COMM 223 — Marketing Management
Chapter 6: Customer Value-Driven Marketing Strategy: Creating Value
for Target Customers
Based on: Armstrong, Kotler et al., Marketing: An Introduction, 7th Canadian Edition
Chapter Overview:
This chapter covers the four major steps in designing a customer value-driven marketing
strategy: (1) market segmentation — dividing markets into distinct customer groups; (2)
market targeting — evaluating and selecting which segments to serve; (3) differentiation —
actually creating superior customer value; and (4) positioning — occupying a clear,
distinctive, desirable place in the consumer's mind relative to competing products. The
central thesis: companies cannot serve all customers in the same way; instead, they must
identify the parts of the market they can serve best and most profitably, and then deliver
superior value to those chosen customers.
1. Marketing Strategy
Companies today recognise that they cannot appeal to all buyers in the marketplace —
or at least not to all buyers in the same way. Buyers are too numerous, widely
scattered, and varied in their needs and buying practices. Moreover, companies
themselves vary widely in their ability to serve different market segments. Instead,
companies must identify the parts of the market they can serve best and most profitably.
They must design customer-driven marketing strategies that build the right relationships
with the right customers.
Figure 6.1 shows the four major steps in designing a customer value-driven marketing
strategy. The process is built around two fundamental questions: (1) Which customers
will we serve? and (2) How will we serve them? The goal is to create more value for the
customers we serve than competitors do.
Key Principle: Marketing, at its core, boils down to two questions: Which customers will we
serve? And how will we serve them? The goal of the entire process is to create more value
for targeted customers than competitors do. Every strategic decision flows from these two
questions.
The four steps are:
Step Name Definition
1 Segmentation Divide the total market into smaller, distinct groups of buyers who have
, different needs, characteristics, or behaviours and who might require
separate marketing strategies or mixes.
2 Targeting Evaluate each market segment's attractiveness and select the segment or
segments to enter.
3 Differentiation Actually differentiate the market offering to create superior customer value
— not just claim it, but deliver it.
4 Positioning Position the market offering in the minds of target customers — arrange for
the offering to occupy a clear, distinctive, and desirable place relative to
competing products.
The first two steps (segmentation and targeting) determine which customers the
company will serve. The final two steps (differentiation and positioning) determine the
company's value proposition — how it will create value for those targeted customers. A
customer value-driven marketing strategy seeks to build the right relationships with the
right customers.
2. Market Segmentation
Buyers in any market differ in their wants, resources, locations, buying attitudes, and
buying practices. Through market segmentation, companies divide large, diverse
markets into smaller segments that can be reached more efficiently and effectively with
products and services that match their unique needs. There is no single way to segment
a market — a marketer must try different segmentation variables, alone and in
combination, to find the best way to view market structure.
Segmenting Consumer Markets
The major bases for segmenting consumer markets fall into four main categories:
geographic, demographic, psychographic, and behavioural. These variables can be
used alone or in combination.
Segmentation Variable Examples
Geographic Nations, regions, provinces, cities, neighbourhoods, population density
(urban, suburban, rural), climate
Demographic Age, life-cycle stage, gender, income, occupation, education, religion,
ethnicity, generation
Psychographic Lifestyle, personality
Behavioural Occasions, benefits, user status, usage rate, loyalty status
, A) Geographic Segmentation
Geographic segmentation calls for dividing the market into different geographical units,
such as nations, regions, provinces, cities, or even neighbourhoods. A company may
decide to operate in one or a few geographical areas, or operate in all areas but pay
close attention to geographical differences in needs and wants. Many companies today
localise their products, services, advertising, promotions, and sales efforts to fit the
needs of individual regions, cities, and other localities.
Hyperlocal Social Marketing: The surge in digital and mobile technology has caused a
corresponding surge in hyperlocal social marketing — location-based targeting to
consumers in local communities or neighbourhoods using digital and social media.
Companies can partner with apps like Waze to deliver location-based promotions. Major
social media platforms such as Facebook and Instagram let advertisers select
audiences by geographic location. Companies can sign up with Google Maps to show
their locations and ads in response to 'near me' searches. Such hyperlocal targeting lets
advertisers tailor their marketing content to local consumer locations and search intent.
Real-World Example: Nine Locks Brewing Company, a micro-brewery in Dartmouth, Nova
Scotia, targets the local market with products that speak directly to Nova Scotians. With
seasonal beers named things like 'Frig Off' and 'Sea Shells Summer Session Sour,' the
company has built a very brand-loyal local following, and captured a national brewing award
for its 'Dirty Blonde' wheat beer. The company's mindset is to serve the local community
rather than achieve mass national distribution.
B) Demographic Segmentation
Demographic segmentation divides the market into segments based on variables such
as age, life-cycle stage, gender, income, occupation, education, religion, ethnicity, and
generation. Demographic factors are the most popular bases for segmenting customer
groups for two key reasons: (1) consumer needs, wants, and usage rates often vary
closely with demographic variables; and (2) demographic variables are easier to
measure than most other types of variables. Even when marketers first define segments
using other bases (such as benefits sought or behaviour), they must still know a
segment's demographic characteristics to assess the size of the target market and
reach it efficiently.
Age and Life-Cycle Stage: Consumer needs and wants change with age. Some
companies use age and life-cycle segmentation, offering different products or using
different marketing approaches for different age and life-cycle groups. For example,
P&G's Crest White Brilliance targets seniors with teeth whitening; Crest Pro-Health Jr.
targets young children with Frozen/Star Wars packaging. Importantly, marketers must
guard against stereotypes — age is often a poor predictor of a person's life cycle,
health, work or family status, needs, and buying power. An 80-year-old may ski; a 40-
year-old may be starting a new family.
