Ch. 6 TB: Target Markets, Segmentation and Evaluation
Why would a firm survey its sales force to forecast company sales? Why would a firm choose an expert forecasting survey instead?
: In a sales force forecasting survey, the firm's salespeople estimate anticipated sales in their territories for a specified period. A marketer may survey sales staff for several reasons, the most important being that the sales staff is the company personnel closest to customers on a daily basis. They therefore have first- hand knowledge about customers' product needs. Moreover, when sales representatives assist in developing the forecast, they are invested in the process and are more likely to work toward its achievement. When a company wants an expert forecasting survey, it hires professionals to help prepare the sales forecast. These experts are usually economists, management consultants, advertising executives, college professors, or other individuals outside the firm with experience in a specific market. Drawing on this experience and their analyses of available information about the company and the market, experts prepare and present forecasts or answer questions. Using experts is a quick way to get information and is relatively inexpensive.
Several conditions must exist for market segmentation to be successful. These conditions include all of the following except
customers' needs for the product must be homogeneous.
Which of the following is not a requirement or characteristic of a market?
A large number of people or organizations
Which of the following forecasting methods is least dependent on historical sales data?
A market test
Identify the four major categories of segmentation of variables for consumer products, and give three examples of each.
A marketer that uses segmentation to reach a consumer market can choose one or several variables. Segmentation variables can be grouped into four major categories: demographic, geographic, psychographic, and behavioristic. Demographic characteristics that marketers commonly use include age, gender, race, ethnicity, income, education, occupation, family size, family life cycle, religion, and social class. Age is a common variable for segmentation purposes. For example, a trip to the shopping mall high-lights the fact that many retailers, including Zara, Aeropostale, and American Eagle Outfitters, target teens and young adults. Markets may be divided using geographic variables, because differences in location, climate, and terrain will influence consumers' needs. City size can be an important segmentation variable. A classic example is Walmart, which initially was located only in small towns and even today can be found in towns where other large retailers stay away. Marketers sometimes use psychographic variables, such as personality characteristics, motives, and lifestyles, to segment markets. Personality characteristics can be a useful means of segmentation. When appealing to a personality characteristic, a marketer almost always selects one that many people view positively. For example, the Ermenegildo Zegna advertisement for men's luxury clothing and accessories clearly appeals to customers who are motivated by personal appearance and status and who care about fashion. Firms can divide a market according to consumer behavior toward a product, which commonly involves an aspect of consumers' product use. For example, a market may be separated into users—classified as heavy, moderate, or light—and nonusers. To satisfy a specific group, such as heavy users, marketers may create a distinctive product and price, or initiate special promotion and distribution activities.
Trend analysis is a sales forecasting technique that focuses on aggregate sales data over a period of many years to determine general trends in annual sales.
True
Discuss the difference between sales forecasts and company sales potential. Why is it important for a marketer to be able to forecast sales?
After a company selects a target market or markets, it must develop a sales forecast—the amount of a product the company expects to sell during a specific period at a specified level of marketing activity. The sales forecast differs from the company sales potential in that it concentrates on what actual sales will be at a certain level of company marketing effort. The company sales potential assesses what sales are possible at various levels of marketing activities, assuming certain environmental conditions exist. Businesses use the sales forecast for planning, organizing, implementing, and controlling activities. The success of numerous activities depends on the forecast's accuracy. Common problems in failing companies are improper planning and lack of realistic sales forecasts. For example, overly ambitious sales forecasts can lead to overbuying, overinvestment, and higher costs that can weaken a firm's strength and position.
Describe the three areas marketers should examine when they evaluate relevant 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. Potential sales for a market segment can be measured along several dimensions, including product level, geographic area, time, and level of competition. Besides obtaining sales estimates, it is crucial to assess competitors that are already operating in the segments being considered. A market segment that initially seems attractive based on sales estimates may turn out to be much less so after a competitive assessment. To fulfill the needs of a target segment, an organization must develop and maintain a marketing mix that precisely meets the wants and needs of that segment, which can be expensive.
What are the major steps of the target market selection process?
Althoughmarketersmayemployseveralmethodsfortargetmarketselection,theygenerallyfollowa five-step process. These steps include: Step 1: Identifying the appropriate targeting strategy Step 2: Determining which segmentation variables to use Step 3: Developing market segment profiles Step 4: Evaluating relevant market segments Step 5: Selecting specific target markets
Why is it important for marketers to assess competitors before entering a market segment?
Besides obtaining sales estimates, it is crucial to assess competitors that are already operating in the segments being considered. A market segment that initially seems attractive based on sales estimates may turn out to be much less so after a competitive assessment. Such an assessment should ask several questions about competitors: How many exist? What are their strengths and weaknesses? Do several competitors already have major market shares and together dominate the segment? Can our company create a marketing mix to compete effectively against competitors' marketing mixes? Is it likely that new competitors will enter this segment? If so, how will they affect our firm's ability to compete successfully? Answers to such questions are important for proper assessment of the competition in potential market segments.
Volkswagen markets its Routan to large families, its R32 race car to men, and its Jetta to young singles. What targeting approach is Volkswagen using?
Differentiated
Which of the following is an example of benefit segmentation?
Colgate-Palmolive markets three types of toothpaste: toothpaste with fluoride to strengthen tooth enamel, toothpaste with whitening properties, and toothpaste for sensitive gums.
Refer to Scenario 6.2. GE Transportation is most likely using a(an) ______ targeting strategy, segmenting by ________ variables.
