Chap 4: Identifying customers

Understand the target marketing concept

1. Three different perspectives of viewing the market:

- Buyers have common wants, needs and demands.

- Buyers have unique wants, needs and demands.
- The market contains subgroups — known as market segments — who share common or
similar needs in regards to certain characteristics.

2. Target Marketing is based on 3 premises:

- individual buyers or groups of buyers can be identified
- sellers understand the needs of buyers
- sellers will seek to shape their offer to meet the needs of target buyers.

3. To discuss the key differences between mass marketing, one-to-one marketing and target
marketing based on market segments, this is the different approaches to the market:

a. Mass marketing:
 - Buyers have common wants, needs and demands. A single product will meet the needs of
most people in the market, with an undifferentiated approach.
- Producing large volumes at a low cost per unit (due to ‘economies of scale’) makes it
possible to sell at a low price and capture very large markets,
ensuring high levels of profitability. E.g. Salt, Sugar,….etc.
b. One-to-one marketing:
- Providing a unique, customised offering to meet individual customer needs.
- A one-to-one approach often results in higher unit costs and a more restricted market.
- One-to-one conditions typically form the basis for a focus or niche strategy. Many small
services businesses take a one-to-one marketing approach, for example, hairdressers.
c. Target marketing - base on segment
- A marketing approach that involves developing a different marketing mix for each target
market segment.
- Market segmentation forms the basis of target marketing.
- Many organisations view target customers not as individuals but as market segment.
4. Product and market specialisation
- Product specialisation, in which all efforts are concentrated on a single product range
offered to a number of market segments. Hasselblad, for example, competes by
concentrating solely on cameras. Stihl focuses on chainsaws.
- Market specialisation, in which all efforts are concentrated on meeting a wide range of
needs within a single market segment. For example, Elders provides a comprehensive
range of goods and services to farmers. Similarly, credit unions provide a wide range of
financial services to members who live in particular local communities or who are
employed in particular industries. Apia (a Suncorp brand) targets seniors (over 50) and
the retired community. The differences between product specialisation and market
specialisation are summarised in a figure below.
- Product–market specialisation, in which the product and market specialisation
approaches are combined to offer a single product to a single market segment. Micro
businesses (e.g. local trades and professional services businesses) commonly adopt this
 approach. For example, restaurants will choose to offer a narrow menu, often based on a
national cuisine, to a local market from a single location.

5. Target marketing process

Identify market segmentation categories and their variables for consumer and business markets,
and develop market segment profiles
- The first stage of the target marketing process is market segmentation.
- Two steps in this phase:
+ identifying variables that can be used to define meaningful market segments + profiling the
market segments so they can be assessed in the second stage of the target marketing process
a. Identify segmentation variables
- Characteristics that buyers have in common and that might be closely related to their
purchasing behaviour.
- 4 broad categories: Demographic, Geographic, Psychographic, Behavioural.
- The key to effective segmentation
+ easy to measure and readily available
+ linked closely to the purchase of the product in question
- Market research plays a crucial role in the process of understanding the link between
segmentation variables and consumers’ purchasing behaviour - Geographic segmentation:
+ market segmentation based on geographic variables
+ Useful geographic variables include: climate, local population, region, topography, urban,
suburban and rural location.
+ An emerging trend in segmentation is geo-demographics: Combines demographic
variables and geographic variables to profile very small areas - Demographic
segmentation :
+ market segmentation based on demographic variables, which are related to the quantifiable
social characteristics of populations
+ most commonly used variables for market segmentation - The
demographic variables most frequently used by marketers :

Age Occupation
Education Religion
Ethnicity Sex
Family lifecycle Social class.

- Psychographic segmentation :
+ is based on differences in: psychological traits (personality attributes and motives), key
demographics, lifestyles (the expression of the two former categories). + seeks to understand
consumers by identifying their mind-sets and how they are expressed in their lifestyles
- Behavioural segmentation :
+ Is not based on consumer characteristics
+ it is based on actual purchase and/or consumption behaviours, typically towards particular
products
 better indicator of market segments and their purchasing behaviour than segmentation
based on generalised consumer characteristics

+ Include benefit expectations, brand loyalty, occasion, price sensitivity, volume usage.
- Segmenting business markets :
+ Business markets are often characterised by a small number of buyers, each of which might
display a very close relationship with the seller.
+ Under such circumstances, traditional market segmentation variables may be less relevant
⇨ ‘customised’ or ‘one-to-one’ marketing may be the most logical

- Effective segmentation criteria :

