Opportunity Analysis, Market Segmentation, and Market Targeting CHAPTER 4

AFTER READING THIS CHAPTER YOU SHOULD BE ABLE TO: Identify, match, and evaluate opportunities available to an organization. Define the nature of a market. Describe the benefits and bases of, and the requirements for effective market segmentation.

AFTER READING THIS CHAPTER YOU SHOULD BE ABLE TO: Construct an offering-market matrix. Describe the approaches to market targeting. Estimate market sales potential and profitability.

Realized Organization Objectives MARKETING STRATEGY FRAMEWORK Satisfied Customers Realized Organization Objectives Market Selection Marketing Programs Marketing Strategy Target Markets

CHAPTER 4: OPPORTUNITY ANALYSIS, MARKET SEGMENTATION, AND MARKET TARGETING

Opportunity analysis consists of three interrelated activities: Opportunity Identification Opportunity-Organization Matching Opportunity Evaluation

Opportunity Identification OPPORTUNITY ANALYSIS Opportunity Identification Opportunities arise from: Identifying new types of buyers Uncovering unsatisfied needs of buyers Creating new ways or means for satisfying buyer needs Opportunity analysis focuses on finding markets that an organization can profitably serve

Opportunity-Organization Matching OPPORTUNITY ANALYSIS Opportunity-Organization Matching Determines whether an identified market opportunity is consistent with the definition of the firm’s business, mission statement, and distinctive competencies Assesses strengths and weaknesses via a SWOT Identifies the success requirements Rejects those that do not conform to a firm’s character even if they offer sizable sales and profit

Opportunity Evaluation OPPORTUNITY ANALYSIS Opportunity Evaluation Qualitative Quantitative Matches the attractiveness of an opportunity with the potential for uncovering a market niche, which depends on: Consists of: Market sales potential estimates Sales forecasts Budgets Competitive activity Buyer requirements Market demand Supplier sources Environmental forces Organizational capabilities

Market Niche Criterion Organizational Capabilities EXHIBIT 4.1: OPPORTUNITY EVALUATION MATRIX—ATTRACTIVENESS CRITERIA Market Niche Criterion Competitive Activity Buyer Requirements Demand/ Supply Environmental Forces Organizational Capabilities Buyer Type  How many and which firms compete for this user group?  What affects buyer willingness and ability to buy?  Do different buyer types have different levels of effective demand?  How important are adequate sources of supply?  How sensitive are different buyers to these forces?  Can we gain access to buyers through marketing mix variables?  Can we supply these buyers? Buyer Needs  Which firms are satisfying which buyer needs?  Are there buyer needs that are not being satisfied?  What are they?  Are buyer needs likely to be long-term?  Do we have or can we acquire resources to satisfy buyer needs?  How sensitive are buyer needs to these forces?  Which buyer needs can our firm profitably satisfy? Means for Satisfying Buyer Needs  What are the strategies being employed to satisfy buyer needs?  Is the technology for satisfying buyer needs changing?  To what extent are the means for satisfying buyer needs affected by supply sources?  Is the demand for the means for satisfying buyer needs changing?  How sensitive are the means for satisfying buyer needs to these forces?  Do we have the financial, human, technological, and marketing expertise to satisfy buyer needs?

CHAPTER 4: OPPORTUNITY ANALYSIS, MARKET SEGMENTATION, AND MARKET TARGETING WHAT IS A MARKET?

WHAT IS A MARKET? A market consists of the prospective buyers (individuals or organizations) willing and able to purchase the existing or potential offering (product or service) of an organization.

WHAT IS A MARKET? Implications for marketers: Buyers Effective Demand Focus on buyers, not products or services Effective Demand Exchanges cannot occur unless buyers are able and willing to purchase a product or service Offerings Purchases consist of offerings, not products or services, due to the values or benefits that buyers derive from them

WHAT IS A MARKET? Market Structure View as a composite of mini- or regional markets to: Identify competitors and how they compete Monitor changes in sales volume Assess differences between buyers’ taste preferences and the competition

EXHIBIT 4.2: MARKET STRUCTURE FOR COFFEE IN THE UNITED STATES New England Midwest Southeast Northwest Caffeinated Ground Whole Bean Instant Institutional Sales (restaurants, institutions, etc.) Decaffeinated … Total U. S. Coffee Market Retail Sales (retail food stores)

Firm, Offering, or Brand Sales ($ or #) WHAT IS A MARKET? Market Share Market share is the sales dollars ($) or units(#) of a firm, offering, or brand divided by the sales of the “market,” expressed as a percentage (%): Market Share Firm, Offering, or Brand Sales ($ or #) = X% Market Sales ($ or #)

WHAT IS A MARKET? Market Definition Coffee Dollar Sales Atlantic Blend Sales Market Share

“High” Served Market Share “Low” Served Market Share WHAT IS A MARKET? Market Share A served market is one in which a company, offering, or brand competes for targeted customers Marketing managers often look closely at served market share when considering strategic options “High” Served Market Share Use a market development strategy “Low” Served Market Share Use either a product development or market penetration strategy

CHAPTER 4: OPPORTUNITY ANALYSIS, MARKET SEGMENTATION, AND MARKET TARGETING

MARKET SEGMENTATION Market Segmentation A technique that involves breaking down or building up of potential buyers into groups, which are called market segments Each segment possesses a homogeneous characteristic that relates to its purchasing behavior and response to a marketing program “Cannot be all things to all people” Information technology and flexible manufacturing and service delivery systems can create “segments of one”

