Most marketers conceive of target marketing as comprising a series of steps or stages (see Solomon et al.).6
The following is a sequence of steps to be taken when conducting a segmentation, targeting and product positioning exercise:
We now examine each of these steps to appreciate further what target marketing means.
Dividing a market into segments
In segmentation, targeting and positioning, we are seeking to identify distinct sub-sets of customers in the total market for a product. Any sub-set might eventually be selected as a market target, and on that basis a distinctive marketing mix can be developed. For example, we might find that in the market for hi-fi equipment we can identify a number of distinct sub-sets (segments) of customers based upon income levels.. Continuing the example, we may find that income segments can be broken down further into a combination of income and age segments.
We need to recognize that in the example we assume that both income and age are associated with differences in buyers’ behaviour towards the product, i.e. different age/income groups will have different needs/preferences with respect to hi-fi products (e.g. under 35s might prefer the same audio in an aluminium case and over 35s might prefer the same audio, but with a wooden case) and each might to respond to a different marketing approach. If we are correct in our assumption, this means that the bases selected for segmentation (age/income) are meaningful ones on which to segment the market. This is the most important criterion for effective segmentation.
In addition, both these segmentation bases pose relatively few problems for the marketer in terms of identifying/measuring and reaching the segments to which they give rise; in the UK we know what proportion of the total population falls into discrete age groups (i.e. identifying/measuring). Furthermore, media habits of different age groups, e.g. television viewing and readership of magazines/newspapers, enables marketers to use direct marketing for selected target age groups (known as reachability). These are ‘ideal’ criteria for effective segmentation and count for little if they are not associated with meaningfulness. With regard to the criterion of ‘substantiality’, the hifi example shows that a market may be segmented using a succession of different bases. This leads to the breaking down of the market into an increasing number of smaller and smaller segments. The ultimate point to which this process can be taken where the market has been completely segmented into individual buyers, i.e. a fully customized market.
Segmenting the market for hi-fi by income
Further segmentation of each income group based on age
The extent to which it makes business sense to continue to subdivide markets in this way depends on how worthwhile the resulting segments are in serving as distinct market targets with a separate marketing mix. In some product markets, complete segmentation (i.e. tailoring the marketing mix to individual customers) is not simply desirable, but essential; in shipbuilding or the supply of aircraft, each customer may be treated as a separate market. For many consumer product markets, such ‘customizing’ of the marketing effort would be unnecessary and prohibitively expensive. In the hi-fi example we used the bases of income and age in segmenting the market.
However, here is no ‘right’ way to segment a market, and different bases/combinations of bases, particularly motivational ones, should be sought by the marketer. A number of relatively common bases, which we now examine, are frequently used by marketers, starting with bases that are typically used in consumer product markets, followed by those used in organizational product markets.
Bases for segmenting consumer markets
Segmentation must fulfil various criteria for being effective. We now discuss some of these, starting with geographic and demographic bases and moving on to some of the more recent developments, = A single customer who forms a single segment
Complete market segmentation
in particular the use of geodemographic, lifestyle and combination bases and those that use the behaviour of consumers themselves as the basis for identifying market segments. We begin with two conventional and widely used bases for segmenting consumer markets: geographic and demographic segmentation.
This consists of dividing a market on the basis of different geographical units. In international marketing, different countries may be deemed to constitute different market segments. Similarly, within a country a market may be segmented regionally into, for example, north versus south segments. Geographic segmentation is still widely used, at least as one element in a combination of segmentation bases. Clearly, geographic segmentation is potentially at its most powerful and useful when considering international markets.
