CHAPTER 4 MARKET SEGMENTATION, POSITIONING AND DEMAND PROJECTION

Important Topics of this Chapter n Successful segmentation strategies in business market. n Differences between macro and micro segmentation. n Evaluation potential business market. n Position strategies in business market. n Demand projections and sales forecasting techniques.

Market Segmentation Strategy It is dividing the market into distinct group of customers with similar requirements n Procedures: n Market analysis n Market selection n Marketing management Identify market needs Segmentation and targeting Marketing mix decision

Why Segment Business Market n It is complex and heterogeneous n Distinct differences exits among buying policies, procedures and practices n It allows to develop more specialized products for the clients n it is more attuned to customer needs n It is more effective way to use resources n It gives better direction for creating marketing mix elements

Strategies for Business Segmentation n Undifferentiated Marketing Strategy n Differentiated Marketing Strategy n Cost factor: Product modification cost Production cost Administrative cost Inventory cost Promotion cost n Concentrated Marketing Strategy n One or few segments

Approaches to Market Segmentation n Macro Segmentation n Geographic characteristics n Demographic characteristics n Observable buying characteristics n Micro Segmentation n Attitudes of buying influences n Similarity in buying motives n Similarity in decision making style n Life-style of buying influences n Self-image of buying influences

A Research Findings n Macro Segmentation n It is less important, but very easy to find data. n Micro Segmentation n It is very important, but very difficult to find information. n Conclusion n Try to use micro segmentation factors as much as possible, otherwise segmentation will not be a perfect one.

Approaches to Market Segmentation (cont.) n The Nested Approach n It is a balance between macro and micro segmentation and based upon: Purchasing function-centralized or decentralized Power structure-engineering Vs. marketing Buyer-seller interaction- a link between suppliers and customers Purchasing policies-biding Vs. market prices Purchasing criteria-need and wants/benefits

Nested Segments Computer Industry OEM Over $500,000,000 in Sales Uses Microsoft Windows Centralized Purchasing Single Source/JIT Purchases

Segmenting Business Market n Type of Economic Activity n Agricultural, manufacturing, retail. n NAICS. n Size of Organization n Volume of shipment, number of employees,total sales volume. n Geographic location n Global. n Domestic. n Product Usage n Light, moderate or heavy. n Structure of the procurement Function n Centralized or decentralized.

Evaluating Potential Market Segments n Market profitability n Market forces that determine attractiveness and long-run profitability of market or segments: – Industry Competitors: Intensity of rivalry among existing firms. – Potential Entrants Threat of new entrants – Substitutes Threat of substitutes – Buyers Bargaining power of buyers – Suppliers Bargaining power of suppliers Above all SWOT analysis is necessary when a firm decides to enter a new market segment.

Elements of Industry Structure New Entrants Suppliers Buyers Substitutes Industry competitors Intensity of rivalry

Product Positioning Strategy n It is a way that the product/service is defined on product attributes n It is favorable reception in comparison with competitors products n It is an image decision, and based upon product features to emphasize n Perceptual mapping is used to decide about product positioning

Approaches to Positioning Business Products n Technology base: n High technology companies. n Price base: n Lowest production and distribution cost. n High margin. n Quality base: n High quality/low price. n Image base: n Distinctive quality perception n Distribution base: n Innovative and efficient. n Federal Express. n Service base: n Technical assistance, repair, information and financing.

Business Demand Projections n Market potential Sales Potential Sales Forecast Market Demand

Common Forecasting Problems n Forecasting Mystique n Many firms are untrained in forecasting area n Forecasting Accuracy n 50% art and 50% science n Forecasting Inconsistency n Modification and adjustment might be necessary n Forecasting Accountability n Forecasters may not live with their decision n Forecasting implementation

Selective Forecasting Methods n Qualitative n Jury of Executive Opinion n Sales Force Composite n Survey of Buyer Intentions n Delphi Method-Expert opinion n Quantitative Approaches n Time Series Analysis n Moving average n Exponential smoothing n Adaptive Control n Box Jenkins

Selective Forecasting Methods (cont.) n Casual techniques n Regression n Econometrics n Leading Indicators n Diffusion Index n Input-Output analysis n Life-cycle analysis