Kellogg on Marketing

Kellogg on Marketing

by Dawn Iacobucci

Here is the best cutting-edge thinking on marketing strategy from the world's leading institution for studying marketing: the renowned Kellogg School of Management at Northwestern University. Gathering multiple perspectives from such internationally distinguished professors as Kellogg's marketing guru Philip Kotler, this is the first book to compile a wide


Here is the best cutting-edge thinking on marketing strategy from the world's leading institution for studying marketing: the renowned Kellogg School of Management at Northwestern University. Gathering multiple perspectives from such internationally distinguished professors as Kellogg's marketing guru Philip Kotler, this is the first book to compile a wide array of business expertise from a top school-providing executives and managers in any industry with creative, highly effective solutions to a variety of marketing dilemmas.

Destined to become a marketing classic, Kellogg on Marketing includes individual chapters written by Kellogg marketing professors and covers key areas of discussion such as:

• New twists on fundamental marketing concepts: segmentation, targeting, and positioning

• Marketplace tools, referred to as the 4P's: product, price, promotion, and place

• The future of marketing

Building on the successful model of Wharton on Dynamic Competitive Strategy, the unique collection of business wisdom in Kellogg on Marketing will be invaluable to marketing executives, managers, consultants, and MBA students focused on successful careers in marketing.

Editorial Reviews

Seventeen contributions from members of the Kellogg marketing faculty discuss the research, development, and implementation of marketplace strategies. The text is designed to help scholars and marketing professionals understand the New Economy and the ways in which businesses must adapt their marketing strategies to remain competitive. A sampling of topics includes new product development, understanding consumers, quantitative and qualitative market research, advertising, pricing strategies, customer service, and marketing in the age of information democracy. Annotation c. Book News, Inc., Portland, OR (

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Segmentation and Targeting


Segmentation and targeting are two key elements of marketing planning. Segmentation involves dividing the market of potential customers into homogeneous subgroups. These sub-groups may be distinguished in terms of their behavior patterns, attitudes, demographic characteristics, psychographic profile, and the like. Marketing effort is focused on target(s) whose needs correspond to the firm's capabilities. The process of segmenting and targeting is illustrated by Americatel in the long distance phone service market.

During the past several years, long distance carriers have introduced "dial-around" services that offer consumers relatively low long distance rates. MCI introduced 10-10-321 and AT& T launched 10-10-315 under the Lucky Dog Phone name to offer consumers low flat rates on their long distance calls. A spate of small firms has also entered the market with low price, long distance service. As a result, there is substantial price volatility in the market.

Although the offerings by these major carriers provide attractive alternatives to customers who are calling long distance within the United States or to Europe, there has been little focus on those who do their long distance calling to other countries. For example, with more than 12 million persons in the United States, the Hispanic population is substantial. Many Hispanics have family in Mexico, Cuba, Puerto Rico, or South America. They make frequent calls of substantial duration to family and friends in their home country. Research indicates that these consumers want a carrier that offers low price but also a service that will sustain the price that they agree to initially.

Americatel entered the market with a 10-10-123 number targeting Hispanics. It was positioned as the 10-10 service to use when calling from the United States to Latin countries because it was a fairly priced service that pledged not to change prices. Advertising was done exclusively on Hispanic television programming. Despite an advertising budget of $1.3 million, which is a small fraction of competitive dial-around ad spending, Americatel became a major player in the dial-around long distance category.

While it is relatively easy to identify examples of successful segmentation and targeting, many managers find undertaking these tasks for their own products daunting. One reason is that the list of potential bases for segmenting a market is seemingly endless and there is little guidance as to how to choose among them. Further, when the segmentation analysis is complete, many or even all of the subgroups may represent attractive targets, making it difficult to decide how to focus resources.

In this chapter, we address these issues by presenting a strategic approach to segmentation and targeting. The cornerstone of this strategy is the belief that usage patterns should provide the starting point for market segmentation. Other factors, such as demographics (age, gender, family size, income, education), geographic location, attitudes, lifestyle, and the benef its that consumers seek from products in the category, may be used to make the usage-based approach actionable and to enrich the positioning. Once segmentation is complete, a "path of least resistance" approach should be adopted whereby priority is given to targets that generate the greatest revenue with the least investment.

The presentation of our approach is structured around three distinct situations that a manager may face. We begin by considering the most common scenario, that of a brand that is currently competing in a category and, thus, has a customer base. Next, we explore how firms that lack an established customer base in a category may modify this basic strategy. Finally, we examine the situation in which both the firm and the brand are new to the market. However, before we turn to the details of how to segment and target, we briefly consider the question of whether segmentation is necessary at all.

Why Segment?

Market segmentation is the strategy of last resort. Brands would rather attract a large market than partition the market into homogeneous subgroups and target one or several of these subgroups. Yet segmentation is frequently used because a brand does not have the means to differentiate itself from the competition when targeting the mass market. Along these lines, consider the approach taken by Quaker Oats after it purchased Gatorade from Stokely Van Camp. At the time, Gatorade distribution was confined to the southern part of the country. The question was whether segmentation would be needed to accommodate geographic differences in the levels of brand and category knowledge. Whereas Southerners were likely to have tried Gatorade, Northerners' knowledge of it was likely to be based on seeing the brand when television cameras panned the sidelines of professional football games.

A geographic segmentation strategy was devised to reflect the different levels of brand use. Two separate ads were developed for northern and southern states. In a test market, it was found that ads developed for the south not only were effective in that region, they were no less effective in the north than the one developed specifically for northern states. These outcomes suggested that segmented ads would produce about the same response as a national campaign using the ads developed for the south. Because the media cost of a national campaign is much lower than that of a series of regional campaigns, and because production costs would be lower with a single creative strategy, Quaker used a single campaign to cover the entire country instead of one based on geographic segmentation.

In many other circumstances, substantial differences in consumers' responses to a particular marketing strategy are likely, and segmentation is appropriate. The need for segmentation emerges when men have different motivations for purchasing than women, when children are motivated by different product characteristics than adults, and when small firms have different needs than large ones. In these cases, firms attempt to build brand equity by targeting one or a few segments. We begin our discussion of segmentation and targeting by describing usage-based segmentation and targeting.

