Chapter:2 Understanding Consumers and Market Segments

Chapter:2 Understanding Consumers and Market Segments

Views of the market and alternative marketing strategies:

Marketers may approach target markets in their aggregate and heterogeneous form or as smaller, more homogeneous segments.

(i) Market Aggregation: A firm would produce a single product and offer it to all consumers with a single marketing program. Although the marketer recognizes that not everyone will buy the product, a number sufficient for profitable operations are expected to be attracted. This approach is also described as mass marketing, undifferentiated marketing.

(ii) Marker Segmentation: The stereotype of a single, homogeneous market is a fiction that no longer exists. The mass market became fragmented. Today’s marketplace is characterized as the age of diversity in which consumer demand and gets tremendous variety in the products and services they buy. The goal is to facilitate development of unique marketing programs that will be most effective for those specific segments.

Benefits of market segmentation: (i) Market segmentation confirms supply of what consumers demand. (ii) The marketer is able to obtain more detailed knowledge about consumer characteristics. (iii) The result of understanding and relation to an increasingly fragmented marketplace is termed as micro marketing.

Costs of market segmentation: (i) Manufacturing costs can be higher because of shorter production. (ii) Research costs are higher because of the need to investigate more segments. (iii) Promotion costs are higher when quantity media discounts are lost. (iv) Overlapping market coverage may result.

Market criteria for effective segmentation: (i) Identifiable and Measurable: Segments must be identifiable so that the marketer can determine which consumers belong to a segment and which do not. However, there may be a problem with the segment’s measurability because number of variables are difficult, if not possible to measure. (ii) Accessible: This criterion refers to the ease of effectively and economically reaching chosen segments with marketing efforts. Some desired segments may be inaccessible because of legal reasons. For example, liquor manufacturers are unable to market directly to young teenagers. (iii) Substantial: This criterion refers to the degree to which a chosen segment is large enough to support profitably a separate marketing program. One must carefully consider not only the number of customers available in a segment but also the amount of their purchasing power. (iv) Responsive: There is little to justify the development of a separate and unique marketing program for target segment unless it responds uniquely to these efforts. If these four criteria are fulfilled, segmentation will be an attractive marketing strategy.

Performing market segmentation: Steps involved in a typical market segmentation are: (i) Define the problem or determine the use to be made of the research. (ii) Select a segmentation basis (demographic, geographic). (iii) Choose a set of descriptors that defines, characterizes, or relates to the segmentation basis (sex, social class, age). (iv) Select a sample of consumers that is representative of the larger population of interest. (v) Collect data on segments descriptors from the sample of consumers. (vi) Form segments based on chosen consumer descriptors. (vii) Establish profiles of segments. (viii) Translate the results into marketing strategy. In this approach, rather than selecting a basis for segmentation in advance, the researcher first attempts to see how a sample group of consumers may form their own groupings based on a variety of descriptor variables, such as needs, attitudes, benefits sought, and lifestyle characteristics.

Demographic characteristics and market segmentation:

Demography is the study of human population statistics, including size, age, sex, race, location, occupation, income, and other characteristics. Only with a clear understanding of major consumer characteristics we can begin to appreciate the implications of environmental and individual determinants of consumer behavior. It is often said that a market consists of people with purchasing power and the willingness to buy i.e. (Market = people * purchasing power * willingness to buy).

(i) Population growth: It is helpful first to examine the overall size and growth of the population in the country e.g. Baby boomers. Even though the population as a whole does not represent a segment of interest to most firms.

(ii) The changing age mix of population: The mix of ages can be an important factor to consider as the marketer decides on appropriate target groups. The different age groups have different demands for products and services.

(iii) Regional distribution of population: Population is not evenly distributed across the country. Some cities are overcrowded, for example, Dhaka. Some cities are moderate. 

(iv) Non-metropolitan population: People who live in small town and rural areas and who live in big cities have different way of living. Generally metropolitan population enjoys a higher standard of living than non-metropolitan population. 

(v) Geographic mobility of people: People tend to move from one geographical location to another at different times. Not only that, people also moves form villages to cities. As a result, cities are becoming over crowded day-by-day.  

(vi) Geo-demographic clustering of markets: The combination of geographic and demographic consumer information is known as geo-demographics and is an important segment tool. By using computer geo-mapping software in conjunction with sophisticated demographic database, marketers are able to better understand market diversity and target potentially attractive segments.

(vii) Education: As a result of more educated people in the society, there will be changing lifestyle, social values, employment needs in the society. Although our society is becoming increasingly educated, marketers must recognize that there is also a sizeable group of consumers who have functionally illeterate.

