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CHAPTER 6
Target Markets: Segmentation and Evaluation
TEACHING RESOURCES QUICK REFERENCE GUIDE
Resource Location
Purpose and Perspective IRM, p. 108
Lecture Outline IRM, p. 109
Discussion Starters IRM, p. 117
Class Exercises IRM, p. 118
Chapter Quiz IRM, p. 120
Answers to Discussion and Review Questions IRM, p. 121
Answers to Application Questions IRM, p. 125
Answers to Internet Exercise IRM, p. 126
Answers to Developing Your Marketing Plan IRM, p. 127
Comments on the Cases IRM, p. 128
Case 6.1 IRM, p. 128
Case 6.2 IRM, p. 129
Strategic Case 3 IRM, p. 130
Instructions for Role Play Team Case Exercise IRM, p. 131
Examination Questions: Essay Testing CD
Examination Questions: Multiple-Choice Testing CD
Examination Questions: True-False Testing CD
PowerPoint Slides Instructor’s website
Note: Additional resources may be found on the accompanying student and instructor websites at
www.cengagebrain.com.
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible web site, in whole or in part.
Chapter 6: Target Markets: Segmentation, Evaluation, and Positioning 109
PURPOSE AND PERSPECTIVE

This chapter covers the definition of a market, how organizations identify target markets, and how to
estimate market potential and forecast sales. First, we define a market and discuss the characteristics
groups must possess to be considered a market. Then, we describe in detail the five steps in the target
market selection process. In discussing the process, we describe three targeting strategies:
undifferentiated, concentrated, and differentiated. We examine in some detail the process of choosing
segmentation variables and the types of variables that marketers use. We also seek to make students
understand how marketers analyze these market segments and to help them be able to identify the factors
that influence the selection of specific marketing segments for use as target markets. Finally, we consider
how to evaluate market potential and how to forecast sales.
110 Chapter 6: Target Markets: Segmentation, Evaluation, and Positioning
LECTURE OUTLINE
I. What Are Markets?
A. We defined the term “market” as a group of people who, as individuals or organizations, have
needs for products in a product category and have the ability, willingness, and authority to
purchase such products.
B. Individuals can have the desire, the buying power, and the willingness to purchase certain
products but may not be authorized to do so.
C. Markets fall into one of two categories: consumer markets or business markets.
1. A consumer market consists of purchaser and household members who intend to consume
or benefit from the purchased products and do not buy products for the main purpose of
making a profit.
2. Consumer markets are sometimes referred to as business-to-consumer (B2C) markets.
3. A business market consists of individuals or groups who purchase a specific kind of product
for one of three purposes:
a. Resale
b. Direct use for producing other products
c. Use in general daily operations
4. Business markets may also be called business-to-business (B2B), industrial, or
organizational markets.
II. Target Market Selection Process
A. Marketers generally employ a five-step process for target market selection: identifying the
appropriate targeting strategy, determining which segmentation variables to use, developing
market segment profiles, evaluating relevant market segments, and selecting specific target
markets.
B. Step 1: Identify the Appropriate Targeting Strategy
1. The targeting strategy is affected by target market characteristics, product attributes, and the
organization’s objectives and resources.
2. Undifferentiated Strategy
a. The undifferentiated targeting strategy is one in which an organization defines an
entire market for a particular product as its target market, designs a single marketing mix,
and directs it at the entire market.
b. The underlying assumption is that the needs of the target market for specific kinds of
products are very similar; thus, the business can satisfy most customers with a single
marketing mix.
c. There are two conditions that make this approach effective:
(1) The market must be homogeneous, meaning that a large proportion of customers
have similar needs for the product.
(2) The organization must be able to develop and maintain a single marketing mix that
satisfies customers’ needs.
3. Concentrated Targeting Strategy through Market Segmentation
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
a. Heterogeneous markets are markets made up of individuals or organizations with

diverse product needs.
b. Market segmentation is the process of dividing the total market into groups or segments
that have relatively similar product needs for the purpose of designing a marketing mix
which precisely matches the needs of individuals in a selected segment. It is appropriate
for heterogeneous markets.
(a) A market segment consists of individuals, groups, or organizations with one or
more similar characteristics which cause them to have relatively similar product
needs.
(b) The main rationale for segmentation is that a company is better able to develop a
satisfying marketing mix for a small portion of a total market than to develop a
mix that meets the needs of the whole market.
(c) There are five conditions for effective segmentation.
(i) Consumers’ needs for the product must be heterogeneous.
(ii) The segments must be identifiable and divisible.
(iii) The total market should be divided so segments can be compared with
respect to estimated sales potential, costs, and profits.
(iv) At least one segment must have enough profit potential to justify the
development and maintenance of a special marketing mix for that segment.
(v) The organization must be able to reach the chosen segment with a particular
marketing mix.
c. A concentrated targeting strategy is a strategy in which an organization targets a single
market segment using one marketing mix.
(1) Specialization gives the organization an opportunity to carefully analyze the
characteristics and needs of a distinct customer group and then focus all marketing
efforts into satisfying that group’s needs.
(2) A firm can generate large sales volume by reaching a single segment.
(3) A firm with restricted resources is able to compete with much larger organizations.
(4) However, if the segment’s demand for the product declines, the company’s financial
strength also declines.
(5) Success in one segment may preclude entry into another segment.
4. Differentiated Targeting Strategy through Market Segmentation
a. A differentiated targeting strategy is a strategy in which an organization targets two or
more segments by developing a marketing mix for each segment.
b. A business can increase its sales in a total market by focusing on more than one segment
because its marketing mixes are aimed at different people.
c. Sales to additional market segments may absorb excess production capacity.
d. A greater number of production processes, materials, and skills mean higher production
costs.
C. Step 2: Determine Which Segmentation Variables to Use
1. Segmentation variables are characteristics of individuals, groups, or organizations that are

