Group 4: Chapter Summary

Group Members:
Lê Nguyễn Minh Phương - 31211021934
Lâm Quang Gia Trí - 31211023800
Quách Ngọc Hương - 31211026980
Trần Quỳnh Trâm - 31211023650
Bùi Đỗ Xuân Mai - 31211021688
Lâm Quốc Huy - 31211026374
Trần Hoàng Anh - 31211020794

Chapter 4: Identifying customers

Learning Objectives
LO 4.1 - Understand the target marketing concept
LO 4.2 - Identify market segmentation categories and their variables for consumer
and business markets, and develop market segment profiles
LO 4.3 - Select specific target markets based on evaluation of potential market
segments
LO 4.4 - Understand how to effectively position an offering to a target market in
relation to competitors, and develop an appropriate marketing mix

4.1 Target Marketing

There are various ways to view the market:
1. Buyers have common wants, needs and demands.
2. Buyers have unique wants, needs and demands.
3. The market contains subgroups, sharing common or similar needs in regard to
certain characteristics, known as market segments.

Target Marketing is based on three premises:

1. Individual buyers or groups of buyers can be identified.
2. Sellers understand the needs of buyers.
3. Sellers will seek to shape their offer (marketing mix) to meet the needs of target
buyers.

FIGURE 4.2 Three market strategies

 ● Mass marketing
- A mass marketer sees buyers as having common wants, needs and
demands, and offers a single product to meet the needs of most people in the
market, representing an undifferentiated approach to marketing.
- Producing large volumes at low cost per unit (‘economies of scale’) makes it
possible to sell at a low price and capture very large markets, ensuring high
levels of profitability.
● One-to-one marketing
- Providing a unique, customised offering to meet individual customer needs.
- One-to-one approach often results in higher unit costs and a more restricted
market.
- One-to-one conditions typically form the basis for a focus or niche strategy.
Many small services businesses take a one-to-one marketing approach, for
example hairdressers, makeup artists.
● Target marketing based on segments
- Marketing approach that involves developing a different marketing mix for
each target market segment.
- Market segmentation forms the basis of target marketing.
- Many organisations view target customers not as individuals but as market
segment.
3 factors should be considered when the organization choosing target
markets:
1.Its own resources
2. Market demand
3. Competition
Differentiated targeting strategy, an organisation can:
● Identify a range of target market segments
● Covering the majority of the total market
 ● Develops a tailored marketing mix for each market segment
Product and market specialisation
Small organisations with limited financial resources frequently adopt one of following
approaches to target marketing:
1. Product specialisation
Marketing efforts concentrated on ‘single product range’ offered to a number of
market segments.
2. Market specialisation
Marketing efforts aimed at meeting a wide range of needs within a particular market
segment.
3. Product - market specialisation
Marketing efforts are concentrated on offering a single product to a single market
segment.

The Target Marketing Process (3 steps)

1. Segmentation
2. Targeting
3. Positioning

4.2 Segmentation
FIGURE 4.5 The target marketing process stage 1: Segmentation

Identify segmentation variables

 - Segmentation variables are characteristics that buyers have in common and
that may be closely related to their purchasing behaviour.
- Key to choose segmentation variables:
• easy to measure and readily available
• linked closely to the purchase of the product in question

● Segmenting consumer markets:

4 broad categories
1. Geographic segmentation is the market segmentation based on geographic
variables.
Useful geographic variables: climate; local population; region; topography;
urban, suburban and rural location.
Geo-demographic segmentation combines demographic variables and
geographic variables to profile very small areas, such as suburbs

2. Demographic segmentation is the market segmentation based on

demographic variables, which are the vital and social characteristics of
populations, such as age, education and income.
Demographic variables are the most commonly used variables for market

3. Psychographic segmentation is the market segmentation based on the

psychographic variables of lifestyle, motives and personality attributes.
Psychographic segmentation is based on the need to understand not who
you are, but how you live your life. This is reflected in activities such as
hobbies or choice of entertainment.

4. Behavioural segmentation is the market segmentation based on actual

purchase and/or consumption behaviours.
Behavioural variables include benefit expectations, brand loyalty, occasion,
price sensitivity and volume usage.

