MS. ARCHANA VIJAYMarketing Management – Module 3

TOPICS TO BE COVERED

Buyer Behavior Buying motives – Meaning, Factors influencing buying behavior Buying habits Diffusion of innovations Stages in buying decision process Organizational buying versus House hold buying Consumerism, Consumer Protection Act, 1986 – An introduction Segmentation : Meaning, Need, Factors influencing Segmentation Market Aggregation, Basis for segmentation, Segmentation of

Consumer/ Industrial markets Targeting : Basis for identifying target customers, Target Market

Strategies Positioning : Meaning, Product differentiation strategies, Errors in

positioning

BUYER BEHAVIOR

Consumer behavior is the study of how individuals, groups and organizations select, buy, use and dispose of goods, services, ideas or experiences to satisfy their needs and wants.

Eg. In order to overcome the problem of low involvement of the end customers in the purchase process of steel, Tata Steel launched an organized retail store “steel junction” in Kolkata.Houses a wide variety of products made from steel and has for distinct departments.Home construction and solution department – bathroom and door fittings, hardware items, lightings, locks, garden tools etc. A furniture department includes indigenous and imported steel furniture and kitchenware and lifestyle departments that have items like cutlery, jewelry and decorative pieces.Ambience of the shop encourages families and women to step in. Presence of a cafeteria and books, journals and magazines on various grades of steel and their usage.

Success of this unique initiative reflects the company’s ability to anticipate and respond to the changing preferences and lifestyles of customers.

FACTORS AFFECTING BUYER BEHAVIOR

Cultural Factors – Culture, subculture and social class are particularly important influences on consumer buying behavior.

Culture – Fundamental determinant of a person’s wants and behavior. The growing child acquires a set of values, perceptions, preferences and behaviors through his/her family and other key institutions.A child growing up in a traditional middle class family in India is exposed to the following values – respect and care for elders, honesty and integrity, hard work, achievement and success,and sacrifice.

Subcultures – Subcultures include nationalities, religions, racial groups and geographical regions.

Multicultural marketing reveals that different ethnic and demographic niches did not always respond favorably to mass –market advertising.

Social class – Relatively homogeneous divisions in a society, which are hierarchically ordered and whose members share similar values, interests and behavior.Socioeconomic classification uses a combination of the education and occupation of the chief wage earner of the household to classify buyers into 8 categories – A1, A2,B1, B2, C, D, E1, E2, with A1 signifying the highest purchase potential and E2 signifying the lowest. Social classes have several characteristics –

o Those within each class tend to behave more alike than persons from two different social classes. Social class differ in dress, speech patterns, recreational preferences and media preferences. Upper class preferring magazines and books and lower class preferring television.In TV, upper class tend to prefer dramas and news and lower class prefer soap operas and sports program.

o Persons are perceived as occupying superior and inferior positions according to social class.

o Indicated by a cluster of variables – occupation, income, wealth, education and value orientation.

o Individuals can move up or down the social class ladder during their lifetimes.

Social Factors – Reference groups, family and social role and statuses. Reference groups – All the groups that have a direct or indirect influence on

their attitudes or behavior.Groups having a direct influence are called membership groups.

o Primary Groups – Person interacts fairly continuously and informally, such as family, friends, neighbors and coworkers.

o Secondary Groups – More formal and require less continuous interaction, such as religious, professional and trade union groups.

o Aspirational groups – those a person hopes to join.o Dissociative groups – those whose values or behavior an individual rejects.

Reference groups influence members in at least three ways – • Expose an individual to new behaviors and lifestyles.• Influence attitudes and self concept.• Create pressures for conformity that may affect product and brand choices.An opinion leader is the person who offers informal advice or information about a

specific product or product category, such as which of several brands is best.

Family – Most important consumer buying organization in society, and family members constitute the most influential primary reference group. Two categories of families –

o Family of orientation – consists of parents and siblings.From parents a person acquires an orientation toward religion, politics, and economics, and a sense of personal ambition, self worth and love.

o Family of procreation – One’s spouse and children.More direct influence on everyday buying behavior.

Roles and Status – A role consists of the activities a person is expected to perform. Each role carries a status. People choose products that reflect and communicate their role and actual or desired status in society.

Personal Factors Age and Stage in the life cycle – Taste in food, clothes, furniture and

recreation is often age-related.Consumption is shaped by the family life cycle.Trends like delayed marriages, children migrating to distant cities or abroad for work leaving parents behind,tendency of working couple to acquire assets such as a house or an automobile in the early stages of career, has resulted in different opportunities for marketers at different stages in the consumer life cycle. Marketers should also consider life events like marriage, childbirth, illness, relocation, divorce, career change, widowhood as giving rise to new needs.

Occupation and economic circumstances – A blue collar worker will buy work clothes, work shoes and lunch boxes. A company president will buy dress suits, air travel and country club memberships.Product choice is greatly affected by economic circumstances : spendable income, savings and assets, debts, borrowing power and attitudes toward spending and saving. Luxury goods makers such as Gucci, Prada can be vulnerable to an economic downturn. If economic indicators point to a recession, marketers should reprice their products or increase the emphasis on discount brands.

