Author’s
Note
This Principles of Marketing e-text is my
first effort at writing a textbook. I have tried to gather and record the areas
of marketing that meet two goals. First, I have included the information that
is most likely to be used by a typical marketing student. Second, I have
written about principles of marketing that are true principles, that is, that
are less likely to change fundamentally in the foreseeable future. In choosing
material to cover, I have tried to consider the fact that most people who learn
this material do not have their primary professional responsibility in
marketing. Therefore, I have attempted to focus on material that will be most
helpful to those who will not work primarily in the marketing area. If you
learn this material and are not a marketing person at least it will help you
work more effectively with those who are in marketing and improve your ability
to be a better consumer.
I hope you enjoy your experience with this
e-book. As with any project, I will be trying to continuously change this book
to meet the needs of its users, so please let me know of any suggestions,
recommendations you may have particularly as they apply to your ability to
learn and apply the material presented.
Lexis F. Higgins, Ph.D.
Principles of marketing: An applied, collaborative learning approach
Table of Contents
Chapter One – What is marketing and
how does it differ from sales, advertising, and promotion?
Chapter Two – What is Marketing Management and what do product
managers and marketing managers do?
Chapter Three – How do we identify and
understand markets?
Chapter Four - Why do we study buying behavior in Marketing and
what have we learned?
Chapter Five – How companies manage marketing research
Chapter Six – How do
companies decide what products and services to market?
Chapter Nine – How do
producers get their products and services to their target customers?
Chapter One – What is marketing
and how does it differ from sales, advertising, and promotion?
Marketing is one of the most misunderstood and confusing terms used in business. How would you define it? Think about what you believe marketing is and write your definition down now:
Marketing is: ”_________________________________________________
_____________________________________________________________”.
Save this definition to compare it to other definitions of marketing we cover later on.
Why is the term “marketing”
surrounded by confusion?
First, the word ‘marketing’ means very different things to different people in different industries. For example, a coal producer in Kentucky just needs to understand what price the local buyer will be paying for the product and s/he can then plan to ‘market’ (or just sell) the coal produced to the local buyer. Second, think about how much different the above situation is from another case in which ‘marketing’ must be done. Let’s say that you are a product-marketing engineer at Agilent Technologies and your Product Marketing Manager has informed you that you will be responsible for ‘marketing’ a new product that has been conceptualized by engineers in the Research and Development (R&D) Department. Finally, assume a good friend of yours who has invented a new way for people to wash their car. She has asked you ‘to market’ her product for her. In all three of these situations, the product has already been conceptualized and produced. It won’t help the individual marketer at all to consider how the market will react to the product. In situation one, the coal miner must just extract the coal from the ground and deliver it to a local coal broker for sale. In situation two, the product manager at Agilent must first figure out what the new product will be good for and who might want to buy it. Finally, in situation three, your friend has already invented the product; it just remains for you to figure out who the people are who wash their own car and how to reach them. In all three situations, the marketer is faced with coming up with a way to sell what has already been produced. This definition of marketing, unfortunately, is how most people would define marketing, that is, “Marketing is how an organization or individual sells its product or service.” Thus in this definition, marketing is relegated to finding and exploiting a market of buyers for the product or service.
But is that how marketing practitioners and people who teach marketing define it? Let’s review some alternate definitions of marketing from the business literature.
The American Marketing Association’s definition. The American Marketing Association (AMA) is the leading organization in the U.S. representing the academic side of marketing. The organization is comprised of and primarily impacted by people who teach marketing at the college level. In 1948, the AMA defined marketing as follows:
“The performance of business
activities directed toward, and incident to, the flow of goods and services
from producer to consumer or user.”
(AMA, 1948).
Note that the definition above focuses on the DISTRIBUTION aspect of marketing and doesn’t really include the ‘Four P’s’: Product, price, promotion, place (distribution).
In 1985, the AMA definition was changed to “the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational objectives.” (AMA 1985)
Compare these two definitions: How are they similar and how do they differ?
Why do you think the AMA made the change in the definition of marketing?
Now, compare the above discussion to YOUR definition of marketing. How do the definitions differ from
yours? How are they similar?
