Market Segmentation in India

(Project Report)
A project report on market segmentation in India. This report will help
you to learn about:- 1. Introduction to Market Segmentation 2.
Meaning of Market Segmentation 3. Market Segments & Niches 4.
Consumer Preference Patterns 5. Procedure 6. Bases for Consumer
Market Segmentation 7. Bases for Industrial Market Segmentation 8.
Criteria 9. Product Differentiation & Market Segmentation.

Contents:

1. Introduction to Market Segmentation

2. Meaning of Market Segmentation

3. Market Segments & Niches

4. Consumer Preference Patterns

5. Market Segmentation Procedure

6. Bases for Consumer Market Segmentation

7. Bases for Industrial Market Segmentation

8. Criteria for Successful Segmentation

9. Product Differentiation & Market Segmentation

Project Report # Introduction to Market

Segmentation:
Consumers differ widely in terms of space, time, perception and value.
They are not homogeneous. If the market is made up of people whose
characteristics and wants are different, the market is heterogenous.

Marketers who wish to do an effective job of marketing to people in

such a market must identify the characteristics and wants of different
groups of people within the overall market, because one marketing
mix will not satisfy all of them. Market segmentation is the process of
identifying smaller markets that exist within a larger market.

These groups are called market segments. Market segmentation helps

marketers develop marketing mixes for individual segments. Market
segmentation helps marketers develop marketing mixes that are more
specifically tailored to the characteristics and wants of people in the
segments that are identified and selected as target markets.

Project Report # Meaning of Market Segmentation:

Market segmentation breaks the larger heterogeneous market into
small homogeneous segments. The elements of each smaller segment
are more similar in terms of wants, needs and behaviour than the total
market is. A separate marketing programme is developed to best much
each segment, individual needs and wants. SCHEWE AND SMITH

The process of taking the total heterogeneous market for a

product and dividing it into several sub market or segments,
each of which tends to be homogeneous in all significant
aspects. W.J.Stanton

Market segmentation is sub-dividing a market into distinct and

homogeneous subgroups of customers, where any group can
conceivably be selected as a target market to be met with distinct
marketing mix. Phillip Kotler
Segmenting isolates consumers with similar life styles, needs and the
likes and increases our knowledge of their specific requirements. The
more marketers establish this common ground with consumers, the
more effective they will be in assessing these requirements in their
communication programmes and informing and/or persuading
potential consumers that the product or service offering will meet
their needs.

Project Report # Market Segments & Niches:

Market segments are large identifiable groups within a market, but a
niche is a narrowly defined group that may seek a special combination
of benefits. As the market segment is larger and more general than the
market niche, there are more competitors in market segment than the
niche. As the marketer subdivides a market by introducing more
defining characteristics, the segment tend to devolve into a set of
niche.

For example, Reebok has segmented market into three

following divisions:

(a) Sports wear like T-shirt, caps, tracksuits etc.

(b) Sport shoes.

(c) Sport equipment like cricket bats, tennis racket etc.

Sport shoe segment is further divided into 4 sub-segments

called as niche:

Niche 1. Tennis shoes.

Niche 2. Cricket shoes.

Niche 3. Jogging shoes.

Niche 4. Golfers shoes.

Characteristics of Niche:

1. The customer in a Niche have a district and some what complex set
of needs.

2. They are ready to pay a premium to the firm best satisfying their
needs.

3. To be successful, the niche marketer need to specialise in his

operations.

4. A Niche leader is not attracted by competitors.

Project Report # Consumer Preference Patterns:

Markets are made up of buyers who differ in their buying habits,
buying attitudes, sex, income, geographic location etc. All these
variable can be used to segment a market. Apart from these, buyers
can be segmented on the basis of their preferences.

For example if we want to segment the tooth paste market on the basis
of two attributes say freshness and tooth decay prevention, we can find
out the preference level of our tooth paste (Fig 7.1).
Fig 7.1 illustrates that three types of preference pattern may
emerge:

(a) Homogeneous Preference

(b) Diffused Preferences

(c) Clustered Preferences.

