Market Segmentation, Product Differentiation, and

Marketing Strategy Luiz Valério P. Trindade – 05.05.2011

Main Objectives

The focus of this 1987 article is directed towards the

discussion of what the authors consider to be a confusion

regarding the definition of market segmentation and

product differentiation found on a number of marketing

textbooks and shed some lights on this subject matter.

In order to back up their claims, the authors have

undergone a thoroughly research on a group of 16

marketing textbooks published between 1978 and 1985.

Article Structure

First Part

Theories and perspectives of market segmentation and product

differentiation developed by economists and marketers.

Second Part

Set of definitions in an attempt to lessen the current confusion.

Third Part

Use of diagrams in order to illustrate the important differences and

relationships between product differentiation and demand

modification.

Historical Perspectives

Shaw (1912): One of the pioneers of marketing thought;

Smith (1956): Product differentiation as an attempt to alter the shape of the price-quantity demand curve;

Chamberlin (1965): Theory of monopolistic competition published in 1933;

Rosen (1974) and Lancaster (1979): Contributed to the development of an economic demand theory;

Porter (1976): Product differentiation as dependent of product features and elements of marketing mix;

Samuelson (1976): Suppliers fragment industry demand curves into smaller segments;

Smith (1978): Positioned market segmentation and product differentiation as alternatives rather than complements.

Definitions

Market Segmentation

Heterogeinety in demand functions exists such that market

demand can be disaggregated into segments with distinct

demand functions.

Product Differentiation

A product offering is perceived by the consumer to differ

from competition on any physical or nonphysical product

characteristics including price.

Definitions

Product Differentiation Strategy

Alteration of perception so as to result in a state of product differentiation.

Demand Function Modification

Alteration of the functional relationship between perceived product characteristics and demand.

Segment Development Strategy

Alteration of demand functions of a subset of consumers such that they will become similar and constitute a unique market segment.

Strategic Options

Product Differentiation

Strategic Options

Segment-Based Product Differentiation

Strategic Options

Demand Modification Strategy

Conclusion

They end up their study clearly stating that strong

evidences indicates that product differentiation and market

segmentation do not represent what is believed by some as

alternative management strategies.

So that, their final advice is that “It seems important for

both managers and academics to have a common, accepted

understanding of the theoretical and applied meaning of

these concepts.”

How is it like nowadays

or after this research?

Selected Textbook – 01

ASSAEL, Henry. Consumer Behavior and Marketing Action.

3rd Edition. PWS-Kent Publishing Company. USA, 1987

This author address the concept of market segmentation on

many parts of the book, but he does not mention product

differentiation throughout the book.

WEBSTER, Frederick E. Market-Driven Management: Using the New Marketing Concept to Create a Customer-Oriented Company. John Wiley & Sons, Inc., USA, 1994 (pp. 102-103)

Market segmentation and product differentiation are related but distinct concepts. Sometimes they are used interchangeably, which is incorrect and has led to some confusion.

Over the years it has been used to mean three very different things:

1. Offering products with features different from those of more standardized competitive

offerings;

2. Practice of offering somewhat differente products for different market segments;

3. The use of communication tools to make claims infusing a product feature not obsviously perceived by sonsumers.

Selected Textbook – 02

ZIKMUND, William G.; D’AMICO, Michael.

Effective Marketing: Creating and Keeping

Customers. West Publishing Company. USA, 1995

It was not noticed any sort of correlation between the

two concepts.

Selected Textbook – 03

LAMB, Charles W.; HAIR, Joseph F.; MC DANIEL, Carl; FARIA, A. J. The

Subject is Marketing. 2nd Canadian Edition. Thomson-Nleson, Canada, 2002. pp.

154-175

On chapter six (pp. 138-164) of this book it is addressed the issue of segmentation

and targeting markets, however, it was not noticed any sort of direct correlation

between market segmentation and product differentiation.

In fact, only once on the session that explains “Strategies for Selecting Target

Markets” (p. 155) the authors mention the concept of “undifferentiated

targeting strategy”.

What regards product differentiation, these authors argue that it is instead more a

positioning tool.

Selected Textbook – 04

TUCKWELL, Keith J. Canadian Marketing in Action. 8th

Edition. Pearson Prentice Hall, Canada, 2010. pp. 140-142;

160-163

This author address the issue of market segmentation, but he

does not mention a word regarding product differentiation

on this session. Even when he explains Niche Market or

One-to-One Marketing.

In fact, he addresses product differentiation only within the

session Market Positioning Concept. (pp. 160-163).

Selected Textbook – 05

What they Share in Common

Strategic Marketing Process

PLANNING STAGES 1 – Identifying and evaluating opportunities

2 – Analyzing market segments and selecting target markets

3 – Planning a market position and developing a marketing mix strategy

4 – Preparing a formal market plan

ACTION STAGE Executing the plan

CONTROLLING STAGE Controlling efforts and evaluating the results

Obrigado! Luiz Valério de Paula Trindade | 05.05.2011