Instructor S Manual Chapter 6 Business Marketing Management

Instructor’s Manual Chapter 6 Business Marketing Management

CHAPTER 6 MARKET SEGMENTATION, POSITIONING, AND DEMAND PROJECTION

LEARNING OBJECTIVES After reading this chapter, the student should be able to:  Appreciate the difficulty involved in successfully segmenting business markets.  Distinguish among undifferentiated marketing, differentiated marketing, and concentrated marketing.  Differentiate between the micro/macro and the nested approach to business market segmentation.  Understand how to evaluate potential market segments.  Discuss six approaches by which a firm can position its products.  Recall the purpose, problems, and general methods of sales forecasting.

CHAPTER OVERVIEW Market segmentation consists of dividing a market into distinct groups of buyers that have similar characteristics. There are three different forms of market segmentation. The first, undifferentiated segmentation involves using a strategy of treating the market as one homogeneous market segment. Another form of segmentation is differentiated segmentation, which involves a firm attempting to differentiate its’ product as compared to a competitor’s product, both of which are being offered to an aggregate market. The third form of market segmentation is concentrated marketing, which basically involves a firm picking a few different segments of a market and concentrating solely on those segments. A firm can segment its’ market in a few different manners. Macro segmentation is the process of dividing the market into subgroups based on overall characteristics of an organization. Micro segmentation involves segmenting based on the characteristics of the decision-making process within the organization. Some argue that these two segmentation approaches neglect many potential areas for segmentation. A more detailed approach, called the nested approach to market segmentation, was developed to expand upon the other approaches. Many of the same variables that marketers can use to segment the consumer market can also be used to segment the organizational market. In addition to these, other categories of variables such as type of economic activity, size of organization, geographic location, and product usage can be used to segment the organizational market. Product positioning is an important concept to use once markets have been segmented. Product positioning refers to the way the product is defined by customers. Understanding how customers perceive a firm’s products as compared to competing products can be a very useful marketing tool. Perceptual mapping is one technique that can be utilized to examine a product’s position as related to competitors’ products. Positioning business products can be more difficult than positioning consumer products. Most often, advertising is used to position consumer goods, while personal selling, advertising, and trade shows are the most useful means to position business products. Many strategies can be used to position business products including positioning by technology, price, quality, image, distribution, and service.

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A business marketer should use forecasting to estimate future demand for the firm’s product lines. Forecasting can be an invaluable tool for the business marketer, but oftentimes is underused due to several potential problems. These problems include forecasting mystique, accuracy, inconsistency, accountability, and implementation. Forecasting methods can be divided into two basic categories: qualitative or quantitative methods. Qualitative methods include techniques such as jury of executive opinion, sales-force composite, survey of buyer intentions, and the Delphi method. Quantitative techniques include methods that can be classified as either time-series techniques, which rely on historical data, or causal techniques, which are based on the relationships among various factors.

LECTURE OUTLINE SEGMENTATION, POSITIONING, AND DEMAND ESTIMATION: AN OVERVIEW

GENERAL MARKET SEGMENTATION STRATEGY

MARKET STRATEGIES FOR BUSINESS SEGMENTATION Undifferentiated Marketing Strategy Differentiated Marketing Strategy Concentrated Marketing Strategy

APPROACHES TO MARKET SEGMENTATION Macro/Micro Segmentation The Nested Approach to Market Segmentation An Application of the Nested Approach

SEGMENTING BUSINESS MARKETS Type of Economic Activity Size of Organization Geographic Location Product Usage Structure of the Procurement Function

EVALUATING POTENTIAL MARKET SEGMENTS Market Profitability Analysis Market Competitive Analysis

PRODUCT POSITIONING STRATEGY Perceptual Mapping Positioning Business Products Positioning by Technology Positioning by Price Positioning by Quality Positioning by Image Positioning by Distribution Positioning by Service

BUSINESS DEMAND PROJECTION Strategic Importance of Forecasting in Decision Making Common Forecasting Problems

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Forecasting Mystique Forecasting Accuracy Forecasting Inconsistency Forecasting Accountability Forecasting Implementation

SELECTING FORECASTING METHODS General Approaches to Forecasting Qualitative Approaches to Forecasting Jury of Executive Opinion Sales-Force Composite Survey of Buyer Intentions The Delphi Method Quantitative Approaches to Forecasting Time-Series Techniques Trend Fitting Moving Average Exponential Smoothing Adaptive Control Box-Jenkins Causal Techniques Regression Econometrics Leading Indicators Diffusion Index Input-Output Analysis Life-Cycle Analysis