Speaking of confusion, type in the key word “marketing” into your favorite search engine on the internet and see what you find.
The Seven Steps in the Marketing Process
It is natural that people in different situations define marketing differently. However, we will approach the definition of marketing by first learning about the seven steps in the process of marketing. While this process is not always followed, it is important that any student of marketing understand what steps must be taken to be successful in a marketing effort. The marketing process can be described in the following seven steps:
A. Understand the market wants/needs of interest
B. Based on relative size and needs of the market, select certain segments of the market that are of the most interest to you and your organization
C. Thoroughly describe these segments based on their individual needs
D. Create a product or service that will meet the specific needs identified
E. Communicate the concept of the product or service to the targeted customer in a way that makes sense to the customer
F. Deliver the product or service to the targeted customer in a way that will be convenient to the customer
G. Solicit feedback from the customer about how your product or service could be improved to meet the customers’ needs even better
This process is applicable to most situations encountered by those wanting to market a product or service. The process of marketing can be divided into ‘upstream’ and ‘downstream’ activities. That is, steps A through D are all ‘upstream’ activities that should be performed before a product actually exists. Surely, there are many readers who will say, “Wait, this won’t work for me, I am like those people who you described at first, I already HAVE a product to sell, I just need to find somebody to BUY IT!” As marketers, we understand that many sellers don’t have the option or input to create a new product or service. However, this e-book is designed for people who want to do marketing the right way. If you must pick up the process after steps A, B, and C have already been performed, realize that some steps have already been done, and you should check to see if they have been done correctly.
Also note that marketing research plays an integral role in each of these stages. That is, the organization that is truly focused on customer needs must be driven by an active research effort.
Based on the seven-step approach to marketing, we will define marketing as:
“The conceptualization and delivery of customer satisfaction” – the first part of this definition would be covered in steps A through D in the marketing process above and the final aspect ‘delivery’ would be represented by steps E, F, and G. Of course, in order to deliver ‘customer satisfaction,’ one must do customer research, thus step G will provide feedback into the continuation of the seven-step marketing process over time.
Write your answer to this question in the following line:
……………………………………………………………………………………………..
Another approach or orientation to managing the marketing function can be called “Sales (or Promotion) orientation”. In this approach, marketing is seen as serving the same function as with personal selling and advertising, and marketing’s primary job in the organization is to ‘sell, sell, sell.’ In this approach, steps A through C of the marketing process are largely ignored and marketing resources are instead placed on generating more sales.
There is an approach to marketing called the “Customer as Monarch (or Marketing) Concept” and while it has been around under different names for many decades, it is still a good guide to managing marketing activities. It can be described by the slogans ‘we do it all for you,’ ‘have it your way’ a former Burger King slogan, or just by the simple saying which perhaps you have already heard, “find a need and fill it”. The Marketing Concept would rephrase this saying a bit, and be represented by an approach of “find a need, and fill it profitably and more effectively than the competition,” Yes, this is a demanding task, but in these times, we exist in an extremely competitive world. Note that this competition includes organizations in both the for-profit sector and the not-for-profit sector, with the latter being as competitive as the former.
The marketing concept can be thought of as having four parts as follows:
Part I – Understand and meet customers needs, said another way, provide satisfying products and services to your target customers
Part II – Meet organizational goals – this is applicable for both for-profit and not-for-profit organizations. For-profit organizations should have goals other than profit, a for-profit goal being ‘make a fifteen percent return on investment’. A longer-term goal that is ultimately tied to profits but immediately is tied to customer satisfaction might be: “Be a recognized leader in customer satisfaction in our industry.” Not-for-profit organizations have goals non-financial performance such as ‘provide thirty hours of client services per week consistent with our organizational mission.’
Part III – Integrate marketing activities – this part can be the most complex, but also the most critical. That is, when the organization has agreed on a marketing strategy, it must execute the strategy in an efficient and effective way. For example, “fifty-percent-off” coupons appearing in the Sunday newspaper will not reach the goal of inducing new product trial if the product is not available in stores due to a problem with product distribution and if sale catalogs are printed by a central office without coordination with local business outlets, there will be regular inventory understocks or overstocks.