used to divide a market into segments.
a. A segmentation variable should be related to customers’ needs for, uses of, or behavior
toward the product.
b. The variable must be measurable.
c. The company’s resources and capabilities, type of product, and the degree of variation in
customer behavior determine the number and size of segment variables.
d. Choosing segmentation variables is critical because an inappropriate variable limits the
chances of developing a successful marketing strategy.
2. Variables for Segmenting Consumer Markets
a. Demographic Variables
(1) Demographic characteristics marketers commonly use in segmenting markets include
age, gender, race, ethnicity, income, education, occupation, family size, family life
cycle, religion, and social class.
(2) Marketers rely on these demographic characteristics because they are often closely
linked to customers’ needs and purchasing behaviors, and can be readily measured.
(3) Marketers need to be aware of age distribution and how that distribution is changing;
children in particular have greater influence over spending patterns.
(4) Gender is another demographic variable commonly used to segment markets,
including the markets for clothing, soft drinks, nonprescription medications,
toiletries, magazines, and even cigarettes.
(5) Marketers also use race and ethnicity as variables for segmenting markets for such
products as food, music, clothing, and cosmetics; also for services such as banking
and insurance.
(6) Income affects people’s ability to buy and their desires for certain lifestyles.
(7) Marital status and the presence and age of children—characteristics often combined
and called the family life cycle—affect needs for housing, appliances, food and
beverages, automobiles, and recreational equipment.
(a) The composition of the American household in relation to the family life cycle
has changed considerably over the last several decades, meaning that the
“typical” family no longer consists of a married couple with children.
(b) Tracking these changes helps marketers satisfy the needs of particular target
markets through new marketing mixes.
(8) Marketers also use many other demographic variables, including education level and
occupation.
b. Geographic Variables
(1) Geographic variables—climate, terrain, city size, population density, and urban/rural
areas—also influence consumer product needs.
(2) Markets may be divided into regions because one or more geographic variables can
cause customers to differ from one region to another.
(a) Some marketers focus efforts on cities of a certain size.
(b) The U.S. Census Bureau developed a system to classify metropolitan areas (any
area with a city or urbanized area with a population of at least 50,000 and a total
metropolitan population of at least 100,000).
(3) Market density refers to the number of potential customers within a unit of land
area, such as a square mile.
(4) Geodemographic segmentation clusters people in ZIP code areas and even smaller
neighborhood units based on lifestyle and demographic information.
(5) Micromarketing focuses precise marketing efforts on very small geographic
markets, such as community, and even neighborhood markets.
(6) Climate is also used as a segmentation variable because of its broad impact on
people’s behavior and product needs.
c. Psychographic Variables
(1) A psychographic variable can be used by itself to segment a market or combine with
other types of segmentation variables. The following are the types most commonly
used to segment markets.
(2) Personality characteristics
(a) These can be useful for segmentation when a product resembles many competing
products and consumers’ needs are not greatly affected by other segmentation
variables.
(b) Marketers almost always select personality characteristics that people view
positively.
(3) Motives
(a) A market is divided according to consumers’ reasons for making a purchase.
(b) Personal appearance, affiliation, status, safety, and health are examples of
motives affecting the types of products purchased and the choice of stores in
which they are bought.
(4) Lifestyle segmentation
(a) Lifestyle segmentation groups individuals according to how they spend their
time, importance of things in their surroundings, beliefs about themselves and
broader issues, and some demographic characteristics.
(b) This broad variable encompasses numerous characteristics related to people’s
activities, interests, and opinions.
(c) One of the more popular programs which studies lifestyle is conducted by the
Stanford Research Institute’s Value and Lifestyle Program (VALS), which
classifies consumers into eight basic groups (Innovators, Thinkers, Achievers,
Experiencers, Believers, Strivers, Makers, and Survivors) based on psychological
characteristics which are correlated with purchase behavior and four key
demographics.
d. Behavioristic Variables
(1) Firms can divide a market according to some feature of consumer behavior toward a
product, commonly involving some aspect of product use.
(2) How consumers use or apply the products may also determine segmentation.
(3) Benefit segmentation is the division of a market according to benefits that

consumers want from the product.
(4) The effectiveness of benefit segmentation depends on three conditions:
(a) The benefits sought must be identifiable.
(b) Marketers must be able to divide people into recognizable segments using these
benefits.
(c) One or more of the resulting segments must be accessible to the organization’s
marketing efforts.
3. Variables for Segmenting Business Markets
a. Geographic Location: Variations in organizations’ demands result from differences in
climate, terrain, consumer preferences, or similar factors.
b. Type of Organization: Required product features, distribution systems, price structures,
and selling strategies may vary among different types of organizations.
c. Customer Size: An organization’s size may affect the purchasing procedures and types
and quantities of products desired.
d. Product Use: How an organization uses the products affects the types and amounts of
products purchased and the manner in which they are purchased.
D. Step 3: Develop Market Segment Profiles
1. Market segment profiles describe the similarities among potential customers within a segment
and explain the differences among people and organizations in different market segments.
2. A profile can deal with demographic characteristics, geographic factors, product benefits
sought, lifestyles, brand preferences, or usage rates.
3. Market segment profiles provide marketers with an understanding of how a business can use
its capabilities to serve potential customer groups.
E. Step 4: Evaluate Relevant Market Segments
1. Sales Estimates
a. Potential sales for a segment can be measured along several dimensions, including
product, geographic area, time, and level of competition.
b. Market potential is the total amount of a product for all firms in an industry which
customers will purchase within a specified period at a specific level of industry-wide
marketing activity.
(1) It can be stated in terms of dollars or units and can refer to a total market or to a
market segment.
(2) When analyzing market potential, it is important to indicate the time frame and the
level of industry marketing activities.
c. Company sales potential is the maximum percentage of market potential that an
individual firm within an industry can expect to obtain for a specific product.
(1) Factors that influence a company’s sales potential include the market’s sales
potential, the magnitude of industry-wide marketing activities, and the intensity and
effectiveness of the organization’s marketing activities relative to those of its
competitors.
(2) There are two general approaches to measuring company sales potential: breakdown
and buildup.
(a) The breakdown approach measures company sales potential based on a general
economic forecast for a specific time period and the sales potential derived from
it. The marketing manager starts with broad comprehensive forecasts of general
economic activity, estimates market potential, and then estimates the company’s
sales potential.
(b) The buildup approach measures company sales potential by estimating how
much of a product a potential buyer in a specific geographic area will purchase in
a given time period, multiplying the estimate by the total number of potential
buyers in that area, and adding the totals for each area to calculate market
potential.
2. Competitive Assessment
a. Sales estimates may be misleading without competitive information.
b. Several questions must be asked about competitors in the segments being considered.
(1) How many competitors exist?
(2) What are their strengths and weaknesses?
(3) Do several competitors have major market shares and together dominate the
segment?
(4) Can our company create a marketing mix to effectively compete against competitors’
marketing mixes?
(5) Is it likely that new competitors will enter this segment?
(6) If so, how will they affect our organization’s ability to successfully compete?
3. Cost Estimates
a. Meeting the needs of a target segment can be expensive.
b. If costs are too high, marketers may treat the segment as inaccessible.
F. Step 5: Select Specific Target Markets
1. Marketers first decide whether there are enough differences in customers’ needs to warrant
the use of market segmentation.
2. The firm’s management must consider whether the organization has the financial resources,
managerial skills, employee expertise, and facilities to enter and effectively compete in
selected segments.
3. Developing Sales Forecasts
a. A sales forecast is the amount of a product the company expects to sell during a specific
period at a specified level of marketing activities.
b. The sales forecast differs from the company sales potential. It concentrates on what actual
sales will be at a certain level of company marketing effort, whereas the company sales
potential assesses what sales are possible at various levels of marketing activities.
c. Common forecasting techniques fall into five categories: executive judgment, surveys,
time series analysis, regression analysis, and market tests.
d. Executive judgment relies on the intuition of one or more executives, which is

