Market Segmentation, Targeting, and Positioning
- Segmentation.Â Students can use the segmentation characteristics to identify and describe market segments
- Target Market. Students can identify a usable market segment to be a target market
- Target-market strategy. Students can determine an appropriate target-market strategy.
- Positioning.Â Students can develop and interpret a perceptual map.
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- Thus far you have only been considering the customers of your product or service as one big group, or a mass market. Â More astute marketing breaks down this large group into smaller market segments of consumers who have like characteristics. Â For any given product or service there could be numerous market segments. Â However, company resources may only allow a company to pursue one or two or these market segments, which then become target market(s). Â Your job here is to break down the mass market for your product or service into at least two market segments and then pick one target market you think would have the most potential for future growth. Â This target market does not have to be the one the company would have actually picked, or is currently pursuing, there is no way for you or your faculty to know based on public information. Â So, once again the literature will not give you the ‘right’ answer. Â Your brain will help you reason your way through.
- Think outside your own box. Â Chances are good you picked a product with which you are familiar. Â That is a good starting point, and you may represent one target market. Â But you may represent a target market that is saturated and therefore not the best target market to pick for the remainder of the semester. Â So be sure your second target market is different enough and represents growth potential.
- If you did not do a thorough analysis of the competition in the prior writing assignments, you may need to go back and figure out the nature of the product or serviceâs competition. Â This will be important when you address the positioning of your product for your newly identified target market inasmuch as positioning is a competition-based concept.
- We understand you are not an employee of the company and do not have access to the data that you feel will allow you to discuss the questions to the degree you would like.Â Take your best educated and reasoned guesses whenever you need to do so.
- Otherwise, you do not need to do any external research for this writing assignment. Your job will be to critically examine all of the segmentation bases and arrive at your own description of potential market segments for your product or service.
- You may want to visitÂ http://www.segmentationstudyguide.com/understanding-perceptual-maps/a-step-by-step-guide-to-constructing-a-perceptual-map/Â for a step-by-step guide on how to draw a perceptual or positioning map. Â Another tool is a video explaining how to develop a perceptual map using EXCL atÂ https://youtu.be/FQ2XGgbNXWY. Â Remember to label both axes of your perceptual map.
- Remember, you have a two-page limit so be judicious in your responses, do not report anything the company is or has done. You are now in charge at your company. We (your boss) are only interested in your thoughts at this point.
- Prepare your assignment by answering the following four areas of inquiry related to the learning outcomes noted above.
- Segmentation.Â Using the various criteria of the segmentation bases described in the week’s readings and in Table 4.1, identify at least two distinct market segments for your product or service.Â Each market segment description must include at leastÂ three (more if needed)Â of the characteristics from amongst any of the four bases categories, e.g. one from demographic variables, one or two from psychographic variables, and one from behavioral variables, or a similar scheme. Â Be sure to explain your choices based on what customer need the product or service offering can fill for each segment.
- Target market.Â Select one of the market segments you described in (1) above as the one you believe is or can be the most profitable for your product or service offering and explain why you feel they can represent growth for the company. Â Refer to the six criteria for an attractive market segment as described in course content under âSelecting Target Marketsâ.Â Name your target market so you can use this name throughout all of your remaining writing assignments. Â Your name should be descriptive of the segments characteristics like ‘savvy young shoppers’ or ‘educated baby boomers’, or ‘urban hipsters’, or the like. Â The goal is for your faculty member to get a mental image of your target market for the remainder of the semester.
- Target market strategy. Â Should the company focus all their resources on this new target market (concentrated marketing) or should they continue to pursue both the new and the existing target market as well as other market segments (multi-segment marketing)? Â Alternatively, is the market so saturated might they be more successful by focusing solely on an even more narrow market segment, perhaps an even narrower version (niche marketing) of your selected target market, as their best chance for growth? Â What is your reasoning?
- Positioning.Â Draw yourself a perceptual map as illustrated in the week’s readings or use the websites noted in the directions. Be sure to pick two criteria that are important to your new target market for your two axes, perhaps two of the criteria you used in Week 1 in your competitive analysis. Â Map at least the two major competitors you noted in Week 1 and add any others that you may have discovered since then. Â Describe what the perceptual map is telling you regarding how each product is perceived in the minds of the new target market you described above. Â You may have to make a series of educated guesses for some of the data points. Â Ideally, you want to find uncontested space. If your product overlaps with a competing offering discuss whether or not your product or service should try for an âuncontestedâ space on the map and ârepositionâ itself; or if it should keep the same position and compete head on with the other product. Â (You will have a chance to make changes to the product, the pricing and the distribution to change the product’s positioning and find uncontested space in the coming weeks).
Be sure to follow all of the submission requirements outlined in the syllabus and provided below again for your easy reference:
â˘Â Prepare as a word processed document (such as Microsoft Word).
â˘Â Your assignment should be the equivalent of two pages of double spaced text, approximately 1/2 page for each of the four questions.
â˘Â Be sure your name, writing assignment number, and the name of your product or service are on the first page of your writing assignment.
â˘Â Use a simple 12-point font such as Times New Roman. Â Use black ink for majority of your work and only use colors if it enhances your ability to communicate your thoughts.
