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market segmentation


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market segmentation

  1. 1. Market SegMentation What iS Market? A market is a place which allows the purchaser and the seller to invent and gather information’s and lets them carry out exchange of various products and services. In other words the Meaning of Market refers to a place where the trading of goods takes place. The place can be a market place or a street market. A market is thus by definition comprises people or business with potential interest, purchasing power and willingness to spend the money to buy a product or service that satisfies need. The following diagram illustrates this concept. population Felt Interested Money to Willingness Market llpp[[poput need Buy to spend Example: Tata’s have started producing a Mercedes Benz car here in India. Many individuals have a need for car but they may not need a luxury car like Mercedes. They are happy with a santro or chevy spark or Maruti. Some might be interested in a luxury car, but may not be interested in Mercedes as it may attract the attention of tax authorities. They may prefer luxury cars like Honda city, Ford Fiesta, Octavia and so on. Some may be interested in Mercedes but they are not able to afford a price of Rs.32lakh. Thus, the market for Mercedes is a very small portion of luxury car markets, which is a small portion of the total car markets. What iS Market SegMentation? Lets us first see what market segmentation means is: Markets are Heterogeneous; Segmentation divides them into Homogeneous Sub-Units The market for a product is nothing but the aggregate of the consumer of that product. We also know that consumer of a product vary in needs, motivates, characteristics, and buying behavior. It means that the market for a product is essentially a heterogeneous unit. Markets break up the heterogeneous market for product into several sub units, or sub markets, each relatively more homogeneous within itself, compared to market into a number of sub markets/ distinct sub units 1
  2. 2. of buyer , each with relatively more homogeneous characteristics, is known as market segmentation. It is the Consumer who are Segmented, Not Product, nor Price It would be useful to provide one important clarification right at the beginning. Markets, sometime, speaks of product segments and price segments and use these expressions as synonymous with market segments. This can leads to a wrong understanding of what market segments, or for that matter, the process of market segmentation as a whole, actually connote. We have to be clear that in market segmentation, it is the consumers who are segmented, not the product, nor price. Market is about people who consume the product, not about the product that’s gets consumed. For example, in segmentation of the passenger car market, it is not the passenger cars (product) that are segmented, but it is the consumer/buyer of car that is segmented. Similar is the position about the price segments. Taking the passenger car instance again, it is not the cars that are segmented with price as the base, but it is the buyer of cars that are segmented, with their price preference for car as the base. We do speak about ‘price slots’ in segmentation. But it does not mean that the price slots constitute the segments. What it signifies is that different offers are made available matching the differing price preference of the consumer segments involved. ‘Price slots’ and specific products offers thereof are just a derivative of segments of consumers. It is the consumer, who invariably defines the segments, not product, nor price slots. Example: Titan Watches Arrives in three broad Segments • The Rich • The Middle • The Lower Titan Brings out a Wide Range of Offer to Serve the Different Value Segments • For the Gold lovers: Titan offered to this segment an all gold watch- the Aurum and Royal lines. 2
  3. 3. • For the More than One Segments: Titan made those who wanted more than one watches into a separate segment ad tempted them by offering a wide range of models. It offered them matched one’s dress and occasions. • For the youth /the outdoor lovers: Titan viewed them as a lifestyle segment and offered them the fast track. • For Designer Segment: Titan also adopted the designer segment and offered them all designer and hand assembled watches, the Euro collection, designed by European designers. • For the Children Titan adopted children – those between 6 to 14 years as o separate segment ( Dash for Kids) • For Women Seeking Fashion within the Middle-income Group: 3
  4. 4. Titan offered the Raga Range for this segment which was meant exclusively for women. Why SegMent the Market? Market segmentation benefits the market in several ways. • Facilitates Right Choice of Target Market Segmentation helps the marketer to pick up his target market properly. It does this by enabling him to distinguish one customer group from another within market and by showing him, which segments of the market match his situation and should, hence, form his target market. • Facilitates Effective Tapping of the Chosen Market Segmentation enables the markets to crystallize the needs of each of the chosen segments and make offer that match them. When buyers are handled after segmentation, the response from each segment will be more homogeneous. This in turn, will help the marketer develop marketing offers/programmers that are most suited to each segment’s. They can adapt the offers to the target segments the, achieves the specialization required in product, distribution, promotion and pricing for matching the particular customer group, and can develop marketing offers and appeal, that match the group. • Makes the Marketing Effort More Efficient and Economic Segmentation also makes the marketing more efficient and economic. It ensures that the marketing effort is concentrated on selected and well-defined segments. After all, for most firms, the resources would benefits if its efforts were concentrated on selected segments- the ones that match the firm’s resources and are most productive and profitable. • Helps Identify Less Satisfied Segments and Concentrate on Them 4
