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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 Slide 1-2 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. © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 1-3 MARKETING STRATEGY FRAMEWORK Marketing Strategy Market Selection Marketing Programs Target Markets Realized Organization Objectives Satisfied Customers © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 1-4 CHAPTER 4: OPPORTUNITY ANALYSIS, MARKET SEGMENTATION, AND MARKET TARGETING OPPORTUNITY ANALYSIS © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 1-5 OPPORTUNITY ANALYSIS Opportunity analysis consists of three interrelated activities: Opportunity Identification OpportunityOrganization Matching Opportunity Evaluation © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 1-6 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 © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 1-7 OPPORTUNITY ANALYSIS Opportunity-Organization Matching Determines whether an identified market opportunity is consistent with the definition of the firm’s 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 firm’s character even if they offer sizable sales and profit © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 1-8 Market opportunity analysis Four key elements: Customer Analysis of the customer environment uncovers unmet or underserved customer needs, as well as the market they occupy Analysis of the technology environment reveals the readiness of the particular technology, as well as any alternative technologies, on which the manager anticipates deploying the firm’s offering Analysis of the company environment provides the current state of the company’s resources Analysis of the competition environment reveal the structure of the industry and market, key competitors in the marketplace, and the firm’s relative advantage to each of the key players Technology Company Competition © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 1-9 Market opportunity analysis Identify Identify the the Unmet Unmet and/ and/ or or Underserved Underserved Customer Customer Need Need Customer Identify Identify the the Specific Specific Customers Customers aa Company Company Will Will Pursue Pursue Competition Assess Assess Advantage Advantage Relative Relative to to Competition Competition Company Assess Assess the the Company’s Company’s Resources Resources to to Deliver Deliver the the Offering Offering Technology Assess Assess Market Market Readiness Readiness of of Technology Technology Specify Specify Opportunity Opportunity in in Concrete Concrete Terms Terms Assess Assess Opportunity Opportunity Attractiveness Attractiveness © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 1-10 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 © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 1-11 EXHIBIT 4.1: OPPORTUNITY EVALUATION MATRIX—ATTRACTIVENESS CRITERIA Market Niche Criterion Buyer Type Competitive Activity Buyer Requirements Demand/ Supply Environmental Forces Organizational Capabilities How many and which firms compete for this user group? 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? © 2013 Pearson Education, Inc. publishing as Prentice Hall 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? Slide 1-12 CHAPTER 4: OPPORTUNITY ANALYSIS, MARKET SEGMENTATION, AND MARKET TARGETING WHAT IS A MARKET? © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 1-14 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. © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 1-15 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 © 2013 Pearson Education, Inc. publishing as Prentice Hall Northwest Slide 1-16 WHAT IS A MARKET? Market Share Market share is the sales dollars ($) or units(#) of a firm, offering, or brand divided by the sales of the “market,” expressed as a percentage (%): Firm, Offering, or Brand Sales ($ or #) Market Share = = X% Market Sales ($ or #) © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 1-17 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 © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 1-18 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 © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 1-19 CHAPTER 4: OPPORTUNITY ANALYSIS, MARKET SEGMENTATION, AND MARKET TARGETING MARKET SEGMENTATION © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 1-20 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” © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 1-21 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 © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 1-22 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 © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 1-23 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? © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 1-25 CHAPTER 4: OPPORTUNITY ANALYSIS, MARKET SEGMENTATION, AND MARKET TARGETING MARKET TARGETING © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 1-26 MARKET TARGETING Marketers ask three questions after a market has been segmented: Where to Compete? How to Compete? When to Compete? © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 1-27 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 © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 1-28 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 © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 1-29 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 © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 1-30 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 © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 1-31 SAMSUNG’S DIFFERENTIATED MARKETING STRATEGY © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 1-32 CHAPTER 4: OPPORTUNITY ANALYSIS, MARKET SEGMENTATION, AND MARKET TARGETING MARKET SALES POTENTIAL AND PROFITABILITY © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 1-33 MARKET SALES POTENTIAL AND PROFITABILITY Market Sales Potential Estimating a market’s 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 © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 1-34 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 = B × © 2013 Pearson Education, Inc. publishing as Prentice Hall P × Q Slide 1-35 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) © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 1-36 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 1-37