Comparing methods of market segmentation

Comparing methods of market segmentation Traditional demographic methods of market segmentation do not usually provide this knowledge. Analyses of market segments by age, sex, geography, and income level are not. They actually didnt see what people need but rather used to do and make products that were profitable to them and in addition to that they didnt give much priority to what the customer need and used to make the same products. They had no importance to the demography and as well as their product did not satisfy all the customers as they had few lack of quality, style and fashion. Their design of the product wasnt fulfilling the demand of the market in the earlier times. They only depended on their benefits rather then caring about their customers. There were no media supports or any correct timing for launching products as a result many products were unknown to the people and they actually lacked the information of the things they could get (Market Segmentation, Advanced Demand Information, and Supply Chain Performa nce by Fangruo Chen, Graduate School of Business, Columbia University, New York 10027). The makers did not have a huge impact on the customers as they had to satisfy themselves with what they had. Thus there were no such advantages or profits to the makers. There were no guides to strategies or ways to improve the product as they were not guided enough. The plus point in this type of marketing is there was less competition in the early stages and the makers didnt used to worry that much about the products or the amount that it would be sold. Thus its effects are described below: For example : watches were introduced to the customers with a 2 to 3 options rather then a wide range from which al types of people can chose from what they need. They avoided the fact that people have some demands which had to be fulfilled which is not satisfactory at this century. Besides that there are many other marketing factors like auto mobile. We didnt used to get many options like now a day. There were only few options for cars and the buyers had to select any of those and satisfy their minds with that (Forecasting and Market Analysis techniques by George J. Kress and John Snyder). There were no chance of dividing class, status and style with these few options. They didnt use to make the cars and values to the customers need and it is a negative point to the marketing segmentation method. Perfumes are something which a woman loves to have and the easy way to increase its market demand is to know what she wants whole she is buying the product. In the early stages there were no media to let people know about all these products as these products were exported from distance areas and countries and sold only to the high class and rich people. Where as the others were totally unaware of the fact that this products are available. We could consider the role of bathing soaps in our life as a very important thing but in the early stages they didnt know its correct use so they did not bath and used to use perfumes instead. Bathing is a enjoyable experience to women as it enhances beauty. More she would come to know about its advantages she will be eager to have it. But at those times they were too much dependant upon herbals and herbal products as much of these were not available or they didnt know anything about it (From Bland to Brand by Jennifer Lach, American Demographics, M arch, 1999). There were no hare care markets instead of that they used rivers and had bath there in the Mother Nature. Computers were not that specialized in these stages and were not that comfortable to use like it is now. In a way there were many things that were not that satisfactory those days. New methods of market segmentation Demography is the statistical study of human populations but also a way to segment markets. It helps to want people need according to age, sex and gender. Marketing is the process by which companies create customer interest in products or services. It generates the strategy that underlies sales techniques, business communication, and business development for this now a days many things are made according to demography needs (Marketing Golf to Generation X by Marcus Whelan, Cyber-journal of Sports Marketing). If a customers needs are fulfilled then the product would be sold more and it would also be a benefit to the maker. The main work of marketing is to identify the customer, to keep the customer, and to satisfy the customer. With the customer as the focus of its activities, it can be concluded that marketing management is one of the major components of business management. Marketing evolved to meet the stasis in developing new markets caused by mature markets and overcapacities in the last 2-3 centuries. The adoption of marketing strategies requires businesses to shift their focus from production to the perceived needs and wants of their customers as the means of staying profitable (Author: T.P. Beane, (Philip Morris, USA), D.M. Ennis, Philip Morris, USA). Now a day we follow new methods of marketing segmentation. There are some unique advantages in these methods. Like:- Each brand appears to sell very effectively only to certain segments of any market not to the whole market in todays economy. Sound marketing objectives depend on knowledge of how segments which produce the most customers for a companys brands differ in requirements and susceptibilities from the segments which produce the largest number of customers for competitive brands. Traditional methods of marketing didnt use to provide us with these knowledge. Once the marketing director does discover the most pragmatically useful way of segmenting his market, it becomes a new standard for almost all his evaluations (T.P. Beane, D.M. Ennis, (1993) Market Segmentation: A Review), He will use it to appraise competitive strengths and vulnerabilities, to plan his product line, to determine his advertising and selling strategy, and to set precise marketing objectives against which performance can later be measured. Specifically, segmentation analysis helps him to:- Direct the appropriate amounts of