Targeting Guide #11

Don’t think that you are typical of your target customer.

You know far more about your product category than does your target customer.  You have become immersed in your product category.  You may look at three products in your category, and you see great differences between them.  Your target consumer may see those three products as being identical.  As a demonstration, shown below are three washing machines that are the top, middle, and bottom of a manufacturer’s front loading product line.

The Manufacturers Suggested Retail Prices for the three models are $1,600, $1,300, and $850.  You may be able to identify the low priced model as it appears to have fewer control buttons and a different door color.  Identifying the high priced model from the remaining two, however, is almost impossible.  The marketers in this category can probably see a great deal of difference in the three models because they are immersed in the product category, but it’s doubtful that the same is true for their target customers.

Also don’t believe that you know any “typical” buyers of your product category.  Your friends, relatives, and acquaintances probably all know for whom you work.  They too have heightened awareness of your product category because they know you.  Don’t ask for their opinions because they are not typical of your target customer.  The only person typical of your target customer is your target customer, and the only way to accurately assess the opinions of your target customers is through marketing research.

Targeting Guide #10

All competitors aren’t your brand’s competitors; only those brands that are targeting your target customers are your brand’s competitors.

Marketers sometime react to the actions of all other brands in a given product/service category.  This is often a mistake.  Only those brands which are targeting your brand’s target customers are your competitors.  The graphic to the left is a hypothesize segmentation set space.  The market is segmented along two unspecified dimensions.  The brands are positioned in the set space by consumers who bought the brand.  Your brand is the represented by the black diamond in the upper right quadrant of the set space.  Your only real competitive in this example is Competitor 1; it is the only brand purchased by consumers who are similar to your customers.

Over-focusing on competitor actions are sometimes a symptom of being sales oriented rather than marketing oriented.  The salesman often views the commercial process as a battle between his company and the competitors’ companies.  Walking into a dealer only to find a competitor’s salesman walking out the door only helps to foster this belief.  And the belief is deeply internalized if the salesman discovers that the competitor filled the dealer’s inventory.

However, the goal of marketing isn’t to defeat the competitors.  The goal of marketing is to create genuine customer value.  If the marketer is better at creating this genuine customer value than competitors, the competitors will be defeated.  The defeat is a by-product of marketing, not the goal of marketing.

Targeting Guide #9

Focus only on your current customers, and as your customers die so will your brand.

Even if you execute your marketing mix tactics perfectly so that all of your current customers are target end-users, it’s a mistake to focus only upon your current customers.  With the popularity of Customer Relationship Marketing (CRM) programs, this is an easy thinking trap to fall into.  Your current customers are going to age.  These changes don’t occur rapidly; it’s a slow evolution.  If you don’t continuously attract younger target end-users into your customer base, your customer base is going to grow older and die.  Your brand will die when its target customers die.

Some of the American automobile manufacturers’ more expensive brands were at one time aspirational brands.  A young Ford owner aspired to own a Mercury or a Lincoln.  As consumers aged and as their income increased with age, Mercury and Lincoln had no trouble replacing their dead customers.  The original General Motors family of brands – Chevrolet, Pontiac, Oldsmobile, Buick, and Cadillac – was assembled to cover every price point in the automobile market.  General Motors owners aspired to move up this ladder of brands.  However, when the aspirations of younger consumers shifted to Mercedes Benz, BMW, Lexus, Infiniti, etc., the Mercury, Lincoln, Oldsmobile, Buick, and Cadillac brands found themselves with aging and dying customer bases. 

There’s nothing wrong with having either an older target market or an older customer base.  One would naturally expect higher price point brands, such as Mercedes and Rolex, to have older customer bases as discretionary income tends to increase with age.  Marketers who are targeting older consumers need to ensure, however, that as consumers age, they age into prospects for the marketers’ brand.

Targeting Guide #8:

Don’t confuse your current customers with your target customers.

No one can execute a marketing plan perfectly.  Perhaps you have a product or service offering that appeals to customers who are not your target customers.  Possibly some of your distribution attracts customers who are not your target customers.  Or you have an offering that’s priced too high or too low for your target customers.  Regardless of the reason, your brand is going to attract buyers who are not your target customers. 

