Chapter 1 An Overview of Strategic Marketing
Marketing​ is the process of:
O Creating, distributing, promoting, and pricing goods,
services, and ideas
O To facilitate satisfying exchange relationships with
customers
O To develop and maintain favorable relationships
with stakeholders in a dynamic environment
Figure 1.1 - Components of Strategic Marketing
Marketing Focuses on Customers
O Customers
O Purchasers of the products that organizations
develop, promote, distribute, and price
O Focal point of all marketing activities
O Target Market
O A specific group of customers on whom an
organization focuses its marketing efforts
Marketing Mix Variables
O Marketing is more than simply advertising or selling
a product
O Involves:
O Developing and managing a product
O Making the product available in the right place
O Pricing the product at an acceptable level for
buyers
O Communicating information to help customers
determine if the product will satisfy their needs
O Marketing mix
O Four marketing activities
O Product
O Distribution
O Promotion
O Price
O That a firm can control to meet the needs of
customers within its target market
O There is a limit to how much these variables can
be controlled
O Marketers must:
O Aim to create and maintain the right mix of
elements to satisfy customers in the target market
O Collect detailed and up-to-date information on:
O Their target market
O Consumer preferences
O Competitors in order to develop the marketing
mix
Product Variable
O Product​ can be:
O Good—a physical entity that you can touch
O Service—the application of human and
mechanical efforts to people or objects to provide
intangible benefits to customers
O Idea—concept, philosophy, image, or issue
O Product variable includes the creation or
modification of brand names and packaging
O May also include decisions regarding warranty
and repair services
O Product variable decisions and activities directly
impact the creation of products that meet
customers’ needs and wants
Distribution Variable
O Make products available in quantities desired to as
many target market customers as possible
O While minimizing these three costs:
O Inventory
O Transportation
O Storage
O To satisfy customers, products must be available at
the right time and in convenient locations
O Marketing managers may:
O Select/motivate intermediaries (wholesalers and
retailers)
O Establish/maintain inventory control procedures
O Develop/manage transportation and storage
systems
O Internet has dramatically impacted distribution
O Making it faster and more wide-spread
O Netflix uses digital distribution that allows
consumers to stream movies right off its website.
Promotion Variable
O Relates to activities used to inform individuals or
groups about the organization and its products
O Aim to increase public awareness of the
organization and of new or existing products
O Educate customers about product features
O Urge people to take a stance on a political or
social issue
O Help sustain interest in established products
Price Variable
O Relates to decisions and actions associated with
establishing pricing objectives and policies and
determining product prices
O Price is a critical component of the marketing mix
as customers are concerned about value obtained
in an exchange
O Price is often used as a competitive tool
O Intense price competition sometimes leads to
price wars
Marketing Creates Value
O Value is a customer’s subjective assessment of
benefits relative to costs in determining the worth of
a product
O Customer benefits include anything a buyer
receives in an exchange
O Customer costs include anything a buyer must
give up to obtain the benefits the product
provides including cost, time, effort, and risk
O Value is a subjective assessment of benefits relative
to costs
O Marketing has the ability to increase consumers’
perceptions of a product’s quality and social
approval
Marketing Builds Relationships
O Exchanges are the provision of transfer of goods,
services, or ideas in return for something of value
Relationships with Customers
O For an exchange to take place:
O Two or more parties must participate, and each
must possess something of value that the other
party desires
O The exchange should provide a benefit or
satisfaction to both parties
O Each party must have confidence in the promise of
the ​something of value ​held by the other
O To build trust, the parties to the exchange must
meet expectations
Relationships with Stakeholders
O Stakeholders ​are constituents who have a ​stake,​ or
claim, in some aspect of a company’s products,
operations, markets, industry, and outcomes
O Stakeholders include:
O Customers
O Employees
O Investors and shareholders
O Supplies
O Government, communities and more
Marketing Environment
O The ​marketing environment ​is dynamic and includes
the following forces:
O Competitive
O Economic
O Political
O Legal and regulatory
O Technological
 O Sociocultural
O These forces affect a marketer’s ability to facilitate
value-driven exchanges in three ways:
O Influence customers by affecting their lifestyle,
standards of living, and preferences and needs for
products
O Help to determine whether and how a marketing
manager can perform certain marketing activities
O May affect a marketing manager’s decisions and
actions by influencing buyers’ reactions to the
firm’s marketing mix
O Effects of these forces on buyers/sellers can be
dramatic and difficult to predict
O Impact on value can be extensive as market changes
can easily impact how stakeholders perceive certain
products
O Unlike marketing mix variables, a firm has little
control over marketing environment forces
Understanding the Marketing Concept
O According to the ​marketing concept​, an organization
should try to provide products that satisfy
customers’ needs through a coordinated set of
activities that also allows the organization to achieve
its goals
OA management philosophy guiding an
organization’s overall activities
O A firm must satisfy not only its customers’
objectives but also its own objectives
Evolution of the Marketing Concept
O Production Orientation
O Second half of the 19th century, the Industrial
Revolution improved speed and efficiency
O As a result of new technology and new ways of
using labor, products poured into the
marketplace, where demand for manufactured
goods was strong
O Firms were developing the ability to produce
more products, and competition was becoming
more intense
O Sales Orientation
O During the first half of the 20​th century
competition increased and focus shifted to selling
