Market Customization

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Market Customization: Segmentation,Targeting, and Positioning Excerpted from

Marketer’s Toolkit: The 10 Strategies You Need to Succeed

Harvard Business School Press Boston, Massachusetts

ISBN-10: 1-4221-0258-0 ISBN-13: 978-1-4221-0258-9

2580BC

Copyright 2006 Harvard Business School Publishing Corporation All rights reserved Printed in the United States of America This chapter was originally published as chapter 4 of Marketer’s Toolkit, copyright 2006 Harvard Business School Publishing Corporation. No part of this publication may be reproduced, stored in or introduced into a retrieval system, or transmitted, in any form, or by any means (electronic, mechanical, photocopying, recording, or otherwise), without the prior permission of the publisher. Requests for permission should be directed to permissions@hbsp.harvard.edu, or mailed to Permissions, Harvard Business School Publishing, 60 Harvard Way, Boston, Massachusetts 02163.

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Market Customization
Segmentation, Targeting, and Positioning

Key Topics Covered in This Chapter

• • • •

Gaining focus through market segmentation The basics of multifactor, relevant, and effective segmentation Targeting the right segments Positioning the product or service in the minds of customers

a r ly i n t h e twentieth century, producers in the industrial economies of Europe and North America faced high, undifferentiated demand for manufactured goods, and relatively few competitors. For many product categories it was a mass market, and sellers satisfied it with high volumes of standardized goods. Perhaps the classic example was Ford’s Model T automobile, identical versions of which were cranked out by the millions for a car-crazy society. Henry Ford famously remarked that customers could buy the Model T in any color they wished—as long as it was black. Greater competition and more demanding customers have largely ended the era of mass marketing in many product categories. They have spurred producers to differentiate their products in ways that meet the unique needs of smaller customer groups, or market segments. Ford’s standard black Model Ts gave way in the late 1920s to General Motors’ strategy of producing different models to accommodate different pocketbooks, with the Chevrolet at the bottom and the Cadillac at the top. The move away from mass marketing has affected almost every industry. If you need convincing, take a look at the pet food section of your local supermarket. Whereas individual pet food producers once offered only one type of dry cat food, they now offer many. You have your choice of standard and special formulations—for kit-

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Market Customization

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tens, adult cats, elderly cats, overweight cats, cats subject to hairballs, and cats with kidney problems. Among the canned cat foods, each producer now offers at least ten flavors. The upshot of the trend away from mass marketing is that companies are seeking to identify the unique needs and preferences of customers in ever smaller segments. If this strategy were carried to its logical conclusion—something that would be counterproductive in most industries—companies would design and produce goods and services for individual customers. Generally, you’ll find most companies operating along the continuum between the extremes of mass production and “markets of one.” For example, Dell will build a computer customized to your specifications within a fairly broad range of components and software. Peachtree accounting software has special versions for manufacturers, retailers, and nonprofit businesses. Automakers allow you to order your new vehicle in the color you want and with the set of options you prefer (within limits), and they are working toward the day when you will be able to do all this online and have the new automobile delivered to your door in a few weeks. Among manufacturers, this customizing capability is a function of advances in flexible manufacturing and modular product design...
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