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Principles of Marketing

Chapter 7:

Customer-Driven Marketing Strategy

Creating Value for Target Customers

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Customer-Driven Marketing Strategy

FIGURE | 7.1

Designing a Customer-Driven Market Strategy

how it will create value for target customers

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Market Segmentation

Market segmentation requires dividing a market into smaller segments with distinct needs, characteristics, or behaviors that might require separate marketing strategies or mixes.

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Benefits of Market Segmentation

Better Customer Targeting – Helps businesses reach the right audience with tailored messaging.
Increased Marketing Efficiency – Reduces wasted resources by focusing on the most relevant customer groups.
Higher Customer Satisfaction – Personalized marketing leads to better engagement and loyalty.
Improved Product Development – Insights from segmentation guide innovation and customization.

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Examples of Market Segmentation Benefits�

A luxury skincare brand targets women aged 30-50 with high disposable income instead of marketing to the general public.

Better Customer Targeting

A fitness app personalized workout plans based on user preferences, leading to higher engagement and retention.

Higher Customer Satisfaction –

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A smartphone company designs a rugged, waterproof phone specifically for outdoor adventure enthusiasts.

Improved Product Development –

A car company promotes fuel-efficient vehicles to eco-conscious consumers and SUVs to large families, avoiding unnecessary advertising spend.

Increased Marketing Efficiency

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Market Segmentation Topics

Segmenting consumer markets
Segmenting international markets
Requirements for effective segmentation

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Market Segmentation

Segmenting Consumer Markets

Geographic: regions, countries
Demographic: facts
Psychographic: personality
Behavioral: occasion, knowledge

Segmenting Consumer Markets

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Segmentation Type	Definition	Examples
1. Geographic Segmentation	Dividing the market based on physical location.	Country, region, city, climate, population density (urban/rural). �Example: A brand sells winter jackets only in cold regions.
2. Demographic Segmentation	Based on measurable population traits.	Age, gender, income, education, occupation, family size. �Example: A children's toy company targets parents aged 25–40.
3. Psychographic Segmentation	Based on lifestyle, values, attitudes, interests, and personality.	Health-conscious, environmentally aware, luxury-seekers, risk-takers. �Example: A fitness brand targets people who value wellness and self-improvement.
4. Benefit Segmentation	Dividing the market based on the specific benefits consumers seek.	Convenience, safety, comfort, speed, quality, status. �Example: A toothpaste brand offers options for whitening, sensitivity, and cavity protection.
5. Usage (Behavioral) Segmentation	Based on usage rate, brand loyalty, user status, or purchase occasion.	Light users, heavy users, first-time buyers, loyal customers. �Example: A coffee chain gives loyalty rewards to frequent buyers.

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1) Geographic segmentation divides the market into different geographical units such as nations, regions, states, counties, cities, or even neighborhoods.

Market Segmentation

Segmenting Consumer Markets

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Geographic Segmentation - by nations

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2) Demographic segmentation Demographic segmentation is the process of dividing the market into groups based on demographic variables such as age, gender, income, education, occupation, family size, religion, nationality, or ethnicity. It’s one of the most commonly used forms of market segmentation.

Market Segmentation

Segmenting Consumer Markets

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Variable	Examples of Demographic Segments
Age	Children, Teens, Young Adults, Middle-aged, Seniors
Gender	Male, Female, Non-binary
Income	Low-income, Middle-income, High-income
Education	High school, College graduate, Postgraduate
Occupation	Students, Professionals, Blue-collar workers, Retirees
Family Size/Stage	Single, Married without kids, Married with kids, Empty nesters
Religion	Christian, Muslim, Hindu, Buddhist, etc.
Nationality/Ethnicity	Arab, South Asian, Hispanic, African-American, etc.

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Market Segmentation

Segmenting Consumer Markets
Gender segmentation divides the market based on sex (male or female).

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Age Segmentation

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3) Psychographic segmentation divides a market into different segments based on social class, lifestyle, hobbies, or personality characteristics.

Market Segmentation

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Psychographic vs. Demographic Segmentation�

Demographic data is the dry data, the hard facts like age and gender.

Psychographic forms the personality of the consumer, their likes, interests, and habits.