Personality and Self-concept –Personality is a set of distinguishing human psychological traits that lead to relatively consistent and enduring responses to environmental stimuli.Brands also have personalities and consumers are likely to choose brands whose personalities match their own.Brand personality is the specific mix of human traits that we can attribute to a particular brand. Brand personalities has the following traits –

• Sincerity – (down to earth, honest , wholesome and cheerful)• Excitement – (daring, spirited, imaginative and up-to-date)• Competence – (reliable, intelligent and successful)• Sophistication – (upper-class and charming)• Ruggedness – (outdoorsy and tough)Levi’s – ruggedness, MTV – excitement, CNN – competence.

Consumers often choose and use brands that have a brand personality consistent with their own actual self concept(how we view ourselves), or customer’s ideal self-concept( how we would like to view ourselves)or on other’s self concept (how we think others see us). More pronounced for publicly consumed products than for privately consumed products.

Lifestyle and values – A lifestyle is a person’s pattern of living in the world as expressed in activities , interests and opinions.LOHAS – lifestyle of health and sustainability. Worry about the environment, wants products to be producesd on a sustainable basis and spend money to advance their personal health like organic food, energy efficient appliances, solar panels, alternative medicines, yoga tapes, and ecotourism.

Consumers can be – • Money constrained – Create low cost products and services.Eg . Walmart – Everyday low prices• Time constrained – Convenient products.

Consumer decisions are also influenced by core values, the belief systems that underlie attitudes and beliefs.

BUYING BEHAVIOR

Consumer decision making varies with the type of buying decision.Complex and expensive purchases are likely to involve more buyer deliberations and more participants. Henry Assael distinguished four types of consumer buying behavior based on the degree of buyer involvement and the degree of differences among brands.

Complex buying behavior – Consumers engage in complex buying behavior when they are highly involved in a purchase and aware of significant differences among brands.This is usually the case when the product is expensive, bought infrequently, risky and highly self-expressive. Involves a three step process – First the buyer develops beliefs about the product, second develops attitude about the product and third makes a thoughtful purchase choice. The marketer needs to differentiate the brand’s features, use print media to describe the brand’s benefits and motivate store sales personnel and the buyer’s acquaintances to influence the final brand choice.

For eg. Automobile, two-wheeler, consumer durable.

Complex Buying behaviorEg. Automobile,Two-wheeler, consumer durables

Variety-seeking buying behaviorEg. Chocolates, cookies

Dissonance-reducing buying behaviorEg. Carpet

Habitual buying behaviorEg. Salt

Significant differences between brands

Few differences between brands

High involvement

Low Involvement

Dissonance-reducing buying behavior – Sometimes the consumer is highly involved in a purchase but sees little difference in the brands. The high involvement is based on the fact that the purchase is expensive, infrequent and risky. In this case, the buyer will shop around to learn what is available but will buy fairly quickly, perhaps responding primarily to a good price or to purchase convenience. For example, carpet buying.After the purchase, the consumer might experience dissonance that stems from noticing certain disquieting features of the carpet or hearing favorable things about other carpets. In this eg. The consumer first acted, then acquired new beliefs, then ended up with a set of attitudes. Thus marketing communication should aim at supplying beliefs and evaluations that help the consumer feel good about his or her brand choice.

Habitual Buying Behavior – Many products are bought under conditions of low consumer involvement and the absence of significant brand differences.Consider salt.Consumers have little involvement in the product category . They go to the store and reach for the brand.If they keep reaching for the same brand, it is out of habit, not strong brand loyalty.It happens with most low-cost, frequently purchased products.Marketers find it effective to use ad repetition, price and sales promotion to stimulate product trial.

Variety-seeking buying behavior – Some buying situations are characterised by low consumer involvement but significant brand differences. Here consumers often do a lot of brand switching. Think about cookies. The consumer has some beliefs about cookies, chooses a brand of cookies without much evaluation, and evaluates the product during consumption. But next time, the consumer may reach for another brand out of boredom or a wish for a different taste.The marketer will try to encourage habitual buying behavior by dominating the shelf space, avoiding out of stock conditions, sponsoring frequent reminder advertising, offering lower prices, deals, coupons and free samples.

STAGES IN BUYING DECISION PROCESSProblem Recognition

Information search

Evaluation of alternatives

Purchase decision

Post-purchase behavior

Problem Recognition – The buying process starts when the buyer recognises a problem or need. The need can b triggered by internal or external stimuli. In the former case, one of the person’s normal needs – hunger, thirst rises to a threshold level and becomes a drive. In the latter case, a need is aroused by external stimulus. A person passing through a bakery and sees a freshly baked cake which stimulates her hunger. Marketer needs to identify the circumstances that trigger a particular need.

Information search - Two levels of involvement with search. The milder search state is called heightened attention. At this level person simply becomes more receptive to information about product.At the next level is active information search. The person looks for reading material, phones friends and engages in other activities to learn more about the product.

Consumer information sources fall into four groups : Personal sources – Family, friends, neighbors,

acquaintances. Commercial sources – Advertising, salespersons,

dealers, packaging, displays. Public sources – Mass media, consumer-rating

organizations. Experiential sources – Handling, examining, using

the product.The consumer receives the most information about

a product from commercial sources. But the most effective information comes from personal sources.Commercial information normally performs an informing function and personal sources perform an evaluation function

Search Dynamics –

III. Evaluation of alternatives – There is no simple and single evaluation process used by all consumers or by one consumer in all buying situations.

