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llw. ;tnd advenbcrs [lee :1 dilemma. 111cy must find groups of
r>c-"'plc Wtth simil:ir and ta:-tcs th;tt c:m he satisfied by the product. And
they must l'llflllgiJ of the:-;(,' groups to make the product marketing
process suct-cssful-:md profitable. Hc:lli7.ing they can't appeal to everybody,
nmM turn to marl...>el :md marketi11g tech-
subjccL' of this chapwr.
Marketing and advenbing people com;t:ntly scan the marketplace to see what
needs and wanL<> various consumer groups have :md ho.v they might be better
satisfied One of the techniques they usc 1:; market segmentation, a t\vo-step
strategic process of (I) idemljyfng groups of p<.--oplc (or organizations) with
ccruin shared char:tctcristics within the broad markets for consumer or busi-
ness products; and (2) agqT'eBaling(combining) th1.-se groups into larger market
segments according 10 their mumaltmcrcM m the product's utili[)'- This process
&1\'CS a company a selection of market segments large enough to target. It also
lays the founduion for devclopmg a :-;uttablc mix of marketing activitit!S-
mduding advertising.
Because markets are diverse and consist of many segments. a company may
differentiate products and marketing strategy for every segment. or it may
concemr:uc all il'> m:ukctmg activities on only one or a few segments. Either
task is far from stmple. We saw how young Levi Strauss Identified and targeted a
single market segment and catered to !I with specific products and scnices. The
diverse markets Levi\ serves uxby arc rc:tlly combinations of numerous smaller
groups that share certain interests or product needs. Cmering to all these
needs-on a global level-requires :t suphistic:ttcd m:uketing and communica-
tions system.
Identifying Consumer Market Segments: finding the Right Niche
The concept of sbared cbamctcrisllcs is critiC'.tl to the market segmentation
process. Marketing and :dvenising pt.'Oplc know that. based on their needs,
wanL'>, and mental consumers leave many "footprints in the sand"-the
variable char:tcterbtic:o. of where they live :md work. wh:tt they buy, and ho''
they spend their leisure time, for cx:tmple. By following these fOOlprims,
rn:trketer.; can ]oc:tte :md define group:-. of consumers with similar needs and
wants, create messages for them, and know ho'' and to send the
messages. They try to find that particular "niche"-or space m the marke.t-
where the advertiser's product or M!rvice will fit (thus the buzzword ntcbe
markeli11g). . _ .
As E.xhibit ;-4 shows, marketers group these van:thle charactensucs into :t
variety of C'Jtegories (JJ,l!ogmpbic, demogmpbic. behattioristic. and psydw-
to identify behavior.:! I and consumer markets
.... _
......,.._ ......... usar.fJrst-trmeusl!f,regularuser
u.w-..-... ..... hellvyuser
......... __ ,
......... lnfartnm. interested.desirous,rntendrng to lxly

... ...,.lfldlhakers.successfutsingles.socralsect.l!ltyitti
.......... "'""'

REC11'117 How IOfllll\00 hlllllll ot your
Mons MAN o c



try size, city si7.l". SJX.-<:iflc loc:rtions, and types of stores. Many productS sdl wdl
in urban areas but poorly in or rurnl on(..-s, and vice versa
Even in local markets, gL'Ogrnphic segmentation is imponant. For example, a
local. progressive politician might send a mailer only to precinctS where voters
typically support liber.il c-.tuscs
Demographic Segmentation
Demographics is the study of a popul:ltions numerical characteristics-sex,
age, ethnictty, religion, cduc:ltion, occupation, income, and Olher quantifiable
factors For example, a company planning to target an area's Hispanic popula-
tion might want to nH:asurc the group's size as well as its income and age
distribution. Quebec's brge Frcnch-spc:tking population presents such unique
marketing opportunities that advertisers like Moll's Clamato juice (see Exhibit
5-5) use special regional e.1mpaignl> aimed at that group.'
As Exhibit S-6 demonstrates, people's rel>ponsibi\itics and incomes change
as they grow older; and :;o do their interests in various product categories.
Marketers need to these change:-.\x:(.":tusc the human life cycle has a ma1or
effect on the market for many products.
In the 60s :md 70s, for example, blue
jeans were the basic uniform of all young males, and Levi's was the "in" brand.
In the 80s, the baby boomer population grew oldt::r, and the number of young
adults swrted to dwindle. 111c hig market of men-now over 25 years old-
needed professional clothes for work and wanted looser fining clothes for
relaxation. So they bought fewer jearu.. Levi's tK"t!dcd to evolve the basic blue
jean or risk losing this market forever. levis rt.'sponded by targeting its basic,
5-pocket, jeans tO 15- 10 "n1en it developed more
comfortahle, looser-fitting 1cans for men 2S to 3-t And in 1:>86. le\'i"s introduced
Dockers, :1 conan casual slack t:trgeted at men 25 to )4. The fastest gro.wing
brand in apparel industry hiMory, Docker.. now includes a whole famtly of
casual clothing for men, women, :tnd boys.

