Marketing Reading Material: Test 1 Segmentation

Segmentation: A market segment consists of a group of customers who share a similar set of wants. Market

segmenting is dividing the market into groups of individual markets with similar wants or needs.

Generally three criteria can be used to identify different market segments: 1) Homogeneity (common needs within segment) 2) Distinction (unique from other groups)

3) Reaction (similar response to market) Basis for segmenting consumer markets

Geographic segmentation: The market is segmented according to geographic criteria—

nations, states, regions, countries, cities, neighbourhoods, or zip codes.

Demographic Segmentation: Demographic segmentation consists of dividing the market into

groups based on variables such as age, gender, family size, income, occupation, education, religion, race and nationality.

Psychographic Segmentation: Psychographics is the science of using psychology

and demographics to better understand consumers. Psychographic segmentation: consumers are divided according to their lifestyle, personality, values

and social class. Aliens within the same demographic group can exhibit very different psychographic profiles. Behavioral Segmentation: In behavioral segmentation, consumers are divided into groups according to their

knowledge of, attitude towards, use of or response to a product. It is actually based on the behavior of the consumer.

Occasions: Segmentation according to occasions. We segment the market according to the occasions of use. For example, whether the

product will be used alone or in a group, or whether it is being purchased as a present or for personal use.

Benefits: Segmentations according to benefits sought by the consumer.

Market segmentation allows three alternative marketing approaches: A) Undifferentiated marketing or mass marketing (one product for all);

B) Differentiated marketing (e.g. premium, standard and budget options);

C) Concentrated marketing (focusing on just one segment).

10 Steps in Market Segmentation

Targeting Target Market is a specific group of consumers at which a company aims its marketing efforts, products and

services

The psychology of target marketing

A principal concept in target marketing is that those who are targeted show a strong affinity or brand loyalty to that particular brand. Target Marketing allows the marketer to customize their message to the targeted group of consumers in a more focused manner.

Market Targeting Options

After segmentation firms can adopt one of three strategies to target customers.

Option 1: Undifferentiated Marketing Undifferentiated marketing is marketing that does not target a particular segment of the market. Instead the firm adopts one

marketing strategy and hopes that it will appeal to as many people as possible. Sometimes referred to as mass marketing,

undifferentiated marketing usually involves targeting the whole market with one product. Coca Cola's original marketing strategy was based on this format when they offered one

product, which they believed had universal appeal. However now that Coca Cola has introduced other products, it has

changed its marketing strategy to differentiated marketing. An undifferentiated marketing strategy can be cheaper than the other strategies because there is only one product to produce,

distribute and market. It can also be cheaper because the firm is not targeting multiple market segments. The disadvantage is the challenge involved in producing a product and marketing

campaign which is universally appealing enough to make it profitable.

Option 2: Differentiated Marketing Strategy If a firm decides to target several segments of the market, it is engaging in a differentiated marketing strategy.

Under a differentiated marketing strategy, a firm will develop products and services with separate marketing mix strategies for each of the segments chosen by the firm. An airline company offering Luxury, Business and

Economy class tickets with separate marketing programmes to attract customers for each of the ticket types is an example of differentiated marketing strategy.

Option 3: Concentrated Marketing Concentrated marketing occurs when a business concentrates its marketing effort on one segment of the market. The firm will develop a product that caters for the needs of that particular group. Concentrated marketing can

have lower costs than the other two options. It can be a good option for small or new businesses. The disadvantage is that it reduces the number of customers that the firm is targeting. It also means that the firm

needs to be sure that they have selected the correct segment of the market.

Positioning Positioning is the process by which marketers try to create an image or identity in the minds of their target market for its product, brand, or organization. Re-positioning involves changing the identity of a product, relative to the identity of competing products.

De-positioning involves attempting to change the identity of competing products, relative to the identity of your own product.

Brand positioning process: Effective Brand Positioning is contingent upon

identifying and communicating a brand's uniqueness, differentiation and verifiable value. Copycat brand positioning only works if the business offers its

solutions at a significant discount over the other competitors.

