The first step that nutrisystem likely took in selecting a target market was ________.

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Sharpen the Focus: Target Marketing Strategies and Customer Relationship Management

Real People Profiles

A Decision Maker at PBS Kids Sprout Jim Multari is the director of research for PBS Kids Sprout, the first 24-hour pre- school destination available on TV, on demand, and online for kids ages 2–5 and their parents and caregivers. Sprout’s programming features trusted favorites like The Wiggles and Sesame Street, plus innovative originals such as The Sunny Side Up Show and The Good Night Show.

Jim manages marketing, program- ming, and ad sales research for Sprout. He collaborates with all internal business units and has been a contributor to nu- merous initiatives related to custom

studies and new methodologies. Sprout’s recent research on kids’ usage of video on demand (VOD), alternative media viewership metrics, and creative concept testing has been a key driver of network strategy and has won multiple industry awards, in- cluding a silver David Ogilvy Award (the Advertising Research Foundation’s award for excellence in advertising research) and the Cable & Telecommunications Associ- ation for Marketing (CTAM) Research Case Study Award. He received a BA in com- munications and psychology from Marymount University in Arlington, VA, and an MBA from Saint Joseph’s University.

Jim’s Info

What do I do when I’m not working? A) Running.

First job out of school? A) Research analyst for a customer satisfaction research company. In those days, surveys were still paper and pencil!

Career high? A) Winning a David Ogilvy Award.

Business book I’m reading now? A) 7 Habits of Highly Effective People by Stephen Covey.

My motto to live by? A) Your answer to the question “What are you reading?” should never be “Nothing.”

What drives me? A) My family.

My management style? A) Collaborate, communicate, and think strategically.

Don’t do this when interviewing with me? A) Not ask questions.

Profile Info

Jim Multari

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The Sprout marketing team faced three significant challenges when they launched the channel in

2005. First, Sprout was (and still is today) considered an “emerging net- work,” relatively small compared to the more established kids’ networks (Disney Channel, Nickelodeon, etc.). As a result, the marketing team had to

develop creative ways to reach viewers of the network, nonviewers of the network, as well as cable and satellite TV operators, to com- municate Sprout’s unique content and for- mat. Sprout’s programming is designed to foster parent-preschooler interaction through gold-standard, curriculum-based shows and short-form original programs. It inspires con- versation, activities (i.e., making crafts), ex- ploration/discovery, play, learning, exercise, healthy eating, and so on. Sprout is different from other networks because it really is an active viewing experience and truly a net- work “made for you, by you.” Whether it’s sharing homemade birthday cards and crafts with Chica on The Sunny Side Up Show, watching viewer-submitted videos on The Sprout Sharing Show, or making a craft and reading bedtime stories on The Good Night Show, Sprout is the only network that actu- ally shares with its audience, while also en- couraging parent-child interaction at home.

The second marketing challenge was that Sprout is essentially a “library channel”; its programming mainly con- sists of previously aired kids’ shows, repackaged and represented around short original content and brand identity links. Although the presentation makes the entire package feel new and fresh, there was a risk that parents wouldn’t see a reason to tune in, and cable and satellite providers wouldn’t see a reason to launch the channel. Sprout needed to find a way to break through and be heard by both audiences in order to support its unique claim that it fosters parent-child interaction.

The third and most significant challenge was that Sprout is not a brand that is fully distributed (available in all U.S. television households). Early on, Sprout was available in just 30 million households. Thus, the channel’s tar- get audiences consisted of both preschool families that were aware of watching Sprout and families that were unaware of Sprout and/or had never interacted with the brand.

In early 2007, Sprout began work on its first-ever consumer-targeted brand awareness advertising campaign. The critical marketing decision was to decide which audience to target: Should the upstart channel target view- ers of Sprout, nonviewers of Sprout, or should it somehow find a way of reaching both audiences with the same campaign?

Current viewers understand and enjoy the Sprout brand, are seamlessly navigating across all of Sprout’s platforms, and are likely submitting content. Reaching them with the campaign would likely mean television spots on Sprout, print ads in parenting and other relevant magazines, as well as a highly targeted digital media approach (banner ads, promotions via social media outlets, etc.).

Nonviewers have little understanding at all of Sprout, though they may have immediate positive associations due to Sprout’s relationship with PBS

Kids (Sprout is a partnership in which PBS has an interest) Because moms are the key media decision makers in preschool households, the campaign would need to resonate with them (both functionally and emotionally) while also indirectly being of some interest to preschoolers. Reaching this audience would require a broader mix of media and markets to maximize the cam- paign’s reach.

As director of research, Jim’s role was to ensure that all strategic deci- sions were supported by actionable consumer insights.

Jim and the Sprout marketing team considered their Options 1 • 2 • 3

Target Sprout viewers with the marketing campaign. This option would enable the channel to develop a tightly focused campaign that its core audience could rally behind. Hopefully this identification would be a catalyst to motivate them to tell their friends and family about Sprout, invite them to further par- ticipate in the Sprout experience, and so on. But Sprout’s viewer

base at the time was relatively small. Also, there was no guarantee that busy Sprout families would be motivated to help “spread the word” about the programming.

Produce a campaign that was specifically designed for nonviewers of Sprout. This approach would require a more functionally descriptive campaign that introduced consumers to the network, its unique programming format, the different us- age platforms, and so forth. A campaign that targeted nonview- ers would attract a much larger audience. If it was executed

properly, families in general (regardless of whether they already viewed Sprout) would be interested in the message. Of course, the marketing team would need to do a lot of heavy lifting to educate unaware audiences about Sprout, how the brand works, and how they could participate. This approach would not engage Sprout enthusiasts, so there would not be an opportunity to reinforce them for their loyalty.

