© 2013 Cengage Learning. All rights reserved.

5: Target Market Segmentation and Evaluation Part 2: Marketing Research and Target Markets © 2013 Cengage Learning. All rights reserved.

Learning Objectives Learn about markets Understand the differences among general targeting strategies Become familiar with the major segmentation variables Know what segment profiles are and how they are used Understand how to evaluate market segments Identify the factors that influence the selection of specific market segments for use as target markets Become familiar with sales forecasting methods © 2013 Cengage Learning. All rights reserved.

What are Markets? Consumer markets Business markets Purchasers are household members who intend to consume or benefit from purchased products and do not buy products for the purpose of making a profit Business markets Individuals or groups who purchase a specific kind of product for resale, direct use in producing other products, or use in general daily operations © 2013 Cengage Learning. All rights reserved.

Discussion Questions Can you think of an example of a product produced for the business market? Are there any instances of overlap between products aimed at consumer markets and those aimed at business markets? What is an example of a product targeted at both? © 2013 Cengage Learning. All rights reserved.

The Target Market Selection Process © 2013 Cengage Learning. All rights reserved.

Target Market Selection Process Market segmentation: The process of dividing a total market into groups with relatively similar product needs in order to design a marketing mix that matches those needs Market segment: Individuals, groups, or organizations with one or more similar characteristics that cause them to have similar product needs © 2013 Cengage Learning. All rights reserved.

Market Segmentation Segmentation allows firms to better able develop a marketing mix that satisfies a portion of a heterogeneous market Segmentation variables: Characteristics of individuals, groups, or organizations used to divide a market into segments © 2013 Cengage Learning. All rights reserved.

Discussion Question If a baseball team wants to purchase 12 cases of baseballs for use in games, is this a purchase for the consumer market or for the business market? © 2013 Cengage Learning. All rights reserved.

Step 1: Identify the Appropriate Targeting Strategy Undifferentiated targeting strategy Is a single marketing mix directed at the entire market Should be a homogeneous market (customers have similar product needs) © 2013 Cengage Learning. All rights reserved.

Step 1: Identify the Appropriate Targeting Strategy (continued) Concentrated targeting strategy Targeting a single market segment using one marketing mix Heterogeneous market (individuals or organizations with diverse needs for products in the same class) © 2013 Cengage Learning. All rights reserved.

Step 1: Identify the Appropriate Targeting Strategy (continued) Differentiated targeting strategy Targeting two or more segments with a marketing mix for each Heterogeneous market © 2013 Cengage Learning. All rights reserved.

Think About It Mont Blanc pens are known for high quality and high prices What targeting strategy does Mont Blanc likely use? Undifferentiated Concentrated Differentiated Courtesy of the Advertising Archives © 2013 Cengage Learning. All rights reserved.

Step 2: Determine Which Segmentation Variables to Use Segmentation variables: Characteristics of individuals, groups, or organizations used to divide a market into segments © 2013 Cengage Learning. All rights reserved.

Spending Levels of Three Age Groups for Selected Product Categories © 2013 Cengage Learning. All rights reserved.

Think About It Click here to watch an Old Spice commercial Which segmentation variables were used? Who is the target market? © 2013 Cengage Learning. All rights reserved.

Family Life Cycle Stages as a % of All Households Consumers in different stages of the family life cycle have different product needs and demands © 2013 Cengage Learning. All rights reserved.

Geographic Variables Market density: The number of potential customers within a unit of land area Geodemographic segmentation: Market segmentation that clusters people in 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 © 2013 Cengage Learning. All rights reserved.

Examples of Geographic Variables Climate Terrain City size Population density Urban/rural areas © 2013 Cengage Learning. All rights reserved.

Discussion Questions What segmentation variable is being used in this ad? Who is the target market? Fordimages.com © 2013 Cengage Learning. All rights reserved.

Psychographic Variables Personality characteristics Motives Lifestyles Can be used by itself, or combined with other segmentation variables © 2013 Cengage Learning. All rights reserved.

Values, Attitudes & Lifestyles (VALS) Developed by SRI Consulting Business Intelligence Classifies consumers based on psychological characteristics that are correlated with purchase behavior and key demographics The VALS Survey © 2013 Cengage Learning. All rights reserved.

VALS Types and Sports Preferences © 2013 Cengage Learning. All rights reserved.

Behavioristic Variables Dividing a market according to a feature of consumer behavior toward a product, usually involving an aspect of product use Usage rates Benefits sought Usage or application type © 2013 Cengage Learning. All rights reserved.

Benefit Segmentation The division of a market according to benefits that consumers want from the product Different than other segmentation methods because the benefits the customers seek are their product needs Three conditions must be met Benefits must be identifiable Customers must be divisible into segments 3. At least one segment must be accessible to marketing efforts © 2013 Cengage Learning. All rights reserved.

Variables for Segmenting Business Markets Geographic location Type of organization Customer size Product use Business markets can also be segmented by multiple variables © 2013 Cengage Learning. All rights reserved.

