Companies cannot connect with all customers in large, broad, or diverse markets. But they can divide such markets into groups of consumers or segments with distinct needs and wants. A company then needs to identify which market segments it can serve effectively. This decision requires a keen understanding of consumer behavior and careful strategic thinking. To develop the best marketing plans, managers need to understand what makes each segment unique and different. Identifying and satisfying the right market segments is often the key to marketing success.
To compete more effectively, many companies are now embracing target marketing. Instead of scattering their marketing efforts, they’re focusing on those consumers they have the greatest chance of satisfying. GSK has succeeded in expanding the market and fortifying its product territories by adopting a focused segmentation and targeting approach using specifically formulated products such as Junior Horlicks 1-2-3, Mother’s Horlicks, and New Horlicks Lite for different segments.
Market segmentation divides a market into well-defined slices. A market segment consists of a group of customers who share a similar set of needs and wants. The marketer’s task is to identify the appropriate number and nature of market segments and decide which one(s) to target. We use two broad groups of variables to segment consumer markets. Some researchers try to define segments by looking at descriptive characteristics: geographic, demographic, and psychographic. Then they examine whether these customer segments exhibit different needs or product responses. For example, they might examine the differing attitudes of people belonging to various groups toward, say, “safety” as a car benefit. Other researchers try to define segments by looking at behavioral considerations, such as consumer responses to benefits, usage occasions, or brands.
The major segmentation variables—geographic, demographic, psychographic, and behavioral segmentation. Geographic segmentation divides the market into geographical units such as nations, states, regions, counties, cities, or neighbourhoods. The company can operate in one or a few areas, or it can operate in all but pay attention to local variations. In demographic segmentation, the market is divided on the basis of variables such as age, family size, family life cycle, gender, income, occupation, education, religion, race, generation, nationality, and social class. One reason demographic variables are so popular with marketers is that they’re often associated with consumer needs and wants. Another is that they’re easy to measure. Buyers are also divided into different groups on the basis of psychological/personality traits, lifestyle, or values. People within the same demographic group can exhibit very different psychographic profiles. In behavioral segmentation, marketers divide buyers into groups on the basis of their knowledge of, attitude toward, use of, or response to a product.
Geographic segmentation divides the market into geographical units such as nations, states, regions, counties, cities, or neighborhoods. The company can operate in one or a few areas, or it can operate in all but pay attention to local variations. In that way it can tailor marketing programs to the needs and wants of local customer groups in trading areas, neighborhoods, even individual stores. In India, a comprehensive report titled RK SWAMY BBDO Guide to Market Planning provides the market potential or purchasing power value of urban and rural areas based on data from 515 districts in 21 states and 3 union territories. These indices are developed on the basis of 24 parameters that address four basic issues: means and ability to purchase or consume consumption patterns exposure to mass media and awareness levels extent of marketing support infrastructure. Madison Media, part of Madison Communications, has devised the Town & Country Framework to help marketers prioritize markets and choose suitable advertising media for the selected market. This framework suggests a set of indicators that are combined with data available in the National Readership Surveys to classify geographical markets into socio-cultural regions (SCRs) as the basic unit for analysis. Based on analyses and classification of data, each region is evaluated and ranked on social, cultural, and economic factors and media reach. The patterns observed in these reports suggest the need to prioritize geographical markets to focus marketing efforts as a lower proportion of geographical markets accounts for a larger proportion of consumption potential.
Geographical segmentation of markets into urban and rural is especially important in South Asian countries as rural and urban markets in this region differ on a variety of important parameters. “Marketing Insight: Segmenting Rural Markets” under the section on Socio-Economic Classification discusses the segmentation of rural markets. Table 7.3 shows the SEC classification of rural markets.
In demographic segmentation, we divide the market on variables such as age, family size, family life cycle, gender, income, occupation, education, religion, race, generation, nationality, and social class. One reason demographic variables are so popular with marketers is that they’re often associated with consumer needs and wants. Another is that they’re easy to measure. Even when we describe the target market in nondemographic terms (say, by personality type), we may need the link back to demographic characteristics in order to estimate the size of the market and the media we should use to reach it efficiently.
Consumer wants and abilities change with age. People in the same part of the life cycle may still differ in their life stage. Life stage defines a person’s major concern, such as going through a divorce, going into a second marriage, taking care of an older parent, deciding to cohabit with another person, deciding to buy a new home, and so on. These life stages present opportunities for marketers who can help people cope with their major concerns. Many products such as toys, books, magazines, digital games, candies, chocolates, biscuits, fruit juices, and packaged foods are specifically targeted at children and younger people. The Walt Disney Company’s (India) Disney, Jetix, and Hungama channels are targeted at children. Channels such as Aastha and Sanskar, on the other hand, focus on a spiritually inclined older audience, and channels like Discovery and National Geographic target people who are interested in education and entertainment. Clearasil cream has been positioned as an acne treatment for adolescents. Glucose D is targeted at youngsters and sports enthusiasts. Titan watches re-entered the children’s watch market with the introduction of the brand Zoop.
