Marketing Chapter 5
What is a market? What are the requirements for a market?
A market is a group of individuals and/or organizations that have a desire or need for products in a product class and have the ability, willingness, and authority to purchase those products. For a group of individuals and/or organizations to be a market, they must have the desire, willingness, ability, and authority to buy a product.
What dimensions are used to segment business markets?
Business markets may be segmented according to geographic location, type of organization, customer size, and product use.
Define geodemographic segmentation. Identify several types of firms that might employ this type of market segmentation and explain why.
Geodemographic segmentation clusters people by zip codes or neighborhood units based on lifestyle and demographic information. Geodemographic segmentation allows marketers to engage in micromarketing. Students' answers to the rest of the question may vary. For example, financial and health-care service providers might want to use geodemographic segmentation. A neighborhood composed mostly of senior citizens on fixed incomes, for example, would require particular health care services. Another composed of upper-income professionals might be an appropriate target for certain financial services.
Why is a marketer concerned about sales potential when trying to select a target market?
Sales potential is important to a marketer because the firm incurs a certain cost in developing and maintaining a marketing mix. To achieve long-term survival, the firm must be able to recover these costs and make at least a reasonable profit. By estimating the sales potential of possible target markets, a marketer is in a better position to achieve long-term survival. Estimates of sales potential are necessary to determine which market segments are substantial enough to justify the development of marketing mixes.
What is a market segment profile? Why is it an important step in the target market selection process?
A market segment profile describes the similarities among potential customers within a segment and explains the differences among people and organizations in different segments. A profile may cover such aspects as demographic characteristics, geographic factors, product benefits sought, lifestyles, brand preferences, and usage rates. 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.
Under what conditions are market tests useful for sales forecasting? What are the advantages and disadvantages of market tests?
A market test involves making a product available to buyers in one or more test areas and measuring purchases and consumer responses to the product, price, distribution, and promotion. A market test provides information about consumers' actual, rather than intended, purchases. In addition, purchase volume can be evaluated in relation to the intensity of other marketing activities such as advertising, in-store promotions, pricing, packaging, and distribution. Because it does not require historical sales data, a market test is effective for forecasting sales of new products or of existing products in new geographic areas. A market test also gives a marketer an opportunity to test the success of various elements of the marketing mix. However, these tests are often time consuming and expensive. In addition, a marketer cannot be certain that consumer response during a market test represents the total market response, or that the same response will continue in the future.
What is a sales forecast? Why is it important?
A sales forecast is the amount of a product the company expects to sell during a specific period at a specified level of marketing activities. The development of a sales forecast is important because it 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.
Why is selecting appropriate target markets important for an organization that wants to adopt the marketing concept philosophy?
According to the marketing concept philosophy, an organization should attempt to provide products which satisfy customers' needs through a coordinated set of activities, allowing the organization to achieve its goals. Customer satisfaction is the major aim of the marketing concept. Therefore, selecting appropriate target markets is important to an organization's effective adoption and use of the marketing concept philosophy. Identifying the right target market is the key to implementing a successful marketing strategy. Failure to do so can lead to low sales, high costs, and severe financial losses. A careful target market analysis places an organization in a strong position to serve customers' needs and achieve its objectives.
Describe the important factors marketers should analyze to evaluate 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. With respect to product level, potential sales can be estimated for a specific product item or an entire 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, medium range, or long range. 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. 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—the market potential, the magnitude of industry-wide marketing activities, and the intensity and effectiveness of the company's marketing activities relative to competitors' activities. 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. Distinctive product features, attractive package design, generous product warranties, extensive advertising, attractive promotional offers, competitive prices, and high-quality personal service use considerable organizational resources.
Outline the five major steps in the target market selection process
Although marketers may employ several methods for target market selection, they generally follow a five-step process: • Identifying the appropriate targeting strategy • Determining which segmentation variables to use • Developing market segment profiles • Evaluating relevant market segments • Selecting specific target markets
Under what conditions might a firm use multiple forecasting methods?
