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Unit-4 Analyzing Marketing


4.1 Analyzing Business Markets and Business Buying Behavior
WHAT IS ORGANIZATIONAL BUYING:
Organizational buying is the decision-making process by which formal organizations establish the
need for purchased products and services and identify, evaluate, and choose among alternative brands
and suppliers.
DIFFERENCE BETWEEN BUSINESS MARKET AND CONSUMER MARKET:

Business Market: consist of all the organizations that acquire goods and services, used in the
production of other products or services, that are sold, rented, or supplied to others. The major industries
making up the business market are agriculture, forestry, and fisheries mining, manufacturing,
construction, transportation, communication, public utilities, banking, finance, and insurance, distribution
and services.
Business markets have several characteristics that contrast sharply with consumer markets some
of them are given bellow:
1. FEWER BUYERS: Business marketers normally deals with far fewer buyers than the
consumer marketers does.
2. LARGER QUANTITY BUYERS: Buy in bulk items for reproduction. A few large buyers do
most of the purchases.
3. CLOSER SUPPLIER-CUSTOMER RELATIONSHIP: Because of the smaller number of
customer base and the importance and power of the large customers, there are close
relationships between customers and suppliers.
4. GEOGRAPHICALLY CONCENTRATED BUYERS: Generally one type of organizations
exist in one locality. Therefore, buyers are concentrated in few localities.
5. DERIVED DEMAND: Demand of business goods is ultimately dependent on demand of
consumer goods.
6. INELASTIC DEMAND: The demand of such goods is not much effected by the change in
price, especially in the short run, because producers cannot make quick changes in their
production methods.
7. FLUCTUATING DEMAND: A small percentage increase in consumer demands can lead to a
much larger percentage increase in demand for planed and equipment, necessary to produce
the additional output. Sometimes a rise of 10% in consumer demand can cause as much as
200% rise in business demand for the product in the next period, and a 10% fall in consumer
demand may cause a complete collapse in business demand. This sales volatility has led
many business marketers to diversify their products and markets to achieve more balanced
sales over the business cycle.
8. PROFESSIONAL PURCHASING: Business good are purchased by trained purchasing
agents, who must follow the organizational policies, constraints, and requirements.
Professional buyers spend their lives in learning how to buy better, are more cost effective.
This means the business marketers have to provide greater technical data about their product
and its advantages over competitors' products.
9. SEVERAL BUYING INFLUENCES: More people can influence a business buying decision
than a consumer buying decision. Buying committees consisting of technical experts and
senior managers are common in the purchase of major goods. Consequently business
marketers have to send well trained representatives and often uses teams to deal with the

well-trained buyers. Although ad, sales promotion and publicity plays important role but
personal selling usually serves as a main marketing tool.
10. DIRECT PURCHASING: Business buyers often buy directly from the manufacturers rather
than through intermediaries, especially those items that are technically complex and
expensive.
11. RECIPROCITY: Business buyers often select suppliers who also buy from them.
12. LEASING: Many industrial buyers lease their equipment instead of buying it.

Buying Situations:
Business buyers faces many decisions in making a purchase. The number of decisions depends on
the type of buying situation. There are three types of buying situations the straight re-buy the modified rebuy and the new task.
1. STRAIGHT REBUY: Purchases are ordered on routine basis from a previous supplier called
in-supplier. The out-supplier offer something new or exploit dissatisfaction with the supplier.
Out supplier try to get a small order and then enlarge their share over time.
2. MODIFIED REBUY: A situation in which the buyer wants some modification in price,
delivery requirements or other terms. It involves additional discussion between buyer and
seller representative who tries to defend his position and becomes nervous. The out supplier
see an opportunity and offer better facilities to gain some business.
3. NEW TASK: Purchasing for the first time, therefore requires more time and analysis of
suppliers.

System Buying and Selling:


Many business buyers prefer to buy a total solution of their problem from one seller. It is called
system buying.

Participants in the Business Buying Process:


It is also called buying center and includes all persons involved in purchasing which are given bellow:
i.
Initiators: Those who request that something be purchased.
ii.
Users: Those who will use the product or service. In many cases, the users initiate the buying
proposal.
iii.
Influences: People who influence the buying decision by defining specifications and
providing information for evaluating alternatives. Technical personnel are particularly
important influences.
iv.
Decider: People who decide on product requirements and or on suppliers.
v.
Approvers: People who authorize the proposed actions of deciders or buyers.
vi.
Buyers: People who have formal authority to select the supplier and arrange the purchase
terms.
vii.
Gatekeepers: People who have the power to prevent sellers or information from reaching to
members of the buying center. e.g. purchasing agents, receptionists, and telephone operators
may prevent sales persons from contacting user or deciders.

