Step 1: Define a Problem

Market segmentation may facilitate in answering different queries with respect to the market segments response to the firm’s marketing strategies like price or product changes, new product offerings, advertising themes etc. This activity further helps in choosing the target market segments for the firms offerings.

Step 2: Choose the Segmentation Basis

The segmentation studies are conducted by the marketing practitioners with the help of any two alternatives i.e., prior methods and clustering method for selecting the segmentation basis.

The segmentation bases which are followed by marketers is being classified into two major groupings i.e.,

1. General consumer characteristics and
2. Situation specific consumer characteristics.

Step 3: Select a set of Descriptors

Such descriptors of a segment would consists of any variable like age, income, gender etc.

For instance, the extent or quantity of a product purchased basically depends upon various variables like age, location, gender, income, culture, social class and so on.

Step 4: Choose a Sample of Consumers for Collecting Data

The basic idea of this step is to cany out the research and identify the segments on the low-cost

Instead of collecting the data from the complete population, it is collected merely from a sample of population, and then it is ascertained as to whether the segments exist within the sample or

Steps 5: Use Primary and Secondary Data Collection Method

When the marketers collect the data from the sample of consumers then they can make use of both primary data collection method and secondary data collection method.

Step 6: Establish Segments on the Basis of Selected Consumer Descriptors

The marketer should form the segments by defining and by drawing a line between the different segments. This helps in ascertaining as to which segment each sample consumer may belong.

Step 7: Create Profiles of Segments

As soon as all the respondents are being categorized into various segments, the profiles of these segments are to be organized on the basis of their critical differentiating features.

Step 8: Convert the Results into Marketing Strategy

This is the most difficult task of the segmentation project. During this stage, the marketer chooses target market groups, and formulates suitable marketing mixes for the selected segments on the basis of their findings related to segments expected sizes and profiles.

Hence, the segmentation study can be successful if the marketer has the capability to understand and use them as guidelines for the design, implementation and analysis of suitable marketing strategy.

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The marketing personnel recognize various alternatives to segment the market and create profiles for market segments that have emerged.

Market segmentation is the process in which groups of individuals or organizations that play an important role in determining the marketing strategy are identified. Through segmentation, different markets are classified into smaller and similar submarkets.

Objectives of Market Segmentation

The objectives or purposes behind carrying out market segmentation are as follows,

1. Target Market Selection

On the basis of segmentation, target markets are selected. Target market is the selected market segment, which a company is planning to serve. In a target market, the customers possess same characteristics and a single marketing mix is used for serving them.

2. Tailored Marketing Mix

Segmentation helps in grouping the customers, on the basis of their similarities. Marketers are capable of identifying the detailed requirements of segments and create a marketing mix, which fulfill their needs.

3. Differentiation

A company divides its market into constituent segments so that it can differentiate its products or offerings between segments and from competitors. A company develops a differential strategy over its competitors to attract the customers for and purchasing its products.

4. Opportunities and Threats

Market’s potential increases when the customers are becoming wealthy. They fry to adopt new experiences and develop new values which result in the emergence of new segments. A company can identify those segments which are not served properly by the competitors. In the same way, if a firm ignores an essential market segment, then it may create threat to the company as the competitors can use it for entering into the

Levels of Market Segmentation

The following are the levels of market segmentation,

1. Niche Marketing

A niche are a small group of customers trying to obtain different types of benefits. Marketers recognize niches by classifying a segment into subsegments. Niche markets are small and attract only one or two competitors. The marketers of these markets have complete knowledge about the needs of their customers.

2. Local Marketing

Local marketing is a type of target marketing in which the marketing programs are created according to the needs and wants of local customer groups. It is also called as grass root marketing in which the products or services are promoted by communicating its features and advantages and connecting it with distinct and interesting experiences.

3. Customization

In this level of market segmentation, operationally driven mass customization is integrated with customized marketing for designing products and services according to the needs and wants of the customers.