  5. 5. Segmentation also helps the marketer to asses to what extent existing offers in the market matches the needs of different customer segments and which are the less satisfied segments. Market can be SegMented uSing Several baSeS A market/ consumer population for a product can be segmented using several relevant bases. The major ones include:  Geographic  Demographics  Socio-cultural  Psychographic  Buying Behavior Demographics Geographic Socio-Cultural Market Segmentation Buying Behavior Psycho-graphics 5
  6. 6. Geographic Segmentation Segmentation of consumer based on factors like climate zone, continents/ country, region, state, district, and urban/rural area, constitutes geographic segmentation. Marketer, who operate globally, often segment the market segments the market by continents/country/region in the first instance, and then go for segmentation on other bases. National markets within a country like India, often segment the market by region, state, district and urban/rural area, in the first instance, and then go for segmentation on other bases. Example: Geographic 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. Southern are found of coffee and north Indians like Tea. People down south use talc excessively, and apply it even on face, perhaps aspiring to fairer like their counter part in the north. When we sale 6
  7. 7. our product to international market. Products are made according to their need. Rasna international gives instant syrup when dissolves in glass of water, and does not contain a lot of sugar. Complexion creams like fair and lovely sells only in India. Demographic segmentation Segmentation of consumer based on variables such as race, religion, community, language, age, stage in family cycle, gender, marital status, family size, occupation, economic position/income/ purchasing capacity level, and social status ,of the consumer demographic segmentation. • Age: It is essentially a case of age based segmentation of a market. Example: Amul has segmented his product in different age group For kids: Amul kool, chocolate milk, Nutramul energy drink. For Youth: Amul cool kafe. For women’s and older people: Amul calci+, Amul Shakti energy drink • Gender: Gender is another key variable/base under demographic segmentation. There is substantial evidence that men and women differ in buying behavior and it their persuasive messages. Women tend to be slower to make decisions and exhibit greater uncertainty about their decisions. And, they are also more persuadable. Example: Adidas targets women in India German shoe maker Adidas is trying to develop the women segment in India for its products. Emami segmented its product in gender 7
  8. 8. Women’s: Naturally fair Men: Fair and handsome • Purchasing capacity: In the segmentation context of several elements of demographic, purchasing capacity is perhaps the most significant one. Buyer’s preferred price range is often related to purchasing capacity. Example: Nokia It deals with wild variety and wild range. Nokia 2600 price Rs.2750 Nokia 5130 price Rs. 5300 Nokia N73 price Rs.12, 500 Nokia N95 price Rs 22,750 8
  9. 9. Budget car segment- It is the largest segment in Indian market. Here the entry level starts from Rs 1.5 to 3 lakh. Maruti 800 and Omni are the dominant players in these segments. With the launch of Tata Nano with a price range of 1lakh the outlook of this segment has changed. This segment is sometimes referred to as the small car segment. Competition in this segment is extreme in Indian market. Maruti 800 (Budget Car Segment) Compact car segment- It lies between budget car and family car. Preferred price range is between Rs 3 to 4.5 lakh. Maruti Zen, Fiat Uno, Tata Indica, Santro, Matiz is some of the dominant players in this segment. Maruti Zen (Compact car segment) Daewoo Matiz (Compact car segment 9
  10. 10. Cars of compact segment Family car segment- The purchasing capacity of buyers of this segment is somewhat higher than that of the budget and compact car segment. Price ranges between Rs 4.5 to 6 lakhs. Maruti Esteem, Daewoo Cielo, and HM Contessa belongs to this segment. In India cars that are sold in India as ‘Budget Car’ and ‘Compact Car’ do not meet their purpose, especially in term of space, that they turn to ‘the family car segment’. Daewoo Cielo (Family Car segment) Premium car segment- This segment represents the buyer who require true world class luxury car. Price ranges between Rs 6 to 8 lakh. Ford Escort, Honda City, Honda City, Mitsubishi Lancer, Audi 1800, Opel Astra etc are some of the major cars in this segment. Opel Astra (Premium car segment) Super luxury saloon segment- Buyer in this segment looks for a real super premium segment car. Mercedes Benz E229, E-250, Rover Montego, Audi 6, BMW is the players in this segment. Obviously, this is a tiny segment in the Indian context. 10
