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WEEK 2 – Identifying and Selecting Markets

Market Segmentation, Targeting, and Positioning

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IntroductionIntroduction

- Within in the same general market there are groups of customers with different wants, buying preferences, or product-use behavior market segments

- As a result, the firm must decide which segment or segments to pursue target marketing

- For a targeted segment the firm then moves to establish a position in the minds of its customers through the design and implementation of a marketing mix (4 P’s)

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Market SegmentationMarket Segmentation

- A process of dividing the total market for a product or service into several smaller, internally homogenous groups.

- The essence of segmentation is that members of each group are similar with respect to the factors that influence demand.

- By tailoring marketing efforts to individual market segments, a company can do a better marketing job and make more efficient use of its marketing resources this is especially important for a small firm (or a start-up) with limited resources.

- However, consumers can become frustrated by the complex decision making process that is required for even a simple purchase when many similar products are available.

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Market SegmentationMarket Segmentation

- Markets can be segmented intuitively or on the basis of structured analysis

- The steps involved in segmenting a market are:

1. Identify the current and potential wants that exist within a market

2. Identify characteristics that distinguish among the segments

3. Determine the potential of the segments and how well they are being satisfied

The Process of Market Segmentation:

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Market SegmentationMarket Segmentation

- Often the first step is to divide a potential market into ultimate consumers and business users

- Segmenting a market into these two groups is extremely significant from a marketing point of view because the two segments buy differently (see chapters 4 and 5!)

The composition of marketing mix will depend on whether it is directed toward the consumer or

toward the business market

Segmenting Consumer Markets

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Market SegmentationMarket Segmentation

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Market SegmentationMarket Segmentation

- Even though the number of buyers in a business market may be relatively few, segmentation remains important

- A highly focuses marketing effort directed at meeting the specific needs of a group of similar customers is both more efficient and more likely to be successful

Segmenting Business Markets

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Market SegmentationMarket Segmentation

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Market SegmentationMarket Segmentation

In-class Exercise:

1. Get together in your groups

2. Choose one of your (two) case studies

3. Segment the market in which your company operates (intuitively and on the basis of the segmentation criteria for consumer or business markets)

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Target-Market StrategiesTarget-Market Strategies

Aggregation Strategy

- Also known as mass-marketing strategy or undifferentiated-market strategy

- A seller treats its total market as a single segment

- This strategy may be appropriate for firms that are marketing an undifferentiated, staple product

- In reality this strategy is relatively uncommon

- The strength of a market aggregation strategy is cost minimization

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Target-Market StrategiesTarget-Market Strategies

Single-Segment Strategy

- Also known as single-segment strategy or concentration strategy

- Involves selecting one segment from within the total market as the target market

- One marketing-mix is developed to reach this single segment

- A single-segment strategy enables a seller to penetrate one market in depth and to acquire a reputation as a specialist or an expert in this limited market

- Niche marketing and niche markets

- A single-segment strategy can often be initiated with limited resources

- However, single-segment strategies can be risky

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Target-Market StrategiesTarget-Market Strategies

Multiple-Segment Strategy

- Two or more different groups of potential customers are identified as target markets

- A separate marketing mix is developed to reach each targeted segment

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Target-Market StrategiesTarget-Market Strategies

Guidelines in Selecting a Target Market

1. A target market should be compatible with the organization’s goals and image

2. The market opportunity represented by the target group has to be matched with the company’s resources

3. An organization should seek markets that will generate sufficient sales volume at a low enough cost to result in a profit that justifies the required investment

4. A company ordinarily should seek a market where competitors are few/or week

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PositioningPositioning

- Having identified the potential market segments and selected one or more to target, the marketer must next decide what position to pursue

- A position is the way a firm’s product, brand, or organization is viewed relative to the competition by current and prospective customers

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PositioningPositioning

1. Select the positioning concept

a. A marketer needs to first determine what is important to the target market

b. Perceptual maps locate brands, products or organizations relative to alternatives on dimensions reflecting certain attributes

Steps in a positioning strategy:

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PositioningPositioning

A hypothetical perceptual map for jeans:

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PositioningPositioning

2. Design the dimension or feature that most effectively conveys the position A position can be communicated with a brand

name, a slogan, the appearance or other features of the product, the place where it is sold, the appearance of employees, …

3. Coordinate the marketing mix components to convey a consistent position All elements of the marketing mix (4 P’s) should

complement the intended position

Steps in a positioning strategy:

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Forecasting Market DemandForecasting Market Demand

- Demand Forecasting estimates sales of a product or service during some defined future period

- A forecast can refer to an entire industry, an industry category, one firm’s product line, or an individual brand

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Forecasting Market DemandForecasting Market Demand

- Market Share (proportion of total sales of a product during a stated period in a specific market that is captured by a single firm)

- Market Potential (total sales volume that all organizations selling a product during a stated period of time in a specific market could expect to achieve under ideal conditions)

- Sales Potential (portion of market potential that a specific company could expect to achieve under ideal conditions)

- Sales Forecast (an estimate of probable sales for one company’s brand of a product during a stated period in a specific market

Basic Forecasting Terms

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Forecasting Market DemandForecasting Market Demand

- Survey of Buyer Intentions (involves asking a sample of current or potential customers how much of a particular product they would buy at a given price during a specified future period)

- Test Marketing (a firm markets a new product in a limited geographic area, measures sales, and then – from this sample – projects the product’s sales over a larger area)

- Past Sales and Trend Analysis (the demand forecast is a percentage change applied to the volume achieved last year or to the average volume of the past few years)

Methods of Forecasting Sales

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Forecasting Market DemandForecasting Market Demand

- Sales-Force Composite (collecting from all sales people estimates of sales for their territories during the future period of interest)

- Executive Judgment (involves obtaining opinions from one or more executives regarding future sales)

Methods of Forecasting Sales (continued)

No method of sales forecasting is perfect. An executive’s challenge is to choose an approach that is likely to produce the most accurate estimate of sales given the firm’s particular circumstances. Because all techniques have limitations, frequently companies employ a combination of forecasting methods and then reconcile any differences that are produced.