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Malcolm McDonald on Marketing Planning: Understanding Marketing Plans and Strategy, 2nd Edition

Reprinted for Personal Account, American Public University System

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Chapter 5: Market Segmentation - Crucial to Understanding your Market and How It Works

An important note from the author

I promise you, dear reader, that this is the only difficult chapter in the book. I have tried to make it as simple and practical as possible. Can I please ask you at least to read it, because market segmentation really is the key to commercial success.

If it is not possible to implement these core factors from the first few pages, I strongly recommend trying the 'Quick Market Segmentation Exercise' set out in Figures 16–20 at the end of this chapter. Thank you and good luck.

Introduction

We can now proceed to put together the first part of your strategic plan. Firstly, however, let me set out what the contents of your strategic plan should be. This chapter deals with the Market Overview section.

The contents of a Strategic Marketing Plan (T+3, fewer than 20 pages)

Financial Summary

Market Overview

– how the market works

– key segments and their needs

SWOT Analyses of Segments

Portfolio Summary of SWOTS

Assumptions

Objectives and Strategies

Budget for Three Years

It is markets, the customers in these markets and their needs that must be focused on initially.

The first point to make is that it is a strategic plan covering a three-year period. The importance of strategy before tactics was spelled out in Chapter 2. Three years is the most frequent planning horizon for SMEs.

The second point to make is that the total document should be fewer than 20 pages when completed. If it can be reduced to around 10 pages, well and good, but it is important to note that if you can't spell out who you are selling to, their needs and why they should buy what you are offering rather than someone else's offer, together with the financial consequences in the strategy document, you are unlikely to achieve your objectives.

As I said in Chapter 1, whilst your products/services are important, it is customers and their needs that must be focused on initially and this is what this chapter is about. Please note, however, that whilst I am going to focus on markets and customers in this chapter, the first heading in the plan says: 'Financial Summary'. Clearly, this is the last thing you do after completing the plan, but it must be the very first thing that anyone reads (that is, people such as your investors, your board, your financial colleagues, etc). The reason is simple to understand.

Anyone will want to read on if they can instantly see what the plan is about. Just look at Figure 5.1.

Figure 5.1: Financial Summary

The following words, as an example, will entice anyone to want to read on:

'This plan shows revenue growing from £5 million to £10 million over the next three years and the profit growing from £500,000 to £1 million. The purpose of this strategic plan is to spell out how this will be achieved.'

These are, indeed, exciting words, as long, of course, as the subsequent plan actually does spell out clearly and simply how these results will be achieved.

The financial summary, which should be done last is the first thing executives will read. It should be clear and simple and inspire them to want to read on.

Malcolm McDonald on Marketing Planning: Understanding Marketing Plans and Strategy, 2nd Edition

Market overview

This is in four parts:

what the market is;

how it works;

who the key decision makers are;

how they are segmented, as they are not all the same.

A market is the total of all products and services which customers perceive as being capable of satisfying the same need.

What the market is

Whilst I am determined not to be overly 'academic', it is nonetheless necessary to dispel some very basic misconceptions about markets. In Chapter 1, I spelled out some of the disasters that resulted from companies thinking of their markets in terms of products (IBM – mainframes, Gestetner – duplicators, Kodak – cameras and film, Nokia – phones, etc). My personal definition of a market is: 'the aggregation of all the alternative products or services which customers regard as being capable of satisfying that same need'. Table 5.1 is an example of the financial services market. Take a product like pensions. This fits clearly into the 'retirement income' market. But there are lots of other products that satisfy the same need, so it is essential to understand what these other products are.

Another example is the market for books on marketing.

Redefining the market for books totally changed the board's approach to its markets.

