Chapter 6

  • What are Markets?
    • "a group of people who, as individuals or organizations, have needs for products in a product class and have the ability, willingness, and anuthority to purchase such products"
      • students- market for textbooks
      • high school students-incorrect market for liquor. have willingness and ability to buy, but no authority (under 21)
    • consumer markets
      • "consists of purchasers and household members who intend to consume or benefit from the purchased products and do not buy products for the main purpose of making a profit"
      • aka business-to-=consumer (B2C) markets
    • business markets
      • "consists of individuals or groups that purchase a specific kind of product for one of three purposes:"
        • resale
        • direct use in producing other products
        • use in general daily operations
      • aka business-to-business (B2B), industrial or organizational markets
      • can be classified into producer, reseller, government, and institutional markets (see ch. 8)
  • Target Market Selection Process
    • Step 1: Identify the appropriate targeting strategy
      • undifferentiated targeting strategy
        • "a strategy in which an organization designs a single marketing mix and directs it at the entire market for a particular product"
        • assumes all customers in the target market for a specific kind of product have similar needs
          • therefore, organization can satisfy most customers w/ single marketing mix
        • mix consists of:
          • one type of product
            • little or no variation
          • one price
          • one promotional program
            • aimed at everyone
          • one distribution system
        • successful products: staple food items (sugar/salt) and certain kinds of farm produce
        • effective under 2 conditions:
          • homogeneous market
            • "a market in which a large proportion of customers have similar needs for a product"
          • must be able to develop and maintain a single marketing mix that satisfies cusomters' needs
        • works on very few products
        • ORGANIZATION >> SINGLE MARKETING MIX >> TARGET MARKET (A)
      • concentrated targeting strategy through market segmentation
        • heterogeneous market
          • "a market made up of individuals or organizations with diverse product needs"
          • ex: not everybody wants same car/clothes/furniture/etc -> heterogeneous market
          • market segmentation
            • "the process of dividing a total market into groups with relatively similar product needs to design a marketing mix that matches those needs"
            • appropriate for heterogeneous markets
            • market segment
              • "consists of individuals, groups, or organizations sharing one or more similar characteristics that cause them to have similar product needs"
              • auto market split into many market segments
              • ex: fast-food chains, soda companies, magazine publishers, hospitals, banks, etc
            • 5 conditions must exist for market segmentation to succeed
              • customer's need for product must be heterogeneous
              • segments must be identifiable and divisible
                • must find characteristic/variable to separate individuals into groups
              • total market should be divided so segments can be compared with respect to estimated sales potential, costs and profits
              • at least one segment must have enough profit potential to justify developing and maintaining a special marketing mix for that segment
              • must be able to reach the chosen segment w/ a particular marketing mix
            • concentrated targeting strategy
              • "a market segmentation strategy in which an organization targets a single market segment using one marketing mix"
              • ex: porsche >> markets towards high-income individuals only
              • allows a firm to specialize
              • permits a firm with limited resources to compete with larger organizations that may have overlooked smaller segments
        • ORGANIZATION >> SINGLE MARKETING MIX >> TARGET MARKET (A/B/C)
      • differentiated targeting strategy through market segmentation
        • differentiated targeting strategy
          • " a strategy in which an organization targets two or more segments by developing a marketing mix for each segment"
          • ex: fruit of the loom >> used to be only men but now SEPARATE targeting strategy for women
    • Step 2: Determine which segmentation variables to use
      • segmentation variables
        • "characteristics of individuals, groups, or organizations used to divide a market into segments"
        • ex: location, age, gender and rate of product usage
        • number/size of segment variables used affected by
          • company's resources/capabilities
          • type of product
          • degree of variation in customer's needs
      • variables for segmenting consumer markets
        • demographic
          • variables
            • age
            • gender
            • race/ethnicity
            • income
            • education
            • occupation
            • family size/family life cycle
            • religion
            • social class
        • geographic
          • variables
            • climate
            • terrain
            • city size
            • population density
            • urban/rural areas
          • market density
            • "the number of potential customers within a unit of land area"
            • similar but not same as population density
          • geodemographic segmentation
            • "a method of market segmentation that clusters people into zip code areas and smaller neighborhood units based on lifestyle and demographic information"
          • micromarketing
            • geodemographic segmentation allows marketers to engage in micromarketing
            • "the focusing of precise marketing efforts on very small geographic markets, such as community and even neighborhood markets"
