Chapter 6: Target Markets: Segmentation, Evaluation, and Positioning Dr. Jun Yang University of Houston Victoria © 2012 South-Western, a part of Cengage Learning

Learning Objectives To learn what a market is To understand the differences among general targeting strategies To become familiar with the major segmentation variables To know what segment profiles are and how they are used To understand how to evaluate market segments To identify the factors that influence the selection of specific market segments for use as target markets To understand positioning To become familiar with sales forecasting methods © 2012 South-Western, a part of Cengage Learning

Types of Markets Consumer Markets Purchasers are household members who intend to consume or benefit from purchased products and do not buy products to make profits Business Markets Individuals or groups that purchase a specific kind of product for resale, direct use in producing other products, or use in general daily operations © 2012 South-Western, a part of Cengage Learning

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 would be an example of a product that could be targeted at both? © 2012 South-Western, a part of Cengage Learning

The Target Market Selection Process © 2012 South-Western, a part of Cengage Learning

Target-Market Selection Process Target Market: A group of people or organizations which a business creates and maintains a marketing mix specifically designed to satisfy the needs of group members Market Segment: Individuals, groups, or organizations with one or more similar characteristics that cause them to have similar product needs Market Segmentation: The process of dividing a total market into groups with relatively similar product needs to design a marketing mix that matches those needs © 2012 South-Western, a part of Cengage Learning

Market Segmentation Reason for Segmentation Firms are better able to develop a marketing mix that satisfies a small portion of a heterogeneous market Segmentation Variables Characteristics of individuals, groups, or organizations used to divide a market into segments © 2012 South-Western, a part of Cengage Learning

Discussion Question If a baseball team wants to purchase 12 cases of baseballs for use in games, is this an example of a purchase for the consumer market or the business market? © 2012 South-Western, a part of Cengage Learning

Step 1: Identify the Appropriate Targeting Strategy Undifferentiated Targeting Strategy Should be a homogeneous market (Customers have similar needs for a product) A single marketing mix directed at the entire market © 2012 South-Western, a part of Cengage Learning

Step 1: Identify the Appropriate Targeting Strategy continued Concentrated Targeting Strategy Heterogeneous market (Individuals or organizations with diverse needs for products in the same class) Targeting a single market segment using one marketing mix © 2012 South-Western, a part of Cengage Learning

Step 1: Identify the Appropriate Targeting Strategy continued Differentiated Targeting Strategy Heterogeneous market Targeting two or more segments with a marketing mix for each © 2012 South-Western, a part of Cengage Learning

Think About It Mont Blanc pens are known for high quality and high prices What targeting strategy does Mont Blanc use? Undifferentiated Concentrated Differentiated © 2012 South-Western, a part of Cengage Learning

Think About It Review this article about Apple What market is Apple targeting in this example? Do you think that Apple uses an undifferentiated, a concentrated, or a differentiated targeting strategy for its iPad? © 2012 South-Western, a part of Cengage Learning

Step 2: Determine Which Segmentation Variables to Use Segmentation Variables: Characteristics of individuals, groups, or organizations used to divide a market into segments © 2012 South-Western, a part of Cengage Learning

Spending Levels for Three Age Groups for Selected Product Categories (Demographic Variables) © 2012 South-Western, a part of Cengage Learning

Think About It Click here to watch an Old Spice commercial What segmentation variables are being used here? Who is the target market? © 2012 South-Western, a part of Cengage Learning

Family Structures are More Diverse than Ever Family structures are changing, leading to different product needs and demands from consumers © 2012 South-Western, a part of Cengage Learning

Geographic Variables Market Density The number of potential customers within a unit of land area Geodemographic Segmentation Market segmentation that clusters people in units (zip codes, neighborhoods) based on lifestyle and demographic information Micromarketing An approach to market segmentation in which organizations focus precise marketing efforts on very small geographic markets © 2012 South-Western, a part of Cengage Learning

Examples of Geographic Variables Climate Terrain City Size Population Density Urban/Rural Areas © 2012 South-Western, a part of Cengage Learning

Discussion Question O’Neill produces sportswear and accessories for a variety of outdoor sports What other segmentation variables is O’Neill using here? Who is the target market? © 2012 South-Western, a part of Cengage Learning

Psychographic Variables Personality characteristics Motives Lifestyles Can be combined with other segmentation variables © 2012 South-Western, a part of Cengage Learning

Psychographic Variables Lifestyles Motives Personality Characteristics Psychographic Variables © 2012 South-Western, a part of Cengage Learning

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 © 2012 South-Western, a part of Cengage Learning

VALS Types and Sports Preferences © 2012 South-Western, a part of Cengage Learning

Behavioristic Variables Benefits Sought Usage or Application Type Usage Rates Behavioristic Variables © 2012 South-Western, a part of Cengage Learning

Benefit Segmentation The division of a market according to benefits that consumers want from the product Different than other segmentation methods because the benefits customers seek are their product needs Three conditions must be met Benefits must be identifiable Customers must be divisible into segments At least one segment must be accessible to marketing efforts © 2012 South-Western, a part of Cengage Learning