Table 5.1: Some key market definitions (personal market)

Market Need

Emergency Cash ('Rainy Day') Cash to cover an undesired and unexpected event (often the loss of/damage to property)

Future Event Planning Schemes to protect and grow money that are for anticipated and unanticipated cash-calling events (eg car replacement/repairs, education, weddings, funerals, healthcare)

Asset Purchase Cash to buy assets they require (eg car purchase, house purchase, once-in-a-lifetime holiday)

Welfare Contingency The ability to maintain a desired standard of living (for self and/or dependants) in times of unplanned cessation of salary

Retirement Income The ability to maintain a desired standard of living (for self and/or dependants) once the salary cheques have ceased

Wealthcare and Building The care and growth of assets (with various risk levels and liquidity levels)

Day-to-day Money Management Ability to store and readily access cash for day-to-day requirements

Personal Financial Protection and Security from Motor Vehicle Incidents

Currently known as car insurance

I spent a day with the board of a book publisher and we took marketing books as an example. Figure 5.2 shows their first effort at a market map. Figure 5.3, however, shows a much broader market definition – in this case 'the promulgation of knowledge about marketing'. It can be seen that the broader definition encapsulated many different ways of promulgating marketing knowledge. This completely changed the board's approach to its markets. Whilst books were still an important part of this, many other profitable avenues opened up for them. More importantly, they discovered why the market for marketing books was shrinking and were able to take advantage of new opportunities.

Malcolm McDonald on Marketing Planning: Understanding Marketing Plans and Strategy, 2nd Edition

Figure 5.2: Market map for marketing books

Figure 5.3: Market map for marketing knowledge promulgation

Malcolm McDonald on Marketing Planning: Understanding Marketing Plans and Strategy, 2nd Edition

Figure 5.4: Radiator market map

All right, if you don't want to go down this route, I don't mind, but please be careful that you don't fall into the common 'product' trap. You will, of course, still depend on your products or services for making money, so you now need to try to understand how the market works for these specifically.

How the market works: market mapping

In any market, 100 per cent of goods/services are 'made', distributed and bought, and it is essential to know what is happening out there in that particular market.

Let me give you an example of a market map for radiators. Figure 5.4 is the very first attempt this comparatively small company made to quantify its market.

From this – in summary – it can be seen that 5.4 million radiators were either made here or were imported, 5.4 million radiators were distributed, 5.4 million radiators were specified and 5.4 million radiators ended up on a wall somewhere. In other words, it balanced!

The only problem was that, whilst it told them a lot about distributors and the like, there was a big black hole in the penultimate column (which shows that only the decision makers for 3.4 million radiators had been identified). Subsequent research showed that architects were key specifiers of which radiators should be installed, but up to this point, they weren't considered to be 'customers'; because architects didn't buy radiators. From then on, however, since they accounted for about 35 per cent of the market, they became a primary focus of this radiator manufacturer. Fifteen years later, this particular company is the market leader!

In reality, market maps don't have to be all that complicated and as long as you know approximately how it works, this should be sufficient.

A market map, like a balance sheet, should 'balance' what is sold with what is bought throughout the value chain.

Figure 5.5 illustrates a much simpler form of market mapping. At the end of this chapter is a format for you to complete your own, simple market map. Guidelines on how to draw a market map are also given later in this chapter in Figure 5.22.

Malcolm McDonald on Marketing Planning: Understanding Marketing Plans and Strategy, 2nd Edition

SOURCE: Extract from McDonald and Dunbar (2012) Market Segmentation: How to do it, how to profit from it, Wiley

Figure 5.5: Identifying the decision makers

Market segmentation is the bedrock of successful commercial enterprises.

Who the key decision makers are

The easiest junction to start the market map is the final user's junction, noting at each junction the volume/value (or percentage of the total market) decided there. Guesstimate these figures if they are not known. Figure 5.5 shows a market in which 30 per cent annual sales are decided at junctions other than at the final user junction, and it is at each of these important junctions that market segmentation should take place.

