<p> CHAPTER SIX MARKETING SEGMENTATION AND THE MARKETING MIX: DETERMINANTS OF ADVERTISING STRATEGY</p><p>OBJECTIVES The major objective in this chapter is to describe how marketers use behavioral characteristics to cluster prospective customers into market segments. Because no product or service pleases everybody, marketers need to select specific target markets that offer the greatest sales potential. Thus, they can fine-tune their mix of product-related elements (the 4Ps), including advertising, to match the needs or wants of the target market. (p. 168) After studying this chapter, your students should be able to: 1. Identify the various methods advertisers use to segment both consumer and business markets. 2. Explain the importance of aggregation to marketing and advertising. 3. Discuss how target marketing affects the firm’s advertising strategy. 4. Describe the elements of the marketing mix and the role of advertising in the mix. 5. Explain the purpose and importance of branding.</p><p>TEACHING TIPS AND STRATEGIES This chapter helps educate students on the benefits of marketing segmentation and marketing mix in advertising. This chapter helps to answer the question who should we target and why? I start the class with writing the following on the board: </p><p> Mercedes</p><p> Nike</p><p> Volvo</p><p>I ask students to tell me which one of these brands is high-end or low-end. Most of the time students think the above brands are all high-end. I ask them what images come to mind when I mention Mercedes (I usually get answers such as German Engineering, prestige), Nike (sports), and Volvo (safe cars). I ask them where these images have come from. This question often causes students to reflect and they give me a blank stare sometimes. It all comes from marketing/advertising! Mercedes is a high brand equity brand that many students want to own. Why? Advertisers told us it was a high-end brand.</p><p>Nike is considered the sports brand and it is considered high-end to students, with shoes ranging from $50.00-to over $100.00. I let students know that Nike is a brand that hires designers and doesn’t own one single factory. They have a great marketing and design components to get the latest and greatest shoe to market. They do most of the manufacturing in Malaysia. Yet, Nike is considered a high-end brand, because of who Nike associates advertising with. </p><p>Volvo is one of my favorite examples of a brand that gets a premium, because it is supposedly the safest car (or safer car). Says who? Have you ever crashed in one? Would you sit in the car, if</p><p>93 you were going to get in an accident and think, “Hey this is a Volvo?” Yet, consumers who are into safety are more likely to pay extra dollars for this benefit.</p><p>So how do companies such as Mercedes, Volvo and Nike advertise? It is unlikely that you would see Mercedes advertising on the cartoon network (who is watching that network, kids). You are more apt to see Mercedes advertising in investment magazines, political shows etc. </p><p>Nike is targeting the younger teen-adult crowd. They endorse celebrities and place ads where this population is. Such as sporting events, sports magazines etc. Nike has done a good job of segmenting and expanding their market along the sport lines. For instance, Nike is now in golf, tennis, football, hockey etc. Nike has been smart enough to stick to what they know, sports. I don’t think we will be seeing a Nike dress shoe anytime soon. It is a different type of market/different type of buyer.</p><p>On the other hand, Volvo is targeting the younger family who is concerned about safety. These young adults are more then likely to have kids etc. Volvo should target magazines such as Parenting, etc. I have seen very few television ads for Volvo in the last couple of years. Most of the time, I hardly see the price of the car. Mostly Volvo is letting consumers know what the new models are etc.</p><p>It is very important to note that the above companies are successful in their own realm. If these companies were to try to be all things to all people they would lose lots of their luster. For example: It would be hard for Mercedes to be known as the safest car, and prestige. These types of associations would confuse the consumer. Consumers pay thousands of more dollars when they purchase a Volvo, because the perception is it is a safer car. </p><p>Knowing the different segmentation strategies of a company, help advertisers target the core demographic. In the case of Mercedes/Volvo it is important to note that not everyone can afford one. It would be a waste of money for Mercedes to advertise their latest car line to college students. College students tend not to have an equitable income to purchase this type of vehicle. It would make more sense for Mercedes to target the golfers, since most golfers are in a higher income bracket etc. The key with this discussion with your students is to convey that one size does not fit all in advertising. It is important to note that we need to know who the buyer is and then let the buyer know who we are.</p><p>LECTURE OUTLINE I. Introduction (pp. 169, 170) — Selecting an important target market, young Levi Strauss made the world’s first canvas overall pants to suit their needs and then patented his unique riveted pockets. His company grows to become the largest apparel company in the world. II. The Market Segmentation Process (pp.170-172) A two-step strategy of:  Identifying groups of people (or organizations) with certain shared characteristics within the broad markets for consumer or business products.  Aggregating (combining) these groups into larger market segments according to their mutual interest in the product's utility. A. Segmenting the Consumer Market: Finding the Right Niche. The concept of shared characteristics is critical to market segmentation. Marketing and advertising people try to find a particular "niche"— or space in the market — where the advertiser's </p><p>94 product or service will fit. Marketers group variable characteristics into a variety of categories to identify and segment consumer markets. Purpose: identify those likely to respond and to create rich descriptions of them so as to be able to design effective messages. A6-1 Levi’s Loose Fit advertisement (p. 170) Exhibit 6-1 Methods for segmenting consumer markets (p. 171) The four categories are: 1. Behavioristic Segmentation (p. 171) — consumer grouping by their purchase behavior. Behavioral segments are determined by many variables, but the most important are: a. User status variables — Stephan and Tannenholz identified six categories of consumers based on user status: 1) Sole users are the most brand loyal and require the least amount of advertising and promotion. 2) Semisole users typically use brand A, but have an alternate selection if it is not available or if the alternate is promoted with a discount. 3) Discount users are the semisole users of competing brand B. They don't buy brand A at full price but perceive it well enough to buy it at a discount. 4) Aware non-triers are category users but haven't bought into brand A's message. 5) Trial/rejectors bought brand A's advertising message, but didn't like the product. 