Target Market Analysis: Salesforce.com

A target market is the market a company wants to sell its products and services to and includes a targeted set of consumers towards whom it directs its marketing efforts. The identification of the target market is the first and essential step in developing a marketing plan and executing a successful marketing strategy. Market sizing, on the other hand, is the process of estimating the potential of a market by specifically focusing on; the total size or potential size of a market, the major competitors in a market by category, the composition and profile of a target customer, the products and services available in the market and most importantly, the most significant trends in the market. Market segmentation involves partitioning a broad consumer or business market, usually composed of already existing and potential consumers, into sub-groups of consumers based on different types of shared characteristics.

Table of Contents

The Target Market 5

The Rationale for This Target Market 5

Market Sizing. 6

The Growth Rate. 8

Market Segmentation. 8

Assumptions to Market Segmentation. 9

Algorithms and Approaches to Segmentation. 10

Price-Focused Segmentation. 11

Service-Focused Segmentation. 11

Partnership-Focused Segmentation. 11

Quality and Brand-Focused Segmentation. 12

Geographic Segmentation. 12

Demographic Segmentation. 12

Product Diffusion Segmentation. 13

Behavioral Segmentation. 14

Psychographic Segmentation. 14

Other Types of Consumer Segmentation. 15

Generational Segmentation. 15

Cultural Segmentation. 15

Online Customer Segmentation. 16

Conclusion. 17

Market Sizing and Growth Rate Estimation

The Target Market

Salesforce.com Inc. is a cloud computing company that derives its revenue from a Customer Relationship Management (CRM) product and through selling commercial applications of social networking through acquisition and internal development. The target market for this company is diverse and includes customers in consumer financial services industry, accident, and health insurance industry, life insurance industry, insurance brokerage industry, property and casualty insurance industry. Additionally, the clients would comprise those from investment services industry, money center banks industry, regionals bank industry, savings and loans banks industry, commercial banks industry, personal services industry, professional services industry, computer hardware industry and software and programming industry among others.

The Rationale for This Target Market

Most of the above-listed companies and firms engage in services provision and have an extraordinarily close and sensitive customer relationship. It is therefore in their best interest that they adopt an internet-based Customer Relationship Management to meet the needs of their customers efficiently. This scenario is when the cloud computing company Salesforce.com Inc. ventures in to bridge the relationship management gap and provide social networking through acquisition and internet development.

Salesforce sells to businesses of all sizes, and the number of paying subscriptions at each of their customers ranges from one to hundreds of thousands. After an application has been installed and gone live, the built-in performance profile of Force.com automatically analyses and avails feedback, including data manipulation and subroutines that can be used to functionally tune applications by the developers, for the administration (Weissman & Bobrowski, 2009).

In selecting the target markets, the following must have been taken into consideration by Salesforce.com; the target market must have been sizeable (large) enough to be profitable given the operating costs and other expenses, the target market must have depicted growth owing to the many new firms and companies that are set up every year. Competitors did not already flood the market, and Force.com Inc. must have found a way to stand out in the crowd, the target market must have been accessible or a way to reach it could be devised, Salesforce.com had the resources to enter this competitive niche and most importantly, all these resonated with the missions and objectives of Salesforce.com Inc.

Market Sizing

In assessing the economic viability of a niche market, establishing the market size is one of the most essential tasks to the financial growth and success of a business (Tronstad, 2008). A small market would mean insufficient sales to cover for the invested capital, operation costs, and the startup. On the other hand, if the market appears enormous, it turns out not to be a niche market and thus attracts direct competition in the form of commodity markets, unless the company creates a competitive edge that cannot be replicated (Tronstad, 2008). Indispensable in the determination of the market size of a niche product is consumer demographics and the typical consumption patterns of the products. It is also essential to assess whether the market base shall be made of local and destination consumers.

The first task in assessing the market size for Force.com is to estimate the number of companies in Philippines and the likely percentage of these companies that would be interested in subscribing to a CRM software plan. According to the 2012 Census of Philippines Business and Industry (CPBI), the total number of establishments across the country as at 2012 stood at 219,184 with the number of Services sector businesses dominating the economy at about 86 percent (188,502) of the total establishments (Authority, 2012). Our group took into account the following assumptions:

90 percent of the Services sector businesses would opt to secure a subscription into the CRM software services

About 90 percent of these enterprises would subscribe to the economic yet encompassing service of Advanced Reporting Features (ARF) which would cost them an average of $150 US Dollars monthly.

