term paper on market segmentation

MARKET SEGMENTATION 1

A STUDY ON THE CONSUMPTION PATTERN OF THE MARKET SEGMENT IN THE AGE GROUP OF 23 – 25 YEARS AND ITS IMPLICATIONS FOR A MARKETER

PURVA VERMA

INSTITUTE OF CHARTERED FINANCIAL ANALYSTS OF INDIA


TABLE OF CONTENTS

S. NO. TOPIC1. INTODUCTION2. LITERATURE REVIEW3. DATA GATHERING4. DATA ANALYSIS5. CONCLUSION


INTRODUCTION


Market segmentation is the process in which a marketer divides a large market into smaller groups based on their common needs and buying behaviour (Cengage, 2002). Marketers must identify key groups or segments within the general market based on their shared consumption pattern and needs. This approach works much better than “one size fits all” mass marketing approach as it allows marketers to identify their target segment and therefore, develop marketing strategies to capture this segment.

Every individual is a member of an identifiable market segment based on various segmentation variables. Every child when he/she is born becomes a consumer. Over the years, an individual consumes many products depending upon his needs at that time and point in his life. A child who consumes milk, baby food and diapers goes on to consume toys, books and so on. These changing needs make it inescapable for marketers to conduct segmentation studies. As soon as a slot is emptied by one group of consumers, others are waiting to occupy that sub segment.

In order to conduct market segmentation, marketers first need to find out the factors that influence consumer buying behaviour. Consumer behaviour is influenced by the following factors (Kotler, Keller, Koshy, & Jha Mithileshwar, 1972):

1. CULTURAL FACTORS:

Culture is determined by how an individual is raised and what are his values and perceptions. A child belonging to a middle class Indian family is exposed to values such as loyalty, hard work, respect for elders and sacrifice. Recently launched channel Life OK by Star World is targeting middle class Indians with it’s new set of sitcoms in which every story highlights some or the other value held by middle class India. Values such as sacrifice, adjustment and respect for elders are portrayed (Chatterjee, 2011).

2. SOCIAL FACTORS:

These refer to a person’s reference groups, family and social status.

a) Reference group- These are the groups that have a direct or indirect impact on an individual’s behaviour and attitude. These include family, friends, religious groups, aspirational groups and dissociative groups.

b) Family- From the oriental family i.e. parents and siblings, a person acquire orientation towards values, religious beliefs, political beliefs etc.


c) Social status- It is the honour attached to one’s position in society and it depicts much of an individual’s behaviour.

3. PERSONAL FACTORS:

These refer to the age and stage in the life cycle, personality, lifestyle and occupation of a person. For example, if a marketer wants to launch energy drink in the market then on the basis of personal factors he will target the segment of people belonging to the age group of 20 to 30 yrs, educated, fitness conscious with a fast and busy lifestyle.

Upon understanding these factors, marketers should make sure that market segments fall true in terms of the following five criterions (Roger, 2005):

1. MEASURABLE- Size and purchasing power of the segment can be measured.

2. SUBSTANTIAL- Largest possible segment with a common need for the offered product should be selected.

3. ACCESSIBLE- Ease of reach.4. DIFFERENTIABLE- Should respond differently to different marketing mix

elements.5. ACTIONABLE

One of the best recent success stories on market segmentation is that of Bharat Matrimony. It is a matrimonial website in India. It has captured the pulse of Indian families where most marriages are community based arranged marriages. It has launched 15 regional websites in over 8 languages. They also provide horoscope generation, elite services for the rich and affluent class and offline ventures to cater to customers at grass root level.


LITERATURE REVIEW


The concept of market segmentation attempts to reconcile differing customer needs with limited company resources, and allows product and marketing offerings to be adjusted to suit different customer groups (Wind, 1978). A firm cannot launch it’s products or services randomly without conducting this process. The theoretical grounding for market segmentation comes from economic pricing theory, which indicates that profits can be maximized when prices that discriminates segments are set (Frank et, al., 1972).

Market segmentation can be done on the basis of (Kotler, Keller, Koshy, & Jha Mithileshwar, 1972):

1. GEOGRAPHIC SEGMENTATION:

It calls for division of market into different geographical units such as nations, states, regions etc. It also divides markets on the basis of urban and rural areas; population density and climate. The market potential value of towns in India can be calculated on five parameters of (Swamy, 2004):

a) Number of consumersb) The means these consumers havec) Their consumption behaviourd) Awareness levelse) The availability of marketing support infrastructure

Geographical markets vary in their product requirement. For example, marketers cannot offer air conditioners in the state of Kashmir. Also, tea as a beverage is consumed much more in northern India as compared to the southern states like Kerala.