(viii) Income: Personal income is the income from wages, salaries, dividends, rent, interest, business and professions, social security, and farming. Disposable personal income is the amount available, after deducting taxes, for personal consumption expenditure and saving. Discretionary income is the income available for spending after deducing expenses for necessities or fixed items such as food, clothing, shelter, transportation, and utilities. As well as spending pattern and willingness to buy is important in segmenting a market.

Lifestyle and Psychographic Segmentation:

The concepts of lifestyle and psychographics are not equivalent but are complementary. Many products are lifestyle products today. However, it is not easy to define psychographics because there is no general agreement as to exactly what it is. Psychographics may be viewed as the method of defining lifestyle in measurable terms. The term lifestyle is not new, but its application to marketing has been rather recent. 

The Techniques of Lifestyle Segmentation: (i) Activities: How people spend their time engaging in activities. (ii) Interests: What is of most interest or importance to them in their immediate surroundings. (iii) Opinion: Their opinions and views about themselves and the world around them. These AIOs are called lifestyle dimensions that may be investigated among consumers. 

Application of Lifestyle Segmentation: lifestyle may be used as a basis for segmentation in several ways. In one approach, the marketer seeks to classify the consumer population into groups have similar general lifestyle characteristics. Questionnaire containing AIOs regarding product usage, media consumption, and demographic items can be examined. Each group represents a different pattern of needs for and consumption products and services. 

Usage of Segmentation:

Another segmentation approach often used by marketers is based on product or brand usage by consumers. Usage segmentation can take a number of directions. For example, the marketer may want to identify various segments of users for a particular product category or users of the company’s brand.

(i) Volume segmentation: It attempts to identify frequent users of a product category or brand. Marketers often refer 20-80 thesis, i.e. 20 percent of the market is responsible for 80 percent of the sales of their product.

Techniques of volume segmentation: This is accomplished by dividing the market into heavy users, light users, and nonusers of the product and then examining the distinguishing characteristics. Marketers must measure consumption and identify the characteristics that are useful in distinguishing the various purchase intentions. 

(ii) Brand-user segmentation: The marketer is generally most interested in determining whether those who purchase the company’s brand are different either demographically or psychographically, from those buying competitors brand. If characteristics can be distinguished, then marketing programs can perhaps be developed to attract more buyers who resemble the preferred buyer.

(iii) Product-user segmentation: Although buyers of different brands may not be found to have different characteristics, the marketer nevertheless will be interested in segmenting product users on the basis of any such distinguishing demographic or psychographic characteristics in order to reach them effectively (soft drinks- coca cola, diet coke).

(iv) Loyalty segmentation: Marketers are interested in attracting those who consistently buys the company’s brand. When these are identified, appropriate strategies may be developed to attract competitors buyers who have similar characteristics or increase loyalty rate among current users.

(v) Situation segmentation: This segmentation approach divides the market by groups of customers within usage situations. Thus consumers often select products on the basis of which usage situation they expect to encounter.

Benefit Segmentation:

Proponents of benefit segmentation claim that the benefits that people are seeking are the basic reason for purchase and therefore the proper basis for market segmentation. Marketers have learned, for example, that knowing people’s interest in alternative benefits is helpful in predicting the attention paid to advertising copy developed around those benefits. 

Techniques of benefit segmentation: (i) Exploratory research to develop a complete listing of benefits of possible value in segmenting the relevant market. (ii) Development of sensitive and reliable scale to measure major attitude dimensions. (iii) Quantitative measurement of the market, usually involving a national sample, resulting in clustering of respondents by their attitudes. Individual clusters are described in terms of their behavior, lifestyle, demographics, and other relevant characteristics. Segments, therefore, are discriminated by their attitudes, and differences in their behavior are analyzed through cross tabulations.

Although the concept appears simple, its implementation is very complex, often requiring computers and sophisticated multivariate attitude-measurement techniques.

Product Positioning:

Effective product positioning is a key ingredient of successful marketing today.

The interrelationship of market segmentation and product positioning: Knowing the different consumers resound differently to products, promotions, prices, and channels means that the marketer should not consider just the overall population’s reaction to, say, a product, but also the reaction among different market segment. A product position is the place that it occupies relative to competitors in a given market as perceived by the relevant group of customers, that is, by the target-market segment.

Strategies to position a product: (i) Position on product features: Consumers are generally more interested in what such a feature means to them i.e. how they can be benefit by the product. (ii) Position on benefits: Close up, for example, sex appeal through white teeth and fresh breath. (iii) Position on usages: Many products are sold on the basis of their consumer usage situation. (iv) Position on user: Some cosmetics companies’ seeks a successful, highly visible model as their spokesperson. (v) Position against competition: The marketer may directly or indirectly make comparisons with competing products.

The marketer may use several techniques for determining the appropriate positioning for a brand. Lifestyle information and perceptual mapping can also be helpful in positioning.

• Consumer Behavior @ Md. Akteruzzaman, Assistant Professor of Marketing, Chittagong University