â˘Â If the writing assignment requires external research, be sure to use footnotes and include a bibliography. Â You may use MLA or APA style, or any other college-level style guide. More information about using a style guide can be found in the UMUC’s virtual library accessible from your LEO classroom or at umuc.edu/library.
Week 4, “Market Segmenting, Targeting, and Positioning” was derived from Principles of Marketing, which was adapted by the Saylor Foundation under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported license without attribution as requested by the work’s original creator or licensee. ÂŠ 2015, The
Week 4 Market Segmenting, Targeting, and Positioning
Suppose you’ve created a great new offering you hope will become a hot seller. Before you quit
your day job to market it, you’ll need to ask yourself, “Who’s going to buy my product?” and “Will
there be enough of these people to make it worth my while?”
Certain people will be more interested in what you have to offer than others. Not everyone needs
homeowners’ insurance, not everyone needs physical therapy services, and not everyone needs
the latest and greatest cell phone. Among those that do, some will buy a few, and a few will buy
many. In other words, in terms of your potential buyers, not all of them are “created equal.” Some
customers are more equal than others, however. A number of people might be interested in your
product if it’s priced right. Other people might be interested if they simply are aware of the fact
that your product exists.
Your goal is to figure out who these people are. To do this, you will need to divide them into
different categories. The process of breaking down all consumers into groups of potential buyers
with similar characteristics is called market segmentation. The key question to ask yourself
when segmenting markets: What groups of buyers are similar enough that the same product or
service will appeal to all of them? (Barringer & Ireland, 2010). After all, your marketing budget is
likely to be limited. You need to focus on those people you truly have a shot at selling to and
tailoring your offering toward them.
Once market segments are identified, the next step is to identify which of those segments, if any,
the company wants to pursue with its limited resources and consistency with its mission. This is
called target marketing. A company may decide not to target market, in which case it is mass
marketing. But mass marketing is rare.
4.1 Targeted Marketing vs. Mass Marketing
1. Distinguish between targeted marketing and mass marketing and explain what led to the rise of each. 2. Describe how targeted marketing can benefit firms. 3. Explain why companies differentiate among their customers.
Choosing select groups of people and organizations to sell to is called targeted marketing,
or differentiated marketing. It is a relatively new phenomenon. Mass marketing,
or undifferentiated marketing, came first. It evolved along with mass production and involves
selling the same product to everybody. You didn’t need to conduct any market research to know
that a household could use an electric washing machine. Build it and they will come. You can
think of mass marketing as a shotgun approach: you blast out as many marketing messages as
possible on every medium available as often as you can afford (Spellings Jr., 2009). (By contrast,
targeted marketing is more like shooting a rifle; you take careful aim at one type of customer with
Automaker Henry Ford was very successful at both mass production and mass marketing. Ford
pioneered the modern-day assembly line early in the twentieth century, which helped him cost-
effectively pump out huge numbers of identical Model T automobiles. They came in only one
color: black. “Any customer can have a car painted any color he wants, so long as it is black,” Ford
used to joke. He also advertised in every major newspaper and persuaded all kinds of publications
to carry stories about the new, inexpensive cars. By 1918, half of all cars on America’s roads were
Model Ts (Ford, 1922).
You could forget about buying a custom Model T from Ford in the early 1900s. The good news?
The price was right.
Source: Unknown. Wikimedia Commons. In the public domain.
Then Alfred P. Sloan, the head of General Motors (GM), appeared on the scene. Sloan began to
segment consumers in the automobile marketâto divide them by the prices they wanted to pay
and the different cars they wanted to buy. His efforts were successful, and in the 1950s, GM
overtook Ford in the as the nation’s top automaker (Manzanedo, 2005). (You might be interested
to know that before GM declared bankruptcy in 2009, it was widely believed the automaker
actually had too many car models. Apparently, “old habits die hard,” as the saying goes.)
Benefits of Segmenting and Targeting Markets The story of General Motors raises an important point, which is that segmenting and targeting
markets doesn’t necessarily mean “skinnying down” the number of your customers. In fact, it can
help you enlarge your customer base by giving you information with which to successfully adjust
some component of your offeringâthe offering itself, its price, the way you service and market it,
and so on. More specifically, the process can help you do the following:
â˘ Avoid head-on competition with other firms trying to capture the same customers
â˘ Develop new offerings and expand profitable brands and product lines
â˘ Remarket older, less-profitable products and brands
â˘ Identify early adopters
â˘ Redistribute money and sales efforts to focus on your most profitable customers
â˘ Retain “at-risk” customers in danger of defecting to your competitors
The trend today is toward more precise, targeted marketing. Figuring out “who’s who” in terms of
your customers involves some detective work, thoughâoften market research. A variety of tools
and research techniques can be used to segment markets. Government agencies, such as the US
Census Bureau, collect and report vast amounts of population information and economic data
that can reveal changing consumption trends.
Technology is also making it easier for even small companies and entrepreneurs to gather
information about potential customers. For example, the online game company GamePUMA.com
originally believed its target market consisted of US customers. But when the firm looked more
closely at who was downloading games from its website, they were people from all over the globe.