Differentiated; benefit expectations
Beats by Dr. Dre (Beats) is a leading audio brand founded in 2006 by Dr. Dre and Jimmy Iovine and was acquired by Apple Inc. in 2014. Beats has become a favorite brand among consumers who enjoy listening to music. It is also somewhat of a status brand. The company markets a variety of products including headphones, earphones, speakers, and accessories. The product managers for the Beats product groups are involved in the sales forecast processes for their products, which is important to ensuring strong support for retailers and customers as well as to achieve sales objectives. The product managers hire experts to create initial forecasts, submit them to the company for averaging, and have the results returned to them so they can make individual refined forecasts. The procedure is iterative and may be repeated several times until the experts who are working independently reach a consensus. The process typically results in a very reliable sales forecast. What type of sales forecasting method do the product managers of Beats use?
Delphi technique
Why do marketers rely heavily on demographic characteristics when segmenting consumer markets?
Demographers study aggregate population characteristics such as the distribution of age and gender, fertility rates, migration patterns, and mortality rates. Demographic characteristics that marketers commonly use include age, gender, race, ethnicity, income, education, occupation, family size, family life cycle, religion, and social class. Marketers segment markets by demographic characteristics because they are often closely linked to customers' needs and purchasing behaviors and can be readily measured.
TimeWarner Cable uses a segmentation strategy for its cable TV packages based on market characteristics such as age, gender, or income. Which of the following segmentation variables is TimeWarner using?
Demographic
Jonathan works as a manager in the marketing department of a pharmaceutical firm. The time has come to develop sales forecasts for the next year. This year the company wants to increase the reliability of the sales forecast. Jonathan was asked to participate in this process because of his extensive market knowledge. He joins a group of other experts in the area. Individuals in Jonathan's group all submit their own forecasts. These forecasts are then averaged, and the results are given back to the group so they can refine them. The intent is to reach a consensus by working separately on these forecasts. What type of forecasting technique is this?
Delphi technique
Sysco distributes food to restaurants, healthcare facilities, hotels, and schools, among other businesses. What type of targeting strategy would it most likely adopt?
Differentiated
The first step in the breakdown approach is developing a general economic forecast for a specific time period. Which of the following is the second step?
Estimating market potential based on this forecast
Intuition and expediency are primary characteristics of which of the following sales forecasting methods?
Executive judgment
Discuss the advantages and disadvantages of using executive judgment in forecasting company sales.
Executivejudgmentistheintuitionofoneormoreexecutives.Thisisanunscientificbutexpedientand inexpensive approach to sales forecasting. It is not a very accurate method, but executive judgment may work reasonably well when product demand is relatively stable and the forecaster has years of market- related experience. However, because intuition is heavily influenced by recent experience, the forecast may weight recent sales booms or slumps excessively. Another drawback to intuition is that the forecaster has only past experience as a guide for deciding where to go in the future.
What is the main problem with using a market test as a forecasting tool?
Expensive
A differentiated targeting strategy is when the organization targets two or more markets by developing a single marketing mix.
False
A firm ordinarily uses the same sales forecasting method for determining short-range and long-range sales forecasts.
False
A market segment profile provides customers with an understanding of how a business can use its capabilities.
False
A marketer can use regression analysis techniques to predict the sales of new products.
False
A segmentation variable is used to group smaller markets into one larger market.
False
An undifferentiated targeting strategy does not target a single market with one marketing mix.
False
Coca-Cola would be able to use a customer forecasting survey to forecast future sales effectively.
False
Consideration of the firm's overall objectives usually does not influence the final selection of a target market
False
Family life cycle is a psychological dimension used for segmenting markets.
False
In developing a company sales forecast, the forecasting methods are limited to surveys and correlation methods.
False
In the breakdown approach, the marketing manager measures 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.
False
It is likely that during the fifth step of the target market selection process, marketers will decide not to enter and compete in any market segments.
False
Lifestyle is a product-related variable.
False
Only one variable can be used to segment a market.
False
Psychographic v ariables are aggregate population characteristics such as the distribution of age and gender, fertility rates, migration patterns, and mortality rates.
False
Sales forecasts are always long-range in nature.
False
The executive judgment method of sales forecasting is very accurate in predicting future sales.
False
The first step of the target market selection process is identifying the appropriate targeting strategy; the last step is evaluating relevant market segments.
False
The information yielded by market segment profiles usually is not very useful later in the marketing process.
False
The types of surveys used to forecast sales are customer, executive, and competitor surveys.
False
There are only two basic strategies for selecting target markets: the undifferentiated targeting strategy and the concentrated targeting strategy.
False
Through market tests, a forecaster gains data regarding consumers' intended purchases.
False
Subaru is producing a new seven-passenger van with all-wheel drive. Which of the following would be the best variables for segmenting the market for this new model?
Geographic location and family life cycle
Mia is pet-sitting for a friend's dog while he is on vacation. Her friend has given Mia all sorts of information, including the veterinarian's name and phone number, pet emergency center location, and the dog's favorite bedtime snack. The first evening of the vacation, Mia realizes that her friend did not bring the dog's food over, and she has no idea what the dog eats. Her friend's cell phone is "out of range" at the moment, so Mia must go to the grocery store and shop for dog food, even though she has never bought it before now. In this case, even though Mia is not a dog owner, she is likely to be part of the market for dog food for all of the following reasons except _______.
Her ability to purchase the dog food is questionable.
Marketers use a variety of characteristics to segment markets they are interested in pursuing. When segmenting consumer markets, demographic variables are normally used. All of the following are demographic characteristics used by marketers to segment markets except:
Hometown
Refer to Scenario 6.1. Which of the following best describes Angels' current approach to the market?
It is segmenting the market according to demographic variables.
Which of the following products is most likely to have its market segment based on age?
Legos
Describe the variables used to segment business markets, and provide at least one example of each.