Target both Sprout viewers/awares as well as nonview- ers, all within the same creative campaign. An all-inclusive campaign would maximize Sprout’s exposure and attract fami- lies in general. However, speaking to two audience segments with the same campaign would be complicated. The campaign would need to communicate both the functional benefits of the

brand to attract nonviewers and also reinforce the emotional rewards that Sprout viewers receive when they watch the channel’s programs with their preschoolers.

You Choose

Which Option would you choose, and why?

1. YES NO 2. YES NO 3. YES NO

Here’s my problem. . . Real People, Real Choices

183

Option

Option

Option

See what option Jim chose on page 209

Things to remember

Sprout is a relatively small presence in the children's TV programming market. Jim needs to weigh the value of providing more value to the current viewership versus attracting new viewers.

There are really two segments of viewers—young kids and their parents. Both groups play different roles in deciding what shows the kids will watch.

Sprout's position in the market is a bit ambiguous. It is affiliated with PBS (Public Broadcasting) but it also offers other programming.

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Target Marketing Strategy: Select and Enter a Market By now, you’ve read over and over that the goal of the marketer is to create value, build customer relationships, and satisfy needs. But in our modern, complex society, it’s naive to assume that everyone’s needs are the same. Understanding people’s needs is an even more complex

task today because technological and cultural advances in modern society create a condition of market fragmentation. This means that people’s diverse interests and backgrounds divide them into numerous groups with distinct needs and wants. Because of this diversity, the same good or service will not appeal to everyone.

Consider, for example, the effects of fragmentation in the health-and- fitness industry—one that has gained increasing attention due to recent data about skyrocketing rates of obesity among adults and children. Back in the 1960s, dieting was simple. Pritikin was a best-selling weight loss system that emphasized very low fat and high fiber, and health-conscious consumers thought that this combination would surely yield a lean body and good health. Today’s consumers, however, have a cornucopia of diets from which to choose including such brands as NutriSystem, Weight Watchers, Jenny Craig, Optifast, FitAmerica, the Atkins diet, and many more. Calories, fat, carbs, or all of the above—which to cut?

Marketers must balance the efficiency of mass marketing where they serve the same items to everyone, with effectiveness that comes when they of- fer each individual exactly what he or she wants. Mass marketing certainly costs much less; when we offer one product to everyone we eliminate the need for separate advertising campaigns and distinctive packages for each item. However, consumers see things differently; from their perspective the best strategy would be to offer the perfect product just for them. Unfortu- nately, that’s often not realistic. To this day, Burger King touts its longtime motto “Have It Your Way,” but BK can only deliver this promise to a point: “Your way” is fine as long as you stay within the confines of familiar condi- ments such as mustard or ketchup. Don’t dream of topping your burger with blue cheese, mango sauce, or some other “exotic” ingredient.

Instead of trying to sell something to everyone, marketers select a target marketing strategy in which they divide the total market into different seg- ments based on customer characteristics, select one or more segments, and develop products to meet the needs of those specific segments. Figure 7.1 illustrates the three-step process of segmentation, targeting, and positioning, and it’s what we’re going to check out in this chapter. Let’s start with the first step—segmentation.

Chapter 7

184 PART TWO | UNDERSTAND CONSUMERS’ VALUE NEEDS

Objective Outline 1. Identify the steps in the target

marketing process.

TARGET MARKETING STRATEGY: SELECT AND ENTER A MARKET (p. 184)

2. Understand the need for market segmentation and the approaches available to do it.

STEP 1: SEGMENTATION (p. 185)

3. Explain how marketers evaluate segments and choose a targeting strategy.

STEP 2: TARGETING (p. 201)

4. Understand how marketers develop and implement a positioning strategy.

STEP 3: POSITIONING (p. 201)

5. Explain how marketers increase long-term success and profits by practicing customer relationship management.

CUSTOMER RELATIONSHIP MANAGEMENT (CRM): TOWARD A SEGMENT OF ONE (p. 204)

(pp. 204–208)

(pp. 201–204)

(pp. 198–201)

(pp. 185–198)

(pp. 184–185)

Check out chapter 7 Study Map on page 210

1 OBJECTIVE

Identify the steps in

the target marketing

process. (pp. 184–185)

target marketing strategy Dividing the total market into different segments on the basis of customer characteristics, selecting one or more segments, and developing products to meet the needs of those specific segments.

market fragmentation The creation of many consumer groups due to a diversity of distinct needs and wants in modern society.

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CHAPTER 7 | SHARPEN THE FOCUS 185

1. Segmentation Identify and describe market segments

2. Targeting Evaluate segments and decide which to go after

3. Positioning Develop a marketing mix that will create a competitive advantage in the minds of the selected target market

Figure 7.1 Process | Steps in the Target Marketing Process Target marketing strategy consists of three separate steps. Marketers first divide the market into segments based on customer characteristics, then select one or more segments, and finally develop products to meet the needs of those specific segments.

Step 1: Segmentation Segmentation is the process of dividing a larger market into smaller pieces based on one or more meaningfully shared characteristics. This process is a way of life for almost all marketers in both consumer and business-to-business markets. The truth is that you can’t please all the people all the time, so you need to take your best shot. Just how do mar- keters segment a population? How do they divide the whole pie into smaller slices they can “digest”? The marketer must decide on one or more useful segmentation variables—that is, dimensions that divide the total market into fairly homogeneous groups, each with different

needs and preferences. In this section, we’ll take a look at this process, beginning with the types of segmentation variables that marketers use to divide up end-user consumers. Then we’ll move on to business-to-business segmentation.

Segment Consumer Markets At one time, it was sufficient to divide the sports shoe market into athletes and nonathletes. But take a walk through any sporting goods store today: You’ll quickly see that the athlete market has fragmented in many directions. Shoes designed for jogging, basketball, tennis, cycling, cross training, and even skateboarding beckon us from the aisles.

