Allama Iqbal Open University

MARKETING THEORY & PRACTICE

Course Code (5005)
Ms. Iram Saeed
(Lecturer)
 MARKETING THEORY & PRACTICE
Unit Outline
UNIT-2 TARGET MARKETS
2.1 Market Demographics and Buying Behavior
2.1.1 Market Opportunity Analysis
2.1.2 Population: Its Distribution and Composition
2.1.3 Consumer Income and Its Distribution
2.1.4 Consumer Expenditure Patterns
2.2 Social Group and Psychological Influences on Buyer Behavior
2.2.1 Importance and Difficulty of Understanding Consumer Behavior
2.2.2 Cultural Influences
2.2.3 Social Group Influences
2.2.4 Psychological Determinants of Buyer Behavior
2.2.5 Decision Making Process in Buying
2.3 The Industrial Market
2.3.1 Nature Scope and Importance of the Industrial Market
2.3.2 Characteristics of Industrial Market demand
2.3.3 Determinants of Industrial Market Demand
2.4. Market Segmentation and Forecasting Market Demand
2.4.1 Nature of Market Segmentation
2.4.2 Bases of Market Segmentation and Target-Market Strategies
2.4.3 Forecasting Market Demand
 
 
 Analyzing
Analyzing Consumer
Consumer Markets
Markets and
and Buying
Buying Behavior
Behavior

Factors Influencing Buying Behavior

Consumer behavior is the study of how individuals, groups, and organizations select, buy, use,
and dispose of goods, services, ideas, or experiences to satisfy their needs and wants.
A consumer’s buying behavior is influenced by cultural, social, personal and psychological
factors. Of these, cultural factors exert the broadest and deepest influence.
 Analyzing
Analyzing Consumer
Consumer Markets
Markets and
and Buying
Buying Behavior
Behavior

The Buying Decision Process: The Five-Stage Model

 Problem Recognition
The buying process starts when the buyer recognizes a problem or need triggered by internal or external stimuli.
With an internal stimulus, one of the person’s normal needs, hunger, thirst, rises to a threshold level and
becomes a drive.
A need can also be aroused by an external stimulus. A person may admire a friend’s new car or see a
television ad for a Hawaiian vacation, which inspires thoughts about the possibility of making a purchase.
Marketers need to identify the circumstances that trigger a particular need by gathering information from
a number of consumers. They can then develop marketing strategies that spark consumer interest.

 Information Search
Information Sources Major information sources to which consumers will turn fall into
four groups:
• Personal: Family, friends, neighbors, acquaintances
• Commercial: Advertising, Web sites, e-mails, salespersons, dealers, packaging, displays
• Public: Mass media, social media, consumer-rating organizations
• Experiential: Handling, examining, using the product
 Analyzing
Analyzing Consumer
Consumer Markets
Markets and
and Buying
Buying Behavior
Behavior

The Buying Decision Process: The Five-Stage Model

 Evaluation of Alternatives
How does the consumer process competitive brand information and make a final value judgment?
No single process is used by all consumers or by one consumer in all buying situations.
Some basic concepts will help us understand consumer evaluation processes.
• First, the consumer is trying to satisfy a need.
• Second, the consumer is looking for certain benefits from the product solution.
• Third, the consumer sees each product as a bundle of attributes with varying abilities to deliver
the benefits. The attributes of interest to buyers vary by product
 Purchase Decision
Information Sources Major information sources to which consumers will turn fall into four groups:
• Functional risk: The product does not perform to expectations.
• Physical risk: The product poses a threat to the physical well-being or health of the user or others.
• Financial risk: The product is not worth the price paid.
• Social risk: The product results in embarrassment in front of others.
• Psychological risk: The product affects the mental well-being of the user.
• Time risk: The failure of the product results in an opportunity cost of finding another satisfactory product.
 Analyzing
Analyzing Consumer
Consumer Markets
Markets and
and Buying
Buying Behavior
Behavior

The Buying Decision Process: The Five-Stage Model

 Post purchase Behavior
Marketing communications should supply beliefs and evaluations that reinforce the consumer’s choice
and help him or her feel good about the brand. The marketer’s job therefore doesn’t end with the purchase.
Marketers must monitor;
 Post purchase satisfaction
 Post purchase actions
 Post purchase product uses and disposal.
Market Segmentation and Forecasting Market
Demand
• Nature of Market Segmentation
• Bases of Market Segmentation and Target-Market Strategies
• Forecasting Market Demand
 