The great product idea you had? As we explained in Week 3, “Consumer Behavior: How People
Make Buying Decisions,” companies are now using the Internet to track people’s web browsing
patterns and segment them into groups that can be marketed to. Even small businesses are able
to do this cost-effectively now because they don’t need their own software and programs. They
can simply sign up online for products like Google’s AdSense and AdWords programs. You can
locate potential customers by looking at blog sites and discussion forums on the web. Big-
boards.com has thousands of discussion forums you can mine to find potential customers. Do you
have a blog? Go to BlogPoll.com, and you can embed a survey in your blog to see what people
think of your idea. If you have a website, you can download an application onto your iPhone that
will give you up-to-the-minute information and statistics on your site’s visitors.
Getting a read on potential target markets doesn’t have to involve technology, though. Your own
experience and talking to would-be buyers is an important part of the puzzle. Go where you think
would-be buyers goârestaurants, malls, gyms, subways, grocery stores, day care centers, and
offices. Ask questions: What do buyers do during the day? What do they talk about? What
products or services do you see them using? Are they having an enjoyable experience when using
those products, or are they frustrated?
The Healthy Choice line of frozen dinners was launched by a heart attack victim.
Source: Photo by Ken. (2008). Flickr. Used under the terms of the Creative Commons Attribution-NonCommercial 2.0 Generic license.
Healthy Choice frozen dinners were conceived as a result of questioning potential customers. The
food-maker ConAgra launched the dinners in the late 1980s after its CEO, Charlie Harper,
suffered a heart attack. One day a colleague complimented Harper on his wife’s tasty low-fat
turkey stew. That’s when Harper realized there were people like him who wanted healthy
convenience foods, so he began talking to them about what they wanted. Two years after the
Healthy Choice line was launched, it controlled 10 percent of the frozen-dinner market (Birchall
Segmenting and Targeting a Firm’s Current Customers Finding and attracting new customers is generally more difficult than retaining your current
customers. People are creatures of habit. Think about how much time and energy you spend when
you switch your business from one firm to anotherâeven when you’re buying something as
simple as a haircut. If you aren’t happy with your hair and want to find a new hairdresser, you
first have to talk to people with haircuts you like or read reviews of salons. Once you decide to go
to a particular salon, you have to look it up on the Internet or your GPS device and hope you don’t
get lost. When you get to the salon, you explain to the new hairdresser how you want your hair cut
and hope he or she gets it right. You might also have to navigate different methods of payment.
Perhaps the new salon won’t accept your American Express card or won’t let you put the tip on
your card. However, once you have learned how the new salon operates, doing business with it
gets much easier.
The same is true for firms when it comes to finding new customers. Finding customers, getting to
know them, and figuring out what they really want is a difficult processâone that’s fraught with
trial and error. That’s why it’s so important to get to know and form relationships with your
current customers. Broadly speaking, your goal is to do as much business with each one of them
The economic downturn of the first decade in the 2000s drove home the point of making the most
of one’s current customers. During the downturn, new customers were hard to find, and firms’
advertising and marketing budgets were cut. Expensive, untargeted, shotgun-like marketing
campaigns that would probably produce spotty results were out of the question. Consequently,
many organizations chose to focus their selling efforts on current customers in hopes of retaining
their loyalty once the downturn was over (Birchall [a.], 2009).
This is the situation in which the adventure-based travel firm Backroads found itself in 2009. The
California-based company increased its revenues by creating a personalized marketing campaign
for people who had done business with Backroads in the past. The firm looked at information
such as customers’ past purchases, the seasons in which they took their trips, the levels of activity
associated with them, and whether or not the customers tended to vacation with children. The
company then created three relevant trip suggestions for each customer based on the information.
The information was sent to customers via postcards and e-mails with links to customized web
pages reminding them of the trips they had previously booked with Backroads and suggesting
new ones. “In terms of past customers, it was like off-the-charts better [than past campaigns],”
says Massimo Prioreschi, the vice president of Backroads’ sales and marketing group
In addition to studying buying patterns, firms also try to know their customers by surveying them
or hiring marketing research firms to do so. Firms also use loyalty programs to find out about
their customers. For example, if you sign up to become a frequent flier with a certain airline, the
airline will likely ask to you a number of questions about your likes and dislikes. This information
will then be entered into a customer relationship management (CRM) system, and you might be
e-mailed special deals based on the routes you tend to fly. British Airways goes so far as to track
the magazines its most elite fliers like to read so the publications are available on its planes.
Many firmsâeven small onesâare using Facebook to develop closer relationships with their
customers. At Hansen Cakes, a Beverly Hills (California) bakery, employee Suzi Finer posts “cake
updates” and photos of the goodies she’s working on to the company’s Facebook page. Along with
information about the cakes, Finer extends special offers to customers and mixes in any gossip
about Hollywood celebrities she’s spotted in the area. After Hansen Cakes launched its Facebook
page, the bakery’s sales shot up 15â20 percent. “And that’s during the recession,” noted Finer
(Graham, 2009). Twitter is another way companies are keeping in touch with their customers and
boosting their revenues. For example, when the homemaking maven Martha Stewart schedules a
book signing, she tweets her followers, and voilĂ âmany of them show up at the bookstore she’s
appearing at to buy copies. Finding ways to interact with customers that they enjoyâwhether it’s
meeting or “tweeting” them, or putting on events and tradeshows they want to attendâis the key
to forming relationships with them.
Remember what you learned in Week 2, “Customer Satisfaction, Loyalty, Empowerment , and
Management”: not all customers are created equal, including your current customers. Some
customers are highly profitable, and others aren’t. Still others will actually end up costing your
company money to serve. Consequently, you will want to interact with some more than others.