products to buyers
O Marketers were able to learn that many products
did not meet consumers needs
O Businesses viewed sales and selling as the main
means of increasing profits
O Some people incorrectly equate marketing with a
sales orientation
O Some firms still use a sales orientation
O Marketing Orientation
O Emerged in the mid-20​th​ century
O Market orientation ​requires an organization-wide
generation of market intelligence pertaining to:
O Current and future customer needs
O Dissemination of the intelligence across
departments
O Organization-wide responsiveness to it
O New-product innovation by developing a strategic
focus to explore and develop new products to
serve target markets
Implementing the Marketing Concept
O Management must first establish an information
system to discover customers’ real needs and then
use the information to create satisfying products
O An information system is usually expensive;
management must commit money and time for
its development and maintenance
O Without an adequate information system,
however, an organization cannot be market
oriented
O To satisfy customers’ objectives as well as its own, a
company also must coordinate all of its activities
O Implementing the marketing concept demands the
support not only of top management but also of
managers and staff at all levels of the organization
Customer Relationship Management
O Customer relationship management (CRM) ​means
using information about customers to create
marketing strategies that develop and sustain
desirable customer relationships
O Achieving the full profit potential of each customer
relationship should be the fundamental goal of every
marketing strategy
O Profits can be obtained through relationships in the
following ways:
O By acquiring new customers
O By enhancing the profitability of existing
customers
O By extending the duration of customer
relationships
O Implementing the marketing concept means
optimizing the exchange relationship
Relationship marketing​:
O Refers to long-term mutually beneficial buyer/seller
relationships
O Focused on value enhancement through the creation
of more satisfying exchanges
O Continually deepens the buyers trust
O Increases the company’s understanding of the
customer’s needs
O Through the use of e-marketing, companies can
personalize customer relationships on a nearly
one-on-one basis
Customer Lifetime Value
O Customer lifetime value ​predicts the net value
(profit or loss) for the future relationship with a
customer
O Requires identifying patterns of buying behavior
and using that to focus on the most promising and
profitable customers
O Intangible asset that can be augmented by
addressing the customer’s varying needs and
preferences
O May include an individual’s strong word-of-mouth
communication about the company’s products
O Emphasis changes from ​share of market t​ o ​share of
customer
O Most basic application of this idea is 80%of
business profits come from 20% of customers
O Calculated by taking the sum of the customer’s
present value contributions to profit margin over a
specific time frame
O Helps determine how best to allocate resources
to marketing strategies to sustain a customer
over a lifetime
The Importance of Marketing in Our Global Economy
O Costs consume a sizable portion of Buyer’s dollars
O About ½ of buyer’s dollars goes toward marketing
cost
O Used in nonprofit organizations
O Government agencies at all levels engage in
marketing activities to fulfill their mission and
goals
O Private nonprofit organizations employ marketing
activities to create, price, distribute and promote
programs that benefit particular segments of
society
O Important to business and the economy
O Marketing activities help produce profits which
are essential to the survival of individual
businesses, help create a successful economy and
contribute to the well-being of society
O Fuels our global economy
O Advances in technology, falling political and
economic barriers, and the universal desire for a
higher standard of living, have made
international marketing commonplace while
stimulating global economic growth
O Knowledge enhances consumer awareness
O Studying marketing allows us to understand the
importance of marketing to customers, firms, and
our economy and make better purchasing
decisions
O Connects people through technology
O Technology helps marketers understand and
satisfy more customers than ever before
O Internet allows marketers to disseminate
information about products and interact with
target markets
Table 1.1 – Cell Phone Activities
O Can promote the welfare of customers and
stakeholders
O Green marketing​—is a strategic process involving
stakeholder assessment to create long-term
relationships with customers while maintaining,
supporting, and enhancing the natural
environment
O Market orientation combined with social
responsibility improves business performance
O Offers many exciting career prospects
O 25-33% of civilian workers in the U.S. perform
marketing activities
Chapter 2 Planning, Implementing, and Evaluating O The goals of any organization should derive from its
Marketing Strategies mission statement
O An organization’s mission statement should answer
Strategic Marketing Management
two questions:
O The process of planning, implementing, and O Who are our customers?
evaluating the performance of marketing activities O What is our core competency?
and strategies, both effectively and efficiently
Corporate Identity
O Effectiveness is the degree to which long-term
customer relationships help achieve an O Companies develop and manage their corporate
organizations objectives identity—their unique symbols, personalities, and
O Efficiency refers to minimizing the resources an philosophies—to support all the firm’s activities,
organization uses to achieve a specific level of including marketing
desired customer relationships O Managing identity requires:
O Broadcasting a company’s mission, goals, and
Strategic Planning Process
values
O Strategic planning ​is the process of establishing an O Sending a consistent image
organizational mission and formulating goals, O Implementing a visual identity with stakeholders
corporate strategy, marketing objectives, and
Figure 2.2 – Levels of Strategic Planning
marketing strategy
O Should be guided by a market orientation to
ensure that a concern for customer satisfaction is
an integral part of the process and permeates the
entire company
O A market orientation is also important for the
successful implementation of marketing
strategies

