Term paper on market segmentation


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Term paper on market segmentation

  4. 4. MARKET SEGMENTATION 4Market segmentation is the process in which a marketer divides a large market intosmaller groups based on their common needs and buying behaviour(Cengage,2002). Marketers must identify key groups or segments within the general marketbased on their shared consumption pattern and needs. This approach works muchbetter than “one size fits all” mass marketing approach as it allows marketers toidentify their target segment and therefore, develop marketing strategies to capturethis segment.Every individual is a member of an identifiable market segment based on varioussegmentation variables. Every child when he/she is born becomes a consumer. Overthe years, an individual consumes many products depending upon his needs at thattime and point in his life. A child who consumes milk, baby food and diapers goes onto consume toys, books and so on. These changing needs make it inescapable formarketers to conduct segmentation studies. As soon as a slot is emptied by onegroup of consumers, others are waiting to occupy that sub segment.In order to conduct market segmentation, marketers first need to find out the factorsthat influence consumer buying behaviour. Consumer behaviour is influenced by thefollowing factors(Kotler, Keller, Koshy, & Jha Mithileshwar, 1972): 1. CULTURAL FACTORS:Culture is determined by how an individual is raised and what are his values andperceptions. A child belonging to a middle class Indian family is exposed to valuessuch as loyalty, hard work, respect for elders and sacrifice. Recently launchedchannel Life OK by Star World is targeting middle class Indians with it’s new set ofsitcoms in which every story highlights some or the other value held by middle classIndia. Values such as sacrifice, adjustment and respect for elders areportrayed(Chatterjee, 2011). 2. SOCIAL FACTORS:These refer to a person’s reference groups, family and social status. a) Reference group- These are the groups that have a direct or indirect impact on an individual’s behaviour and attitude. These include family, friends, religious groups, aspirational groups and dissociative groups. b) Family- From the oriental family i.e. parents and siblings, a person acquire orientation towards values, religious beliefs, political beliefs etc.
  5. 5. MARKET SEGMENTATION 5 c) Social status- It is the honour attached to one’s position in society and it depicts much of an individual’s behaviour. 3. PERSONAL FACTORS:These refer to the age and stage in the life cycle, personality, lifestyle andoccupation of a person. For example, if a marketer wants to launch energy drink inthe market then on the basis of personal factors he will target the segment of peoplebelonging to the age group of 20 to 30 yrs, educated, fitness conscious with a fastand busy lifestyle. Upon understanding these factors, marketers should make sure that marketsegments fall true in terms of the following five criterions(Roger, 2005): 1. MEASURABLE- Size and purchasing power of the segment can be measured. 2. SUBSTANTIAL- Largest possible segment with a common need for the offered product should be selected. 3. ACCESSIBLE- Ease of reach. 4. DIFFERENTIABLE- Should respond differently to different marketing mix elements. 5. ACTIONABLEOne of the best recent success stories on market segmentation is that of BharatMatrimony. It is a matrimonial website in India. It has captured the pulse of Indianfamilies where most marriages are community based arranged marriages. It haslaunched 15 regional websites in over 8 languages. They also provide horoscopegeneration, elite services for the rich and affluent class and offline ventures to caterto customers at grass root level.
