Segmenting Consumer Market

The four bases for segmenting consumer market are as follows:

A. Demographic Segmentation

B. Geographic Segmentation

C. Psychographic Segmentation

D. Behavioural Segmentation.

A. Demographic Segmentation:

Demographic segmentation divides the markets into groups based on variables such as age,
gender, family size, income, occupation, education, religion, race and nationality. Demographic
factors are the most popular bases for segmenting the consumer group. One reason is that
consumer needs, wants, and usage rates often vary closely with the demographic variables.
Moreover, demographic factors are easier to measure than most other type of variables.

1. Age:

It is one of the most common demographic variables used to segment markets. Some com-
panies offer different products, or use different marketing approaches for different age groups.
For example, McDonald’s targets children, teens, adults and seniors with different ads and
media. Markets that are commonly segmented by age includes clothing, toys, music,
automobiles, soaps, shampoos and foods.

2. Gender:

Gender segmentation is used in clothing, cosmetics and magazines.

3. Income:

Markets are also segmented on the basis of income. Income is used to divide the markets
because it influences the people’s product purchase. It affects a consumer’s buying power and
style of living. Income includes housing, furniture, automobile, clothing, alcoholic, beverages,
food, sporting goods, luxury goods, financial services and travel.

4. Family cycle:

Product needs vary according to age, number of persons in the household, marital status, and
number and age of children. These variables can be combined into a single variable called
family life cycle. Housing, home appliances, furniture, food and automobile are few of the
numerous product markets segmented by the family cycle stages. Social class can be divided
into upper class, middle class and lower class. Many companies deal in clothing, home
furnishing, leisure activities, design products and services for specific social classes.

B. Geographic Segmentation:

Geographic segmentation refers to dividing a market into different geographical units such as
nations, states, regions, cities, or neighborhoods. For example, national newspapers are
published and distributed to different cities in different languages to cater to the needs of the
consumers.

Geographic variables such as climate, terrain, natural resources, and population density also
influence consumer product needs. Companies may divide markets into regions because the
differences in geographic variables can cause consumer needs and wants to differ from one
region to another.

C. Psychographic Segmentation:

Psychographic segmentation pertains to lifestyle and personality traits. In the case of certain
products, buying behaviour predominantly depends on lifestyle and personality characteristics.

1. Personality characteristics:

It refers to a person’s individual character traits, attitudes and habits. Here markets are
segmented according to competitiveness, introvert, extrovert, ambitious, aggressiveness, etc.
This type of segmentation is used when a product is similar to many competing products, and
consumer needs for products are not affected by other segmentation variables.

2. Lifestyle:

It is the manner in which people live and spend their time and money. Lifestyle analysis
provides marketers with a broad view of consumers because it segments the markets into
groups on the basis of activities, interests, beliefs and opinions. Companies making cosmetics,
alcoholic beverages and furniture’s segment market according to the lifestyle.

D. Behavioural Segmentation:

In behavioural segmentation, buyers are divided into groups on the basis of their knowledge of,
attitude towards, use of, or response to a product. Behavioural segmentation includes
segmentation on the basis of occasions, user status, usage rate loyalty status, buyer-readiness
stage and attitude.

1. Occasion:
Buyers can be distinguished according to the occasions when they purchase a product, use a
product, or develop a need to use a product. It helps the firm expand the product usage. For
example, Cadbury’s advertising to promote the product during wedding season is an example of
occasion segmentation.

2. User status:

Sometimes the markets are segmented on the basis of user status, that is, on the basis of non-
user, ex-user, potential user, first-time user and regular user of the product. Large companies
usually target potential users, whereas smaller firms focus on current users.

3. Usage rate:

Markets can be distinguished on the basis of usage rate, that is, on the basis of light, medium
and heavy users. Heavy users are often a small percentage of the market, but account for a high
percentage of the total consumption. Marketers usually prefer to attract a heavy user rather
than several light users, and vary their promotional efforts accordingly.

4. Loyalty status:

Buyers can be divided on the basis of their loyalty status—hardcore loyal (consumer who buy
one brand all the time), split loyal (consumers who are loyal to two or three brands), shifting
loyal (consumers who shift from one brand to another), and switchers (consumers who show
no loyalty to any brand).

5. Buyer readiness stage:

The six psychological stages through which a person passes when deciding to purchase a
product. The six stages are awareness of the product, knowledge of what it does, interest in the
product, preference over competing products, conviction of the product’s suitability, and
purchase. Marketing campaigns exist in large part to move the target audience through the
buyer readiness stages.
Macro and Micro Segmentation: Variables for Segmenting Organizational Markets

Macro segmentation:

To segment organizational market, a company can use macro segmentation variables like an
organization’s size, its location and the industry it is a part of.

