Segment, Target, and Position Your Audience

Demographic Segmentation

Demographics are measurable aspects of a population. Each key variable is usually defined in terms of a small number of categories or ranges. For example, age data might record the number of thirty- to forty-year-olds in aggregate, rather than separately tallying each age group of people who are thirty, thirty-one, thirty-two, thirty-three, and so on.

These are widely used demographic measures:

• Gender of the individual or head-of-household (e.g., Female)
• Age (e.g., 18–24)
• Life stage (e.g., empty-nest parents who have more time for each other now that their kids are in college)
• Household income (e.g., $30,000–$40,000 per year)
• Education (e.g., college graduate)
• Occupation (e.g., banker)
• Race/ethnicity (e.g., African American)
• Religion (e.g., Buddhist)
• Socio-economic status or SES (e.g., DINKs—“double income, no kids”)

Geographic Segmentation

Geography plays three roles in the target marketing process:

1. Customer and market characteristics. Geography defines key aspects of climate, culture, and customer density. Think about where people buy snowshoes, the time of year Midwesterners hold backyard barbecues, or the differences between laid-back Southern Californians and ambitious New Yorkers. News items and ads served on msnbc.com when possible need to be relevant to the geographic profile of a registered user; a web surfer in Florida probably isn’t too interested in today’s ski conditions.
2. Advertising channels. Some advertising strategies, such as newspapers and direct mail, are strongly tied to geography. For example, automobile companies tailor their ads by geography. Automakers purchase TV time on local cable stations and tailor the ads based on where people live. People who live in zip codes located in the suburbs see ads for SUVs, while those in the cities see commercials for cars—during the same programs. As you’ll learn in the media planning chapter, msnbc.com made very strategic geographic media and messaging decisions in order to maximize the value of their buy.“For car marketers, local cable ads are spot-on,” Automotive News, May 28, 2007, 26F.
3. Product distribution: Many companies, especially small and medium-size businesses, have a regional scope. Even national companies like Wal-Mart want to assess how many people live within ten miles of a store that carries a product that they will promote.

Most geographic segmentation schemes use definitions the government created for census, postal, and economic forecasting purposes.

• Zip code. Zip codes, as defined by the U.S. Postal Service, identify each of roughly forty-three thousand neighborhoods. Other countries, too, have analogous postal code systems. Zip codes are often the basis for direct mail advertising. Car dealers use zip code information as a proxy for income, making different offers, such as lease-to-own or cash incentives, to entice potential buyers in different neighborhoods.

• MSA. Metropolitan Statistical Areas (MSAs) are important for local advertising channels (e.g., newspaper, radio, outdoor, local broadcast TV, and cable). The U.S. Office of Management and Budget (OMB) defines 363 MSAs in the United States. MSAs are defined using census data at a county level (or a group of economically linked contiguous counties) with at least one urbanized area of fifty thousand or more population. One MSA, called the “New York-Northern New Jersey-Long Island, NY-NJ-PA” MSA is the most populous MSA in America and contains approximately nineteen million people.

• Civil boundary regions.

  • City. Of U.S. cities, nine have a population over one million, and 254 have a population over one hundred thousand.
  • County. There are 3,066 counties in the United States.http://www.naco.org/Content/NavigationMenu/About_Counties/Data_and_Demographics/Data_and_Demographics.htm (accessed November 15, 2008).
  • State. Identifying customers by state can be important because laws may vary from state to state, especially for industries such as financial services (like insurance), tobacco, and alcohol. These regulations can affect advertising strategies. For example, California law heavily restricts distribution of coupons for cigarettes.
• Census regions and divisions. Four broad regions (West, Midwest, Northeast, and South) further divided into nine divisions.
• DMA codes. Designated Market Areas (DMAs) are markets in the United States that are within range of a particular broadcast television station. The term was originally defined by Nielsen Media Research to identify TV stations whose broadcast signals reach a specific area and attract the most viewers. A DMA consists of all counties whose largest viewing share is given to stations of that same market area. Nielsen gathers data to verify DMAs four times a year; there are currently 210 nonoverlapping DMAs in the United States.
• Sales or distribution regions. Many companies create their own geographic subdivisions, which vary by company. For example, a product might be sold through a specialty retailer that only operates in the Northwest.
• Climatic. Some products are specific to or more prevalent in areas with a specific client. For example, Minnesotans buy more snowshoes than do Texans.

Psychographic Segmentation

While demographics are useful, advertisers often need to slice and dice even further. Traditional demographic segments (such as gender, age, and income) provide only a rough estimate of the attitudes and desires of different groups, so marketers often give consumer groups labels that capture something about their lifestyles and motivations as well.