6) Repertoire users perceive two or more brands to have superior attributes and will buy at full price. These are the primary brand switchers; therefore, the primary target for brand advertising. b. Usage-Rate variables (volume segmentation) — In volume segmentation, marketers measure usage rates to define consumers as light, medium, or heavy users of products. Exhibit 6-2 Usage rates for different products (p. 172) A6-2 (p.172) c. Purchase occasion variables (p. 173)— when the product or service is bought or used d. Benefits sought variable — consumers seek benefits in the products they buy — high quality, low price, status, sex appeal, etc. Thus, marketers segment consumers based on the benefits sought. Benefit segmentation is the prime objective of many consumer attitude studies and the basis for many successful ad campaigns. 2. Geographic Segmentation (p. 174)— Geography is another way to segmented market. People from one region of the country, or the world, differ from those in other areas as to their needs, wants, and purchasing habits. 3. Demographic Segmentation (p. 174) — demographics are characteristics such as age, sex, ethnicity, education, occupation, income and other quantifiable factors. Demographics are often combined with geographic segmentation to select target markets for advertising — geodemographic segmentation. </p><p>95 International markets, the demographics of many populations are changing rapidly from Kuala Lumpur to Brazil to Poland, middle-class life is becoming available to more people in former Third World countries. The emerging middle-class has appetite for consumer goods. In China 84% of families have TV’s compared to only 1% have hot running water. Russia is the top 10 biggest advertising markets in Europe. Annual spending is now reaching over $2.8 billion. A6-3 Audi advertisement printed in both English and Chinese for target customers in Pacific Rim area (p. 176) Exhibit 6-3 Estimated annual ad spending in U.S. Hispanic market ($ billions) (p. 175) Exhibit 6-4 Heavy usage patterns of various age groups (p. 176) Ethical Issue: “Brand Niching May Cause Brand Switching.” (pp. 176-177) 4. Psychographic Segmentation (p. 177) — consumers likely to be swayed by appeals to their emotional and cultural values, based on their psychological make-up i.e., values, personality, attitude and lifestyle (psychographics). The Values and Lifestyles (VALS®) system divides consumers into eight groups based on their resources and self-orientation. Self-orientation is the pattern of attitudes and activities that help people reinforce, sustain or modify their social and self-image. Three particular patterns relate to consumer behavior: principles, status and action. People are put into three categories; those who are principle- oriented, status-oriented and action-oriented. The resource axis in the VALS2 typology relate to the range of psychological, physical, demographic and material capacities that customers can draw upon. Each group exhibits distinctive behavior, decision-making patterns, and product/media usage traits. In Europe and Asia, numerous lifestyle studies have produced a variety of other classification systems intended to help marketers understand the product use of different target groups across national boundaries. RISC, research company, investigated how people react to social changes in 12 European countries. Roper Starch Worldwide developed ValueScope service. Roper model; three drivers of consumer behavior; nationality, lifestage and values and 6 consumer segments; creatives, fun seekers, intimates, strivers, devouts, altruists. Exhibit 6-5 The VALS2(Values and Lifestyles) classification system (p. 177) A6-4 (p.177) Example: Adidas advertisement captures attitude and lifestyle of its target market (p. 178) 5. Limitations of Consumer Segmentation Methods (p. 179) Exhibit 6-6 the World’s top 10 values shared by people around the world (p. 179) A6-5 (p.179) 1. Advocates of VALS® and other psychographic methods claim these methods help them address the emotional factors that motivate consumers. </p><p>96 2. However, since the markets for many products comprise a broad cross section of consumers, psychographics may offer little real value — especially since they oversimplify consumer personalities and purchase behavior. 3. VALS® is also criticized for being complicated and lacking the proper theoretical underpinnings. 4. Customer size is critical for market segmentation 5. Business markets may further be segmented by who the end users are (e.g. software developed for a particular industry such as banks) Ad Lab 6-A “Market Segmentation: A Dog of a Job.” (p.179) B. Segmenting Business and Government Markets: Understanding Organizational Buying Behavior (p. 180) Business (or industrial) markets include manufacturers, government agencies, wholesalers, retailers, banks, and institutions that buy goods and services to help them operate. These products may include raw materials, electronic components, mechanical parts, office equipment, vehicles ore services used in conducting business. Many business marketers sell to resellers, such as retail businesses that resell to consumers. Example Levi Strauss advertises but sells its product through national chain stores, department stores and specialty stores that turn around and sell Levis to customers. Many of the variables used to identify consumer markets can be used for business markets. But business markets also have several special characteristics. They may be classified by NAIC codes; may be concentrated geographically; may have a relatively small number of buyers; and they normally use a systematic purchase procedure. 1. Business Purchasing Procedures (pp. 180 and 181): a. The business purchase decision is more complex and rigid than the consumer purchase decision and may depend on factors besides product quality or price. Generally, a rational process. Professional buyers do show brand- equality behavior. Large firms have purchasing departments that act as professional buyers who analyze and structure purchases. b. The purchase decision normally takes longer — weeks, months, and sometimes years. d. In segmenting business markets, the purchase decision process of various segments must be considered to determine the appropriate target market. 2. Industrial Classification System (p. 181) a. Industrial customers need different products, depending on their business. b. The U.S. Census Bureau classifies all U.S. Businesses and collects and publishes industry statistics on them using the North American Industry Classification System (NAICS) codes c. NAICS codes are based on broad industry categories (food, tobacco, apparel) subdivided into major divisions and subgroups, and detailed classes of firms in similar lines of business. d. Includes Canada and Mexico for a consistency throughout North America Exhibit 6-7 NAICS hierarchy and codes (p. 181) 2. Market Concentration (p. 181) </p><p>97 a. The market for industrial goods in the United States is heavily concentrated in the Midwest, the South and California, concentrating the geographic targets of advertisers. b. Business marketers (as opposed to consumer marketers) deal with a limited number of buyers — 22% of U.S. manufacturers in the U.S. employ nearly 70% of all production workers and account for over 80% of the manufacturing dollars Exhibit 6-8 U.S. map representing proportion of value for manufactured products (p. 182) C. Aggregating Market Segments (p. 182). Once marketers identify and locate broad product-based markets with shared characteristics (geographic, demographic, behavioristic, or psychographic), they can proceed to the next step in the market segmentation process: Determine primary demand trend — overall market potential for the product category using marketing research techniques (chapter 7). 