Consider this graphic, the set space represents all the buyers of a given product category.  The larger circle represents your brand’s target customers, the customers that you are after.  The smaller circle is your actual customers.  Note that only a portion of your target bought your brand.  And some of your customers are not your target end-users.  Think of these customers as being accidental buyers.  This is the result of real world imperfect execution of marketing tactics.  The extent to which your current customers are target customers is a function of how close you are to perfect tactical marketing execution. 

In consumer goods product categories, accidental buyers usually don’t represent a problem for the marketer; they only represent that execution of marketing mix tactics could be improved.  In business to business product categories, accidental buyers may mean that an end-user has purchased and is using a product that is not suitable for their application.  This misapplication may lead to dissatisfaction with the brand, or worse, product liability issues.

Targeting Guide #7

When targeting multiple segments, specify their order of priority:  which is primary, secondary, and tertiary.

This game rule is related to the previous one and comes from practical experience.  In developing marketing mix tactics for multiple market segments, compromises will be made.  Specify which target market is primary, which is secondary, and which is tertiary.  Specification of the priority of market segments will allow you to make compromises in your marketing mix tactics in favor in of your higher priority segments.

Targeting Guide #6

Marketers make their job easier if they target one and only one market segment.

This ground rule is common sense.  If the marketer targets only one segment, the wants/needs of every customer in that segment are going to be the same.  In developing marketing mix tactics, all of the elements of the marketing mix can be optimized to satisfy those wants/needs thereby creating value for target customers.

If a second segment is targeted, then the wants/needs of end-users in the two segments differ to some degree.  In developing marketing mix tactics, what the marketer does for the first segment may be inappropriate for the second segment.  This adds complexity in tactical marketing mix planning.  The marketer must find compromises that are appropriate for both segments.  Often these compromises are not optimal for either segment.

Targeting Guide #5

Focus your scare marketing resources exclusively on your targeted market segment(s).

Once you have identified your targeted market segment(s), devote all of your marketing resources toward moving those target customers toward the purchase of your brand.  Do not waste your scarce marketing resources on end-users who are not your target customers. 

In the real world, marketers often are forced into redirecting marketing resources away from target end-users to non-target end-users.  As an example, there is the opportunity to open new distribution, but marketing research shows that target customers do not purchase at that new distribution.  If sales are going well, the marketer should decline the opportunity.  If sales are not going well, the marketer will probably be forced to accept the opportunity recognizing that it is contrary to the brand’s marketing strategy.  In the real world, one finds that it is impossible to execute a marketing strategy perfectly.  Good marketers will recognize that in accepting the opportunity that they are deviating from their marketing strategy.  Poor marketers will not.

Targeting Guide #4

Targeting is as much exclusionary as it is inclusionary.

Associated Quote:  I know when our businesses have done a good job of market segmentation and targeting when they can tell me who we should not sell to.  Dr. Charles Lillis, former CEO of MediaOne

By identifying the target end-users to whom you are going to direct your marketing efforts, you are consciously making the decision who you are not going after.  The unique brand benefit that you specify in the positioning step of marketing strategy development motivates your target customers to consider your brand.  It’s unlikely that your unique brand benefit would motivate end-users who are not members of your target segment.

Most marketing people sometimes have difficulty in following this marketing guide.  I’ve seen marketers who do have a segmentation scheme, but they target all of the segments identified in the scheme with a single brand.  This is not targeting; it is mass marketing.

Targeting Guide #3

To succeed in the segment, a company or brand must exhibit some strength in serving that segment.

Examples:  If a target market segment has a high degree of price sensitivity driven by low income, the marketer should have the strength of being a low cost producer so that they can offer low prices to their target customers.  If a target market segment is seeking the ego gratification that comes with exclusivity, the marketer needs to have brands that are associated with that attribute.  If the target market segment demands services associated with a physical product, the company needs to have the strength of being a service provider.

Targeting Guide #2

The rules for assessing the attractiveness of a market segment are common sense rules.

Associated Quote:  Common sense is not so common.  Voltaire

Common sense:  It’s better to target market segments that are large rather than small; segments that are growing rather than dying; segments where there are few competitors rather than many competitors; segments where you can make a profit rather than sustain a loss; etc.  Although market segmentation can be extremely complex, the rules of targeting are common sense rules.

Targeting Guide #1

Consider two factors when selecting market segments to target:  (a) the attractiveness of the segment and (b) your company’s and brand’s strengths and weaknesses.

The above guide is found in Philip Kotler and Kevin Keller’s classic MBA marketing text, Marketing Management, in much more formal prose than this guide.

