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Opportunity Analysis, Market

CHAPTER 4 Segmentation, and Market


Targeting

AFTER READING THIS CHAPTER


YOU SHOULD BE ABLE TO:
1. Identify, match, and evaluate
opportunities available to an
organization.
2. Define the nature of a market.
3. Describe the benefits and bases of,
and the requirements for effective
market segmentation.
2013 Pearson Education, Inc. publishing as Prentice Hall

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AFTER READING THIS CHAPTER


YOU SHOULD BE ABLE TO:
4. Construct an offering-market matrix.
5. Describe the approaches to market
targeting.
6. Estimate market sales potential and
profitability.

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MARKETING STRATEGY FRAMEWORK


Marketing
Strategy
Market
Selection

Marketing
Programs
Target
Markets
Realized
Organization
Objectives

Satisfied
Customers
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CHAPTER 4: OPPORTUNITY ANALYSIS, MARKET


SEGMENTATION, AND MARKET TARGETING

OPPORTUNITY ANALYSIS

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OPPORTUNITY ANALYSIS
Opportunity analysis consists of
three interrelated activities:
Opportunity
Identification

OpportunityOrganization
Matching

Opportunity
Evaluation
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OPPORTUNITY ANALYSIS
Opportunity Identification
Opportunities arise from:
Identifying new types of buyers
Uncovering unsatisfied needs of buyers
Creating new ways or means for satisfying
buyer needs

Opportunity analysis focuses on finding


markets that an organization can profitably
serve
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OPPORTUNITY ANALYSIS
Opportunity-Organization Matching
Determines whether an identified market
opportunity is consistent with the definition of
the firms business, mission statement, and
distinctive competencies
Assesses strengths and weaknesses via a SWOT
Identifies the success requirements
Rejects those that do not conform to a firms
character even if they offer sizable sales and profit
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OPPORTUNITY ANALYSIS
Opportunity Evaluation
Qualitative

Quantitative

Matches the attractiveness of


an opportunity with the
potential for uncovering a
market niche, which depends
on:
Competitive activity

Buyer requirements
Market demand
Supplier sources

Environmental
forces

Consists of:
Market sales
potential estimates
Sales forecasts
Budgets

Organizational
capabilities
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EXHIBIT 4.1: OPPORTUNITY EVALUATION


MATRIXATTRACTIVENESS CRITERIA
Market Niche
Criterion

Buyer
Type

Competitive
Activity
How many and
which firms
compete for this
user group?

Buyer
Requirements

Demand/
Supply

Environmental
Forces

Organizational
Capabilities

What affects buyer


willingness and
ability to buy?

Do different buyer
types have
different levels of
effective demand?

How sensitive are


different buyers to
these forces?

Can we gain
access to buyers
through marketing
mix variables?

How important are


adequate sources
of supply?

Buyer
Needs

Means for
Satisfying
Buyer Needs

Which firms are


satisfying which
buyer needs?

What are the


strategies being
employed to
satisfy buyer
needs?

Are there buyer


needs that are not
being satisfied?

Are buyer needs


likely to be
long-term?

What are they?

Do we have or
can we acquire
resources to
satisfy buyer
needs?

Is the technology
for satisfying
buyer needs
changing?

To what extent are


the means for
satisfying buyer
needs affected by
supply sources?
Is the demand for
the means for
satisfying buyer
needs changing?

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Can we supply
these buyers?

How sensitive are


buyer needs to
these forces?

Which buyer needs


can our firm
profitably satisfy?

How sensitive are


the means for
satisfying buyer
needs to these
forces?

Do we have the
financial, human,
technological,
and marketing
expertise to
satisfy buyer
needs?

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CHAPTER 4: OPPORTUNITY ANALYSIS, MARKET


SEGMENTATION, AND MARKET TARGETING

WHAT IS A MARKET?

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WHAT IS A MARKET?

A market consists of the


prospective buyers
(individuals or organizations)
willing and able to purchase
the existing or potential
offering (product or service)
of an organization.
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WHAT IS A MARKET?
Implications for marketers:
Buyers
Effective
Demand
Offerings

Focus on buyers, not products or


services
Exchanges cannot occur unless
buyers are able and willing to
purchase a product or service
Purchases consist of offerings, not
products or services, due to the
values or benefits that buyers derive
from them
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WHAT IS A MARKET?
Market Structure
View as a composite of mini- or regional
markets to:
Identify competitors and how
they compete
Monitor changes in sales
volume
Assess differences between
buyers taste preferences and
the competition
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EXHIBIT 4.2: MARKET STRUCTURE


FOR COFFEE IN THE UNITED STATES
Total U. S. Coffee Market
Institutional Sales

Retail Sales

(restaurants, institutions, etc.)