Like consumer markets, business markets are frequently segmented for marketing purposes. Marketers segment business markets according to geographic location, type of organization, and product use. Geographic segmentation may be especially appropriate for producers seeking to reach industries concentrated in certain locations, such as furniture and textile producers concentrated in the Southeast. A company sometimes segments a market by types of organization within that market because they often require different product features, distribution systems, price structures, and selling strategies. An organization's size may affect its purchasing procedures and the types and quantities of products it needs. Size can thus be an effective variable for segmenting a business market. To reach a segment of a specific size, marketers may have to adjust one or more marketing mix ingredients. Because the needs of large and small buyers tend to be distinct, marketers frequently use different marketing practices to reach target customer groups. Certain products, particularly basic raw materials such as steel, petroleum, plastics, and lumber, can be used numerous ways in the production of goods. These variations will affect the types and amounts of products purchased, as well as the purchasing method.
Many marketers are concerned about the number of potential customers within a certain area of land because of the different requirements to serve dissimilar areas. What is this segmentation variable called?
Market density
____ describe the similarities among potential customers within a market segment and explain the differences among people in different market segments.
Market segment profiles
Refer to Scenario 6.1. What method should Angels use to forecast sales in new regions?
Market test
Refer to Scenario 6.2. Currently, GE uses several sales forecasting methods. One method is to sell the different locomotive engines to buyers in different countries, and then measure the purchasing response in each. In this case, GE Transportation is using the _____ method to forecast future sales.
Market test
The Sara Lee Company is attempting to forecast sales for a new ice cream cake. To come up with an accurate forecast, Sara Lee places the product in Atlanta supermarkets for a period of four months. In this instance, Sara Lee is using which forecasting method?
Market test
Which of the following sales forecasting techniques would generally be most suitable for estimating sales of a new product?
Market tests
Seventh Generation is a company producing products that limit the amount of negative impact on the environment. Their product line includes dishwashing liquid, toilet paper, paper towels, baby wipes, and laundry detergent, to name a few. Seventh Generation is now interested in producing a new line of clothing, mostly t-shirts, shorts, and long pants for both men and women. Their research indicates that they should use psychographic segmentation in their marketing strategy. Which group of segmentation variables will Seventh Generation be using?
Personality characteristics, motives, and lifestyles
The maximum percentage of market potential that an individual firm can expect to obtain for a specific product is the
company sales potential.
Leonard is developing a market forecast. After reviewing years of sales, he noticed there seems to be a clear association between past sales and households with children. The more families with children locate to the area, the more sales seem to increase. Leonard believes he can use this relationship and the information he has on households in the area to predict future sales. This is an example of what type of forecasting method?
Regression analysis
__________ is a useful sales forecasting method as long as a precise relationship between past sales figures and one or more variables can be established. Without these relationships, this method is useless in forecasting future sales.
Regression analysis
Which of the following products is most likely to be marketed using an undifferentiated approach?
Seasoning salt
Dana wants to open up a clothing store. The target market she selects will largely determine the type of product she sells. She has performed research and come up with three market segments that she thinks could be profitable: formal wear for special events, stylish but high-end clothes for consumers who use clothing as a status symbol, a nd casual clothing for those whose main concern is comfort. Dana has used sales estimates, competitive assessments, and cost estimates to determine the potential profitability of each segment. What is Dana's next step in the process?
Select specific target markets
Which of the following is not one of the major categories of consumer market segmentation variables?
Situational variables
Samantha's team is analyzing target markets for the company's new product idea. Her group is currently considering the different factors it should adopt t o divide the market. A major part of this decision involves the customers' needs for, uses of, or behavior toward the product. Which stage of the target market selection process is Samantha and her team currently at?
Step 2: Determine which segmentation variables to use
The Guitar Center is a music superstore selling instruments, sound equipment, lighting, as well as DJ, band, and orchestra products. The Guitar Center plans to continue its growth across the country by opening 15 to 20 new stores each year. The Guitar Center has recognized that it has several market segments, including professional musicians, DJ businesses, and consumers who purchase instruments for school band and orchestra. The company has developed a detailed description of these various customer segments. These detailed descriptions include information such as demographic characteristics—age, income, and education level—as well as an individual's preferences regarding what brands of instruments they purchase, how frequently they visit the store to make a purchase, how much time they spend in the store, and the percent of time they select The Guitar Center to make a purchase. What step in the target market selection process has The Guitar Center completed by describing their target market customers?
Step 3: Develop Market Segment Profiles
Maya has a great idea for a new shoe store. When she first conceived of the idea, she believed her target market would be the entire shoe market. However, as she learned more about marketing, she realized that different types of consumers were looking for different types of footwear. She also learned that some segments of the population would be much more profitable than others. Maya has used a number of variables to divide the market into different groups, including those that use shoes as a status symbol, those that use shoes for sports, and those who wear shoes simply because they are comfortable. What stage of the target market selection process is Maya currently at?
Step3: Develop market segment profiles
Why is it important for marketers to estimate sales potential for the entire industry as well as for the individual company?
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. 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, and 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 individual firm within an industry can expect to capture for a specific product. Several factors influence company sales potential for a market segment. First, the market potential places absolute limits on the size of the company's sales potential—a firm cannot exceed the market potential. Second, the magnitude of industry-wide marketing activities has an indirect but definite impact on the company's sales potential. Third, the intensity and effectiveness of a company's marketing activities relative to competitors' activities affect the size of the company's sales potential.
Which of the following variables would most likely be used to segment a business market?
The geographic location of the company
Why would a company use the undifferentiated strategy?
The needs of individual consumers in the target market for a specific product are similar, so the organization can satisfy most customers with a single marketing mix.
Which of these statements is not true about business markets?
The purchase is always made by more than one individual
In order for the marketer to achieve effective market segmentation, which of the following conditions must exist?
The segment must have enough profit potential to justify the development of a special marketing mix for the segment.
