66 Jacod Saber, "Some Heat Are So Bad That Only Tem Eos Can Account for Then! Wal inet rn etember 29, 2000) 12, Max Bareeina, Judgment n Manager! ecsom Making, ihe. New York Jot Wey & Son, 209) 13 ns it apts in Dn Gain an hl Rb, Wa oe Ds aow abot Making Deco Harv Bush Rete Septem 2001) 18 "4. "Ths dco based on maria in Art AThowpeon and Stead Soran Management Cones and Cas he (rt Rig Mcrae now cicOpportunity Analysis, Market Segmentation, and Market Targeting “The development and implementation of marketing strategy are complicated and allenging tasks. At its pinnacle, marketing strategy involves the selection of markets and the development of programs to eeach these markets. Tis process ‘Scaried out ina manner that simuleneosly benefits both the markets selected (atsfyng the nocd or wants of buyers) and the organization Cypially ia dollar prot ters) ‘Within this framework, necessary frst tasks are opportunity analysis, market segmentation, and market targeting This chapter desenbes analytical concep fd tools hat marketing managers Find useful in performing opportunity analy es, segmenting markets, selecting marker targets, and estinating market and sales potential B&B OPPORTUNITY ANALYSIS Opportunity analysis consists of three interrelated activites + Opportaitytdeatiteaion + Opportunity-onganization matching + Opportunity evaluation ‘Opportunies aise from identifying new types of buyers, uncovering sti Fed neds of buyers, or cresting new ays or means for satistyng buyer needs. Opportunity analysis focuses on nding markets that an organization can profit ay serve The siccess of Rechok Iteration, Ld, iustrates a disciplined approach to opportunity ddentfication. In 198, Reebok had sales of $15 milion and was known primarily fr fs high-quality custom cunning shoes. Consumer interest in ‘unning had plateaued, however, and new opportunities had to be identified for the company to gro, Over the next 28 years, Reebok systematically pursued op- portunities based on buyer types, buyer needs, nd technological inovation as rican of satlfying the needs of buyers. Recok identified buyer “perfoemance- foriented” needs with focus on specie athletic actives (such as tenis, bas- Kerb, golf and track and fel) and “nonathitic™ needs with an emphasis on comfort fashion, and syle fr tnee types of buyers—men, women, and children, “Technological inovation, most recently withthe lunch of Rble Cxstom in 2008, 4 Websbased shoe customization pator, has met dhe nceds of buyers interestedin comfort and ft, The resul Reebok broadened its global marketing presence fotlowing a merger with scidas in 2006, and now posts global sales of $35 billon snnualy with about haf of sles outside the United Sates. ‘Opportunity-organization matching determines whether an identified mar ket opportunity s consistent withthe deiniion of the ganizations business, fission statement, and distinctive competencies. This determination usually | involves an assessment of the organiation’s strengths and weaknesses ad an | ‘denticaion ofthe success requerents for operating profitably in a market | [N'SWOT analysis, ike that deserhed in Chapter ys often employed to asess the ‘match between Klenifed market opportunities and the organization's steagths find weaknesses For some companies, market opportunities that promise sable sales and profit gains are not pursued because they do not conform to an organization's Character, Starbucks isa casein pot. The company has bu «thaiving Dust ness serving freshly Brewed, specialty gourmet coffee, However, the company refuses to vce artificially Mavored calle despite its growth potent. Accocding {o company elaie Howard Schultz, "A lage growth segment in our category is Market Niche Competitive Buyer Demand/ feomomie ——-Organtaattonat CrerionAetiity ‘Requirements __ Supply Tovcee apatite Ms hich fens are willingness and) buyer types are different accens Competing foe lleyto buy? ve rent ayer to buyers hough ths ser roo? levels of effec: thee cee? marked mi How smportane Supply these seni ayer? supply buyer needs Which ems Ae there ger Ate yer eds Hw sensve Which buyer resmtnying needs that ae ely oe are buyer ped ci our which buyer’ socbeng sate longer’ Do nee 0 ‘npn ter eters Say reed ‘aiufing antec ing. ogy for sate rethewmeana are the means the nunca, Tver needs ployed to fing buyer” forsatinyingforsattying man, eh Sty bayer nec anging? buyer needs) buyer needs noo and Supp sources? ‘expertise to Inthe demand say ber° nificilly favored coffe; it would give ws maybe 40 percent incremental vol- ‘me, but we won't do it” He adds, “It's notin our DNA ‘Opportunity evaluation typically has two distinc! phases—qualiaive and ‘quanta. The qualitative phase focuses on matching the attractiveness of sn ‘Spportunty with the potential for uncovering # market niche. Atractiveness is ‘dependent on 1) competitive activity (2) buyer