Transcript Customer Behavior

Customer Behavior
Module Seven
Market Differentiation &
Segmentation
Module 7
A Typology of Market Differentiation
& Segmentation
Differentiation is the way in which marketers present their offerings differently from their
competition in order to become the customers' choice. Presenting offerings differently entails
creating and implementing the marketing mix (Product, price, place, and promotion).
Marketers use three types of differentiation:
generic
targeted
segmented differentiation
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Generic Differentiation
Generic differentiation is a global (or overall) differentiation on a nontargeted
basis, which means the differentiation is not for any specific segment of customers.
This type of differentiation is appropriate for companies who are able to present
their products and services as superior to competitive products in the entire market
place.
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Product-Based Differentiation
Companies use product-based differentiation by offering better products
than their competitors.
The products superiority may be based on superior quality and
performance reliability, or innovations in the products performance, design
features, or on brand image, and manufacturer reputation.
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Non-product Differentiation
Non-product Differentiation is based on distribution, pricing and or
advertising and promotions.
Many companies attempt to differentiate themselves by memorable and
unique advertising.
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Agood
example
of
generic
differentiation
by
innovation in distribution is the home delivery of
Domino’s Pizza guaranteed in one – half hour.
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Targeted Differentiation
Is an approach in which a company identifies a specific market segment and then designs a
marketing program to target and appeal to this particular segment.
This is in contrast to the generic differentiation, where a single undifferentiated marketing
program is offered to everyone.
Companies normally act as "niche" players in this type of differentiation. As with generic
differentiation, this approach uses specific elements of the marketing mix to differentiate
company’s offerings.
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Small businesses represent a good opportunity as a targeted
market for a number of products and services, In the long –
distance telephone market, resellers sell cheaper long – distance
rates to small businesses by representing 70 –80 small businesses at
once.
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Segment of One
A special form of targeted differentiation is segment of – one marketing.
This refers to customizing the market offerings to each individual
customer. Recent advances in technology enable a firm to respond to very
small segments, even single customers, without losing the economies of
scale. This development is called “ mass customization “ and is
accomplished by flexible manufacturing.
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Segmented Differentiation
The third type of differentiation, involves breaking up the total market into segments that are
homogeneous by some characteristics of its customers (Such as demographics, psychographics or
usage patterns) and then treating each segment as a distinct market for which all elements of the
marketing mix are differentiated.
The automobile industry serves as an excellent early example of this type of differentiation.
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Segmented differentiation can be practiced by business- to- business marketers as well.
In the automotive components industry, tire companies serve at least four different
markets:
1.
2.
Original Equipment Manufacturers, namely, the automobile manufacture
Tire dealers and distributors
3.
Their own distribution chain, such as Goodyear dealers tires
4.
The repair and maintance market – referred to as the tire, batteries, and accessories
For each ofmarket,
these or
four
markets,
the
tire companies
known
as the
retread
market. will use very different marketing strategies,
differentiating by one or more elements of the marketing mix within each segment.
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Customer Diversity as a Basis for
Differentiation
A basic reason for differentiation is that customers needs and wants
may vary on the basis of personal and environmental characteristics,
and their resources may vary with respect to time, money, and
expertise.
the most useful differentiation strategy may depend on whether
needs/wants and resources are homogenous or diverse.
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Resources
Homogeneous
Diverse
Homogeneous
Diverse
Targeted
Differentiation
(Product & Promotion)
Segmented
Differentiation
(Product, Service,
Promotion, Price,
Distribution)
Generic
Differentiation
(Product, Service,
Promotion, Price,
Distribution)
Targeted
Differentiation
(Price & Distribution)
Figure 1 Typology of Differentiation & Segmentation
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Identification of Markets for Differentiation
and Segmentation

Market segmentation is a process of identifying subgroups of customers
within a market whose needs , wants and or resources are different in a way
that makes them respond differently to a given marketing mix .

the differing responses of customers to one or more elements of the marketing
mix form the rationale for segmentation. Once a marketer has identified
subgroups of customers with different response tendencies the marketer
attempts to target them by different marketing mix.
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
There are three board bases of identifying segments in any
market – the "what", the "who", and the "why" bases of
segmentation.
Usage Segmentation
What?
Who
?
Demographic Segmentation
Why
?
Psychographic Segmentation
Figure 2 Three Bases of Identifying Market Segments
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What

The what pertains to product usage and results in what is commonly referred to as usage
segmentation.

The who bases identifies subgroups of customers based on their descriptive characterizes.
This is commonly referred to as demographic segmentation.