 Managing Marketing Information and Measuring Market Demand
Overview of Forecasting and Demand Measurement
Understanding the marketing environment and conducting marketing research can help to identify marketing
opportunities. The company must then measure and forecast the size, growth, and profit potential of each
new opportunity.
Sales forecasts prepared by marketing are used by finance;
• To raise cash for investment and operations
• By manufacturing to establish capacity and output
• By purchasing to acquire the right amount of supplies
• By human resources to hire the needed workers.
If the forecast is off the mark, the company will face excess
or inadequate inventory. Because it’s based on estimates
of demand, managers need to define what they mean by
market demand.
 Managing Marketing Information and Measuring Market Demand
The Measurement of market demand:
 Product level: Product line and brands
 Time level: Short, medium and long term
 Market level: Domestic and global
Which Market to measure:
 Potential: Total number of consumers
 Available: Group of consumers who has interest
 Qualified: Consumers who have money and interest
 Target: Company wants to attract
 Penetrated: Consumers who are buying companies product
Market Demand: Market demand is the total volume that would be bought by a defined customer group: Market
demand function: It is the difference between potential, forecasted and actual sales.
 Market forecast: Demand estimates
 Market potential: Limit of market demand
 Company demand: Company’s market demand in a given time period
 Company sales forecast: Expected sales level of the company
 Company sales quota: Defining and stimulating sales
 Sales budget: Expected sales volume and current purchasing, production and cash flow decision
ANALYZING MARKETING
 ANALYZING MARKETING
Identifying Market Segments and Selecting Market Targets
Companies cannot connect with all customers in large, broad, or diverse markets. They need to identify the
market segments they can serve effectively. This decision requires a keen understanding of consumer
behavior and careful strategic thinking about what makes each segment unique and different. Identifying and
uniquely satisfying the right market segments are often the key to marketing success.
LinkedIn has built an online powerhouse by fulfilling the needs of career-minded professionals.

To compete more effectively, many companies are now embracing target marketing. Instead of scattering
their marketing efforts, they’re focusing on those consumers they have the greatest chance of satisfying.
Effective target marketing requires that marketers:
1. Identify and profile distinct groups of buyers who differ in their needs and wants (market segmentation).
2. Select one or more market segments to enter (market targeting).
3. For each target segment, establish, communicate, and deliver the right benefit(s) for the company’s market
offering (market positioning).
Market segmentation, targeting, and positioning are known as the “STP” of marketing.
 ANALYZING MARKETING
Identifying Market Segments
Market Segmentation
A market segment consists of a group of customers who share a similar
set of needs and wants. A market segment consists of a group of
customers who share a similar set of needs and wants. The marketer’s task
is to identify the appropriate number and nature of market segments
and decide which one(s) to target.
 ANALYZING MARKETING
Identifying Market Segments
 Geographic Segmentation: Divides the market into geographical units such as nations, states, regions, counties,
cities, or neighborhoods. congratulations
 Demographic Segmentation: Age, Gender, Income, Occupation, Education, Religion, Family size, Family life
cycle.

 Psychographic Segmentation: Psychographics is the science of using psychology and demographics to better
understand consumers. In psychographic segmentation, buyers are divided into groups on the basis of
psychological/personality traits, lifestyle, or values. People within the same demographic group can exhibit very different
psychographic profiles.
 Behavioral Segmentation: In behavioral segmentation, marketers divide
buyers into groups on the basis of their knowledge of attitude toward use

or response to a product.
 ANALYZING MARKETING
Effective Segmentation Criteria
 Effective Segmentation
To be useful, market segments must rate favorably on five key criteria:
 Measurable. The size, purchasing power, and characteristics of the segments can be measured.
 Substantial. The segments are large and profitable enough to serve. A segment should be the largest possible
homogeneous group worth going after with a tailored marketing program. It would not pay, for example,

for an automobile manufacturer to develop cars for people who are under four feet tall.
 Accessible. The segments can be effectively reached and served.
 Differentiable. The segments are conceptually distinguishable and respond differently to different marketing mix
elements and programs. If married and single women respond similarly to a sale on perfume, they do not constitute
separate segments.
 Actionable. Effective programs can be formulated for attracting and serving the segments.
 ANALYZING MARKETING
Evaluating and Selecting the Market Segments
 Full Market Coverage
With full market coverage, a firm attempts to serve all customer groups with all the products they might need. Only very
large firms such as Microsoft (software market), General Motors (vehicle market), and Coca-Cola (nonalcoholic
beverage market) can undertake a full market coverage strategy. Large firms can cover a whole market in two broad
ways: through differentiated or undifferentiated marketing.

 Undifferentiating / Mass Marketing Strategy:

In undifferentiated or mass marketing, the firm ignores segment
differences and goes after the whole market with one offer.
In differentiated marketing, the firm sells different products to all the different segments of the market.
 Differentiation Strategy: Differentiated marketing typically creates more total sales than undifferentiated
marketing. However, it also increases the costs of doing business. Because differentiated marketing leads to both higher
sales and higher costs, no generalizations about its profitability are valid.
 ANALYZING MARKETING
Selecting Market Targets
 Market Targeting
There are many statistical techniques for developing market segments. Once the firm has identified its market segment
opportunities, it must decide how many and which ones to target. Marketers are increasingly combining several variables
in an effort to identify smaller, better-defined target groups.
Thus, a bank may not only identify a group of wealthy retired
adults but within that group distinguish several segments
depending on current income, assets, savings, and risk preferences.
This has led some market researchers to advocate a
needs-based market segmentation approach.
 DEVELOPING MARKETING STRATEGIES-I
Positioning
Positioning: Best quality, best service, best price, best value, lowest price, safest, fastest, and most customized in the target
market’s mind
 Positioning is the act of designing a company’s offering and image to occupy a distinctive place in the minds of the target
market.
 The goal is to locate the brand in the minds of consumers to maximize the potential benefit to the firm.
 A good brand positioning helps guide marketing strategy by clarifying the brand’s essence, identifying the goals it helps the
consumer achieve, and showing how it does so in a unique way.
 A useful measure of the effectiveness of the organization’s positioning is the brand substitution test.
 A good positioning has one foot in the present and one in the future.
 One result of positioning is the successful creation of a customer-focused value proposition, a cogent reason why the target
market should buy a product or service.
 Everyone in the organization should understand the brand positioning and use it as context for making decisions.
 Double-benefits positioning:
 Safe and durable.
 Triple-benefits positioning:
 Safe, durable and stylish.
 DEVELOPING MARKETING STRATEGIES-I
Developing a Positioning Strategy
Types of Positioning Strategies: There are several types of positioning strategies. A few examples are positioning by:
 Product attributes and benefits: Associating your brand/product with certain characteristics or with certain
beneficial value
 Product price: Associating your brand/product with competitive pricing
 Product quality: Associating your brand/product with high quality
 Product use and application: Associating your brand/product with a specific use
 Competitors: Making consumers think that your brand/product is better than that of your competitors.
 DEVELOPING MARKETING STRATEGIES-I
Developing a Positioning Strategy
 A Perceptual Map in Market Positioning
A perceptual map is used to show consumer perception of certain brands. A perceptual map is a visual representation of
the perceptions of customers or potential customers about specific attributes of an organization, brand, product, service, or
idea. This diagrammatic technique (perceptual mapping) asks participants to place products relative to one another along
or more axis.
The map allows you to identify how competitors are positioned relative to you and to identify opportunities in
the marketplace.
 DEVELOPING MARKETING STRATEGIES-I
How to Create an Effective Market Positioning Strategy?
Create a positioning statement that will serve to identify your business and how you want the brand to be perceived by
consumers.
 Determine company uniqueness by comparing to competitors: Compare and contrast differences between your
company and competitors to identify opportunities. Focus on your strengths and how they can exploit these
opportunities.
 Identify current market position: Identify your existing market position and how the new positioning will be
beneficial in setting you apart from competitors.
  Competitor positioning analysis: Identify the conditions of the marketplace and the amount of influence each
competitor can have on each other.
  Develop a positioning strategy: Through the preceding steps, you should achieve an understanding of what your
company is, how your company is different from competitors, the conditions of the marketplace, opportunities in the
marketplace, and how your company can position itself.
 DEVELOPING MARKETING STRATEGIES-I
Positioning Errors
Kotler says that the firm should avoid four major positioning errors

 Under positioning: This occurs when the buyers know much less about the brand or do not know anything special
about the brand.
 Over positioning: Marketers makes the product too special, so the potential customer group becomes too Small. It
means that buyers believe that the product is meant for a very select audience because it is premium priced.
 Confused positioning: Buyers may have a confused image of the brand, this may occur as a result of the frequent
changes in the positioning statement.
 Double Positioning: Claiming a benefit that customers will doubt that the brand can actually deliver. Example:
Fair and Handsome
 Irrelevant Positioning: It occurs when buyers doubt the veracity of the claims made by the firm.
 DEVELOPING MARKETING STRATEGIES-I
What is Market Repositioning?
Market repositioning is when a company changes its existing brand or product status in the marketplace. Repositioning is
usually done due to declining performance or major shifts in the environment.
Many companies, instead of repositioning, choose to launch a new product or brand because of the high cost and effort
required to successfully reposition a brand or product.
Example of Market Repositioning
 The example below describes Coca-Cola’s repositioning of Mother Energy Drinks:
The Coca-Cola Company launched Mother Energy Drinks in 2006 into the Australian market. The launch campaign was
professionally executed, and Coca-Cola was able to leverage its distribution channels to get the product into major
retailers. However, the taste of Mother Energy Drink was subpar and repeat purchases were very low. Coca-Cola was
faced with a decision: to improve and reposition the product or withdraw it and introduce a new brand and product. The
company ultimately decided to reposition the product due to already high brand awareness. The biggest challenge faced
by Coca-Cola was to persuade consumers to try the product again. The company changed the packaging, increased the
size of the can, and improved the taste of the product. The relaunch of the product featured a new phrase – “New Mother,
tastes nothing like the old one.” Ultimately, Coca-Cola was able to successfully reposition Mother Energy Drinks and the
brand today competes with the two leading energy drinks in the market – V and Red Bull.