            • used by providers of financial/health-care services, retailers and consumer products companies
            • ex of micromarketing:
              • special advertising campaigns
              • promotions
              • retail site location analyses
              • special pricing
              • unique retail product offerings
        • psychographic
          • personality characteristics
            • risky
            • seek positive personality characteristics
          • motives
            • personal appearance
            • affiliation
            • status
            • safety
            • health
          • lifestyles
            • how time is spent
            • importance of things
              • home/jobs
            • beliefs about themselves/broad issues
            • some demographic characteristics
              • income/education
          • VALS
            • SRI Consulting Business Intelligence
            • classifies consumers based on psychological characteristics that are correlated with purchase behavior and key demographics
              • innovator, thinker, believer, achiever, striver, experiencer, maker, survivor
        • behavioristic
          • users
            • heavy
            • moderate
            • light
          • nonusers
          • benefit segmentation
            • "division of a market according to benefits that consumers want from the product"
      • Variables for Segmenting business markets
        • geographic location
          • especially appropriate for reaching industries concentrated in certain locations
        • type of organization
          • diff. orgs often require different:
            • product features
            • distribution systems
            • price structures
            • selling strategies
        • customer size
          • ex: customers who buy in extremely large quantities are sometimes offered discounts
        • product use
          • esp. basic raw materials (steel, petroleum, plastics, lumber)
    • Step 3: Develop Market Segments Profiles
      • describes the similarities among potential customers within a segment and explains the differences among people and organizations in different segments
      • a profile may cover
        • demographic characteristics
        • geographic factors
        • product benefits sought
        • lifestyles
        • brand preferences
        • usage rates
        • etc...
    • Step 4: Evaluate Relevant Market Segments
      • After analyzing market segment profiles, marketer further analyzes/eliminates segments
      • to further assess relevant market segments, several important factors should be analyzed:
        • sales estimates
          • can be measured along several dimensions incl
            • product level
              • specific product (diet coke)
              • entire product line (all coke products)
            • geographic area
            • time
              • short range (<1 yr)
              • medium range (1-5 yrs)
              • long range (>5 yrs)
            • level of competition
              • sales estimated for single firm
              • sales estimated for entire industry
          • market potential
            • "the total amount of a product that customers will purchase within a specified period at a specific level of industrywide marketing activity"
            • stated in terms of dollars or units
            • affected by economic, sociocultural and other environmental forces
          • company sales potential
            • "the maximum percentage of market potential that an individual firm within an industry can expect to obtain for a specific product"
            • factors that influence company sales potential for market segment:
              • market potential places absolute limits on the size of the company's sales potential
              • magnitude of industrywide marketing activities has an indirect but definite impact on the company's sales potential
              • intensity and effectiveness of a company's marketing activities relative to competitors' affect the size of the company's sales potential
            • 2 general approaches that measure company sales potential
              • 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"
        • competitive assessment
          • w/o competitive information, sales estimates may be misleading
        • cost estimates
          • meeting segment wants/needs may be too expensive, esp. when faced with competitor's costs in relation to own costs
    • Step 5: Select Specific Target Markets
      • Marketers must decide which segments to participated in based off of info from previous step
      • must investigate whether the org has financial resources, managerial skills, employee expertise, and facilities to enter/compete effectively
      • requirements of some market segments may be at odds w/ firm's overall objectives
        • possibility of legal problems
        • conflicts w/ interest groups
        • technological advancements
      • prospects for long-term growth
    • Product Positioning and Repositioning
      • product positioning
        • "creating and maintaining a certain concept of a product in customers' minds"
        • perceptual mapping
          • result of customers' perceptions of the product's attributes relative to those of competitive brands
          • figure 6.8 pg. 178
        • bases for positioning
          • common base: use competitors
            • head on competitors
            • positioning to avoid competition
          • other bases
            • price
            • quality level
            • benefits provided from product
      • Repositioning
        • physically change a product, price, distribution, image (through promotional efforts) or aiming at different target market
  • Developing Sales Forecasts
    • Sales Forecasts
      • "amount of a product the company expects to sell during a specific period at a specified level of marketing activities"
      • differs from company sales potential
      • concentrated on what actual sales wll be at a certain level of company marketing effort
      • use sales force for planning, organizing, implementing and controlling their activities
