Module 9 - Market Segmentation and Target Marketing

Question 1

10 When competitive position is strong and market attractiveness is medium, the firm’s primary approach should be to:
A. invest to build.
B. build selectively
C. manage for earnings.
D. protect and refocus.
E. limit expansion or harvest.

Answer 1

B

Question 1

2 Each market segment consists of:
A. people with different needs and wants in terms of particular features, but who are willing to pay approximately the same amount for a product type.
B. people with similar needs and characteristics that lead them to respond in a similar way to a particular product offering and marketing programme.
C. people who are similar with regard to specific characteristics, such as age, income or sex, regardless of their product needs.
D. a diverse group of people who share some characteristic, such as the baby boom generation, regardless of product interests.
E. an equal fraction of the total market.

Answer 1

B

Question 1

1 Market segmentation is:
A. the process of dividing a market into distinct subsets of relatively homogeneous customer groups.
B. the process of positioning the company toward distinct subsets of customers.
C. the process of changing customer demands so that they fall into homogeneous subsets.
D. the process of dividing a market into distinct subsets of relatively heterogeneous customer groups.
E. practised on all products at all times.

Answer 1

A

Question 2

5 The following strategy is appropriate when the total market has few differences in customers’ needs or desires:
A. market aggregation.
B. product positioning.
C. demand function modification.
D. market segmentation.
E. none of the above.

Answer 2

A

Question 2

4 Target marketing:
A. is the process of segmenting the market.
B. is the process of marketing only to the high usage portion of the market.
C. further refines the market segmentation scheme.
D. is the process of changing consumer demand for distinct segments so that it matches target profiles.
E. is the process of deciding which segments to pursue.

Answer 2

E

Question 2

3 Segmentation should concentrate on:
A. subdividing markets into areas in which there are few competitors.
B. identifying markets with relatively low demand volatility.
C. identifying markets with relatively wealthy consumers.
D. subdividing markets into areas in which investments can gain a long-term competitive advantage.
E. subdividing markets into as many different areas as possible.

Answer 2

D

Question 3

6 Which of the following are benefits of segmentation?
A. Aids in marketing programme design.
B. Aids in resource allocation decisions.
C. Aids in exploiting mass markets.
D. All of the above.
E. Only A and B above.

Answer 3

E

Question 4

7 Level of education can be a useful basis for segmenting markets for which goods?
A. Shampoo.
B. Cigarettes.
C. Toothpaste.
D. Theatre tickets.
E. Computer modems.

Answer 4

D

Question 6

9 When competitive position is weak and market attractiveness is medium, the firm’s primary approach should be to:
A. invest to build.
B. build selectively.
C. manage for earnings.
D. protect and refocus.
E. limit expansion or harvest.

Answer 6

E

Question 7

1 The most important criterion for choosing market segmentation variables is that they should define groups of customers who:
A.are relatively price elastic.
B.are not presently served by a firm providing a product that satisfies their wants for the particular product.
C.are relatively inexperienced in the product category.
D.are relatively experienced in the product category.
E.respond differently to one or more of the controllable elements of marketing strategy

Answer 7

E

Question 8

10 A growth-market strategy is most compatible with an objective emphasising:
A short-term profits.
B.short-term return on investment.
C.long-term volume growth.
D.cost reduction.
E.risk minimisation

Answer 8

C

Question 8

3 The first step in constructing a market–attractiveness/business–position matrix is to:
A.assess the current position of each potential target market on each factor.
B.assign weights to attractiveness and competitive position factors reflecting their relative importance.
C.project the future position of each market on the basis of expected environmental, customer and competitive trends.
D.identify key factors underlying attractiveness and competitive position dimensions.
E.develop a business strategy to assess product performance

Answer 8

D

Question 8

2 Having segmented a given market, the firm then determines which segments to target by assessing each segment’s ____ and ____ factors.
A.environmental; market.
B.economic; technological.
C.environmental; technological.
D.competitive; environmental.
E.attractiveness; competitive

Answer 8

E

Question 9

5 The second step in constructing a market-attractiveness/business-position matrix is to:
A.assess the current position of each potential target market on each factor.
B.evaluate implications of possible future changes for business strategies and resource requirements.
C.project the future position of each market on the basis of expected environmental, customer and competitive trends.
D.identify key factors underlying attractiveness and competitive position dimensions.
E.assign weights to attractiveness and competitive position factors to reflect their relative importance

Answer 9

E

Question 9

4 Which of the following is an example of a market/customer factor used to assess the attractiveness of a current or potential target market?
A.Industry structure.
B.Barriers to entry/exit.
C.Market growth rate.
D.Regulatory climate.
E.Access to raw materials.

