CHAPTER

Opportunity Analysis, Market Segmentation, and Market Targeting

The development and implementation of marketing strategy are complicated and challenging tasks. At its pinnacle, marketing strategy involves the selection of markets and the development of programs to reach these markets. This process is carried out in a manner that simultaneously benets both the markets selected (satisfying the needs or wants of buyers) and the organization (typically in dollar-prot terms). Within this framework, necessary rst tasks are opportunity analysis, market segmentation, and market targeting. This chapter describes analytical concepts and tools that marketing managers nd useful in performing opportunity analyses, segmenting markets, selecting market targets, and estimating market and sales potential.

OPPORTUNITY ANALYSIS
Opportunity analysis consists of three interrelated activities: Opportunity identication Opportunity-organization matching Opportunity evaluation Opportunities arise from identifying new types of buyers, uncovering unsatised needs of buyers, or creating new ways or means for satisfying buyer needs. Opportunity analysis focuses on nding markets that an organization can protably serve. The success of Reebok International, Ltd. illustrates a disciplined approach to opportunity identication. In 1981, Reebok had sales of $1.5 million and was known primarily for its high-quality custom running shoes. Consumer interest in running had plateaued, however, and new opportunities had to be identied for the company to grow. Over the next 28 years, Reebok systematically pursued opportunities based on buyer types, buyer needs, and technological innovation as a means of satisfying the needs of buyers. Reebok identied buyer performance-oriented needs with a focus on specic athletic activities (such as tennis, basketball, golf, and track and eld) and nonathletic needs with an emphasis on comfort, fashion, and style for three types of buyersmen, women, and children. Technological innovation, most recently with the

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CHAPTER 4 OPPORTUNITY ANALYSIS, MARKET SEGMENTATION, AND MARKET TARGETING

launch of Rbk Custom in 2008, a Web-based shoe customization platform, has met the needs of buyers interested in comfort and t. The result? Reebok broadened its global marketing presence following a merger with Adidas in 2006, and now posts global sales of $3.5 billion annually with about half of its sales outside the United States.1 Opportunity-organization matching determines whether an identied market opportunity is consistent with the denition of the organizations business, mission statement, and distinctive competencies. This determination usually involves an assessment of the organizations strengths and weaknesses and an identication of the success requirements for operating protably in a market. A SWOT analysis like that described in Chapter 1 is often employed to assess the match between identied market opportunities and the organizations strengths and weaknesses. For some companies, market opportunities that promise sizable sales and prot gains are not pursued because they do not conform to an organizations character. Starbucks is a case in point. The company has built a thriving business serving freshly brewed, specialty gourmet coffee. However, the company refuses to use articially avored coffee despite its growth potential. According to company chairman Howard Schultz,A large growth segment in our category is articially avored coffee; it would EXHIBIT 4.1 Opportunity Evaluation Matrix: Attractiveness Criteria
Political, Technological, and Socioeconomic Forces How sensitive are different buyers to these forces?

Market Niche Criterion Buyer type

Competitive Activity How many and which rms are competing for this user group?

Buyer Requirements What affects buyer willingness and ability to buy?

Demand/ Supply Do different buyer types have different levels of effective demand? How important are adequate sources of supply? Are buyer needs likely to be long-term? Do we have or can we acquire resources to satisfy buyer needs? To what extent are the means for satisfying buyer needs affected by supply sources? Is the demand for the means for satisfying buyer needs changing?

Organizational Capabilities Can we gain access to buyers through marketing-mix variables? Can we supply these buyers?

Buyer needs

Which rms are satisfying which buyer needs?

Are there buyer needs that are not being satised? What are they?

How sensitive are buyer needs to these forces?

Which buyer needs can our organization protably satisfy?

Means for satisfying buyer needs

What are the strategies being employed to satisfy buyer needs?

Is the technology for satisfying buyer needs changing?

How sensitive are the means for satisfying buyer needs to these forces?

Do we have the nancial, human, technological, and marketing expertise to satisfy buyer needs?
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Strategic Marketing Problems: Cases and Comments, Twelfth Edition, by Roger A. Kerin and Robert A. Peterson. Published by Prentice Hall. Copyright 2010 by Pearson Education, Inc.

