Part 3: Building Strong Brands
Identifying Market Segments
In this chapter, we will address the following questions:
1. In what ways can a company divide a consumer or business market into segments?
2. How should a company choose the most attractive target markets? (Page 100)
3. What are the different levels of market segmentation? (Page 101)
Marketing Management at LinkedIn
LinkedIn began operations in 2003, targeting a different audience than most other social networks,
with a vision “…to create economic opportunity for every professional in the world.” Also separating
LinkedIn from other social networks is the fact that it has diverse revenue streams, driven by three
customer segments: job seekers who buy premium subscriptions for access to special services; advertisers who rely on its marketing solutions unit; and corporate recruiters who buy special search tools
from its talent solutions unit. Today, LinkedIn has more than 300 million users worldwide—including
5 million in China, one of its newer markets—and sees much growth from its mobile users, who in
2013 accounted for more than 30 percent of unique visits to the site. Now LinkedIn’s well-targeted and
positioned brand faces competition from other online giants, such as Facebook, and from established
professional network services overseas, such as Viadeo SA in Europe and elsewhere.1
o compete more effectively, many companies are now embracing target marketing. Effective
target marketing requires that marketers (1) identify and profile distinct groups of buyers who differ in their needs and wants (market segmentation), (2) select one or more market
segments to enter (market targeting), and (3) establish, communicate, and deliver the right
benefit(s) to each target segment (market positioning). This chapter focuses on the first two
steps; Chapter 7 discusses the third step.
Identifying Market Segments and Targets
Bases for Segmenting Consumer Markets
Market segmentation divides a market into well-defined slices. A market segment consists of a
group of customers who share a similar set of needs and wants. The marketer’s task is to identify the appropriate number and nature of market segments and decide which one(s) to target.
We use two broad groups of variables to segment consumer markets. Some researchers define
segments by looking at descriptive characteristics—geographic, demographic, and psychographic—
and asking whether these segments exhibit different needs or product responses. Other researchers
define segments by looking at behavioral considerations, such as consumer responses to benefits,
usage occasions, or brands, then seeing whether different characteristics are associated with each
Regardless of which type of segmentation scheme we use, the key is adjusting the marketing
program to recognize customer differences. The major segmentation variables—geographic, demographic, psychographic, and behavioral segmentation—are summarized in Table 6.1.
Geographic segmentation divides the market into geographical units such as nations, states,
regions, counties, cities, or neighborhoods. The company can operate in one or a few areas,
or it can operate in all but pay attention to local variations. In that way it can tailor marketing
programs to the needs and wants of local customer groups in trading areas, neighborhoods,
even individual stores. In a growing trend called grassroots marketing, marketers concentrate on
making such activities as personally relevant to individual customers as possible.
More and more, regional marketing means marketing right down to a specific zip code. Some
approaches combine geographic data with demographic data to yield even richer descriptions of
consumers and neighborhoods. Nielsen Claritas has developed a geoclustering approach called
PRIZM (Potential Rating Index by Zip Markets) NE that classifies more than half a million U.S.
residential neighborhoods into 14 distinct groups and 66 distinct lifestyle segments called PRIZM
Clusters.2 The groupings take into consideration 39 factors in five broad categories: (1) education
and affluence, (2) family life cycle, (3) urbanization, (4) race and ethnicity, and (5) mobility. The
clusters have descriptive titles such as Blue Blood Estates, Winner’s Circle, Hometown Retired, and
Back Country Folks. The inhabitants in a cluster tend to lead similar lives, drive similar cars, have
similar jobs, and read similar magazines.
Marketing to microsegments has become possible even for small organizations as database
costs decline, software becomes easier to use, and data integration increases. Those who favor
such localized marketing see national advertising as wasteful because it is too “arm’s length” and
fails to address local needs. Those opposed argue that it drives up costs by reducing economies of
scale and magnifying logistical problems. A brand’s overall image might be diluted if the product
and message are too different in different localities.
