Principlesofmarketing.com Chapter Three How do we identify and understand markets?

A ‘market’ can be: A place where people exchange value for value for example ‘the stock market’A place where people exchange value for value for example ‘the stock market’ A description of a group of individuals or organizations as in a market segmentA description of a group of individuals or organizations as in a market segment An abstract concept meaning a potential for exchange activitiesAn abstract concept meaning a potential for exchange activities (for example, ‘the market for air conditioners’) (for example, ‘the market for air conditioners’)

Market segmentation The main goal of market segmentation is to divide the market into different portions based on differences in customersThe main goal of market segmentation is to divide the market into different portions based on differences in customers For example, if we want to divide the market for colas into 1. colas with sugar and caffeine, 2. colas with sugar but without caffeine, 3. colas without sugar but with caffeine, and 4. colas without sugar or caffeine; we would be working with four market segmentsFor example, if we want to divide the market for colas into 1. colas with sugar and caffeine, 2. colas with sugar but without caffeine, 3. colas without sugar but with caffeine, and 4. colas without sugar or caffeine; we would be working with four market segments

Seven step approach to market segmentation Step One: Identify the type of market with which you will be dealing Step Two: Analyze the areas of satisfaction you are attempting to provide to this market, that is, what wants or needs do you intend to satisfy? Step Three: Select dimensions with which to segment the market Step Four: Based on the selected dimensions, identify the segments in the market under study Step Five: Evaluate whether the segment in which you are interested meets the four criteria for effective segmentation Step Six: Create a profile of the customer identified including purchasing behavior expectations Step Seven: Combine the segmentation analysis with other analyses related to the product, market, and business strategy.

Types of markets based on buying behavior 1.consumer markets – people who buy for their own, personal non-business use (for example, you buy a lawnmower at Wal- Mart to mow your own yard). 2.organizational markets – organizations buy goods and services for use in the operation of their businesses or for resale. For example, Compaq computer buys many of its microprocessors from Intel Corporation and your local dentist must obtain supplies and materials to provide his/her services to patients. 3.government markets – Local, state, and federal governments taken together constitute for the largest demand for goods and services in the U.S. For example, your local police department must buy patrol cars. 4.institutional markets – these markets include universities, hospitals, and other similar organizations. For example, a hospital cafeteria must purchase food and other supplies to run its operation.

Primary bases for segmenting consumer markets – page 1 a. demographic dimensions - demo’ means people, and ‘graphics’ means some representation of thereof. So, demographics consists of all those characteristics of people that are used to describe the size and composition of the population including age, gender, amount of income, level of education, and other such attributes. b. psychographic dimensions - ‘psycho’ from Greek means ‘spirit or mind’ so while demographics deals with the statistical characteristics of the market segment, psychographics refers to the characteristics of peoples’ spirits and minds. For example, psychographics is usually broken down into personality, life style, and motivation. six-packs because customers expect to consume multiple units in relatively short periods of time.

Primary bases for segmenting consumer markets – page 2 c. geographic dimensions – this dimension, not surprisingly, relates to where people live, for example, the demand for snow skis is higher in the mountainous states in the U.S. than it is in the plains states. d. behavioristic (or intended use) – this dimension relates to benefits sought and expected use by the customer. For example, many products are sold in multiple packages such as six-packs because customers expect to consume multiple units in relatively short periods of time.

Primary bases for segmenting non- consumer markets a.intended use of products boughta.intended use of products bought b.expected benefits to be provided by products purchasedb.expected benefits to be provided by products purchased c. size of organizationc. size of organization d.SIC (or NAIC) code* of organization’s or organization’s productsd.SIC (or NAIC) code* of organization’s or organization’s products e.Other characteristics of organization or specific industrye.Other characteristics of organization or specific industry

Requirements for effective market segmentation 1.measurable (we can estimate how many people or organizations are in the segment)1.measurable (we can estimate how many people or organizations are in the segment) 2.accessible (we can reach the segment through available means)2.accessible (we can reach the segment through available means) 3.compatible (the segment is consistent with the overall goals of the organization)3.compatible (the segment is consistent with the overall goals of the organization) 4.substantial (the segment is large enough to justify our develop of products or services just for that segment)4.substantial (the segment is large enough to justify our develop of products or services just for that segment)

Definition of marketing strategy “A Marketing Mix: aimed at a specific target market”“A Marketing Mix: aimed at a specific target market” Product or serviceProduct or service PricePrice Distribution (Place)Distribution (Place) PromotionPromotion Segment 1 Segment 2 Segment 3 Thus in the above example, the marketer has selected Market segment “2”