2004 Integrated Approach

7/30/2019 2004 Integrated Approach

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28 Winter 2004

A N

Market definition,market segmentation,

and brand positioning

create a powerful

combination.

IntegrIntegr


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marketingresearch

29

B y G e r a l d i n e F e n n e l l

a n d G r e g M . A l l en b y

Current marketing thinking on the

tasks of market definition, market

segmentation, and brand positioning

is in disarray. Segmentation, in particular, is

often discussed in textbooks and articles

without defining the market thats segments

are to be identified. The researcher is looking

for segments among current customers, con-

sumers that currently are prospects in the

product category, or individuals taken at

random from some unspecified frame (such

as people living in the United States). It mat-

ters how management defines its market.

The definition should correspond to the

strategic task that management is facing, and

authors should state reasons for the defini-

tion they use. Some authors use the term

segmentation when discussing how cus-

tomers react to a current array of product

offerings. Others consider segments to be

groups defined through demographic cate-

gories, such as blacks, seniors, or newly-

weds. Such groups are segments of the popu-

lation, but on what basis can they be

regarded as market segments? Its not clear

exactly what market segmentation currently

means and how it provides a distinct orienta-

tion to analysis thats different from market

definition and brand positioning.

Strategic analysis in marketing has not

always been so muddled. In a 1956 article in

the Journal of Marketing (Product

Differentiation and Market Segmentation as

Alternative Marketing Strategies, 21, 3-8),

Wendel Smith stated that market segmenta-

tion and brand positioning are distinct forms

of analysis. Market segmentation, according

to Smith, involved analyzing the demand

side of the market to obtain a rich under-

standing of where people are coming from

and the wants they bring to the market-

place. Identifying such wants was in line

with marketings responsibility of guiding

management to make what people want to

buy by providing insight into the conditions

individuals face in their everyday life and

work. Smith clearly contrasted such an

approach with a form of brand positioning

that creates positioning differences without

regard to what people want.

Segmentation has since become a general

buzzword for any analysis that attempts to

identify groups of individuals who are similar

in attitudes, response to marketplace offerings,

A P P R O A C H

atedated


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where they live, or how they are describedfor just about anymarketing-related task. Such a state of affairs results frommany factors, including the ready availability of marketplacedata and the hope that meaningful insights can emerge fromdata analysis, however lacking in strategic direction. In fact,

marketing authors often seem to use segmentation whereauthors in other disciplines would speak simply of analysis,seeking some form of order or pattern by creating and search-ing for differences among subgroups.

Consider the case of an urban transportation agency thatwants to develop an image advertising campaign, perhapsprior to announcing a fare increase or floating a bond issuebefore voters. Such a case is not an instance of seeking to baseproduct strategy and accompanying communication on onemotivational segment found within a relevant universe, asdescribed by Smith. Instead, management is bent on achievingan externally imposed objective other than satisfyingprospects wants as found. Analysis of current customers may

identify groups of heavy userssome with negative attitudesabout public transportation and others with more positiveattitudes. While such analysis can provide useful informationfor implementing a targeted advertising campaign, it doesntprovide the insight needed to guide management to makewhat people want to buy.

The analysis of customers, their attitudes to currentofferings, and marketplace behavior in general is ambiguousregarding the reasons that people find value in a brand.Simply knowing that a brand or specific attribute is preferreddoesnt provide insight into the conditions that people dealwith, for which they would be glad of help and ready to partwith money to receive that help.

Knowing the conditions that prospects face is criticallyimportant for tasks including brand (re)formulation andobtaining the attention of targets in mass media. Moreover,these conditions need not be reflected in or be retrievable fromattitudes toward the offerings currently present in the market-placeunmet demand (i.e., prospects conditions that nobrand is addressing) almost certainly exists in all markets.

The tasks of market definition, market segmentation, andbrand positioning are distinct, each with its own analyticframework and systematic place in marketing strategy. Tomake an adequate return on investment and monitor perfor-mance, a firm needs to have a clear understanding of its mar-

ket. The firm also needs to offer distinctive brands thatwork for at least some conditions that prospects experience.

Market DefinitionIn our article Market Definition: A Strategic Task

(Marketing Research, Fall 2003), we identify eight strategic

questions that define the boundaries and dimensions of a mar-ket, and a method for answering them based on the marketingconcept of making what people want to buy. These ques-tions are answered, either implicitly or explicitly, as firms goabout their day to day business. The very nature of businessenterprise and exchange in the marketplace requires answers.(See Exhibit 1.)