Benefits of Market Segmentation

The benefits of market segmentation are as follows,

1. As market segmentation is customer driven, it is compatible with the marketing concept. In market segmentation, the needs and wants of the customers in a sub-market are firstly determined and then accordingly a marketing mix is designed for satisfying those wants.
2. Making the use of marketing programs to individual market segments helps the firm to carry out the marketing job effectively and make optimum utilization of its marketing resources.
3. Development of strong positions in specialized market segments helps the medium sized organizations to grow rapidly. For example, Oshkosh Truck Company in Wisconsin had developed strong positions in specialized market segments and has now become the largest producer of fire and rescuer trucks for the airports in the world.
4. Large organizations having sufficient resources to deal in mass marketing and having expensive national advertising campaigns. These organizations adopt market segmentation and consider it as an effective strategy for reaching the fragments.
5. Market segmentation helps the small firms with limited resources to effectively compete in one or two small market segments.
6. If the markets are not segmented then the customers become frustrated as they have to make complex decisions for a simple purchase when number of same products are available.

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New Product Development Process

New product development passes through seven stages as follows,

1. Generating New Product Ideas

The process of new product development starts with the new ideas. New product ideas may be generated from both internal and external sources. Internal sources are the sources which are found inside the company. External sources are the outside resources or sources. Thus, the new product ideas may come from customers, dealers competitors (rivals) in company source or from research organization.  Techniques such as brain storming and Synectics can be used for product idea generation. Idea generation is a continuous systematic search for new product opportunities.

2. Idea Screening

The next stage is idea screening. In this stage various new products are screened by the evaluation committees. It emphasizes on the questions like, Is the new product needed or not? Whether it is an improvement over the existing product? and What areas must be considered for improvement in order to handling the product in a better way?

3. Concept Testing

Concept testing is nothing, but product concept test. This test is conducted in order to know the reaction response of the customers towards the product. The need for introducing the product or its satisfaction levels are determined by conducting the concept testing.

Quality Gates to Screen and Pass Product Ideas

Quality gates also known as phase gates. These are the checkpoints which verifies the quality of the product.

4. Business/Market Analysis

This stage is very important is the new product development. This stage considers all the important decisions related to the growth of the product from various perspectives like financial marketing etc. It also includes investment analysis and profitability

Estimating Demand for New Products

The two methods used for estimating demand for new products are,

1. Substitution Displacement method
2. End use method.

5. Market Test

For marketing the new product the films selects various market segments and usually prefer full-scale manufacturer and marketing which are based on results of experimental marketing. The market test is crucial for new products. With the help of the market test the firms can determine the status of the products and if they find that the products are not achieving the expected results then the firm can make an exit from the market and switch over to the new product,

Various methods of market test are,

1. Sales wave research
2. Simulated test marketing
3. Test marketing.

6. Test Marketing

In test marketing, the new products are launched in the market by using the selected marketing mix and are tested in few cities. This is test marketing acts as representative for the selection of the final market.

Test marketing is a lengthy process and utmost care must be taken while monitoring the market and analysis the interpreted results.

7. Commercialization

This is the last stage in the new product development process. The company commercializes its new producers only when all the six stage are successfully completed. Then the company introduces the new product with the required investment is manufacturing and marketing.

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In order to decide upon the product mix, the product manager also has to take decisions regarding width, length, depth and consistency of the product line.

Components of Product Mix

A product mix which includes all the product lines has four important components width, line, depth and consistency.

1. Product Mix Width

A Product Mix Width means the number of product lines which an organization produces. For example HUL, has a large number of product lines.

2. Product Mix Depth

Product Mix Depth means the different varieties of a product offered by a firm in a product line. For example, a toothpaste manufactured by P and G (Procter and Gamble) has 13 versions and a soap manufactured by HUL has different colours and sizes.

3. Product Mix Length

Product Mix Length means the total number of products which a company produces in each product. For example, P and G has many product lines and each product line in turn has many products.

4. Product Mix Consistency

Product Mix Consistency refers to the relation of various product lines with respect to its end use, production requirements, distribution channels etc. For example, HUL product lines are consistent as its consumer products uses the same distribution channels though the functionality of product lines are different.

