Massive Income

3. Product Market Segmentation

Some companies differentiate themselves through product market segmentation—focusing on a narrow niche of a broader market. Also known as “category killers,” these companies create a store around one retailing segment normally carried by traditional department stores or supermarkets. By specializing in a particular segment, the category killers can offer a greater selection of products, more knowledgeable salespeople, focused service, and cheaper prices than their multidepartment cousins. Examples of successful category killers are PETsMART (pet supplies), Staples and Office Depot (office supplies), REI (camping gear and clothing), Williams-Sonoma (kitchen supplies), Starbucks (coffee), and Toys-R-Us (toys). Category killers like these have been among the fastest growing retailers in the past two decades. Their success breeds imitators, however, so the advantages gained by the first movers in a category tend to be short-lived, and they are often attacked by mass merchandising discounters like Wal-Mart, which can offer super sizes and lower costs. Wal-Mart’s own brand of pet food, for example, has seen even higher market share growth than PETsMART—and the success of both of these giants has been at the expense of traditional supermarkets.

Enterprise Rent-A-Car exemplifies another type of product market segmentation—focusing on segments ignored by rivals. The major rental car companies—Hertz, Avis, National, Budget, Alamo, Thrifty, and Dollar— have targeted the frequent business traveler, so they located the majority of their rental facilities at airports. Some, like Hertz, have allied themselves with frequent flyer programs, thus rewarding the frequent business traveler. Their target segment is the 10 percent of the population that accounts for over half of the air travel in the U.S. These frequent flyers typically make five or more business trips per year. Enterprise chose to target the remaining segment— the 90 percent of the population that does the other half of the annual air travel in the U.S. This segment travels by air less frequently (often only one or two trips per year). However, they do rent vehicles for purposes other than business travel to and from an airport:

• As a replacement vehicle while their car or truck is being repaired

• As a luxury car for special occasions

• As a new model car to test drive

• As an extra car when they have out-of-town guests

• As a vacation vehicle where they drive from home rather than fly to their destination

To serve these customers, Enterprise chose to locate its major facilities in towns and cities where people work and live, rather than at airports, which are typically a greater distance from people’s homes. By 2001, Enterprise had more than 4,400 offices and claimed that their rental facilities were no more than 15 miles from 90 percent of the U.S. population. This segmentation strategy has paid off for Enterprise. In 1985, they were still a small, regional car rental company. By 1997, they had surpassed Hertz in annual rentals and are now the largest car rental company in the U.S.