WHAT IS A MARKET?

67 give us maybe 40 percent incremental volume, but we wont do it.He adds,Its not in our DNA.2 Opportunity evaluation typically has two distinct phasesqualitative and quantitative. The qualitative phase focuses on matching the attractiveness of an opportunity with the potential for uncovering a market niche. Attractiveness is dependent on (1) competitive activity; (2) buyer requirements; (3) market demand and supplier sources; (4) social, political, economic, and technological forces; and (5) organizational capabilities. Each of these factors in turn must be tied to its impact on the types of buyers sought, the needs of buyers, and the means for satisfying these needs. Exhibit 4.1 is an opportunity evaluation matrix containing illustrative questions useful in the qualitative analysis of a market opportunity. The quantitative phase yields estimates of market sales potential and sales forecasts. It also produces budgets for nancial, human, marketing, and production resources, which are necessary to assess the protability of a market opportunity.

WHAT IS A MARKET?
The fact that an opportunity has been identied does not necessarily imply that a market exists for the organization. Although denitions vary, a market may be considered to be the prospective buyers (individuals or organizations) willing and able to purchase the existing or potential offering (product or service) of an organization. This denition of a market has several managerial implications. First, the denition focuses on buyers, not on products or services. People and organizations whose idiosyncrasies dictate whether and how products and services will be sought, acquired, consumed, or used make up markets. Second, by highlighting the buyers willingness and ability to purchase a product or service, this denition introduces the concept of effective demand. Even if buyers are willing to purchase a product or service, exchange cannot occur unless they are able to do so. Likewise, if buyers are able to purchase a product or service but are unwilling to do so, exchange will not occur. These relationships are important to grasp because a marketing strategist must ascertain the extent of effective demand for an offering in order to determine whether a market exists. To a large degree, the extent of effective demand will depend on the marketing-mix activities of the organization. Third, use of the term offering, rather than product or service, expands the denition of what organizations provide for buyers. Products and services are not purchased for the sake of purchase; they are purchased for the benets that buyers expect to derive from them. It is for this reason that the late Charles Revson of Revlon Cosmetics continually reiterated that his company did not sell cosmetics but, rather, hope. This expanded denition of an offering requires strategists to consider benets provided by a product or service apart from its tangible nature.

Market Structure
Frequently, one hears or reads about the automobile market, the soft drink market, or the health care market. These terms can be misleading because each refers to a composite of multiple minimarkets.Viewing a market as composed of minimarkets allows a marketer to better gauge opportunities. Consider, for example, the coffee market. Exhibit 4.2 on page 68 shows how the U.S. coffee market might be broken down into multiple markets by a marketing manager for Maxwell House or Folgers.With this breakdown, the manager can more effectively identify who is competing in the caffeinated versus the decaffeinated markets and how they are competing, monitor changes in sales volume for instant versus ground coffee, and appreciate differences between buyer taste preferences and competition in the Southwest and Northeast United States.

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CHAPTER 4 OPPORTUNITY ANALYSIS, MARKET SEGMENTATION, AND MARKET TARGETING

Market Structure for Coffee in the United States

Total U.S. Coffee Market

Institutional Sales (restaurants, institutions, etc.)

Retail Sales (retail food stores)

Ground

Whole Bean

Instant

Caffeinated

Decaffeinated

New England

Midwest

Southeast

Northwest

Market Share
How a market is dened plays a critical role in determining market share. Market share is dened as the sales (in dollars or units) of a company, product, service, or brand divided by the sales of the market, expressed as a percentage. Consider the market share calculation for Atlantic Blend, a premium caffeinated ground coffee brand sold only in grocery stores and supermarkets in the Mid-Atlantic region of the United States by a coffee roaster in New York state. Atlantic Blend sales are $80 million. Depending on the market denition, Atlantic Blends market share will range from 1 percent to 32 percent, as shown in the following table.
Coffee Dollar Sales $8.0 billion $6.0 billion $4.5 billion $3.0 billion $230 million Atlantic Blend Sales $80 million $80 million $80 million $80 million $80 million

Market Denition Total U.S. coffee market U.S. retail coffee market U.S. retail ground coffee market U.S. retail caffeinated ground coffee market U.S. retail caffeinated ground coffee market in the Mid-Atlantic region