During the late 1990s Converse began falling well behind its competitors such as Reebok and Nike, which successfully targeted the younger demographic as they tied their shoes (pun intended!) to popular athletes who acted as marketing machines for the brands. Converse needed to find a way to appeal to the younger generation as well. More specifi- cally, the marketers at Converse (which Nike acquired in 2003) wanted to target Generation Y— people born between 1979 and 1994.1 They found their stride when they reminded these consumers that cultural icons they admired like Kurt Cobain and Jackson Pollock once wore Converse shoes. These messages appealed to Gen Y “optimistic rebels” who were looking for a “blank canvas for self-expression.”2

We need several segmentation variables if we want to slice up the market for all the shoe variations available today. First, not everyone is willing or able to drop $150 on the latest sneakers, so marketers consider income. Second, men may be more interested in

segmentation The process of dividing a larger market into smaller pieces based on one or more meaningfully shared characteristics.

segmentation variables Dimensions that divide the total market into fairly homogeneous groups, each with different needs and preferences.

Generation Y The group of consumers born between 1979 and 1994.

2 OBJECTIVE

Understand the need

for market

segmentation and the

approaches available

to do it.

(pp. 185–198)

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186 PART TWO | UNDERSTAND CONSUMERS’ VALUE NEEDS

basketball shoes while women snap up the latest Pilates styles, so marketers also consider gender. Because not all age groups are equally interested in buying specialized athletic shoes, we can slice the larger consumer “pie” into smaller pieces in a number of ways, in- cluding demographic, psychographic, and behavioral differences. In the case of demo- graphic segmentation there are several key subcategories of demographics: age (including generational differences), gender, family life cycle, income and social class, ethnicity, and place of residence, sometimes referred to separately as geographic segmentation. Figure 7.2 summarizes the various approaches to segmenting consumer markets.

In the sections that follow we’ll consider each of these segmentation approaches in turn, but first a note of caution. When it comes to marketing to some groups—in particu- lar, lower income individuals, the poorly educated, non-native language speakers, and children—it is incumbent on marketers to exercise the utmost care not to take undue ad- vantage of their circumstances. Ethical marketers are sensitive to the different conditions in which people find themselves and proactively work to uphold a high level of honesty and trust with all segments of the public. Doing so is nothing short of marketing’s social responsibility.

Segment by Demographics: Age

As we stated in Chapter 3, demographics are statistics that measure observable as- pects of a population, including size, age, gender, ethnic group, income, education, oc- cupation, and family structure. These descriptors are vital to identify the best potential customers for a good or service. Because they represent objective character- istics, they usually are easy to identify, and then it’s just a matter of tailoring messages and products to relevant groups. Let’s take a quick look at how marketers use each of these dimensions to slice up the consumer pie.

Consumers of different age groups have different needs and wants. Members of a generation tend to share the same outlook and priorities. We call such a focus generational marketing.

As Jim Multari’s experience with Sprout TV programming shows, children are an attractive age segment for many marketers. Although kids obviously have a lot to say about purchases of toys and games, they influence other family purchases as well (just watch them at work in the grocery store!). By one estimate, American children aged 4 to 12 have a say in family-related purchases of more than $130 billion a year.3 The on- going popularity of shows such as Disney’s Hannah Montana propelled Miley Cyrus into a wildly successful singing career and has also successfully translated into a booming toy business including blond wigs, replicas of Hannah’s tour van, and even toy musical instruments. The music on the show has spawned several new musical acts—including the Jonas Brothers—and sold millions of CDs and tens of millions of

demographics Statistics that measure observable aspects of a population, including size, age, gender, ethnic group, income, education, occupation, and family structure.

generational marketing Marketing to members of a generation, who tend to share the same outlook and priorities.

Demographics Psychographics Behavior

• Age • Gender • Family life cycle • Income and social class • Ethnicity • Place of residence (geography)

Segmenting Consumer Markets

Figure 7.2 Snapshot | Segmenting Consumer Markets

Consumer markets can be segmented by demographic, psychographic, or behavioral criteria.

Apple is a masterful marketer to teens, yet its product line appeals to other age groups as well. The iPod in its various forms enables teens to be content creators and empowers them to be masters of their own music world. This satisfies a strong need among this age group for individuality. The iPhone is coveted by youth as the smartphone du jour—any other brand is viewed as subpar. Teens don’t particularly like to be marketed to, which is a great fit for Apple’s approach of letting fans and the media do their marketing for them. The iPod and iPhone are iconic symbols of modern youth— stylish, nonconforming, and an expression of a clear differ- ence from the past.

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CHAPTER 7 | SHARPEN THE FOCUS 187

downloads. The younger girl market segment loves the idea of being a pop star, and the girls live their dream vicariously through Hannah as well as American Idol and the High School Musical movie series, which lives on, im- mortal even though its stars are now all twenty-somethings.4

Teens are also an attractive market segment. The 12- to 17-year-old age group is growing nearly twice as fast as the general population—and teens and tweens (kids between the ages of 8 and 14) spend an average of $3,000 per year.5 Much of this money goes toward “feel-good” products: cosmetics, posters, and fast food—with the occasional tattoo thrown in as well. Because they are so interested in many different products and have the resources to obtain them, many marketers avidly court the teen market.6

As we said, Generation Y consists of people born between the years 1979 and 1994. Sometimes labeled the “baby boomlet,” Generation Y is made up of the 71 million children of the baby boomers.7 They are the first generation to grow up online and are more ethnically diverse than earlier generations. Generation Y is an attractive market for a host of consumer products because of its size (approximately 26 percent of the population) and free-spending nature—as a group they spend about $200 billion annually.

But Generation Y consumers are also hard to reach because they resist reading and increasingly turn off the TV. When they do watch TV, they tend toward alternative fare such as the late-night lineup on Adult Swim, which is consistently the number-one show on basic cable for this age group— outperforming even the Late Show with David Letterman with young men.8 As a result, many marketers have had to develop other ways to reach this gen- eration “where they live,” including through social networking, online chat rooms, e-mail promotions, and a variety of other new-age marketing com- munications techniques we’ll talk about later in this book.