unscientific but expedient and inexpensive.
(1) It may work reasonably well when product demand is relatively stable and the
forecaster has years of market-related experience.
(2) However, the forecast may be overly optimistic or overly pessimistic and relies
heavily on past experience to make decisions about the future.
e. Surveys
(1) In a customer forecasting survey, marketers ask customers what types and
quantities of products they intend to buy during a specific period.
(2) In a sales force forecasting survey, the firm’s salespeople estimate anticipated sales
in their territories for a specified period.
(a) The sales staff is closer to customers on a daily basis than other company
personnel and should know more about customers’ future product needs.
(b) Sales representatives are more likely to work toward the forecast’s achievement.
(c) Forecasts can be prepared for single territories, divisions consisting of several
territories, regions made up of multiple divisions, and the total geographic
market.
(3) For an expert forecasting survey, a company hires experienced professionals to help
prepare the sales forecast.
(a) Using experts is expedient and relatively inexpensive, but they may be less
motivated than company personnel to do an effective job.
(b) In the Delphi technique, experts create initial forecasts, submit them to the
company for averaging, and have the results returned to them so they can make
individual refined forecasts that are highly accurate.
(4) With time series analysis, the forecaster uses the firm’s historical sales data to
discover a pattern or patterns in the firm’s sales over time. It assumes that past sales
patterns will continue in the future.
(a) Trend analysis focuses on aggregate sales data, such as the company’s annual
sales figures, covering a period of many years to determine whether annual sales
are generally rising, falling, or staying about the same.
(b) Cycle analysis uses sales figures for a three- to five-year period to ascertain
whether sales fluctuate in a consistent, periodic manner.
(c) Seasonal analysis uses daily, weekly, or monthly sales figures to evaluate the
degree to which seasonal factors influence sales.
(d) Random factor analysis attempts to attribute erratic sales variations to random,
nonrecurrent events, such as a regional power failure, a natural disaster, or
political unrest in a foreign market.
(e) Time series analysis is an effective forecasting method for products with
reasonably stable demand, but not for products with highly erratic demand.
(5) In regression analysis, the forecaster seeks to find a relationship between past sales
(the dependent variable) and one or more independent variables, such as population,
per capita income, or gross domestic product.
(a) The objective is to develop a mathematical formula that accurately describes a

relationship between the firm’s sales and one or more variables.
(b) Regression analysis is useful when a precise association can be established or
when historical sales data are extensive. It is futile for forecasting sales of new
products.
(6) A market test involves making a product available to buyers in one or more test
areas and measuring purchases and consumer responses to distribution, promotion,
and price.
(a) It provides information about consumers’ actual rather than intended purchases.
(b) Purchase volume can be evaluated in relation to the intensity of other marketing
activities such as advertising, in-store promotions, pricing, packaging, and
distribution.
(c) A market test is effective for forecasting sales of new products or sales of
existing products in new geographic areas and provides an opportunity to test
various elements of the marketing mix.
(d) However, these tests are often time consuming, expensive, and consumer
response may not represent the total market response.
(7) Most businesses use multiple forecasting methods to deal with variations in the time
or scope of forecasts.
DISCUSSION STARTERS
Discussion Starter 1: How Many Markets?
This exercise involves a series of questions. Ask the students to stand or remain standing if the statement
is true for them.
(1) Are you a University/College student?
(2) Are you a University/College student in the state of ___________?
(3) Are you a University/College student in (insert your University/College name)?
(4) Are you a student in the College of Business at (insert your University/College name)?
(5) Are you a marketing major in the College of Business at (insert your University/College
name)?
(6) Are you brown haired?
(7) Are you brown eyed?
(8) Are you taller than 5’7”?
(9) Are you male?
ASK: What happened to the number standing as I went through these questions? Why did the number
standing get smaller?
Each of these questions represents a different level of market aggregation. We began with the broadest
market, the market of college students and then began narrowing the group until we had the market of
males, 5’7” or taller with brown hair and brown eyes, who are marketing majors, in the College of
Business at a particular university. Now it is doubtful that marketers would ever target this particular
segment, but there are instances where segments are extremely narrowly defined.
Discussion Starter 2: Understanding Segments