Major Influences on Business Buyers:


Business buyers are subject to many influences when they make their buying decision. They may
be classified into four groups 1) environmental factors, 2) organizational factors, 3) interpersonal factors,
and 4) Individual factors.
1. ENVIRONMENTAL FACTORS: Business buyers are heavily effected by factors in the
current and expected economic environment,
- level of demand for their product

Economic outlook,-interest rate


technological developments, and
political regulatory.

2. ORGANIZATIONAL FACTORS: Each buying organization has specific objectives, policies,


procedures, organizational structure, and system. Business marketers should be particularly
aware of these. Following are the organizational trends in the organizational area:
i.
Purchasing department upgrading: Purchasing department commonly occupy a low
position in the management hierarchy They are now being up graded.
ii.
Centralized Purchasing: In multi-divisional companies most purchasing is carried out
by separate divisions because of their differing needs. Recently some of the
companies have started the centralized purchasing.
iii.
Decentralized Purchasing of small ticket items:
iv.
Long-term Contracts: Business buyers are increasingly accepting long term contracts
with suppliers.
v.
Purchasing Performance Evaluation and buyers professional development: Many
companies have installed the incentive systems to reward purchasing managers for
goods buying performance.
3. INTERPERSONAL FACTORS: The buying center usually includes several participants with
differing interests, authority, status, empathy, and persuasiveness. the business marketer is not
likely to know what kind of group dynamics take place during the buying process, although
whatever information he can discover about the personalities and interpersonal factors would
be useful.
4. INDIVIDUAL FACTORS: Each participant in the business buying process has his own
motivations, perceptions, and preference, influenced by the participants age, income,
education, job position, personality, attitudes toward risk, and culture.

THE PURCHASING PROCESS:


Business buyers purchase goods and services
- to make money
- to reduce operating cost, or
- to satisfy a legal or social obligation.
For buying goods business buyers have to go through buying or procurement process having
eight steps called buy phases.
1. PROBLEM RECOGNITION: Someone in the organization recognizes the problem that can be
met by acquiring good or service. Events leading to problem recognition are the following:
i.
Company decides to produce a new product and needs new equipment and materials to
produce it.
ii.
A machine breaks down and requires replacement or new parts.
iii.
Purchased material turns out to be unsatisfactory, and the company searches for another
supplier.
iv.
A purchasing manager senses an opportunity to obtain lower prices or better quality.
2. GENERAL NEED DESCRIPTION: On recognition the buyer proceeds to determine the needed
items general characteristics and quality needed.
3. PRODUCT SPECIFICATION: After identifying the general needs the buying organization
proceeds to develop the items technical specifications. For it a product value analysis is

conducted. What is the product value analysis: PVA is an approach to cost reduction in which
components are carefully studied to determine if they can be redesigned or standardized or made
by cheaper methods.
4. SUPPLIER SEARCH: Then the company searches the most appropriate suppliers. For this
purpose organizations uses trade directories, computer search or make phone to other companies
for recommendations.
5. PROPOSAL SOLICITATION: The buyer invite the qualified suppliers to submit proposals with
detailed specifications. The company evaluate proposals and eliminate some suppliers and invite
the remaining ones to make a formal presentation.
6. SUPPLIERS SELECTION: The buying center, before selecting a supplier, specify the desired
attributes of the suppliers. Then it will rate suppliers on these attributes and identify the most
attractive suppliers. For this they often use a supplier-evaluation model. The attributes may
include the delivery reliability, price, and supplier reputation are highly important. Then the
buying center attempt to negotiate with its preferred suppliers for better prices and terms before
making the final selection. The buying center also decide as to how many suppliers touse.
Furthermore these companies want each chosen supplier to be responsible for a larger component
system. They also often require the chosen suppliers to achieve continuous quality and
performance improvement while at the same time lowering the supply price each year by a given
percentage.
7. ORDER-ROUTINE SPECIFICATION: After selection of supplier the buyer negotiate final
order listing the,
i.
Technical specifications,
ii.
Quantity needed,
iii.
expected time of delivery,
iv.
return policies,
v.
warrantees. etc.
Writing a new purchase order each time is expensive and time consuming. The purchaser
also do not wants to make a large purchase order ( and thus decreasing number of orders),
because it means to carry more inventory. A blanket contract establishes a long term relationship
in which the supplier promises to re-supply at an agreed price over a specified period of time.
8. PERFORMANCE REVIEW: When all is done the buyer reviews the performance of the chosen
supplier. Three methods are commonly used. 1) the buyer may contact the end user and ask for
evaluation, 2) Rate the supplier on several criteria using a weighted score method or 3) aggregate
the cost of poor supplier performance to come up with adjusted cost of purchase including price.
Above given stages are for the new task buying situation. In modified-re-buy or straightre-buy situations, some of these stages would be compressed or bypassed.