As a snapshot on Gen Y values, a recent Pew Research Center study asked Gen Y respondents whether a variety of elements are one of the most important things in their lives. Results revealed “Being a good parent” (52 percent), “Having a successful marriage” (30 percent), “Helping others in need” (21 percent), “Owning a home” (20 percent), “Living a very religious life” (15 percent), “Having a high-paying career “(15 percent), “Having lots of free time (9 percent), and “Becoming famous” (1 percent). Among other Gen Y tidbits: 38 per- cent have a tattoo, and half of those have two to five, but 72 percent say their tats are hidden by clothing; 41 percent use only a cell phone and have no landline; and 66 percent voted for Barack Obama for president in 2008, compared with 50 percent of those 30 and older—the largest disparity between younger and older voters in four decades of exit polling. They also vote at a rate higher than did other generations at their age.9

This Israeli skincare product targets adolescents.

The Cutting Edge

Ford Fiesta Looks for Gen Y “Where They Live” Ford’s Fiesta launched in the United States in 2010, but a year earlier the com- pany gave away 100 of the cars to influential Gen Y’s in the hope of building some buzz from the ground up.The “recruitment call” went out for 100 “agents” to receive the car in April 2009, complete Ford-assigned “missions,” and chron- icle their experiences through their social networks such as Facebook, Flickr, and YouTube. The company has dubbed this effort its “Fiesta Movement,” and it’s the anchor of a plan to build excitement and spread the word about the ar- rival of the new Ford Fiesta to the next generation of customers—clearly strong targets for this economy-priced vehicle. Sam De La Garza, small car mar- keting manager for Ford, says, “Socially vibrant campaigns are so important be-

cause of their power in delivering authentic and genuine messages across a broad spectrum of media, which will only help us deliver a more positive con- sumer experience when the car launches in the U.S. next year.”

The company set up a Web site where people could upload a two- to-five-minute video to explain why they want to become one of the agents. By 2010, Gen Y will account for 28 percent of the country’s driving population (a total of 70 million new drivers).The movement gives the company an opportunity to connect with the group before they have established brand loyalty, while Ford also appeals to their affinity for social networking and technology. Using social networking as a way to reach Gen Y is a sound strategy, provided that the company is upfront about its relation- ship with the agents and is willing to let them craft the message as they see fit.10

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188 PART TWO | UNDERSTAND CONSUMERS’ VALUE NEEDS

The group of consumers born between 1965 and 1978 consists of 46 mil- lion Americans known as Generation X, who unfortunately and unde- servedly came to be called slackers, or busters (for the “baby bust” that followed the “baby boom”). Many of these people have a cynical attitude to- ward marketing—a chapter in a famous book called Generation X is entitled “I am not a target market!”11 As one 20-year-old Japanese Xer commented, “I don’t like to be told what’s trendy. I can make up my own mind.”12

Despite this tough reputation, members of Generation X, the oldest of whom are now in their late 40s, have mellowed with age. In retrospect, they also have developed an identity for being an entrepreneurial group. One study re- vealed that Xers are already responsible for 70 percent of new start-up businesses in the United States—they led much of the modern technology revolution and are now highly sought after by firms for their entrepreneurial talents. An indus- try expert observed, “Today’s Gen Xer is both values-oriented and value- oriented. This generation is really about settling down.”13 Many people in this segment seem to be determined to have stable families after being latchkey chil- dren themselves. Seven out of ten regularly save some portion of their income, a rate comparable to that of their parents. Xers tend to view the home as an expres- sion of individuality rather than material success. More than half are involved in home improvement and repair projects.14 So much for Gen Xers as slackers!

Baby boomers, consumers born between 1946 and 1964 and who are now in their 40s, 50s, and 60s, are an important segment to many marketers— if for no other reason than that there are so many of them who make a lot of money. The baby boom occurred when soldiers came flooding home after World War II and there was a rush to get married and start families. Back in the 1950s and 1960s, couples started having children younger and had more

of them than the previous generation. The resulting glut of kids really changed the infra- structure of the country: more single-family houses, more schools, migration to the suburbs, and so on.

One aspect of boomers marketers should always remember—they never age. At least, that’s the way they look at it. Boomers are willing to invest a ton of money, time, and energy to maintain their youthful image. For the past several years the show Nip/Tuck on FX has chronicled the experiences of two cosmetic surgeons in Los Angeles, baby boomers them- selves, who crassly market their surgical fountain of youth to a seemingly endless stream of 50-somethings with whom they begin the patient consult by asking, “Tell us what you don’t like about yourself.” Other boomer-appealing TV fare includes Cougar Town, in which Courtney Cox, who has aged a bit since her starring role on Friends, now trolls for younger men, and Lost’s cosmic-philosophical commentary on life, age, and other ultimate questions of the universe, which ended in 2010 with a five-hour reveal-all finale that proved to be a ratings blockbuster with Boomers. Time Warner even formed a separate unit to publish magazines, including Health, Parenting, and Cooking Light, that specifically address baby boomers’ interests in staying young, healthy, and (relatively) sane.

Currently, there are nearly 40 million Americans aged 65 or older—a 22 percent in- crease in this age segment since 1990.15 Many mature consumers enjoy leisure time and con- tinued good health. Indeed, a key question today is: Just what is a senior citizen when people live longer and “80 is the new 60”? As we will see later in the chapter, perhaps it isn’t age but rather lifestyle factors, including mobility, that best define this group. More and more marketers offer products that have strong appeal to active-lifestyle seniors. And they often combine the product appeal with a nostalgia theme that includes music popular during the seniors’ era of youth. People tend to prefer music that was released when they were teenagers or young adults, with interest peaking between ages 24–25. Sandals Resorts uses the song “(I’ve Had) The Time of My Life” in commercials for its romantic vacation des- tinations in the Caribbean. The song, recorded by Bill Medley and Jennifer Warnes, was

Boomers are willing to invest a ton of money, time, and energy to maintain their youthful image

metrosexual A straight, urban male who is keenly interested in fashion, home design, gourmet cooking, and personal care.