1. Selecting Groups Interested in Product Utility (p. 183). Marketer must estimate profits if it: a. Aims at the whole markets b. Or caters only to a specific market segment 2. Combining Groups to Build Target Market Segments (p. 183) a. Important to first find groups that are homogenous based on their potential for sales and profit. This will allow a company to design a campaign to appeal to a larger group (mass-market segment) Exhibit 6-9 Chicago company, national Decision Systems’ MicroVision System classifies prospective customers (p. 183) III. The Target Marketing Process (p. 184). This process will determine the content, look, and feel of a company’s advertising. A. Target Market Selection (p. 184) — The first step in target marketing is to assess which of the newly created segments offers the greatest profit potential and which can be most successfully penetrated. The company designates one or more segments as a target market, that group of segments the company wishes to appeal to, design products for, and aim its marketing activities toward. A6-6 Land Rover advertisement targeting parents, who want the safety and comfort of a family car (p. 184) B. The Marketing Mix: A Strategy for Matching Products to Markets. (p. 185) Sometimes referred to as “product, price, distribution, and communication,” a company uses the Four P's (4 Ps) — Product, Price, Place and Promotion — to shape the product into a total product concept (the consumer's perception of a product as a bundle of utilitarian and symbolic values that satisfy functional, social, psychological, and other wants and needs). Ad Lab 6-B “Understanding the Product Element: Starbucks Coffee.” (p. 185)</p><p>98 IV. Advertising and the Product Element (p. 186). In developing a marketing mix, marketers generally start with the product element, the way the product designed, classified, positioned, branded, and packaged. A. Product Life Cycles (p. 186) — marketers theorize that just as humans pass through stages in life from infancy to death, products and product categories also pass through a product life cycle. A product’s position in life influences the kind of advertising used. Exhibit 6-10 Life Cycle marketing objectives and strategies curve (p. 187) A6-7 (p.187) Example: Crest uses MicroTalk shelf units in stores to play audio messages about its new products (p.187) 1. When a company introduces a new product category, nobody knows about it. By using market segmentation , though the company may try to identify those prospects who are known to be early adopters- those willing to try new things and begin promoting the new category directly to them. The company has to stimulate primary demand — consumer demand for the whole product category, not just its own brand. This pull strategy pulls the product through the channels of distribution. Then advertising educates consumers about this new category of product, which encourages distributors and dealers to stock, display and advertise the new product. Sales promotion aimed at this retail trade helps move the product out through the channel (push strategy). 2. Once primary demand is established, the product associated with it can begin. Their stages of the product life cycle: a. Introductory (or pioneering) phase — companies incur considerable costs for educating customers, building widespread dealer distribution, and encouraging demand. They must spend significant advertising sums at this stage to establish a position as a market leader and to gain a large share of market before the growth stage begins. b. Growth Stage — characterized by rapid market expansion. Emergence of competitive products and heavy advertising (although advertising as percent of sales may actually drop) and individual firms will realize their first substantial profits. c. Maturity stage (p. 187) — as the marketplace becomes saturated with competing products and the number of new customers dwindles, industry sales reach a plateau. Competition intensifies, and profits diminish. Companies increase their promotional efforts but emphasize selective demand to impress customers with the subtle advantages of their brand. Sales increase only at the expense of competitors (conquest sales). d. Decline stage (p. 188) — due to obsolescence, changing technology, or new consumer tastes. Sales drop to marginal or below profitability levels. Companies may cease all promotion and phase the products out quickly. B. Product Classifications (p.188) — the way a company classifies its product — is important in defining both the product concept and the marketing mix. Exhibit 6-11 Product classifications by market, rate of consumption and tangibility, by purchasing habits and by physical description (p. 188) 1. Tangible goods: many ways to classify — by markets, by the purchasing habits of buyers, by the rate of consumption or degree of tangibility, or by physical attributes. </p><p>99 2. A service is a bundle of intangible benefits that satisfy some need or want, are temporary in nature, and usually derive from completion of a task. They provide “task utility.” a. Equipment-based services — companies/industries that rely on the use of specialized equipment b. People-based services — companies, such as law firms that rely on the talents and skills of individuals. C. Product Positioning (p. 189) — The basic goal of positioning strategy is to own a word in the prospect's mind, i.e., Levi Strauss owns “jeans.” The ultimate goal is to position the product in the consumer’s mental files by claiming the number one position over the competition. Example: Jeep uses positioning to differentiate its product from other SUV’s as the vehicle that can go anywhere (p. 189) D. Product Differentiation (p. 189) — The process of creating a product difference that appeals to the preferences of a distinct market segment. Differentiation sets the product’s identity and benefits apart from competing products, helping to more clearly position the product in the consumer’s mind. 6-12 New product customer grades (p. 190) 1. Perceptible differences — differences between products that are readily apparent to the consumer 2. Hidden differences — differences not so readily apparent, i.e., the difference between the sweeteners in chewing gum or between Classic Coke and Diet Coke (advertising and labeling make the hidden difference perceptible). 3. Induced differences — differences created by advertising for many product classes, such as aspirin, salt, gasoline, packaged foods, liquor, and financial services, where only the brand name, slogan or package design become the essential difference. E. Product Branding (p. 190) — the fundamental differentiating device for all products is the brand — that combination of name, words, symbols, or design that identifies the product and its source and distinguishes it from competing products. Types of brands: 1. Individual brand (Close-up toothpaste) — name for each product. 