Defining ones market requires clear and specific answers tosome questions. The geographic area, time frame, prospects,and broad price range need specific answers, while the remain-ing questions require only partial answers. The product offer-ing, price, communication media, distribution channels, andthe implicated competition are only partially answered when a

firm defines its market. Regarding what to offer, the definitionof ones market identifies a product category, not the attributesand benefits of a specific offering. The more detailed answersto the questions are provided by market segmentation analysisand brand positioning analysis.

In deciding whom to make an offering to, the answer comesin two stages. Specifying the outer reach of managementsinterest in the population found in the chosen geographic areais the first stage. Prospects are defined as individuals whomight conceivably part with their money for the right to

acquire and use some version of your product category. Formarket definition, we know only that they engage in everydayactivities that qualify them as worth studying. Correspondingto the dog food category are individuals who own and/or carefor a dog. Corresponding to the running shoe category areindividuals who jog, walk, hike, or, because of a medical con-dition, need impact-resisting shoeseach of which may corre-spond to a different market. If in doubt about how to specifythe qualifying or screening criterion for prospects, a good ruleof thumb is to state it broadly (consistent with reasonable

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Executive Summary

The authors of this article discuss an integrated approach

to eight questions with answers management needs in

order to do business. While market definition, market seg-

mentation, and brand positioning are distinct forms of anal-

ysis, each with its own systematic contribution, an inte-

grated approach that uses all three is necessary to answer

managements strategic questions.

We actually learn very littlefrom household purchasedata beyond what people

prefer and their sensitivity to

variables such as price.


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cost) and ask additional questions to permit narrower defini-tions that may later seem advisable. It falls to the later task ofmarket segmentation analysis to explore the conditions thatpeople face when engaging in the focal activityactivitythat corresponds to the product category. The second stage ofaddressing whom to make an offering to is reached under

brand positioning, when it is answered along with what shallwe offer?

The strategic question of what price to charge is answeredin terms of broad price bands when defining a market as pre-mium, standard, or discount, with offerings outside the bandnot considered a competitive threat. Luxury cars, importedbeers, and upscale clothes are generally not considered to be inthe same market as their less expensive counterparts. Volvoofferings compete with BMW and Saab offerings, but not withFord and Chevy. Likewise, Heineken is thought to competewith Bass and other imported beers, but not with domesticofferings. Anheuser Busch Inc. and the Miller Brewing Co. donot include the more expensive imports in their calculations

when computing market shares and investigating switchingbehavior.

Similarly, the brand offering, communications media, anddistribution channels are identified only with regard to a gen-eral version or type. When defining its market, managementknows it will compete in the luxury car or import beer market,but it has not yet chosen the specific attributes, media vehicles,or specific exchange venues. Fine grain decisions on such mat-ters await further investigation and analysis.

An example of the creative use of market definitionoccurred in the long distance market for phone calls. Whereother carriers had focused on individuals calling within theUnited States or to Europe, Americatel Corp. chose to focus

on people calling to Latin countries. Consistent with definingits prospects in this manner, Americatel chose to advertise theservice on Hispanic TV. It goes without saying that individualsin a market so defined are heterogeneous. Identifying anddescribing diverse wants regarding long distance telephoneservice to Latin countries is a task for market segmentationresearch.

Market definition sets the stage for additional analysiswhere specific answers to the strategic questions areobtained. An integrated approach to these strategic tasksinvolves separate analyses for the demand and supply sidesof the market. The demand side of the market comprisesindividuals engaged in activities that are relevant to the prod-

uct class identified in market definition. The purpose of mar-ket segmentation analysis is to identify, and quantify the inci-dence of, the within-activity conditions that form the contextfor the focal activity. The supply side of the market com-prises the set of offerings and potential offerings competingfor a share of the resources that prospects are ready to spendin the product category. The extent to which such offeringsadequately respond to the qualitatively diverse range ofdemand-creating conditions (DCC) is studied in brand posi-tioning analysis, where market targets are selected and spe-cific product features, price, media vehicles, exchangevenues, and competitors are identified.

Market SegmentationThe purpose of market segmentation analysis is to under-

stand where prospects are coming from. People engage in

observed behaviors for many different reasons. They go swim-ming, walk the dog, take their car in for repair, and hire mar-keting research consultants for reasons that range from solvingimmediate problems to relishing some aspects of the activityitself. By developing their understanding of the DCCs that leadto action, marketers guide product formulation and meaning-fully participate in the tasks and interests of prospects.