The width, depth and consistency of product mix enables a company to define its product portfolio, appeal to different consumer needs/segments and encourages on-stop buying.

A broad width or deep mix satisfies the needs of several consumer groups, maximizes shelf space and sustains dealer support.

A consistent mix is easier to manage than a diversified mix and allows the marketer to concentrate on its core competence, build or create a strong image among consumers and trade channels.

Product Mix Decisions

Product Mix Decisions are variable. These decisions are affected by the market changes occurring in the market place. Product mix decisions, also change with the changing preferences of the customers for the product. The changes in the product mix decisions are as follows,

1. Product line addition/deletion
2. Product abandonment and
3. Product modification.

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Stages of Product Life Cycle (PLC)

The product life cycle has four stages – Introduction, Growth, Maturity and Decline.

1. Introduction Stage

It is also called the ‘Pioneering Stage’. In this stage a new product is introduced in the market after it passes through product development, prototype and market tests.

It is the most risky and expensive stage as the firm has to incurs substantial research and development costs for developing the product and obtaining the acceptance of consumers. There are very less chances for the companies to earn profits on products at the introduction stage, as many new products are not accepted by customers and fail at this stage.

2. Growth Stage

It is also called ‘market-acceptance stage’. The growth stage is characterized by a rapid growth in sales and profits. Many competitors enter the market in this stage for earning profits. But, because of high competition in the market the profits are not stable and starts declining the end of this stage.

3. Maturity Stage

In this stage, sales volume increases at a decreasing rate. If the sales rate decreases then the producers and middlemen suffer losses because of intense price competition. For differentiating their products from other firms, the firms extend their product lines with new models or make use of new and ‘improved’ technologies for their existing brands. At the end of this stage, the marginal producers who incurred high cost and no differential advantage will exit from the market as they do not earn profits over the cost incurred and lost their customer’s attention towards their brand.

4. Decline Stage

This stage is characterized by the decline of the product due to new innovations leading to changes in the buying behaviour of consumers. In this stage, industry sales drop off and the number of competitors shrink. The following are some of the reasons for the decline of the product:

1. A good and affordable product is introduced for satisfying the same need
2. The product is no longer needed due to the development of other product
3. Buyers are no longer interested in the product.

So, the product disappears from the market.

Necessity or Importance of Product Life Cycle (PLC)

The following points highlights the necessity and importance of Product Life Cycle (PLC),

1. The product life cycle helps us to know the sales and profit volume of the product at various stages in its life.
2. It also reflects the quality, features or characteristics of the product when compared to similar products in the market with respect to its price and market segmentation.
3. It also keeps the marketing managers of the firms, alert so as to innovate new methods to improve the features, quality and low pricing of the product, stage wise. Thereby keeping a check on the efficiency of the organization.
4. The product life cycle not only aims at sales and profit of the product but also aims at innovative strategies for the product by advertising distribution and sales promotion, hence maximizing the profits of the organization to a large extent.
5. Akey advantage of PLC is that it keeps us aware of the products growth or decline, through which we can work out some measures to overcome in a short span of time challenges by competitor’s products.
6. It can be used as a forecasting tool for planning and control.

Strategies of Product Life Cycle (PLC)

During decline stage, the aim is to minimize expenditure and to take advantage of brand for a longer stay in the market. Firms adopt different strategies to achieve this objective,

1. Providing Pruned Product Lines

To deal with the problem of decline in sales, firms reduce their product offers, phase out weak items and focus on mature products. Firms take these initiatives when they observe a shift in demand to new and advanced products.

2. Maintaining Stable Prices and Restoring to Price Cuts only when Unavoidable

Usually, prices remain the same due to the existence of some profitable segments and also few product competitors. If these segments don’t exits and customers exercise high bargaining power, then firms may opt for price cuts.

3. Reducing Promotion to the Minimum

Companies don’t launch even moderate level promotional campaigns when the sales fall and the market become detached to the product. As there exist some profitable market segments with hard-core loyal customers, there are chances of continuation of persuading and reminding promotional activities.