!)otNng, spor1Hlg goods, 'ectllds
-.rpment. '"
l.lrgefhomm:.be1tl!ftaiS. satQrO

MediCal S!ll\llces. navel. pl\armacem
younger age groups
anodu.:r pmmott.--s Tile purchase OL-rnsion c:m be afft.-ctt.-d by sea.;on.'
(water skis. snow raincoats), by fn.qucncy of nt.'t.-d (regular or occ-.J.;,ional).

hy ;.omc fad-and-fade cycle (candy, computer g_.1mes). A marketer who

di.Covcrs common purchase OCC'.J.Sion.-. for certain groups or organizations has a
potential target '>t:J.trncnt One consultinp. firm. Adveniming, I'C(:ommends
appmpnatc timing of mt.-dia :1dvcnising by correlating consumer purchase
J>:lllt:m:. wuh fon..'C:t:.L ...
B&nefitsSought Variables Con:.umers seck many bc:ncnt.s in the products they
huy-htgh quality, low price, status, spct.'tl, sex appeal, good taste. For
cx,unplc, J>L'Oplc huy Levi':. for work, for play, or to make a fashion
st,ttcmcm. M:trkctcr.. c:m duMcr group;, imo .segmentS based on the
benefits being Dcnent segmcnt.. .. t lon i;, the prime objt:etive of many
consun1er attitude studies :md, as s-7 shows, the basis for many
MLCCCs.'>fU\ ad
User-Status Vari ables M:my can be segmented by the user-starus of
prospective customers (i.e., nonusers, new users, regular users, potential users,
:md ex-users). Uy targetinJ.; one or another of these groups, marketers develop
new products for nonusers or new uses for old productS.
Usage-Rate Variables It's usuall y easter to get a heavy user to increase usage than to
get a light user to do so. In a process calle<.l volume segmentation, marketers
measure usage rates to define consumer.> as light, medium, or heavy users of
products. In many product categories. 20 percent of the population consumes
SO percent of the product. Marketers want to define who comprises that 20
percent and aim their advenising at them. For example, one-third of all
households purchase 83 percent of Levi's annual A
comp::my that markets dog food wants to anract heavy 17 percent of
the population that buys 87 percent of all dog food (see Exhibit 5-8).
By finding common among heavy users of their productS,
marketers can define product differences and focus their ad campaigns more
effectively. For example, heavy users of bowling alleys are working-class men
is a powerful advertising tool. and
a cherished Amencan right. But we

)_ CurNLkrinM that all maker.; use market <oeg
mentat1{m tn their is it ethical to
l'tlfKiemn one tlr-J.nd of its
2 Rohert Schmidt. chauman of Levine. Huntley. Schmid!
& Beavn, puhlicly announced. ''\lo'e will never create
any cigan:tte Tbfie has to be
soci:ll coro;.cience to an ad Do you agree?
Would you work on a ciprett:e account C\-Cn if \'OU
believed smoking Is hannful? Would you your
tub aver thiS principle?
The VAL.'i?f ('
with ahundan
of the chan a,
. '
Tile (\'alues and life!>tyiL-sJ
cl"-'''ifiauion places consumer:.
with abundant resources ncar the top
of the ch:Ht and those with minimal
near the bonom. llorit.ont;J IJ y,
the chan segments consumers by thdr
for d<.'Cision making: pnnctpl('\,
'>!.1tus, or action. Titc boxes intcr.cct to
indicate that some C' .ategorics m;ty he.
considered togctlu:r. For inM:nce, a
markt.'ter may and
Belie\'en; together

to dcflnc con<,umcr m:ukL>tS- Psychographk:!l
lifULlJt<IJ'M'flplc into .. on the basis of their psychological
makcujl thdr v;lu.: ... milulic'i, pcrsonalily, and lifcsrylc. It dassifh.:-. pt.'Ople
>IU-'f>rdlnl( to wh.n they ft.d, wiMt they hclicvc, the way they live, and the
prudun, \t."nkc .. tlwy
1\lfr.t uf ll'> wane to he ...._.t.'n a p:utlcul:lr type of person, so we usc brand'>
th;lt '>uppun tll.lt lm.l,l.(l'- One Mudy found that consumer.; thought GE brand<>
,lltr;lutd nnly t."'n-.crv.ui vc. ulder. business types. To change that image-and
.I Pl.,..' I to .1 hroadcr o f consumers-GE adopted Its now famous "Drings
C;ood I htng" to Ufc"
ll y di"'(IJ\-l'Ti nJ.t ,,.,. many dc-.criptivc qualities of their prospects as possible,
tllMkt.tt' l'l e nd Ufl with rich market pronl cs that enable them to focus their
rn.trkttlnu .nd ac..1ivhics.
Jor m;trkctcrs attcmp1Cd to catego rize consumer.; by personality and
to 11nd :1 common basis for dctcnnining advertising appeals.
Monllut , .1 M:rvice dcvclop1..-d by Yankclovich, Skelly and White, was the 11rst
ma1r1r study of changing U.S. values HI
Anotlll'r d :s.<> lnc uion system, VAI.S (values and lifestyles), originated by SRI
lntt.'rn:ntonal, was quickly adopted by marketers across the country. In 1989.
"HI urxbtcd the progr.un, renaming it VALS2, and offered a new psychographic
pr"fl e for -.cgmc ntlng U.S. consumers and predictmg thetr purchase behavior
( '>t"l' 1-.xh ihll ')-9). II
nw V;ducs and Ufcstylcs (VAIS) system breaks consumers into eigh t
gruup'l b;t';cd on thei r financial resources and self-orientation. Each group
tXhlbll'l lx: havio r, decision-making pauems, and product consump-
To o;.omc o f the VALS2 lifestyl e groups, radio is a n excellent medium
Minimal Reaourc111
litlitlfiDn$ tJf C/JniUI1tff s
gmllltltion M1thods
, t2tion method has supponer. ;mel dctr: ctors. Advocates of
ml'thods methods h_dp them :ddrt:
emoctonal fartof!' that morivate consumers: Howcvt.:r,_ the mark,