Believe it or not, some firms deliberately “untarget” unprofitable customers. That’s what Best Buy
did. In 2004, Best Buy got a lot of attention (not all good) when it was discovered the company
had categorized its buyers into “personas,” or types of buyers, and created customized sales
approaches for each. For example, an upper-middle-class woman was referred to as a “Jill.” A
young urban man was referred to as a “Buzz.” And pesky, bargain-hunting customers that Best
Buy couldn’t make much of a profit from? They were referred to as “devils” and taken off the
company’s mailing lists (Marco, 2009).
The knife cuts both ways, though. Not all firms are equal in the minds of consumers, who will
choose to do business with some companies rather than others. To consumers, market
segmentation means: meet my needsâgive me what I want (Market Segmentation, 2009).
“Steps in One-to-One Marketing” outlines the steps companies can take to target their best
customers, form close, personal relationships with them, and give them what they wantâa
process called one-to-one marketing. In terms of our shotgun vs. rifle approach, you can think
of one-to-one marketing as a rifle approach, but with an added advantage: now you have a scope
on your rifle.
One-to-one marketing is an idea proposed by Don Peppers and Martha Rogers in their 1994
book The One to One Future. The book described what life would be like after mass marketing.
We would all be able to get exactly what we want from sellers, and our relationships with them
would be collaborative, rather than adversarial. Are we there yet? Not quite. But it does seem to
be the direction the trend toward highly targeted marketing is leading.
Steps in One-to-One Marketing 1. Establish short-term measures to evaluate your efforts. Determine how you will
measure your effort. For example, will you use higher customer satisfaction ratings, increased
revenues earned per customer, number of products sold to customers, transaction costs, or
2. Identify your customers. Gather all the information you can about your current customers,
including their buying patterns, likes, and dislikes. When conducting business with them,
include an “opt in” question that allows you to legally gather and use their phone numbers and
e-mail addresses so you can remain in contact with them.
3. Differentiate among your customers. Determine who your best customers are in terms of
what they spend and will spend in the future (their customer lifetime value), and how easy or
difficult they are to serve. Identify and target customers that spend only small amounts with
you but large amounts with your competitors.
4. Interact with your customers, targeting your best ones. Find ways and mediums in
which to talk to customers about topics they’re interested in and enjoy. Spend the bulk of your
resources interacting with your best (high-value) customers. Minimize the time and money you
spend on low-value customers with low growth potential.
5. Customize your products and marketing messages to meet their needs. Try to
customize your marketing messages and products in order to give your customers exactly what
they wantâwhether it’s the product itself, its packaging, delivery, or the services associated
with it (Harler, 2008; Peppers & Rogers, 1999; Peppers, Rogers, & Dorf, 1999).
4 . 1 K E Y T A K E A W A Y
Choosing select groups of people to sell to is called targeted marketing, or differentiated marketing. Mass marketing, or undifferentiated marketing, involves selling the same product to everyone. The trend today is toward more precise, targeted marketing. Finding and attracting new customers is generally far more difficult than retaining one’s current customers, which is why organizations try to interact with and form relationships with their current customers. The goal of firms is to do as much business with their best customers as possible. Forming close, personal relationships with customers and giving them exactly what they want is a process called one-to-one marketing. It is the opposite of mass marketing.
4.2 How Markets Are Segmented
1. Understand and outline the ways in which markets are segmented. 2. Explain why marketers use some segmentation bases vs. others.
We will learn more about business markets and how they are segmented in Week 8. Now, we will
focus on consumer markets and how they can be segmented. In Week 3, “Consumer Behavior:
How People Make Buying Decisions,” we mentioned that certain factors drive consumers to buy
certain things. Many of the same factors can also be used to segment customers. A firm will often
use multiple segmentation bases, or criteria to classify buyers, to get a fuller picture of its
customers and create real value for them. Each variable adds a layer of information about those
buyers until you have a profile of a market segment.
There are all kinds of characteristics you can use to segment a market. You might not immediately
think of some of them. What about the physical sizes of people? “Big-and-tall” stores cater to the
segment of population that’s larger-sized. What about people with wide or narrow feet, or people
with medical conditions, certain hobbies, or different sexual orientations? Next, we’ll look at some
of the more common characteristics market researchers look at when segmenting buyers.
Types of Segmentation Bases Table 4.1, “Common Ways of Segmenting Buyers,” shows some of the different types of buyer
characteristics used to segment markets. Notice that the characteristics fall into one of four
segmentation categories: behavioral, demographic, geographic, or psychographic. We’ll discuss
each of these categories in a moment. For now, you can get a rough idea of what the categories
consist of by looking at them in terms of how marketing professionals might answer the following
â˘ Behavioral segmentation. What benefits do customers want, and how do they use our
â˘ Demographic segmentation. How do the ages, races, and ethnic backgrounds of our
customers affect what they buy?
â˘ Geographic segmentation. Where are our customers located, and how can we reach
them? What products do they buy based on their locations?
â˘ Psychographic segmentation. What do our customers think about and value? How
do they live their lives?