2. Family brand (Heinz) — umbrella name for a group of products. 3. National brands (manufacturer’s brand) (Buick) — manufacturers’ name for a product intended for national sales. 4. Private label (Craftsman) — manufacture sell product to distributors or dealers who then put their own brand name on the product. 5. Licensed brands (Sunkist vitamins) — some companies pay a fee to use a brand name owned by another company or organization. Exhibit 6-13 The World’s most valuable brands (p. 191) A6-8 (p.191) F. Role of branding (p. 191) — to offer instant recognition and identification. They also promise consistent, reliable standard of quality, taste, size, durability, or even emotional satisfaction, which adds value to the product for both the consumer and the manufacturer. The ultimate goal of all brand advertising and promotion is to build </p><p>100 greater brand equity, the totality of what consumers, distributors, dealers — even competitors — feel and think about the brand over an extended period of time. High brand equity offers many benefits to the marketer: customer loyalty; price inelasticity; long-term profits. A loyal customer can be nine times as profitable as a disloyal one. G. Product Packaging (p. 192) — a component of the product element. But it is also an “exhibitive medium” that can determine the outcome of retail shelf competition. Package designers must make the package exciting, appealing, and at the same time functional. The four considerations in package design: 1. Identification (p. 192) Like Coke’s contoured bottle — high visibility and legibility can break physiological screens. Example: Iomega invest time in making packaging appealing to customers (p. 192) 2. Containment, protection, and convenience (p. 192) — keeps product fresh and free of damage and infestation. Stacking and handling ease are convenience selling points. 3. Consumer appeal (p. 193) — a subtle color change can raise or lower sales by up to 20 percent. Humorous package design can improve sales. 4. Economy (p. 193) — good identification, protection, and art for customer appeal can leads to increased sales that offset the added cost of creating the best packaging. These functions may even become copy points — copywriting themes in the product's advertising. V. Advertising and the Price Element (p. 193) A. Key Factors Influencing Price (p. 193): 1. Market Demand (law of supply and demand) — when product supply is static, but desire (demand) for the product is high, prices tend to rise. When demand drops below available supply, prices tend to drop. Exhibit 6-14 Graph depicting relationship between demand vs. price and supply vs. price (p. 194) A6-9 (p.194) Example: Volvo advertises that its safety feature is worth a higher price (p. 193) 2. Production and Distribution Costs (p. 194) (the advantages of mass production and distribution) — as the cost of production and distribution rise, the cost must be passed on to the consumer or the company will fail. 3. Competition (p. 194) — during periods of intense price competition, keeping the customer’s perception of the product’s value high is of great importance. 4. Corporate Objectives and Strategies (p. 194) — luxury products versus economy products. Positioning strategy can influence the product’s price. So can life cycle stage of the product. 5. Variable Influences (p. 195) — consumer income, tastes, government controls and so on are terminalities that can influence pricing. VI. Advertising and the Distribution (Place) Element (p. 195) Before the first ad can be created, the distribution element, or place, must be decided.</p><p>101 Ad Lab 6-C “Starbucks and the Place Element.” (p. 195) A. Direct Distribution (p. 195) — selling directly to consumers from the manufacturer, e.g., Avon. Advertising burden is carried entirely by the manufacturer without any assistance from other members of the distribution channel. Network marketing (multilevel marketing) — one of the fastest-growing methods of direct distribution today in which individuals act as independent distributors for a manufacturer or private-label marketer. Through a gradual, word-of-mouth process, they form a "buying club" of independent distributors who buy the products wholesale direct from the company, use them, and tout them to more and more friends and acquaintances. B. Indirect Distribution (p. 196) — manufacturers usually don't sell directly to end users or consumers. Most companies market their products through a “distribution channel” that includes a network of resellers, middlemen that operate between the producer and the user. A distribution channel comprises all the firms and individuals that take title, or assist in taking title, to the product as it moves from the producer to the consumer. Industrial companies may market their products via a rep or distributor who incorporate the product into another product for sale to users. Consumer goods manufacturers traditionally use three types of distribution strategies: 1. Intensive distribution — mass merchandising of low profit, high volume products where sales burden is usually carried by national advertising. Ads in trade magazines push the product into the retail "pipeline" and in mass media they stimulate consumers to pull products through the pipeline (see chapter 10). 2. Selective distribution — limiting the number of outlets allows manufacturers to cut their distribution and promotion costs. The manufacturer may share part of the retailer's advertising costs through cooperative advertising (see chapter 4). 2. Exclusive distribution (p. 197) — exclusive rights granted to a wholesaler or retailer in one geographic region. What is lost in market coverage is often gained in the ability to maintain a prestige image and premium prices. Exclusive distributions agreements also force manufacturer and retailers to cooperate closely in advertising and promotion programs. C. Vertical Marketing Systems: The Growth of Franchising (p. 197). To be efficient, members of a distribution channel need to cooperate closely with one another. This need gave rise to the development of vertical marketing system (VMS) — a centrally programmed and managed distribution system that supplies or otherwise serves a group of stores or other businesses. Advantages of franchising include: 1. Centralized marketing, continuity of advertising, and substantially lower ad costs (one local ad serves many stores. 