Chapter 5 Markets: Segmentation and Evaluationstephanielarkin.com/ncc/files/Chapter_5_marketing.pdf · Chapter 5 Target Markets: ... Market segmentation – the process of dividing

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Chapter 5

Target Markets:

Segmentation and

Evaluation


!Groups of individuals and/or organizations that have: " Desire or needs for products in a product class " Ability, willingness, and authority to purchase

such products

What Are Markets? (1 of 2)


!Consumer market – purchasers and household members who intend to consume or benefit from the purchased products and do not buy products to make profits or serve an organizational need

!Business market – individuals or groups that purchase a specific kind of product for resale, direct use in producing other products, or use in general daily operations " " " "

What Are Markets? (2 of 2)


Figure 5.1 – Target MarketSelection Process


Figure 5.2 – Targeting Strategies


!Undifferentiated targeting strategy – a strategy in which an organization designs a single marketing mix and directs it at the entire market for a particular product

!Homogenous market – a market in which a large proportion of customers have similar needs for a product

Undifferentiated Targeting Strategy


!Heterogeneous market – a market made up of individuals or organizations with diverse needs for products in a specific product class " Market segmentation is best approach.

! Market segmentation – the process of dividing a total market into groups with relatively similar product needs to design a marketing mix that matches those needs

! Market segment – individuals, groups, or organizations sharing one or more similar characteristics that cause them to have similar product needs

Concentrated Targeting Strategy through Market Segmentation (1 of 3)


Concentrated Targeting Strategy through Market Segmentation (3 of 3)

!Concentrated targeting strategy – a market strategy in which an organization targets a single market segment using one marketing mix

!


Differentiated Targeting Strategy through Market Segmentation

!Differentiated targeting strategy – targets two or more segments by developing a marketing mix for each segment

!


!Segmentation variables – characteristics of individuals, groups, or organizations used to divide a market into segments

!Should relate to the customers’ needs for, uses of, or behavior toward the product

!Must be measurable !Number and size of variables affected by:

" Company resources and capabilities " Product type and degree of variation in customer

needs

Step 2: Determine Which Segmentation Variables to Use


Figure 5.3 – Segmentation Variables for Consumer Markets


Demographic Variables

!Age !Gender !Race !Ethnicity ! Income !Education

!Occupation !Family size !Family life cycle !Religion !Social class


!Markets can be divided by geographic variables because differences in location, climate, and terrain influence consumers’ needs.

!Market density – the number of potential customers within a unit of land area " Does not correlate directly to population density " Useful segmentation variable for firms because

low-density markets require different sales, advertising, and distribution activities than high-density markets

Geographic Variables (1 of 2)


!Geodemographic segmentation – a method of market segmentation that clusters people in zip code areas and smaller neighborhood units based on lifestyle and demographic information

!Micromarketing – an approach to market segmentation in which organizations focus precise marketing efforts on very small geographic markets

!Climate is a common geographic segmentation variable. " Impacts people’s behavior and product needs

Geographic Variables (2 of 2)


!Personality characteristics " Product resembles many competing products. " Consumers’ needs are not significantly related to

other segmentation variables. !Motives

" Divide the market according to consumers’ reasons for making a purchase.

Psychographic Variables (1 of 3)


!Lifestyle " Segment by:

! How consumers spend their time ! Importance of things in their surroundings (e.g.,

homes or jobs) ! Beliefs about themselves and broad issues ! Some demographic characteristics (e.g., income

and education)

Psychographic Variables (2 of 3)


!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

Behavioristic Variables (1 of 2)


!Benefit segmentation – the division of a market according to benefits that consumers want from the product

!

