Michael_A._Hitt,_R._Duane_Ireland,_Robert_E._Hosk

114 Part 2: Strategic Actions: Strategy Formulation

4-1c Who: Determining the Customers to Serve

Deciding who the target customer is that the firm intends to serve with its business-level

strategy is an important decision.^27 Companies divide customers into groups based on

differences in the customers’ needs (needs are discussed further in the next section) to

make this decision. Dividing customers into groups based on their needs is called market

segmentation. Market segmentation is a process used to cluster people with similar

needs into individual and identifiable groups.^28 In the animal food products business, for

example, the food-product needs of owners of companion pets (e.g., dogs and cats) differ

from the needs for food and health-related products of those owning production animals

(e.g., livestock). A subsidiary of Colgate-Palmolive Company, Hill’s Pet Nutrition, sells

food products for pets. In fact, the company’s mission is “to help enrich and lengthen the

special relationship between people and their pets.”^29 Thus, Hill’s Pet Nutrition targets the

needs of different segments of customers with the food products it sells for animals.

Almost any identifiable human or organizational characteristic can be used to sub-

divide a market into segments that differ from one another on a given characteristic.

Common characteristics on which customers’ needs vary are illustrated in Table 4.1.

4-1d What: Determining Which Customer Needs to Satisfy

After the firm decides who it will serve, it must identify the targeted customer group’s

needs that its goods or services can satisfy. In a general sense, needs (what) are related to

a product’s benefits and features. Successful firms learn how to deliver to customers what

they want, when they want it. Having close and frequent interactions with both current

and potential customers helps the firm identify those individuals’ and groups’ current

and future needs. Target, a retail store and online marketer, has been successful with ana-

lyzing its many sources of data and customizing its information for in store and online

“guests.” It has available data, through online sources, of many customer demographics

(age, marital status, income category, etc.) as well as shopping frequency, products pur-

chased, and geographic distance from local stores. It utilizes this information to develop

is promotion and marketing strategies.^30

From a strategic perspective, a basic need of all customers is to buy products that

create value for them. The generalized forms of value that goods or services provide are

either low cost with acceptable features or highly differentiated features with acceptable

cost. The most effective firms continuously strive to anticipate changes in customers’ needs.

The firm that fails to anticipate and certainly to recognize changes in its customers’ needs

Market segmentation
is a process used to
cluster people with similar
needs into individual and
identifiable groups.

Table 4.1 Basis for Customer Segmentation

Consumer Markets

1. Demographic factors (age, income, sex, etc.)


2. Socioeconomic factors (social class, stage in the family life cycle)


3. Geographic factors (cultural, regional, and national differences)


4. Psychological factors (lifestyle, personality traits)


5. Consumption patterns (heavy, moderate, and light users)


6. Perceptual factors (benefit segmentation, perceptual mapping)
   Industrial Markets


7. End-use segments (identified by Standard Industrial Classification [SIC] code)


8. Product segments (based on technological differences or production economics)


9. Geographic segments (defined by boundaries between countries or by regional differences within them)


10. Common buying factor segments (cut across product market and geographic segments)


11. Customer size segments
    Source: Based on information in S. C. Jain, 2009, Marketing Planning and Strategy, Mason, OH: South-Western Cengage Custom Publishing.