(retail food stores)

Ground

Caffeinated

Whole Bean

Instant

Decaffeinated

New England

Midwest

Southeast

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Northwest
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WHAT IS A MARKET?
Market Share
Market share is the sales dollars ($) or units(#)
of a firm, offering, or brand divided by the sales
of the market, expressed as a percentage (%):

Market
Share

Firm, Offering, or Brand Sales


($ or #)

X%

Market Sales
($ or #)
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WHAT IS A MARKET?
Market
Definition

Coffee
Dollar Sales

Atlantic
Blend Sales

Market
Share

Total U.S. coffee market

$8.0 billion

$80 million

1.0%

U.S. retail coffee market

$6.0 billion

$80 million

1.3%

U.S. retail ground coffee


market

$4.5 billion

$80 million

1.8%

U.S. retail caffeinated


ground coffee market

$3.0 billion

$80 million

2.7%

$230 million

$80 million

32.0%

U.S. retail caffeinated


ground coffee market in
the Mid-Atlantic region

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WHAT IS A MARKET?
Market Share

A served market is one in which a company,


offering, or brand competes for targeted customers

Marketing managers often look closely at served


market share when considering strategic options
High Served
Market Share

Use a market development strategy

Low Served
Market Share

Use either a product development


or market penetration strategy
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CHAPTER 4: OPPORTUNITY ANALYSIS, MARKET


SEGMENTATION, AND MARKET TARGETING

MARKET
SEGMENTATION

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MARKET SEGMENTATION
Market Segmentation

A technique that involves breaking down or building up


of potential buyers into groups, which are called
market segments

Each segment possesses a homogeneous characteristic


that relates to its purchasing behavior and response
to a marketing program

Cannot be all things to all people

Information technology and flexible manufacturing and


service delivery systems can create segments of one
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MARKET SEGMENTATION
Mass Customization
Tailors products and services to the tastes
and preferences of individual buyers in high
volumes and at a relatively low cost
Combines the efficiencies of mass
production and the effectiveness of
designing offerings to a single buyers
unique wants
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MARKET SEGMENTATION
Benefits of Market Segmentation
Identifies opportunities for new product
development
Helps in the design of marketing programs
that are most effective for reaching
homogeneous groups of consumers
Improves the allocation of marketing
resources
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MARKET SEGMENTATION
Bases for Market Segmentation
Consumers
Socioeconomic
Characteristics

Industrial Buyers

Behavioral
Variables

Socioeconomic
Characteristics

Gender

Benefits Sought

Company Size

Age

Usage

Location

Occupation
Income
Family Life Cycle

Industry

Psychographic
Variables

Education

Lifestyle

Location

Attitudes

Behavioral
Variables
Purchasing
Objectives
Product
Benefits

Customers Served

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MARKET SEGMENTATION
Requirements for Effective Market Segmentation
Need to answer six buyer-related questions:

Who are they?

What do they want to buy?

How do they want to buy?

When do they want to buy?

Where do they want to buy?

Why do they want to buy?


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MARKET SEGMENTATION
Requirements for Effective Market Segmentation

Measurable

Differentiable

Accessible

Substantial

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CHAPTER 4: OPPORTUNITY ANALYSIS, MARKET


SEGMENTATION, AND MARKET TARGETING

MARKET TARGETING

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MARKET TARGETING
Marketers ask three questions after a
market has been segmented:
Where to
Compete?
How to
Compete?

When to
Compete?
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MARKET TARGETING
Where to Compete?

Question focuses on which market


segments should be chosen for
marketing efforts
Market targeting (or target marketing)
is the specification of the segment(s)
the organization wishes to pursue
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MARKET TARGETING
How to Compete?