Variables for Segmenting Business Markets Business Segmentation Variables Geographic Location Product Use Type of Organization Customer Size © 2012 South-Western, a part of Cengage Learning

Think About It Click here to view an Audi commercial Which segmentation basis do you think the marketers intended to use? © 2012 South-Western, a part of Cengage Learning

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 most attractive segment or segments Potentially useful information for subsequent marketing decisions © 2012 South-Western, a part of Cengage Learning

Evaluate Relevant Market Segments Cost Estimates Sales Estimates Competitive Assessment © 2012 South-Western, a part of Cengage Learning

Step 4: Evaluate Relevant Market Segments Sales estimates can be measured along several dimensions Market Potential: The total amount of product customers will purchase in a specified period Company Sales Potential: The maximum percentage of 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 © 2012 South-Western, a part of Cengage Learning

Step 4: Evaluate Relevant Market Segments continued Competitive Assessment Firms must assess competition already 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 © 2012 South-Western, a part of Cengage Learning

Step 5: Select Specific Target Markets Marketers must determine whether 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 right market can lead to low sales and financial losses © 2012 South-Western, a part of Cengage Learning

Product Positioning Creating and maintaining a certain concept of a product in customers’ minds Marketers seek to position a product so that it appears to have the characteristics the target market most desires © 2012 South-Western, a part of Cengage Learning

Toothpaste Product Positions © 2012 South-Western, a part of Cengage Learning

Discussion Question How is Excedrin trying to shift its product positioning in this advertisement? © 2012 South-Western, a part of Cengage Learning

Perceptual Mapping A product’s position is the result of customers’ perceptions of the product’s attributes relative to those of competitive brands A perceptual map is created by questioning a sample of consumers about their perceptions of products, brand and organizations with respect to two or more dimensions Ideal Clusters: Consumer consensus about desired product features Ideal Points: An indicated preference for specific product features © 2012 South-Western, a part of Cengage Learning

Hypothetical Perceptual Map for Pain Relievers © 2012 South-Western, a part of Cengage Learning

Bases for Positioning © 2012 South-Western, a part of Cengage Learning Competitor Positioning Product Attributes or Features Price Positioning Quality-Level Positioning Benefit Positioning © 2012 South-Western, a part of Cengage Learning

Repositioning Positioning decisions are for all products, existing and new Existing brands must be reevaluated and sometimes repositioned Can be accomplished by: Changing price Changing distribution Changing image through promotion Changing packaging Changing benefits © 2012 South-Western, a part of Cengage Learning

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 activities Forecasting methods can be scientific or arbitrary and vary in complexity and expense Depends on costs, product, market characteristics, time span, purpose of forecast, historical sales data and many other variables Forecasts are used in planning, organizing, implementing and controlling a firm’s activities © 2012 South-Western, a part of Cengage Learning

Tools in Sales Forecasting Forecasting Tools Executive Judgment Surveys Multiple Forecasting Methods Market Tests Time Series Analysis Regression Analysis © 2012 South-Western, a part of Cengage Learning

Executive Judgment A sales forecasting method based on the intuition of one or more executives Unscientific Quick and inexpensive Works well in situations where demand is relatively stable Can be skewed by recent experiences Use of the past to project the future © 2012 South-Western, a part of Cengage Learning

Surveys Customer Forecasting: Surveying customers regarding types and quantities of products they intend to buy during a specified period Downside is that customers may not be equipped to make accurate estimates of future product requirements Sales Force Forecasting: Surveying a firm’s sales force regarding anticipated sales Downsides are: Salespeople are not objective They will underestimate sales potential in their territories if sales goals will be determined by their forecasts © 2012 South-Western, a part of Cengage Learning

Surveys continued Expert Forecasting Survey: Prepared by economists, management consultants, advertising executives and others outside the firm 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 on the forecast © 2012 South-Western, a part of Cengage Learning

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 three to five years to assess consistent fluctuations Seasonal Analysis: Analyzing daily, weekly, or monthly sales to assess seasonal influences Random Factor Analysis: Attempting to attribute erratic variations to random events © 2012 South-Western, a part of Cengage Learning

Regression Analysis Predicting sales based on finding a relationship between past sales and one or more independent variables Also requires the use of historical sales data Is useful when a precise association between variables can be established and when historical data is extensive Cannot use this method for new products © 2012 South-Western, a part of Cengage Learning

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 © 2012 South-Western, a part of Cengage Learning

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 © 2012 South-Western, a part of Cengage Learning

Important Terms Consumer market Breakdown approach Business market Buildup approach Undifferentiated targeting strategy Product positioning Homogeneous market Sales forecast Heterogeneous market Executive judgment Market segmentation Customer forecasting survey Market segment Sales force forecasting survey Concentrated targeting strategy Expert forecasting survey © 2012 South-Western, a part of Cengage Learning

Important Terms continued Differentiated targeting strategy Delphi technique Segmentation variables Time series analysis Market density Trend analysis Geodemographic segmentation Cycle analysis Micromarketing Seasonal analysis Benefit segmentation Random factor analysis Market potential Regression analysis Company sales potential Market test © 2012 South-Western, a part of Cengage Learning