Answer 9

C

Question 10

6 Before a firm can consider a group of customers as a new target market, the minimum acceptable standard in evaluating segments should be (in terms of market attractiveness and potential competitive position):
A.strongly positive on both dimensions.
B.moderately positive on both dimensions.
C.not necessarily positive but definitely not negative on either dimension.
D.strongly positive on only one dimension.
E.strongly positive on one dimension and moderately positive on the other

Answer 10

E

Question 11

7 When a company designs a single product-marketing programme that the company thinks will appeal to the largest number of consumers, this is known as what type of targeting strategy?
A.Niche-marketing strategy.
B.Growth-market strategy.
C.Differentiated strategy.
D.Mass-market strategy.
E.Positioning strategy.

Answer 11

D

Question 12

8 When competitive position is medium and the market attractiveness is high, the firm’s primary approach should be to:
A.invest to build.
B.build selectively.
C.manage for earnings.
D.protect and refocus.
E.limit expansion or harvest

Answer 12

A

Question 13

9 When competitive position is weak and the market attractiveness is high, the firm’s primary approach should be to:
A.invest to build.
B.build selectively.
C.manage for earnings.
D.protect and refocus.
E.limit expansion or harvest

Answer 13

B

Question 13

Define market segmentation

Question 14

What are the three most common types of market targeting strategy? Discuss each.

Answer 14

Mass market strategy

• serving one or more segments that while not the largest consist of substantial numbers of customers seeking somewhat specialized benefits from a product or service
• this avoids going up against the big boys e.g. gourmet coffee

Mass market strategy

• a business can pursue this strategy in two ways
  
  • ignore segment differences and design a single product and marketing program that will appeal to the largest number of customers – aim is to capture enough of the market to gain economies of scale and a cost advantage. takes lots of resources
  • design separate products and marketing programs for the differing segments (differentiation marketing) e.g. Holiday Inn and Holiday inn select. again this is expensive

Growth market strategy

• target one or more fast growing segments, even though they may not be large
• often used by smaller companies to avoid competitors while growing market share
• usually requires strong r&d and marketing capabilities
• however, fast growth attracts competitors

Question 15

8 Psychographics:
A. seeks to group consumers on the basis of their personality profiles.
B. seeks to group consumers on the basis of their innate intelligence.
C. relies upon sophisticated physiological techniques that map the mental structure of different consumers.
D. groups consumers into psychological profiles on the basis of their interpretation of graphic images.
E. seeks to group consumers on the basis of their activities, interests and opinions.

Answer 15

E

Question 16

Dividing the market for a particular type of car into customers who seek style and customers who seek durability is an example of:
A. demographic segmentation.
B. usage segmentation.
C. product differentiation.
D. demand function modification.
E. market segmentation.

Answer 16

E

Question 17

What was Knight and Bowerman’s target market?
A. All runners.
B. Short-distance runners.
C. Long-distance runners.
D. Track competitors.
E. Olympic contenders.

Answer 17

C

Question 19

Market segments are created to reflect differences across:
A. individual consumers.
B. groups of consumers.
C. individual products.
D. groups of products.
E. individual businesses.

Answer 19

B

Question 21

When a furniture retailer notes data which suggest that young married couples are heavy buyers of furniture, which descriptor is being emphasised?
A. Sex.
B. Education.
C. Income.
D. Household life cycle.
E. Geography.

Answer 21

D

Question 21

When Hyatt Hotels announced a new marketing programme which featured excursions and social events for teenagers, at which descriptor was this programme aimed specifi- cally?
A. Sex.
B. Household life cycle.
C. Education.
D. Age.
E. Income.

Answer 21

D

Question 22

When Ford notices that a large number of pickup trucks are sold in the southwest US,on which descriptor is it focusing?
A. Income.
B. Age.
C. Education.
D. Occupation.
E. Geography.