Discuss the differences between the breakdown and buildup approaches to measuring company sales potential. What are the similarities between these two approaches?
The two general approaches that measure company sales potential are breakdown and buildup. In the breakdown approach, the marketing manager first develops a general economic forecast for a specific time period. Next, the manager estimates market potential based on this forecast. The manager derives the company's sales potential from the forecast and an estimate of market potential. In the buildup approach, the marketing manager begins by estimating how much of a product a potential buyer in a specific geographic area, such as a sales territory, will purchase in a given period. The manager then multiplies that amount by the total number of potential buyers in that area. The manager performs the same calculation for each geographic area in which the firm sells products and then adds the totals to calculate market potential. To determine company sales potential, the manager must estimate, based on planned levels of company marketing activities, the proportion of the total market potential the company can reasonably attain.
Which of the following statements about the undifferentiated targeting strategy is false?
The undifferentiated targeting strategy uses multiple distribution systems to best reach individuals in the target market.
Which of the following is not a characteristic of a consumer market?
Their purchasing decisions are always made by only one individual
What are the conditions under which an undifferentiated targeting strategy is effective? Why are these conditions essential?
Theundifferentiatedtargetingstrategyiseffectiveundertwoconditions.First,alargeproportionof customers in a total market must have similar needs for the product, a situation termed a homogeneous market. A marketer using a single marketing mix for a total market of customers with a variety of needs would find that the marketing mix satisfies very few people. For example, marketers would have little success using an undifferentiated strategy to sell a "universal car" because different customers have varying needs. Second, the organization must have the resources to develop a single marketing mix that satisfies customers' needs in a large portion of a total market and the managerial skills to maintain it.
Which of the following is the biggest drawback to using psychographic variables?
They are difficult to measure.
Which of the following statements about market segment profiles is true?
They are used to describe differences among people in different market segments.
Brian works for a manufacturer of sports equipment and is currently developing a company sales forecast for golf clubs. While reviewing data, he discovered a pattern in sales volume over the past ten years that peaked during two months of each year. Brian likely used which sales forecasting technique?
Time series analysis
The ways in which customers use a particular product may be a basis for segmenting the market.
True
DeShon has just become the new marketing analyst for a company that produces vinyl siding for homes. In an effort to forecast his firm's sales for the coming year, he needs to find where the greatest opportunities are for selling his product. DeShon looks at the sales for the last five years and calculates a growth trend. He then collects data from a combination of other factors, such as population density, family size, home ownership, and per capita income. Finally, DeShon looks at the correlation between the sales trend data and the various combination of demographic data. DeShon is employing the ____ forecasting method for the sales growth trend and the ________ method for the correlation.
Time series analysis; regression analysis
A company sales forecast is the amount of a product that a company expects to sell during a specific time period at a specified level of marketing activities.
True
A company sometimes defines a total market as its target market.
True
A competitive assessment may reveal t hat a market segment that initially seemed attractive may not be worth pursuing.
True
A market is a group of people who, as individuals, have needs for products in a product class and have the ability, willingness, and authority to purchase such products.
True
A market segment profile describes the similarities among potential customers within a segment and explains the differences among people across market segments.
True
A market segment profile may cover such aspects as demographic characteristics, geographic factors, product benefits sought, lifestyles, brand preferences, and usage rates.
True
Company sales potential is the maximum percentage of market potential that an individual firm within an industry can expect to obtain for a specific product.
True
Demographic characteristics are commonly used to segment a market because they are closely related to consumers' product needs and purchasing behavior.
True
In a customer forecasting survey, a marketer would question customers about the types and quantities of products they intend to buy during a specific time period.
True
Individuals' ability to buy depends on the strength of their buying power.
True
Lifestyle analysis focuses on people's activities, interests, and opinions.
True
Lily is an award-winning fiction writer. She works out of her apartment. She recently purchased a new desk in whichtostorehermanuscriptsandforusewhentypingupstoriesforpublication.L ilyispartofthebusinessmarket for the desk manufacturer.
True
Market segment profiles help a marketer determine which segments are most attractive relative to a firm's strengths, weaknesses, objectives, and resources.
True
Market segment profiles help determine the most desirable segment or segments in relation to the firm's strengths, weaknesses, objectives, and resources.
True
Motives can be used to segment markets.
True
One condition for effective segmentation is that at least one segment must have substantial profit potential.
True
One problem with using psychographic variables for segmentation purposes is that they are difficult to measure accurately.
True
One way marketers can segment business markets is according to their geographic location.
True
Segmentation variables are characteristics of individuals, groups, or organizations in a total market.
True
Sellers of farm produce would be likely to use an undifferentiated targeting strategy.
True
Surveys are sometimes used to forecast sales.
True
The concentrated targeting strategy is one in which an organization directs its marketing efforts toward a single market segment through one marketing mix.
True
The four requirements of a market are that the individuals in the market must have a need for the product and the ability, willingness, and authority to buy it.
True
The size of the market potential places limits on the size of the company sales potential.
True
The sum of firms' marketing efforts equals industry marketing efforts.
True
The term market density refers to the number of potential customers per unit of land area, such as per square mile.
True
The two general approaches to measuring company sales potential are the breakdown and the buildup approach.
True
When a firm's management is making the final selection of specific target markets to enter, it should consider whether the organization has the financial resources, managerial skills, expertise, and facilities needed to effectively compete in the selected segments.
True
When evaluating relevant market segments, cost estimates are important to determine if an organization entering a particular segment can operate at costs equal to or below those of competitors.
True
When selecting the specific target market, the firm must consider the possibility that the requirements of some market segments are at odds with the firm's overall objectives.