promotional attention and money to the most potentially profitable segments of his market; Design a product line that truly parallels the demands of the market instead of one that bulks in some areas and ignores or scants other potentially quite profitable segments. Catch the first sign of a major trend in a swiftly changing market and thus give him time to prepare to take advantage of it to determine the appeals that will be most effective in his companys advertising and where several different appeals are significantly effective. Quantify the segments of the market responsive to each will choose advertising media more wisely and determine the proportion of budget that should be allocated to each medium in the light of anticipated impact. Correct timing of advertising and promotional efforts so that they are massed in the weeks, months, and seasons when selling resistance is least and responsiveness is likely to be at its maximum Understand the seemingly meaningless demographic market information and apply it in scores of new and effective ways. These advantages hold in the case of both packaged goods and hard goods, and for commercial and industrial products as well as consumer products. catch the first sign of a major trend in a swiftly changing market and thus give him time to prepare to take advantage of it; Determine the appeals that will be most effective in his companys advertising and, where several different appeals are significantly effective, quantify the segments of the market responsive to each. Choose advertising media more wisely and determine the proportion of budget that should be allocated to each medium in the light of anticipated impact. Correct the timing of advertising and promotional efforts so that they are massed in the weeks, months, and seasons when selling resistance is least and responsiveness is likely to be at its maximum. Understand otherwise seemingly meaningless demographic market information and apply it in scores of new and effective ways. These advantages hold in the case of both packaged goods and hard goods, and for commercial and industrial products as well as consumer products. EFFECTS OF THIS IN TEN MARKETS: In the following discussion we shall take ten markets for consumer and industrial products 1. Watches: In this first case we deal with a relatively simple mode of segmentation analysis. The most productive way of analyzing the market for watches turns out to be segmentation by value. This approach discloses three distinct segments, each representing a different value attributed to watches by each of three different groups of consumers: 1. People who want to pay the lowest possible price for any watch that works reasonably well. If the watch fails after six months or a year, they will throw it out and replace it. 2. People who value watches for their long life, good workmanship, good material, and good styling. They are willing to pay for these product qualities. 3. People who look not only for useful product features but also for meaningful emotional qualities. The most important consideration in this segment is that the watch should suitably symbolize an important occasion. Consequently, fine styling, a well-known brand name, the recommendation of the jeweler, and a gold or diamond case are highly valued. In 1962, research shows, the watch market divided quantitatively as follows: Approximately 23 % of the buyers bought for lowest price (value segment #1). Another 46% bought for durability and general product quality (value segment #2). And 31% bought watches as symbols of some important occasion (value segment #3). 2.Automobiles: The non-demographic segmentation of the automobile market is more complex than that of the watch market. The segments crisscross, forming intricate patterns. Their dynamics must be seen clearly before automobile sales can be understood. Segmentation analysis leads to at least three different ways of classifying the automobile market along non-demographic lines, all of which are important to marketing planning. Value Segmentation: The first mode of segmentation can be compared to that in the watch market-a threefold division along lines which represent how different people look at the meaning of value in an automobile: 1. People who buy cars primarily for economy. Many of these become owners of the Falcon, Ford, Rambler, American, and Chevrolet. They are less loyal to any make than the other segments, but go where the biggest savings are to be found. 2. People who want to buy the best product they can find for their money. These prospects emphasize values such as body quality, reliability, durability, economy of operation, and ease of upkeep. Rambler and Volkswagen have been successful because so many people in this segment were dissatisfied. 3. People interested in personal enhancement (a more accurate description than prestige). A handsomely styled Pontiac or Thunderbird does a great deal for the owners ego, even though the car may not serve as a status symbol (Market segmentation: how to do it, how to profit from it by Malcolm McDonald). Although the value of an automobile as a status symbol has declined, the personal satisfaction in owning a fine car has not lessened for this segment of the market. It is interesting that while both watches and cars have declined in status value, they have retained self-enhancement value for large portions of the market. Markets can change so swiftly, and the size of key segments can shift so rapidly, that great sensitivity is required to catch a trend in time to capitalize on it. In the automobile market, the biggest change in recent years has been the growth in segment two-the number of people oriented to strict product value. Only a few years ago, the bulk of the market was made up of the other segments, but now the product-value segment is probably the largest. Some automobile companies did not respond to this shift in the size of these market segments in time to maintain their share of the market. Aesthetic Concepts: A second way of segmenting the automobile market is by differences in style preferences. For example, most automobile buyers tell you that they like expensive