Segmentation and Targeting
for an Established Brand in a Category

The Usage-Based Approach

Brand Users. A starting point in selecting targets for established products and services involves the examination of current users. The logic for this focus can be explained in terms of current understanding about how people make decisions. In response to brand information, consumers access their own knowledge about a brand and relate it to new information presented by some marketing effort. This depiction suggests that current users should be the center of focus because their status as users makes them likely to activate favorable associations to the brand and thus be attractive candidates to repurchase the brand. Following this strategy, the goal is to increase brand consumption by prompting its greater use by current users. Retaining customers for an extended period is demonstrated to have a significant positive impact on profits. Specifically, studies reveal that increasing customer retention by as little as 5 percent, can result in a corresponding 100 percent increase in profits. For example, in the case of regional banks, a 20-year customer is worth 85 percent more in profits than a 10-year one. As years pass, older loyal customers will take out loans for cars, homes, and so on, without adding to new client development costs. In fact, due to the high cost of acquisition, the customers of many firms are profitable only when the relationship endures for more than a year. When current customer retention is high and there is little opportunity to expand usage by these customers, a current user strategy may evolve to focus on attracting more people with the same profile as current users.

The efficiency of focusing on users makes them a prime targeting strategy for growth. The "Got Milk" advertising campaign attempted to increase milk consumption among current users of the product by reminding them of the discomfort associated with running out of milk. Arm & Hammer attempted to grow the use of its baking soda among current users by suggesting that it could be a deodorizer as well as a baking ingredient.

Level of use is often the basis for refining the segmentation strategy. For many brands, it is appropriate to focus on heavy users rather than on the broader category of all users, because heavy users of a brand often account for a disproportionate share of a brand's volume and thus are worthy of special focus. Major brands of beer typically find that 80 percent of their consumption is done by 20 percent of their users. Men 18 to 34 represent a disproportionate percentage of consumers who visit McDonald's on multiple occasions per week. Heavy users of Campbell's soup purchase over 300 cans per year, which suggests a consumption of close to one can per day!

Thus, the first obligation is to sustain current users and especially heavy users of a brand. When a brand is in erosion, the obligation is to halt the decline which typically involves focusing on current users. When other segments are considered for targeting, it is critical to assess the impact on current users. For example, Dewar's and other brands of scotch are faced with the need to develop strategies to attract new users between the ages of 25 to 34, because these individuals are likely to be the source of category growth. This goal might be achieved by suggesting that scotch be consumed with a soda or juice mixer as a way to address 25-to 34-year-olds' taste reservations. The viability of this strategy should be assessed not only in terms of its likelihood of attracting 25-to 34-year-olds, but also in terms of its impact on scotch drinkers over the age of 45, because these individuals represent the majority of current heavy users. Particularly when a brand is in erosion, it is important to make efforts to sustain current users of the brand and the category.

This is not to say that a firm should never abandon a brand's equity. However, there needs to be a compelling reason to do so. For many years, Miller Lite Beer aired a popular advertising campaign "Tastes great, less filling," featuring real beer-drinking personalities. When Miller Lite sales began to falter in the early 1990s because the brand's imagery was attracting moderate users who were older rather than the heavy beer drinking 21-to 24-year-old, Miller replaced the campaign with one that was directed at the point-of-entry target. Abandoning the current user was rationalized by the notion that focusing on heavy users of the category was essential to reversing Miller Lite's sales decline.

Competitors' Users. When a product category has slow growth, targeting competitors' users may be a viable strategy. The success of this strategy depends on the firm's ability to convince consumers of the superiority of its brand in relation to the incumbent. For example, Pantene was able to expand its market share rapidly by providing visual demonstrations of the brand's superiority in leaving hair shiny. Consumers found "shiny" to be a compelling way to say "clean and manageable."

However, presenting a product that is perceived to be superior is often not sufficient to attract competitors' targets. An incumbent brand may be so strongly associated with a benefit that claims of superiority on this benefit by an attack brand results in greater growth of the incumbent particularly if a competitor counterattacks to halt share erosion. Such reactions are particularly likely when a core business is involved. For example, Burger King spent $100 million to promote the superiority of its new fries over those offered by McDonald's. This campaign involved advertising that reported more favorable consumer reactions to Burger King's fries than to McDonald's fries, as well as offering free samples of the product to consumers who went to Burger King. McDonald's responded with its own taste test, which not surprisingly favored its fries and they increased the amount spent on advertising their fries. The result was that while Burger King experienced an increase in the sales of its fries, its share of this business dropped in relation to McDonald's. Activating the notion of great tasting fries apparently prompted many consumers to consider their own knowledge about the topic, which for many people was the belief that McDonald's makes better fries than Burger King. The heavy advertising for McDonald's fries reinforced this belief.

More generally, a strong competitive response can be expected when the attack is on a competitor's core business and target. Reebok was able to grow its business dramatically by constructing athletic shoes of garment leather that provided greater comfort than competitive athletic shoe brands. The primary target for these shoes was women, who were not being targeted by the competition. When this strategy was successful, Reebok attempted to attract the male athletic shoe market, a strategy that met with a strong reaction by Nike to defend its target as well as to attract Reebok users.

Category Nonusers. When consumption by current brand users no longer represents a viable opportunity for growth because of saturation, or the opportunity to make inroads on competitors' targets is modest, it is appropriate to analyze the opportunity offered by attracting nonusers of the category. One segment of nonusers that warrants consideration is composed of those who are entering the category for the first time. The goal is to attract this point-of-entry target to your brand.

Point of entry. "At 1: 58 P. M. on Wednesday, May 5, in Houston's St. Luke's Episcopal Hospital, a consumer was born. Her name was Alyssa J. Nedell, and by the time she went home three days later, some of America's biggest marketers were pursuing her with samples, coupons, and assorted freebies. Procter and Gamble hoped its Pampers brand would win the battle for Alyssa's bottom. Johnson & Johnson offered up a tiny sample of its baby soap. Bristol-Myers Squibb Co. sent along some of its Enfamil baby formula."

In many product categories, there are nonusers who are likely to enter the category coincident with some life stage or life event. The idea underlying a point-of-entry strategy is (1) to identify who will enter the category; (2) to determine when entry is likely; and (3) to direct their consumption to your brand. Point-of-entry is analogous to a first-mover strategy, but here the user is new to the category rather than the product being new to the market.

Producers of baby formula, disposable diapers, and other infant products have long used point-of-entry targeting to grow their franchises. Potential mothers are identified prior to giving birth and provided with product information. Pediatricians are detailed by producers to enhance the chances that they will recommend use of the firms' brands and category to prospective and current mothers. Free samples are given to mothers after giving birth in the hope that if consumers try the brand at point-of-entry, they are likely to be loyal users.

