C H A P T E R 8

M A R K E T S E G M E N T A T I O NA N D T A R G E T I N GTo access O-codes, go to www.ocodes.com

LEARNING OBJECTIVESWhen you have completed this chapter, you will be able to:

• Deconstruct a market into readily distinguishable customer groups.

• Recognize differences between market segments and customer segments.

• Select a market segmentation scheme to better understand market opportunities.

• Understand needs and preferences common to customers in each market segment.

• Develop criteria for constructing good market segments.

• Assess identifying characteristics for market segments.

• Address several complex issues in developing and engaging market segments.

• Decide which segments to target for marketing effort.

• Understand how different size firms should approach market segmentation.

OPENING CASE: MARRIOTT HOTELS, RESORTS, AND SUITESIn 1985, Marriott Hotels, Resorts, and Suites was a domestic (U.S.) mid- to large-size hotel chain,managing 67,034 rooms at 160 properties. Marriott decided to enhance traveler value by segmentingthe market, then targeting selected segments each with a different brand. Then as now, Marriott wasthe flagship brand. Each new brand supports Marriott’s overall brand identity — a commitment tosuperior customer service — and trains employees to have a passion for service. Employees:

• Do whatever it takes to take care of customers.• Pay extraordinary attention to detail.• Take pride in their physical surroundings.• Use their creativity to find new ways to meet the needs of customers.

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IMPERATIVE 2

Identify and Target

Market Segments

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Marriott believes all customers require a base service level but that customers differ in their willing-ness to pay for different levels of comfort and luxury. Management also knows that many customersstay a few nights, but a growing number, like business people on assignment, require accommoda-tions for several weeks. Recognizing the varying needs of hotel customers, Marriott was the first majorhotel chain to base its strategy on market segmentation. Marriott grew new brands organically, butimplemented its strategy in part by acquisition.

Marriott’s flagship brand continues to target customers needing fine restaurants, meeting rooms,athletic facilities, and other upscale amenities.1 But Marriott added several additional brandsaddressing different segments:

• Courtyard — a moderately priced hotel providing some amenities, like an exercise room anda restaurant for breakfast for business travelers.

• Edition Hotels — a personal, intimate, individualized, and unique lodging experience.

• ExecuStay— furnished apartments for stays of 30 days or more.

• Fairfield Inn & Suites — an inexpensively priced, high quality hotel easily accessible by car,on or near the U.S. main interstate highway system.

• Renaissance Hotels — an international hotel with upscale amenities.

• Residence Inn— an extended-stay hotel for job relocation, job assignment, and governmentcontracting.

• Ritz-Carlton — the ultimate in luxury hotels in urban centers.

• SpringHill Suites— an all-suites hotel at an upper- moderate price.

• TownePlace Suites — similar to Residence Inn, but lower priced.

Each Marriott brand has a distinct personality and style. Marriott workshard to communicate the essence and strength of each brand so thattarget customers know what to expect. There is some customercrossover, but each brand focuses on a defined market segment.Internal competition is small.

Marriott has achieved extraordinary results from its segmentationand targeting strategy. The Courtyard brand manages more roomsthan the entire firm managed in 1985. Total number of rooms man-aged has increased to 600,000 rooms at 3,800 properties. About 20 per-cent of Marriott’s rooms are outside the U.S. Marriott is a profitablefirm with revenues well in excess of $10 billion.

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CASE QUESTION

How do you assess Marriott’s approach to

segmenting the hotel market? Can you think

of alternative approaches that may present

marketing opportunities?

Market segments and market segmentation are fundamental marketing concepts. Customers ina market either have a variety of different needs, or have similar needs with different priorities.A market segment is a subset of the total market that comprises a group of customers with sim-ilar (homogeneous) need profiles, seeking similar sets of benefits and values, with similar levelsof priority. Market segmentation is the process of grouping together actual and potential cus-tomers in a market for the purpose of forming market segments.