Referring back to Figure 5.4 and the architects example, although about 35 per cent of radiators are specified by architects, it must be pointed out that there is no such thing as an 'average' architect. They all behave differently and are unique in their own way, so some method has to be found of grouping them in such a way that it becomes possible to communicate with them effectively, that is, segmenting them.

There is no such thing as an average customer. They are all different, so some way has to be found of grouping like-minded customers together – this is called 'segmentation'.

Segmentation

If you have lost a bit of focus reading this chapter so far, don't despair, as in some cases, market mapping isn't essential.

Market segmentation, however, is essential, as it is the very cornerstone of successful business enterprise and this next section should be read very carefully and acted upon.

Over the years, scholars and consultants have sought to discover the secret of success and 137 separate pieces of research have identified the following as the cornerstone of success (references supplied on request). More than 40 years of research into the link between long-run financial success and excellent marketing strategies reveal the following:

Characteristics of successful marketing strategies

Excellent strategies Weak strategies

Understand markets in depth.

Target needs-based segments.

Make a specific offer to each segment.

Have clear differentiation, positioning and branding.

Leverage their strengths and minimize their weaknesses.

Anticipate the future.

Always talk about products.

Target product categories.

Make similar offers to all segments.

Have no differentiation and poor positioning and branding.

Have little understanding of their strengths and weaknesses.

Plan using historical data.

Here, however, is the major problem, for most organizations do not understand segmentation and get it hopelessly wrong. Indeed, a recent Harvard Business

Malcolm McDonald on Marketing Planning: Understanding Marketing Plans and Strategy, 2nd Edition

Review article claimed that 85 per cent of new product launches in the United States failed simply because of poor market segmentation.

Most books incorrectly state that there are several bases for market segmentation, such as socio-economics, demographics, geodemographics and the like. But this misses the point totally. Boy George and the Archbishop of Canterbury are both socio-economic group A, but apart from wearing dresses and singing a lot, they don't behave the same! Nor do all 18–24-year-old females behave the same (demographics). Nor does everyone in my street (geodemographics) behave the same!

Market segmentation is NOT socio-economics, demographics or geodemographics.

All goods and services in a sector are made, distributed, bought and used, and all the purchase combinations make up an actual market, so the task is to understand what these different purchase combinations – or segments – are.

Before explaining how to do this, let me examine the factors that cause markets to break into smaller groups by describing briefly how products/services get adopted in markets. Figure 5.6 illustrates what looks like a normal distribution curve.

SOURCE: Adapted from Everett Rogers

Figure 5.6: Non-cumulative diffusion pattern

When something new is invented such as television, computers, microwave ovens, the internet and the like, not everyone adopts them at the same time. Many years ago, a US researcher, called Everett Rogers, studied how new products are diffused across markets over time. Imagine that television has just been invented. Let us take any market, Germany will do, and let us imagine that there are only 100 households in Germany. Let us further imagine that there is a law limiting each household in Germany to only one television. Clearly, the potential market for televisions in Germany is 100, but not everyone buys one at the same time. Someone has to be the first to adopt new products. Normally, about 2.5 per cent of any population will be the first to adopt new products. These people are known as 'Innovators'. They are unusual people who enjoy being different.

Not everyone adopts new products and services at the same time. Understanding why this is so can be quite useful for business people.

These people are followed by another group, known as 'Opinion Leaders' (called early adopters in Figure 5.6 – about 13.5 per cent of the market). These people tend to be affluent, are well-educated, very privileged, and they are independent thinkers, who do not care much what other people think of them. They are, however, crucial in getting any new product or service adopted. We can think of them as the Joneses, in the sense of the expression: 'Keeping up with the Joneses'.

This group is followed by a much larger group known as the 'Early Majority'. These people admire the opinion leaders and can be thought of as the Smiths, in the sense of the expression: 'The Smiths try to keep up with the Joneses'. When these people start to enter a market, there is a rapid growth in sales. (They represent about 34 per cent of the market).