eequlrements; (3) market demand “and supplier soureer soca, pola, economic, and vehnologcal forces; and (G) onganivational capabilities. Bach of these factors i turn must Be tied 0 ts impact onthe types of buyers sought, dhe needs of buyers, and the means for sat ‘fying these nats, Exhibit 4.1 isan opportunity evaluation matrix containing i Testative questions sell ia the qualatve analysis of a market opportunity. The ‘quantiave plage yields estimates of market sales penta and sales forecasts, Ie seo produces budgets for financial, human, marketing, and proshacton resources, ‘which ae neceanary to assess the proitaity of 4 market opportunity BQ wear isa marker? The fac that an opportunity has heen identified does not necessarily imply that 2 market exists forthe organization, Alhough definitions vary, market may be “considered to be the prospective buyers Gndviduals or organizations) wiling tnd able to purchase dhe existing or potential offering (product oe service) of an organization. This definition of a market has several managerial implications. Fist, the Aefnion focuses on buyers, not on products or serves. People and organiza tions whose iiosynerais dictate whether and how products and services wil be ought, sequled, sonrumed, or war me ip mneor Seen, by hiehighing the buyer’ willingness and ability to purchase a produc or service, this definition Introduces the concept of efetve demand. Event buyers ae wing purchase sprout or service, exchange cannot occur unless they are able to do 0. Like ‘viet huyers are able to purchase prolact or service but are unwilling (0 do exchange will not cece. These relationships ae important to grasp because 4 marketing strategist must ascertain the extent of effective demand fr an offes- ing in onder to determine whether a market exists. To a large degre, the extent ‘of effective demana will depend on the marketing mix activities ofthe organiza tion. Thi, use of the term offering, rather than produc or sertiee, expands the tefnton of what organizations provide for buyers, Prodicts and services ate not purchased for the sake of purchase; they are purchased forthe heneis that buy fr expoct ore from them, Is for this reason tat she ate Cares Revson of Revion Cosmetics continually retested that his company did not sell cosmetics but, eather, hope. This expanded defniton ofan aller sequres stews (0 ‘consider bene provided bya product or sevice apart fom is tangible nature Market Structure Frequently, one hears or reads abou the automobile market, the soft deak mae stor the health care market. These terms cam be misleading because each refers toa componite of mutple minimarkets. Viewing @ market as composed of mini Inarkets lows marketer to beter gauge opportunites. Consider, for example, the "offee market” Exhibit 42 on page 70 shows how the US. cole market might be beoken down into mvaliple markets hy a marketing manager for Max tre House or Folgers With this breakdown, dhe anager can more effectively Henly who is competing in the caffeinated versus the decaffeinated markets7 PEED erie sroctre for cate in the United states "Fos Cae Na ———1 nena a esc (ee fod we) a See Gianna Deore Nev Bagi ze Ee va and how they are competing, monitor changes i sales volume for instant versus {round cofee, and appreciate differences between buver taste preferences and ‘competition inthe southwestern and northeastern Unled Sates. Market Share How a market defined plas # eral role in determining marketshare. Market share defined asthe sales Ga dollars or units) of «company, produc, service, ‘rbrand divided by the sales ofthe “market,” expressed as percentage. Consider the market shate calculation for Mlantc Blend, 2 pemlum caffeinated ground fofce brand sold only in grocery stores and supermarkets in the Mid-Alanic ‘eon of the United States by » coffe roaster in New York state. Alani Blend {les ate $80 milion. Depending on the “market” deiniion, Alani Blend mae- Tet share wil rage fom 1 percent to 32 percent, as shown in the Following ele Gagjee Atlantic Dollar ‘Bnd Market Market Definition ‘Saer Slee Shave “otal US. coe mare sao bition —$80-ion 1.0% 1st eofee marker S60rilion —$80-ilion 38 1S etal ground coffe market $4illon—$80llon 18% Us, ret cafenate ground coe maket, $30 bilion —$80:illon 2.7% US, real ealenated ground coffee hatin be Melanie gion $230mllin $80 millon 520% ‘Asa regional (id-Alantio) product an and, Allatic Blend is leat a mi ‘nor player in the total US. cole market with 3 1 percent overall market share. However, Atlante Blend eapeures a significant share G2 percent) of the real ‘caffeinated ground cole market inthe Mi Adan region where is marketedanersecnerarion n The real calleinaedl ground coe market in the Mid-Atlantic reglon of Ltd States Atlante Blends served market "A serve! market the market in which a company, product, src, or brand competes for targeted