Principles of marketing and evaluation

Principles of marketing and evaluation

1.1 explain the importance of defining market segments to the development and achievement of the marketing strategy Customer classifications 1.2a) Business customers 1.2b) leisure customers 1.3 explain how the characteristics, motivations and behaviours of potential target customers are identified In order to market your product or service, it is imperative that you tailor your marketing and sales efforts to specifically reach the segment of population that will most likely buy your product or service. It is critical that you first determine or clearly identify your primary market. Your energies and funds then can be spent more efficiently. If you don’t know who your customers are, how will you be able to assess whether you are meeting their needs? Since success depends on your being able to meet customers’ needs and desires, you must know who your customers are, what they want, where they live and what they can afford. We’ve all heard a business owner say, "My product is terrific! It appeals to everyone." Many of us have also seen small businesses that try to be all things to all people. This is a difficult, if not impossible, bridge to cross. Targeting your market is simply defining who your primary customer will be. The market should be measurable, sufficiently large and reachable. Types of Markets A market is simply any group of actual or potential buyers of a product. There are three major types of markets.The consumer market. Individuals and households who buy goods for their own use or benefit are part of the consumer market. Drug and grocery items are the most common types of consumer products. The industrial market. Individuals, groups or organizations that purchase your product or service for direct use in producing other products or for use in their day-to-day operations. The reseller market. Middlemen or intermediaries, such as wholesalers and retailers, who buy finished goods and resell them for a profit. Step One — Identify Why A Customer Would Want To Buy Your Product/Service The first step in identifying your target market is understanding what your products/services have to offer to a group of people or businesses. To do this, identify your product or service’s features and benefits. A feature is a characteristic of a product/service that automatically comes with it. Step Two: Segment Your Overall Market It is a natural instinct to want to target as many people and groups as possible. However, by doing this your promotional strategy will never talk specifically to any one group, and you will most likely turn many potential customers off. Your promotional budget will be much more cost effective if you promote to one type of customer and speak directly to them. This allows you to create a highly focused campaign that will directly meet the needs and desires of a specific group. Again, this is called market segmentation. Market segmentation is the process of breaking down a larger target market into smaller segments with specific characteristics. Each group requires different promotional strategies and marketing mixes because each group has different wants and needs. Segmentation will help you customize a product/service or other parts of a marketing mix, such as advertising, to reach and meet the specific needs of a narrowly defined customer group. An example of market segmentation is the athletic shoe industry. Major manufactures of athletic shoes have several segmented markets. One segment is based on gender and the other segment is based on the type of sport or activity. They have different promotional campaigns for each market segment. Larger markets are most typically divided into smaller target market segments on the basis of geographic, demographic, psychographic and behavioristic characteristics:Geographic. Potential customers are in a local, state, regional or national marketplace segment. If you are selling a product such as farm equipment, geographic location will remain a major factor in segmenting your target markets since your customers are located in particular rural areas. Or, if you own a retail store, geographic location of the store is one of the most important considerations. Climate is a commonly used geographic segmentation variable that affects industries such as heating and air conditioning, sporting equipment, lawn equipment and building materials. Decide if your business is going to do business on a local, regional, national or international level. Identify the geographic region where your market is located. Identify specific boundaries within which you will do business.Demographic. Potential customers are identified by criteria such as age, race, religion, gender, income level, family size, occupation, education level and marital status. Choose those characteristics of your demographic target market that relates to the interest, need and ability of the customer to purchase your product or service. For example, a target market for a real estate developer selling luxury vacation homes near Walt Disney World would include professional married couples approximately 30 to 45 years old with young children, and with incomes of more than $100,000. Psychographic. Many businesses offer products based on the attitudes, beliefs and emotions of their target market. The desire for status, enhanced appearance and more money are examples of psychographic variables. They are the factors that influence your customers’ purchasing decision. A seller of luxury items would appeal to an individual’s desire for status symbols. Business customers, as well as consumers, can be described in psychographic terms. Some companies view themselves as cutting edge or high tech, while others consider themselves socially responsible, stable and strong. Still others see themselves as innovative and creative. These distinctions help in determining how your company is positioned and how you can use the company’s position as a marketing tactic. For example: Southwest Airlines has positioned itself as an innovative and fun airline that takes passengers on short, inexpensive excursions, whereas Delta chooses to promote reliability and safety. Behavioristic. Products and services are purchased for a variety of reasons. Business owners must determine what those reasons are, such as: brand, loyalty, cost, how frequently and at what time of year customers in a segment use and consume products. It’s important to understand the buying habits and patterns of your customers. Consumers do not rush and buy the first car they see, or the first sofa they sit on. A Fortune 500 company doesn’t typically make quick purchasing decisions. Answer the following questions regarding your market. Reason/occasion for purchase? Number of times they’ll purchase? Timetable of purchase, every week, month, quarter, etc.? Amount of product/service purchased? How long to make a decision to purchase? Where customer purchases and/or uses product/service? Most businesses use a combination of the above to segment their markets. Demographic and geographic criteria will usually qualify your target markets so you can establish if segment members have enough money to purchase your offering or if they’re in a location that’s accessible to the product. Most businesses then use the psychographic and behavioristic factors to construct a promotional campaign that will appeal to the target market. Step Three: Research Your Market demographic data The primary vehicles to obtain this information are surveys and focus groups. Surveys are typically anonymous and try to reach as many members of a target market as possible. Focus groups, on the other hand, attempt to get an understanding of a specific market segment by questioning eight to 12 members of that group to discover what psychographic and behavioristic factors might motivate the entire group. 