Bases for Market Segmentation
Market Segmentation
Market segmentation can be defined as the process of dividing a market into different homogeneous groups of consumers.
Criteria for selecting Market Segments
Measurable
A segment should be measurable. It means you should be able to tell how many potential customers and how many businesses are out there in the segment.
A segment should be measurable. It means you should be able to tell how many potential customers and how many businesses are out there in the segment.
Accessible
A segment should be accessible through channels of communication and distribution like: sales force, transportation, distributors, telecom, or internet.
A segment should be accessible through channels of communication and distribution like: sales force, transportation, distributors, telecom, or internet.
Durable
Segment should not have frequent changes attribute in it.
Segment should not have frequent changes attribute in it.
Substantial
Make sure that size of your segment is large enough to warrant as a segment and large enough to be profitable
Make sure that size of your segment is large enough to warrant as a segment and large enough to be profitable
Unique Needs
Segments should be different in their response to different marketing efforts (Marketing Mix).
Segments should be different in their response to different marketing efforts (Marketing Mix).
Consumer and business markets cannot be segmented on the bases of same variables because of their inherent differences.
Bases for Consumer Market Segmentation
There are number of variables involved in consumer market segmentation, alone and in combination. These variables are:
- Geographic variables
- Demographic variables
- Psychographic variables
- Behavioral variables
Geographic Segmentation
In geographical segmentation, market is divided into different geographical units like:
- Regions (by country, nation, state, neighborhood)
- Population Density (Urban, suburban, rural)
- City size (Size of area, population size and growth rate)
- Climate (Regions having similar climate pattern)
A company, either serving a few or all geographic segments, needs to put attention on variability of geographic needs and wants. After segmenting consumer market on geographic bases, companies localize their marketing efforts (product, advertising, promotion and sales efforts).
Demographic Segmentation
In demographic segmentation, market is divided into small segments based on demographic variables like:
- Age
- Gender
- Income
- Occupation
- Education
- Social Class
- Generation
- Family size
- Family life cycle
- Home Ownership
- Religion
- Ethnic group/Race
- Nationality
Demographic factors are most important factors for segmenting the customers groups. Consumer needs, wants, usage rate these all depend upon demographic variables. So, considering demographic factors, while defining marketing strategy, is crucial.
Psychographic Segmentation
In Psychographic Segmentation, segments are defined on the basis of social class, lifestyle and personality characteristics.
Psychographic variables include:
Psychographic variables include:
- Interests
- Opinions
- Personality
- Self Image
- Activities
- Values
- Attitudes
A segment having demographically grouped consumers may have different psychographic characteristics.
Behavioral Segmentation
In this segmentation market is divided into segments based on consumer knowledge, attitude, use or response to product.
Behavioral variables include:
Behavioral variables include:
- Usage Rate
- Product benefits
- Brand Loyalty
- Price Consciousness
- Occasions (holidays like mother’s day, New Year and Eid)
- User Status (First Time, Regular or Potential)
Behavioral segmentation is considered most favorable segmentation tool as it uses those variables that are closely related to the product itself.
Bases for Business Market Segmentation
Business market can be segmented on the bases consumer market variables but because of many inherent differences like
- Businesses are few but purchase in bulk
- Evaluate in depth
- Joint decisions are made
Business market might be segmented on the bases of following variables:
- Company Size: what company sizes should we serve?
- Industry: Which industry to serve?
- Purchasing approaches: Purchasing-function organization, Nature of existing relationships, purchase policies and criteria.
- Product usage
- Situational factors: seasonal trend, urgency: should serve companies needing quick order deliver, Order: focus on large orders or small.
- Geographic: Regional industrial growth rate, Customer concentration, and international macroeconomic factors.
When we divide any class or a subject, it is done on certain grounds. The base is created after considering the various fields and the characteristics of students, merit and so on. Similarly marketing segmentation is done on certain consistency that exists within the group.
So in order to make sure that the product, offerings reach the right consumers and customers it is necessary that we understand the base of segmentation and market targeting.
Marketing segmentation is an outcome of “Analysis of Consumer Demand”
ANALYSIS CONSUMER DEMAND
There are a verity of consumer demand pattern so how do u get to know what are those and how you could understand which product or service offered by your company tackles the right audience? After all the right audience / consumers are the buyers and its important to segregate them into different segments.
So What is Demand Pattern?