Point-of-entry targeting is a particularly attractive strategy when two circumstances exist. One factor is the level of brand penetration, which refers to the percent of category users that have used the brand during a specific time period (usually one year, though it varies with inter-purchase interval). For example, Tide has over 90 percent annual penetration, which means that of every 10 consumers who used detergent in a year, over 9 purchased Tide at least once during that period. When penetration is low, focusing on building the number of people who try the brand can develop a brand franchise.

Consider Netzero, which was a new entrant in the Internet access business in 1998. Netzero noted that while AOL, Compuserve, and other firms provide Internet access, none of these offerings was designed to address the concerns off irst time users, who might balk at the subscription fees charged by many vendors for Internet access. In response, Netzero developed a business model that offers consumers free Internet access in return for having advertising appear on users' screen while they are online.

The second condition needed to make point of entry a viable strategy, is the presence of high brand loyalty, that is, an ability to retain the people that are attracted to the brand. This issue is the long-term challenge that Netzero will face. Such loyalty can be achieved by providing consumers with monetary incentives to sustain their brand use, as airlines do with their loyalty programs, or by providing a superior product on dimensions important to consumers.

Point-of-entry targeting typically involves a narrowing of the target to those users who are entering the market. When this target is deemed to be too narrow, point of entry can be deployed in conjunction with other targeting strategies such as maintaining current users. It can be used by category leaders or by followers.

For some products, there are multiple points of entry. For baby food, for example, point-of-entry targets might include families with new arrivals where the users are children and older adults for their own use. In such instances, it is usually appropriate to segment the market, as the motivations for consumption differ between the point-of-entry targets.

Category build. Another approach to attracting nonusers involves category build. Unlike point-of-entry targets, where consumers are likely to enter the category at some point, category build focuses on individuals who have no intention of using the category in which a brand holds membership. Targeted groups might be composed of people who do not use the category or ones who do use the category but not for the purpose the firm has in mind. The goal of a category build is to convince people to consider achieving some goal by using one category rather than another. Category build is an appropriate strategy when there is a lack of saturation of the category and the firm has a means it believes will be successful in directing the demand generated for the category to its brand.

A category may be unsaturated in a variety of circumstances, for example, when a category is new, as was the case with light beer in the 1970s, yogurt in the 1980s, and sports beverages in the 1990s. In these cases, diffusion of information about the category increased its consumption. But there might also be a lack of saturation in a mature category that has lost its consumer base. For example, in 1990, per capita coffee consumption was about 65 percent of the level it had enjoyed in 1960, largely because that generation of young people drank far less coffee than had preceding generations. Or, the lack of saturation might be attributable to consumers' failure to recognize the problem for which the category is a remedy. This situation arises frequently in the pharmaceutical arena where consumers are often unaware of their depression, low thyroid condition, and the like and thus do not prompt their physicians to prescribe the ethical products available to treat these conditions. Finally, sales of categories with seasonal skews such as barbecue sauce or chocolate morsels may be viewed as unsaturated contra-seasonally.

There are a variety of devices that are used to direct the demand generated by a category build to a firm's brand. Most frequently, the assumption is that brands will attract category sales in proportion to their share of market. Thus, it is typically market leaders that engage in category build. However, market share leadership is but one means of directing category demand to a specific brand. In the absence of market leadership, firms with strong sales forces might use advertising to build the category and their sales force to direct this demand to the firm's brand.

When following a category build targeting strategy, it is important to monitor competitors who reside at the edge of the market. Supernormal profits attendant to rapid category growth might attract these firms to the category. In this event, spending is appropriate to support both brand and category growth. Thus, Gatorade might devote dollars to telling people why they should drink a sports drink, but with Coke and Pepsi offering alternative brands of sports drink, it is also prudent to support a brand sell. When both a category build and a brand build are planned, separate strategies are generally needed to avoid consumer confusion.

A major impediment to introducing a category build strategy is the lack of certitude about whether demand in a category is saturated. Electric razors are purchased by about 30 percent of the population. Is this category saturated or not? Two-thirds of the estimated million people who suffer from depression use an antidepressant medication. Is this category saturated, or is there an opportunity to build the category? Assessing the level of saturation is an issue that benefits from empirical data through which the reasons for people's failure to use a category are illuminated. The prospects for a successful category build are far greater if research suggests that the category growth is constrained by a lack of category awareness than if the problem is a negative disposition toward the category. Consumers who have once used a category and no longer do so are typically poor prospects for a category build unless there is category news that has emerged since they used the product. Getting adults to drink milk or eat peanut butter has limited prospects for success, unless there is information about the products that is unknown to the target. In addition, as we discuss later, insight about the extent of saturation and the appropriateness of a category build may be obtained by an assessment of how the brand performs in relation to how the category performs.

There are occasions when a firm uses both a category build and point-of-entry to attract customers. Norelco is the leading brand with more than 50 percent market share in the $400 million electric razor category. Traditional users of electric razors are men 35 and over. While Norelco targets these users, they also support the building of electric razor usage. Doing so entails efforts to attract point-of-entry consumers by targeting first-time shavers, who are presumably making a decision about whether to use a blade or electric razor, as well as consumers over 50, who are experiencing less comfortable blade shaves because of drier skin that typically accompanies aging.

Competitor analysis. The analysis to this point has focused on consumers' use of the brand and the category in which the brand holds membership as a basis for targeting strategy. In developing a targeting strategy, consideration might be given to how consumers respond to competitive brands. This analysis is typical ly done by comparing the performance of the brand against a particular target in relation to the category's performance against the same target. We illustrate this analysis in the context of a geographic segmentation, though it also applies to other segmenting variables as well.

When a firm has distribution in multiple areas of the country, it can create a brand development index ( BDI). The BDI is computed by dividing the per capita sales for the brand in a particular region by the per capita sales for the brand in the country as a whole and then multiplying the result by 100. A BDI that falls below 100 is considered to be low, whereas a BDI above 100 is viewed as high. For example, if Tide's per capita sales in Chicago are $250 per year, whereas in the country as a whole they are $125 per year, the BDI for Chicago is 200 (250/ 125 × 100). In this way, regions can be divided into low and high BDI areas. Thus, Chicago would be considered a market in which Tide's performance is relatively strong ( high BDI). A similar analysis can be done at the category level to produce a category development index (CDI). The category analysis entails a consideration of the per capita sales of the category in a region in relation to the per capita sales of the category for the entire country. This computation allows the determination of high and low CDI areas.