Answer 22

E

Question 23

When a clothing retailer wants to target women between the ages of 25 to 55, earning an annual income of $30 000 or more, in a five-mile radius of their store, they are using which descriptor?
A. Geography.
B. Income.
C. Sex.
D. Age.
E. Geodemographics.

Answer 23

E

Question 24

Customers show their degree of brand loyalty by:
A. their demand price elasticity for the product type.
B. the product being in their evoked set.
C. the extent to which they can recall brand features, compared to other brands.
D. the extent to which they have tried other brands, but use one particular brand.
E. their successive purchases of one particular brand over time.

Answer 24

E

Question 25

The degree to which a company’s purchasing activity is centralised is known as:
A. purchasing segregation.
B. purchasing structure.
C. product usage.
D. purchase predisposition.
E. purchase influence.

Answer 25

B

Question 26

Why is there a strong interdependency between market segmentation, market targeting and positioning?

Answer 26

These three decision processes – market segmentation, target marketing, and positioning – are closely linked and have strong interdependence. All must be well considered and implemented if the firm is to be successful in managing a given product-market relationship.

Question 26

Knowledgeable nonusers of high-fibre cereals who state a high intention to buy this type of product are said to have a high:
A. product usage.
B. purchase predisposition.
C. purchase influence.
D. purchase structure.
E. loyalty.

Answer 26

B

Question 28

For the sports beverage market, which includes entrants such as Gatorade, Coke (Powerade) and Pepsi (All Sport), what descriptor do they use to define those target markets?
A. Geodemographics.
B. Behavioural.
C. Age.
D. Sex.
E. Income.

Answer 28

B

Question 29

The characteristics which consumers use to evaluate brand alternatives in terms of how valuable each of these characteristics is to that consumer are known as:
A. purchase predispositions.
B. purchase structure.
C. choice criteria.
D. general criteria.
E. abstract criteria.

Answer 29

C

Question 30

When firms develop unique marketing programmes for each targeted country’s consumers they are segmenting on ____ and are assuming ____ among members of a market.
A. culture; homogeneity.
B. culture; heterogeneity.
C. psychographics; homogeneity.
D. psychographics; heterogeneity.
E. demographics; homogeneity.

Answer 30

A

Question 31

Social class is based largely on similarities in:
A. behaviour, income and occupation.
B. geography, occupation and education.
C. age, behaviour and education.
D. race, income and geography.
E. income, occupation and education.

Answer 31

E

Question 33

What type of application enables the marketer to examine a customer database to identify patterns of variables that predict which customers buy or don’t buy, as well as how much they buy?
A. Buying behaviour extrapolation.
B. Customer retrieval system.
C. Customer manipulation.
D. Data extraction.
E. Data mining.

Answer 33

E

Question 33

Regardless of the descriptor chosen to identify a target market, what descriptor is it also useful to know?
A. Geographic.
B. Demographic.
C. Geodemographic.
D. Behavioural.
E. Consumer needs

Answer 33

B

Question 34

All of the following are examples of competitive position factors when assessing the attractiveness of a market segment EXCEPT:
A. threat of new entrants.
B. industry capacity.
C. overall market size.
D. threat of substitutes.
E. buyer power.

Answer 34

C

Question 34

The most critical factor in determining whether to enter a new market is the:
A. market size.
B. market growth rate.
C. investment required.
D. degree to which unmet customer needs can be identified.
E. demographics of target market.

Answer 34

D

Question 35

All of the following are examples of competitor capability factors in assessing competitive positioning EXCEPT:
A. management strength and depth.
B. financial and functional resources.
C. brand image.
D. competitive rivalry.
E. relative market share.

Answer 35

D

Question 36

What is the rationale for market segmentation?

Answer 36

• Most markets are not homogenous in terms of benefits wanted, purchase rates and price and promotion elasticities, their response rates to products and marketing programs differ
• markets are complex entities that can be defined (segmented) in a variety of ways
• need to find an appropriate segmentation scheme that will facilitate target marketing, product positioning and the formulation of successful marketing strategies and programs

Question 37

What is the most critical factor in accessing competitive positioning?
A. Product differentiation.
B. Brand name.
C. Market share.
D. Company image.
E. Breadth of product line.