many product."i compn...e a hroad CRJ.'i...,SL"Ctlon of p!iychOMr:
nuy offer hnle real when w_th nb
\'AL.<i and similar method<; of cb'>slfic-J. IIOO :trc otlso faul! fa
0\'ftSimplif)ing consumt.-r personalitic!i and pur<:ha'it! hchav1or.
Yet marketer; do need to understand and momtor who their custom
-here they live. and wh<u anitudes. life.o.tyles. and personalities thC) h t
tanps lhem !;elect potential target markets, match the attribut es and m
thdr productS with the types of cono;umers usmg thc products, dcnlop rec-
media plan.,_ and budget their marketing dollars
ldent1fy1ng Business Market Segments
lor indust:Jial) markets include manufa<.turers, uti!ittcs, gO\ err ell
agencies. conlr.J<.tOB, wholesalers, retatlers, insurance compamc
inslilutions that buy goods and services to help them in their own bu
These indude raw materials, pans, desks, offin equipment, vducb r l
,.ariel}' of o;enice:; used in condu<.ting the Exhibit 5-10) Prr :ill
10 hU5ines..s markets arc often intended for rcsak to the public, LILt
C'".t!\e of retail good\ such as lc:vi's apparel
ldentit)ing target marketo; of prmpe<.tivc business customers is iust a:; m-
plex a!> identifying consumer market segments. But many of the -c."d
to identit) conc;umer markets can also be UM.'d for business markets for r: !ffi'
pic, location, hcncfits sought, user status, us:tgc ntte, and pUI'li.L'<
Bu.sine!is markro. abo ha\c o;pt.-cial char.t.cteristi<.-:;. They nonn:Lll}' u 3
S}'lilcma11c pui'C"hasml'C procedure; they arc das..o;ified by SIC code, they m.
concentr.ued geographically; and they may ha"e a relati vely small numh<.'f ci
buyer.;_ It> 'Jbe<;e chara<.teri.'itics ha\'c important implicuiom. for advcnt:.(.'1"-
B-..f'umlasing Proclllurfls
::n evaluate new product.\, they use a proccs.s far m<lft
ngid than the consumer purchase process de:.cribed in

large!' n'::::ae:.: lhcir ad\'Cnlsing progr:un:-; with tillS 10 ffi!nJ.
purchasing depanmems thai act a:-. profe.s.sion:Ll hu\t1'
the n<."<."d for products, analyze proposed purchases, S<.->ek
place :lUt hori7.<11ions managers, make requisitions,
or even yea r ISC all purchasmg. It may lake weeks, months,
cies. a_ sale: especially when dealing with government agen-
delive t" ns oflen depend on faaors besides price or quality-
othersj'7 of s.
le, of supply, and
tiona[ appeals. rs often Str<.-ss these rssucs In therr adven1smg and promo-
often purchase decision process or various
. dmg on an .rppropnate target market. New companies, for
.may t:rrget other small companies where the purchase decision can be
qurckly. they may use commis:.ion-only reps to call on larger pros-
pects that requrre more time.
Standard Industrial Classification
In the United States, the Dep:rnment of Commerce classifies all businesses-
and also collects and publishes data on them-by Standard Industrial Classi-
fication (SIC) codes. These codes are based on broad industry categories
(food, apparel, etc.) subdivided into major divisions, subgroups, and
then detailed classes of firms in srmilar lines of business. Exhibit 5-11 shows a
breakdown of SIC code:. in the apparel industry. The federal government
reports the number of firms, sales volumes, and number of employees. broken
down by geographic areas, for each SIC code. SIC codes help companies
markers and do research: and advenrsers can obtain lists of companies
10 part1cular SIC groups for direct: mailings.
Market Concentration
Many countries' markers for indusuial goods are heavily concentrated in one
region or several metropolitan areas. In the United States. for example. the
industrial market is heavil y concentrated in the midwest, the mid-Atlantic states,
and California. Exhibit 5-12 shows th:n more than SO pefcent of the manufactur-
ing industry in the United States is lOC".Hed east of the Mississippi and north of
the Mason-Dixon line. Market concentrJtion greatly reduces the number of
geographic targets.
Moreover, industrial marketers deal with a limited number of buyers. Less
than 4 percent of U.S. comp:tnies employ nearly 60 percent of all production
workers and account for over two-thirds of all manufacturing dollars.1s Cus-
tomer size is a critical b:rsis for market segmentation. A fim1 may concentrate its
marketing and advenisi ng efions on :1 few large customers or many more
smaller ones. Steclcase, a manuf:t<.turer of office furniture, does both. Irs sales
force calls on ma;or accounts; it uses dealers to resell its products to small
Levi Strauss markets through three channels: independent department stores;
specialty stores ( like Miller's Outpost); and chain stores (like Sears and JC
Penney). Its top 100 accounts provide 80 percent of the company's annual sales
and are made through 13,000 retail outl ets. Its remaining accoums (20 percent
of sales) represent another 13,000 stores. Major accounts are served by sales
reps from Levi's various divisions: smaller accounts by telemarketers and pan-
divisional sales reps. Foote, Cone & Belding in Sar, Francisco creates and
coordinates advert isi ng for all Levi Strauss divisions in the United Slates.
Business marketers can furthe r segmem markets by end users. For example,
a firm may develop software for use in one specialized industry, such as
.t.nkina. or rar seneraJ Ule In a varlecy o( Thai decision 01)1'(
......_..._ ..
The '" m;tp arc reprc-,cnlL-d in proportlon 10 tht.- \-:1.\ue of thc1r product:.
and profit. Let's take .t look at how thL'i process might work for Lt:vi Strauss
in the L'.S. nurket
Firs!. the company's m.mag:emem needs to know the market potential for
and ctSual panb in various market areas regtonally and nationally; that is,
the)' need to disl-o' er the primary demand trend of the total U.S. market for
pants. To do thb they use ::. of techniques
in Chapter 6l.
l11en. nun:tg:ement ha.o; to identify the needs, wants, and sharL'<i characteris-
tics of the \drious within the casual apparel marketplace who live nt.>ar
the retail outk'"b. The}' may use the services of a large market
segmenution company like "";nional Decision Systems, which collects d:Ita on
fX-"'plcs purchasing beha\"ior and creates profiles of geograph1c markets across
the countrY
The finds a huge nurket of prospecthe customers throughout the
L'nited St:ues: students. bl.ue<olbr workers, young singles, professional people,
housewin=:>. and so on. II then measure:. and analy-Les household groups m
t>:.1ch m:tjor retail are:a by demographic, lifestyle. :md purchasing characteristics,
son.s them into 50 different goo-demographic segments. and refers 10 them with
tcmlS like those in ExhibLt "'---13: E:>Uhlished \\"cahh, r-.tovers & Shakers, Family
Ties. Inne:rcity and so on. Some are comforub\e financially;

