1. 6 Market Segmentation, Positioning, and Demand Projection McGraw-Hill/Irwin Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.

2. 6-2 Agenda General Market Segmentation Strategy General Market Segmentation Strategy Business Marketing Segmentation Versus Consumer Marketing Segmentation Business Marketing Segmentation Versus Consumer Marketing Segmentation Approaches to Business Market Segmentation Approaches to Business Market Segmentation Common Business Segmentation Variables Common Business Segmentation Variables Evaluating Potential Market Segments Evaluating Potential Market Segments Product Positioning Strategy Product Positioning Strategy Business Demand Projection Business Demand Projection

3. 6-3 Why Segment Markets? To group customers with similar needs so one marketing mix can be used to meet the group’s needs without having a separate marketing mix for each customer (and still create a differential advantage). To group customers with similar needs so one marketing mix can be used to meet the group’s needs without having a separate marketing mix for each customer (and still create a differential advantage). Given limited resources, to strategically target which groups to serve. Given limited resources, to strategically target which groups to serve. As in all marketing activity, to better serve customer needs. As in all marketing activity, to better serve customer needs.

4. 6-4 General Market Segmentation Strategy Analyze buyer behavior of each segment… Analyze buyer behavior of each segment… Analyze buyer decision process of each segment… Analyze buyer decision process of each segment… Analyze the characteristics of each segment… Analyze the characteristics of each segment… Pick targets, forecast sales, calculate pro forma profitability, and design a marketing mix for each segment based on above… Pick targets, forecast sales, calculate pro forma profitability, and design a marketing mix for each segment based on above…

5. 6-5 General Market Segmentation Strategy A Good Market Segment Is A Good Market Segment Is MeasurableMeasurable DifferentiableDifferentiable SubstantialSubstantial ActionableActionable AccessibleAccessible

6. 6-6 General Market Segmentation Strategy Undifferentiated Marketing Strategy Undifferentiated Marketing Strategy Total market is treated as one homogeneous market segmentTotal market is treated as one homogeneous market segment Differentiated Marketing Strategy Differentiated Marketing Strategy Developing a different marketing mix for many different market segmentsDeveloping a different marketing mix for many different market segments Concentrated Marketing Strategy Concentrated Marketing Strategy Selects one or a relatively few segments to pursueSelects one or a relatively few segments to pursue

7. 6-7 Segmentation for Small Precision Servomotors The entire market needs to be represented, not just present customers, and not just attractive segments. Why? Exhibit 6-2

8. 6-8 Answer… You would not be segmenting the market, only part of it. You would not be segmenting the market, only part of it. If the segment isn’t represented, you will never even consider it. If the segment isn’t represented, you will never even consider it.

9. 6-9 Business Marketing Segmentation Vs. Consumer Marketing Segmentation Business market segmentation can help in: Business market segmentation can help in: Market analysisMarket analysis Market selectionMarket selection Marketing managementMarketing management Segment business markets even if we are selling consumer products Segment business markets even if we are selling consumer products B2C marketers must market to distributors or retail chainsB2C marketers must market to distributors or retail chains

10. 6-10 Approaches to Business Market Segmentation Macro/Micro Segmentation Macro/Micro Segmentation Macro segmentationMacro segmentation dividing the market into subgroups based on overall characteristics of the prospect organization, e.g., usage rates, NAICS category dividing the market into subgroups based on overall characteristics of the prospect organization, e.g., usage rates, NAICS category Micro segmentationMicro segmentation Dividing the market into subgroups based on specific characteristics of the decision-making process and buying structure of the prospect organization, e.g., buying-center authority, attitudes toward vendors. Dividing the market into subgroups based on specific characteristics of the decision-making process and buying structure of the prospect organization, e.g., buying-center authority, attitudes toward vendors.