Every enterprise secures an average of 2 subscriptions with Salesforce.com

In 2006, the Philippines CPBI recorded a total of 139,318 establishments, which means that between 2006 and 2012 (a period of 6 years), an additional 79,866 enterprises came into the market (Authority, 2012). From this, we made the assumption that

The annual growth rate of enterprises in the Philippines stands at 13,311 (79,866 enterprises in 6 years) and would in turn translate to 11,447 enterprises of the Services sector (86 percent of the total).

The Calculations

The number of existing enterprises likely to secure a subscription:

90 percent of 188,502 = 169,652 enterprises

Which would translate to 339, 304 subscriptions (2 subscriptions per enterprise)

With a subscription costing an average of $150 US Dollars monthly, this would translate to an annual revenue of:

339,304 by 150 by 12 months = $610,747,200 US Dollars

The Growth Rate

For investors, the growth rates typically represent the compounded annualized rate of growth of a company’s revenues, dividends, and earnings, or even macro concepts such as retail sales and Gross Domestic Product (GDP). The growth rates commonly employed in the analysis of this include trailing growth rates and expected forward-looking. Financial development and the persistent differences in the dynamics of economies as well as institutional factors are some of the most critical determinants of the growth rate of a business (Bravo-Biosca, Criscuolo & Menon, 2016). In the case where a country’s institutional framework improves, the whole economy benefits despite there being winners and losers. Such contexts have a heterogeneous impact throughout the length of a firm’s growth (Bravo-Biosca, Criscuolo & Menon, 2016).

Salesforce Inc. within the Philippines has a myriad of enterprises that are willing to secure subscriptions with it. With an average of 11,447 Services sector enterprises emerging annually, the projected annual subscription rate would be 22, 894 subscriptions annually (2 subscriptions per enterprise):

The exact annual market Growth Rate for Force.com in the Philippines, concerning Dollars, would therefore be:

; 22,894 by 150 by 12 months = $41,209,200 US Dollars

Market Segmentation

Market segmentation is the process of dividing the market of potential customers into different groups and segments by certain characteristics: and the member of these groups share similar characteristics and in most instances have one or more aspects in common. Market segmentation involves asking the question, ‘what groups of buyers are similar enough that similar product and service will appeal to all of them?’ Market segmentation and target marketing have the benefits of; avoiding head-on competition with other firms with the intention of capturing the same customers, developing new offerings and expanding on profitable brands and product lines. Other advantages comprise remarketing older and seemingly less-profitable products and brands, identifying early adopters, redistributing money and sales efforts to focus more on the most profitable customers and most importantly, retaining the “at-risk” customers in danger of defecting to your competitors. Wedel and Kamakura (2012) postulate that segmentation of the potential market is an indispensable modern marketing technique in industrialized countries. Typically the production and selling of goods and services are no longer done without significant and proper consideration of the needs of the customers with an understanding that these needs are usually heterogeneous (Wedel & Kamakura, 2012).

Assumptions to Market Segmentation

The main assumptions in the segmentation process include; the assumption that consumer preferences vary and that tailoring offering to a specific segment will increase the value to the people in the segment. We also assumed that only visible customer data was useful and that all customer segmentation data is equal. The rationale for the assumption that customer preferences vary is that this is the case in many market niches and tailoring services towards a particular segment’s preference could be a key factor in standing out from the competition. Employing the only available customer data is also justifiable since this is enough to give an outline and estimation of the entire set. Treating customer segmentation data as equal is necessary if a holistic approach in the segmentation process is the case.

Algorithms and Approaches to Segmentation

Choosing the right statistical approach during segmentation depends on the availability of data, time constrains, the marketer’s skill level and resources and the broad approach (a-priori or post-hoc approaches);

A-priori segmentation: this is the kind of research applicable when a theoretical framework is available and research has not yet been conducted. The marketer is well aware of the most appropriate way to segment the market, whether geographically, demographically or otherwise. However, this approach carries the challenge of not being able to explore other opportunities in the identification of potentially meaningful market segments.