Generation X The group of consumers born between 1965 and 1978.

baby boomers The segment of people born between 1946 and 1964.

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CHAPTER 7 | SHARPEN THE FOCUS 189

made famous in the 1987 movie Dirty Dancing. As nostalgia, it does double duty because the movie itself was set in 1963, so it conjures up memories of both the 1980s and the 1960s. People who were in their 20s in 1963 are now in their 60s and 70s. Those in their 20s in 1987 are now in their 40s and 50s. Both age groups are key demographics for Sandals.16

Segment by Demographics: Gender

Many products, from fragrances to footwear, specifically appeal to men or women. Segmenting by gender starts at a very early age—even diapers come in pink for girls and blue for boys. As proof that consumers take these differ- ences seriously, market researchers report that most parents refuse to put male infants in pink diapers.17

In some cases, manufacturers develop parallel products to appeal to each sex. For example, male grooming products have traditionally been Gillette’s priority since the company’s founder King Gillette (yes, his first name was actually King) introduced the safety razor in 1903.

Metrosexual is a marketing buzzword that gained popularity in recent years. The term describes a straight, urban man who is keenly interested in fash- ion, home design, gourmet cooking, and personal care. Metrosexuals are usu- ally well-educated urban dwellers who are in touch with their feminine side.18

While many men are reluctant to overtly identify with the metrosexual, there’s no denying that a renewed interest in personal care products, fashion acces- sories, and other “formerly feminine” product categories creates many market- ing opportunities. Mainstream newspapers such as the New York Times offer regular segments dedicated to male fashion and grooming. This Web posting from The Urban Dictionary sums up the metrosexual stereotype.19

You might be “metrosexual” if:

1. You just can’t walk past a Banana Republic store without making a purchase.

2. You own 20 pairs of shoes, half a dozen pairs of sunglasses, just as many watches, and you carry a man-purse.

3. You see a stylist instead of a barber, because barbers don’t do highlights.

4. You can make her lamb shanks and risotto for dinner and eggs Benedict for breakfast . . . all from scratch.

5. You only wear Calvin Klein boxer-briefs.

6. You shave more than just your face. You also exfoliate and moisturize.

7. You would never, ever own a pickup truck.

8. You can’t imagine a day without hair styling products.

9. You’d rather drink wine than beer . . . but you’ll find out what estate and vintage first.

10. Despite being flattered (even proud) that gay guys hit on you, you still find the thought of actually getting intimate with another man truly repulsive.

An interesting trend related to gender segmentation has been fueled by the recent recession. Men now are increasingly likely to marry wives with more education and income than they have, and the reverse is true for women. In recent decades, with the rise of well-paid working wives, the eco- nomic gains of marriage have been a greater benefit for men. The education

A phone with a feature adapted specifically to the needs of mature callers.

Personal care products typically appeal to one gender exclusively.

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and income gap has grown even more in the latest recession, when men held about three in four of the jobs that were lost. In 1970, 28 percent of wives had husbands who were better educated, and 20 percent were married to men with less education. By 2007, the compara- ble figures were 19 percent and 28 percent. In 1970, 4 percent of husbands had wives who made more money; in 2007, 22 percent did.20

Segment by Demographics: Family Life Cycle

Because family needs and expenditures change over time, one way to segment consumers is to consider the stage of the family life cycle they occupy. (You learned about the family life cycle in Chapter 5.) Not surprisingly, consumers in different life-cycle segments are unlikely to need the same products, or at least they may not need these things in the same quantities. Folger’s Classic Roast Coffee Singles are designed for people who live alone and don’t need to brew a full pot of coffee at a time, while Marriott and other hoteliers actively market va- cation ownership (timeshare) opportunities to young couples—because these consumers can easily tailor these getaways to their changing lifestyles and preferences since they tend to not want to do the same trip year after year as many of their parents did.

But not all attempts at marketing to the family life cycle succeed. Gerber once tried to market single-serving food jars to singles; a quick meal for one person who lives alone. The manufacturer called these containers “Singles.” However, Gerber’s strong identification with baby food worked against it: The product flopped because people misperceived that Gerber was trying to sell baby food to adults.21

As families age and move into new life stages, different product categories ascend and descend in importance. Young bachelors and newlyweds are the most likely to exercise, go to bars and movies, and consume alcohol (in other words, party while you can). Older cou- ples and bachelors are more likely to use maintenance services. Seniors are a prime market for resort condominiums and golf products. Marketers need to identify the family life-cycle segment of their target consumers by examining purchase data by family life-cycle group.

Cultural changes continually create new opportunities as people’s roles change. For ex- ample, Boomer women in their 50s are a hot new market for what the auto industry calls “reward cars”: sexy and extravagant vehicles. These buyers say that for years they had let the roles of wife and mother restrict them to minivans or stodgy family sedans. As their kids grow up and leave home, it’s reward time. As one woman who bought a snazzy Mercedes convertible for herself stated, “I don’t have the disease to please anymore . . . I’m pleasing me.” She’s not alone. Vehicle registration records show that the number of women over age 45 who purchased cars in the niche known as “mid-sized sporty,” which includes two-door

models like the Mazda RX-8 and the Chrysler Crossfire, is up 277 percent since 2000. Among women 45 and over earning at least $100,000, smaller luxury cars like the BMW 3 Series and the Audi A4 are up 93 percent.22

Segment by Demographics: Income and Social Class

The distribution of wealth is of great interest to marketers be- cause it determines which groups have the greatest buying power. It should come as no surprise that many marketers yearn to capture the hearts and wallets of high-income consumers. Perhaps that explains a recent proliferation of ultra-high-end bottled waters such as Voss—which bills itself as extracted from a real Norwegian glacier. To taste this delicacy in gourmet restaurants and mini-bars of top hotels, expect to pay well over $10 a bottle. Tap water, anybody?23 At the same time, other mar- keters target lower-income consumers (defined as households with annual incomes of $25,000 or less), who make up aboutA South African ad for a TV show speaks to kids.