Imagine an advertiser that defines a segment as recent moms. This label implies that all women who have recently given birth are fairly similar and that they all will respond the same way to an advertising message—how accurate is that assumption? Bloomingdale’s Quotation, a store-within-a-store, instead calls its target market “yummy mummies.” These are women age thirty-five to forty-five who have gained weight after their babies but don’t want to look matronly. They are affluent, suburban, and casual yet fashionable. Bloomie’s research department provided further insight into the target customer: she thinks classic sportswear like Jones New York is too formal but contemporary sportswear like Juicy Couture is too young. The mom wants clothes that look pretty and feminine and have flair but offer a generous, not-too-tight fit.Elizabeth Woyle. “What Do 35-Year-Old Women Want?” BusinessWeek, April 2, 2007, 66.

Psychographics refers to dimensions that segment consumers in terms of personality, values, attitudes, and opinions. While demographics can divide people along specific (often quantitative) dimensions, psychographics captures the reasoning and emotion behind people’s decisions. This information also enables advertisers to capture the themes, priorities, and “inside meanings” that a specific taste culture identifies with. For example, Svedka Vodka targets urban party people who are out drinking until three o’clock in the morning three nights a week. This target market is irreverent, and Svedka’s ads speak their language. The ads feature futuristic imagery and lines like “Svedka says ‘thank you’ for making the gay man’s fashion gene available over the counter in 2033.”Dan Heath and Chip Heath. “Polarize Me,” Fast Company, April 2007, 59.

Sometimes marketing and advertising firms create psychographic segmentation systems with cute names or acronyms for the segments, such as DINKs (double income, no kids), who are good targets for yuppie products like expensive roadsters and exotic vacations, or even DINKWADs (double income, no kids, with a dog), who are like DINKS but would add in lots of treats for a pampered pooch. msnbc.com, for example, termed its new target audience the News Explorer.

These are some well-known psychographic segmentation tools that advertisers use to divide up their markets:

• VALS2™ (Values and Lifestyle System): According to its parent, SRI International, “VALS reflects a real-world pattern that explains the relationship between personality traits and consumer behavior. VALS uses psychology to analyze the dynamics underlying consumer preferences and choices.”For more information, see http://www.sric-bi.com/VALS/. VALS2™ divides U.S. adults into eight groups according to what drives them psychologically as well as by their economic resources.

  The system arranges groups vertically by their resources (including such factors as income, education, energy levels, and eagerness to buy) and horizontally by self-orientation. Three self-orientations make up the horizontal dimension.

  1. Consumers with a principle orientation make purchase decisions guided by a strong internal belief system.
  2. People with a status orientation base their decisions on what they think their peers think.
  3. Action, or self-oriented individuals, buy products to have an impact on the world around them.

  Actualizers, the top VALS2™ group, are successful consumers with many resources. This group is concerned with social issues and is open to change. The next three groups also have sufficient resources but differ in their outlooks on life:Martha Farnsworth Riche, “VALS 2,” American Demographics, July 1989, 25. Additional information provided by William D. Guns, Director, Business Intelligence Center, SRI Consulting Inc., personal communication, May 1997.

  1. Fulfilleds are satisfied, reflective, and comfortable. They tend to be practical and value functionality.
  2. Achievers are career-oriented and prefer predictability to risk or self-discovery.
  3. Experiencers are impulsive and young, and they enjoy offbeat or risky experiences.

  The next four groups have fewer resources:

  1. Believers have strong principles and favor proven brands.
  2. Strivers are similar to achievers but have fewer resources. They are very concerned about the approval of others.
  3. Makers are action-oriented and tend to focus their energies on self-sufficiency. They will often be found working on their cars, canning their own vegetables, or building their own houses.
  4. Strugglers are at the bottom of the economic ladder. They are most concerned with meeting the needs of the moment and have limited ability to acquire anything beyond the basic goods needed for survival.

  VALS2™ helped Isuzu market its Rodeo sport-utility vehicle by targeting Experiencers who believe it’s fun to break rules. The company and its advertising agency promoted the car as a vehicle that lets a driver break the rules by going off road. One ad showed a kid jumping in mud puddles after his mother went to great lengths to keep him clean.For other examples of applications see “Representative VALS™ Projects,” SRI Consulting Business Intelligence, http://www.sric-bi.com/VALS/projects.shtml#positioning (accessed February 29, 2008).