And finally the why pertains to the reasons that customers behave the way they do, these
reasons lie in different benefits customers seek from a product, and different lifestyles they
want the product to fit.
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Usage Segmentation
The common approach to usage segmentation is to divide customers on their level of usage,
thus, segments are ranked high medium, and low, according to the quality consumed.
Another popular way of segmenting by usage is called the heavy half theory. As one half of
the consumers consume about 80 percent of the product whereas the other half consumes
only 20 percent. This 80/20 split at one extreme to a 10/90 split at the other.
Once the company has decided on the three or four segments, it needs to profile each
according to its demographic and psychographics make up
Generally, one would find heavy users to share the same demographics and perhaps also the
same psychographics.
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Demographic Segmentation
The "Who" bases of Segmentation
DEMOGRAPHICS
Gender:
Males, females
Age:
Youth, baby boomers, senior citizens, Generation X
Family life cycle:
Young, single, older married couples, and so on.
Religious and/or ethnic background.
Income, education, occupation, and social class.
GEOGRAPHY
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Regions:
Northern Region, Southern Belt, West Coast, East
Coast and so on.
Metro Size:
Mega-metro (e.g. New York), mid-size towns (300600k), small cities (100-300)
Urbanization:
Urban, inner-city, suburban, rural
Climate
Cold (northern), warm (southern)
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Demographic Bases
The most prevalent demographic characteristics are all marked differently to men and women.
Two points are noteworthy here. First in some product categories, the product itself needs to
be different for the two genders (e.g. clothing, shoes, and cosmetics), so the segmentation by
the gender is inevitable. In other product categories, segmentation is not inevitable. But it is
pursued in the hope of increasing the products perceived attractiveness for one or the other
gender.
The second point about gender – based segmentation is that for product categories used by
both genders, there would always be a segment that would defy gender based differentiation,
although the size of this segment would vary with sociocultural trends, unisex clothing
exemplifies this cross – gender product uniformity
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Geodemographics
Geodemographics is the study of relationships between demographics on the one hand and
the geographic location on the other.
The underlying premise is that people of similar demographic characteristics (age, income,
occupation) tend to live in similar geographic locations
The natural and economic resources of a geographic location enable and constrain people's
activities, geographic location helps shape people's life styles and activities ( which are also in
part shaped by demographics).
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The " Why" Basis of Market
Segmentation
Marketers have offered three categories of explanations for
different customer responses:
(1) difference in benefits sought
(2) product involvement attitude
(3) differences in lifestyles and psychographics
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The explanation based on benefits sought is that customers differ in the specific benefit they
seek in the same product or service, so they respond differently to various market offerings.
Second, consumers differ in their involvement in and attitude towards the product category,
and consequently differ in their response.
The third explanation is that customers differ in their personality, lifestyle and
psychographics.
Consumers buy products and services to satisfy the personality needs they have and to implement the
lifestyle they desire to live. Accordingly, they respond differently to different marketplace stimuli.
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Benefit segmentation
Benefit segmentation refers to grouping individual customers
according to benefits they seek from a product or service.
Customers are grouped into a segment based on the similarity of
benefits sought; different benefit segments seek different benefits
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An example of business-to-business service is provided by a classic study that found several
different segments including a time – sensitive segment, a price – sensitive segment, a "no
worry" segment, and a pick up segment. Further, in the time sensitive segment, several sub
segments emerge including ability to handle emergencies, minimum door -to -door time and
prime night time departures. In the price – sensitive segment, the sub segments include those
who care most about best price, lowest total cost and daylight rates.
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The "no worry" segment had the following sub segments: keep the
shipper informed; honest and straight forward; and able to trace the
shipment.
Finally, the pick up segment include good pickup service; minimum time
between calls and pickups; and good truck driver attitude.
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Product Attitude and Involvement
Customers differ in their attitude toward and involvement in
product categories. Some customers are not much involved in the
product and use it only to the extent necessary or take it for
granted; others are so passionately involved that they are
consumed by it.
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Identify which segment you might
belong to:
Gearhead – these are true car enthusiasts who enjoy driving their
cars. They love to maintain and care for their car, keeping them in
tip-top condition. This kind of segment believes that the kind of
car u drive shows who you are.
Epicures – these car owners drive elegant, comfortable, wellequipped, luxury cars. They want to enjoy the car without doing
any work on it; accordingly, they depend on someone else taking
care of their cars.
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Functionalists – this group likes functional, fuel
efficient cars without concern for style or sportiness.
They tend to buy small and mid-sized cars.
Road haters – this group is the least involved in their
car or in driving. Concerned most with safety, they
don’t enjoy driving and have no interest in knowledge
about cars.
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Segmentation of Business
Markets
The general approach to segmenting business markets
parallels consumer segmentation. However, the specific
categories differ somewhat.
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Demographics
For
the
institutional/business
market,
demographic
characteristics include the size of the customer (small, medium and
large businesses), geographic location, type of business (i.e. what
business the customer company is in), and the life-cycle stage.
The size of the business can help in two ways.
