Everything you need to know about Market Segmentation. Learn about:- 1. Introduction of Market Segmentation 2. Meaning and Definition of Market Segmentation 3. Levels 4. Need 5. Features 6. Types 7. Process 8. Basis 9. Example 10. Criteria 11. Variables 12. Importance 13. Benefits 14. Limitations.
Contents
- Introduction to Market Segmentation
- Meaning and Definition of Market Segmentation
- Levels of Market Segmentation
- Need for Segmentation
- Features or Attributes of Effective Segmentation
- Types of Market Segmentation
- Process of Market Segmentation
- Basis of Market Segmentation
- Market Segmentation Example
- Criteria for Effective Market Segmentation
- Market Segmentation Variables
- Importance of Market Segmentation
- Benefits of Market Segmentation
- Limitations of Market Segmentation
Everything you need to know about Market Segmentation: Definition, Types, Process, Importance and Examples
Market Segmentation – Introduction
At the beginning of this new 21st century, we are in an era of micro-marketing which means knowing our customers well enough so as to give them products and services they need and to direct promotional efforts to their needs and attitudes and to build a strong channel relationship.
Markets are today flooded with a wide variety of products, each for a specific need. Thus, in a soft drink market, we have two broad product classes — cola drinks and non-cola drinks. In both these classes, there are a number of flavours. Cola drinks are sweet like Pepsi and the real thing like Coke and want-my-thunder-type like Thumps Up.
In non-cola drinks, there are different flavours like orange, lime and kala-khatta. Soft drinks are available from the fountain, off-the-rack returnable glass bottles, non-returnable PET bottles and aluminium cans. Diet Cola is for the calorie-conscious and Thumps Up for young adventurous achievement oriented customers. This is precisely what market segmentation is all about. It is a customer driven focus.
Segmentation is the process of partitioning a large heterogeneous market into smaller groups of people or businesses which show similar needs and or characteristics thus, resulting into a similar purchase behaviour.
There are two alternatives available to a marketer — treat the whole market as an entity of a collection of smaller submarkets or segments with distinct characteristics. When the whole market is treated as one single entity, it is called undifferentiated marketing strategy’. Such an approach is beneficial only to a few public utilities who operate as legal monopolies.
Even these have to do some differentiation to meet competition from close substitutes. Thus, couriers have influenced a monopoly like Posts and Telegraphs which now offer speed post service. In an undifferentiated marketing strategy, a single product is handled using a single marketing mix strategy directed towards all consumers in a market.
It is also called total market approach. Here, the organization depends upon mass production, mass distribution and mass promotion to reap the benefits of the economies of scale.
However, markets of today have a great amount of diversity. So the organization uses market segmentation by identifying two or more submarkets based on their varying needs for targeting and concentration. Thus, the target market is a group chosen out of the total market for whom a product is offered at a price that suits this group and to whom communication is directed.
The product is made available to this chosen group through an appropriate channel. Thus, targeting consists of addressing a specific group with a specific marketing programme. A target segment is that segment of the total market after which the advertiser decides to go. It is also called target audience.
Market differentiation is thus a segmentation strategy. It is practised in response to the nature of market demand. Product differentiation is not a segmentation strategy. It refers to creating different product versions on the basis of physical features of the product. It is suitable for commodities.
Market differentiation is broader. It is not restricted to product variants only. It goes beyond the product and covers promotions, price and distribution aspects too. Thus, in targeting, there is market differentiation and it is done on the strength of specific marketing programme for the targeted group.
Out of the total segments of the market, if only one is chosen for targeting, it is called concentration strategy. A publisher may decide to cater to the taxation book segment of the total book market. Such a strategy is less expensive. If we carry-out our segmentation exercise to its extreme, we finally reach the needs of an individual customer who may require a custom- made product, e.g., a super computer for a meteorological laboratory. Such a strategy in called an atomization strategy.
Market Segmentation – Meaning and Definition
Market Segment is a sub-group of people or organizations sharing one or more characteristics that cause them to have similar product needs.
According to W.J. Stanton, “Marketing segmentation is the process of taking the total heterogeneous market for a product and dividing it into several submarket each of which tends to be homogenous in all segment aspects”.
Market segmentation is defined as the process of splitting customers, or potential customers, in a market into different groups, or segments, within which the customers share a similar level of interest in the same or comparable sets of needs satisfied by a distinct marketing proposition, it is also explained as a marketing technique that targets a group of customers with specific characteristics, i.e. a particular group that has its own distinct customer profile and buyer characteristics so that for marketing purposes, it can be targeted separately from other segments of the market.
It is a key ingredient for successful marketing as it simplifies the targeting, positioning and the planning process. Market segmentation services are helpful for customer identification, selection, profitability, and retention. Market segmentation is one of the most important strategic decision-making tools. Segmenting the market helps marketers to effectively cater to the needs of a particular group because their needs and wants will be homogeneous.
A business must analyze the different needs of the market segments, their internal strengths and weaknesses, external opportunities and threats, and various others factors like the mission, vision, values, beliefs, attitudes, norms and standards of the organization, as well as the competitors strategy, social and cultural factors, economic environment, global perspective, demographic environment, technological and political/ legal aspects before deciding their own niche.
Philip Kotler mentioned five criteria for an effective segmentation which states that segmentation should be:
i. Measurable:
It should be possible to determine the values of the variable used for the segmentation.
ii. Relevant:
It should justify the expected profits and the growth potential.
iii. Accessible:
The target customers must be reachable and servable for the organization.
iv. Distinguishable:
The target audiences must be diverse and able to show different reactions to different marketing mix.
v. Feasible:
The firm must have an ability to draw an effective marketing program for its customers.
Market Segmentation – Levels of Market Segmentation
A market consists of various customers who have different tastes and preferences that help in dividing the market into different levels. The different levels of market segmentation help in simplifying the process of segmentation for an organization.
The different levels of market segmentation are as follows:
1. Mass Segmentation:
It helps in providing a product for the whole market. In this method, there is no segmentation of market; therefore, the same product is provided to the customers with different needs. This type of segmentation is also known as market aggregation and undifferentiated marketing.
Several organizations had a strong belief in the potential of mass marketing earlier. It is the most profitable form of segmentation for marketers. Mass marketing is not only beneficial for an organization but also provides a value of money for the customers. The basic reason is that it helps in keeping the price of a product low.
