Beyond market segmentation

Beyond market segmentation

agarbandhu


“New technology shifts focus from consumer himself to his perceptions of products”


This post reviews the various segmentation tech­niques used by consumer marketing companies for new product development. In noting that each ap­proach offers advantages for some problems but fails with regard to others, the author discusses a promising new concept product segmentation—which appears to offer significant advantages over the traditional mar­ket segmentation techniques.

A widely circulated statistic in the consumer marketing world is that approximately 2 in 10 new packaged goods succeed. Put another way, 8 out of 10 entries fail to achieve the goals their manufacturers set for them. Even if the success rate for new consumer package goods were twice what the marketing facts of life indicate, the failure rate would still be quite grim.

Many of the research tools used by sophisticated consumer marketing companies for new product development fall into the broad category re­ferred to as "market segmentation." Recently some of these segmentation techniques have come under considerable fire. In this post I shall review and evaluate some of the more pop­ular of these techniques.

In addition, I shall dis­cuss "product segmentation,” a new approach with which I have been working. As will be­come apparent, most segmentation techniques have applicability for some uses, but not for others. We shall be primarily concerned with the use of segmentation for new product devel­opment.

Marketing Segmentation ……..

Ever since Wendell Smith introduced the con­cept of market segmentation1 as a possible means of solving marketing problems, it has received much analytical attention.

Segmenta­tion refers to the notion at the consumer group comprising a market for a product is com­posed of subgroups, each of which has specific and different needs or wants Typically, mem­bers of such subgroups are identified by one or more "people" characteristics- e.g., demograph­ic, sociographic, or personality variables. Once subgroups have been identified, marketers sup­posedly can improve their marketing efforts by more closely approximating the needs of each subgroup.

The basic requirement of an opera­tional market segment is that it exhibit homo­geneous characteristics which permit identifica­tion, and eventually fulfillment, of a specific consumer want or need, thus resulting in greater profit for the marketer than would otherwise be possible.

Operational obstacle: This apparently reason­able approach has run into one major opera­tional obstacle: the fact that consumers do not cooperate. Efforts to use people characteristics to identify groups of consumers with homo­geneous purchase behavior have been notably unsuccessful.

For example, in a survey of data on market segmentation of this sort, 2 Ronald E. Frank reported that the average co-relation between peo­ple characteristics and purchase behavior is low­er than 0.2. Using 17 demographic, sociographic, and personality variables, Frank was able to account for only approximately 4% of the vari­ance in purchase behavior.

Clearly, in some cases objective factors—such as income, religious affiliation, and so on—are of primary importance in explaining purchase behavior. (Consider for a moment the market for rosary beads.) But other markets, including most probably the majority of consumer goods markets, are composed of products which have appeal to many demographic "groups."

…….. Vs. product segmentation

A recently developed concept — that of product segmentation — promises to have greater opera­tional value to marketing managers than does traditional market segmentation. According to it, people differentiate among the various brands in a market according to their perception of the brands' real or imagined characteristics; they choose brands whose characteristics they prefer. Brands tend to vary widely in their perceived characteristics but tend to be relatively sta­ble (unlike an individual consumer's preference. Consequently, each brand occupies a unique "niche" in the market, and together the brands present a usable "market structure."

Marketing managers have two important uses for segmentation analysis:

(a) to improve the marketing program for an existing product; and

(b) to develop a new product.

In the former the implications of the product segmentation phi­losophy are interesting, in the latter they are perhaps revolutionary. If the product segmenta­tion concept has merit, marketers need to shift their measurement focus from consumer char­acteristics to consumers' perceptions of prod­ucts; to concentrate not on consumers as statis­tics, but on consumers' perceptions of unique characteristics that differentiate one brand from another. And new product introduction becomes the search for a position in the market struc­ture for a product which is preferred over the products currently on the market by a signifi­cant minority of consumers.

Current techniques

Let us examine briefly some of the more popu­lar methods and theories in the area of market segmentation. This overview will then be fol­lowed by a more detailed account of product segmentation.

Demographic method: Today, the most popular market approach is demographic segmentation. Unfortunately, it appears to be a relatively poor predictor of purchase behavior.

One of the research concluded that many of the statistical tables they analyzed were "more remarkable for the similarity of consumption patterns they re­veal than for the differences." The authors also showed some interesting patterns of con­sumption among people in different demograph­ic categories and geographic locations.