A demand pattern indicates the uniformity or diversity of various consumer needs and desire for particular category of goods and services. A Firm would face one of the following three demand patterns.
There are broadly three patterns that help determain segments:
Homogeneous Demand:
This is when the consumers have relatively uniform requirements, needs and desire for a good or service category.
Cluster Demand:
This is when a consumer’s needs or desire for a good can be classified into two or more cluster, each having different purchase criteria.
Diffused Demand:
Here consumer’s needs and desire are s diversified that clusters cannot be identified. See, here a firms marketing task would be more difficult as product differentiation is more costly. It even involves higher communication cost.
ESTABLISHING POSSIBLE BASE FOR SEGMENTATION
It is widely thought in marketing that segmentation is more of an art not science. The key is to find the variable, or variables that split the market into actionable segments.
Customer needs had been the fundamental criteria for market segmentation. To find the needs of consumers in a market it is necessary to understand market research. Profilers are basicaly the detailed (descriptive), measurable consumer characteristics like (place, age, male or female, the income) this can be used with segmentation.
The most common profilers used in customer segmentation include the following:
Profiler Examples:
Demographics:
- Age, Sex, Family size
- Income,education,occupation
- Religion, race, nationality
Geographic:
- Region of the country
- Urban, Rural
Behavioral:
- Product Usage: (light, medium, heavy usage)
- Brand Loyalty: (none, medium, high
- Type of usage (with meals, special occasions)
It is important for companies to evaluate opportunities so as to grow their business and to sustain in a competitive world where competitors don’t forget to trap opportunities available in market (termed as : Market opportunity Analysis MOA ).
Companies need to do a Opportunity Analysis in order to arrive in effectiveness and success probability. Following is the Opportunity Matrix that can be used to analyze opportunity.
Attractiveness
|
Success Probability
| ||
High
Low
|
High
|
Low
| |
1
|
2
| ||
3
|
4
| ||
Market Opportunity Analysis is a prime tool to determine attractiveness and probability of success in the growing market. It helps in understanding:
- If the opportunity can be articulated in order to benefit companies target market(s)
- Can cost-effective channels to reach the target market be figured out (cost effective media and various channels)
- Is the company internally capable of delivering what’s expected by customers
- What will the effect be on companies financial Return On Investment (ROI)Here 1 determines opportunity that is High on Attractiveness as well as high on Success Probability.2 on the other hand is opportunity that is High on Attractiveness and Low on Success Probability.3 determines opportunity that is Low on Attractiveness and High on Success Probability.4 on the other hand is case where Attractiveness is Low and even probability is very Low.Case 4 should not be termed as opportunity as it has low attractiveness and even low success probability.We need to understand that different companies at different point in time may opt different opportunities and marketing strategies. Its important to understand that marketing opportunity collectively involves a thorough business and business environment analysis (Internal Analysis and External Analysis)SWOT Analysis is a tool used to analyze both internal and external environment.(External is the threat from competition and external are opportunities)Internal environment analysis may involve analysis of a company in terms of Marketing, Finance, Manufacture, HR and other discipline. There are chances of better outputs if the analysis is detailed. Say, analyzing marketing capabilities involve understanding major strengths in performance and there importance to the business. This will give company a details internal analysis. Marketing capabilities of company can be analyzed in terms of:
- Company reputation
- Market share
- Customer satisfaction
- Product quality
- Service quality
- Pricing efficiency
- Promotional efficiency etc.
From a very small fish to becoming the big one and then the biggest among all. This is how few brands have changed with time e-g: Levis Microsoft and many other "The Big Fish"
The financial success of such brands have been depending on combined efforts of their financial strategies and their marketing efforts. One thing that's been common among all there brands is a high degree of Brand loyalty. They have managed to capture the share of heart and in turn share of customer’s wallet.
Companies now understand that marketing plays an important roll in their overall success ,so now companies have CMOs (Chief Marketing Officer) along with CFOs and CEOs. They understand that if there are functions close to customers its ether Sales or Marketing. Sales become a direct interface among customs and products offered by companies, and marketing is an indirect function between customer and the company.
But what makes marketing so big? Why is it important? If you have a great product you are bound to succeed then why do u need to spend on marketing / advertising?