2. Instant customer base. There are many types of (VMS), but the greatest growth today is in franchising (e.g. McDonald's or Mailboxes, Etc.) in which dealers (franchises) pay a fee to operate under the guidelines and direction of the parent company or manufacturer (franchiser). VII. Advertising and the Communication (Promotion) Element (p. 198). The communication element includes all marketing related communications between the seller and the buyer. A variety of marketing communication tools comprises the communication mix:</p><p>102 Personal communication includes personal contact with customers. Nonpersonal communication uses some medium as an intermediary for communicating. Includes advertising, direct marketing, certain public relations activities, collateral materials and sales promotion. A. Personal Selling (p. 198) — all person-to-person contact with customers by clerks and sales reps. Ad Lab 6-D “Price and Promotion.” (p. 199) B. Advertising — sometimes called mass or nonpersonal selling, its usual purpose is to inform, persuade, and remind customers about particular products and services. Certain products lend themselves to advertising more than others. The following are important for advertising success: 1. High primary demand trend. 2. Chance for significant product differentiation. 3. Hidden qualities highly important to consumers. 4. Opportunity to use strong emotional appeals. 5. Substantial budgets to support advertising. These apply best to differentiated products like cosmetics, while they do not apply well to undifferentiated products like salt, sugar, other raw materials and commodities. C. Direct Marketing (p. 199) — selling process that is like taking the store to the customer (e.g. a mail-order house). It builds and maintains its own database of customers and uses a variety of media to communicate with those customers. Today, the field of direct marketing is growing rapidly as companies discover the benefits of control, cost efficiency, and accountability. Telemarketing is a direct marketing technique. Where person-to-person phone contact makes the sale. D. Public Relations (p. 200) — such as publicity (news releases, media advisements, feature stories) and special events (open houses, factory tours, VIP parts, grand openings) are used to inform various audiences about the company and its products and build corporate credibility and image. (Discussed further in Chapter 11) E. Collateral Materials (p. 200) — the many accessory advertising materials companies produce to integrate and supplement their advertising or public relations activities. (e.g., booklets, catalogs, brochures, films, sales kits, and annual reports) F. Sales Promotion (p. 200) — a category of demand-influencing instruments and activities that supplement the basic mechanisms of the marketing mix for short periods of time by stimulating channel members or prospective customers to some immediate, overt behavior (e.g., trade deals, free samples, displays, trading stamps, sweepstakes, cents-off coupons, and premiums). (Discussed further in Chapter 10) VIII. The Marketing Mix in Perspective (p. 200). After the target market is designated and various elements of the marketing mix are determined, the company has a complete product concept and a strategic basis for marketing to that target. </p><p>103</p><p>AD LAB 6-A “Market Segmentation: A Dog of a Job” (p. 179) 1. Come up with a market segment that you think would be fun to work with. What five products could you market? Answer guidelines: The goal is to have a little fun with market segmentation. To get ideas, suggest that students visit a store with a large magazine rack. As magazines are highly specialized, they offer a myriad of stories and ads clearly aimed at individual market segments (e.g., magazines for motorcyclists, muscle builders, home repair, etc.). A magazine aimed at job hunters and small business owners (such as Inc.) targets a market that comprises many segments (all types of home businesses, franchise opportunities, etc.). 2. Do you think Reinemer’s dog specialties would work in or marketplace today? The goal of this question is to maintain a humorous, creative and exploitative discussion, particularly for those students who may have missed the focus of the first question or have difficulty with being creative in a classroom environment.</p><p>AD LAB 6-B “Understanding the Product Element: Starbucks Coffee” (p. 185) A basic rule of advertising is that the most ingenious campaign in the world cannot save a bad product. Think of a product in the marketplace that you consider successful and analyze which elements make it profitable and unique. Are there any similarities to the product elements found in Starbucks? If so, what? Student answers will vary according to the product that they have chosen.</p><p>AD LAB 6-C “Starbucks and the Place Element” (p. 195) Take the product that you used in Ad Lab 6-B and compare the distribution principles used by Starbucks with your product. In addition, think about the factors that should be considered when placing your product or service in other venues. How does it compare with Starbucks? Student answers will vary according to the product that they have chosen for 6-B.</p><p>AD LAB 6-D “Price and Promotion" (p. 199) When constructing the marketing mix for your chosen product or service (refer to Ad Labs 6-B and 6-C), consider these last two elements: price and promotion. What should your product's price be and why? Should you offer some kind of credit terms? Also, what media should you use to advertise your product or service and why? Student answers will vary according to the product or service that they have chosen from Ad Lab 6-B and 6-C.</p><p>104 Do you think Starbucks should advertise in more traditional mass media or stick to public relations? What “creative voice” would you suggest for Starbucks? There is no reason to go ahead with only one option or the other, a combination would prove to be the best approach. a. In a good comprehensive marketing program you want to take advantage of all media available to you. b. A new creative voice for Starbucks would be perfect for traditional mass media. c. As a leader in their category, Starbucks should heavily engage in public relations. An example of a creative voice for Starbucks would be: A lifestyle image of Starbucks customers (hip, cool, European sophistication, etc.)</p><p>ETHICAL ISSUE “Brand Niching May Cause Brand Switching” 1. Is targeting an advertising campaign to a niche market inherently insensitive to other groups? Do you believe a lack of sensitivity by an ad makes it the same as a bias? Answer guidelines: Yes – targeting is inherently insensitive because it favors one group to the exclusion of others. No – targeting is not inherently insensitive. Insensitivity stems from a lack of human consideration, even if it’s unintentional. 2. How can advertisers avoid using stereotypical images? What are some other ethical problems in targeting minorities as a specific target market? Answer guidelines: In this discussion, the major ethical distinction centers upon the difference between characterizing and stereotyping: a. Characterizing is to describe something or someone by its qualities or peculiarities. Advertisers usually use characterization — they portray characters and persona by their personality traits, rather than their ethnic or social traits. b. Stereotyping is commonly defined as the biased, generalized image of the characteristics of an ethnic or social group. Obvious stereotyping (such as Amos ‘n Andy) is no longer seen on prime-time television today, but its legacy may be seen in movies (shown on late night TV). The dialog in Mel Brook’s Blazing Saddles or the aggressive, foul-mouthed Hispanic female character played by Rosie Perez in White Men Can’t Jump and other movies might fit the current definition of stereotyping. However, there is little room for transferring what works in the medium of “film” to the media used by advertisers. But if characters and dialog even remotely similar to these were ever used in an ad, the advertiser might experience lawsuits and a loss of sales. c. Ads must telegraph their messages fast. Thus, all the pertinent information must be concentrated into the tightest package. This requirement sets up at least two areas where stereotyping may arise:</p><p>105  The use of metaphors: metaphors are visual and verbal symbols that carry multiple meanings. A pun in a headline or the use of a character that can be interpreted to represent a group (nun, policeman, businessman, surfer, etc.) can be useful in delivering a message that opens multiple mental files and hammers the message into the viewer’s memory. However, such overlapping meanings might be easily misunderstood.  