  11. 11. Audi 6 (Super Luxury saloon) Socio-Cultural Factors Culture and social class are the two main bases of segmentation here. Culture: Culture influence consumer behavior, deeply. A given culture brings in its own unique pattern of social conduct. A person usually acquires his cultural attributes right at his childhood. Culture includes religious, caste, traditional, language, pattern of social behavior etc. Social Factor: Social group of varying types exert influenced on the consumer. Social group include family, peer group, close colleges. They adopt their common life style. The influences of cultural and social factor are on consumer behavior. So products are segmented on the basis of social and cultural factor. Example: Zee Televisions deals with variety of channels regional channel, sports channel, movie channel. McDonald has both veg and non veg burger. McDonald has veg burger for vegetarian and nonveg burger for non vegetarian. Psychographic segmentation Psychographic Segmentation groups customers according to their life-style and buying psychology. Many businesses offer products based on the attitudes, beliefs and emotions of their target market. The desire for status, enhanced appearance and more money are examples of psychographic variables. They are the factors that influence your customers' purchasing decision. In psychographic segmentation, elements like life style, attitude, self-concept and value system, form the base. • Life style: Just as purchasing capacity forms a major base under demographic segmentation, life style forms a major base under psychographics segmentation. Example: 11
  12. 12. Café Coffee Day They choose lifestyle oriented, urban consumers as target with youth. They make coffee an ‘experience’ and provide a special experience to chosen segment. CCD has estimated that presently 60% of the footfalls in its 300 outlets belong to students between the ages of 15 to 24 years. The CCD are targeting students and trying to establish a space in their lives. • Psychographic segmentation helps in positioning/repositioning, launch of new products and brand extension: Segmentation consumer based on psychographic rest on identifying consumer state of mind and hence helps in piecing together a more inclusive profile of target consumer. It is therefore, particularly, useful in positioning/repositioning of product and in new product launch and brand extension. Buying Behavior Segmentation Markets can be segmented on the basis of buyer behavior as well. Since all Segmentation is in a way related to buyer behavior, one might be tempted to ask why buyer behavior-based segmentation should be a separate method. It is because there is some distinction between buyer’s characteristics that are reflected by their geographic, demographic and psychographic profiles, and their buying behavior. Marketers often find practical benefit in using buying behavior as a separate segmentation base in addition to bases like geographic, demographics, a psychographics. The primary idea in buyer behavior segmentation is that different customer groups expect different benefits from the same product and accordingly, they will be different in their motives in owing it and their behavior in buying it. Variables of buyer behavior are:- Benefit sought: - Quality / economy / service / look etc of the product. Example: Nestle has found a separate segment atta noodles as distinct from the maida noodles. Usage rate: - Heavy user / moderate user / light user of a product. User status: - Regular / potential / first time user / irregular /occasional. 12
  13. 13. Loyalty to brand: - Hard core loyal / split loyal / shifting / switches. Occasion: - Holidays and occasion stimulate customer to purchase products. Occasion Attitude toward offering: - Enthusiastic / positive attitude / negative attitude / indifferent / hostile. Example: Shampoos, soap and all FMCG products buying behavior segmentation is used. Multi-level SegMentation: a Market can be SegMented, uSing Several baSeS in SucceSSion While discussing about bases of segmentation we must discuss about multi-level segmentation, as it is not as through segmentation bases discussed above are mutually exclusive and a market can be segmented only with one particular base, on either / or basis. Since customer characteristic are spread over several variables, any market can be segmented through several bases. Different bases can be used in combination in segmenting a given market. They just have to be relevant for the concerned market. Actually, the different bases can be used in succession in a suitable order, and the market can be segmented at multi-levels. For example, a market can be segmented using the demographic base in the first instance, followed by the psychographic base and the buyer behavior/benefit base. Or, the market can be segmented using volume as the base in the first instance, followed by the demographic/psychographic/buyer behavior/benefit base. Assuming for example, that the firm first carries out volume segmentation of its market, it can know who the heavy user of its product are, but it cannot know the purpose for which they buy the product. The firm can then pick up the heavy users and carry out a multi-level segmentation, and continue its probe more deeply. Since each of these bases has several sub-bases, the numbers of levels in which a market can be segmented are indeed numerous. Actually, the aim should always be to go as deep as possible in segmenting the market so that segments that are most attractive and most suited can be chosen 13