The product of this analysis, the fourfold classification shown in Figure 1.1, is a useful basis for designing strategy. For areas where both the category and the brand exhibit high indices, the first course of action is typically to maintain demand. Market saturation may have set in and investment spending may not be warranted. However, it is possible that a brand with a high BDI can make inroads in a high CDI area if the brand's market share is relatively low. Alternatively, a point-of-entry strategy might be possible if penetration of the market is low and loyalty is high. Low CDI and high BDI suggests an opportunity to build the category. Caution is necessary here to ensure that (1) the market is not saturated and (2) market share leadership or some other means is available of directing the demand created for the category to the brand. In situations where there is high CDI but low BDI, there may be an opportunity to grow the brand.

Here the market might be penetrated if a brand had a point of difference in relation to competitors on dimensions important to consumers. Finally, when both CDI and BDI are low, it may be possible to build the category, though here the judicious approach may be not to support the brand.

Summary. The procedures we have discussed for usage-based segmentation and targeting are represented schematically in Figure 1.2. From top to bottom the targeting strategies represent a progression from ones involving low risk and modest return to ones that involve high risk and substantial return. For ongoing concerns, the starting point in targeting is the current user of the brand. Growth may be achieved by attempting to attract more use per customer or more customers like those who are currently using your brand. Next, it might be appropriate to consider a point of advantage in relation to competitors to attract users of the category who are not using your brand. In attacking competitors, analysis is needed of the competitor's ability and motivation to retaliate.

Once current user opportunities are exhausted, focus centers on nonusers. This shift typically does not mean that marketing support for current users is abandoned. Often, a segmentation strategy is implemented whereby support is given to current users as well as to nonusers. A category-build strategy is attractive when the category is believed to be unsaturated and the firm is ranked first or the firm has some other means of directing the demand created to its brand. When there are competitors poised to enter the market, consideration should be given to supporting both a brand and category build in separate efforts. A point-of-entry strategy is appropriate when a firm experiences a high degree of brand loyalty and at the same time has modest category penetration (i. e., low brand trial by category users). When the potential yield of this strategy is limited, supporting current users as well as point-of-entry consumers warrants consideration.

Employing Correlates of Use in Segmentation

Brand and category usage are the primary bases for segmentation and targeting strategy. But to make strategy operational, it is helpful to identify factors that co-vary or correlate with usage. Demographic correlates of use identify who uses the category and various brands and guide the selection of where to distribute a product and where to advertise it. For consumer products that involve repeat purchase, such target identification is facilitated by the availability of survey data that describe consumption. Services such as Simmons Market Research Bureau conduct large-scale surveys to collect data that allow the strategist to estimate the extent of category, brand, and media use, classified primarily by consumer demographic data. This information is used to describe the demographic profile of consumers who are heavy, moderate, and light users of various categories, the consumer profile of those who use a f irm's and competitors' brands as well as the profile of these groups' media consumption habits.

Some correlates of use offer insight about buyer motivation. For correlates such as users' age, social class, and gender, this insight emerges directly from knowledge of the brand's or category's profile on these factors. For other correlates, such as psychographic profiles depicting buyers' activities, interests, and opinions, custom items must be administered.

Age. Age is perhaps the most frequently used variable in segmentation. Targets are usually described in terms of age categories that are used for the census so that projections can be made to the population. These categories include 20 to 24, 25 to 29, 30 to 34, and so on. While age is used because it is an indicator of product and brand usage, current understanding of how age affects consumers' responses is also of value in deciding whether or not segmentation is warranted.

As children's cognitive development progresses, their responses to advertising change. Children under the age of six have limited processing abilities. The absence of prior knowledge makes it difficult for them to elaborate on incoming information or to retrieve the information that they have previously processed. At the same time, the absence of existing knowledge makes memory fertile ground for rote learning and verbatim recall. Young children thus show an ability to play back product information word for word. In addition, young children acquire information that has a story grammar. Such information takes the form of problem or goal, a series of episodes and an outcome.

Elderly adults represent another age segment. Older people comprise a substantial proportion of the population, including the most affluent people. With the attrition in their life space because of retirement, death of their spouses, and cohort members, older adults rely on mass media for information to a greater extent than do their younger counterparts. Yet, with the exception of products that are specifically of interest to the elderly, little marketing attention is devoted to attracting them. Indeed, most marketing plans only include people who are 49 years of age or younger.

Even when advertising features older people, the appeal often does not reflect an understanding of the elderly consumer. They are treated as if there is one elderly segment. This practice is not consistent with the data suggesting that the knowledge and lifestyles of those under 75 years of age are quite different from their older counterparts. The elderly people under 75 typically view themselves as being healthier and younger than younger people view them. The typical elderly's self-perception is that they are 10 to 15 years younger than their chronological age. One implication of this observation is that in developing advertising targeted to say a 70-year-old, it is more effective to show a 55-year-old rather than a 70-year-old person.

The conventional wisdom that elderly people's ability to recall information is diminished with age is not supported by evidence. The findings are that older people retain proficiency in previously learned tasks and suffer deficits primarily when the tasks are ones that require skills that have not been learned earlier in life. For example, today's elderly have a difficult time when television advertising employs quick cutsÑ rapid movement from one scene to another. In addition, limitations in learning that do occur generally do not start at age 65, but rather there is a diminution in learning ability that becomes somewhat more pronounced after 45.

Social Class. The availability of demographic information, and particularly the educational attainment of the target, can be used to infer social class. This factor may be important to consider in segmenting because there is evidence that social classes differ in the types of marketing strategies to which they are likely to be responsive.

Affluent or upscale people value uniqueness and individuality. Information that emphasizes how a brand may reinforce one's feeling of individuality is particularly appealing to the affluent. Thus, they are more willing than other social class groups to try unknown brands. Middle-class people value neatness and organization. Showing convincingly that a product can help achieve these goals is typically well-received. Less affluent people value functionality and believe that luck is critical to success. They exhibit greater reliance on major brands than do other social classes, perhaps because they lack confidence in their ability to make appropriate brand choices.

Affluent or upscale people often engage in downscale consumption. They shop at Saks Fifth Avenue as well as Kmart. By contrast, downscale people typically confine their consumption to downscale products and services. This asymmetry in social class behavior may explain why little marketing effort is typically focused on downscale consumers: There is also a market for these products among more upscale individuals and so mass marketing is used for these products.

These observations do not imply that downscale people refrain from buying expensive products. Some downscale people have greater disposable income than do upscale consumers. This privilege-within-a-class occurs because more downscale people underspend for housing and lifestyle activities in relation to their more upscale counterparts. As a result, downscale consumers have the income to purchase big-ticket items. They often do so in categories that represent their aspirations. For example, they were among the first to purchase televisions and color televisions.

