DEFINING THE MARKET
A market is a group of individuals and/or organizations wanting a particular product or service who have the financial ability to acquire it. This group of people and/or organizations is termed the target market. However, in order to be considered part of the market, the target group must be actively willing to purchase the product or service in question, and have the authority to do so. Otherwise, they are out of the market.
What is mass marketing?
Organizations using mass marketing essentially assume “one size fits all”; i.e., one particular product mix will satisfy everyone in a particular market, and it is not necessary to identify and service different aspects of the overall market. The example that is usually cited to illustrate mass marketing is Henry Ford`s marketing of the Model T where he said people could have any color they wanted “as long as it is black.” The rationale for mass marketing is that the greatest learning curve and economies of scale result in the lowest unit costs and prices. Increasingly, however, companies are moving away from mass marketing to target marketing.
What is target marketing?
Target marketing consists of breaking a total market into market segments representing smaller homogeneous markets. Once this analysis is performed, it is possible to identify those market segments which can be targeted for a particular product or service based on the conformity of their homogeneous characteristics to the product or service specifications. Using market segmentation, target marketing allows marketing managers to develop more effective marketing strategies.
What is the marketing mix?
The marketing mix consists of four variables-the four Ps-which a marketing manager can control: product (P1), place (P2), promotion (P3), and price (P4).
TABLE 3.1 THE MARKETING MIX
Product
Quality
Type of features
Brand name
Kind of packaging
Design type
Product-related services (service, warranties, maintenance policies)
Place
Number and type of marketing intermediaries
Market location
Warehouse location
Distribution methods
Promotion
Developing promotion budget
Creating the advertising message
Types of advertising media
Developing a sales force
Types of direct marketing
Methods of sales promotion
Price
Choose pricing objective
Estimate product demand
Calculate costs
Maximize product mix pricing
Competitive factors
• Product. The most basic element of the marketing mix is a company`s product or service. The product component includes quality, features, brand name, types of packaging and design, and product-related services including maintenance and warranties.
• Place. Place concerns the processes management uses to make products and services available to the target market. This includes developing marketing intermediaries in order to provide the product or service to market locations. The methods used to distribute products and services are also an essential place component.
• Promotion. Promotion involves the methods used to transmit product information to the target market. This involves creating and using advertising, choosing the appropriate media, developing a sales force, utilizing direct marketing where appropriate, and using other promotion methods.
• Price. Pricing is an important element of marketing a product or service. Management must choose pricing objectives which are consistent with the target market`s expectations as well as the estimated product demand and the costs in producing the product or service. Competitive factors also play an important role in achieving product or service pricing.
The marketing mix management chooses at any particular moment, therefore, is a combination of these four Ps. The total marketing mix combinations available at any particular time are the product, place, promotion and pricing alternatives available to management. Thus, marketing mix combinations = (P1 x P2 x P3 x P4).
EXAMPLE 3.1
A toy manufacturer wants to determine its possible marketing mix combinations available at a particular time. It has the following possible product, place, promotion and price combinations respectively: 5, 10, 8, 7.
marketing mix combinations = (P1 x P2 x P3 x P4)
marketing mix combinations = (5 x 10 x 8 x 7) = 2800
What is product positioning?
Product position is the perception consumers have regarding a market offering(s) relative to its competitors. Product positioning is the act of analyzing and managing consumer product position perceptions. Management develops product position maps to analyze how consumers position products relative to the competition. Product position maps can be developed prior to introducing a product or service or subsequent to introduction in order to obtain further market information.
EXAMPLE 3.2
XYZ Food Corporation is considering targeting the retail consumer food market by introducing packaged orange juice. The question the corporation must answer is whether to introduce a high-quality whole orange juice product packed fresh at the citrus grove, a lower quality concentrate also packed at the citrus grove, or a reprocessed concentrate packed locally. Company A has the high-quality whole orange juice medium price market, while company B has the medium-quality and price concentrate market while company C has the low-quality reprocessed concentrate low-price market. Corporation XYZ decides to offer a high-quality whole orange juice premium-priced orange juice product although there is room in the market to offer a low-quality reprocessed concentrate at a high price.
FIGURE 3.1
PRODUCT POSITIONING MAP FOR ORANGE JUICE
How is market demand determined?
Determining market demand is a critical management concern. Numerous variables ultimately determine market demand. These include demographics (such as age, sex composition, and per capita income of buyers), the state of the economy, past industry sales and others. Thus, market demand is dependent on the current environment. Three methods management can use to project current market demand are total market potential, total industry sales and market shares.
What is total market potential and how is it calculated?
Total market potential is a calculation of the potential market sales for an entire industry assuming a predetermined marketing effort under a given set of market conditions.
The formula for calculating total market potential is:
M = nap
where:
n = number of buyers in the particular product/ market assuming given market conditions
a = average quantity purchased by buyers
p = average unit price
EXAMPLE 3.3
Calculate the total market potential for ballpoint pens in the U.S. in any given year. Out of a population of approximately 250 million, it is necessary to calculate the estimated number of buyers of ballpoint pens. After researching the market, it is determined that the average age of ballpoint pen buyers range from ages 10 to 75. This eliminates approximately 55 million people from the pool. In addition, if another 30 million people are eliminated because they are institutionalized or are illiterate, then a total pool of potential buyers is (250 – 55 – 30) = 165 million. Additionally, market research tells us that annual per capita fountain pen purchases are 8, and that the average price is $1.50 per pen.
The total market potential for ballpoint pens is:
M = nap
M = (165,000,000 X 8 X $1.50)= $1,980,000,000
What is area market potential?
It is necessary for companies to choose the best marketing territories for their products and services. Being able to estimate the market potential of areas including cities and states is essential prior to committing a company`s financial resources. The methods primarily used for this are the market-buildup method and the multiple factor method.
How are industry sales and market shares determined?
Trade associations normally provide gross industry sales data. By tracking its own sales against those of the entire industry, a firm can accurately determine its market share and whether it is increasing or decreasing. Additionally, marketing research firms monitor product-category sales in various retail outlets. This data allows a company to compare its own sales with both the overall industry and to particular competitors.