Demographic segmentation a poor base of segmentation but is a necessary base for segmentation

Group No: 5

Group members

Jayendra Richika Gopal Ishan goyal Rachit Goyal Ricky Gupta Rajiv Tripathi Bhaven Nanavati

A001 A022 A023 A024 A026 A061 A064

Index

INTRODUCTION The market for any product is normally made up of several segments. A market after all is the aggregate of consumers of a given product. And, consumer (the end user), who makes a market, are of varying characteristics and buying behavior. There are different factors contributing for varying mind set of consumers. It is thus natural that many differing segments occur within a market. In order to capture this heterogeneous market for any product, marketers usually divide or disintegrate the market into a number of sub-markets/segments and the process is known as market segmentation market segmentation. Thus we can say that market segmentation is the segmentation of markets into homogenous groups of customers, each of them reacting differently to promotion, communication, pricing and other variables of the marketing mix. Market segments should be formed in that way that difference between buyers within each segment is as small as possible. Thus, every segment can be addressed with an individually targeted marketing mix. The importance of market segmentation results from the fact that the buyers of a product or a service are no homogenous group. Actually, every buyer has individual needs, preferences, resources and behaviors. Since it is virtually impossible to cater for every customer s individual characteristics, marketers group customers to market segments by variables they have in common. These common characteristics allow developing a standardized marketing mix for all customers in this segment. Through segmentation, the marketer can look at the differences among the customer groups and decide on appropriate strategies/offers for each group. This is precisely why some marketing gurus/experts have described segmentation as a strategy of dividing the markets for conquering them. Segmenting markets is the foundation for superior performance. Understanding how buyer needs and wants vary is essential in designing effective marketing strategies. Segmenting markets may be critical to developing to developing and implementing market driven strategy.

The need to improve an organization s understanding of buyers is escalating because of buyers demand for uniqueness and an array of technology available to generate products to satisfy the demands. Companies are responding to the opportunities to provide unique customer value with products. Buyers vary according to how they use the products, the needs and preferences that the products satisfy, and their consumption patterns. These differences create market segments. Market segmentation is the process of identifying and analyzing subgroups of buyers in a product market with similar response characteristics. Recognizing differences between market segments, how they change better and faster than competitors is an increasingly important source of competitive advantage.

ATTRIBUTES OF EFFECTIVE SEGMENTATION Market segmentation is resorted to for achieving certain practical purpose. For example, it has to be useful in developing and implementing effective and practical marketing programs. For this to happen, the segments arrived at must meet certain criteria such:a. Identifiable - The differentiating attributes of the segments must be measurable so that they can be identified. b. Accessible - The segments must be reachable through communication and distribution channels. c. Sizeable - The segments should be sufficiently large to justify the resources required to target them. A very small segment may not serve commercial exploitation. d. Profitable - There is no use in locating segments that are sizeable but not profitable. e. Unique needs - To justify separate offerings, the segments must respond differently to the different marketing mixes. f. Durable - The segments should be relatively stable to minimize the cost of frequent changes. g. Measurable - The potential of the segments as well as the effect of a specific marketing mix on them should be measurable. h. Compatible - Segments must be compatible with firm s resources and capabilities.

Criteria for selecting Market Segments Measurable A segment should be measurable. It means you should be able to tell how many potential customers and how many businesses are out there in the segment. Accessible A segment should be accessible through channels of communication and distribution like: sales force, transportation, distributors, telecom, or internet. Durable Segment should not have frequent changes attribute in it. Substantial Make sure that size of your segment is large enough to warrant as a segment and large enough to be profitable Unique Needs Segments should be different in their response to different marketing efforts (Marketing Mix).

Bases for Consumer Market Segmentation There are number of variables involved in consumer market segmentation, alone and in combination. These variables are: Geographic variables Demographic variables Psychographic variables Behavioral variables

Geographic Segmentation

In geographical segmentation, market is divided into different geographical units like: Regions (by country, nation, state, neighborhood) Population Density (Urban, suburban, rural) City size (Size of area, population size and growth rate) Climate (Regions having similar climate pattern)

A company, either serving a few or all geographic segments, needs to put attention on variability of geographic needs and wants. After segmenting consumer market on geographic bases, companies localize their marketing efforts (product, advertising, promotion and sales efforts). Advantages of geographic segmentation The concept is simple and clear and can thus be easily understood by all. It is absolutely unambiguous and there is no measurement problem in identifying this group. Targeting is very easy due to the fact that advertising and promotion activities are limited to the borders of the nation chosen. The media landscape of only this nation has to be accounted for. Only one language is typically necessary for all the materials. (3) The danger of segments changing over time and those changes not being detected are minimal. Geographic target markets can easily be monitored in their development. (4) No advanced expertise in data analysis is needed

Psychographic Segmentation

In Psychographic Segmentation, segments are defined on the basis of social class, lifestyle and personality characteristics. Psychographic variables include: Interests Opinions Personality Self Image Activities Values Attitudes A segment having demographically grouped consumers may have different psychographic characteristics.

