Marketing Management – TARGETING

中国经济管理大学 名课教辅

KNOWLEDGE OBJECTIVES

1. Recognize the criteria for selection
2. Value the importance of market sizing
3. Understand the role of market growth

CHAPTER OUTLINE

 Profitability and Strategic Fit
 Competitive Comparisons
 Sizing Markets
 Market Growth
 Football Pants
 How Many Fake Nails?
 Summary

1. How do Marketers Choose a Segment to Target?

This issue relates to knowledge objective #1. 

 Marketers must examine a segments profit potential.     
Profit potential is based on size, anticipated growth, level of competition (current and anticipated), and buyer behavior.
 In addition to profit potential, marketers must assess the segments fit with the marketer’s capabilities.

Figure 1 Strategic Criteria for Targeting Segments

Figure applies to knowledge objective #1

The figure shows that the firm must examine what is often referred to as the external-internal fit.  The market segment should be attractive and the segment should fit with firm strengths.  The issue becomes less clear cut when the market is somewhat less attractive, but fits with the firm strengths and also, when the market is attractive but does not fit well with firm strengths.  In the first case, does the firm accept less of a return?  Or can the firm somehow make the segment more lucrative?  In the second case, how can the firm capitalize on the opportunity?  Does it develop the requirements?  Acquire the necessary requirements?  Or does it work out some sort of arrangement with another party in order to take advantage of the opportunity that doesn’t quite fit with the firm?

Figure 2 SWOT: Strengths, Weaknesses, Opportunities, and Threats

Figure applies to knowledge objective #1

Figure 2 puts the criteria within the standard SWOT analysis framework.  A key is to show that figure 2 is in accord with figure 1 in that both figures look at both external marketplace and internal firm link.  The primary distinction between the two figures is that Figure 1 looks at “attractiveness” while the SWOT analysis looks at the environment for both opportunities and threats.  

2. Competitive Comparisons

Relates to Objective #1

This section acknowledges that all firm strengths need to be viewed within the context of how the strength compares with the firm’s competition.  The section also points out the difficulty in quantifying the strength and so therefore competitive mapping is often more useful.

Figure 3  Comparative Analysis

Figure applies to knowledge objective #1
 
The competitive map in the figure is a simple application of quadrant analysis that clearly shows that from a marketer’s perspective, a strength (or weakness) really must be considered from the prospective of potential customers.  Customers view the strength by comparing the firm to other firms.  It also points out that marketers typically face – they typically do not dominate all competitors on all dimensions.

Figure 4  Strategic Segment Comparison

Figure applies to knowledge objectives #1 and #2
 
The figure makes an excellent transition from discussing selection criteria to market sizing and growth through the incorporation of these two elements in the figure.  It continues to build on all of the earlier figures by including external issues (competitors) and internal issues (fit).  It is also worth noting that the author’s qualitative assessment of a segment’s priority level fits well with the Boston Consulting Group Matrix terminology or Stars and Question Marks.  As does market growth.  Figure 4 also demonstrates that consistent with figure 1, segment 2 and segment 3 provide the challenge as there is less than a clear cut answer.

3. Sizing Markets

This section relates to objective 2. 

Provides the first example of how to arrive at a market size estimate.  The first example provides an estimate for high school football pants while the second is for fake finger nails.  It is subsequently noted that the first example is for a product, while the second estimate is for a service – salon that will apply fake nails.

Football Pants
Starting with easily obtainable public information (wikipedia.com) the example starts with the simple question what is the market potential for football pants sold to high schools in Dallas, Texas.  Using the information from Wikipedia.com and other publicly available information, common knowledge, and assumptions, such as the average size of a varsity team (40), a junior varsity team (35), and the typical number of pants given to each team member per year (3.5) and that there are 30 schools in the Dallas High School market an numerical estimate for the market size for football pants is obtained (7796 pair). 

Figure 5  Market Sizing: Dallas High School Football Uniform Pants

Figure applies to knowledge objective #2

Figure puts the pants sizing example into tabular format.