customers, Marcting managers often look closely at served tnarket share when consiering strategic optons, For example, i company has high’ served market aha, a market penetration strategy to ain increased serve marketshare wil be more dieu. Market development strategies might be more ‘visable, such as pursuing sales growth in an adjacent geographic market thats, ‘tlnie Bend might enter the New England market. Alteatvely, I 3 company hha “low” served marker share, prac development strategy or market pene ‘tation strate might be perceived ay 4 means io ineease maakt share & MARKET SEGMENTATION |Avsefl technique for structuring markets s market sgmontation the breaking ‘own or bung up of potential bayers into groups. These groups ae typically termed marke segments. Each segment thought ofa posessing some sort of homogeneous characteristic lating t i purchasing oe consumption behavior, ‘whichis ultimately reflected ints responsiveness to marketing programs Market Segmentation grew out ofthe recopnition tha, in gener, an organization cannot besa things to al people ‘Although the legendary Hency Ford i repoted to have sai that buyers of is ‘ond automobiles could fave any colo hey’ desired a8 lng asi was black, most ‘marketers txiay agree that such an undfercntisted marketing strate is 0 Looe {ge appropriate The idea that an organization can effectively apply one marketing ‘Srategy to sts al possible buyers is ot viable in tday’s marketing environment ‘only to, say, one buyer, iis often not feasible to treat each potential buyer as tinique, Thus as one marketing authority has so apy writen, market segment tion "i 4 compromise between the ineffectiveness of weating all customers alike and the inefficiency’ of treating each one diferent." Advances in information technology and flexible manufacturing and service etivery systems have made "segments of onc” a realty in some settings. Mass ‘customisation ~tiloring products and services tothe stes and preferences of {dividual buyers in high velumes and at a relatively low cost—combines the ‘ficienies of mass production and the effectiveness of designing offerings toa ‘Sgle buyer's unique wants Benefits of Market Segmentation Segmentation offers tree principal benefits with regard to the development of marketing strategy." Market segmentation: 1 kdenties opportunites for new product development. The analysis of ‘arous segments of present and potent buyers can reveal ane oF more [rou whose specific needs are not being well stshed. These Segments Tepresent posible oppostuntes fr new predict development. Frito 13), Ine iva cate in point, The company identified two attudial and este market segments. "Indulges” are consumers who know they should fit their fat consumption bit exnnot and those who simply dent eae. This segment represents 47 percent of snack chip consumers who are heavy thers of sack chips. The other 53 percent of consumers ar “compro mists," who enjoy snacking bu restrict, ie snack cip intake becausen ‘HAPTER 4 OPPORTUNITY ANAIYS, MARKET SPOMENTATION, AND MARKET TARGETING ‘of nuttional conceens. Fito Lay, Ine. decided to invest heavily inthe “Compromise” segment, Baked Lays lowfat potato erisps posted sales ‘of $250 milion i thee frst fll year tn dhe market. This Success was Followed by 2 line of Rules, Dostos, and Tosttos made with alow, ‘lorie free cooking ol. This ine eorded fist yeae sales of $350 milion find was one ofthe company’s most succesfl food intreductions.” 2. Helps in the design of marketing prvarams that are most effective for reaching bomogeneous groups of consumers In addition 1 product de ‘lopment, segmentation pens seincments in the pricing, advertis- Ing and promotion, and distibution elements of the marketing mix. For ‘Caniple, Procter & Gamble markets is Crest toothpaste with diferent Advertsing and promotion campaigns directed at six diferet market ‘segments, inching children, Hispanics, and senior cizens. Improves the allocation of marketing resources, Market segmentation ‘Gn provide guidance in directing marketing esources. ll market seg- iments are not necessarily equal in terms of an organization’ ability (0 Serve them effectively and profitably. As with any opportunity assess. tment a company’s srengthe and capablies rltive to each Wentied Segments nce and competitive sitstion must be considered Netra Ing to the athletic shoe “market” discussed earlier, consider how New Balance competes with Nike and adda, two performance-oriented shoe ‘marketers, insted of allocating resources to compete directly with Nike And ada in the “performance” segment, New Balance focuses onthe ‘aby boomer (46 0 6 years Ok) nonatleie segment I ofers comfort fable shoes for men and women and spends is marketing resources net ‘working with podiatrists, not athletes Bases for Market Segmentation ‘Two broad types of varlales are commonly wsed for market