(a) Homogeneous Preferences:

If all the customers show the same level of preference based on these
two attributes, it is called as homogeneous preferences (Fig. 7.1 (a)).
The market shows no natural segments.

(b) Diffused Preferences:

At the different extreme, the consumer preferences may be scattered

through-out the space and it looks that no customer have same
intensity preference for these two attributes in a tooth paste. (Fig. 7.1
(b))

(c) Clustered Preferences:

The third category may be that preferences are clustered in groups

which are called as natural market segments (Fig. 7.1 (c)). Here the
firm has three options for positioning.

The firm might position its brand hoping to appeal to all groups
(undifferentiated marketing), It may position in the largest market
segment (concentrated marketing) or it might develop several brands,
each positioned in a different segment (differentiated marketing).

Benefits of Market Segmentation:

Market segmentation is a customer oriented philosophy. We first

identify the needs of customers with in a segment and then satisfy
those needs.
Benefits offered by segmentation can be summarized as
follows:

1. By developing strong positions in specialised market segments,

medium sized firms can achieve a rapid growth rate.

2. By tailoring the marketing programmes to individual market

segments, marketer can do a better marketing job and make more
efficient use of marketing resources.

3. People awareness is increasing in relation to their preferences. In

these circumstances it is necessary that marketer must segment and
then try to fulfill the needs of that segment.

4. It helps in determining the kinds of promotional devices that are

effective and also helps to evaluate their results.

5. Appropriate decision making, relating to introduction of new

products, promotion, distribution, pricing could be easily taken.

Limitations of Market Segmentation:

While market segmentation can provide a lot of benefits, this strategy

has some drawbacks with respect to cost and market coverage.

1. Market segmentation can be an expensive proposition in both

production and marketing of products. From marketing point of view,
the marketer has to develop different marketing mixes for different
segments. In production, producing in mass quantities is much
cheaper than making variety of products.

2. Other expenses like keeping adequate inventories of each style,

colour, promotional expenses also go up because different
promotional mixes have to be formulated for different elements.

3. Administrative expenses also go up because marketer must plan and

implement several different marketing programmes.
Project Report # Market Segmentation Procedure:
It is not possible to develop the marketing strategies for every
consumer. Rather the marketer attempts to identify broad classes of
buyers who have the same needs and wants and will respond similarly
to a marketing action. Market segmentation is dividing up a market
into distinct groups that (a) have common wants, (b) will respond
similarly to a marketing action.

The segmentation process involves following (Fig. 7.2)

distinct steps:

Step I:

Survey Stage:

The researcher conducts interviews with the consumers to take the

responses from them relating to their motivation, attitudes and
behaviour. For conducting the survey, the researcher prepares a
questionnaire and apply it to the some of potential customers.

Step II:

Analysis Stage:

After collecting the responses from the respondents the next stage is to
turn them into meaningful form through analysis using factor analysis.
After that the researcher applies cluster analysis to make strata of
homogeneous responses.

Step III:

Profiling Stage:

Each homogeneous cluster is now profiled in terms of its

distinguishing attitudes, psychographic, geographic, demographic and
consumption habits. Each segment can be given a differentiating
name.

Project Report # Bases for Consumer Market

Segmentation:
Market can be segmented into various segments by using different
bases. Bases of market segmentation can be broadly divided into two
broad categories. Consumer characteristics (consumer segmentation)
and consumer responses (product related segmentation). The
following chart and table 7.1 gives the details of available bases for
segmentation.
Consumer Related Segmentation:

This basis of segmenting market involves segmentation based on

consumer characteristics as geographic, demographic and
psychographic characteristics.

(a) Demographic Segmentation:

Under this method, the consumers are grouped into homogeneous

groups in terms of demographic similarities, such as age, sex, family
life cycle, income, education, occupation, religion and ethnic
background. The basis is considered to be more purposeful since the
emphasis ultimately rests on consumers.

While demographics may still be most commonly used method of

segmenting markets, it is important to recognise that other factors
may be the underlying basis for homogeneity and/or consumer
behaviours. For example, as noted by Robert Rueff, consumer
attitudes and behaviours are not demographically driven and in many
cases are not even demographically related.