By now, approximately 50 per cent of all those who could adopt the new product, have done so, and it is now that the 'Late Majority' begin to enter the market. Generally, these people are less privileged, less affluent, and less well-educated, and price often becomes important at this stage in the market.

Finally, the remaining 16 per cent of the population adopt the new technology. Rogers, (the originator of this research in 1976) referred to these people as 'Laggards'. By now, everyone who could have one has got one. For example, in the United Kingdom, everyone has a mobile phone, they are very cheap, and the market can now be considered to be a replacement market, in which growth will be dependent on population size, demographics and the like. Clearly, in mature markets, getting growth will be much more difficult.

Although this is not the purpose of this chapter, it is useful to note, before I leave Roger's diffusion of innovation curve, that when launching a new product or service, it is advantageous to know who the opinion leaders are in a market, as these people should be targeted first by the sales force, and by other promotional media, as they will be the most likely to respond. For example, certain doctors will be more open-minded about new drugs, whereas other doctors will not risk prescribing a new drug until it has been on the market for a number of years.

When launching a new product, it is useful to know who the 'opinion leaders' are, as these people will be more likely to buy.

The diffusion of innovation curve also explains the phenomenon known as the product life cycle, and why, after the 50 per cent point on the diffusion of innovation curve is reached, the market continues to grow, but the rate of growth begins to decline until maturity is reached. See Figure 5.7, which shows how the two curves relate to each other.

Malcolm McDonald on Marketing Planning: Understanding Marketing Plans and Strategy, 2nd Edition

Figure 5.7: Generalized cumulative and non-cumulative diffusion patterns

All this has been explained in order to introduce the key concept of market segmentation and why it happens. Clearly, in the early days, markets will tend to be homogeneous. But, as demand grows rapidly with the entry of the early majority, it is common for new entrants to offer variations on the early models, as I have just explained and consumers now have a choice. In order to explain this more clearly, let me illustrate the approximate shape of markets. If we were to plot the car market in terms of speed and price, we would see very small, inexpensive cars in the bottom left-hand corner (see Figure 5.8). In the top right, we would see very fast, expensive cars. Most cars, however, would cluster in the middle, what we might call: 'The Mr and Mrs Average' market.

The biggest part of most markets is the 'Mr and Mrs Average' in the middle.

Figure 5.8: Representation of the car market

Similarly, the lawn mower market would look very similar (see Figure 5.9). With lawn size on the vertical axis and price on the horizontal axis, at the bottom left would be small, inexpensive, hand-pushed mowers, with expensive sit-on machines for large estates in the right-hand corner. That leaves the mass of the market with average size lawns, and average size lawn mowers, which is where the mass market is.

Malcolm McDonald on Marketing Planning: Understanding Marketing Plans and Strategy, 2nd Edition

Figure 5.9: Representation of the lawn mower market

We can now redraw this to represent the shape of any market, particularly at the early growth stage (the shape on the left in Figure 5.10). But when rapid growth begins, new entrants join the market and offer variations on standard products in order to attract sales, and it is at this stage that markets begin to break into smaller groups, whilst still growing overall. (This is represented by the shape in the middle.) Eventually, when markets mature, and there is more supply than demand, any market growth tends to come in the lower price end of the market, whilst the top end of the market tends to be immune. (This is represented by the shape on the right.) It is usually the middle market that suffers at this stage, with many competitors vying with each other on price. This, however, is the whole point of market segmentation, for competing only on price is to assume that this is the main requirement of customers, whereas the truth is that this is rarely the case. It is just that a general lack of understanding about market segmentation on the part of suppliers about the real needs of customers in mature markets, forces them to trade on price, so encouraging the market to become a commodity market.

It is when markets become mature that suppliers who do not understand segmentation have to drop their prices.

Figure 5.10: The development of market shape from birth to maturity

A fertilizer company that had grown and prospered during the 1970s and 1980s, because of the superior nature of its products, reached its farmer consumers via merchants (wholesalers). However, as other companies copied the technology, the merchants began to stock competitive products and drove prices and margins down. Had the fertilizer company paid more attention to the needs of its different farmer groups and developed products especially for them, based on farmer segmentation, it would have continued to create demand pull-through differentiation.

