LO1   Explain what market segmentation is and when to use it.

Market segmentation involves aggregating prospective buyers into groups that (a) have common needs and (b) will respond similarly to a marketing action. Organizations go to the trouble and expense of segmenting their markets when it increases their sales, profits, and ability to serve customers better.

LO2   Identify the five steps involved in segmenting and targeting markets.

Step 1 is to group potential buyers into segments. Buyers within a segment should have similar characteristics to each other and respond similarly to marketing actions like a new product or a lower price. Step 2 involves putting related products to be sold into groups. In step 3, organizations develop a market- product grid with estimated size of markets in each of the market- product cells of the resulting table. Step 4 involves selecting the target market segments on which the organization should focus. Step 5 involves taking marketing mix actions— often in the form of a marketing program—to reach the target market segments.

LO3   Recognize the factors used to segment consumer and organizational markets.

Factors used to segment consumer markets include customer characteristics (geographic, demographic, and psychographic variables) and buying situations. Organizational markets use related variables except for psychographic ones.

LO4   Develop a market-product grid to identify a target market and recommend resulting actions.

Organizations use five key criteria to segment markets, whose groupings appear in the rows of the market-product grid. Groups of related products appear in the columns. After estimating the size of market in each cell in the grid, they select the target market segments on which to focus. They then identify marketing mix actions—often in a marketing program—to reach the target market most efficiently.

LO5   Explain how marketing managers position products in the marketplace.

Marketing managers often locate competing products on two-dimensional perceptual maps to visualize the products in the minds of consumers. They then try to position new products or reposition existing products in this space to attain the maximum sales and profits.

LO6   Describe three approaches to developing a sales forecast for an organization.

One approach uses subjective judgments of the decision maker, such as direct or lost-horse forecasts. Surveys of knowledgeable groups is a second method. It involves obtaining information such as the intentions of potential buyers or estimates of the salesforce. Statistical methods involving extending a pattern observed in past data into the future is a third example. The best-known example is linear trend extrapolation.