1. Part Three Target Market Selection and Research Target Markets: Segmentation and Evaluation 7 7

2. Copyright © Houghton Mifflin Company. All rights reserved. 7–27–2 What Is a Market? Requirements of a Market –Must need or desire a particular product –Must have the ability to purchase the product –Must be willing to use their buying power to purchase the product –Must have the authority to buy the product

3. Copyright © Houghton Mifflin Company. All rights reserved. 7–37–3 Types of Markets Consumer Markets (B2C) –Purchasers and individuals in households –Purchases are for personal consumption, not profit Business Markets (B2B) –Individuals and groups that purchase products for resale, direct use to produce other products, or use in daily business operations –Purchasers can be categorized as producers, resellers, government, and institutional markets

4. Copyright © Houghton Mifflin Company. All rights reserved. 7–47–4 Target Market Selection Process FIGURE 7.1

5. Copyright © Houghton Mifflin Company. All rights reserved. 7–57–5 Targeting Strategies FIGURE 7.2

6. Copyright © Houghton Mifflin Company. All rights reserved. 7–67–6 Targeting Strategies FIGURE 7.2

7. Copyright © Houghton Mifflin Company. All rights reserved. 7–77–7 Targeting Strategies FIGURE 7.2

8. Copyright © Houghton Mifflin Company. All rights reserved. 7–87–8 Undifferentiated Targeting Strategy Defining an entire (homogeneous) market for a particular product as the target market Designing a single marketing mix for, and directing it at the total market

9. Copyright © Houghton Mifflin Company. All rights reserved. 7–97–9 Concentrated Targeting Strategy Segmenting (dividing) the total market into groups with similar product needs (heterogeneous markets) to design marketing mixes that match those needs Focusing on a single market segment using one marketing mix

10. Copyright © Houghton Mifflin Company. All rights reserved. 7–10 Differentiated Targeting Strategy Targeting two or more segments by developing a marketing mix for each Aiming marketing mixes at more people may yield a competitive advantage

11. Copyright © Houghton Mifflin Company. All rights reserved. 7–11 Step 2: Determine Which Segmentation Variables to Use Segmentation Variables –Characteristics of individuals, groups, or organizations used to divide a market into segments

12. Copyright © Houghton Mifflin Company. All rights reserved. 7–12 Segmentation Variables for Consumer Markets FIGURE 7.3

13. Copyright © Houghton Mifflin Company. All rights reserved. 7–13 Spending Levels of Three Age Groups for Selected Product Categories FIGURE 7.4 Source: U.S. Department of Labor, Bureau of Labor Statistics. 2003.

14. Copyright © Houghton Mifflin Company. All rights reserved. 7–14 Family Life Cycle Stages as a Percentage of All Households FIGURE 7.5 Source: Bureau of the Census, Current Population Survey.

15. Copyright © Houghton Mifflin Company. All rights reserved. 7–15 Segmentation Variables Demographic Variables –Population characteristics—such as age, gender, race, ethnicity, income, education—that influence purchasing behavior Geographic Variables –Customer product needs are influenced by climate, terrain, city size, population density, and urban/rural areas Market Density –The number of potential customers within a unit of land area

16. Copyright © Houghton Mifflin Company. All rights reserved. 7–16 Segmentation Variables (cont’d) Psychographic Variables –Personality characteristics Marketers appeal to positive/favorable personal characteristics to influence the purchase decision. –Motives Marketers use individuals’ differing purchase motives to segment a product market. –Lifestyles Marketers segment markets according to how individuals choose to spend their time in various activities, their income, their interest and opinions, and their education.

17. Copyright © Houghton Mifflin Company. All rights reserved. 7–17 Segmentation Variables (cont’d) Behavioristic Variables –Benefit segmentation The division of a market according to benefits that customers want from the product Individuals purchase and use products that provide them with benefits that meet their needs. –Effective segmentation by behavior requires: Benefits sought must be identifiable Market must be divisible into recognizable segments using the benefits One or more segments must be accessible to the marketing effort

18. Copyright © Houghton Mifflin Company. All rights reserved. 7–18 Step 3: Develop Market Segment Profiles Market Segment Profile –Describes the similarities among potential customers within a segment –Covers demographic characteristics, geographic factors, benefits sought, lifestyles, brand preferences, and usage rates

19. Copyright © Houghton Mifflin Company. All rights reserved. 7–19 Step 4: Evaluate Relevant Market Segments: Market and Sales Potential Sales Estimates –Market potential –Company sales potential Measuring Sales Potential Breakdown approach: top-down analysis Build-up approach: bottom-up analysis Competitive Assessment Who, how many, how large, and how strong? Cost Estimates The expense of developing a marketing mix Costs of reaching segment relative to competitors’ costs

20. Copyright © Houghton Mifflin Company. All rights reserved. 7–20 Step 5: Select Specific Target Markets Issues in Selecting a Target Market –Do customers’ needs differ enough to warrant the use of market segmentation? –In which market segment(s) should the firm participate? –Does the firm have the resources and skills to compete effectively in the target market?