Differentiation, Segmentation, and

Target Marketing
 Differentiation in its simplest
form means distinguishing your
product or service from those of
other firms for the entire
potential market.
Differentiation is Effective When:
• Not easily duplicated
• Appeals to particular
need/want
• Has a favorable image
• Meaningful
– Example: The Waldorf-
Astoria’s history is impossible
to duplicate
 Differentiation of Intangibles

• Product is tangible & easy to

differentiate
• Service is largely intangible,
so in today’s market we have to
“Tangiblize the Intangible”
 Differentiation as a Marketing
Tool:
• Creates awareness and trial by consumers
• Can be perceived or real
• Can be product-specific or brand specific
• Separates product classes
• Within same product class, separates the
competition
 Differentiation vs. Segmentation
Strategy
• Differentiation assumes that customers’ needs
and wants are quite alike but that some aspect of
the product offered separates it from other
product offerings
• Segmentation assumes that the market is made
up of customers whose needs are different.
 A Differentiation Strategy is
Appropriate When:
• Market is demographically, geographically, and
psychologically similar
• Market is sensitive to differences between
establishments
• Establishment is relatively new
• Establishment is distinctive
• There are few competing establishments
• Most competitors employ a differentiation strategy
 A Segmentation Strategy is
Appropriate When:
• Market is demographically, geographically, and
psychologically different
• Market is not sensitive to differences between
establishments
• Establishment has been in operation for several
years
• Establishment is not distinctive
• There are several competing establishments
• Most competitors employ a segmentation strategy
 Segmentation Comes First

There is a need to find customers’

needs and wants before we
differentiate
 The Process of Market
Segmentation
We want to break the market down into
smaller homogeneous segments
• Needs and wants of the marketplace
• Projecting wants and needs into potential
markets
• Matching the market and capabilities
 Process of Market Segmentation

• Segmenting the market

• Selecting target markets from identified
segments
• Tailoring the product to the wants and
needs of the target market
 Steps in Segmentation Process

1. Needs-Based Segmentation Group customers

into segments based on similar needs and benefits sought by
customer in solving a particular consumption problem.
2. Segment Identification For each needs-based
segment, determine which demographics, lifestyles, and usage
behaviors make the segment distinct and identifiable (actionable).
3. Segment Attractiveness Using predetermined
segment attractiveness criteria (such as market growth,
competitive intensity, and market access), determine the overall
attractiveness of each segment.
4. Segment Profitability Determine segment
profitability.
5. Segment Positioning For each segment, create a “value
proposition” and product-price positioning strategy based on that
segment’s unique customer needs and characteristics.
Variables to Segment the Market
• Geographic
• Demographic
• Psychographic
• Usage
• Benefits sought
• Price
 Geographic Segmentation
• Probably the original segmentation variable
• Helps to reach market
• Does not help determine needs/wants
 Geographic Segment by:
– Zip / Pin Code
– SMSAs (standard metropolitan statistical areas)
– DMA (designated market area)
– ADI (areas of dominant influence)
– Census Bureau
 Demographic Segmentation
• Easily measured and classified
– It is widely used for this reason
• Almost a moot point in the
hospitality industry
– Professors, truck drivers, and
accountants don’t often have the
same likes but they could each
fall in a demographic category
on money
 Demographic Segments by:
– Income – Religion
– Race – Gender
– Age – Education
– Nationality
 Psychographic Segmentation
• Based on attitudes, interests, and opinions
• used highly in the hospitality industry
• VALS (Values And Lifestyles)
– Principle Oriented- principles or beliefs rather
than feelings, events, or desire for approval
– Status Oriented- status or other people’s actions,
approval, or opinions
– Action Oriented- action prompted by a desire
for social or physical activity, variety, and risk
taking
 Psychographic Segments by:
• Customers’
– personality traits
– self-concepts
– lifestyle behaviors
Behavioral Segmentation

Occasion
Benefit Sought
User Status
Usage rate
Loyalty
Behavioral /Usage Segmentation
• Purpose • Where they go
• Frequency • Purchase occasion
• Purchase size • Heavy, medium,
• Timing and light users
• – (light-half/heavy-
Nature of purchase
half)
 Benefit Segmentation
• Needs and wants
• Based on benefits people seek
• Total satisfaction from a service rather than
individual benefits
– Based on the benefits that people seek when buying a
product
– i.e. “A place for gamblers to indulge without apology.” –
Jack Binion, Horseshoe Casino,
 Price Segmentation
• Hospitality industry today segments on price
• Actually a form of benefit segmentation only it is more
visible and tangible
– When someone is going out to dinner McDonalds and local
restaurant will not come in the same breathe for choices of where
to go
 International Segmentation
• This is a very different segment for the
industry because the potential market is so
diverse
 Segmentation Strategies
• No segments exist in isolation
• Foundation of any segmentation strategy is
behavioral differences
• Intense competition makes it a necessity to
segment in the hospitality industry
• Segmenting is stable and enduring because
it goes to the heart of customer satisfaction
 Segmenting Business Markets

Bases For Business Markets

Demographic
Industry: Which industries should we serve?
Company size: What size companies should we
serve?
Location: What geographical areas should we
serve?
Operating Variables
Technology: What customer technologies should
we focus on?
User or nonuser status: Should we serve heavy
users, medium users, light users, or nonusers?
 Customer capabilities: Should we serve
customers needing many or few services?

Purchasing Approaches
Purchasing-function organization: Should
we serve companies with highly centralized
or decentralized purchasing organizations?

Power structure: Should we serve

companies that are engineering dominated,
financially dominated, and so on?
 Target Marketing

Once we segment and examine the

market we must select those markets
we can best serve by designing our
products and services to satisfy the
selected markets.
 Strategies for selecting target
markets:

• Undifferentiated
• Concentrated
• Multi-segment
 Undifferentiated targeting
• Assumes customers have
similar needs
• One type of product or
service is offered
 Concentrated Targeting
• Firm selects one target segment
and pursues it aggressively

• Example: Youth Hostels

targeting backpackers;
 Multi-Segment Targeting
• Very common in the • Marriott
hospitality industry – Marriott Hotels
• Very effective in – Courtyard
hotels – Fairfield Inns
– Residence Inns
– TownePlace Suites
– SpringHill Suites
– Executive Residences