Post-hoc segmentation: conversely, post-hoc segmentation makes no assumptions concerning the optical theoretical framework and instead, the marketer’s role is to identify the most meaningful segments for a particular marketing problem or situation. From the available data, the analysts are able to pull out segments by employing structural equation modelling or clustering analysis.

The main bases of segmentation include geographic, demographic, behavioral and psychographic elements. These elements and other niche marketing techniques can be employed in the prediction of customer behavior. Various tools and research techniques can be used in the segmentation of a market. These include government agencies such as the Census Bureau, which collects and reports large amounts of population information and economic data that can point out changing consumption trends. Another tool is technology which enables entrepreneurs and small businesses to collect data about potential customers. Companies like Salesforce.com are now using the internet to track the public’s Web browsing patterns and then segments them into convenient target groups. Twitter and Facebook are yet other platforms many companies are employing to keep in touch with their customers and in boosting their revenues.

An alternative approach to market segmentation is ‘needs-based’ or ‘benefit-based’ segmentation, which has been argued by most literal works to be the most effective and successful approach. A company needs to know all its customers’ needs and identify which needs are unmet and to what degree to construct a customer needs-based segmentation scheme. This area is where most companies struggle since nearly all firms have their managers disagreeing on what a customer need is, and the belief that it is impossible to know all their customers’ ever-changing latent and unarticulated needs. Customer needs-based segmentation is essential since it reveals if undeserved and oversized market segments exist in a market and the size of each market. The four most common needs-based segments marketers such as Salesforce Inc. need to be aware of include;

Price-Focused Segmentation

Every firm needs to incline towards a more ‘transactional’ way of doing business and place less importance on ‘extras’ to minimize their costs.

Service-Focused Segmentation

Salesforce Inc. places high importance on customer services, such as aftersales care and fast, reliable delivery. The speed with which it gets back to concerns from clients and the rapidity of installation of software and cloud services entail a service focused approach.

Partnership-Focused Segmentation

This segmentation places vast importance on trust and reliability with the supplier and typically represents a company’s key accounts.

Quality and Brand-Focused Segmentation

Seeking the best possible product or service and the willingness to pay any premium for it is the basis for this segmentation.

Nonetheless, the primary basis for general segmentation of a market should take into account the geographical, demographic, behavioral and the psychographic aspects into consideration (Weinstein, 1994).

Geographic Segmentation

This segmentation divides markets according to geographic criteria. These criteria would include by country, region, population density, city or town size, and the climatic zone. The combination of geographic and demographic data (geodemographic segmentation) provides a richer and detailed profile upon which informed segmentations can be derived. Geographic segmentation is an essential step in international marketing since marketers must decide whether to adapt their existing products or services and marketing programs for the unique needs of distinct geographic markets.

Demographic Segmentation

This type of segmentation is based on customer demographic variables including age, income, ethnicity, religion, and the socioeconomic status among others. This segmentation assumes that those consumers who exhibit similar demographic profiles will show similar purchasing patterns, motivations and interests and that these features will translate into related services preference offered by Force.com Incorporation. Religious and ethnic beliefs of a firm or a company may affect their view and subsequently their interest in a service provided by Salesforce.com. The Philippines is the only Christian nation in Asia, and thus its population has a minimal aversion against most services.

Product Diffusion Segmentation

There is variation in how readily a set of consumers adopt a new product, and this can form a basis of segmentation. A given cohort of consumers would adopt to service as soon as it hits the market while another set of consumers would be among the last to purchase or even take an interest in the same service. The adoption of a new product, as a result, can be presented in a bell-shaped diffusion curve. Two standard deviations wide about the mean produces different product or services adoption group including; innovators (who are the very first, well-informed risk takers willing to try an unproven product), early adopters (who depend on the positive response of innovators), the early majority (who are careful consumers that tend to avoid risk and waits for proof of success by the early adopters), the late majority (skeptical customers who only acquire a product after set root and become a commonplace) and lastly the laggards (those consumers who are afraid of and avoid change and may not adopt a new product until the familiar traditional alternatives are not available anymore.

The rate of adoption depends on a myriad of factors including; perceived benefits over alternative products, ease of use, the price and the ongoing costs, conveyance of the benefits of the product, promotional effort, the likely risks, distribution intensity, compatibility with the existing standards and values and the divisibility of the product, that is, the extent to which it can be tested on a limited basis.