The use of common language: As advertising is a form of group communication, advertisers often seek to reach the majority of their target market by using terms and images that have the broadest acceptance. However, there are times when language must be very specific in order to avoid stereotyping. d. Advertisers usually try to reflect society when they create a campaign, and therefore they may tend to use the same stereotypical images that society holds. Advertisers need to be sensitive to the changes taking place in society and the need to carefully segment groups without offending others. Some other ethical problems in targeting minorities are that it further suggests segmentation rather than integration, which has been a long battle for many minorities. It does seem unfair to politicize advertising by demanding that certain groups (blacks, Hispanics, women) be eliminated as targets simply because of their social circumstances. 3. What methods can advertisers use to ensure that an advertising campaign will not be offensive? Students’ answers will vary. Answer guidelines: There is no guarantee that an advertising campaign won’t be offensive to some group. Personal taste, opinion and sensitivities are highly subjective. Some things to avoid include ethnic or gender stereotypes, offensive language, sexual innuendo, and inappropriate humor.</p><p>REVIEW QUESTIONS 1. How does the concept of shared characteristics relate to the market segmentation process? (p. 170) Market segmentation is a two-step strategy of identifying groups of people (or organizations) with certain shared needs and characteristics within the broad markets for consumer or business products; and aggregating (combining) these groups into larger market segments according to their mutual interest in the product's utility. The concept of shared characteristics is critical to market segmentation. Marketers can locate and define groups of consumers with similar needs and wants, create messages for them, and know how and where to send their messages.</p><p>2. How could you use VALS to develop the marketing strategy for a product of your choice? (pp. 177-179) The Values and Lifestyles (VALS®) system breaks consumers into eight groups based on their resources and self-orientation. Each group exhibits distinctive behavior, decision- making patterns, and product/media usage traits. After choosing a product, the students could use the VALS2® system on page 172 to develop their marketing strategy.</p><p>106 3. How does the segmentation of business markets differ from that of consumer markets? (p. 179) Business (or industrial) markets may be segmented by the industries to which they belong (SIC codes), by their purchasing system, or by geographic concentration.</p><p>4. What is the most important factor to consider when determining the elements of the marketing mix? (pp. 184-185) Before determining the product, price, place, and promotion elements, the most important factor to consider is who the target market comprises.</p><p>5. What is the difference between a product and a product concept? (pp. 185-186) A product generally offers a number of utilities perceived by the consumer as a bundle of values. With these elements in mind, marketers and advertisers generally try to order them into a total product concept that helps guide the marketing and communications of the product to consumers. This product concept is presented to consumers who, then, form their own perception of the product as a bundle of utilitarian and symbolic values that satisfy functional, social, psychological, economic, and other wants and needs.</p><p>6. What are some examples of product positioning not discussed in this chapter? (p.189-190) Some possibilities are: Seven-up positioned as the Uncola; Lincoln Continental positioned against "the other make of luxury car"; Dove positioned as a beauty bar instead of soap; and Coke maintains a number-one position as "The Real Thing."</p><p>7. What effect does the product life cycle have on the advertising a company uses? (pp. 194- 195) Advertising for a product depends to a great extent on where the product is in the life cycle. a. Introductory stage — the product concept may be very new to consumer; thus, advertising may concentrate more on stimulating primary demand for the whole product class. b. Growth stage — rapid expansion in demand and growth of the market with a growth in the competition; advertising emphasis will shift from emphasizing primary demand to influencing selective demand for individual brands in order to take over the number one position. c. Maturity stage — the market is saturated with competitors; selective demand advertising is used to maintain a profitable market position. d. Decline stage — the majority of consumers needing the product now own all they need or are turning to a newer technology to provide the same utility more efficiently. Advertising may be increased to improve market position as competitors start to fall out of the market, but, eventually, all advertising will be discontinued, as consumers no longer seek the product. 8. What factors influence the price of a product? (pp. 187-188)</p><p>107 Numerous factors exert an influence on pricing: market demand, production and distribution costs, competition, corporate objectives and strategies, economic conditions, government regulations, and others.</p><p>9. How do the basic methods of distribution affect advertising? (pp. 195-197) Two fundamental methods of distributing products to the market: a. Direct distribution — the company sells directly to the customer without using middlemen. This requires a direct communication link between the manufacturer and the consumer; hence, the use of direct mail advertising and direct response marketing strategies. b. Indirect distribution — the company sells through a channel of middlemen (wholesalers who, in turn, sell to retailers who sell the product to consumers). The marketing communications burden is shared by all members in the channel. (pp. 195- 196) 10. What product characteristics encourage heavy advertising? Why? (pp. 194-198) Recognizing that a product concept is a bundle of values, the product characteristics encouraging heavy advertising are:  High primary demand trend.  Significant product differentiation from competitors.  