2. Segment Marketing:
It divides the market into different subgroups or classes commonly known as segments. An organization faces a lot of problems in providing the same product for different customers with varied tastes in today’s competitive world. The organization identifies profitable segments having distinct choices or tastes in the market. Then, it focuses on a particular segment that has a common set of preferences and interests. This helps the organization to focus its efforts towards a particular segment instead of providing similar products for all the segments.
Sometimes, an organization tries to group two identical segments based on some common attributes. Thus, segmentation plays a very important role as it helps in drawing a clearer picture of target customers. The most common example of segmentation is the entertainment industry. Earlier, there were only two channels, such as DD-1 and DD-2 broadcasted in India.
However, when the cable TV was introduced in India, there was only a bunch of channels. In last few years, the media and entertainment industries have gone through radical transformation. Now, there are several channels, such as Discovery, Star Plus, Pogo, and ESPN as per the choice and interest of a viewer. The whole industry has been segmented to meet the demand of a specific set of customers or viewers.
3. Niche Marketing:
It focuses on smaller markets with a specific set of customers who have same tastes and preferences. The customers in these small markets are very specific about their choices and preferences. They are ready to pay a premium for these specialized products. The customers in such a market are very passionate, emotional, and fanatical for the product. For example, Blackberry mobile phones are very limited in their use.
It is a phone that caters to the needs of business customers. Blackberry phones are not much of an importance to a music lover. These phones are heavily loaded with applications used in day-to-day business. It helps in storing presentation as well as recording and tracking accounting and official data. The organization charges according to the features of a product.
4. Local Marketing:
It concentrates on the tastes and preferences of customers of the local market. This segment is region based and takes care of the sentiments of the local community. In this era of globalization, the organization may be a market leader in some nations; whereas, a straggler in other nations. Local marketing helps an organization to produce customized products at the global level to match the tastes and preferences of customers.
In a big and diversified nation, such as India, where culture and language change after every 100 km, it is necessary to serve as per the local market requirements. A chain of restaurants having its operations all over the country offers diversified food items based on the local tastes.
This means that the same restaurant in Chennai will offer more of idli, sambhar, and dosa items; in Western India, it will provide more of chaat items, such as bhel puri and pao bhaji. In Northern India, the restaurant will have more of roti, parantha, kulcha, dal, and other items; whereas, in Eastern India cuisine will be very different. Thus, the best strategy is to deliver product or services as per the choice of local community.
5. Individual Marketing:
It customizes products or services as per the individual taste and preferences. This is the ultimate level of segmentation and is also known as one-to-one marketing where marketers focus on individual customers. Fashion, media, and automobile industries use this marketing technique to customize their product as per the requirement of customers. The bike and car modification has become a trend in India, where youths want to remodel their bike as per their choice and preferences. The software organizations design software as per the requirement of a client.
Market Segmentation – Need
These is growing need and importance for segmentation.
Following are the important ‘reasons’ for segmentation:
1. Difficult to Serve the Entire Market:
Due to growing size of population and increasing size of market, it is difficult to an organization to serve the entire market. People have different opinions of a product. It is difficult to take care the needs of entire varied population.
Firms have limitation of resources with, their Limited Finance, Technology, ability to organise and market, they have to be selective to be effective. They can be successful, if they select particular segment and cater products to that segment.
Hero E.g. – Started with Bicycles later expanded to motorcycle segments. It has restricted itself to two wheeler segment to be effective to that market. It has not further expanded into four wheeler or motor car segment.
2. Globalisation:
Globalisation, worldwide has further expanded the size of market. New markets, new products are entering. It is not possible to cater to every kind of globalised products market. Firms can be effective in concentrating particular product and market effectively to a particular segment of market. Ex- Honda motorcycles of Japan entered Indian market to serve two wheeler segment (First as Joint – ventures with Hero Honda now independent).
It has restricted to motorcycles in the lower range with limited power and price segment. It has now entered into premium range motorcycles with high price and more power considering growing income levels of Indian market.
Along with that it has also started marketing of cars, to en-cash the growing car market in India.
3. Exploit New Markets:
Growing income levels, education, urbansation, change in culture is creating demand for new kind of products. Growing demand for Mobiles, Shampoo, Fashion products in India is an indication of that. New customers are emerging who like Fast Food, Pizza, Burger, Soft Drinks, Mobiles etc.
An organization can exploit such Market by segmenting and specializing in that area. E.g.- McDonald, KFC have entered India with their fast food items to the e.g.,- Pizza @ just Rs. 50/- to match taste of India, providing the product at reasonable price.
4. Innovation:
Segmentation helps to innovate and enter new market segments. It helps to exploit the untapped market. Firms can research and find out customers who are not served and who are unsatisfied and product can be marketed to such segment. Ex- Shampoo was luxury product in India, but firms have designed marketing strategy where in shampoo is offered in sachet, even at Re 1. Now everybody can afford to spend and enjoy the luxury of shampoo.
5. Economy and Efficiency:
Firms can ensure economic and optimum use of available resources by concentrating and marketing to particular segments. It avoids wastage resources by entering in different areas, where the firm has no expertise.
6. CRM:
Customer relationship management is the new marketing mantra of the firms. Firms want to be in regular contact with the customers, understand their needs of product, continuously update the product and offer service to the customers. So CRM is possible when firms concentrate on particular segments where it can regularly monitor and serve the needs customers.
7. Increase in Market Share:
Firms always aim at retaining existing customers and further identifying new customers. Segmentation helps a firm to identify its customer’s base. It can understand needs of such customers by keeping in touch with such customers and also prospective customers. Firms can design and deliver the marketing programme to satisfy the customers. Satisfied customer base will help for expansion of market, increase in profit for the organization.
8. Trend towards Segmentation:
Segmentation is the new strategy of every firm. As customers’ needs are becoming too complex, they expect different and variety products. Firm have to segment and sub- segments to match the need of each group of customers.
Eg- Colgate toothpaste has segmented its brands into segments like Colgate Total, Colgate Salt, Colgate Mint, Colgate for protection of cavity and separate Colgate brand for kids. Fair and Lovely beauty lotion now has come-up with a new brand fair and handsome for men.
Market Segmentation – Features
Segmentation must result in customers delight, i.e., it must not only satisfy but create surprise by offering additional benefits that is not even imagined by prospective customer, i.e., customers delight. To ensure that segmentation must be effective.