Figure 2.1 – Components of the Strategic Planning

Process

Corporate Strategies

O Corporate strategy ​determines the means for

Organizational Mission Statements and Goals
O Corporate strategy planners are concerned with
O Mission statement ​is a long-term view, or vision, of
what the organization wants to become
utilizing resources in the functional areas of
marketing, production, finance, research and
development, and human resources to reach the
organization’s goals
O The broadest of the three levels of strategy
(corporate, business unit, and marketing) and
should be developed with the organization’s
overall mission in mind
O Who are our customers? What is our core
competency?
broad issues such as:
O Corporate culture
 O Competition
O Differentiation
O Diversification
O Interrelationships among business units
O Environmental and social issues
O Match the resources of the organization with the
opportunities and threats in the environment
Business-Unit Strategies
O Business-unit strategy should be consistent with
corporate strategy
O Strategic business unit (SBU) ​is a division, product
line, or other profit center within the parent
company
O Each of these units sells a distinct set of products
to an identifiable group of customers, and each
competes with a well-defined set of competitors
O The revenues, costs, investments, and strategic
plans of each SBU can be separated from those of
the parent company and evaluated
O Strategic planners should recognize the strategic
performance capacities of each SBU and allocate
scarce resources among those divisions
O A ​market is a group of individuals and/or
organizations that have needs for products in a
product class and have the ability, willingness,
and authority to purchase those products
O The percentage of a market that actually buys a
specific product from a particular company is
referred to as that product’s (or business unit’s)
market share
Market Growth/Market Share Matrix
O The ​market growth/market share matrix ​is a helpful
business tool, based on the philosophy that a
product’s market growth rate and its market share
are important considerations in determining its
market strategy
O All the companies SBUs and products should be
integrated into a single, overall matrix and
evaluated to determine strategies for individual
products and overall portfolio strategies
Figure 2.3 – Growth Share Matrix
Growth Share Matrix
O Stars are products with a dominant share of the
market and good prospects for growth
O Cash cows ​have a dominant share of the market but
low prospects for growth
O Dogs ​have a subordinate share of the market and
low prospects for growth
O Question marks ​have a small share of a growing
market and generally require a large amount of cash
to build market share
O Long-term health of an organization depends on
having some products that generate cash and others
that use cash to support growth
Assessing Organizational Resources and Opportunities
O The strategic planning process begins with an
analysis of the marketing environment, including a
thorough analysis of the industry in which the
company is operating or intends to sell its products
O Any strategic planning effort must assess the
organization’s available financial and human
resources and capabilities as well as how the level
of these factors is likely to change in the future
Core Competencies
O Core competencies ​are things a company does
extremely well, which sometimes gives it an
advantage over its competition
O Walmart’s core competency, which is efficiency in
supply chain management, has enabled the chain
to build a strong reputation for low prices at high
quality levels on a wide variety of goods
Market Opportunities and Strategic Windows
O Market opportunity ​is a combination of
circumstances and timing that permits an
organization to take action to reach a particular
target market
O Strategic windows ​are temporary periods of optimal
fit between the key requirements of a market and
 the particular capabilities of a company competing in
that market
Competitive Advantage
O Competitive advantage ​is the result of a company
matching a core competency to opportunities it has
discovered in the marketplace
O Tesco, a large-scale grocery chain from the U.K.,
entered the western U.S. market with its Fresh &
Easy Neighborhood Markets
O The company seeks competitive advantage by
offering cheap, healthy food options such as
98-cent produce packages and cheap cuts of
meat
O The store seeks to source produce and meats
locally as much as possible, offer organic and
hormone-free foods, and use less energy than
typical grocery stores
SWOT Analysis
O SWOT analysis ​is a tool marketers use to assess an
organization’s strengths, weaknesses, opportunities,
and threats
O Strengths and ​weaknesses are internal factors
that can influence an organization’s ability to
satisfy its target market
O Opportunities and ​threats exist independently of
the company and therefore represent issues to be
considered by all organizations, even those that
do not compete with the company
O Strengths refer to competitive advantages or core
competencies that give the company an advantage in
meeting the needs of its target market
O Weaknesses refer to any limitations a company faces
in developing or implementing a marketing strategy
O Opportunities refer to favorable conditions in the
environment that could produce rewards for the
organization if acted on properly
O Threats refer to conditions or barriers that may
prevent the company from reaching its objectives
First-Mover Advantage
O First-mover advantage ​is the ability of an innovative
company to achieve long-term competitive
advantages by being the first to offer a certain
product in the marketplace
O Build a firm’s reputation as a market leader
O Market is free of competition
O Establish brand loyalty for the firm due to its
customer’s costs to switch later on
O Firm can protect its trade secrets or technology
through patents
First-Mover Risks
O Risks of being the first to enter a market:
O High cost associated with creating a new product
from scratch
O Market research, product development,
production, and marketing or buyer education
costs
O Early sales growth may not be as high as the
company predicted if it makes mistakes with
regard to the product or its marketing
O Risk that the product will fail due to market
uncertainty, or that the product might not meet
consumers’ expectations or needs
Late-Mover Advantage
O Late-mover advantage ​is the ability of later market
entrants to achieve long-term competitive
advantages by not being the first to offer a certain
product in a marketplace
O Learn from first mover’s mistakes and thus create
an updated/improved product design and
marketing strategy
O Lower initial costs since first mover has developed