Market Share 1.0% 1.3% 1.8% 2.7% 32.0%

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As a regional (Mid-Atlantic) product and brand, Atlantic Blend is clearly a minor player in the total U.S. coffee market with a 1 percent overall market share. However, Atlantic Blend captures a signicant share (32 percent) of the retail caffeinated ground coffee market in the Mid-Atlantic region where it is marketed. The retail caffeinated

Strategic Marketing Problems: Cases and Comments, Twelfth Edition, by Roger A. Kerin and Robert A. Peterson. Published by Prentice Hall. Copyright 2010 by Pearson Education, Inc.

MARKET SEGMENTATION

69 ground coffee market in the Mid-Atlantic region of the United States is Atlantic Blends served market. A served market is the market in which a company, product, service, or brand competes for targeted customers. Marketing managers often look closely at served market share when considering strategic options. For example, if a company has a high served market share, a market penetration strategy to gain increased served market share will be more difcult. Market development strategies might be more advisable, such as pursuing sales growth in an adjacent geographic market; that is, Atlantic Blend might enter the New England market. Alternatively, if a company has a low served market share, a product development strategy or a market penetration strategy might be perceived as a means to increase market share.

MARKET SEGMENTATION
A useful technique for structuring markets is market segmentationthe breaking down or building up of potential buyers into groups. These groups are typically termed market segments. Each segment is thought of as possessing some sort of homogeneous characteristic relating to its purchasing or consumption behavior, which is ultimately reected in its responsiveness to marketing programs. Market segmentation grew out of the recognition that, in general, an organization cannot be all things to all people. Although the legendary Henry Ford is reputed to have said that buyers of his Ford automobiles could have any color they desired as long as it was black, most marketers today agree that such an undifferentiated marketing strategy is no longer appropriate. The idea that an organization can effectively apply one marketing strategy to satisfy all possible buyers is not viable in todays marketing environment. At the other extreme, unless the organization is highly specialized and sells only to, say, one buyer, it is often not feasible to treat each potential buyer as unique. Thus, as one marketing authority has so aptly written, market segmentation is a compromise between the ineffectiveness of treating all customers alike and the inefciency of treating each one differently.3 Advances in information technology and exible manufacturing and service delivery systems have made segments of one a reality in some settings. Mass customization tailoring products and services to the tastes and preferences of individual buyers in high volumes and at a relatively low costcombines the efciencies of mass production and the effectiveness of designing offerings to a single buyers unique wants.

Benets of Market Segmentation

Segmentation offers three principal benets with regard to the development of marketing strategy.4 Market segmentation: 1. Identies opportunities for new product development. The analysis of various segments of present and potential buyers can reveal one or more groups whose specic needs are not being well satised. These segments represent possible opportunities for new product development. Frito-Lay, Inc. is a case in point. The company identied two attitudinal and lifestyle market segments. Indulgers are consumers who know they should limit their fat consumption but cannot and those who simply dont care. This segment represents 47 percent of snack chip consumers who are heavy users of snack chips. The other 53 percent of consumers are compromisers,who enjoy snacking but restrict their snack chip intake because of nutritional concerns. Frito-Lay, Inc. decided to invest heavily in the compromiser segment. Baked Lays low-fat potato crisps posted sales of $250 million in their rst full year in the market. This success

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was followed by a line of Rufes, Doritos, and Tostitos made with a low-fat, calorie-free cooking oil. This line recorded rst-year sales of $350 million and was one of the companys most successful food introductions.5 2. Helps in the design of marketing programs that are most effective for reaching homogeneous groups of consumers. In addition to product development, segmentation permits renements in the pricing, advertising and promotion, and distribution elements of the marketing mix. For example, Procter & Gamble markets its Crest toothpaste with different advertising and promotion campaigns directed at six different market segments, including children, Hispanics, and senior citizens. 3. Improves the allocation of marketing resources. Market segmentation can provide guidance in directing marketing resources. All market segments are not necessarily equal in terms of an organizations ability to serve them effectively and protably. As with any opportunity assessment, a companys strengths and capabilities relative to each identied segments needs and competitive situation must be considered. Returning to the athletic shoe market discussed earlier, consider how New Balance competes with Nike and Adidas, two performance-oriented shoe marketers. Instead of allocating resources to compete directly with Nike and Adidas in the performance segment, New Balance focuses on the baby boomer (46 to 64 years old) nonathletic segment. It offers comfortable shoes for men and women and spends its marketing resources networking with podiatrists, not athletes.6