INSTITUTIONAL AND GOVERNMENT MARKETS:


So far our discussion is about the profit seeking organizations. Much of it also applies to the
buying practices of institutional and government organizations. However, their certain special feature
found in these markets.

Unit-4 Analyzing Marketing


4.2 Analyzing Industries and Competitors
There are five forces that determine the intrinsic long-run profit attractiveness of a market or
market segment. These are industry competitors, potential entrants, substitutes, buyers, and
suppliers. The five threats they poses are as follows:
1. Threat of intense segment revelry: A segment is unattractive if it already contains
numerous, strong, or aggressive competitors. It is even more unattractive if the segment is
stable or declining.
2. Threats of new entrants: A segment's attractiveness varies with the high of its entry
and exit barriers. The most attractive segment is one in which entry barriers are high and
exit barriers are low i.e. Few new firms can enter the industry, and poor-performing firms
can easily exit. But when the entry and exit both barriers are high it means that poor
performing firms will also stay in the market. and if both barriers are low it means more
firms can enter in the segment.
3. Threats of Substitute Products; A segment is unattractive when there are actual or
potential substitutes for the product are available.
4. Threat of buyers growing bargaining power: A segment is unattractive if the buyer
have strong or growing bargaining power because he will force prices down, and demand
more quality.
5. Threat of suppliers growing bargaining power;

IDENTIFYING COMPETITORS:
Competitors may be at four levels:
1. Brand competitors:
A company offering similar product and services to the same customers at similar prices.
2. Industry competitors:
Occurs when a company sees its competitors as all companies making the same product or
class of products.
3. Form competition:
Occurs when a company sees its competitors as all companies manufacturing products that
supply the same service.
4. Generic competition:
Occurs when a company sees its competitors as all companies compete for the same
consumer Rupee.

Industry Concept of Competitors:


An industry is a group of firms that offer a product or class of products that are close
substitutes for each other.

Number of Sellers and Degree of Differentiation:


The starting point for describing an industry is to specify whether there are one, few, or
many sellers of the product and whether the product is homogeneous or highly structure type:

1. P U R E M O N O P O L Y : Exist when only one firm provides a certain product or


service in a certain country. It may by due to a regulatory edict, patent, license, scale
economics or other factors.
2. O L I G O P O L Y : An industry structure in which a small number of (usually) large
firms produce product that range from highly differentiated to standardized. there are two
forms of oligopoly pure and differentiated.
i.
P u r e o l i g o p o l y : consist of a few companies producing essentially the
same commodity (oil, steel).A company in a pure oligopolistic industry
would find it hard to charge anything more than the going price unless it
can differentiate its services.
ii.
Differentiated Oligopoly: consist of a few companies producing partially
differentiated products (cameras, autos) The differentiation can occur
along lines of quality, features, styling, or services. Each competitors may
seek leadership in one of these major attributes, attract the consumers
favoring that attribute and charge a price premium for that attribute.
3. M O N O P O L I S T I C
COMPETITION:
Consist
of
many
c o m p e t i t o r s a b l e t o d i f f e r e n t i a t e d t h e i r o f f e r s i n whole or part
(restaurants, beauty shops). Many of the competitors focus on market segments where
they can meet customer needs in a superior way and command a price premium.
4. P U R E
COMPETITION:
Consists
of
many
competitors
o f f e r i n g t h e s a m e p r o d u c t a n d s e r v i c e ( s t o c k - market, commodity
market). Since there is no basis for differentiation, competitors price will be the same. No
competitor will advertise unless advertising can create psychological differentiation
(cigarettes) in which case it would be more proper to describe the industry and
monopolistically competitive. Sellers will enjoy different profit rates only to the extent
that they achieve lower costs of production or distribution.

Entry and Mobility Barriers:


Industry differs greatly in their ease of entry. It is easy to open a new restaurant but
difficult to enter the air craft industry. The major barriers include high capital requirements,
economies of scale, patents and licensing requirements, scarce locations, raw materials, or
distributions, and reputational requirements.

Exit and Shrinkage Barriers:


Ideally firms should be free to leave industries in which profit are unattractive, but they
often face exit barriers. Most common barriers are lager moral obligations to customers,
creditors, and employees, government restrictions, low asset salvage value due to overspecialization or obsolescence; lack of alternative opportunities high vertical integration and
emotional barriers.
Even if some firms do not want to exit the industry they might want to decrease their size.
The companies try to reduce the shrinkage barriers to help their ailing competitors get smaller
gracefully. Two of the most common shrinkage barriers are contract commitments and suborns
management.