Notions of social class can be applied not only to consumers, but also to products. Products that are plentiful or used in large quantities and lack potency are considered more downscale than ones that are consumed in small quantities and are potent. In the context of beverages, for example, liqueurs and champagne are perceived to be more upscale, whereas beer is perceived to be downscale. Advertising needs to consider the social class of the user as well as the social class of the product category in developing persuasive messages.

Gender. There is substantial evidence that men and women differ in how they respond to persuasive messages. Women tend to be slower to make decisions, they exhibit greater uncertainty about their decisions, and they are more persuadable. These findings are thought to reflect differences in how men and women process information and make decisions. In part, these differences probably emerge because of socialization that is particular to each gender. In part, they are believed to be biological.

Women are encouraged to be communal, which involves a consideration of self and others in decision making. In contrast, men tend to be agentic, which entails a self-expressiveness and goal-directedness. Support for these characterizations comes from a wide variety of studies. In investigations of children's activities, it is observed that boys are frequently asked to go to the store or to undertake some other activity that requires them to be goal-directed. Girls are often given tasks that require them to coordinate with or navigate among the other members of the household, which enhances the development of their communal skills. Similarly, in studies of parent-child play, such as those involving the solution of puzzles, boys are left to complete a part of the puzzle by themselves, which enhances the development of their agency, whereas girls and parents solve the puzzle together, which enhances girls' communal skills. Instructions given to girls are often particular to the task (put the dogs with the dogs and the cats with the cats), whereas boys are given more general rules (put things together that share common features). General instructions are likely to be more useful than particular ones when attempting to achieve goals beyond the immediate context and thus promote agency. Finally, in assessments of adult speech, it is found that women are likely to exhibit community by expressing a concern for others as well as self. Males' responses tend to be more directed toward achieving their own goals. Whereas a woman might ask "Isn't it warm in here?" a man might say "Turn on the air conditioner!"

It appears that a communal focus prompts women to consider both self and others in making a decision. Applied to information processing tasks, community is manifest by females' tendency to be more detailed processors of disparate bits of information than are men. This difference is manifested in females' greater likelihood of processing message information that includes different types of product benefits. Males' agency often prompts them to focus on the information that they feel is critical to decision making. This approach may be manifested by their greater focus on a single benefit, and their greater reliance on prior knowledge and other heuristics (cognitive shortcuts) as a basis for judgment.

The observation of gender differences in information processing implies that the information to which men are likely to respond favorably differs from the type that will have a positive impact on women. For men, messages that focus on a single benefit are suggested. If multiple benefits are to be communicated, using separate communications is recommended. For women, the presentation of disparate types of benefits is appropriate. It is important to note that these gender differences emerge in a limited set of circumstances. In many situations, these differences are swamped by contextual factors. Under time pressure, women are likely to invoke the same heuristics as those used by men, and when a decision is important, men typically exhibit the same use of disparate types of information as those used by women.

As is the case for social class, brands often are perceived as either masculine or feminine. For example, Burger King is perceived to be more masculine than McDonald's and Nike is seen as more masculine than Reebok. These perceptions reflect the heritage of the brand. Burger King was initially positioned to appeal to the big appetites of men, whereas McDonald's was positioned as the all-family restaurant. Reebok was introduced as a woman's fitness shoe, whereas Nike was marketed as a man's running shoe.

Geography. In the United States, consumer products firms with national distribution typically cover the country with national media such as national magazines and network television. They then use local media including segmented versions of magazines and spot ( local ) television to "heavy up" in areas where there is opportunity either because of market dominance or underperformance. Alternatively, some advertisers target one or several geographical regions where the opportunity is greatest for their brands. These efforts can be facilitated by the use of geodemographic services such as PRIZM. For example, Lexus might use PRIZM or a similar service to target those areas of the country (zip codes) that have a high incidence of people who earn $200 thousand or more per year.

While geographic segmentation is common in the United States, it seldom takes the form of different product offerings and price. Nor are different advertising strategies typically used in different geographic areas, with the exception of differences in the advertising weight. Even when the brand might be a leader in some markets and ranked a distant third in other regions, the same marketing strategy is used nationally. This approach seems to run afoul of the notion that market leaders and followers typically find different strategies to be effective. Whereas leaders generally position a brand against the main category benefit, followers adopt a niche position.

The reluctance to segment in response to different competitive positions in different areas of the country is justified by the fact that multiple strategies add considerably to the cost of marketing. For example, geographic segmentation implies the use of non-national media, which adds substantially to the cost of media. Indeed, the budget that would be required to cover the entire country with a network buy would cover only about half the country if the purchase were made on a market-by-market basis. There is also a concern that such localized strategies would undermine a national strategy, though it should be noted that the consideration of a geographic segmentation strategy emerges because disparities in markets have already emerged.

Segmentation by region is done as a matter of course when the geographic locales are different countries, perhaps because a media savings is often not available through blanket coverage of different locales as they would be within a country. There is a growing trend toward using a common strategy in different countries and developing executions that are local. For example, Pantene is positioned as the shampoo that makes your hair shiny, but uses nationals from the country in which advertising is aired to illustrate this benefit.

While there is validity to the argument that using different advertising strategies in different geographic regions of a country may be too expensive, it should be recognized that this is an empirical question. To answer it requires an assessment of the benefits of tailoring campaigns in relation to the added media, production, and other costs of following a geographic segmentation strategy. Test markets are typically needed to make a judgment about the cost-benefit of geographic segmentation. This testing involves yet another cost. Rather than incur these costs, a frequently used alternative approach to geographic segmentation via advertising involves varying the promotions by region. However, promotions are much less flexible than advertising in supporting different positioning strategies.

Psychographic Analysis. Our focus on demographic data is not intended to imply that it is the only way to make targeting strategy operational. It is also possible to perform this analysis using psychographic data. This approach focuses on lifestyle rather than demographic information as a basis for describing segments. For this purpose, questions about activities, interests, and opinions are asked. In some instances, psychographic measures are customized for the brand of interest. In other situations, data collected by commercial services are used.

Are psychographic measures of value? Generally, they cannot be used in lieu of demographic descriptors of the target because most psychographic measures are not linked to media consumption habits. Thus, it is usually not possible to link a target to the media it reads and watches. Further, the psychographic measures do not allow the identification of individuals that might be needed if further research is to be conducted. Some psychographic services address this problem by correlating the psychographic measures with demographic ones and then using the demographic profile to recruit research respondents. But this solution only serves to underscore the fact that psychographic measures are best viewed not as a replacement for demographic descriptors of the target but as a supplement that enriches the description of the target.