markcl\ iLS I()()Seofitling jeans
lrJ tbr J8.ID.36 comfort-oriented
lltJPIICII. .ab modl:r.ue to high incomes
ilndeducllloawho like the srylc, com-
! Jd IICI ...... bility of Levi':; apparel.
prime targcL' for pn:mium hr.mdL-d products sold m better
h But other segmenrs S<.."Cm to offer potcrllial-young to middle-aged
with to high income.."!! and :nerage to high reuil aaivicy
Home (Z 5 peru:nt), Ethnic Mi:< (2.8 percent). and
Begmnmgs segments <3.6 percent), Levi Strauss can target a new and interesting
to middle-aged people on their way up. Nationally, that
ten . - ntllhon U.S. That's not everybody: but it's a large and
ually very market segment These pwple might like the style
.md comfon of Lcvt s 550s as well as the tradition of a brand they know and
trust, and the company could develop :1 camp:Lign to appc::alto their paniUJlar
needs, wants, and self-image.
Once the aggregating process is complete, a company can proceed to the
target marketing p rocess. The way this is accomplished determines the
content, look, and implementation of the company's advenising.
Target Market Selection
The first step in the target markeung process Is to assess which of the newly
created segments are large enough to offer the greatest profit potential and
which can be most sua:essfully penetrated. The company designates one or
more segments as a tat'ge t markct-th:lt group of segments the company
WlShes to appeal to, design productS for, and aim its marketing activities
toward.L9it may designate an01her set of segments as a secondary target market
and aim some of its resources at it.
Let's look at Levi Strauss & Co.' s most likely target market for loose-
fitting jeans-young to middle-aged males with moderate to high income and
education who like the style, comfon, and fashion of Levi's apparel. This
group represents a significant percent of the total apparel market, a target
that, if won, will generate substantial Levi Strauss & Co. offers what
these prospects need and want: the style and fashion of the jeans they grew
up with, now updated to be more comfonable for the adult J:xxl.y (see Ex-
hibit 5-14).
If Levi & Co. discovered that the 18-34, comfon-oriented segment
wasn't large enough to be profitable, it would have to select a different target
market. And its other marketing and advertising activities would have tO change
as well.
For an exercise, look at Ad Lab S-A and consider how Reebok selected its
targel markeL
The Marketing Mix: Matching Products to Markets
Now t.hat Levi Strauss has a specific target market in sight, it must take steps to
ensure it is ready to enter the marketplace.
Once a company defines its target market, it knows exactly where to focus its
attent ion and resources. It can shape the product concept-even design special
features for its target market (specific colors or special sizes). lt can establish
proper pricing. It can determine the need for location of stores or dealers, and it
can prepare the most convincing advenising In other words, t.he
whole mix of marketing activities can be aimed at maktng the product attractl\'e
and accessible to the target market.
Ilk.:.- hi.' compcutof'l and ;a c;ompku' dl5lrlbution
Fin.-man >;.;l!(t:ly ret,:O!(Oil..ed that the ;athiC1!C roocwear mar
kct conum .. 'd a_ ,utftdl'Tit number nf marker to
Rl-ehok tUfll."nl product fit'!( offering to
the.! l . "' puhhc-and any mow produc.t.<. he mijttll
n, l<.ltl6. Rcchok kd the l: "'-athletic ,.hoc :a
3L! 'hJre 1990, R1.dxlk 'han.-d 'i9 percent of the
nwrkd .tlon!( wuh :">iikc and newcomer L.A
TodJy. Rccbok to dt'fcnd th markt.'t position
wtth ;t new line or ,hClCS for men and women
Laboratory Applications
1 WIMt market 'till untapped ln 1980, t:\'entually
propelll:d Rt.>ehok to fm.t place in ;uhk'tic shoes) (Hint
l11c woman in the Rct:hok ad is wcanng the appmpri-
:llt' outfit for new market segnlcnt.)
2. How would you use the Olympic tradition and Foste(s
trademarked Ht.."Cl Cradle to de\'clop a positioning state-
ment for Reclxlk,
Product Life Cycle
Marketers theorize that just as humans pass through stages in life from infancy
to death, products (and especially product categories) also pass through a
product life cycle (see Exhibit 5-15).
A product's position in the life cycle
influences the kind of advenising used. The life cycle also hints at other factors
in the marketing environment , for example, industry growth potential, competi-
tive pressure, and ease of entry. Titere are four major stages in the product life
cycle: illlrotluctioll, groti'IIJ, me1111rfly, and decline.
For example. when : company imroduces a major new product category.
nobody knows about it. To cduc:ue consumers, the company has to stimulate
primary demand-consumer demand for the whole product category, rather
than for just own 11te for a CD-ROM player in Exhibit S-16 pushes
the new technology, r.uher thnn Sony's own bmnd.
When videocassett e recorders were nrst introduced, advenisers had to nrst
create enough consumer demand to puf/ the product through the channels of
distribution. Promotional aoivilies were designed to educate consumers about
the new product and its category, stressing infomtation about what VCRs were,
how they worked, and the rewards of owni ng one. Other promotional effortS
aimed at the push strategy-encouraged distributors and
dealers to stock, display, and advertise the new products (see Chapter 16).
During the introductory-or of any new product cate-
gory, companies incur considerable costs for product development and for
initial advertising and promotion to educate customers, build widespread dealer
distribution, and encoumgc demand. In fact, a company may not eam a profit
on a product until the growth stage, so it must be well capitali zed to weather
this peri od and continue advertising.
p<du\.1" hie co.dc. com-
I:Jl rro<JU\.1._
,_. promutotlfl."
""tkmon"lr.nm11 .md
dlc-< hk-cxtcndmll fc.nun. ...
more imponam during this shakeout period as we:tk companies fall by the
:md those rem:tining fight for increases in market share.n By
1992. for example, VCRs were available in many configurations and at signifi-
c:tntl}' lower pnces. Ads stressed fe:nures and low pnces. and the product
bec.tme a staple of dtscount merchandisers.
l.:lte in the maturity stage, as products approach the inevitable period of
decline. companies frequently employ a \'ariety of strategies to extend the
product's life cycle. They may uy to add new users. increase the frequency of
use. develop new uses for the product. or change the size of packages. design
new labels, or improve quality For example. Procter & Gamble designed a
"Neat Squeeze" package for us Crest toothpaste to extend the product's effec-
li\e life (see Exhibit 5-17).
Finally. products enter the decline stage due to obsolescence. changing
technology, or new consumer tastes. Companies may cease all promotion and
phase the products our as m the case of the Edsel, or let them .9ke
slowly, like old brands of home movte film. .-ences
To prolong the maturity stage, they may also attempt to revitalize

