Principles of Marketing - UNBSJ BA 2303 Principles of Marketing - UNBSJ Market Segmentation, Targeting, and Positioning Instructor – Terry Conrod

Learning Objectives BA 2303 Explain what market segmentation is and when to use it. Identify the five steps involved in segmenting and targeting markets. Recognize the different factors used to segment consumer and organizational (business) markets. Know how to develop a market-product grid to identify a target market and recommend resulting actions. Explain how marketing managers position products in the marketplace. Describe three approaches to developing a sales forecast for a company.

WHY SEGMENT MARKETS? What Market Segmentation Means BA 2303 Market segments Product differentiation Segmentation: Linking Needs to Actions Using Market-Product Grids 3

BA 2303 Market segmentation links market need to an organization’s marketing program 4

WHY SEGMENT MARKETS? When to Segment Markets BA 2303 One Product and Multiple Market Segments Multiple Products and Multiple Market Segments Segments of One: Mass Customization 5

BA 2303 Concept Check Market segmentation involves aggregating prospective buyers into groups that have two key characteristics. What are they? Answer: Market segmentation is the process of aggregating prospective buyers into groups, or segments, that (1) have common needs and (2) will respond similarly to a marketing action. 6

When should a firm segment its markets? BA 2303 Concept Check When should a firm segment its markets? Answer: When the firm’s expectation is that it will increase its sales, profit, and return on investment, it is normally worthwhile to segment markets. 7

BA 2303 Five key steps in segmenting & targeting markets link market needs of customers to the organization’s marketing program. 8

STEPS IN SEGMENTING AND TARGETING MARKETS BA 2303 STEPS IN SEGMENTING AND TARGETING MARKETS Step 1: Group Potential Buyers into Segments Criteria to Use in Forming the Segments Potential for increased profit and ROI Similarity of needs of potential buyers within a segment Difference of needs of potential buyers among segments Feasibility of a marketing action to reach a segment Simplicity and cost of assigning potential buyers to segments 9

STEPS IN SEGMENTING AND TARGETING MARKETS BA 2303 STEPS IN SEGMENTING AND TARGETING MARKETS Step 1: Group Potential Buyers into Segments (cont.) Ways to Segment Consumer Markets Geographic Segmentation Demographic Segmentation Psychographic Segmentation Behavioral Segmentation Usage rate (heavy users, moderate users, light users) 80/20 rule (premium accounts, others) 10

Segmentation variables and breakdowns for Canadian consumer markets BA 2303 Segmentation variables and breakdowns for Canadian consumer markets 11

STEPS IN SEGMENTING AND TARGETING MARKETS BA 2303 STEPS IN SEGMENTING AND TARGETING MARKETS Ways to Segment Organizational Markets Geographical segmentation Demographic segmentation Behavioral segmentation 12

Dimensions used to segment Canadian organizational markets BA 2303 Dimensions used to segment Canadian organizational markets 13

STEPS IN SEGMENTING AND TARGETING MARKETS BA 2303 STEPS IN SEGMENTING AND TARGETING MARKETS Step 2: Group Products to Be Sold into Groups Step 3: Develop a Market-Product Grid and Estimate Size of Markets 14

© 2008 McGraw-Hill Ryerson Ltd. All rights reserved. BA 2303 Selecting a target market for your fast-food restaurant next to an urban university (target market is shaded) 15 © 2008 McGraw-Hill Ryerson Ltd. All rights reserved.

STEPS IN SEGMENTING AND TARGETING MARKETS BA 2303 STEPS IN SEGMENTING AND TARGETING MARKETS Step 4: Select Target Markets Criteria to Use in Picking the Target Segments Market size Expected growth Competitive position Cost of reaching the segment Compatibility with objectives and resources Choose the Segments http://www.hoovers.com/industry/restaurants-cafes/1442-1.html http://www.census.gov/econ/industry/current/c722211.htm http://smpbff1.dsd.census.gov/TheDataWeb_HotReport/servlet/HotReportEngineServlet?emailn ame=vh@boc&filename=sal1.hrml&20071127090603.Var.NAICS2002=722211 16

BA 2303

STEPS IN SEGMENTING AND TARGETING MARKETS BA 2303 STEPS IN SEGMENTING AND TARGETING MARKETS Step 5: Take Marketing Actions to Reach Target Markets Advertising actions to reach specific student segments 18

BA 2303 Concept Check What are some criteria used to decide which segments to choose for targets? Answer: Some of the variables used to segment consumer markets are: (1) Potential for increased profit and ROI, (2) Similarity of needs of potential buyers within a segment, (3) Difference of needs of buyers among segments, (4) Feasibility of a marketing action to reach a segment, and (5) Simplicity and cost of assigning potential buyers to segments 19