In addition broad demographic segments such as the commonly used

breakdowns 18-34 and 35-39 may include costumers who behave very
differently. 15 years old has very different life style from 34 years old
and may have different needs & wants as well. The astute member will
identify additional bases for segmenting & will recognize the limitation
of demographics.

(b) Geographic Segmentation:

Geographic location is the usual and popular basis for market
segmentation. For planning and administrative purposes the marketer
will often find it convenient to sub divide the country into areas in a
systematic way. Geographic segmentation may be on the basis of
region, country size, density and climate.

Many geographic characteristics can contribute to buyer

segmentation. Various regions of the country exhibit different life style
and pattern of behaviour. The climate in different part of the country
often makes a difference.

City size can affect buyers want. Even different location within the
same city or suburb can produce consumer differences. Any
geographic split of population that also divides consumers into groups
with homogenous needs can be important to the marketer.
The clear cut concentration on the age of the user, accompanied, with
the strong idea of milk being not enough at the stage, gave the brand a
very distinct repositioning decision. The sales volume doubled with in
the first three years alone. Later the brand was over taken by cerelac
(Nestle) because the product features and benefits of cerelac were
considered by mother to be superior.
(c) Psychographic Segmentation:
Also called as life segmentation, buyers are divided into different
groups. On the basis of social class, life style and personality
characteristics. People within the same demographic group can exhibit
very different psychographic characteristics.

For some type of products, psychological characteristics connected

with individual personality or life style influence the benefits that
person will derive from marketing mix. When these psychological
variables are important to a buyers purchase decision the marketer
must consider them in grouping consumers into market segments.

The enthusiasm generated for techniques that divide people according

to personality traits or life styles must be tempered with the realisation
that not all products or services are influenced by these psychological
variables. Basic functional products do not seem to be affected.

For example one study found no significant personality differences in

buyers of toilet tissue. However, many other products do involve an
individuals ego or self perception, goals, attitudes, values social and
esteem needs, and personality in such a way that these factors affect
the benefits received from a purchase and therefore the purchase
decision.

In one approach, personality traits provided the basis for segmenting

consumers into different markets. The other psychographic approach
uses an individuals life-style as the distinguishing factor. While the
two approaches are same, there is one important difference between
them. Personality is a more basic or fundamental concept than life-
style which depends upon personality.

Both types of psychographic segmentation are often combined with

demographic or geographic segmentation factors to present a more
detailed picture of the buyer. In fact life-style segmentation often uses
a combination of personality traits and demographic characteristics to
define an individuals style.

Personality Characteristics:
Table 7.2 lists nineteen personality traits that marketers might use to
help segment consumers. Many other could have been listed, and
those selected for testing depend on the product, service or idea to be
marketed. In addition, personality traits are often given different
labels to make them more descriptive of the consumer.
The use of personality traits for psychographic segmentation has been
successful in several studies. One study attempted to identity the
characteristics of self service customers by comparing them to full
service customers. The self service customer was found to be more
price sensitive, more innovative in adopting the using products, and
less dogmatic in nature.

Another study attempting to identify the readers of new car

advertisements, also found that personality characteristics played an
important role.

Compared to other people, the advertisement readers were higher in

innovativeness, lower in general self confidence, higher in driving
experience, higher in product interest, and higher in venture
someness. Other studies have used personality traits to segment the
markets for coffee, tea, beer, soft drink, lipstick, stomach remedies,
and fashion innovations.
In all the studies where personality traits were found to be significant
identifying consumer market segments, the benefits received by the
consumer tended to be psychological as well as functional.

For these types of products, psychographic segmentation can be

extremely effective, but there are indications that sales of many basic,
large selling consumer items do not vary with the psychological
characteristics of the consumer.

Behavioural Segmentation:

Under Behavioural Segmentation, the buyers are divided into groups

on the basis of their knowledge, attitude, use or response to a product.
Many marketer believe that behavioural variables are the starting
point for constructing market segments.
(a) Occasion:

Consumers can be distinguished according to occasions when they

develop a need. It helps firm expand product usage. For example,
occasion may be regular, frequent, special etc. Buyers can be classified
on the basis of the occasion which they use the product e.g., talcum
powder is used after a bath, after a shave or before moving out for
work.