segmentation Socioeconomic charicterises of consumers, such a8 gender, age, occupation, Income, family life cycle, education, snd geographic location, make up one type. “The other type consists of behavioral variables, including benefits sought from product and serices, usage behavie,hfestle, and ates. Fr industrial buy fr, socioeconomie characteristics may inchide company size and locaton, and Industry or customers served. Behavioral variables may include purchasing ob- Jectives and practices as well as product and service benefits. The appropiate ‘bes of any One oF combination of variables in aspect sivaton will depend ‘on whether or nota variable relates to purchasing, ws, or consumption behavior Sand responsiveness to marketing program. “The choice of variable) to use to segment « market often depends on sights into buyer behavior, provided by creative research. Segmentation of the {all phone market by Nokia illustrates this point. According to the director of ‘America's brand marketing at Nokia, "Diferent people have diferent usage needs. ‘Some people want and need all of the latest snd most advanced dat-elsted features and functions, while others are happy with basie voice connect. ven people with similar usage needs often have differing ifestyes representing ‘asus valve set. For example, some people have an ative lifestyle in which Sports and fliness play an important oe, while fr thers ars fashion and trends may be very important” "Nokia's esearch on consumer usage ifesyes, and individual preferences Identiti six market segments: "Hasc™ consumers who need voice connectivity ‘nd low peice, “Expression” consumers who want to customize and personalizefeatures “Active” consumers who desire a nagged product (0 stand up to an ac- tive lifestyle; "Classic" consumers who prefer t more traditional cll phone wil ‘ome features at 4 modest price; “Fashion” consumers who want a very small ‘phone as fasion accessory and "Premium" consumers who are interested in All the highend technological and service features, Requirements for Effective Market Segmentation Ukimately, market segmentation Is a means to an end: wo identify and profile disinet groups of buyers who uilfer in thei needs, preference, and respon ‘Siveness to an enganization’s marketing programs. Eiective market segmentation Should provide answers to six fundamental buyerselated question for each mar et segment: 1. Who ae they? 2. What do dey want to buy? 3. How do they want to buy? 4A When do they want to buy? 5. Where do they want to buy? 6 Why do they want to buy? More often than not, the answers to these questions should be expressed In a raeative form documented with quantiatve and qualtaave research, ‘rom a managerial perspective, effective market segmentation means that cach segment identiied and profiled satisfies four fundamental requirements? "Each market segment should be: 1. Ateasunable, The size and buying power of a market segment ean be “quantatively determined, 2. Differentiable, A market seqonent distinguishable from other segments “and responds diferenty to diferent marketing programs 2. Accessible A segment can be effecsively reached and served through an ‘conomially viable marketing program. 4. Substantial A segment should be large enough fa tems of sles volume potential to cover the cost of the organization serving and return a at- Isfactory profit, How are these requirements applied in practice? Consider Harley-Davidson 1, the U.S, sles leader in hexeyweight motoreyeles? Following two years of txtensve research studying specie consumer groups, the company concluded tha women represented 4 viable market segment based on dese requirements ‘Women account for about 10 percent of foal U.S. motorcycle owners, and the percentage is growing. They seck adventure, freedom, and individuali-—Jus zien do, “What they don't want ia special produet, a pink motorcycle, for ex Simple, but they do want a product that Bits them better” said the company’s vice president of marketing larey-Davidson's tailored marketing program for women includes 2 product that requires less strength to operate a motoreyle and lowered seat heights. The ‘communications program includes advertisements in magazines, such as Allure, Vanity Fair, Glamour, snd Sef, and at local dealer events to introduce Rist ‘women riers tothe prodvct and the sport of eycling. For Harley-Davidson, the Female segment i mieasirable, iflerentiable from males, accessible through ‘commonktons and distribution channels, aad substantial enough in terms of Sales and profi to warrant attention,” ‘GUAPTER 4 OPPORTUNITY ANALYSIS, MARKET SEGMENTATION, AND MAREE TARGETING GB wankertanceTInG — Aer a maker hasbeen segmented, 2 marketing manager needs to adress three questions + Where to compete? + How to compete? + When to compete? Where to Compete? “The manager mst ist decide where to compet. This