Bases for Market Segmentation

Two broad types of variables are commonly used for market segmentation. Socioeconomic characteristics of consumers, such as gender, age, occupation, income, family life cycle, education, and geographic location make up one type. The other type consists of behavioral variables, including benefits sought from products and services, usage behavior, lifestyle, and attitudes. For industrial buyers, socioeconomic characteristics may include company size and location, and industry or customers served. Behavioral variables may include purchasing objectives and practices as well as product and service benefits. The appropriateness of any one or combination of variables in a specific situation will depend on whether or not a variable relates to purchasing, use, or consumption behavior and responsiveness to marketing programs. The choice of variable(s) to use to segment a market often depends on insights into buyer behavior, provided by creative research. Segmentation of the cell phone market by Nokia illustrates this point. According to the director of Americas brand marketing at Nokia,Different people have different usage needs. Some people want and need all of the latest and most advanced data-related features and functions, while others are happy with basic voice connectivity. Even people with similar usage needs often have differing lifestyles representing various value sets. For example, some people have an active lifestyle in which sports and tness play an important role, while for others arts, fashion and trends may be very important.7 Nokias research on consumer usage, lifestyles, and individual preferences identied six market segments:Basic consumers who need voice connectivity and a low price; Expression consumers who want to customize and personalize features; Active consumers who desire a rugged product to stand up to an active lifestyle; Classic consumers who prefer a more traditional cell phone with some features at a modest price;Fashion consumers who want a very small phone as a fashion accessory; and Premium consumers who are interested in all the high-end technological and service features.

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Requirements for Effective Market Segmentation

Ultimately, market segmentation is a means to an end: to identify and prole distinct groups of buyers who differ in their needs, preferences, and responsiveness to an organizations marketing programs. Effective market segmentation should provide answers to six fundamental buyer-related questions for each market segment: 1. Who are they? 2. What do they want to buy? 3. 4. 5. 6. How do they want to buy? When do they want to buy? Where do they want to buy? Why do they want to buy?

More often than not, the answers to these questions should be expressed in a narrative form documented with quantitative and qualitative research. From a managerial perspective, effective market segmentation means that each segment identied and proled satises four fundamental requirements.8 Each market segment should be: 1. Measurable. The size and buying power of a market segment can be quantitatively determined. 2. Differentiable. A market segment is distinguishable from other segments and responds differently to different marketing programs. 3. Accessible. A segment can be effectively reached and served through an economically viable marketing program. 4. Substantial. A segment should be large enough in terms of sales volume potential to cover the cost of the organization serving it and return a satisfactory prot. How are these requirements applied in practice? Consider Harley-Davidson, Inc., the U.S. sales leader in heavyweight motorcycles.9 Following two years of extensive research studying specic consumer groups, the company concluded that women represented a viable market segment based on these requirements. Women account for about 10 percent of total U.S. motorcycle owners, and the percentage is growing. They seek adventure, freedom, and individualityjust as men do. What they dont want is a special product, a pink motorcycle, for example, but they do want a product that ts them better,said the companys vice-president of marketing. Harley-Davidsons tailored marketing program for women includes a product that requires less strength to operate a motorcycle and lowered seat heights. The communications program includes advertisements in magazines, such as Allure, Vanity Fair, Glamour, and Self, and at local dealer events to introduce rst-time women riders to the product and the sport of cycling. For Harley-Davidson, the female segment is measurable, differentiable from males, accessible through communications and distribution channels, and substantial enough in terms of sales and prot to warrant attention.

MARKET TARGETING
After a market has been segmented, a marketing manager needs to address three questions:
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Where to compete? How to compete? When to compete?

