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Market Segmentation, Market Segmentation, Positioning, and Positioning, and

Demand ProjectionDemand Projection

McGraw-Hill/Irwin Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.

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AgendaAgenda General Market Segmentation StrategyGeneral Market Segmentation Strategy Business Marketing Segmentation Versus Business Marketing Segmentation Versus

Consumer Marketing SegmentationConsumer Marketing Segmentation Approaches to Business Market Approaches to Business Market

SegmentationSegmentation Common Business Segmentation Common Business Segmentation

Variables Variables Evaluating Potential Market SegmentsEvaluating Potential Market Segments Product Positioning StrategyProduct Positioning Strategy Business Demand ProjectionBusiness Demand Projection

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Why Segment Markets?Why Segment Markets?

To group customers with similar needs so To group customers with similar needs so one marketing mix can be used to meet one marketing mix can be used to meet the group’s needs without having a the group’s needs without having a separate marketing mix for each customer separate marketing mix for each customer (and still create a differential advantage). (and still create a differential advantage).

Given limited resources, to strategically Given limited resources, to strategically target which groups to serve.target which groups to serve.

As in all marketing activity, to better serve As in all marketing activity, to better serve customer needs.customer needs.

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General Market Segmentation General Market Segmentation StrategyStrategy

Analyze buyer behavior of each Analyze buyer behavior of each segment…segment…

Analyze buyer decision process of each Analyze buyer decision process of each segment…segment…

Analyze the characteristics of each Analyze the characteristics of each segment…segment…

Pick targets, forecast sales, calculate pro Pick targets, forecast sales, calculate pro forma profitability, and design a marketing forma profitability, and design a marketing mix for each segment based on above…mix for each segment based on above…

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General Market Segmentation General Market Segmentation StrategyStrategy

A Good Market Segment IsA Good Market Segment Is• Measurable Measurable • Differentiable Differentiable • SubstantialSubstantial• Actionable Actionable • AccessibleAccessible

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General Market Segmentation General Market Segmentation StrategyStrategy

Undifferentiated Marketing StrategyUndifferentiated Marketing Strategy• Total market is treated as one homogeneous market Total market is treated as one homogeneous market

segmentsegment Differentiated Marketing StrategyDifferentiated Marketing Strategy

• Developing a different marketing mix for many different Developing a different marketing mix for many different market segmentsmarket segments

Concentrated Marketing StrategyConcentrated Marketing Strategy• Selects one or a relatively few segments to pursueSelects one or a relatively few segments to pursue

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Aerospace

ComputersAutomotive

Robotics

Appliances

ToysMisc.

Segmentation for Segmentation for Small Precision ServomotorsSmall Precision Servomotors

The entire market needs to be The entire market needs to be represented, not just present represented, not just present customers, and not just customers, and not just attractive segments. Why?attractive segments. Why?

Exhibit 6-2

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Answer…Answer… You would not be segmenting the You would not be segmenting the

market, only part of it.market, only part of it. If the segment isn’t represented, If the segment isn’t represented,

you will never even consider it.you will never even consider it.

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Business Marketing Segmentation Vs. Business Marketing Segmentation Vs. Consumer Marketing SegmentationConsumer Marketing Segmentation Business market segmentation can help Business market segmentation can help

in:in:• Market analysisMarket analysis• Market selectionMarket selection• Marketing managementMarketing management

Segment business markets even if we are Segment business markets even if we are selling consumer productsselling consumer products

• B2C marketers must market to distributors or B2C marketers must market to distributors or retail chainsretail chains

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Approaches to Business Market Approaches to Business Market SegmentationSegmentation

Macro/Micro SegmentationMacro/Micro Segmentation• Macro segmentation Macro segmentation

dividing the market into subgroups based on dividing the market into subgroups based on overall characteristics of the prospect overall characteristics of the prospect organization, e.g., usage rates, NAICS organization, e.g., usage rates, NAICS categorycategory

• Micro segmentation Micro segmentation Dividing the market into subgroups based on Dividing the market into subgroups based on

specific characteristics of the decision-making specific characteristics of the decision-making process and buying structure of the prospect process and buying structure of the prospect organization, e.g., buying-center authority, organization, e.g., buying-center authority, attitudes toward vendors.attitudes toward vendors.