Part IV – Satisfy customers better than the competition. A indicated above, EVERY ORGANIZATION has competition. If there are not similar product solutions that provide similar benefits available then there will be competing uses for expenditure of the customer’s income.
Like the Seven Step Marketing Process, the Marketing Concept serves as a guide for applying organizational resources directed at marketing.
1. Summarize on a one-page report what you find after you get on the internet and search the keyword ‘marketing.’ Organize your answer according to the different categories you find in your search.
2. In a one-page essay, compare the different definitions of marketing discussed including your own definition. Has your definition of marketing changed? If so, how?
3. Identify an organization that you believe is fulfilling each step in the marketing concept. In your analysis, go step by step to better explain your answer.
4. Identify an organization that you believe is not fulfilling each step in the marketing concept. In your analysis, go step by step to better explain your answer.
5. Write a job description for a manager of the marketing function (that is, what would be his/her duties and major responsibilities) in the following orientations: production orientation, sales orientation, market (customer) orientation.
6. In a one-paragraph answer, explain how you believe the personal selling effort should be related to marketing in a modern organization.
7. Given what you have learned in Chapter One, explain the difference between the terms “marketing” and “promotion.”
Chapter One Glossary
Marketing - “The
conceptualization and delivery of customer satisfaction”
Upstream marketing activities – understanding, selecting, describing target markets, and creating a product or service to meet the needs of those target markets
Downstream marketing activities – communicating a product or service concept to the chosen target market and providing customer satisfaction in the process by delivering that product or service
Customer as Monarch, or
marketing concept – a philosophy of doing business in which the
organization places utmost importance on delivering customer satisfaction,
meeting organizational goals, and outperforming the competition while
integrating all marketing activities.
Chapter Two – What is Marketing Management and what do
product managers and marketing managers do?
The Meaning of the terms Marketing Manager and Marketing
Management
Traditionally if a person had the title of “manager,” it meant that s/he had responsibility for helping guide the activities of at least some number of employees. While this terminology has changed over the years, we still consider someone who has the title of ‘manager’ to be responsible for overseeing the allocation of resources for the organization. For example, as an ‘individual contributor’ I might have the responsibility of performing certain work (for example, writing marketing literature for the firm’s products), but not be responsible for the activities of anyone other than myself. In high technology industries, the word manager is often replaced with “Director” to indicate that a person has primary responsibility for a certain organizational function. For example, the ‘marketing director’ may be responsible for all marketing activities in the firm. At other firms, the term ‘marketing manager’ would be used to describe the same thing. In some organizations, the Vice-President of Marketing may perform the same functions. The term Product Manager is often used in high technology industries to assign responsibility to a specific individual or group for the successful supervision of all marketing activities related to a specific product or service. Sometimes the product manager’s responsibility is defined in terms of the product s/he is overseeing and sometimes the responsibility is defined in terms of a specific technology. For example, one high-tech firm might use the title of Product Manager-Digital Systems to describe the job of the person who is responsible for digital versus analog customer solutions. This brings up still another consideration. The use of titles varies across industries and size of organizations. We will discuss how different firms organize the marketing function in a later chapter.
What is marketing management?
We will use the following definition of marketing management: “Marketing management is the process allocating the resources of the organization toward marketing activities.” Thus, a marketing manager is someone who is responsible for directing expenditures of marketing funds. Related to the term ‘management’ is the term ‘strategy.’ Many words in the vocabulary of business management were taken from the field of military science. For example, the word ‘strategy’ has been used in the military for many decades to indicate a long-term commitment of resources toward accomplishing a certain goal. Thus it is often said that management is responsible for conceptualizing strategies, and other employees are responsible for implementing those strategies. The time-honored Management-by-Objectives programs in which a supervisor will formulate strategies and other employees will choose the method of reaching those objectives is an example of this relationship in action. As the reader can see, a discussion of ‘strategy, objectives, and goals’ can very quickly develop into a miasma of terms and confusion. Thus, we will use the following definitions. First, we will consider goals and objectives to be identical terms. Second, we will use the term ‘objective’ to refer to a broad-based design of where the organization would like to be at some point in the future. For example, as an objective, the organization might decide to be the ‘leader in product quality as judged by customer surveys of our organization and our five leading competitors.’ We will define the term ‘strategy’ as a method used to reach an objective. For example, to reach our product quality objective, our organization might decide to enroll in a ‘total quality program’ offered by most large consulting firms. Thus, strategy will have two meanings. First, it is the overall orientation an organization choosing to allocate its resources, and second, strategy is a specific action used to implement plans. Thus, there is a two-tiered nature to strategy. One at the top, as a broad guide to preferred action, and one below helping to implement objectives. Use ‘strategy’ as a keyword search on the internet and see what you find.