Answer 37

A

Question 39

From a consumer’s point of view, new goods and services need to:
A. be more accessible.
B. produce quicker results.
C. be better and/or cheaper.
D. have brand name recognition.
E. be acceptable by peers.

Answer 39

C

Question 40

Recognising that the largest competitor in a given target market holds five times the share of the next leading competitor is an example of what market attractiveness and competitive positioning factor?
A. Macro trends
B. Customer needs and behaviour.
C. Firm and competitor capabilities and resources.
D. Opportunity for competitive advantage.
E. Market size and growth rate.

Answer 40

C

Question 41

In order to determine market-attractiveness and competitive position it is recommended to:
A. evaluate top three competitors.
B. weight and rate each factor.
C. evaluate unmet customer needs.
D. evaluate new product against competitors for product differentiation.
E. determine cost for market entry.

Answer 41

B

Question 43

When Marriott Hotels designed different brand name hotels for different market segments (e.g. families, businesspeople, low-budget travellers), which type of targeting strategy did it use?
A. Niche-market strategy.
B. Differentiated marketing strategy.
C. Mass-market strategy.
D. Growth-market strategy.
E. Shotgun strategy.

Answer 43

B

Question 45

General Motors designs separate cars and marketing programmes for large market segments. This is an example of a(n):
A. growth market strategy.
B. differentiated market strategy.
C. undifferentiated market strategy.
D. peripheral market strategy.
E. overlapping market strategy.

Answer 45

B

Question 46

A(n) ____ is designed to avoid direct competition with larger firms that are pursuing the bigger segments:
A. growth-market strategy.
B. differentiated market strategy.
C. undifferentiated market strategy.
D. peripheral market strategy.
E. niche-market strategy.

Answer 46

E

Question 47

If the projected growth rate of a targeted market segment is revised from 3 per cent per year to 30 per cent per year this might suggest which of the following actions?
A. Broadening of the product lines.
B. Increase in R&D activities which is the firm’s source of competitive advantage.
C. Increase promotional spending to twice that of the market leader.
D. All of the above may be appropriate.
E. Only A and C above are appropriate.

Answer 47

D

Question 49

If a target market in which your firm holds a medium-strength position becomes unattractive, how might your strategic focus change?
A. Move from investment to management.
B. Move from investment to divestment.
C. Move from management to investment.
D. Move from divestment to management.
E. Move from divestment to investment.

Answer 49

A

Question 50

The decision to participate in an international market may reflect the need for:
A. a more constant source of raw materials.
B. retaliation against a competitor’s pricing strategy in a domestic market.
C. compliance with governmental regulations.
D. multinational distribution alliances.
E. new sources of investment capital.

Answer 50

B

Question 51

Why is market segmentation of growing importance?

Answer 51

Market segementation is becoming increasingly important in the development of marketing strategies because:

• population growth has slowed and more product-markets are maturing
• social/economic forces like expanding disposable incomes & higher levels of education are producing more sophisticated consumers
• trend towards micro-segmentation, like dell offering to customize individual computers to consumers wants
• marketing organizations have made it easier to implement sharply focused marketing programs by more narrowly targeting their own services – e.g. specialist magazines/tv channels

Question 52

Extensive market segmentation is a relatively recent phenomenon. Until about the middle of the last century many firms offered a single basic product aimed at the entire mass market (such as Coca-Cola or Levi jeans). But in recent years many firms including industrial goods manufacturers and services producers as well as consumer products companies – have begun segmenting their markets and developing different products and marketing programmes targeted at different segments. Which environmental changes have helped spark this increased interest in market segmentation?

Answer 52

Environmental changes that have increased interest in market segmentation include: (1) slowing of population growth and maturing of product-markets (which increase competition among firms within the industry and markets); (2) social and economic forces that have increased the demand for product variety; and (3) segmenting of services by institutions serving consumers (in effect, derived segmentation).

Question 53

Exactly what is the relationship between segmentation, target marketing, and positioning? What damage will be done to a company’s target market and positioning efforts if markets are incorrectly segmented?