Example continues by first assigning a dollar value to the market by using a contribution figure of $35 per pair of pants to arrive at a dollar estimate of 4373,868.75.  Next the example expands the market from the City of Dallas to Dallas County.  Broadening the market scope increases the number of schools from 30 to 85, increasing the potential number of pants to 20,081 and a dollar value to $702,843.75.  The pants example concludes by changing the location from the Dallas, TX vicinity to South Dakota.  It is noted that schools in South Dakota typically have fewer students and therefore smaller teams (35 rather than 40) and likely do not have a junior varsity team.  In addition, due to geographic dispersion that contribution rate must be adjusted downward due to a higher cost to serve.  The estimate is for a market size in terms of dollar sales of $721,586.25.  This section concludes with a note that whether any of these markets are sufficiently attractive to pursue is up to the decision maker.

Fake Nails
The example begins with an overview of the market for fake nails.  An appoint typically lasts one hour.  Fake nail wearers can be segmented into two markets – those that wear fake nails for special occasions so that typically need to have fake nails applied once or twice a year and frequent users who have to have new nails applied 8 to 9 times per year. 

Figure 6  Market Sizing: Cities for Fake Nails Part 1: Users

Figure applies to knowledge objective #2

Figure puts the fake nail sizing example into tabular format and addresses the potential number of users for three distinct geographic markets.  

The example begins with information obtained from census.gov for the city populations for Atlanta, Milwaukee, and Phoenix.  Using common knowledge that approximately half of the population if female and industry information of a usage rate of five percent, the potential number of fail nail users for the three cities is arrived at. 
 
Figure 7  Market Sizing: Cities for Fake Nails Part 2: Usage Segments

Figure applies to knowledge objective #2

Figure 7 puts the fake nail sizing example into tabular format and addresses the potential number of nail applications for the three distinct geographic markets.  

The fake nail example continues by using industry information of the split (1 to 2) between infrequent and frequent nail users to arrive at the number of users for each segment and then uses the average number of applications for each segment (1.5 and 8.5) to arrive at a total number of yearly applications per city: 44,863 for Atlanta, 55,149 for Milwaukee and 139,256 for Phoenix. 

4.  Market Growth
 
This section relates to knowledge objective #3.

Acknowledges that future prediction can be risky, but a simple application of a series of three year moving averages of industry sales data can be beneficial. 

The section continues by acknowledging the importance of considering competition in assessing market attractiveness.  Remaining with the fake nail example, a basic understanding of competition can be gained from searching yahoo.com’s yellow pages for nail salon or expanding the search to “beauty salon”.  The view one takes of competition – a narrow view only looking for other nail salons or broader view beauty salons in addition to nail salons will affect the assessment. 

It is noted that profitability is not addressed in the nail example and the section continues by noting that different sizing exercises will be affected by costs associated with type of business investigated, products may have more fixed costs associated with them, while services may have more variable costs. 

Noting that whether service or good, consumer or business-to-business setting, the same principles hold for conducting a market sizing analysis.  Begin with an estimate of the total population and break the population down by relevant proportions to arrive at an estimate. 

An awareness-trial-repeat purchase model based on an estimate of the purchase decision-making process is provided as another method for market sizing.  The population x %aware x %trial x %repeat could be extended by considering quantity bought and frequency of purchase as a refinement of the estimate.  A total annual dollar value could be obtained by using an average retail price.

Market sizing is not difficult.  It simply requires a mixture or readily available information, some assumptions, industry information and possible research such as asking customer opinions.

5. Summary

Targeting involves selecting a market segment or segments and requires an assessment between organizational fit, market size and likely profitability.  SWOT analysis can be useful and market sizing is fairly simple requiring secondary information, and data from either prior history or customer surveys.

SUGGESTED ANSWERS TO DISCUSSION QUESTIONS

1. Universities have public records with descriptive statistics on their student body demographics. Use your school’s data to size the possible market for vending machines that dispense DVD rentals, flavored coffees, or packets of no-doze.