question focuses on which market segments) the company should choose for marketing efforts, or market Cargetng. Market targeting Cot trget marketing) isthe specication of the mat- [et segment() the organization wishes pursue or example ecigizing that Walmart, Low's, and host of repioal con petitors were geting the homemprovement “dotyourselfer” segment for home Fepair and vemovicing, Home Depot decided to purse the “professional” se ‘ment for growth aloagsde the "dostyoursele” semen. This seyment consisted ‘of honsing professionals, such as managers of jor apartment ae condominium ompleacs sn exe chins, and professional building contactors. Once that Was tlcided, the company modified its merchandise assoriment to meet the needs of the professional” sent and broadened services inclding longer store hows, ‘dlery, commercial cred rick and equipment rental, and ordering via phone, fax, or the internet, Toy, spofesiona” customers account for 4 percent of Home ‘Depot customers, but accu for about one-third of company sakes" How to Compete? Next, a manager must decide bow to compete. This question focuses on how many market seinen the organization will porsve and che marketing stateges toemploy, “Two frequently used market targeting approaches are aiferentated mar- esi and concentrated marketing. Ina dillesentiated marketing approach, the fnganization simultaneouly pursues several diferent market segment, with 3 fonique marketing ststegy for each. An example of this typeof marketing is the "rtegy of Nokia following ts seymentaton esearch described eae. Fxhibie4.3 Shows Noki's differentiated marketing strategy in 2005 featuring seven diferent Cellphone models designed for and uniguely marketed to six market segments” [Nokb'sdiflerensted marketing approach, along with continued technological ‘Advancements, has contributed tots status a8 one of the worlds Teading cell phone handset marketers, Astle, differentiated marketing is expensive to im plement, Managing multiple prodicts across multiple market segments increases Inarketing, inventory, administrative, and advertising and promotion cots as well 2s product development expenditures Tina concentrated approach the organization focuses ona single market seg iment, An extrem case woul Be cne in which an organization marketed a single praduct offering to a single market seyment. ore commonly, an organization tll offer one o more pret lines toa single segment. For many years, Gerber proclaimed that “babies are our only business” and focused almost exclusively ‘on baby fools. Gerber sul offers prepared buby foods, which I its primary bus ines: However toy Gerber offers companion lines of baby skin ate and health ‘Chee products; bay care procts sich as bates, pairs, playthings, thing,‘Nokia's Differentiated Marketing Strategy o_o ES “Tamg | tine i and accessory items; and insurance polices. Through a concentrated marketing approach, a Company gains a strong knowledge of a seyents needs and can "chleve a strong market posiion-Gerber command an 48 pereet marketshare in prepared baby foods in the United States. Furthermore, concentrated market Ing provides operating economics through specialization in manufacturing and marketing, However, concentrated marketing has risks. Specializing ia one se ‘ent can Une a company’s growth prospets, pasiculaly if he Segment size Aectnes. Also, compesitors night invade the segment, When to Compete? Tied, the manager must determine when to compete. Ths question relates to timing. Some organizations adapta “Bes-to-market” posture, wile others take 4 "waitand see" stance concersing the pusult of masket segments. Historically, Matsushita has generally deferred t Sony andl other firms to deny market se fens to be served. When the market seyment potential has been demonstrated,6 ‘ouarran 4 onPoRTUNETY ANALY, MAREETSUOMENTATION, AND MARKET TARGETING Matsushita relies om ts proticion and marketing expertise, Backed by large In ‘estes to capture a disproportionate share ofthe market segment “Timing in market targeting can have a sigaifieant effect on sales and profit For instance, companies tha targeted the Hispanic market segment eaely wi 2 Unique offering or marketing program were rewarded in sales and profit Metro politan tte asurance i such acase, The company was among the frst insurance ‘Companies to recognize this opperwnty and is now one of the largest insurers of | ispanic consumers inthe United States ! “On the other hand, inthe etl 1970s, marketing executives at Fito-Lay en tified a "beter for you" benelit segment of snack usees who desired healthier Snack chips, The company created muligrain sack chip called Prontos and Tnunched the brand with « supporting marketing program only to post disap pointing sales and profi According ta 4 marketing executive, the “better fro Segment wis too nutrow a target market and muligeaia sack