2. DEMOGRAPHIC SEGMENTATION:

It calls for dividing the market into sub segments on the basis of:

a) Age- Clean and Clear products are targeted at teenage girls while Olay products are targeted at women slipping in their prime.

b) Life cycle stage- In the advertisements for insurance cover, often people with families are depicted as opposed to bachelors while products such as deodorants are sold on the basis of its sex appeal for single unattached consumers.


c) Gender- In recent ad campaigns launched by Emami, men were prompted to buy their new fairness product designed especially for the tougher male skin as compared to female skin. Washing powder brands such as Nirma always target women in their promotion while automobile companies such as Pulsar and Hyundai target men.

d) Income- The “value for money” proposition has long been adopted to target middle income segment of the market while companies such as Mercedes do not even advertise on television since they target only the elite class and likewise advertise in magazines such as Forbes.

e) Generation- Youth today is a lot more brand conscious than it was a couple of

decades ago. Globalisation, access to internet and television has changed attitude and perceptions of consumers completely.

f) Social class- It has a very strong influence on consumer buying behaviour and influences buying decisions regarding the brand of clothing people wear, the cars they drive etc.

g) Education level

3. PSYCHOGRAPHIC SEGMENTATION:

It uses psychology and demography to understand consumer buying behaviour. Values and lifestyle effect product and brand choices of consumers (Kahle & Chiagouris, 1997). It is a reflection of a consumers’ lifestyle and personality characteristics formed due to their psychological traits, lifestyle and values.

Hindus do not partake of beef which led Mc Donald’s to change their menu completely to suit Indian taste buds and lifestyle. Raymonds tagline of “The Complete Man” target the psychology of ambitious achievers.

4. BEHAVIOURAL SEGMENTATION:

Various variables studied under this are:

a) Occasions- Cadbury Celebrations chocolates are promoted extensively during the festival season in India (Diwali, raksha bandhan etc.)


b) Benefits- Sunsilk promotes 6 different shampoos to address different hair needs for consumers. In African countries, Sunsilk even promotes shampoo targeted at maintaining curly braided hair.

c) User Status- Potential customers for skin care products of Olay are women in their 20’s currently. Thus, they have recently launched ads depicting celebrities in their mid 20’s recommending Olay before the signs of ageing appear.

In today’s environment, market segmentation has become a competitive necessity as opposed to the competitive advantage it used to be. People are surrounded by multitude companies offering the same products and services. It is now upto the marketers how they differentiate their product from their competitors’ and create a need for it.


DATA GATHERING


For this research, data has been collected about Indian population from the website of Census of India (Ministry of Home Affairs, 2011). This data is divided into broad sections and sub sections based on national population, state population, gender wise division, sex ratio, income levels, literacy levels etc.

This data is verified and trustworthy. Also, data has been selected from the book (Kotler, Keller, Koshy, & Jha Mithileshwar, 1972) which is projected data. This data talks about populations’ growth, income levels and buying capacity.

A few projected data tables also predict customer preferences and how these preferences change with age group and changing expendable income.

The following data has been referred:

TOTAL POPULATION IN INDIA 1,210,193,422TOTAL POPULATION IN DELHI 1,67,53,235NUMBER OF FEMALES IN DELHI 7,776,825NUMBER OF LITERATE FEMALES 5,429,391NUMBER OF LITERATE FEMALES IN NEW DELHI REGION

46,190

Source of data: (Ministry of Home Affairs, 2011)

AGE GROUP 2001 2006 2011 20160-4 366 362 355 34315-59 598 673 747 81160+ 65 78 94 113TOTAL 1027 1114 1194 1268Note:Year wise population in million

Source:(Tata Services Ltd., 2004)


DATA ANALYSIS


The population of India as on 31st March 2011 as per the provisional population totals of census is 1,210,193,422. The population of India has increased by more than 181 million in the last decade leading to a decadal change of 17.64%. Data shows that the poor tend to have larger families. In the developing countries, a youth bulge ensures that the absolute number of births will rise even as couples are having

fewer children. At the other extreme, most developed Western countries are facing a phenomenon called as a “youth dearth” after decades of low fertility. Stagnant growth and declining population is challenging more countries as fewer workers must support expanding pension social security systems for aging citizens. Governments have crafted a range of policies to address these issues. In developing countries like India, policies include support for family planning and reproductive health program’s to control the extremely high rate of population growth.