Cost Structure:
Each industry has a certain cost mix that drive much of its strategic conduct. For example steel
making involves heavy manufacturing and raw-materials cost, while toy manufacturing involve
heavy distribution and marketing cost. Firms will pay the greatest attention to their greatest costs
and will strategies to reduce these costs.

Degree of Vertical Integration:


Some firms find it advantageous to integrate backward and forward which often causes lower in
cost and give company more control over the value-added stream. Moreover, vertically
integrated firms can manipulate their prices and costs in different segments of their business to
earn profit where taxes are low.

Degree of Globalization:
Some industries are highly local others are global. Companies in the global industries need to
compete on a global basis if they are to achieve economies of scale and keep up with the latest
advances in technology.

IDENTIFYING COMPETITORS' STRATEGIES:


A company's closest competitors are those pursuing the same target markets with the same
strategy. A group of firms following the same strategy in a given target market is called a
strategic group. A company need to identify the strategic group in which it competes.
A company must continuously monitor its competitors' strategies and revise their
strategies through time depending upon the competitors strategy.

DETERMINING COMPETITORS' OBJECTIVES:


After identifying its main competitors and their strategies a company may ask itself: what is each
competitor seeking in the marketplace? What drives each competitor's behavior? An initial
assumption is that competitors strive to maximize their profits. and alternative assumption is that
they pursues a mix of objectives : current profitability, market share growth cash flow,
technological leadership, service leadership and so on.
A competitors objectives are shaped by many things, including its size, history, current
management, financial situation, and place in the large organization. If a competitor is part of a
larger company, it is important to know whether the parent company is running it for growth or
milking it. If the competitor is not critical to its parent company, it could be attacked more
readily.
Finally a company must also monitor its competitors expansion plans.

Assessing Competitors Strengths and Weaknesses:


To identify the strengths and weaknesses of competitors a company should first gather recent
information on each competitor's business, including data on sales, market shale, profit margin,
return on investment, cash flow, new investments and capacity utilization.
Companies normally learn about their competitors position through secondary data,
personal experience, and hearsay. They can augment their knowledge by conducting primary
marketing research with customers, suppliers, and dealers. All these sources help a company
decide whom to attack in the programmable-controls market.

In general every company should monitor three variables when analyzing its competitors:
i. Share of market: The competitor's share of the target market.
ii. Share of mind: The percentage of customers who named the competitor in responding
to the statement. Name the first company that comes to mind in this industry.
iii. Share of heart: The percentage of customers who named the competitor in responding
to the statement. Name the company from whom you would prefer to buy the product.

Estimating Competitors Reaction Patterns:


Identification of competitors strangest and weaknesses help managers to anticipate the
competitors likely reactions to other companies' strategies (e.g. a price cut, a promotion step-up,
or a new-product introduction). In addition, each competitor has a certain philosophy of doing
business, a certain internal culture, and certain guidelines beliefs. Most competitors fall into one
of following four categories.
1. THE LAID BACK COMPETITORS: A competitor that doesn't react quickly or strongly
to a rival's move. The reasons may vary. The laid back competitors may feel their
customer are loyal, slow in noticing the move, may face lack of funds to react.
2. THE SELECTIVE COMPETITORS: A competitor that react to only certain types of
attacks and not to others. It might respond to price cuts but not to advertising expenditure
increases.
3. THE TIGER COMPETITOR: A competitor that react swiftly and strongly to any assault
on its terrain.
4. THE STOCHASTIC COMPETITORS: A competitor that does not exhibit a predictable
reaction pattern. Such competitor might or might not retaliate on a particular occasion:
there is no way of predicting this decision on the basis of its economic situation, history,
or anything else.
Some industries are characterized by relative accord among the competitors, and
others by contrast fighting. Here are some of the observations about the likely state of
competitive relations.
i.
If competitors are nearly identical and make their living in the same way
then their competitive equilibrium is unstable.
ii.
If a single major factor is the critical factor, then competitive equilibrium
is unstable.
iii.
If multiple factors may be critical factors, then it is possible for each
competitor to have some advantage and be differently attractive to some
consumers. The more factors that may provide a advantage, the more
competitors who can coexist. Competitors all have their competitive
segment, defined by the preference for the factor trade-offs that they offer.