TEACHING SUGGESTIONS

For the segmentation portion of the chapter, it would be helpful to pick out both a product example aimed at a general market to show undifferentiated marketing and a product example aimed at one or more particular segments to show differentiated marketing and concentrated marketing. Scan advertisements in trade journals to locate product advertisements that have been positioned in various ways. Also, ask students to do the same, as such an exercise stimulates their active participation in class discussion. Stress the learning of the various forecasting tool options available to the business marketer, rather than the specifics of each approach. The strategy box, “Strategy at Work – U.S. Can Corporation Turns to Segmented Marketing” introduces students to U.S. Can’s approach to finding a differential advantage over its competitors through segmentation. In the “Business Marketing in Action – Web Sites as Part of a Product Positioning Strategy” box, the objective is to have students learn that they can find the web sites of companies by using search engines, and that they can identify the objective of the company’s web site presence. Students are sure to enjoy the “Business Marketing in Action – Forecasting and Demand Planning Responsibilities” box in that it asks them to visit the major job search web sites. In the ethics box, “What Would You Do? - Unexpected Demand Change at XYZ Metal Stamping Company,” students must struggle with what is unethical and what is unprofessional. In Case 6-1 Jiang Metal Products Company (An Internet Application Case), students are asked to take on the identity of a newly hired marketing person and to learn about the company’s products. Then, they are asked to decide on the design and estimate the cost of a new web site. Finally, in Case 6-2 XYZ Software Part B (An Internet Application Case), students are asked to reconsider Case 5-1 from the viewpoint of segmentation.

ANSWERS TO REVIEW QUESTIONS

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1. In what kinds of areas can business market segmentation assist business-to-business firms? How is segmentation achieved in business marketing? What are three criteria used to be successful in selecting business market segments? Market segmentation can assist business marketers in market analysis, selection of key markets, and management of the marketing function. In business marketing, segmentation is achieved generally by forming user segments, customer size segments, geographic segments, product segments, and the makeup of the business buying center. To be successful, the business marketer must be able to identify, analyze, and evaluate potentially attractive market segments; target the segments to be served; and then develop and communicate a positioning strategy that will differentiate the firm’s offerings from others.

2. Distinguish among undifferentiated marketing, differentiated marketing, and concentrated marketing as business market segmentation strategies. By adopting a strategy of undifferentiated marketing, the organization treats its total market as a single entity. Differentiated marketing is the strategy by which a firm attempts to distinguish its product from competitive brands offered to the same aggregate market. Through concentrated marketing, the firm achieves a strong market position in a segment, owing to its greater knowledge of that segment’s needs and to the special reputation it builds.

3. Compare macro segmentation with micro segmentation. What is the nested approach to business market segmentation? What is its major premise? Why are outer-nest criteria generally inadequate when used alone to segment markets? How can mature business markets be segmented? What is the value of using purchase responsibilities among individuals within organizations as a method of segmenting business markets? Macro segmentation involves dividing the market into subgroups based on overall characteristics of the prospect organization, and micro segmentation pertains to characteristics of the decision-making process and the buying structure within the prospect organization. The nested approach stresses segmentation according to the amount of investigation required to identify and evaluate different criteria. The basic premise is that the distinction between macro and micro segments leaves out a number of potentially valuable segmentation variables. The outer-nest criteria are generally inadequate when used by themselves in all but the simplest markets because they ignore many significant buying differences among customers. Rangan, Moriarty, and Schwartz have developed a buying-behavior framework suitable for microsegmenting customers in mature business markets. In mature business markets, segmenting customers on size, industry, or product benefits alone is rarely sufficient. Customer behavior in terms of tradeoffs between price and service is an important additional criterion. Considerable value can be gained by attempting to move toward buying-behavior-based segmentation. Knowledge that a firm’s market may be segmented by purchase responsibilities may lead to more effective deployment of marketing resources. The use of purchase responsibilities to classify organizations represents an attempt to reduce some of the complexity involved in understanding the concept of the buying center. Different kinds of organizations may give rise to different kinds of buying centers, at least insofar as purchase responsibilities within the buying center is concerned.

