Transcript Chapter 3 Effects of IT on Strategy and Competition

Part 2
MARKET RESEARCH AND
TARGET MARKETS
Dr. Chen, Principle of Marketing
4: Marketing Research and
Information Systems
5: Target Markets:
Segmentation and Evaluation
Dr. Chen, Principle of Marketing
Chapter 5
Target Markets: Segmentation
and Evaluation
Professor Jason C. H. Chen, Ph.D.
School of Business Administration
Gonzaga University
Spokane, WA 99258
[email protected]
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Learning Objectives
 To understand what markets are and how they are generally
classified
 To grasp an overview of the five steps of the target market
selection process
 To understand the differences among general targeting
strategies
 To become familiar with the major segmentation variables
 To know what segment profiles are and how they are used
 To understand how to evaluate market segments
 To identify the factors that influence the selection of
specific market segments for use as target markets
 To become familiar with sales forecasting methods
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What are Markets?
 A market is a group of people, individuals or
organizations, who
needs for products in a product
a desire or ______
class and
 Have the ability, willingness, and authority to
purchase such products
 Have
 A group of people that lacks any of the four
requirements does not constitute a market
 Teenagers
may have the desire, the money and the
willingness to buy alcohol but the law prevents
them from having the authority to purchase alcohol
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E-COMMERCE
 B2C
 What
does “C” stands for?
 B2B
 What
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does “B” stands for?
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Two Types of Markets
Consumer
_________ Market
 Purchasers and household members who intend to
consume or benefit from the purchased products and do
not buy products to make profits
 Also referred to as business-to-consumer (B2C) markets.
Business Market
_________
 Individuals, organizations or groups that purchase a
specific kind of product for resale, direct use in
producing other products or use in general daily
operations
 Also referred to as business-to-business (B2B),
industrial, or organizational markets

Sub-classified into producer, reseller, government, and
institutional markets
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Figure 5.1 - Target Market Selection
Process
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Step 1: Identify Appropriate
Targeting Strategy
Target Market
 A group of people or organizations for which a
mix
business creates and maintains a marketing ____
specifically designed to satisfy the needs of
group members
 The strategy used to select a target market is
affected by:
Target market characteristics
 Product attributes
 The organization’s objectives and resources

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Marketing Mix Decisions
Product Decisions
Integrated Marketing
Communications Decision
(Promotion)
Marketing
Mix
Price Decisions
Distribution Decisions
Place Time
(_______+
______)
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Types of Targeting Strategies
Undifferentiated targeting strategy
_______________
• Designs a single marketing mix and directs it at the entire
market for a particular product
• Effective for homogenous markets
Concentrated targeting strategy
______________
• Targets a single market segment using one marketing mix
Differentiated targeting strategy
_____________
• Targets two or more segments by developing a marketing
mix for each segment
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Figure 5.2 - Targeting Strategies
• Designs a single marketing mix and directs it
at the entire market for a particular product
• Targets a single market segment
using one marketing mix
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• Targets two or more segments by
developing a marketing mix for each
segment
6-12
 Undifferentiated targeting strategy means a company
designs a single marketing mix and directs it at the entire
market
 Effective for homogeneous markets where a large proportion of
people in a target market have similar needs for a product
 This strategy consists of:
One type of product
One promotional program
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One price
One distribution channel
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 A concentrated targeting strategy means a company targets a single
market segment using one marketing mix
Advantages
Disadvantages
Ideal for organization with excess production
capacity
Profits fall with segment’s
demand declines
A small firm can compete with larger
organizations
Difficult to diversify
Increases sales in the aggregate market
Higher production cost
Allows a firm to specialize
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Types of Market and Market Segmentation
 Types of market
Homogenous Large proportion of customers have
_____________:
similar needs for a product
Heterogeneous Customers have diverse needs for
 _____________:
products in a specific product class

 Market segmentation: A process of dividing a total
market into groups with relatively similar product
needs to design marketing mix

Market segment: Customer base sharing one or more
similar characteristics that cause them to have similar
product needs
 Smaller groups allow a tailored marketing mix
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Conditions For Market Segmentation
To Succeed
 For market segmentation to succeed, five
conditions must exist
 Customer’s
heterogeneous
needs must be _____________
divisible
 Segments must be identifiable and ________
 Segments must be comparable to one another
with respect to estimated sales potential, costs and
profits
profit potential
 One segment must show enough ______
to justify developing a special marketing mix
 The firm must be able to reach the chosen
segment with a particular marketing mix
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Concentrated Targeting Strategy
 Both Mont Blanc and Bic use a concentrated targeting
strategy to aim at a different, single market segment
 They are not competing for the same customers
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 With a differentiated
targeting strategy,
an organization
directs its marketing
efforts at two or more
segments,
developing a
marketing mix for
each segment
Advantages
Could mean increased sales
Disadvantages
Production costs are higher
Uses excess production capacity
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Target Market Selection
Process
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Step 2 - Determine Which
Segmentation Variables to Use
 Segmentation variables: Characteristics of
individuals, groups or organizations used to
divide a market into segments
relate to the customers’ needs for, uses
of or behavior toward the product
measurable
 Must be _________
 Company resources and capabilities affect the
number and size of the variables
 Product type and degree variations in customer
needs
 Should
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Figure 5.3 - Segmentation Variables for
Consumer markets
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Fig. 5.4 - Demographic Variables: Age
By 2025
 Age groups
under 55
expected to
decrease
 Age groups
55 and
older
expected to
increase
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Figure 5.5 - Family Life Cycle Stages as a
Percentage of All Households
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Geographic Variables