BA 2303 Concept Check In a market-product grid, what factor is estimated or measured for each of the cells? Answer: The size of the market in each cell, along with the market-product combination, must be estimated. 20

POSITIONING THE PRODUCT BA 2303 POSITIONING THE PRODUCT Two Approaches to Product Positioning Head-to-head positioning Differentiation Product Positioning Using Perceptual Maps Positioning Milk Drinks for Children Repositioning Chocolate Milk for Adults http://www.ted.com/talks/lang/eng/malcolm_gladwell_on_spaghetti_sauce.html 21

BA 2303 Using positioning and perceptual maps to increase milk sales to children and adults. 22

BA 2303 Positioning dairy drinks for kids and repositioning chocolate milk to reach adults. (packaging & promotional strategies) 23

SALES FORECASTING TECHNIQUES BA 2303 SALES FORECASTING TECHNIQUES Market potential or Industry potential Sales forecast or Company forecast Judgements of the Decision Maker Direct forecast Lost-horse forecast 24

SALES FORECASTING TECHNIQUES BA 2303 SALES FORECASTING TECHNIQUES Surveys of Knowledgeable Groups Survey of buyers’ intentions forecast Salesforce survey forecast 25

SALES FORECASTING TECHNIQUES BA 2303 SALES FORECASTING TECHNIQUES Statistical Methods Trend extrapolation Linear trend extrapolation 26

BA 2303 Linear trend extrapolation of sales revenues of Acme, made at the start of 2002. 27

Why do marketers use perceptual maps in product positioning decisions? BA 2303 Concept Check Why do marketers use perceptual maps in product positioning decisions? Answer: Perceptual maps are used by marketers in product positioning decisions because it enables them to see how consumers perceive competing products or brands and then take marketing actions. 28

What are the three kinds of sales forecasting techniques? BA 2303 Concept Check What are the three kinds of sales forecasting techniques? Answer: The three main types are: 1. judgements of the decision maker 2. surveys of knowledgeable groups 3. statistical methods. 29

How do you make a lost-horse forecast? BA 2303 Concept Check How do you make a lost-horse forecast? Answer: A lost-horse forecast starts with the last known value of the item being forecasted, listing the factors that could affect the forecast, assessing whether they have a positive or negative impact, and making the final forecast. 30

BA 2303 Market Segments The groups that result from the process of market segmentation; these groups ideally (1) have common needs and (2) will respond similarly to a marketing action.

Product Differentiation BA 2303 Product Differentiation A strategy with two different but related meanings. Its broadest meaning involves a firm’s using different marketing mix activities to help consumers perceive the product as being different and better than competing products. Its narrower meaning involves a firm’s selling two or more products with different features targeted to different market segments.

BA 2303 Market-Product Grid Framework to relate the segment of a market to products offered or potential marketing actions by the firm.

BA 2303 Usage Rate Quantity consumed or patronage—store visits—during a specific period, varies significantly among different customer groups.

BA 2303 80/20 Rule A concept that suggests 80 percent of a firm’s sales are obtained from 20 percent of its customers.

BA 2303 Product Positioning The place an offering occupies in consumers’ minds on important attributes relative to competitive offerings.

BA 2303 Perceptual Map A means of displaying or graphing in two dimensions the location of products or brands in the minds of consumers.

BA 2303 Company Forecast The total sales of a product that a firm expects to sell during a specified time period under specified environmental conditions and its own marketing efforts.

BA 2303 Direct Forecast Estimating the value to be forecast without any intervening steps.

BA 2303 Industry Potential The maximum total sales of a product by all firms to a segment during a specified time period under specified environmental conditions and marketing efforts of the firms.

Linear Trend Extrapolation BA 2303 Linear Trend Extrapolation The pattern is described with a straight line.

BA 2303 Lost-Horse Forecast Starting with the last known value of the item being forecast, listing the factors that could affect the forecast, assessing whether they have a positive or negative impact, and making the final forecast.

BA 2303 Market Potential Maximum total sales of a product by all firms to a segment during a specified time period under specified environmental conditions and marketing efforts of the firms (also called industry potential).

Product Repositioning BA 2303 Product Repositioning Changing the place an offering occupies in a consumer’s mind relative to competitive products.

BA 2303 Sales Forecast The maximum total sales of a product that a firm expects to sell during a specified time period under specified environmental conditions and its own marketing efforts (also called company forecast).

Salesforce Survey Forecast BA 2303 Salesforce Survey Forecast Asking the firm’s salespeople to estimate sales during a coming period.

Survey of Buyers’ Intentions Forecast BA 2303 Survey of Buyers’ Intentions Forecast Asking prospective customers whether they are likely to buy the product during some future time period.

BA 2303 Trend Extrapolation Extending a pattern observed in past data into the future.