True
A lumber firm sells wood products to both the construction industry and the retail industry. The company has the same sales representatives for both industries and often offers discounts for buying in bulk. The lumber firm sells different types of wood for each industry based on its unique characteristics. For instance, wood used for large construction projects must have a higher grade and quality than wood used for home improvement projects. Which type of segmentation is the lumber firm most likely to use?
Type of organization
To find a target market, a firm can use one of these targeting strategies
Undifferentiated strategy, the concentrated strategy, and the differentiated strategy
Which of the following is an example of a behavioristic segmentation variable?
Usage rate
Compare and contrast the concentrated and differentiated targeting strategies of market segmentation.
Whenanorganizationdirectsitsmarketingeffortstowardasinglemarketsegmentusingonemarketing mix, it is employing a concentrated targeting strategy. The chief advantage of the concentrated strategy is that it allows a firm to specialize. The firm analyzes the characteristics and needs of a distinct customer group and then focuses all its energies on satisfying that group's needs. If the group is big enough, a firm may generate a large sales volume by reaching a single segment. Concentrating on a single segment can also permit a firm with limited resources to compete with larger organizations that have overlooked smaller market segments. Specialization, however, means that a company allocates all its resources on one target segment, which can be hazardous. If a company's sales depend on a single segment and the segment's demand for the product declines, the company's financial health also deteriorates. With a differentiated targeting strategy, an organization directs its marketing efforts at two or more segments by developing a marketing mix for each segment. A benefit of a differentiated approach is that a firm may increase sales in the aggregate market because its marketing mixes are aimed at more customers. For this reason, a company with excess production capacity may find a differentiated strategy advantageous because the sale of products to additional segments may absorb excess capacity. Differentiated strategy, however, often demands more production processes, materials, and people because the different ingredients in each marketing mix will vary. Thus, production costs may be higher than with a concentrated strategy.
When a business has a relatively small number of customers, a preferred method of forecasting is
a customer forecasting survey.
Micromarketing is
a market segmentation approach in which firms focus precise marketing efforts on very small geographic markets.
The sales forecasting method that consists of making a product available to buyers in one or more locations and measuring purchase response is
a market test.
A business advantage of the concentrated targeting strategy for any company is that it
allows a firm to develop a special marketing mix for a single market segment.
How do business markets differ from consumer markets?
arkets fall into one of two categories: consumer markets and business markets. These categories are based on the characteristics of the individuals and groups that make up a specific market and the purposes for which they buy products. A consumer market consists of purchasers and household members who intend to consume or benefit from the purchased products and do not buy products to make a profit. Consumer markets are sometimes also referred to as business-to-consumer (B2C) markets. Each of us belongs to numerous consumer markets for all the purchases we make in categories such as housing, food, clothing, vehicles, personal services, appliances, furniture, recreational equipment, and so on. A business market consists of individuals or groups who purchase a specific kind of product for one of three purposes: resale, direct use in producing other products, or use in general daily operations. For instance, a producer that buys electrical wire to use in the production of lamps is part of a business market for electrical wire. Some products can be part of the business or consumer market, depending on their end use. For instance, if you purchase a chair for your home, that chair is part of the consumer market. However, if an office manager purchases the same chair for use in a business office, it is part of the business market. Business markets may be called business-to-business (B2B), industrial, or organizational markets and can be subclassified into producer, reseller, government, and institutional markets.
Alli segments its diet pills based on those who have morning cravings, those who tend to overeat near the end of the day, those who need all day long appetite suppression, and those who want appetite control and more energy. This is an example of market segmentation based on variables of
behavior.
Budweiser may choose to segment its market based on heavy, moderate, and light drinkers of its alcoholic beverages. This is an example of market segmentation based on
behavioristic variables.
The manager at a local recreational vehicle store, Off-Road Rage, believes the next two years will be difficult because of an economic recession. Using this forecast, he determines the effect on the industry's market potential and then estimates how his company's potential sales will look based on this outlook. This manager is using a ____ approach to estimating sales potential.
breakdown
Alex Wren of Owens Corning Fiberglass talks to Terry Jones, a homebuilder, to find out how much fiberglass insulation he intends to use in building homes during the next year. Albert then multiplies that number by the total number of builders in the territory. He is using a ____ approach to measure sales potential.
buildup
Variables such as geographic location, type of organization, customer size, and type of product usage are used to segment ____ markets.
business
In your regular goods and services consumption activities, you purchase products for resale and for use in your daily operations. You also purchase products that you will use to produce other products. Based on this information, which of the following best describes the type of market you are part of?
business market
Seller Company sells small refrigerators. It usually sells these refrigerators to hotels and offices. However, sometimes its customers choose to buy their refrigerators because they do not have a lot of room for a full-size refrigerator in their houses and apartments. Its primary market is the _____________ market, but it also sells to the _____________ market.
business; consumer
The ability to purchase a product is a function of
buying power.
Comcast offers different types of cable packages. Its digital economy has over 45 channels. Its digital preferred package offers over 220 channels. Its XFINITY TV 200 Latino offers over 150 channels, including more than 50 Spanish channels. What type of segmentation variable is Comcast likely using when developing its different packages?
behavioristic
When selecting specific target markets, a firm should
choose the segments most in line with the firm's objectives and long-term growth.
If Baskin-Robbins calculates that it could sell up to 25 percent of all ice cream cones sold in the United States, this percentage would represent the ice cream marketer's
company sales potential.