An effective segmentation must have following features:
1. Measurable:
Segment i.e., group of people with similar needs must be quantifiable, identifiable in numbers. Their size, purchasing power must be measurable. It must not be imaginary or based on assumption.
2. Substantial:
The number should be large and substantial to create an effective marketing programme. As the firm has to create a product to match the need of segment and undertake marketing. These costs have to be recovered along with the profit. It must have opportunity to make adequate sales to recover the all costs and guarantee.
3. Accessible:
The segment should be easily accessible for targeting and positioning its product. The product or service should not be imaginary. It must be practically possible to create the product and place it and make it reachable to the segment customers.
4. Actionable:
It must be practically possible to create an effective marketing programme to reach the segment.
5. Differentiable:
The segment must positively respond to marketing programme. Once the product is created and placed to match the taste of segment, the customer must respond by purchasing and consuming the product otherwise the entire idea will be a flop.
6. Compatible or Possible:
It must have compatibility or possibility. Firm must have adequate resources in firms of capital, technology and marketing skills to create the product and make it reach its customers. It must match with objectives of firm.
7. Potential:
The marketing programme must offer adequate opportunities for growth in future. Product and its features must not only attract existing customers, it must also appeal prospective new customer. It must have growth prospects, e.g. Insurance business provides enough opportunities in India as large percentage of population is not insured.
An insurance firm may device an insurance plan to reach the rural and semi urban segment. Given its present socio, economic condition, it is practically possible to market an insurance plan.
8. Reachable or Measurable:
It should be possible to reach the identified segment. People selected must have taste and income to buy the products. Large percentage of population in India is rural and semi-urban areas. People will not favourably respond to programme that is urban in nature.
E.g. – Chips, soft drinks, pizza is favorites pass time food for youth in India, popular in Metro and big cities. If a firm desires of expanding the segment to include rural and semi urban segment of youth it may not be an effective marketing programme as it is not reachable. Semi-urban and rural youth may not positively respond to the idea as they may not like that kind of food and drink.
Market Segmentation – Types
Segmentation of market is generally consistent with the changing needs of the population of target customers.
Consequently, any one of the following kind of segmentation may be practiced by marketers:
(i) Partial Market Segmentation:
It is followed where the entire market is divided along broad, categorical lines. For example, in the automobile market, one consumer may be looking for station wagon, or jeep, another may want to buy a carry run by diesel or a light vehicle like a scooter or Luna cycle. In such situations, some manufacturers market separately to each group.
(ii) Extreme Market Segmentation:
Under this marketers tailor their product to the specialised needs of a selected few customers. This type of segmentation occurs particularly in luxury industries, or female garments such as when the tailor prepares the dress according to the measurements of the lady concerned or the hosiery dealer sells ‘bras’ or ‘panties’ only or the ‘ladies’ toilet preparations.
(iii) Market Aggregation:
It is often practised by companies that are production-oriented. Here the entire market is treated as a single homogeneous unit, whose parts are all uniform. In such segmentation, marketers develop one product and one marketing designed to reach as many customers as possible. It enables a company to maximise its production on a large scale at a low cost, and make its production economical. Examples of such market are markets for blankets, suitings, refrigerators, cycles, etc.
Market Segmentation – Process
Market segmentation includes grouping the customers and satisfying their needs. If an organization fails to segment and target the correct market then it could lead to a failure of a product. Thus, every organization should follow a process of market segmentation to divide the market effectively.
Now we are going to discuss about the market segmentation process. It is a continuous process that follows four different stages.
Now, let us discuss these process of market segmentation briefly:
1. Conducting a Survey:
It helps in understanding the buying pattern, attitude, and behavior of customers. The organizations perform various customer research activities by using different types of marketing research methods. It also helps in collecting the personal information, such as age, region, profession, income, social class, and other attributes of customers that help in segmentation.
2. Analyzing the Findings:
It helps marketers to identify the opportunities and weaknesses in the market. It helps in identifying the shift in customers’ buying patterns, attitude, values, and perceptions.
3. Profiling the Segments:
It helps in understanding the segments by distinguishing attitudes, demographics, and behavior of individuals. It plays an important role in designing the marketing mix for the segments.
4. Evaluating Segment Attractiveness:
It assesses the different segments in the market. The marketers conduct the feasibility study before targeting the segment. This study helps to know the profitability of a segment.
Following are the ways to evaluate the attractiveness of a segment:
i. Evaluating the long-term profitability of the segment.
ii. Understanding the existing competition and market growth rate.
iii. Checking the availability of resources.
iv. Examine the impact of environmental forces on the market segment.
Market Segmentation – Basis
Segmentation is the process of taking the total heterogeneous market for a product and dividing it into several sub-markets or segments, each of which tends to be homogeneous in all significant aspects. All the segments should be sustainable, measurable, accessible and representable. They have demand and response rate.
Different products have different bases for market segmentation:
(i) Mobile Phones:
(a) Demographic segmentation – Age, gender, income, and occupation etc., for example, mobiles companies like Virgin mobile, Lava etc. focus on young generation. Various mobile companies are introducing colours like pink, red, orange in their handsets to make them more female friendly.
(b) Benefit segmentation – Most of the people buy mobile phones only for making or receiving calls whereas there are some people who look for all the applications and usages available in their mobile phones. Companies like Nokia and Samsung are catering to the needs of every customer.
(ii) Airlines Travel:
It can be segmented on the basis of geographical area, income, age, user rate, benefit expectations, etc. Low cost airlines like GoAir, Spice Jet etc. are segmenting the markets on the basis of income.
There are various discounts on the basis of age given to the customers. Frequent flyer status is awarded to the customers who are flying frequently with the same airlines. Airlines like Vistara target their customers on the basis of benefit expectations like warm food and Comfortable journey.
(iii) LED TVs:
(a) Demographic segmentation may be considered and the most relevant basis is income as LED TV is an expensive purchase and it will be done by dividing the market on the basis of income of consumers.
(b) Geographic segmentation can be done on the basis of city size, i.e., metropolitan cities, small towns and also as urban and rural areas.
(c) Psychographic segmentation can also be the base for LED TVs as consumer’s life-style, social class and personality play a role in purchase of LED TVs.