This approach comprises a variety of bases and the more common ones include:social class/occupation;
Demographic bases were for many years the most popular for segmentation in consumer product markets, first because they were felt to be most strongly associated with differences in consumer demand (i.e. they are meaningful) and second because demographic information is relatively easy to obtain. With the exception of family life cycle and social class/occupation, their meaning and potential application is self-evident. Brief explanations of these two exceptions are now provided:
Family life cycle
This basis for life cycle segmentation centres on the idea that consumers pass through a series of distinct phases in their lives. Each phase is associated with different purchasing patterns and needs. The unmarried person living at home may have very different purchasing patterns from a chronological counterpart who has left home and recently married. It is also recognized that purchasing patterns of adults often change as they move towards retirement. The Newspaper Society together with the British Market Research Bureau (BMRB) have developed a ‘life stage’ classification system. Based on detailed market research and analysis, this life stage classification identifies the following life stage segments for classifying consumer groups:live with parents;
These life stages can be grouped into three major categories, namely:pre-family stages;
The developers of this system claim that it works well in distinguishing between different customer groups with regard to their lifestyles, media habits, and most importantly, their purchasing patterns.
These are linked together because official socio-economic group categorizations are based upon occupation. In the UK, this occupation is that of the ‘chief income earner’, because this is what is regarded as being the criterion that determines the social class of the household. It is a family classification unlike gender, which is an individual classification. Of all the demographic bases for segmenting consumer product markets, occupational social class segmentation is the most widely used as it so universally known and is simple to apply.
Social class scores highly against the segmentation criteria of ‘identifiability’ and to a lesser extent ‘accessibility’. It is a simple task to classify individuals on the basis of occupation and then to reach the different social classes so categorized, according to their different patterns of media usage and shopping habits. The system of social class gradings used in the UK together with an indication of the types of occupations associated with each.
Social class grading Occupation
A Higher managerial
B Intermediate management
C1 Supervisory/lower management
C2 Skilled manual
E Lowest levels of subsistence, e.g. state pensioners with no supplementary income
Occupation and social class
As occupation is the only factor in this system used to ascribe social class, it is important that the codex used to classify occupations into the six different social categories is valid, because the different occupations used to designate social class discriminate and distinguish between different customer groups who might have different purchasing patterns, to meet the ‘meaningful’ criterion identified earlier. Although this long established system of assigning social class is widely used in marketing, there is increasing doubt as to the extent to which social class is nowadays a ‘meaningful’ basis for segmenting some markets. This arises from the fact that they are no longer so strongly related to income groups. For example, it is often the case that the skilled manual group (C2) earn higher incomes than supervisory or intermediate management counterparts (C1 or B). Such groups are often in a position to purchase products and services that were traditionally the prerogative of higher social grades.
Many of the more traditional demographic bases including social class have become less meaningful to marketers as bases for segmenting consumer markets. Indeed, in the case of social class, there is evidence to suggest that this basis for segmentation may be a poor predictor of customer needs and behaviour, and might even be misleading. Because of this, the UK Office of National Statistics has developed an updated social class system which more nearly reflects the social groupings of today. This system, though still based on occupation, has eight new categories of socioeconomic groups as opposed to the existing six.
Although this system of classification is new, it is interesting in the way in which some of the occupations of the former system of social grading have been reassigned. The traditional system is still the most popular for market researchers, but our notion of social class and its use in marketing is changing. For example, as we move towards new, more complex measures of social class this basis of segmentation is perhaps becoming more of a pschycographic/lifestyle basis of segmentation described below rather than a true demographic basis. Certainly, ideas about the nature, meaning and uses of social class in market segmentation are changing.
Concern regarding the predictive power of these more conventional demographic bases for segmenting consumer markets, coupled with improvements in data collection and analysis methods,
has led to the development of new bases in consumer markets. We group these newer segmentation bases into three types: ‘geodemographic’ bases; ‘lifestyle/psychographic’ bases and ‘combination’ bases.
Occupation and social class new classification
As the term implies, geodemographic segmentation of consumer markets is based on a combination of demographic and geographic factors. It is easier to understand the ideas behind geodemographic segmentation if we look at one of the first systems of geodemographic segmentation used in the UK, namely, the ACORN system (short for ‘A Classification of Residential Neighbourhoods’). The ACORN system is produced by CACI, and like many of the geodemographic systems of segmentation, it is based on census of population data.