an infrastructure/educated buyers
O More certainty about the success of the market
for the product
Late-Mover Risks
O Disadvantages of being a late mover:
O First mover may have patents on its technology
and trade secrets that prevent the late mover
from reverse engineering its product or producing
a product that is too similar
O Customers who have already purchased the first
mover’s product may believe that switching to the
late mover’s product is too expensive or
time-consuming for them
O Timing of entry to the market is crucial and can
determine the amount of late-mover advantage
that is actually possible
Marketing Objective
O A statement of what is to be accomplished through
marketing activities
O Should:
O Be based on a study of the SWOT analysis
O Match strengths to opportunities and/or
eliminate weaknesses or threats
O Be stated in clear, simple terms
O Be accurately measurable
O Specify a time frame for accomplishment
O Be consistent with business-unit and corporate
strategy
Marketing Strategy
O A plan of action for identifying and analyzing a target
market and developing a marketing mix to meet the
needs of that market
Target Market Selection
O Selecting an appropriate target market may be the
most important decision a company makes in the
strategic planning process
O Identification and analysis of a target market
provide a foundation on which a company can
develop a marketing mix
O Marketers should also assess whether the
company has the resources to develop the right
marketing mix to meet the needs of a particular
target market
Creating the Marketing Mix
O Decisions made in creating a marketing mix are only
as good as the organization’s understanding of its
target market
O Requires:
O In-depth research into the characteristics of the
target market
O Analysis of customer needs, preferences, and
behaviors with respect to product design, pricing,
distribution, and promotion
O All marketing mix decisions should be:
O Consistent with the business-unit and corporate
strategies
O Flexible to permit the organization to alter the
marketing mix in response to changes in market
conditions, competition, and customer needs
Sustainable Competitive Advantage
O At the marketing mix level, a company can detail
how it will achieve a competitive advantage
O A ​sustainable competitive advantage ​is one that the
competition cannot copy in the foreseeable future
O How can an organization make its competitive
advantage sustainable over time?
Marketing Implementation
O The process of putting marketing strategies into
action
O Depends on:
O Organization of the marketing department
O Motivating marketing personnel
O Effectively communicating within the marketing
unit
O Coordinating all marketing activities
O Establishing a timetable for the completion of
each marketing activity
Organizing the Marketing Unit
O Companies that truly adopt the marketing concept
develop a distinct organizational culture:
O A culture based on a shared set of beliefs that
makes the customer’s needs the pivotal point of
the company’s decisions about strategy and
operations
O Centralized organizations
O Authority is concentrated at the top level
O Very little delegation to lower levels
O Decentralized organizations
O Decision making authority is delegated as far
down the chain of command as possible
Motivating Marketing Personnel
O To motivate marketing personnel, managers must
discover their employees’ needs and then develop
motivational methods that will help employees
satisfy those needs
O Rewards to employees should be tied to
organizational goals and be fair, ethical, and well
understood by employees
O Selecting effective motivational tools has become
more complex because of greater differences
among workers in terms of race, ethnicity,
gender, and age
Communication within the Marketing Unit
O One of the most important types of communication
in marketing is communication that flows upward
from the frontline of the marketing unit to
higher-level marketing managers
O Communication is facilitated by an:
O Effective training program where employees
can learn, ask questions, and become
accountable for marketing performance
O Information system within the marketing unit
and with other departments in the organization
Coordinating Marketing Activities
O Marketing managers must work with other
departments to ensure marketing activities mesh
with other functions of the firm
O Must coordinate the activities of marketing staff
within the firm and integrate those activities with
the marketing efforts of external organizations
O Managers can improve coordination by making
each employee aware of how his or her job
relates to others and how his or her actions
contribute to achieving marketing objectives
Establishing a Timetable for Implementation
O Establishing an implementation timetable involves
several steps:
O Identifying the activities to be performed
O Determining the time required to complete each
activity
O Separating the activities to be performed in
sequence from those to be performed
simultaneously
O Organizing the activities in the proper order
O Assigning responsibility for completing each
activity to one or more employees, teams, or
managers
Evaluating Marketing Strategies
O Strategic performance evaluation ​consists of:
O Establishing performance standards
O Measuring actual performance
O Comparing actual performance with established
standards
O Modifying the marketing strategy, if needed
Establishing Performance Standards
O Performance standard ​is an expected level of
performance against which actual performance can
be compared
O For example, a 20% reduction in customer
complaints, a monthly sales quota of $150,000, or
a 10% increase per month in new-customer
accounts
O Performance standards are derived from
marketing objectives that are set while
developing marketing strategies
Analyzing Actual Performance
O Sales analysis ​uses sales figures to evaluate a firm’s
current performance
 O Most common method of evaluation because
sales data partially reflect the target market’s
reactions to a marketing mix and often are readily
available
O Current sales data must be compared with
forecasted sales, industry sales, specific
competitor’s sales, or the costs incurred to
achieve the sales volume
O Marketing cost analysis breaks down and classifies
costs to determine which are associated with specific
marketing efforts
O One way to analyze costs is by comparing a
company’s costs with industry averages CHAPTER 3 THE MARKETING ENVIRONMENT
O When looking at industry averages, a company
should take into account its own unique situation Environmental Forces
O Company’s costs can differ from the industry
average for several reasons, including its own
marketing objectives, cost structure, geographic
location, types of customers, and scale of
operations