1. Identifying the business's direct competition 2. Understanding how each competitor is positioning

their business today

3. Documenting the provider's own positioning as it exists today

4. Comparing the company's positioning to its

competitors' to identify viable areas for differentiation

5. Developing a distinctive, differentiating and value-based positioning concept

6. Creating a positioning statement with key

messages and customer value propositions Product positioning process:

1. Defining the market in which the product or brand will compete

2. Identifying the attributes that define the product 'space'

3. Collecting information from a sample of

customers about their perceptions of each product on the relevant attributes

4. Determine each product's share of mind 5. Determine each product's current location in the

product space

6. Determine the target market's preferred combination of attributes

Positioning concepts: More generally, there are three types of positioning

concepts: 1. Functional positions 2. Symbolic positions

3. 3Experiential positions

Market positioning is the manipulation of a brand or family of brands to create a positive perception in the eyes of the public. If a product is well positioned, it will

have strong sales, and it may become the go-to brand for people who need that particular product. Poor positioning, on the other hand, can lead to bad sales

and a dubious reputation. A number of things are involved in market positioning, with entire firms

specializing in this activity and working with clients to position their products effectively.

Market Positioning A Positioning Strategy is how you want to be perceived in the minds of prospects versus your competition. It must

clearly distinguish you from competitors and make it obvious you are the best available choice. The first step in developing a winning Positioning Strategy is to develop an in-depth understanding of target prospects and competitors. This provides the insight required to clearly distinguish yourself versus all of the available choices.

To develop an effective Positioning Strategy, the following questions must be answered:

What sets us apart? Based on what prospects deem most important in making a buying decision (logic), or the hot button issues that

drive the initial interest (emotion), what do you specifically do that’s unique or better?

What makes us unique or superior versus competition?

If competitors have a distinct weakness, especially in industries with a poor reputation, a winning Positioning Strategy may be to highlight your strengths in areas where your competition is weak.

Are we a leader or visionary, is there something innovative about what we do that sets us apart from competitors?

If we’re able to re-define the rules of the game, or to introduce a new way of doing things, this may place us in the industry leadership or visionary position.

Differentiation Product differentiation is the process of distinguishing a product from others, to make it

more attractive to a particular target market. This involves differentiating it from competitors'

products as well as a firm's own product. Differentiation can be a source of competitive

advantage. Although research in a niche market may result in changing a product in order to improve differentiation, the changes themselves

are not differentiation. Marketing or product differentiation is the process of describing the

differences between products or services, or the resulting list of differences. This is done in order to demonstrate the unique aspects of a firm's product

and create a sense of value. Any differentiation must be valued by buyers. 1. Simple: based on a variety of characteristics

2. Horizontal : based on a single characteristic but consumers are not clear on quality

3. Vertical : based on a single characteristic and consumers are clear on its quality

The brand differences are usually minor; they can be merely a difference in packaging or an advertising theme. The physical product need not change, but it could. Differentiation is due to buyers perceiving a difference, hence

causes of differentiation may be functional aspects of the product or service, how it is distributed and marketed, or who buys it.

The major sources of product differentiation are as follows. 1. Differences in quality which are usually

accompanied by differences in price 2. Differences in functional features or design

3. Ignorance of buyers regarding the essential characteristics and qualities of goods they are purchasing

4. Sales promotion activities of sellers and, in particular, advertising

5. Differences in availability (e.g. timing and location).

Benefits of Differentiation: Differentiation primarily impacts performance through reducing directness of competition. As the product becomes more different, categorization becomes more difficult and hence draws fewer comparisons with its competition. A successful product differentiation strategy will move your product from

competing based primarily on price to competing on non-price factors, such as product characteristics, distribution strategy, or promotional variables.

Most people would say that the implication of differentiation is the possibility of charging a price premium; however, this is a gross simplification. If customers value the firm's offer, they will be less sensitive to aspects of competing offers; price may not be one of these aspects. Differentiation makes customers in a given segment

have a lower sensitivity to other features (non-price) of the product.

Ethical concerns: Some product differentiation approaches raise ethical concerns. These include techniques based on customers' ignorance, rebranding existing products to sell them as new or introducing anti-features that create artificial limitations to otherwise fully functional goods.