Competitors can copy products, but they can't copy your relationship with customers.

The segmentation study revealed that there were seven distinct types of farmer, each with a different set of needs. To give just three examples of these segments, see Figure 5.11. Firstly, there was a segment we called Arthur (the character in the top middle), a television character known for his deals. He bought on price alone but represented only 10 per cent of the market, not the 100 per cent put about by everyone in the industry, especially the sales force. Another type of farmer we called Oliver (the character in the bottom right of the figure). Oliver would drive around his fields on his tractor with an aerial linked to a satellite and an on-board computer. He did this in order to analyse the soil type and would then mix P, N and K, which are the principal ingredients of fertilizer, in order to get the maximum yield out of his farm. In other words, Oliver was a scientific farmer, but the supply industry believed he was buying on price because he bought his own ingredients as cheaply as possible. He did this, however, only because none of the suppliers bothered to understand his needs. Another type of farmer we called David (the character in the bottom left). David was a show-off farmer and liked his crops to look nice and healthy. He also liked his cows to have nice, healthy skins. Clearly, if a sales representative had talked in a technical way to David, he would quickly switch off. Equally, to talk about the appearance of crops and livestock would have switched Oliver off, but this is the whole point. Every single supplier in the industry totally ignored the real needs of these farmers, and the only thing anyone ever talked about was price. The result: A market driven by price discounts, accompanied by substantial losses to the suppliers. This company, however, armed with this new found information, launched new products and new promotional approaches aimed at these different farmer types, and got immediate results, becoming the most profitable subsidiary of the parent company and the only profitable fertilizer company in Europe.

Malcolm McDonald on Marketing Planning: Understanding Marketing Plans and Strategy, 2nd Edition

Figure 5.11: Personalizing segments

The whole industry ignored the real needs of farmers and consequently talked only about price.

One more example should convince you of the crucial importance of market segmentation. Table 5.2 shows on the right what an IT company used to put in its brochures, which was essentially the same as all suppliers. Figure 5.12, however, shows nine segments of IT buyers, all clearly different. Armed with this knowledge, this company surged ahead of all its competitors and became the market leader and very profitable.

Table 5.2: Listen to how customers talk about category need

Customer View Supplier View

Advice Fast PAD family

Cutting costs Multimedia FRADs

Future technology direction PIX firewall

Help

Design and configuration Solutions

Process engineering Gigabit Ethernet solutions

Electron commerce

Run High Performance

International network LAN Support

Disaster recovery

Figure 5.12: Understand the different category buyers

I can now proceed to explain market segmentation and how to do it.

Malcolm McDonald on Marketing Planning: Understanding Marketing Plans and Strategy, 2nd Edition

Getting started

To get started, we need to develop a representative sample of different decision makers, what I refer to as 'micro segments'. The principle behind this step is that by observing the purchase behaviour of decision makers, we have a platform for developing a detailed understanding of their motivations, which in turn becomes the basis on which segments are formed.

Table 5.3 is a template for attempting this exercise. Although it shows only 10 micro segments, most companies can easily identify at least 20 micro segments. Remember, these micro segments are actual purchase combinations that take place in a market.

Table 5.4 is a summarized example of a finished segmentation project for the toothpaste market.

We need to understand as many combinations as possible of actual purchase patterns in the market.

If you have difficulty answering the 'why' question, you may need to carry out elementary market research, but in my experience, most SMEs are clever enough and experienced enough to be able to answer the question.

