1. 1-1 McGraw-Hill/Irwin ©2008 The McGraw-Hill Companies, All Rights Reserved C H A P T E R SIX Targeting Attractive Market Segments 6

2. 1-2 6-2 Fundamental Tools in Marketing  Market segmentation  Target marketing

3. 1-3 6-3 Decision Processes  Market segmentation  Target marketing  Positioning

4. 1-4 6-4 Most Markets are Heterogeneous  Variation among market segments in  Product preferences  Size and growth in demand  Media habits  Hence markets are:  Complex entities that can be defined (segmented) in a variety of ways

5. 1-5 6-5 Importance of Market Segmentation  Causes:  Population growth has slowed and more product markets are maturing  Social and economic forces as expanding disposable incomes  Higher educational levels  Increasing importance toward microsegmentation  Implementing sharply focused marketing programs

6. 1-6 6-6 Objectives of Market Segmentation  Identifying a homogeneous segment that differs from other segments  Specifying criteria that define the segment  Determining segment size and potential

7. 1-7 6-7 How are Market Segments Best Defined?  Segmentation decisions are based on:  Who the customers are?  Where they are?  How they behave?

8. 1-8 6-8 Demographic Segmentation ‡ Common attributes: ‡ Age ‡ Sex ‡ Income ‡ Occupation ‡ Education ‡ Race and ethnic origin  Industrial market segmentation:  Macrosegmentation  Microsegmentation

9. 1-9 6-9 Geographic Segmentation  Trade area  Area within a geographically defined region  Geodemographic Segmentation  Involves both demographic and geographic factors

10. 1-10 6-10 Behavioral Segmentation  Consumer needs  Product usage and purchase influence  Lifestyle  Organizational behavioral attributes

11. 1-11 6-11 Steps in Constructing a Market- Attractiveness/Competitive-Position Matrix 1. Choose criteria to measure market attractiveness and competitive position. 2. Weigh market attractiveness and competitive position factors to reflect their relative importance. 3. Assess the current position of each potential target market on each factor. 4. Project the future position of each market based on expected environmental, customer, and competitive trends 5. Evaluate implications of possible future changes for business strategies and resources requirements.

12. 1-12 6-12 Exhibit 6.8 (1 of 2) Factors Underlying Market Attractiveness and Competitive Position Market-Attractiveness FactorsCompetitive-Position Factors Customer needs and behavior  Are there unmet or underserved needs we can satisfy? Opportunity for competitive advantage  Can we differentiate?  Can we perform against critical success factors?  Stage of competing products in product life cycle: Is the timing right? Market or market segment size and growth rate  Market potential in units, revenue, number of prospective customers  Growth rate in units, revenue, number of prospective customers  Might the target segment constitute a platform for later expansion into related segments in the market as a whole? Firm and competitor capabilities and resources  Management strength and depth  Financial and functional resources: marketing, distribution, manufacturing, R&D, etc.  Brand image  Relative market share

13. 1-13 6-13 Exhibit 6.8 ( 2 of 2) Factors Underlying Market Attractiveness and Competitive Position Market-Attractiveness FactorsCompetitive-Position Factors Macro trends: Are they favorable, on balance?  Demographic  Sociocultural  Economic  Political/legal  Technological  Natural Attractiveness of industry in which we would compete  Threat of new entrants  Threat of substitutes  Buyer power  Supplier power  Competitive rivalry  Industry capacity

14. 1-14 6-14 Exhibit 6.10 Market Attractiveness/Competitive- Position Matrix Market Attractiveness High (8-10) Moderate (4-7) Low (0-3) High (8-10) Moderate (4-7) Low (0-3) Company’s Competitive Position = Market attractiveness and competitive position of distance runners segment

15. 1-15 6-15 Competitive Position Market Attractiveness Med. High Low Implications of Alternative Positions within the Market-Attractiveness/Competitive-Position Matrix High Medium Strong Build selectively: Specialize around limited strengths Seek ways to overcome weaknesses Withdraw if indications of sustainable growth are lacking DESIRABLE POTENTIAL TARGET Invest to build: Challenge for leadership Build selectively on strengths Reinforce vulnerable areas DESIRABLE POTENTIAL TARGET Protect position: Invest to grow at maximum digestible rate Concentrate on maintaining strength Limited expansion or harvest: Look for ways to expand without high risk; otherwise, minimize investment and focus operations Manage for earnings: Protect existing strengths Invest to improve position only in areas where risk is low DESIRABLE POTENTIAL TARGET Build selectively: Emphasize profitability by increasing productivity Build up ability to counter competition Divest: Sell when possible to maximize cash value Meantime, cut fixed costs and avoid further investment Manage for earnings: Protect position Minimize investment Protect and refocus: Defend strengths Seek ways to increase current earnings without speeding market’s decline Sources: Adapted from George S. Day, Analysis for Strategic Market Decisions (St. Paul: West, 1986), p. 204; and S. J. Robinson, R. E. Hitchens, and D. P. Wade, “The Directional Policy Matrix: Tool for Strategic Planning,” Long Range Planning 11 (1978), pp. 8–15.

16. 1-16 6-16 Targeting Strategies  Three common strategies are:  Niche-market  Mass-market  Growth-market

17. 1-17 6-17 Niche-market Strategy  Used to serve segments seeking specialized benefits  Designed to avoid direct competition with larger firms

18. 1-18 6-18 Mass-market Strategy  Objective:  Capture sufficient volume to gain economies of scale and a cost advantage  Approach:  Design separate products and marketing programs for differing segments  Requires substantial resources, including production capacity, and good mass-marketing capabilities

19. 1-19 6-19 Growth-market Strategy  Often target one or more fast-growth segments  Often favored by smaller competitors to avoid direct confrontations  Requires strong R&D and marketing capabilities