It is the study of personality, values, opinions, attitudes, interests, and lifestyles.

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4) Behavioral segmentation divides a market into segments based on occasions, uses of a product(benefits), or loyalty/usage rate.

Occasions: Divides buyers by when they purchase or use a product (e.g., holidays, daily routine, special events).

Example: Starbucks promotes festive drinks during winter holidays.

Benefits sought: Groups customers by the specific value or advantage they seek from a product.

Example: Some toothpaste buyers want whitening, others cavity protection.

Usage rate: Segments markets into light, medium, and heavy users.

Example: Airlines give special offers to frequent flyers (heavy users).

Market Segmentation

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occasions

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Benefit Sought

Car industry:

Some customers seek safety ( Volvo)
Others seek performance ( BMW)
Others seek fuel efficiency ( BYD/Toyota Hybrid)

Airlines:

Some value low cost ( Flynas, Air Arabia)
Others value comfort and service ( Emirates, Qatar Airways)

Beverages:

Some buy for energy boost ( Red Bull)
Others for taste ( Pepsi)
Others for health ( Vitamin Water)

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Loyalty Status

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How does post apply to all segmentation variables?

geographic,
demographic,
behavioral,
psychographic

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Requirements for Effective Segmentation

To be useful, a market segment must be:

Measurable: size, profile, purchasing power
Substantial: large/profitable enough
Differentiable: respond differently to different marketing mix elements and programs.
Actionable: effective programs can be designed
Accessible: can be reached

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“Coffee Shop Segments”

Measurable: Can you measure the size or purchasing power of the segment?

You can measure how many iced coffees are sold between midterms and finals.
You can easily measure how many students buy coffee before 9 a.m. at your campus coffee shop.
That makes this segment measurable — you have real data on their behavior.

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“Coffee Shop Segments”

Substantial:

Is the segment large and profitable enough to serve?

If only 10 people want organic Matcha lattes, that’s too small. But if 500 students ask for it, that’s substantial — worth marketing to.

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“Coffee Shop Segments”

Differentiable: Does this group respond differently from other groups?

Students want strong coffee and fast service.
Business professionals want a quiet seating area, strong Wi-Fi, and high-quality coffee.

They both drink coffee — but they have different needs and expectations.�
But if both students and business professional want the same thing…. you might as well treat them the same. No need to segment!

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“Coffee Shop Segments”

Actionable: Can you create a specific marketing plan for this group?

You discover a segment of health-conscious students who want caffeine-free, sugar-free drinks and fast service.
You can:

Add a new decaf line
Offer online orders pick-up lines

You can clearly design a strategy to meet their needs.

BUT, Targeting "people who like the smell of coffee but don’t drink it." What can you really sell them? Not actionable

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“Coffee Shop Segments”

Accessible:

Can you reach this segment effectively with marketing?

YES! You can send app promotions to students' clubs, flyers on campus, social etc.

But if you want to target remote workers who order coffee online for delivery, and your shop doesn’t offer delivery or has no online ordering system, you can’t access this segment (not accessible).

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A target market is a set of buyers who share common needs or characteristics that the company decides to serve.

�Market Targeting

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FIGURE | 7.2

Market-Targeting Strategies

Selecting Target Market Segments

�Market Targeting

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Market Targeting Strategies

Undifferentiated (Mass) Marketing

Focus: Entire market with one offer.
Goal: Maximize reach and reduce cost through broad appeal.
Example: Toothpaste, basic mobile data plans.

2. Differentiated (Segmented) Marketing

Focus: Targeting multiple segments with different offers.
Goal: Increase market share by customizing to needs. achieve higher sales and stronger position
Example: Nike markets differently to runners, basketball players, and gym-goers.

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Market Targeting Strategies

3. Concentrated (Niche) Marketing

Focus: One specific segment.
Goal: Build strong loyalty and expertise in a small market.
Example: A vegan protein brand that only targets plant-based athletes.

4. Micromarketing (Local or Individual Marketing)

Focus: Tailoring products and marketing to specific individuals or locations.
Goal: Personalization.
Example: Starbucks customizing drinks for individual tastes; local restaurants using geotargeted ads.

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1) Undifferentiated marketing targets the whole market with one offer.