The answer to these questions lies deep within the customer’s brain. Customers / consumers are smart and they understand what makes your product different form mine. If you are offering then 1 % more that what I do why should they pay me rather than paying you. That’s the point. And secondly it’s important to communicate the product offerings to the end user. If a marketing team has worked hard on understanding the consumer needs they need to make sure their customers get a feel “This brand knows what I want ”. Trust me this is the only major differentiator between why your 1% more is able to get you more loyal and more number of customers.
The time has changed. To products that are offered by a brand you have "n" number of more substitutes and consumers get to know which is the better substitute that suites there requirements . So it is important to make sure that marketing efforts are more on understanding the changing needs on today’s customer. We need to understand the minds of customers. It’s rightly said “customer is KING”
Marketing managers need to understand the customer needs and they need to make their major decisions such as the features to include, the price to be offered to customers and what to spend on advertisements.
Marketing today has become a emotional research which helps understanding customer and consumers psychology so that products are developed based on these understanding. The marketing managers need to answer following questions:
- How do we find the right market segment?
- How do we differentiate?
- How can we compete with low cost business models?
- How do we build a better brand?
- How do we reduce cost of customer acquisition?
A successful Marketing team can carefully analyze customer needs and carefully monitor there competitors marketing moves. Remember a short term sales driven view does not work in business world today. The C-level managers, the CEO,CFO should communicate importance of marketing in an organization, how the marketing function plays a great role in organizations success.
To play the emotional tune is the necessity of today's marketing
Gone are the days when producers were regarded as king of the market, who would decide the product features, the size the color the feel, etc. Those were the times when customers were willing to buy what ever was available because there were no alternatives available. This was time when producers used to smile - the producers era.
Slowly the scenario changed as many producer came into the market and competition began to increase intensively. This was consumer’s time to smile. Consumers began to have wider choice and the era of marketing had begun. Customers now became the kings of the market; This gave an opportunity to customers / consumers to compare products and offerings based on which they decided which was the better product to buy.
As a result the market was bombarded with number of products. Products were launched with variation and numerous features, eventually leading to a situation where the products from different producers were almost similar. This was the time when it was difficult to make differentiation in the product. Now the products were launched with lower price. For many manufacturers this was a differentiator and still is at least in countries which are yet growing economies.
Marketers realized that to survive in this competitive world there was a need to change the marketing strategies. This was the time when there was a need to find a differentiator that could help them stand out among various competitors. This brought “Emotions” into picture. Producers realized that there was a strong emotional connect between consumers / customers and the products they use. They understood if the consumers’ emotions are addressed in the right way they could get more loyal customers. This unlashed the new approach to marketing which was termed as “Emotional Marketing”.
Need of Emotional Marketing
The fundamental premise behind emotional marketing has now been followed by marketers from fairly long time now. It was understood by the marketers that understanding Psychology of a customer / consumer was really very important for getting that share of mind (and now share of heart). They now knew that understanding the customers philosophy helps them achieve there marketing goals. This philosophy can be understood easily for instance, consumers do not buy shampoo just to clean their hair, but to get a new look, a new feel, a new fragrance that could keep them fresh all day long. A Car is purchased not just for transport but also as a status symbol. Nonetheless, customers can not be considered as bundle of emotions at one extreme, or as objective and rational analytical machines at other.
However, adding an emotional appeal helps a company sell its product more; and marketers are increasingly restoring to this measure. Just think of the last product you brought home, what was the concealed force that ha compelled you to make the purchase; it was emotion was it not? You may believe it or not but some degree of emotion is always involved in any purchase you make. Trust me for many purchases it’s more of emotion that makes you buy the product rather that all possible logics. Emotion acts as a catalyst in the engine of the purchase decision process.
Customers most often attribute logic and reasoning to the purchase and try to prove that they have made a rational purchase and emotion has not played a role in the decision making process. But the ultimate driver is emotion, which has played a major role in the final purchase decision – believe it or not. Rational only generates interest in the product the ultimate driver is emotion. Customers are not much interested in the attributes of the product; they want to know that how that product is going to suit there personality. And yes, this is not the case with some customers. All customers behave in the same manner. Customers purchase their products emotionally and rationalize their choices intellectually.
Marketers therefore follow the concept of emotional marketing. They endeavor more emotions, as emotional marketing helps in getting share of wallet. If strategically developed emotional marketing can minimize the impact of rational factors, which may otherwise take away the customer to the competitors.
