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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. © 2015, The

Saylor Foundation.

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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

LEARNING OBJECTIVES

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.

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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

your message.)

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).

Figure 4.1

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.

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Then Alfred P. Sloan, the head of General Motors (GM), appeared on the scene. Sloan began to

segment consumers in the automobile market—to 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 offering—the offering itself, its price, the way you service and market it,

and so on. More specifically, the process can help you do the following:

• Avoid head-on competition with other firms trying to capture the same customers