(iv) Soft Drinks:
For soft drinks, demographic segmentation as well as psychographic segmentation forms the basis. Age income, lifestyle, personality, cultural values, all play a major role in its purchase.
(v) Smartphone:
They can be Psychographic where it can be offered as a product having status value. Also its unique appeal to young adults can be used as a basis of segmentation.
(vi) Notebooks for School Children:
It can be on the basis of demographic under the head ‘Education’. By adding unique benefit catering to school going children it can help in segmenting the market.
Market Segmentation and Product Positioning are the Basis for Market Planning and Strategy:
It is the process of taking the total heterogeneous market for a product and dividing it into several sub-markets or segments, each of which tends to be homogeneous in all significance.
The main purpose of market segmentation is to measure the changing behaviour patterns of consumers. The size of the segmented market must be large enough to permit viable market effort directed towards it.
Segmentation is much more than “chopping up” a market into one or more divisions. It also requires identifying the level of demand associated with the various segments and designing a market mix to meet the unique needs and desires of a specific target segment.
It helps in ascertaining the kinds of promotional devices that are effective and also helps to evaluate their results. Appropriate timing for the introduction of new products, advertising techniques etc., can be easily determined with the help of segmentation.
Market segmentation is the initial step in applying the marketing strategy. Once segmentation takes place, the marketer sets targets and identifies customer groups with proper marketing mix so as to position the product/brand/company as per the target segments. There may be different demand curves in different market segments.
The marketers may produce higher sales in markets where they have monopolistic conditions. In the niche segments, there are few or no competitors and the product might command a premium price.
Taking the example of the cycle industry, there might be segments like cycles for regular users, sports/adventure, racing, kids, girls etc. Niche segment is created when a cycle is required for physique clubs or for physically challenged persons with a specific need.
Market Segmentation – Examples
Tata Structura’s (TS) steel hollow sections for construction were generally perceived as commodities. To address this challenge. TS identified key stakeholders — architects, consultants, contractors, fabricators — and created awareness about the benefits of TS products.
TS identified four segments:
i. Industrial — Applications- Racks, sheds, structures; Channel- Distributors
ii. Architectural — Applications- Commercial construction, malls, offices; Channel- Distributors
iii. Infrastructure — Applications- Airports, bridges, bus and rail terminals, highways; Channel- Long- term contracts with construction companies
iv. Scaffolding & General Engineering — Applications- Defense, furniture, housing, parking, scaffoldings; Channel- Long-term contracts with construction companies.
These four segments satisfied criteria for good segments.
Tata Structura targeted each segment with the objective to:
i. Communicate with influencers in each segment
ii. Create awareness of Tata Structura’s product quality among key influencers to drive sales
iii. Redesign distribution channels to better address each segments needs
iv. Understand target segment needs better so as to develop new products
Tata Structuras segmentation approach was hugely successful in differentiating Tata Structura from other competitors. Most major construction projects in India use Tata Structura products.
Market Segmentation – Criteria
A segment should satisfy three important criteria to be useful:
(i) It should be substantial in size and potential to justify the expenditure made on it.
(ii) It must be easily accessible, i.e., easy to reach.
(iii) It should show a distinct variation in responsiveness to the marketing programmers in comparison with other segments.
Size – A segment ought to be enough size so as to be viable. In some cases of even an individual customer is profitable especially when customised items like Rolls Royces and aeroplanes are sold. Generally, however, we have to decide whether there is such a number of customers which will justify its being treated as a target market.
There can be a segment for cars designed specially for tall people or for that matter, short people. But expenditures incurred in making and marketing cars for such segments when put against estimated sales will rule out such segmentation.
Accessibility – Sometimes, there are enough numbers to make a segment but it is difficult to reach out to them either by promotion or distribution. Many products in India cannot be sold to rural consumers because of these very reasons.
Responsiveness to Marketing – All segments should not show the same response to a marketing programme. A segment has to differ from other segments in its response to justify its existence. If the same price consciousness is shown by all consumers, where is the necessity to offer premium and low priced products? Segments are useful to marketers for selling only when they differ from other segments on marketing mix dimensions.
Market Segmentation – Variables
There are several alternative methods of segmentation. The factors that describe and differentiate segments are called segmentation variables. In practice, all these parameters which enable to distinguish potential buyers and non-buyers can serve as segmentation variables.
These variables have been distilled from the consumer behaviour field. But consumer behaviour has both rational and emotional elements. The segmentation variables are thus a combination of these two – demographics, psychographics, motivational and need based perceptions, buyer habits and so on. Consider Air India who wants to attract non-flying passengers to its flights.
First, it will put its passengers into two segments — users and non-users. Here, the segmentation variable used was user status. Users are flying public and non-users are non-flying public. Non-flying public can be further segmented on the basis of their attitudes to flying — those who are scared to fly and those who are not. Some of them are indifferent to flying.
Only those who are not scared of flying and show positive attitude towards it are chosen. Even here, further segmentation is necessary. Those who can afford to fly and those who cannot. The basis of segmentation is income here.
Let us see the target audiences of Air India. It consists of those high income group people who have positive feelings towards flying but have not so far flown. Here, we have used three successive variables to identify our segment – user status, attitude and income.
How to identify these variables which can be used in segmentation? A sample of consumers is interviewed and a hierarchy of variables is discovered. The consumers make use of these parameters while taking a purchase decision.
The most common five segmentation variables are given below:
i. Geographic – An oil company can do a geographic analysis of its dealers.
ii. Socio-economic – Credit card companies rate a customer on the basis of his income and social standing. A Platinum card of American Express is offered to high income individuals employed in a responsible position or to self-employed professionals.
A Gold card is offered to medium income customers employed in junior cadre or small time professionals. A Green card is offered to all those whose income in slightly above the taxable limit. It is no secret that a Gold card customer differs from the Green card customer.
iii. Psychographic – Here, these buyers are divided on the basis of their lifestyle and/or personality traits. People of the same demographic group are very much different in their psychographic profile. For example, the user of a lipstick can be described as ‘younger, better educated, working woman who is appearance conscious and future oriented’.