Comparing Actual Performance with Performance

Standards

O If actual performance exceeds performance

standards:
O Marketing strategy is viewed as being effective
O Try to gain an understanding of why the strategy
is effective
O If actual performance does not meet performance Environmental Scanning
standards:
O Determine why a marketing strategy was less ● The process of collecting information about
effective forces in the marketing environment
O Determine whether the marketing objective,
Environmental Analysis
against which performance is measured, is
realistic or not ● The process of assessing and interpreting the
information gathered through environmental
Marketing Plan
scanning
O Written document that specifies the activities to be ● How you deal with the information collected
performed to implement and control the firm’s during scanning
marketing strategies
Responding to Environmental Forces
O The systematic process of:
O Assessing marketing opportunities and ● Marketers take two approaches to
resources environmental forces:
O Determining objectives ○ Passive – Accepting them as
O Defining Strategies uncontrollable
O Establishing guidelines for implementation and ○ Proactive – Attempting to influence and
control of the marketing program shape them
O Aligned with corporate/business-unit strategies ● No best way to react
and is accessible/shared with employees
 ● Depends on the organization, management, and
the situation
Competition ​– Other organizations that market
products that are similar to or can be substituted for a
marketer’s products in the same geographic area
● Most firms have competition
● When marketing managers define the target
market(s) their firm will serve, they establish a
set of competitors
● Marketing managers must consider the type of
competitive structure in which the firm
operates
Types of Competitors
Brand Competitors – Firms that market products with
similar features and benefits to the same customers at
similar prices
Product Competitors – Firms that compete in the same
product class but market products with different
features, benefits, and prices
Generic Competitors – Firms that provide very different
products that solve the same problem or satisfy the
same basic customer need
Total Budget Competitors – Firms that compete for the
limited financial resources of the same customers
Competitive Structures
Monopoly - ​A competitive structure in which an
organization offers a product that has no close
substitutes, making that organization the sole source of
supply
Oligopoly - ​A competitive structure in which a few
sellers control the supply of a large proportion of a
product
Monopolistic Competition - A competitive structure in
which a firm has many potential competitors and tries
to develop a marketing strategy to differentiate its
product
Pure Competition - ​A market structure characterized by
an extremely large number of sellers, none strong
enough to significantly influence price or supply
● Does not exist in the real world, although some
industries come close
Table 3.1 – Selected Characteristics of Competitive
Structures
Monitoring Competition
● Helps determine competitor’s strategies and
their effects on firm’s own strategies
○ Guides development of competitive
advantage and adjusting firm’s strategy
○ Provides ongoing information about
competitors
○ Information about competitors allows
marketing managers to assess the
performance of their own marketing
efforts and to recognize the strengths
and weaknesses in their own marketing
strategies
The Business Cycle
● A pattern of economic fluctuations that has four
stages:
○ Prosperity – Low unemployment and
relatively high total income, which
together ensure high buying power
(provided the inflation rate stays low)
 ○ Recession – Unemployment rises and ■ Expectations about future
total buying power declines, stifling employment
both consumer and business spending ■ Income levels
○ Depression – Unemployment is ■ Prices
extremely high, wages are very low, ■ Family size
total disposable income is at a ■ General economic conditions
minimum, and consumers lack
Political Forces
confidence in the economy
○ Recovery – The economy moves from ● Enactment of legislation
depression or recession to prosperity ● Legal decisions interpreted by courts through
■ Difficult to ascertain how civil and criminal cases
quickly and to what level
prosperity will return
■ Maintain as much flexibility in
marketing strategies as possible
to allow for any needed
adjustments