In marketing, we often use the ‘four P’s’ to designate the areas of control a marketing manager has at his/her command. The ‘four P’s’ as you probably already know are: Product, Price, Promotion, and Place. The ‘four P’s’ represents a convenient way to summarize the main factors involved in any ‘marketing strategy.’ However, seen in a contemporary sense, the four P’s may mistakenly be limited to downstream marketing activities only and as Chapter One indicates, there are also upstream marketing activities that are related to the marketing mix. If this does not make sense to you, please go back and review the terms used in Chapter One.
The planning cycle is composed of five basic steps. First, Planning is the process of examining and understanding the surroundings within which the organization functions. For example, “environmental scanning” is the process of studying and making sense of all the things that might impact the firm’s operation that are external to the firm. This would include studying and gaining an understanding of such things as: competition, legislation and regulation, social and cultural trends, and technology. Both present and developing trends in each of these areas must be identified and monitored.
Second, Implementation is the process of putting plans that have been made into action. It is the transition from expected reality to existing reality.
Third, Monitoring is the process of tracking plans and identifying how plans map to changes that take place during program operation when more information is acquired. Correction is the stage in which we take action to return our plan to the desired state based on feedback obtained in the monitoring stage. If we find that return to the planned state is not practicable, we may adjust our planning outcomes. Thus, Monitoring and Correction may be considered two stages because after plans are put into action, one must continually monitor performance and make adjustments to the plan based on the feedback gathered through these monitoring activities. In summary, the marketing management cycle composed of planning, implementing, monitoring, and correcting. We use the use the term ‘PIMC’ as a device to remember the stages.
The organizational mission of this service firm is: “We provide families with means to improve their peace of mind and quality of life.” Representatives of the firm meet with families, question them to understand how the family operates at present, do an on-site ‘activities audit’ that models patterns of daily life for the family, and then offer suggestions about how the family can be better organized and more efficient in its use of time. Let’s Get It Together is owned and operated by a mother of three children. After conducting several informal focus groups, she decided to start this business because she realized that her family and most other families she observed lived in a state of chaos. After attending a seminar on creativity and innovation, she decided that there was a real need in the marketplace for a not-for-profit educational institution to pass along all of the knowledge families have about how to manage their household activities more effectively.
After she came up with the idea, the owner realized that she must get organized herself, thus based on the “Five W’s and H Technique” (Who, What, Where, When, Why, and How) she composed the following questions:
What will the customer satisfaction entail, that is, what are the needs I am trying to meet?
Who will receive customer satisfaction?
Why will my organization deliver this particular customer satisfaction?
Who will deliver customer satisfaction?
Where will I deliver customer satisfaction?
When will I deliver customer satisfaction?
How will I deliver customer satisfaction?
The owner then modeled the marketing management cycle as follows:
Planning: First answer the seven questions I have formulated.
Answers to questions:
Question # 1: What will the customer satisfaction entail, that is, what are the needs I am trying to meet?
Answer: Provide easy-to-follow guidance on improving family organization
Question # 2: Who will receive customer satisfaction?
Answer: Families who perceive a need for being better organized.
Question # 3: Why will my organization deliver customer satisfaction?
Answer: First, there is a already perceived need to be better organized. Second, there are ways to fulfill that need that are not being provided to families.
Question # 4: Who will deliver customer satisfaction?