Basic concepts to understand consumer evaluation process – The consumer is trying to satisfy a need. The consumer is looking for certain benefits from the product solution. The consumer sees each product as a bundle of attributes with varying

abilities of delivering the benefits sought to satisfy this need.Attributes of interest to buyers vary by product :Hotels – location, cleanliness, atmosphere, price.Mouthwash – Color, effectiveness, taste, germ killing capacity.

(Total set) of brands

available to the consumer

(Awareness set) Consumer will come to know

only a subset of these brands

(Consideration set) Brands

meeting initial

buying criteria

(Choice set) Strong

contenders

Decision

Beliefs and Attitudes -The consumer develops a set of brand beliefs about where each brand stands on each attribute. The set of beliefs about a brand make up the brand image.Through experience and learning, people acquire beliefs and attitudes which influence buying behavior.

A belief is a descriptive thought that a person holds about something. Attitudes are person’s favorable on unfavorable evaluations, emotional feelings

and action tendencies toward some object or idea.Consumer’s liking or disliking an object is directed by attitude.

For eg, NECC through its “ SUNDAY HO YA MONDAY, ROZ KHAO ANDE changed the belief of the consumer towards egg consumption on a daily basis.

Expectancy Value Model – It can be calculated by multiplying the weight attached to each of the shortlisted attribute (in percentage) by beliefs about each brand’s attributes.

Customer’s perceived value for each brand = Weight of the attribute x Beliefs about each brand’s attribute

IV. Purchase Decision – The consumer forms preferences among the brands in the choice set. The consumer may also form an intention to buy the most preferred brand. Two factors can intervene between the purchase intention and the purchase decision.

Evaluation of

alternatives

Purchase intention

Attitudes of others

Unanticipated situational

factors

Purchase decision

Intervening Factors –

Role of infomediaries – Like product testing report, reviews of movies, books, chat rooms, letter to editors etc.

Anticipated situational factors – Expected family income, expected total cost of the product, expected benefits of the product.

Unanticipated situational factors – Accidents, illness, losing a job, some other purchase might becomes important.

Attitudes of others

Intensity of other person’s negative attitude towards our

preferred alternative

Our motivation to comply with the person’s wishes

Five purchase subdecisions – Brand decision Vendor decision Quantity decision Timing decision Payment method decision V. Post purchase behavior – The marketer’s job does not end

when the product is bought but continues into the postpurchase period.

Postpurchase satisfaction – The buyer’s satisfaction is a function of the closeness between the buyer’s product expectations and the product’s perceived performance.If the product’s performance falls short of customer expectations, the customer is disappointed; if it meets expectations, the customer is satisfied; if it exceeds expectations, the customer is delighted.

Postpurchase actions – The consumer’s satisfaction or dissatisfaction with the product will influence subsequent behavior.If the consumer is satisfied, he or she will exhibit a higher probability of purchasing the product again.The satisfied customer will also tend to say good things about the brand to others.Marketers say: “ Our best advertisement is a satisfied customer.”

Dissatisfied customers may return the product or ,may seek information that confirms its high value.They may take public action such as by complaining to the company, going to a lawyer or by complaining to govt. agencies.

Companies should undertake CRM programs to build a long term brand loyalty.

Postpurchase use and disposal – Marketers should study the product consumption rate- the more quickly buyers consume the product, the sooner they will repurchase it.Consumers overestimate product’s life and fail to replace products soon.Tie the act of replacing to a certain event.

Provide customers with better information about either – i) when they first use the product or need to replace it. Ii) its current level of performance.

Batteries have built-in gauges to show how much power is left.Brushes have color indicators to indicate when the bristles are worn.

BUYING ROLES

Initiator – A person who first suggests or thinks of the idea of buying the product.

Influencer – Person whose view or advice influences the decision.

Decider – Decides on any component of a buying decision – whether to buy, what to buy, how to buy and where to buy.

Buyer – who makes the actual purchase. User – who consumes or uses the product or

service.

ORGANIZATIONAL BUYING

Decision making process by which formal organizations establish the need for purchased products and services and identify, evaluate and choose among alternative brands and suppliers.

Organizational buying Vs. Household BuyingThe business market consists of all the organizations that acquire goods and services used

in the production of other products and services that are sold, rented or supplied to others. Major industries are agriculture, forestry and fisheries, mining, manufacturing, transportation, communication, banking, insurance, finance and distribution.

Business markets have several characteristics that contrast sharply with consumer markets.

Fewer buyers – The business market normally deals with far fewer and much larger buyers. MRF, Bridgestone tire company’s fate depends on handful of major automobile manufacturing companies.

Larger buyers – Many business markets are characterised by a high buyer concentration ratio. A few large buyers do most of the purchasing in such industries as aircraft engines and defense weapons.

Close supplier-customer relationship –Because of the smaller customer base and the importance and power of the large customers, we observe close relationships between customers and suppliers in business markets. Suppliers are frequently expected to customize their offerings to individual business customer needs. For eg. Honda developed a mini-reengineering program aimed at strengthening its suppliers.Hotel Le Meridien offers special discounted price for its business clients.

Professional purchasing – Business goods are purchased by trained purchasing agents who must follow the organization’s purchasing policies, constraints and requirements. They want more technical data and product’s advantages over competitor’s products. Requests for quotations, proposals and purchase contracts are not seen in consumer buying.