One reason demographic variables such as age, family size, family life cycle, gender, income,
occupation, education, religion, race, generation, nationality, and social class are so popular
with marketers is that they’re often associated with consumer needs and wants. Another is that
they’re easy to measure. Even when we describe the target market in nondemographic terms
(say, by personality type), we may need the link back to demographic characteristics in order
to estimate the size of the market and the media we should use to reach it efficiently.
Here’s how marketers have used certain demographic variables to segment markets.
Building Strong Brands
Major Segmentation Variables for Consumer Markets
Pacific Mountain, West North Central, West South Central, East North Central, East South Central, South Atlantic, Middle
Atlantic, New England
City or metro size
Under 5,000; 5,000–20,000; 20,000–50,000; 50,000–100,000; 100,000–250,000; 250,000–500,000; 500,000–
1,000,000; 1,000,000–4,000,000; 4,000,000+
Urban, suburban, rural
Under 6, 6–11, 12–17, 18–34, 35–49, 50–64, 65+
1–2, 3–4, 5+
Family life cycle
Young, single; young, married, no children; young, married, youngest child under 6; young; married, youngest child 6 or
older; older, married, with children; older, married, no children under 18; older, single; other
Under $10,000; $10,000–$15,000; $15,000–$20,000; $20,000–$30,000; $30,000–$50,000; $50,000–$100,000;
Professional and technical; managers, officials, and proprietors; clerical sales; craftspeople; forepersons; operatives;
farmers; retired; students; homemakers; unemployed
Grade school or less; some high school; high school graduate; some college; college graduate; post college
Catholic, Protestant, Jewish, Muslim, Hindu, other
White, Black, Asian, Hispanic, Other
Silent Generation, Baby Boomers, Gen X, Millennials (Gen Y)
North American, Latin American, British, French, German, Italian, Chinese, Indian, Japanese
Lower lowers, upper lowers, working class, middle class, upper middles, lower uppers, upper uppers
Culture-oriented, sports-oriented, outdoor-oriented
Compulsive, gregarious, authoritarian, ambitious
Regular occasion, special occasion
Quality, service, economy, speed
Nonuser, ex-user, potential user, first-time user, regular user
Light user, medium user, heavy user
None, medium, strong, absolute
Unaware, aware, informed, interested, desirous, intending to buy
Attitude toward product
Enthusiastic, positive, indifferent, negative, hostile
Age and Life-Cycle Stage Consumer wants and abilities change with age. Toothpaste
brands such as Crest offer three main lines of products to target kids, adults, and older consumers. Age segmentation can be even more refined. Pampers divides its market into prenatal, new baby (0–5 months), baby (6–12 months), toddler (13–23 months), and preschooler
(24 months+). However, age and life cycle can be tricky variables. The target market for some
products may be the psychologically young.
Life Stage People in the same part of the life cycle may still differ in their life stage. Life stage
defines a person’s major concern, such as going through a divorce, going into a second marriage,
Identifying Market Segments and Targets
taking care of an older parent, buying a home, and so on. These life stages present opportunities
for marketers who can help people cope with the accompanying decisions. But not everyone goes
through that life stage at a certain time—or at all, for that matter. More than a quarter of all U.S.
households now consist of only one person—a record high. It’s no surprise this $1.9 trillion market is attracting interest from marketers such as Lowe’s and DeBeers.
Gender Men and women have different attitudes and behave differently, based partly on
genetic makeup and partly on socialization.3 A research study of shopping found that men
often need to be invited to touch a product, whereas women are likely to pick it up without
prompting. Men often like to read product information; women may relate to a product on a
more personal level. Gender differences are shrinking in some areas as men and women expand
their roles. One survey found that more than half of men identified themselves as the primary
grocery shoppers in their households, which is why Procter & Gamble now designs some ads
with men in mind.