Table 4.1 Common Ways of Segmenting Buyers
By Behavior By Demographics By Geography By Psychographics
â˘ Benefits sought from the product â˘ How often the product is used
(usage rate) â˘ Usage situation (daily use,
holiday use, etc.) â˘ Buyer’s status and loyalty to
product (nonuser, potential user, first-time users, regular user)
â˘ Age/generation â˘ Income â˘ Gender â˘ Family life cycle â˘ Ethnicity â˘ Family size â˘ Occupation â˘ Education â˘ Nationality â˘ Religion â˘ Social class
â˘ Region (continent, country, state, neighborhood)
â˘ Size of city or town â˘ Population density â˘ Climate
â˘ Activities â˘ Interests â˘ Opinions â˘ Values â˘ Attitudes â˘ Lifestyles
Segmenting by Behavior Behavioral segmentation divides people into groups according to how they behave with or act
toward products. Benefits segmentationâsegmenting buyers by the benefits they want from
productsâis very common. Take toothpaste, for example. Which benefit is most important to you
when you buy toothpaste: the toothpaste’s price, ability to whiten your teeth, fight tooth decay,
freshen your breath, or something else? Perhaps it’s a combination of two or more benefits. If
marketing professionals know what those benefits are, they can then tailor different toothpaste
offerings to you (and other people like you). For example, Colgate 2-in-1 Toothpaste &
Mouthwash, Whitening Icy Blast is aimed at people who want the benefits of both fresher breath
and whiter teeth.
Another way in which businesses segment buyers is by their usage ratesâthat is, how often, if
ever, they use certain products. For example, the entertainment and gaming company Harrah’s
gathers information about the people who gamble at its casinos. High rollers, or people who
spend a lot of money, are considered “VIPs.” VIPs get special treatment, including a personal
“host” who looks after their needs during their casino visits. Companies are interested in frequent
users because they want to reach others like them. They are also keenly interested in nonusers
and how they can be persuaded to use products.
The way in which people use products is also a basis for segmentation. Avon Skin So Soft was
originally a beauty product. But after Avon discovered that some people were using it as a
mosquito repellant, the company began marketing it for that purpose. Eventually, Avon created a
separate product called Skin So Soft Bug Guard, which competes with repellents like Off!
Similarly, Glad, the company that makes plastic wrap and bags, found out customers were using
its Press ‘n Seal wrap in ways the company could never have imagined. The personnel in Glad’s
marketing department subsequently launched a website called 1000uses.com that contained both
the company and consumers’ use tips. Some of the ways in which people use the product are
pretty unusual, as evidenced by the following comment posted on the site: “I have a hedgehog
who likes to run on his wheel a lot. After quite a while of cleaning a gross wheel every morning, I
got the tip to use ‘Press ‘n Seal wrap’ on his wheel, making clean up much easier! My hedgie can
run all he wants, and I don’t have to think about the cleanup. Now we’re both GLAD!” (Glad,
Although we doubt Glad will ever go to great lengths to segment the Press ‘n Seal market by
hedgehog owners, the firm has certainly gathered a lot of good consumer insight about the
product and publicity from its 1000uses.com website.
Segmenting by Demographics Segmenting buyers by tangible, personal characteristics such as their ages, incomes, ethnicity,
family sizes, and so forth is called demographic segmentation. This section will discuss some
prominent demographic characteristics used to segment buyers, including age, income, gender,
and family life cycles. Other demographic characteristics include occupation, education,
nationality, religion, and social class.
Demographics are commonly used to segment markets because a mountain of demographic
information is publicly available in databases around the world. You can obtain a great deal of
demographic information on the US Census Bureau’s website (http://www.census.gov). Other
government websites you can tap include FedStats (http://fedstats.sites.usa.gov/) and The World
Factbook (https://www.cia.gov/library/publications/the-world-factbook/index.html), which
contains statistics about countries around the world. In addition to current statistics, the sites
contain forecasts of demographic trends, such as whether some segments of the population are
expected to grow or decline.
At some point in your life, you are more likely to buy your first home than a funeral plot.
Marketing professionals know this. That’s why they try to segment consumers by their ages.
You’re probably familiar with some of the age groups most commonly segmented in the United
States. They are shown in Table 5.2, “US Generations and Characteristics.” Into which category do
Table 5.2 US Generations and Characteristics
Generation Also Known As Birth Years Characteristics
Seniors “The Silent Generation,” “Matures,” “Veterans,” and “Traditionalists”
1945 and prior
â˘ Experienced very limited credit growing up
â˘ Tend to live within their means â˘ Spend more on health care than
any other age group â˘ Internet usage rates increasing
faster than any other group
Baby Boomers 1946â 1964
â˘ Second-largest generation in the United States
â˘ Grew up in prosperous times before the widespread use of credit
â˘ Account for 50 percent of US consumer spending
â˘ Willing to use new technologies as they see fit
Generation X 1965â 1979
â˘ Comfortable but cautious about borrowing
â˘ Buying habits characterized by their life stages
â˘ Embrace technology and multitasking
Generation Y “Millennials,” “Echo Boomers,” includes “Tweens” (preteens)
â˘ Largest US generation â˘ Grew up with credit cards â˘ Adept at multitasking; technology
use is innate â˘ Ignore irrelevant media
Note: Not all demographers agree on the cutoff dates between the generations. Sources: U.S. Census Bureau, http://www.census.gov/population/www/popdata.html; Richard K. Miller and Kelli Washington, The 2009 Entertainment, Media & Advertising Market Research Handbook, 10th ed. Loganville, GA: Richard K. Miller & Associates, 2009, 157â66; Sydney Jones and Susannah Fox, “Generations Online in 2009,” Pew Research Center,http://www.pewinternet.org/Reports/2009/Generations-Online-in-2009.aspx; Maria Paniritas, “Generation Gap: Boomers, Xers Are Reining in Spending,” Philadelphia Inquirer, August 2, 2009, http://articles.philly.com/2009-08-02/business/25275378_1_spending-habits-boomers-consumer-economy.