chip may have heen invented and intexdiced before i une.” Fritortay tracked this segment’s evelopment over the next decice and launched another multgran snack ‘hip with the Son Chips name. Today, the Sun Chips brand produces sales of $100 mlion annually. [BB wancer sALes POTENTIAL AND PROFITABILITY ‘An essential activity in opportunity evaluation isthe determination of market Sates potential and profitably, Estimating 4 market's sales poten for oflerngs isa dificult us even for# seasoned marketing executive. Markets and offerings ‘in be defined in numerous ways at can lead to different estimates of market ‘Sov an dalle sale potential. This was ilastrated earlier in the description of Irorket structure and felting arket shares in the U.S cofeeindustey. Foe iar porate offerings or new markets, marketing analysts must often rely almost nirely on judgment snd creatvty when estimating market sales potential “Therefore its understandable that mare sles potential estimates vary greatly For high-definition television (HDTV) ad hybed gasoline- and battery-powered) thutomobiles, The undedying techaclogy for bod oflerings Is tll evolving a the physical form, In sch dynamic sctings, measuees for ideniying prospective ‘market segment are uncertain Estimating Market Sales Potential Market sales potential is 4 quantiaive approximation of elective demand. Spe {ialy, manke sales potential isthe mx level of sales that sight be aa Lble to all organizations serving a defined market in specific ime period given G) the marketing mix activities and fort of all organizations, and 2) a se of ‘environmental contions. As this definition indicates, market sales potential is not Thee amount. Rather, is a function of aumer of factors, some of which are Controllable and cers not contollabe by organization. Por instance, contol ble marketing mix activities and marketing welted expenditures of organizations fan influence market sales potenti, On the other hand, consumer dsposable income, government reguladons, and other socal, economic, and political condi- tions ae not controllable by organizations, but do aflect mavket sales potential “These uncontrollable factors are particulary relevant in estimating market sales potent in developing counties, “Three varables ate commonly considered when estimating. market sales pote These include (1) dhe number of prospective buyers (B) who are wlingMARKET SALES POTENTIAL AND poTEABLETY n and able to purchase an offering: (2) the quansty (Q) ofan offering purchased ‘by an average buyer in 8 specific time period, typically one calendar yeat, and (3) the price UP of an average unit of the ffeing. Market sales potential is th Product of these thee variables Market sles potential = BX Q > “Though simple, this expression contains the building blocks fr developing 2 more complex formulation through what is ealed the chain rato metbod, which {nvolves mulipyng a base numaer by several adjusting factor that are believed {o influence market sales potential An application ofthis method by Coca-Cola tnd Peps Coa is shown inthe following calculation of cole flavored carbonated ‘sot drink penta 2 South Ameria county [Population aged 8 years and over x proportion ‘ofthe population that consumes carbonated Market sles — | Soft inks ona daly basis » proportion of| potent oe ‘he population prefeting cole Mavored Coleflavored | = | carfonated soft drinks x the average number ‘trbonated soft ‘of carbonated sft drink occasions per day ‘inks ina {he average amount consumed per consumption country —1 | occasion (expressed in ounces)» 365 days ina ellendar year the average price per ounce of colt “The chain eatio method serves three important purposes. Fist, it yields ‘4 quantiative estimate of market sales potential. Second, i highlights fctors that are controllable and not controllable by organizations. Cleaely, a county's population aged & years and older is an uncontolable factor. However, the ‘ther factors are controllable or can be influenced to some degree. For exam ple, organizations can influence the propostion of a population that consumes Earbonated sof inks through primary demand advertising and the cost of ‘ola drinks through pricing If either of these two factors change, market sales potential changes, other things being equal. Finally, i affords a manager flex ibility in estimating market sales potenti for diferent buyer groups and difer tent offerings, For example, hy including another factor such as the proportion Sf the population preferring diet cola, the potential for this offering can be ‘alate Sales and Profit Forecasting Sales and profit forecasting follow the estimation of mavket siles potenti [A sales forcast isthe level of sales single organization expects to achieve based {n'a chosen marketing strategy and an assomed competitive envionment. AN ‘nganiztin’s forecasted ses ae typically some