Some authors are on record as stating that market segmen-tation is a strategy of last resortit is what firms do when theyhave a weak brand. If the brand isnt strong enough to appealto everyone, then perhaps it could appeal to someone. We dis-agree with this orientation. No brand can legitimately claim to

marketing research 31

What geographic

area will weoperate in?

What time framehave we in mind?

What will weoffer?

To whom willwe offer it?

What price willwe charge?

How will we letthem know aboutour offering?

How/where willwe engage inexchange withthem?

Whom will wecompete with?

(e.g., domestic

United States)

(e.g., calendar2004, 2005)

Some versionof productcategory X

Define prospects(e.g., people whobuy/use productcategory X orengage incorresponding

activity Y.)

State broad priceband (e.g., dis-count, premium)

State tentativeideas for mediatype

State tentativeideas forexchange venuetype

State competitorsimplicated bychoices on otherdimensions

Identify kindsof demand-creating condi-tion (DCCa-n)

Assess state ofwant-satisfactionfor each kind

Order DCC witha view to ROIand choosingDCCx to target

State competi-tors implicatedby (DCCa-n)

Brand withattributes respon-sive to DCCg

Prospects whoexperience DCCg

(i.e., targets)

Specific price(e.g., $1.79)

Media vehicles,attentionalstrategy, brandclaims responsiveto DCCg

Specificexchangevenues

Competitorsimplicated byDCCg

Strategic Market Market BrandQuestions Definition Segmentation Positioning

Exhibit 1 A framework for strategic analysis


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be responsive to all of the DCCs that lie behind an observedaction in any product category. No one winter coat can protectall people from the elements they experience, no one oxidizingchemical works for all household stains, and no one marketingresearch publication can be responsive to all the conditions inwhich management allocates funds to conduct marketing

research. If it were true that market segmentation is a strategyof last resort, we wouldnt see the extensive variety of offeringsavailable in all product categories. Most obviously, the helpthat users can obtain from a product category ranges fromstrong (responsive to urgent or extreme versions of the underly-ing conditions) to mild or gentle (tailored to minimize thechance that the products effect could be harmful).

Other authors have stated that market segmentation is anecessary evil that will diminish in importance as firms obtainmore detailed records of household purchase transactions. Weagain disagree. As noted, DCCs are not retrievable from pur-chase behavior, or even from noting the objective consumptionenvironment. We actually learn very little from household pur-

chase data beyond what people prefer and their sensitivity tovariables such as price. While such information is useful fordevising price promotions for existing offerings, it offers littleguidance to any of the strategic questions in Exhibit 1.

Market segmentation analysis is the disciplines classicresearch approach to providing information relevant to devis-ing, assessing, and possibly changing managements productstrategy and the accompanying communications message. It isfirmly grounded in managements search for guidance onproduct strategy to make the best use of its resources, with aview to obtaining a satisfactory return on investment (ROI).Managements resources are used to best advantage when theybuild on the way people are bent on spending their resources.

For this reason, market segmentation research is directed tounderstanding motivational influences as they already exist inthe everyday lives of managements prospects. It is a matter ofplain common sense that resources are better allocated whenmanagement responds to pre-existing demand, rather thanputting resources at risk by first trying to change the way peo-ple are ready to use their resources.

Corresponding to each product category is a domain ofactivity (e.g., for packaged vacations, there is taking a weeksvacation away from home; for dog food, there is owning/car-ing for a dog). For each activity, prospects have a variety oforientations across individuals and, sometimes, withinindividuals over time (i.e., from one occasion of the activity

to another).A prime task of management is to investigate, describe, and

roughly quantify the specifics (i.e., personal and environmentalelements) of each of these orientations in its product category.This is the basic function of market segmentation research.

An implication of the present orientation is that segmentsof demand are identified, not imposed. What is at issue is iden-tifying the naturally occurring kinds of demandthe condi-tions that preexist in the prospects world, predisposing themto spend their resources in a particular way. Management isidentifying a diversity that already exists. Accordingly, impos-ing some extraneously determined segmentation scheme is not

at issue. Analytic groups derived from patterns of response tomanagement strategy dont qualify as naturally occurring seg-ments of demand because (1) respondents are constrained toexpress demand in terms of options that management has pro-vided and (2) while the analysis of such imposed groupingsmay be useful for pursuing tactical management objectives,

they dont address the strategic objective of deciding what tooffer to whom.