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40 percent of the U.S. market. Stores such as Sam’s Club and Costco sell generic bottled wa- ter in flats of 24 bottles for less than 50 cents per bottle! Baby Boomers in particular lost a big chunk of their retirement savings in just a few months during the financial “meltdown” of 2008–2009. Although the stock market came back to a degree, Boomers are increasingly cautious about spending their present income at prerecession levels. Much evidence exists that they are down-shopping—that is, Walmart can look much more palatable to up- scale Boomers when 40 percent of their retirement nest egg has gone up in smoke.

After a 50-year run during which the truly wealthy just kept getting richer, the Great Recession has taken some of the wind out of their sails due to heavy investment losses. Just how much poorer the rich will ultimately end up is unclear. Any major shift in the financial status of the rich could have big implications for some marketers. For example, a drop in their income and wealth would complicate life for elite universities, museums, and other in- stitutions that received lavish donations in recent decades. Governments—federal and state—could struggle, too, because they rely heavily on the taxes paid by the affluent.24 House- holds making $100,000 or more certainly do not in most cases come close to being part of that “truly wealthy” crowd, but if a recovery is to come, particularly in consumer spending, it will have to come from households making $100,000 or more. They represent only 20 percent of U.S. households, but they control more than half of all income and are far less likely than everyone else to be restrained by tight credit markets. On average, the affluent are 2.6 times more likely to buy everything, and when they do, they spend 3.7 times more.25

In the past, it was popular for marketers to consider social class segments, such as upper class, middle class, and lower class. However, many consumers do not buy according to where they actually fall in that framework, but rather according to the image they wish to portray. For example, over the years readily available credit has facilitated many a sale of a BMW to a con- sumer whose income doesn’t easily support the steep price tag. The recent financial crisis also nipped a good portion of this free-flowing credit in the bud. It remains to be seen over the long run how much the new austere era of credit permanently changes consumer buying behavior.

Segment by Demographics: Ethnicity

A consumer’s national origin is often a strong indicator of his or her pref- erences for specific magazines or TV shows, foods, apparel, and leisure ac- tivities. Marketers need to be aware of these differences and sensitivities— especially when they invoke outmoded stereotypes to appeal to con- sumers of diverse races and ethnic groups.

African Americans, Asian Americans, and Hispanic Americans are the largest ethnic groups in the United States. The Census Bureau projects that by the year 2050, non-Hispanic whites will make up just less than 50 percent of the population (compared to 74 percent in 1995) as these other groups grow. Let’s take a closer look at each of these important ethnic segments.

African Americans account for about 12 percent of the U.S. population. This percentage has held steady for 20 years. Reflecting the growing con- sumer power fueled by the hip-hop and urban scene, magazines such as The Source and Vibe target this market.26 Television shows that feature African American heroes and heroines, unheard of until the late 1960s, are common- place today, and BET is an advertising force to be reckoned with. In many cities, urban-sound radio stations are among the elite few in audience ratings.

These media examples demonstrate the opportunities that await those who develop specialized products to connect with segments of consumers who share an ethnic or racial identity. And what had been the original rap culture has migrated from the inner-city streets to mainstream hip-hop clubs, creating substantial opportunities for marketers to parlay what started out as an urban street trend among the African American community to a broader cultural phenomenon that appeals to young people of many ethnicities.

Products targeted to African Americans often appear in specialized media like Ebony magazine.

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Though their numbers are still relatively small, Asian Americans are the fastest-growing minority group in the United States. The Asian American population is projected to grow from 11.3 million in 2000 to 19.6 million in 2020.27 The American advertising industry spends between $200 million and $300 million to court these consumers.28 Ford set up a toll-free con- sumer hotline that it staffs with operators fluent in three Asian languages, and JCPenney holds one-day sales in stores in Asian communities during certain holidays such as the Chi- nese Moon Festival.29 Wonder Bra even launched a special line it sized for the slimmer Asian body.30

The Hispanic American population is the real sleeping giant, a segment that mainstream marketers today actively cultivate. Hispanics have overtaken African Americans as the na- tion’s largest minority group. In the United States, Hispanics command well over $400 bil- lion in purchasing power. In addition to its rapid growth, five other factors make the Hispanic segment attractive to marketers:31

• Hispanics tend to be brand loyal, especially to products made in their country of origin.

• They tend to be highly concentrated by national origin, which makes it easy to fine-tune the marketing mix to appeal to those who come from the same country.

• This segment is young (the median age of Hispanic Americans is 23.6, compared with the U.S. average of 32), which is attractive to marketers because it is a great potential market for youth-oriented products such as cosmetics and music.

• The average Hispanic household contains 3.5 people, compared to only 2.7 people for the rest of the United States. For this reason, Hispanic households spend 15 to 20 per- cent more of their disposable income than the national average on groceries and other household products.

• In general, Hispanic consumers are very receptive to relationship-building approaches to marketing and selling. For this reason there are many opportunities to build loyalty to brands and companies by emphasizing relationship aspects of the customer encounter.32

As with any ethnic group, appeals to Hispanic consumers need to take into account cul- tural differences. For example, Hispanics didn’t appreciate the successful “Got Milk?” cam- paign because biting, sarcastic humor is not part of their culture. In addition, the notion of milk deprivation is not funny to a Hispanic mother—if she runs out of milk, this means she has failed her family. To make matters worse, “Got Milk?” translates as “Are You Lactating?” in Spanish. Thus, new Spanish-language versions were changed to “And you, have you given them enough milk today?” with tender scenes centered on cooking flan (a popular pudding) in the family kitchen.