Table 5.3: Micro segments

Micro segment 1 2 3 4 5 6 7 8 9 10

What is bought

Where

When

How

Who

Why (benefits sought)

Table 5.4: Segmentation in the toothpaste market

Segment Name Worrier Sociable Sensory Independent

Who buys Socio-economic C1 C2 B C1 C2 C1 C2 D A B

Demographics Large families 25–40 Teens Young Smokers

Children Males 35–50

Psychographics conservative hypochondriasis high sociability: active high self-involvement: hedonists high autonomy value oriented

What is bought % of total market 50% 30% 15% 5%

Product examples Crest McLeans Ultra Bright Colgate (stripe) Own label

Product physics large canisters large tubes medium tubes small tubes

Price paid low high medium low

Outlet supermarket supermarket supermarket independent

Purchase frequency weekly monthly monthly quarterly

Why Benefits sought stop decay attract attention flavour functionality

Potential for growth nil high medium nil

To summarize so far, it is clear that no market is totally homogeneous (see Figure 5.13).

Figure 5.13: An undifferentiated market

The reality is that actual markets consist of a large number of different purchase combinations (see Figure 5.14).

Malcolm McDonald on Marketing Planning: Understanding Marketing Plans and Strategy, 2nd Edition

Figure 5.14: Different needs in a market

However, as it is impracticable to deal with more than between seven and 10, a process has to be found to bring together, or cluster, all those micro segments that share similar needs (see Figure 5.15), something that any good computer program can do.

Figure 5.15: Segments in a market A shortcut method

Not everyone will want go through this rigorous process described above, so I have developed a short cut, which any reader should easily be able to implement.

Start by completing the product/market table (Table 5.5). As explained earlier, just concentrate on the five or six boxes that account for about 80 per cent of your turnover. Take each of these in turn and then follow the process described in Figures 5.16–5.20.

1. Select a business unit, or part of the business, for which you wish to develop a partial plan. Business unit: ___________________

2. Along the top of the table, list the principal products, product groups or services sold by the business unit, ignoring unimportant ones.

3. Down the left of the table, list the principal markets, or market segments, you sell into, ignoring unimportant ones.

4. Now choose four to six product-markets (cells) to concentrate on. For each, estimate your current revenue in the box.

Table 5.5: Product-market table

Products: Markets:

1: 2: 3: 4: 5: 6: 7:

Although this is not as thorough as the process described above, it should enable you to develop a number of actionable market segments.

In conclusion, whatever you do, please don't lose heart if you have found this chapter hard going. Even if you can't follow my methods to develop segments, as long as you understand the principle involved, just have a go at generating some segments intuitively and this will be better than marmalading your efforts over some mythical, average customer, as, eventually, this will inevitably force you to compete on price as a 'pimply little me-too'.

Quick Market Segmentation Exercise

Malcolm McDonald on Marketing Planning: Understanding Marketing Plans and Strategy, 2nd Edition

Write down the main benefits sought by customers.

Hygiene factors are benefits that any product or service must have to be acceptable in the market. Try to ignore these.

Motivators are those benefits that contribute towards the customer's decision about which product to buy.

Take the 'motivators' and choose the two main ones.

Draw two straight horizontal lines and make an estimate of the percentage of customers at each end. So, for example, if service level is a key motivator of what is bought:

Figure 5.16a

Likewise, if the breadth of the product range is a key motivator of what is bought:

Figure 5.16b

Take the left-hand point of the first horizontal line and drag it over the second horizontal line to make a cross as shown in Figure 5.17.

Figure 5.17: Quick Market Segmentation Exercise

Starting at the top, and moving in a clockwise direction, multiply 60% by 60% to give 36% (see first circle).

Then multiply 60% by 40% to give 24% (see second circle).

Then multiply 40% (the bottom of the vertical axis) by 40% to give 16% (see third circle).

Lastly, multiply 40% by 40% to give 16% (see fourth circle).

The circles represent segments in the market.

The resulting segments

Interpetation

The first segment (36%), the biggest segment, requires both high service and a large product range.

The second segment (24%) prefers a large product range and is less interested in service.

The third segment (16%), doesn't care much about either a large product range or service.