Organizational size:

A large organization may buy the same product as a smaller one, but it would buy differently. A
large organization will buy in larger lots and will have a formal buying process. It will have
specialized departments like those of purchase and quality control, with each one having an
individual mandate. It is also likely to demand more services and [Link] company’s list
price should take into account the volume discounts that large clients will inevitably ask for and
its salespeople should be good negotiators. A company may have to design a unique marketing
mix to serve each of its major clients, and it may need to have dedicated salespeople to serve
each one of [Link] may happen that a company’s profitability in serving large clients is low,
and hence it is not wise to ignore smaller clients, who do not want extensive services and deep
discounts. A company may develop a business model for serving large number of small clients,
which may not necessarily be less profitable than another company’s business model of serving
few large clients.

Industry:

The industry that an organization is part of largely determines what it would buy. An industry
has a unique requirement of products, buys in a particular manner and requires certain level of
quality in the product that it [Link], a company may be selling a product like
computers to clients in different industries, but it cannot sell in the same way and sell the same
computer to its clients in different industries. Though companies in an industry may buy slightly
differently from each other, it is possible to design a marketing mix for an industry, which a
company can then tweak for different buyers in the [Link], it is important that a
company makes an in depth study of the requirements of an industry, before it starts to woo
companies of that industry.

Geographical segmentation:

There are regional variations in purchasing practices and needs. Companies operate within the
constraints of their national cultures. In an American company, a purchase manager may have
the full authority to make a purchase decision, whereas in a Japanese company, a purchase
manager may have to build consensus among various stakeholders before he can make a
purchase decision.
Micro segmentation:

Each company buys differently from other companies in its industry, and a seller needs to
develop a detailed understanding of how each company buys. It is important that salespeople
spend considerable time in understanding the roles that different functions play in the buying
process and their individual mandate. It is also important to understand the buyer’s philosophy
in terms of its emphasis on quality, its view on price and its intent of developing long term
relationship with the sellers.

Choice criteria:

A company’s choice criteria will depend on how it has decided to compete in its own market.
Therefore, a buyer will not budge on quality because it is making a premium product, and
another will not budge on price because it is making a value-for-money product. A seller needs
to understand what each one of its buyers is trying to achieve for its target market to know how
it would buy—the buyer who is buying premium products will be willing to pay a higher price if
the seller offers to increase quality of its products, and the buyer who is buying value-for –
money products will be willing to buy products of lower quality if the seller offers to reduce its
price. Therefore, a seller needs to have different marketing mix when its buyers have different
choice criteria, and salespeople will need to emphasize different benefits with different clients.

Decision making unit structure:

In an organization, a large number of people influence the purchase decision. Though a

Decision Making Unit or a DMU does not exist on a formal organizational chart, its members
exert tremendous influence on how a buying process will proceed and who will finally be
selected as a supplier. Who the members of DMU are, depends on what product is being
bought and whether the product has been bought earlier. For example, if a buyer is
contemplating outsourcing manufacturing of a component of a new product, the DMU may
consist of product developers, process engineers, quality engineers, manufacturing engineers,
assembly engineers and purchasers. But, if a buyer is contemplating buying grease for its
machines, the DMU may just consist of manufacturing engineers and purchasers. If the product
has been bought earlier, the DMU might just consist of quality engineers and purchasers,
because the supplier has already been evaluated on parameters which are important to the
buyer. Now, the task is to ensure that products of consistent quality are delivered on time. It
also depends on the industry the buyer is part of. In one industry, top management may make
the decision, in another, engineers may play a role, and in yet another, purchasers may play a
role. The selling approach that a company will adopt will depend heavily on the priorities of the
members of the DMU.
Decision making process:

The size of the DMU depends on the type of the product which is being bought, and whether
the product has been bought earlier. The buying process will be longer if the size of the DMU is
large because the suppliers will be evaluated on all the parameters that are important to all the
members of the DMU. For example, quality engineers will ensure that the supplier is capable of
meeting quality standards, and product developers will ensure that the component serves the
function for which it has been designed. Therefore, a seller needs to be willing to expend
resources and time to deal with a large DMU. The buying process is short when the size of the
DMU is small, and also when the product has been bought earlier.

Buy class:

It is helpful to categorize organizational purchases into straight rebuy, modified rebuy and new
task. Whether a particular purchase is straight rebuy, modified rebuy, or new task, will affect
how long the buying process will take, who the members of the DMU will be and what would
be their choice criteria. Once a seller has categorized a purchase into one of the buy class, he
can estimate the amount of time and resources he will have to expend to clinch a [Link] a
company is buying an item for the first time, it will prefer suppliers who will have the patience
to educate the buyer company. It will also be suspicious of sellers as it does not really know the
credibility of the [Link] sellers will have to demonstrate a lot of patience as the buyer will
evaluate lots of options and get into a lot of consultation before settling on a supplier (new
task). When the company is already buying the item but only wants to alter the specifications of
the product or the conditions of purchase, it will expect the incumbent supplier to make the
required changes and retain the [Link] suppliers can make a pitch but they have to
compete hard against the incumbent supplier because of its proximity to the buyer (modified
rebuy). The incumbent supplier should get the order when the buyer continues to buy the same
item in the same way. New suppliers can make a pitch but they have to prove that they are
decisively better than the incumbent (straight rebuy).

