Page 164 - Foundations of Marketing

Target Markets: Segmentation and Evaluation | Chapter 5 131

and organizations within a market segment should be relatively similar with respect to
several of their characteristics and product needs and differ considerably from those within
other market segments. Marketers use market segment profiles to assess the degree to
which their products fit potential customers’ product needs. Market segment profiles help
marketers understand how a business can use its capabilities to serve potential customer
groups.
Market segment profiles help a marketer determine which segment or segments are most
attractive relative to the firm’s strengths, weaknesses, objectives, and resources. Although
marketers may initially believe certain segments are attractive, a market segment profile may
yield contrary information. Market segment profiles can be useful in helping a firm make
marketing decisions relating to a specific market segment or segments.

STEP 4: EVALUATE RELEVANT LO 6 . Understand how to
evaluate market segments.
MARKET SEGMENTS

After analyzing the market segment profiles, a marketer should be able to narrow his or her
focus to several promising segments that warrant further analysis. Marketers should examine
sales estimates, competition, and estimated costs associated with each of these segments.

Sales Estimates
Potential sales for a market segment can be measured along several dimensions, including
14
product level, geographic area, time, and level of competition. With respect to product level,
potential sales can be estimated for a specific product item (e.g., Diet Coke) or an entire prod-
uct line (e.g., Coca-Cola Classic, Diet Coke, and Coke Zero comprise goods in a product line).
A manager must also determine the geographic area to include in the estimate. In relation to
time, sales estimates can be short range (one year or less), medium range (one to five years),
or long range (longer than five years). The competitive level specifies whether sales are being
estimated for a single firm or for an entire industry.
Market potential is the total amount of a product that customers will purchase within a
specified period at a specific level of industry-wide marketing activity. Market potential can
be stated in terms of dollars or units. A segment’s market potential is affected by economic,
sociocultural, and other environmental forces. The specific level of marketing effort will vary
from one firm to another, but each firm’s marketing activities together add up to the industry-
wide marketing effort total. A marketing manager must also estimate whether and to what
extent industry marketing efforts will change over time.
Company sales potential is the maximum percentage share of a market that an indi- market potential The total
vidual fi rm within an industry can expect to capture for a specifi c product. Several factors amount of a product that
infl uence company sales potential for a market segment. First, the market potential places an customers will purchase within
absolute limit on the size of the company’s sales potential—a fi rm cannot exceed the mar- a specified period at a specific
level of industry-wide marketing
ket potential. Second, the magnitude of industry-wide marketing activities has an indirect
activity
but defi nite impact on the company’s sales potential. For instance, when Domino’s Pizza
advertises home-delivered pizza, it indirectly promotes pizza in general. Maybe you see company sales potential The
maximum percentage of market
the ad and it sparks a craving for pizza, but you call the Pizza Hut down the street because
potential that an individual firm
it is more familiar to you. Third, the intensity and effectiveness of a company’s marketing
within an industry can expect to
activities relative to competitors’ activities affect the size of the company’s sales potential.
obtain for a specific product
If a company spends twice as much as any of its competitors on marketing efforts, and if
breakdown approach
each dollar spent is more effective in generating sales, the fi rm’s sales potential will be high
Measuring company sales
relative to competitors’.
potential based on a general
Two general approaches that measure company sales potential are breakdown and buildup. economic forecast for a specific
In the breakdown approach , the marketing manager fi rst develops a general economic fore- period and the market potential
cast for a specifi c time period. Next, the manager estimates market potential based on this derived from it

Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.