Understanding and Approaching the Market

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CHAPTER 2

• Understanding and Approaching the Market

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Learning Objectives

• Role of market in the exchange process
• Distinguish basic kinds of markets
• Difference between undifferentiated and segmental
  approach
• Various bases for market segmentation
• Modes of selecting target markets

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Market Definition

• Market is people
• Market is a place
• Market is an economic entity

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Market is People

• Individuals, groups, organizations
• Overt or latent wants or need
• Ability to pay for the product via accepted means
• Willingness to buy the product
• Authority to buy the product
• Large enough people/organizations to ensure
  profitability

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A geographic location where
trading takes place
Market is a place
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Market is an economic entity

• Market characterized by dynamic system of
  economic forces
• Supply and demand buyers or sellers market
  (different bargaining power)
• Competition pure, monopoly, oligopoly
• Government control free, socialistic

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Types of Markets

• Consumer
• Industrial
• Institutional
• Reseller

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Consumer Market

• Individuals and households who buy and consume
  goods and services for their own personal use

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Industrial Markets

• Organizations and their employees, who buy
  products or services for use in their own
  businesses, or to make other products

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Institutional Markets

• Includes profit and non-profit institutions
• Satisfy mostly esoteric, often intangible needs
• Profits are re-invested into the institution

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Reseller Markets

• Intermediaries that buy finished or semi-finished
  products and resell them for profit

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Target Market

• The person (s) / organization (s) selected as
  potential customers by the product provider e.g.,
  Harley Davidson

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Approaches to target markets

• Undifferentiated Market (Market Aggregation)
• Product Differentiation
• Segmented Market

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Market Aggregation

• Market is viewed as a homogeneous aggregate e.g.,
  milk consumers
• Main considerations per unit profit margin and
  the amount of competition
• Carries the potential threat of lack of appeal to
  anyone and waste of resources

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Product Differentiation

• Tangible or intangible distinction of the same
  product from those of competitors e.g.,
  endurance, status
• Mention core appeals of the product
• Too much difference from the norm might be
  ineffective
• The differentiation basis should be meaningful
  and important for the consumer

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Segmented Market

• Identify, classify people into homogeneous
  groups/segments
• Reduce risk in deciding where, when, how and to
  whom product will be marketed
• Increase marketing efficiency by directing effort
  appropriately

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Segmentation Strategies

• Concentration focus on only one market segment
  better depth but lack of demand can cause
  financial loss
• Multi-segment focus on two or more distinct
  markets different marketing mix increased costs
  offset by increased sales but too many products
  along with misdirected marketing efforts may
  result

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Segmentation Bases - Consumers

• Geography
• Demography
• Usage
• Psychological

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Geography

• Conditions like weather, topography, physical
  factors like oceans, population density affect
  consumer needs and desires
• Too large a geographic area may mean
  heterogeneous population making it a less
  effective segment

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Demographic

• Occupation e.g., bankers vs. plumbers with
  different lifestyles
• Geographic Mobility
• Race and national origin (affects products and
  media preferences)

• Age e.g., Baby Boomers
• Gender
• Family life cycle e.g., newly married couple vs.
  parents
• Income
• Education
• Religion

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Usage

• Consumption is measured directly
• Marketing mix aimed at groups considered either
  heavy, medium, light or non-users
• Sub-bases of segmentation purchase occasion
  (reasons for buying) user status (non, heavy,
  ex, first-time) loyalty stage of readiness
  (unaware, aware, desirous, intend to buy soon)

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Psychological

• Attitudes predispositions to behave in certain
  ways to given stimuli
• Personality long-lasting characteristics and
  behaviors that allow one to cope with the
  environment
• Motives positive or negative reasons for
  behavior
• Lifestyle orientation, interests, opinions
  about consumption, work and leisure

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Segmentaion Bases - Organizations

• Type of customer
• North American Industry Classification
  System/Standard Industrial Classification
• End use
• Common buying factors
• Buyer size and geography

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Type of Customer

• Original equipment manufacturers e.g.,
  Caterpillar
• End users e.g., farmers who use John Deere farm
  equipment
• Aftermarket e.g., those who buy spare parts for
  automobiles

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Standard Industrial Classification

• Main product or service provided
• SIC classify firms under 10 basic industries with
  a two digit coding system
• NAICS has added newer industries e.g., healthcare
• NAICS has a six digit coding system

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End Uses

• The manner in which a product is used by the
  potential buyer in different situations

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Common Buying Factors

• Product Performance
• Product Quality
• Service
• Delivery
• Price

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Buyer Size Geography

• Small, medium and large buyers and their location
  in relation to the seller

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Evaluation of segments

• Clarity of identification who is in and who is
  out
• Actual or potential needs
• Effective demand desire plus ability to buy
• Economic accessibility
• Positive responses

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Selecting Target Market

• Identify relevant customers,
• purchase situation variables beyond core product
• Collect, analyze other related data
• Evaluate segments
• Select one or more target markets
• Develop appropriate action programs

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Positioning

• The act of designing the companys offering and
  image to occupy a distinctive place in the target
  markets mind in relation to other competitors,
  e.g., Volvo

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• Markets of one person or one company, customized
  product design, relationship marketing, and
  one-on-one marketing are the trends of future

Future Marketplace