The 10 minute video segment is part of a Frontline series called “The Merchants of Cool.” While this
program aired years ago, it is still relevant. Frontline is an excellent program and all of its episodes
are available online at the PBS website. You may want to consider previewing other episodes and
using them later in the semester. However, some episodes contain content which may not be
appropriate for all classes.
ASK: How do marketers know what is “cool” for a particular segment?
Today the teen market is a very desirable market segment since they set trends and have high levels
of disposable income. This video (Part 1: Hunting for Cool) demonstrates some of the research
techniques used to identify what is cool to the various segments of teen culture.
http://www.pbs.org/wgbh/pages/frontline/video/flv/generic.html?s=frol02p70&continuous=1
CLASS EXERCISES
Class Exercise 1: Segmentation Variables
The objective of this class exercise is to gain a thorough understanding of segmentation variables by
designing a target market for a new retail operation.
Prompt for Students:
You have just received a sizable inheritance. After giving part of it to charity, you have $500,000
remaining to begin a new retail operation in your local area. What kind of operation will you open?
1. What market or segment of a market exists in your area with unfulfilled needs or wants?
2. Briefly describe the nature of the operation you would open to meet the needs of a specific market
segment(s).
a. Product or service?
b. Price range?
c. Location?
3. Will you use a concentrated or a differentiated targeting strategy? Why?
4. What segmentation variables will be useful in describing your target market(s)? Why?
Answers:
1. Other ways of asking this question are “What kinds of retail stores do you wish were available here?”
and “What kinds of restaurants or retail outlets have you seen in other places that might work here?”
Students can usually think of successful operations in their hometowns that are not available locally.
It is important to stress the necessity of the market being large enough or the segment being profitable
enough to support their choice of retail operations.
2. Students could spend the entire class period on this question, so encourage them to be brief. An
example might be this: Open an upscale restaurant and bar that serves dinners ($7–$12) and drinks,
located on the corner of University Avenue and First Street.
3. The answer to this question will depend on the type of product or service being offered, but students
often assume a concentrated strategy is best when a differentiated targeting strategy is more
appropriate. For instance, most restaurants have breakfast, lunch, dinner, and perhaps late night
segments, each having different needs.
4. This question should take up the majority of the exercise time. Ask students to look carefully at each
variable to determine if it will help develop a better marketing mix to meet customer needs. Most
students will define their target markets by demographic or geographic variables because
psychographic and behavioristic variables are harder to understand. Push them by asking, “Why
would people go to your store?” (Motives) and “What are they really buying at your store besides the
product?” (Benefits).
Class Exercise 2: Segmentation Variables in Different Industries

This exercise is designed to get students to think in terms of segmentation variables discussed in the
chapter. For example, what demographic, geographic, psychographic, or lifestyle variables could have
been used to segment the market for baby food (variable 2)? Lifestyle segmentation variables could
include:
1. Consumers who want nothing but all-natural ingredients
2. Upscale consumers who want gourmet baby food

3. Time-conscious consumers who need instant or quick meals for their babies
Many other combinations are possible. Encourage students to be creative and imaginative. As with most
exercises, there are no right or wrong answers. The following list includes variables or characteristics that
could be used to segment markets for specific products.
Question Answers
1. Recreational vehicles (RVs) age, income
2. Baby food family life cycle, age
3. Rolls Royce automobiles income, social class
4. Snow tires climate
5. Hotel rooms income, business vs. tourism
6. Magazines age, job, education, ethnicity, gender
7. Soft drinks age, gender
8. Movies age, family life cycle
9. Shoes age, income, lifestyle
10. Bicycles income, age, lifestyle
11. Air passenger service income, business vs. tourism
12. Cameras lifestyle, occupation, income
13. Swimsuits age, climate, gender
14. Restaurants income, age, city size, lifestyle
15. Snowboards age, climate
Class Exercise 3: Demographics

Go to:
http://www.claritas.com/MyBestSegments/Default.jsp?ID=20&SubID=&pageName=ZIP%2BCode%2B
Look-up
Enter the 5 digit zip code for your school. Take students through a review of the area as seen through the
Prizm at claritas.com.
As an optional homework assignment, students could profile their hometowns through this free service
and discuss the findings. Students could discuss whether they think the findings are valid or not and why.
CHAPTER QUIZ
1. Miller Brewing does not consider teenagers to be a part of the beer market because they lack the
___________ to buy beer.
a. money
b. desire
c. interest
d. authority
e. willingness
2. Soft Shave is a shaving cream aimed primarily at women. The activities and decisions involved in
developing and maintaining Soft Shave's product concept in buyers' minds are called
a. the product mix.
b. the product life cycle.
c. product positioning.
d. product promotion.
e. product development.
3. If a company markets its products to different countries, it is using a(n) ______ targeting strategy to
segment the total market.
a. undifferentiated
b. concentrated
c. stratified
d. differentiated
e. homogeneous
4. Occupation, family size, and family life cycle are all ______ variables for segmenting consumer
markets.
a. behavioristic
b. demographic
c. geographic
d. psychographic
e. usage
Answers to Chapter Quiz: 1. d; 2. c; 3. d; 4. b.
ANSWERS TO DISCUSSION AND REVIEW QUESTIONS