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First, it translates into usage segmentation, as size is generally
related to the quality of product needed.
Also, large and small businesses differ in the degree of
formalization in their buying procedure, which in turn requires
different selling approaches.
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Geographic location can be very useful bases to segment the
business market because that has a direct implication for where to
locate distribution and sales infrastructure.
The type of business is an important segmentation criterion
because the product may have to be customized for different
applications
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Psychographics
The concept of psychographics would translate in the business context as the
behavioral dynamics of the customer. The formal policies and organizational
structure set up for procurement serve as the board parameters of this behavior
which a marketer needs to be aware of.
Some companies use centralized buying, whereas others spread this function over
many employees and facilities.
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The Buying Center
Is an important concept in industrial buying
consists of all the members of a customer firm who play some role in the
purchase decision
. It includes five different roles:
user, influencer, buyer, gatekeeper, and decider
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Beyond the formal structure, informal organizational dynamics and
political processes are important, as is the corporate culture. Culturally,
the buyer organization may have an open and candid dialogue with the
potential supplier, keeping the latter fully informed about its emerging
needs and supplier selection deliberations, or it may operate in secrecy and
intrigue.
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Market Value – Based Segmentation
Schema
It is similar to benefit segmentation except that instead of specific benefits, it uses a category of
market value (e.g. performance or social value).
two types of market values were universal and personal. For the user, these were, respectively,
performance and social – emotional.
Using the basic distinction between universal and personal values we can obtain a value-based broad
division of the total market. Depending on whether universal values are important or not, and likewise
whether personal values are important or not, we obtain a matrix of broad market segmentation.
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Selection of Bases for Segmentation
An effective segmentation strategy begins with selection of
appropriate basis for segmentation. Several principles can help
with this decision.
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Criteria for Successful Segmentation
1.
Substantiality – every segment targeted must be big enough to
be profitable to the economy.
2.
Identifiably – every segment must be identifiable so that the
marketer can know who the customer is and what his or her
needs, wants, and resources are.
3.
Reachability – finally, these segments must be reachable
without wasting resources so that you know where to advise
and distribute the product to reach the targeted segments.
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A comparative Look at the Three
Bases of Segmentation
The three bases of segmentation have different strengths and
weaknesses. Some are easier to measure, but less useful for
customizing the marketing mix. Some contain explanation of
why customers' marketplace behaviors differ across segments,
while others are purely mechanistic divisions of the market.
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Measurability
The easiest type of segmentation to measure is usage segmentation,
since the marketer can simply ask customers how much of a product
they consume in a given time .
the measurement of psychographics becomes quite involving, as it
requires asking wide-ranging questions. Benefits are moderately easy
to assess – one merely needs to prepare a list of all possible benefits
and ask respondents to rate their relative importance.
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The only snag is that it works for products whose benefits are
relatively physical and easy to articulate. Certain intangibles
such as aesthetics or beauty are difficult to translate into
objective quantities.
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Scope of Relevance
The scope of relevance for the usage basics extends to both the household and
institutional markets. Among the "why" bases, benefit segmentation applies to
both the markets, whereas psychographics apply to household markets only.
Another important difference between these to "why" bases is that benefit or
value segmentation is most suitable for products customers seek primarily for
their functional value, whereas psychographic segmentation is most benefiting
for products sough for nonfunctional values.
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Diagnostic Value
The demographics and psychographics are in between, with the latter
being more explanatory than the former. In demographics, the reason
for differential responses to marketing mix are implicit; we make sense
of demographic differences, because, and only after, we inject our
common-sense understanding of motivational differences among
people of different demographics.
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Actionability
In terms of actionability, usage segmentation is the least self-
sufficient; we need to cross-profile it by demographics to take
any action whatsoever.
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Marketing Mix Implications
Different bases influence different elements of marketing planning. Usage segmentation is
most useful for allocation of the total marketing resources. One allocates most resources to
heavy users – unless, of course, discerns untapped potential in the low use segments. Either
way use segmentation helps managers decide at which markets the company's resources
should be directed.
Demographics help most in media-mix decisions as people of different demographics differ
in their media habits. They also influence distribution decisions
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The most direct influence of psychographics is on the creative aspect of marketing communications. In
advertising and mass communications, we need to depict the customers' similar lifestyle to our target
segment and use psychographic positioning that would appeal to our target customers.
If a marketer is marketing a conspicuous product, he or she would be totally handicapped if he or she did
not delineate various market segments on the basis of psychographics. Psychographics also help fine-tune a
marketer's board media choices, in particular because several print media vehicles specialize by consumer
interest groups,( e.g. there are magazines that appeal to outdoor adventure types.)
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