Multiple buying influences – More people typically influence business buying decisions. Buying committees consisting of technical experts and senior management are common in the purchase of major goods. Business marketers have to send well-trained sales representatives to deal with the well trained buyers.

Multiple sales calls – It is being observed that almost four to four and a half sales calls are there to close an average industrial deal.

Derived Demand – The demand for business goods is ultimately derived from the demand for consumer goods. Thus animal hides are purchased because consumers want to buy shoes, purses and other leather goods. Boom in construction industry due to investments in housing sector lead to drive the demand for cement and steel.

Inelastic demand – The total demand for many business goods and services is inelastic – that is, not much affected by price changes. Shoe manufacturers are not going to buy much more leather if the price of leather falls. Nor are they going to buy much less leather if the price of leather rises.It is also inelastic for business goods that represent a small percentage of the item’s total cost. For eg. Shoe laces.

Fluctuating Demand – The demand for business goods and services tends to be more volatile than the demand for consumer goods and services. A given percentage increase in consumer demand can lead to a much larger percentage increase in the demand for plant and equipment necessary to manufacture.

Geographically concentrated buyers – Most of the business buyers are concentrated in specific regions of different states. Hosiery industry in and around Coimbatore, Diamond cutting and polishing ind. In Surat, Automobile in Pune and Chennai, Pharmaceutical near Ahemdabad. It helps to reduce selling cost.

Direct Purchasing – Business buyer often buy directly from manufacturers rather than through intermediaries.

PARTICIPANTS IN THE BUYING PROCESS Initiator Influencers Deciders Approvers – People who authorize the proposed

actions of buyers or deciders. Buyers Users Gatekeepers – People who have the power to

prevent sellers or information from reaching members of the buying centre.eg. Receptionists and Telephone operators

STAGES IN THE BUSINESS BUYING PROCESS

Problem Recognition – Triggered by external or internal stimuli.Internal stimuli – Machine breakdown and needs new parts, develop a new product and new equipment and materials.Externally the buyer may get new ideas at a trade show, see an ad or receive a call from a sales representative.

General need description and product specifications – The buyer determines the needed item’s general characteristics and required quantity.

Supplier search – Buyer next tries to identify the most appropriate suppliers through trade directories, contacts with other companies, trade advertisements, trade shows and the internet.

Proposal solicitation – Buyer next invites qualified suppliers to submit proposals. If the item is complex or expensive, the buyer will require a detailed written proposals from each qualified supplier. After evaluating the proposals , the buyer will invite a few suppliers to make formal presentations.

Supplier selection – Before selecting a supplier, the buyer centre will specify desired supplier attributes and indicate their relative importance. To rate and identify the most attractive suppliers, buying centers often use a supplier –evaluation model.

Order- Routine specification – After selecting suppliers, the buyer negotiates the final order, listing the technical specifications, the quantity needed, the expected time of delivery, return policies, warranties and so on.

Performance Review – Buyer periodically reviews the performance of the chosen supplier using one of the methods. The buyer may contact the end users and ask for their evaluations,the buyer may rate the supplier on several criteria using a weighted score method.

MODEL OF CONSUMER BEHAVIOR

Marketing stimuli

ProductPrice

Distribution Communication

Other stimuli

EconomicTechnologica

lPoliticalCultural

Consumer Psychology

MotivationPerceptionLearningMemory

Consumer characteristic

s

CulturalSocial

Personal

Buying Decision Process

Problem Recogniti

onInformation searchEvaluatio

n of alternativ

esPurchase decision

Post purchase decision

Purchase decision

Product choiceBrand choice

Dealer choice, Purchase amount, Purchase timing,

Payment method

KEY PSYCHOLOGICAL PROCESSES (PSYCHOLOGICAL FACTORS)

Four psychological processes – Motivation, Perception, Learning and Memory fundamentally influence consumer responses.

Motivation – Freud’s Theory of Motivation Freud assumed that the real psychological forces shaping people’s

behavior are largely unconscious. Thus a person cannot fully understand his or her own motivations. If a person wants to purchase a laptop, she may describe her motive as wanting to work more efficiently when travelling. At a deeper level she may be purchasing a laptop to impress others.At a still deeper level, she may be buying the laptop because it helps her feel smart and sophisticated.

Buyer reacts not only to the product’s stated capabilities but also to less conscious cues. Each computer’s shape,size, weight, material, color and brand name can all trigger certain associations and emotions that could stimulate or inhibit purchase.

MASLOW’S THEORY OF MOTIVATION

Abraham Maslow sought to explain why people are driven by particular needs at particular times. According to Maslow, human needs are arranged in a hierarchy, from the most pressing to the least pressing. In their order of importance, they are physiological needs, safety needs, social needs, esteem needs and self actualization needs. People will try to satisfy their most important needs first. When a person succeeds in satisfying an important need, that need will cease being a current motivator, and the person will try to satisfy the next-most important need. For example, a starving man (need 1) will not take an interest in Yoga, Meditation (need 5), nor in how he is viewed by others (need 3 or 4), nor even in whether he is breathing clean air (need 2), But when he has enough food and water, the next most important need will become salient.