The fourth segment (24%) prefers good service and is less interested in a large product range.

Although not essential, you might consider giving each segment a name.

Action

Ensure your 'offer', including the product, price, service and promotion reflect the differing needs of each segment.

Example

An example of segmentation of the A4 paper market follows. Please note that if, as in the case of the A4 paper market, there is one very large segment

Malcolm McDonald on Marketing Planning: Understanding Marketing Plans and Strategy, 2nd Edition

(in this case 56%), the exercise can be repeated for just this large segment, resulting in seven segments in total (Figure 5.18).

Example: Copier paper

Service delivery (fast, paper always 'there' – point of delivery availability of products; service levels).

Product fit for purpose (high-quality print finish for colour copiers; consistency of quality; paper that doesn't screw up in the machine; print definition; no waste).

Environmental factors (recyclable).

Level of support (delivered in small lots; consignment stock; easy ordering online; delivered to difficult locations).

Figure 5.18: Example of segmentation of a market

Actions

Important note: Please remember the contents of a strategic plan for what you sell and who you sell it to, shown again opposite. Please note that the finished plan should be fewer than 20 pages and fewer if possible.

The contents of a Strategic Marketing Plan (T+3, fewer than 20 pages)

Financial Summary

Market Overview

– how the market works

– key segments and their needs

SWOT Analyses of Segments

Portfolio Summary of SWOTS

Assumptions

Objectives and Strategies

Budget for Three Years

Now I am going to explain how to do the first section ('Financial Summary') and the second section ('Market Overview – in two parts – how the market works' and 'key segments and their needs').

Financial Summary

Figures 5.19 and 5.20 show what should appear first in the strategic plan.

Malcolm McDonald on Marketing Planning: Understanding Marketing Plans and Strategy, 2nd Edition

Figure 5.19: The contents of the Strategic Marketing Plan Key (revenue and profit growth)

from productivity

– by product for market for existing products from existing markets;

from new products in existing markets;

from existing products in new markets;

from new products in new markets.

Plus a few words of commentary.

Market Overview/Summary

Market definition.

Market map showing volume/revenue flows from supplier through to end user, with major decision points highlighted.

Where appropriate, provide a future market map.

Include commentary/conclusions/implications for the company.

At major decision points, include key segments.

Please note, however, that you are going to have to delay doing this until you have completed your plan. So we now proceed to the 'Market Overview' section of the plan, as explained in this chapter.

Market overview

Figure 5.20 shows how to draw a market map. If you can't (or don't want to) do this, at the very least write some words about how your market works. On the assumption, however, that you are going to attempt this crucial section of your strategic plan, please follow the suggested process:

1. Define your market.

2. Draw a market map using the guidelines in Figure 5.20.

3. Show volume/revenue flows from supplier through to end user, with major decision points highlighted.

Malcolm McDonald on Marketing Planning: Understanding Marketing Plans and Strategy, 2nd Edition

Figure 5.20: Market mapping

4. Where appropriate, provide a future market map.

5. Include comments/conclusions/implications for your company.

6. At major decision points, include key segments – these are the result of your analysis above.

Figure 5.21 shows a market map sketched by some directors of a distributor (builder's merchant), and included is a template (Figure 5.22) so you can have a go at doing this.

This concludes the first section of your strategic plan. In Chapter 6, I will proceed to show you how to ascertain the needs of customers in the segments you have identified as a result of your analysis in this chapter.

Figure 5.21: Internal wall covering market map as sketched by the directors of a distributor

Malcolm McDonald on Marketing Planning: Understanding Marketing Plans and Strategy, 2nd Edition

Figure 5.22: Template for your own market map

Malcolm McDonald on Marketing Planning: Understanding Marketing Plans and Strategy, 2nd Edition

Chapter 5: Market Segmentation - Crucial to Understanding your Market and How It Works
An important note from the author
Introduction
Market overview
Getting started
Actions