looking cars. To some people, however, expensive looking means a great deal of chrome and ornamentation, while to others it means the very opposite-clean, conservative lines, lacking much chrome or ornamentation. Unfortunately, the same words are used by consumers to describe diametrically opposed style concepts. Data that quantify buyers according to their aesthetic responses their differing conceptions of what constitutes a good-looking car- are among the most useful an automobile company can possess. The importance of aesthetic segmentation can be pointed up by this example: When Ford changed from its 1959 styling to its 1960 styling, the change did not seem to be a radical one from the viewpoint of formal design. But, because it ran contrary to the special style expectations of a large group of loyal Ford buyers, it constituted a dramatic and unwelcome change to them. This essential segment was not prepared for the change, and the results were apparent in sales. Susceptibility to Change: A third and indispensable method of segmenting the automobile market cuts across the lines drawn by the other two modes of segmentation analysis (Segmentation and positioning for Strategic Marketing decisions by James H. Myers). This involves measuring the relative susceptibility of potential car buyers to changing their choice of make. Consider the buyers of Chevrolet during any one year from the point of view of a competitor: At one extreme are people whose brand loyalty is so solidly entrenched that no competitor can get home to them. They always buy Chevrolets. They are closed off to change. At the other extreme are the open-minded and the unprejudiced buyers. They happened to buy a Chevrolet because they preferred its styling that year, or because they got a good buy, or because someone talked up the Fisher body to them. They could just as easily have purchased another make. In the middle of this susceptibility continuum are people who are predisposed to Chevrolet to a greater or lesser degree. They can be persuaded to buy another make, but the persuasion has to be strong enough to break through the Chevrolet predisposition. The implications of this kind of susceptibility segmentation are far-reaching. Advertising effectiveness, for example, must be measured against each susceptibility segment, not against the market as a whole. Competitors advertising should appear in media most likely to break through the Chevrolet predisposition of the middle group. In addition, the wants of those who are not susceptible must be factored out, or they will muddy the picture (Market Segmentation Success: Making It Happen! by Sally Dibb). Marketing programs persuasive enough to influence the uncommitted may make no difference at all to the single largest group those who are predisposed to Chevrolet but still open enough to respond to the right stimulus. If the marketing director of an automobile company does not break down his potential market into segments representing key differences in susceptibility, or does not clearly understand the requirements of each key segment, his company can persevere for years with little or no results because its promotion programs are inadvertently being aimed at the wrong people. III. Perfume: A segmentation analysis of the perfume market shows that a useful way to analyze it is by the different purposes women have in mind when they buy perfume. One segment of the market thinks of a perfume as something to be added to what nature has supplied. Another segment believes that the purpose of fragrance products is to help a woman feel cleaner, fresher, and better groomed -to correct or negate what nature has supplied. In the latter instance, the fragrance product is used to cancel out natural body odors; in the former, to add a new scent. To illustrate this difference in point of view: One woman told an interviewer, I like a woodsy scent like Faberge. It seems more intense and lingers longer, and doesnt fade away like the sweeter scents. But another woman said, I literally loathe Faberge. It makes me think of a streetcar full of women coming home from work who havent bathed. These differences in reaction do not indicate objective differences in the scent of Faberge. They are subjective differences in womens attitudes; they grow out of each womans purpose in using a perfume. Purposive segmentation, as this third mode of analysis might be called, has been of great value to alert marketers. For instance: A company making a famous line of fragrance products realized that it was selling almost exclusively to a single segment, although it had believed it was competing in the whole market. Management had been misled by its marketing research, which had consistently shown no differences in the demographic characteristics of women buying the companys products and women buying competitors products. In the light of this insight, the company decided to allocate certain lines to the underdeveloped segments of the market. This required appropriate changes in the scent of the product and in its package design. A special advertising strategy was also developed, involving a different copy approach for each product line aimed at each segment. In addition, it was learned that visualizations of the product in use helped to create viewer identification in the segment that used perfume for adding to natures handiwork, but that more subtle methods of communication produced better results among the more reserved, more modest women in the second segment who want the canceling out benefits of perfume (Handbook of Market Segmentation: Strategic Targeting for Business and Technology firms by Art Weinstein). The media susceptibilities of women in the two segments were also found to be different. Thus, from a single act of resegmentation, the advertising department extracted data critical to its copy platform, communication strategy, and media decisions. IV. Bathing Soap A comparable purposive segmentation was found in the closely related bathing soap field. The key split was between women whose chief requirement of soap was that it should clean them adequately and those for whom bathing was a sensuous and enjoyable