11. 6-11 Approaches to Business Market Segmentation Nested Approach Nested Approach Stresses segmentation according to the amount of investigation required to identify and evaluate different criteria.Stresses segmentation according to the amount of investigation required to identify and evaluate different criteria. Layers of the nest begins with organization demographics Layers of the nest begins with organization demographics More specific customer characteristics are nested inside the broader organizational basis. More specific customer characteristics are nested inside the broader organizational basis.

12. 6-12 6-5

13. 6-13 Common Business Segmentation Variables Industry/Type of Economic Activity Industry/Type of Economic Activity Size of Organization Size of Organization Geographic Location Geographic Location Product Usage Product Usage Structure of the Procurement Function Structure of the Procurement Function

14. 6-14 6-6

15. 6-15 Evaluating Potential Market Segments Market Profitability Analysis Market Profitability Analysis Market Competitive Analysis Market Competitive Analysis

16. 6-16 Product Positioning Strategy Introduction Introduction Product PositioningProduct Positioning The way a product is defined by customers The way a product is defined by customers Product Differentiation Product Differentiation Involves meaningful differences in the product, services offered, personnel, etc. Involves meaningful differences in the product, services offered, personnel, etc.

17. 6-17 Why Strategically Position Products and Services? So they are perceived as different from competitors’ in ways that represent value to customer segments So they are perceived as different from competitors’ in ways that represent value to customer segments As a tool to help marketers visualize the customer’s perceptions of the competitive offerings available according to various variables (axes) of importance As a tool to help marketers visualize the customer’s perceptions of the competitive offerings available according to various variables (axes) of importance

18. 6-18 How Can Product Positioning Be Misused? One common error is to create a map of where you would like your products to be positioned or where they are positioned in your perception of the market, then treat the resulting map strategically as if it is a map of the actual perceptions of the customers in the market. One common error is to create a map of where you would like your products to be positioned or where they are positioned in your perception of the market, then treat the resulting map strategically as if it is a map of the actual perceptions of the customers in the market.

19. 6-19 Positioning Strategy – Perceptual Mapping

20. 6-20 Product Positioning Strategy Approaches to Positioning Approaches to Positioning TechnologyTechnology QualityQuality PricePrice DistributionDistribution ImageImage ServiceService

21. 6-21 Product Positioning Strategy Successful Positioning Successful Positioning Consider what position the firm presently owns.Consider what position the firm presently owns. Decide what position the firm wants to own.Decide what position the firm wants to own. Decide who the firm must outflank to gain that position.Decide who the firm must outflank to gain that position. Consider if the firm has the necessary resources.Consider if the firm has the necessary resources. Consider if the firm is committed to achieving the objective.Consider if the firm is committed to achieving the objective. Determine if the firm can create a marketing mix to achieve the desired position.Determine if the firm can create a marketing mix to achieve the desired position.

22. 6-22 Business Demand Projection Strategic Importance of Forecasting in Decision Making Strategic Importance of Forecasting in Decision Making Companies must plan in order to have materials/resources on hand to meet customer needs.Companies must plan in order to have materials/resources on hand to meet customer needs. It is required by top management, just as engineers must design and accountants must add numbers.It is required by top management, just as engineers must design and accountants must add numbers. It is a basic marketing function.It is a basic marketing function. Other functional areas use demand forecasts to make their own forecasts and budgets, make purchases, set goals, etc.Other functional areas use demand forecasts to make their own forecasts and budgets, make purchases, set goals, etc.

23. 6-23 Business Demand Projection Common Forecasting Problems Common Forecasting Problems Mystique (to those who are not trained)Mystique (to those who are not trained) Accuracy (marketers tend to be can-do, optimistic types)Accuracy (marketers tend to be can-do, optimistic types) Inconsistency (continual subjective modifications)Inconsistency (continual subjective modifications) Accountability (developing forecast versus achieving forecast)Accountability (developing forecast versus achieving forecast) Implementation (mixing forecasts, goals, quotas)Implementation (mixing forecasts, goals, quotas)

24. 6-24 Selecting Forecasting Methods The importance and nature of forecast impacts method chosen. The importance and nature of forecast impacts method chosen. Different methods are appropriate for long-term vs. medium-term vs. short-term forecasts. Different methods are appropriate for long-term vs. medium-term vs. short-term forecasts. Different methods are appropriate for different types of data (e.g., amount of cycle, trend, noise). Different methods are appropriate for different types of data (e.g., amount of cycle, trend, noise). The right method for the right type situation and the right type data improves accuracy. The right method for the right type situation and the right type data improves accuracy. Forecasting is not guessing. Forecasting is not guessing.