Today, Generation Y is the largest generation. The baby boomer generation is the second largest,
and over the course of the last 30 years, it has been a very attractive market for sellers.
Retro brandsâold brands or products that companies “bring back” for a period of timeâwere
aimed at baby boomers during the economic downturn in the early 2000s. Pepsi Throwback and
Mountain Dew Throwback, which are made with cane sugarâlike they were “back in the good old
days”âinstead of corn syrup, are examples (Schlacter, 2009). Take a look at Figure 4.3
illustrating Coke’s retro look bottle. This was the original Coca-Cola bottle from Coke’s early
history through the mid-twentieth century when technology allowed for cans and simpler bottle
designs. Marketing professionals believe they appealed to baby boomers because they reminded
them of better timesâtimes when they didn’t have to worry about being laid off, about losing their
homes, or about their retirement funds and pensions drying up.
Figure 4.3 Coca-Cola’s Retro Look Bottle
If you are old enough to remember this bottle, you are
probably a baby boomer, and the bottle design may
appeal to you when buying soft drinks.
Source: Photo by Kansir. (2012). Flickr. Used under the terms of the Creative Commons Attribution 2.0 Generic license.
But baby boomers are aging, and the size of the group will eventually decline. By contrast, the
members of Generation Y have a lifetime of buying still ahead of them, which translates to a lot of
potential customer lifetime value (CLV) for marketers if they can capture this group of buyers.
However, a survey found that the latest recession had forced teens to change their spending
habits and college plans, and that roughly half of older Generation Yers reported they had no
savings (Fort Worth Star-Telegram, 2009).
So which group or groups should your firm target? Although it’s hard to be all things to all people,
many companies try to broaden their customer bases by appealing to multiple generations so they
don’t lose market share when demographics change. Several companies have introduced lower-
cost brands targeting Generation Xers, who have less spending power than boomers. For
example, kitchenware and home-furnishings company Williams-Sonoma opened the Elm Street
chain, a less-pricey version of the Pottery Barn franchise. The Starwood hotel chain’s W hotels,
which feature contemporary designs and hip bars, are aimed at Generation Xers (Miller &
The video game market is very proud of the fact that along with Generation X and Generation Y,
many older Americans still play video games. (You probably know some baby boomers who own a
Nintendo Wii.) The spa market is another example. Products and services in this market used to
be aimed squarely at adults. Not anymore. Parents are now paying for their tweens to get facials,
pedicures, and other pampering in numbers no one in years past could have imagined.
Staying abreast of changing demographics can be a matter of life or death for many companies. As
early as the 1970s, US automakers found themselves in trouble because of demographic reasons.
Many of the companies’ buyers were older Americans inclined to “buy American.” These people
hadn’t forgotten that Japan bombed Pearl Harbor during World War II and weren’t about to buy
Japanese vehicles. But younger Americans were. Plus, Japanese cars had developed a better
reputation. Despite the challenges US automakers face today, they have taken great pains to cater
to the “younger” generationâtoday’s baby boomers who don’t think of themselves as being old. If
you are a car buff, you perhaps have noticed that the once-stodgy Cadillac now has a sportier look
and stiffer suspension.
And what about Generations X and Y? Automakers have begun reaching out to them, too. General
Motors (GM) has sought to revamp the century-old company by hiring a new younger group of
managersâmanagers who understand how Generation X and Y consumers are wired and what
they want. “If you’re going to appeal to my daughter, you’re going to have to be in the digital
world,” explained one GM vice president (Cox, 2009).
Companies have to not only develop new products designed to appeal to Generations X and Y but
also find new ways to reach them. People in these generations not only tend to ignore traditional
advertising but also are downright annoyed by it. To market to Scion drivers, who are generally
younger, Toyota created Scion Speak, a social networking site where they can communicate,
socialize, and view cool new models of the car. Online events such as the fashion shows broadcast
over the web are also getting the attention of younger consumers, as are text, e-mail, and Twitter
messages they can sign up to receive so as to get coupons, cash, and free merchandise.
Tweens might appear to be a very attractive market when you consider they will be buying
products for years to come. But would you change your mind if you knew that baby boomers
account for 50 percent of all consumer spending in the United States? Americans over 65 now
control nearly three-quarters of the net worth of US households; this group spends $200 billion a
year on major “discretionary” (optional) purchases such as luxury cars, alcohol, vacations, and
financial products (Reisenwitz, Iyer, Kuhlmeier, & Eastman, 2007).
Income is used as a segmentation variable because it indicates a group’s buying power. People’s
incomes also tend to reflect their education levels, occupation, and social classes. Higher
education levels usually result in higher-paying jobs and greater social status.