DESIGNING THE COMPETITIVE INTELLIGENCE SYSTEM:


Each company should carefully design its competitive intelligence system to be cost effective.
Everyone in the company must be only sense, serve and satisfy the customer but also be given an
incentive to spot competitive information and pass it on to the relevant parties in the company.
Sometimes cross-disciplinary teams are formed specifically for this purpose.
There are four main steps involved in designing a competitive intelligence system:

1. Setting up the System: The first stem calls for identifying vital types of competitive
information identifying the best sources of this information and assigning a person
who will manage the system and its services.
2. Collecting the Data: the data are collected on a continuous basis from the field,
circuits, and competitors' employees, from people who do business with competitors.
3. Evaluating and Analyzing the Data: The data are checked for validity and reliability,
interpreted, and organized.
4. Disseminating information and Responding: Key information is sent to relevant
decision maker and managers' inquires about competitors are answered.

SELECTING COMPETITORS TO ATTACK AND AVOID:


With good competitive intelligence, managers will find it easier to formulate their
competitive strategies. They will have a better sense of whom they can effective compete with in
the market. Generally managers conduct a customer value analysis to reveal the company's
strengths and weaknesses relative to various competitors.
The aim of a customer value analysis is to determine the benefits that customers in a
target market segment want and how they perceive the relative value of competing suppliers,
offers. The major steps in customer value analysis are:
1. Identifying the major attributes that customers value
2. Assess the quantitative importance of the different attributes.
3. Assess the company's and competitors' performances on the different customer values
against their rated importance.
4. Examine how customers in a specific segment rate the company's performance
against a specific major competitor on an attribute-by-attribute basis.
5. Monitor customer values over time.
After the company has done its customer value analysis, it can focus its attack on one of the
following classes of competitors: strong versus weak competitors, close versus distant
competitors, and good versus bad competitors.
1. Strong Versus Weak Competitors:
Most companies aim their shots at their weak competitors. This strategy requires
fewer resources and time per share point gained. But in the process of attacking weak
competitors, the firm may achieve little in the way of improved capabilities. The firm should
also compete with strong competitors to keep up worth the state of the art. Furthermore, even
strong competitors have some weaknesses, and the firm may prove to be a worthy
competitor.
2. Close versus Distant Competitors:
Most companies compete with competitors who resemble them the most. At the same
time, the company should avoid trying to destroy the close competitor.
3. Good Versus Bad Competitors:
Porter argues that every industry contains "good" and "Bad" competitors. Good competitors have
a number of characteristics: they play by the industry's rules: they make realistic assumptions
about the industry's growth potentials; they set prices in a reasonable relation to costs; they favor
healthy industry; they limit themselves to a portion or segment of the industry; they motivate

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other to lower costs or improve differentiation's; and the accept the general level of their share of
profits.
Bad competitors violate the rules: They try to buy share rather than earn it: they take
large risks; they invest in over capacity; and in general, they upset the industrial equilibrium.
A company benefits in several ways from good competitors. Competitors confer several
strategic benefits: They lower the antitrust risk; they increase total demand; they lead to more
differentiation; the share the cost of market development and legitimatize a new technology; they
improve bargaining power vis--vis labor unions or regulators; and they may service less
attractive segments.

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Unit-4 Analyzing Marketing


4.3 Identifying Market Segments and Selecting Target Markets
A company that decide to operate in a broad market recognizes that it cannot serve all
customers in that market because customer are too numerous and diverse in their buying
requirements. Instead of competing every where the company needs to identify the market
segments that it can serve most effectively.
In target marketing the sellers distinguish the major market segment, target one or more
of those segments and develop products and marketing programs for each segment. Target
marketing involves three major steps:
1. Market Segmentation: Identifying distinct groups of buyers who might require
separate products.
2. Market Targeting: Select one or more market segments to enter.
3. Market Positioning: Establish and communicate products, key distinctive benefits in
the market.

MARKET SEGMENTATION: Market consist of buyers who differ in many ways.


Markets can be segmented in a number of way. Here will examine (A) level of segmentation, (B)
patterns of segmentation, (C) market segmentation procedure, (D) basis for segmenting of
consumer and business markets, and (E) requirements for effective segmentation.
A. Levels of Segmentation:
Market segmentation represents an effort to increase a company's targeting precision.
It can be carried out at four levels. 1) segments, 2) niches, 3) local areas, and 4)individuals
and 5) self marketing.
Before discussing these levels first we have to understand MASS MARKETING. In
mass marketing the seller engages in the mass production, mass distribution, and mass
promotion of one product for all buyers, like coca cola.
The traditional argument is that mass marketing creates the largest potential market,
which leads to the lowest costs and ultimately results in lower prices or higher margins, but it
is difficult to carry out.
1. SEGMENT MARKETING:A segment consist of large identifiable group within a
market. Segment marketing is the midpoint between mass marketing and
individual marketing. The segment marketing companies know that buyers differ
in want, purchasing power, location, buying habits. etc. The company tries to
isolate some broad segments. e.g. an auto company identify four levels segments
of car buyers, i) those who are seeking basic transportation, ii) those who are
seeking high performance, iii) those who are seeing luxury, and iv) those who are
seeking safety. Consumers belonging to one segment are considered quit similar
in their wants and needs. yet they are not identical. Some segment members wants
additional features not included in the offer while others would gladly give-up
what they do not want very much.
Segment marketing offers several benefits over mass marketing. The
company can produce a more fine-tuned product and price it appropriately for the