It is important to note, however, that they used general and independent purchase catego­ries such as food and housing. Because these categories are fundamental to the sustenance of life, data based on them are far too general to show any of the personal whims and preferences consumers exercise among the items within them. In other words, the researchers findings clear­ly indicate that patterns do occur as a result of resource constraints. However, such findings failed to provide us with information on the util­ity of demographic analysis when choice among alternatives is present, as in the typical purchase situation where equal resources are needed but several brands are available.

Demography can play an important analytical role, both when brand preference apparently is not important or is absent (as in commodity mar­kets), and when the demographic characteristic itself is directly related to — and perhaps causes -consumption.

Take, for example, geriatric products. Simply by knowing the age distribution of the popula­tion, marketing managers should be able to pre­dict quite accurately whether the overall con­sumption of geriatric products is going to in­crease or decline in the near future. What they probably will not be able to predict solely from this information is the proportion of older peo­ple who will prefer one particular brand of ger­iatric product over another brand of the same product type.

one researcher highlighted a problem facing marketers who might use demographic or quasi-demographic analysis when he listed more than 40 variables which, he stated, must be consid­ered in order for such an analysis to be thor­ough.

Of course, anyone familiar with the day-to-day marketing management of a product will have some data and a good intuitive feeling about the particular demographic characteristics of its market, if any. As with any intuitive, non-systematic process, however, important areas may be overlooked. While computers can help to reduce this problem, they too rely ultimately on the intuition of the marketer in specifying the input for computer analysis.

In summary, demographic analysis, as a mar­ket segmentation tool, may be helpful for iden­tifying market potential, but it appears too in­sensitive for predicting specific brand choice. It will therefore be of little help in aiding market­ers to understand what action they must take to realize untapped potential within a market.

Social structure: Observations of the effects of social class, group membership, and aspirations on purchase behavior have led to several hy­potheses on the usefulness of sociological and sociopsychological segmentation in marketing.

Social class, reference group theory, and fam­ily life cycle are three widely used concepts. Social-class structure is in essence a modification or adaptation of demographic data. Interest in the use of this concept was apparently spurred by evidence that income per se was becoming less effective as a differentiating variable.

For example, before blue-collar workers at­tained the high income standards they currently enjoy, marketers assumed (and probably rightly so) that income correlated fairly well with style of living. In recent years, however, truck drivers (who presumably are representative of the up­per-lower or working class) and college profes­sors (who presumably are representative of the upper-middle class) have come to earn about the same median income. Consequently, social class appeared to be a better indicator of pur­chase-related behavior than income.

The assumptions underlying class structure are that style of living, tastes, and therefore pat­terns of purchasing behavior depend on the "norms" of one's class.

Using several households in the metro cities of INDIA, researcher found that :

(a) there was, in fact, a social class structure, and

(b) social-class membership af­fected shopping habits (as reflected in store pa­tronage), communications abilities, spend/save philosophies, aspirations, and life styles (as re­flected in the kinds of products and services purchased)."

These relationships suggest that social class might be a strategic segmentation tool for cer­tain kinds of operations.

The most directly ap­plicable results appear to be those that deal with store choice, life style, and communication skills. Mass marketers of consumer goods, how­ever, will probably find social class of little value in identifying market segments for their indi­vidual brands. As in demographic analysis, so­cial-class structure generally offers little insight into the factors that are associated with prefer­ence among brands in a product category.

It could be argued that, provided other means of delineating a segment are available, findings such as those reported by the researcher might help in designing the advertising and promotional material for a brand. Thus, if the brand franchise is drawn primarily from a single social class, the mass marketer might use to advantage data on the relationship between life style and commu­nications skills. Researchers findings indicate that even if the market is heteroge­neous, information on its social-class composition might facilitate the mar­keter's message segmentation, thereby improving communication effec­tiveness.

For example, by matching the copy illustrations and layout of advertise­ments with the consumer profile of the media in which they are to be run, one might communicate more efficiently with the' various elements of the consumer group. Whether this is worthwhile, of course, is another matter. Preparing multiple versions of an advertising campaign is essen­tially like running several campaigns. There appears to be a feeling among consumer goods marketers that run­ning and evaluating one major prod­uct with one campaign is pretty much a full-time job; running and evaluating several campaigns at once may at best be unrealistic. The costs of using social-class data may, for the most part, be prohibitive.

Another underlying assumption is that purchase behavior is related pre­dictably to certain personality char­acteristics. This hypothesis is derived from several findings that relate per­sonality characteristics to media ex­posure.

In one study Researchers found that highest expo­sure to popular fiction—e.g., soap operas, "true romance" magazines, and so forth—occurs among women who tend to be less gregarious and higher in anxiety than "average" women. Information of this type may be help­ful in message segmentation, but it has limited value for the marketer.