1. What is a market? What are the requirements for a market?
A market is a group of people who, as individuals and/or organizations, have needs for products in a
product class and have the ability, willingness, and authority to purchase such products. For a group
of people to be a market, they must need the product, have the ability to purchase it, be willing to
purchase it, and have the authority to purchase it.
2. In your local area, identify a group of people with unsatisfied product needs who represent a
market. Could this market be reached by a business organization? Why or why not?
In answering this question, students should demonstrate that their suggested markets meet the
requirements of a market as discussed in question one.
3. Outline the five major steps in the target market selection process.
Although marketers may use various methods for selecting a target market, they commonly use a
five-step process. Step one is to identify the appropriate targeting strategy. The three basic strategies
are undifferentiated strategy, concentrated strategy, and differentiated strategy. After determining
which targeting strategy to use, marketers move to step two, determining which segmentation
variables to use. There are specific variables for both consumer and business markets. Step three is
to develop market segment profiles so marketers better understand how their business can use its
capabilities to serve potential customer groups. In step four, marketers evaluate relevant market
segments, analyzing sales estimates, competition, and estimated costs for each segment. The fifth
and final step is to select specific target markets. Marketers must decide whether there are enough
differences in customers’ needs to recommend segmentation and, if so, in which of these segments
to participate.
4. What is an undifferentiated strategy? Under what conditions is it most useful? Describe a
present market situation in which a company is using an undifferentiated strategy. Is the
business successful? Why or why not?
When an organization designs a single marketing mix and directs it at the entire market for a
particular product, it is employing an undifferentiated targeting strategy. This strategy is effective
under two conditions. First, the market must be homogeneous. A large proportion of customers in a
total market must have similar needs for the product. If customers have a variety of needs, the
company will not be able to satisfy them with one product. Second, the company must be able to
develop and maintain a single marketing mix that satisfies customers’ needs. It must identify
common needs among most customers in the total market and possess the means to reach a sizable
portion of that market.
5. What is market segmentation? Describe the basic conditions required for effective
segmentation. Identify several firms which use market segmentation.
In market segmentation, a) the total market is divided into groups consisting of people with
relatively similar product needs and b) a marketing mix (or mixes) is (are) designed to fit precisely
the needs of the people in a segment (or segments).
For this process to be effective, consumers’ needs must be heterogeneous; the segments must be
identifiable and divisible; the segments must be comparable in terms of sales potential, costs, and
profit; and one segment must have enough profit potential to justify the development and
maintenance of a marketing mix for that segment. In addition, the firm must be able to reach the
chosen segment with a particular marketing mix.
6. List the differences between concentrated and differentiated strategies, and describe the
advantages and disadvantages of each.
The main difference between the concentrated strategy and the differentiated strategy of market
segmentation is that the concentrated strategy directs marketing efforts toward a single market
segment using one marketing mix, whereas the differentiated strategy directs marketing efforts at
two or more market segments using a different marketing mix for each segment.
The concentrated strategy enables a firm to specialize in one market segment and effectively
penetrate it, thereby creating larger sales volume. Also, it allows a firm with limited resources to
compete with larger firms. The concentrated strategy can be risky, however, because the
organization relies solely on one segment; if the strategy fails, the organization has nothing to offset
the decline. Also, if the organization becomes well entrenched in one segment, it may have
difficulty expanding into other segments because of its image.
The differentiated strategy enables an organization to increase total sales by focusing on more than
one segment. This is especially useful if a firm has excess production capacity, because it allows the
firm to use this capacity. However, the cost of production usually increases with increased
production runs; the organization typically must increase its marketing activities to implement
several distinct distribution and promotion plans for different segments.
7. Identify and describe four major categories of variables which can be used to segment
consumer markets. Give examples of product markets segmented by variables in each
category.
The four major categories of market segmentation variables are demographic, geographic,
psychographic, and behavioristic.
• Demographic variables include such items as gender, age, income, and marital status. These
types of variables are frequently used because they are measurable and closely related to
customers’ product needs.
• Geographic variables include climate, terrain, natural resources, population density, and
sub-cultural values.
• Psychographic variables include personality, motives, and lifestyles. Psychographic
variables can be used alone to segment markets or be combined with other segmentation
variables. However, psychographic variables are difficult to accurately measure.
• Behavioristic variables are customer characteristics directly related to consumers’
relationships to the product, such as product usage rate.
When discussing examples, students should be encouraged to use local and regional as well as
national examples.
8. What dimensions are used to segment business markets?
Business markets may be segmented according to geography, type of organization, customer size,
and product use.
9. Define geodemographic segmentation. Identify several types of firms that might employ this
type of market segmentation, and explain why.
A type of demographic segmentation, geodemographic segmentation groups people in ZIP codes or
smaller neighborhood units based on income, education, occupation, type of housing, ethnicity,
family life cycle, and level of urbanization. In this way, marketers are able to isolate precise
demographic units where demand for a specific product is concentrated and then design special
advertising campaigns, promotions, pricing, and other features of micromarketing.
Students’ answers to this part of the question may vary. Example: Financial and health-care service
providers might want to use geodemographic segmentation. A neighborhood composed mostly of
senior citizens on fixed incomes, for example, would require particular health care services. Another
composed of upper-income professionals might be an appropriate target for certain financial
services.
10. What is a market segment profile? Why is it an important step in the target market selection
process?
A market segment profile describes similarities among potential customers within a segment and
explains the differences among people and organizations in different market segments. Profiles are
composed of a variety of elements such as geographic or demographic factors, lifestyles, desired
product benefits, brand preferences, and usage rates. Developing profiles is necessary in order to
more accurately assess the degree to which the organization’s products fit potential product needs
and to better understand how its capabilities will serve potential customer segments.
11. Describe the important factors marketers should analyze to evaluate market segments.
After identifying several appropriate potential market segments, marketers further evaluate to
eliminate some from continued attention. Three factors marketers analyze for each segment are:
sales estimates, competition, and estimated costs. Potential sales can be estimated with respect to
product level, geographic area, time, and level of competition. Market potential, expressed as dollars
or units, is the total amount of a product customers will purchase within a specified period from all
firms in an industry. Company sales potential is the maximum percentage of market potential that an
individual company within an industry can expect to gain for a specific product. In addition to
obtaining sales estimates, firms must consider their competitors. Unless firms evaluate other
organizations that operate in the segment, sales estimates can be deceptive. For example, if a
number of competitors already operate within a potential segment, marketers may decide, despite
excellent sales estimates, that the segment does not provide adequate marketing opportunities.
Finally, marketers must estimate the costs of developing unique product features, attractive package
design, generous product warranties, extensive advertising, and other marketing mix requirements.
The costs of reaching particular segments may simply be too high.
12. Why is a marketer concerned about sales potential when trying to select a target market?
Sales potential is important to a marketer because the firm incurs a certain cost in developing and
maintaining a marketing mix. To achieve long-term survival, the firm must be able to recover these
costs and make at least a reasonable profit. By estimating the sales potential of possible target
markets, a marketer is in a better position to achieve long-term survival. Estimates of sales potential
are necessary to determine which market segments are substantial enough to justify the development
of marketing mixes.
13. Why is selecting appropriate target markets important to an organization that wants to adopt
the marketing concept philosophy?
According to the marketing concept philosophy, an organization should attempt to provide products
which satisfy customers’ needs through a coordinated set of activities, allowing the organization to
achieve its goals. Customer satisfaction is the major aim of the marketing concept. To successfully
adopt the marketing concept, therefore, identifying the right target market is critical. For example, if
an organization chooses a market that does not need or want a product or can’t afford it, customers
will not be satisfied and sales will be poor. However, companies that analyze target markets
carefully and choose appropriately have more likelihood of serving customers’ needs and achieving
their own objectives.
14. What is a sales forecast? Why is it important?