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Approaches to Business Market Approaches to Business Market SegmentationSegmentation

Nested ApproachNested Approach• Stresses segmentation according to the amount Stresses segmentation according to the amount

of investigation required to identify and evaluate of investigation required to identify and evaluate different criteria. different criteria.

Layers of the nest begins with organization Layers of the nest begins with organization demographicsdemographics

More specific customer characteristics are More specific customer characteristics are nested inside the broader organizational nested inside the broader organizational basis.basis.

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6-5

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Common Business Segmentation Common Business Segmentation VariablesVariables

Industry/Type of Economic ActivityIndustry/Type of Economic Activity

Size of OrganizationSize of Organization

Geographic LocationGeographic Location

Product UsageProduct Usage

Structure of the Procurement FunctionStructure of the Procurement Function

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Evaluating Potential Market SegmentsEvaluating Potential Market Segments

Market Profitability AnalysisMarket Profitability Analysis

Market Competitive AnalysisMarket Competitive Analysis

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Product Positioning StrategyProduct Positioning Strategy

IntroductionIntroduction

• Product Positioning Product Positioning

The way a product is defined by The way a product is defined by customerscustomers

• Product DifferentiationProduct Differentiation

Involves meaningful differences in the Involves meaningful differences in the product, services offered, personnel, etc. product, services offered, personnel, etc.

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Why Strategically Position Why Strategically Position Products and Services?Products and Services?

So they are perceived as different from competitors’ in ways that So they are perceived as different from competitors’ in ways that represent value to customer segmentsrepresent value to customer segments

As a tool to help marketers visualize the customer’s perceptions of the As a tool to help marketers visualize the customer’s perceptions of the competitive offerings available according to various variables (axes) of competitive offerings available according to various variables (axes) of importanceimportance

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How Can Product Positioning Be Misused?How Can Product Positioning Be Misused?

One common error is to create a map of One common error is to create a map of where you would where you would likelike your products to be your products to be positioned or where they are positioned in positioned or where they are positioned in your perception of the market, then treat the your perception of the market, then treat the resulting map strategically resulting map strategically as if it is a map of the as if it is a map of the actualactual perceptions of perceptions of the customers in the market.the customers in the market.

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Positioning Strategy – Perceptual MappingPositioning Strategy – Perceptual Mapping

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Product Positioning StrategyProduct Positioning Strategy

Approaches to PositioningApproaches to Positioning

• TechnologyTechnology

• QualityQuality

• PricePrice

• DistributionDistribution

• ImageImage

• ServiceService

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Product Positioning StrategyProduct Positioning Strategy Successful PositioningSuccessful Positioning

• Consider what position the firm presently owns.Consider what position the firm presently owns.

• Decide what position the firm wants to own.Decide what position the firm wants to own.

• Decide who the firm must outflank to gain that Decide who the firm must outflank to gain that position.position.

• Consider if the firm has the necessary resources.Consider if the firm has the necessary resources.

• Consider if the firm is committed to achieving the Consider if the firm is committed to achieving the objective.objective.

• Determine if the firm can create a marketing mix to Determine if the firm can create a marketing mix to achieve the desired position.achieve the desired position.

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Business Demand ProjectionBusiness Demand Projection Strategic Importance of Forecasting in Strategic Importance of Forecasting in

Decision MakingDecision Making• Companies must plan in order to have Companies must plan in order to have

materials/resources on hand to meet customer materials/resources on hand to meet customer needs.needs.

• It is required by top management, just as It is required by top management, just as engineers must design and accountants must engineers must design and accountants must add numbers.add numbers.