Behavioral Segmentation In this segmentation market is divided into segments based on consumer knowledge, attitude, use or response to product. Behavioral variables include: Usage Rate Product benefits Brand Loyalty Price Consciousness Occasions (holidays like mother s day, New Year and Eid) User Status (First Time, Regular or Potential) Behavioral segmentation is considered most favorable segmentation tool as it uses those variables that are closely related to the product itself. Advantages of behavioral segmentation Construct segments on the basis of information that is evaluated as being highly relevant service experience. For instance, vacation activities of interest to tourists are probably better messages to convey to potential visitors than addressing them using socio-demographic criteria. By constructing segments homogeneous with regard to those pieces of information that are assumed to be of most influence in a decision making process (destination choice process).

Demographic segmentation

Demographic segmentation consists of dividing the market into groups based on variables such as age, gender family size, income, occupation, education, religion, race and nationality. As you might expect, demographic segmentation variables are amongst the most popular bases for segmenting customer groups. This is partly because customer wants are closely linked to variables such as income and age. Also, for practical reasons, there is often much more data available to help with the demographic segmentation process.

Demographic factors are most important factors for segmenting the customers groups. Consumer needs, wants, usage rate these all depend upon demographic variables. So, considering demographic factors, while defining marketing strategy, is crucial. The main demographic segmentation variables are summarised below: Age Consumer needs and wants change with age although they may still wish to consumer the same types of product. So Marketers design, package and promote products differently to meet the wants of different age groups. Good examples include the marketing of toothpaste (contrast the branding of toothpaste for children and adults) and toys (with many age-based segments).

Life-cycle stage A consumer stage in the life-cycle is an important variable - particularly in markets such as leisure and tourism. For example, contrast the product and promotional approach of Club 18-30 holidays with the slightly more refined and sedate approach adopted by Saga Holidays.

Gender Gender segmentation is widely used in consumer marketing. The best examples include clothing, hairdressing, magazines and toiletries and cosmetics.

Income Another popular basis for segmentation. Many companies target affluent consumers with luxury goods and convenience services. Good examples include Coutts bank; Moet & Chandon champagne and Elegant Resorts - an up-market

travel company. By contrast, many companies focus on marketing products that appeal directly to consumers with relatively low incomes. Examples include Aldi (a discount food retailer), Airtours holidays, and discount clothing retailers such as TK Maxx.

Social class Many Marketers believe that a consumers "perceived" social class influences their preferences for cars, clothes, home furnishings, leisure activities and other products & services. There is a clear link here with income-based segmentation.

Lifestyle Marketers are increasingly interested in the effect of consumer "lifestyles" on demand. Unfortunately, there are many different lifestyle categorisation systems, many of them designed by advertising and marketing agencies as a way of winning new marketing clients and campaigns! Demographic segmentation is one of the most important methods by which companies today segment their markets. Considerable amount of money and time is spent on figuring out and dividing the market on demographic lines long before the product is actually launched in the market. This is the stage where the company actually estimates the demand for the product, the potential market and the financials are also projected at this stage itself once the demographic segmentation is done. The accuracy of this segmentation is of prime importance because if this fails then there is a chance of whole project being going into red. Trials for the product are also based on demographic factors. Demographic factors have taken a very prime position in market segmentation of a product. But is it really true that a thing like demographic segmentation works in this world today? There are emerging doubts that demographic segmentation as a marketing tool is a poor one but has become the necessity for every idea and product. This form of market segmentation needs a closer look.

We start by discussing the advantages of demographic segmentation:1. Demographic segmentation makes it easier and possible for marketers to identify the customer needs on the first instance and then develop products according to the needs. Since it is not possible to develop completely customised products for every customer so it is is considered best to segment the market based on some common parameter and demographic segmentation is the most logical one in this regard. For instance, Jhonsons baby products are meant for babies in the age group 0f 0-4 years of age. This has helped the company to focus on the target customer and bring new changes to the product so that usage of the product can be made easier for the babies. 2. Demographic segmentation allows the company to identify its core area and focus on that area. In the absence of this type of marketing tool the marketer wouldn t have ever attained competency in his/her product line because there wouldn t have been a particular sect of people towards whom the selling efforts would have been targeted. All the efforts are directed towards the segment which is most appropriate for the product. For instance, Kingfisher airlines have the image of being the brand fit for the upper class section of the society. It has always portrayed itself as a luxury class travel airline and has thus set apart its standards and concentrated on people above a particular income class. An attempt to enter the lower class market (Kingfisher Red) didn t work out well for the company as the expertise was not there and also the company was not able to feel the pulse of the public and connect with lower income group people due to its brand image and segmentation strategies adopted in the past. 3. Next comes the availability and ease of using demographic segmentation. Authentic data for demographic segmentation is easily available. Be it age, income, sex ratio, average family size or any other data complete information which is reliable can be easily obtained. It is also one of the cheapest sources of market segmentation. Brands know in advance what the size of their target audience is and what should be their reach or what should be the amount of efforts they will have to put to lure the customers to use the product. This is true for many book publishers in the Delhi University. The target audience is the area

