1. Part 2 MARKET RESEARCH AND TARGET MARKETS

2. 4: Marketing Research and Information Systems
5: Target Markets: Segmentation and Evaluation

3. Chapter 5 Target Markets: Segmentation and Evaluation
Professor Jason C. H. Chen, Ph.D.
School of Business Administration
Gonzaga University
Spokane, WA 99258

4. Learning Objectives
To understand what markets are and how they are generally classified
To grasp an overview of the five steps of the target market selection process
To understand the differences among general targeting strategies
To become familiar with the major segmentation variables
To know what segment profiles are and how they are used
To understand how to evaluate market segments
To identify the factors that influence the selection of specific market segments for use as target markets
To become familiar with sales forecasting methods

5. What are Markets?
A market is a group of people, individuals or organizations, who
Have a desire or ______ for products in a product class and
Have the ability, willingness, and authority to purchase such products
A group of people that lacks any of the four requirements does not constitute a market
Teenagers may have the desire, the money and the willingness to buy alcohol but the law prevents them from having the authority to purchase alcohol
needs
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6. E-COMMERCE
B2C
What does “C” stands for?
B2B
What does “B” stands for?

7. Two Types of Markets Consumer Business _________ Market
Purchasers and household members who intend to consume or benefit from the purchased products and do not buy products to make profits
Also referred to as business-to-consumer (B2C) markets.
Individuals, organizations or groups that purchase a specific kind of product for resale, direct use in producing other products or use in general daily operations
Also referred to as business-to-business (B2B), industrial, or organizational markets
Sub-classified into producer, reseller, government, and institutional markets
Business
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8. Figure 5.1 - Target Market Selection Process

9. Step 1: Identify Appropriate Targeting Strategy
Target Market
A group of people or organizations for which a business creates and maintains a marketing ____ specifically designed to satisfy the needs of group members
The strategy used to select a target market is affected by:
Target market characteristics
Product attributes
The organization’s objectives and resources
mix
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10. Marketing Mix Decisions
Product Decisions
Marketing
Mix
Integrated Marketing
Communications Decision
(Promotion)
Price Decisions
Distribution Decisions
(_______+ ______)
Place
Time

11. Types of Targeting Strategies
Designs a single marketing mix and directs it at the entire market for a particular product
Effective for homogenous markets
_______________ targeting strategy
Undifferentiated
Targets a single market segment using one marketing mix
______________ targeting strategy
Concentrated
Targets two or more segments by developing a marketing mix for each segment
_____________ targeting strategy
Differentiated

12. Figure 5.2 - Targeting Strategies
Designs a single marketing mix and directs it at the entire market for a particular product
Targets two or more segments by developing a marketing mix for each segment
Targets a single market segment using one marketing mix
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13. This strategy consists of:
Undifferentiated targeting strategy means a company designs a single marketing mix and directs it at the entire market
Effective for homogeneous markets where a large proportion of people in a target market have similar needs for a product
This strategy consists of:
One type of product
One price
One promotional program
One distribution channel
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14. A concentrated targeting strategy means a company targets a single market segment using one marketing mix
Advantages
Disadvantages
Ideal for organization with excess production capacity
Profits fall with segment’s demand declines
A small firm can compete with larger organizations
Difficult to diversify
Increases sales in the aggregate market
Higher production cost
Allows a firm to specialize
Difficult to diversify: When a firm penetrates one segment its popularity may keep it from extending its marketing efforts into other segments

15. Types of Market and Market Segmentation
_____________: Large proportion of customers have similar needs for a product
_____________: Customers have diverse needs for products in a specific product class
Market segmentation: A process of dividing a total market into groups with relatively similar product needs to design marketing mix
Market segment: Customer base sharing one or more similar characteristics that cause them to have similar product needs
Smaller groups allow a tailored marketing mix
Homogenous
Heterogeneous

16. Conditions For Market Segmentation To Succeed
For market segmentation to succeed, five conditions must exist
Customer’s needs must be _____________
Segments must be identifiable and ________
Segments must be comparable to one another with respect to estimated sales potential, costs and profits
One segment must show enough ______ potential to justify developing a special marketing mix
The firm must be able to reach the chosen segment with a particular marketing mix
heterogeneous
divisible
profit
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17. Concentrated Targeting Strategy
Both Mont Blanc and Bic use a concentrated targeting strategy to aim at a different, single market segment
They are not competing for the same customers
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18. With a differentiated targeting strategy, an organization directs its marketing efforts at two or more segments, developing a marketing mix for each segment
Advantages
Disadvantages
Could mean increased sales
Production costs are higher
Uses excess production capacity
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19. Target Market Selection Process
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20. Step 2 - Determine Which Segmentation Variables to Use
Segmentation variables: Characteristics of individuals, groups or organizations used to divide a market into segments
Should relate to the customers’ needs for, uses of or behavior toward the product
Must be _________
Company resources and capabilities affect the number and size of the variables
Product type and degree variations in customer needs
measurable

