Chapter 7 - Identifying Market Segments and Targets

A market segment is a group of customers who share a similar set of needs and wants.  Marketers usually break customer segments into two broad groups:  descriptive characteristics and behavioral characteristics.  Regardless of the segmentation system used, the main focus is to adjust the marketing program to recognize customer differences.

Marketers who look at descriptive characteristics of segments look at the geographic segmentation, demographic segmentation, and psychographic segmentation.  The geographic segmentation divides the market into geographical sections.  Businesses can operate in one, few, or many areas which gives it the ability to tailor marketing programs to the needs and wants of local customer groups in trading areas, neighborhoods, or individual stores.  In the demographic segmentation, markets are divided using variables such as age, family size, family life cycle, gender, income, occupation, education, religion, race, generation, nationality, and social class.  They are often associated with consumer needs and wants and are easy to measure.  Psychographic segmentation divides buyers into different groups on the basis of psychological/personality traits, lifestyle, or values.  Consumers within the same demographic group can demonstrate very different psychographic profiles.

Marketers who look at behavioral characteristics look at how a consumer responds to benefits, usage occasions, or brands.  Buyers are divided into groups on the basis of their knowledge of, attitude toward, use of, or response to a product.  One behavioral feature includes needs and benefits.  This identifies distinct segments with clear marketing implications because not everyone who buys a product has the same needs or wants the same benefits from it.  Another behavioral feature is decision roles.   People can play five roles when it comes to making a buying decision:  initiator, influencer, decider, buyer, and user.  A third behavioral feature is user and usage.  Marketers believe variables related to various aspects of users or usage are good starting points for constructing market segments.  These variables include occasions, user status, usage rate, buyer-readiness stage, loyalty status, and attitude.

Business markets are segmented with some of the same variables used in consumer markets, but they also use other variables needed to identify their customer’s needs and wants.  From the greatest to the least important, the segmentation variables for business markets are demographic, operating variables, purchasing approaches, situational factors, and personal characteristics. 

Once a firm has identified its market segments, it then must decide how many and which ones to target.  Marketers are continuously combining several variables in an effort to identify smaller, better-defined target groups.  However, not all segmentation structures are useful.  To be useful, market segments must rate favorable on five criteria being:  measurable, substantial, accessible, differentiable, and actionable.  The five forces identified by Michael Porter determine the fundamental long-term attractiveness of a market segment.  These include the threat of intense segment rivalry, the threat of potential entrants, the threat of substitutes, threat of buyers’ growing bargaining power, and the threat of suppliers’ growing bargaining power.  Marketers have a range of possible levels of segmentation that can assist in their decisions for a target market.  These include full market coverage, multiple segments, single segments, and individuals as segments. 

As firms evaluate market segments, they must look at the segment’s overall attractiveness and it own objectives and capabilities.  It needs to look at how well the potential segment scores on the five criteria; if it has characteristics that make it attractive, such as size, growth, profitability, scale economies, and low risk; and if investing in the segment make sense given the firm’s objectives, competencies, and resources.

Firms attempt to serve all customer groups with all the products they might need.  Only large firms are able to do this by covering a whole market through undifferentiated or differentiated marketing.  Undifferentiated or mass marketing is where the firm ignores segment differences and goes after the whole market with one offer.  It is suitable when all consumers have generally the same preferences and the market shows no natural segments.  Differentiated marketing is where the firm sells different products to all of the different segments.  It usually leads to higher sales and higher costs and no generalizations about its profitability are valid.

Using selective specialization, a firm selects a subset of all the possible segments.  The multiple segment strategy diversifies the firm’s risk and each segment promises to be a moneymaker with little or no collaboration among the segments.  Companies can try to operate in supersegments, which is a set of segments sharing some exploitable similarity.  Firms can also attempt to achieve some synergy with product specialization, selling a certain product to several different market segments, or market specialization, serving many needs of a particular customer group.

In the single-segment concentration the firm markets to only one segment.  This allows the firm to gain deep knowledge of the segment’s needs and achieves a strong market presence. It is also able to specialize its production, distribution, and promotion to that one segment.

Individual marketing is becoming the ultimate level of segmentation.  Customers are able to take more individual initiative in determining what and how to buy, using the Internet to look up product information and evaluations.  They are able to contact suppliers, users, and product critics and are even able to design the product they want. 

A movement toward customerizing the firm is in the future.  This combines operationally driven mass customization with customized marketing in a way that empowers consumers to design the product and service offering of their choice.  A firm is customerized when it can respond to individual customers by customizing its products, services, and messages on a one-to-one basis.

