CH 4 (3)

Chapter Four
Selecting Target Markets

Measuring and Forecasting Demand
What is market?
 Market is a group of all actual and potential
buyers of a product.
Market demand is a total volume that would

be bought by a defined customer group, in a
defined time period, in a defined geographic
area, in a defined marketing environment and
under a defined marketing program.
 The following steps are used in assessing market
potential or demand.
 Define a market segment to target.
 Analyze customer behavior
 Define externalities (Industry/Competition/Macro
environment)
 Declare and use several sets of assumptions

 Use more than one method and triangulate the
result. Expert opinion, trend analysis, historical
analogy, chain ratio and other methods can be
used in assessing market demand.
 Total market demand is a product of number of buyers
in the market, quantity purchased by an average buyer
per year and price of an average unit.
 Suppose XYZ Company wants to estimate the total
annual sales of audio cassette tapes. A common way to
estimate total market demand is as follows:
 Q=nxqxp
Where:
Q = total market demand
n = number of buyers in the market
q = quantity purchased by an average buyer per year
p = price of an average unit
 e.g. If there are 100 million buyers of cassette
tapes each year, and the average buyer buys six
tapes a year, and the average price is $8, then
the total market demand for cassette tapes is
$4.8 billion (= 100,000,000 x 6 x $8).
Read market demand forecasting methods

Market Segmentation
Definition of market segmentation
Market segmentation is a strategy that involves dividing a larger
market into subsets of consumers who have common needs and
applications for the goods and services offered in the market.
Segmentation Means organizing all potential customers into

groups of customers according to how they make buying
decisions.
Marketing campaigns are often designed and implemented

based on this type of customer segmentation.
A market segment is a group of customers that will respond

similarly to a given offer, because they have common needs or
values.
One group within the market may be identified by
gender, while another group may be composed of
consumers within a given age group.
Location is another common component in market

segmentation, as is income level and education level.
The purpose of segmentation is the concentration of

marketing energy and force on the subdivision (or
the market segment) to gain a competitive advantage
within the segment.
 To compete successfully in today’s volatile and
competitive business markets, mass marketing is no
longer a viable option for most companies.
 Marketers must attract niche markets that exhibit

unique needs & wants.
 Market segmentation is the foundation on which all

other marketing actions can be based.
 The overall objective of using a market segmentation

strategy is to improve your company’s competitive
position and better serve the needs of your customers.
 There are four major benefits of market segmentation
analysis and strategy:
Designing responsive products to meet the needs of

the marketplace
Developing effective and cost-efficient promotional

tactics & campaigns
Gauging your company’s market position — how your

company is perceived by its customers and potential
customers relative to the competition
Fine-tuning current marketing strategies

 Market Segmentation Strategies
1. Undifferentiated Marketing (Mass Marketing)
An undifferentiated marketing approach aims at a large,
broad consumer market through one basic marketing
plan.
Undifferentiated/Mass marketing approach treats the
market as a whole and provides one version of the product
and one marketing mix for all buyers in the market.
2. Concentrated Marketing
A concentrated marketing approach aims at a
narrow, specific consumer group through one
specialized marketing plan catering to the needs of
that segment.
3. Differentiated Marketing (Multiple
Segmentation)
 Differentiated marketing combines the best
attributes of undifferentiated marketing and
concentrated marketing.
 It appeals to two or more distinct market

segments, with a different marketing plan for
each.
Importance of Segmentation
 Market segmentation is an important element of
every marketing strategy.
 It is the basis for developing the positioning and

targeting strategy for any brand, which, in turn,
determines the marketing mix.
 A segment-orientated marketing approach

generally offers a range of advantages for
businesses as well as customers. These include the
following.
1. Better understanding of consumers
 Consumers change their preferences and patterns of
behavior over time.
 Segmentation allows marketers to understand these
changes and develop products and services that
fulfill the need of a consumer at that particular stage.
2. Increased profitability
 Segmentation supports the development of niche
strategies, allowing marketing activities to focus on
the most attractive market segments.
 Market leadership in selected segments improves
the competitive position of the whole organization
3. Identifying growth opportunities
 Segmentation allows an organization to approach
consumer groups individually through targeted
marketing activity.
 By segmenting markets, organizations can create their
own ‘niche products’ to attract additional customer
groups.
4. Stimulating innovation:
 The identification of unique consumer needs through
segmentation enables a planned development of new
or improved products that better meet the wishes of
these consumer groups by offering distinctive products
and delivering superior value.
5. Targeted communication:
 Segmentation enables marketers to communicate
effectively with the target market.
6. Strategic Planning
 Segmentation plays a key role in the planning process
of an organization.
7. Market potential assessment and refinement