with new fe:ttures and increased promotion. When successful collegm to have a
have been in the market for 20 or 30 years, sales inevitably lrentiating quality
Publishers often try to revitalize them by adding new authors.
:md feel of the IXK)k, sisnificantly updating the content, ar
tiona] expenditures.
Product Classifications

The way a company cl:tssifies its product is impor;x.>ople without increasing
prodw:.1 concept and the markctmg miX. As Exhibit s-igned with right- and left-
ways tO classify tangible goods: by marketS, by the p,
buyers. by physical attribute.'i, and so on.
When most people sp<.":!.k of a product, they usually meat
a good. Yet people also receive. benefitS when they insur .. ks and tastes
mamten:wcc services. TI
e fact ts, a product may be enher a tangl29 <>weeteners.
intangible serolce. . obiles
A service is a bundle of benefitS that may or may not phystcal,_
temporary in nature, and that usually derive from of a
we task tllilily as described in Chaptt:r 4. Ratl scrvtce ts
and priced on a time and distance ba'iis. It offers the functional benefit:s_ of
transporting people, livestock, and freighL But it can also offer
benefits as shown in Exhibit 5-19. The railroad relies on the use of spectalt-'(/
Purchases made frllQI.ero
effortltgarettes.IOQd. '
isspent tompanngprltE


By phys1CBI ducriptJon
Package goods

Hard goods
Soh goods
Nontangrble Pfoducts
There's something about auam tilt..!
All Aboard Amtrak


Xl'I'OX dbplap 11!- Document
Cn111pany." (m 1b to fl."J>Ol>llion the
lUilp:iny into a dm"llmcnt-lundling mar-
k<tpb(e whKh much broader than its
:tblc to pull huj.tc loads over ;I unique tmck 'flli<> it

