterest).H The number of male users has also been growing—up 73 percent in 2014.2 In this section, we look at key issues with respect toA buyer behavior in consumer markets.