In another study, conducted by the Advertising Research Foundation, al­most no relationship was found be­tween personality and preference for various types of toilet paper.

Thus, on the basis of the empirical evidence, one would have to con­clude that personality has not been shown to be an effective basis for market segmentation.

Still another interesting sociopsychological concept, which interacts with social class, is reference group. Initially articulated by on of the Researcher, this idea suggests that, for some people, behavior is influenced by their perception of appropriate behavior for members of groups to which they belong or aspire to belong.

The reference group notion suggests, then, that one's current so­cial class is an index of purchasing behavior only insofar as one identi­fies himself with it, rather then with another social class. From a market­ing point of view, a consumer's ref­erence group may be even more dif­ficult to identify than his social class.

The reference group concept sug­gests strongly that, for specific mar­kets, the analysis of social-class struc­ture may be misleading. If a product such as a color television set is seen by the bulk of its consumer group (working-class families} as a symbol of upward mobility, portraying it in working-class surroundings might prove disastrous. According to the reference group hypothesis, it would probably be more effective to display the product in an obviously middle-class setting.

Family life cycle:

Another sociographic classification scheme, relates purchasing behavior to the fam­ily's stage in the normal life cycle.

The major stages of the life cycle are hypothesized to be:

(a) single;

(b) married — no children;

(c) married — children in the home;

(d) married - no children in the home;

(e) single — widow(er).

Obviously, consumption of some products and services, such as diapers and baby food, is going to be directly related to life cycle.

Knowledge of the proportion of fami­lies in the various cycle groups can therefore aid in estimating sales po­tential. However, life cycle is too insensitive a measure for establish­ing preference patterns' within prod­uct categories.

Usage Patterns: Another method of segmentation is based on patterns of product usage — i.e., an analysis of the various uses to which a particu­lar product or brand is currently put. Usage can, of course, vary for several reasons. On the one hand, a product such as all-purpose flour may be used by most consumers for several different applications. On the other hand, it may be used for a single but differ­ent application by several groups of consumers. In the latter case, profit­able "people" segmentation might be possible, and thus it merits investi­gation.

Segmentation by use is described in an article by the researcher of IIMB, who recommends analysis of various product markets on the basis of sev­eral modes:

-patterns of usage,

-values derived from usage,

-aesthetic prefer­ences, and

-attitudes and moti­vations.

Unfortunately, the article includes no information on how one would perform these analyses or on how one would decide on the ap­propriate method of segmentation. Researchers version of segmenta­tion analysis appears to he largely in­tuitive.


One of the researcher argues that variety is a basic consumer want.10 Accordingly, he says, it makes more sense for a company to develop sev­eral products in each of its product lines than to apply Yankelovich's "segmentation analysis." People who want variety would then be encour­aged to switch within a company's product line, and not to seek other companies' products. Reynolds terms ludicrous the belief that there are large, finite, demographically identi­fiable groups of people who always prefer white bread, for instance, to the bread. Rather, people who like broad may use both kinds at different times or for different purposes.

Researchers further argues that there are different satisfactions derived from various types of products, while Reynolds argues that within one product line there may be different satisfac­tions derived from several products that vary but slightly .

Though different Researchers discussing preference, they clearly have different basic assumptions concerning the correlates of preference. one of the Researchers assumes that the preference for a product depends on the characteristics of the person involved, and/or on the use to which the product will be put.

He thereby implies that there are two elements which determine product choice —

(a) people characteristics and

(b) product characteristics.

some of the Researchers relies less heavily on peo­ple characteristics, assuming that the product's characteristics account pri­marily for differences in preference/ purchase behavior.

In Summary: Thus far, I have dis­cussed several methods commonly used for segmenting people into con­sumer groups. These techniques have two factors in common:

1. They appear to be primarily af­fective for estimating gross sales po­tential.

2. They appear to he relatively in­effective for illuminating in some systematic and reliable way the phe­nomenon of brand preference.

As markets have become larger and more competitive, the market plan­ner's primary function has shifted from forecasting the gross size of a market to estimating the probable performance of his current or pro­jected brand in the market. As we have seen, traditional methods of segmenting markets tend to break down when it comes to making these fine distinctions, Recently, a new approach—product segmentation —has been reported in the literature. This method, which segments by per­ceived product or brand characteris­tics, shows promise for marketers in predicting brand share.

Bojourn..............!!!!!!!!!!!!!!!! agarbandhu