Climate and terrain
City size and population density
Urban area and rural area
Market density: Number of potential
customers within a unit of land area
 Useful
segmentation variable for firms because
low-density markets require different sales,
advertising, and distribution activities than
high-density markets
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Geodemographic Segmentation
 Clusters people by zip codes or
neighborhood units based on lifestyle and
demographic in-formation
 Micromarketing: Focuses precise
marketing efforts on very small geographic
markets
 Climate - Geographic segmentation variable
 Impacts
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people’s behavior and product needs
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Psychographic Variables
 Personality characteristics


Product resembles many competing products
Consumers’ needs are not significantly related to other
segmentation variables
 Motives - Divides the market according to consumers’
reasons for making a purchase
 Lifestyle analysis - Characteristics related to people’s
activities, interests, and opinions
 Lifestyle segmentation groups people by:



How they spend their time
The importance of things in their surroundings
Beliefs about themselves and broad issues
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Psychographic Systems/Variables:
VALS Classification
 Classifies consumers based on psychological
characteristics correlated with:
 Purchase
behavior
 Key demographics
 Used to determine lifestyle choices
 Used to
create
 _______
new products as well as
segment existing markets
 ________
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Fig. 5.6 Example of
VALS Data
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Behavioristic Variables
 Dividing a market according to consumer
behavior toward a product in terms of its
usage
 Used by marketers to satisfy customers who
use a product in a certain way
 Involves
designing certain product features in
such a way that makes it easier to use, safer, or
more convenient
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Benefit Segmentation
 Division of a market according to benefits
consumers want from the product
 Effectiveness depends on certain conditions
 Benefits
sought must be identifiable
 Using the benefits, marketers must be able to
divide people into recognizable segments
 One or more of the resulting segments must be
accessible to the firm’s marketing efforts
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Segmenting Business Markets
 Like consumer markets, business markets
are frequently segmented, often by multiple
variables in combination
 Marketers segment business markets
according to
location
Geographic ________
 Type of ____________
organization

 product features, distribution systems, price structures
and selling strategies
size
Customer ______
 Product use

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Target Market Selection
Process
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Step 3: Develop Market Segment Profiles
 A market segment profile


similarities of potential customers within a
Describes the __________
segment
differences among people and organizations in
Explains the __________
different segments
 Profiles benefits marketers in several ways




Information included in the profiles can be highly useful in
making marketing decision
Used to assess the degree to which the firm’s products can
match potential customers’ product needs
Help marketers understand how a business can use its
capabilities to serve potential customer groups
Determine which segments are most attractive relative to the
firm’s strengths, weaknesses, objectives, and resources
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Target Market Selection
Process
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Step 4 - Evaluate Relevant Market Segments
 After analyzing the segment
profiles, a marketer has
identified several relevant
market segments which
require further analysis
 Several factors
should be analyzed,
including:
Market Segment
Aspects to be
Evaluated
Sales
Estimates
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Competition
Estimated
Costs
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Sales Estimates
 Sales estimates can be measured along
several dimensions including
 Product
level
 Geographic area
 Time
 Level of competition
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Sales Estimates: Market Potential
 Market potential is the total amount of a
product customers will purchase within a
specified period at a specific level of industry
wide marketing activity

Affected by economic, soiciocultural and other
environmental forces

Marketers must assume a certain level of marketing
effort in the industry
Marketers must also consider whether and to what
extent industry marketing efforts will change

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Sales Estimates: Company Sales Potential
 Company sales potential is the maximum
percentage of market potential a firm can expect
for a specific product
 Influencing factors



Market potential places absolute limits on sales
potential
Industrywide marketing indirectly impacts sales
potential
Intensity and effectiveness of marketing activities
compared to competitors marketing activities
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Approaches to Measure Company Sales Potential
 Two general approaches that measure
company sales potential are


Breakdown approach – measuring company sales
potential based on a general economic forecast for a
specific period and the market potential derived
from it
Buildup approach – measuring company sales
potential by estimating how much of a product a
potential buyer in a specific geographic area will
purchase in a given period, multiplying the estimate
by the number of potential buyers, and adding the
totals of all the geographic areas considered
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Competitive Assessment


Without competitive assessment, sales estimates
can be misleading
The following questions need answered for a
competitive assessment
 How many competitors exist?
 What are their strengths and weaknesses?
 Do several competitors have a major market share?
 Can we create a competitive marketing mix?
 Will new competitors enter this segment?
 If so, can we still compete successfully?
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Cost Estimates