Think About It Click here to view an Audi commercial Which segmentation basis do you think the marketers intended to use? © 2013 Cengage Learning. All rights reserved.

Step 3: Develop Market Segment Profiles A market segment profile describes the similarities among potential customers within a segment Explains the differences among people and organizations in different segments Benefits include Determining the most attractive segment(s) Potentially useful information for subsequent marketing decisions © 2013 Cengage Learning. All rights reserved.

Evaluate Relevant Market Segments Cost Estimates Sales Estimates Competitive Assessment © 2013 Cengage Learning. All rights reserved.

Step 4: Evaluate Relevant Market Segments Sales estimates can be measured along several dimensions Market potential: The total amount of a product customers will purchase in a specified period Company sales potential: The maximum percentage of a market share a firm can expect for a product Breakdown approach: Measuring company sales potential based on a general economic forecast Buildup approach: Measuring company sales potential by estimating how much of a product a buyer will purchase © 2013 Cengage Learning. All rights reserved.

Step 4: Evaluate Relevant Market Segments (continued) Competitive Assessment: Firms must assess competition already operating in the segments being considered Market segments that seem attractive based on sales estimates may be less so after competitive assessment Cost estimates: Maintaining the right marketing mix can be expensive Firms must consider the cost of taking a potential product to market © 2013 Cengage Learning. All rights reserved.

Step 5: Select Specific Target Markets Marketers must determine whether a homogeneous or segmentation approach is best Does the firm have the resources to compete in the selected market segment? Identifying the right target market is the key to implementing a successful marketing strategy Failure to target the correct market can lead to low sales and financial losses © 2013 Cengage Learning. All rights reserved.

Developing Sales Forecasts Sales forecast: The amount of a product a company expects to sell during a specific period at a specified level of marketing activity Focuses on what actual sales will be at a certain level of marketing effort Used in planning, organizing, implementing, and controlling a firm’s activities © 2013 Cengage Learning. All rights reserved.

Tools in Sales Forecasts Executive judgment Surveys Time series analysis Regression analysis Market tests Marketers may choose to use multiple tools © 2013 Cengage Learning. All rights reserved.

Executive Judgment A sales forecasting method based on the intuition of one or more executives Unscientific Works well in situations where demand is relatively stable Can be skewed by recent experiences Uses the past to project the future Quick and inexpensive © 2013 Cengage Learning. All rights reserved.

Surveys Customer forecasting: Surveying customers regarding types/quantities of products they intend to buy Downside is that customers make accurate estimates of future product requirements Sales force forecasting Downsides are Salespeople are not objective Salespeople will underestimate potential in their territories if their goals are determined by forecasts © 2013 Cengage Learning. All rights reserved.

Surveys (continued) Expert forecasting survey: Prepared by economists, management consultants, advertising executives, and others outside the firm Outsiders may be less motivated than internal personnel to do an effective job Delphi technique: Creating initial forecasts, submitting them to the company for averaging, then refining A more complex form of the expert forecasting survey May be repeated many times until experts reach a consensus © 2013 Cengage Learning. All rights reserved.

Time-Series Analysis Using historical sales data to discover patterns in the firm’s sales, such as Trend analysis: Using aggregate sales data from many years to determine general trends Cycle analysis: Analyzing sales for 3-5 years to assess consistent or periodic fluctuations Seasonal analysis: Analyzing daily, weekly, or monthly sales to assess seasonal influences Random factor analysis: Attempting to attribute erratic variations to random, nonrecurring events © 2013 Cengage Learning. All rights reserved.

Regression Analysis Predicting sales based on finding a relationship between past sales and one or more independent variables Requires the use of historical sales data Is useful when a precise association between variables can be established and when data is extensive Cannot use this method for new products © 2013 Cengage Learning. All rights reserved.

Market Test Making a product available to buyers in one or more test areas and measuring purchases and consumer responses Information about customers’ actual, rather than intended, purchase behavior Effective at estimating sales of new products Time-consuming and expensive © 2013 Cengage Learning. All rights reserved.

Using Multiple Forecasting Methods Most firms use a variety of forecasting methods and techniques to accommodate different products and/or different time frames and to confirm and refine the forecasts Short-range and long-range forecasts will usually require different methods © 2013 Cengage Learning. All rights reserved.

Key Concepts Consumer market Differentiated targeting strategy Business market Segmentation variables Undifferentiated targeting strategy Market density Homogeneous market Geodemographic segmentation Heterogeneous market Micromarketing Market segmentation Benefit segmentation Market segment Market potential Concentrated targeting strategy Company sales potential © 2013 Cengage Learning. All rights reserved.

Key Concepts (continued) Breakdown approach Time series analysis Buildup approach Trend analysis Sales forecast Cycle analysis Executive judgment Seasonal analysis Customer forecasting survey Random factor analysis Sales force forecasting survey Regression analysis Expert forecasting survey Market test Delphi technique © 2013 Cengage Learning. All rights reserved.