      • success depends on forecast's accuracy
        • 5 methods
          • choice depends on costs involved, type of product, marketing characteristics, time span, purpose, stability of history of sales data, availability of negative info, managerial preference and forecasts expense and experience
        • common forecasting techniques
          • executive judgment
            • "a sales forecasting method based on the intuition of one or more executives"
            • advantages
              • expedient and inexensive
            • limitations
              • unscientific
              • swayed by recent experience
                • may be overly optimistic/pessimistic
              • only uses past experiences
          • surveys
            • question customers, sales personnel or experts regarding expectations about future purchases
            • customer forecasting survey
              • "a survey of customers regarding the types and quantities of products they intend to buy during a specific period"
              • advantages
                • useful to businesses with relatively few customers
              • limitations
                • customers must be willing and able to make accurate estimates of future product requirements
                • customers may not want to take survey
                • some knowingly answer incorrectly-results in inaccurate results
                • reflects buyer's intent, not actual purposes
                  • buyers may not follow through
            • sales force forecasting survey
              • "a survey of a firm's sales force regarding anticipated sales in their territories for a specified period"
              • advantages
                • sales force more likely to know about customer's future product needs
                • effective if they are accurate as a group, or at least consistent
                • gives employees satisfaction of helping define their work
              • limitations
                • sales people too optimistic or pessimistic due to recent experiences
                • tend to underestimated sales potential in their territories when they believe their sales goals will be determined by their forecasts
                • dislike paperwork
                • may speed through and give inaccurate answers if time consuming
            • expert forecasting survey
              • "sales forecasts prepared by experts outside the firm, such as economists, management consultants, advertising executives, or college professors"
              • advantages
                • professionals
                • expedient
                • relatively inexpensive
              • limitations
                • less motivated than company personnel since they work outside the company
            • Delphi Technique
              • more complex form of expert forecasting survey
              • "a procedure in which experts create initial forecasts, submit them to the company for averaging, and then refine the forecasts"
              • advantages
                • can be repeated several times to narrow down forecast
                • highly accurate
                • aim to reach a consensus between firm and experts
              • limitations
                • highly time consuming
          • Time series analysis
            • "a forecasting method that uses the firm's historical sales data to discover a pattern or patterns in the firm's sales over time"
            • assumes past sales patterns will continue
            • involves 4 types of analysis
              • trend analysis
                • focuses on aggregate sales data
                  • ex: company's annual sales figures, covering a period of many years to determine whether annual sales are generally rising, falling, or staying steady
              • cycle analysis
                • analyzes sales figures (usually monthly sales data) from ~3-5 yrs to ascertain if sales fluctuate in a consistent, periodic manner
              • seasonal analysis
                • studies daily/weekly/monthly sales figures to evaluate the degree to which seasonal factors (climate/holiday activities) influence sales
              • random factor analysis
                • attempts to attribute erratic sales variations to random, non-recurrent events
                  • ex: regional power failure, natural disasters, political unrest in foreign market
            • effective method for products with reasonably STABLE demand
              • NOT to be used for products with highly ERRATIC demand
          • Regressive Analysis
            • "a method of predicting sales based on finding a relationship between past sales (dependent variable) and one or more independent variables such as population or income"
            • requires use of historical sales data
            • advantages
              • useful when a precise association can be established
            • limitations
              • forecasters seldom find perfect correlation
              • can only be used when historical sales data are EXTENSIVE
              • can NOT be used for new products
          • Market tests
            • "making a product available to buyers in one or more test areas and measuring purchases and consumer responses to marketing efforts"
            • often test areas have populations of 200,000-500,000
              • can sometimes have populations of 50,000-200,000
            • advantages
              • provides information on ACTUAL not intended purchases
              • effective for forecasting sales of new products/existing products in new areas
              • gives opportunity to test marketing mix
            • limitations
              • time consuming/expensive
              • cannot be certain actions in market test represents total market response or that the responses will continue into the future
          • Using Multiple Forecasting Methods
            • most firms use several methods
              • may only use one method on one product, but different methods varied by product
              • may also use several methods on just one product