The sales forecast is the amount of a product a company expects to sell throughout a period at a
specified level of marketing activity. The development of a sales forecast is important because many
operating units within the company use the forecast in planning, organizing, implementing, and
controlling activities. Their success depends on its accuracy.
155. What are the two primary types of surveys a company might use to forecast sales? Why would
a company use an outside expert forecasting survey?
The two primary types of surveys a company might use to forecast sales are the customer
forecasting survey and the sales force forecasting survey. In the first type, marketers ask customers
what types and quantities of products they plan to purchase during a specific period. In the second
type, the sales force estimates anticipated sales in their territories for a specified period of time.
Sometimes companies decide to use a forecasting survey conducted by an outside expert instead of
conducting their own survey. Economists, management consultants, college professors, and other
experts have knowledge about specific markets and, as outsiders, can remain more objective. In
addition, outside-expert surveys avoid some of the potential drawbacks of sales-force surveys, such
as biases based on recent sales experience, intentional underestimation of sales potential because of
the belief sales goals are determined by the forecast, or dislike of paperwork. Therefore, an outside
survey is likely more objective than those conducted by inside personnel and possibly more
accurate.
166. Under what conditions are market tests useful for sales forecasting? What are the advantages
and disadvantages of market tests?
Market tests are especially useful for testing new products because no previous sales history is
available for those products. In addition, market tests are useful if the test areas represent the entire
market because testing the product in a few cities is considerably cheaper than introducing it to the
entire market.
The primary advantages of market tests are that they measure actual purchasing behavior rather than
buying intentions and the volume of purchases can be measured against various levels of marketing
activities. However, market tests are time consuming and expensive. Also, consumers’ responses
may vary after the test, making the test a poor indicator of market response.
177. Under what conditions might a firm use multiple forecasting methods?
Most organizations use multiple sales forecasting methods. While all forecasting methods have
value, none are without drawbacks. Executive judgment is not necessarily objective. Customer
surveys are time-consuming and expensive. Sales force surveys and market tests each have several
drawbacks. Time series analysis is not always dependable. Regression analysis is not useful for
predicting new product sales. A benefit of using multiple forecasting methods is that one method
can make up for the shortcomings of another. In addition, marketers can use one or more methods to
validate the results of another.
Multiple forecasting methods are also useful when a company markets a variety of product lines or
when a single product is sold in different segments. Because different forecasting methods are more
accurate for different length forecasts, organizations may find it effective to use one forecast method
to predict short-range sales and another to predict long-range sales.
ANSWERS TO APPLICATION QUESTIONS

1. Cable channels such as Lifetime and Spike TV each target a specific market segment. Identify
another product marketed to a distinct target market. Describe the target market, and explain
how the marketing mix appeals specifically to that group.
Student answers will vary based on the product and target market. Students should support their
responses with specific examples.
2. Generally, marketers use one of three basic targeting strategies to focus on a target market:
undifferentiated, concentrated, or differentiated. Locate an article that discusses the target
market for a specific product. Describe the target market, and explain the targeting strategy
used to reach that target market.
This question provides an opportunity for students to practice their online and/or library research
skills. Student answers will vary, but they should support their answers with examples from the
article.
3. The car market may be segmented according to income and age. Discuss two ways the market
for each of the following products might be segmented.
a. Candy bars
b. Travel services
c. Bicycles
d. Cell phones
Student answers will vary. Students may also find other ways to segment the market in addition to
income and age.
4. If you were using a time series analysis to forecast sales for your company for the next year,
how would you use the following sets of sales figures?
a. The sales figures could be used for a trend analysis.
b. The sales figures could be used for a cycle analysis or seasonal analysis.
c. The sales figures could be used to for a random factor analysis (attribute sales variations to new
store).
5. A new watch company has identified 5 main segments, using a combination of demographic,
psychographic, and behavioristic variables. Using the profiles in the textbook, develop a rating
scale of 1-5, with one as the best market segment and five as the least desirable. If you decided
to market a watch that was under $100 and would compete against lower-priced Swatch or
Timex watches, rate the attractiveness of each market based on these criteria. What will be the
unique features that will give your watch a competitive advantage?
Student answers will vary, but they should base their ratings on whether or not they plan to compete
with high-end watches or low-end watches. Students may also want to do some rough sales
calculations to justify their choice of market and prove that selling fewer watches at a higher price or
more watches at a lower price will be profitable.
ANSWERS TO INTERNET EXERCISE

iExplore
iExplore is an Internet company that offers a variety of travel and adventure products. Learn more about
its goods, services, and travel advice through its website at www.iexplore.com.
a. Based on the information provided at the website, what are some of iExplore’s basic products?
iExplore offers Travel Guides, Activity Guides, Travel Experiences, Lodging, and Travel Deals. The
company says they strive to provide users with “the information and enlightenment they need as they
are looking for inspiration or researching their next trip.”
b. What market segments does iExplore appear to be targeting with its website? What
segmentation variables is the company using to segment these markets?
Student answers will vary, although the company is obviously targeting people who travel. They
segment the market primarily by activity and destination but also by income.
c. How does iExplore appeal to comparison shoppers?
The company offers travel deals for shoppers looking to save money. The site also prominently
features prices and benefits for lodging and trips and aggregates listings.
ANSWERS TO DEVELOPING YOUR MARKETING PLAN

