C H A P T E R 8
M A R K E T
S E G M E N T A T I O N
A N D T A R G E T I N G
To access O-codes, go to www.ocodes.comLEARNING OBJECTIVES
When you have completed this chapter, you will be able to:
• Deconstruct a market into readily distinguishable customer groups. • Recognize differences between market segments and customer segments.
• Select a market segmentation scheme to better understand market opportunities. • Understand needs and preferences common to customers in each market segment. • Develop criteria for constructing good market segments.
• Assess identifying characteristics for market segments.
• Address several complex issues in developing and engaging market segments. • Decide which segments to target for marketing effort.
• Understand how different size firms should approach market segmentation.
OPENING CASE: MARRIOTT HOTELS, RESORTS, AND SUITES
In 1985, Marriott Hotels, Resorts, and Suites was a domestic (U.S.) mid- to large-size hotel chain, managing 67,034 rooms at 160 properties. Marriott decided to enhance traveler value by segmenting the market, then targeting selected segments each with a different brand. Then as now, Marriott was the flagship brand. Each new brand supports Marriott’s overall brand identity — a commitment to superior customer service — and trains employees to have a passion for service. Employees:
• Do whatever it takes to take care of customers. • Pay extraordinary attention to detail.
• Take pride in their physical surroundings.
• Use their creativity to find new ways to meet the needs of customers.
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IMPERATIVE 2
Identify and Target
Market Segments
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Marriott believes all customers require a base service level but that customers differ in their willing-ness to pay for different levels of comfort and luxury. Management also knows that many customers stay a few nights, but a growing number, like business people on assignment, require accommoda-tions for several weeks. Recognizing the varying needs of hotel customers, Marriott was the first major hotel chain to base its strategy on market segmentation. Marriott grew new brands organically, but implemented its strategy in part by acquisition.
Marriott’s flagship brand continues to target customers needing fine restaurants, meeting rooms, athletic facilities, and other upscale amenities.1 But Marriott added several additional brands addressing different segments:
• Courtyard — a moderately priced hotel providing some amenities, like an exercise room and
a restaurant for breakfast for business travelers.
• Edition Hotels — a personal, intimate, individualized, and unique lodging experience. • ExecuStay — furnished apartments for stays of 30 days or more.
• Fairfield Inn & Suites — an inexpensively priced, high quality hotel easily accessible by car,
on or near the U.S. main interstate highway system.
• Renaissance Hotels — an international hotel with upscale amenities.
• Residence Inn — an extended-stay hotel for job relocation, job assignment, and government
contracting.
• Ritz-Carlton — the ultimate in luxury hotels in urban centers. • SpringHill Suites — an all-suites hotel at an upper- moderate price. • TownePlace Suites — similar to Residence Inn, but lower priced.
Each Marriott brand has a distinct personality and style. Marriott works hard to communicate the essence and strength of each brand so that target customers know what to expect. There is some customer crossover, but each brand focuses on a defined market segment. Internal competition is small.
Marriott has achieved extraordinary results from its segmentation and targeting strategy. The Courtyard brand manages more rooms than the entire firm managed in 1985. Total number of rooms man-aged has increased to 600,000 rooms at 3,800 properties. About 20 per-cent of Marriott’s rooms are outside the U.S. Marriott is a profitable firm with revenues well in excess of $10 billion.
S E C T I O N I I I n S T R A T E G I C M A R K E T I N G 1 9 2 CASE QUESTIO N How do you as sess Marriott’s approach to
segmenting the
hotel market?
Can you think
of alternative a
pproaches tha
t may present
marketing opportuniti es?
Market segments and market segmentation are fundamental marketing concepts. Customers in a market either have a variety of different needs, or have similar needs with different priorities. A market segment is a subset of the total market that comprises a group of customers with sim-ilar (homogeneous) need profiles, seeking simsim-ilar sets of benefits and values, with simsim-ilar levels of priority. Market segmentation is the process of grouping together actual and potential cus-tomers in a market for the purpose of forming market segments.
A specifically designed market offer satisfies one market segment; a different market segment requires a different market offer. To design and produce effective market offers, the firm must understand each segment’s need profile. A firm intent on serving a large market like snack foods must make several market offers, at least one per market segment, to meet varying customer preferences. Typically, a single offer, like potato chips, fails to satisfy the many diverse customers who purchase snack foods.