  7. 7. MARKET SEGMENTATION 7The concept of market segmentation attempts to reconcile differing customer needswith limited company resources, and allows product and marketing offerings to beadjusted to suit different customer groups (Wind, 1978). A firm cannot launch it’sproducts or services randomly without conducting this process. The theoreticalgrounding for market segmentation comes from economic pricing theory, whichindicates that profits can be maximized when prices that discriminates segments areset (Frank et, al., 1972).Market segmentation can be done on the basis of(Kotler, Keller, Koshy, & JhaMithileshwar, 1972): 1. GEOGRAPHIC SEGMENTATION:It calls for division of market into different geographical units such as nations, states,regions etc. It also divides markets on the basis of urban and rural areas; populationdensity and climate. The market potential value of towns in India can be calculatedon five parameters of(Swamy, 2004): a) Number of consumers b) The means these consumers have c) Their consumption behaviour d) Awareness levels e) The availability of marketing support infrastructureGeographical markets vary in their product requirement. For example, marketerscannot offer air conditioners in the state of Kashmir. Also, tea as a beverage isconsumed much more in northern India as compared to the southern states likeKerala. 2. DEMOGRAPHIC SEGMENTATION:It calls for dividing the market into sub segments on the basis of: a) Age- Clean and Clear products are targeted at teenage girls while Olay products are targeted at women slipping in their prime. b) Life cycle stage- In the advertisements for insurance cover, often people with families are depicted as opposed to bachelors while products such as deodorants are sold on the basis of its sex appeal for single unattached consumers.
  8. 8. MARKET SEGMENTATION 8 c) Gender- In recent ad campaigns launched by Emami, men were prompted to buy their new fairness product designed especially for the tougher male skin as compared to female skin. Washing powder brands such as Nirma always target women in their promotion while automobile companies such as Pulsar and Hyundai target men. d) Income- The “value for money” proposition has long been adopted to target middle income segment of the market while companies such as Mercedes do not even advertise on television since they target only the elite class and likewise advertise in magazines such as Forbes. e) Generation- Youth today is a lot more brand conscious than it was a couple of decades ago. Globalisation, access to internet and television has changed attitude and perceptions of consumers completely. f) Social class- It has a very strong influence on consumer buying behaviour and influences buying decisions regarding the brand of clothing people wear, the cars they drive etc. g) Education level 3. PSYCHOGRAPHIC SEGMENTATION:It uses psychology and demography to understand consumer buying behaviour.Values and lifestyle effect product and brand choices of consumers(Kahle &Chiagouris, 1997). It is a reflection of a consumers’ lifestyle and personalitycharacteristics formed due to their psychological traits, lifestyle and values.Hindus do not partake of beef which led Mc Donald’s to change their menucompletely to suit Indian taste buds and lifestyle. Raymonds tagline of “TheComplete Man” target the psychology of ambitious achievers. 4. BEHAVIOURAL SEGMENTATION:Various variables studied under this are: a) Occasions- Cadbury Celebrations chocolates are promoted extensively during the festival season in India (Diwali, rakshabandhan etc.)
  9. 9. MARKET SEGMENTATION 9 b) Benefits- Sunsilk promotes 6 different shampoos to address different hair needs for consumers. In African countries, Sunsilk even promotes shampoo targeted at maintaining curly braided hair. c) User Status- Potential customers for skin care products of Olay are women in their 20’s currently. Thus, they have recently launched ads depicting celebrities in their mid 20’s recommending Olay before the signs of ageing appear.In today’s environment, market segmentation has become a competitive necessityas opposed to the competitive advantage it used to be. People are surrounded bymultitude companies offering the same products and services. It is now upto themarketers how they differentiate their product from their competitors’ and create aneed for it.