Competitive positioning and market segmentation

MARKET SEGMENTATION Mass Customization Tailors products and services to the tastes and preferences of individual buyers in high volumes and at a relatively low cost Combines the efficiencies of mass production and the effectiveness of designing offerings to a single buyer’s unique wants

Benefits of Market Segmentation Identifies opportunities for new product development Helps in the design of marketing programs that are most effective for reaching homogeneous groups of consumers Improves the allocation of marketing resources

MARKET SEGMENTATION Consumers Industrial Buyers Behavioral Variables Gender Age Consumers Industrial Buyers Socioeconomic Characteristics Occupation Income Family Life Cycle Education Location Benefits Sought Usage Lifestyle Attitudes Company Size Industry Customers Served Purchasing Objectives Product Benefits Bases for Market Segmentation Psychographic Variables

Bases for Market Segmentation

Requirements for Effective Market Segmentation Need to answer six buyer-related questions: Who are they? What do they want to buy? How do they want to buy? When do they want to buy? Where do they want to buy? Why do they want to buy?

Requirements for Effective Market Segmentation Measurable Differentiable Accessible Substantial

CHAPTER 4: OPPORTUNITY ANALYSIS, MARKET SEGMENTATION, AND MARKET TARGETING

MARKET TARGETING Marketers ask three questions after a market has been segmented: Where to Compete? How to Compete? When to Compete?

MARKET TARGETING Where to Compete? Question focuses on which market segments should be chosen for marketing efforts Market targeting (or target marketing) is the specification of the segment(s) the organization wishes to pursue

Differentiated Marketing Concentrated Marketing MARKET TARGETING How to Compete? Question focuses on how many market segments the organization will pursue and the marketing strategies to employ Two market targeting approaches are: Differentiated Marketing Concentrated Marketing

Differentiated Marketing MARKET TARGETING How to Compete? Differentiated Marketing Simultaneously pursues several different market segments with a unique marketing strategy for each segment Manages multiple products across multiple market segments, which increases marketing-related expenditures

Concentrated Marketing MARKET TARGETING How to Compete? Concentrated Marketing Focuses on a single market segment, sometimes marketing one product to one segment More commonly, offers one or more product lines to a single market segment Provides operating economies Limits growth opportunities if the segment size declines

EXHIBIT 4.3: NOKIA’S DIFFERNTIATED MARKETING STRATEGY Series 3000 Series 5000 Series 1000/ Series 2000 Series 6000 Series 7000 Series 8000

MARKET SALES POTENTIAL AND PROFITABILITY CHAPTER 4: OPPORTUNITY ANALYSIS, MARKET SEGMENTATION, AND MARKET TARGETING MARKET SALES POTENTIAL AND PROFITABILITY

Market Sales Potential MARKET SALES POTENTIAL AND PROFITABILITY Market Sales Potential Estimating a market’s sales potential for an offering is a difficult task Markets and offerings can be defined in ways that can lead to different estimates of market size and dollar sales potential For new offerings or markets, marketers may rely entirely on judgment and creativity when estimating market sales potential

Market Sales Potential MARKET SALES POTENTIAL AND PROFITABILITY Market Sales Potential Is the maximum sales level that might be available to all organizations serving a defined market in a specific time period given: The marketing-mix activities and related expenditures of all organizations and A set of environmental conditions

Estimating Market Sales Potential Market Sales Potential MARKET SALES POTENTIAL AND PROFITABILITY Estimating Market Sales Potential Variables used to estimate: The number of prospective buyers (B) who are willing and able to purchase an offering Buyers (B) The price (P) of an average unit of the offering Price (P) The quantity (Q) of an offering purchased by an average buyer in a specific time period Quantity (Q) Market Sales Potential B P Q = × ×

Estimating Market Sales Potential MARKET SALES POTENTIAL AND PROFITABILITY Estimating Market Sales Potential Chain ratio method: Multiplying a base number by several adjusting factors believed to influence market sales potential = Population aged 8 years and over × proportion of the population that consumers soft drinks on a daily basis × proportion of the population preferring cola-flavored soft drinks × the average number of carbonated soft drink occasions per day × the average amount consumed per consumption occasion (in ounces) × 365 days in a calendar year × the average price per ounce of cola Market Sales Potential for Cola-Flavored Soft Drinks in a Country

Estimating Market Sales Potential MARKET SALES POTENTIAL AND PROFITABILITY Estimating Market Sales Potential The chain ratio method serves three purposes: Is a quantitative estimate of market sales potential Highlights factors that are controllable and not controllable Is flexible in estimating market sales potential for different buyer groups and offerings

SALES AND PROFIT FORECASTING Sales Forecast Is the level of sales a single organization expects to achieve based on a chosen marketing strategy and an assumed competitive environment Is some fraction of estimated market sales potential Reflects the size of the target market(s) chosen by the organization and the marketing mix chosen for the target market(s) Reflects the assumed number of competitors and competitive intensity in the chosen target market(s)

Sales Forecast Example: Chain Ratio Method SALES AND PROFIT FORECASTING Sales Forecast Example: Chain Ratio Method

SALES AND PROFIT FORECASTING Sales Forecast Prepare a pro forma income statement that shows forecasted sales, budgeted expenses, and estimated net profit Review the identified opportunities and decide which one can be most profitably pursued given organizational capabilities

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