Answer 53

Market segmentation is the process by which the market is divided into distinct subsets of people with similar needs and characteristics which lead them to respond in similar ways to a particular product offering. Target marketing requires that the relative attractiveness of each segment be evaluated from which a decision would be made as to which segment(s) to target. And, finally, product positioning would be undertaken to design the specific product offerings and develop the strategic marketing programmes that collectively create an enduring competitive advantage. If the segmentation is seriously flawed, then the whole ‘system’ is jeopardised not only in terms of inept products and programmes, but in the allocation of funds between segments and elements in the marketing programme.

Question 54

The trend is for companies to engage in microsegmentation whenever possible and then to use direct marketing to develop and retain customers. How can such segmentation be carried out by consumer goods companies? By industrial goods companies?

Answer 54

Microsegmentation which sets the stage for direct marketing can be accomplished by using huge geodemographic databases which possess demographic and behav- ioural data down to the household level including addresses. For consumer goods manufacturers that sell via mail order, their customer lists can be enhanced and enlarged by buying lists which contain individuals/households similar in characteris- tics to their own heavy buyers. Industrial companies that sell direct can build their own data banks based on sales data coupled with call reports from their salesper- sons or agents. These lists can be augmented by data on lost customers, enquiries from trade shows and requests from catalogues.

Question 55

Can market segmentation be taken too far? What are the potential disadvantages of oversegmenting a market? What strategy might a firm pursue when it believes that the market has been broken into too many small segments?

Answer 55

The primary disadvantage of oversegmentation is reduced profitability. Changing the product, promotion, pricing and distribution arrangements is expensive. The change in revenue (at the margin) must equal or exceed the costs incurred by segmenting. Other disadvantages of oversegmentation (increased administrative burden, dilution of brand image, cannibalisation of existing brand sales) can be expressed as costs. A firm that believes the market has been broken into too many small segments can attempt to consolidate the market through demand function modification. That is, it can try to bring together the consumers who have drifted into small dispersed segments, by showing how its benefits are superior. For example, Ted Levitt suggests that marketing research inclines managers to be ‘mindlessly accommodat- ing’, making small-segment marketing-mix changes that consumers say they want. Instead, he suggests that they can be led to want more generally appealing features – like economy and durability – associated with market aggregation (instead of segmentation).

Question 57

Which variables or descriptors might be most appropriate for segmenting the market for the following consumer products and services? Explain your reasoning.

a. Lawn mowers.
b. Frozen entrees or dinners.
c. Breakfast cereals.
d. Financial services.

Answer 57

Question 58

Which variables or descriptors might be most appropriate for segmenting the markets for the following industrial goods and services? Explain your reasoning.

a. Photocopiers.
b. Floor sweepers.
c. Truck leasing.

Answer 58

Question 60

What is the difference between a growth-market targeting strategy and a niche targeting strategy? What capabilities or strengths should a business have to implement to conduct a growth-market targeting strategy effectively?

Answer 60

Growth-market strategy, as the name implies, concentrates on identifying fast- growth segments of the market. A niche strategy serves one or more segments, which, while perhaps not the largest, offer the firm a substantial enough number of customers to be successful. In a niche strategy there is no requirement on the growth of a particular niche.

A growth market targeting strategy often is best suited to smaller firms who wish to avoid direct confrontation with larger firms. This strategy requires strong R&D and marketing capabilities to identify and develop products. It also requires the neces- sary financial resources to finance rapid growth.

Question 62

What are the objectives of the market segmentation process?

Answer 62

Objectives of segmentation

• Identify a homogenous segment that differs from other segments – e.g. ones that have similar wants/needs and/or likely responses to different elements of the marketing mix
• Specify criteria that define the segment – segmentation criteria should clearly identify whether a given customer is part of the segment or not, so promotion can be properly targeted
• Determine segment size and potential – for use in which segments to go after

Question 63

A camera manufacturer has hired you as a consultant to identify major benefit segments in the camera market. Which major benefit segments do you think might exist in this market, without actually conducting consumer research? What other information would you want to collect about the potential customers in each segment to provide a useful basis for designing camera models and marketing programmes that appeal to each segment?

Answer 63

Question 64

What are the different types of descriptors used to segment consumer goods markets? Industrial goods markets?