Answer: Let’s get it together, through a small staff of highly trained and ethical individuals, will provide this service to families
Question # 5: Where will I deliver customer satisfaction?
Answer: The service will be provided through small introductory seminars and through meetings in the homes of the families, if preferred.
Question # 6: When will I deliver customer satisfaction?
Answer: Customer satisfaction will start with the first seminar and continue through a continuing association with Let’s get it together.
Question # 7: How will I deliver customer satisfaction?
Answer: Through a personal and caring approach with my clients involving seminars and continuing personal contacts
If you review the seven questions, and the answers above, you can see that some of the planning has been done. What remains is to identify specific actions that must take place to ensure success such as identifying the characteristics of the best candidates for our service, creation of the service materials (seminar materials, etc.) and details of the logistics by which the service will be promoted and provided.
A brief example of one aspect of this organization’s marketing planning is:
“We will provide seminars that last one-half day to families who perceive the need for help in organizing their activities, thus we must identify likely places to offer these seminars. We have obtained a list of community centers, where space is provided free-of-charge for such activities, and will offer our seminars there, initially. However, we may change that approach after initial seminars are offered (monitoring and correction) and move our seminars to more centrally located sites such as hotels and churches.”
The business plan is an overall blueprint for the anticipated activities for the organization over a coming time period, usually one-year (short term) or five-year (long-term). We should mention that many businesses are moving their long term planning periods to ten years and beyond in order to better prepare for the future. These businesses often make use of creativity techniques to attempt to outline what changes may occur in their respective environments and how the organization should respond to those changes.
1. those who do the plan are responsible or accountable for the plan’s implementation
2. this same group is committed to the plan’s success
3. management is committed to the plan’s success and is willing to expend the necessary resources for its implementation
4. the marketing plan is created in the context of the organization’s overall business plan
5. people in the organization share a similar orientation to the marketing function
If these five conditions are met, the organization is much more likely to be able to successfully create and implement its marketing plan.
An example for the marketing is as follows:
I. Executive summary (a one-page to two-page overview of the contents of the plan)
II. Vision for the marketing plan (a paragraph that briefly describes the aspirations for the coming time period and the theme of the plan)
III. SWOT analysis outlining the strengths and weaknesses (internal to the organization) of the organization and the opportunities and threats (external to the organization) that the organization faces.
IV. Description of market/customer types and products/services that will provide satisfaction to those markets and customers
a. Market grid of markets and customers
b. Product/service positioning strategy
V. Marketing objectives for the coming period (objectives should be “SUMAC” or specific, understandable, measurable, attainable, and consistent)
VI. Description of marketing programs with timeline (a calendar of major marketing events planned, with a description of each event)
This outline should be combined with the PIMC model described earlier in the chapter. The PIMC serves as a good guide for on-going implementation of the marketing plan.
While the outline above is simplified, it touches on the critical areas for a marketing plan. It is important to point out, however, that a plan is only as good as its implementation, thus, it is usually better to have a poor plan and good implementation than a great plan that never gets implemented.
8. Call your local grocery or supermarket and ask to interview the store manager. Schedule an interview and in the interview ask the manager how s/he would define marketing management. And how his/her job relates to marketing management.
9. If you have an industry of interest, explore the definition of marketing management in that industry by interviewing someone who works in that industry.
10. Apply the PIMC planning cycle (planning, implementation, monitoring, and correction) to model the actions necessary for a ten year old to set up a lemonade stand. Write a one-page essay on your analysis, identifying activities conducted in each step in the PIMC cycle.
11. Use the marketing plan outline in the chapter to prepare a marketing plan for the lemonade stand. Limit your marketing plan to two pages using keywords to describe your plan.
12. Search the internet for the term “Product manager” and write a one-page summary of your findings.
13. Write a job description for a marketing manager of the marketing function. How does it compare to the description you gave in answer to question six in chapter one?
14. In a one page essay, make observations on ‘Let’s Get It Together’ Family Organization Services,’ including the benefits families can expect from participation and your estimate of demand for this new service. To what segment, if any, do you believe this service will appeal? Describe this segment of families using factors like family income, education, lifestyle, etc.
