Sternthal B. Tybout A. Kellogg on Marketing. Ch 1 Segmentation and Targeting
4 Strategy: Thinking About the Customer
CHAPTER 1
Segmentation and Targeting
BRIAN STERNTHAL and ALICE M. TYBOUT
S
United States to Latin countries because it was a fairly priced service that pledged not to change prices. Advertising was done exclusively on Hispanic television programming. Despite an advertising budget of $1.3 million, which is a small fraction of competitive dial-around ad spending, Americatel became a major player in the dial-around long distance category. While it is relatively easy to identify examples of successful segmentation and targeting, many managers find undertaking these tasks for their own products daunting. One reason is that the list of potential bases for segmenting a market is seemingly endless and there is little guidance as to how to choose among them. Further, when the segmentation analysis is complete, many or even all of the subgroups may represent attractive targets, making it difficult to decide how to focus resources. In this chapter, we address these issues by presenting a strategic approach to segmentation and targeting. The cornerstone of this strategy is the belief that usage patterns should provide the starting point for market segmentation. Other factors, such as demographics (age, gender, family size, income, education), geographic location, attitudes, lifestyle, and the benefits that consumers seek from products in the category, may be used to make the usage-based approach actionable and to enrich the positioning. Once segmentation is complete, a “path of least resistance” approach should be adopted whereby priority is given to targets that generate the greatest revenue with the least investment. The presentation of our approach is structured around three distinct situations that a manager may face. We begin by considering the most common scenario, that of a brand that is currently competing in a category and, thus, has a customer base. Next, we explore how firms that lack an established customer
CHAPTER 1
Segmentation and Targeting
BRIAN STERNTHAL and ALICE M. TYBOUT
S
United States to Latin countries because it was a fairly priced service that pledged not to change prices. Advertising was done exclusively on Hispanic television programming. Despite an advertising budget of $1.3 million, which is a small fraction of competitive dial-around ad spending, Americatel became a major player in the dial-around long distance category. While it is relatively easy to identify examples of successful segmentation and targeting, many managers find undertaking these tasks for their own products daunting. One reason is that the list of potential bases for segmenting a market is seemingly endless and there is little guidance as to how to choose among them. Further, when the segmentation analysis is complete, many or even all of the subgroups may represent attractive targets, making it difficult to decide how to focus resources. In this chapter, we address these issues by presenting a strategic approach to segmentation and targeting. The cornerstone of this strategy is the belief that usage patterns should provide the starting point for market segmentation. Other factors, such as demographics (age, gender, family size, income, education), geographic location, attitudes, lifestyle, and the benefits that consumers seek from products in the category, may be used to make the usage-based approach actionable and to enrich the positioning. Once segmentation is complete, a “path of least resistance” approach should be adopted whereby priority is given to targets that generate the greatest revenue with the least investment. The presentation of our approach is structured around three distinct situations that a manager may face. We begin by considering the most common scenario, that of a brand that is currently competing in a category and, thus, has a customer base. Next, we explore how firms that lack an established customer