Thus, the primary analysis of segments and targets is typically performed using demographic data. Once a target is selected, its demographic character is supplemented by psychographic data to offer additional insight about consumers' dispositions and goals. This information is often useful in developing a brand's positioning and in the execution of creative strategy.

The recent marketing program for Altoids, a white, thumbnail-size peppermint, illustrates the use of demographic and psychographic data in developing a brand's target. Altoids are sold in a red and white tin box that has the inscription "The original celebrated curiously strong peppermints." Until recently, Altoids was an obscure brand that had little penetration in the $237 million U. S. breath freshener market in which Breath Savers, Tic Tac, and Certs have 87 percent of the market. The exception was Seattle, where the brand built a devoted word-of-mouth following among Seattle's coffee and beer-drinking bar and club goers. Altoids is now a full-fledged phenomenon throughout the country.

In 1993, Kraft acquired Callard & Bowser, which owned the Altoids brand. The following year, Leo Burnett was hired to develop an advertising campaign with a budget of $1 million. A Burnett researcher who was sent to Seattle to do focus groups as a basis for developing the campaign learned that Altoids had a special status among young males. As a 29-year-old online graphic designer put it, "If someone's doing a mint, it's going to be an Altoid." And while drinking coffee, someone approached the researcher and "bummed" an Altoids, which put the product in the same class as cigarettes.

Altoids are particularly popular among single, urban, young males. These are men between the ages of 20 to 28 who are socially active but without a serious relationship. They are working and have money for the first time. They go clubbing and to the movies frequently. They smoke and they drink the strongest Starbucks. Their refrigerators more often than not are stocked with a six-pack of beer and a slice of pizza.

A target was developed on the basis of these insights. The target was men aged 20 to 28 who are working full-time. To this demographic description of the target, a psychographic description was added. These were counterculture young men who were self-focused and engaged in hedonic activities. This psychographic profile guided Burnett 's development of the creative and media strategy. Burnett developed a series of distinctive posters that ran in bus shelters, telephone kiosks, subways, and alternative weeklies such as The Reader. For example, one execution showed a bodybuilder squeezing a tin of Altoids with the copy line "Nice Altoids."

In 1996, additional research was conducted to assess the meaning of the Altoids brand to its users. People were asked to write obituaries for different brands of breath mints. While all brands had the status of making the users feel secure and confident, Certs and Tic Tac users indicated that it would not be a particular hardship to switch to another brand. Altoids users said their brand was irreplaceable.

In another study, Burnett gave Altoids' users 10 magazines and asked them to develop a collage that represented their feelings about Altoids. An analysis of the respondents' collages suggested that there were three dimensions to their feelings about the brand. One was the notion of freshness, which was depicted by open space and water falls. A second dimension was British, which was depicted using pictures of Prince Charles and Princess Diana. The third dimension was sex appeal, represented by young male fantasies such as "hot" women dressed in red. For women, a romantic embrace represented sex appeal.

These investigations offered support for Altoids' brand positioning. They suggested that Altoids was associated with empowerment in social situations. The brand was also perceived as being old and traditional, perhaps because of the British heritage and the metal box in which it was packaged. With an advertising budget of about $7 million, Burnett developed a series of male and female empowered retro characters to sustain the brand's equity. For example, one was a 1950s' style female cigarette vendor who was holding Altoids and a whip. Alternative media were again used in a 1996 campaign, which reached A and B counties (metropolitan/ urban areas) in about 50 percent of the United States. Seattle was excluded from the media plan because of a concern that the retro ads might alienate the original counterculture Altoids' users.

The results have been outstanding. Altoids has grown dramatically in the past several years. Sales in 1996 were over $23 million, giving Altoids a 10 percent share of the category. In 1997, a second Altoids flavor, Wintergreen, was introduced. Seventy percent of the consumers attracted to this brand were new Altoids' users. Two years later, a cinnamon flavor was added. By the end of 1999, Altoids had the same 25 percent share of market as Tic Tac, the other leading brand in the $320 million breath-freshener category.

Segmentation by Role in the Buying Center. Segmentation can also be based on the role an individual plays in the buying center. Buying center roles include the influencer, decider, purchaser, and user. In business-to-business settings, these buying roles might be filled by engineers, VPs of marketing or finance, purchasing agents and operatives (users), respectively. In some consumer settings, the buying center might include parents as deciders and purchasing agents, and children as influencer and user.

Segmentation on the basis of the role played in the buying center is appropriate when different roles imply different concerns in evaluating alternative products. An example of buying center segmentation is found in the lighting industry. GE has dominated the lighting industry by focusing on the needs of corporate purchasers, who seek lower purchase prices and longer bulb life. GE's strong share position enables it to market traditional fluorescent bulbs for as little as 80 cents, a price their competitors cannot match. However, because these bulbs have a high content of toxic mercury, there is a hidden cost. Replacing a traditional fluorescent bulb costs $1 due to restrictions in collection and disposable and to legal coverage against damage in dumping sites. While purchasing agents are not sensitive to these replacement costs, corporate financial officers are. To take advantage of this situation, Philips developed Alto, a low mercury bulb that could be disposed of in the regular trash, and marketed it to corporate financial officers. Alto has gained favorable press coverage and political support due to its environment-friendly status. More importantly, it is a high margin product that has helped enable Philips to break GE's stronghold on the lighting business. Similar differences attributable to the role in the buying center arise for common household purchases. Mom, the purchaser, may be concerned about the nutritional value of the products whereas the child as the consumer may be focused more on the product's taste and brand image.

It is often productive for manufacturers to view both the distribution channel and ultimate consumers as buying centers. In developing advertising messages to consumers, efforts are also made to energize the channel. For example, manufacturers in bottling businesses such as soft drinks and beer recognize that bottlers are instrumental in determining brand sales. They use consumer advertising as one of the devices to motivate the bottlers. Franchise operations use vehicles such as the Superbowl to renew the motivation of their store operators as well as to prompt consumers to purchase their brand. By advertising to the channel as well as through the channel, the goal is to reinforce the same brand position to both resellers and ultimate consumers.

Segmenting and Targeting to
Leverage Competencies in a New Market

To this point, our focus has centered on situations in which a firm has an established customer base. However, in an effort to grow, a firm may also seek to leverage its competencies or resources by entering new markets. To address segmentation and targeting in this situation, it is necessary to begin by considering the different types of competencies that firms might develop. Successful firms are said to exhibit discipline in how they organize their competencies to create value. Three approaches or disciplines each produce a different kind of customer value: operational excellence, product leadership, and customer intimacy.