4. Selecting Specific Distributors

Firms attempt to convince distributors to continue keeping the product. To phase out unprofitable outlets, firm may also take some steps.

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Types of Product

The products are classified into many different types which are as follows,

1. Business Product

On the basis of the intentions or aims of customers, the products may be classified as Business Product, or Consumer Products. The difference between these two products exist with regard to their usages. The Business Products are usually used for producing goods or services for making the operations of the organization effective or for the purpose of resale to other customers.

2. Consumer Product

The consumer products are purchased for fulfilling the personal needs and wants of the individual. In some situations, the same product is classified as a consumer product or business product based on their expected use.

The consumer products are classified on the basis of the level of effort spent for purchasing them. The products that are purchased regularly, have the low unit price and requires less effort by the consumers for purchasing them. The products that are not purchased regularly have high unit price, and requires significant efforts by the consumers for purchasing them. The various types of consumer products are as follows,

(i) Technology Products

The technology products have many inconsistencies which might either delay or stop the customers from adopting it. The firms must handle these issues carefully so as to make the customers feel comfortable.

The products are developed with the help of increasing technology. A restless or uneasy relationship exists between customers and technology which influences the way they purchase and use the technological products. There are many inconsistencies which regulates the relationship between technology and customers.

(ii) Commodity Products

It is very difficult to distinguish the commodity products. If the risks associated with these products are minimized, then it can help the suppliers in their products differentiation and they can charge a premium from the consumers.

The marketers also find it difficult to sell such products. So, for selling these product easily, the firms adopt the strategy of price cutting. Traditional marketing approaches such as bundling products strategies or providing value improving services like training and consulting helps in differentiating the commodity. But these strategies will be very costly for the firm and makes it difficult for them to recover.

The suppliers who minimize the risk of such commodities, are usually paid a premium by the customers. The firms can divide their customers in segments according to their tolerance and exposure to risk and thereby provide risk- reduction packages to them for price.

(iii) Customized Products

The tools of database management help the firms in designing or creating customized products for the customers and establish a learning relationship with them. A firm must consider the following factors while designing the customized products,

1. The firms should know that customers do not want more choices.
2. In segmented marketing, the firm creates an average product as it can be liked by many customers.
3. A firm should build a learning relationship with the customers.
4. Modular designs can be used for customization
5. Customization must be used for digital products as it can be used easily and is less costly.

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Methods for Studying Consumer Behaviour

The various methods which help in studying consumer behaviour are categorized into three major methodological approaches,

1. Observation

An observation approach to consumer research basically includes observing consumer behaviours in various situations like, natural settings, laboratory settings, so on. This approach is further classified into three different types. They are,

(i) In-home Observation

In this type of observation, the marketers gets into the peoples home in order to explore how do they consume the products.

(ii) Shadowing

It is a method where in the researcher accompanies or “shadows” consumers with the help of shopping and consumption processes, raising questions with respect to each and every step of the process. The answers are generally being recorded on audio or video tapes.

(iii) Physiological Observational Methods

These methods are usually being used by consumer researchers who follow or borrow the techniques either from medical psychology and other sciences, etc. These methods use cameras to ascertain the eye movement, Galvanic Skin Response (GSR) and MRI.

2. Interview and Surveys

The consumer analysts also collects the information from consumers with the help of surveys and interviews.

Surveys are the most efficient method of collecting information from a large sample of consumers by raising queries and recording their reactions.

Surveys can be conducted with the help of mail, telephone, internet or in person, wherein each and very method holds its certain own advantages and disadvantages.

3. Experimentation

This method aims at comprehending the cause-and-effect relationships by carefully controlling the independent variables like number of advertisements, package design, methods of communication in order to ascertain how these changes influence the dependent variables like, purchase intent or behaviour.

A laboratory experiment is carried out in physical environment, which allows the maximum control of variables which are being studied. While the field experiment occurs in a natural setting like a home or a store.