The decisions and discussions of these dimensions should help you to answer some of the questions that
are a part of the online Interactive Marketing Plan exercise at www.cengagebrain.com.
1. What type of targeting strategy is being used for your product? Should a different
targeting strategy be employed?
At this point, students should feel prepared to become more targeted in their approach to their
marketing plan. This question asks them to discuss the targeting strategy that is currently being used
for their product, and to think about what type of targeting strategy would be best for their product.
It is possible that students will approach the issue of marketing their products in a different way than
marketers currently are. They may find that they have ideas on how to change or improve on
targeting strategies.
2. Select and justify the segmentation variables that are most appropriate for segmenting the
market for your product. If your product is a consumer product, use Figure 6.3 for ideas
regarding the most appropriate segmentation variables. If your marketing plan focuses on a
business product, review the information in the section entitled “Variables for Segmenting
Business Markets.”
Students should then consider segmentation variables (that is, if the market is not totally
homogeneous) that would be best for marketing their product. They can consult Figure 6.3 for
consumer market segmentation variables. Business market variables are covered in the section
“Variables for Segmenting Business Markets.”
3. Discuss how your product should be positioned in the minds of customers in the target market
relative to the product positions of competitors.
Whatever position students choose, they should explain their reasoning.
COMMENTS ON THE CASES

VIDEO CASE 6.1: RALEIGH WHEELS OUT STEEL BICYCLE
MARKETING
Summary
This case discusses bicycle company Raleigh’s long history and its transition from being a company
known for its sturdy, high-quality product to a global brand catering to bicycle messengers and
commuters. Raleigh noted that many of its customers do not don special gear to go riding, but rather wear
their street clothes. In order to familiarize new markets with its bicycles, Raleigh brings samples to cities
around the world and lets people ride the bikes. Raleigh takes great strides to remain in touch with its
target market and to provide the products that customers want. It has even started to use high-technology
in marketing through maintaining a blog and a Twitter account.
Questions for Discussion
1. Of the four categories of variables, which is most important to Raleigh’s segmentation strategy,
and why?
According to the case, psychographic variables such as lifestyles are most important to Raleigh’s
segmentation strategy. The company is focusing on consumers who enjoy riding bicycles as a
lifestyle. These consumers ride for fun, rather than as serious racers. Applying psychographic
variables allows Raleigh to identify and focus its marketing on this specific group of consumers.
2. How would you describe Raleigh’s positioning for its steel-frame bicycles?
In general, Raleigh seems to be positioning its steel-frame bicycles as sturdy, light, speedy, and fun to
ride. Students may offer additional positioning ideas as well. Raleigh’s positioning helps the company
correct misperceptions of steel-frame bicycles as heavy and awkward to ride, and fits with the
interests of its target market.
3. Raleigh sells exclusively through retail dealers, not directly to consumers. How does this affect
its ability to segment the bicycle market using geographic variables?
Raleigh can select dealers in the geographic areas where consumers in its target market live or travel
on vacation. This allows the company to sell through multiple dealers in states where riding bicycles
is a popular pastime, for example. In this way, Raleigh will be assured of solid marketing distribution
coverage when it launches marketing communications or new product demonstrations in those areas.
For efficiency, Raleigh can choose fewer dealers (or have no dealers) in areas where the lifestyle is
not geared toward bicycling.
CASE 6.2: IS THERE A TREK BICYCLE FOR EVERYBODY?

Summary
This case discusses a much younger bicycle company, Trek, which caters to world-class racing cyclists,
mountain bikers, and other serious bicyclists. Because it is a smaller brand, Trek focuses on the serious
and high-end market, turning out the very best products for the most serious athletes. Trek offers two
lines of bikes for people looking for a different ride feel, and it also has a line of bikes specifically fit for
women. Trek has highly targeted marketing campaigns aimed at its different markets and their needs and
wants. Trek is not all business—it also chooses to support philanthropic efforts like the Lance Armstrong
Foundation and the Breast Cancer Research Foundation.
1. Is Trek using an undifferentiated, concentrated, or differentiated strategy for targeting?
How do you know?
Trek is using a differentiated strategy for targeting, because it has created a separate marketing
mix for each of the multiple segments that it wants to reach. As an example, the case points out
that Trek offers a variety of mountain bikes, each geared to a particular target market’s lifestyle
and benefit expectations (such as feeling the ride or comfort). Trek also creates separate
promotions for each target market. Ask students whether an undifferentiated strategy would be
successful in the bicycle industry, given the competition and the diverse needs and preferences of
buyers.
2. Identify the segmentation variables that Trek is applying to consumer markets. What
additional variables would you suggest that it apply, and why?
The two main variables that Trek applies to segment consumer markets are psychographic (such as
lifestyles, for instance) and behavioristic (such as benefit expectations). Trek is also using
demographic variables (especially gender and age) to segment the consumer market, as well as
geographic variables (such as urban or suburban/rural location). Students may offer different
suggestions for other variables Trek can apply, including brand loyalty.
3. If marketers at Trek were trying to determine anticipated sales for a specific period, what
method of forecasting would they be using?
Trek would likely use a sales force forecasting survey, in which the firm’s salespeople estimate
anticipated sales in their territories for a specific period. However, they might also use a
customer forecasting survey, in which marketers ask customers about what types of products they
intend to buy during a specified time period, or an executive judgment survey, in which experts
outside the firm forecast sales for a specified time period.
STRATEGIC CASE 3: MARRIOTT GETTING DOWN TO BUSINESS