Men and women have different attitudes and behave differently, based partly on genetic makeup and partly on socialization. Women tend to be more communal-minded and men more self-expressive and goal-directed; women tend to take in more of the data in their immediate environment and men to focus on the part of the environment that helps them achieve a goal. A research study examining how men and women shop found that men often need to be invited to touch a product, whereas women are likely to pick it up without prompting. Men often like to read product information; women may relate to a product on a more personal level. Differentiation based on gender has long been applied to product categories such as clothing, hairstyling, cosmetics, fashion accessories, and magazines. Some brands have been positioned as more masculine or feminine. Park Avenue, the brand of readymade apparel from Raymond, is positioned as a masculine brand. Motorcycles are considered to be for men whereas many other two-wheeler brands such as Bajaj Wave, Kintetic Flyte, Honda Activa, and TVS Scooty are targeted at women. Income segmentation is a long-standing practice in such categories as automobiles, clothing, cosmetics, financial services, and travel. However, income does not always predict the best customers for a given product. Blue-collar workers were among the first purchasers of color television sets; it was cheaper for them to buy these sets than to go to movies and restaurants.
The complexity of the Indian market due to a host of factors has reduced the validity of any single segmentation variable as a good predictor of consumption preferences and habits. This has prompted the development of an index called Socio-Economic Classification (SEC) to classify urban households in India. This classification is based on a combination of two factors—the education level and the occupation of the head of the household. Classification based on these two dimensions is presented in Table 7.2. SEC A and SEC B refer to higher consumption groups constituting about a quarter of the urban households, and SEC C forms another 21 percent. SEC D and SEC E constitute the remaining households. While this classification has served the purpose for which it was developed, there has been some rethinking about modifying this classification scheme to reflect the social and economic changes in the country. In addition, the need to follow a unified classification scheme for urban and rural markets has also been felt by marketing practitioners. Considering these requirements, Media Research Users’ Council (MRUC) and the Market Research Society of India (MRSI) collaborated and suggested modifications to the classification scheme by substituting one of the two dimensions, namely, occupation of the chief wage earner, with access to and possession of specific assets by the household. This modification is under testing and validation for stability and robustness.
Psychographics is the science of using psychology and demographics to better understand consumers. In psychographic segmentation, buyers are divided into different groups on the basis of psychological/personality traits, lifestyle, or values. People within the same demographic group can exhibit very different psychographic profiles. One of the most popular commercially available classification systems based on psychographic measurements is Strategic Business Insight’s (SBI) VALS™ framework. VALS, signifying values and lifestyles, classifies U.S. adults into eight primary groups 1. Innovators—Successful, sophisticated, active, “take-charge” people with high self-esteem. 2. Thinkers—Mature, satisfied, and reflective people motivated by ideals and who value order, knowledge, and responsibility. They seek durability, functionality, and value in products. 3. Achievers—Successful, goal-oriented people who focus on career and family. They favor premium products that demonstrate success to their peers. 4. Experiencers—Young, enthusiastic, impulsive people who seek variety and excitement. They spend a comparatively high proportion of income on fashion, entertainment, and socializing. 5. Believers—Conservative, conventional, and traditional people with concrete beliefs. 6. Strivers—Trendy and fun-loving people who are resource-constrained. They favor stylish products that emulate the purchases of those with greater material wealth. 7. Makers—Practical, down-to-earth, self-sufficient people who like to work with their hands. 8. Survivors—Elderly, passive people concerned about change and loyal to their favorite brands
Behavioral segmentation divide buyers into groups on the basis of their knowledge of, attitude toward, use of, or response to a product. Needs and Benefits: Not everyone who buys a product has the same needs or wants the same benefits from it. Needs-based or benefit-based segmentation is a widely used approach because it identifies distinct market segments with clear marketing implications. Decision Roles: People play five roles in a buying decision: Initiator, Influencer, Decider, Buyer, and User. User and Usage: variables related to various aspects of users or their usage—occasions, user status, usage rate, buyer-readiness stage, and loyalty status—are good starting points for constructing market segments. Occasions: We can distinguish buyers according to the occasions when they develop a need, purchase or use a product. For example, air travel is triggered by occasions related to business, vacation, or family. User Status: The key to attracting potential users, or even possibly nonusers, is understanding the reasons they are not using. Included in the potential-user group are consumers who will become users in connection with some life stage or life event. Mothers-to-be are potential users who will turn into heavy users. Usage Rate Heavy users are often a small slice but account for a high percentage of total consumption.