• Trend analyst Faith Popcorn’s firm BrainReserve refers to segments based on life stages like MOBYs (mommy older, baby younger), DOBYs (the daddies); former yuppies divided into PUPPIEs (poor urban professionals) and WOOFs (well-off older folks); latchkey kids, sandwichers (adults caught between caring for their children and their older parents); and SKIPPIEs (school kids with income and purchasing power). The company also groups consumers based on special interests, like global kids (kids with strong feelings about the environment plus strong influence over family purchase choice); and new health age adults (consumers who consider their health and the health of the planet to be top priorities).
• Mediamark Research (MRI) divides the wealthiest 10 percent of U.S. households (“the upper deck”) by lifestyles: the good life, well-feathered nests, no strings attached, nanny’s in charge, and two careers.

Behavioral Segmentation

Behavioral segmentation slices the market in terms of participation or nonparticipation in an activity. Sometimes this involves identifying the different ways consumers use products in a category. Mattel introduced a new brand it calls Barbie Girls to attract the increasing number of girls who spend a lot of time online in virtual worlds instead of playing with real dolls in the physical world. It features a free Web site, BarbieGirls.com, that will allow children to create their own virtual characters, design their own room, and try on clothes at a cyber mall. It’s following up with Barbie-inspired handheld MP3 music devices.“Mattel Aims at Preteens with Barbie Web Brand: Toymaker Turns to Tech as Sales Slump for Iconic Fashion Doll,” Associated Press, April 26, 2007, http://www.msnbc.com (accessed April 26, 2007).

Segmenting by behavior often singles out heavy users of a product, because even though these consumers may be relatively small in number, they often are key to sales in a category. Indeed, there is a lot of truth to the so-called 80/20 rule: this is a rough rule of thumb that says 20 percent of customers buy 80 percent of a product. Sure enough, for example, Kraft Foods began a $30 million campaign to remind its core users not to “skip the zip” after its research showed that indeed 20 percent of U.S. households account for 80 percent of the usage of Miracle Whip—“heavy” users (pun intended) consume seventeen pounds of Miracle Whip per year!Judann Pollack, “Kraft’s Miracle Whip Targets Core Consumers with ’97 Ads,” Advertising Age, February 3, 1997, 12.

Information sources that can pinpoint heavy users in a brand or product category include:

• Industry group reports (for example, the National Golf Foundation tracks the number of golfers in the United States and the extent of their participation in the game).
• Surveys of consumer behavior (for example, the number of people who eat fast food more than three times per week).
• Product sales (install base): Owners of particular products can be an affinity group. For example, a company can choose to target owners of Apple iPods either with accessories or with a brand image that resonates with that population.

B2B (Business to Business) Segments

Many clients sell products used by businesses rather than (or in addition to) end users. B2B advertisers also segment their markets, but the dimensions they use are different. In addition to data the government collects about businesses, trade organizations often offer data about their members. In addition, services like Hoovers Online provide detailed breakdowns about many companies. Relevant dimensions include these:For more information, see http://www.hoovers.com.

• Company size. This comprises such things as revenues or headcount.
• Industry. Marketers often use the North American Industry Classification System (NAICS), a numerical coding of industries the United States, Canada, and Mexico developed. The NAICS reports the number of firms, the total dollar amount of sales, the number of employees, and the growth rate for industries, all broken down by geographic region.
• Geography. This comprises such things as location of headquarters, sites, or geographic focus of distribution.
• Buying cycle. Companies often have a deliberative process for buying with known intentions to buy within a certain number of months.
• Buyer role. Advertising often targets specific people within an organization (e.g., those who influence, specify, and make buying decisions).

If an agency relies on simple demographics to define its target market, the risks of oversimplification and naïve projections are considerable. The job of an account planner like SS+K’s Michelle Rowley is to dig deeper; to see, understand, and report significant differences among potential target markets on the basis of characteristics that aren’t immediately apparent to just anyone with access to a marketing database.

The profile provided Michelle with a basic understanding of the msnbc.com user. In addition to some telling demographics, Michelle had a good sense of how users describe their technological acumen and online news-gathering behavior and preferences.

After analyzing a veritable mountain of proprietary research already collected by the client, Michelle and her colleagues identified a trio of expectations consumers brought to their online news and information experiences. First, the online news audience assumed “the cost of entry” for credible sources was an ability to provide breaking news in a timely fashion; research indicated that consumers considered this a generic attribute and not a point of differentiation for any news provider. The second and third expectations were also considered essential parity characteristics (i.e., elements that any competitor would need): a well-organized site that provides ease of access and a multi-faceted presentation of text, photos, and video. Users said the most important attribute for news and online information providers was to provide trusted coverage.