Example:

I have been going to Las Vegas for over 20 years.  When I first started going it was targeted to adults.  Over the years, they have changed their target market to families.  They now have more attractions for kids, small theme parks or the like at the hotels, more shows for families, and even the restaurants and buffets are geared to families.  The hotels have changed to be more family-friendly with their look and atmosphere.

Chapter 6 - Analyzing Business Markets

Organizational buying is the decision-making process by which formal organizations establish the need for purchased products and services and identify, evaluate, and choose among alternative brands and suppliers.  It occurs within the business market.  The business market includes of all the organizations that acquire goods and services used in the production of other products or services that are sold, rented, or supplied to others.  Institutional and government organizations and profit-seeking companies make up the business market.  Characteristics of business markets include fewer, larger buyers; close supplier-customer relationship; professional purchasing; multiple buying influences; multiple sales calls; derived demand; inelastic demand; fluctuating demand; geographically concentrated buyers; and direct purchasing.

When a business buyer makes a purchase, they face many decisions.  The number of decisions depends on the complexity of the problem being solved, the newness of the buying requirement, the number of people involved, and the time required.  The three types of buying situations include the straight rebuy, modified rebuy, and new task.  The straight rebuy requires the fewest decisions to be made and the new-task situation requires the most decisions to be made. 

Purchasing agents and other department personal are usually the participants in the business buying process.  The buying center is the decision-making unit of a buying organization.  It consists of those individuals and groups who participate in the purchasing decision-making process, who share some common goals and the risks arising from the decisions.  It usually includes many participants with differing interests, authority, status, and persuasiveness, and sometimes very different decision criteria.  Most, if not all, buyers exhibit different buying styles. 

Business marketers must know which types of companies to focus on in their selling efforts and who to concentrate on within the buying centers in those organizations.  They should figure out who the major decision participants are, what decisions they influence, what their level of influence is, and what evaluation criteria they use.  Communication is most important for companies to reach hidden buying influences and keep current customers informed.

The buying-decision process has eight stages called buyphases.  Problem recognition is when someone in the company recognizes a problem or need that can be met by attaining a good or service.  The buyer then determines the needed item’s general characteristics and required quantity and the technical specifications are developed.  Next the buyer tries to identify the most appropriate suppliers through trade directories, contacts with other companies, trade advertisements, trade shows, and the Internet.  The supplier’s goal is to ensure it is considered when customers are in the market and searching for a supplier.  Once potential suppliers are discovered the buyer invites them to submit proposals.  The buyer will then evaluate the proposals and applicable suppliers will be invited to make formal presentations.  The buying center will specify and rank desired supplier attributes before making a selection.  After a supplier is selected, the buyer negotiates the final order.  The buyer will periodically review the performance of the chosen supplier and this may lead the buyer to continue, modify, or end a supplier relationship.

Businesses must form strong relationships with customers.  Building trust is the foundation to a healthy long-term relationship.  Knowledge that is specific and relevant between businesses and customers is also an important factor.  Forces that influence the development of a relationship between business partners are availability of alternatives, importance of supply, complexity of supply, and supply market dynamism. 

Risks and opportunism also affect business relationships.  Tension between safeguarding and adaptation is created when customer-supplier relationship are formed.  Also, specific investments can cause considerable risk to both sides.  Opportunism is considered some form of cheating or undersupply relative to a contract.  It is another concern because firms must devote resources to control and monitor it that they could otherwise allocate to more productive purposes.

Example:

Apple started out selling computers many years ago.  As technology advanced so did the company.  They analyze their market over and over to produce bigger and better products for them.  They are always going above and beyond and creating the newest product before the one created before it has worn off.  By continuous analyzing they are giving customers a wide variety of products and services and will continue to grow and prosper.

Chapter 5 - Analyzing Consumer Markets

Marketers must fully understand the customer from their personal behavior to what is going on in daily lives and during their lifetime.  Consumer behavior is defined as the study of how individuals, group, and organizations select, buy, use, and dispose of goods, services, ideas, or experiences to satisfy their needs and wants.  A consumer’s behavior is influenced by three factors:  cultural, social, and personal.

Cultural factors exercise the broadest and deepest influence.  They consist of things such as a person’s values, behavior, and wants.  Subcultures make up cultures and consist of nationalities, religions, racial groups, and geographic regions.  Social classes are part of one’s culture and include members who share similar values, interests, and behavior.