Start with  school total enrollment (could also include all employees on the main campus in some cases).    Example 10,000 students.  Delineate between main and satellite facilities as the satellite facilities are typically small and commuter based.   For simplicity these can be eliminated. Next, determine commuter versus  on-campus

2. Use the NAICS (North American Industry Classification System) data (census.gov/epcd/www/naics.html) and population data at (census.gov/) to find components of market sizing estimates.
a. You manage a large, national retail convenience store with a small pharmacy. You’re considering opening a no-appointment health care clinic. The industry indicates that customers/patients who frequent these clinics typically are uninsured. Where are the high priority locations to set up?

Students need to think in terms of geographic concentration.  There is a strong correlation between income level and having health insurance.  Therefore, students need to identify geographic locations with a high percentage of uninsured individuals.  To do so, students may have to  determine where there is a high concentration of lower-income people  or households. NOTE that income level cannot be too low, as an income too low would prevent a person from being able to pay.  In addition, students should also recognize that many uninsured people, due to their economic circumstance rely on emergency rooms (they delay or ignore routine medical care).  So, determining where there are numerous lower income people that do not have easy access to emergency rooms would appear be the determining factors. 

b. You manage a business equipment refurbishing company. Your drivers go to businesses for pick ups. The old equipment is taken to your warehouses/rehab center. The renewed equipment is redistributed to companies, governmental agencies, and school systems. Considering the likely characteristics of this equipment (not state of the art, not terribly expensive), where should you locate your warehouses?

Warehouses are located in proximity to customers.  An oddity of the equipment refurbishment  business is that the end-user is often the person doing the refurbishment (through job training courses).   Students may have trouble identifying areas for locating warehouses in order to serve business customers. However,  frequently state agencies are located in the cities and towns of the state capitol, and county-based agencies are  located in the towns or cities of the county seat.  For schools, many school districts are on the local or county level and procurement is often done on a centralized basis. Finding school districts that receive a lower amount of funding (through state, federal, and local sources) and where there procurement centers are would help in identifying where to locate.  So, identify schools or agencies that are in large urban areas and have lower budgets.

SUGGESTED ANSWERS TO MARKETING PLAN QUESTIONS
Targeting:
 Estimate size and profitability (lifetime customer value) of segments:
 Target1

This may be somewhat dependent upon potential product selected, but students will likely most likely begin with demographic based analysis.  Encourage students to conduct secondary information to begin the analysis, which may uncover market potential (or sales estimates) and break down various segments or categories.   Students will also likely have to consider price through either marketplace observation of price, or through secondary research.  Encourage students consider whether the product is a durable or consumable in order to consider frequency of purchase into the estimate.   For, energy drinks the market size is readily available so  the key is to determine what proportion of the existing market will try and adopt the product.    

 Characterize fit with corporate and marketing strategy of each segment:
 Target2

Students will need to review the company’s mission statement, and possible positioning statements in order to determine “fit.”   This may be achieved through conducting a review of the company website or through other sources of publicly available information that discusses the company and its products.     

 Using financial and strategic info jointly, rank desirability of segments: Target3
Have students consider how a financially attractive, but poorly fitting segment can be made to fit better.   This encourages creative thinking among students.   

SUGGESTED ANSWER TO MINI-CASE: GOURMET LEAN CUISINE AND GAMING SOFTWARE

 A large, Boston-based consulting agency frequently conducts segmentation studies for its clients. The following are segmentation data to assist their advice to two different clients. Each is a Venn diagram describing some demographic and psychographic findings. Figure A depicts the proportion of a recent sample of shoppers at a national grocer who indicated interest in a new gourmet Lean Cuisine product. Figure B depicts the proportion of owners of a game console (obtained from registration cards of the base system) who indicated interest in a new game. 

1. If you worked at this consulting agency, which segments would you suggest each client target, and why?

For A:  Segments targeted should be Single Women, Upper  Middle Class, and  Families.  These are not only the 3 largest segments, each is comprised of women as families with children  are likely to be comprised of women, upper-middle class overlaps with single women and is also  likely to have non-single women as well.  So, targeting women will allow for efficiencies in communication (fewer variations in messages).

For B: target males from ages 9-35.  These three male age groups comprise the three largest segments.  Note that education is the largest, but education will be different across the three age groups and likely to different within groups as well  (at least for the two older age groups).  However, this might mean that communications will have to connect with them at a “higher level.”