In our orientation, management defines its market and thenselects from the natural diversity of demand that it findstherein, rather than imposing groupings determined outsidethe system or based on reactions to marketing efforts. TheDCCs are considered fixed in the analysis for several reasons.First, they exist outside of the marketplace in the context ofeveryday life and work and are therefore difficult to influence.Also, the marketing concept, make what people want tobuy, is built on the premise that its more profitable to tailoryour offering to the prospect than to try to tailor the prospectto fit the offering.

Understanding where people are coming from involves con-ceptualizing and quantifying the DCCs relevant to an activity.In our article, No Brand Level Segmentation? (Marketing

Research, Spring 2002), we discuss measuring DCCs as themotivational component of an occasion for action. Motivatingconditions are expressed as the concerns and interests thatlead people to action, and examples are provided for the act ofbrushing teeth. In research with Sha Yang, we have found thatthe concerns and interests are predictive of relative brand pref-erence and offer a useful basis variable for market segmenta-

tion. Moreover, in other research we find that they provide anopportunity to consider unmet demand in a product category.

Once the DCCs are identified and measured, market segmen-tation analysis proceeds by assessing the state of want satisfac-tion for each kind of concern or interest. Conventional criteriafor assessing segments of demand include characteristics such assubstantial and actionable. While adjectives such as theseare difficult to disagree with, they provide little substantiveguidance as to how a firm should proceed. Target selection mustconsider the capability of the firm to meaningfully respond tosome subset of the DCCs given its capabilities, actual and per-ceived, related to core competencies. Here, the analyst is orga-

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Management's resourcesare used to best advantagwhen they build on the way

people are bent on spendingtheir resources.


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nizing the information obtained in market segmentationresearch to facilitate brand positioningthe next stage.

Brand PositioningThe strategic task of brand positioning refers to manage-

ments selecting as its market targets (1) a subset of conditions

(DCCs) to address with a responsive offering and (2) the indi-viduals who experience such conditions. In contrast to study-ing where people are coming from, which is the purpose ofmarket segmentation analysis, the purpose of brand position-ing is to influence the brands prospects choose in the market-place. Broadly speaking, product strategy has to do withdesigning a brand so that it can claim and deliver gettingenough prospects to where they want to be to provide man-agement with a satisfactory ROI. More specifically, brandpositioning analysis involves further refining answers to thestrategic questions in Exhibit 1 in light of the defined market,the state of want satisfaction, competing offerings, and bestuse of managements resources.

As a strategic task, brand positioning is based on manage-ments conducting an iterative evaluation of the inroads thatan offering can achieve by designing it to respond to someregion of the diverse kinds of demand as found. For each seg-ment of demand, management reviews the current state ofwant satisfaction provided by existing offerings, with a view

to assessing its ability profitably to improve on what is cur-rently available. Such assessment takes account of the possiblehegemony of the competitors in a segment. Segments ofdemand served by strong competitors are viewed as less attrac-tive than those served by weak competitors. If a competingfirm does not already have the segment locked up, specific

levels of attributes are identified in response to the DCCs.Such attributes can be physical (e.g., breath freshening) andpsychological (e.g., shows others you care about yourself).Management assesses likely credibility and attractiveness ofthe selling proposition as identified with the firm.

Now consider getting the brands message to its targetsthose prospects with conditions that the brand has been tai-lored for. From the initial selection of communicationsmedium (e.g., nationwide TV, print, or billboards), manage-ment chooses specific media vehicles within that broad range.Getting the message to the brands targets has to be thought ofin two stageschoosing media vehicles that expose the mes-sage in the presence of prospects, and gaining the attention of

targets among those prospects by what is shown and said inthe advertising execution.

In stage 1, the link between prospects and media vehiclescan be made via demographics. That is, sellers of media vehi-cles use demographic information to describe their audiences,and management knows the demographic profile of its pros-

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pects. Based on such a demographic matching, managementseeks audiences that contain prospects disproportionately. Instage 2 (i.e., engaging the attention of its targets in such audi-ences), management must rely on how it constructs its adver-tising message to ensure that the ad portrays the conditions forwhich the brand has been tailored, and conveys the attributes

that equip the brand to address those conditions.Specific answers to the remaining variables of price and

exchange venue are so dependent on the particular situationproduct category, status in the marketplace, and options actu-ally availablethat it is generally not possible to prescribe asequence of steps to arrive at optimal answers to these finalstrategic questions. Management may have access to a favorableexchange venue, or a specific magazine or other media vehiclemay exist that efficiently provides access to prospects. Such fac-tors affect determining an optimal, profit maximizing price.