Income Income segmentation is a long-standing practice in such categories as automobiles,
clothing, cosmetics, financial services, and travel. However, income does not always predict the
best customers for a given product. Many marketers are deliberately going after lower-income
groups, in some cases discovering fewer competitive pressures or greater consumer loyalty.
Increasingly, companies are finding their markets are hourglass-shaped, as middle-market U.S.
consumers migrate toward both discount and premium products. Recognizing that its channel
strategy emphasized retailers selling primarily to the middle class, Levi-Strauss introduced premium lines such as Levi’s Made & Crafted to upscale retailers and the less-expensive Signature
line to mass market retailers.
Generation Each generation or cohort is profoundly influenced by the times in which it
grows up—the music, movies, politics, and defining events of that period. The four main U.S.
generation cohorts, from youngest to oldest, are Millennials (Gen Y), Gen X, Baby Boomers,
and the Silent Generation.4 Members of each cohort share the same major cultural, political,
and economic experiences and often have similar outlooks and values. Marketers may choose
to advertise to a cohort by using the icons and images prominent in its experiences. They can
also try to develop products and services that uniquely meet the particular interests or needs of a
t Millennials (or Gen Y). Born from 1977 through 1994, the 78 million Millennials are also
known as Gen Y or Echo Boomers. Members of this cohort have been wired almost from
birth. They may have a sense of entitlement and abundance from growing up during the
economic boom, but they are also often socially conscious and concerned about the environment. This cohort may be turned off by overt marketing practices.
t Generation X. Born from 1964 through 1978, the 50 million Gen Xers were raised during a
period when social diversity and racial diversity were more widely accepted and technology
changed the way people lived and worked. This cohort has raised standards in educational
achievement, but its members were also the first generation to find surpassing their parents’ standard of living a serious challenge. They are pragmatic and individualist, prize selfsufficiency, and view technology as an enabler, not a barrier.
t Baby Boomers. Born from 1946 through 1964, the 76 million members of this cohort
are interested in products that turn back the hands of time. One study of boomers ages
55 to 64 found a significant number are willing to change brands, spend on technology,
use social networking sites, and purchase online.5
Building Strong Brands
t Silent Generation. Born from 1925 through 1945, the 42 million members of this cohort
are defying their advancing age and leading very active lives. Strategies emphasizing
seniors’ roles as grandparents are well received. They are demanding customers but are
also more willing than younger cohorts to pay full price for offerings they value.
Race and Culture Multicultural marketing is an approach recognizing that different ethnic
and cultural segments have sufficiently different needs and wants to require targeted marketing activities and that a mass market approach is not refined enough for the diversity of the
marketplace. Consider that McDonald’s now does 40 percent of its U.S. business with ethnic
minorities. Its highly successful “I’m Lovin’ It” campaign was rooted in hip-hop culture, but its
appeal transcended race and ethnicity.6 Marketers need to factor the norms, language nuances,
buying habits, and business practices of multicultural markets into the initial formulation of
their marketing strategy. Diversity also has implications for planning and conducting marketing research.
Psychographics is the science of using psychology and demographics to better understand consumers. In psychographic segmentation, buyers are divided into groups on the basis of psychological/
personality traits, lifestyle, or values. People within the same demographic group can exhibit very
different psychographic profiles.
One of the most popular commercially available classification systems based on psychographic measurements is Strategic Business Insight’s (SBI) VALS™ framework. VALS is based
on psychological traits for people and classifies U.S. adults into eight primary groups based
on responses to a questionnaire featuring four demographic and 35 attitudinal questions. The
VALS system is continually updated with new data from more than 80,000 surveys per year (see
The main dimensions of the VALS segmentation framework are consumer motivation
(the horizontal dimension) and consumer resources (the vertical dimension). Consumers
are inspired by one of three primary motivations: ideals, achievement, and self-expression.