Social factors consist of reference groups, family, and social roles and statuses.  This also affects consumer buying behavior.  Reference groups are groups that have a direct or indirect influence on a customer’s attitudes or behavior.  They expose customers to new behaviors and lifestyles, influence attitudes and self-concept, and create pressures for conformity that may affect product and brand choices.  Family groups are the most important consumer buying organization in society, and family members constitute the most influential primary reference group.  A person also has a role or status in each group they are in.  A role is the activities a person is expected to perform and this connotes a status.

Personal factors also influence consumer behavior.  These can include age and stage in the life cycle, occupation and economic circumstances, personality and self-concept, and lifestyle and values.  Research shows that over two-thirds of teens ages 13 to 21 make or influence family purchase decisions on audio/video equipment, software, and vacation destinations. 

Marketers must understand what influences the psychological process of the consumers’ behavior.  Five key psychological processes include motivation, perception, learning, emotions, and memory.  People have different needs, which turn into a motive when it is stimulated to a sufficient level of intensity to drive an action.  Motivation has both direction and intensity.  When a motivated person is ready to act it is influenced by his or her perception of the situation.  This is the process by which information is selected, organized, and interpreted to create a meaningful picture.  The learning process brought on when one acts.  It brings changes in behavior as a result from experience.  Emotions are a brought on as a response to the consumer’s action.  Memory can be either short-term or long-term.  Memory encoding is how and where information gets into the memory.  Memory retrieval is how information gets out of the memory.  Information may be available in memory but not be accessible for recall with out retrieval cues or reminders. 

Businesses pay attention to how consumers make purchasing decisions.  They use a five-stage model to help in understanding this process.  Costumers do not always pass through all five stages and they may skip or reverse some.  Using the model provides a good reference because it captures the full range of considerations that arise when a consumer faces a highly involving new purchase.

Problem recognition is the first stage.  It is when the buying process starts because the consumer recognizes a problem or need and it is triggered by internal or external stimuli.  The marketer needs to identify the circumstances that trigger a particular need so they can develop strategies that spark consumer interest and lead to the next stage in the buying process.

The second stage is information search.  Consumers learn about competing brands and their features as they search.  The most effective information about their search comes from personal or experiential sources, or public sources that are independent authorities. 

The next is the evaluation of alternatives.  During this stage the consumer is trying to satisfy a need, looking for certain benefits from the product solution, and seeing each product as a bundle of attributes with varying abilities to deliver the benefits.  Companies can segment their markets according to attributes and benefits important to different consumer groups. 

Once the alternatives are evaluated, a decision to purchase is made.  However, two general factors can intervene between the purchase intention and the purchase decision:  the attitudes of others and the unanticipated situational factors that may erupt to change the purchase intention. 

The final stage in the purchase decision process is the postpurchase behavior.  Once the purchase is made, marketers must then monitor postpurchase satisfaction, postpurchase actions, and postpurchase product uses and disposal.  A satisfied customer will most likely purchase the product again and will tend to say positive things about it to others.  A dissatisfied customer may return the product or take public or private actions. 

At times consumers may make hasty, irrational buying decisions.  They often take “mental shortcuts” known as heuristics or rules of thumb in the decision process.  Consumers often base their decision on how quickly and easily a particular example of an outcome comes to mind; how representative or similar the outcome is to other examples; and/or they arrive at an initial judgment and then adjust it based on additional information.  Consumers also use decision framing which is the manner that choices are presented to and seen by a decision maker. 

Example:

I have two teenagers who live with me and a 22 year old who lives out on her own.  Since they use technology much more than I do, any time I want to make a purchase or have a question about an electronic device I go to them first.  They are up on the latest and greatest.  I also ask them where they want to go on vacation.  Their input is usually the decision I make.  This shows how family is a big influence on consumer behavior.  I talk to others in my generation and it is the same with them.  Teens have the biggest influence on the electronics, vacations, and even styles that are around today.

Chapter 4 - Creating Long-term Loyalty Relationships

The foundation of holistic marketing is strong customer relationships.  By connecting with customers to build value, satisfaction, and long-term loyalty, marketers are able to beat their competitors.  For competition to be successful depends on the business’s ability to do a better job of providing value to customers and meeting or exceeding their expectations. 

The difference between the prospective customer’s evaluation of all the benefits and all the costs of an offering and the perceived alternatives is known as customer-perceived value (CPV).  It is a valuable foundation that applies to many situations and yields rich insights.  It suggests that the seller must assess the total customer benefit and total customer cost associated with each competitor’s offer to learn how his or her offer rates in the buyer’s mind.  Also, it implies that the seller at a disadvantage has two alternatives; to increase total customer benefit or to decrease total customer cost.  Total customer benefit is defined as the perceived monetary value of the bundle of economic, functional, and psychological benefits customers expect from a given market offering because of the product, service, people and image.  Total customer cost is defined as the perceived bundle of costs customers expect to incur in evaluating, obtaining, using, and disposing of the given market offering, including monetary, time, energy, and psychological costs. 

