POM: Session10 Marketing Strategy - Segmentation

Zara, a Spanish retail brand is very popular in almost all age groups. As compare to other retail brands they are low on advertising and discount offers, still able to do well in the competitive market. Why people buy from Zara? It is their marketing and distribution strategy that keeps them ahead. Fast fashion as they are perceived in the minds of their patrons, concentrate on three winning formulas:

• Short leading time that results in more fashionable cloths.
• Lower quantities increase in demand and scare supply
• more choice, i.e. something for everyone

Most companies, like Zara, have moved away from mass marketing and toward target marketing—identifying market segments, selecting one or more of them, and developing products and marketing programs tailored to each.

There are three major steps in designing a marketing strategy. 

Step - I: Segmentation

It involves dividing a market into smaller groups of buyers with distinct needs, characteristics, or behaviours that might require separate marketing strategies or mixes. The company identifies different ways to segment the market and develops profiles of the resulting market segments. 

Step II: Targeting

This step consists of evaluating each market segment’s attractiveness and selecting one or more market segments to enter. The selection of marketing mix is based on the evaluation of targeted segment.

Step III: Positioning 

In the final steps, the company decides on a value proposition—on how it will create value for target customers. Point of Differentiation (POD) involves actually differentiating the firm’s market offering to create superior customer value. Positioning consists of arranging for a market offering to occupy a clear, distinctive, and desirable place relative to competing products in the minds of target consumers. With their efforts Zara is able to stand out clearly in the minds of its target customers. In other words, they positioned themselves as a trendy, exclusive and fashionable brand in the minds of consumers. 

In this session, we shall discuss market segmentation in detail.

MARKET SEGMENTATION          

Study of consumer markets indicates there are different consumer need different products. Market segmentation helps companies divide large, heterogeneous markets into smaller segments based on similar needs. The objective is to reach them more efficiently and effectively with products and services that match their unique needs. 

Need for Segmentation

• Mass marketing is not effective for all the products. 
• At times for a company it is not cost effective nor feasible to target consumers that are too many in numbers.
• Markets are geographical scattered and difficult to reach.
• Consumers have different needs & wants.
• Consumer buying behaviour is different.

Rubik's Cube Metaphor

Consumer markets are like Rubik's cube. Each colour represents different type of consumer. These consumers are identified as different from each on the basis of homogeneous need sets.  

The process of segmentation is like solving the Rubik's puzzle. To solve the puzzle each face of the cube must have the same colour. In segmentation, consumers with same needs and motivations are brought together for effective understanding.

The consumers may be different from one another on several parameters. These parameters form bases for segmentation. The major variables that might be used in segmenting consumer markets are geographic, demographic, psychographic and behavioural.

Geographic Segmentation 

For some products, the consumers’ needs are different across geographic boundaries. For example, different countries, regions, states, counties, cities, or even neighbourhoods have different needs. In India, woollen are sold more in northern region, PCs and laptops are sold in urban markets whereas fertilizers and seeds are sold in rural markets. 

Geographic segmentation can be a very effective marketing strategy. FMCG giants like HUL and ITC have gain a strong market share because of their rural penetration. Domino's pizza have gained a competitive edge by positioning on quick delivery. They are able to do so by branches in every neighbourhood.

Geographic segmentation is important because, consumers from different region differs in 

• consumption pattern
• taste and preferences
• climatic conditions
• infrastructure and power support

In a recent survey Maharashtra is declared as the most internet ready state and hence suitable for most of the e-tailers and soft product companies.

Demographic Segmentation

Demographic segmentation divides the market into groups based on variables such as age, gender, family size, family life cycle, income, occupation, education, religion, generation, and nationality.

Demographic factors are the most popular bases for segmenting customer groups. The demographic segmentation can be useful in many product categories as consumers needs, wants, usage rates, and product and brand preferences are often associated with demographic variables.

Age and Life‑Cycle Stage is offering different products or using different marketing approaches for different age and life‑cycle groups. HDFC standard life pension plans are for the retirement planning for middle aged people.

Gender segmentation can be bases for segmentation for many products and services. Personal care companies like creams, shampoos, deodorants, and soaps have different range of products for men and women. Some two-wheeler companies like Hero have Pleasure brand only for females. Clothing brands like Louis Philip only target males. There are women only beauty salons and spa and magazines separately for men and women.

Income segmentation help marketers clearly identify affordability factor for the given product. In India, Society of Indian Automobile Manufacturers (SIAM) has identified automobiles segments like A, B, C, D and SUV based on the prices. There are further sub segments in each of the segment. 

Titan has different range of watches for different income groups; Timex for price sensitive markets and Raga and Nebula for luxury markets. Tours and travel companies also design several range of packages (standard, deluxe and premium) to suit different income groups.

Psychographic Segmentation

Psychographic segmentation divides buyers into different groups based on social class, lifestyle, or personality characteristics. One of the most popular commercially available classification systems is SRI Consulting Business Intelligence’s VALS framework.  

The Value and Life Style framework (VALS) categories consumers into two broad categories: people with high resources and people with low resources. There are three motivational functions across these resources; ideals, achievers and self-expression. The major tendencies of the four groups with high resources are: innovators, thinkers, achievers and experiencers. The major tendencies of the four groups with lower resources are: believers, strivers, makers and survivors. See Example.

Marketers also use personality variables like innovativeness, need for cognition and need for uniqueness to segment markets.

Behavioural Segmentation

Behavioural segmentation divides buyers into groups based on their knowledge, attitudes, uses, or responses to a product.

Occasion segmentation is grouping buyers according to occasions when they get the idea to buy, actually make their purchase, or use the purchased item. Many companies gives festival offers as many purchases are done during that time. 

Benefit segmentation is grouping buyers according to the different benefits that they seek from the product. For automobile products consumers may seek different benefits like mileage, style and power.

User Status is segmenting markets into nonusers, ex-users, potential users, first-time users, and regular users of a product.

Usage Rate is grouping markets into light, medium, and heavy product users.

Loyalty Status is dividing buyers into groups according to their degree of loyalty. Loyalty status can be of four types:

• Hard-core Loyals : Remain with one brand only.
• Split - Loyals: Loyal with two brands and buys from those two only.
• Shifting Loyals: Their brand loyalty shifts from one brand to other.
• Switchers: No brand loyalty at all.

Ref: "Marketing Management - A South Asian Perspective" 14th edition, by Kotler, Keller, Koshy and Jha

Next: Targeting