SELECTING THE RIGHT TARGET MARKET Entrp 1: Lecture 4

Studying the industry Great sources to know your industry:  Industry Surveys (S&P)  U.S. Industry and Trade Outlook (published by US Department of Commerce)  The Complete Small Business Sourcebook (Published by Times Books)  Encyclopedia of Business Information Sources ( Published by the Gale Gp.) Questions you need to ask

Studying the industry Questions you need to ask:  Whether you are about to enter an industry that is experiencing growth and increasing profitability rather that one that is mature and saturated.  Whether the industry is sensitive to inflation or interest rates eg., real estate Vs. Hi-technology  Whether chains or franchise dominate the market  Whether the Industry is susceptible to foreign competition.  Whether the Industry is susceptible to major technological change  Who are the major suppliers and customers.

Analyzing the Market Identify people who consume the type of goods you will produce Classify the market into various segments Ascertain which segments are still in search of a business Determine which segments should be target markets for your business

Analyzing the Market Market Segmentation and Target Marketing in Today’s Economy  Market segmentation is the process by which a market is divided into distinct subsets of customers with similar needs and characteristics.  Target marketing requires evaluating the relative attractiveness of various segments.  Brand positioning entails designing product offerings and marketing programs that can establish an enduring competitive advantage in the target market by creating a unique brand image, or position.  These three decision processes are closely linked and have strong interdependence.

Analyzing the Market Most markets are heterogeneous  Markets are complex entities that can be defined in a variety of ways.  Critical issue: Finding an appropriate segmentation scheme that will facilitate target marketing, positioning, and the formulation of successful marketing strategies and programs.

Analyzing the Market Importance of Market Segmentation in the Development of Marketing Strategies  Slowing population growth in many developed countries, and maturing product-markets.  Social and economic forces have produced customers with more varied and sophisticated needs, tastes, and lifestyles than ever before.  Trend toward micro segmentation.  Ease of implementing sharply focused marketing programs

Analyzing the Market How are Market Segments Best Defined?  Steps in market segmentation:  Identify a homogeneous segment that differs from other segments.  Specify criteria that define the segment.  Determine segment size and potential.  Segmentation decisions are best made based on  Who the customers are,  Where they are, or  How they behave relevant to the market in question.  The three approaches apply in both consumer and organizational markets.

Analyzing the Market How are Market Segments Best Defined?  Segmenting demographically  Demographic attributes used to segment consumer markets are age; sex; income; occupation; education; race and ethnic origin.  Industrial markets are segmented in two stages: Macrosegmentation Microsegmentation

Analyzing the Market How are Market Segments Best Defined?  Segmenting geographically  Particularly important in retailing and many services businesses.  One way to segment retail markets is by distance or driving time from a particular location.  The area included within such a geographically defined region is called a trade area.

Analyzing the Market How are Market Segments Best Defined?  Geodemographic segmentation  Market segmentation within the geographic regions.  Useful in assessing the size and market potential of a market segment defined by a particular trade area.  Attempts to predict consumer behavior by making demographic, psychographic, and consumer information available at the block and zip code or postcode levels.

Analyzing the Market How are Market Segments Best Defined?  Behavioral segmentation  Behavioral descriptors are based not on who the target consumers are or where they live, but based on what they do.  Behavioral attributes can take many forms.  Consumer needs:  Customer needs are expressed in benefits sought from a particular product or service.  Consumers evaluate brand alternatives on the basis of choice criteria.  In organizational markets, customers consider relevant benefits that include product performance in different use situations.

Analyzing the Market How are Market Segments Best Defined?  Product usage and purchase influence  Product-related attributes include product usage, loyalty, purchase predisposition, and purchase influence.  Product usage is important because in many markets a small proportion of customers makes a high percentage of purchases.  In organizational markets, customers are better known, and heavy users are easier to identify.

Analyzing the Market How are Market Segments Best Defined?  Lifestyle  Segmentation by lifestyle, or psychographics, segments markets on the basis of consumers’ activities, interests, and opinions.  Stanford Research Institute (SRI) has created a U.S. segmentation service (called VALS 2), which builds on the concept of self-orientation and resources for the individual.

Analyzing the Market How are Market Segments Best Defined?  Organizational behavioral attributes  Purchasing structure and buying situation segmentation attributes are unique to organizational markets.  Purchasing structure is the degree to which the purchasing activity is centralized.  The buying situation attribute includes three distinct types of situations: straight rebuy; modified rebuy; and a new buying situation.

Analyzing the Market How are Market Segments Best Defined?  Innovative segmentation  Understanding the demographic profile of a target market enables the marketer to better choose targeted marketing communication vehicles.  At the foundation of many a marketing breakthrough one often finds an insightful segmentation scheme that is sharply focused in a behavioral way.

Competitive Analysis Analyze your market by doing a complete analysis of the businesses that are already offering your type of goods and services in your segment.  How many business are in the market place.  What they offer  Rate each of the Business on a scale of 1-5in terms of its relative strength on each dimension and the relative importance of each timension

Competitive Analysis Competitive FactorBusiness 1Business 2Max Possible Price Importance: 3 Rating: 3 Score : 9 Importance:3 Rating:1 Score: 3 Importance:3 Rating:5 Score: 15 Quality Importance: 5 Rating:3 Score: 15 Importance:5 Rating:3 Score15 Importance:5 Rating:5 Score:25 Selection Importance:3 Rating:4 Score:12 Importance: 3 Rating: 3 Score:12 Importance: 3 Rating: 5 Score:15 promotion Importance:2 Rating:3 Score: 6 Importance: 2 Rating:4 Score:8 Importance: 2 Rating:5 Score:10 Services Importance: 5 Rating: 4 Score: 12 Importance: 5 Rating: 5 Score:25 Importance: 5 Rating: 5 Score:25 Customer Service Importance: 5 Rating: 3 Score: 15 Importance:5 Rating:3 Score: 15 Importance:5 Rating:5 Score: 25 Facilities/ atmosphere Importance: 4 Rating: 3 Score:12 Importance:4 Rating:5 Score:20 Importance:4 Rating: 5 Score: 20 Location Importance:2 Rating:3 Score: 6 Importance:2 Rating:4 Score:8 Importance:2 Rating:5 Score:10 Strength

Competitive Analysis None of the existing business meets the market need fully So you can now identify gaps in the market place Which results in identification of business opportunities Determining whether you can develop capability to be better than your competitors Estimating the profitability and return on investment before you select your segment as the target