  11. 11. MARKET SEGMENTATION 11For this research, data has been collected about Indian population from the websiteof Census of India (Ministry of Home Affairs, 2011). This data is divided into broadsections and sub sections based on national population, state population, genderwise division, sex ratio, income levels, literacy levels etc. This data is verified and trustworthy. Also, data has been selected from the book(Kotler, Keller, Koshy, & Jha Mithileshwar, 1972) which is projected data. This datatalks about populations’ growth, income levels and buying capacity.A few projected data tables also predict customer preferences and how thesepreferences change with age group and changing expendable income.The following data has been referred:TOTAL POPULATION IN INDIA 1,210,193,422TOTAL POPULATION IN DELHI 1,67,53,235NUMBER OF FEMALES IN DELHI 7,776,825NUMBER OF LITERATE FEMALES 5,429,391NUMBER OF LITERATE FEMALES IN 46,190NEW DELHI REGIONSource of data: (Ministry of Home Affairs, 2011)AGE GROUP 2001 2006 2011 20160-4 366 362 355 34315-59 598 673 747 81160+ 65 78 94 113TOTAL 1027 1114 1194 1268Note:Year wise population in millionSource:(Tata Services Ltd., 2004)
  13. 13. MARKET SEGMENTATION 13The population of India as on 31st March 2011 as per the provisional populationtotals of census is 1,210,193,422. The population of India has increased by morethan 181 million in the last decade leading to a decadal change of 17.64%. Datashows that the poor tend to have larger families. In the developing countries, a youthbulge ensures that the absolute number of births will rise even as couples are havingfewer children.At the other extreme, most developed Western countries are facing aphenomenon called as a “youth dearth” after decades of low fertility. Stagnantgrowth and declining population is challenging more countries as fewer workers mustsupport expanding pension social security systems for aging citizens. Governmentshave crafted a range of policies to address these issues. In developing countries likeIndia, policies include support for family planning and reproductive health program’sto control the extremely high rate of population growth. These two different situations have a deep impact on marketing scenario of acountry. Many economists agree that people work and save when they are youngand live off the proceeds when they retire. Thus, wealth peaks at retirement age andthen begins to decline thereafter indicating that people will have differentconsumption and saving patterns at different stages in their lives. With the change inthe age structure, consumption patterns of the population will also change. Theneeds of older people are very different from the needs of middle aged and youngerpeople: older people buy different things than younger people and have less need forborrowing money.In India, population has been further segmented state wise. For the scope of thisproject, I will talk about the population of NCT of Delhi. It’s population according to2011 census is 1,67,53,235 and is the 18th most densely populated state in India. Itis the capital of the nation and a fast paced metropolitan city.The market in Delhi has transformed both in terms of sophistication and variety,resulting in a substantial change in the disposition of the customers towards quality,price, delivery and service leading to new processes. It has a rapidly expandingservice sector including production, business, government and other service sectorslike education, healthcare, hotels, insurance, banking, consulting company, traveland tourism etc. It has seen an emergence of production, business, government andother service sectors like education, healthcare, hotels, insurance, banking,consulting company, travel and tourism etc.(Ashok, 2007) Awareness in terms of media expansion has exposed the population of thismetropolitan to global brand, alternative lifestyles and multiple buying options. Fromsingle channel to cable network with multiple channels, larger coverage, multimediamix, greater spending and emphasis on market research and media planning, havebecome the order of the day. It is a popular hub of the “Mall Culture”. Innovativedistribution channels like convenience shops, departmental stores, discount stores,super markets, mail-order retailing, video shopping, internet shopping and multilevel