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target audience. The choice of distribution channels, and communication channels


becomes much easier, and company have to face fewer competitors.
2. NICHE MARKETING:A niche means a small market whose needs are not being
well served. It is usually identified by dividing a segment into sub-segments. For
example in the segment of heavy smokers a sub-segment of heavy smokers with
emphysema. Segments being fairly large attract several competitors while niches
are fairly small and normally attract only a few competitors.
3. LOCAL MARKETING: Also called regional marketing, or localized marketing.
In it market programs are tailored to the needs and wants of local customers
groups, (trade areas neighbor hoods).
4. INDIVIDUAL MARKETING: It is the ultimate level of segmentation which lead
to "one -to-one marketing". it means producing a thing on receipt of order from
customer according to the specifications.
5. SELF MARKETING: A form of individual marketing in which individual
customer takes more responsibility for determining which product and brands to
buy.

B. Patterns of Market Segmentation:


Market segments can be built up in many ways. Instead of looking at demographic or lifestyle
segments, we can distinguish preference segments. Three different patterns can emerge.
i. HOMOGENEOUS PREFERENCES: A market where all the customers roughly have
the same preference. The market shows no natural segments.
ii. DEFUSED PREFERENCES: At the other extreme the customers preferences may be
scattered and customers vary greatly in their preferences. The first brand to enter the
market is likely to position in the center to appeal to the most people. A second
competitor would locate next to the first brand and fight for market share. Or it could
locate in a corner to attract a customer group that was not satisfied with the center brand.
If several brands are in the market they are likely to position throughout the space and
show real differences to match consumer-preference differences.
iii. CLUSTERED PREFERENCES: The market might reveal distinct preference clusters,
called natural market segments. The first firm in this market has three options. It might
position in the center, hoping to appear to all groups. It may position in the largest market
segment. It might develop several brands, each positioned in a different segment. If the
first firm developed only one brand, competitors would enter and introduce brands in the
other segments.
C. Market Segmentation Procedure:
Marketing research firms uses a three-step approach to identify the segments in the market.

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STEP ONE. SURVEY STAGE: Researchers conduct exploratory interviews and focus on
consumer's motivations, attitudes and behavior. From these findings researchers prepare a formal
questioner to collect data about their:
- Attitudes and their importance rating
- Brand awareness and brand ratings.
- Product usage patterns.
- Attitudes towards the product category.
- Demographics, geographic, psycho-graphic and media-graphics of the respondents.
STEP TWO. ANALYSIS STAGE: The researcher applies factor analysis to the data to remove
highly correlated variables, then apply cluster analysis to create a specific number of (maximally
different) segments.
STEP THREE. PROFILING STAGE: Each cluster is profiled in terms of its distinguished
attitudes, behavior, demographics, psycho-graphics, and media patterns. Each segment can be
given a name, based on dominant distinguishing characteristic.

D. Basis of Segmenting Consumer Markets:


Two broad groups are used to segment consumer markets. First researchers form segments by
looking at consumer characteristics, which may include geographic, demographic, and psychographic characteristics. Other researchers try to form segments by looking at consumer responses
to benefits sought. They use occasions and brands. The major segmentation variables are: 1)
geographic, demographic, psycho-graphics and behavioral segmentation.
1. GEOGRAPHIC SEGMENTATION: Dividing the market into different geographical
units such as nations, states, regions countries, cities, urban, rural, climate etc. and then
decide to operate in one or a few geographic areas.
2. DEMOGRAPHIC SEGMENTATION: In it market is divided into groups on the basis of
demographic variables such as age, family size, family life cycle gender, income,
occupation, education religion, race, generation, nationality, or social class. These
variables are the most popular because they are easier to measure than most other types
of variables.
a. Age and Life - Cycle Stage: Consumers wants and abilities change with age.
However it is a tricky variable and is mostly effected by the psychology.
b. Gender: Generally applied in clothing hair-styling, cosmetics, and magazines.
Occasionally other marketers notice an opportunity for gender segmentation.
c. Income: Another long-standing practice in such product and service categories as
automobiles boats, clothing, cosmetics and travel. However, income does not always
predict the best customers for a given product.
d. Generation: Each generation is profoundly influenced by the milieu in which it
grows up. Some marketers target baby bombers using communications and symbols
that appeal to the optimism of that generation.
e. Social Class: It has a strong influence on a person's preference in cars, clothing,
home furnishing, reading habits etc. Many companies designee products for specific
social classes.