Although some businesses depend on a single sales forecasting method, most firms use several techniques. Sometimes a company is forced to use multiple methods when marketing diverse product lines, but even a single product line may require several forecasts, especially when the product is sold to different market segments. Variation in the length of forecasts may call for several forecasting methods as well. A firm that employs one method for a short-range forecast may find it inappropriate for long-range forecasting. Sometimes a marketer verifies results of one method by using one or more other methods and comparing outcomes.
In your local area, identify a group of people with unsatisfied product needs who represent a market. Could this market be reached by a business organization? Why or why not?
In answering this question, students should demonstrate that their suggested markets meet the requirements of a market as discussed in question one.
What is market segmentation? Describe the basic conditions required for effective segmentation. Identify several firms which use market segmentation.
Market segmentation is the process of dividing a total market into groups, or segments, that consist of people or organizations with relatively similar product needs. The purpose is to enable a marketer to design a marketing mix that more precisely matches the needs of customers in the selected market segment. For market segmentation to succeed, five conditions must exist: • Customers' needs for the product must be heterogeneous; otherwise there is no reason to waste resources segmenting the market. • Segments must be identifiable and divisible. • The marketer must be able to compare the different market segments 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 it. • The company must be able to reach the chosen segment with a particular marketing mix.
Identify and describe four major categories of variables that can be used to segment consumer markets. Give examples of product markets that are segmented by variables in each category.The four major categories of variables that can be used to segment consumer markets are:
The four major categories of variables that can be used to segment consumer markets are: • Demographic variables—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. • Geographic variables—geographic characteristics that marketers commonly use include climate, terrain, city size, population density, and urban/rural areas. Markets may be divided using geographic variables, because differences in location, climate, and terrain will influence consumers' needs. • Psychographic variables—psychographic characteristics that marketers commonly use include personality characteristics, motives, and lifestyles. Psychographic variables can be used be by itself or in combination with other types of segmentation variables. • Behavioristic variables—firms can divide the market according to consumer behavior toward a product, which commonly involves an aspect of consumers' product use. When discussing examples, students should be encouraged to use local and regional as well as national examples.
List the differences between concentrated and differentiated strategies and describe the advantages and disadvantages of each.
The main difference between the concentrated strategy and the differentiated strategy of market segmentation is that the concentrated strategy directs marketing efforts toward a single market using one marketing mix, whereas the differentiated strategy directs marketing efforts at two or more market segments by developing a marketing mix for each segment. 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. The strategy can also prevent a firm from targeting segments that might be successful because, when a firm penetrates one segment, its popularity may keep it from extending its marketing efforts into other segments. 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. On the other hand, a differentiated strategy 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.
15.What are the two primary types of surveys a company might use to forecast sales? Why would a company use an outside expert forecasting survey?
The two primary types of surveys a company might use to forecast sales are the customer forecasting survey and the sales force forecasting survey. In the first type, marketers ask customers what types and quantities of products they plan to purchase during a specific period. In the second type, the sales force estimates anticipated sales in their territories for a specified period of time. Sometimes companies decide to use a forecasting survey conducted by an outside expert instead of conducting their own survey. These experts are usually economists, management consultants, advertising executives, college professors, or other individuals outside the firm with experience in a specific market and, as outsiders, can remain more objective. In addition, outside-expert surveys avoid some of the potential drawbacks of sales-force surveys, such as biases based on recent sales experience, intentional underestimation of sales potential because of the belief sales goals are determined by the forecast, or dislike of paperwork. Therefore, an outside survey is likely more objective than those conducted by inside personnel and possibly more accurate.
What is an undifferentiated strategy? Under what conditions is it most useful? Describe a present market situation in which a company is using an undifferentiated strategy. Is the business successful? Why or why not?
When a company designs a single marketing mix and directs it at the entire market for a particular product, it is using an undifferentiated targeting strategy. This strategy is effective under two conditions: • A large proportion of 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. • 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.