The marketing manager for Gillette razors is attempting to determine a sales estimate for the line of products that provide men with the ability to maintain their facial hair using a traditional razor or an electric razor. The marketing manager estimates that Gillette has a strong level of loyalty and brand name appeal and will garner 20% of the overall market. This amount is known as the _______. In addition, the marketing manager believes the total sales for the category will be $30 million annually for razors and razor blades for men. This is known as the ______________.
company sales potential; market potential
The Cup is a small shop in a small Pennsylvania town with a very loyal following. It has become well known in the town as well as in many of the towns surrounding it. Consumers seem to love the homey, local feel of The Cup. As a result, The Cup would like to open a new store in one of the towns close by. It has identified a region it thinks could be profitable. It has many loyal customers who live in that town. However, the town is also home to a Starbucks store. The town is growing, and The Cup has heard rumors that a Dunkin' Donuts may open. The owner is currently evaluating the relevant market segments in the area (Step 4). He has the following questions he wants to answer: 1. Do we have enough of a loyal following as a local shop that we can attract customers away from Starbucks? 2. With the town growing as fast as it is, will other coffee shops decide to locate there? The owner is conducting a _____________ to evaluate relevant market segments.
competitive assessment
A targeting strategy in which an organization targets a single market segment using one marketing mix is called a(n) ____ strategy.
concentrated
Refer to Scenario 6.1. Angels Kids Spa is currently using a(n)____ targeting strategy.
concentrated
When markets are comprised of people with differing product needs, the marketing manager should use a(n) ____ strategy.
concentrated or differentiated targeting
Tiffany's markets its exclusive jewelry and gifts to high-income individuals interested in high-quality products and a well-known brand name. It uses the same marketing mix to reach this market. Tiffany's uses a(n) ____ strategy.
concentrated targeting
If Georgia-Pacific, a producer of home siding, decking, and other wood products, focused its marketing efforts to home construction companies only, it would be using a(n) ____ strategy. If it sold the same products to both construction companies and DIY retailers such as Home Depot, it would be using a(n) ____ strategy.
concentrated; differentiated
Rolls-Royce targets a very exclusive high-income market. Toyota, on the other hand, targets economy markets (Yaris), the environmentally-conscious market (Prius), and the higher-income market (Lexus). Rolls-Royce has adopted a ___________ targeting strategy. Toyota has adopted a ______________ targeting strategy.
concentrated; differentiated
Axe has been a successful marketer of men's body spray, deodorant, and antiperspirants and is a division of Unilever. Axe supports a variety of fragrances and releases new products, which are supported by marketing efforts including racy advertising spots and a company-owned YouTube channel. The individuals who purchase Axe deodorant or body spray for their own personal use represent Axe's _____ market, while retailers such as Target, Kmart, Walmart, and grocery stores such as Kroger represent the company's __________ market.
consumer; business
Refer to Scenario 6.2. If a GE Transportation researcher analyzes monthly sales data for a four-year time frame, looking for periodic fluctuations, the researcher is doing a ____ analysis.
cycle
Kelly's Kids is a home-based business that sells high-quality children's clothing at premium prices using in-home parties. These in-home parties typically cater to families with small children and middle- to upper-middle-class income. Kelly's Kids is using ____ variables to segment its market.
demographic
With its Venus razor, Gillette was the first marketer to offer a triple blade razor specifically designed for women. This is an example of market segmentation using ____ variables.
demographic
Segmentation variables are usually grouped into four categories:
demographic, geographic, psychographic, and behavioristic.
Any group of people who, as individuals or as organizations, have needs for products in a product class and who have the ability, willingness, and authority to buy such products is a(n)
market.
Refer to Scenario 6.1. In calculating the sales forecast for the next year, marketers at Angels use data from the past five years in order to identify any trends that surface. Additionally, marketers want to find out what family variables relate to those sales. Which of the following variables should the marketers use in relating to sales? What type of forecast method will they be using to relate the variables to sales trends?
demographic; regression analysis
After a firm has identified an appropriate targeting strategy, the next step in the target market selection process is
determining which segmentation variables to use.
After an organization has determined which of the many segmentation variables it will use, the next step in the target market selection process is
developing market segment profiles.
Interior Designs Inc. sells expensive custom-made draperies, bedding, and accessories through sales representatives who are also interior designers. It also has another, slightly less expensive line that it sells through stores such as Nordstrom's and Saks Fifth Avenue. Interior Designs Inc. is most likely using a(n) ____ targeting strategy.
differentiated
Procter & Gamble markets Cheer detergent to young singles and couples and Tide detergent to families. Procter & Gamble is using a(n) ____ targeting strategy for laundry detergents.
differentiated
You have just been promoted to vice president of marketing for your firm. Unlike your predecessor, you believe the firm can increase its sales in a market by focusing on more than one segment of the market. You recognize to do this means your firm will incur higher production costs. Based on this information, which of the following targeting strategies are you advocating?
differentiated targeting strategy
Smart Balance produces a line of milk products that are lactose-free. The milk comes in pint, quart, and half-gallon cartons, as well as 16-ounce glass bottles. Smart Balance sells its pint cartons to school systems, its quart and half- gallon cartons to grocery stores, and its glass bottles to vending machine operators. Smart Balance appears to use a(n) _____ strategy in marketing its product to a target market that is likely to be _______.
differentiated; homogenous
Mattel views the toy market as composed of four age groupings, each with different needs and desires. Mattel is using a(n) ____ targeting strategy for its groups, which are known as _____.
differentiated; market segments
If your firm uses a ______________ targeting strategy, you can expect to need __________ production processes to support the strategy.
differentiated; more
The purpose of market segmentation is to
divide a total market to enable a marketer to develop a more precise marketing mix.
When a company has its sales forecasts prepared by management consultants, economists, or college professors, it is using a(n)
expert forecasting survey.
A marketer that targets customers based on marital status and the presence and age of children is using
family life cycle.
If Campbell were to offer single serving "Soup for One" packages to household markets, it would be using segmentation based on
family life cycle.