A unique selling proposition (USP) is a description of the qualities that are unique to a particular product or service and that differentiate it in a way which will make customers purchase it rather than its rivals.

Marketing experts used to insist that every product and service had to have a USP, but this idea was usurped by the view that what really matters in marketing a product or service is its positioning, where it sits on the spectrum

of customer needs. Shampoos, for instance, claim to meet all sorts of different customer needs and sit in all sorts of different positions—the need to wash dry hair or greasy hair, dark hair or blond hair, or the need to wash hair

frequently or not so frequently. Few of them, however, can claim to have a unique selling proposition. All of them clean hair.

Uniqueness is rare, and coming up with a continuous stream of products with unique features is, in practice, extremely difficult. Philip Kotler says that the difficulty firms have in creating functional uniqueness has made

them ―focus on having a unique emotional selling proposition (an ESP) instead of a USP‖. He gives the example of the Ferrari car and the Rolex watch. Neither has a distinctive functional uniqueness, but each has a unique emotional association in the consumer's mind.

Branding A Brand is a distinguishing name or symbol (logo, trademark, or package design) intended to identify the origin of

the goods or services–and to differentiate those goods or services from those of competitors. The process involved in creating a unique name and image for a product in the consumers' mind, mainly through advertising campaigns with a consistent theme. Branding aims to establish a significant and differentiated

presence in the market that attracts and retains loyal customers.

Benefits of a brand for

Sellers Customers

Identifies the company’s products, makes repeat purchases easier

Facilitates promotion efforts

Fosters brand loyalty – stabilises market share

Allows to charge premium prices and thus to get better margins

Allows to extend the brand to new products, new markets and to new geographic areas

Can communicate directly with the customer, reach over the shoulder of the retailer

More leverage with middlemen

Is more resistant to price competition

Can have a long life

Helps identify products

Helps evaluate the quality of a product

Helps to reduce perceived risk in buying, provides assurance of quality, reliability etc.

Is dependable (consistent in quality)

May offer psychological reward (status symbol)

“rout map” through a range of alternatives

Saves customer time

Is easier to process mentally

Customer Focus Definition The orientation of an organization toward serving its clients' needs. Having a

customer focus is usually a strong contributor to the overall success of a business and involves ensuring that all aspects of the company put its customers' satisfaction first. Also, having a customer focus usually includes

maintaining an effective customer relations and service program. Ascertaining consumer demand is vital for a firm's future viability and even

existence as a going concern. Many companies today have a customer focus or customer orientation. This implies that the company focuses its activities

and products on consumer demands. Generally, there are three ways of doing this: the customer-driven approach, the market change identification

approach and the product innovation approach.

In the consumer-driven approach, consumer wants are the drivers of all strategic marketing decisions. No strategy

is pursued until it passes the test of consumer research. Every aspect of a market offering, including the nature of the product itself, is driven by the needs of potential consumers. The starting point is always the consumer. The rationale for this approach is that there is no reason to spend R&D funds developing products that people will not

buy. History attests to many products that were commercial failures in spite of being technological breakthroughs. A formal approach to this customer-focused marketing is known as SIVA(Solution, Information, Value, Access).

This system is basically the four Ps renamed and reworded to provide a customer focus. The SIVA Model provides a demand/customer-centric alternative to the well-known 4Ps supply side model (product, price, placement,

promotion) of marketing management Product →Solution Promotion→Information

Price → Value Place →Access

Customer-focus is quite literally and quite obviously, focusing on

the customer. That means thinking about them when

decisions are made, policies are implemented, and employees are trained. It spans across the

whole business and is a cultural thing as much as it is anything else. Customer-focused

businesses think about what they can do to make customers

happy (as opposed to get the most money out of them, signup the most accounts, etc.) all the

time and think about how they can make the customer

experience better.