Latino youth are changing mainstream culture. Many of these consumers are “young biculturals” who bounce back and forth between hip-hop and rock en Español, blend Mexi- can rice with spaghetti sauce, and spread peanut butter and jelly on tortillas. By the year 2020, the Census Bureau estimates, the number of Hispanic teens will grow by 62 percent, com- pared with 10 percent growth in teens overall. They seek spirituality, stronger family ties, and more color in their lives—three hallmarks of Latino culture. Music crossovers from the Latin charts to mainstream lead the trend, including pop idols Shakira and Enrique Iglesias, and Reg- gaeton sensation Daddy Yankee.

One caution about the Hispanic market is that the term Hispanic itself is a misnomer. For example, Cuban Americans, Mexican Americans, and Puerto Ricans may share a com- mon language, but their history, politics, and culture have many differences. Marketing to them as though they are a homogeneous segment can be a big mistake. However, the term is still widely used as a demographic descriptive.

An important outcome of the increase in multiethnicity in the United States is the op- portunity for increased cultural diversity in the workplace and elsewhere. Cultural diversity, a management practice that actively seeks to include people of different sexes, races, ethnic groups, and religions in an organization’s employees, customers, suppliers, and distribu-

cultural diversity A management practice that actively seeks to include people of different sexes, races, ethnic groups, and religions in an organization’s employees, customers, suppliers, and distribution channel partners.

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tion channel partners, is today business as usual rather than an exception. Marketing orga- nizations benefit from employing people of all kinds because they bring different back- grounds, experiences, and points of view that help the firm develop strategies for its brands that will appeal to diverse customer groups.

Segment by Demographics: Place of Residence

Recognizing that people’s preferences often vary depending on where they live, many mar- keters tailor their offerings to geographic regions. Pabst Brewing Company pushes different brands of beer in different parts of the country, so drinkers in Texas buy the company’s Lone Star and Pearl brands, while those in other states buy Old Milwaukee, Olympia, and Stroh’s.

When marketers want to segment regional markets even more precisely, they some- times combine geography with demographics using the technique of geodemography. A basic assumption of geodemography is that “birds of a feather flock together”—people who live near one another share similar characteristics. Sophisticated statistical techniques iden- tify geographic areas that share the same preferences for household items, magazines, and other products. This lets marketers construct segments of households with a common pat- tern of preferences. This way they can hone in on those customers most likely to be inter- ested in its specific offerings, in some cases so precisely that families living on one block will belong to a segment while those on the next block will not.

Companies can even customize Web advertising by geocoding so that people who log on in different places will see ad banners for local businesses. For example, the Weather Channel links localized ads to 1,300 U.S. weather-reporting stations. A surfer can get both the local weather forecast and information about businesses in an area by simply typing a city and state, or an airport code, into the forecast request box.

One widely used geodemographic system is PRIZM, which is a large database devel- oped by Nielsen Claritas. This system classifies the U.S. population into 66 segments based on various socioeconomic data, such as income, age, race, occupation, education and house- hold composition, as well as lifestyle attributes that are critical to marketing strategies, shopping patterns such as where they vacation, what they drive and their favorite brands, and media preferences.

The 66 segments range from the highly affluent “Upper Crust” and “Blue Blood Es- tates” to the lower income “Big City Blues or “Low-Rise Living” neighborhoods. To learn about how the system classifies your ZIP code, visit www.mybestsegments.com.

Here are a few thumbnail sketches of different segments of relatively younger consumers a marketer might want to reach depending on the specific product or service he or she sells:

• Young Digerati are tech-savvy and live in fashionable neighborhoods on the urban fringe. Affluent, highly educated, and ethnically mixed, Young Digerati communities are typically filled with trendy apartments and condos, fitness clubs and clothing bou- tiques, casual restaurants and all types of bars—from juice to coffee to microbrew. The Young Digerati are much more likely than the average American consumer to shop at Banana Republic, order from J. Crew, read Elle Decor magazine, watch the Independent Film Channel, and drive a Range Rover SUV.

• Kids & Cul-de-Sacs are upper-middle class, suburban, married couples with children. With a high rate of Hispanic and Asian Americans, this segment is a refuge for college- educated, white-collar professionals with administrative jobs and upper-middle-class incomes. Their nexus of education, affluence, and children translates into large outlays for child-centered products and services. They are much more likely than the average American consumer to shop at The Disney Store, eat at Chuck E. Cheese, read parent- ing magazines, watch Nickelodeon, and drive a Nissan Armada SUV.

• Shotguns & Pickups scores near the top of all lifestyles for owning hunting rifles and pickup trucks. These Americans tend to be young, working-class couples with large

geocoding Customizing Web advertising so that people who log on in different places will see ad banners for local businesses.

geodemography A segmentation technique that combines geography with demographics.

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families—more than half have two or more kids— living in small homes and manufactured housing. Nearly a third of residents live in mobile homes, more than anywhere else in the nation. They are much more likely than the average American con- sumer to own a tent, go to auto races, read North American Hunter magazine, watch Country Music TV, and drive a Dodge Ram.

Other examples of PRIZM clusters are fully de- scribed in the Segment Lookup feature at www .mybestsegments.com.

Segment by Psychographics Demographic information is useful, but it does not always provide enough information to divide con- sumers into meaningful segments. Although we can use demographic variables to discover, for example, that the female college student segment uses per- fume, we won’t be able to tell whether certain col- lege women prefer perfumes that express an image of, say, sexiness rather than athleticism.