WITH BUSINESS TRAVELERS
Summary
This case discusses the challenges that Marriott faces in its mission to be a world leader amongst
hotels for business travelers. There are numerous Marriott brands, each of which serves a particular
market and has its own marketing position. Marriott employs extensive market research to determine
what it is customers want and to provide it for them. Marriott’s marketers have targeted a group they
dub “achievers,” who are businesspeople who seek to get a lot done in little time. Marriott has geared
its advertising around this group. Marriott also targets other groups, such as organizations that hold
conferences and large meetings, and green travelers. In order to gather and sort all of its research on
different types of customers, Marriott has a large database that captures details on its guests.
1. How is Marriott segmenting the market for hotel services?
Marriott is segmenting the hotel-services market based on geographic variables (country location,
downtown vs. resort location) as well as behavioristic variables (including customer expectations
of high-quality service benefits, price sensitivity, and use of technology). It is also segmenting
the market by applying demographic variables (by family life cycle) and psychographic variables
(lifestyles, personality).
2. Which of the three targeting strategies is Marriott using? Explain your answer.
Marriott appears to be using a differentiated targeting strategy. It is targeting a number of
markets and tailoring the marketing mix to each one. This is appropriate for Marriott because the
company needs to focus on sizable segments that have considerable potential for sales and
profits. Segment needs differ, however, which is why Marriott formulates a different marketing
mix (different hotel design, pricing, communications, and so on) for each target market.
3. As Marriott builds more green hotels, should it reposition its hotel brands as being
environmentally friendly? Why or why not?
Students who believe that Marriott should reposition its hotel brands with an emphasis on
sustainability may say this is a good way to set the hotels apart from competing hotels that are
not as green. Students who take the opposite view may say that consumers and businesspeople
are not likely to be as interested in a hotel’s environmental qualities as they are in other
attributes, such as price or service quality.
4. What specific types of data should Marriott have in its customer database for segmentation
purposes?
Marriott should have each customer’s name, e-mail address, gender, and company affiliation (if
any). It also needs data about when, where, and how long customers stayed at one of the
company’s hotels or resorts, which services they purchased, how much money they spent during
each stay, and the lifetime value of their Marriott purchases. Data about the number of people
who were with them during each stay would be helpful as clues to lifestyle or family life cycle
for segmentation purposes. Marriott would also benefit from knowing which communications and
offers each customer has responded to in the past. Students may suggest additional information.
INSTRUCTIONS FOR ROLE-PLAY TEAM CASE

ROLE-PLAY TEAM CASE EXERCISE 3: SEASCAPE
COMMUNICATIONS
This role-play team case exercise is designed to simulate actual marketing decision making in the real
world. Students take on assigned roles and then participate in a team discussion of the case.
Preparation
Break the class into teams of 5. The entire team should read the Background section.
Each student will take on a role of a particular employee within the organization. Even though all of the
roles are printed in the textbook, each student should focus on only his/her assigned role and represent
that person. We realize that some students might try to read all of the roles, but when they break into
teams, they should only make comments based on their assigned roles.
The roles for Seascape Communications are:
• Morgan Stanton, Chief Executive Officer
• Dylan Wilder, Public Relations Director
• Stacy McDougall, Chief Marketing Officer
• Lyle Patrecco, Marketing Research Director
• Randy Cho, Operations Manager
Team Meeting
Students should try to accurately represent the motivations and interests of their individual roles during a
team discussion (15-45 minutes depending on class activities). Teams should discuss each of the issues in
the case and complete any activities mentioned in the Background section.
The issues for Seascape Communications include:
• Seascape is facing increased competition from other smartphone companies, and the Wave
cannot compare with its rivals.
• The Wave managed to barely hang on due to its popularity with large business customers.
• With shares lower than they have ever been, a takeover of Seascape Communications is a
possibility.
• Seascape is heavily engaged in a variety of market research activities to help it determine its
next steps.
This case will require students to complete the following activities:
• Use early findings from exploratory research to determine how to improve marketing
strategies.
• Recommend the appropriate target market for Seascape.
• Develop a list of recommendations the company can take to save Seascape from extinction.
Students should include Immediate Actions, Short-Term Actions (less than six months), and
Long-Term Actions (more than six months).
This may be used solely as an in-class activity, or students can finalize reports outside of class.
Class Discussion (optional)
After the team meetings, instructors may choose to have teams discuss their findings and solutions
with the class. Students may also want to talk about some of the interpersonal dynamics in their
teams and their experiences as they worked toward a solution.

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SOLUTION MANUAL FOR MARKETING 2014 17TH

EDITION PRIDE AND FERRELL 1133939252

Download full test bank at:

PURPOSE AND PERSPECTIVE

a. Heterogeneous markets are markets made up of individuals or organizations with

1. Segmentation variables are characteristics of individuals, groups, or organizations that are

(3) Benefit segmentation is the division of a market according to benefits that

d. Executive judgment relies on the intuition of one or more executives, which is

(a) The objective is to develop a mathematical formula that accurately describes a

Discussion Starter 2: Understanding Segments

Class Exercise 2: Segmentation Variables in Different Industries

2. Upscale consumers who want gourmet baby food

Class Exercise 3: Demographics

Answers to Chapter Quiz: 1. d; 2. c; 3. d; 4. b.

ANSWERS TO DISCUSSION AND REVIEW QUESTIONS

14. What is a sales forecast? Why is it important?

ANSWERS TO APPLICATION QUESTIONS

ANSWERS TO INTERNET EXERCISE

ANSWERS TO DEVELOPING YOUR MARKETING PLAN

COMMENTS ON THE CASES

CASE 6.2: IS THERE A TREK BICYCLE FOR EVERYBODY?

STRATEGIC CASE 3: MARRIOTT GETTING DOWN TO BUSINESS

INSTRUCTIONS FOR ROLE-PLAY TEAM CASE

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