Businesses want customers to be satisfied.  However, having satisfied customers does not necessarily lead to making a profit.  Businesses need to find a happy medium where they can deliver a high level of customer satisfaction while also delivering acceptable levels to the owners.  They are constantly measuring how well they treat customers, identifying the factors shaping satisfaction, and changing procedures and marketing as a result.  A highly satisfied customer is one who stays loyal longer, buys more new and upgraded products introduced by the company, talks favorably about the company and its products, pays less attention to the company’s competitors, and is less sensitive to price.  Satisfaction also depends on the product and service quality.  Quality has been met when a product or service meets or exceeds the customers’ expectations. 

Usually, the 80-20 rule applies to businesses: 80 percent or more of the company’s profits come from the top 20 percent of its customers.  Average customers who receive good service and pay nearly full price are often the most profitable.  A profitable customer is defined as a person, household, or company that over time yields a revenue stream exceeding by an acceptable amount the company’s costs for attracting, selling, and serving that customer.  Long-term customer profitability is determined using customer lifetime value (CLV).  This is the net present value of the stream of future profits expected over the customer’s lifetime purchases.  It provides a formal quantitative framework fro planning customer investment and helps marketers implement a long-term perspective.

It is imperative for businesses to build strong, profitable long-term relationships with their customers.  Marketers used a concept called customer relationship management (CRM), which focuses on developing programs to attract and retain the right customers and meeting the individual needs of those valued customers.  Businesses are also always looking to expand their profits and sales by searching for new customers.  Once these new customers are obtained, they must be kept and their business must be increased.  Often times, however, it is easier to reattract ex-customers than to find new ones.  Three types of marketing activities that companies use to improve customer loyalty and retention are interacting with the customer, developing loyalty programs, and creating institutional ties.  Keeping a tight connection to customers and keeping them loyal will add financial benefits, social benefits, and structural ties for the company.

Marketers use customer databases to store information obtained about individual customers or prospects.  This information is organized into a data warehouse or data mining to detect trends, segments, and individual needs.  However, the benefits of database marketing do not come without costs and risks.  When used properly, a data warehouse yields more than it costs, but the data must be in good condition, and the discovered relationships must be valid and acceptable to consumers.

Example:

I work for a casino that derives its revenue from its customers.  It’s not an upscale place, but the customers are happy.  It has been asked many times when we were going to get a new facility-a nicer, bigger one.  The answer always is the same.  We have repeat customers who have been going there for years and years.  We have created long-term and loyal relationships with them.  They like the atmosphere and the environment.  They like the design and layout.  It has been looked into to build a new facility that is bigger and has a more open floor plan, but customers have frowned upon it.  We have found our market target and we are satisfying their needs and wants.  We are more profitable now that we have ever been.  Why fix something that is not broke?

Chapter 3 - Collecting Information and Forecasting Demand

Summary

A successful business is one that delivers customer value at a profit.  Marketers for these great marketing companies know how to develop a marketing plan for delivering value and making it work for their business.  The value delivery process begins before the product and continues throughout the life of the product.  It involves choosing the value; providing the value through specific features, prices, and distribution; and communicating the value through various communication aspects to promote the product.  The value chain identifies key activities that create more customer value and cost in a business.  A successful business exceeds by developing superior capabilities in core competencies, which give it a competitive advantage; functions in a wide variety of markets; and makes it difficult for competitors to imitate.  A company can incorporate value exploration, value creation, and value delivery in their business to create and maintain a relationship with its customers.

Strategic market planning lays out the target markets and the firm’s value proposition, based on an analysis of the best market opportunities. The corporate strategy establishes the foundation that divisions and business units prepare strategic plans.  A corporate strategy involves defining the corporate mission, establishing strategic business units, assigning resources to each unit, and assessing growth opportunities. 

A strategic business unit (SBU) can be planned separate from the company, has its own set of competitors, and has a manager responsible for strategic planning and profit performance.  The purpose of the SBU is to develop separate strategies and assign appropriate funding.  The business unit strategic planning process defines the business mission; analyzes strengths, weaknesses, opportunities, and threats; formulates specific goals and strategies; formulates and implements programs; and gather feedback and control.  The key to the success of a business is the willingness to examine the changing environment and adopt new goals and behaviors.