Hidden qualities highly important to customers.  Opportunity to use strong emotional appeals.  Substantial budget available to support advertising.</p><p>EXPLORING THE INTERNET The Internet Exercises for Chapter 6 address the following areas covered throughout the chapter: marketing and the marketing Mix (Exercise 1), and market segmentation and target marketing (Exercise 2). 1. World of Marketing PART I: Marketing. You already learned the importance of marketing to the study and application of advertising. Visit the sites below to get a better feel about the scope of the marketing world and the importance of a good marketing strategy. Be sure to answer the questions below for each site.  American Marketing Association (AMA) (www.ama.org)  Business Marketing Association (BMA) (www.marketing.org)  American Business Press (ABP) www.americanbusinesspress.com)  Business-to-Business Online (www.btb.com)  BrandWeek (www.brandweek.com)  Business-to-Business Marketing (www.business2business.on.ca)  Marketing (www.marketing.haynet.com)</p><p>108  Marketing Magazine (www.marketingmag.ca)  Marketing Tools (www.marketingtools.com)  Sale & Marketing Management (www.salesandmarketing.com)</p><p> a. What group sponsors the site? Who is the intended audience? b. What is the site’s purpose? Does it succeed? Why? c. What is the size/scope of the organization? What is the organization’s purpose? d. Who makes up the organization’s membership? Its constituency? </p><p>Sample Answer: American Marketing Association (AMA) a. The American Marketing Association (AMA); Managers, Researchers, Educators, Students, Employers, Advertisers, Special Interest Groups, Global Electronic Members, and @ama Site Subscribers b. The site’s purpose is to provide key information about the AMA – its publications, resources, conferences, chapters, classifieds, and membership information; Yes, because the site is meant to be a warehouse of information about the AMA. c. The organization is quite large (45,000) and is worldwide; the organization’s purpose is to promote education; to assist in personal and professional career development among marketing professionals; and to advance the science and ethical practice of marketing disciplines. d. Marketing professionals in both business and education; all levels of marketing practitioners, educators and students PART II: Marketing Mix. Visit Levi Strauss’ site (www.levi.com), and the answer the following questions about one of its products. a. Identify the product, price, place, and promotion (if there are multiple products, choose one.) b. Identify the stage in the product life cycle. c. What is the product’s positioning? d. What are the key elements of the product’s differentiation? Sample Answer: Levi’s 501 Jeans a. Men’s button-fly 501 jeans (product); plus or minus $30 (price); retail and outlet stores (place); advertising and interactive media (promotion). b. Maturity Stage. c. The product is positioned as the original button-fly jeans. d. Authenticity, heritage, Levi’s Brand name, style/cut, colors, price. 2. Marketing Segmentation and Target Marketing Segmenting markets and generating sound demographic, geographic, psychographic, and behavioristic profiles are critical to formulating advertising strategy. There is an abundance</p><p>109 of market segmentation data available on the Internet from the government and private sector. Peruse the following sample of online resources for target market information.  U.S. Census Bureau (www.census.gov)  USA Data (www.usadata.com)  Forrester Research (www.forrester.com)  American Demographics (www.demographics.com)  Target Marketing (www.targetonline.html)  Market Segment Resource Locator (www.awool.com)  Target Marketing & Creative Services (www.targetweb.com) Now choose a company with a website and use these online resources to answer the following questions. Be sure to cite any on-line resources you used besides the above. a. What type of segmentation approach did they take (single-market, multiple-market, aggregate market)? b. Develop a demographic profile, including age, income, education, and gender for the target market. c. Describe the general geographic skew for the company’s market. d. What consumption patterns are evident in the company’s consumers? Sample Answer: Squaresoft (www.squaresoft.com) a. Single-minded segmentation approach. b. Median age of 18, average HHI of <$20K, high school graduates (some college), predominantly male. c. The geographic segmentation of the company’s sales would likely skew to the coasts and the major DMAs. This is true because this is a “leading-edge” company, and much of the “innovator” and “early adopter” consumers are found on the East & West Coasts. d. Games are often impulse buys, and are highly emotional purchases.</p><p>IMPORTANT TERMS behavioristic segmentation, 171 network marketing, 195 benefit segmentation, 174 nonpersonal communication, 198 benefits, 173 North American Industry Classification System (NAICS) codes, 181 brand, 190 people-based service, 189 brand equity, 191 perceptible differences, 189 business markets, 180 personal communication, 198 collateral materials, 200 position, 189 communication element, 198 price element, 193 communications mix, 198 primary demand, 186</p><p>110 cooperative advertising, 197 primary demand trend, 182 copy points, 191 private label, 190 decline stage, 188 product concept, 185 demographic segmentation, 174 product element, 186 direct distribution, 195 product life cycle, 186 direct marketing, 199 psychographic segmentation, 177 distribution channel, 196 psychographics, 177 distribution element. 195 publicity, 200 early adopter, 186 pull strategy, 186 equipment-based service, 189 purchase occasion, 173 exclusive distribution, 197 push strategy, 186 family brand, 190 reseller, 180, 196 Four Ps (4Ps), 186 resource axis, 177 Franchising, 197 sales promotion, 186 geodemographic segmentation, 174 selective demand, 187 geographic segmentation, 174 selective distribution, 197 growth stage, 186 self-orientation, 177 hidden differences, 190 service, 189 individual brand, 190 special events, 200 induced differences, 190 target market, 184 intensive distribution, 196 target marketing process, 184 introductory phase, 186 telemarketing, 200 licensed brands, 191 usage rate, 172 market segmentation, 170 user status, 171 marketing mix, 185 vertical marketing system (VMS), 197 maturity stage, 187 volume segmentation, 172 national brands, 190</p><p>ANCILLARY ACTIVITIES & EXERCISES 1. Break students into groups and have them break into groups of three to four. Have the students look up on the web www.toyota.com and www.lexus.com and list the segmentation strategies of Toyota/Lexus. Why did Toyota launch Lexus? Couldn’t they have sold Toyota’s for over $30,000? Why or why not?</p><p>111 2. Choose an event, which will be held this year on the campus of your college or university. Consider the market and the four P’s—product, price, place, and promotion—to shape a strategy that can make this event a success. a. The Market  What needs exist in the marketplace, which this event is aimed at satisfying?  How would you segment the market for this event? What geographic, demographic, psychographic, and/or behavioristic characteristics would define your target market?  