My personal belief is that the products offered by any brand do get buying decisions motivated by different senses like – Touch, Feel , See, and to some extent smell. Let me explain, if the product or brand is communicated with a great emotional touch, or feel I may but the product as the time when I decide to chose the product I may recall the advertisement and decide to by that’s product spontaneously. And trust me this works. I may find the fabric of a product so good, soft that I might decide not to look into other options available which rationally may be a better choice, and may be cost me less. Emotional connect can be see more in cases of Perfumes – you may like ‘212 Sexy’ so much that you might not even be in a position to chose a other brand. True? This is emotional connect on which marketers are now concentrating. Remember, costumers get attracted to products which effect there feelings. So the question is – how actually do customers make purchase decisions? How do they evaluate products? What are the various criteria on which they chose the product while making choices?
Hence, companies which want to stand above the competition have to take emotional marketing so as to increase market share. Effective development in emotional marketing can shift a marketing challenger or market follower to position to market leader.
When their products firms need to create a successful mix of:
1) The right product
2) Sold at the right price
3) In the right place
4) Using the most suitable promotion.
To create the right marketing mix, businesses have to meet the following conditions:
The Product:
The product has to have the right features - for example, it must look good and work well.
- The price must be right. Consumer will need to buy in large numbers to produce a healthy profit.
- The goods must be in the right place at the right time. Making sure that the goods arrive when and where they are wanted is an important operation.
- The target group needs to be made aware of the existence and availability of the product through promotion.
Successful promotion helps a firm to spread costs over a larger output.
For example, a company like Kellogg's is constantly developing new breakfast cereals – the product element is the new product itself, getting the price right involves examining customer perceptions and rival products as well as costs of manufacture, promotion involves engaging in a range of promotional activities e.g. competitions, product tasting etc, and place involves using the best possible channels of distribution such as leading supermarket chains. The product is the central point on which marketing energy must focus. Finding out how to make the product, setting up the production line, providing the finance and manufacturing the product are not the responsibility of the marketing function. However, it is concerned with what the product means to the customer. Marketing therefore plays a key role in determining such aspects as:
- The appearance of the product - in line with the requirements of the market
- The function of the product - products must address the needs of customers as identified through market research.
The product range and how it is used is a function of the marketing mix. The range may be broadened or a brand may be extended for tactical reasons, such as matching competition or catering for seasonal fluctuations. Alternatively, a product may be repositioned to make it more acceptable for a new group of consumers as part of a long-term plan.
The price
Of all the aspects of the marketing mix, price is the one, which creates sales revenue - all the others are costs. The price of an item is clearly an important determinant of the value of sales made. In theory, price is really determined by the discovery of what customers perceive is the value of the item on sale. Researching consumers' opinions about pricing is important as it indicates how they value what they are looking for as well as what they want to pay. An organisation's pricing policy will vary according to time and circumstances. Crudely speaking, the value of water in the Lake District will be considerably different from the value of water in the desert.
The place
Although figures vary widely from product to product, roughly a fifth of the cost of a product goes on getting it to the customer. 'Place' is concerned with various methods of transporting and storing goods, and then making them available for the customer. Getting the right product to the right place at the right time involves the distribution system. The choice of distribution method will depend on a variety of circumstances. It will be more convenient for some manufacturers to
sell to wholesalers who then sell to retailers, while others will prefer to sell directly to retailers or customers.
The promotion
Promotion is the business of communicating with customers. It will provide information that will assist them in making a decision to purchase a product or service. The razzmatazz, pace and creativity of some promotional activities are almost alien to normal business activities.
The cost associated with promotion or advertising goods and services often represents a sizeable proportion of the overall cost of producing an item. However, successful promotion increases sales so that advertising and other costs are spread over a larger output. Though increased promotional activity is often a sign of a response to a problem such as competitive activity, it enables an organization to develop and build up a succession of messages and can be extremely cost-effective.
Example for MARKETING MIX with respect to SWIFT
Product: Initial launch version with basic features in Lxi/Vxi/Zxi formats
Price: At 4.84 lacs (on road Mumbai) much lower than other competitors in the B + segment.
Promotion: High decible campaign kicked-off during the Footbal Worldcup 2006.The campaign emphasized the curvy sports car hatchback design targeting sport lover youth segment.
Place:Selective distribution initially based on order-booking only in select cities and ponly through company dealerships. Dealers carry no inventory. Long delivery cycle time.