From experience, most marketers focus on the attractiveness of the segment and minimize their company’s and brand’s weaknesses.  You need to focus equally on both.  It is very difficult – and sometimes beyond the ability of the marketing manager -- to eliminate the weaknesses of the company and/or brand.  For example, if a company has a poor supply chain which results in inconsistent customer delivery and low fill rates, much work is needed to correct this weakness.

A good way to assess which market segments to target is through is through a SWOT analysis.  A classic SWOT analysis consists of strengths and weaknesses and opportunities and threats.  Strengths and weaknesses are internal to the company or brand; whereas, opportunities and threats are external to the company or brand.  A SWOT analysis can be used as a thinking tool for targeting market segments.

The back side of the SWOT analysis -- opportunities and threats -- are, respectively, the attractive aspects of a market segment and the negative aspects of a market segment.  As an example, most marketers are under pressure to constantly increase category share.  Large market segments where increased category share can be more easily accomplished represent opportunities for those marketers.  Conversely, smaller market segments may represent a threat to the marketer who is after large category share.

The front side of the SWOT analysis -- strengths and weaknesses -- are the strengths and weaknesses of your company and/or brand.  Be careful in your analysis of strengths and weaknesses.  You are probably proud of your employer; and, unfortunately, this colors your judgment.  You may proudly point out that your company spends more on research and development than your competitors.  Spending more on research and development, in and of itself, is not a strength.  If your research and development expenditures result in marketable products that create value for your target customers, then the ability to create those products is a strength.  If not, your spending on research and development may be a contributor to a weakness – you may be the high cost producer in the category.  Similarly, a company’s  efforts to protect the environment are certainly admirable.  However, in selecting target market segments, they are not a company or brand strength unless they motivate the target customer to consider the purchase of the brand.

To aid you in your SWOT analyses, a SWOT Analysis template is available for the asking.  When you use this template, remember -- strengths and weaknesses are internal to the firm or brand; opportunities and threats are external to the firm or brand.

Mkt Segmentation Guide #12

Good segmentation produces segments that are homogeneous within and heterogeneous between.

This is an often repeated marketing guide.  It is sometimes misunderstood to mean that all of the members of a given segment will share similar demographic characteristics.  Remember that differing wants/needs define segments.  The members of a given segment should have the same wants/needs (to be homogeneous) and those wants/needs should differ (to be heterogeneous) from the wants/needs of members of other segments. 

If the market for dance lessons were segmented, a hypothesis would be that a high potential market segment would be comprised of people with higher social needs.  People with high social needs carry those needs with them throughout their lives, and those needs are relatively independent of economic status.  Thus, the members of the high potential market segment probably have very differing demographics.

As an example and presented as a cluster set space to the right, the fact that consumers are contained in one of the clusters indicates homogeneous wants/needs.  The lack of overlap among the clusters indicates the consumers in a given cluster have wants/needs that are different, or heterogeneous, from the wants/needs of consumers in other clusters.

Mkt Segmentation Guide #11

In consumer market segmentation there is a maximum number of segments, say about eight, which can be considered and executed against by the marketer.

Segmentation, taken to its logical conclusion, would yield segments of one end-user eac because each end-user is unique.  Obviously, marketers cannot afford to customize their marketing mix for each individual end-user.  Marketers tend to seek segments that are large enough for them to achieve some economies of scale in their marketing efforts.

From experience, segmentation schemes of over about eight segments generally reduce the segmentation sample size in any one segment to a point where the estimators become unstable.  Thus, the confidence interval around an estimator, such as age, for a given segment tends to overlap to other segments.  The distinctions between the segments become unclear.

If marketers don’t clearly understand the characteristics of the end-users in a given market segment, it is impossible to effectively proceed with the other steps in marketing planning -- targeting, positioning, and developing marketing mix tactics.

Mkt Segmentation Guide #10

Markets are segmented; if you don’t figure out what the segments are, your competitor will.

There are several examples in business history where a pioneering marketer in a product category tries to appeal to the entire market with their offering.  Eventually, a competitor recognizes that not everyone wants/needs the same thing.  The competitor develops an offering that successfully attracts a given segment of the market.  Another competitor develops an offering that appeals to another segment of the market.  One by one, the mass marketer find the various segments away from them.