Buying Power and Income

Buying Power – Resources, such as money, goods, and

services, that can be traded in an exchange

Income – For an individual, the amount of money

received through wages, rents, investments, pensions, ● Influence of regulatory agencies
and subsidy payments for a given period ● Marketers may:
Disposable Income ​– After-tax income ● View political forces as beyond their
control and simply adjust to conditions
Discretionary Income – Disposable income available for that arise
spending and saving after an individual has purchased ● Influence the process through
the basic necessities of food, clothing, and shelter contributions and lobbying
Credit Legal and Regulatory Forces
● Credit enables people to spend future income
now or in the near future
● Credit increases current buying power at the
expense of future buying power
● Factors affecting credit use:
○ Must be available
○ Interest rates
○ Credit terms (such as size of down
payment and amount and number of
monthly payments)

Willingness to Spend

● An inclination to buy because of expected

satisfaction from a product, influenced by the
ability to buy and numerous psychological and
social forces
○ Factors that affect consumers’ general
willingness to spend:
Legislation Technological Forces

● Procompetitive Legislation
○ Preserves competition
○ Laws have been created to prevent
businesses from gaining an unfair
advantage through bribery
● Consumer Protection Legislation
○ Protects people from harm
○ Prohibits hazardous products
○ Requires information disclosure
○ Aimed at particular marketing activities

Encouraging Compliance with Laws

● Current trend is away from legally-based

organizational compliance programs Technology
○ Emphasis on providing incentives to
create ethical and responsible ● The application of knowledge and tools to solve
corporate cultures problems and perform tasks more efficiently
● Regulatory agencies monitor marketing ● Impacts of technology:
activities and may enforce some laws ○ Dynamic change
○ Ability to reach customers
○ Self-sustaining in nature; spurs more
development
● Rapid technological growth and change are
expected to accelerate

Impact of Technology

● Mobile devices and consumers’ increasing use

of the Internet have changed:
○ How people communicate
○ How marketers reach consumers
● Can improve productivity and opportunities for
Table 3.3 – Self-Regulatory Issues in Marketing e-commerce
● Negative impacts include:
○ Concerns over privacy
○ Intellectual property protection issues

Adoption and Use of Technology

● Firms must keep up with technology to

maintain their status as market leaders
○ Must ensure that their technology is
not easily copied
● Use a technological assessment to learn about
and attempt to foresee the effects of new
products and processes
○ Estimate whether benefits of adopting a
specific technology outweigh costs
Sociocultural Forces ○ Green marketing helps establish
long-term consumer relationships by
maintaining, supporting, and enhancing
the natural environment

● The influences in a society and its culture(s) that

change people’s:
○ Attitudes
○ Beliefs
○ Norms
○ Customs
○ Lifestyles
● Determine what, where, how, and when people
buy products

Demographic and Diversity Characteristics

● Changes in a population’s demographic

characteristics lead to changes in how people
live and consume products
○ Increasing market of retired Baby
Boomers
○ Generation Y
○ Growing Hispanic/Latino market in the
U.S.
● A more diverse customer base means marketing
practices must be modified and diversified to
meet changing needs

Cultural Values

● Changes in cultural values alter people’s

needs/desires for products
○ Health, nutrition, and exercise growing
in importance (sales of organic foods,
herbal remedies, and vitamins have
escalated)
○ Definition of family is changing
○ Children continue to be very important
○ Trend towards eat-out and take-out
meals
 ○ Government
○ Institutional
CHAPTER 5 TARGET MARKETS: SEGMENTATION AND
EVALUATION

What are Markets?

