Chapter Two Market Segmentation

Transcription

1 Chapter Two Market Segmentation Learning Objectives: To understand; 1. What is the meaning of market segmentation 2. What are the benefits and limitations of market segmentation 3. What demographic segmentation stands for 4. The concept of Family Life Cycle 2. 1 Concept of a Market A market comprises of people or business with potential interest having purchasing power and the willingness to spend money. For example, the total population of India is 125 crores where the felt need of television sets is 12 crores. Out of these, about 25% or 3 crore are interested in Sony, where only 10% of the people have money which amounts to 30 lacs. But out of these, only 10% are willing to spread on purchasing televisions, that too of Sony s. This equals to just 3 lacs. This shows that Need + Intention + Money + Willingness = Total Market. 2.2 Market Segmentation The process of partitioning a large heterogeneous market into smaller groups of people or business which shows similar needs and or characteristics, thus resulting into a similar purchase behaviour. In terms of the choices available to marketers, there are two:

2 Undifferentiated Market Strategy Consumers are considered as having the same needs, wants, and desires and same backgrounds like education, and experience OR one product will appeal to everyone. Market Segmentation Here, differentiation can be on aspects like price, styling, packaging, promotional appeal, method of distribution. But Segmentation is not an end in itself. Marketing starts with segmentation, followed by targeting and ending with positioning. Thus, the famous marketing concept, Segmentation * Targeting * Positioning (STP). 2.3 Benefits of Market Segmentation Some of the benefits of market segmentation include the definition of the marker based on the consumer s needs, wants and desires; the product, price and place are aligned to these needs and wants; effective communication mix and lastly competition which is global and intense. 2.4 Limitations of Market Segmentation Major limitation of segmentation is that it ignores individual differences as it is developed on similarities of profiling characteristics. Apart from that, factors like costly marketing exercise, difficulty in handling multiple cluster groups are some other limitations. 2.5 Bases for segmentation The primary step in evolving a segmentation strategy is to select the most appropriate base(s), criteria on which you can segment the market. There are seven major

3 categories of consumer characteristics on which market segmentation can be considered. This chapter will consider geographic segmentation and demographic segmentation in detail. a. Geographic Segmentation In geographic segmentation, the market is divided by location. Single logic behind this theory is that people who live in the same area have similar needs and wants, and that these needs and wants differ from those of people living in other areas. Geographic segmentation is also beneficial since it allows segmenting the market on density, literacy; covers regional differences due to climate and lastly is easy to articulate. b. Demographic Segmentation Demographic characteristics like age, sex, marital status, income, occupation and education are used for demographic segmentation. These characteristics are considered as demographic in nature as their statistical information is available and they are easy to locate. Thus demographic information is the most available, accessible and cost effective way to identify a target market. It can reveal ongoing trends such as shifts in age and income distribution that may signal new business opportunities to alert marketers. c. Geodemographic Segmentation This segmentation approach believes in the notion that people who live next to one another have similar financial stature, taste, means, preferences, lifestyles and consumption habits. Such segmentation helps in marketing items of personal interest, marketed one on one basis, and delivered where required.

4 d. Psychological Segmentation Psychological characteristics of the inherent qualities of the individual consumers. Essentially, it has only two characteristics but they are powerful namely, Personality and Psychographics. e. Socio-cultural Segmentation Socio-cultural (anthropological) variables such as culture, subculture, cross culture besides social class and Family Life Cycle also enable marketers to classify their segmentation where product preference does have some cultural context. f. User Behaviour Segmentation Often, a specific occasion determines our selection. We stretch beyond our general means to get the item of our choice. Thus, marketers select user behaviour as a segmentation variable. Other aspects of user behaviour that have proved effective include usage rate, user status and degree of brand loyalty. Our behaviour is thus in context to a particular usage situation. Marketers thus tap this behaviour by displaying their product as most suitable for the given usage occasion. g. Benefit Segmentation After closely studying their consumers, markets have effectively segmented their homogenous markets by clustering consumers into segments according to specific benefits sought. What is beneficial to target segments depends on their evolving need and changing life style. 2.6 Criteria for Effective Targeting of Market Segments

5 The next challenge is to select one or more segments to target with an appropriate marketing mix. To be an effective target, a market segmentation should be identifiable, sufficient in terms of volume, stable and reachable in terms of media and cost. Identification involves dividing the market into separate segments on the basis of a common need or characteristic that is relevant to the product or service. Sufficiency is knowing that the segment targeted is worthwhile i.e. sufficient numbers of prospective customers are available to obtain required sales volume. Stability is when the organisations ensure the stability of the market in order to gauge their return on investment and the expected life span of making the most of the targeted market segment. Accessibility is that requirement that makes sure the resources are optimally used at an economical cost when the marketers tap into the market potential. 2.7 Implementing Segmentation Strategies After segmenting the market and determining the target segments, firms can either pursue concentrated marketing strategy or a differentiated marketing strategy. Marketers may deploy counter-segmentation. Concentrated Marketing Strategy is targeting just one segment with a unique marketing mix. Differentiated Marketing Strategy: When marketers decide to target several segments using individual marketing mix is called differentiated marketing. Counter-segmentation Marketing Strategy is when companies implementing differentiated marketing strategy often face situations wherein they need to reconsider differentiated

6 segments in terms of its exclusivity, sufficiency, stability and/or accessibility. This may be either due to segment volume contracting, or stability is not likely or accessibility is not at the optimal level. As a result they do not warrant individual marketing mix. Marketers at this juncture looks for more generic need or consumer characteristics that would apply to two or more segments thus they can recombine these segments into a single segment that could be targeted with an individually tailored product or promotional campaign. This is recognised as counter-segmentation marketing. Next,Chapter Consumer Three Behaviour Research