MASLOW’S HIERARCHY OF NEEDS

11

5. Self – actualization needs (self-development and realization)

4. Esteem needs (self-esteem, recognition, status

3. Social needs (sense of belonging, love)

2. Safety needs (security, protection)

1. Physiological needs (food, water, shelter)

Herzberg’s Theory of Motivation – Developed a two factor theory of motivation that distinguishes dissatisfiers (factors that cause dissatisfaction) and satisfiers (factors that cause satisfaction).

Absence of dissatisfiers is not enough, rather satisfiers must be actively present to motivate a purchase.

Laptop that does not come with warranty would be a dissatisfier. But the presence of warranty would not act as a satisfier as it is not a source of intrinsic satisfaction. Ease of use would be a satisfier.

Absence of dissatisfiers will not sell the product but easily unsell it. Presence of satisfiers will make major difference as to which product the customer buy.

PERCEPTION

A motivated person is ready to act. How he or she acts is influenced by his or her view of the situation.

Perception is the process by which we select, organize and interpret information inputs to create a meaningful picture of the world.Perception depends not only on the physical stimuli but also on the stimuli’s relationship to the surrounding field and on conditions within the individual. Perception affects consumer’s actual behavior.

Selective Attention – People exposed to 150 ads a day. Screen most stimuli out and pay attention to only few – selective attention. Marketers must work hard to attract consumer’s notice.

Selective Distortion – Tendency to interpret information in a way that fits our preconceptions. Often distorts information to be consistent with prior brand and product beliefs and expectations.

Work to the advantage of strong brands when consumers distort neutral/ambiguous brand information to make it more positive.

Selective Retention – Don’t remember much of the information to which we are exposed , but do retain information that supports our attitudes and beliefs . Likely to remember good points about a product we like and forget good points about competitor’s products. Advantage to strong brands.

LEARNING

When we act, we learn. Learning involves changes in our behavior arising from experience.Most

human behavior is learned, much learning is incidental. Learning is produced through the interplay of drives, stimuli, cues, responses and reinforcement.

A drive is a strong internal stimulus impelling action. Cues are minor stimuli that determine when, where and how a person responds.

A person buys HP computer and her experience is rewarding. Later on when she buys a printer, she purchases NP printer only assuming that as HP makes good computers. It also makes good printers also.( Generalize the response to similar stimuli.)

But if she buys IBM printer, assuming that it is light weight, then is discrimination. Discrimination means learning to recognize differences in sets of similar stimuli and adjusting our responses accordingly.

A new company appealing to the same drives that competitors use and proviide similar cues.(Generalization) or design its brands to appeal to a different set of drives and offer strong cue inducements to switch. (Discrimination.)

MEMORY

All the information and experiences we encounter, as we go through life can end up in our long term memory.

Short term memory – Temporary and Limited repository of information.

Long Term memory – Permanent, unlimited repository of information.Associative network Memory Model views LTM as a set of nodes and

links. Nodes are stored information connected by links. Any type of information can be stored including verbal, visual, abstract and contextual.

Consumer brand knowledge stores as a node in memory with a variety of linked associations. Brand information consists of all brand related thoughts, feelings, perceptions, images, experiences, beliefs, attitudes that become linked to the brand node.

SEGMENTATION

Segmentation is the process of dividing a market into distinct subgroups of consumers with distinct needs, characteristics or behavior, who might require separate products or marketing mixes.

Need for SegmentationIf all consumers were alike and had the same education, background and experience, mass marketing

would be a logical strategy. Companies cannot appeal to all buyers in the market or at least not to all buyers in the same way. Consumers are too numerous, too widely scattered and too varied in their needs and buying

practices. Companies vary widely in their abilities to serve different segments of the market. Strategy of segmentation allows companies to avoid head-on competition in the market by

differentiating their product offering, not only on the basis of price but also through styling, packaging, promotional appeal, distribution methods and superior service.

Eg. Coca Cola – Bottles of various sizes and cans and with different ingredients like Diet coke.

Air Deccan..Initially Indian Airlines had a monopoly in Airlines industry. But low cost airlines like Air Deccan, GoAir,

Indigo revolutionized the sector. 30-70% lower than full fare airlines and marginally higher than second class AC train fares. Train passengers upgraded to Air Deccan.No longer the luxury of business executives. No frills service. Save on ticketing cost- only through Internet, avoids commission. Focus on price sensitive and less service sensitive customers.

LEVELS OF MARKET SEGMENTATIONMass Marketin

g

Seller engages in mass

production, mass distribution, and mass

promotion of one product for all

buyers.eg – Coca Cola –

Coke – 6-5 ounce bottle

Segment Marketing

Consists of a group

of customers who share a similar

set of needs and

wants. Can offer

better price, design

and can fine tune

the marketing activities.

Eg. Air Deccan

Niche Marketing

More narrowly defined

customer group

seeking a distinctive

mix of benefits. Eg. Nisha under the

brand name

Revolution introduced trendya nd fashionable clothes

for oversized women..

Local Marketing

Tailored to the needs

and wants of local

customer groups in trading areas,

neighbourhoods and

even individual

stores.Eg. Bharat Matrimony 15 regional websites such as

bengalimatrimony.com,

punjabimatrimony.com

Individual marketing

Designing the

product and

service offerings

of individual choices.Eg. Asian Paints-Mix

desired quantities and colors

of their own

choice as per the

requirements.

BASES FOR SEGMENTATION

Geographic Segmentation –Dividing the market into different geographical units such as nations, states,regions, countries, cities or neighborhoods.