One example is Henry Ford with his Model T.  General Motors and other competitors took Henry’s customers segment by segment with the creation of brands that appealed to separate segments.  Chevrolet was acquired by General Motors in 1917 and was positioned by Alfred Sloan to sell a lineup of mainstream vehicles to directly compete against the Model T.   General Motors first produced the Oakland and later the Pontiac to appeal to those consumers who sought something a little better than the Model T.  Oldsmobile and its companion brand, Viking, appealed the the next more affluent segment of the market.  Buick and Marquette represented the next step in product price points.  Finally, LaSalle and Cadillac appealed to the most affluent consumers.  Henry may have put American on wheels, but many of those Americans ended up driving General Motors' and other competitors' cars.

Another example is Holiday Inn which pioneered the modern hospitality category.  Holiday Inn had a target market in mind when it was created, the family traveler.  The original Holiday Inn facility was designed to appeal to families traveling by automobile.  The garden style layout of the facility allowed the family to park near their room eliminating the need for assistance in transporting their belongings from their car to their hotel room.  However, to attract business people, they began to also locate motels in heavily populated areas where the garden style layout which required a large lot size was not economically feasible.  Thus, they changed their layout to a high rise building.  Competitors learned that the sales person wants/needs hotel features which differ from those of the family.  Middle managers have different hotel wants/needs than either sales people or family travelers.  These competitors took Holiday Inn’s market away from them segment by segment.

Mkt Segmentation Guide #9

The marketer who intimately understand customers’ wants/needs will be the winner.

Knowledge is power.  If you understand something about consumer behavior in your product category that your competitors do not, you have a competitive advantage over them.  In recent years, much has been written about customer intimacy.  However, customer intimacy isn’t a marketing program; it isn’t customer relationship marketing.  Customers intimacy is deeply understanding your target customers.  In consumer product and service categories, that deep understanding of your target customers wants/needs can only be accomplished through legitimate marketing research.

Mkt Segmentation Guide #8

Each product category has its own unique segmentation solution.

One can’t take a segmentation solution for automobiles and apply it to the soft drink category.  Nor can one take a segmentation solution for breakfast cereal and apply it to deodorants.  Each product category has its own uniqueness in terms of consumer behavior.

There are some research suppliers who have syndicated overall segmentation schemes for consumers across all product and service categories.  These research suppliers are competent; their overall segmentation schemes probably describe the aggregate behavior of consumers across all product and service categories.  The problem, however, is that consumer behavior varies by product or service category.  Thus, while this syndicated research may describe the aggregate behavior of consumers across all product and service categories, it fails to describe consumer behavior in any given product or service categories.  If you have access to such research, use it to assist you in your understanding of consumer behavior.  However, remember that it is not directly applicable to your product or service category.

Mkt Segmentation Guide #7

In business-to-business categories, segmentation can be accomplished by studying the different types of customers.

Unlike consumer markets, you can study customers in business-to-business product categories and determine what the segments are.  The motivation of businesses is economic in nature.  It isn’t difficult to understand.  A business wants to make money, and marketers satisfy that need by either assisting the customer in reducing their costs or increasing their revenue.

Moreover, businesses of the same size in a given industry tend to have very similar operating profile.  As an example, once you’ve documented the operating profile of a large, long-haul trucking operator, the operating profile of other large, long-haul trucking operators is going to be very similar.

Because of the lack of behavioral complexity in businesses, business markets tend to be segmented along easily understood characteristics such as application of the product, size, extent of usage, industry, etc.  Anderson and Narus, in their Business Market Management: Understanding, Creating, and Delivering Value, encourage business-to-business marketers to consider what they call “progressive bases of segmentation” in addition to the more conventional bases of segmentation.  These include customer sophistication regarding the marketer’s product category, the degree of vertical integration, contribution to the supplier’s profitability, etc.

Mkt Segmentation Guide #6

In consumer goods categories, segmentation can only be accomplished by rigorous marketing research.

Market segments are the result of differing wants/needs within different groups of consumers.  One can’t have a conversation with a few consumers and determine what wants/need motivate their behavior in a product category.  It takes research.  Consumer markets are large.  One would never be able to talk to enough consumers to generalize about the consumer market overall much less to generalize about the segments within that overall market.  It takes consumer research.

The typical consumer segmentation study probes all aspects of the consumer that may contribute to influencing their behavior – product or service category knowledge, attitudes and/or opinions toward the category and brands within the category, prior purchase behavior, personality characteristics, lifestyles, demographics, etc.