equtpment-based service.
In commst. an ad agency is a !X'Ople-bas<:d service it rclie. on the crt!atin:
talents and markcung skills of mdi\'Jduab rather than'on (.."quipmcnt As one
CEO said, "My inventory goc., up and down the elevators [Wicc a
,Ji p,
advertising person undcr.tands the product's stage in the life cycle and
how 11 s thc nrst strategic decision can be made-how to positio n
the product Remember that con<>umcr. r:mk in their mental files.
Marketers try to detcmtinc wh:n positions arc open and then develop products
that can occupy :1 number-one or number-two position
Products may be positioned in many different ways. Generally, they are
ranked by the way they arc differentiated, by the beneflt5 they offer. or by the
p:.tr11cular market scgmcnt to wh1ch they appcal.l( A product may even be
positioned by the way it"s classified (e.g., a .. a convenience good rather than a
shopping good). As Exhibit 5-20 shows, Xerox-thc one-time king of
copiers-now positions uself as "'The Document Company." This strategy is
designed to reposilfoll the company, moving from the narrow, mature, glutted,
copier market to the broader, growing, document-handling market. With one
stroke, Xerox redefines the busmess it ism, differentiates itself from the compe-
tition, and creates a new number-one posit1on for 1tself
Pn tct Differenttatton
Product differentiatio n is the competitive str.negy of creating a product
difference that appeals to the preferences of a distinct market segment. In
advertising, nothing is more important than infonning prospects how your
product is different. For example, smply adding new colors might differentiate
a product enough to attract a new set of cu:;;tomers. N01 all product differences
need be that obvious. Differences between productS may be perceptible, bid-
den, or i11duced. Hank Sc1den says every successful product has gmto have a
"Unique Advantage." Bob Pritikin humorously C'"dlls that differentiating quality
Perceptible Differences
Differences between pnx.lucts that are visibly apparent to the consumer are
C'dll ed perceptible differences. For example, a red automobile is visibly
different from a black one and may appeal to more people without increasing
the manufacturing cost. Similarly, refrigerators are designed with right- and left-
hand doors, single doors, and double door-;.
Hidden Differences
Hidden differences are not so readily apparent. Trident gum looks and taStes
the s.
me as other brands but is differenuat<.-d by the u:;;e of artificial sweeteners.
The same is true with many food productS (caffeine-fr<.'C colas) and auromobiles
(front-wheel drive). Imperceptible differences can enhance a product's. desir-
ability. But consumers need to know alx:>ut them-a problem remedsed b)
products the s:unc umhrcl1:1 name When Heinl promote., it.,
roducts. It hopes to help iL' rcli<,hcs too. '11liS dt.>CiSion 1113)" he COSI<Cff(.'(.,i\'l'
)Ut ?a_d product in :1 line c:m hun the whole family
Smcc II LS so expensive for manuf:ICIUrcrs to market brands
c-.Llled numufactun:r"s brmuls), companies use a prlt'Ctte-labelill8 strnt
tiD'- They manufacture the product and sell it to mJddk.men (.distributor.. or
lers) who put their own brand on the product. Private brands, t)'pietll)
:11 lower prices in large retail chain stores. include such familiar rw.ITIO ;I.S
enmon:;. Cr:lfLo;man, Cragmont, and Party !'ride. In thb case, the responsibility
for Cn.":nmg hr:md ima!<!C and familiarity rests with the distribumr or retailer
Br:mding arc critic:tlly important lx!cause the brands a
owns may be ns most import:mt c:tpit:tl assct.j' Imagine the value of owning a
br:tnd n:tmc like Coca-Cola, Nike,l'orschc, or Levi's. In fact, the value is so great
that some (."Oillpanics pay a sub:.t:tntial f(.-'C for the right to use another com-
pany':. br:md name. '11ms, we have Ucensed brands like Sunkist vitamins,
Coca-Cola clothing, Porsche :.unglas.ses, :md Mickey Mouse watches.
Role of Branding
As products the role of hr:tnding takc.s on added significance. For
consumers. br:tnd.s offer !n.st:tnt recognition :tnd identification. More important.
brands also promise <.-on.sistcnt, reliable standards of quality, taste, size, dura-
bility, or even psychological satisfaction. This adds value to the product for both
the consumer and the manufaCturer.
Brand differentiation must be built on the differences in images, meanings,
and associations.J
In faet , the No Excuses line of clothing was first concep-
tualized as a brand-because of the potential for humorous associations-even
before the marketer had a product to selL" Ideally, when consumers see a
brand on the shelf, they instantly comprehend the brand's promise and have
confidence in its quality. Of coun;e, they must be familiar with and accept the
brand-a function of advertising effecri"eness. Naturall y, ad\'ertisers try to
achieve brand preference and insistence or, as we point out in Chapter -t, brand
Over time, the go.1l of all br'Jnd ad\'ertising and promotion is to build gre-.Lter
bnmd equity. Brand equity is the totality of what mnsumers, distributors,
dealers-even competitors-feel and think about the brand over :m extended
period of time. In short, it's the value of the brand's capital.
For the :1dvcrtiser. the job of building brand equity requires time and money.
Brand value and preference drive market share, but share points are usually
won by the advertisers who spend the most.3S just as important, as shown in
Exhibit ;-22, companies must maintain consistency in their mess.1ge and tone
by integr::tting all con_lmunications-:-fro_m and advertis:nl\.to
promotion and pubhctty-tn order to mamtatn and remforce the brands !k'{
son:tliry and image.
Product Packaging
The product's pack:tgc is an integr.ll component of the product element. But it
is also a medium. In 1992, 15,886 new products were introduced into grocery
and drugstores to compete for customer attention and dollars-a 3.1 percent
increase over 1991 .J6 Because of the emphasis on self-service. the package
often detemlines the outcome of this competition.
Package designers (who sometimes work in agencies) must make the
age exciting. appe:tling, and at the sa me The five
tions in pack;
gc design :1re col/tamment. ami
conueniellce, consumer afJfXYII, :md economy. If handled m a umque and
unique. c:t
Amcnc.m I


