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258 PART 3 • STRATEGY IMPLEMENTATION

TABLE 8-3 The Marketing Mix Component Variables
Product Place Promotion Price
Quality Distribution channels Advertising Level
Features and Distribution coverage Personal selling Discounts and
options Outlet location Sales promotion allowances
Style Sales territories Publicity Payment
terms
Brand name Inventory levels
Packaging and locations
Product line Transportation carriers
Warranty
Service level
Other services

Source: From E. Jerome McCarthy, Basic Marketing: A Managerial Approach, 9th ed.
(Homewood, IL: Richard D. Irwin, Inc., 1987): 37–44. Used with permission.

Market segmentation is an important variable in strategy implementation for at
least three major reasons. First, strategies such as market development, product devel-
opment, market penetration, and diversification require increased sales through new
markets and products. To implement these strategies successfully, new or improved
market-segmentation approaches are required. Second, market segmentation allows a
firm to operate with limited resources because mass production, mass distribution, and
mass advertising are not required. Market segmentation enables a small firm to com-
pete successfully with a large firm by maximizing per-unit profits and per-segment
sales. Finally, market segmentation decisions directly affect marketing mix variables:
product, place, promotion, and price, as indicated in Table 8-3. For example,
SnackWells, a pioneer in reduced-fat snacks, has shifted its advertising emphasis from
low-fat to great taste as part of its new market-segmentation strategy.
Perhaps the most dramatic new market-segmentation strategy is the targeting of
regional tastes. Firms from McDonald’s to General Motors are increasingly modifying
their products to meet different regional preferences within the United States. Campbell’s
has a spicier version of its nacho cheese soup for the Southwest, and Burger King offers
breakfast burritos in New Mexico but not in South Carolina. Geographic and demo-
graphic bases for segmenting markets are the most commonly employed, as illustrated in
Table 8-4.
Evaluating potential market segments requires strategists to determine the characteris-
tics and needs of consumers, to analyze consumer similarities and differences, and to
develop consumer group profiles. Segmenting consumer markets is generally much
simpler and easier than segmenting industrial markets, because industrial products, such as
electronic circuits and forklifts, have multiple applications and appeal to diverse customer
groups.
Segmentation is a key to matching supply and demand, which is one of the thorniest
problems in customer service. Segmentation often reveals that large, random fluctuations
in demand actually consist of several small, predictable, and manageable patterns.
Matching supply and demand allows factories to produce desirable levels without extra
shifts, overtime, and subcontracting. Matching supply and demand also minimizes the
number and severity of stock-outs. The demand for hotel rooms, for example, can be
dependent on foreign tourists, businesspersons, and vacationers. Focusing separately on
these three market segments, however, can allow hotel firms to more effectively predict
overall supply and demand.
Banks now are segmenting markets to increase effectiveness. “You’re dead in the
water if you aren’t segmenting the market,” says Anne Moore, president of a bank consult-
ing firm in Atlanta. The Internet makes market segmentation easier today because
consumers naturally form “communities” on the Web.