There are generally __________ steps in the target market selection process. The second step is ______________.
five; determine which segmentation variables to use
Baby Lux is a baby boutique that sells luxury baby items. It is located in Los Angeles. The owner has been highly successful over the years and has decided to open another store in San Diego. However, sales at this store have been low. The owner asked a marketing consultant for advice about what went wrong. The consultant says the location is not ideal for the market. The owner located his store in a high-income area, but most of the people in the area are singles or retired couples. Instead, the owner should have used ____________ to identify an area of the city with higher-income neighborhoods characterized by couples who want only the best for their newborn babies.
geodemographic segmentation
Systems such as PRIZM and Acorn provide companies with lifestyle and demographic information about neighborhoods throughout the United States. This information is used to aid
geodemographic segmentation.
Population density and city size are ____ variables used for market segmentation.
geographic
Ride Snowboard Company was founded in 1992 and is now based in Seattle, Washington. The company estimates that snowboard enthusiasts typically spend about $600 annually on gear even though they only get on the slopes about 50 days a year. However, Ride products are available in markets where the typical customer can average 30 days on the slopes using their equipment, so Ride ensures that they have store outlets near ski resorts such as Colorado, Vermont, and Utah. What type of segmentation variable does Ride utilize when selecting locations for its retail outlets?
geographic
Refer to Scenario 6.2. Suppose that GE Transportation decided to produce only locomotive engines for rail lines in the United States. The segmentation variable then would be
geographic location.
Alpine Ski Shops is looking for new markets for both its brick and mortar retail stores and its catalog division. Alpine Ski Shops would most likely use a(n) ______ base for market segmentation of its stores and a(n) ______ base for market segmentation of its catalog division.
geographic; behavioristic
Most markets for products are made up of individuals or groups with diverse needs for products and are called ____ markets.
heterogeneous
Crisco is an all-vegetable shortening that helps cooks around the globe create better-tasting meals for their families. The company is part of Procter & Gamble and Crisco was developed in 1911. They released their first print advertisement in 1912 and focused on how Crisco could be used as a replacement to lard and butter. Crisco is still a dominant brand today, and many families have the familiar blue tub of Crisco in their pantry as well as a container of liquid vegetable oil to use when cooking. Crisco believes its market is _______, where individuals have similar needs for the product. It therefore utilizes a _________ targeting strategy as it can incorporate a single marketing mix and direct it at the entire market for its products.
homogeneous; undifferentiated
Your marketing team is having a brainstorming session to finalize your target marketing strategy. To make sure all team members are on the same page, you make the following statement to keep the discussions focused: If we determine that the needs of the customers we are targeting are ______________, then we need to pursue a _______________ targeting strategy.
homogeneous; undifferentiated
The first step in the target market selection process is
identifying an appropriate targeting strategy.
The primary advantage of a concentrated targeting strategy is
it allows a firm to specialize to meet specific customer needs.
Lynn always wanted to live in downtown San Francisco. For 10 years she has worked as a manager at an investment banking firm, where she is well paid. However, the most affordable condo is still more than $1 million more than she wants to pay. Although Lynn has the money to purchase the condo, she cannot justify to herself paying so much money for one person, even for a condo in the middle of downtown San Francisco. Lynn ______ part of the market for condos in downtown San Francisco because she ___________________ to buy.
is not; lacks the willingness
Eighteen-year-old students do not form a market for alcoholic beverages because they
lack the authority to purchase this type of product.
Demographic variables such as income and occupation, as well as how people spend their time and the importance of things in their surroundings, are all factors considered in ____ segmentation.
lifestyle
The psychographic variable that includes numerous characteristics related to people's activities, interests, and opinion is
lifestyle.
Family life cycle is most typically based on
marital status and age of children.
General Electric calculates that the total number of light bulbs sold to consumers in the next year by all light bulb producers is 1 billion, given anticipated marketing efforts by the firms involved. This figure represents the industry's
market potential.
Refer to Scenario 6.2. Researchers at GE Transportation estimate that 1,000 rail lines throughout the world will purchase some kind of locomotive engine next year. That number represents the
market potential.
The total volume of a product, for all firms in an industry, that would be purchased by specific customer groups within a specified time period at a given level of industry-wide marketing activity, is the
market potential.
Individuals, groups, or organizations with one or more similar characteristics that cause them to have similar product needs are classified as
market segments.
Taco Bell has been very inventive in partnering with companies such as Frito Lay to create new menu items. Recently Taco Bell developed the Nacho Cheese Doritos Locos Tacos, a Taco Supreme® made with premium seasoned beef, crisp lettuce, diced juicy red ripe tomatoes, real cheddar cheese, and topped with cool reduced- fat sour cream, in a shell made from Nacho Cheese Doritos® Chips. Prior to the partnership and roll-out of the product throughout the Taco Bell system, a _______ was conducted where several "test" stores carried the products for a limited time and Taco Bell and Frito Lay could measure the actual sales to gauge the strength of the brand and opportunity for success.
market test
If a company segments its market on the basis of their reasons for purchasing a particular product, the primary segmentation variable in use is
motives.
The undifferentiated targeting strategy for finding a target market will likely not be successful if
people within the market have heterogeneous needs.
Bethlehem Steel provides steel for a variety of uses to its various customers. Customers have different needs for the steel and thus Bethlehem has to prepare the raw steel differently depending on how customers will use it in their production processes. The primary business segmentation variable in this example is
product use.
Many companies today employ a sales forecasting manager or sales planner to determine the sales forecasts for individual products. Forecasting managers may utilize Excel to perform _______________, where sales is the dependent variable and a variety of other factors such as company size, annual purchases, and number of years as a customer are the independent variables. Fastenal, a reseller of tools, fasteners, and other items required for manufacturers, relies on this sophisticated and mathematical approach to forecasting sales by first utilizing historical sales data incorporating a 10-year history of sales for each product category such as different brands of tools and supplies—nuts, bolts, screws, etc. The sales forecasting manager is then able to identify the relationship between the independent variables and the dependent variables to determine an accurate sales forecast.
regression analysis
A forecasting method that predicts sales based on relationships between past sales and other variables is called
regression analysis.