Each product must have a marketing plan in order to achieve its goals.  A market plan summarizes what the marketer has learned about the marketplace and indicates how the firm plans to reach its marketing objectives.  Marketers can show how the market function helps the firm achieve its goals and objectives through the use of marketing metrics, marketing dashboards, and various analyses to assess marketing performance over time.

Chapter 2 - Developing Marketing Strategies and Plans

Summary

A successful business is one that delivers customer value at a profit.  Marketers for these great marketing companies know how to develop a marketing plan for delivering value and making it work for their business.  The value delivery process begins before the product and continues throughout the life of the product.  It involves choosing the value; providing the value through specific features, prices, and distribution; and communicating the value through various communication aspects to promote the product.  The value chain identifies key activities that create more customer value and cost in a business.  A successful business exceeds by developing superior capabilities in core competencies, which give it a competitive advantage; functions in a wide variety of markets; and makes it difficult for competitors to imitate.  A company can incorporate value exploration, value creation, and value delivery in their business to create and maintain a relationship with its customers.

Strategic market planning lays out the target markets and the firm’s value proposition, based on an analysis of the best market opportunities. The corporate strategy establishes the foundation that divisions and business units prepare strategic plans.  A corporate strategy involves defining the corporate mission, establishing strategic business units, assigning resources to each unit, and assessing growth opportunities. 

A strategic business unit (SBU) can be planned separate from the company, has its own set of competitors, and has a manager responsible for strategic planning and profit performance.  The purpose of the SBU is to develop separate strategies and assign appropriate funding.  The business unit strategic planning process defines the business mission; analyzes strengths, weaknesses, opportunities, and threats; formulates specific goals and strategies; formulates and implements programs; and gather feedback and control.  The key to the success of a business is the willingness to examine the changing environment and adopt new goals and behaviors.

Each product must have a marketing plan in order to achieve its goals.  A market plan summarizes what the marketer has learned about the marketplace and indicates how the firm plans to reach its marketing objectives.  Marketers can show how the market function helps the firm achieve its goals and objectives through the use of marketing metrics, marketing dashboards, and various analyses to assess marketing performance over time.

Chapter 1 - Understanding Marketing Management

Summary

Marketing plays a significant role in a firm’s ability to succeed financially and to survive in an unforgiving economic environment.  Successful marketers are constantly seeking new ways to satisfy their customers and beat the competition.

Marketing is defined as the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large.  Selling is not the main focus of marketing; it is to identify and meet human and social needs.  The goal is to know and understand the customer so well that the product or service fits them and sells itself.

A marketer is a person who seeks a response from another party.  A market is described as a collection of buyers and sellers who transact over a particular product or product class.  Marketers can market entities, such as goods, services, events, experiences, persons, places, properties, organizations, information, and ideas.  In addition they operate in four different marketplaces, which include consumer, business, global, and nonprofit.  In order to understand the marketing function, we must understand the eight fundamental marketing concepts.  These include needs, wants, and demands; target markets, positioning, and segmentation; offerings and brands; value and satisfaction; marketing channels; supply chain; competition; and marketing environment.

The marketplace has changed dramatically in the past 10 years.  This is a direct result of major societal forces, new consumer capabilities, and new company capabilities. 

Today marketers operate consistent with the holistic marketing concept.  This concept is based on the development, design, and implementation of marketing programs, processes, and activities that recognize their breadth and interdependencies.  It acknowledges that everything matters in marketing and that it is necessary to have a broad, integrated perspective.  It recognizes and reconciles the scope and complexities of marketing activities. 

Four components make up the holistic marketing concept.  Relationship marketing focuses on building mutually satisfying long-term relationships with key constituents in order to earn and retain their business.  Integrated marketing occurs when the marketer devises marketing activities and assembles marketing programs to create, communicate, and deliver value for consumers.  Internal marketing is the task of hiring, training, and motivating able employees who want to serve customers well.  Performance marketing is the understanding of financial and nonfinancial returns to business and society from marketing activities and programs. 

Marketing activities were classified into marketing-mix tools, which consists of four Ps of marketing.  These components included product, price, place, and promotion.  The updated set now encompasses the modern realities of the holistic marketing concept.  The new four Ps are people, processes, programs, and performance.  They apply to all disciplines within the company.  People must be understood; processes can be used to guide activities; programs encompass the old four Ps as well as other marketing activities; performance reflects the range of possible outcomes that have financial and nonfinancial implications.