Market segmentation

First step of marketing- identify the customer you want to serve Classify the heterogeneous population into meaningful & homogenous groups or segments and select the segments to serve

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Why you some of you liked the last movie and some others not? Why some of you look primarily for style while buying the shoe but some others comfort as of primary importance? Do you know that producing too many varieties need larger promotions and inventories?

Mass Marketing vs. cusomisation

In mass marketing producers do mass production, promotion & distribution. Easy to do & control.
All customers are treated the same Customer needs are not met butless expensive to implement

Another extreme is One-to-one Marketing

Each customer serves as own segment
More expensive to implement Butcustomer needs are better met

How segments are created

After continued usage Some expect lesser of mass products price, others expect customer start varying quality modifications, in their expectations usage convenience, ????. and so---- something extra/more This create multiple micro markets or customer groups or segments- ???

Four levels of Micromarketing

Segments Niches

Local areas

Individuals

What is a Market Segment?

A market segment consists of a group of customers who share a similar set of needs and wants.

Who create segments?

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Who create segments?

Segments are based on customers Customers are not created by marketers Marketers task are to identify segments select target segments to serve

Niche marketing
Niche refers a small group, a sub segment, with very distinct need or set of needs Customers ready to pay higher even though cost of product could be lower- Ezee detergent for mild wash tooth pastes for sensitive teeth, private lenders - loans to small non eligible loanees, boutique outfits, specialized cancer drugs expensive cars

Niche marketing (contd.)

Need specialised product/service- offered typically by smaller companies, dedicated to r small number of customers superior and punctual service, customer intimacy. Innovative products- not easily available in market Very less or nil competition Niche has potential of size, profit and growth Its too small to be called a segment. Segments are larger enough to attract competition

The Himalaya Drug Company serves a growing niche market by focusing on ayurvedic medicines and health supplements

Nisha & Pranay Somaia

The Revolution brand- of

created-

ready-made womens apparel successfully focuses on the niche segment of plus-size clothes with new nomenclatures for sizes like -1, -2, 0, 1, 2(28), 3, & 4(44 waist)

The Long Tail

Chris Anderson explains the long tail equation:
The lower the cost of distribution, the more you can economically offer without having to predict demand; The more you can offer, the greater the chance that you will be able to tap latent demand for minority tastes; and Aggregate enough minority taste, and you may find a new market.

Local, grassroots & experimental marketing

Local marketing meanmarketing activities tailored to some localised group of customers Industrial, special commercial, IB, NRI branches of banks Smaller and local companies specialize in products needed by local customer groups regularly or occasionally Id and x-mas items in selected outlets E.g.- Local couriers in many cities, Spiderman 3 in 5 languages & Bharat matrimony with 15 regional websites Bigger retail chains too stock specialised products in some stores for local population HSBC- 79 countries, 9500 branches, 100 mn customers, 2nd biggest of world- wants to be known as worlds local bank

Individual Marketing
Extension of local marketing is- Grassroots Marketing- mean focus on individual customerschain marketers (Amway) The ultimate level of segmentation leads to segments of one Today customers are taking more individual initiative in determining what and how to buythey evaluate alternatives, participate in reviews, and customise, specially via internet

Customerization- Wind and Rangaswamy see a movement toward customerizing the firm
Customerization combines operationally driven mass customization with customized marketing in a way that empowers consumers to design the product and service offering of their choice. Firm may not need prior info about customer or manufacturing Firm provide a platform and tools- offer menus of features, components, prices and delivery time. Customers themselves play active part and design its own product, services- Paints, boutiques,

customerisation
A company is customerised when it is able to respond to individual customers Each business unit will have to decide whether it would gain more by offering for segments or for individuals. Customization is certainly not for every company. It will raise cost Suit high value items and services tailor-made outfits, carpentered furniture, own built houses, luxury cars, jewelry, repairs Customised products are expensive

Segmenting Consumer Markets

Geographic Demographic Psychographic

Behavioral

Segmentation- Geographic South, north, northeast, hills planes, coastal, states, urban, sub urban, rural areas and neighborhoods Literacy, electricity, income levels vary in rural and urban areas and are deciding factors Companies could use local knowledge or mapping software for geographical segmentation Globalisation and information- shrinking geographical preferences, specially in urban. So Geographic segmentations could combine with demographic for better results

Demographic Segmentation
Age and Life Cycle
Life Stage Gender Income Generation Social Class

Bank Al Habib targets senior citizens

Segmentation- demographic
Important and popular way for segmentation. Needs, wants, usage rates and brand preferences are associated with demographic variables. NRIs prefer Indian stores Demographic variables are easier to measure like geographic Most common variables for segmentation are Age- 0-4, 4-10, 10-16, 1630, 30-60 above 60 kids, adults, old age people differ in product and entertainment preferences- diapers, dresses, soaps, food, channels, magazines,

Segmentation- demographic (contd.)

Income- spending power is important. Specially in automobiles, entertainment, travel, clothing, personal care, medical, life style items. Willingness to spend depend upon other variables too. Gender- specially in clothing, personal care, household, media mediums. Women prefer more details in these items. Other items could be of less interest to women Education- below matric, graduate, professional

Dove Targets Women

Segmentation- demographic (contd.)

Family life cycle/style- single/married young, with or without children, older single, older married with young children Family size- nucleus, with parents, joint Occupation- professionals, officers, managerial, clerical, private companies, workers, farmers, retired, unemployed Religion- Hindu, Muslim, Christian- dressing, utensils, food could differ specially in rural areas Nationality- Indian, Nepalese, Sri Lankan, Bangladeshi,

Segmentation- demographic (contd.)