Chapter Two – Glossary
Marketing management - the process allocating the resources of the organization toward marketing activities
Marketing plan - a document
that describes the activities leading to customer satisfaction the organization
anticipates intends to engage in a coming time period, usually one-year.
Chapter Three – How do we identify and understand markets?
As a student of marketing, you have already learned that the main purpose of modern marketing is to serve customers. If the organization really believes in this philosophy, that is, “the Customer Rules,” it only remains for the organization to focus on researching and understanding its customers and then delivering products and services to the customer that will not only meet the customer’s needs, but satisfy the customer in a way that will keep the customer coming back to our organization to do business with us. Therefore, often the first assignment for the marketing function is to gather and analyze information about customers. Today, that usually means first attempting to understand the structure of the marketplace.
The main goal of market segmentation (dividing the market into different portions based on differences in customers) is to better understand the needs of our customers thus we need a structured approach to attain this goal. A simple seven-step approach follows:
Step One: Identify the type of market with which you will be dealing
Step Two: Analyze the areas of satisfaction you are attempting to provide to this market, that is, what wants or needs do you intend to satisfy?
Step Three: Select dimensions with which to segment the market
Step Four: Based on the selected dimensions, identify the segments in
the market under study
Step Five: Evaluate whether the segment in which you are interested meets the four criteria for effective segmentation
Step Six: Create a profile of the customer identified including purchasing behavior expectations
Step Seven: Combine the segmentation analysis with other analyses related to the product, market, and business strategy.
Market segmentation is an approach by which we identify, define, and understand different sub-markets for products and services. For example, the automobile market is comprised of many segments including passenger cars, vans, sports utility vehicles, pickup trucks, and many others. Notice, that if you
choose one segment, for example, passenger cars, there are many segments within that segment (for example, Two-door sports sedans, four-door station wagons, convertibles, etc.). The first step to market segmentation is understanding and defining the market with which you are working. For example, if we examine the market for toothpaste, we might first look at the type of market we are looking at. Normally, in marketing, we can identify four types of markets.
1. consumer markets – people who buy for their own, personal non-business use (for example, you buy a lawnmower at Wal-Mart to mow your own yard).
2. organizational markets – organizations buy goods and services for use in the operation of their businesses or for resale. For example, Compaq computer buys many of its microprocessors from Intel Corporation and your local dentist must obtain supplies and materials to provide his/her services to patients.
3. government markets – Local, state, and federal governments taken together constitute for the largest demand for goods and services in the U.S. For example, your local police department must buy patrol cars.
4. institutional markets – these markets include universities, hospitals, and other similar organizations. For example, a hospital cafeteria must purchase food and other supplies to run its operation.
Note that each of these types of markets has demand for both goods (tangible products that we can touch, feel and see) and services (intangible products that we cannot touch, feel, and see). After identifying the type of market, we can then begin to identify segments within that market. For example, if we are analyzing the consumer market for toothpaste, we realize that there are many segments identified in that market already: health (that is, fluoride, tartar control, sensitive gums, and so forth), attractiveness (whitening, breath freshener, etc.), special needs (smokers’ toothpaste, kids’ toothpaste, etc.). Note that there are several different dimensions for segmenting markets. For example, the last category we mentioned ‘special needs’ includes both a lifestyle segment – smokers, and an age segment – children. We will address this issue later in the chapter.
Different types of markets often require a separate basis for market segmentation. For example, we frequently use age as a way to understand and segment consumer markets because age often accounts for significant differences in the wants and needs of consumers. For example, consider passenger cars. Many people in their early years choose cars on the basis of styling, economy, acceleration, and, of course, price. Seniors may choose their car based primarily on brand name and safety issues. Thus age is often an important criterion in what satisfies a particular consumer. However, age is rarely used to identify differences between organizations because usually, the age of an organization does not usually significantly impact its particular demand for products and services. As in many cases in marketing, the exceptions to this statement only serve to prove the rule.
Step Two: Analyze the areas of satisfaction you are attempting to provide to this market, that is, what wants or needs do you intend to satisfy?