The ('.()(.a-Cola boule \\ith its
quc, .,hapc fJdcd from
_-I.ITICnC;!O market.' consumers were
ifl;:!l.-d Jluminum cans and pl:l.!>tic one-
lt'f In 1992, howcver, one
classic: examples of
ai!Icrentl<llion w:t-' rt:tumC'd to dmy
Rda!t:d product.!> from Quaker Oa!S u:se
cok1r ha" to indicuc differem navors
lhlut- for regular, magenl:l for raisin and
fla\'or, etc.) and a consistent pack-
Jlt' r.:olor to create an overall product
dent if}'
;tis_<> cnsurc tlu1 11 will kt:ep !he J>roduct frco,h and protL'Ct ll' UlnlenL .. from
sluppmg danugc. WJtcr <for frozen J.(IKXb), grea-.c. infc....Uiiun. and
odors. Consumer. don, exJ>L'Ct comaminated food. IL-:1ky nu fin}(t't".,
or lampering hy And muM adhere to the protection reqmre-
ment:; by lxxh the gon:mment :md trade a_<,<;()(;iations.
f RcL:Jiler.; wa_m packa)tc'> lh:tt arc ea5)-' to stack and displa)'; 1hey alo;o w;lnt J
u\1 range of to fit thc1r needs. Con.mmer<;, Jikt.-v.bc, want
are easy to open and store. So the.-.e are import'lnt
But convenience can't interfere with pf(){cction. Spouts rn.tke
pounn!-( ca:-;icr, hut they m:1y alw limit a packages physical strength
Consumer Appeal
Consumer ;tppeal in packaging is the rcsul1 of many factors-size, color,
material, and shape.
Ccrt:1in colors ho1ve .!>JX:cial meaning:-; to consumers. (see Exhibit 5-24)
General Foods. for ex:tmplc, changed the Sanka package to orange when it
leamed that ib ycllo\\ !:I bel weakness
A package's shape, :ts Exhibit 5-Z5 demonstrates, also offers an opportunity
for con,umer :1ppeal on whimsy, humor, or romance. Containers of
janitor in a Drum :md hc-.lrl-shapcd packages of Valentine's Day candy ino;1amly
tell what the product is and what it is used for
Some companies design package.'> with a secondary use in mind Kr.1ft':-;
cheese jar, once emptied, can he used for SCIVing fruit juice. Some tins and
bonles even become collectibles (Chivas Regal)_ These packages are really
premiums that give the buyers extr.l value for the dollars they spend.
The costs of the features we discuss-protection, identification. convenience,
and consumer appeal-add to basic production costs.
Sometimes a small increase in production costs may be more than
increased customer appeal. These benefits may make a considerable difference
to the consumer and affect both the product concept and the way the product is
advert ised. For e.xample, a variety of medicines now come in child-proof plastic
bottles. And many companies advertise their packages as environmentally
fhll ,_ph d<.:mand versus
SUJ!Pil nrsu' prin 111c Uc1u;md
1'"" $1Jl$"!1 1lw ;unounts m

pr;c-eo l11c 011''-'C
for.,.llc ;u various
Tht' puint wlwre the two
, r<- the nurkL'I dcarillR price,
"lk"R' Jcom;and 'upply lance 11 is
tht rtk" 1lu1 tiJL'("Ir\:llc:lllr dco\1"\ I he
nl'ltkc't nl.,.ppl)

Production and Distribution Costs
ntc price of goods depends largely on the costs of production and distribution.
A!i these costs increase, they must be p-.1ssed on to the consumer or the
company will be unable to meet its overhead and be forced out of business
Advenising can enhance :a product's im:age in order to justify a higher price.
(Imerestingly, many premium-priced productS :are touted for the \"Cry faa th:at
they cost more. L'Or(-a\ successfully prom01es the expense of its premium hair-
care products with the line: "I'm wonh it.")
Marketers believe that, in many product categories, consumers are less con-
cerned with a product's actual price than with its perceived price relative tO
competitors. For the advcniser, maintaining that perception during periods of
intense price competition and fluctuation is challenging and critically imponant.
Protcaing the company's perceived price position is the guidepost for many
recommendations advenising managers o!Ter.-41
Corporate Objectives
A company's objectives also influence price. When introducing new products.
companies often set a high price initially to recmer de\"e\opment and stan-up
costs as quickly as possible. On the other hand, the objedi\"e maybe to position
the product as an inexpensive convenience item aimed at a broad target market.
In this case, ads stress the product's economy.
As products enter the maturity suge of their life cycle, corporate objectives
tend to aim at increasing-or maintaining-market share. To accomplish this.
competitive adven.ising and promotion heats up, and prices tend to drop.
Van"able Influences
Prevailing economic conditions, consumer income and taStes, go\"emment
regulations, marketing costs, and the supply of raw materials a_lso influence
prices and thus adven.ising. Marketing management must cons1der aU these
factors to detennine an appropriate pricing strategy.
N ~ To
dream and the
a httle lucie. A
some typewflt,
some of those
paper And
A'O',(:R rosvr;t:81!Jdll'ltllslness.youdon't
fteedtcl:eblg Allyouneedrsadream Justa
fiam nllte pi!5S1011 to pcnue II And the ded-
(II t And h ro use talent And
a .,;;t And some pencils And pens Maybe
smeljpi!WirterrobbDnandtorrBCtrOnflurd And
hUJeyerlownotepadswrth the
And some computer
ptpet AndSOillll laSIII punters ro put II m. And
macllrrra AlldsomeolthosellOenveropeswrth
the lrnle wun,ws rn them so you can send out
lhrfJIISat Staples. lheOftrceSuperstOI'e Because
5.1mbas1Cbusrnessnecessrtms With such
nretllllly low IJIICI!!, you can take all that money
!OOiill'&andput rtrnto your dream, mstead
delilf!r(atH0).33J.33lJ Oreamssoklsep-