As we said in Chapter 5, psychographics seg- ments consumers in terms of psychological and be- havioral similarities such as shared activities, interests, and opinions, or AIOs.33 Marketers often

develop profiles of the typical customers they desire to paint a more vivid picture of them. For example, in 2010 Buick’s marketers named their target consumers Greg and Laurie Rob-

bins. They say they’re in their early 40s with two kids and together, they make $130,000 a year and live in a $363,000 house. They are Facebook fans of Tar- get, Starbucks, Apple, J. Crew, Whole Foods, and the Westin. This (fictional) couple is younger than Buick’s current user and their interests extend beyond the golf course, which is where many older Buick drivers spend their time. To woo them, the company is cutting back on ads in golf magazines and instead promoting Buick in culinary- and travel-related venues and on The Wall Street Journal’s iPad application. The goal of this psychographic exercise: Put a Buick in the Robbins’s garage where a Lexus is probably parked now.34

Although some advertising agencies and manufacturers develop their own psychographic techniques to classify consumers, other agencies sub- scribe to services that divide the entire U.S. population into segments and then sell pieces of this information to clients for specific strategic applica- tions. The best known of these systems is VALS™ (Values and Lifestyles). The original VALS™ system was based on social values and lifestyles. Today, VALS™ is based on psychological traits that correlate with consumer be- havior. If you go to www.strategicbusinessinsights.com and click on “VALS™ Survey” you can complete a brief, free questionnaire to find out your own VALS™ type (you might be surprised). VALS™ divides U.S. adults into eight groups according to what drives them psychologically as well as by their economic resources.

As Figure 7.3 shows, three primary consumer motivations are key to the system: ideals, achievement, and self-expression. Consumers who are moti- vated primarily by ideals are guided by knowledge and principles. Consumers who are motivated primarily by achievement look for goods and services that

Over the years, Harley-Davidson has done a great job of understanding buyers on the basis of psychographics. A Harley user’s profile includes both thrill-seeking and affinity for a countercultural image (at least on weekends). In fact, your doctor, banker, lawyer, or even marketing professor may be a member of HOG (the Harley Owners Group). However, demographics also come into play. Over the past decade, the age of the typical Harley buyer has risen to about 46, older than the motorcycle industry average of 38. But because the company knows the psychographics of its target buyers, it isn’t lulled into age stereotypes of safety and conservatism. Harley-Davidson knows that in spite of the older age demographic, its buyers are still a thrill-seeking bunch (they may just need a little more time and some aspirin to recover after a long ride).

Toyota targets consumers who prioritize environmental issues (as well as gas savings) with the Prius hybrid vehicle.

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demonstrate success to their peers. And consumers who are motivated primarily by self- expression desire social or physical activity, variety, and risk.

VALS™ helps match products to particular types of people. For example, VALS™ survey data show that 12 percent of American adults (many of whom are on the younger side) are Experiencers who tend to be thrill seekers. VALS™ helped Isuzu market its Rodeo sport-util- ity vehicle by targeting Experiencers who believe it’s fun to break rules. The company and its advertising agency promoted the car as a vehicle that lets a driver break the rules by go- ing off-road. One ad showed a kid jumping in mud puddles after his mother went to great lengths to keep him clean. Another ad showed a schoolchild scribbling outside the lines after the teacher made a big deal about coloring carefully within the lines. Isuzu sales increased significantly after this campaign, and the company recently introduced a worthy next-generation SUV called the Ascender.35

As another example of a psychographic segmentation system developed for the luxury car market, German research firm Sigma categorized consumers in a way that inspired BMW’s highly publicized product line reinvention and expansion. This system included “upper liberals” (socially conscious, open-minded professionals who prefer the roominess and flexibility of SUVs), “postmoderns” (high-earning innovators like architects, entrepre- neurs, and artists who like the individualistic statements made by driving convertibles and roadsters), “upper conservatives” (made up of wealthy, traditional thinkers who like upper-crust, traditional sedans), and “modern mainstream” (family-oriented up-and-comers who want a luxury brand but likely can’t afford more than the lowest-end model). Using this segmentation scheme as an anchor, BMW created vehicles for each category and added

Figure 7.3 Snapshot | VALS™ Framework

VALS™ uses psychological characteristics to segment the U.S. market into eight unique consumer groups.

Source: Strategic Business Insights (SBI); www.strategicbusiness insights.com/VALS

THINKERS ACHIEVERS

INNOVATORS VALS™ Framework

High Resources High Innovation

Low Resources Low Innovation

SURVIVORS

EXPERIENCERS

Ideals

Primary Motivation

Achievement Self-Expression

BELIEVERS STRIVERS MAKERS

psychographics The use of psychological, sociological, and anthropological factors to construct market segments.

VALS™ (Values and Lifestyles) A psychographic system that divides the entire U.S. population into eight segments.

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to its success with multiple segments by acquiring Rolls-Royce and the Mini to serve the ex- treme ends.36

Finally, the recent economic recession sparked the identification of four distinct con- sumer psychographic segments as consumers emerge from the bad economy. Marketing strategy and research firm Decitica labels these segments as follows: (1) Steadfast Frugalists, (2) Involuntary Penny-Pinchers, (3) Pragmatic Spenders, and (4) Apathetic Materialists. These categories were derived by analyzing the frequency, satisfaction, and self-efficacy associated with a variety of spending, purchase, and consumption behaviors. Steadfast Frugalists are committed to self-restraint, engaging in prudence with unequivocal enthu- siasm. They make up about one-fifth of the American consumers, representing all income and age groups. This group could be quite challenging, as they are the least brand loyal and most likely to discount marketing messages. Consider how these psychographic seg- ments differ:

• Eighty percent of Steadfast Frugalists say the new behaviors they have adopted will likely stay with them for a long time. This is in contrast to 24 percent of Apathetic Ma- terialists who feel this way.

• Involuntary Penny-Pinchers, about 29 percent of the population, have been severely affected by the recession. They are mainly made up of households with less than $50,000 in income, with more women than men. This segment has been forced to em- brace thrift like never before. Presently, their actual behaviors do not differ widely from those of Steadfast Frugalists. Where they drastically diverge is in their aversion to expending effort in money-saving strategies. Only 17 percent find buying store or generic labels to be satisfying, compared to 59 percent of Steadfast Frugalists. Also, the recession has had a heavy emotional impact on Involuntary Penny-Pinchers; they ad- mit to being more scared (77 percent), stressed (81 percent), and worried (87 percent) about the future than other groups.