fraction of estimated market sales potential Forecasted sles eflect the size ofthe target market(s) chosen by the on ization and the marketing mix chosen forthe target marke), Forecasted sles ‘iho reflec dhe assumed umber of compeditors and competitive intensity in the ‘hosen target market), For example, suppose an organizations target market represen one-fourth of J lion prospective buyers for a particular offering The marketing channel chosen for the offering provides aecess to about three: fourths ofthese buyers an the communication program (adveetising) reaches these same buyers. Suppore farther tha the average purchase rte is 20, ‘of7” NOTES an offering per year and the average offering unit price i $10. Using aversion of the chain tio method, forecasted sles might be calculated as follows Toulestimated prospective buyers milion Target market 29% oft buyer) 025, Discihuton/Communiaton coverage 075 (sot arget marked Anu purchase rate (20 unis per year) x 20 verge offering. un price $10) x0 oeceted se ~ $375 milion “The $375 milion sles forecast doesnot consider the number of competitors ¥ ing for the same target market nor docs it consider competitive intensity. There fore this sales forecast should be aunt downwaed to reflet these realities, ‘orecastng sales, like estimating market sales potential, isnot an easy task. Nevertheless, the task i central to opportunity evaluation and must be under hen. or this reason, sles forecasting sadessed again in Chapter 5s rele fence to prvdet and service life cycles Finally pro forma income statement should be prepared showing fre casted sales, budgeted expenses, and estimated net prot (Chapter 2). When ‘Completed, the marketing analyst can review the identified opporunties and ‘eid which can be mon profitably pursued given organizational capabiis 1. the Resok exinpe sated on Rog A. Kt, Seen Hay EN Beskowi, anita elo Mabe eh Rage cor Ae, 09 251-235, nd Re aarp cor, Febrary 2 2010. 2 Tey Leos Shaler Climate sade RANDWEEK (uly 5, 1999) 20-25 13. Ben M. Ens Marhtng Princip The Managament Proce 2nd ei ace Palisades, CA: Goodgeat, 197721. “fone & Waller Je ad Jo Malin, Maren Sito A Deion Focused Apprch, Wy eae dg, Sera Hw, 2010) Chap 6 Se American Marking Association Halon Award Best Rew Prod Nees Qnty 16,1999): spec soppemtent (stephanie Kang New Balance Steps Up Marketing Deve Wal Set Journal (tart 2, 200858 "7. “Nokia A Phone for Every Segment in Roger A. Kern, Steven Harty, BN. Deskin Wilam Rodel Geerence che. 255257 "3. lip Reler an Kevin Lane Keller, Marking Management, 14h ed Upper ude Rver, Ne Pretce Hl, 2011262 and Dankel Yankelovich and Did Mer, Sheacoerng Market Segmentation Haro snes Roi Ferry 2006 122-13 ‘3 sop om the Backs Jac Aarkting News Orch 15, 2009 5; and ery Bos, “tik Cie” Daas toring Now ne 24, 2007. pp 1D, 6D. December 2010 TT, "he Git in the Pl of Your Han Te Econom Rebraary 12,2008) 67-65 and Nokia: A Phone for Every Segment Geterence ed. 12s “Geter rods Company Hoover cam, Janay 18,201213, sources for examples contained in this dss rimeyen a rear opto ara of Marin (Od 193) 35Lancer Gallery Lancer Gallery is limite iaity company that sources and sells a wide varity fof South American and African afc I also a major source of southwestern Indianespectally Hopi and Navajo—autheatie jewelry and postery, Although the firm's headgutster Is located in Phoeni, Arizona there are currently beanch flies in Los Angeles, Miami, and Boston Lancer Gallery originated a a trading post operation nea Tucson, Arizona, in the early 19008, Throogh a series of adicious decisions, che company established ise as one ofthe more eputable dealers in authentic southwestern jewelry and pottery, Over the years, Lancer gradually expanded is product line wo nce pre- lubian artifact rom Peru and Venezuela (ee Exhbie 1) and wba and bral anafats from Aaea. Trough Is careful verification ofthe authenticity of dese South American and Arcam artists, Lancer developed a national reputation as Cnc uf denn seapected sources ofthese types of ares In 2001, Lancer further expanded its product line to ance items that were replicas of authentic artists, For example, African fertility gods anl masts were nade by craftspeople who took great pains to produce these items So that only the waly knowledgeable buyera calector—woul! know that they were rep Tics. Lancer now has long-term contacts with native crafispeople in Cente America, South America, Ais, and the southwestern United States who pro- fice these items. Replicts accouot Tor only stall portion of total Laneer sales, the company agreed to enter this business only a he prodding ofthe firm's el- tents, who desfed an expanded line, The replies have found most favor among Sit buyers and individ looking for decorative tems ‘The company’s ross sales are about $35 milion and have increased ata rela tively constant sate of 20 percent per