General Motors was a pioneer in segmenting its customer base with four different car brands. Alfred Sloan’s classic description of these four brands reads; Cadillac for thriving, Buick for striving, Oldsmobile for arriving and Chevrolet for surviving.
iv. Product Usage – For beverages and liquors, buyers are classified into segments like heavy users, medium users and light users. Heavy users account for volumes. Many companies target their marketing effort to this segment. The heavy users have their own demographic, psychopathic and media-habit profile.
v. Benefits – Here, the market is segmented on the basis of the benefits people seek from the product, e.g., lowest price, durability and use on special occasions. Benefit segmentation of toothpaste can be done on the basis of a flavour, price, product appearance and brightness of teeth and decay prevention.
Forhans is for healthy gums; Colgate gives Suraksha Chakra and Close-Up, fresh breath. Naturally, Close-Up is a craze with young people who like togetherness. A benefit to one customer, however, may be a drawback to another. If functions of a calculator are enhanced for one customer, the price increases, which the other customer resents as he may not have relevance for the additional functions. What is good for the goose may not be so for the gander.
Managers constantly strive to segment the market the best possible way. We shall now learn the alternative methods of segmentation available in consumer markets.
Most marketers consider geographic segmentation as the important basis of segmentation. It is a logical starting point and is the simplest and less expensive. In this method, the total market is divided into different geographic areas like the sales districts, regions, zones, country and the world.
The division is based on our organization’s strength in coverage, marketing resources available, competition we are facing, competitor’s strategies, corporate philosophy and capability to change the marketing mix variables to suit a geographic unit.
It goes without saying that our residence, place of work and recreation do affect our buying behaviour. Geography decides the product consumption pattern. People in coastal areas of Konkan and Goa relish rice, a staple grain there and fish abundantly available from sea. Southerners are fond of coffee and north Indians like tea.
People down south use talc excessively and apply it even on face, perhaps aspiring to look fairer like their counterparts in the north. When we market our products to international markets, we have to adapt the product to their needs.
Rasna International gives an instant syrup when dissolved in a glass of water and does not contain a lot of sugar. A complexion cream like Fair and Lovely sells only in India.
A multinational chooses several countries of the world as its market. While doing so, it caters to the international regions likes the Gulf countries, the Warsaw countries, the Latin American countries, the European Economic Union, the South-East Asian countries and so on. The big organizations like Hindustan Unilever decide to market products on all India basis, but divides the market into north, south, west, and east regions.
Some smaller companies may choose a region or only some districts of a region to begin with and later on expand the market by adding other units. There are small-scale firms and retailers who operate in a local area, which could be a city, a town or a village. Some companies operate in metropolitan areas only. There are very attractive emerging metros like Bangalore, Pune and Ahmedabad.
Buyer groups differ in their requirements from the products and their marketing responses, e.g., a low income buyer prefers beedis for smoking. Middle income buyers smoke Wills Filter and high-income buyers like 555 cigarettes. This is segmentation of the buyers on the basis of income.
Such segmentation can be made on the basis of any relevant demographic variable, such as age, sex, life cycle stage (single, married, married with children, etc.), and occupation. Even education, race, religion and nationality can be the basis for demographic segmentation. Marketers generally do multivariable demographic segmentation.
Concept of Family Life Cycle:
People go through several phases in their lives. Family Life Cycle (FLC) refers to the series of life stages through which individuals proceed over a period of time.
In other words, FLC describes the process of family formation and dissolution.
To illustrate, a young man or a woman marry to form a family, in which children are born and live with the family till they grow up and later move out. At last, the couple grows old and fends for itself. Each life cycle stage differs from previous stages in terms of- (a) structure (b) financial position (c) consumption pattern, and (d) product need and preferences.
Traditional or Conventional FLC:
The FLC is a progression of several stages:
1. Young and single bachelor stage – The career has just started. However, in absence of burdens, they are free to spend as they wish. They tend to buy personal consumption items of food and clothing, are fun-loving and buy entertainment, have time to be on vacations and tours, move about on bikes, mobikes and other two-wheelers and read novels and thrillers. They have entry level cell phones and ipods. They buy some basic utensils and furniture.
2. Newly married couples have household burdens and go through an expenditure phase in life. They generally buy consumer durables like furniture, wall paints, refrigerators, TVs, etc.
3. Young, married with children direct their income to bringing up the child. They buy toys, medicines, tonics, baby foods, formula milk, etc.
4. Older, married with children are fairly stable-income wise. They like food products, music, educational services and a wide variety of other products.
5. Older married with dependent children have high income, but do rational purchases. There is replacement buying.
6. Older, married with no children become interested in self-education, saving schemes, hobbies, luxury appliances, magazines and health products.
7. Old, single, retired people lead an economic lifestyle. They are interested in health care and other services. They’ve budget constraints.
DINKS are Double income, No Kids and NIKES No Income, Kids with Education.
New Middle Class (NMC) – Jagdish Sheth:
Post, liberalisation, there is a rise in India of the New Middle Class (NMC). The Call Centre Couple (CCC) is the symbol of the NMC. It will transform India’s family structure markets and workplace. It will democratise the family and employment markets. The CCC is a group family where both husband and wife are graduates, and both work to survive and to achieve their aspirations.
Neither wants the parents to live with them. They protect their freedom by keeping away parents. They do not want parental interference in their new lifestyle. Parents are no longer assets, but border on being a nuisance or a liability. Their US counterpart is called DINKS (Dual Income No Kids). Time is a precious resource for them.
Their permanent fixture is a cellphone, and their communication is through SMSs. They entertain on weekends, and they resent any intrusion on Sundays. They latch on to spirituality (not necessarily rituals) to cope with stress. CCCs are everywhere, though they are more in number in metros. Their language of communication is English. The rise of NMC is a break from the past.
The CCC couple is in the habit of outsourcing products and services, e.g., laundry, house cleaning, child care. They buy from organised retail outlets and buy branded products. They are quality conscious and value conscious. They use credit cards, modern gizmos, laptops, two-wheelers and cars.
There is egalitarian relationship between husband and wife. Friendship will replace kinship for socialisation as the NMC embraces new values. There is a struggle with self-identity. Spiritualism will co-exist with materialism.
Conventionally, a family was considered a single unit throughout the lifetime of an individual. However, this assumption is not true these days. There are families due to second marriages, with a legacy of children from previous marriages. There are deserted wives.
There are divorcees. Several families are single parent family, where the parent could be either a father or a mother. Again, the ubiquitous working woman makes the traditional FLC model invalid.
Let us consider the following dimensions of Indian families in this millennium.