The sales prediction technique based on the correlation between sales and other factors such as population density, per capita income, or family size is
regression analysis.
When evaluating market segments, assessment of competitors is important because
sales estimates may cause a segment to appear to be lucrative, but there may be several competitors that together have a large share of that segment.
Starbucks will spend $2 million marketing its newest latte drink. It expects to sell 15 million of these lattes over the next year. These 15 million lattes are a _____________ for Starbucks.
sales forecast
The amount of product a company expects to sell during a specific period at a specified level of marketing activity is called the
sales forecast.
Characteristics of individuals, groups, or organizations that are used for dividing a total market into smaller homogeneous groups are called ____ variables.
segmentation
Age, rate of product use, location, and gender are all examples of common
segmentation variables.
The process of dividing a total market into market groups because people within each group have relatively similar product needs is called
segmentation.
Frito-Lay Snack Foods is currently conducting market segmentation studies. For several segments, they have completed competitive assessments and cost estimates. The next major step they must take is to
select specific target markets.
The final step in the target market selection process is
selecting specific target markets.
Market segment profiles are used to describe _____________ members of a market segment, and to explain ______________members in separate market segments.
similarities among; differences between
The buildup approach measure of sales potential
starts with forecasts about demand for a specific product within a relatively small area.
Relying on executive judgment for forecasting may be adequate when
the executive has considerable experience and product demand is relatively stable
A disadvantage of the concentrated targeting strategy is that
the firm's financial condition is tied to a single and specialized marketing mix.
The forecasting techniques that assume past sales patterns will continue into the future are all variations of
time series analysis.
Estimating the cost of entering a market and focusing on a specific target segment is important because
the organization's marketers need to know if they can reach the segment at costs equal to or below competitors' costs.
The most important reason that a firm might use a sales force forecasting survey to determine its sales forecast is
the sales staff is closer to the actual customers on a regular basis than anyone else in the organization.
The marketer uses segmentation variables to divide a market into segments. All of the following statements are true about segmentation variables except:
the variables should be based solely on demographic characteristics.
Generally speaking, individuals who are unemployed would not be considered a target market for lawn care services because
they would not have the ability to purchase such products.
The forecasting method that utilizes a firm's historical sales data to find patterns in the firm's sales volume over time is
time series analysis.
If Morton Salt saw all table salt customers as pretty much alike and thus offered only one marketing mix, it would be using the ____ strategy.
undifferentiated
The producers of C & H Sugar Company sell cane sugar in five-pound bags, one-pound bags, and one-pound boxes. When developing its advertising strategy, C & H will most likely use a(n) ____ approach in defining a target market.
undifferentiated
When a firm designs a single marketing mix and directs it at an entire market for a particular product, the company is using a(n) ____ strategy.
undifferentiated
When the needs of individual consumers in a target market for a specific product are similar and the organization can satisfy most customers with a single marketing mix, the best approach to use may be the ____ strategy.
undifferentiated
Walmart sells numerous products, including packaged food, produce, automotive maintenance services, eyeglasses, clothing, and toys. Walmart advertises itself as a store where "we save people money so they can live better," focusing on its low prices as the customer's most important need. Walmart's advertising appears to use a(n) _____ strategy to a market that is _____.
undifferentiated; homogeneous.
When using personality characteristics as a market segmentation variable, marketers generally
use a positively viewed characteristic they assume much of their target market has or would like to have.
Through marketing newsprint to newspaper publishers and glass manufacturers that use it in packing, International Paper segments its market based on
use of product.
Prodigy Placement is a private elementary school located in the center of Manhattan. Students at the school are considered in the top 1% of their age group in terms of IQ scores and aptitude. Parents who want to send their children to the school must get on a waiting list as soon as the child is 12 months old and must make a deposit of $5,000 to the school in order to hold the child's "application" until they reach the age of 5 years. Emma's parents put her on the waiting list at the age of 1 year and paid the deposit; however, when Emma became 5 years old, she did not want to attend the school even though she tested above the requirement. Her parents made the decision to enroll her for the upcoming school year. In this case, Emma ___ part of the market for Prodigy Placement, and her parents ____ part of the market because ____.
was not; were; Emma needed to attend school
Marketing managers have several choices in selecting a targeting strategy. Jessica Brandt is a marketing manager with a craft bourbon distiller in Kentucky and knows that there are many different types of bourbon drinkers. However, she concentrates her marketing on the enthusiast or high-involved bourbon drinker who often enjoys a bourbon beverage before or after dinner, reads magazines to keep up with the craft bourbon industry, and is a member of their e-mail list and subscriber to the company's blog. Jessica knows that this segment of bourbon drinkers will consume more bourbon, be more likely to engage in positive word-of-mouth about the brand, and will also be more likely to purchase accessories such as glassware or T-shirts. Jessica is most likely utilizing the _____ targeting strategy, employing just one marketing mix and focusing on one target market segment.
concentrated
Sherwin Williams Company provides paint and supplies to businesses and individuals through its network of company-owned retail outlets. Sherwin Williams employs outside sales representatives who make personal calls with prospects and customers in order to gain insight about their needs and persuade them to utilize Sherwin Williams for their painting projects. Typically, a Sherwin Williams sales representative will focus his or her efforts on specific customers such as hospital facility managers, apartment complex managers, painting contractors, or education institution facility managers. Sherwin Williams is utilizing the ______ variable for segmenting business markets.
type of organization
