Chapter 9 Class Notes

Contents of Chapter 9 Class Notes

• What is a Market?
• Developing a Target Market Strategy
• Selecting a Target Market
• Undifferentiated Approach
• Market Segmentation Approach
• Concentration Strategy
• Multisegment Strategy
• Criteria for Segmentation
• Variables for Segmentation
• Please Email alex@udel.edu any comments
• Return to Syllabus
• Return to Homepage

What is a Market?

Types of markets:

1. Consumer Intend to consume or benefit, but not to make a profit.
2. Organizational/Business For:
   • Resale
   • Direct use in production
   • or general daily operations.

Handout...Catering to Middle-Aged BBs...

• High Powered
• Roomy
• Safety Features

• Toyota Avalon
• Oldsmobile Aurora
• Mercury Mystique
• Dodge Intrepid
• Chrysler Concorde
• Vision

Developing a Target Market Strategy

1. Analyzing consumer demand
2. Targeting the market(s)
   • undifferentiated
   • concentrated
   • multisegmented
3. Developing the marketing strategy

Selecting Target Markets (Analyzing Demand)

• Homogeneous Demand-uniform, everyone demands the product for the same reason(s). Very rare in the US, staple foods...
• Clustered Demand-consumer demand classified in 2 or more identifiable clusters. IE Automobiles:
  • luxury
  • cheap
  • Sporty
  • Spacious
• Diffused Demand-Product differentiation more costly and more difficult to communicate IE Cosmetic market, need to offer hundreds of shades of lipstick. Firms try to modify consumer demand to develop clusters of at least a moderate size. Or uses one MM.

Targeting The Market

Undifferentiated Approach (Total Market Approach)

All consumers have similar needs for a specific kind of product. Homogeneous market, or demand is so diffused it is not worthwhile to differentiate, try to make demand more homogeneous.

Single MM consists of:

• 1 Pricing strategy
• 1 Promotional program aimed at everybody
• 1 Type of product with little/no variation
• 1 Distribution system aimed at entire market

Popular when large scale production began. Not so popular now due to competition, improved marketing research capabilities, and total production and marketing costs can be reduced by segmentation.

Organization must be able to develop and maintain a single marketing mix.

Major objective is to maximize sales.
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Market Segmentation Approach.

The purpose is to design a MM(s) that more precisely matches the needs of individuals in a selected market segment(s).

A market segment consists of individuals, groups or organizations with one or more characteristics that cause them to have relatively similar product needs.

There are two Market Segmentation Strategies.
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Concentration Strategy.

                        Market
                        |
                        |A Market Segment
                        |-------------------
One MM------------------>A Market Segment
                        |-------------------
                        |A Market Segment
                        |

• It allows a firm to specialize
• can focus all energies on satisfying one group's needs
• A firm with limited resources can compete with larger organizations.

• Puts all eggs in one basket.
• Small shift in the population or consumer tastes can greatly effect the firm.
• May have trouble expanding into new markets (especially up-market). Haggar having problems finding someone to license their name for womens apparel, even though women purchase 70% Haggar clothes for men.

Examples include
ROLEX, Anyone wear one.
Who are their target market?? Over $100,000
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Multi-segment strategy

                         Market
 MM--------------------->|A Market Segment
                         |_______________________
 MM--------------------->|A Market Segment
                         |_______________________
 MM--------------------->|A Market Segment
                         |_______________________
 MM--------------------->|A Market Segment
                         |
                         |

1. Marriott Suites...Permanent vacationers
2. Fairfield Inn...Economy Lodging
3. Residence Inn...Extended Stay
4. Courtyard By Marriott...Business Travellers

• Shift excess production capacity.
• Can achieve same market coverage as with mass marketing.
• Price differentials among different brands can be maintained Contact Lens!!
• Consumers in each segment may be willing to pay a premium for the tailor-made product.
• Less risk, not relying on one market.

• Demands a greater number of production processes.
• Costs and resources and increased marketing costs through selling through different channels and promoting more brands, using different packaging etc.
• Must be careful to maintain the product distinctiveness in each consumer group and guard its overall image (Contact lenses)

Handout...The only difference is when you throw them away.

• Sequence2 $7-$9
• Medalist $15-$25
• Optima $70

Objective: Sales maximization, but can remain a specialist. Can get firmly established in one segment, then pursue another.
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Criteria needed for segmentation

1. Segments must have enough profit potential to justify developing and maintaining a MM
2. Consumer must have heterogeneous (different) needs for the product.
3. Segmented consumer needs must be homogeneous (similar)
4. Company must be able to reach a segment with a MM, IE Review to reach Delaware undergraduates.
   How do marketers reach children?
   • Cartoons on saturday
   • Nickelodian
   • Cereal boxes
   • Sports illustrated for kids
   Look at how media has changed recently due to changing demographics etc. and therefore the need of marketers to reach these groups.
   Media must respond because they are essentially financed by the marketers or at least heavily subsidised
   

   Handout...Stations switching to lucrative...

   Indicates how media format changes due to changing population needs.
5. Must be able to measure characteristics & needs of consumers to establish groups.

Variables that can be used to segment markets.

• Segmentation variables should be related to consumer needs for, and uses of, or behavior toward the product. IE Stereo; age not religion.
• Segmentation variable must be measurable. No best way to segment the markets. Selecting inappropriate variable limits the chances of success.

• Demographic - age, sex, fertility rates, migration patterns, and mortality rates, ethnicity, income, education, occupation, family life cycle, family size, religion and social class.

  Handout...Photography companies try to click...

  Photography companies identify a new target market (children) to market their product to, current sales are declining with current target market due to advances in technology (video cameras etc.)

  Handout...Two income marriages are now the norm

  Families have more income and less time...esp. for children!!

  Handout...Travel agents target grandma and grandpa

  Travel agents developing a MM to attract grandparents, not senior citizens!!
• Geographic -Climate, terrain, natural resources, population density, subcultural values, different population growths in different areas.

  City size

  • Metropolitan Statistical Area
  • Primary Statistical Metropolitan Area
  • Consolidated Metropolitan Statistical Area
  Market density-# of potential customers within a unit of land.

  Handout...Social well being mapped out...

  Geographic breakdown of the wealth/well being of the US.
• Psychographic - personality characteristics, motives and lifestyles

  Handout...Lifestyle appropriate greeting cards

  Marketers must be aware of the changing lifestyles and market products accordingly.
• Behavioristic Variables - Regular users-potential users-non users Heavy/moderate/light users, 80-20 rule
  Frequent User Incentives
  It is five x more expensive to attract a new customer, as it is to satisfy your current customers.
  Benefits segmentation-focus on benefits rather than on features.
  

Single Variable vs. Multi-Variable Segmentation

• Single variable--achieved by using only one variable to segment
• Multi-variable-- more than one characteristic to divide market.
  Provides more information about segment. Able to satisfy customers more precisely. More variables creates more segments reducing the sales potential in each segment.

Handout Techno savvies....