Mass marketing
Focuses on common needs rather than what’s different

Selecting Target Market Segments

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The First IPad – Mass Market

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Differentiated marketing targets several different market segments and designs separate offers for each.

Goal is to achieve higher sales and stronger position
More expensive than undifferentiated marketing

Selecting Target Market Segments

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Differentiated marketing – Colgate targets different market segments with different types of toothpaste.

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Selecting Target Market Segments

Concentrated marketing

targets a large part of a

smaller market.

Limited company resources
More effective and efficient

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Trolley's Example

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Tesla Example

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Individual (Micro) marketing is the practice of tailoring products and marketing programs to suit the tastes of specific individuals and locations.

Local marketing (local cities)
Individual marketing (individualized)

Selecting Target Market Segments

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Individual(micro) marketing involves tailoring products and marketing programs to the needs and preferences of individual customers.
Also known as:

One-to-one marketing
Micromarketing

Selecting Target Market Segments

Individual marketing: The PUMA Factory sneaker customization web site lets customers tailor their PUMA shoes to taste. “You know what works—what

styles, what textures, what colors. Customize your sneakers whatever way you want.”

In the extreme, micromarketing becomes individual marketing— one-to-one or markets-of-one marketing.

More detailed databases, robotic production and flexible manufacturing, and interactive media such as mobile phones and the Internet have combined to foster mass customization. Mass customization is the process by which firms interact one-to-one with masses of customers to design products and services tailor-made to individual needs. Individual marketing has made relationships with customers more important than ever.

The world appears to be coming full circle—from the good old days when customers were treated as individuals to mass marketing when nobody knew your name and then back again.

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Starbucks? Netflix? Social Media?

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Comparison Table

Strategy	Segments Targeted	Cost	Personalization	Example
Undifferentiated	All (broad market)	Low	Low	Coca-Cola (original)
Differentiated	Several segments	Medium	Medium	Toyota (SUVs, hybrids, sedans)
Concentrated	One niche segment	Low–Medium	High	Rolex (luxury buyers)
Micromarketing	Individual/local level	High	Very High	Netflix recommendations

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Targeting strategies for a new restaurant

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Example for a New restaurant

Undifferentiated:

Grand opening celebration.

Differentiated:

Discount specials for students.
kid-friendly meals for families. (nuggets, fries, grilled cheese… not only steak)
Early-bird specials for the seniors (come early and save)

Concentrated Marketing:

Market its convenient location to people within 10 km. (delivery)

Micromarketing:

Offer catering that are made to order.

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Additional in Class Examples

KDD chocolate milk, Tailor Express, Pet Bard, Alqabas NewsPaper

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Fitness App Exercise

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Fitness App in-class Discussion

Criteria	Segment A: Professionals	Segment B: Students	Segment C: Retirees
Measurable
Accessible
Substantial
Differentiable
Actionable

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Differentiation and Positioning

Product position is the way the product is defined by consumers on important attributes.

Positioning: IKEA does more than just sell affordable home furnishings; it’s the “Life improvement store.”

The company must decide on a value proposition—how it will create differentiated value for targeted segments and what positions it wants to occupy in those segments. The place the product occupies in consumers’ minds relative to competing products is the position. Products are made in factories, but brands happen in the minds of consumers.

Dreft is positioned as the gentle detergent for baby clothes; at IHOP, you “Come hungry. Leave happy.”; at Olive Garden, “When You’re Here, You’re Family.” In the automobile market, the Nissan Versa and Honda Fit are positioned on economy, Mercedes and Cadillac on luxury, and Porsche and BMW on performance.

To simplify the buying process, consumers organize products, services, and companies into categories and “position” them in their minds. A product’s position is the complex set of perceptions, impressions, and feelings that consumers have for the product compared with competing products.

Consumers position products with or without the help of marketers. But marketers do not want to leave their products’ positions to chance. They must plan positions that will give their products the greatest advantage in selected target markets, and they must design marketing mixes to create these planned positions.

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Positioning maps show consumer perceptions of marketer’s brands versus competing products on important buying dimensions.

Differentiation and Positioning

Positioning Maps

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Positioning: The Battle For Your Mind.

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Competitive advantage is an advantage over competitors gained by offering consumers greater value, either through lower prices or by providing more benefits that justify higher prices.