Beyond that, there were still some significant gaps in the research that Michelle and company had to fill before they were prepared to commit fully to a target audience and position the brand in the marketplace. SS+K wanted to better understand the factors involved in making a choice for news and information:

• What role does news and information play in the lives of online consumers?
• What were the emotional drivers in choosing a source?
• Who was likely to influence others’ choice of a news site, and how was this influence exercised?

Once these more global issues were better understood, SS+K could more effectively address how to position msnbc.com relative to its competition.

Understanding consumers’ behaviors, as well as their motivations and gratifications for using particular sites, was a key focus of the next research phase. The ultimate goal was to find a voice, a tone, a way of presenting the brand that was relevant and clearly differentiated in the minds of the consumers as unique to msnbc.com. Michelle and her colleagues organized focus groups and interviews for further exploration of the opposing goals and perspectives suggested by the initial research. Among these were the following:

• Attraction versus retention

  • What is the relationship between what attracts you to a site and what keeps you interested once you’re there?
  • Why are users accessing broadcast-related media online?
  • How can msnbc.com differentiate itself from MSN? What is the value of the association beyond driving traffic?
  • What type of content will motivate your current consumers to spend more time on the site?
  • Are light msnbc.com users clicking through on other sites?

• Credibility versus liability

  • What value do the NBC news brands bring to an online news site?
  • What is credible about the NBC brands?
  • How strong are the associations with NBC news personalities?

• Informed versus overwhelmed

  • What is the balance between knowledge as power and news as noise?
  • Do online news users want “all the news that’s fit to print” or “enough information so I don’t look stupid”?
  • Do your users want to know it all or just know enough?

• Entertained versus unfulfilled

  • What causes the negative reaction to the site among non-users? Are non-users reacting to the actual product or its reputation?
  • What is the appropriate balance between hard news and entertainment content?
  • How does the style of storytelling affect a user’s perception of the content on the site?

SS+K needed answers to questions like these before the agency could identify the profile of the person most likely to be attracted to msnbc.com as a news source. That’s where the targeting process comes in, so we’ll turn to that next.

What Are the Properties of a Good Target?

• Measurable: Key variables easily (and accurately) identify and assess the target.
• Accessible: The target group must be reachable by advertising.
• Profitable: The target group must have sufficient size, willingness to buy, and ability to pay.
• Distinguishable: The target group must provide a clearly differentiated segment in terms of percentage of potential customers and coherence of response to potential advertising messages.

Behavioral Targeting: Advertisers Know What You Like (Like It or Not)

The STP process is evolving rapidly as new advances in technology enable advertisers to identify and reach consumers where they live, work, and especially surf (online).

Today, companies define and manage finer and finer segments. In the past, segments had to be broad because it was difficult to reach finer-level segments and because such fine-grain data were not available. Now, companies can process terabytes of data on customers, and new ad channels (such as keyword advertising on the Internet) allow companies to reach smaller segments, down to segments of one (yes, like you).

These three factors fuel the accelerating trend of targeting small, very well-defined segments:

• Growing volume of data on customers
• Rising use of computers and analytic software
• Increasing specificity of advertising channels (e.g., keyword advertising on the Internet)

Behavioral targeting refers to putting ads in front of people customized to their Internet use. It’s become fairly easy for marketers to tailor the ads you see based on prior Web sites you’ve visited. The logic is inescapable: you’re more likely to respond (and probably appreciate) an ad for an idea, product, or service that’s relevant to your needs.

Obviously, privacy concerns arise as advertisers learn more about the sites we visit. But many consumers seem more than happy to trade off some of their personal information in exchange for information they consider more useful to them. More than half of respondents in one recent survey said they’re willing to provide demographic information in exchange for a personalized online experience.“Consumers Willing to Trade Off Privacy for Electronic Personalization,” Marketing Daily, http://www.mediapost.com (accessed January 23, 2007). While the ethics of gathering personal information are still being evaluated, behavioral targeting is the next frontier for many advertisers.