One cannot observe consumers in a given product category and determine what segments exist.  You need research.

Mkt Segmentation Guide #5

In business-to-business categories, customers’ wants/needs can change quickly so that segmentation needs to be reviewed periodically.

Demand in business-to-business product categories is “derived” demand.  Business demand is derived from the demand for consumer goods and services.  The automobile industry’s demand for steel and aluminum is derived from the consumer demand for automobiles.  Sometimes one will have to trace the demand for business products and services backwards through multiple suppliers before the demand for a consumer good or service will be evident, but eventually it can be found.

Business markets are smaller than consumer markets.  Thus in many industries, a shift in demand by a few businesses will greatly influence the demand for any given business-to-business product or service category.  This is why business-to-business markets tend to be more cyclical than consumer markets.  For most business-to-business marketers, when sales are good they are very good; but when sales are bad they are very bad.

Mkt Segmentation Guide #4

In consumer goods categories, good segmentation work can last for decades.

Segmentation is based upon differing wants/needs.  Good marketers are able to understand and appeal to the fundamental wants/needs of their target customers.  These fundamental consumer wants/needs do not change rapidly.  People have always wanted a full stomach, shelter, and clothing (physiological needs).  They’ve always wanted to be free of fear of the future (safety needs).  They’ve always wanted companionship (social needs).  People, especially men, have always had self image needs to be satisfied (ego needs).  These needs don’t change rapidly.

Consumers’ wants/needs are usually set early in life and greatly influenced by their parents.  Despite the fact that children tend to rebel in adolescence, consumers end up having wants/needs that are similar to their parents.  Thus, wants/needs can remain relatively constant over multiple generations. 

What changes with more rapidily than consumer wants/needs are marketers’ solutions to those wants/needs.  Using the automobile category as an example, Americans have always loved big vehicles.  There are a couple of explanations for this phenomenon.  Firstly, Americans usually think that bigger is better … in houses, in meals, and in automobiles.  Secondly, Americans tend to be materialistic; we judge ourselves and others by how much we own.  Think of the bumper sticker, “He who dies with the most toys wins.”  We need big vehicles in which to carry our possessions because we are materialistic.  In the 1950-60’s, the typical family vehicle was the big, full sized station wagon.  In the 1970’s, the station wagon was supplanted by the minivan.  Finally, in the 1990’s, the minivan was replaced by the sport utility vehicle.  The fundamental want/need remained the same over this 50 year period; it was the marketers’ solution to the want/need that changed.

Of course, there can be events in the marketing environment which cause rapid shifts in consumer demand.  The two gasoline shortages of the 1970’s caused a shift from the traditional large American car to smaller, more fuel efficient models.  The high gasoline prices of prices of 2008 also shifted consumer demand to smaller, more fuel efficient models.  Once the gasoline shortages of the 1970’s were over and the high prices of 2008 declined, consumers reverted back to larger vehicles which was really what they wanted in the first place. 

Mkt Segmentation Guide #3

Price is not a segmentation variable.

Remember from Marketing Guide #1 that markets are always people and thus market segments always consist of different groups of people. 

One will sometimes see market segments being described as being “high price/mid price/low price.”  This is unfortunate as price is not a people, human characteristic.  Have you ever met a person whom you would describe as being a “high price person” or a “low price person”?  I hope not or you’re doing something illegal.  Price is not an appropriate descriptor of a person.  Thus, it is not an appropriate basis for defining nor describing market segments.  Pricing is a tactical marketing activity.  Pricing is something the marketer does.

Admittedly, there is a consumer characteristic that is related to marketers’ price point, and that is price sensitivity.  Some consumers have a high degree of price sensitivity, meaning they want low prices; while others tend to have low price sensitivity, meaning they will accept higher pricing.

If you find yourself in a situation where a marketing researcher has submitted to you a market segmentation scheme where price sensitivity is one of the segment-defining characteristics, ask the researcher what is driving price sensitivity?  It has been my experience that there tend to be two drivers of price sensitivity: (1) demographics and (2) attitudes.

Demographic drivers of price sensitivity include low income.  Closely correlated with low income are down-scale occupations, low educational, and age with younger consumers being less affluent than older consumers.  Thus, there tends to be a series of demographic characteristics which drive price sensitivity.  Note that demographics do not define market segments (review Marketing Guide #2). Wants/needs and behaviors – such as price sensitivity -- define market segments.  Then demographics are used to describe the segment.