4. Identify five ways in which business markets can be segmented. Can you think of any additional ways in which a market might be segmented?

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Business markets can be segmented by economic activity, site of organization, geographic location, product usage, and structure of the procurement function.

5. What is the role of a competitive analysis in business market segmentation? Distinguish between a market profitability analysis and a market competitive analysis as preconditions to selecting market segments. A competitive analysis should be undertaken to assess both the strengths and weaknesses of competitors within a segment so as to identify areas of opportunity for the firm. A market profitability analysis determines whether it is financially feasible or not for a company to segment a particular market. A market competitive analysis tends to indicate whether or not a particular market is already being reached in the most effective ways.

6. What is meant by product position? Why is perceptual mapping used? Identify six ways by which a company could position a business product. What six questions should a firm ask before getting started with a positioning strategy? Product position is the way the product is defined by customers on important attributes or the place the product occupies in the customers’ mind relative to competing products. Perceptual mapping is a technique for examining a product’s position relative to strengths and weaknesses of the product and in comparison to offerings of competitors. Business products can be positioned by technology, price, quality, image, distribution, and service. Six questions the firm should ask in getting started with a positioning strategy are as follows: (1) What position does the firm currently own? (2) What position does the firm want to own? (3) Whom must the firm outflank? (4) Does the firm have enough resources? (5) Can the firm stick it out? (6) Does the firm match its marketing mix with its stated market position?

7. When is forecasting used? What is the value of accurate sales forecasting? When business marketers have successfully carved out a position for each product in all their product lines, they are then ready to forecast potential sales volume. Accurate sales forecasting helps the marketing manager plan strategies and tactics and compile a marketing plan to achieve realistic profit targets in the short, medium, and long run.

8. Discuss five common problems encountered by business marketing managers in Five common problems encountered by business marketing managers in sales forecasting are as follows: (1) forecasting mystique – apprehension about the use of forecasting techniques; (2) forecasting accuracy; (3) forecasting inconsistency; (4) forecasting accountability; and (5) forecasting implementation.

9. Distinguish between the top-down and the bottom-up methods of sales forecasting. Discuss four qualitative methods of sales forecasting. In the top-down method of sales forecasting, management begins by developing an aggregate measure of potential that is then disaggregated. Sales potential is first estimated, sales quotas are developed, and then a sales forecast is constructed. The bottom-up method begins with the sales force and is a process of estimating the number of potential buyers by adding the individual estimates by product line, geographic area, or customer group. Potential is estimated at the field level, and all estimates are tallied to obtain the total sales predicted. Four qualitative forecasting techniques are as follows: (1) jury of executive opinion – combining and averaging the outlooks of top executives from different functional areas in the firm; (2) sales-force composite – combines each salesperson’s estimate of future sales in a particular territory into a total company sales forecast; (3) survey of buyer intentions – anticipates what buyers are likely to do under a

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given set of conditions; (4) Delphi method – accomplished by questioning experts individually and then providing them with anonymous feedback information from others in the group until a consensus of group members is reached.

10. Differentiate between time-series techniques and causal methods of quantitative sales forecasting. Identify and explain five types of time-series techniques and six examples of causal methods. Time-series techniques focus on historical data, whereas causal methods rely on the relationship among various factors, both past and present, within the marketing environment. Time-series techniques include (1) trend-fitting – fitting a trend line to a series of deseasonalized sales data and then extending it to project future sales; (2) moving average – computing the average sales volume achieved in several recent periods as a prediction of sales in the next period; (3) exponential smoothing – moving-average technique with past forecast errors being adjusted by a weighted moving average of past sales by periods; (4) adaptive control – similar to exponential smoothing but with optimum weights that will reduce the statistical error being derived from historical data; and (5) Box-Jenkins – a computer selects the statistical model of the time series that gives the best fit. Causal techniques include: (1) regression – relate sales predictions to elements explaining variations in sales activity; (2) econometrics – application of regression analysis to business and economic problems; (3) leading indicators – a time series of an economic activity whose movement in a given direction precedes the movement of some other time series in the same direction; (4) diffusion index – the percentage of a group of economic indicators that are going up or down; (5) input-output analysis – concerned with the interindustry or interdepartmental flow of goods and services in the economy or in a company of its markets; and (6) life-cycle analysis – consists of an analysis and the forecast of new-product growth rates based on S-shaped curves.