As we will discuss in following chapters, people and organizations usually purchase benefits: not products or product features. Therefore, market segmentation analysis requires a clear definition of the benefits customers are expecting to receive through purchase. For example, people buy vacuum cleaners to attain their personal goal of having a clean, sanitary carpet. The form of the product doesn’t matter as much as the product’s ability to provide those benefits. What would you do if you were marketing manager of a company that has vacuum cleaner bags as its sole product when more and more vacuums are ‘bagless?’ The implications for product design will be discussed in a later chapter.
When deciding on how to distribute a product, one organization may choose the internet based on its customers’ desire for efficiency in buying and familiarity with the world-wide web, while another organization may choose to distribute its products through a traditional retail outlet because the segment chosen prefers to ‘touch and feel’ the product.
For an additional example, consider a small gift shop. If a market research study indicated that customers of the shop preferred a lot of assistance in the product choice process because over three-fourths of the products purchased in the store were purchased as gifts, the product would be distributed through a physical location within which the customer could compare alternatives. Thus, the primary benefits sought in this shop were finding a good gift idea with a sense of security against giving an inappropriate gift. Notice that the store’s owner might change from an inventory similar to her competitors to a differentiated set of product choices aimed at meeting her customers’ purchasing goals of quality and uniqueness.
The dimensions used to segment the different types of markets will be organized according to type of market because the dimensions used for segmentation vary substantially.
Dimensions for Segmenting
Consumer Markets
As discussed earlier, people in consumer markets buy for their own, personal non-business use, thus segmentation dimensions for this type of market focus on the characteristics of the buyer. Four dimensions are traditionally used to segment consumer markets. These dimensions are:
a. demographic dimensions - demo’ means people, and ‘graphics’ means some representation of thereof. So, demographics consists of all those characteristics of people that are used to describe the size and composition of the population including age, gender, amount of income, level of education, and other such attributes.
b. psychographic dimensions - ‘psycho’ from Greek means ‘spirit or mind’ so while demographics deals with the statistical characteristics of the market segment, psychographics refers to the characteristics of peoples’ spirits and minds. For example, psychographics is usually broken down into personality, life style, and motivation.
c. geographic dimensions – this dimension, not surprisingly, relates to where people live, for example, the demand for snow skis is higher in the mountainous states in the U.S. than it is in the plains states.
d. behavioristic (or intended use) – this dimension relates to benefits sought and expected use by the customer. For example, many products are sold in multiple packages such as six-packs because customers expect to consume multiple units in relatively short periods of time.
Dimensions for Segmenting Organizational Markets
Customers in organizational markets buy products either to use in the operation of their business or to resell to other organizations. For example, Walmart must purchase cleaning products to keep Walmart Stores clean and attractive, but Walmart also buys cleaning products to sell to their customers. Given this situation, different segmentation strategies are required based on the intended use of products bought by organizational customers. Bases often used include:
a. intended use of products bought
b. expected benefits to be provided by products purchased
c. size of organization
d. SIC (or NAIC) code* of organization’s or organization’s products
e. Other characteristics of organization or specific industry
*Standard Industrial Classification or North American Industry Classification System codes are numbers derived from the core business in which the organizations are engaged. These codes are useful for segmentation because all industrial activities are given a code in the U.S. This scheme has been widened to include Canada and Mexico subsequent to the NAFTA agreement. Check out the website at http://www.census.gov/epcd/www/naics.html.
Step Four: Based on the selected dimensions, identify the segments in the market under study
After dimensions have been selected to use in defining the segments, segments then must be identified in the market under study. For example, if we are trying to analyze the market for personal computers, we might choose to identify the following segments: desktop, laptop, PDA (personal digital assistant). Which of the four dimensions did we use to create those segments? Primarily, behavioristic (intended use), because portability and computing power are two important benefits sought by different pc users.