The attitudinal drivers of price sensitivity revolve around how customers view your product category.  If some customers believe that there are distinct differences between the brands in your category, those customers will have less price sensitivity.  You’re your vantage point there may be great difference between brands in your product/service category, but that doesn’t matter.  The issue is whether consumers believe there is a difference.  If they do, then some are going to pay the premium to get the best.  If other consumers view all brands as being basically the same then the category is tending toward commodity status for those consumers. They will have higher price sensitivity and will not be willing to pay a premium to get a particular brand. 

Mkt Segmentation Guide #2

Marketing Guide #2:  Markets are always people so market segments always consist of different groups of people.

Extension:  Your firm and your competitors do not make up the market; you serve the market. 

Extension: The different types of products that you market do not constitute different market segments.

It’s not often in marketing that one speaks in absolutes and uses the word “always”, but I can’t think of an exception to this marketing guide … markets are always people.   

What about business-to-business you ask?  I may be stretching the guide a little.  Yes, the prospective businesses for a given product or service constitute the marketing.  However, in those businesses people make the decision on which brands to buy.  A characteristic of business-to-business marketing is multiple buying influence which means that several people often are involved in the purchasing process.  Thus. I’ll argue that even in B2B categories people make up the market.

Marketing textbooks tells us that businesses tend to have one or a combination of three orientations.  (1) A business may be product oriented where it is believed that product features and product quality are the keys to long term business success.  (2) It may be sales oriented where the belief is that profit stems from the firm’s ability to sell product. (3) A marketing oriented firm believes that its mission is to create value for its customers.  If they are successful in creating value, customers will purchase their brand.  It’s the customers purchasing the brand that drives the business; sales and profits are the result of customer purchases.  Some firms demonstrate one of these three orientations.  Technology firms tend to be product oriented.  Some firms are dominated by their sales organization.  Some other firms may demonstrate all of these orientations.  The R&D and manufacturing groups are product oriented; the sales organization is sales oriented; and the marketing group is marketing oriented.

I mention these three business orientations because while marketing oriented firms understand that markets are made up of people, product oriented and sales oriented firms often fall into a trap. 

Product oriented firms often define the market by the varieties of products that make up their product category.  Probably the worst offender of this marketing guide is the automobile industry.  They constantly refer to the SUV segment, the sport compact segment, the near luxury segment, etc.  Thinking that the products you offer each appeal to a different and unique group of consumers will lead your marketing astray.  Marketers in almost all product categories like to group their products into logical groupings.  This, however, is the marketer’s view of the product category; not the customer’s view of the product category.

Sales oriented firms often define the market as themselves and their competitors.  You will find charts and graphs of competitor characteristics such as their product assortments, their customer base, their sales actions, etc.  This over-focus on one’s competitors by a sales dominated organization is understandable.  The salesperson makes a call on a customer; and as he/she walks into the customer’s place of business, the competitor’s salesperson is walking out.  Their view of the world is that business is a battle with the objective being to defeat the competitor.

The problem with defining markets as products or competitors is that these definitions cause marketers to lose their focus.  Marketers’ primary mission is to create value for their target customers, and marketers’ focus should be on their target customers.  Yes, marketers need to be knowledgeable about the varieties of products in their category.  And yes, they need to know what their competitors are doing.  But their focus needs to be on their target customers.

In almost all marketing-decision making, start with your target customer and work backwards to your market offering.  Follow this approach, and you’ll be a good marketer regardless of your background.

Mkt Segmentation Guide #1

Market segments are determined by differences in customers’ wants/needs.


Some marketing textbooks state that markets can be segmented by customers’ demographics, psychographics, geography, etc. This is wrong! What actually creates market segments are differences in target customers’ wants/needs. After the marketer figures out what wants/needs define the various segments, then the segments may be described in terms of demographics, psychographics, geography, etc.



Recognize from my first posts, which served as an introduction to these Marketing Guides, that wants/needs differ in consumer marketing compared to those in business to business marketing. In consumer marketing, wants/needs are internal to the individual; whereas, in business to business marketing, wants/needs tend to be economic in nature.

