UNIT II MARKET SEGMENTATION

MARKET SEGMENTATION


Definition: Market segmentation is the process of dividing a total market into market groups consisting of people who have relatively similar product needs, taste, and preferences. The purpose is to design a marketing mix strategy that more precisely matches the needs of individuals in a selected market segment(s).


Benefits of Market Segmentation:



1) Helps organization to identify new marketing opportunities, as it better understands customer needs in each segment

2) Helps to build competency and establishes effective marketing systems

3) Optimizes return on investment in each segment

4) The organization fine tunes product and service offerings to the marketing appeals used for each segment.

5) Helps to gain competitive advantage


SEGMENTING CONSUMER MARKETS

Geographic Segmentation: Market can be divided into different geographical units such as nations, countries, regions, states, and cities. Companies may decide to operate in one or more geographical regions, or states. Today, most of the companies are customizing the products, advertising and promotion according to needs and wants of peoples.

Demographic Segmentation: The Market is divided into groups based on demographic variables such as age, gender, income, occupation, education, religion, race and nationality. It is the most popular bases for segmenting consumer markets, because consumer needs and wants vary with demographic factors.

Psychographic Segmentation: Market can be divided into different groups based on social class, life style, or personality characteristics.

Social class:- Lower class, middle class, and upper class

Life style:– achievers, survivors and strivers etc

Personality:– ambitious, adventurous

Behavioral Segmentation: This divides the market in to buyer groups based their knowledge, uses and attitudes towards products. Marketer believes that behavioral segmentation is the best bases for dividing the market into groups of buyers.

Usage rate: light, medium, heavy user

User Status: potential user, first time user, regular user

Attitude: positive, negative

Benefits: Quality, service, economy, convenience, speed

Occasion: Regular, occasional


SEGMENTING BUSINESS MARKETS

Business markets be segmented based on the variables used in consumer markets. Business markets can be segmented geographically, demographically or by benefits, user status, usage rate and loyalty status.

Demographic: Type of industry, Company size; Location

Based on operating variables: Technology, user/non user status

Purchasing approaches: centralized or decentralized

Purchase policies, and purchasing power structure

Situational factors: urgency, specific application, size of order

Personal characteristics: attitude towards risk, loyalty, buyer seller similarity

MARKET TARGETING

 

After a firm has identified its market segment opportunities, it must decide which ones to
target. Market targeting is the selection of a set of buyers sharing common needs orcharacteristics that the company decides to serve.



CRITERIA FOR EFFECTIVE SEGMENTATION

Measurable: The segment must be measurable in size and purchasing power of the members Accessible:The segment must be effectively served and reached
Actionable: Effective programs can be formulated for attracting and serving the segments Substantial: The segment should be large and profitable enough to serve
Differentiable: The segment should be distinguishable.

Approaches to selecting markets :



Undifferentiated Marketing Approach (Total Market Approach): It uses single marketing mix for the entire market. All consumers have similar needs for a specific kind of product (Homogeneous market). The company designs a product that appeals to a majority of buyers and relies on mass distribution and advertising.

Differentiated approach(Market segmentation): The firm operates in several market segments and designs different products for each segment.

2) Single segment concentration; involves concentrating in one market segment. The firm gains a strong knowledge of the segment’s needs and achieves a strong market presence. It may also enjoy operating economies through specializing its production, distribution and promotion. The disadvantage is that a competitor may invade the segment or customer’s tastes may change.

3) Selective specialization; the firm may select a number of attractive segments which are potentially profitable. Such a strategy has the advantage of diversifying a firm’s risks.

4) Product specialization; The firm makes a certain product which it sells to several segments e.g. a paper manufacturer who sells to schools, the government and commercial dealers.

5) Market specialization; the firm concentrates on serving many needs of a particular customer group e.g. a firm that sells an assortment of products only to hospitals.

6) Full market coverage; the firm attempts to serve all customer groups with the products they might need. A company can do this by covering a whole market in two broad ways:

POSITIONING:

 Definition: Positioning is the place the product occupies in the consumers minds relative to competing products.

Positioning involves implanting the brands unique benefits and differentiation in the market. Positioning is the way consumer defines a product on some important attributes. It is the complex set of perceptions, impressions and feelings that consumers hold for the product in comparison with competing products. Positioning helps to gain competitive advantage through differentiation.

POSITIONING METHODS/BASES:

Positioning on specific product feature or attribute:
Eg: Tide-as powerful detergent, Nirma-economy bar

Positioning based on Benefits, problem solution or needs:
Eg: Head & Shoulder shampoo- removes dandruff

Specific usage occasions or application:
Eg: vicks vaporub- for cold, Burnol-for cut wounds

User category:
Eg; Johnson & Johnson soaps, shampoos- for children

Against competition:
eg: pepsi vs coke

Price/quality:
Eg: Surf excel detergent powder – high price, high quality, Nirma detergent powder – low price, low quality

Steps In Market Positioning/positioning strategy:

1) Identifying competitive advantages
2) Selecting the right competitive advantage
3) Effectively communicating the chosen position

 

The steps are explained below;

 

1) Identifying competitive advantages:
A competitive advantage is an advantage over competitors gained by offering consumers greater value either through lower prices or by providing more benefits that justify higher prices. This can be achieved through various forms of differentiation.