near the university since resident teachers are the authors and the books just sell in the campus. Aggressive marketing is done within the campus to create an impression in the minds of the students so that they buy the book. Outside the campus hardly anyone has heard of the book or the publisher. 4. Demographic segmentation ensures that resources and advertising is not wasted by the company on the wrong sections of the market. A business can identify the target customers with ease using demographic segmentation. In the world of intense competition demographic segmentation makes it easier for the marketer to pin point a particular target market which can be the potential consumer for its product and services and also allows him to decide the type of advertising media which is appropriate for the particular market. The business gets to know its customers a lot better by using demographic segmentation.

The advantages of demographic segmentation are immense. Promoters of demographic segmentation state that it is the strongest tool available with the company which plans to launch a new product. However, there are disagreements to the same. Demographic segmentation suffers from serious drawbacks which can have long lasting impacts on a company s future. Companies generally look for shortcuts and demographic segmentation is the easiest one for them. Data is provided by the government records, so no field work is required what is required in a sample testing and if that works the results are expected to be positive. However, this is always not true. Some of the disadvantages which make demographic segmentation an unfavourable marketing strategy are:1. The biggest disadvantage of demographic marketing is that even though reliable and accurate data is used to segment the market and make an offer to the segmented market, there is no surety that what the company has predicted will actually come true or not. Maybe the market which has been segmented never needed the product, or the market is saturated, or the company didn t

segment the market. Chances of failure are quite high. While big corporate can take the product off the shelves or modify their offering or re-segment the market the same isn t possible for a small company with just one product in its kitty. 2. The data which is compiled by various government organisations is prepared for a time span of 10 years. But population isn t constant today. New births, death, migrations, etc keep changing the composition of the existing population continuously. So the new marketer can just not rely on the old facts and have to start from the scratch. Since huge investment is involved in launching a product the marketer can t take chances on this front. Considerable time and money is spent and in the end if the product is not suited to the market may be the idea for launch is also dropped. So demographic segmentation doesn t always give green signal to the launch of the product even if there is scope for the product in the market. 3. Another serious disadvantage of demographic segmentation is that the company while segmenting the market on demographic lines may miss out on potential customers that don t fall in the segmentation. The company s all efforts will be to attract the customers who fall in the demographic segmentation and no attention is paid to the customers who are falling out. This may lead to significant loss in revenue which the company who have earned in case it followed a wider approach. The companies which can identify the problem with their segmentation and take new steps are still better off than the ones who are not able to figure out this problem. HUL the world s biggest FMCG Company followed the policy of launching beauty fairness creams for women since decades. In India, its produce fair and lovely is quite a big hit amongst the women. All the advertisement campaigns were focussed on women beauty and fairness. Amid all this there was one another market which doesn t fall in the segmentation done by HUL. This was the men s section. Never was any attention paid to this group because beauty and fairness was considered to be meant for women. Men had no fairness cream for their use and thrived on women fairness creams. When confronted with rising demand for

men s fairness cream HUL did a market analysis and realized that the demand for such product was there since the beginning of the century due to reasons like men being more conscious of their skin, urbanisation etc but was never noticed by any company. HUL was wise enough not to lose any more revenue and launch fair and lovely for men. Thus it saved itself but there are companies who have never paid attention to the neglected market either because they follow the herd or they don t have the enough resources to change their offerings with changing demand patterns of the consumers. For these reasons demographic segmentation may be the reason for creating holes in the company pockets. 4. Demographic segmentation is slowly and steadily losing its sheen. The credit for this goes to internet marketing and sales. Today it doesn t make sense for a company to segment market based on area, location, etc because internet is such a strong medium of sales that it can sell the products of a company at every destination whether 10 km or 1000 kms always. Promoters of internet marketing directly attack demographic segmentation saying that spending huge money to segment the market is foolish. They believe that in today s technologically advanced world the product makes its own market. Just a good idea and a plan to implement is what are required. Marketing is not an issue over the net. If people like the product then no one can stop it from spreading across all the users. But internet marketing has its own disadvantages. If it can drive an offering to the mountain peak it can also throw it off. So today more than marketing the brand the marketers should try to maintain the brand image, otherwise it may be difficult to sustain in the long run. 5. Demographic segmentation often creates overlapping group which makes marketing strategies to catch a particular sect of consumers. For instance, a sports company may launch a product with a potential market of sports enthusiasts. But a person who is in this segment can be a kid of 9 years of age or even an old person aging 63. So, it is very difficult to target the customers by this sense. Both the customer types need different types of advertisements.

Conclusion