Consumer behaviour Consumer behaviour is the study of individuals, groups, or organizations and the processes they use to select

products or services to satisfy needs. It blends elements from psychology, sociology, social anthropology and economics. It attempts to understand the buyer decision making process, both individually and in groups. It studies characteristics of individual consumers such as demographics and behavioural variables in an attempt to

understand people's wants. It also tries to assess influences on the consumer from groups such as family, friends, reference groups, and society in general.

Consumer Behaviour = the actions a person takes in purchasing and using products and services, including the

mental and social processes that precede and follow these actions. Consumer Behaviour is a branch which deals with the various stages a consumer goes through before purchasing

products or services for his end use.

Consumer behaviour and factors influencing buyer behavior

Consumer behaviour is an attempt to understand & predict human actions in the buying role. It has assumed growing importance under market-oriented or customer oriented marketing planning & management. Consumer behaviour is defined as ―all psychological, social & physical behaviour of potential customers as they become

aware of, evaluate, purchase, consume, & tell others about product & services‖. Each element in this definition is important. Consumer behaviour involves both individual (psychological) processes & group (social processes).

Consumer behavior is reflected from awareness right through post-purchase evaluation indicating satisfaction or non-satisfaction, from purchases

Consumer behaviour includes communication, purchasing & consumption behaviour Consumer behaviour is basically social in nature. Hence social environment plays an important role in

shaping buyer behaviour.

Consumer behaviour includes both consumer & business buyer behaviour In consumer behaviour we consider not only why, how, & what people buy but other factors such as where

, how often, and under what conditions the purchase is made. An understanding of the buyer behaviour is essential in marketing planning & programmes. In the final analysis buyer behaviour is one of the most important keys to successful marketing.

Why do you think an individual buys a product?

Need

Social Status

Gifting Purpose Why do you think an individual does not buy a product?

No requirement Income/Budget/Financial constraints

Taste When do you think consumers purchase products?

Festive season

Birthday Anniversary Marriage or other special occasions

A consumer searches for information which would help him in his purchase.

Following are the sources of information: Personal Sources Commercial Sources

Public Sources Personal Experience

The selective perception process Perception also plays an important role in influencing the buying decision of consumers.

Buying decisions of consumers also depend on the following factors: Messages, advertisements, promotional materials, a consumer goes through also called selective

exposure.

Not all promotional materials and advertisements excite a consumer. A consumer does not pay attention to everything he sees. He is interested in only what he wants to see. Such behaviour is called selective

attention. Consumer interpretation refers to how an individual perceives a particular message. A consumer would certainly buy something which appeals him the most. He would remember the most

relevant and meaningful message also called as selective retention. He would obviously not remember something which has nothing to do with his need.

The implications of this process help develop an effective promotional strategy, and select which sources of information are more effective for the brand.

Consumer Behaviour: Decision making process, External & Internal Influencers

Purchase Decision process

Consumer decision making involves several steps.

1. Problem recognition = perceiving a need Perceiving a difference between a person's ideal and actual situations (shortcomings) You realize that something is not as it should be. Perhaps, for example, your car is getting more difficult to

start and is not accelerating well.

2. Information search = seeking value

Internal search = memory of experiences with products or brands External search = if past experience or knowledge is insufficient = if risk of making a wrong decision is

high = if cost of gathering information is low personal sources - relatives, friends

public sources - product-rating organizations, publications, government agencies, TV programs, Internet

marketer dominated sources = ads, stores, salespeople, point-of-sale displays, Internet etc.

3. Evaluation of alternatives = assessing value = clarify the problem

determine criteria to use for the purchase

discover brand names that might meet these criteria develop consumer value perceptions

What are some alternative ways of solving the problem? You might buy a new car, buy a used car, take your car in for repair, ride the bus, ride a taxi, or ride a cycle to work.

4. Purchase decision = buying value Which alternative from the evoked set?

What product attributes from whom? Where (or who)? When to purchase?

5. Post purchase behaviour = value in consumption or use

consumer compares the product with expectations - satisfied/dissatisfied

Customer loyalty = repeat-purchase behaviour = satisfied buyers tend to buy from the same seller each time.

cognitive dissonance = the feeling of post purchase psychological tension or anxiety a consumer often experiences

Postpurchase communications and service - reassurance and congratulations on the purchase choice, toll-

free telephone numbers, liberal return and refund policies, trained staff to handle complaints and answer questions and record suggestions = relationship building (cf. CRM)

In reality, people may go back and forth between the stages. For example, a person may resume alternative identification during while evaluating already known alternatives.