• When you (along with 263 million other users) sign up for Microsoft’s free e-mail service called Hotmail, the service asks you for personal information including your age, occupation, and address (though you’re not required to answer). If you use Microsoft’s Live Search search engine, the company keeps a records of the words you search for and the results you clicked on. Microsoft’s behavioral targeting system will allow its advertising clients to send different ads to each person surfing the Web. For instance, if a twenty-five-year-old financial analyst living in a big city is comparing prices of cars online, BMW could send her an ad for a Mini Cooper. But it could send a forty-five-year-old suburban businessman with children, who is doing the same search, an ad for the X5 SUV.Aaron O. Patrick, “Microsoft Ad Push Is All About You: ‘Behavioral Targeting’ Aims to Use Customer Preferences to Hone Marketing Pitches,” Wall Street Journal, December 26, 2006, B3; Brian Steinberg, “Next Up on Fox: Ads That Can Change Pitch,” Wall Street Journal, April 21, 2005, B1, http://www.aef.com/industry/news/data/2005/3105; Bob Tedeschi, “Every Click You Make, They’ll Be Watching You,” New York Times, April 3, 2006, http://www.nytimes.com/2006/04/03/business/03ecom.html?ei= 5088&en=9e55aeacf695c33a&ex=1301716800&partner=rssnyt&emc= rss&pagewanted=all(accessed November 15, 2008); David Kesmodel, “Marketers Push Online Ads Based on Your Surfing Habits,” Wall Street Journal, April 5, 2005, http://cob.bloomu.edu/sbatory/CH%2006%20E%20Mktg%20&%20Customer%20Relationships%202 Oct06%20n48.ppt (accessed November 15, 2008).
• The Fox network offers tweakable ads it can digitally alter so they contain elements relevant to particular viewers at the time they watch them. By changing voice-overs, scripts, graphic elements, or other images, advertisers can make an ad appeal to teens in one instance and seniors in another.
• Starwood Hotels & Resorts Worldwide Inc. uses a behavioral targeting campaign to promote spas at its hotels. The hospitality company works with an online media company to deliver ads to Internet users who have browsed travel articles or surfed the Web site of a Starwood-branded hotel like Westin or Sheraton.
• Startup advertising company Pudding Media is testing a service that would let customers make voice-over-Internet protocol (VoIP) calls free, if they agree to let their calls be monitored by speech-recognition software that would then present online ads based on the words it culled from the conversation. The customer would have already supplied Pudding with his or her zip code, age range, and gender, so ads would be targeted by demographics and location, as well as by real-time conversation.“Startup Offers Free Calls in Exchange for Eavesdropping,” InformationWeek, September 24, 2007, http://www.informationweek.com/news/internet/ebusiness/showArticle.jhtml?articleID=202101023 (accessed November 15, 2008).

It’s All Relative

Remember that positioning doesn’t just mean what your target market thinks about your product. Rather, it’s about how she thinks about it relative to competitors’ products—your product is less expensive, performs better, or fits better with the customer’s lifestyle. Positioning often relates to a brand’s strategic objectives. Looking back at our previous discussion of behavioral segmentation, the advertiser might think about potential customers in terms like these:

• Does not use the advertised product category—the company wants to convert nonusers to users (grow the market).
• Uses a competitor’s version of the advertised product category—the company wants to gain market share at the expense of competitors by creating or capturing brand switchers.
• Uses an alternative version of your product in the advertised product category—the company wants to upsell customers (get them to buy a more expensive version of its product) or migrate them to future product variants.
• Uses the advertised product—the company wants to increase the frequency or volume of purchases or reinforce brand loyalty.

Positioning Dimensions

• Value: The product reaches price-sensitive customers by being low cost. An example would be Wal-Mart’s “Every Day Low Prices.” Companies often create subbrands to create distinctive positioning for the brand based on price. The Gap, for example, is a mid-price clothing store, while its sister company Banana Republic is a higher-priced clothing store, and Old Navy is the value-priced offering. Similarly, Volkswagen’s Skoda brand is known as the low-cost car brand.

• Performance: The product is high performing on one or more dimensions that the target audience seeks. For example, if you focus on a lifestyle or design position, you appeal to the customer who values the social or aesthetic statement a brand makes—and often what others will think about him or her after the purchase. For example, Chanel is a designer-led luxury brand. The company has identified a new group of customers it wants to target. Chanel calls the group “new wealth”—women who have acquired a significant amount of money at an earlier age than previous generations. These women, with a net worth of over $1 million, have more cutting-edge fashion tastes. When Chanel CEO Maureen Chiquet strategizes about launching a new perfume to appeal to this customer segment, her watchword is exclusivity. “Let’s not be thinking about how big we can make this,” she tells her team, “but how exclusive and special you can keep it.”Robert Berner, “Chanel’s American in Paris,” BusinessWeek, January 21, 2007, 70–71.
• Functional: Solves a specific problem or accomplishes a specific goal for the customer. Tide-to-Go®, for example, solves the problem of removing a stain when there’s no time to launder the garment.