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Discussion Questions 1. What’s a market? 2. What’s a market segment? A group of individuals or organizations (i.e., buyers) having the willingness and ability to buy goods and services to satisfy a class of want or need What’s a market segment? A group of potential customers in a market who share similar wants and needs that are different from the wants and needs of consumers in other segments
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Targeting Attractive Market Segments
6 Targeting Attractive Market Segments Discussion Questions 1.
Whats a market? 2. Whats a market segment?
A group of individuals or organizations (i.e., buyers) having the
willingness and ability to buy goods and services to satisfy a
class of want or need Whats a market segment? A group of potential
customers in a market who share similar wants and needs that are
different from the wants and needs of consumers in other segments
Discussion Questions 3. Why should we segment markets and target
certain segments? Are there benefits in doing so? Are there
drawbacks? Segmentation is important because markets are rarely
homogeneous in benefits wanted, purchase rates, and price and
promotion elasticities, and their response rates to products and
marketing programs differ. Variation among market segments in
product preferences, size and growth in demand, media habits, and
competitive structures further affect the differences and response
rates. Market segmentation has become increasingly important in the
development of marketing strategies for the following reasons.
Population growth has slowed, and more product-markets are
maturing. This sparks more intense competition as firms seek growth
via gains in market share as well as in an increase in brand
extensions. Such social and economic forces as expanding disposable
incomes, higher educational levels, and more awareness of the world
have produced customers with more varied and sophisticated needs,
tastes, and lifestyles than ever before. This has led to an
outpouring of goods and services that compete with one another for
the opportunity of satisfying some group of consumers. There is an
increasingly important trend toward microsegmentation, in which
extremely small segments are targeted. Many marketing organizations
have made it easier to implement sharply focused marketing programs
by more sharply targeting their own services. Benefits of market
segmentation: It identifies opportunities for new product
development. It helps in the design of marketing programs that are
most effective for reaching homogeneous groups of customers. It
improves the strategic allocation of marketing resources. Drawbacks
of market segmentation: Potential customers who do not fit into the
target segment are missed. Marketers may misjudge who their target
market is, which could result in product failure or poor sales.
Objectives of Market Segmentation
Identify a homogeneous segment that differs from other segments
Specify criteria that define the segment Determine segment size and
potential Discussion Question 4. How should market segments be
defined?
Three good ways to do it. Who the customers are Where they are How
they behave Ask, for each approach, What tools do we have to define
segments this way? Can you think of examples of markets typically
segmented this way? Who? Tools: demographic descriptors (age,
income, gender, education, etc.): cereal, clothing, cosmetics, some
magazines Where? Tools: geographic descriptors: suntan lotion, snow
blowers, trade areas for retail stores How they behave? Tools:
Benefits sought: bicycles of various types, computers of various
types Product usage: key accounts among organizational buyers
Lifestyle/psychographics: health clubs, automobiles/SUVs Social
class: jewelry, automobiles Discussion Question 5.What are some
commonly used demographic, geographic and behavioral descriptors?
Demographic DescriptorsExamples of categories AgeUnder 2, 2-5,
6-11, 12-17, 18-24, 25-34, 35-49, , 65 and over SexMale, female
Household LifecycleYoung, 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 IncomeUnder $15,000,
$15,000-24,999; $25, ,999, etc. OccupationProfessional, manager,
clerical, sales, supervisor, blue collar, homemaker, student,
unemployed EducationSome high school, graduated high school, some
college, graduated college EventsBirthdays, graduations,
anniversaries, national holidays, sporting events Race and ethnic
originAnglo-Saxon, African-American, Italian, Jewish, Scandinavian,
etc. Geographic DescriptorsExamples of categories Geographically
regionCountry, trade area Behavioral DescriptorsExamples of
categories Consumer needsBenefits sought, choice criteria
Product-relatedProduct usage, purchase influence SAGA segmentation
of UK grandparents, where a complete description of each category
can be found in this SAGA press release. Pharmaceutical industry
segmentation Inline skating segmentation Discussion Question 6. Do
these same approaches apply to organizational markets? Examples?
Who? Demographic descriptors: company age, size, etc. Example:
different software versions for small and large businesses. Where?
Geographic descriptors: Example: B2B Websites in different
languages to reach different geographical markets. How they behave?
Benefits sought by different industries: Example: software tailored
to different vertical markets. Product usage: Example: treating
keyaccounts among organizational buyers differently
Lifestyle/psychographics: Example: marketing corporate wellness
programs/corporate health club memberships to different kinds of
firms Social class: Example: company vehicles differ for different
job levels How should we Decide Which Segments to Target
How should we Decide Which Segments toTarget? - 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. 7 A Useful Tool for Assessing Market Segments:
Segment Rating Chart
WEIGHT RATING (0-10) TOTAL Market attractiveness factors Customer
needs and behavior .5 10 5.0 Segment size and growth rate .3 7 2.1
Macro trends .2 8 1.6 Total: Market attractiveness 1.0 8.7
Competitive position factors Opportunity for competitive advantage
.6 4.2 Capabilities and resources 5 Industry attractiveness 1.4
Total: Competitive position 6.6 Where does the necessary data come
from to support the factor ratings? Primary and secondary marketing
research Analytical frameworks from earlier chapters The Market
Attractiveness/ Competitive Position Matrix
l Market Attractiveness High (8-10) Moderate (4-7) Low (0-3)
Companys Competitive Position = Market attractiveness and
competitive position of distance runners segment How can these
factors be assessed? Market attractiveness factors Customer needs
and behavior: unmet needs? Segment size and growth rate Macro
trends Competitive position factors Opportunities for competitive
advantage Capabilities and resources Industry attractiveness
Implications of Alternative PositionsWithin the
Market-Attractiveness/ Competitive-Position Matrix
Weak Medium Strong Build selectively: Spec. in limited strengths
Seek to overcome weak. Withdraw if indications of sustainable
growth are lacking Desirable Potential Target Invest to build:
Challenge for leadership Build selectively on strengths Reinforce
vulnerable areas Desirable Potential Target Protect position:
Invest to grow at max. digestible rate Concentrate on maintaining
strength High Limited expansion or harvest: Look for ways to expand
w/out high risk; otherwise min. invest. and focus operations
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 Med.
Market Attractiveness Divest: Sell when possible to maximize cash
value Meantime, cut fixed costs & avoid further investment
Manage for earnings: Protect position Minimize investment Protect
and refocus: Defend strengths Seek ways to increase current
earnings without speeding markets decline Low 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 14 Discussion
Questions 7. What targeting strategies are available? When should
each be used? Niche-market strategy One or more segments with
substantial number of customers seeking somewhat specialized
benefits from a product or service Strategy is designed to avoid
direct competition with larger firms that are pursuing bigger
segments Mass-market strategy Ignore any segment differences and
design a single product-and-marketing program that will appeal to
the largest number of consumers Objective of strategy is to capture
sufficient volume to gain economies of scale and a cost advantage
Favored by larger business units or by those whose parent
corporation provides substantial support A second approach to the
mass market is to design separate products and marketing programs
for the differing segments Growth-market strategy Often target one
or more fast-growth segments A strategy often favored by smaller
competitors to avoid direct confrontations with larger firms while
building volume and share Niche-Market Strategy Mass-Market
Strategy Growth-Market Strategy
Differentiated Marketing Growth-Market Strategy