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Where to Compete?
The manager must rst decide where to compete. This question focuses on which market segment(s) the company should choose for marketing efforts, or market targeting. Market targeting (or target marketing) is the specication of the market segment(s) the organization wishes to pursue. For example, recognizing that Wal-Mart, Lowes, and a host of regional competitors were targeting the home-improvement do-it-yourselfer segment for home repairs and remodeling, Home Depot decided to pursue the professional segment for growth alongside the do-it-yourselfer segment. This segment consisted of housing professionals, such as managers of major apartment and condominium complexes and hotel chains, and professional building contractors. Once that was decided, the company modied its merchandise assortment to meet the needs of the professional segment and broadened its services, including longer store hours, delivery, commercial credit, truck and equipment rental, and ordering via phone, fax, or the Internet.10

How to Compete?
Next, a manager must decide how to compete. This question focuses on how many market segments the organization will pursue and the marketing strategies to employ. Two frequently used market targeting approaches are differentiated marketing and concentrated marketing. In a differentiated marketing approach, the organization simultaneously pursues several different market segments, with a unique marketing strategy for each. An example of this type of marketing is the strategy of Nokia following its segmentation research described earlier. Exhibit 4.3 shows Nokias differentiated marketing strategy in 2005 featuring seven different cell phone models designed for and uniquely marketed to six market segments.11 Nokias differentiated marketing approach, along with continued technological advancements, has contributed to its status as the worlds leading cell phone marketer. As a rule, differentiated marketing is expensive to implement. Managing multiple products across multiple market segments increases marketing, inventory, administrative, and advertising and promotion costs as well as product development expenditures. In a concentrated approach, the organization focuses on a single market segment. An extreme case would be one in which an organization marketed a single product offering to a single market segment. More commonly, an organization will offer one or more product lines to a single segment. For many years, Gerber proclaimed that babies are our only businessand focused almost exclusively on baby foods. Gerber still offers prepared baby foods, which is its primary business. However, today Gerber offers companion lines of baby skin care and health care products; baby care products such as bottles, paciers, playthings, clothing, and accessory items; and insurance policies.12 Through a concentrated marketing approach, a company gains a strong knowledge of a segments needs and can achieve a strong market positionGerber commands a 79 percent market share in prepared baby foods. Furthermore, concentrated marketing provides operating economics through specialization in manufacturing and marketing. However, concentrated marketing has risks. Specializing in one segment can limit a companys growth prospects, particularly if the segment size declines. Also, competitors might invade the segment.

When to Compete?
Third, the manager must determine when to compete. This question relates to timing.13 Some organizations adopt a rst-to-market posture, while others take a waitand-see stance concerning the pursuit of market segments. Historically, Matsushita has generally deferred to Sony and other rms to identify market segments to be
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EXHIBIT 4.3 Nokias Differentiated Marketing Strategy

Market Segments BASIC First-time users. Teens needing voice connectivity EXPRESSION Younger buyers who desire customized and personalized products ACTIVE Cool, young active adults desiring to connect with friends; sports enthusiasts CLASSIC Travelers with various business needs who prefer functionality FASHION Buyers who want to show off with a personal sense of style PREMIUM World travelers wanting PDA, connectivity, and games

Offering Characteristics Durable, ease of use, and low price

Series 1000/ Series 2000

Changeable covers, color displays, downloadable ring tones, and games Small size, stylish, durable, user friendly, color displays, and fitness monitor Traditional style, Web browser, networking, phone book, calendar, and camera MP3 music player, styling, games, camera, color display, and Internet access Enhanced user interface, camera, color display, multimedia messaging, and PDA

Series 3000

Series 5000

Series 6000

Series 7000

Series 8000

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served. When the market segment potential has been demonstrated, Matsushita relies on its production and marketing expertise, backed by large investments, to capture a disproportionate share of the market segment. Some marketers, after having identied market segments, pursue them in a sequential manner rather than simultaneously. Hewlett-Packard is a case in point. Recognizing the need for handheld computing power, two market segments were identied: (1) business users, and (2) student users. The company targeted the business segment rst for its handheld computerthe iPaq Pocket PCfollowed by the student segment attending large primary and secondary schools. Timing in market targeting can have a signicant effect on sales and prot. For instance, companies that targeted the Hispanic market segment early with a unique offering or marketing program were rewarded in sales and prot. Metropolitan Life Insurance is such a case. The company was among the rst insurance companies to

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recognize this opportunity and is now one of the largest insurers of Hispanic consumers in the United States. On the other hand, in the early 1970s, marketing executives at Frito-Lay identied a better for you benet segment of snack users who desired healthier snack chips. The company created a multigrain snack chip called Prontos and launched the brand with a supporting marketing program only to post disappointing sales and prot. According to a marketing executive, the better-for-you segment was too narrow a target market and a multigrain snack chip may have been invented and introduced before its time. Frito-Lay tracked this segments development over the next decade and launched another multigrain snack chip with the Sun Chips name. Today, the Sun Chips brand produces sales of $100 million annually.

