CHAPTER 4 MARKET SEGMENTATION, POSITIONING AND DEMAND PROJECTION

Important Topics of this Chapter  Successful segmentation strategies in business market.

 Differences between macro and micro segmentation.

 Evaluation potential business market.

 Position strategies in business market.

 Demand projections and sales forecasting techniques.

Market Segmentation Strategy It is dividing the market into distinct group of customers with similar requirements  Procedures:  Market analysis  Market selection  Marketing management Identify market needs Segmentation and targeting Marketing mix decision

Why Segment Business Market  It is complex and heterogeneous  Distinct differences exits among buying policies, procedures and practices  It allows to develop more specialized products for the clients  it is more attuned to customer needs  It is more effective way to use resources  It gives better direction for creating marketing mix elements

Strategies for Business Segmentation  Undifferentiated Marketing Strategy  Differentiated Marketing Strategy  Cost factor: • • • • • Product modification cost Production cost Administrative cost Inventory cost Promotion cost  Concentrated Marketing Strategy  One or few segments

Approaches to Market Segmentation  Macro Segmentation  Geographic characteristics  Demographic characteristics  Observable buying characteristics  Micro Segmentation  Attitudes of buying influences  Similarity in buying motives  Similarity in decision making style  Life-style of buying influences  Self-image of buying influences

A Research Findings  Macro Segmentation  It is less important, but very easy to find data.

 Micro Segmentation  It is very important, but very difficult to find information.

 Conclusion  Try to use micro segmentation factors as much as possible, otherwise segmentation will not be a perfect one.

Approaches to Market Segmentation (cont.)  The Nested Approach  It is a balance between macro and micro segmentation and based upon: • • • • • Purchasing function-centralized or decentralized Power structure-engineering Vs. marketing Buyer-seller interaction- a link between suppliers and customers Purchasing policies-biding Vs. market prices Purchasing criteria-need and wants/benefits

Nested Segments Computer Industry OEM Over $500,000,000 in Sales Uses Microsoft Windows Centralized Purchasing Single Source/JIT Purchases

Segmenting Business Market  Type of Economic Activity  Agricultural, manufacturing, retail.

 NAICS.

 Size of Organization  Volume of shipment, number of employees ,total sales volume.

 Geographic location  Global.

 Domestic.

 Product Usage  Light, moderate or heavy.

 Structure of the procurement Function  Centralized or decentralized.

Evaluating Potential Market Segments  Market profitability  Market forces that determine attractiveness and long-run profitability of market or segments: – – – Industry Competitors: • Intensity of rivalry among existing firms.

Potential Entrants • Threat of new entrants Substitutes • Threat of substitutes – – Buyers • Bargaining power of buyers Suppliers • Bargaining power of suppliers Above all SWOT analysis is necessary when a firm decides to enter a new market segment.

Elements of Industry Structure New Entrants Industry competitors Suppliers Buyers Intensity of rivalry Substitutes

Product Positioning Strategy  It is a way that the product/service is defined on product attributes  It is favorable reception in comparison with competitors products  It is an image decision, and based upon product features to emphasize  Perceptual mapping is used to decide about product positioning

Approaches to Positioning Business Products       Technology base:  High technology companies.

Price base:   Lowest production and distribution cost.

High margin.

Quality base:  High quality/low price.

Image base:  Distinctive quality perception Distribution base:   Innovative and efficient.

Federal Express.

Service base:  Technical assistance, repair, information and financing.

Business Demand Projections  Market potential Sales Potential Sales Forecast Market Demand

Common Forecasting Problems  Forecasting Mystique  Many firms are untrained in forecasting area  Forecasting Accuracy  50% art and 50% science  Forecasting Inconsistency  Modification and adjustment might be necessary  Forecasting Accountability  Forecasters may not live with their decision  Forecasting implementation

Selective Forecasting Methods  Qualitative  Jury of Executive Opinion  Sales Force Composite  Survey of Buyer Intentions  Delphi Method-Expert opinion  Quantitative Approaches  Time Series Analysis  Moving average  Exponential smoothing  Adaptive Control  Box Jenkins

Selective Forecasting Methods (cont.)  Casual techniques  Regression  Econometrics  Leading Indicators  Diffusion Index  Input-Output analysis  Life-cycle analysis