'Uuh ;r lrult lm ol humor,
pNmHJiron;tl .. up
xm to the
n wtthour l'Vl'r mcmioninH
rlJ.tk "'It' hy ll.llllt'
I Rt'\'IC .... the Rtehnk '>tnr; rn Ad Lab ')-A and detcribe
ho..., rmxlut"' s lc;uurt"s rusrtfied hqdlef price to
Rt:chok li!'l(ct m;rrkct uf dcrohics
1. \ IMIIWO I>T lhl'(.'t: "1011!'> when Reehok.<, are sold. Can
)'OU dt1cnmnc the cum.-m pridnR su:negy or
'tl'llll')(it:'' .
Indirect Distribution
/'l lanuf:Kturers usually don' t sell directly to end U!>er:; or consumers. Most
companies market their products thllt!-Jh a dlstrib/11/on chwmellhat includes a
nt:twork of middlenum. A middleman is a hu:.rness flnn that operates between
the producer and the indui>tri:tl purchaser-someone who deals in
trade rather than production d Middlt!men include OOth wholesalers and
retailers, as well :ts m:tnuf:tcturcrs' reprt-!>Cntatives. brokers, jobbers. and distrib-
mors, (Note that gender has no bearing on the teml middleman,) A distribu-
tio n channe l comprises a lithe finns and individuals that take title. or assist in
taking title, to the product as it moves from the producer to the consumer.
Various types of indtrect distribution channels make the massive flow of
products available to customers more economic-ally than manufacturers can
through direct marketing. Appliance companies. for example. contract with
exclusive regional distributors who buy the productS from the factory and resell
them to loc::tl dealers who. in turn, resell them to consumers. Many industrial
companies market their produru through reps or distributors to original-
equipmeu/ mtwtifaclurers (OEMs) These OEMs, in turr., may incorporate the
product as a component in their own product, wbrch is then sold to their
The advertising a company u.st!s depends on its meth of distribution. Much
of the advertising we see is not prt!pared or paid for by the manufacturer but by
the distributor or retailer as in Exhibit 5-27. Members of a distribmion channel
give enormous promot ional support to the m:umfacturers they represent.
As part of tht:ir m:rrkcting strategy, manufacturers must determine the
amount of market necessary for their products, Procter & Gamble, for
example, defines :tdL"<)U:ttc covcr:tgc for Crest toothpaste as virtu1\ly every
:.upenn:trket, discount store, dnrgstorc, and variety store. Other products might
need only one dealer for every 50.000 people. Consumer goods manufacturers
tTJditionally use thrl!c types of distribut ion strategies: intensive, selective, and
Intensive Distribution
Soft drinks, candy. Bic: pens. Timex w:uches, and many other
goods are available to purcha:>ers at every possible location bectuse of mte.n-
sive distribution. 111ey are so widely available, consumers C'.ln buy them \Vtth
a minimum of effon. The profit on each unit is usually very low. bm the \'Oiume
n, tr.md"''iVt ul a name,
ljl'C \\.1\ ol COI'Il-
p;lil""' '" 1hc1r dL<Kribuhun imo
I'll."' p!SfkL1 .. .1tlmnTcxpc:n'>C
Fr.mclu"C' ;ne expanding 1hc1r influence
mtcmauornd level

AnyNewCareer ==...::.
Your Ltfe. Ours --"'""
Could Change ::;:::;::::
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effons: and substantial savings and contmUiry in advertising. Perhaps most
important is consumer recognition the momem a new McDonald's OJX'IlS, rhe
franchisee has instant customers. Moreover, a common store name and similar
product inventories mean that a single newspaper ad can promote all of a
cham's retailers in a particular tmding
As E:xhibit 5-30 shows, many marketers-Burger King, Sir Speedy, r.tail-
boxes, Etc. - find that fmnchising is the best way to mtroduce their services into
global markclS. Subway sandwich shops, for example, is lhe fastest growi ng
franchise operation in North America wit h a total of 7,000 stores (400 in
Canada). \X
ith a solid base at home, the company entered the 90s by aggres-

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Ubortory App/ictions
I ll5inJt lkmognphic. and
bdlOI't<tn.<IK ICTTfl'. how the laiRd
nurkct' appc."ilit<Y Wh:n 'J'>I.'Oftc elemrnlll in
the lt"iltl In your
!. If you ""l:f'l: a hr-Jnd mUUJtt!r fnr Redx>k. how would
)'OU u-.e lhc promnlton mix l<l create an lntegr:ned mar-
kcunR c:ommuniQtion\ proftl'am? Would you ux pubbc
rclattort.\l pmmnttvnl Collater.d How?
advertising is minimally important. Sunkist is an interesting exception. This
farmers' cooperntive successfully brands an undifferentiated commodity (citrus
fruit) and markets it internationally.
Direct Marketmg
Direct tmrketing is like laking the store to the customer. A mail-order house that
communicmes direclly with consumers through ads and catalogs is one of many
types of companies eng.1ged in direct marketing. It builds and maintains it.s own
d::uabase of customers and uses a variety of media to communicate with those
Today, the field of direct marketing is growing r:lpidly as companies discover
the benefit<> of control, cost efficiency, and accountability. For example. many
companies like Levi Str:lUSS use a telemarketing sys[em (a direct-m:J.rketing
technique) 10 increase productivity through person-[o-person phone contact.
By using [he phone to rollow up direct-mail advertising, companies can in-
crease the response rate by 2.5 [0 10 limes. 'i
Moreover, through [e\emarketing,
16, is a broad category Ctl
trade deals, free sarnpll
coupons, and premium
annual sweepstakes designL'tJ
distribute over 300 billion
. However, that 4 pen:
I . How