Step Five: Evaluate whether the segment in which you are
interested meets the four criteria for effective segmentation
To be useful, an approach to segmenting markets, the segments must be:
1. measurable (we can estimate how many people or organizations are in the segment)
2. accessible (we can reach the segment through available means)
3. compatible (the segment is consistent with the overall goals of the organization)
4. substantial (the segment is large enough to justify our develop of products or services just for that segment)
These four dimensions are helpful for understanding any market structure. However, we must first understand the market, itself. For example, try using this information to analyze a market with which you are familiar. Identify the different segments in that market and list the four factors above, and the concerns for each factor as it relates to the product or service you picked. For example, segment the market for shampoo or soup, listing each criterion above followed by an explanation about how this characteristic will be present in the target market.
Step Six: Create a profile of the customer identified including predictions of expected purchasing behavior
As one might expect, there is a large body of literature related to buying behavior in marketing because marketing focuses on the buyer and his/her characteristics. While we will cover parts of this literature the reader should realize that there are hundreds of thousands, if not millions of pages published in this area.
Usually when we attempt to model the buying process of our target customer. Of course, this process differs considerably across different types of markets as well as across different types of customers.
Very often, marketers overestimate the importance of purchases to consumers. Naturally, if one researches, manufactures, and distributes a product to consumers, one is intimately involved with the product often virtually every working hour. This circumstance often results in a heavy emphasis on customer decision-making when in fact the customer may only react on a very shallow psychological plane to products offered and the purchase decision is in reality almost an afterthought. However, it is important for marketers to attempt to model the expected buyer behavior involved for their product. We will discuss this issue further in the following chapter.
We will define ‘marketing strategy’ as “a marketing mix aimed at a specific target market.” While this definition is a use of the ‘lower level’ of the term strategy, we believe that the definition is appropriate for beginning students in marketing. If we look closer at this definition we can see that a marketing strategy is:
A Marketing Product or service
Mix Price AIMED AT a → Target
Market
Distribution (Place)
Promotion
We will use this definition throughout our study of marketing principles and you will soon become comfortable thinking in these terms.
Example of seven-step segmentation process
Step One:
Identify the type of market with which you will be dealing
Step Two: Analyze the areas of satisfaction you are attempting to provide to this market, that is, what wants or needs do you intend to satisfy?
“We seek to enhance family life
for parents and children alike by providing
practical tools to improve organization in family life”
Step Three: Select dimensions with which to segment the market
Demographic, Psychographic, Geographic, Behavioristic
(a note to the reader:
segmentation doesn’t always requires the use of all four of these factors in
creating a profile, but we suggest you always use each dimension in your
analysis, whether or not you decide to drop one later on in the process)
Step Four: Based on the selected
dimensions, identify the segments in the market under study
Demographic – household
income over $80,000, at least one parent is college educated, both parents
work, two children or more in household
suburban location in medium to
large city
Geographic – every
geographic region of the U.S. has families who fit our profile, also see
Demographic, above
Psychographic – ‘busy or
hectic’ lifestyle as described by people in segment
Behavioristic
– family perceives life is ‘too hurried, too complicated, too little quality time together’
(Please note: Our marketing research studies
indicated these facts and allowed us to formulate our customer profile)
Step Five: Evaluate whether the segment in which you are interested meets the four criteria for effective segmentation
Measurable – we were able to assess this segment and understand by using only the census data published by the U.S. Bureau of the Census
(Website is http://www.census.gov/ )
Accessible – we can easily identify and communicate with households in profile. However, selecting specific households that may want our service is much more difficult.
Compatible – our organizational mission is aimed at serving this segment, so, yes, the segment is compatible with our organization and other products/services
Substantive – our research and projections indicate that there are millions of households in our target market. Therefore, we are starting our service in one city and expanding the service over the coming years.
Step Six: Create a profile of the customer identified including purchasing behavior predictions
See Step Four above. Also, we know that purchase behavior is a high
involvement transaction for our target families.
Step Seven: Combine the segmentation analysis with other analyses related to the product and market
While we believe our concept has a lot of promise, we must continue to flesh it out and do research. Organizational research will continue while we conceptualize and offer our first seminars to keep track of changes in the social environment of our chosen geographic markets. We will also maintain a research effort with all people contacted in relation to our concept including families who participate, healthcare professionals, and community leaders.
15. Summarize in a one-page report what you find after you get on the internet and search the keyword ‘market segmentation.’ Organize your answer according to the different categories you find in your search.