The makers of upscale products such as Rolexes and Lamborghinis aim their products at high-
income groups. However, a growing number of firms are aiming their products at lower-income
consumers. The fastest-growing product in the financial services sector is prepaid debit cards,
most of which are being bought and used by people who don’t have bank accounts. Firms are
finding that this group is a large, untapped pool of customers who tend to be more brand-loyal
than most. If you capture enough of them, you can earn a profit (von Hoffman, 2006).
Sometimes income isn’t always indicative of who will buy your product, however. Companies are
aware that many consumers want to be in higher-income groups and behave like they are already
part of them (recall the reference groups discussed in Week 3, “Consumer Behavior: How People
Make Buying Decisions”). Mercedes Benz’s cheaper line of “C” class vehicles is designed to appeal
to these consumers.
Gender is another way to segment consumers. As we explained in Week 3, “Consumer Behavior:
How People Make Buying Decisions,” men and women have different physiological and other
needs. They also shop differently. Consequently, the two groups are often, but not always,
segmented and targeted differently. Marketing professionals don’t stop there, though. For
example, because women make many of the purchases for their households, market researchers
sometimes try to further divide them into subsegments. (Men are also often subsegmented.) For
women, those segments might include stay-at-home housewives, plan-to-work housewives, just-
a-job working women, and career-oriented working women. Women who are solely homemakers
tend to spend more money, research has foundâperhaps because they have more time.
In addition to segmenting by gender, market researchers might couple people’s genders along
with their marital statuses and other demographic characteristics. For, example, did you know
that more women in America than ever before (51 percent) now live without spouses? Can you
think of any marketing opportunities this might present? (Barry, Gilly, & Doran, 1985).
Family Life Cycle
Family life cycle refers to the stages families go through over time and how the stages affect
people’s buying behavior. The primary life cycle stages used by marketers are illustrated in Figure
4.4. For example, if you have no children, your demand for pediatric services (medical care for
children) is likely to be slim to none. But if you have children or adopt them, your demand might
be very high because children frequently get sick. You will be part of the target market not only for
pediatric services but also for a host of other products, such as children’s clothing, entertainment
services, and educational products.
A secondary segment of interested consumers might be grandparents who are likely to spend less
on day-to-day child care items but more on special-occasion gifts for children. In fact, many
markets are segmented based on the special events in people’s lives. Think about brides (and
wannabe brides) and all the products targeted at them, including websites and television shows
such as Platinum Weddings, Married Away, Whose Wedding Is It Anyway, and Bridezilla.
Figure 4.4 Family Life Cycle Stages
One main concern of marketing research firms is how to identify the
similarities and differences between various life-stage segments.
Source: Mediamark Research, Inc. (1990), Lifestage Marketing. Mediamark Research: New York.
Resorts also segment vacationers depending on where they are in their family life cycles. When
you think of family vacations, you probably think of Disney resorts. Some vacation properties,
such as Sandals, exclude children from some of their resorts. Perhaps they do so because some
studies show that the market segment with greatest financial potential is married couples without
children (Barry, Gilly, & Doran, 1985).
Keep in mind that although you might be able to isolate a segment in the marketplace, including
one based on the family life cycle, you can’t make necessarily make assumptions about what the
people in it will want. Just like people’s demographics change, so do their tastes. For example,
over the past few decades, US families have been getting smaller. Households with a single
occupant are more common than ever. But that hasn’t stopped people from demanding bigger
cars (and more of them) as well as larger houses, or what some people jokingly refer to as
But like the trend toward larger cars, the trend toward larger houses appears to be reversing. High
energy costs, the credit crunch, and concern for the environment are leading people to demand
smaller houses. To attract people such as these, D. R. Horton, a leading national homebuilder,
and other construction firms are now building smaller homes.
People’s ethnic backgrounds have a big impact on what they buy. If you’ve visited a grocery store
that caters to a different ethnic group than your own, you were probably surprised to see the types
of products sold there.
It’s no secret that the United States is becomingâand will continue to becomeâmore diverse.
Hispanic Americans are the largest and the fastest-growing minority in the United States.
Companies are courting this once-overlooked group. In California, the health care provider Kaiser
Permanente runs television ads letting members of this segment know that they can request
Spanish-speaking physicians, and that Spanish-speaking nurses, telephone operators, and
translators are available at all of its clinics (Berkowitz, 2006).
African Americans are the second-largest ethnic group in America. Collectively, they have the
most buying power of any ethnic group in America. Many people of Asian descent are known to be
early adapters of new technology and have above-average incomes. As a result, companies that
sell electronic products, such as AT&T, spend more money segmenting and targeting the Asian
community (Insight Research Corporation, 2003). Table 4.3, “Major US Ethnic Segments and
Their Spending,” contains information about the number of people in these groups and their
Table 4.3 Major US Ethnic Segments and Their Spending
Group Percentage of US Population Annual Spending Power (Billions of Dollars)
Hispanic 13.7 736
African American 13.0 761
Asian 5.0 397
Source: New American Dimensions, LLC.
As you can guess, even within ethnic groups, there are many differences in terms of the goods and
services buyers choose. Consequently, looking broadly at each group would leave an incomplete
picture of your buyers. For example, although the common ancestral language among the
Hispanic segment is Spanish, Hispanics trace their lineages to different countries. Nearly 70
percent of Hispanics in the United States trace their lineage to Mexico; others trace theirs to
Central America, South America, and the Caribbean.