  14. 14. MARKET SEGMENTATION 14marketing, have begun to change the face of distribution format while e business ande commerce are the talk of the day.As a result of all these changes, the role and functions of marketing have undergonea metamorphic change in recent years. Many new concepts and patterns of thoughthave emerged. That apart, changes have also taken place in the consumer buyinghabits and spending behaviour. Consumers have become more knowledgeable,more adventurous and more demanding, compelling, in a way, redefinition ofmarketing strategies and orientations of companies. Since present day consumersare more concerned for value, brand image and performance than ever before,consumer satisfaction is viewed as an integral part of total quality package in termsof form utility, place utility, time utility and possession utility(K, 1999). It is, therefore, essential that marketers keep a constant watch on the marketinghorizon to spot the new challenges thrown up by the staggering pace oftechnological developments and various changes in the marketing environment andto convert them into highly profitable marketing opportunities.Further distinction has been made on basis of gender. Out of the total population ofDelhi, number of females at the 2011 census stood at 7,776,825. Out of these,females residing in urban Delhi are 7,584,506 while literate females in New Delhi are46,190 out of a total literate female population of 5,429,391.Women are the world’s most powerful consumers. They are the big spenderswhether you talk about households, corporate purchasing or small businesses.Educated women have a very different set of priorities, preferences and attitudes.Thus, their decision process is radically different.For years, women have been recognised as gatekeepers for family products andthey continue to be primary decision makers for most household goods. Nowmarketers in industries like automobile, luxury travel, financial services etc. realizethat this segment is a potential market for their products as women not only hold thekeys to household purchases but also are increasingly driving big ticket expendituresfor themselves and their families(Barletta, 2003)Out of the literate women in Delhi, those holding graduate-level degrees enjoy thebenefits of higher earning potential .Almost 40% of the MBA’s graduating today arefemale. As this change in the workplace continues, one obvious result is that womenare building their current incomes. This in turn increases the household incomewhich fuels the demand for consumer goods as well as luxury goods. Workingwomen like men need cars, mobile phones, laptops, insurance and all other productsand services which were considered male dominated till a few years ago.Two dimensions of the women’s buying process make them more profitablecustomers than men in the long term: loyalty and referrals. Women are more likely to
  15. 15. MARKET SEGMENTATION 15try a product on the word of mouth basis as compared to men. Also, women are a lotmore brand loyal than men because they easily form relationships with the productsthey like and use regularly.This has deep implications for marketers as this segment has a lot of potential. Manyglobal brands such as Dior, Mac, Lancôme, LV have launched their stores in Delhilooking at the buying capacity of women in this region. Not only luxury fashionbrands, but the recent years have seen a spurt in spa culture, nail salons, Frenchlingerie stores etc.In a place like New Delhi where on one hand we see the liberation of women, at thesame time we see the increasing lack of their safety. Companies like Apple havegrabbed this point to launch a new application on their iPhones. This applicationbasically allows women to press one single button which updates their status onsocial networking sites and also sends messages to their family that they are introuble in so and so location.Lifestyle of young women in Delhi has gone through a drastic change in the last fewyears. . Due to the education and increased level of literacy among people there isincrease in awareness of product availability, product features, technologicaladvancements etc.This in turn has led to a more complex nature of purchasing style.The task of any marketing executive is becoming more complex because of ourcultural patterns – life style, social values and beliefs, which are changing morequickly than they used to.A consumer’s behaviour also is influenced by socialfactors, such as the consumer’s small groups, family and social roles and status. Incase of young women this is especially true as the last decade has seenliberalisation of women not only in terms of education but also their lifestyle andattitude.Young women today have different social values in terms of the way they think abouttheir independence, their jobs and their families. Their social value orientation isturning from altruistic (desire to maximize the welfare of the other) to competitive(Desire to maximize own welfare relative to that of the other). This leads to a changein their buying decision process as well.
  16. 16. MARKET SEGMENTATION 16 CONCLUSIONThe basic psychological processes play an important role in how consumers maketheir buying decisions. It is also affected by where they live, their age, education