● Segmenting business markets

- Business markets are often characterised by a small number of buyers who
might display a very close relationship with the seller. ‘Customised’ or ‘one-to-one’
marketing is a good approach to use.
- Business marketers often isolate business customers by using commercial
industrial directories that contain detailed information on companies.
● Effective segmentation criteria
- Measurability: abstract variables can be difficult to measure
- Accessibility: through distribution and communication channels
- Substantiality: the segment must be of sufficient size to allow
profitability
- Practicability: segments are only of use if they can be identified and
serviced.
Profile market segments
Market segment profile
- Often based on significant market research.
- Describes the typical potential customer in the segment and how the variables
differ from other segments.
- Market segments must be sufficiently different from others so a distinctive
offer can be created for each segment, without risk of overlapping or sending
confusing messages.
- The number of possible segments grows by multiplies with each extra
segmentation variable is added e.g. adding gender, doubles the number of
market segments.

4.3 Targeting
FIGURE 4.6 The target marketing process stage 2: Targeting

Evaluate potential segments

1. Sales potential
Market potential is the total volume of sales of a product category that all organisations in
an industry are expected to sell in a specified period of time. Ex: the market potential for new
car sales in Australia is around one million cars a year.

An organisation’s sales revenue = total volume of sales (market share) * the average
selling price. Ex: Toyota’s market share is around 20 per cent. Therefore Toyota’s total
volume of sales will be about 200 000 units (20 per cent of one million) and its total sales
revenue will be 200 000 multiplied by the average price of its cars.

Factors influence sales potential:

- the market potential (i.e. the maximum possible sales in the total market for a product
category)
- the organisation’s ‘served market’ (i.e. those segments of the market for which the
organisation chooses to compete)
- the level of industry marketing activity, which directly influences the market potential
- the effectiveness of an organisation’s promotional spending, which depends on the
organisation’s ‘share of voice’ (i.e. the organisation’s promotional spending relative to
total industry promotional spending)

2. Competitive situation
- Evaluate the level of competitive activity and the strengths and weaknesses of
individual competitors before estimating the organisation’s likely market share.
 - To increase market share, it may be necessary to allocate a larger than normal
promotional budget. It is safe to assume that competitors will take steps to defend
their market shares when an organisation enters a new market. This can lead to
promotional warfare, which can depress profits through higher costs and lower
margins.

3. Cost structure
- The organisation’s cost structure includes production costs, administrative overheads
and all associated promotion and distribution costs.
- When considering an organisation’s cost structure, it is important to distinguish
between fixed and variable costs. Fixed costs are constant, regardless of production
and sales volumes. If they are high they serve as an ‘entry barrier’, and an
organisation may choose not to enter a market even though revenue and volume
expectations may be attractive.

Select target markets

With a detailed evaluation of potential market segments based on sales potential, the
competitive situation and the organisation’s cost structures, the organisation can proceed to
decide which market segments it will target and which it will disregard. Also, from an
understanding of its chosen target market strategy (i.e. undifferentiated, differentiated or
specialised), the organisation will now better understand how it needs to tailor its offer to
best meet the needs of each segment.

4.4 Positioning
FIGURE 4.7 The target marketing process stage 3: Positioning

Positioning describes how target markets perceive the organisation’s offer relative
to competing offers. It is how customers distinguish the organisation, its products
and its brands from competitors when they are selecting from among the available
alternatives.
Step 1: Determine positioning for each segment
Analysing current positioning
- Identify product attributes that consumers use to distinguish between competing
products or brands (‘salient’ product attributes). Qualitative research methods such
as focus group studies are commonly used.
- Assess how its own product or brand, and competitors’ products or brands are
positioned in relation to those attributes. This is typically done through quantitative
survey research, using rating scales to establish how each competing brand scores
on each of the product attributes.

FIGURE 4.8 A perceptual map of the Australian surfwear industry

Competitive positioning and repositioning

- Rusty, for example, might feel that its position as an individual and independent
choice is holding it back from securing more market share. The question would be
‘How might we reposition?’ One option would be to pay celebrities to wear the brand.
Secondly, Rusty could change its advertising appeals to try to persuade the public
that it is more ‘mainstream’ and not so representative of independence.
-> A competitive position should be protected and nurtured for the long term. This involves
communicating a consistent message and delivering a consistent product and service
offering over the long term.

Step 2: Determine the marketing mix for each segment

The marketing mix describes the overall offer the organisation makes to its target customers:
• be consistent with the desired positioning
• be internally consistent — each element of the marketing mix should be coordinated and
supportive of the other elements
• be sustainable in the long term.