25. 6-25 Selecting Forecasting Methods Forecasting requires a pattern or relationship that is present in past data and will repeat. Forecasting requires a pattern or relationship that is present in past data and will repeat. Forecasting is a lot more than averaging. It’s an academic area with its own theory, textbooks, and journals. Forecasting is a lot more than averaging. It’s an academic area with its own theory, textbooks, and journals. Companies routinely hire expert consultants to improve their forecasting accuracy by a percentage point or two and save them millions of dollars. Companies routinely hire expert consultants to improve their forecasting accuracy by a percentage point or two and save them millions of dollars.

26. 6-26 Selecting Forecasting Methods General Approaches to Forecasting General Approaches to Forecasting Top-down method – management develops an aggregate measure of sales potential then sales quotas are developed and a sales forecast is constructedTop-down method – management develops an aggregate measure of sales potential then sales quotas are developed and a sales forecast is constructed Bottom-up method (Build-up) – sales force develops estimates of sales by product lines, geographic area, or customer group and management adds these estimates together to get sales forecastBottom-up method (Build-up) – sales force develops estimates of sales by product lines, geographic area, or customer group and management adds these estimates together to get sales forecast

27. 6-27 Selecting Forecasting Methods Qualitative Approaches Qualitative Approaches Jury of Executive Opinion (“executive panels”)Jury of Executive Opinion (“executive panels”) Sales Force Composite (“sales force estimates”)Sales Force Composite (“sales force estimates”) Survey of Buyer Intentions (“market survey of user expectations”)Survey of Buyer Intentions (“market survey of user expectations”) The Delphi MethodThe Delphi Method

28. 6-28 6-10

29. 6-29 6-10

30. 6-30 Selecting Forecasting Methods Quantitative Approaches Quantitative Approaches Time-Series TechniquesTime-Series Techniques Trend Fitting Trend Fitting Moving Average Moving Average Exponential Smoothing Exponential Smoothing Adaptive Control Adaptive Control Box-Jenkins Box-Jenkins

31. 6-31 6-11

32. 6-32 6-11

33. 6-33 6-11

34. 6-34 What Is Not Time-Series Forecasting You must not casually interchange terms with specific meanings. Why? You must not casually interchange terms with specific meanings. Why? A “series” is not forecasting; it is a series of numbers (e.g., 2, 5, 7, 3, 9, 2, 6, 3, 8). A “series” is not forecasting; it is a series of numbers (e.g., 2, 5, 7, 3, 9, 2, 6, 3, 8). A “time series” is not forecasting; it is a series of numbers by time period. For example, sales by month = Feb. $5M; Mar. $7M; Apr. $3M; May $9M; June $2M, etc.) A “time series” is not forecasting; it is a series of numbers by time period. For example, sales by month = Feb. $5M; Mar. $7M; Apr. $3M; May $9M; June $2M, etc.)

35. 6-35 You Can Graph a Time Series If you were asked to define a time series and you said anything about it being a forecast, that would be wrong. A time series is not a forecast.

36. 6-36 Selecting Forecasting Methods Quantitative Approaches Quantitative Approaches Causal TechniquesCausal Techniques Regression Regression Econometrics Econometrics Leading Indicators Leading Indicators Diffusion Index Diffusion Index Input-Output Analysis Input-Output Analysis Life-Cycle Analysis Life-Cycle Analysis

37. 6-37 6-12

38. 6-38 6-12

39. 6-39 6-12