People play five roles in a buying decision: Initiator, Influencer, Decider, Buyer, and User. For example, assume a wife initiates a purchase by requesting a new treadmill for her birthday. The husband may then seek information from many sources, including his best friend who has a treadmill and is a key influencer in what models to consider. After presenting the alternative choices to his wife, he purchases her preferred model, which ends up being used by the entire family.
Many marketers believe variables related to various aspects of users or their are good starting points for constructing market segments. Occasions mark a time of day, week, month, year, or other well-defined temporal aspects of a consumer’s life. We can distinguish buyers according to the occasions when they develop a need, purchase a product, or use a product. Every product has its nonusers, ex-users, potential users, first-time users, and regular users. We can segment markets into light, medium, and heavy product users. Heavy users are often a small slice but account for a high percentage of total consumption. Some people are unaware of the product, some are aware, some are informed, some are interested, some desire the product, and some intend to buy. Marketers usually envision four groups based on brand loyalty status. Five consumer attitudes about products are: enthusiastic, positive, indifferent, negative, and hostile.
To help characterize how many people are at different stages and how well they have converted people from one stage to another, marketers can employ a marketing funnel to break down the market into different buyer-readiness stages. The proportions of consumers at different stages make a big difference in designing the marketing program.
Loyalty Status Marketers usually envision four groups based on brand loyalty status: 1. Hard-core loyals—Consumers who buy only one brand all the time 2. Split loyals—Consumers who are loyal to two or three brands 3. Shifting loyals—Consumers who shift loyalty from one brand to another 4. Switchers—Consumers who show no loyalty to any brand A company can learn a great deal by analyzing degrees of brand loyalty: Hard-core loyals can help identify the products’ strengths; split loyals can show the firm which brands are most competitive with its own; and by looking at customers dropping its brand, the company can learn about its marketing weaknesses and attempt to correct them. One caution: What appear to be brand-loyal purchase patterns may reflect habit, indifference, a low price, a high switching cost, or the unavailability of other brands. People tend to be loyal to their favorite soda brand but less so to airline brands.
Combining different behavioral bases can provide a more comprehensive and cohesive view of a market and its segments. Figure 7.3 depicts one possible way to break down a target market by various behavioral segmentation bases.
We can segment business markets with some of the same variables we use in consumer markets, such as geography, benefits sought, and usage rate, but business marketers also use other variables. The demographic variables are the most important, followed by the operating variables—down to the personal characteristics of the buyer. Table 7.4 lists the major segmentation variables for business markets.
There are many statistical techniques for developing market segments. Once the firm has identified its market-segment opportunities, it must decide how many and which ones to target. Marketers are increasingly combining several variables in an effort to identify smaller, better-defined target groups. Thus, a bank may not only identify a group of wealthy retired adults but within that group distinguish several segments depending on current income, assets, savings, and risk preferences. This has led some market researchers to advocate a needs-based market segmentation approach, as introduced previously. Roger Best proposed the seven-step approach shown in Table 7.5.
Measurable. The size, purchasing power, and characteristics of the segments can be measured. Substantial. The segments are large and profitable enough to serve. A segment should be the largest possible homogeneous group worth going after with a tailored marketing program. It would not pay, for example, for an automobile manufacturer to develop cars for people who are less than four feet tall. Accessible. The segments can be effectively reached and served. Differentiable. The segments are conceptually distinguishable and respond differently to different marketing-mix elements and programs. If married and unmarried women respond similarly to a sale on perfume, they do not constitute separate segments. Actionable. Effective programs can be formulated for attracting and serving the segments.
Five forces determine the intrinsic long-run attractiveness of a market or market segment: industry competitors, potential entrants, substitutes, buyers, and suppliers. The threats these forces pose are as follows: 1. Threat of intense segment rivalry—A segment is unattractive if it already contains numerous, strong, or aggressive competitors. 2. Threat of new entrants—The most attractive segment is one in which entry barriers are high and exit barriers are low. 3. Threat of substitute products—A segment is unattractive when there are actual or potential substitutes for the product. 4. Threat of buyers’ growing bargaining power—A segment is unattractive if buyers possess strong or growing bargaining power. 5. Threat of suppliers’ growing bargaining power—A segment is unattractive if the company’s suppliers are able to raise prices or reduce quantity supplied.
In evaluating different market segments, the firm must look at two factors: the segment’s overall attractiveness and the company’s objectives and resources. As Figure 7.4 shows, at one end is a mass market of essentially one segment; at the other are individuals or segments of one person. Between lie multiple segments and single segments. We describe each of the four approaches next. With full market coverage, a firm attempts to serve all customer groups with all the products they might need. With selective specialization, a firm selects a subset of all the possible segments, each objectively attractive and appropriate. With single-segment concentration, the firm markets to only one particular segment. The ultimate level of segmentation leads to “segments of one,” “customized marketing,” or “one-to-one” marketing.
In this chapter we have reviewed answers to these questions.