These two different situations have a deep impact on marketing scenario of a country. Many economists agree that people work and save when they are young and live off the proceeds when they retire. Thus, wealth peaks at retirement age and then begins to decline thereafter indicating that people will have different consumption and saving patterns at different stages in their lives. With the change in the age structure, consumption patterns of the population will also change. The needs of older people are very different from the needs of middle aged and younger people: older people buy different things than younger people and have less need for borrowing money.

In India, population has been further segmented state wise. For the scope of this project, I will talk about the population of NCT of Delhi. It’s population according to 2011 census is 1,67,53,235 and is the 18th most densely populated state in India. It is the capital of the nation and a fast paced metropolitan city.

The market in Delhi has transformed both in terms of sophistication and variety, resulting in a substantial change in the disposition of the customers towards quality, price, delivery and service leading to new processes. It has a rapidly expanding service sector including production, business, government and other service sectors like education, healthcare, hotels, insurance, banking, consulting company, travel and tourism etc. It has seen an emergence of production, business, government and other service sectors like education, healthcare, hotels, insurance, banking, consulting company, travel and tourism etc. (Ashok, 2007)

Awareness in terms of media expansion has exposed the population of this metropolitan to global brand, alternative lifestyles and multiple buying options. From single channel to cable network with multiple channels, larger coverage, multimedia mix, greater spending and emphasis on market research and media planning, have become the order of the day. It is a popular hub of the “Mall Culture”. Innovative distribution channels like convenience shops, departmental stores, discount stores, super markets, mail-order retailing, video shopping, internet shopping and multilevel


marketing, have begun to change the face of distribution format while e business and e commerce are the talk of the day.

As a result of all these changes, the role and functions of marketing have undergone a metamorphic change in recent years. Many new concepts and patterns of thought have emerged. That apart, changes have also taken place in the consumer buying habits and spending behaviour. Consumers have become more knowledgeable, more adventurous and more demanding, compelling, in a way, redefinition of marketing strategies and orientations of companies. Since present day consumers are more concerned for value, brand image and performance than ever before, consumer satisfaction is viewed as an integral part of total quality package in terms of form utility, place utility, time utility and possession utility (K, 1999).

It is, therefore, essential that marketers keep a constant watch on the marketing horizon to spot the new challenges thrown up by the staggering pace of technological developments and various changes in the marketing environment and to convert them into highly profitable marketing opportunities.

Further distinction has been made on basis of gender. Out of the total population of Delhi, number of females at the 2011 census stood at 7,776,825. Out of these, females residing in urban Delhi are 7,584,506 while literate females in New Delhi are 46,190 out of a total literate female population of 5,429,391.

Women are the world’s most powerful consumers. They are the big spenders whether you talk about households, corporate purchasing or small businesses. Educated women have a very different set of priorities, preferences and attitudes. Thus, their decision process is radically different.

For years, women have been recognised as gatekeepers for family products and they continue to be primary decision makers for most household goods. Now marketers in industries like automobile, luxury travel, financial services etc. realize that this segment is a potential market for their products as women not only hold the keys to household purchases but also are increasingly driving big ticket expenditures for themselves and their families (Barletta, 2003)

Out of the literate women in Delhi, those holding graduate-level degrees enjoy the benefits of higher earning potential .Almost 40% of the MBA’s graduating today are female. As this change in the workplace continues, one obvious result is that women are building their current incomes. This in turn increases the household income which fuels the demand for consumer goods as well as luxury goods. Working women like men need cars, mobile phones, laptops, insurance and all other products and services which were considered male dominated till a few years ago.

Two dimensions of the women’s buying process make them more profitable customers than men in the long term: loyalty and referrals. Women are more likely to


try a product on the word of mouth basis as compared to men. Also, women are a lot more brand loyal than men because they easily form relationships with the products they like and use regularly.

This has deep implications for marketers as this segment has a lot of potential. Many global brands such as Dior, Mac, Lancôme, LV have launched their stores in Delhi looking at the buying capacity of women in this region. Not only luxury fashion brands, but the recent years have seen a spurt in spa culture, nail salons, French lingerie stores etc.