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3. PSYCHO-GRAPHIC SEGMENTATION: In psycho-graphic segmentation, buyers are


divided into different groups on the basis of lifestyle and / or personality. People within
the same demographic group can exhibit very different psycho-graphic profiles.
a. Lifestyle: People exhibit many more lifestyles than seven as are suggested by the
social classes. People product interests are influenced by their lifestyles. In fact, the
goods they consume express their lifestyles. Marketers are increasingly segmenting
their markets by consumer lifestyles.
b. Personality: Marketers also use personality variables to segment marketers. They
endow their products with brand personalities that correspond to consumer
personalities.
4. BEHAVIORAL SEGMENTATION: Buyers are divided into groups on the basis of their
knowledge of , attitude toward, use of, or response to a product. Following are the types
of behavioral segmentation.
1. Occasions: Buyers can be distinguished according to the occasions they develop a
need, purchase a product, or use a product. e.g. air travel is triggered by occasions
related to business, vacation, or family. An air line can specialize in serving people
for whom one of these occasions dominates.
2. Benefit Segmentation: A powerful form of segmentation involves classifying buyers
according to the benefits they seek from the product.
3. User Status: Markets can be segmented into groups of nonusers, ex users, potential
users, first-time users, and regular users of a product. The company's position in the
market will also influence its focus. Market-share leaders will focus on attracting
potential users, while smaller firms will often focus on attracting current users away
from the market leader.
4. Usage rate: Market can also be segmented into light, medium, and heavy product
users. Heavy users are often a small percentage of the market but account for the high
percentage of total consumption. Marketers usually prefer to attract one heavy user to
their product or service rather than several light users.
5. Locality Status: A market can be segmented by consumer-locality patterns.
Consumers can have varying degrees of loyalty to brands, stores, and other entities.
Buyers can be divided into four groups according to their brand-loyalty.
i.
Hard-core loyals: Who buy one brand all the time.
ii.
Split Loyals:
Who are loyal to two or three brands.
iii.
Shifting Loyals: Those shift from favoring one brand to another.
iv.
Switchers:
Consumers who show no loyalty to any brand.
6. Buyers-Readiness Stage: A market consist of people in different stages of readiness to
buy a product. Some are unaware of the product, some are aware, some are formed,
some are interested, some desire the product, and some intend to buy. The relative
numbers make a big difference in designing the marketing program.
7. Attitude: Five attitude groups can be found in a market enthusiastic, positive,
indifferent, negative, and hostile.
5. MULTY ATTRIBUTE SEGMENTATION: Marketers no longer talk about the average
consumers, or even limit their analysis to only a few market segments. Rather they are

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increasingly crossing several variables in an effort to identify smaller, better defined


target groups.

Targeting Multiple Segments:


Very often, companies may begin their marketing with one targeted segment, then expand
into other segments.

BASIS FOR SEGMENTING BUSINESS MARKETS:


Business market s can be segmented with many of the same variables employed in consumer
market segmentation, such as geography, benefit sought and usage rate. Yet business markets can
also use several other variable given bellow:
Demographic: It may include:
1. Industry:
2. Company size:
3. Location:
Operating Variables:
1. Technology:
2. User /Nonuser status:
3.

Purchasing Approach:
1.

2.

3.

4.

5.

Situational Factors:
1.
2.
3. Size of Order:

Which industries should we serve.


What size companies should we serve.
Which geographical areas should we serve.

What customer technologies should we focus on?


Should we serve heavy users, medium, light or nonuser?
Customer Capabilities:
Should we serve customers
needing many or few goods or services?

Purchasing Function Organization: Should


we
serve highly centralized or decentralized purchasing
organizations?
Power Structure:
Should we serve Co.
engineering dominants, financially dominants or so
forth?
Nature of Existing Relationships:
Serve
companies having strong relations with us, or go
after the most desirable.
General Purchase Policy:
Serve them who
prefer leasing, service contracts, system's purchases
or sealed bidding.
Purchasing Criteria: Serve
those
companies
seeking quality? Service? or price?

Urgency:
Should we serve companies that need quick
and sudden delivery or service?
Specific application: Should we focus on certain
application of our product rather that all applications?
Should we focus on larger or small orders?

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Personal Characteristics:
1.
2. Attitudes toward risk:
3.