  17. 17. MARKET SEGMENTATION 17level, growth potential and real income. This can be reflected in the five stage modelof consumer buying process (Kotler, Keller, Koshy, & Jha Mithileshwar, 1972): 5. PROBLEM RECOGNITION:The buying process starts when the buyer sees a problem or need triggered by anexternal or internal stimulus. Internal stimulus could be hunger, thirst etc. whileexternal stimulus could be television ad, discount etc.Marketers need to trigger this need in the identified segment of young, educatedwomen in New Delhi. They need to come up with products and marketing strategieswhich would interest this group so a potential purchase gets serious consideration.Reebok launched Easy tone shoes which was a hit as it suits the needs of a busy,working girl who wants to stay fit without spending too much time on her fitnessregime. Pepper spray is another product which has huge potential in this urbanmarket due to growing insecurity for women. 6. INFORMATION SEARCH:This habit is well developed in women. There are 2 levels of involvement: a) Heightened attention- this is a milder search stage. At this level a person simply becomes more attentive to information about a product. b) Active information search- Looking for reading material, phoning friends, going online and visiting stores to learn about the product.Women often turn to 2 major sources of information: i. Personal- family, friends, neighbours, word of mouth ii. Commercial- advertisements, web sites, salespeople, dealers, discountsFor example, if a woman wants to buy a wrist watch then she will take the opinion ofher friends, family and then look for brands she has seen advertisements of. Finaldecision will be made on personal choice and also the discount available on aproduct, if any.TOTAL SET: AWARENESS SET: CHOICE SET: DECISION:Titan TitanTitanTitanTimex Timex Tommy HilfigerEspirit Tommy HilfigerTommy Hilfiger
  18. 18. MARKET SEGMENTATION 18 1. EVALUATION OF ALTERNATIVES:Consumer is trying to satisfy a need and looking for certain benefits from the productsolution. Also, consumer sees each product as a bundle of attributes with varyingabilities for delivering the benefits sought to satisfy the need (Dickson). Theattributes of different products vary according to the consumers’ interest. Forexample: i. Clothes- fabric, colour, brand, style ii. Mouthwash- color, effectiveness, germ killing capacity, flavour 2. PURCHASE DECISION:Consumer may decide on the basis of brand, dealer, quantity, timing and paymentmethod. There are different intervening factors that a consumer evaluates beforemaking a purchase decision. These are: a) Functional risk- the product does not perform up to expectations. For example, an anti-dandruff shampoo like Clinic Plus does not effectively perform its task. b) Physical risk- the product poses a threat to the physical well-being of the user or others. For example, alcohol containing deodorants pose a threat to the user and her environment. c) Financial risk- the product is not worth the price paid. For example, fake sales. d) Psychological risk- the product affects the mental well-being of the user. For example, certain artificial salts and flavours present in eatables like Maggi stimulate the brain to eat more and in general lead to unbalanced hormones. e) Time risk- the failure of the product results in an opportunity cost of finding another satisfactory product. 3. POST PURCHASE BEHAVIOUR:
  19. 19. MARKET SEGMENTATION 19This refers to service, replacement, guarantees and warranties. These determine aconsumers satisfaction with the product and if she would recommend it to otherpeople and repurchase when the chance arises.
  20. 20. MARKET SEGMENTATION 20BIBLIOGRAPHY:Ashok, D. D. (2007, April 8). http://dspace.iimk.ac.in/bitstream/2259/322/1/627-639.pdf. Retrieved February 15, 2012, from www.dspace.iimk.ac.in.Barletta, M. (2003). Marketing to Women. USA: Dearborn Trade Publishing.Cengage, G. (2002). Retrieved from www.enotes.com: http://www.enotes.com/market- segmentation-reference/market-segmentation-178604Chatterjee, P. (2011, December 20). Retrieved December 30, 2011, from www.thehindustanbusinessline.com: http://www.thehindubusinessline.com/industry-and- economy/marketing/article2732437.ece?homepage=true&ref=wl_info-tech_artDickson, P. R. (n.d.). Market Segmentation, Product Differentiation and Marketing Strategy. Journal of Marketing.Gabriel, A. (1998, 11 20). Single Message May Not Hit All Markets. Phoenix Business Journal.K, A. (1999). Business Environment. Himalaya Publishing House.Kahle, L. R., & Chiagouris, L. (1997). Values, Lifestyle and Psychographics. Mahwah, NJ: Lawrence Erlbaum Associates.Kotler, P., Keller, K. L., Koshy, A., & Jha Mithileshwar. (1972). Marketing Management- A South Asian Perspective (13th ed.). Pearson Education India.Ministry of Home Affairs, G. o. (2011). http://censusindia.gov.in/2011-prov- results/indiaatglance.html.Roger, B. J. (2005). Market based management. PRENTICE hall.Shariff, A. (1999). India Human Development Report, National Council of Applied Economic Research.(2004). In R. Swamy, BBDO Guide to Urban Markets.Tata Services Ltd. (2004). Year Wise Population. Statistical Outline of India, 34.