Using the toothpaste category as an example, some target customers want/need white teeth. Their internal want/need is probably a social need; that is, these target customers want hugs and kisses from attractive people. Once this want/need has been identified by the marketer, then the marketer may describe this segment demographically. The target customers tend to be both male and female; they tend to be 15 to 34 years of age, and they are unmarried. The learning point of this example is that it is the want/need that defines the market segment. Demographics do not define the segment although members of this segment tend to share similiar demographics.

What is Marketing? Part 2

Value in Consumer Marketing

Economists from the time of 18th century Adam Smith to today, assume that man is economically motivated. But man is not an economic creature; man is driven by internal wants/needs. There is no single complete explanation of human behavior nor human wants/needs, but let’s use Maslow’s hierarchy as almost everyone is familiar with it.

Abraham Maslow was a student of Freud. Freud studied people who were mentally ill and saw little difference between the motivations of human beings and animals. Other pioneers in motivation, such as B.F. Skinner and Ivan Pavlov, also saw little difference in the motivations of human being and animals. Maslow studied normal people, rather than the mentally ill, and established a hierarchy of needs.

In Maslow’s hierarchy, human beings are seen as being motivated by internal and unsatisfied wants/needs. Lower order wants/needs must be satisfied before the higher order wants/needs become motivators:

• 
  
  Physiological Wants/Needs: the very basics to survive; food, shelter, and clothing
  
• 
  
  Safety Wants/Needs: having our physiological wants/needs satisfied into the future
• 
  
  Social Wants/Needs: the feeling of being needed, wanted, appreciated, and accepted; companionship, belonging, and love
  
• 
  
  Ego Wants/Needs: self-esteem, status, power, distinction, and honor
  
• 
  
  Self Actualization Wants/Needs: the expression of one’s self to themselves as an individual without the ego attachments; as an example, the artist’s or craft person’s want/need to create to express themselves. This internal want/need is about self-fulfillment and is different from the want/need of receiving praise of others which is an ego want/need.
  

If consumers buy goods and services to satisfy these internal wants/needs, what is the role of economics? There are two answers to this question:

1. All consumers want the most for their money. Some confuse this fact of life with economic motivation. It isn’t economic motivation because consumers have already decided what will satisfy their wants/needs, now they’re going to attempt to buy the product, service, or brand at the lowest possible price. Consumers will shop for the lowest price for the item that they believe will satisfy their wants/needs. Retailers have figured out this aspect of consumer behavior. Look at the retail advertisements in your local paper and you will find headlines that scream “lowest prices in town”, “won’t be undersold”, “low price guaranteed”, “sale”, etc. and more emphasis on and space devoted to the price than the product or service. The world’s largest retailer, Wal-Mart, had an advertising theme line of “Always Low Prices!” This theme line was so well ingrained in the American consumer that Wal-Mart only had to put “Always” on their super-centers to remind customers of their low pricing.

Possibly American consumers are the most demanding for wanting the most for their money. American society is extremely materialistic. Americans tend to judge themselves and others by how much and what they own. They always want more and better and often confuse more with better. A house is purchased, filled with possessions, and a bigger house is sought. It is filled with possessions to overflowing, and the popular American service of self storage is used to store the overflow. Is it any wonder that marketing, both as an academic discipline and a business practice, started in the United States? Marketers love the voracious American consumer.

2. Price is a delimiter; price tells consumers what they “can’t afford”. If income were unlimited, consumers would buy the perceived best of everything. However, income is limited, and each consumer decides what they can and can’t afford. It’s very unlikely that you own a Ferrari automobile, a Rolex watch, or an Armani suit. Even if you believe that these brands are the best in their respective product category and lusted after them, you’d be likely to say that you “can’t afford” them. But many of us can afford them. Want to drive a Ferrari? All you have to do is sell your home, cash out the equity, and move into a single wide mobile home. Not enough cash? Then take a loan out against your retirement 401K fund. Still not enough? Obtain a cash advance with your credit card. You probably could scrape together the cash to buy a Ferrari, but you’re probably not willing to suffer the consequences so you just say, “I can’t afford a Ferrari.” Each consumer decides what they “can afford” and “can’t afford”.


It’s important to point out that the decision as to what a consumer “can’t afford” is not one that is the result of rigorous economic analysis, and it certainly isn’t cast in concrete. Sometimes consumers will initially reject a given brand saying that they “can’t afford” the price … but they really want the brand. They may continue to shop in the product category comparing features and prices. However, the additional information only serves to reinforce that they really want their preferred brand. More importantly, the additional information helps them build justification in their minds that their preferred brand is the brand they – not just want – but need. When they exhaust their shopping energy, they end up purchasing what they couldn’t afford. Guess what, they could afford it all along. Prior to exhausting their shopping energy, they just weren’t willing to make trade-offs in future purchases to buy the more expensive preferred brand.