Rural and urban markets – Difference in literacy levels, income, spending power and availability of infrastructure such as electricity, telephone network and roads.

Product requirements – Arid regions – Desert coolers, Humid regions – Air Conditioners.

Food Habits – South India freshly brewed coffee. Other states – Tea.

Countries – Asian, Asia Pacific, Europeon, AmericanRegion – South India, Western Region, North East.City – Class I, Class II, MetroClimate – Arid, Humid.Rural and semi urban areas.

DEMOGRAPHIC SEGMENTATION

Age – Under 6, 6-11, 12-19, 20-34, 35-49,50-60, 60+. Family Size – Young, Single, Two Member family, Married no children, Married

two children. Family Life Cycle – Bachelorhood, Young Married couple, Grown up children

not living with parents, Grown up children dependent upon parents, Older and single people.

Gender – Male, Female. Education – Illiterates, high school dropouts, high school passouts, degree

holders, professional degree holders. Religion – Hindu, Muslim, Sikh, Christians. Nationalty – Indian, American, Pakistani. Income – upto 40000 pm, 40-80000, 80-120000, 120000-160000, above

160000. Occupation – Farmers, Salaried class, Businessman, Retired, Students,

Unemployed and professionals. Social Class – Lower, Upper – lower, Middle class, Upper Middle Class,

Lower upper class, High upper class.

EXAMPLES OF BUYING BEHAVIOR OF DIFFERENT SEGMENTS Age and life cycle stage – Johnsons and Johnsons Baby soap and Talcum Powder. HUL – Pink Pears for childrenMagazine Magic Pot – for children(joining dots, finding hidden animal by coloring picture.)Just Another Magazine – Young adults(Music, Bollywood films, lifestyle activities.Aastha, Sanskar Channel – old generationCartoon Network, POGO – ChildrenMTV – Youngsters.

Life stage – Getting married – Furniture, Kitchen appliances, cooking gas connection. Savings cum Insurance schemes – Young parents planning for the education of their

children.

Gender – Men – Read product information, Women – Relate product on a personal level. Eg Park Avenue – Men’s apparel (Masculine Brand) launched women’s apparel under a separate brand name Be. Emami – Fair and Handsome (Men)

Women – Food , groceries, Household items. Men – Electronic items

Income – Nirma Washing Powder – Lowest priced Detergent targeted at the middle income segment. Value for money, focus on middle class family.

Detergents, shampoo, hair oil in sachets with low unit prices for one time consumption in rural areas.

Generation – Share same major cultural, political, and economic experiences and have similar outlooks and values. Younger generation – Initiator and Influencer not as consumers. Children are major target audience for marketer’s communication efforts.

Social class - Different social classes have different purchase preferences in cars, clothing, home furnishings, leisure activities, reading habits and retailers.

PSYCHOGRAPHIC SEGMENTATION

Science of using psychology and demographics to better understand consumers.In psychographic segmentation, buyers are divided into different groups on the basis of lifestyle and/or personality.Common lifestyle dimensions are Activities, Interests and Opinions

Money – constrained – Low cost Airlines Time constrained – Maggi, Top Ramen (Fast

to cook)

METHOD OF PSYCHOGRAPHIC STUDY (AIO FRAMEWORK)

Activites

WorkHobbies

Social EventsVacations

EntertainmentClubs

CommunityShopping

Sports

Interests

Family Home

JobCommunityRecreation

FashionFoodMedia

Achievements

Opinions

ThemselvesSocial Issues

PoliticsBusiness

EconomicsEducationProductsFutureCulture

VALS (VALUES AND LIFESTYLE MODEL FOR PSYCHOGRAPHIC STUDY) FRAMEWORK

Classifies adults into 8 typologies based on their resources – People with higher resources :1. Innovators – Successful, sophisticated, active, high self esteem.

Buy relatively upmarket and niche products as they have plenty of resources and accept new innovations faster.eg. Ferrari

2. Thinkers – Mature, satisfied and are often motivated by values, ideals. Choose durable and functional products.eg. Honda City

3. Achievers – Successful and are always goal oriented. Focus on career and family. Favor premium and high priced products. Eg. Volkswagen Beetle

4. Experiencers – Young, enthusiastic, impulsive, look for excitement and variety in life. Eg. Volkswagen Polo.

VALS FRAMEWORK

Actualizers

Strugglers

Fulfilleds

Experiencers

Believers

Makers

High Resources

Low Resources

Achievers

Strivers

Groups with low resources – Believers – Conservative, conventional and Traditional.

Favor popular and familiar products and are loyal to many brands.eg. Maruti

Strivers – Trendy and fun loving. Limited resources and favor stylish products. Eg. Nano

Makers – Political, down to earth and self sufficient. Nationalistc. Eg. Indica

Survivors – Elderly, passive and concerned about change. Loyal to age old brands. Eg. Ambassador

BEHAVIORAL SEGMANTATION

Buying roles- At the time of purchasing medicines, patient is the initiator, doctor is influencer, pharmacist is the decider, patient’s relative is the buyer and patient is the user.Therefore, medical representatives target only doctors and pharmacists.

Behavioral Variables-1. Occasions – Buyers can be distinguished according to the occasions they

develop a need, purchase a product or use a product.For eg. Air travel is triggered by occasions related to business, vacation or family.Archies and Hallmark make cards for different occasions.