In a place like New Delhi where on one hand we see the liberation of women, at the same time we see the increasing lack of their safety. Companies like Apple have grabbed this point to launch a new application on their iPhones. This application basically allows women to press one single button which updates their status on social networking sites and also sends messages to their family that they are in trouble in so and so location.

Lifestyle of young women in Delhi has gone through a drastic change in the last few years. . Due to the education and increased level of literacy among people there is increase in awareness of product availability, product features, technological advancements etc. This in turn has led to a more complex nature of purchasing style.

The task of any marketing executive is becoming more complex because of our cultural patterns – life style, social values and beliefs, which are changing more quickly than they used to. A consumer’s behaviour also is influenced by social factors, such as the consumer’s small groups, family and social roles and status. In case of young women this is especially true as the last decade has seen liberalisation of women not only in terms of education but also their lifestyle and attitude.

Young women today have different social values in terms of the way they think about their independence, their jobs and their families. Their social value orientation is turning from altruistic (desire to maximize the welfare of the other) to competitive (Desire to maximize own welfare relative to that of the other). This leads to a change in their buying decision process as well.


CONCLUSION


The basic psychological processes play an important role in how consumers make their buying decisions. It is also affected by where they live, their age, education level, growth potential and real income. This can be reflected in the five stage model of consumer buying process (Kotler, Keller, Koshy, & Jha Mithileshwar, 1972):

5. PROBLEM RECOGNITION:

The buying process starts when the buyer sees a problem or need triggered by an external or internal stimulus. Internal stimulus could be hunger, thirst etc. while external stimulus could be television ad, discount etc.

Marketers need to trigger this need in the identified segment of young, educated women in New Delhi. They need to come up with products and marketing strategies which would interest this group so a potential purchase gets serious consideration. Reebok launched Easy tone shoes which was a hit as it suits the needs of a busy, working girl who wants to stay fit without spending too much time on her fitness regime. Pepper spray is another product which has huge potential in this urban market due to growing insecurity for women.

6. INFORMATION SEARCH:

This habit is well developed in women. There are 2 levels of involvement:

a) Heightened attention- this is a milder search stage. At this level a person simply becomes more attentive to information about a product.

b) Active information search- Looking for reading material, phoning friends, going online and visiting stores to learn about the product.

Women often turn to 2 major sources of information:

i. Personal- family, friends, neighbours, word of mouthii. Commercial- advertisements, web sites, salespeople, dealers, discounts

For example, if a woman wants to buy a wrist watch then she will take the opinion of her friends, family and then look for brands she has seen advertisements of. Final decision will be made on personal choice and also the discount available on a product, if any.

TOTAL SET: AWARENESS SET: CHOICE SET: DECISION:

Titan Titan Titan Titan

Timex Timex Tommy Hilfiger

Espirit Tommy Hilfiger


Tommy Hilfiger

1. EVALUATION OF ALTERNATIVES:

Consumer is trying to satisfy a need and looking for certain benefits from the product solution. Also, consumer sees each product as a bundle of attributes with varying abilities for delivering the benefits sought to satisfy the need (Dickson). The attributes of different products vary according to the consumers’ interest. For example:

i. Clothes- fabric, colour, brand, styleii. Mouthwash- color, effectiveness, germ killing capacity, flavour

2. PURCHASE DECISION:

Consumer may decide on the basis of brand, dealer, quantity, timing and payment method. There are different intervening factors that a consumer evaluates before making a purchase decision. These are:

a) Functional risk- the product does not perform up to expectations. For example, an anti-dandruff shampoo like Clinic Plus does not effectively perform its task.

b) Physical risk- the product poses a threat to the physical well-being of the user or others. For example, alcohol containing deodorants pose a threat to the user and her environment.

c) Financial risk- the product is not worth the price paid. For example, fake sales.

d) Psychological risk- the product affects the mental well-being of the user. For example, certain artificial salts and flavours present in eatables like Maggi stimulate the brain to eat more and in general lead to unbalanced hormones.

e) Time risk- the failure of the product results in an opportunity cost of finding another satisfactory product.

3. POST PURCHASE BEHAVIOUR:


This refers to service, replacement, guarantees and warranties. These determine a consumers satisfaction with the product and if she would recommend it to other people and repurchase when the chance arises.


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