experience. The company (a new contender in this highly competitive field) focused its sights on the first segment, which had been much neglected in recent years. A new soap was shaped, designed, and packaged to appeal to this segment, a new advertising approach was evolved, and results were very successful. V. Hair-Care Market The Breck-Halo competition in the shampoo market affords an excellent example of another kind of segmentation. For many years, Brecks recognition of the markets individualized segmentation gave the company a very strong position. Its line of individualized shampoos included one for dry hair, another for oily hair, and one for normal hair. This line accurately paralleled the marketing reality that women think of their hair as being dry, oily, or normal, and they do not believe that any one shampoo (such as an all-purpose Halo) can meet their individual requirements. Colgate has finally been obliged, in the past several years, to revise its long-held marketing approach to Halo, and to come out with products for dry hair and for oily hair, as well as for normal hair. Other companies in the hair-care industry are beginning to recognize other segmentations in this field. For example, some women think of their hair as fine, others as course. Each newly discovered key segmentation contains the seeds of a new product, a new marketing approach, and a new opportunity. VI. Other Packaged Goods Examples of segmentation analysis in other packaged goods can be selected almost at random (Lifestyle Market Segmentation by Art Weinstein). Let us mention a few briefly, to show the breadth of applicability of this method of marketing analysis: In convenience foods, for example, we find that the most pragmatic classification is, once again, purposive segmentation. Analysis indicates that convenience in foods has many different meanings for women, supporting several different market segments. Women for whom convenience means easy to use are reached by products and appeals different from those used to reach women for whom convenience means shortcuts to creativity in cooking. In the market for cleaning agents, some women clean preventively, while others clean therapeutically, i.e., only after a mess has been made. The appeals, the product characteristics, and the marketing approach must take into account these different reasons for buying another example of purposive segmentation. In still another market, some people use air fresheners to remove disagreeable odors and others to add an odor. A product like Glade, which is keyed to the second segment, differs from one like Airwick in product concept, packaging, and type of scent. The beer market requires segmentation along at least four different axes -reasons for drinking beer (purposive); taste preferences (aesthetic); price/quality (value); and consumption level. VII. Retail Soft Goods Although soft-goods manufacturers and retailers are aware that their customers are value conscious, not all of them realize that their markets break down into at least four different segments corresponding to four different conceptions of value held by women. For some women value means a willingness to pay a little more for quality. For others, value means merchandise on sale. Still other women look for value in terms of the lowest possible price, while others buy seconds or discounted merchandise as representing the best value. Retailing operations like Sears, Roebuck are highly successful because they project all these value concepts, and do so in proportions which closely parallel their distribution in the total population. VIII. Adding Machines In marketing planning for a major adding machine manufacturer, analysis showed that his product line had little relationship to the segmented needs of the market. Like most manufacturers of this kind of product, he had designed his line by adding features to one or several stripped-down basic models-each addition raising the model price. The lowest priced model could only add; it could not subtract, multiply, divide, or print, and it was operated by hand. Since there are a great many features in adding machines, the manufacturer had an extremely long product line (Marketing Plans, Sixth Edition: How to prepare them, how to use them by Malcolm McDonald). When the needs of the market were analyzed, however, it became clear that, despite its length, the line barely met the needs of two out of the three major segments of the market. It had been conceived and planned from a logical point of view rather than from a market-need point of view. The adding machine market is segmented along lines reflecting sharp differences in value and purpose: One buyer group values accuracy, reliability, and long life above all else. It tends to buy medium-price, full-keyboard, electric machines. There are many banks and other institutions in this group where full-keyboard operations are believed to ensure accuracy. Manufacturing establishments, on the other hand, prefer the ten-key machine. Value, to these people, means the maximum number of laborsaving and timesaving features. They are willing to pay the highest prices for such models. Both these segments contrast sharply with the third group, the small retailer whose major purpose is to find a model at a low purchase price. The small retailer does not think in terms of amortizing his investment over a period of years, and neither laborsaving features nor full-keyboard reliability count for as much as an immediate savings in dollars. Despite the many models in the companys line, it lacked those demanded by both the manufacturer and small retailer segments of the market. But, because it had always been most sensitive to the needs of financial institutions, it had developed more models for this segment than happened to be needed. Product, sales, and distribution changes were required to enable the company to compete in the whole market. IX. Computers One pragmatic way of segmenting the computer market is to divide potential customers between those who believe they know how to evaluate a computer and those who believe they do not. A few years ago only about 20% of the market was really