Page 170 - Foundations of Marketing

Target Markets: Segmentation and Evaluation | Chapter 5 137

marketing mix. With a differentiated targeting strategy, an geographic area, time, and level of competition. Besides
organization directs customized marketing efforts at two or obtaining sales estimates, it is crucial to assess competitors
more segments. that are already operating in the segments being considered.
Certain conditions must exist for market segmentation to Without competitive information, sales estimates may be
be effective. First, customers’ needs for the product should be misleading. The cost of developing a marketing mix that
heterogeneous. Second, the segments of the market should meets the wants and needs of individuals in that segment
be identifiable and divisible. Third, the total market should be must also be considered. If the firm’s costs to compete in
divided so segments can be compared with respect to esti- that market are very high, it may be unable to compete in
mated sales, costs, and profits. Fourth, at least one segment that segment in the long run.
must have enough profit potential to justify developing and
maintaining a special marketing mix for that segment. Fifth, 7. Identify the factors that influence the selection
the firm must be able to reach the chosen segment with a par- of specific market segments for use as target
ticular marketing mix. markets.
4. Become familiar with the major segmentation The final step involves the actual selection of specific target
variables. markets. In this step, the company considers whether custom-
ers’ needs differ enough to warrant segmentation and which
The second step is determining which segmentation variables
segments to target. If customers’ needs are heterogeneous,
to use, which are the characteristics of individuals, groups,
the decision of which segment to target must be made, or
or organizations used to divide a total market into segments.
whether to enter the market at all. Considerations such as
The segmentation variable should relate to customers’ needs
the firm’s available resources, managerial skills, employee
for, uses of, or behavior toward the product. Segmentation
expertise, facilities, the firm’s overall objectives, possible
variables for consumer markets can be grouped into four cat-
legal problems, conflicts with interest groups, and technolog-
egories: demographic (e.g., age, gender, income, ethnicity,
ical advancements must be considered when deciding which
family life cycle), geographic (e.g., population, market den-
segments to target.
sity, climate), psychographic (e.g., personality traits, motives,
lifestyles), and behavioristic (e.g., volume usage, end use, 8. Become familiar with sales forecasting
expected benefits, brand loyalty, price sensitivity). Variables
for segmenting business markets include geographic loca- methods.
tion, type of organization, customer size, and product use. A sales forecast is the amount of a product the company
actually expects to sell during a specific period at a specified
5. Know what segment profiles are and how they level of marketing activities. To forecast sales, marketers can
are used. choose from a number of methods. The choice depends on
Step three in the target market selection process is to develop various factors, including the costs involved, type of prod-
market segment profiles. Such profiles describe the similari- uct, market characteristics, and time span and purposes of the
ties among potential customers within a segment and explain forecast. There are five categories of forecasting techniques:
the differences among people and organizations in different executive judgment, surveys, time series analysis, regression
market segments. They are used to assess the degree to which analysis, and market tests. Executive judgment is based on
the firm’s products can match potential customers’ product the intuition of one or more executives. Surveys include cus-
needs. Segments, which may seem attractive at first, may be tomer, sales force, and expert forecasting. Time series analy-
shown to be quite the opposite after a market segment profile sis uses the firm’s historical sales data to discover patterns
is completed. in the firm’s sales over time and employs four major types
of analysis: trend, cycle, seasonal, and random factor. With
6. Understand how to evaluate market segments. regression analysis, forecasters attempt to find a relationship
Step four is evaluating relevant market segments. Marketers between past sales and one or more independent variables.
analyze several important factors, such as sales estimates, Market testing involves making a product available to buyers
competition, and estimated costs associated with each seg- in one or more test areas and measuring purchases and con-
ment. Potential sales for a market segment can be mea- sumer responses to distribution, promotion, and price. Many
sured along several dimensions, including product level, companies employ multiple forecasting methods.

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