● A ​market is a group of people, individuals or

organizations, who
○ Have needs for products in a product
class and
Step 1: Identify Appropriate Targeting Strategy
○ Have the ability, willingness, and
authority to purchase such products
● A group of people that lacks any of the four
requirements does not constitute a market
○ Teenagers may have the desire, the
money and the willingness to buy
alcohol but the law prevents them from
having the authority to purchase
alcohol
Two Types of Market
● Target Market
○ A group of people or organizations for
which a business creates and maintains
a marketing mix specifically designed to
satisfy the needs of group members
○ The strategy used to select a target
market is affected by:
■ Target market characteristics
■ Product attributes
■ The organization’s objectives
and resources

● Consumer Market
○ Purchasers and household members
who intend to consume or benefit from
the purchased products and do not buy
products to make profits
● Business Market
○ Individuals, organizations or groups that
purchase a specific kind of product for
resale, direct use in producing other
products or use in general daily
operations

Consumer Markets

● Also referred to as business-to-consumer (B2C)

markets
● Each of us belongs to numerous consumer
markets

Business Markets

● Also referred to as business-to-business (B2B),

industrial, or organizational markets
● Business markets can be classified into:
○ Producer
○ Reseller

Undifferentiated Strategy
● Undifferentiated targeting strategy means a
company designs a single marketing mix and
directs it at the entire market
○ Effective for ​homogeneous markets
where a large proportion of people in a
target market have similar needs for a
product
● This strategy consists of:
Market Segmentation
● Market Segmentation is the process of dividing
a total market into groups of customers with
similar product needs and designing a
marketing mix to meet those needs
○ Used for heterogeneous markets made
up of individuals or organizations with
diverse needs for products in a specific
product class
● Market segments consist of customers that
share one or more similar characteristics
causing them to have similar product needs
○ Smaller groups allow a tailored
marketing mix
● For market segmentation to succeed, five
conditions must exist:
○ Customer’s needs must be
heterogeneous
○ Segments must be identifiable and
divisible
○ Segments must be comparable to one
another with respect to estimated sales
potential, costs and profits
○ One segment must show enough profit
potential to justify developing a special
marketing mix
○ The firm must be able to reach the
chosen segment with a particular
marketing mix
Concentrated Strategy
● A concentrated targeting strategy means a
company targets a single market segment using
one marketing mix
Differentiated Strategy
● With a ​differentiated targeting strategy​, an
organization directs its marketing efforts at two
or more segments, developing a marketing mix
for each segment
Step 2: Segmentation Variables
● Segmentation variables are the characteristics
of individuals, groups or organizations used to
divide a market into segments
○ Several variables are often used in
combination
○ When selecting a segmentation
variable, several factors are considered:
■ Variable should relate to the
customers’ needs for, uses of or
behavior toward the product
■ Variable must be measurable
■ Company resources and
capabilities
■ Product type and variations in
customer needs
Demographic Variables: Age
● By 2025
○ Age groups under 55 expected to
decrease
○ Age groups 55 and older expected to
increase
Demographic Variables: Gender
● The magazine market is a market segmented by
gender
Demographic Variables
● Marketers use race and ethnicity to target
segments for products such as:
● Income is a variable affecting a person’s ability
to purchase and affecting their desires for
certain lifestyles, products affected include:
Demographic Variables: Family Life Cycle
● Characteristics
○ Marital status
○ Number and age of children
● Factors affecting the family life cycle:
○ Single parent families are on the rise
○ The median marrying age is increasing
Geographic Variables
● Markets may be divided by any of these
geographic variables:
● Market density refers to the number of
potential customers within a unit of land area
○ Not the same as population density
Geodemographic Segmentation
● Clusters people in zip code areas and even
smaller neighborhood units based on lifestyle
and demographic information
● Micromarketing ​focuses precise marketing
efforts on very small geographic markets
○ Can be as small as communities or
neighborhoods
○ Some retailers tailor the merchandise
by each store using micromarketing
Psychographic Variables
● Psychographic variables​, such as personality
characteristics, motives and lifestyles, are
sometimes used to segment markets
○ Marketers choose a positive trait and
assume most people either have the
trait or desire to have
○ Examples of motivational consuming
include personal appearance, status,
safety and health
● Lifestyle segments group people according to
their activities, interests and opinions
Psychographic Variables: Lifestyle ● After analyzing the segment profiles, a marketer
has identified several relevant market segments
● Lifestyle segmentation groups people by:
which require further analysis
○ How they spend their time
● Several factors should be analyzed, including:
○ The importance of things in their
○ Sales estimates
surroundings
○ Competition
○ Beliefs about themselves and broad
○ Estimated costs
issues
Sales Estimate
Behavioristic Variables
● Sales estimates can be measured along several
● Markets can be divided according to some
dimensions including:
feature of consumer behavior toward a
○ Product level
product, usually some aspect of product use
○ Geographic area
○ Such as heavy, moderate or light use
○ Time
and nonusers
○ Level of competition
○ Benefit segmentation is the division of
a market according to benefits Market Potential
consumers want from the product
● Market potential is the total amount of a
○ If used, the segment must be
product customers will purchase within a
identifiable, recognizable and accessible
specified period at a specific level of industry
to marketing efforts
wide marketing activity
Segmenting Business Markets ○ Affected by economic, soiciocultural
and other environmental forces
● Like consumer markets, business markets are
○ Marketers must assume a certain level
frequently segmented, often by multiple
of marketing effort in the industry
variables in combination
○ Marketers must also consider whether
● Marketers segment business markets according
and to what extent industry marketing
to
efforts will change
○ Geographic location
○ Type of organization Company Sales Potential
○ Customer size
● Company sales potential is the maximum
○ Product use
percentage of market potential a firm can
Step 3: Market Segment Profile expect for a specific product