1.4 explain how to cluster customers with similar characteristics Segmentation When you segment you know who to target. If I’m selling an expensive little black dress, I want to target women who have a high annual household income. In this case I’m defining the limits of the group. Women. With annual incomes over a hundred thousand dollars who have purchased similar items in that product category. It’s natural to assume that this group of women would (be able to) buy my store’s dresses. Clustering Clustering is the process of using machine learning and algorithms to identify how different types of data are related and creating new segments based on those relationships. Clustering finds the relationship between data points so they can be segmented. In the following mockup of a cluster model for my black dress customers we see that many of the women purchased a dress in the first two months of the year and were in their early twenties 1.5 describe how to confirm that proposed segments are real, distinctive, viable and their buying power measurable Audience amount of people targeted suppliers demographicsTo confirm that segments are real and measurable they must be profitable and sales must be measured for each segment so each segment has a way of being measures. A successful market segment will usually meet the following criteria: Clearly Defined and Distinguishable Segment The chosen segments should be clearly defined to avoid doubt about which part of the market, the firm's marketing activities are aimed at. Otherwise there is a risk that market activities will "spill over" into different segments. If there is more than one segment, you will need to assess whether each segment will require specific marketing. For example if married and unmarried men behave similarly when purchasing shoes, there is little value in placing them in different segments. Measurability of Segment Before embarking on a sales strategy it is important to know the size of existing sales in that segment. A firm also needs to know how product sales are growing in the chosen segment. If you can not measure the growth rate, it will be difficult to assess whether your chosen segment is profitable. Accessibility of Segment Accessibility includes communicating with your customers; communication is usually through the internet, TV, radio. However if target customers do not use these things it will be difficult to communicate with them. Post is also a challenge unless you can find out where people making up your market segment live. If you cannot target your segment effectively through marketing communication your marketing strategy will fail. The other aspect of accessibility is being able to distribute your product to your chosen segment. For example a shop based in South London is unlikely to get a large number of customers from North England. In this instance the shop will have to reassess its chosen segment or think about solutions to help accessibility such as selling to customers through the internet. Size and Suitability Of Segment Firms need to ensure that the segment is suitable by ensuring that consumers making up the segment are likely to buy the product and have the spending power to buy the product. There also needs to be an opportunity to increase product sales within the chosen segment. For example if the firm's chosen segment involves selling smart phones to people aged 20-30 who don't own a smart phone. If 95% of this age group own a smart phone, the chosen segment will probably need to be reconsidered as only 5% of the chosen segment don't own a smart phone. On the other hand if the firm's marketing strategy involves persuading people to replace their smart phone it may be a suitable segment as 95% of the segment are the type of people likely to buy smart phones. Segment suitability also includes the size of the segment. If the segment is too small, potential for sales growth will be limited. If is is too large, it will be difficult to create marketing activities to suit all of the groups included in the segment. Actionability of Segment Even if all of the criteria listed above are satisfied a segment is unsuitable unless the business has the resources to cater for the needs of the segment. For example a small business with a £45000 turnover may struggle to fulfil a multi- million pound manufacturing contract. Segmentation is a form of critical evaluation rather than a prescribed process or system, and hence no two markets are defined and segmented in the same way. However there are a number of underpinning criteria that assist us with segmentation: Is the segment viable? Can we make a profit from it? Is the segment accessible? How easy is it for us to get into the segment? Is the segment measurable? Can we obtain realistic data to consider its potential? The are many ways that a segment can be considered. For example, the auto market could be segmented by: driver age, engine size, model type, cost, and so on.  However the more general bases include: by geography – such as where in the world was the product bought. by psychographics – such as lifestyle or beliefs. by socio-cultural factors – such as class. by demography – such as age, sex, and so on. A company will evaluate each segment based upon potential business success. Opportunities will depend upon factors such as: the potential growth of the segment the state of competitive rivalry within the segment how much profit the segment will deliver how big the segment is how the segment fits with the current direction of the company and its vision.  1.6 explain how to evaluate the profitability and stability of market segments Market segments are evaluated by how stable and don’t vanish over time, customers in the same segments will want the same things and it will respond well to a constantly given marketing stimulus. Segmentation is a central aspect of a marketing strategy, and must be constantly assessed, measured, validated, and refined through financial and statistical methods. It is important to make sure the marketing segmentation is still profitable and stable. 1.7 describe how a range of products may appeal to different market segments Car industry The are many ways that a segment can be considered. For example, the auto market could be segmented by: driver age, engine size, model type, cost, and so on. 1.8 explain the motivators and inhibitors that influence customer behaviour Motivators and inhibitors 1.8a) Aspirations 1.8b) lifestyle 1.8c) income 1.8d) time 1.8e) status 1.8f) family  1.9 explain the use of Customer Relationship Management.