 Market segmentation serves as a basis for developing
market size data for the category as a whole.
8. Targeting and positioning
 Positioning decisions are integral to brand strategy.
Industrial markets are segmented somewhat
differently from consumer markets.
Bases of segmentation
Consumer Market Segmentation
It is the process of dividing a market into groups or

segments of customers with similar needs or
characteristics, who are likely to exhibit similar
purchase behavior.
One can identify four primary bases on which to
segment a consumer market:
Geographic segmentation is based on regional
variables such as region, countries, climate,
population density, and population growth rate.
Demographic segmentation is based on variables
such as age, gender, ethnicity, education, occupation,
income, and family status.
Psychographic segmentation is based on variables

such as values, attitudes, and lifestyle.
Behavioral segmentation is based on variables such
as usage rate and patterns, price sensitivity, brand
loyalty, and benefits sought.
The optimal bases on which to segment the market
depend on the particular situation and are determined
by marketing research, market trends, and managerial
judgment.
Business Market Segmentation

 The different nature of business markets often leads to
segmentation on the following bases.
√ Geographic segmentation - based on regional variables

such as customer concentration, regional industrial
growth rate, and international macroeconomic factors.
√ Customer type - based on factors such as the size of
the organization, its industry, position in the value
chain, etc.
√ Buyer behavior - based on factors such as loyalty to

suppliers, usage patterns, and order size.
In general, to be useful, a segment must be

different, relevant, significant, accessible,
measurable, durable and suitable size.
 Effective market segments generally meet the
following criteria.
 Homogeneous (similar) within the customers in a

market segment.
 Heterogeneous (different) between the customers in
different segments
 Substantial: The segment should be big enough to

be profitable.
 Operational: The segmenting dimensions should be
useful for identifying customers and deciding on
marketing mix variables.
Procedures of Market Segmentation
Market segmentation is widely defined as being a

complex process consisting in two main phases.
1. Identification of broad, large markets.
2. Segmentation of these markets in order to select the

most appropriate target markets and develop
Marketing mixes accordingly.
Market segmentation comprises 7 steps, each of
them designed to encourage the marketer to come
with a creative approach.
STEP 1: Identify and name the broad market
STEP 2: Identify and make an inventory of potential
customers' needs
STEP 3: Formulate narrower markets
STEP 4: Identify the determining dimensions
STEP 5: Name possible segment markets
STEP 6: Evaluate the behavior of market segments
STEP 7: Estimate the size of each market segment
Targeting The Market
It's important to remember that the focus of
marketing is people.
Market targeting is a process of selecting the target

market from the entire market.
Target market consists of group/groups of buyers to

whom the company wants to satisfy or for whom
product is manufactured, price is set, promotion
efforts are made, and distribution network is prepared.
The more statistics you have about a target market,

the more precisely you can develop your strategy.
The beauty of target marketing is that by aiming your
marketing efforts at specific groups of consumers it
makes the promotion, pricing, and distribution of your
products and/or services easier and more cost-
effective.
Target Marketing is concentrating your marketing

efforts on one or a few key segments consisting of the
customers whose needs and desires most closely
match your product or service offerings.
It can be the key to attracting new business, increasing

your sales, and making your business a success.
The Concept of Positioning
What is positioning?
If you wanted to reach your prospect, the focus of
your campaign could no longer be based on internally
conceived benefits.
The target was now the mind of the prospect.
You had to find a place in the mind of your public in

which to put your product. This was positioning.
Positioning is not what you do to a product.
Positioning is what you do to the mind of the
prospect.
The easy way to position a product is to get into the
mind first.
The first product into the mind will usually dominate

the category and be very difficult to dislodge.
Coffee and Lucy in Ethiopia, Webster in dictionaries
and Gillette in razor blades to mention a few.
You strengthen your brand by narrowing your focus.

"Coffee shops" used to have extensive food menus;
Starbucks narrowed the focus to coffee.
THANK YOU
FOR YOUR
ATTENTION.

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Chapter Four

Selecting Target Markets

Market demand is a total volume that would

 Declare and use several sets of assumptions

Read market demand forecasting methods

Segmentation Means organizing all potential customers into

Marketing campaigns are often designed and implemented

A market segment is a group of customers that will respond

Location is another common component in market

The purpose of segmentation is the concentration of

 Marketers must attract niche markets that exhibit

 Market segmentation is the foundation on which all

 The overall objective of using a market segmentation

Designing responsive products to meet the needs of

Developing effective and cost-efficient promotional

Gauging your company’s market position — how your

Fine-tuning current marketing strategies

 It appeals to two or more distinct market

 It is the basis for developing the positioning and

 A segment-orientated marketing approach

7. Market potential assessment and refinement

It is the process of dividing a market into groups or

Psychographic segmentation is based on variables

Business Market Segmentation

√ Geographic segmentation - based on regional variables

√ Buyer behavior - based on factors such as loyalty to

In general, to be useful, a segment must be

 Homogeneous (similar) within the customers in a

 Substantial: The segment should be big enough to

Market segmentation is widely defined as being a

2. Segmentation of these markets in order to select the

Market targeting is a process of selecting the target

Target market consists of group/groups of buyers to

The more statistics you have about a target market,

Target Marketing is concentrating your marketing

It can be the key to attracting new business, increasing

The target was now the mind of the prospect.

You had to find a place in the mind of your public in

The first product into the mind will usually dominate

You strengthen your brand by narrowing your focus.

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