The Asian ethnic group has distinct divisions. Chinese, Japanese, and Korean immigrants do not
share the same language (Insight Research Corporation, 2003). Moreover, both the Asian and
Hispanic market segments include new immigrants, people who immigrated to the United States
years ago, and native-born Americans. So what language will you use to communicate your
offerings to these people, and where?
Subsegmenting the markets could potentially help you. New American Dimensions, a
multicultural research firm, has further divided the Hispanic market into the following
subsegments (HispanicAd.com, 2008):
â˘ Just moved in’rs. Recent arrivals, Spanish-dependent, struggling but optimistic.
â˘ FOBrs (fashionistas on a budget). Spanish-dominant, traditional, but striving for
â˘ Accidental explorers. Spanish-preferred, not in a rush to embrace US culture.
â˘ The englightened. Bilingual, technology-savvy, driven, educated, modern.
â˘ Doubting TomĂĄses. Bilingual, independent, skeptical, inactive, shopping uninvolved.
â˘ Latin flavored. English-preferred, reconnecting with Hispanic traditions.
â˘ SYLrs (single, young Latinos). English-dominant, free thinkers, multicultural.
You could go so far as to break down segments to the individual level (which is the goal behind
one-to-one marketing). However, doing so would be expensive, notes Juan Guillermo Tornoe, a
marketing expert who specializes in Hispanic issues. After all, are you really going to develop
different products for each of the groups? Different marketing campaigns and communications?
Perhaps not. However, “you need to perform your due diligence and understand where the
majority of the people you are trying to reach land on this matrix, modifying your message
according to this insight,” Tornoe (2008) explains.
Segmenting by Geography Where will your customers come from? Suppose your new product or service idea involves
opening a local store. Before you open the store, you will probably want to do some research to
determine which geographical areas have the best potential. For instance, if your business is a
high-end restaurant, should it be located near the local college or country club? If you sell ski
equipment, you probably will want to locate your shop in the vicinity of a mountain range where
there is skiing. You might see a snowboard shop in the same area but probably not a surfboard
shop. By contrast, a surfboard shop is likely to be located along the coast, but you probably would
not find a snowboard shop on the beach.
Geographic segmentation explains why the checkout clerks at stores sometimes ask you what
your zip code is. It’s also why businesses print codes on coupons that correspond to zip codes.
When the coupons are redeemed, the store can then find out where its customers are locatedâor
not located. Geocoding is a process that takes data such as this and plots it on a map. Geocoding
can help businesses see where prospective customers might be clustered and target them with
various ad campaigns, including direct mail, for example.
One of the most popular geocoding software programs is PRIZM NE, which is produced by a
company called Claritas. PRIZM NE uses zip codes and demographic information to classify the
American population into segments. The idea behind PRIZM is that “you are where you live.”
Combining both demographic and geographic information is referred to as geodemographics.
To see how geodemographics works, visit the following page on Claritasâ
Type in your zip code, and you will see customer profiles of the types of buyers who live in your
area. Table 4.4, “An Example of Geodemographic Segmentation for 76137 (Fort Worth,
TX),” shows the profiles of buyers who can be found in the zip code 76137âthe “Brite Lites, Li’l
City” bunch, Home Sweet Home” set, and so on. Click on the profiles on the Claritas site to see
which one most resembles you.
Table 4.4 An Example of Geodemographic Segmentation for 76137 (Fort Worth, TX)
Number Profile Name
12 Brite Lites, Li’l City
19 Home Sweet Home
13 Upward Bound
34 White Picket Fences
The tourism bureau for the state of Michigan was able to identify different customer profiles and
target them using PRIZM. Michigan’s biggest travel segment are Chicagoans in certain zip codes
consisting of upper-middle-class households with childrenâor the “kids in cul-de-sacs” group, as
Claritas puts it. The bureau was also able to identify segments significantly different from the
Chicago segment, including blue-collar adults in the Cleveland area who vacation without their
children. The organization then created significantly different marketing campaigns to appeal to
City size and population density (the number of people per square mile) are also used for
segmentation purposes. Have you ever noticed that in rural towns, McDonald’s restaurants are
hard to find? But Dairy Queens are usually easy to locate. McDonald’s generally won’t put a store
in a town of fewer than 5,000 people. However, this is prime turf for the “DQ”âfor one, because it
doesn’t have to compete with bigger franchises like McDonald’s.
Proximity marketing is an interesting new technology firms are using to segment buyers
geographically and target them within a few hundred feet of their businesses using wireless
technology. In some areas, you can switch your mobile phone to a “discoverable mode” while
you’re shopping and, if you want, get ads and deals from stores as you pass by them. And it’s often
less expensive than hiring people to hand you a flier as you walk by (Bluetomorrow.com, 2007).
In addition to figuring out where to locate stores and advertise to customers in that area,
geographic segmentation helps firms tailor their products. Chances are you won’t be able to find
the same heavy winter coat you see at a Walmart in Montana at a Walmart in Florida because of
the climate differences. Market researchers also look at migration patterns to evaluate
opportunities. TexMex restaurants are commonly found in the southwestern United States.
However, northern states are now seeing more of them as more people of Hispanic descent move