Importance of Understanding Consumer Behaviour

Understanding consumer behaviour is necessary for all organizational consumers. Organizational consumers mainly focus on individual consumer behaviour as they deal with different products which have impact on different people. The study of consumer behaviour is of great importance not only for consumers, students and scientists but also to marketers.

Importance to Consumers

Every person is a consumer and engage himself in one or the other consumption related activities. It is necessary for consumers to identify their perception about goods which holds a great impact on their daily live.

Importance to Student and Scientists

It is necessary for students and even for scientists to study consumer behaviour as it is apart of human behaviour which deals with both internal and external reasons acting as a driving force for purchase decisions.

Importance to Marketer

Consumer behaviour has a great impact on marketers. The study of consumer behaviour is necessary for marketer to identify the consumption decisions so that marketers can develop competitive strategies against their rivals.

Consumer Behaviour Models

The marketing experts are forced by the influences of social sciences to develop some models to describe the buyer behaviour Following are the buyer behaviour models.

1. The Economic Model

According to the economic model of buyer behaviour, the buyer is a rational man whose buying decisions are managed by the concept of utility. At the time of purchasing, buyer allocates his money in a rational manner to maximize the utility or benefits.

2. The Learning Model

The learning model emerged from the Pavlovian stimulus – response theory, it explains that buyer behaviour is effected by controlling the drives, stimuli and responses of the buyer. This model is based on learning, forgetting and discriminating skills of an individual.

3. The Psychoanalytical Model

The psychoanalytical model is extracted from Freudian psychology. According to this model, every individual buyer have some predetermined objectives which results in certain buying decisions. The buyer has its own fears, wishes and desires which influence his buying actions.

4. The Sociological Model

The sociological model explains that individual buyer is mostly effected by society, by personal groups and social classes. In this model, buying decisions are not influenced by utility but they are effected by the environmental conditions and societal compulsions.

5. The Nicosia Model

Marketing scholars have developed buyer behaviour models from point of view of marketing man. The significant models of them are Nicosia model and Howard Sheth model, they belong to systems model category. Systems model is the one in which human beings are considered as system, stimuli as input and behaviour as the output of the system. The Nicosia model identifies a relationship between a firm and its consumer that how consumer and his buying decisions are effected by the activities of the firm. In Nicosia model, firm attract the customers towards the product then customer develop some feelings towards the product depending on situation. Customer begin to search and evaluate the product, if he is satisfied then make the decision to buy.

6. The Howard-Sheth Model

The Howard-Sheth model was developed by John Howard and Jagdish Sheth in 1969. In this model, inputs are the incentive and output is the purchase decision. There are many variables between inputs and outputs which influence perception and learning.

These variables are regarded as “hypothetical” as they cannot be evaluated at the time of their existence. However, many models were developed to describe the buyer behaviour but no model can clearly explain about the buyer behaviour. The models explained above are useful in getting knowledge of buyer behaviour.

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Analyzing Customer Market

Most of the companies used three different methods to analyze consumer market and requirement of consumers. They are as follows,

1. Customer Panels

Few companies make use of customer panels to grab information regarding customer attitude and customer satisfaction. Customer panels are the group of customers who are ready to share their experience with the product through questionnaire, investigator or via telephone.

2. Customer Surveys

Customer surveys is a traditional method of analyzing customer satisfaction. Questionnaire is usually used in surveys.

3. Customer Feedback, Complaints and Suggestion System

The feedback received from the customers assists the company in making further improvements. Customer driven companies often invite feedback, complaints and suggestions from their customers.

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Customer value = Total benefits − Total costs

Building Customer Value

Customer value can be build by any organization through different sources or activities. They are listed below,

1. Activities which makes product unique.
2. Activities which reduces the costs.
3. Activities which render the service quickly to customers.

Characteristics of Customer Value

Customer values are distinctive is nature as they have distinguishing characteristics. Following are the characteristics of customer value,

1. Instrumental

The value of the product is an instrumental value with the help of which the customers attains satisfaction. These values help in satisfying the needs and wants of the customers.

2. Dynamic

Market values are dynamic in nature as they keep on changing over a period of time.