open to IBMs competitors-the 20% who believed it knew how to evaluate a computer. By default, this left 80% of the market a virtual captive of IBM-the majority who did not have confidence in its own ability to evaluate computers and who leaned on IBMs reputation as a substitute for personal appraisal. Segmentation in this market involves differences in prospects attitudes toward the inevitability of progress. Although this factor has been widely ignored, it is a significant method for qualifying prospects. People who believe that progress is inevitable (i.e., that change is good and that new business methods are constantly evolving) make far better prospects for computers than those who have a less optimistic attitude toward progress in the world of business. X. Light Trucks The market for light trucks affords us another example of segmentation in products bought by industry. As in the computer example, there are both buyers who lack confidence in their ability to choose among competing makes and purchasers who feel they are sophisticated about trucks and can choose knowledgeably. This mode of segmentation unexpectedly turns out to be a key to explaining some important dynamics of the light truck market: Those who do not trust their own judgment in trucks tend to rely very heavily on both the dealers and the manufacturers reputation. Once they find a make that gives them reliability and trouble-free operation, they cease to shop other makes and are no longer susceptible to competitive promotion. Nor are they as price-sensitive as the buyer who thinks he is sophisticated about trucks. This buyer tends to look for the best price, to shop extensively, and to be susceptible to the right kind of competitive appeals, because he puts performance before reputation. These ways of looking at the truck market have far-reaching implications for pricing policy, for product features, and for dealers sales efforts. Harvard Business Review, March/April 1964 by Daniel Yankelovich There are few similarities as well as differences in this process: Similarities: the main aim is to benefit at a certain level and trying to satisfy the customer keeping few points in focus. In addition to having different needs, for segments to be practical they should be evaluated against the following criteria: Identifiable: the differentiating attributes of the segments must be measurable so that they can be identified. Accessible: the segments must be reachable through communication and distribution channels. Substantial: the segments should be sufficiently large to justify the resources required to target them. Unique needs: to justify separate offerings, the segments must respond differently to the different marketing mixes. Durable: the segments should be relatively stable to minimize the cost of frequent changes. A good market segmentation will result in segment members that are internally homogenous and externally heterogeneous; that is, as similar as possible within the segment, and as different as possible between segments. Bases for Segmentation in Consumer Markets: Consumer markets can be segmented on the following customer characteristics. Geographic Demographic Psychographic Behavioralistic Geographic Segmentation The following are some examples of geographic variables often used in segmentation. Region: by continent, country, state, or even neighborhood Size of metropolitan area: segmented according to size of population Population density: often classified as urban, suburban, or rural Climate: according to weather patterns common to certain geographic regions Demographic Segmentation Some demographic segmentation variables include: Age Gender Family size Family lifecycle Generation: baby-boomers, Generation X, etc. Income Occupation Education Ethnicity Nationality Religion Social class Psychographic Segmentation Psychographic segmentation groups customers according to their lifestyle. Activities, interests, and opinions (AIO) surveys are one tool for measuring lifestyle. Some psychographic variables include: Activities Interests Opinions Attitudes Values Behavioralistic Segmentation Behavioral segmentation is based on actual customer behavior toward products. Some behavioralistic variables include: Benefits sought Usage rate Brand loyalty User status: potential, first-time, regular, etc. Readiness to buy Occasions: holidays and events that stimulate purchases Behavioral segmentation has the advantage of using variables that are closely related to the product itself. It is a fairly direct starting point for market segmentation. There are vast differences between the segmentation methods before and now as when people started the marketing the didnt know but now a days there as been many segments and theories about all these marketing but still the aim was to benefit. ANALYSIS: It is better to go for the new segmentation method as there are many ways to keep the customers happy as a feed back they are being profited. As the main aim is to keep the customers happy as well as gain some thing good as a return. So if that is given the main priority then the new segmentation method is the best. Segmentation can be done on data collected specifically for the segmentation or on pre-existing data. A common approach for segmentation is to ask respondents for their AIOs (Attitudes, Interests, and Opinions). Another fruitful approach is to ask about media outlets (e.g., what television shows they watch, and what printed press they read). Asking about media outlets reveals a lot about the nature of the segments, and how to reach them. These factors play a vast role in this sort of business because after everything aim is to satisfy the customers. It can be said that the old methods are not that satisfying as there were few options to choose from and it might not be sat isfactory to every customer purchasing the product. In business it is very important to keep the customers happy as it might not be that fruitful if the customers are happy with what they are provided with. If a client asks for segmentation, the key questions are what are the dimensions that will produce segments that are most useful. For example, a PR firm mig