Value in Business to Business Marketing

Businesses, unlike consumers, are motivated by economics. Businesses want to make money. Even in the not-for-profit sector, organizations want to operate as efficiently as possible; again, economic motivation. The economic motivation of the customer in business-to-business marketing is the fundamental difference from consumer marketing. It is the reason that many of the soft and squishy approaches used in consumer goods marketing don’t work well in business to business marketing.

If you simplify the values delivered to businesses, you will find that they fall into one of two big buckets. A supplier to a business either allows the business to (1) reduce their operating costs or (2) increase their revenues.

Marketers in any product/service category invariably get indoctrinated in their product category, and they get excited about minuscule differences in their product. They also believe that their target customers will be excited. “We need to educate our customers!” they say. Customers – both consumers and businesses – can only be “educated” in things that they care about. Customers care less about what’s in your product than you do. In all probability, the customer can’t figure out how a product difference is going to reduce costs or increase revenues.

For years, business-to-business marketing lagged behind consumer marketing in the development of effective tools and techniques. Many business-to-business marketers merely copied consumer goods tools and techniques. With the publication of the first edition of Jim Anderson’s and Jim Narus’ Business Market Management in 1999, the rigor in business-to-business marketing exploded. Anderson and Narus’ basic proposition is that to be an effective business-to-business marketer, you need to quantify in dollar amount the value that you deliver to your customers. This fundamental premise pays off the economic motivation of businesses. It has significantly advanced the practice of business-to-business marketing.

Anderson and Narus express this concept in a formula that they call “the fundamental value equation.” I’ve modified the Anderson and Narus formula to reflect that marketers in business-to-business marketing may – and usually do – provide a set of values to their customers:

(ΣV_Y – P_Y) > (ΣV_A - P_A)

The quantity of the sum of the values delivered by your firm (V_Y) less your firm’s selling price (P_Y) must be greater than the quantity of the sum of the values delivered by the next best alternative (ΣV_A) less the selling price of the next best alternative (P_A). Think of some examples of the values delivered by your firm in business-to-business marketing (the ΣV_Y). What does your firm deliver to your customers that either decreases the customer’s operating costs or increases the customer’s revenue? Without much expenditure of mental energy, you’ve probably mentally listed a half dozen potential examples. When value measurement teams are assigned the task of enumerating the values delivered to a customer, it’s not unusual for the list to exceed twenty or thirty value-creating items. The important task is to quantify the dollars that each of these values represent for the customer.

Value for Customer and Value for the Firm

The Charter Institute of Marketing in the U.K. has the following definition of marketing:

Marketing is the management process responsible for identifying, anticipating, and satisfying customer requirements profitably.

To dissect this definition, I would have said “business process” rather than “management process”; but, OK, I can live with "management process". “Identifying”? OK, that’s the marketing intelligence function. “Anticipating”? Fine, that’s forecasting. “Satisfying customer requirements”? I would have said “satisfying want/needs”; but either way, this is a dated definition of the goal of marketing. It’s missing the value creation element. If marketers satisfy their target customers, that satisfaction is the value that has been created.

Lastly, “profitably.” If the end goal of marketing were to generate a profit, then there would be no marketing in not-for-profit enterprises, such as government agencies, charities, religious organizations, etc. But there is marketing in these enterprises. The U.S. Army may call it recruiting, but it’s really marketing. The United Way may call it fund raising, but it’s really marketing. Religious organizations may call it proselytizing, but it’s really marketing.

In fact, profit is not the end goal of marketing. The creation of customer value is. Profit is a goal of the firm rather than the natural end result of marketing. Marketing-driven firms use marketing – creation of customer value – as a means to attain their profit objectives. In some ways, the firm’s profit objectives act as a constraint upon marketers’ ability to create customer value.

Next Post

There's one more issue to address prior to beginning a discussion of our marketing guides, and that's the organizational framework that we're going to use. We'll begin that in the next post.
Some References
James C. Anderson, James A. Narus, and Das Narayandas Business Market Management: Understanding, Creating and Delivering Value, 3^rd edition (Upper Saddle River, NJ: Prentice Hall), 2008.