MARKET SALES POTENTIAL AND PROFITABILITY

An essential activity in opportunity evaluation is the determination of market sales potential and protability. Estimating a markets sales potential for offerings is a difcult task even for a seasoned marketing executive. Markets and offerings can be dened in numerous ways that can lead to different estimates of market size and dollar sales potential. This was illustrated earlier in the description of market structure and resulting market shares in the U.S. coffee industry. For innovative offerings or new markets, marketing analysts must often rely almost entirely on judgment and creativity when estimating market sales potential. Therefore, it is understandable that market sales potential estimates vary greatly for high-denition television (HDTV) and hybrid (gasoline- and battery-powered) automobiles. The underlying technology for both offerings is still evolving as is the physical form. In such dynamic settings, measures for identifying prospective market segments are uncertain.

Estimating Market Sales Potential

Market sales potential is a quantitative approximation of effective demand. Specically, market sales potential is the maximum level of sales that might be available to all organizations serving a dened market in a specic time period given (1) the marketing-mix activities and effort of all organizations, and (2) a set of environmental conditions. As this denition indicates, market sales potential is not a xed amount. Rather, it is a function of a number of factors, some of which are controllable and others not controllable by organizations. For instance, controllable marketing-mix activities and marketing-related expenditures of organizations can inuence market sales potential. On the other hand, consumer disposable income, government regulations, and other social, economic, and political conditions are not controllable by organizations, but do affect market sales potential. These uncontrollable factors are particularly relevant in estimating market sales potential in developing countries. Three variables are commonly considered when estimating market sales potential.14 These include (1) the number of prospective buyers (B) who are willing and able to purchase an offering; (2) the quantity (Q) of an offering purchased by an average buyer in a specic time period, typically one calendar year; and (3) the price (P) of an average unit of the offering. Market sales potential is the product of these three variables: Market sales potential = B Q P
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Though simple, this expression contains the building blocks for developing a more complex formulation through what is called the chain ratio method, which involves multiplying a base number by several adjusting factors that are believed to inuence market sales potential. An application of this method by Coca-Cola and

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MARKET SALES POTENTIAL AND PROFITABILITY

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Pepsi-Cola is shown in the following calculation of cola-avored carbonated soft drink potential in a South American country:
Population aged 8 years and over proportion of the population that consumes carbonated soft drinks on a daily basis proportion of the population preferring cola-avored carbonated soft drinks the average number of carbonated soft drink occasions per day the average amount consumed per consump tion occasion (expressed in ounces) 365 days in a calendar year the average price per ounce of cola

Market sales potential for cola-avored carbonated soft drinks in a country

The chain ratio method serves three important purposes. First, it yields a quantitative estimate of market sales potential. Second, it highlights factors that are controllable and not controllable by organizations. Clearly, a countrys population aged 8 years and older is an uncontrollable factor. However, the other factors are controllable or can be influenced to some degree. For example, organizations can influence the proportion of a population that consumes carbonated soft drinks through primary demand advertising and the cost of cola drinks through pricing. If either of these two factors change, market sales potential changes, other things being equal. Finally, it affords a manager flexibility in estimating market sales potential for different buyer groups and different offerings. For example, by including another factor such as the proportion of the population preferring diet colas, the potential for this offering can be calculated.

