McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 6-1

Chapter Chapter Six Targeting Attractive Market Segments 6

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 6-3 Discussion Questions 1.What’s a market? 2.What’s a market segment?

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 6-4 Discussion Questions 3. Why should we segment markets and target certain segments? Are there benefits in doing so? Are there drawbacks?

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 6-5 Discussion Questions 4. How should market segments be defined? Three good ways to do it. Who the customers are Where they are How they behave

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 6-6 Exhibit 6.2. Some of the More Commonly Used Demographic Descriptors* (1 of 2) Demographic descriptors Age Sex Household life cycle Income Examples of categories Under 2, 2-5, 6-11, 12-17, 18-24, , 35-49, 50-64, 65 and over Male, female Young, single; newly married, no children; youngest child under 6; youngest child 6 or over; older couples with dependent children; older couples without dependent children; older couples retired; older, single Under $15,000, $15,000-24,999; $25,000-74,999, etc.

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 6-7 Exhibit 6.2. Some of the More Commonly Used Demographic Descriptors* (2 of 2) Demographic descriptors Occupation Education Events Race and ethnic origin Examples of categories Professional, manager, clerical, sales, supervisor, blue collar, homemaker, student, unemployed Some high school, graduated high school, some college, graduated college Birthdays, graduations, anniversaries, national holidays, sporting events Anglo-Saxon, African-American, Italian, Jewish, Scandinavian, etc. *Others include marital status, home ownership, and presence and age of children.

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 6-8 Discussion Questions 5. Do these same approaches apply to organizational markets? Examples?

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 6-9 How should we Decide Which Segments to Target? - 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.

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved A Useful Tool for Assessing Market Segments: Segment Rating Chart WEIGHTRATING (0-10)TOTAL Market attractiveness factors Customer needs and behavior Segment size and growth rate Macro trends Total: Market attractiveness Competitive position factors Opportunity for competitive advantage Capabilities and resources Industry attractiveness Total: Competitive position1.06.6

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved The 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

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved Implications of Alternative Positions Within the Market-Attractiveness/Competitive-Position Matrix High Low Med. Market Attractiveness Competitive Position Strong Medium Weak Desirable Potential Target Protect position: Invest to grow at max. digestible rate Concentrate on maintaining strength Desirable Potential Target Invest to build: Challenge for leadership Build selectively on strengths Reinforce vulnerable areas Build selectively: Spec. in limited strengths Seek to overcome weak. Withdraw if indications of sustainable growth are lacking Desirable Potential Target Build selectively: Emphasize profitability by increasing productivity Build up ability to counter competition Manage for earnings: Protect existing strengths Invest to improve position only in areas where risk is low Limited expansion or harvest: Look for ways to expand w/out high risk; otherwise min. invest. and focus operations Protect and refocus: Defend strengths Seek ways to increase current earnings without speeding market’s decline Manage for earnings: Protect position Minimize investment Divest: Sell when possible to maximize cash value Meantime, cut fixed costs & avoid further investment Sources: Adapted from George S. Day, Analysis for Strategic Market Decisions (St. Paul: West, 1986), p. 204; D. F. Abell and J. S. Hammond, Strategic Market Planning Problems and Analytical Approaches (Englewood Cliffs, NJ: Prentice Hall, 1979); 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

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved Discussion Questions 6. What targeting strategies are available? When should each be used? Niche-market strategy Mass-market strategy Growth-market strategy Global market segmentation