Herd behavior in marketing is used to explain the dependencies of customers' mutual behavior. The basic idea is

that people will buy more of products that are seen to be popular.

Major Factors Influencing Buyer Behaviour

Cultural Factors Cultural factors exert the broadest and deepest

influence on consumer behavior. The roles played by

the buyers culture, sub culture and social class are particularly important.

Culture- Culture is the most fundamental

determinant of a person’s wants and behavior. The growing

child acquires a set of values, perceptions, preferences, and

behavior through his or hr family or other key

institutions. Sub-Culture- Sub-

culture includesnationalities, religions, racial groups, and geographical regions. Many sub-cultures make up

important market segments, and marketers often design marketing programs tailored to their needs. Social Class- Social classes are relatively homogenous and enduring divisions in a society, which are

hierarchically ordered and whose members share similar values, interests, and behavior. Social classes do not reflect income alone but also other indicators such as occupation, education, and area of residence.

Social Factors Reference Groups- A Person’s reference groups consist of all the groups that have a direct or indirect

influence on the person’s attitudes or behavior. Groups having direct influence on a person are called membership groups.

Family- The family is the most important consumer buying organization in society, and has been researched extensively. Family members constitute the most influential primary reference group.

Role And Statuses- A person’s position in each group that he participates throughout his life –family, clubs,

and organizations can be defined in terms of role and status. A role consist of activities that a person is expected to perform. Each role carries a status. Marketers are aware of the status symbol potential of products and brands.

Personal Factors

A buyer’s decisions are also influenced by personal characteristics. These include the buyer’s age & stage in the life cycle, occupation, economic circumstances, lifestyle, personality & self concept. Age & Stage In The Life Cycle- People buy different goods & services over their lifetime. They eat baby food

in the early years, most foods in the growing & mature years & special diets in the later years. People’s taste in clothes, furniture & recreation is also age related.

Occupation- A person’s occupation also influences his or her consumption pattern. Marketers try to identify the occupational groups that have above – average interest in their products and services. A company can even specialize its products for certain occupational groups.

Economic Circumstances- Product choices are greatly affected by one’s economic circumstances. Economic stability consist of their spend able income (its level, stability and time pattern), saving and assets (including the percentage that is liquid), debts , borrowing power, attitude toward spending versus saving.

Lifestyle- People coming from the same subculture, social class & occupation may lead quite different lifestyles. A person’s lifestyles the person’s pattern of living in the world as expressed in the persons activities,

interests & opinions. Personality And Self-Concept- Each person has a distinct personality that influences his or her buying

behavior. By personality, we mean a person’s distinguishing psychological characteristics that lead to relat ively

consistent and enduring responses to his or her environment. Personality can be a useful variable in analyzing consumer behavior, provided that personality type can be classified accurately and that strong correlations exist between certain personality types and product or brand choices.

Psychological Factors

A person’s buying choices are influenced by four major psychological factors-motivations, perception, learning, beliefs and attitudes. Motivation- A person has many needs at any given time. A need becomes motive when it is aroused to a

sufficient level of intensity. Motivational researchers hold that each product is capable of arousing a unique set of motive in consumers.

Learning- When people act they learn. Learning involves changes in an individual’s behavior arising from experience. Learning theory teaches marketers that they can build up demand for a product by associating it with strong drives, using motivating cues and providing positive reinforcement.

Perception- Perception is the process by which an individual selects, organizes, & interprets information inputs to create a meaningful picture of the world. A motivated person is ready to act. How the motivated person actually acts is influenced by his or her perception of the situation.

Beliefs & Attitudes- A belief is a descriptive thought that a person holds about something. Through doing & learning, people acquire beliefs & attitudes. These in turn influence their buying behavior. Particularly

important to global marketers is the fact that buyers often hold distinct disbeliefs about brands or products based on their country of origin. An attitude is person’s enduring favorable or unfavorable evaluations, emotional feelings, and action tendencies towards some object or idea. People have attitude toward almost

everything: religion, politics, clothes, music, food, and so on. Attitude put them into a frame of mind of liking or disliking an object , moving toward or away from it.

