Entrp 1: Lecture 4
SELECTING THE RIGHT TARGET MARKET
Studying the industry
 Great sources to know your industry:
 Industry Surveys (S&P)
 U.S. Industry and Trade Outlook (published by US
Department of Commerce)
 The Complete Small Business Sourcebook (Published by Times
Books)
 Encyclopedia of Business Information Sources ( Published by
the Gale Gp.)
 Questions you need to ask
Studying the industry
 Questions you need to ask:
 Whether you are about to enter an industry that is
experiencing growth and increasing profitability rather that
one that is mature and saturated.
 Whether the industry is sensitive to inflation or interest rates
eg., real estate Vs. Hi-technology
 Whether chains or franchise dominate the market
 Whether the Industry is susceptible to foreign competition.
 Whether the Industry is susceptible to major technological
change
 Who are the major suppliers and customers.
Analyzing the Market
 Identify people who consume the type of goods you
will produce
 Classify the market into various segments
 Ascertain which segments are still in search of a
business
 Determine which segments should be target markets
for your business
Analyzing the Market
 Market Segmentation and Target Marketing in Today’s
Economy

Market segmentation is the process by which a market is divided into
distinct subsets of customers with similar needs and characteristics.

Target marketing requires evaluating the relative attractiveness of
various segments.

Brand positioning entails designing product offerings and marketing
programs that can establish an enduring competitive advantage in
the target market by creating a unique brand image, or position.

These three decision processes are closely linked and have strong
interdependence.
Analyzing the Market
 Most markets are heterogeneous
 Markets are complex entities that can be defined in a variety of
ways.
 Critical issue: Finding an appropriate segmentation scheme
that will facilitate target marketing, positioning, and the
formulation of successful marketing strategies and programs.
Analyzing the Market
 Importance of Market Segmentation in the
Development of Marketing Strategies




Slowing population growth in many developed countries,
and maturing product-markets.
Social and economic forces have produced customers with
more varied and sophisticated needs, tastes, and lifestyles
than ever before.
Trend toward micro segmentation.
Ease of implementing sharply focused marketing programs
Analyzing the Market
 How are Market Segments Best Defined?



Steps in market segmentation:

Identify a homogeneous segment that differs from other
segments.

Specify criteria that define the segment.

Determine segment size and potential.
Segmentation decisions are best made based on

Who the customers are,

Where they are, or

How they behave relevant to the market in question.
The three approaches apply in both consumer and organizational
markets.
Analyzing the Market
 How are Market Segments Best Defined?

Segmenting demographically


Demographic attributes used to segment consumer markets
are age; sex; income; occupation; education; race and ethnic
origin.
Industrial markets are segmented in two stages:

Macrosegmentation

Microsegmentation
Analyzing the Market
How are Market Segments Best Defined?


Segmenting geographically

Particularly important in retailing and many services
businesses.

One way to segment retail markets is by distance or driving
time from a particular location.

The area included within such a geographically defined region
is called a trade area.
Analyzing the Market
How are Market Segments Best Defined?


Geodemographic segmentation

Market segmentation within the geographic regions.

Useful in assessing the size and market potential of a market
segment defined by a particular trade area.

Attempts to predict consumer behavior by making
demographic, psychographic, and consumer information
available at the block and zip code or postcode levels.
Analyzing the Market
How are Market Segments Best Defined?


Behavioral segmentation
Behavioral descriptors are based not on who the target
consumers are or where they live, but based on what they do.
Behavioral attributes can take many forms.



Consumer needs:



Customer needs are expressed in benefits sought from a
particular product or service.
Consumers evaluate brand alternatives on the basis of choice
criteria.
In organizational markets, customers consider relevant
benefits that include product performance in different use
situations.
Analyzing the Market

How are Market Segments Best Defined?

Product usage and purchase influence

Product-related attributes include product usage, loyalty,
purchase predisposition, and purchase influence.

Product usage is important because in many markets a small
proportion of customers makes a high percentage of
purchases.

In organizational markets, customers are better known, and
heavy users are easier to identify.
Analyzing the Market

How are Market Segments Best Defined?

Lifestyle

Segmentation by lifestyle, or psychographics, segments
markets on the basis of consumers’ activities, interests, and
opinions.

Stanford Research Institute (SRI) has created a U.S.
segmentation service (called VALS 2), which builds on the
concept of self-orientation and resources for the individual.
Analyzing the Market

How are Market Segments Best Defined?

Organizational behavioral attributes



Purchasing structure and buying situation segmentation
attributes are unique to organizational markets.
Purchasing structure is the degree to which the purchasing
activity is centralized.
The buying situation attribute includes three distinct types of
situations: straight rebuy; modified rebuy; and a new buying
situation.
Analyzing the Market
How are Market Segments Best Defined?


Innovative segmentation

Understanding the demographic profile of a target market
enables the marketer to better choose targeted marketing
communication vehicles.

At the foundation of many a marketing breakthrough one
often finds an insightful segmentation scheme that is sharply
focused in a behavioral way.
Competitive Analysis
 Analyze your market by doing a complete analysis of
the businesses that are already offering your type of
goods and services in your segment.



How many business are in the market place.
What they offer
Rate each of the Business on a scale of 1-5in terms of its
relative strength on each dimension and the relative
importance of each timension
Competitive Analysis
Competitive Factor
Business 1
Business 2
Max Possible
Price
Importance: 3
Rating: 3
Score : 9
Importance:3
Rating:1
Score: 3
Importance:3
Rating:5
Score: 15
Quality
Importance: 5
Rating:3
Score: 15
Importance:5
Rating:3
Score15
Importance:5
Rating:5
Score:25
Selection
Importance:3
Rating:4
Score:12
Importance: 3
Rating: 3
Score:12
Importance: 3
Rating: 5
Score:15
promotion
Importance:2
Rating:3
Score: 6
Importance: 2
Rating:4
Score:8
Importance: 2
Rating:5
Score:10
Services
Importance: 5
Rating: 4
Score: 12
Importance: 5
Rating: 5
Score:25
Importance: 5
Rating: 5
Score:25
Customer Service
Importance: 5
Rating: 3
Score: 15
Importance:5
Rating:3
Score: 15
Importance:5
Rating:5
Score: 25
Facilities/ atmosphere
Importance: 4
Rating: 3
Score:12
Importance:4
Rating:5
Score:20
Importance:4
Rating: 5
Score: 20
Location
Importance:2
Rating:3
Score: 6
Importance:2
Rating:4
Score:8
Importance:2
Rating:5
Score:10
Strength
95
106
125
Competitive Analysis
 None of the existing business meets the market need




fully
So you can now identify gaps in the market place
Which results in identification of business
opportunities
Determining whether you can develop capability to
be better than your competitors
Estimating the profitability and return on
investment before you select your segment as the
target