A specifically designed market offer satisfies one market segment; a different market segmentrequires a different market offer. To design and produce effective market offers, the firm mustunderstand each segment’s need profile. A firm intent on serving a large market like snack foodsmust make several market offers, at least one per market segment, to meet varying customerpreferences. Typically, a single offer, like potato chips, fails to satisfy the many diverse customerswho purchase snack foods.

Because customers have different need profiles, marketers must complete three separate, but related, strategic marketing tasks:

1. Identify market segments. Figure out the best way to group customers based on market, customer, competitor, and complementer insight — Chapters 3, 4, and 5, using approachesfrom Chapter 6.

2. Target market segments. Resources are always scarce. The firm must decide which seg-ments to target for effort; rarely can a firm address all market segments.

Note an important distinction between these tasks. Identifying market segments is creative andanalytic. Targeting market segments requires a strategic decision — the firm applies resourcesto some market segments and ignores others. Identifying and targeting the right market seg-ments is a crucial strategic marketing task.

3. Develop market segment strategy. The firm develops a market segment strategy, includ-ing a positioning statement, for each target segment — Chapter 9. Typically, the firm’smarket strategy combines several market segment strategies.

Section 4 — Chapters 12 through 21 — focuses on implementing the market strategy.

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‰ Critical strategic marketing decisionsare:

• Identify market segments

• Target market segments

• Develop market segment strategy

KEY IDEA

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KEY MESSAGES

• Market segmentation is fundamental to developing the market strategy. The firm has threeseparate, but related, strategic-level tasks:• Conduct a market segmentation process to identify market segments.• Decide which of the identified market segments to target for effort.• Develop a market segment strategy and positioning for each target segment.

We discussed items 1 and 2 in this chapter; we take up item 3 in Chapter 9.

• Segmentation is a process for deconstructing the market into customer groups.

• Customers in a market segment have homogeneous (similar) need profiles; customers inother market segments have heterogeneous (different) need profiles.

• The firm can approach the segmentation process in two different ways:• Identifying groups of customers that differ in need profiles.• Using candidate descriptor (segmentation) variables to form groups, then seeing if

need profiles differ.

• The firm should avoid ineffective ways of segmenting markets.

• Useful segments must satisfy six separate criteria: differentiated, identifiable, accessible,appropriate size, measurable, and stable.

• The segmentation process is creative and analytic, requiring good market, customer, competitor, and complementer insight. By contrast, targeting requires the firm to make decisions.

• Sometimes firms find commercially available standardized segmentation schemes useful.

• The multifactor matrix and perceptual map are alternative approaches for making targetingdecisions.

• Large firms generally succeed by targeting multiple segments; small firms succeed by targeting few segments.

VIDEOS AND AUDIOS

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Market ingQuest ionWhat other messages didyou glean from this chapter?

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QUESTIONS FOR STUDY AND DISCUSSION

Can you answer the questions implied by this chapter’s learning objectives? Check!

1. Suppose your firm decides to address the human pain-relief market. How would you segmentthis market? What market segments can you identify? Can you identify both coarse- and fine-grained segments — market segments and customer segments?

2. Select a product/market with which you are familiar. Develop a segmentation matrix identifying the importance order of benefits and values for the various segments.

3. Assume you are marketing manager at a firm competing in the product/market you identifiedin Question 2. Select one or more segments to target by completing a multifactor matrix analysis.

4. Do politicians employ segmentation? Describe an example.

5. Describe a segment of the higher education market that includes you. Appraise this segmentin terms of the criteria for good segments — differentiated, identifiable, accessible, appropri-ate size, measurable, and stable.

6. Visit retail outlets for Banana Republic, The Gap, and Old Navy. Observe customers and products. What do you infer about owner Gap Inc.’s segmentation and targeting?

7. Select a product in which you are interested. Alternatively, consider this book — ManagingMarketing in the 21st Century. How would you segment the market? Describe the segments.

8. Select a market with which you are familiar. Develop a perceptual map by identifying twodimensions, product offerings, and your best guess at market segments.

9. What are the risks and limitations of a strategy based on market segmentation? How can youmeasure the effectiveness of a market segmentation approach?

10. Market segmentation raises serious ethical issues. Do you agree? Why or why not?