Purchasing organization:

Decentralized versus centralized purchasing is an important variable due to its influence on the
purchase decision. Centralized purchasing is associated with purchasing specialists who become
experts in buying a product or range of products. They are more familiar with cost factors, and
strengths and weaknesses of suppliers than decentralized [Link] opportunity for
volume buying means that their power to demand price concessions from suppliers is
enhanced. In centralized purchasing systems, purchasing specialists have greater power within
the DMU with respect to technical people like [Link] decentralized purchasing, users and
technical personnel have a lot of influence and it is important to understand their
requirements. A purchaser may ultimately negotiate the price and place the order, but the
choice of the user and technical person is respected by the [Link] purchasing
segment could be served by a national account team whereas decentralized purchasing
segment might be covered by territory representatives.

Organizational innovativeness:

Marketers need to identify the specific characteristics of the innovator segment since these are
companies that should be targeted first when new products are launched. Follower firms buy
the product but only after innovators have approved it.

Requirement for Effective Segmentation

There are many ways to segment a market, but not all segmentations are effective. For example,
buyers of table salt could be divided into black and brown hair customers. But hair color
obviously does not affect the purchase of salt. Furthermore, if all salt buyers bought the same
amount of salt each month, believed that all salt is the same, and wanted to pay the same price,
the company would not benefit from segmenting this market.

Measurable

The size, purchasing power, and profiles of the segments can be measured. Certain segmentation
variables are difficult to measure. For example, there are approximately 30.5 million lefthanded
people in the United States, which is nearly the entire population of Canada. Yet few products
are targeted toward this left-handed segment. The major problem may be that the segment is hard
to identify and measure. There are no data on the demographics of lefties, and the U.S. Census
Bureau does not keep track of left handedness in its surveys. Private data companies keep reams
of statistics on other demographic segments but not on left-handers.

Accessible

The market segments must be effectively reached and served. Suppose a fragrance company
finds that heavy users of its brand are single men and women who stay out late and socialize a
lot. Unless this group lives or shops at certain places and is exposed to certain media, its
members will be difficult to reach.

Substantial

The market segments are large or profitable enough to serve. A segment should be the largest
possible homogeneous group worth pursuing with a tailored marketing program. It would not
pay, for example, for an automobile manufacturer to develop cars especially for people whose
height is greater than seven feet.

Differentiable

The segments are conceptually distinguishable and respond differently to different marketing
mix elements and [Link] men and women respond similarly to marketing efforts for soft
drinks, they do not constitute separate segments.

Actionable

Effective programs can be designed for attracting and serving the segments. For example,
although one small airline identified seven market segments, its staff was too small to develop
separate marketing programs for each segment.
 Niche Marketing
Different products to subgroups
within segments
 Positioning
"A product's position is how potential buyers se
the product", and is expressed relative to th
position of competitors. Positioning is a platform
for the brand. It facilitates the brand to get through
to the mind
Example: Watches of theandtarget
like Rolex consumer.
Mercedes is positioned for luxury s
Volvo is positioned for safety .
 Customer benefit approach: -
This is an important positioning strategy
involves putting the brand ab
competitors, based on specific br
Example: Procter & Gamble’s Head & shoulder shampoo functions as anti dandruff a
attributes and customer benefit.

Head & Shoulder positioned as both anti-dandruff & a

 Price quality approach: -
Sometimes brands attempts to offer more in term
of service, feature, quality, or performance.
Manufacturer of such brands charge higher prices
partly to cover the cost and partly to communicate
the fact that they are of high quality.
Rado Original Chronograph
Priced at USD 6516.00

Timex luxury watch priced around Rs.1800

Example of price quality approach
 The use and application approach: - In
this strategy the product is positioned with
a use or application approach.
.
For example: - Largest Mobile
manufacturer in the world Nokia
positioned its few variant of N-series
mobiles as music phones with enhanced
memory and multimedia capabilities.

Nokia N-70 Music edition Nokia N-73 Music edition

The product user approach:- In this
approach, the brand identifies and
determines the target segement for which
the product will be positioned. Many brand
uses a model or a celebrity to position their
product. The expectation are that a model
or a celebrity is likely to influence the
product’s image by reflecting their own
image to it.

For example:- Dabur Chyvanprash is

positioned for all age groups.
The product class approach:- This
approach is use so that the brand is
associated with a particular product
category. This is generally used when a
category is too crowded.

For example:- HLL has positioned Dove

toilet soap as a cleansing cream product for
young women with dry skin and its is
positioned as a premium segment toilet
soap.
The competitor approach:- Many brands
use competitor as a dominant plank in
their campaign. These brands are
positioned following its competitor. This
is an offensive strategy.