Management Test 3

Businesses identify market segments by dividing consumers into groups that have

• similar characteristics.

•   financial needs.

• inconsistent values.

• unusual interests.

Answer explanation

Similar characteristics. Market segmentation is the division of a total market into smaller, more specific groups. The basis of the division is similar characteristics that are geographic, demographic, or psychographic in nature. Some of the groups or segments have unusual interests, but not all of them do. Most people have financial needs, so this characteristic is too broad to consider for market segmentation purposes. When dividing a group by psychographics, the segment has similar rather than inconsistent values.

Identifying market segments helps a business to develop appropriate

• economic forecasts.

• marketing strategies.

•   organizational records.

•   leadership styles.

Answer explanation

Marketing strategies. Identifying markets involves dividing the whole market into smaller groups that share common characteristics. When a business identifies different markets, it can then select the group (target market) that is most likely to buy its products. After selecting the target market, the business can develop a plan of action and carry out activities that will appeal to the target market and encourage it to buy its products. Businesses do not identify market segments to develop appropriate economic forecasts, organization records, or leadership styles.

Age, ethnicity, and income are all factors when developing a target segment based on

• demographics

• geography

• behavior

• psychographics

Answer explanation

Demographics. Age, ethnicity, and income are all factors of the science of demographics, which studies the various aspects of a group's background to determine similarities in decision making of individuals within groups. Sometimes, geographical areas are used to segment populations. This type of targeting can emphasize attachment to a particular geographic location as the defining feature of a group. Behavioral segmentation sorts consumers based on their attitudes towards or use of a product or service. Psychographics is used to segment markets on the basis of beliefs, values, attitudes, lifestyles, etc.

Company XYZ has developed a new flavor of ice cream called Hunky Chunky and has selected a target market that consists of boys, ages 7-15, who are living at home with their parents in a household that earns between $30,000 and $60,000 a year. This method of target market selection is based on

• socioeconomics

• psychographics

• geographic

• demographics

Answer explanation

Demographics. Demographic segmentation is the division of a market on the basis of its physical and social characteristics. Psychographic segmentation is the division of a market on the basis of consumers' lifestyles and personalities. Geographic segmentation is the division of a market on the basis of where consumers are located. Socioeconomics is not a method of selecting a target market.

Why is it important for a business to select a target market?

• To organize exclusive sales territories

• To develop stratgies to appeal to customers

• To prepare detailed promotional reports

• To identify the most appropriate vendors

Answer explanation

To develop strategies to appeal to customers. Each target market is unique, which means that strategies that are effective with one market might not work with another market. Consequently, businesses need to select the target market before developing specific strategies. For example, if the target market consists of teenagers and young adults, the marketing strategies will be very different than if the target market consists of senior citizens. Once the target market is selected, a business can focus on developing the right strategies. Businesses do not select a target market to organize exclusive sales territories, identify the most appropriate vendors, or prepare detailed promotional reports.

When an automobile company markets a van to families and a luxury sports car that appeals to single, working adults, it is engaging in ________ marketing.

• Segment

• Local

• Mass

• Relationship

Answer explanation

egment. Segment marketing is the classification of customers into similar groups in order to appeal to one or more individual segments. An automobile manufacturer that develops different types of vehicles to appeal to different types of drivers is engaging in segment marketing. Local marketing occurs when a business customizes its marketing activities to appeal to customers at a community level. Mass marketing occurs when businesses develop products and implement marketing strategies that appeal to the whole market.  Relationship marketing refers to a strategy in which businesses spend time with current and prospective clients outside the business setting to enhance the partnership.

When a business conducts a market analysis and identifies territories, determines the possible buyers in the territories, and estimates the buyers' purchases, it is evaluating the

• competitors' market share.

• segment's psychographics.

• potential media exposure.

• area's market potential.

Answer explanation

Area's market potential. A market analysis is a study of a particular market segment. The purpose of the market analysis is to determine the level at which the market segment is willing and able to buy the business's products. One aspect of the market analysis addresses the area market potential, which is the number of potential customers and the potential sales volume for a specific area, territory, or location. Psychographics are lifestyle and personality considerations of a market segment. Competitors are the business's rivals. Media exposure refers to the amount of contact the business makes with the target market through the media (e.g., television, radio). Psychographics, competitors, and media exposure are other important considerations when evaluating the overall market potential of a market segment.

What is the demand for our products in this region? This is a question that a business wants to answer when it

• evaluates technology needs.

• establishes orientation programs.

• conducts a market analysis.

• develops financial standards.

Answer explanation

Conducts a market analysis. A market analysis is a systematic study of the market. It is important for a business to know how many members of the market want or need the business's product before it spends the money to market the product in that area. If there is little or no demand for the product in a specific geographical area or region, then it is not practical to spend money to offer and promote the product. A business does not use a market analysis to evaluate the business's technology needs or to develop financial standards. The purpose of an orientation program is to introduce new employees to their coworkers and orient them to their new work environment.

As part of its market analysis, the SVM Company estimates the increases in demand for its products over a set timeframe for a particular market segment. The SVM Company is attempting to analyze the market's

• performance

• size

• growth rate

• profitability

Answer explanation

Growth rate. A market analysis is a systematic study of the market. The growth rate of a potential market is an important consideration when conducting a market analysis. If data indicate that the market is expected to grow, then it is possible that there could be a greater demand for the business's products in the future, so the business must take steps to prepare to meet the needs of the growing market. If market growth is expected to decline, the business needs to know so it can make changes and perhaps try to identify a new market. Market size is the number of possible buyers in a given market at a given time. Profitability is the degree or level of profit of a business or a product. A business does not evaluate a market's performance, but its potential to buy.

If a firm discovers a competitor's weakness when it is conducting a competitive analysis, the firm has often uncovered a(n)

• product liability.

• internal threat.

• ethical disadvantage.

• marketplace opportunity.

Answer explanation

Marketplace opportunity. A competitive analysis is the process of comparing a firm's performance (e.g., profits) with that of its competitors to see how it is doing by industry standards. Uncovering a competitor's weakness can provide a firm with an opportunity to increase its market share. For example, if an analysis indicates that a competitor does not have the resources to effectively reach a market segment, the firm has uncovered a potential opportunity to expand into another market. An internal threat is a weakness within the company, such as outdated equipment. Ethics are the basic principles that govern a person's behavior. Product liability is a producer's responsibility for any injury that the business's products may cause.