Generation- Each generation is profoundly influenced by the times in which it grows up. Demographers call these groups cohorts. They share similar outlooks and values. Marketers often advertise to a cohort group by using icons and images prominent in their experiences. Younger generation of date will shape consumer and business markets for years to come. This generation have started influencing their parents

Segmentation- demographic (contd.)

Social Class- mostly economic- divided based on expenditure and possessions of house, car, club membership Rich & poor- slum and posh areas, low income, middle income, high income groups Social class has a strong influence on preferences for consumers. Many companies design products and services for specific social classes India have typical caste system. Social classes behave differently to remain or to aspire membership of a class

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People in same geo & demographic group could vary highly in preferences towards products. Why? Religion affect lifestyle & values, which in turn affect preferences- food- veg, jhatka, halal, dress Titan watches- brands Edge, Regalia, Nebula, Raga, Sonata, Fastrack for different lifestyles people could be innovative, experimenters, spenders, conservative and loyalists

Segmentation- psychographic
It is science of using psychology and demographics Buyers are divided based on- Psychological /personality traits, Attitude, lifestyle & Culture and values

Segmentation- psychographic
A popular classification system in US isVALS developed by SRI Consulting Business Intelligence (SRIC-BI) VALS conduct about 80000 surveys/year Segmentation system classifies adults into 8 groups based on 4 demographic and 35 attitudinal questions

The VALS Segmentation System

Segmentation- psychographic
Higher resource people- have tendencies of Innovators- successful, sophisticated, active, high self esteem, niche oriented, upscale purchases Thinkers- mature, satisfied, idealistic, knowledgeablelike durability, functionality, and value in products Achievers- successful goal oriented, focus on career and family- like premium products to show off their peers Experiencers- young, impulsive spend on variety, excitement, fashion and entertainment

Segmentation- psychographic
Lower resource people have major tendencies of Believers- conservative, conventional like old familiar and established brands Strivers- trendy, fun loving, resource constrained, like stylish and wealth showing products Makers- practical, down to earth, like practical and functional products Survivors- elderly passive people loyal to their favorite brands

Behavioral Segmentation- on the basis of knowledge, attitude, use and response to product Behavioral Variables Decision Roles Occasions Benefits Usage Rate Buyer-Readiness Loyalty Status Attitude

Behavioral Segmentation- on the basis of knowledge, attitude, use and response to product Decision Roles Initiator Influencer Decider Buyer User Important for designing communications

Behavioral segmentation
Behavioral roles Occasions- Deepawali, Christmas. Marketers try to (1)exploit occasional sales (2) create more occasions and (3) convert occasional items into regular ones- greeting cards, gift packs, Benefits- like fairness, softness or refreshing effect of cream, vitality in health food, cleanliness, ambience in restaurant,

Usage rate- light, medium and heavy users. One heavy user is equal to many light users. Light/medium users are potential heavy users Buyer readiness stagecustomers could be unaware, aware, informed, interested, intend to buy Attitude- enthusiastic, positive, indifferent, negative and hostile

The Brand Funnel Illustrates Variations in Buyer-Readiness Stage

Aware Ever tried Recent trial Occasional user Regular user Most often used

Behavioral Segmentation Breakdown

Behavioral segmentation
People visiting or expressing interest at any point of time could be potential users and important, regular users should be retained. Non users and ex users could be worth trying

Loyalty Status

Hard-core

Split loyals Shifting loyals Switchers

Behavioral Segmentation Breakdown

The Conversion Model

Convertible Shallow Average Entrenched

Users
Strongly unavailable Weakly unavailable

Nonusers
Ambivalent Available

Segmentation criteria
Substantial- large and profitable enough to serve Measurable- size, purchasing power, and characteristics of segments should be identifiable and measurable Accessible- reachable to be served Differentiable- should be conceptually distinguishable and respond differently different marketing mix Actionable-

Evaluating and selecting segments

Two criteria 1- compatible to company resources and objectives 2- overall attractiveness of segment like Size Growth prospects Profitability Scale of economies Low risk

Pattern of target market selection

Single segment concentration and supersegment Product specialisation Selective specialisation Market specialisation Full market coverage

Targeting- Single segment concentration

Honda, Toyota are offering in higher segment cars only Mercedes, BMW are in premium segments only Maruti, Tata and Hyundai are established players of lower segments

Concentrated marketing give strong knowledge of market needs Company specialise in production and distribution Company could realise higher prices Single segments are prone to competition and technology,

Patterns of Target Market Selection

Targeting- selective specialisation

Company select more than one segments, inter related or un related Each segment is viable on its own Diversifies firms risk

Patterns of Target Market Selection

Patterns of Target Market Selection

Targeting- product specialisation

Super segments- set of similar or closer segments. Product specialisation- company specialise in certain product and sell different variants to different markets like detergents to household, laundries and textile mills. Microscopes to labs, educational institutes and government

Risk- change in technology could doom the company

Targeting- market specialisation

Company serves most of the needs of selected segments/markets like wholesalers to small shopkeepers or scientific instrument dealers to labs and institutions Company gains strong reputation and become supplier of future needs of customers Risk- all customers in group shall face similar problems and at same time- recession, legal

Targeting- full market coverage

Company select all segments and offers different products to different segments. Suit only very large companies with world wide operations City bank offer all financial services in all parts of world. Sony offer full range of electronics. Coke and Pepsi offer range of soft drinks globally.

Segment-by-Segment Invasion Plan

Pepsi used Megamarketing in India