Chapter 6: Customer Value-Driven Marketing Strategy: Creating Value
for Target Customers
Based on: Armstrong, Kotler et al., Marketing: An Introduction, 7th Canadian Edition
Chapter Overview:
This chapter covers the four major steps in designing a customer value-driven marketing
strategy: (1) market segmentation — dividing markets into distinct customer groups; (2)
market targeting — evaluating and selecting which segments to serve; (3) differentiation —
actually creating superior customer value; and (4) positioning — occupying a clear,
distinctive, desirable place in the consumer's mind relative to competing products. The
central thesis: companies cannot serve all customers in the same way; instead, they must
identify the parts of the market they can serve best and most profitably, and then deliver
superior value to those chosen customers.
1. Marketing Strategy
Companies today recognise that they cannot appeal to all buyers in the marketplace —
or at least not to all buyers in the same way. Buyers are too numerous, widely
scattered, and varied in their needs and buying practices. Moreover, companies
themselves vary widely in their ability to serve different market segments. Instead,
companies must identify the parts of the market they can serve best and most profitably.
They must design customer-driven marketing strategies that build the right relationships
with the right customers.
Figure 6.1 shows the four major steps in designing a customer value-driven marketing
strategy. The process is built around two fundamental questions: (1) Which customers
will we serve? and (2) How will we serve them? The goal is to create more value for the
customers we serve than competitors do.
Key Principle: Marketing, at its core, boils down to two questions: Which customers will we
serve? And how will we serve them? The goal of the entire process is to create more value
for targeted customers than competitors do. Every strategic decision flows from these two
questions.
The four steps are:
Step Name Definition
1 Segmentation Divide the total market into smaller, distinct groups of buyers who have
, different needs, characteristics, or behaviours and who might require
separate marketing strategies or mixes.
2 Targeting Evaluate each market segment's attractiveness and select the segment or
segments to enter.
3 Differentiation Actually differentiate the market offering to create superior customer value
— not just claim it, but deliver it.
4 Positioning Position the market offering in the minds of target customers — arrange for
the offering to occupy a clear, distinctive, and desirable place relative to
competing products.
The first two steps (segmentation and targeting) determine which customers the
company will serve. The final two steps (differentiation and positioning) determine the
company's value proposition — how it will create value for those targeted customers. A
customer value-driven marketing strategy seeks to build the right relationships with the
right customers.
2. Market Segmentation
Buyers in any market differ in their wants, resources, locations, buying attitudes, and
buying practices. Through market segmentation, companies divide large, diverse
markets into smaller segments that can be reached more efficiently and effectively with
products and services that match their unique needs. There is no single way to segment
a market — a marketer must try different segmentation variables, alone and in
combination, to find the best way to view market structure.
Segmenting Consumer Markets
The major bases for segmenting consumer markets fall into four main categories:
geographic, demographic, psychographic, and behavioural. These variables can be
used alone or in combination.
Segmentation Variable Examples
Geographic Nations, regions, provinces, cities, neighbourhoods, population density
(urban, suburban, rural), climate
Demographic Age, life-cycle stage, gender, income, occupation, education, religion,
ethnicity, generation
Psychographic Lifestyle, personality
Behavioural Occasions, benefits, user status, usage rate, loyalty status
, A) Geographic Segmentation
Geographic segmentation calls for dividing the market into different geographical units,
such as nations, regions, provinces, cities, or even neighbourhoods. A company may
decide to operate in one or a few geographical areas, or operate in all areas but pay
close attention to geographical differences in needs and wants. Many companies today
localise their products, services, advertising, promotions, and sales efforts to fit the
needs of individual regions, cities, and other localities.
Hyperlocal Social Marketing: The surge in digital and mobile technology has caused a
corresponding surge in hyperlocal social marketing — location-based targeting to
consumers in local communities or neighbourhoods using digital and social media.
Companies can partner with apps like Waze to deliver location-based promotions. Major
social media platforms such as Facebook and Instagram let advertisers select
audiences by geographic location. Companies can sign up with Google Maps to show
their locations and ads in response to 'near me' searches. Such hyperlocal targeting lets
advertisers tailor their marketing content to local consumer locations and search intent.
Real-World Example: Nine Locks Brewing Company, a micro-brewery in Dartmouth, Nova
Scotia, targets the local market with products that speak directly to Nova Scotians. With
seasonal beers named things like 'Frig Off' and 'Sea Shells Summer Session Sour,' the
company has built a very brand-loyal local following, and captured a national brewing award
for its 'Dirty Blonde' wheat beer. The company's mindset is to serve the local community
rather than achieve mass national distribution.
B) Demographic Segmentation
Demographic segmentation divides the market into segments based on variables such
as age, life-cycle stage, gender, income, occupation, education, religion, ethnicity, and
generation. Demographic factors are the most popular bases for segmenting customer
groups for two key reasons: (1) consumer needs, wants, and usage rates often vary
closely with demographic variables; and (2) demographic variables are easier to
measure than most other types of variables. Even when marketers first define segments
using other bases (such as benefits sought or behaviour), they must still know a
segment's demographic characteristics to assess the size of the target market and
reach it efficiently.
Age and Life-Cycle Stage: Consumer needs and wants change with age. Some
companies use age and life-cycle segmentation, offering different products or using
different marketing approaches for different age and life-cycle groups. For example,
P&G's Crest White Brilliance targets seniors with teeth whitening; Crest Pro-Health Jr.
targets young children with Frozen/Star Wars packaging. Importantly, marketers must
guard against stereotypes — age is often a poor predictor of a person's life cycle,
health, work or family status, needs, and buying power. An 80-year-old may ski; a 40-
year-old may be starting a new family.