Sales and Prot Forecasting

Sales and prot forecasting follow the estimation of market sales potential. A sales forecast is the level of sales a single organization expects to achieve based on a chosen marketing strategy and an assumed competitive environment. An organizations forecasted sales are typically some fraction of estimated market sales potential. Forecasted sales reect the size of the target market(s) chosen by the organization and the marketing mix chosen for the target market(s). Forecasted sales also reect the assumed number of competitors and competitive intensity in the chosen target market(s). For example, suppose an organizations target market represents one-fourth of 1 million prospective buyers for a particular offering. The marketing channel chosen for the offering provides access to about three-fourths of these buyers and the communication program (advertising) reaches these same buyers. Suppose further that the average purchase rate is 20 units of an offering per year and the average offering unit price is $10.00. Using a version of the chain ratio method, forecasted sales might be calculated as follows:
Total estimated prospective buyers times Target market (25% of total buyers) times Distribution/Communication coverage (75% of target market) times Annual purchase rate (20 units per year) times Average offering unit price ($10.00) Forecasted sales 1 million .25 .75

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20 $10.00 $37.5 million

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The $37.5 million sales forecast does not consider the number of competitors vying for the same target market nor does it consider competitive intensity. Therefore, this sales forecast should be adjusted downward to reect these realities. Forecasting sales, like estimating market sales potential, is not an easy task. Nevertheless, the task is central to opportunity evaluation and must be undertaken. For this reason, sales forecasting is addressed again in Chapter 5 in reference to product and service life cycles. Finally, a pro forma income statement should be prepared showing forecasted sales, budgeted expenses, and estimated net prot (Chapter 2). When completed, the marketing analyst can review the identied opportunities and decide which can be most protably pursued given organizational capabilities. NOTES 1. The Reebok example is based on Roger A. Kerin, Steven Hartley, Eric N. Berkowitz, and William Rudelius, Marketing, 8th ed. (Burr Ridge, IL: McGraw-Hill/Irwin, 2006): 231235; and Reebok, Adidas-group.com, February 2, 2009. 2. Terry Lefton,Schultz Caffeinated Crusade,BRANDWEEK (July 5, 1999): 20 25. 3. Ben M. Enis, Marketing Principles:The Management Process, 2nd ed. (Pacic Palisades, CA:Goodyear, 1977):241. 4. Orville C. Walker Jr. and John Mullins, Marketing Strategy: A Decision-Focused Approach, 6th ed. (Burr Ridge, IL: McGraw-Hill/Irwin, 2008): Chapter 6. 5. American Marketing Association Edison Award Best New Product, Marketing News (January 16, 1999): special supplement. 6. Stephanie Kang,New Balance Steps Up Marketing Drive,Wall Street Journal (March 21, 2008):B 3. 7. Nokia: A Phone for Every Segment, in Roger A. Kerin, Steven Hartley, Eric N. Berkowitz,William Rudelius, (reference cited): 255257. 8. Philip Kotler and Kevin Lane Keller, Marketing Management, 13th ed. (Upper Saddle River, NJ: Prentice Hall, 2009): 262; and Daniel Yankelovich and David Meer,Rediscovering Market Segmentation, Harvard Business Review (February 2006): 122131. 9. Cynthia Koons, Harley-Davidson Markets to Women, Wall Street Journal (February 22, 2006): B7; and Terry Box,Biker Chic, Dallas Morning News (June 24, 2007): pp. 1D, 6D. 10. Dean Foust,Home Depots Remodeling Project,BusinessWeek Online, January 9, 2004. 11. The Giant in the Palm of Your Hand, The Economist (February 12, 2005): 6769; and Nokia: A Phone for Every Segment(reference cited). 12. Gerber Products Company,Hoovers.com, January 5, 2009. 13. Sources for examples contained in this discussion include Meg Green, Winning the Hispanic Market, BESTS Review (September 2004); 2454; Competition for Classrooms Dallas Morning News (November 12, 2002): 1D, 6D; and Roger A. Kerin, P. Rajan Varadarajan, and Robert A. Peterson, First-Mover Advantage: A Synthesis, Conceptual Framework, and Research Propositions,Journal of Marketing (October 1992): 3352. 14. Portions of this discussion are based on Philip Kotler and Kevin Lane Keller, Marketing Management (reference cited): Chapter 4.

000200010270582693 Strategic Marketing Problems: Cases and Comments, Twelfth Edition, by Roger A. Kerin and Robert A. Peterson. Published by Prentice Hall. Copyright 2010 by Pearson Education, Inc.