Product differentiation; This is based on dimensions such as;

Product features not provided by competitors (e.g. safety features and design of Volvo)
Product performance e.g. cleaner, faster etc.
Style; such as the extra-ordinary look of the jaguar car, etc.
Product durability, reliability etc.
Service differentiation; (delivery, installation, repair, etc) i.e. differentiating the services
that accompany a product- gaining competitive advantage through speedy, reliable or careful delivery.
Personnel differentiation; gaining competitive advantage by hiring and training better people than competitors and by having customer- contact people who are competent in the following areas;
- possess the required skills & knowledge
-courteous, friendly and considerate
-understand customers, communicate clearly with them and respond quickly to customer
requests and problems.
Image differentiation; even when companies offer the same products and accompanying services, buyers may perceive a difference based on company or brand images established through a company’s public relations and social responsibility activities. This is common in the service industry.

2) Selecting the right competitive advantage
A company must decide how many differences to promote of its product or brands. It may aggressively promote only one or a combination of benefits to the target market. Each of the company’s brands may promote itself as “number one” on an attribute such as; Best price, best service, lowest price, best value, e.t.c. A competitive advantage on which the company bases its differentiation should have the following characteristics;

important; the difference should deliver an important benefit to target buyers.
Distinctive; competitors should not be offering the difference.
Superior; the difference should be superior to other alternatives.
Communicable.
Pre-emptive; competitors should not be able to easily copy the difference.
Affordable; buyers should afford to pay the difference.
Profitable.

3) Communicating and delivering the chosen position
The company must deliver and communicate the desired position to target consumers through the marketing mix. Hence a firm that desires to position on high quality must produce high quality products, charge a high price, distribute through high class dealers and advertise in high quality media



DEMAND MEASUREMENT:


Demand: Demand is the consumer willingness to purchase a product backed by purchasing power. The study of predicting or estimating the demand is called demand forecasting

 Market Demand:

•Market Demand for a product is the total volume that would be bought by a
•defined customer group in a
•defined geographical area in a
•defined time period in a
•defined marketing environment under a
•defined marketing program

Company Demand:

It is the company’s estimated share of market demand (at alternative levels of company marketing effort at a given time period).

Company Sales Forecast:

It is the expected level of company sales based on a chosen marketing plan and an assumed marketing environment.

Necessity for Demand Forecasting:

Accurate demand forecasting is essential for a firm to enable it to produce the required quantities at the right time and arrange well in advance for the various factors of production, viz., raw materials, equipment, machine accessories, labor, buildings, etc

 Benefits of short-term demand forecasting:

Appropriate production scheduling
Reduces cost of purchasing raw materials
Forecast financial requirements
Determining appropriate price policy
Setting sales targets and establishing controls and incentives
To plan sales force to achieve the sales targets
Evolving a suitable advertising and promotional campaign

Benefits of long term forecasting:

Planning of a new unit or expansion of an existing unit.
Planning long term financial requirements

ESTIMATING THE CURRENT DEMAND

Current demand can be estimated by the following ways:
1) Total Market Potential
2) Area Market Potential
3) Estimating industry sales market shares

1)Total Market Potential

The maximum amount of sales that would be available to all the firms in an industry in a given time period under a given level of industrial marketing efforts and environmental conditions.
OR
(Estimate the potential number of buyers and then eliminate the groups that will not buy the product)
TMP = Potential Number of buyers * Average Quantity Purchased by a buyer * The Price

2) Area Market Potential: For estimating area market potential, two methods are used.

a) Market Build Up Method: Identify all the potential buyers in each market and estimate their potential purchases.
Ex.Pumps
b) Multiple Factor Index Method: Customers for consumer products are numerous. Hence predicting demand will be a problem. Hence such companies use existing indices for various products, and estimates are made.

3) Estimating industry sales market shares
a) identifying competitors b) estimating their sales



SALES FORECAST:

A sales forecast is an estimate of the possible sales of a company’s brand or product in units or value terms, during a specific period, in a specific market under specific marketing plan and environment.


SALES FORECASTING METHODS:

Opinion of executives: it is the traditional method of sales forecast, in which one or more top executives forecast future sales based on personal knowledge and market information. But this method lacks validity.

Survey of Buyer’s Intentions: In this method, customers are requested to communicate their buying intentions for coming period. The method suitable for industrial products. Sales forecasts based on the method will be accurate if customers expectations are accurate.

Sales force composite method: sales forecasts are based on the estimates given by salesmen who are having direct contact with customers and also know future buying intentions about the products/services. The data given by the sales personnel is consolidated by sales manager. Some salesmen were too optimistic and too pessimistic about sales forecasts.

Sampling: sample results are used to make sales estimates. In this method, survey is conducted in selected geographic territory, and the resultant data related to the sample is extended to total population.

Time series analysis: This method is based on past sales data. In this method, sales forecast are made with mathematical formula with the help of past sales data. An analysis of seasonal, cyclical variations, sales trends, and irregular variations is to be done in projecting sales estimates.

Delphi Technique: This method is mainly used in making futuristic estimates. In this method, a group of experts are interviewed and their reactions and opinions are recorded. Final sales estimates were made based on the data.

Correlation Analysis: Correlation Analysis is done when there is close relationship exists between two variables. So this analysis is useful in making sales estimates of one variable based on the degree of relationship with other variable.

Eg: sales of petrol/diesel are related automobile sales.

Test marketing: A firm markets its product in a limited geographic area, measures sales, and then projects the company’s sales over a larger area.

Market-factor analysis: demand for a product is assumed to be related to the behaviorof certain sales activity.