21. Figure 5.3 - Segmentation Variables for Consumer markets

22. Fig. 5.4 - Demographic Variables: Age
By 2025
Age groups under 55 expected to decrease
Age groups 55 and older expected to increase
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23. Figure 5.5 - Family Life Cycle Stages as a Percentage of All Households

24. Geographic Variables Climate and terrain
City size and population density
Urban area and rural area
Market density: Number of potential customers within a unit of land area
Useful segmentation variable for firms because low-density markets require different sales, advertising, and distribution activities than high-density markets

25. Geodemographic Segmentation
Clusters people by zip codes or neighborhood units based on lifestyle and demographic in-formation
Micromarketing: Focuses precise marketing efforts on very small geographic markets
Climate - Geographic segmentation variable
Impacts people’s behavior and product needs

26. Psychographic Variables
Personality characteristics
Product resembles many competing products
Consumers’ needs are not significantly related to other segmentation variables
Motives - Divides the market according to consumers’ reasons for making a purchase
Lifestyle analysis - Characteristics related to people’s activities, interests, and opinions
Lifestyle segmentation groups people by:
How they spend their time
The importance of things in their surroundings
Beliefs about themselves and broad issues

27. Psychographic Systems/Variables: VALS Classification
Classifies consumers based on psychological characteristics correlated with:
Purchase behavior
Key demographics
Used to determine lifestyle choices
Used to
_______ new products as well as
________ existing markets
create
segment

28. Fig. 5.6 - Example of VALS Data
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29. Behavioristic Variables
Dividing a market according to consumer behavior toward a product in terms of its usage
Used by marketers to satisfy customers who use a product in a certain way
Involves designing certain product features in such a way that makes it easier to use, safer, or more convenient

30. Benefit Segmentation
Division of a market according to benefits consumers want from the product
Effectiveness depends on certain conditions
Benefits sought must be identifiable
Using the benefits, marketers must be able to divide people into recognizable segments
One or more of the resulting segments must be accessible to the firm’s marketing efforts

31. Segmenting Business Markets
Like consumer markets, business markets are frequently segmented, often by multiple variables in combination
Marketers segment business markets according to
Geographic ________
Type of ____________
product features, distribution systems, price structures and selling strategies
Customer ______
Product use
location
organization
size
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32. Target Market Selection Process
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33. Step 3: Develop Market Segment Profiles
A market segment profile
Describes the __________ of potential customers within a segment
Explains the __________ among people and organizations in different segments
Profiles benefits marketers in several ways
Information included in the profiles can be highly useful in making marketing decision
Used to assess the degree to which the firm’s products can match potential customers’ product needs
Help marketers understand how a business can use its capabilities to serve potential customer groups
Determine which segments are most attractive relative to the firm’s strengths, weaknesses, objectives, and resources
similarities
differences
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34. Target Market Selection Process
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35. Step 4 - Evaluate Relevant Market Segments
After analyzing the segment profiles, a marketer has identified several relevant market segments which require further analysis
Market Segment Aspects to be Evaluated
Sales Estimates
Competition
Estimated Costs
Several factors should be analyzed, including:

36. Sales Estimates
Sales estimates can be measured along several dimensions including
Product level
Geographic area
Time
Level of competition
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37. Sales Estimates: Market Potential
Market potential is the total amount of a product customers will purchase within a specified period at a specific level of industry wide marketing activity
Affected by economic, soiciocultural and other environmental forces
Marketers must assume a certain level of marketing effort in the industry
Marketers must also consider whether and to what extent industry marketing efforts will change
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38. Sales Estimates: Company Sales Potential
Company sales potential is the maximum percentage of market potential a firm can expect for a specific product
Influencing factors
Market potential places absolute limits on sales potential
Industrywide marketing indirectly impacts sales potential
Intensity and effectiveness of marketing activities compared to competitors marketing activities
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39. Approaches to Measure Company Sales Potential
Two general approaches that measure company sales potential are
Breakdown approach – measuring company sales potential based on a general economic forecast for a specific period and the market potential derived from it
Buildup approach – measuring company sales potential by estimating how much of a product a potential buyer in a specific geographic area will purchase in a given period, multiplying the estimate by the number of potential buyers, and adding the totals of all the geographic areas considered
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40. Competitive Assessment
Without competitive assessment, sales estimates can be misleading
The following questions need answered for a competitive assessment
How many competitors exist?
What are their strengths and weaknesses?
Do several competitors have a major market share?
Can we create a competitive marketing mix?
Will new competitors enter this segment?
If so, can we still compete successfully?
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41. Cost Estimates
Developing and maintaining a marketing mix that fulfills the needs of the a target segment, is expensive
Factors affecting costs include:
Distinctive product features
Attractive package design
Generous product warranties
Extensive advertising
Attractive promotional offers
Competitive prices
High quality personal service
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42. Step 5: Select Target Markets
After identifying the target market, the company needs a sales forecast which differs from sales potential
Sales forecast is the amount of a product a company expects to sell during a specific period at a specific level of marketing activities.
Use: Planning, Organizing, Implementing, Controlling activities
There are a number of forecasting methods falling into five categories
Executive Judgment
Surveys
Time Series Analysis
Market Tests
Regression Analysis
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43. Executive Judgment
Executive judgment is a sales forecasting method based on the intuition of one or more executives.
This approach is unscientific but fast and cheap
Advantages
Expedient and inexpensive approach
Works well when product demand is _______
Disadvantages
Forecast may weight recent sales booms or slumps excessively (too optimistic or pessimistic)
Forecaster has only past experience as a guide for deciding where to go in the future
stable