2. Benefits – Classifying buyers according to the benefits they seek from the product. For eg. Benefits derived from the travel uncovered three major market segments; those who travel to get away and be with family, those who travel for adventure and educational purposes, and people who enjoy the gambling and fun aspects of travelling.

Shampoo – cleansing of hair, conditioning effects, medicinal properties and suitability to hair types.

3. User status – Market can be segmented into group of nonusers, ex-users, potential users, first-time users and regular users of a product.

4. Usage rate – Markets can be segmented into light, medium and heavy product users. Heavy users are often a small percentage of the market but account for a high percentage of total consumption.

5. Loyalty status – A market can be segmented by consumer loyalty patterns. Hard –core loyals – Consumers who buy one brand all the time. Split loyals – Consumers who are loyal to two or three brands. Shifting loyals – Consumers who shift from favoring one brand to another. Switchers – Consumers who show no loyalty to any brand.

6. Buyer-Readiness stage – A market consists of people in different stages of readiness to buy a product. Some are unaware of the product, some are aware, some are informed, some are interested, some desire the product and some intend to buy.

7. Attitude – Five attitude groups can be found in a market – enthusiastic, positive, indifferent, negative and hostile.

EXAMPLE OF MARKET SEGMENTATIONRefrigerator –Geographical – South India, North , East ,WestSize – 65 Lts, 90, 165, 280, 300.Nature – Household, Industrial.

Degree of Aggregation of Segments :Segment the market at different market levels :Corporate Level ABC LtdDivision Level Tools ElectronicsTerritory Level North SouthMarket Level Calculators Home Computers Product Level Business ScientificCustomer Level Wholesaler RetailerSize of order Large Small

BASES FOR SEGMENTING BUSINESS MARKETS

Major segmentation variables for business markets-Demographic 1. Industry – Which industry should we serve?2. Company size – What size companies should we serve?3. Location – Which geographical areas should we serve?

Operating Variables4. Technology – What consumer technologies should we focus on?5. User or non user status – Should we serve heavy users, medium users,

light users or non users?6. Customer capabilities – Should we serve customers needing many or few

services?

Purchasing Approaches 7. Power structure – Should we serve companies that are engineering

dominated, financially dominated and so forth?

8. Nature of existing relationships – Should we serve companeswith which we have strong relationships or simply go after the most desirable companies?

9. General purchase policies – Should we serve companies that prefer leasing/service contracts/systems purchases or bidding?

10. Purchasing criteria –Should we serve companies that are seeking quality or service or price?

Situational factors11. Urgency – Should we serve companies that need quick and sudden delivery or

service?12. Specific applications – Should we focus on certain applications of our product rather

than all applications?13. Size of order – Should we focus on large or small orders?

Personal Characteristics 14. Buyer-seller similarity – Should we serve companies whose people and value are

similar to ours?15. Attitudes toward risk – Should we serve risk taking or risk-avoiding customers?16. Loyalty – Should we serve companies that show high loyalty to their suppliers?

Business segments based on their stage in the purchase decision process –

1. First time prospects – Customers who have not yet purchased. They want to buy from a salesperson or vendor who understands their business, who explains things well and whom they can trust.

2. Novices – Customers who have already purchased the product. They want easy-to-read manuals, hot lines, a high level of training and knowledgeable sales reps.

3. Sophisticates – Customers who want speed in maintenance and repair, product customization and high technical support.

Based on price and service sensitivity, organizational buyers can be divided into four segments –

1. Programmed buyers – Buyers who view the product as not very important to their operation. They buy it as a routine purchase tem, usually paying full price and receiving below-average service.

2. Relationship buyers – Buyers who regard the product as moderately important and are knowledgeable about company offerings. They get a small discount and a modest amount of service.

3. Transaction buyers – Buyers who see the product as very important to their operations. They are price and service-sensitive.They receive about a 10% discount and above-average service. Ready to switch for a better price.

4. Bargain hunters – Buyers who see the product as very important and demand the deepest discounts and the highest service.They know the alternative suppliers, bargain hard, and are ready to switch at the slightest dissatisfaction.

APPROACHES TO MARKET SEGMENTATION

Segmentation Analysis

Consumer Characteristics

(Personal segment basis)

Consumer Responses (Product related basis)

Geographic

DemographicSocio

economic

Psychographic

Benefit (Quality. Service,

Economy, Speed)

Usage, Occasio

nLoyalty

EFFECTIVE SEGMENTATION CRITERIA

Measurable – Size, Purchasing power and characteristics of the segments can be measured.

Substantial – Large and potential enough to serve. Accessible – Effectively reached and served. Differentiable – Conceptually distinguishable and

respond differently to different marketing mix elements and programs.

Actionable – Effective program can be formulated for attracting and serving the segments.

STEPS IN SEGMENTATON PROCESS

Form the segments – Two approaches are being used :1. Build-up approach – Several small similar segments are built up to

form a single segment.2. Break-down approach – One large segment is broken down into

several small segments.

Profile segments – Obtains detailed buyer profile information for each segment of interest.

Evaluate the segment – Evaluate profit contribution expected from each segment.

Profit = Demand of each customer x No. of customers

Select Target Market – The most profitable target market is then selected.