Different levels of resources enhance or constrain a person’s expression of his or her primary
In behavioral segmentation, marketers divide buyers into groups on the basis of their knowledge
of, attitude toward, use of, or response to a product. Behavior variables can include needs or benefits, decision roles, and user and usage.
Needs and Benefits Not everyone who buys a product has the same needs or wants the same
benefits from it. Needs-based or benefit-based segmentation identifies distinct market segments
with clear marketing implications.
Decision Roles People can play five roles in a buying decision: Initiator, Influencer, Decider,
Buyer, and User. For example, assume a wife initiates a purchase by requesting a new treadmill
for her birthday. The husband may seek information from many sources, including a friend who
has a treadmill and is a key influencer in what models to consider. After presenting the alternative choices to his wife, he purchases her preferred model, which ends up being used by the entire
family. Different people are playing different roles, but all are crucial in the decision process and
ultimate consumer satisfaction.
Identifying Market Segments and Targets
FIGURE 6.1 The VALS Segmentation System: An Eight-Part Typology
US VALS Framework
Source: www.strategicbusinessinsights.com/ vals © 2014 by Strategic Business Insights. All rights reserved.
User and Usage-Related Variables Many marketers believe variables related to users or
their usage—occasions, user status, usage rate, buyer-readiness stage, and loyalty status—are
good starting points for constructing market segments.
t Occasions. Occasions mark a time of day, week, month, year, or other well-defined temporal aspects of a consumer’s life. We can distinguish buyers according to the occasions
when they develop a need, purchase a product, or use a product. For example, air travel is
triggered by occasions related to business, vacation, or family. Occasion segmentation can
help expand product usage.
t User status. Every product has its nonusers, ex-users, potential users, first-time users,
and regular users. The key to attracting potential users, or even possibly nonusers, is understanding the reasons they are not using. Do they have deeply held attitudes, beliefs, or
behaviors or just lack knowledge of the product or benefits? Included in the potential-user
group are consumers who will become users in connection with some life stage or event.
Market-share leaders tend to focus on attracting potential users because they have the
most to gain from them. Smaller firms focus on trying to attract current users away from
the market leader.
Building Strong Brands
t Usage rate. We can segment markets into light, medium, and heavy product users.
Heavy users are often a small slice but account for a high percentage of total consumption.
Marketers would rather attract one heavy user than several light users. A potential problem is that heavy users are often either extremely loyal to one brand or never loyal to any
brand and always looking for the lowest price.
t Buyer-readiness stage. Some people are unaware of the product, some are aware, some
are informed, some are interested, some desire the product, and some intend to buy.
Recall from Chapter 4 that marketers can employ a marketing funnel to break the market into buyer-readiness stages. Figure 6.2 displays a funnel for two hypothetical brands.
Compared with Brand B, Brand A performs poorly at converting one-time users to more
recent users (only 46 percent convert for Brand A compared with 61 percent for Brand
B). A marketing campaign could introduce more relevant products, find more accessible
retail outlets, or dispel rumors or incorrect brand beliefs.
t Loyalty status. Marketers usually envision four groups based on brand loyalty status:
hard-core loyals (always buy one brand), split loyals (loyal to two or three brands), shifting loyals (shift from one brand to another), and switchers (not loyal to any brand).8 A
company can study hard-core loyals to help identify the products’ strengths; study split
loyals to see which brands are most competitive with its own; and study shifting loyals and switchers to identify marketing weaknesses that can be corrected. One caution:
What appear to be brand-loyal purchase patterns may reflect habit, indifference, a low
price, a high switching cost, or the unavailability of other brands.
t Attitude. Five consumer attitudes about products are enthusiastic, positive, indifferent, negative, and hostile. Workers in a political campaign use attitude to determine
how much time and effort to spend with each voter. They thank enthusiastic voters and
remind them to vote, reinforce those who are positively disposed, try to win the votes
of indifferent voters, and spend no time trying to change the a ...
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