A market consists of people or organizations with wants, money to spend, and the willingness to spend it. However, within most markets the buyers' needs are not identical. Therefore, a single marketing program for an entire market is unlikely to be successful. A sound marketing program starts with identifying the differences that exist within a market, a process called market segmentation, deciding which segments will be pursued as target markets, and selecting a competitive position that will be conveyed to customers through the marketing mix.
Most marketers adopt some form of market segmentation as a compromise between the extremes of a strategy that treats the market as an aggregate, undifferentiated whole, and a strategy that views each customer as a different market. Market segmentation enables a company to make efficient use of its marketing resources. Also, it allows a small company to compete effectively by concentrating on one or two segments. The apparent drawback of market segmentation is that it will result in higher production and marketing costs than a one-product, mass-market strategy. However, if the market is correctly segmented, a better fit with customers' needs will actually result in greater efficiency. For segmentation to be effective: (1) the bases for segmentation must be measurable with obtainable data, (2) the segments identified must be accessible through existing marketing institutions, and (3) the segments must be large enough to be potentially profitable.
At the broadest level, most markets may be divided into two segments: ultimate consumers and business users. The four major bases used for further segmenting the consumer market are geographic, demographic, psychographic, and behavioral. The business market may be segmented on the basis of customer location, customer type, and transaction conditions. Normally, in either the consumer or business market, a seller will use a combination of two or more segmentation bases.
The three alternative strategies for selecting a target market are market aggregation and single-segment and multiple-segment strategies. Market-aggregation strategy involves using one marketing mix to reach a mass, undifferentiated market. With a single-segment strategy, a company still uses only one marketing mix, but it is directed at only one segment of the total market. A multiple-segment strategy entails selecting two or more segments and developing a separate marketing mix to reach each segment. The guidelines for selecting segments to target are compatibility with the firm's goals, fit with the firm's resources, profit potential, and the strength of the competition.
When targets have been selected, the organization must decide how to position the offering. Position is the way a brand or organization is viewed relative to the competition by current and prospective customers. A positioning effort should convey the benefits most desired by the target market. The three steps in positioning are (1) selecting the positioning concept, (2) designing the feature to convey the position, and (3) coordinating the marketing mix to consistently communicate the desired position.
Forecasting is essential in evaluating possible target segments. It involves estimating the demand of a market. Management usually estimates the total sales that could be expected under ideal conditions for all firms comprising the industry—market potential—and for its particular product—sales potential. The final step in estimating demand is a sales forecast, indicating probable sales for the company's brand of a particular product in a future time period and with a specified marketing program. The forecast normally covers one year.
Specific methods used to forecast sales are market-factor analysis, survey of buyer intentions, test marketing, past sales and trend analysis, sales-force composite, and executive judgment. Management's challenge is to select the techniques that are appropriate in a particular situation.