Behavioral Segmentation

It segments consumers into groups according to their observed behaviors. The attitude towards a product or service (whether enthusiastic, price-conscious or quality conscious), buyer readiness (aware, unaware and intention to buy), loyalty status (whether loyal, switcher or non-loyal), the user status (first-time status, regular user or non-user) and the usage rate or purchase frequency (whether light, heavy or a moderate user). These descriptors are essential factors to be put into consideration by Salesforce.com Inc. if it is to understand its market’s behavior. Consumers wanting value for their money tend to impulse buy, and their readiness to purchase, their loyalty status, the benefits they seek and the rate at which they use the service are important considerations.

Psychographic Segmentation

Sometimes also known as psychometric or lifestyle segmentation, the psychographic aspect of partitioning is measured by carefully observing the activities, interests, and opinions of customers. It considers how firms spend their free resources and time, and what external influences the firms are responsive to and influenced by. Psychographics is a widely used basis for segmentation because it enables marketers to identify tightly defined market segments and better understand consumer motivations for product, brand or services choice. Salesforce.com Inc. is likely to face challenges particularly regarding social awareness, traditionalism, and conservativeness in the Philippines.

Other Types of Consumer Segmentation

Generational Segmentation

Defining a cohort of people who are born within a similar span of time (a decade and half at the upper end), who share a comparable age and life stage and whose interests and preferences have been shaped by particular events, trends and developments, is as important as the previous determinants of segmentation. The establishment of generations is however usually done in approximations only. An older generation tends to cling onto traditional ways of Customer relation including one-on-one relationship methods, as compared to the present generation which is more welcoming towards technological advancements.

Cultural Segmentation

Cultural segmentation is used to classify markets with regard to their cultural origins. Culture is a major determinant of consumer behavior and can be used to enhance consumer insight. An understanding of culture also enables the crafting of appropriate communications to suit a specific cultural community. Measuring market penetration in important cultural segments by services, brands and traditional measures of frequency and monetary values, employs cultural segmentation. Mapping of cultural segmentation according to state and region provides a geographical market view of the population proportions and may be beneficial in choosing the appropriate located premises, territory boundaries and local marketing activities. Important cultural data can be derived from Census data, but individual application is unreliable. Salesforce.com has the task of taking cultural factors into consideration if at all cultural segmentation is one of its concerns.

Online Customer Segmentation

Online customer segmentation is probably the most exploited aspect of segmentation by Salesforce.com. This approach, just like previous traditional methods, ascertains that the segmentation should produce identifiable, accessible, substantial, stable, differentiable and actionable cohorts. Customer data available in the online data management system such as CRM makes possible the analysis and categorization of customers across a diverse set of attributes. Basically, there are six types of current active online consumers; surfers, bargainers, connectors, routiners, simplifiers and sportsters. How conversant Salesforce.com is with these types of users in terms of the time they spend online, number of pages and sites they access and the kinds of sites they visit, can prove important in understanding the market niche and in the partitioning process.

After the market segments have been established and each of the core segments has been developed for distinct offers, the company then is supposed to design a marketing program or marketing mix that resonates with the target market or markets. The marketing program is designed taking into consideration the needs of the target market. The main reason why niche marketing (marketing after segmentation) is important is that the demand for the product is bound to remain inelastic, that is, the demand will remain less dependent on the price and the customers shall purchase similar amounts of products in the setting of premium pricing or a price increase (Tronstad, 2008).

A proper segmentation analysis carries the benefits of identifying the most and least profitable customers, helping in focusing marketing efforts, improving customer service, building loyal relationships, helps tailor prices in accordance with a specific segment, developing better products, creating of personas and customization of features (McDonald, Christopher & Bass, 2003). Also, a good segmentation scheme must be mutually exclusive and at the same time collectively exhaustive.

Conclusion

The identification of a target market and estimation of its size is essential in assessing the potential of yet an uncharted business gap. Using statistical data from reliable sources such as recently conducted Censuses is indispensable in establishing a steadfast estimation of market size. Dividing the market into segments is an important process that helps in the understanding of customer preferences, in blocks. This categorization makes it easier to meet each parts needs and in focusing marketing efforts towards more deserving niches, rather than treating the whole market as a single block. Geographic, demographic, behavioral and psychographic aspects can be used in the categorization process.

References

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