Question focuses on how many market


segments the organization will pursue
and the marketing strategies to employ
Two market targeting approaches are:
Differentiated
Marketing

Concentrated
Marketing

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MARKET TARGETING
How to Compete?
Differentiated Marketing

Simultaneously pursues several different


market segments with a unique marketing
strategy for each segment
Manages multiple products across multiple
market segments, which increases
marketing-related expenditures
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MARKET TARGETING
How to Compete?
Concentrated Marketing

Focuses on a single market segment, sometimes


marketing one product to one segment

More commonly, offers one or more product lines


to a single market segment

Provides operating economies

Limits growth opportunities if the segment size


declines
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EXHIBIT 4.3: NOKIAS DIFFERNTIATED


MARKETING STRATEGY
Market Segments
Offering
Character
-istics

Durable; ease of use;


and low price

Changeable covers;
color displays;
downloadable ring
tones; and games
Small size; stylish;
durable; user
friendly; color
displays; and fitness
monitor
Traditional style; web
browser; networking;
phone book;
calendar; and
camera

Basic

Expression

Active

Classic

Fashion

Premium

First-time users;
Teens needing voice
connectivity

You nger buyers who


desire customized
and personalized
products

Cool, young active


adults desiring to
connect with friends;
sports enthusiasts

Travelers with
various business
needs who prefer
functionality

Buyers who want to


show offwith a
personal sense of
style

World travelers
wanting a PDA,
connectivity, and
games

Series
Series 1000/
1000/
Series
Series 2000
2000

Series
Series 3000
3000

Series
Series 5000
5000

Series 6000

MP3 music player;


styling; games;
camera; color
display; and Internet
access

Series
Series 7000

Enhanced user
interface; camera;
color display;
multimed ia;
messaging; and a
PDA

Series
Series 8000
8000

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CHAPTER 4: OPPORTUNITY ANALYSIS, MARKET


SEGMENTATION, AND MARKET TARGETING

MARKET SALES
POTENTIAL AND
PROFITABILITY

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MARKET SALES POTENTIAL AND


PROFITABILITY
Market Sales Potential

Estimating a markets sales potential for


an offering is a difficult task
Markets and offerings can be defined in
ways that can lead to different estimates
of market size and dollar sales potential
For new offerings or markets, marketers
may rely entirely on judgment and creativity
when estimating market sales potential
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MARKET SALES POTENTIAL AND


PROFITABILITY
Market Sales Potential

Is the maximum sales level that might be


available to all organizations serving a defined
market in a specific time period given:
The marketing-mix activities and related
expenditures of all organizations and
A set of environmental conditions
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MARKET SALES POTENTIAL AND


PROFITABILITY
Estimating Market Sales Potential

Variables used to estimate:


Buyers (B)

The number of prospective buyers (B) who are


willing and able to purchase an offering

Price (P)

The price (P) of an average unit of the offering

Quantity (Q)

The quantity (Q) of an offering purchased by


an average buyer in a specific time period

Market Sales Potential

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Q
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MARKET SALES POTENTIAL AND


PROFITABILITY
Estimating Market Sales Potential
Chain ratio method: Multiplying a base number by several
adjusting factors believed to influence market sales potential

Market Sales
Potential for
Cola-Flavored
Soft Drinks
in a Country

Population aged 8 years and over


proportion of the population that
consumers soft drinks on a
daily basis proportion of the
population
preferring colaflavored soft drinks
the average number of carbonated
soft drink occasions per day
the average amount consumed per
consumption occasion (in ounces)
365 days in a calendar year
the average price per ounce of cola

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MARKET SALES POTENTIAL AND


PROFITABILITY
Estimating Market Sales Potential

The chain ratio method serves three purposes:

Is a quantitative estimate of market sales potential

Highlights factors that are controllable and not


controllable

Is flexible in estimating market sales potential for


different buyer groups and offerings
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SALES AND PROFIT FORECASTING


Sales Forecast

Is the level of sales a single organization expects


to achieve based on a chosen marketing strategy
and an assumed competitive environment

Is some fraction of estimated market sales potential

Reflects the size of the target market(s) chosen by


the organization and the marketing mix chosen for
the target market(s)

Reflects the assumed number of competitors and


competitive intensity in the chosen target market(s)
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SALES AND PROFIT FORECASTING


Sales Forecast Example: Chain Ratio Method

Total estimated prospective buyers

1,000,000

Target market (25% of total buyers)

0.25

Distribution/communication coverage
(75% of target market)

0.75

Annual purchase rate (20 units per year)

20

Average offering unit price ($10.00)


Forecasted sales

$10.00
=

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$37,500,000

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SALES AND PROFIT FORECASTING


Sales Forecast

Prepare a pro forma income statement


that shows forecasted sales, budgeted
expenses, and estimated net profit
Review the identified opportunities and
decide which one can be most profitably
pursued given organizational capabilities

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mechanical, photocopying, recording, or otherwise, without the prior written
permission of the publisher. Printed in the United States of America.

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