BASIS FOR IDENTIFYING TARGET MARKETS Segment’s overall attractiveness – A potential

segment should have the characteristics that make it generally attractive such as size, growth, profitability, scale economies, low risk and so on.

Company’s objectives and resources – Investing in the firm makes sense given the firm’s objectives and resources. Some attractive segments could be dismissed because they do not mesh with the company’s long run objectives.Even if the segment fits the company’s objectives, the company must consider whether it possesses the skills and resources it needs to succeed in that segment.

TARGET MARKET STRATEGIES

Single-segment concentration – The company selects a single segment and manufactures single product for it.eg. Mahindra and Mahindra manufactures tractors for agricultural market segment. Zodiac manufactures formal shirts for executives and professionals.

P1 M1

M2 M3

P2

P3

Selective specialization – Here the firm selects a number of segments, each objectively attractive and appropriate, given the firm’s objectives and resources. Eg. Nike manufactures shoes for running, cycling,golf aerobics etc. Radio broadcasters by having two different stations in the same market.Radio Mirchi 94.3 and 98.3.P1 M1 M2M2M2 MMM3

P2

P3

Market specialization – Concentrate on serving many needs of a particular customer group.An example would be a firm that sells an assortment of stationary products for university like markers, papers, white boards, pens etc.

P1 M1 M2 M3

P2

P3

Product Specialization – Here the firm concentrates on making a certain product that it sells to several segments.An example would be a microscope manufacturer that sells microscopes to university laboratories, government laboratories and commercial laboratories.P1 M1 M2 M3

P2

P3

Full Market coverage – Here a firm attempts to serve all customer groups with all the products that they might need.

Undifferentiated Marketing – The firm ignores market segment differences and goes after the whole market with one market offer. Eg. Coca cola’s early marketing of only one drink in one bottle size in one taste to suit everyone.

Differentiated Marketing – The firm operates in several market segments and designs different products for each segment. Eg. GM produces a car for every purse, purpose and personality.P1 M1 M2 M3

P2

P3

Points of Difference – Attributes or benefits consumers strongly associate with a brand, positively evaluate and believe they could not find to the same extent with a competitive brand. Eg. Apple – Design

Nike – Performance

Points of Parity – Associations that are not necessarily unique to the brand but may in fact be shared with other brands. Eg. All the travel agents are supposed to make air and hotel reservations, provide advice about leisure packages and offer various ticket payment and delivery options.

PRODUCT DIFFERENTIATION

Features – Characteristics that supplement the product’s basic function.Companies can create additional versions by adding extra features.

Success of Japanese companies is due to continuous enhancement of the features in their watches, cameras, automobiles calculators and VCRs.

Performance – Level at which the product’s primary characteristics operate.High quality leads to high profitability due to repeat purchasing, consumer loyalty and

positive word of mouth publicity.eg. P&G is known for high quality products.

Conformace Quality – Degree to which all the produced units are identical and meet the promised target specifications.

Japanese manufacturers are known for high quality reputation due to products have high conformance quality.

Low conformance quality – Fail to deliver its promise to many buyers who will be disappointed.

Durability – Measure of the product’s expected operating life under natural or stressful conditions Buyers pay more for durable products. Product must not be subject to obsolescence like wrist watches. Durability is not to be seen in PCs or clothes.

Reliability – Measure of the probability that a product will not malfunction or fail within a specified time period.eg. Kitchen appliances and electronic appliances.

Repairability – Measure of the ease of fixing a product that malfunctions or fails. Eg. Tata Indicom tries to solve the problem over phone before sending service technician.

Style – Product’s looks and feel to the buyer. Eg. Packaging of food products, cosmetics and small consumer appliances.

Design – Totality of features that affect how a product looks and functions in terms of customer requirements. Eg. Tupperware.

Service Differentiation – Dominos 30 minutes

Personnel Differentiation – IBM – Professional, McDonalds – courteous

Channel Differentiation –Fiama di- Wills Dell Computers, Avon Cosmetics

(Direct Marketing channel) Image Differentiation

SUCCESSFUL POSITIONING CRITERIA

Important – Highly, valued benefit to consumers

Distinctive Superior Communicable Preemptive – Cannot be copied easily. Affordable Profitable

ERRORS IN POSITIONING

Confused positioning – Confused image of the brand resulting from the company making too many claims or changing the brand’s positioning too frequently. Next desktop –positioned first for students, then for

engineers and then for business people. Doubtful Positioning – Buyers find it hard to believe

the brand claims in view of the product’s features , price or manufacturer.

For eg. GM’s Cadillac positioned as luxury competitor with Mercedes but the car featured leather seats, a luggage rack and logo stamped on chassis, thus failed in positioning.

POSITIONING STRATEGIES

Attribute positioning – Positions itself on an attribute, such as size, no. of years.Eg. Disney is the largest theme park in the world.

Benefit positioning – Leader in a certain benefit. Eg. Knorr Soupy Noodles(Benefit of soup and taste of Noodles)

Use/Application Positioning – Best for some use. Eg. Levis – rough and tough jeans.

User positioning – Best for some user group. Eg. Barista – for mature business executive people.

Competitive positioning – Better in some way than a named competitor. eg. Onida Mobile Phone better than Nokia.

Product category positioning – Leader in a certain category. Eg. Scorpio – Luxury of a car and thrill of SUV.

Price positioning – Offering the best value. Eg. Walmart – Value for Money