by A company can segment a market in many ways. Segmentation variables are the criteria that a company uses to segment its market. The criteria that a company chooses should be good predictors of differences in customer needs and the way they buy.
Three important segmentation variables to segment a consumer market are: Behavioural, Psychographic and Profile variables.
- Behavioural variables are the fundamental basis of segmentation of consumer markets. Behavioural variables include benefits sought from the product, and buying patterns such as frequency and volume of purchase.
- Increasingly, consumers with different personalities or lifestyles prefer different products and buy differently, and they need different marketing mixes to serve them effectively. A company uses psychographic variables when the buying behaviour of its customers is closely linked to their personality or lifestyle.
- After a company has identified the segments, it needs to describe them in terms of who they are and where they are located, i.e., it needs to profile them. Therefore, profiling is not a criteria for segmentation. Profile variables such as socio-economic group or geographic locations describe the customers of each segment.
For instance, after identifying a segment which likes powerful bikes, the bike company profiles the segment in terms of age and socio-economic group—the target customers belong to the age group of 18-25 years, are predominantly located in urban and metro cities of India, and are from the upper socio-economic class. Therefore, the idea is to identify and locate the customers in the target market, so that the company can reach them with its messages and products.
A company may not always follow the above sequence in segmenting its market. A company may identify profile variables first, and then identify segments on the basis of the chosen profile variables. It then checks if the identified segments show different buying behaviour.
For example, a company segments the market on the basis of income, and comes up with different segments low income group, medium income group and high income group. It then checks if the members of the three groups have different needs and buy differently, and whether such a difference, if any, warrants designing a new marketing mix for each of the groups.
Behavioural segmentation:
A company segments its market on the basis of the buying behaviour of customers. It tracks customer purchases to identify patterns of buyer behaviour, which it then uses to segment its market.
Benefits sought:
Customers may seek different benefits from a product. For example, customers may seek benefits of energy efficiency and rapid cooling in air conditioners. It is important that a company carries out benefit segmentation diligently, because a company exists only till it serves customer needs. It then profiles its segment in terms of age, income, and so on, so that the company can reach them easily.
A brand will position itself to serve a benefit or some combination of benefits, and therefore there are brands targeting each segment. A company that conducts benefit segmentation gets a comprehensive understanding of customers’ choice criteria. It then chooses choice criteria that it will serve, and designs a marketing mix to provide exaggerated performance on the chosen choice criteria.
For example, a company may choose to serve the segment which prefers rapid cooling. It designs an air conditioner which provides very rapid cooling, but which is not very energy efficient. Some companies choose to serve more than one choice criteria in the mistaken belief that all customers seeking the different choice criteria that the company is trying to fulfill, will buy the product.
But, it does not happen that way. In competitive markets, focused competitors excel in serving single choice criteria, and customers prefer products of such focused competitors because their products excel in the choice criteria that are important to them.
Purchase occasion:
A customer can buy a product to replenish a depleted stock or he can buy to take care of an emergency. A customer is less price sensitive when he buys to take care of an emergency. Products are also bought as gifts and their purchase is concentrated at festival times.
Therefore, manufacturers of such products should advertise mainly in the pre-festival period. They may make special offers and also create special package designs for such occasions.
Purchase behavior:
Customers exhibit different buying behaviour in terms of the time of their purchase relative to the launch of the product. When a company launches a new product, it has to identify the segment of innovators who would be willing to take the risk of buying the new product as soon as it is launched.
The initial communication is targeted at this segment of innovators, so it is important to know them and their sensibilities. Other segments will evaluate the product rigorously and wait for the feedback from innovators before they buy the product. Some other segments will buy only when the product is firmly established in the market and hence face no risk in buying it.
Brand loyalty:
Brand loyalty is an important basis for segmenting consumer markets. Some consumers buy only one brand in a product category, and hence are totally brand loyal. But, most consumers switch brands. Some consumers buy one particular brand at most times, but also buy other brands.
There are a large number of customers who do not have any brand preference, and they buy a brand depending on the concessions that it may be providing. And then there are variety seeking consumers who buy a different brand whenever they buy one.
A company profiles each group of customers, and selects one or more of them as its target market. It may also be that almost all types of groups are its customers, and it has to either discourage one or more groups to buy its products, or design separate marketing mix for each group.
It is difficult to believe that some consumers are inherently loyal and that they will continue to buy a brand even if they are dissatisfied with its performance. But there are definitely some consumers who, if satisfied with a brand’s performance, will continue to buy it.
Such customers should be a company’s most valuable customers and it should go out of its way to keep them satisfied. Weaker brands can try to lure ‘deal making’ and ‘variety seeking’ consumers by offering them concessions and exotic benefits respectively.
