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Market Segmentation, Product Differentiation, and Marketing Strategy Author(S): Peter R Market Segmentation, Product Differentiation, and Marketing Strategy Author(s): Peter R. Dickson and James L. Ginter Source: Journal of Marketing, Vol. 51, No. 2 (Apr., 1987), pp. 1-10 Published by: American Marketing Association Stable URL: http://www.jstor.org/stable/1251125 Accessed: 05-10-2016 19:00 UTC JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact [email protected]. Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at http://about.jstor.org/terms American Marketing Association is collaborating with JSTOR to digitize, preserve and extend access to Journal of Marketing This content downloaded from 143.107.252.158 on Wed, 05 Oct 2016 19:00:47 UTC All use subject to http://about.jstor.org/terms Peter R. Dickson & James L. Ginter Market Segmentation, Product Differentiation, and Marketing Strategy Despite the pervasive use of the terms "market segmentation" and "product differentiation," there has been and continues to be considerable misunderstanding about their meaning and use. The authors attempt to lessen the confusion by the use of traditional and contemporary economic theory and product preference maps. M ARKETS have been segmented and products and Rosenberg 1981; Neidell 1983; Pride and Ferrell and services differentiated for as long as sup- 1985; Stanton 1981) describe product differentiation pliers have differed in their methods of competing for as an alternative to market segmentation and 11 of the trade. The major advance in recent times has been that texts (Abell and Hammond 1979; Buell 1984; Busch market researchers are using economic and behavioral and Houston 1985; Cravens 1982; Dalrymple and Par- theories and sophisticated analytical techniques in their sons 1983; DeLozier and Woodside 1978; Enis 1980; search for better ways of identifying market segments Guiltinan and Paul 1985; Hughes 1978; Kotler 1984; and product differentiation opportunities. If sheer Reibstein 1985) describe it as a complement or means amount of statistical analysis and psychological jar- of implementing market segmentation.1 In addition, gon were the criterion, market segmentation could threebe of the texts (Evans and Berman 1982; Mandel judged to have shifted in status from an art to a sci- and Rosenberg 1981; Pride and Ferrell 1985) limit ence. product differentiation to only nonphysical product We therefore might expect that by now characteristics. the basic purpose, definition of terms, and theory Theunderlying potential for misunderstanding is exacerbated market segmentation and product differentiation by the discussion would of "undifferentiated" and "differ- have been consistently described and well entiated" understood. marketing strategies. These terms are used This is not the case. A review of 16 contemporary to indicate whether or not marketing strategy is based marketing textbooks reveals considerable on recognitionconfusion. of market segments. Where product Five of the texts (Evans and Berman differentiation1982; Mandel is discussed as an alternative to market segmentation, it is described as being an undifferen- tiated marketing strategy. This element of confusion Peter R. Dickson is Assistant Professor and James L. Ginter is Professor, Academic Faculty of Marketing, The Ohio State University. The authors gratefully acknowledge the thoughtful comments and criticisms 'Four texts, onthose ear- of Assael (1985), Cunningham and Cunningham lier versions of the article provided by Brian Ratchford, (1981), Cynthia McCarthy Fraser, and Perreault (1984), and Scott, Warshaw, and Alan Sawyer, Fred Sturdivant, W. Wayne Talarzyk, TaylorBarton (1985) Weitz, are not and included in the classification because they do anonymous JM reviewers. not use the term "product differentiation" in the discussion of market segmentation. Journal of Marketing Vol. 51 (April 1987), 1-10. Market Segmentation, Product Differentiation, and Marketing Strategy / 1 This content downloaded from 143.107.252.158 on Wed, 05 Oct 2016 19:00:47 UTC All use subject to http://about.jstor.org/terms arises from the fact that various authors discuss dif- knowledge or other market "frictions," but a reflec- ferentiation of the market, products, and strategy, and tion of the unsuccessful and successful attempts of the distinctions are seldom made clear. manufacturers to adapt their products to the needs and We attempt to clarify the current misunderstand- tastes of different buyers.2 In his first edition, Cham- ing by precisely defining and contrasting market seg- berlin stated that there seemed to be no particular rea- mentation, product differentiation, and demand func- son why the demand curve would change when a tion modification on both theoretical and practical product is differentiated. However, by his third edi- dimensions. In the first section we present some of tion, Chamberlin had recognized that the demand curve the theories and perspectives of market segmentation would move to the right and therefore become less and product differentiation that have been developed price elastic when the differentiated product more ex- by economists and marketers. We then offer a set of actly satisfied consumer needs. definitions in an attempt to lessen the current confu- Porter (1976) also viewed product differentiation sion in terminology. Finally, we use preference space as depending on both physical product characteristics mapping and practical examples to illustrate the im- and other elements of the marketing mix. Like Cham- portant differences and relationships between product berlin, he recognized that product differentiation can differentiation and demand modification, given var- be based on perceived as well as actual physical and ious states of demand heterogeneity. nonphysical product differences. Porter also adhered to the traditional operational definition of product dif- ferentiation as the degree of cross-price inelasticity with Historical Perspectives respect to competing brands. In a demand equation The concepts of product differentiation and market this cross-inelasticity is represented by a demand segmentation have long been discussed in the litera- function for the firm's offering that is relatively un- ture. One of the pioneers of marketing thought (Shaw affected by changes in the prices of competing brands. 1912) described the strategy of product differentiation Samuelson (1976) discussed what we term "de- as meeting human wants more accurately than the mand function modification" when he asserted that competition. The result is a "buildup of demand" for suppliers "deliberately fragment" industry demand the producer's product and a potential for a price level curves into smaller segments through "contrived" higher than that of the existing stock commodity. In product differentiation. His leading economics text thus discussing the need to treat each distinct geographic takes the position that the supplier is the major cause region as a separate distribution problem, Shaw em- of segmented market demand. Samuelson acknowl- phasized as equally important the recognition of eco- edged that product differentiation can be a genuine nomic and social market "contours" and the need also response to differing consumer needs, but he clearly to treat these as separate marketing problems. Besides believed that most product differentiation is "artifi- specifically recommending separate contour or seg- cial." He also repeated Galbraith's (1967) assertion ment analysis, he pointed out that the law of dimin- that this is achieved by advertising that "distorts" con- ishing returns imposes a limit on the practical value sumer demand. to the company of catering to these different markets. In his classic article, Smith (1956) expressed a view Also generally overlooked by both marketers and of product differentiation similar to Samuelson's posi- economists has been what Chamberlin (1965) had to tion. He described product differentiation as an at- say about market segmentation and product differen- tempt to alter the shape of the price-quantity demand tiation in his theory of monopolistic competition, first curve facing the individual supplier using advertising published in 1933. Product differentiation was de- and promotion. If Smith was referring to alteration of fined simply as distinguishing the goods or services the consumer's demand function when he described of one seller from those of another on any basis that product differentiation as being "concerned with the is important to the buyer and leads to a preference. bending of demand to the will of supply," this de- Chamberlin recognized the importance of both con- scription clearly differs from the view of Chamberlin sumer perceptions and nonphysical product character- and Porter and fits what we subsequently term "de- istics in observing that the basis of differentiation could mand function modification." If, however, Smith ac- be real or imagined, arising from distinct product, tually was referring to alteration of the perceived vec- packaging, or distribution differences, or the prestige tor of product characteristics, his argument is consistent value of a trademark and trade name (e.g., Coca-Cola, with those of Chamberlin and Porter with the excep- Kodak, or Calvin Klein). Chamberlin also recognized
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