Because customers have different need profiles, marketers must complete three separate, but related, strategic marketing tasks:
1. Identify market segments. Figure out the best way to group customers based on market, customer, competitor, and complementer insight — Chapters 3, 4, and 5, using approaches from Chapter 6.
2. Target market segments. Resources are always scarce. The firm must decide which seg-ments to target for effort; rarely can a firm address all market segseg-ments.
Note an important distinction between these tasks. Identifying market segments is creative and analytic. Targeting market segments requires a strategic decision — the firm applies resources to some market segments and ignores others. Identifying and targeting the right market seg-ments is a crucial strategic marketing task.
3. Develop market segment strategy. The firm develops a market segment strategy, includ-ing a positioninclud-ing statement, for each target segment — Chapter 9. Typically, the firm’s
market strategy combines several market segment strategies.
Section 4 — Chapters 12 through 21 — focuses on implementing the market strategy.
M A R K E T S E G M E N T A T I O N A N D T A R G E T I N G n C H A P T E R 8 1 9 3 ‰ Critical strategic marketing decisions are: • Identify market segments • Target market segments • Develop market segment strategy
KEY IDEA
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KEY MESSAGES
• Market segmentation is fundamental to developing the market strategy. The firm has three separate, but related, strategic-level tasks:
• Conduct a market segmentation process to identify market segments. • Decide which of the identified market segments to target for effort.
• Develop a market segment strategy and positioning for each target segment. We discussed items 1 and 2 in this chapter; we take up item 3 in Chapter 9. • Segmentation is a process for deconstructing the market into customer groups. • Customers in a market segment have homogeneous (similar) need profiles; customers in
other market segments have heterogeneous (different) need profiles. • The firm can approach the segmentation process in two different ways:
• Identifying groups of customers that differ in need profiles.
• Using candidate descriptor (segmentation) variables to form groups, then seeing if need profiles differ.
• The firm should avoid ineffective ways of segmenting markets.
• Useful segments must satisfy six separate criteria: differentiated, identifiable, accessible, appropriate size, measurable, and stable.
• The segmentation process is creative and analytic, requiring good market, customer, competitor, and complementer insight. By contrast, targeting requires the firm to make decisions.
• Sometimes firms find commercially available standardized segmentation schemes useful. • The multifactor matrix and perceptual map are alternative approaches for making targeting
decisions.
• Large firms generally succeed by targeting multiple segments; small firms succeed by targeting few segments.
VIDEOS AND AUDIOS
Market Segmentation and Targeting v802 Ron Boire Toys R Us
Marketing Imperative 2 a801
Ma r ke t i n g
Q u e s t i o n
What other messages did you glean from this chapter?
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QUESTIONS FOR STUDY AND DISCUSSION
Can you answer the questions implied by this chapter’s learning objectives? Check!
1. Suppose your firm decides to address the human pain-relief market. How would you segment this market? What market segments can you identify? Can you identify both coarse- and fine-grained segments — market segments and customer segments?
2. Select a product/market with which you are familiar. Develop a segmentation matrix identifying the importance order of benefits and values for the various segments.
3. Assume you are marketing manager at a firm competing in the product/market you identified in Question 2. Select one or more segments to target by completing a multifactor matrix analysis.
4. Do politicians employ segmentation? Describe an example.
5. Describe a segment of the higher education market that includes you. Appraise this segment in terms of the criteria for good segments — differentiated, identifiable, accessible, appropri-ate size, measurable, and stable.
6. Visit retail outlets for Banana Republic, The Gap, and Old Navy. Observe customers and products. What do you infer about owner Gap Inc.’s segmentation and targeting?
7. Select a product in which you are interested. Alternatively, consider this book — Managing
Marketing in the 21st Century. How would you segment the market? Describe the segments.
8. Select a market with which you are familiar. Develop a perceptual map by identifying two dimensions, product offerings, and your best guess at market segments.
9. What are the risks and limitations of a strategy based on market segmentation? How can you measure the effectiveness of a market segmentation approach?