It is also important to remember that customers have become fickle in their brand choice because companies are forever trying to lure customers by deals rather than by the intrinsic worth of the brands that they sell.
In consumer durables market, there are three types of buyers: first time buyers, replacement buyers and switchers from other brands. Since there is a considerable time gap between two purchases, and also since the product is expensive, the replacement buyer and the switcher will evaluate the alternatives as rigorously as the first time buyer.
Therefore, it is important that consumer durable companies maintain the performance of their products and also keep advertising. It is also important that they keep their product technologically updated, because a replacement buyer will buy another brand if the brand that he is using, is now selling products which are technologically inferior to those of other brands.
Usage:
A company can segment its market on the basis of its consumers being heavy users, light users and nonusers. Most companies target heavy users and provide concessions to retain them. The result is that heavy consumers are expensive to serve.
Light users are not targeted by large companies, and hence small companies can more easily attract them and retain them. A company can target non-users without the fear of competitor retaliation, but it has to find out as to why the non-users are not using the product.
The company may have to make some changes in the product to make it useful to non-users, or it has to communicate articulately to make them aware of the usefulness of the product.
Perceptions and beliefs:
A customer’s behaviour is influenced by the perceptions and beliefs that he holds of issues and events.
A company can conduct perceptual segmentation by grouping customers who have similar views about a product, and it can conduct belief segmentation by grouping customers who have similar beliefs about a product. For instance, when iPod was launched, it appealed more to consumers who were passionate about their music and were also technology savvy.
In the early 90s, large number of Indian consumers held negative perceptions about microwave ovens. It was believed that since Indian food is rich in oil and spices, it cannot be cooked in a microwave oven, and that the waves emanating from inside were harmful to health.
But, there was a segment which was well aware of the functioning of microwave ovens, and how it enabled faster and healthier cooking of a large range of cuisines. This segment of aware and health-conscious customers adopted microwave ovens wholeheartedly. Therefore, marketers initially focused on the second segment.
Psychographic segmentation:
The psychological makeup of a customer is analysed to unearth deeper motivations for purchasing specific products or brands. The process often involves studying a customer’s values, opinions, activities and lifestyles. The idea is to establish patterns, which can be used as a basis for clustering similar customers.
Lifestyle:
A company groups people according to their way of living as reflected in their activities, interests and opinions. The company identifies groups of people with similar patterns of living.
The company that practices lifestyle segmentation relates a brand to a particular lifestyle. But, it is doubtful whether general lifestyle patterns are predictive of purchasing behaviour in specific markets.
Personality:
In some product categories like cars and garments, customers prefer brands which reflect their personalities. Therefore, companies have to endow their brands with values that are cherished by consumers of such products. There is a strong relationship between personality of the brand and personality of customers, when the brands that the customers select showcase their personal values.
In most categories of products, customers buy from a repertoire of brands, and hence there is considerable brand switching happening in most categories of products. But when brand choice is a reflection of self expression, with the brand making public an aspect of customers’ personality, customers would find it difficult to switch brands. Therefore, companies can lock-in customers by creating brands whose personality matches with the personality of the target market.
Segment profiling:
Once a company has identified its segments, it needs to profile them in terms of variables such as age, occupation, socio-economic status, place of residence, gender, etc. Profiling will help companies in identifying the segments and focusing their attention on them.
Demographic variables:
Age:
Age is used to segment many consumer markets, like food and clothing.
Gender:
Differing tastes and customs between men and women are reflected in specialist products aimed at these market segments.
Life cycle:
Disposable income and purchase requirement vary according to life cycle stage. Young couples without children may be a prime target for consumer durables, whereas couples with grown children may be prime target for education loans.
Presence of children and family responsibilities shape customers’ purchase priorities more than age, and therefore segmentation of consumer market by customers’ stage in life cycle leads to more valid segments.
The use of life cycle analysis to segment consumer markets gives a comprehensive understanding of customers’ changing requirements and priorities as they move through different life cycle stages.
Socio-economic variables:
Social class is a good predictor of what a customer buys and how he buys, even though many customers who have similar occupations live life differently and hence exhibit different buyer behaviour. A company can also use educational qualifications and income of customers to segment consumer markets, and when they are used together with customers’ occupation, the process yields more valid segments.
Geographic variables:
A customer’s place of residence also affects the products that he buys and how he buys. A customer’s eating and dressing habits are strongly influenced by the place he belongs to, and it continues to be a strong determinant of buyer behaviour even when he leaves his original place of residence.
Geographic segmentation is easy to carry out in terms of identifying the segments, but the segments have to be thoroughly studied to find their needs, and how they would like their needs to be served.
Both the geographic and demographic variables help a marketer to identify his segments more precisely.