Differentiation and Positioning

Choosing a Differentiation and Positioning Strategy

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Positioning

A strategy that aims to make a brand occupy a distinct position, relative to competing brands, in the mind of the customer.

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1) Identifying a set of possible competitive advantages to differentiate along the lines of:

Differentiation and Positioning

Choosing a Differentiation and Positioning Strategy

Product differentiation: features

Burger King (quality) vs. Subway (Healthy)

Service differentiation

McDonalds (“We deliver Fast”)

Channels differentiation

Online vs. physical stores.

People differentiation:

company’s employees (languages spoken by Emirates, Qatar, and Kuwait airlines staff)

Image differentiation: brand image (Porsche vs Jeep)

Socially responsible, environment friendly

Product differentiation: Premium audio brand Bose promises “better sound through research—an innovative, high-quality listening experience.”

To find points of differentiation, marketers must think through the customer’s entire experience with the company’s product or service. An alert company can find ways to differentiate itself at every customer contact point.

Through product differentiation, brands can be differentiated on features, performance, or style and design. Thus, Bose positions its speakers on their striking design and sound characteristics. By gaining the approval of the American Heart Association as an approach to a healthy lifestyle, Subway differentiates itself as the healthy fast-food choice.

Some companies gain services differentiation through speedy, convenient, or careful delivery. For example, First Convenience Bank of Texas offers “Real Hours for Real People.” It is open seven days a week, including evenings.

Firms that practice channel differentiation gain competitive advantage through the way they design their channel’s coverage, expertise, and performance. Amazon.com and GEICO, for example, set themselves apart with their smooth-functioning direct channels.

Companies can also gain a strong competitive advantage through people differentiation—hiring and training better people than their competitors do.

Even when competing offers look the same, buyers may perceive a difference based on company or brand image differentiation. The chosen symbols, characters, and other image elements a brand chooses must be communicated through advertising that conveys the company’s or brand’s personality.

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Positioning

Must answer these two questions:

What is unique about you (service, quality, location, price, etc)?

What sets you apart and is VALUED by your customer?

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Differentiation and Positioning

Choosing the Right Competitive Advantages

A difference is worth establishing to the extent that it satisfies the following criteria:

Important: has value to customers (Airlines languages)
Distinctive: unique offer compared to competitors. (repair phones/cars at home instead of the store)
Superior: better in features/quality (Samsung’s Nokia camera)
Preemptive: cannot be easily copied. (KFC secret sauce)
Affordable: buyers can afford it. (OEM vs Chinese products)

Importance: Kuwait airways: speak three languages… passengers msotlyindians.. Is it important to speak Russian?

Discussion Question

Are you familiar with GEICO advertisements? If so, what is their positioning?

Which Differences to Promote. Not all brand differences are meaningful or worthwhile, and each difference has the potential to create company costs as well as customer benefits. A difference is worth establishing to the extent that it satisfies the following criteria:

Important: The difference delivers a highly valued benefit to target buyers.

Distinctive: Competitors do not offer the difference, or the company can offer it in a more distinctive way.

Superior: The difference is superior to other ways that customers might obtain the same benefit.

Communicable: The difference is communicable and visible to buyers.

Preemptive: Competitors cannot easily copy the difference.

Affordable: Buyers can afford to pay for the difference.

Profitable: The company can introduce the difference profitably.

Many companies have introduced differentiations that failed one or more of these tests.

The Web link is to a YouTube ad. The question is what do they promote as their difference. It is that they cost less and they are easy to use. The instructor might want to play competitor’s ads to see what differences they promote (State Farm) is a good example.

Thus, choosing competitive advantages on which to position a product or service can be difficult, yet such choices may be crucial to success. Choosing the right differentiators can help a brand stand out from the pack of competitors. For example, when carmaker Nissan introduced its novel little Cube, it didn’t position the car only on attributes shared with competing models, such as affordability and customization. It positioned it as a “mobile device” that fits today’s digital lifestyles.

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Communicating and Delivering the Chosen Position

Choosing the positioning is often easier than implementing the position.

Establishing a position or changing one usually takes a long time.

Maintaining the position requires consistent performance and communication.

Marketing mix must support the positioning.

Differentiation and Positioning