Operational Excellence

Firms that are operationally excellent are not primarily product or service innovators, nor do they cultivate deep, one-to-one relationships with customers. Instead, they provide middle-of-the market products that can appeal to the mass of consumers in a category by offering the best price with the least inconvenience. Firms with this orientation have core business processes that sharpen distribution systems and provide no-hassle service; a structure that has a strong, central authority and a finite level of empowerment; management systems that maintain standard operating procedures; and, a culture that acts predictably and believes one size fits all. Southwest Airlines is a prime example of a firm that has risen to the top by its operational excellence. Southwest uses many means to minimize its costs and provide simple, yet adequate service to customers. They include using just one type of aircraft (which streamlines maintenance work and expedites gate turnaround time), not providing in-flight food service, and offering its low-cost service on only short-haul routes between secondary (i. e., cheaper) airports.

Product Leadership

Firms that adopt a product leadership orientation focus on developing new and better products, often making their own products obsolete. In so doing, they must address three challenges. One is to foster creativity, knowing how and where to look for it and how to recognize it. Another challenge is to get products to market expeditiously. And, product leadership implies being the first to present the latest technology or the best new service to the marketplace.

Product leadership companies have core business processes that nurture ideas, translate them into products, and market them skillfully. They have a structure that acts in an organic way; management systems that reward individuals' innovative capacity and new product success; and a culture that experiments and thinks "out-of-the-box."

Hewlett-Packard ( HP) is a firm that pursues a product leadership discipline. When HP put its new ink jet printer on the market, it essentially eliminated demand for the world's best-selling computer printer, an old HP model. HP counts on its new products to generate 60 percent of orders, and, like all innovative leaders, HP responds swiftly to changes in the market. In an effort to not let its mammoth size affect its product-leadership stance, HP created 38 decentralized committees that rule on everything from product pricing to where new products should be launched. This freedom from headquarters enabled HP's printer business teams to dominate its competition in the color-ink jet printer category.

Customer Intimacy

A firm that selects customer intimacy as its primary means of delivering value is integrated into the minds and behavior of its customers. Instead of selling a product, a customer-intimate firm offers a solution to the buyer's problem and, thereby, forges a close relationship with the buyer.

In an industry that often has the appearance of a commodity to consumers, British Airways is striving to be customer-intimate. When they recognized that their first-class transatlantic flight passengers' primary objective was to sleep, British Airways adjusted its services to provide an interruption-free flight. Premier fliers are given the option of being served dinner on the ground in a first-class lounge prior to takeoff, and once on board pajamas are available, as well as real pillows and a duvet. Not ending its assistance once the plane arrives at the gate, British Airways offers breakfast, shower stalls, comfortable dressing rooms, and freshly pressed clothes to its highly valued customers.

The presence of three disciplines on which to compete does not imply that a firm should focus all its resources to excel in one. The conventional wisdom is that successful firms meet the industry standard in two disciplines and are superior to competitors in performing the third. Dell Computer, for instance, whose discipline is operational excellence, would not likely be a leader in the PC market if its computers were of poor quality or if it were out of touch with its customers.

Discipline-Based Segmentation and Targeting

When a firm has committed to a discipline it is reflected in its leadership style, structure, processes, and culture. Thus, firms cannot readily shift disciplines or adopt different disciplines for different markets. When entering an existing category in which the firm has not previously competed, the first goal is to segment in a way that identifies a potential target that will prefer the value that can be created by the firm's discipline over current market offerings.

Consider the case of BIC. When BIC entered the disposable shaving market in 1981, it was committed to operational excellence in marketing its disposable pens and disposable lighters. Operational excellence was based on efficient, high-volume manufacturing of molded plastic and broad distribution. These capabilities allowed BIC products to be marketed as good, basic products that were inexpensive and conveniently available. Entry into the disposable shaving market was attractive because it enabled leveraging both the firm's production capability and its distribution system.

The challenge in segmenting the shaving market was to do so in a manner that separated consumers who desired a low cost, conveniently available basic razor from those who would prefer an expensive, technologically advanced razor. One possibility was to employ gender as a surrogate for the different benefits that consumers might seek. There was evidence to suggest that women, who tend to be less involved in the shaving task than men, might be willing to tradeoff the latest technology in favor of greater convenience and lower price. Thus, the market could be segmented on gender, with women becoming the target for BIC's disposable razor. While such an approach would identify a target compatible with the benefits that BIC could deliver, it might be less than optimal from the standpoint of the operational excellence discipline. Although the absolute number of women shavers is similar to that of men (in the United States), women replace their razors much less frequently and, therefore, account for significantly lower volume sales than men. Further, an overt effort to cater to women might prompt those men, who would otherwise have found the convenience and low cost of BIC appealing, to view the product as inappropriate for the masculine shaving ritual. Thus, targeting women might limit potential sales and, thereby, reduce production and distribution efficiencies that are necessary to practice the discipline of operational excellence.

A superior approach, and one that BIC appears to have adopted, would be to segment based on age and associated lifestyle. A disposable product would seem to have the greater appeal for people who are active and have occasion to shave away from home (e. g., at the health club, in a hotel while traveling). Moreover, such individuals are likely to be younger, have less entrenched shaving habits than older shavers and, thereby, be good prospects to switch to BIC. Finally, BIC might attract even "couch potatoes," whose self-perception is that they are active, vital people. As a result, an age/ lifestyle approach would potentially attract a larger segment of the market than one based on gender. In putting the discipline of operational excellence into practice, a bigger target is a better target for BIC.

In summary, for a new entrant with an established discipline base, the attractiveness of alternative ways to segment a market is determined by whether the approach identifies a target that will find the benefit created appealing and thereby will be willing to switch from competitive products. It is also influenced by whether the identified target meets other constraints imposed by the discipline. When the discipline of operational excellence is practiced, it is generally important that the target be sizable.

When the discipline of product leadership is practiced, different considerations emerge. In particular, a firm that pursues product leadership and is heavily invested in R& D, may create "new to the world" products. Such products by definition are not obvious members of any existing product category. Instead, they may combine the functionality associated with one or more types of products, but bear little physical resemblance to these products.

Consider the market for personal digital assistants (PDAs). The first PDA was Apple's Newton, launched in the market in 1993. Newton and other devices that followed it combined features commonly associated with appointment books or secretaries, notebooks, computers, faxes, and pagers. In this situation, segmentation is done on a relatively abstract level. It entails a consideration of the needs and goals associated with consumption across categories, rather than focusing on usage patterns within a single product category. The objective is to segment on the goals served across products and to target consumers whose goal is better served by the new product than by existing ones. Methods such as substitution-in-use, in which consumers indicate how sets of products relate to specific usage contexts (e. g., What beverages might you drink after exercising on a hot summer day? Possible answer: Bottled water, Gatorade, Snapple), may be helpful in identifying existing across product category competition and thereby uncovering underlying needs.