44. Forecasting Techniques
Asking customers what types and quantities of products they intend to buy during a specific period
Customer forecasting survey
Firm’s salespeople estimate anticipated sales in their territories for a specified period
Sales force forecasting survey
Hiring professionals to help with sales forecast
Expert forecasting survey
Experts create initial forecasts, submit them to the company for averaging, and then refine the forecasts
Delphi technique

45. Time Series Analysis
Uses firm’s ________ sales data to discover a _______ , or patterns, in sales over time
Trend analysis: Focuses on aggregate sales data over a period of many years to determine general trends in annual sales
Cycle analysis: Analysis of sales figures for a three- to five-year period to ascertain whether sales fluctuate in a consistent, periodic manner
Seasonal analysis: Analysis of daily, weekly, or monthly sales figures to evaluate the degree to which seasonal factors influence sales
Random factor analysis: Attempts to attribute erratic sales variations to random, nonrecurrent events
historical
pattern

46. Regression Analysis dependent independent
Regression analysis is a method of predicting relationship between __________ variable and one or more ____________ variables.
For example, we may predict sales based on finding a relationship between past sales and one or more independent variables, such as population or income/
Two types:
Simple regression analysis uses one of the independent variables
Multiple regression analysis uses two or more independent variables
Useful when:
A precise association can be established
Available historical sales data are extensive
dependent
independent
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47. Forecasting Techniques - Market Test
Making a product available to buyers in one or more test areas and measuring purchases and consumer responses to marketing effort
Advantages
Effective for forecasting sales of new products or of existing products in new geographic areas
Gives a marketer an opportunity to test the success of various elements of the marketing mix
Disadvantages
Time consuming and expensive
A marketer cannot be certain that consumer response during a market test represents the total market response, or that the same response will continue in the future

48. Multiple Forecasting Methods
Used for marketing diverse product lines but
Required for single product line when sold to different market segments
Required due to variation in the length of forecasts

49. Video Case 5.1
Raleigh Wheels INTO A NEW ERA FOR bicycle marketing

50. Summary
This case discusses bicycle company Raleigh’s long history and its transition from being a company known for its sturdy, high-quality product to a global brand catering to bicycle messengers and commuters. Raleigh noted that many of its customers do not don special gear to go riding, but rather wear their street clothes.
n order to familiarize new markets with its bicycles, Raleigh brings samples to cities around the world and lets people ride the bikes. Raleigh takes great strides to remain in touch with its target market and to provide the products that customers want. It has even started to use high-technology in marketing through maintaining a blog and a Twitter account.

51. 1. Of the four categories of variables, which is most important to Raleigh’s segmentation strategy, and why?
According to the case, psychographic variables such as the European lifestyle and tradition of getting around on bicycles are most important to Raleigh’s segmentation strategy.
These consumers ride for fun, rather than as serious racers. Applying psychographic variables allows Raleigh to identify and focus its marketing on this specific group of consumers

52. 2. How would you describe Raleigh’s positioning for its steel-frame bicycles?
In general, Raleigh seems to be positioning its steel-frame bicycles as sturdy, comfortable, light, fast, nimble, easy to steer, and fun to ride. Students may offer additional positioning ideas as well.
Raleigh’s positioning helps the company correct misperceptions of steel-frame bicycles as heavy and awkward to ride, and fits with the interests of its target market.

53. 3. Raleigh sells exclusively through retail dealers, not directly to consumers. How does this affect its ability to segment the bicycle market using geographic variables?
Raleigh can select dealers in the geographic areas where consumers in its target market live or travel on vacation. This allows the company to sell through multiple dealers in states where riding bicycles is a popular pastime, for example.
In this way, Raleigh will be assured of solid marketing distribution coverage when it launches marketing communications or new product demonstrations in those areas. For efficiency, Raleigh can choose fewer dealers (or have no dealers) in areas where the lifestyle is not geared toward bicycling.