Answer 64

• demographic descriptors – age, education, sex, race, geography, income, occupation – in industrial markets, macro segmentation divides the market according to characteristics of buying organisastion (e.g. firm size,type) while micro segmentation groups customers by characteristics of individual buyers (typical age of purchasing officer)
• geographic descriptors – different location vary in their sales potential, growth rates, customer needs etc. – particularly important in retail and service businesses
• geodemographic descriptors – many segmentation schemes involve both of the above – e.g. retailers target people within 5 miles of a store who have a particular demographic – firms can provide report that assess size and market potential of a segment in a particular area
• behavioral descriptors – no limit to the amount of ways segments can be defined in behavioral terms – e.g. nike targeted long distance runners
  
  • consumer needs – benefits sought from a particular product or service – can define segments in terms of the choice criteria used in the purchase decision – organizational markets consider product performance in different use situations
  • product related behavioral descriptors – these are more general and more product related than behavioral descriptors – e.g. product usage, loyalty, purchase influence (e.g. wife buys cleaning stuff)
  • general behavioral descriptors – lifestyle: interests and opinions, social class, in orgs: the nature of buying decision
  • organizational or firm behaviour descriptors - purchasing structure is how centralized purchasing activity is (more=>less user focused), buying situation includes straight rebuy, modified rebuy and new buying situation

Question 65

In developing a targeting matrix, what dangers are incurred? How can these dangers be minimised?

Answer 65

The major drawback is that the factors involved as well as their ratings are subjective in nature and yet give the impression of being precise. A further weakness is that the factors used may not be independent of each and hence are improperly weighted in the scoring.

Ways of minimising the subjectivity cited above are (1) to generate as much objec- tive data about each of the market attractiveness sectors as well as the competitive position factors and (2) to bring the managers involved together after they have completed their ratings to discuss/debate their differences.

Question 66

Describe the two-step process used to segment industrial markets.

Answer 66

Demographic descriptors are also important in the segmentation of industrial markets, which are segmented in two stages. The first, macrosegmentation, divides the market according to the characteristics of the buying organisation using such descriptors as age of firm, firm size, and industry affiliation (SIC code in the US). The international counterpart of SIC is the trade-category code.

The second stage, microsegmentation, groups customers by the characteristics of the individuals who influence the purchasing decision – for instance, age, sex, and position within the organisation. International markets are segmented in a similar hierarchical fashion, starting with countries, followed by groups of individuals or buying organisations.

Question 67

What is geodemographic segmentation? Why is it becoming increasingly important?

Answer 67

Marketers targeting emerging markets in the developing world must pay particular attention to market segmentation within the geographic regions they target. Virtually every developing country contains a small segment of extremely wealthy people, a rapidly growing but sometimes relatively small middle class, and large numbers of people who are poor by Western standards. The first two of these demographic groups are most often found in the cities, while many poor live in either rural areas or in urban slums. Treating the people of any developing country as a single market segment is not likely to bring success. In emerging and developed markets alike, many segmentation schemes involve both demographic and geographic factors. Thus, retailers usually want to know something about the people who live within, say, a two-mile or five-mile radius of their proposed new store. Neiman Marcus, the upscale department store, might target one demographic group within a given trade area, and Walmart, a discounter, might target another. Nielsen and other sources offer low-cost reports based on census data that show the demographic profile of the population residing within any given radius of a particular street corner or shopping centre location in the United States. These reports are useful in assessing the size and market potential of a market segment defined by a particular trade area. Geodemographics also attempts to predict consumer behaviour by making demographic, psychographic, and consumer information available at the block and zip code levels. Nielsen’s PRIZM service classifies all US households into 66 demographically and behaviourally distinct clusters, each of which, in turn, is assigned to one of 14 social groups and 11 life stage groups.11 Nielsen offers similar datasets for other countries as well.

Question 68

What are the steps in constructing a market-attractiveness/business-position matrix for evaluating potential target markets?

Answer 68

Question 69

You are the marketing manager for a medium-sized US packaged-food company that has decided to market its product in Europe. What segmentation scheme would you use and what limitations would it have in helping you identify your target markets?

Answer 69

There are several levels of segmentation involved. First, there is segmentation by country; second, by area within the country; and third, by consumer demographic characteristics. The limitations are that this segmentation scheme fails to take into account the relative importance of various consumer groups across countries, thereby biasing the selection of countries. Further, it does not provide for any behavioural factors except those which can be inferred from the demographic descriptors used.