Consumer involvement will tend to vary

dramatically depending on the type of product. In general, consumer involvement will be higher for products that are very

expensive (e.g., a home, a car) or are highly significant in the consumer’s life in

some other way (e.g. acne medication). It is important to consider the consumer’s

motivation for buying products. To achieve this goal, we can use the Means-End chain,

wherein we consider a logical progression of consequences of product use that eventually lead to desired end benefit. Thus, for

example, a consumer may see that a car has a large engine, leading to fast acceleration, leading to a feeling of

performance, leading to a feeling of power, which ultimately improves the consumer’s self-esteem. In advertising, it is important to portray the desired end-states. Focusing on the large motor will do less good than portraying a

successful person driving the car.

A compensatory decision involves the consumer ―trading off‖ good and bad attributes of a product. For example, a car may have a low price and good gas mileage but slow acceleration. If the price is sufficiently inexpensive and gas efficient, the consumer may then select it over a car with better acceleration that costs more and uses more

gas. Occasionally, a decision will involve a non-compensatory strategy. For example, a parent may reject all soft drinks that contain artificial sweeteners. Here, other good features such as taste and low caloriescannot overcome this one ―non-negotiable‖ attribute.

The amount of effort a consumer puts into searching depends on a number of factors such as the market (how

many competitors are there, and how great are differences between brands expected to be?), product characteristics (how important is this product? How complex is the product? How obvious are indications of quality?), consumer characteristics (how interested is a consumer, generally, in analyzing product characteristics

and making the best possible deal?), and situational characteristics (as previously discussed).

Two interesting issues in decisions are: Variety seeking (where consumers seek to try new brands not because these brands are expected to be

―better‖ in any way, but rather because the consumer wants a ―change of pace,‖ and

“Impulse” purchases—unplanned buys. This represents a somewhat ―fuzzy‖ group. For example, a shopper may plan to buy vegetables but only decide in the store to actually buy broccoli and corn. Alternatively, a person may buy an item which is currently on sale, or one that he or she remembers that is needed only once

inside the store. A number of factors involve consumer choices. In some cases, consumers will be more motivated. For

example, one may be more careful choosing a gift for an in-law than when buying the same thing for one self. Some consumers are also more motivated to comparison shop for the best prices, while others are more convenience oriented. Personality impacts decisions. Some like variety more than others, and some are more

receptive to stimulation and excitement in trying new stores. Perception influences decisions. Some people, for example, can taste the difference between generic and name brand foods while many cannot. Selective perception occurs when a person is paying attention only to information of interest. For

example, when looking for a new car, the consumer may pay more attention to car ads than when this is not in the horizon. Some consumers are put off by perceived risk. Thus, many marketers offer a money back

guarantee. Consumers will tend to change their behavior through learning—e.g., they will avoid restaurants they have found to be crowded and will settle on brands that best meet their tastes. Consumers differ in the values they hold (e.g., some people are more committed to recycling than others who will not want to go

through the hassle).

Buying center

A buying center is a group of employees, family members, or members of any type of organization responsible

for finalizing major decisions, usually involving a purchase. In a business setting, major purchases typically require input from various parts of the organization, including finance, accounting, purchasing, information technology

management, and senior management. Highly technical purchases, such as information systems or production equipment, also require the expertise of technical specialists. In some cases the buying center is an informal ad

hoc group, but in other cases, it is a formally sanctioned group with specific mandates, criteria, and procedures. The employees that constitute the buying center will vary depending on the item being purchased.

In a generic sense, there are typically six roles within any buying

center. They are:

1. Initiator who suggests purchasing a product or

service. 2. Influencers who try to

affect the outcome decision with their opinions.

3. Deciders who have the final

decision.

4. Buyers who are responsible

for the contract.

5. End users of the item being purchased.

6. Gatekeepers who control the flow of information.