  14. 14. Multi-level SegMentation enableS better Selection of target Market and better choice of Marketing Mix Multi-level segmentation enables the marketers to choose his target market better. It also helps him to make the winning strategy and strike the right product offer and the right marketing mix. With the information generated from multi-level segmentation, he can obtain a deeper understanding of the customers in each segment, their needs, buying motives and buying behavior. He can understand in what way each of the different segments want the product to be, he can then tailor his product, marketing offer and promotional appeal, to fit the individual segment; he can select the priced, distribution method/channels, media vehicles, advertising massages and sales appeal, which will be appropriate. Example of General Motors:- GM has identified about 40 different ‘customer needs’ and correspondingly, 40 different market segments in which it would present with its vehicles. For example, it has targeted the Pontiac at active, sports-oriented, young couples, the Chevrolet at price-conscious young families, the Oldsmobile at affluent families, and the Buick at older, more conservative couples. advantageS of Market SegMentation Various advantages of market segmentation are:- • Helps distinguish one customer group from another within a given market. • Facilitates proper choice of target market. • Facilitates effective tapping of the market. • Helps divide the markets and conquer them. • Helps crystallize the needs of the target buyers and elicit more predictable responses from them ; helps develop marketing programmers on a more predictable base; helps develop market offer that are most suited to each group. • Helps achieve the specialization required in product; distribution, promotion, and pricing for matching the customer group and develop marketing offers and appeal that match the need of each group. • Makes the marketing effort more efficient and economic. 14
  15. 15. • Helps concentrate efforts on the most productive and profitable segment, instead of frittering them over irrelevant, or unproductive, or unprofitable segment. • Helps spot the less satisfied segments and succeed by satisfying such segments. • Brings benefits not only to the marketer but also to the customer as well. • When segmentation attains high sophistication, customers and companies can choose each other and stay together. evaluation of the SegMentS Whether market segmentation is successful or not can be evaluated by the following questions- • Is it sizeable: - Size-wise, the popular segment is a bigger compared to the premium segment. In term of tonnage, of the total market of around 6, 00,000 tones, the popular segment account for 80 percent and the premium segment for the remaining 20 percent. If the firm wants a very large volume, it has to think of the popular segment. At the same time, it has to note that the premium segment too is sizeable, as it account for over 120,000 tones. In term of value, the premium segment is even more sizeable, formerly nearly 30 percent of the total market. Clearly, the segment cannot be ruled out as lacking in size. • Is it growing: - Growth rate and likely future position of the segment will be the next consideration in the evaluation process? Usually, business firms seek out the high growth segments. Analysis will readily indicate to the firm that in bath soaps, the premium segment happens to be the high growth segment. Whereas the popular segment has been growing at 10 percent per annum, the premium segment has been growing at over 20 percent annum. When this fact is taken into consideration, the firm’s choice may tilt toward the premium segment. The tilt will be particularly pronounced if the firm’s natural disposition is to strive for a position in the high growth segment of the business. • Is it profitable: - Next consideration will be the extend of profitability. In the present example, the firms quickly sense that the premium segment is more profitable one. Even a relatively lower volume in the segment may bring in good returns. On the contrary, in the popular segment, a much larger volume will be necessary for the business to be viable, since prices and margins in the segment are low.Another point is that costs of marketing, distribution and promotion in the business are quite high and are constantly on the rise. Costs of launching a new brand are particularly high. The market is very competitive, aggressive promotional support through expensive media like TV becomes essential. In this background, the firm may come to the conclusion that it may be worthwhile to gamble in the premium segment rather than the popular segment. 15
  16. 16. • Is it accessible: - The firm has to now consider whether the segments are accessible to it. This may need further analysis. The market realities will have to be taken into consideration. The popular segment will be accessible only to the firm with a cost advantage, since price is a major determinant in this segment. Premium segment will be accessible only to firms, which enjoy a differentiation advantage, and which are also marketing savvy. Liril of Hindustan Lever has a commanding position in this segment. At the upper end of the segment, HLL’s Pears and Dove are well entrenched. Several other brands of different companies are competing in the segment. The firm has to take due note of this reality. At the same time, analysis also reveals that new brands do keep entering the segment every now and then, and some of them do manage to stay. So, the firm has no reason to believe that the premium segment is not accessible to it, unless it is convinced that it is very weak in marketing. Is it compatible with the firm’s resources and capabilities: - Having reached the conclusion that the premium segment is sizeable, growth oriented, profitable and accessible, the firm has to now find out if the segment matches its resources? For some firms, the popular segment may be the natural choice and for others, the premium segment. And, for some other choosing both. The premium segment is a highly competitive segment. Only firms endowed with strong resources and an aggressive marketing strategy/culture can fight and survive in the market. The firm therefore has to assess whether the particular segments are compatible with its resources and capabilities. PREPARED BY:- Akanksha Goswami Student Of Bhilai Business School Bhilai Chattishgarh 16
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