Initially, the targeted segment for a new-to-the-world product may be modest in size. However, it must prompt the perception among consumers of a cutting-edge technology that is worthy of a premium price. Moreover, if the long-term objective is widespread product adoption, it is also desirable that targeted consumers serve as opinion leaders to accelerate product diffusion.

Finally, when the discipline of customer intimacy is practiced, the motivation to enter a new market is likely to stem from un-met needs of the firm's current customer base. This is because the focus on customers' needs may reveal an opportunity to expand the relationship into products that are new for the firm. As a result, the initial segmentation and targeting task is, to a large degree, already accomplished. However, there may be opportunities to grow the current customer base by using the new product or service to attract new customers whose needs resemble those of current customers.

Segmenting and Targeting When
Launching a New Company

When a new company is created, there is neither a customer base nor an established discipline to leverage. While this freedom from any constraints may be attractive, it also creates challenges in tackling segmentation and targeting issues. One approach in this situation is to start with an examination of consumer motivations and goals in using a product category as a basis for identifying gaps in marketplace offerings. This consumer insight is the basis for developing a product or service that addresses unmet goals.

Starbucks illustrates this approach. When Starbucks was conceived, coffee manufacturers were focusing on the rational benefits of their brands such as the superior taste attributable to a particular growing process as a way of competing in a declining market. In contrast, Starbucks created a coffee-based experience in which the range of preparations and atmosphere of the stores encouraged customers to view having a cup of Starbucks as a way of indulging themselves. In essence, Starbucks targeted people seeking an indulgence experience rather than simply coffee consumption.

Anita Roddick, the founder of Body Shop, followed a similar strategy but with a different emphasis. Observing that cosmetics were purchased primarily on the basis of emotional beauty promises, she launched her company with a more rational approach. Women were encouraged to choose Body Shop products over competitive brands on the basis of the natural origin of the ingredients, the absence of animal testing, as well as the company's commitment to invest in developing economies and to conduct business in an environmentally friendly manner. Body Shop's line of products are targeted at people who embrace a particular set of values rather than ones who are merely striving to make themselves more attractive.

These new companies tackled the problem of how to segment, target and position by beginning with competition-based positioning, which is discussed in our next chapter. They created their identity by focusing on motivations for product use that had been neglected by competitors and then built business models that could support the desired positioning. The intended positioning then guided the segmentation and targeting effort.

Targeting Dynamics

Our analysis of segmentation and targeting suggests that there are a variety of alternative approaches to growing and sustaining the market. In this section we examine the segmentation and targeting strategies that are likely to be most effective as the market evolves.

We have argued that, for established firms in a product category, focus is initially on current customers because marketing to this target is most cost-effective if saturation has not occurred. At some point, firms discover that targeting current customers limits brand growth. Detroit automotive manufacturers have been particularly vulnerable to this problem with their luxury brands. Cadillac owners have a favorable disposition toward their cars and would be likely to repurchase if they were to repurchase a car. However, because the average age of a Cadillac owner is about 63, current users do not represent an attractive long-term target. Moreover, the image of Cadillac as the luxury car for a previous generation reduces the likelihood that the next generation of 65-year-olds will aspire to drive a Cadillac. A similar problem prompted Oldsmobile to target younger customers with the advertising slogan "It's not your father's Oldsmobile!" However, the effectiveness of this approach was limited both by the profile of people seen driving Oldsmobiles and the conventional styling of the car.

What is an appropriate strategy when faced with this situation? Should the firm focus on its loyal but declining customer base or should it shift its attention to higher growth segments? The answer depends on both the reason for stagnant or declining growth and the relationship between current customers and higher growth segments of the population. Consider the case of Entemann's baked goods, which observed that its current customer base liked its product but was consuming less because of middle-aged "spread." They encouraged customers to pay greater attention to the calories they consumed. Entemann's choices were to expand its customer base to include younger, less weight-conscious customers for its current products, or to develop new, lower calorie products for its aging current customer base. The company chose to serve the needs of its current customer base with a low-fat line extension. In the process, they found that this line of products also attracted new, younger customers who were concerned with health and fitness. Apparently the new line of products served an unmet goal and thus stimulated a category build as well as sustained current user consumption.

In many situations, success with one segment undermines a product's appeal to another potentially attractive segment. Cadillac's success with older consumers limits its potential to attract younger buyers. Had BIC launched its disposable razor as a women's razor it would have been unlikely to attract men. This sort of bifurcation in market segments is most likely when the product category is closely tied to one's self-image and the brand choice is visible to others.

A good example is the situation that Black & Decker faced in the portable power tool market in the 1990s. During the previous decade, Black & Decker had significantly increased its presence in consumers' kitchens with its line of small appliances such as coffee makers, mixers, toasters, and so on. It also had achieved a strong position in the basement as the tool of choice for the occasional home project. However, Black & Decker's success within the home coincided with a dramatic decline in its acceptance by professionals and tradesmen, who relied on their tools for their livelihood. Tradesmen did not want to be seen using the same tools as their customers. Only when Black & Decker launched a separate line of power tools under the DeWalt brand name was it able to regain a leadership position with the professional/ tradesmen segment. Thus, when segments have different, conflicting goals, developing a separate brand for each segment may be an appropriate strategy.


This chapter presents a usage-based approach to segmentation and targeting. We prefer this approach to alternative approaches for two reasons. First, the segments that are identified through this approach require distinct marketing strategies, not simply different marketing tactics. When current customers are targeted, the goal is to retain these customers and, if possible, expand their usage. When competitors' customers are targeted, the goal is to offer a proposition that is sufficiently attractive to overcome switching costs. And, when nonusers are targeted, the reasons for abstaining from category consumption must be addressed. Second, the usage-based approach focuses attention on the costs and potential return associated with pursuing alternative targets. Current customers are easiest to reach and are most profitable to focus on in the short run. Attracting nonusers can be costly, but may be important to sustaining the brand over the long run.

While we believe these are compelling reasons to adopt the usage-based approach to segmentation and targeting, the ultimate test of any such approach is whether it leads to a compelling positioning strategy. We address this issue in the next chapter.

Meet the Author

DAWN IACOBUCCI is Professor of Marketing at the J. L. Kellogg Graduate School of Management, Northwestern University.

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