• It is a basic marketing function.It is a basic marketing function.• Other functional areas use demand forecasts to Other functional areas use demand forecasts to

make their own forecasts and budgets, make make their own forecasts and budgets, make purchases, set goals, etc.purchases, set goals, etc.

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Business Demand ProjectionBusiness Demand Projection Common Forecasting ProblemsCommon Forecasting Problems

• Mystique (to those who are not trained)Mystique (to those who are not trained)

• Accuracy (marketers tend to be can-do, optimistic Accuracy (marketers tend to be can-do, optimistic types)types)

• Inconsistency (continual subjective modifications)Inconsistency (continual subjective modifications)

• Accountability (developing forecast versus achieving Accountability (developing forecast versus achieving forecast)forecast)

• Implementation (mixing forecasts, goals, quotas)Implementation (mixing forecasts, goals, quotas)

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Selecting Forecasting MethodsSelecting Forecasting Methods The importance and nature of forecast impacts The importance and nature of forecast impacts

method chosen. method chosen.

Different methods are appropriate for long-term vs. Different methods are appropriate for long-term vs. medium-term vs. short-term forecasts.medium-term vs. short-term forecasts.

Different methods are appropriate for different types Different methods are appropriate for different types of data (e.g., amount of cycle, trend, noise).of data (e.g., amount of cycle, trend, noise).

The right method for the right type situation and the The right method for the right type situation and the right type data improves accuracy.right type data improves accuracy.

Forecasting is not guessing.Forecasting is not guessing.

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Selecting Forecasting MethodsSelecting Forecasting Methods Forecasting requires a pattern or relationship Forecasting requires a pattern or relationship

that is present in past data and will repeat.that is present in past data and will repeat.

Forecasting is a lot more than averaging. It’s Forecasting is a lot more than averaging. It’s an academic area with its own theory, an academic area with its own theory, textbooks, and journals. textbooks, and journals.

Companies routinely hire expert consultants Companies routinely hire expert consultants to improve their forecasting accuracy by a to improve their forecasting accuracy by a percentage point or two and save them percentage point or two and save them millions of dollars.millions of dollars.

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Selecting Forecasting MethodsSelecting Forecasting Methods General Approaches to ForecastingGeneral Approaches to Forecasting

• Top-down method Top-down method – management develops an – management develops an aggregate measure of sales potential then sales aggregate measure of sales potential then sales quotas are developed and a sales forecast is quotas are developed and a sales forecast is constructedconstructed

• Bottom-up method (Build-up) Bottom-up method (Build-up) – sales force – sales force develops estimates of sales by product lines, develops estimates of sales by product lines, geographic area, or customer group and geographic area, or customer group and management adds these estimates together to get management adds these estimates together to get sales forecastsales forecast

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Selecting Forecasting MethodsSelecting Forecasting Methods

Qualitative ApproachesQualitative Approaches

• Jury of Executive OpinionJury of Executive Opinion (“executive panels”) (“executive panels”)

• Sales Force Composite Sales Force Composite (“sales force (“sales force estimates”)estimates”)

• Survey of Buyer IntentionsSurvey of Buyer Intentions (“market survey of (“market survey of user expectations”)user expectations”)

• The Delphi MethodThe Delphi Method

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Selecting Forecasting MethodsSelecting Forecasting Methods

Quantitative ApproachesQuantitative Approaches

• Time-Series TechniquesTime-Series Techniques Trend FittingTrend Fitting

Moving AverageMoving Average

Exponential SmoothingExponential Smoothing

Adaptive ControlAdaptive Control

Box-JenkinsBox-Jenkins

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Selecting Forecasting MethodsSelecting Forecasting Methods Quantitative ApproachesQuantitative Approaches

• Causal TechniquesCausal Techniques RegressionRegression

EconometricsEconometrics

Leading IndicatorsLeading Indicators

Diffusion IndexDiffusion Index

Input-Output AnalysisInput-Output Analysis

Life-Cycle AnalysisLife-Cycle Analysis