Developing and maintaining a marketing mix
that fulfills the needs of the a target segment, is
expensive
Factors affecting costs include:
 Distinctive product features
 Attractive package design
 Generous product warranties
 Extensive advertising
 Attractive promotional offers
 Competitive prices
 High quality personal service
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Step 5: Select Target Markets
 After identifying the target market, the company needs
a sales forecast which differs from sales potential
 Sales forecast is the amount of a product a company
expects to sell during a specific period at a specific
level of marketing activities.
 Use: Planning, Organizing, Implementing, Controlling
activities
 There are a number of forecasting methods falling into
five categories
Executive Judgment
Time Series Analysis
Regression Analysis
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Surveys
Market Tests
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Executive Judgment
 Executive judgment is a sales forecasting method
based on the intuition of one or more executives.
 This approach is unscientific but fast and cheap
Advantages
• Expedient and
inexpensive
approach
• Works well when
product
stable demand is
_______
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Disadvantages
• Forecast may weight
recent sales booms or
slumps excessively
(too optimistic or
pessimistic)
• Forecaster has only
past experience as a
guide for deciding
where to go in the
future
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Forecasting Techniques
Customer forecasting survey
• Asking customers what types and quantities of products they
intend to buy during a specific period
Sales force forecasting survey
• Firm’s salespeople estimate anticipated sales in their territories
for a specified period
Expert forecasting survey
• Hiring professionals to help with sales forecast
Delphi technique
• Experts create initial forecasts, submit them to the company for
averaging, and then refine the forecasts
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Time Series Analysis
 Uses firm’s ________
historical sales data to discover a
pattern , or patterns, in sales over time
_______




Trend analysis: Focuses on aggregate sales data over a
period of many years to determine general trends in annual
sales
Cycle analysis: Analysis of sales figures for a three- to
five-year period to ascertain whether sales fluctuate in a
consistent, periodic manner
Seasonal analysis: Analysis of daily, weekly, or monthly
sales figures to evaluate the degree to which seasonal
factors influence sales
Random factor analysis: Attempts to attribute erratic sales
variations to random, nonrecurrent events
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Regression Analysis
 Regression analysis is a method of predicting
relationship between dependent
__________ variable and one or
more independent
____________ variables.
 For example, we may predict sales based on finding a
relationship between past sales and one or more
independent variables, such as population or income/
 Two types:


Simple regression analysis uses one of the independent
variables
Multiple regression analysis uses two or more independent
variables
 Useful when:


A precise association can be established
Available historical sales data are extensive
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Forecasting Techniques - Market Test
 Making a product available to buyers in one or
more test areas and measuring purchases and
consumer responses to marketing effort
Advantages
Disadvantages
• Effective for forecasting
sales of new products or
of existing products in
new geographic areas
• Gives a marketer an
opportunity to test the
success of various
elements of the
marketing mix
• Time consuming and
expensive
• A marketer cannot be
certain that consumer
response during a market
test represents the total
market response, or that
the same response will
continue in the future
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47
Multiple Forecasting Methods
 Used for marketing diverse product lines
but
 Required for single product line when sold
to different market segments
 Required due to variation in the length of
forecasts
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48
Video Case 5.1
 RALEIGH WHEELS INTO A NEW
ERA FOR BICYCLE MARKETING
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 Summary

 This case discusses bicycle company Raleigh’s long history
and its transition from being a company known for its sturdy,
high-quality product to a global brand catering to bicycle
messengers and commuters. Raleigh noted that many of its
customers do not don special gear to go riding, but rather
wear their street clothes.
 n order to familiarize new markets with its bicycles, Raleigh
brings samples to cities around the world and lets people ride
the bikes. Raleigh takes great strides to remain in touch with
its target market and to provide the products that customers
want. It has even started to use high-technology in marketing
through maintaining a blog and a Twitter account.
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 1. Of the four categories of variables, which is most
important to Raleigh’s segmentation strategy, and why?

 According to the case, psychographic variables such as the
European lifestyle and tradition of getting around on
bicycles are most important to Raleigh’s segmentation
strategy.
 These consumers ride for fun, rather than as serious racers.
Applying psychographic variables allows Raleigh to
identify and focus its marketing on this specific group of
consumers
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 2. How would you describe Raleigh’s positioning for its
steel-frame bicycles?

 In general, Raleigh seems to be positioning its steel-frame
bicycles as sturdy, comfortable, light, fast, nimble, easy to
steer, and fun to ride. Students may offer additional
positioning ideas as well.
 Raleigh’s positioning helps the company correct
misperceptions of steel-frame bicycles as heavy and
awkward to ride, and fits with the interests of its target
market.
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 3. Raleigh sells exclusively through retail dealers, not
directly to consumers. How does this affect its ability to
segment the bicycle market using geographic variables?

 Raleigh can select dealers in the geographic areas where
consumers in its target market live or travel on vacation.
This allows the company to sell through multiple dealers in
states where riding bicycles is a popular pastime, for
example.
 In this way, Raleigh will be assured of solid marketing
distribution coverage when it launches marketing
communications or new product demonstrations in those
areas. For efficiency, Raleigh can choose fewer dealers (or
have no dealers) in areas where the lifestyle is not geared
toward bicycling.
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