Marketing Strategy Framework: Opportunity Analysis, Segmentation, and Targeting

2. AFTER READING THIS CHAPTERYOU SHOULD BE ABLE TO: Identify, match, and evaluate opportunities available to an organization. Define the nature of a market. Describe the benefits and bases of, and the requirements for effective market segmentation.

3. AFTER READING THIS CHAPTERYOU SHOULD BE ABLE TO: Construct an offering-market matrix. Describe the approaches to market targeting. Estimate market sales potential and profitability.

4. MarketingStrategy MarketSelection MarketingPrograms TargetMarkets SatisfiedCustomers RealizedOrganization Objectives MARKETING STRATEGY FRAMEWORK

5. CHAPTER 4: OPPORTUNITY ANALYSIS, MARKET SEGMENTATION, AND MARKET TARGETING OPPORTUNITY ANALYSIS

6. OPPORTUNITY ANALYSIS Opportunity analysis consists of three interrelated activities: OpportunityIdentification Opportunity-OrganizationMatching OpportunityEvaluation

7. 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

8. OPPORTUNITY ANALYSIS Opportunity-Organization Matching Determines whether an identified market opportunity is consistent with the definition ofthe 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

9. Qualitative Quantitative • Market sales potential estimates • Sales forecasts • Competitive activity • Environmental forces • Budgets • Buyer requirements • Market demand • Organizational capabilities • Supplier sources OPPORTUNITY ANALYSIS Opportunity Evaluation Matches the attractiveness of an opportunity with the potential for uncovering a market niche, which depends on: Consists of:

10. BuyerType  How many andwhich firmscompete for thisuser group?  What affects buyerwillingness andability to buy?  Do different buyertypes havedifferent levels ofeffective demand?  How sensitive aredifferent buyers tothese forces?  Can we gainaccess to buyersthrough marketingmix variables?  How important areadequate sourcesof supply?  Can we supplythese buyers? BuyerNeeds  Which firms aresatisfying whichbuyer needs?  Are there buyerneeds that are notbeing satisfied?  Are buyer needslikely to belong-term?  How sensitive arebuyer needs tothese forces?  Which buyer needscan our firmprofitably satisfy?  What are they?  Do we have orcan we acquireresources tosatisfy buyerneeds? Means forSatisfyingBuyer Needs  What are thestrategies beingemployed tosatisfy buyerneeds?  Is the technologyfor satisfyingbuyer needschanging?  To what extent arethe means forsatisfying buyerneeds affected bysupply sources?  How sensitive arethe means forsatisfying buyerneeds to theseforces?  Do we have thefinancial, human,technological,and marketingexpertise tosatisfy buyerneeds?  Is the demand forthe means forsatisfying buyerneeds changing? EXHIBIT 4.1: OPPORTUNITY EVALUATION MATRIX—ATTRACTIVENESS CRITERIA Market Niche Criterion CompetitiveActivity Demand/Supply EnvironmentalForces OrganizationalCapabilities BuyerRequirements

11. CHAPTER 4: OPPORTUNITY ANALYSIS, MARKET SEGMENTATION, AND MARKET TARGETING WHAT IS A MARKET?

12. 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.

13. WHAT IS A MARKET? Implications for marketers: Buyers Focus on buyers, not products or services EffectiveDemand 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 Offerings

14. Identify competitors and how they compete • Monitor changes in sales volume • Assess differences between buyers’ taste preferences and the competition WHAT IS A MARKET? Market Structure View as a composite of mini- or regional markets to:

15. Total U. S. Coffee Market Institutional Sales(restaurants, institutions, etc.) Retail Sales(retail food stores) … Ground Whole Bean Instant … … Caffeinated Decaffeinated … New England Northwest Midwest Southeast EXHIBIT 4.2: MARKET STRUCTURE FOR COFFEE IN THE UNITED STATES

16. Firm, Offering, or Brand Sales($ or #) MarketShare X% = = Market Sales($ or #) 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 (%):

17. WHAT IS A MARKET? MarketDefinition CoffeeDollar Sales Atlantic Blend Sales MarketShare

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” ServedMarket Share Use a market development strategy “Low” ServedMarket Share Use either a product development or market penetration strategy

19. CHAPTER 4: OPPORTUNITY ANALYSIS, MARKET SEGMENTATION, AND MARKET TARGETING MARKETSEGMENTATION

20. MARKET SEGMENTATION Market Segmentation • A technique that involves breaking down or building up of potential buyers into groups, which are calledmarket segments • Each segment possesses a homogeneous characteristicthat relates to its purchasing behavior and responseto a marketing program • “Cannot be all things to all people” • Information technology and flexible manufacturing and service delivery systems can create “segments of one”

21. 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 buyer’s unique wants

22. 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

23. Bases for Market Segmentation Consumers Industrial Buyers SocioeconomicCharacteristics BehavioralVariables SocioeconomicCharacteristics BehavioralVariables • Gender • Benefits Sought • Company Size • PurchasingObjectives • Age • Usage • Location • ProductBenefits • Occupation • Industry • Income PsychographicVariables • Customers Served • Family Life Cycle • Education • Lifestyle • Location • Attitudes MARKET SEGMENTATION

24. 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?

25. MARKET SEGMENTATION Requirements for Effective Market Segmentation Measurable Differentiable Accessible Substantial

26. CHAPTER 4: OPPORTUNITY ANALYSIS, MARKET SEGMENTATION, AND MARKET TARGETING MARKET TARGETING

27. MARKET TARGETING Marketers ask three questions after a market has been segmented: Where toCompete? How toCompete? When toCompete?

28. 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

29. 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: DifferentiatedMarketing ConcentratedMarketing

30. 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

31. 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 linesto a single market segment • Provides operating economies • Limits growth opportunities if the segment size declines

32. Series 1000/Series 2000 Series 3000 Series 5000 Series 6000 Series 7000 Series 8000 EXHIBIT 4.3: NOKIA’S DIFFERNTIATED MARKETING STRATEGY

33. Do the same to this product !

34. MARKET SEGMENT PERODUA BASIC MEDIUM PREMIUM

35. Now DO THE SAME TO ANY PRODUCT YOU ARE FAMILIAR WITH! BASICMEDIUMPREMIUM

36. CHAPTER 4: OPPORTUNITY ANALYSIS, MARKET SEGMENTATION, AND MARKET TARGETING MARKET SALES POTENTIAL AND PROFITABILITY

37. MARKET SALES POTENTIAL AND PROFITABILITY Market Sales Potential • Estimating a market’s sales potential foran offering is a difficult task • Markets and offerings can be defined in ways that can lead to different estimatesof market size and dollar sales potential • For new offerings or markets, marketers may rely entirely on judgment and creativity when estimating market sales potential

38. 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

39. Buyers (B) The number of prospective buyers (B) who are willing and able to purchase an offering Quantity (Q) The quantity (Q) of an offering purchased by an average buyer in a specific time period Price (P) The price (P) of an average unit of the offering MARKET SALES POTENTIAL AND PROFITABILITY Estimating Market Sales Potential Variables used to estimate: Market Sales Potential B P Q = × ×

40. Population aged 8 years and over× proportion of the population that consumers soft drinks on a daily basis × proportion of the population preferring cola-flavored 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 Market SalesPotential forCola-FlavoredSoft Drinksin a Country = 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

41. 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

42. SALES AND PROFIT FORECASTING Sales Forecast • Is the level of sales a single organization expectsto 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)

43. SALES AND PROFIT FORECASTING Sales Forecast Example: Chain Ratio Method

44. SALES AND PROFIT FORECASTING Sales Forecast • Prepare a pro forma income statementthat 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