year over the last decade. Myeon Ranged, the fan's national sles manager, ateted te sles increase to the popularity ‘of the company’s product line and tothe expanded disibution of South Amer fan and Alfa atic For some resto, our South American and certainly ur Ac aif have then pining pester aceptnce: Two of cr deparment store cstomers fe tre cramples of our Alita icin the Cheats cralo ast ea person Sly ink tonesne tts re changing fom the modem and abaeact to the ag a cet ete ee a Fee noe aa FEEIIIEET ca ceremoniat ask and Pre-Columbian Water ves Lancer distributes its products exclusively through specialty dealers includ ing selected interior designers and decorators), femesponsored showings, and a few exchisive deparment sores, Often, the company the sole supper 0 tents Ranjan recently expressed the reasons for this highly ited dstibution ‘ur inte dstibytion hasbeen dicted tos Bec ofthe aatre of ou Prodi line. Av aseeplnce grew, we expanded ur dst To special {cae a sme excise department stores. Previous, ve had to push our fects through our ow showings. Rute, we at do have the pro These South American arate aren always easy get ad the pital ‘Sato in Alcs iting our spy. Oue perennial sippy problem has be “Come even more eal in recent Yar for several reason NOU ool st We ‘Shc nr for ew produc, but the competion for stheni arias as Allowing exportation of cera arts bens of Ueno Seance” “The problem of supply has forced Lancer to add thee new buyers in the ast two yest, Whereas Lancer identified 5 major competitors a decade ago, there are 11 today. “Our bargaining postion has eroded,” noted David Olsen, diteetor of procurement "We have matched our gross margin slp la recent years die 10 a fresive competitive bidding by oers” ‘And competition atthe retail level has increased alo," injected Rangard, ‘Not only are some of ou larger specialty and exclusive department store cus tomers sending out their own buyers to deal diecly with some of our Hopi, ‘Navajo, and Aftican sores, but abo we are often faced with amateurs or fy-by- hight competitors. These people move into acy and dump 2 bunch of inauther tie junk on the public at exorbitant prices. Such aatis give the industy a bad fame’? Rangard acknowledged that high-quality, authentically made decorative items were also available on the Intemet (se, for example, authentearcs com and novics.com).‘A recent atic in Affcan Collector magazine supported Ranga’ observa. ‘on According to the atc, which Featured African agit: es best to uy rom dealer you can st snc 2 growing mamber of fakes ae ‘toning up onthe market Toughout Ac, atin i cat cote simply ‘hum ut copier of auntie tem. And semen, "raion rated Inthe aboence of any tadton. ln Kena, for example, mass made bythe Mo [Si poop ol for anywhere rom $50 to $00. Bu the Maal ave Never caved Iu Accrington authority on Aca ates “9% of what’ coming Into the Us re epics ort art thas eng ade to oko” In recent year, several mass merchandise department store chains have be gun to sll merchandise sinilr to tha offered by Lancer Ven though peoduet “ulity was offen mixed and most items were replica, occasionally an authentic [Bou of items was found in these stores, according to company sales repesents tives Subsequent inguties by bath Rangard and Olsen reveted hat Wo com patos had signed purchase contracts with these outlets. Mogeover dhe sens ‘vere typically being Soldat etal prices below those charged bythe company’s ‘eaters In carly January 2010, Rangaed was contacted by & masssmerchandlse de partment store chain concerning the possibilty of carrying 2 complete line of Tancer prodicts and partculey a fll assortment of authentic tems. The chain ‘was curren selling a compettor’s tems but wished to add a more exclave ‘roduc ine. A tentative contract submited by the chain stated that i would buy Bt 10 percent below the company’s existing prices, and tha inital purchase ‘would be for less than $750,000. Depending on consumer acceptance, pur ‘chases were eaimated 10 he atleast $4 milion anaually. An important clause in the contract dealt with the supply of replicas, Inspection ofthis clause revealed that Lancer would have to tripe is replica prodaction to sausy dhe contractual ‘obligation. Soon ater Lancer executives began alscusing the contract, the com ppany’s president, Andrew Smythe, mentioned that accepting the contact could Ihave a dramatic effect on how Lancer defined ts business. Smythe added “The contac presents us wih an opportunity bron ou firs position. The Upside haw hve the poe ad $4 lion iv adatom ses over and ‘lowe cur anal growth, Ts raps because evene prot ha slowed de ‘four buns to epic? I that te ction tht the marke song? What ‘ect il this contact have on cutee dlrs, an, ight 8, our arent rant you Doth Ganga ad Oke) to consider this contact gh of you ope ncn andthe cnpany awoke Len ew "A aan ltr en, 208,01