3. Hierarchical

A product should fulfill the main purpose of its existence. If it does not give the universal value, then the other values will not be considered by the customers. If these values are not present in the product, then the customers will not take into account the values of next levels. Thus, value has hierarchical nature.

4. Diverse

A homogeneous market segment has customers whose value expectations match at the universal levels. Whereas, in a fragmented and heterogeneous market, the customer’s expectations do not match with the universal values and makes other values complex and diverse.

5. Synergistic

The existence of one value does not destroy the other value, as one value improves the utility of other value. The performance value, service value and price value are at an optimum level when trade off does not exits between them.

Types of Customer Value

The following are the various types of customer value,

1. Functional Value

The functional value of customer’s choice is the comprehended functional, useful or physical utility derived by selecting the product features. It is mainly related with the economic utility theory which is expressed with respect to rational economic reason. The essence of this value is the set of features like reliability, durability and prices.

2. Social Value

The social value of a customer’s choice is the utility derived from the product due to the relations between one or more specific social groups and customer choice. The products associated with social values include highly visible products such as food, bicycles and services which are socially shared like gifts and products used for entertaining.

3. Emotional Value

The emotional value of a customer’s choice is the comprehended utility derived from the ability of the product to cultivate some sentiments or memories while using a product. A customer considers the emotional value when he has some specific feelings associated with product or sustain those feelings. The products and services are related with its emotional value frequently.

4. Epistemic Value

Epistemic value of customer’s choice is the utility derived from the ability of the product to stimulate a strong desire, provide a freshness and fulfill the desire for knowledge. The epistemic value is offered by the new purchaser and consumption expenses.

5. Conditional Value

Conditional value of customer’s choice is the utility derived by selecting a product as an outcome of any particular situation faced by the customer.

Significance of Customer Value

The following points helps us to know the importance of customer values :

1. An effective understanding of customer value helps the firms to integrate it with the marketing mix. This in turn helps the firm to deliver a superior value to its target markets and satisfies the existing customers and add new customers to the firm.
2. This perceived superior value enhances the organizational growth by increasing the sales, profits, return on investment, number of products and overall size of operations.
3. Superior perceived customer value also helps in developing the business repeatedly as the customers become more loyal to these firms when compared to other firms.
4. The growth and loyal customers help the firms to target and retain effective and talented employees who enhance productivity and result in cost advantage.
5. An effective customer value proposition helps the firms to connect its internal processes and enhance the consequences with its customers.

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Levels of Product

1. Core Benefit

Core Benefit is the most important level of product. Core Benefit is the benefit in which the purchaser of the product derives by purchasing. It helps in satisfying the basic need of a consumer.

Example

The hotel provides rooms for rest. Here, the basic need of customers is rest and sleep. Another example of a customer who buys pen for writing which is his basic need.

2. Basic Product

This is the second level in customer-value hierarchy in which the marketer transforms the core benefit into a basic product by adding some attributes to the product.

Example

A lodge which provides a room to the customers for rest and sleep can add some attributes to the room like an attached washroom, dressing table, a basic bed, a closet for keeping clothes etc.

3. Expected Product

This is the third level in the customer value hierarchy in which the marketer develops an expected product. The consumers normally expect the product to have some attributes before purchasing it. These are the common expectations of the purchaser of the product Every marketer tries to meet the expectations of the consumers, so that the consumers get satisfied after the purchase of the product.

Example

The purchaser of a four wheeler automobile expects the showroom to have a well designed interiors and a good handling experience.

4. Augmented Product

This is the fourth level of the product in which the marketer develops an augmented product which is beyond the expectations of the consumers. In the developed countries like USA, UK and Australia, brands compete in this level. Every firm determines the expectations of consumers and manufacturers the products beyond their expectations.

5. Potential Product

This is the last level in customer-value hierarchy which includes all the expected expansions and transformations that a product may undergo in the future. This is the final level and no more additional features can be added to the product In this level, the marketers determine new ways to satisfy buyers and differentiate their product.

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