Brand positioning and, indeed, finding the best answers toall the strategic questions in Exhibit 1, form a highly creativeenterprise. By a process of successive approximation, it

involves managements choosing the most advantageousposition on each of the variables where its actions havestrategic implications. These are the classic domains ofstrategic choice, where management seeks the best use of itsresources in selecting (1) whom to include in its market(prospects), (2) which DCCs found among prospects to tar-get by building responsive features into its offering (prod-uct), (3) how best to get its brands message to its targets(promotion), (4) consistent with ROI, a minimal price inmoney terms (price), and (5) user-convenient arrangementsfor effecting exchange (place).

Advantages

Taking an integrated approach to the tasks of market defi-nition, market segmentation, and brand positioning offers anumber of advantages. First, the approach highlights thestrategic and tactical nature of variables such as prospects,product, price, place, and promotion. Price, for example, playsa dual role in marketing. The general price band of an offeringis associated with market definition, and the specific value ofprice within the band is used to optimize profits for a brandgiven that it is a player in the market. Initially, the product cat-egory determines which individuals in a given populationmanagement regards as prospects. The type of communica-tions medium, exchange venue, and price band have strategicimplications for which prospects and competition the market

comprises, while the specific media vehicle (e.g., specific maga-zine), message (e.g., ad content and execution), exchangevenue (e.g., specific department store), and specific attributelevels (e.g., 6x zoom lens) influence whether or not the offer-ing is chosen sufficiently often to provide satisfactory ROI.

Second, an integrated approach provides a context for con-sidering answers to each of the major strategic questions thatgive due recognition to the user-producer interface. On theproducer side, management starts with a geographic area inwhich it wants to do business and a product category ofinterest and selects relevant individuals from the population inits geographic area. Further defining its market, management

puts in place the broad communications, exchange venue, andprice bands of the venture. Taking that market as defined, it isthen the role of market segmentation to study the conditionsoutside the marketplace that lead prospects to engage in thefocal activity. We thus avoid circular definitions of consumersegments that are characterized in terms of their reaction to

real or hypothetical offerings. Such analysis brings togetherthe user and producer worlds prematurely. This leads toblurred understanding and a dilution of marketings ability torepresent the world of the consumer and give equal treatmentto the systematic roles of users and producers. Attempting toread consumer wants by studying what people choose is lim-ited by the offerings that happen to be present in the market-place. When market segmentation research is, as here, basedon a description of prospects wants that is independent ofmarketplace offerings, it provides better guidance to firms tomake what people want to buy.

Finally, the present integrated approach leads to substantiveanalysis of users and producers. The task of market definition

sets up bounds on the range of users, producers, and interfacevariables to be studied. Market segmentation analysis focusesprimarily on the user side of the market, and brand position-ing explores producers product offerings and further produc-tive capability in light of users diverse wants. By focusing onthe user side of the market, market segmentation analysisbecomes a clearly defined task aimed at understanding quali-fied prospects in the context of their lives. Brand positioninganalysis becomes similarly focused on the producer side, bystudying how managements task of finding the best use for itsresources can be achieved through its skill and creativity inleveraging those resources in light of the way people are readyto deploy their resources. The outcome is an integrated analy-

sis that recognizes the systematic contribution of each task.

Additional ReadingAllenby, Greg, Geraldine Fennell, Albert Bemmaor, VijayBhargava, Francois Christen, Jackie Dawley, Peter Dickson,Yancy Edwards, Mark Garratt, Jim Ginter, Alan Sawyer, RickStaelin, and Sha Yang (2002), Market SegmentationResearch: Beyond Within and Across Group Differences,Marketing Letters, 13 (3), 233-244.

Fennell, Geraldine and Greg M. Allenby (2003),Conceptualizing and Measuring User Wants: Understandingthe Source of Brand Preference, working paper, Ohio StateUniversity.

Yang, Sha, Greg M. Allenby, and Geraldine Fennell (2002),Modeling Variation in Brand Preference: The Roles ofObjective Environment and Motivating Conditions,Marketing Science, 21, (1) 14-31.

Geraldine Fennell is a Bridgeport, Conn.-based consultant inmarketing and consumer behavior. She may be reached [email protected]. Greg Allenby is the Helen C. Kurtz chair inmarketing at the Fisher College of Business, Ohio StateUniversity. He may be reached at [email protected].

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2004 Integrated Approach

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