What is the size of your target market? Does the target market contain enough people to make marketing the event worthwhile? b. Product  What qualities should the event have in order to be effective in satisfying the needs or desires of the chosen segment(s)?  What is the product concept?  How is the event differentiated from other events held on campus each year?  Can you develop a competitive position for the event?  Can the concept of the product life cycle be applied to this event? If so, what stage is it in? How can you tell? c. Price  What consideration must be given to pricing in order to market effectively to the chosen segment(s)? d. Place  What distribution strategy should be used to sell tickets to the event? e. Promotion  What promotional mix will be the most effective? Will you use personal selling? Advertising? Publicity? Sales Promotion?  What costs will be involved?</p><p>DEBATABLE ISSUE 1. Should Advertising Be Allowed to Imply Products Are Different When No Functional Differences Exist? An enduring area of controversy in advertising surrounds the practice of claiming differences among products where no functional differences exist. For example, one brand of aspirin is essentially as effective in relieving headaches as are other products that contain an equivalent amount of aspirin. Yet, various manufacturers promote their products as being quite different. How much difference is there among brands? Is it right to claim through advertising that a product is more effective, beneficial, glamorous, luxurious, or something very special when, in fact, the product functions no differently than other competing products? Some critics feel that to do so is unethical and dishonest; others disagree.</p><p>112 PRO Advertising should be allowed to imply products are different when no functional differences exist because ... The advertised product satisfies a consumer need beyond functionality, namely, a social or emotional need for something out of the ordinary. The strategy of product differentiation is an essential economic practice in the competitive free enterprise system. Consumers have the free choice to buy or not to buy the advertised product, depending on whether they do or do not want the advertised social satisfactions. Advertising claims that heighten consumers' feelings of confidence and well-being can be beneficial even when no functional differences exist. CON Advertising should not be allowed to imply products are different when no functional differences exist because ... Since the advertised product is not functionally different from other competing products, it offers the consumer no additional value. Claiming product differences where there are none violates the consumers' right to know. Such advertising confounds the consumer decision-making process by attributing qualities to the advertised product that the product does not possess. Claims that an advertised product is psychologically or emotionally beneficial can be harmful to consumers that believe them. Such advertising may enable the manufacturer to sell a greater volume of products and pass on savings to consumers in the form of lower prices. The high cost of advertising may cause the product maker to pass along a higher price to consumers</p><p>113 Questions 1. What qualities do you feel distinguish one product from another? 2. Can distinctive advertising make a product seem different from others? Distinctive packaging? 3. What relation does price have to the satisfaction consumers receive? 4. How much scope do you feel advertisers should be allowed in claiming product differences? 2. Is Psychographics a Valid Marketing Tool? Psychographics has played a critical role in the marketing decisions of some advertising agencies. Yet, many advertising people are sharply divided on the merits of psychographics. Its supporters point to some apparently successful campaigns that have relied on psychographic data. But others deny that it's helpful; they claim that psychographics is just another Madison Avenue fad. PRO Psychographics is a valid marketing tool because... Demographics alone cannot explain the behavioral differences of two persons who live in the same area and share the same demographic profiles yet are extremely different in their product preferences and purchasing habits. Psychographics is designed to explain these behavioral differences. It adds greater depth and a new dimension to marketing analysis. The more marketers know about consumers, their motivations, and their buying patterns, the more effectively they can develop new products for them and target advertising campaigns to them in the marketplace. Even without assured reliability and validity, psychographic profiles afford marketers a new problem-solving approach, new dimensions for charting trends, and a new vocabulary for identifying and describing consumers Psychographics is becoming an ever more accurate tool because marketers are relying increasingly on persons with professional backgrounds in the behavioral sciences and mathematics who have the ability to gather and interpret psychographic research. CON Psychographics is not a valid marketing tool because... Many psychological traits, once identified, have been proven to be unrelated to buying habits. Even when a relationship is shown, it often can also be explained in demographic terms. Psychographic data is too "soft" because it focuses on human behavior, while demographics center on the more concrete factors of age, income, and marital status. It's questionable whether insights into attitudes and lifestyles really help to create good advertising. There is no question that advertising works, but there is still considerable question about how it works. Psychological research techniques are still so new that their accuracy and reliability are highly questionable. Psychographic studies tend to oversimplify and over generalize. They create unrealistic stereotypes. Psychographics can be more detrimental than useful when analyzed by clinicians who do not understand or who misinterpret the implications of the data. To be worthwhile, such data must be analyzed by qualified people who are able to explain the results clearly and simply. Many advertising agencies lack such personnel.</p><p>114 Questions 1. Which side of this issue do you agree with most? Explain. 2. What role do you feel psychographics will have in advertising in the years ahead?</p><p>Images from the Text </p><p>Images are available as color acetates through your local McGraw-Hill/Irwin sales representative.</p><p>A6-1 Levi’s loosefit ad (p. 170) A6-2 Exhibit 6-2 Usage rates for different products (p. 172) A6-3 Avoli ad (p. 176) A6-4 Exhibit 6-5 VALS2 classification (p. 177) A6-5 Exhibit 6-6 The world’s top 10 values shared by people around the world (p.179) A6-6 Land Rover ad (p. 184) A6-7 Exhibit 6-10 The Product Life Cycle (PLC) (p.187) A6-8 Exhibit 6-13 World’s most valuable brands (p.191) A6-9 Exhibit 6-14 Graph plots demand versus price and supply price (p.194)</p><p>REFERENCE LIBRARY Located on the McGraw-Hill Contemporary Advertising website: www.mhhe.com/arens04</p><p>RL 6-1 Methods for segmenting consumer markets RL 6-2 Checklist: Setting prices </p><p>115</p>