Thus, a certain brand can be promoted as something that completes

our bath. Occasion segmentation can expand product usage. Formerly,
thermas flask were used only to carry tea/coffee to patients of the
hospitals. They are now promoted as picnic campaigns, lunch and
dinner companions.
(b) Benefit:

In purchasing products, consumers are generally trying to satisfy

specific needs and/or wants. These consumers are looking for specific
benefits that products might provide in satisfying these needs. The
grouping of consumers on the basis of attributes sought in a product is
known as benefit segmentation, a widely utilized basis for many
products.

(c) User Status:

Market can be segmented on the basis of non-user, ex-user potential

user, first time user or regular user. Social agency pay close attention
to this type of segmentations. Terrorists are shown on television and
their views are asked about their life with the message to give up
terrorism.

Every product is used by some and not used by some other. The users
and non-users are important for the company. Non-users can be the
users of competitive products. There can be ex-users for a product.

First time users have just started using the product many in the target
group are potential usersall M.B.A. Students who opt for optional
advertising paper are potential user of this text book. Marketers are
interested in converting non-users into users. Potential users and
regular users require different marketing approaches.

(d) Usage Rate:

Also called as volume segmentation. Markets can be segmented on the

basis of light, medium and heavy user of the product. For beverages
and liquors, buyers are classified into segments like heavy users,
medium users and light users. Heavy users account for volumes.

Many companies target their marketing effort at this segment. The

heavy users have their own profile in terms of demographic
psychographic and media habits.
(e) Loyalty Status:

Consumer loyalty may be used as a basis for market segmentation,

loyalty segmentation enables marketer to modify the promotional mix
to retain the loyal customers, to attract the new customers. To
measure the brand loyalty is not easy.

The customers normally show four types of loyalty status:

(i) Hard core loyals

(ii) Soft core loyals

(iii)Shifting loyals

(iv) Switchers

(i) Hard Core Loyals:

Consumers who buy one brand all the times. If they purchase A
brand they will purchase brand A all the times. If brand A is not
available then they will wait until that particular brand becomes
available. Their buying pattern is AAAAA.

(ii) Soft Core Loyals:

Consumers who are loyals to two or three brands. The buying pattern
would be AA BB A BB AA. Here the customer have the loyalty with two
brands.

(iii) Shifting Loyals:

Consumers shift from favouring one brand to another brand. The

buying pattern would be AA A BB CCC DD suggesting that customers
are shifting loyalty with one brand to another.

(iv) Switchers:

They are no loyals. They do not show any loyalty towards any brand.
Switchers can be deal prone or variety prone. Deal prone means that
customers can be influenced by incentives the marketer gives and
variety prone means that if variety is offered to them they will prefer
that brand.

In India, Razor blades market and tooth pastes market and to some
extent toilet-soaps market is highly brand loyal. It is difficult to gain
market share for new companies. The entry in this market for new
comers is difficult.

A company can make an analysis of its brand loyal customers to

determine its target market. For instance, Colgate buyers are more
middle class larger families who are health conscious. The study of soft
care loyalty gives an indication to nature of competition. Possibly,
Colgate finds that Colgate buyers also use other toothpaste brand.

By making use of direct comparison advertising, Colgate can improve

its position. Brand shifters indicate our own marketing weaknesses.
Non-loyals can be put on our brand by winning them. Brand loyal
purchases may be due to other variables like price, habit, indifference
or non-availability of other brands.

(f) Buyer Readiness Stage:

The people readiness stage means how much ready a person is for
purchasing the particular brand. He may be unaware, aware,
informed interested, desirous, intending to buy etc. People at a given
point of time are in different stages of readiness to buy a product.

They are either totally unaware aware. Some are informed and some
interested. There are some who have a desire to buy or some who
intend to buy. The quantum of these group determine the marketing
programme.