Young, Married, with Child and Dual Income – Here, both the husband and the wife work and get two income cheques. The pace of the life is faster and there is less time for children and also for one another. The consumption pattern, therefore, shows preference for convenience goods like washing machines, grinder-mixers, rice cookers, grinding mill (gharghanti), etc.
Women manage on two fronts — domestic chores and work. Husbands share the responsibilities of running the house to some extent. Instant foods, creches, etc., appeal to such families. To compensate for the time, babies miss with parents, there is a tendency to buy costly garments for kids, games, play-stations for kids, prams, etc.
Single Parent Families – The single parent family needs security and buys all the products that offer physical, psychological and financial securities, e.g., burglar alarms, teddy bears, insurance, saving certificates, etc. When the child grows, he may be put in a boarding school/public school.
Divorced – They buy money saving products, lease or rental housing, child care, time saving appliances, instant foods. They are short of cash.
Older People, Married or Single – They are also cash poor and health-conscious. They need security. They also need recreation.
Middle Aged – They buy children’s lessons (dance, music) and dental care, furniture, and autos, houses, dining out.
If there are no children, they are interested in luxuries, travel and gift products, etc. Their cash position is good.
Segmentation Strategy on the Basis of FLC:
i. Psychographics Segmentation:
The term was first coined by Emanuel Demby, a marketing researcher some 30 years ago. His definition of psychographics is- “The use of psychological, sociological and anthropological factors, self-concept and lifestyle to determine how the market is segmented by the propensity of groups within the market — and their reasons — to make a particular decision about a product, person, or ideology”. Psychographic segmentation has come a long way since then.
Psychographic segmentation, either singly or in combination with demographic segmentation, is widely used these days, dividing the buyers on the basis of their social class, lifestyle and/or personality traits.
The point to be appreciated is that people of the same demographic group are very much different in their psychographics profiles, e.g., young women show different psychographic characteristics.
Social Class – In psychographic segmentation, buyers are divided on the basis of their social class, lifestyle and/or personality traits.
Many companies design their product offerings for different social classes, e.g., lower-class, middle-class or upper-class. They build into their product those features that appeal to these social classes.
Lifestyle segmentation forms the basis of lifestyle advertising. Lifestyle is a mode of living and helps us to understand those who are in the market in terms of their behaviour. The products which are often sold by this approach are cars, women’s clothing, cigarettes, alcoholic beverages, cosmetics and furnitures. An automobile marketer can make a small family car emphasizing safety, compactness and economy and a car-freak for sports minded individuals who love maneuverability.
To use this segmentation, data are first collected for developing a profile of the consumer. One such approach is to make use of data concerned with three major characteristics – activities, interests and opinions (called AIO inventories). This is in addition to demographic characteristics.
The researcher makes the consumer respond to a number of AIO statements and then uses statistical techniques to group consumers into similar categories. The grouping facilitates marketer’s job of composing relevant profiles of users/non- users.
For example, the user of a lipstick can be described as –
‘Younger, better educated working woman who is appearance conscious, cosmopolitan and future oriented.’
Thus, the marketer gets valuable input for media selection and advertising content. In addition, we can identify likely uses of related products — the products which are consistent with this lifestyle.
Marketers have identified personality variables to segment the market. Motorcycle buyers can be identified as ‘ independent, impulsive, macho, ready to change, confident people ‘. Charms cigarettes are smoked by young people who love the spirit of freedom.’ Lipsticks are for ‘young, outgoing, beauty conscious women’. Other products which cater to personality traits are liquor and insurance.
The marketers try to adjust the brand’s personality to the personality traits of buyers for whom it is meant. Consumers of different brands are subjected to personal preference tests to measure their different needs and the differences in personality traits are recorded.
Personality characteristics, especially the self-image, ideally should correspond to the brand image and are the basis of advertising appeals made to certain types of personality. Other personality characteristics used are changeability, adaptability, thriftiness, prestige consciousness, self-confidence, masculinity, conservativeness and sentimentalism.
Since it is difficult to reach targets on the basis of traits like sociability, self-reliance or assertiveness, the classifications based on slots as given above become useful.
iii. Behavioural Segmentation:
In behavioural segmentation, buyers are divided into groups on the basis of benefits sought from the product, user status, usage rate, loyalty status, attitude and readiness to use state.
Here, the market is segmented on the basis of the benefits people seek from the product, e.g., lowest price, durability and use on special occasions. Benefit segmentation of toothpastes can be done on the basis of a flavour, price, product appearance, brightness of teeth and decay prevention.
Forhans is thus for healthy gums, Colgate gives suraksha-chakra and Close-Up, fresh breath. Naturally, Close-Up is a craze with young people who like togetherness. In other words, a benefit chosen is a pointer to their demographic characteristic. The benefit segmentation thus requires identification of major benefits which people look for, the kinds of people who look for such benefits and the major brands which offer such benefits. This approach is direct and customer- oriented.
Demographic variables correlate positively with purchase behaviour, e.g., income and luxury products. As the market matures, all brands are at the same level of performance and minor benefits distinguish them.
Psychographics variables for consumer products offer more promise. The other two variables for segmentation are user rate (light drinker of beer, heavy drinker of coffee) and brand loyalty.
b. Occasions:
Buyers can be classified on the basis of the occasion on which they use the product, e.g., talcum powder is used after a bath, after a shave or before moving out for work. Thus, a certain brand can be promoted as, ‘ Something that complete your bath’. Occasion segmentation can expand product usage.
Formerly, thermos flasks were used only to carry tea/coffee to in-patients of the hospitals. They are now promoted as picnic companions, office companions, lunch and dinner companions.
User Status:
Every product is used by some and not used by some others. The users and non-users are important for the company. Non-users can be the users of competitive products. There can be ex-users for a product. First time users have just started using the product.
Marketers are interested in converting non-users into users. Potential users and regular users require different marketing approaches.
Usage Rate:
For beverages and liquors, buyers are classified into segments like heavy users, medium users and light users. Heavy users account for volumes. Many companies target their marketing effort at this segment. The heavy users have their own profile in terms of demographic, psychographic and media habits.
c. Loyalty Status:
Brand loyalty status is also the basis for segmentation. Hard core loyalty means constant brand loyalty over a period of time. Soft core loyalty means loyalty divided over two or three brands. Brand switchers change their loyalty often. They are non-loyal. Shifting loyals shift from one brand to another, say from A to B.