Behavioristic Variables (2 of 2)


Variables for SegmentingBusiness Markets

Geographic location

Type of organization

Customer size Product use


Market segment profile: !Describes similarities of potential customers

within a segment !Explains differences among people and

organizations in different segments !Various aspects covered:

" Demographic and geographic factors " Product benefits sought and lifestyles " Brand preferences and usage rates

Step 3: DevelopMarket Segment Profiles (1 of 2)


Market segment profile (continued): !Assesses the degree to which products fit potential

customers’ product needs !Supports marketers in understanding how a business

can use its capabilities to serve potential customer groups

!Determines which segments are most attractive relative to the firm’s strengths, weaknesses, objectives, and resources

!Helps a firm make marketing decisions relating to a specific market segment

Step 3: DevelopMarket Segment Profiles (2 of 2)


Step 4: Evaluate RelevantMarket Segments

!Market segment aspects to be evaluated: " Sales estimates " Competition " Estimated costs


!Market potential – the total amount of a product that customers will purchase within a specified period at a specific level of industry-wide marketing activity

!Company sales potential – the maximum percentage of a market that an individual firm within an industry can expect to obtain for a specific product

Sales Estimates (1 of 2)


!Approaches to measuring sales potential: " Breakdown approach – measuring company sales

potential based on: ! A general economic forecast for a specific period ! 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 ! Adding the totals of all geographic areas considered

Sales Estimates (2 of 2)


Competitive Assessment and Cost Estimates

! It is crucial to assess competitors that are already operating in a segment. " How many competitors exist? " What are their strengths and weaknesses? " Can our company compete?

!A marketing mix that matches the wants and needs of a segment can be expensive. " The cost may be too high. " Costs should be equal to or less than competitors’

costs.


! Investigate if the organization has sufficient resources to compete effectively in the selected segments. " Financial resources " Managerial skills " Employee expertise " Facilities

!Consider company objectives, possible legal problems, conflicts with interest groups, and technological advances.

!Consider long-term versus short-term growth.

Step 5: Select SpecificTarget Markets


!Sales forecast – the amount of a product a company expects to sell during a specific period at a specified level of marketing activities

!

Developing Sales Forecasts


!Executive judgment – a sales forecasting method based on the intuition of one or more executives

!

Executive Judgment


Surveys

!Customer forecasting survey – a survey of customers regarding the types and quantities of products they intend to buy during a specific period

!Sales force forecasting survey – a survey of a firm’s sales force regarding anticipated sales in their territories for a specified period

!Expert forecasting survey – sales forecasts prepared by experts outside the firm, such as economists, management consultants, advertising executives, or college professors

!Delphi technique – a procedure in which experts create initial forecasts, submit them to the company for averaging, and then refine the forecasts


! Time series analysis – a forecasting method that uses historical sales data to discover patterns in the firm’s sales over time " Generally involves trend, cycle, seasonal, and random

factor analyses ! Trend analysis – an analysis that focuses on

aggregate sales data over a period of many years to determine general trends in annual sales

!Cycle analysis – an analysis of sales figures for a three- to five-year period to ascertain whether sales fluctuate in a consistent, periodic manner

Time Series Analysis (1 of 2)


!Seasonal analysis – an analysis of daily, weekly, or monthly sales figures to evaluate the degree to which seasonal factors influence sales

!Random factor analysis – an analysis attempting to attribute erratic sales variations to random, nonrecurring events

Time Series Analysis (2 of 2)


!Regression analysis – a method of predicting sales based on finding a relationship between past sales and one or more independent variables, such as population or income

!Useful when: " A precise association can be established " Available historical sales data are extensive

Regression Analysis


!Market test – making a product available to buyers in one or more test areas and measuring purchases and consumer responses to marketing efforts

!

Market Test


!Sometimes used for marketing diverse product lines

!May be required for single product line when sold to different market segments

!May be required due to variation in the length of forecasts

!May use different methods for short-range forecasting than used for long-range forecasting

!May be used to verify results

Using Multiple Forecasting Methods

Documents

Chapter 5 Markets: Segmentation and Evaluationstephanielarkin.com/ncc/files/Chapter_5_marketing.pdf · Chapter 5 Target Markets: ... Market segmentation – the process of dividing