To create an awareness of cancer is the first step in advertising before

people can come forward for a check-up. Later cancer check results are
so dramatized that more people desire to have them. Infrastructure is
created to handle the motivated individuals for check-ups. In other
words, the marketing programme is tailored to the distribution
pattern which changes depending upon the readiness of buyers.
(g) Attitude Towards the Product:

Customer in a market can be classified by their degree of enthusiasm

for the product. Five attitude classes can be distinguished as
enthusiastic, positive, indifferent, negative and hostile. Vast reminder
work for enthusiastic people.

Positive attitudes are reinforced. Neutral people are carefully

converted. Negatively inclined and hostile people are difficult to
tackle. The attitudes are co-related with demographic descriptors.
Project Report # Bases for Industrial Market
Segmentation:
Industrial markets can be segmented using almost the same variables
employed in consumer market segmentation. Bonoma and Shapiro
proposed the classification of segmentation variables for the industrial
market in Table 7.5 they suggested that demographic variables are
most important, followed by operating variables and then so on.

Project Report # Criteria for Successful Segmentation:

For segmentation to be successful four basic criteria must be
met:

1. Substantiality:

The segments must be large enough to permit a viable market effort

directed towards them.

2. Nature of Demand:

Strata (Segments) must exhibit differences in consumption rate

among the segments.

3. Response Rate:

The segments must exhibit differences in responses to the marketing

variables.

4. Accessibility:

The segments must permit the firm to direct successfully different

marketing efforts toward the segments.

Project Report # Product Differentiation & Market

Segmentation:
Product differentiation and market segmentation are the two basic
strategies that a seller may use in approaching a given market. In
product differentiation, the marketer goes after the whole market, but
attempts to distinguish the companys brand from its competitors
through the use of unique product features or advertising claims
alone.

In market segmentation, often referred to as target marketing, the

marketer isolates a segment of the market and directs the marketing
effort toward this segment alone. Product differentiation is also
referred to as undifferentiated marketing, market aggregation and
market combination.

It is an appropriate strategy when:

(a) Markets are indeed homogeneous,

(b) Subdividing the market into smaller segments is not

economically/feasible, and

(c) In new market with little competition where market growth often
exceeds production capacity.

In many markets a number of similar products compete for consumer

sales. For all practical purposes, the products are identical in function
and may be used interchangeably. A firm faced with this kind of
competitive situation may attempt to create consumer preference by
using unique advertising techniques of modifying the product so that
it appears different and can be distinguished from competitive brands.

If applied effectively product differentiation can be successful in

creating sales and increasing market share. This is particularly true
when the differentiated claim makes sense to consumers and is
consistent with what they believe to be important in terms of product
performance.
Under this strategy, a firm chooses not to recognize the possible
existence of market segments. Instead, the seller designs a product
that will appeal to most buyers, and directs its promotional activities
to the whole market.

Often in the face of stiff competition, the firm may attempt to create
consumer preference for its brand by making unique advertising
claims, or by modifying the brand in some insignificant way so that it
appears different and can be distinguished from competitive brands.
Market segmentation differs from product differentiation in that the
marketer recognizes market segments and deliberately taken them
into consideration in devising marketing strategies.

As the markets are heterogeneous, the market for a particular product

type is often composed of several consumer sub markets each with
some different product expectation and needs. Market segmentation is
the development of a different marketing approach for each
identifiable market sector.

Merits of Product Differentiation:

1. The primary advantage of this strategy is that it minimizes

production, promotion, inventory, administrative and other costs that
may be increased by producing several brands designed for different
market segments. Producing one brand rather than many is simply
cheaper.

2. In addition, by concentrating marketing expenditures behind a

single product, the brand may achieve market domination in
consumer awareness and sales.

Demerits of Product Differentiation:

1. Product differentiation had been widely criticized because of its

failure to recognise that different consumers seek different attributes
in the products they purchase. Few brands are capable of serving the
needs of all consumers equally well, and those that attempt to be
everything to everybody run the danger of becoming nothing to any
one.

By far the most telling criticism of product differentiation is that the

brand become vulnerable to other marketers more sensitive to
consumer needs.