Buyer Seller Similarity:


Should we serve companies
whose people and values are similar to ours?
Should we serve risk-taking or risk-avoiding customers?
Loyalty:
Should we serve companies that show high
loyalty to their suppliers?

E. Requirements for Effective Segmentation:


There are many ways of segmenting a market, however, all segmentation are not
effective. To be useful market segments must be:
1. MEASURABLE: The purchasing power and characteristics of the segment can be
measured.
2. SUBSTANTIAL: Segment should be large and profitable enough to serve.
3. ACCESSIBLE: The segment can be effectively reached and served.
4. DIFFERENTIABLE: The segment are conceptually distinguishable and respond
differently to different marketing -mix elements and programs. If married and unmarried woman respond similarly to a sale on perfume, they dont constitute separate
segments.
5. ACTIONABLE :Effective programs can be formulated for attracting and serving the
segments.

TARGET MARKETING
After identifying market-segments the enterprise has to evaluate them and decide, how many and
which ones to target. Now we will examine the process of evaluating and selecting marketing
segments:

1. Evaluating the Market Segments:


While evaluating the market segments the firm must look at two factors given bellow:
i.
The overall attractiveness of the segment and
ii.
The companies objectives and resources.

2. Selecting the Market Segment:


After evaluating the firm decide to which and how many segments to serve. Selection can be
made in any of the following five patterns.
a. SINGLE SEGMENT CONCENTRATION: The most simplest case in which company
selects only one segment and concentrates on it.
b. SELECTIVE SPECIALIZATION: Here the firm selects a number of segments, each
objectively attractive and appropriate, given the firm's objectives and are resources. there
may be little or no synergy among the segments, but each segment promises to be a
money maker. This multi-segment coverage strategy has the advantage of diversifying the
firm's risk. Even if one segment becomes unattractive the firm can continue to earn more
in other one.
c. PRODUCT SPECIALIZATION: When the firm concentrates on making a certain product
that it sells to several segments. In it a company can build strong reputation in the

17

specific product area. The downside risk is that the product may be supplanted by an
entirely new technology.
d. MARKET SPECIALIZATION: Here the firm concentrates on serving many needs of a
particular custom group.
e. FULL MARKET COVERAGE: When the firm attempts to serve all customer groups with
all the products that they might need. Only very large firms can undertake a full market
coverage strategy. Large firm scan cover a whole market in two broad ways through
undifferentiated marketing or differentiated marketing.
a. Undifferentiated Marketing: In it the firm ignores market-segment differences and
goes after the whole market with one market offer. It focuses on buyers needs rather
than differences among buyers. It design a product and a marketing program that will
appeal to the broadest number of buyers. It relies on mass distribution and mass
advertising.
b. Differentiated Marketing: In it firms operate in several market segments and designs
different programs for each segment. differentiated market creates more total sales
than undifferentiated It also increase the cost of business the following are the costs:
- Product modification cost: Modifying a product to meet different market segment
requirements usually involves more research and development, engineering and
special tooling costs.
- Manufacturing cost: It is usually more expensive to produce 10 units of 10
different products than 100units of one product.
- Administrative cost: for separate marketing plan for each market segment. This
requires extra marketing reach, forecasting, sales analysis, promotion, planning
and channel management.
- Inventory Costs: It is usually more to manage inventories containing many
products than inventories containing few products.-Promotion costs: The company
has to reach different markets segments with different promotion programs. the
result is increased promotion-planning costs and media costs.

ADDITIONAL CONSIDERATION IN EVALUATING AND SELECTING


SEGMENTS:
Following four more considerations must be taken into account in evaluating and selecting
segments: 1) Ethical choice of market targets, 2) segment interrelationships and super segments,
3) segment-by-segment evasion plans, and 4) intersegment cooperation.
1. Ethical Choice of Market Targets:
Market targeting sometimes generates controversy like cigarette markets have generate much
controversy. In market targeting the issue is not who is targeted but rather how and for what.
Socially responsible marketing calls for segmentation and targeting that serve not just the
interests of the company but also the interests of those targeted.
2. Segment Interrelationships and Super segments:
In selecting more than one segment, the company should pay close attention to segment
interrelationships on the cost, performance and technology side.
Companies should also identify and try to operate in super segments rather than in isolated
segments. A super segment is a set of segments sharing some exploitable similarity.
3. Segment By Segment Invasion Plans:

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Even if the firm plans to target super segment, it is wise to enter one segment at a time and
conceal its grand plan. The competitors must not know to what segment(s) the firm will move
next.
4. Intersegment Cooperation:
The best way to manage segments is to appoint segment managers with sufficient authority and
responsibility for building their segment's business. At the same time, segment managers should
not be so segment-focused as to resist cooperation with other company personnel to improve
overall company performance.