● A market segment profile Influencing factors:

○ Describes the similarities of potential
○ Market potential places absolute limits
customers within a segment
on sales potential
○ Explains the differences among people
○ Industrywide marketing indirectly
and organizations in different segments
impacts sales potential
● Profiles benefits marketers in several ways
○ Intensity and effectiveness of marketing
○ Information included in the profiles can
activities compared to competitors
be highly useful in making marketing
marketing activities
decision
○ Used to assess the degree to which the
firm’s products can match potential
customers’ product needs Company Sales Potential

Step 4: Evaluate Market Segments ● Two general approaches that measure company
sales potential are:
○ Breakdown approach – measuring
company sales potential based on a
 general economic forecast for a specific
period and the market potential derived
from it
○ Buildup approach – measuring
company sales potential by estimating
how much of a product a potential
buyer in a specific geographic area will
purchase in a given period, multiplying
the estimate by the number of potential
buyers, and adding the totals of all the
geographic areas considered
Competitive Assessment
● Without competitive assessment, sales
estimates can be misleading
○ The following questions need answered
for a competitive assessment:
■ How many competitors exist?
■ What are their strengths and
weaknesses?
■ Do several competitors have a
major market share?
■ Can we create a competitive
marketing mix?
■ Will new competitors enter this
segment?
■ If so, can we still compete
successfully?
Cost Estimates
● Developing and maintaining a marketing mix
that fulfills the needs of the a target segment, is
expensive
● Factors affecting costs include:
○ Distinctive product features
○ Attractive package design
○ Generous product warranties
○ Extensive advertising
○ Attractive promotional offers
○ Competitive prices
○ High quality personal service
Step 5: Select Target Markets
● In selecting a target market, it must be
determined if the customers’ needs differ
enough to warrant use of market segmentation
● Segmentation analysis will show if the
customers’ needs are homogeneous and would
benefit from an undifferentiated targeting
strategy
● Or, if the customers’ needs are heterogeneous,
one or more target markets must be selected
● Assuming one or more segments offer
significant opportunities, marketers must
decide in which segments to participate
● After identifying the target market, the
company needs a sales forecast which differs
from sales potential
○ Sales forecast is the amount of a
product a company expects to sell
during a specific period at a specific
level of marketing activities
○ There are a number of forecasting
methods falling into five categories:
Executive Judgment  Surveys  
Time Series Analysis  Market Tests 
Regression Analysis 
Executive Judgment
● Executive judgment is a sales forecasting
method based on the intuition of one or more
executives
○ This approach is unscientific but fast
and cheap
○ May work when product demand is
stable and the forecaster has years of
market-related experience
○ Such forecasts may be too optimistic or
pessimistic
○ The forecaster is using past experience
to predict the future
Forecasting Survey
● Customer forecasting survey is a survey of
customers regarding the types and quantities of
products they intend to buy during a specific
period
○ Useful to a business with few customers
● Sales force forecasting survey is a survey of a
firm’s sales force regarding anticipated sales in
their territories for a specified period
○ Salespeople are closer to customers and
know more about their needs
● Expert forecasting survey is sales forecasts
prepared by experts outside the firm, such as
economists, management consultants,
advertising executives or college professors
 ○ Expedient and relatively inexpensive
but outsiders may be less motivated to
do a effective job

Time Series Analysis

● Time series analysis is a forecasting method

that uses historical sales data to discover
patterns in the firm’s sales over time and
generally involves trend, cycle, seasonal and
random factor analyses
● Trend analysis - Focuses on aggregate sales
date over a period of many years to determine
general trends in annual sales
● Cycle analysis - Analysis of sales figures for a
three to five year period to ascertain whether
sales fluctuate in a consistent, periodic manner
● Seasonal analysis - Analysis of daily, weekly or
monthly sales figures to evaluate the degree to
which seasonal factors influence sales
● Random factor analysis - An analysis
attempting to attribute erratic sales variations
to random, non-recurring events

Regression Analysis

● Regression analysis is a method of predicting

sales based on finding a relationship between
past sales and one or more independent
variables, such as population or income
○ Simple regression analysis uses one of
the independent variables
○ Multiple regression analysis uses two or
more independent variables

Market Tests

● A ​market test makes a product available to

buyers in one or more areas and measures
purchases and consumer responses to
distribution, promotion and price
● Advantages
○ Effective for new products
○ Also effective for introducing existing
products in a new geographic area
● Disadvantages
○ Time consuming and expensive
○ Not guaranteed replication from the
test market to the national market