In India, razor blades market and toothpastes market and to some extent, toilet soaps market is highly brand loyal. It is difficult to gain a market share for new companies. The entry in this market for newcomers is difficult.
A company can make an analysis of its brand loyal customers to determine its target market. For instance, Colgate buyers are more middle-class, larger families who are health conscious. The study of soft-core loyalty gives an indication to the nature of competition. Possibly, Colgate finds that Colgate buyers also use Promise. By making use of direct comparison advertising, Colgate can improve its position. Brand shifters indicate our own marketing weaknesses. Non-loyals can be put on our brand by winning them.
Brand loyal purchases may be due to other variables like price, habit, indifference or non-availability of other brands. It should, therefore, be carefully studied.
d. Buyer Readiness Stage:
People at a given point of time in different stages of readiness to buy a product. They are either totally unaware or aware. Some are informed and some interested. There are some who have a desire to buy or some who intend to buy. The quantum of these groups determine the marketing programme.
To create an awareness of cancer is the first step in advertising before people can come forward for a check-up. Later, cancer checks results are so dramatized that more people desire to have them. Infrastructure is created to handle the motivated individuals for check-ups. In other words, the marketing programme is tailored to the distribution pattern which changes depending upon the readiness of buyers.
e. Attitude:
There are several attitude classes of buyers — enthusiastic, positive, neutral, negative and hostile. Vast reminders work for enthusiastic people. Positive attitudes are reinforced. Neutral people are carefully converted. Negatively inclined and hostile people are difficult to tackle. The attitudes are correlated with demographic descriptors.
Identifying the Target Audience of Groups:
The identification of the target audience is the process of subdividing the market on the basis of geographic, demographic, socio-economic, psychographic bases and the market conditions. The most common descriptions of the target audience are in terms of geographic, demographic and socio-economic terms, e.g., our soap is meant for high income bracket people in Western India or our talcum powder is for urban women of cosmopolitan outlook who are on the move.
However, these days mere demographic descriptions are considered a poor predictor of buyer behaviour, though it is the most common method of identifying the target audience. Of late, psychographic base is used to describe the personality traits, lifestyle, image and other psychological variables of the target audience. In Mumbai, MRAS that is Market Research Advisory Services, conducted a study of lifestyle of cigarette smokers in 1975, identifying distinct groups or clusters of customers.
Wills Flakes Filter Kings and Four Square Kings are targeted at the same demographic audience. However, qualitative research of customers who were subjected to expressing reactions to 118 psychological statements showed a remarkable contrast between the overall personality of those who smoke Wills and those who smoke Four Square. Garden Saree buying women are psychologically different from Garden Vareli dress material buying women. Consumer differences extend beyond demographics as the AIOs piece together the total market puzzle.
Comparison of Garden Saree Woman and Garden Vareli Dress Material Woman:
Haley suggests a benefit sought as a useful base for identifying a target audience. It cuts across all other bases. The example of toothpaste users illustrates this. Toothpaste market has four identifiable segments, e.g., one concerned particularly with tooth decay prevention, one with brightness of teeth and one with flavour.
Targeting makes these marketing mix relevant and effective. The product matches the consumer profile. The promotional programmes remain in tune with consumer willingness to receive, assimilate and react positively to communications.
It is a recognition of the fact that the market is not a single cohesive unit but it is seething, desperate, pulsating, and antagonistic, infinitely varied sea of differing human beings everyone of them as distinct from the other as fingerprints; everyone of them living in circumstances different in countless ways from those in which everyone of them is living.
In Search of an Ideal Audience:
As opposed to mass marketing, we have to select specific target markets for practising a specific marketing programme in target marketing. Thus, targeting decision is not just a choice of a segment or segments. It has to design a suitable marketing mix of the product, price, promotion and distribution for the chosen segments.
While selecting our target markets, we have to consider whether a segment is meaningful and attractive. Meaningful segments differ from other segments in the way they respond to a given promotional effort or the way this segment can be approached.
If we want to sell music, we can identify age groups – old people, middle aged and youngsters. Old people prefer old melodies and religious songs. Middle aged people like songs that lift up their spirits, and make them cheerful like ghazals, quawalis, thumris and sugam sangeet and youngsters like pop-music, feet-tapping rhythm, electronic synthesizer tunes of Rehman, Daler Mehandi, Apache Indian and so on. These three groups respond to music advertising differently.
We reach them through different media. It is, therefore, meaningful to treat them as three separate segments. Attractive segments are not only meaningful, but are consistent with the advertiser’s plans and resources. These segments must provide profitable opportunities and must have growth potential. Micro segmenting means targeted media plan and creative for a particular segment.
In micro segmenting, there is ideal one-one brand customer dialogue. The market is here divided into ‘individual customer units’. In absence of a better word, we can call it ‘mass personalization’. Such communication is possible for response-driven slots like financial services, high tech products and media like the internet.
Lifestyle analysis makes our understanding of demographic groups sharper. In India, the marketers these days are tapping ‘the young and upwardly mobile’ group that cuts across many barriers. Many advertising appeals are meant for this group. The behavioural differences do not come alive in demographic descriptions, but do show themselves in lifestyle patterns.
Lifestyle is a group phenomenon which pervades various aspects of life. It implies a central life interest such as family, leisure, religion, politics, sexual exploits, etc., and this interest fashions our interaction with the environment. Variations in lifestyles are a result of social change. Working women and working couples do have very distinct lifestyles.
In India, one of the agencies is trying to build a psychographics profiles of Indian children. Pathfinders have identified eight types of Indian housewives.
VALS System of Classification:
Values and Lifestyle (VALS) classification was developed by Arnold Mitchell. The adults (18 plus) are classified into distinctive lifestyle groups. Each group has psychological needs (values) and behavioural response patterns (lifestyles). Much of VALS is based on Maslow’s Need Hierarchy. VALS blends together demographics, attitudes, activities, consumption patterns, brand preferences and media graphics.
(a) Need driven poor and uneducated.
(b) Outer directed upper and middle-class.
(c) Inner directed due to inner motivations.
(d) Integrated – a combination of both, outer and inner-directed values.
The above model of Thomas puts these groups into nine specific VALS segments.