+ measurability — abstract variables can be difficult to measure
+ accessibility — through distribution and communication channels
+ substantiality — the segment must be of sufficient size to allow profitability + practicability
— segments are only of use if they can be identified and serviced. b. Market segment
profiling:
- A market segment profile :
+ describes the typical potential customer in the market segment
+ describes the common features shared by members of market segments and how they differ
between market segments, typically described in terms of a number of segmentation variables.
+ Individual segments will be uniquely described by a combination of segmentation variables
such as gender, age, occupation and lifestyle - Often based on significant market research.
- The number of possible segments grows by multiplies with each extra segmentation variable is
added e.g. adding gender doubles the number of market segments.
- An important requirement of effective segmentation is to understand the target market
segments completely

Evaluate potential segments

The evaluation of potential market segments involves detailed and rigorous analysis of sales
potential, the competitive situation and cost structures.
❖ Sales potential
- Market potential is the total volume of sales of a product category that all organisations in
an industry are expected to sell in a specified period of time, assuming a specific level of
marketing activity.
- An organisation’s sales revenue = total volume of sales x the average selling price.
- The total volume of sales is determined by the organisation’s market share.
- It can be difficult to determine the likely marketing activity and sales relating to new
products or product categories, such as apps for use with smartphones and tablet computer
devices.
- Company sales potential is an estimate of the maximum sales revenue and market share that
an organisation can expect to achieve for a specific product.
- Several factors influence the organisation’s ability to achieve its sales potential in a given
market segment:
• the market potential ( i.e. the maximum possible sales in the total market for a product
category)
• the organisation’s ‘served market’ (i.e. those segments of the market for which the
organisation chooses to compete)
• the level of industry marketing activity, which directly influences the market potential
• the effectiveness of an organisation’s promotional spending, which depends on the
organisation’s ‘share of voice’ (i.e. the organisation’s promotional spending relative to total
industry promotional spending) and the use of effective ‘tactical’ promotional spending
designed to maximise impact.
- One approach to estimating sales potential is to look at total market size, current market
share, planned marketing activities and environmental factors.. Another approach to
estimating sales potential is to examine individual parts of the market (e.g. sales territories)

❖ Competitive situation
- The context of a thorough assessment of the organisation’s competitive situation — the
activities of competitors already in the marketplace and their relative market shares.
- It is important to evaluate the level of competitive activity and the strengths and weaknesses
of individual competitors before estimating the organisation’s likely market share.

❖ Cost structure
- The organisation needs to consider the costs involved in creating, communicating and
delivering an offering to meet the needs of each potential market segment.
- The organisation’s cost structure includes production costs, administrative overheads and all
associated promotion and distribution costs.
Select target market
- Having identified a range of potential target market segments, the organisation needs to
undertake a rigorous analysis to choose between the range of possible segments.
- the organisation must decide which and how many of these segments to target, which will
be based on the revenue opportunities identified in the previous step, together with an
understanding of the organisation’s costs, resources and capabilities and the likely response
of competitors. The size of the available market will be a prime consideration in deciding
how many segments to target.
- Estimating market potential requires estimation of market potential for individual market
segments and, in this process, it is important that the organisation develops sales forecasts
based on systematic, objective and reliable methods, and that the forecasts are sufficiently
accurate.
- A range of methods are available, including market research (particularly surveys), analysis
of historical trends, statistical analysis to identify underlying purchasing patterns, test
marketing results and indeed just the intuition of decision makers.

Understand how to effectively position an offering to a target market in relation to

competitors, and develop an appropriate marketing mix

- Positioning describes how target markets perceive the organisation’s offer relative to
competing offers. It is how customers distinguish the organisation, its products and its
brands from competitors when they are selecting from among the available alternatives.
- Positioning is based on customer perceptions which may or may not closely correspond
with the product’s objective characteristics.
- It describes how the organisation is perceived by the market, relative to its competitors on
the attributes that customers regard as important in their decision making.
- Positioning can help to manage:
+ How it, as a whole, is perceived relative to competitors in the minds of its stakeholder
groups.
 + How its brands are seen, typically focusing on distinguishing product attributes.
+ How the market distinguishes its offering from those of closely competitive brands.
- Positioning involves two steps: firstly, determining the position that the company wishes to
occupy in the minds of buyers; and secondly, developing a marketing mix to reflect the
expectations of the target market segment and which reflects that positioning.
a. Determine positioning for each segment:
- Perceptual mapping, which typically produces two-dimensional maps showing how each of
the competing brands relate to each other in terms of a range of product attributes.
- Identify those product attributes that consumers use to distinguish between competing
products or brands (‘salient’ product attributes).
- Organisation needs to assess how its own product or brand, and competitors’ products or
brands are positioned in relation to those attributes, through quantitative survey research,
using rating scales.
- Devise some concept of the ideal position of the organisation’s product or brand.
- A competitive position should be protected and nurtured for the long term. This involves
communicating a consistent message and delivering a consistent product and service
offering over the long term
b. Determine the marketing mix for each segment:
The marketing mix for each segment should:
- Be consistent with the desired positioning
- Be internally consistent — each element of the marketing mix should be coordinated and
supportive of the other elements • be sustainable in the long term.