Survivors are price-conscious, and not very knowledgeable shoppers. Sustainers are swayed by brands and guarantees and are impulse buyers. Emulators buy to impress others, and to announce their status. Achievers buy high tech items and original top of the line products. Experiential buy for experimenting. Societally conscious want value for money.
Survivors are depressed; sustainers are strugglers. Belongers are conventional, emulators are status conscious. Achievers are leaders and I-am-me are young, impulsive people. Experiential pursue a rich inner life, and are interested in life’s offerings. Societally conscious people are socially responsible and integrated mature psychologically. Thus, an individual passes through several developmental stages. In India, we are now targeting at selected lifestyle groups for a suitable niche for our product.
Applications of Lifestyle Marketing:
It is useful for –
(a) Positioning of new products.
(b) Repositioning of old/existing products.
(c) Developing new product inputs.
(d) Creating promotional strategies.
Lifestyle Advertising:
A product which would add to the perception of one’s life is a potential candidate for lifestyle advertising. Lifestyle advertising tend to be equal for different products and to break this requires time and effort of agencies. Genuine lifestyle advertising makes an aspect of a lifestyle intrinsic to the brand position and personality.
In India, textile firms resort to lifestyle advertising that is not distinctive. Good lifestyle advertising should not become advertising for a good life. We should, therefore, focus on perceived product differentiation.
Then only, lifestyle imagery works. In most cases, lifestyle advertising seems to be a safe, easy way out by creative people, without bothering to think of fresh ideas. Many have started using lifestyle advertising for me-too products. Sometimes, lifestyles portrayed are absolutely unrelated to the target audience. They tend to become visual cliches.
Well-Off Older People – Woopies:
There is increasing older population of 50 plus in the US and Europe. Advertising industry calls them woopies – well-off older people. They will have a large discretionary income money left over after necessities are taken care of. All grey heads cannot be treated alike. There are several distinct segments. Those aged 50-64, 65-74, 75-84 and 85 and older. The first group may be flush with funds.
They are at the peak of their career. They have fulfilled most of their family obligations. The 65-74 and 75-84 group spend money on travelling and buying gifts for grandchildren. They are usually retired. Their budget is, therefore, tighter. The older group of 85 plus spend big amounts on health care.
Oldies think of old age security. They are not able to project their longevity and health care expenses. They are after bargains. Some hotels offer them rooms at a discount. They are vulnerable to price cut promotions. They show more brand loyalty than their young counterparts. Woopies may take promotion with a pinch of salt.
They seek genuine information about products. They require PR handling and product information of packs. Service is the key criterion in buying. They may be outraged by advertising treating death and disease without sensitivity. They may not like advertisers who harp on their weaknesses. A shampoo for old women should emphasise how it makes them charming in spite of the age.
A nappy of old people should show images of elderly athleticism but even such positive images are no guarantee of success. Who likes ‘senior citizens’ and ‘golden years’ are no longer palatable. People who are questioned about their age like to understate it by at least 25 per cent.
Ageing population also buys products to satisfy their needs. So, promotion should not always be age specific. Some powerful appeals for them are convenience, comfort, security, sociability and old world charm. A microwave oven used by older people should have preset controls which are easy to operate.
Cruise liners provide male hosts to entertain older female passengers. Age is a state of mind. As Twain remarked, it is a thing of mind over matter. If one does not mind it does not matter. An ageing world wants marketers to adopt this philosophy.
Market Segmentation – Importance
Segmentation helps the marketer to get customer focussed. The firm can design separate marketing mix for each segment to offer best value to the customers.
Thus, segmentation helps the firm in:
(i) Development of right product with features desired by the concerned segment.
(ii) Design the right pricing strategy.
(iii) Selection of channels of distribution.
(iv) Focussed promotional campaigns.
Market Segmentation – Benefits
If properly used, market segmentation can be of benefit to the company, the consumers and the community.
Generally, it offers the following benefits:
(i) Precise Definition of the Market:
Segmentation improves a company’s understanding of why consumers do or do not buy certain products. By knowing this, the company can make adjustment to meet changing market demands.
(ii) Focus on Customer:
Market segmentation helps the firm to get customer focussed. Since the firm has detailed knowledge of the characteristics of the customers and also of their needs, buying motives and purchasing power, it can shape its products to offer better value to the customers.
By tailoring marketing program to individual market segments, the firm can cater to the requirements of customers better and make better use of marketing tools. Customer focus in the crux of the consumer driven marketing strategy.
(iii) Better Assessment of Competition:
Market segmentation helps in assessing correctly the strength and weaknesses of the competitors. If a competing product appears to be deeply entrenched in one segment, there is hardly any point in wasting precious resources in marketing to such a group. However, where the company product fails to relate to a potentially strong target, management can take full advantage of the same.
(iv) Better Allocation of Resources:
Once the target segment is clearly defined and identified, the limited resources at the command of the company can be channelled for best results. Thus, promotional campaigns can be coordinated effectively so that the consumers would recognise the promotional appeal quickly and the marketers would minimise the losses resulting from excess exposures.
(v) Introduction of Innovations:
The marketers can focus on the relevant segment more closely and look for changes in the market requirements. This would help them to introduce innovative products in the market and satisfy the customers better.
(vi) Gains to Consumer:
Segmentation results in many wars within the segment such as Coke vs. Pepsi, Polo vs. Mint ‘O’, Tata Salt vs. Captain Cook, etc. Each time a war goes on, customer is the winner. For example, Cola war started in 1995 with “more Cola for same price”. Consumers gained in terms of additional quantity for the same price.
Market Segmentation – Limitations
Segmentation exercise suffers from several shortcomings. We should be aware that the mass marketing is less expensive than segmentation. While we segment, we have to devise a separate marketing programme and we need additional resources to implement it.
Segmentation is not a panacea for poor management skills and organizational defects. Segmentation requires a commitment of the organization to implement research based strategies.
Segmentation profiles give an overall view of the buyer’s behaviour but neglects individual differences. Two persons having the same income, age and education can show different buying behaviour depending on their psychological make-up. Psychographic analysis should supplement demographic analysis.
An amazing diversity in consumer lifestyles has made segmentation much more difficult. All customers may not fit in a slot created by the market segment. Some of them are not slottable. These aberrations should give a group that is marginal and does not exceed 10 per cent of the total market.
An excess size of aberrant group calls for sub-segmentation. We must appreciate that a consumer is not a cardboard cutout. He is a flesh-and-blood paradox.