In the UK this census data is collected on a decennial cycle during each year that ends with 1 and on a 10 per cent sample basis on every year that ends with 6, and consists of the collection and analysis of detailed information on every house - hold concerning factors such as, for example, household size, incomes, occupations, car ownership etc. ACORN categorizes all 1.9 million UK postcodes, using over 125 demographic statistics in England, Scotland, Wales and Northern Ireland, and 287 lifestyle variables, giving a good under standing of clients and prospects. These districts can be described on the basis of the type of property and householder predominantly prevalent in each census enumeration district. Research has established that the different types of property and the neighbourhoods in which they are located, are strongly related to purchasing behaviour and patterns, so much so that in some cases it is possible from the type of neighbourhood and property to predict details such as average wine consumption by households in the area, holiday preferences and incidence of frozen food purchase.
The six major categories, together with the different 17 groups related to them. The ACORN system is a good indicator of some patterns of purchasing such as brand choice and average spend, and goes some way towards fulfilling the ‘meaningfulness’ criterion mentioned earlier.
Among some of the marketing applications where ACORN is useful are:
Another geodemographic system of segmentation is the MOSAIC system. This system classifies groups of homes on the full postcode. On average, 15 houses share a single postcode and each group shares a MOSAIC classification. According to the MOSAIC system (developed by CCN Marketing) there are 58 types of residential area in the UK (an example being M12: ‘lower income enclaves in high income suburbs’). The system is used largely for targeting direct mailshots according to MOSAIC category. It allows users to ‘cherry pick’ and send personal communications to categories of household in specific locations that they wish to target.
Geodemographic segmentation systems are now widely available and are important to marketers. As with any segmentation base, these are not perfect. We know, for example, that in some census enumeration districts the types of neighbourhood and property can differ considerably even though they are grouped into, for example, one ACORN category. We must be careful to establish that the geodemographic system being used is appropriate to particular markets and products. Systems like ACORN are usually linked with market research survey systems such as the Target Group index survey conducted in the UK by the British Market Research Bureau. This is be used to assess the potential effectiveness of any proposed geographic segmentation basis for a particular market.
ACORN groups in the United Kingdom
A more contemporary basis for segmenting consumer markets is lifestyle segmentation, referred to as ‘psychographics’. It is based on the fact that individuals have characteristic modes and patterns of living that may influence their motivation to purchase selected products and brands, e.g. some individuals may prefer a ‘homely’ lifestyle, whereas others may see themselves as living a ‘sophisticated’ lifestyle.
Two examples of lifestyle/psychographic segmentation techniques serve to illustrate this approach to segmenting consumer markets. Young and Rubicam’s ‘4 Cs’
The advertising agency Young and Rubicam developed a lifestyle segmentation system that analysed how consumers perceive themselves and how these perceptions are reflected in their interests, values and activities, giving rise to different purchasing preferences and brand choices. Using marketing research involving in-depth interviews, focus groups and questionnaires, they identified three main lifestyle groups based on a Cross Cultural Consumer Characterization (the 4 Cs). Each of these three main lifestyle groups contains a number of sub-groups as follows:Lifestyle Group Sub-groups
This classification was based on the notion that each group and sub-group, in this case because of their lifestyle/personalities, had differing needs and would exhibit different purchasing patterns and brand choices. For example, in the ‘4 Cs’ system, in the Middle Majority group, mainstreamers were found to be consumers who were conventional in their lifestyle patterns and values.
They found that mainstreamers prefer and purchase well-known brands. They tend not to purchase supermarket ‘own label’ brands. Similarly, mainstreamers tended to buy from domestic rather than overseas producers wherever possible. In contrast, aspirers, who were motivated to improve themselves, tended to purchase the latest products and brands which in their view would bestow higher status on them. They tend to indulge in the latest activities and pastimes and purchase conspicuously. Young and Rubicam therefore suggested that knowing the lifestyle group to which an individual belongs can be used in market segmentation and targeting, and in particular development of promotional campaigns to appeal to various target groups.
The VALS system
Developed by the Stanford Research Institute, this approach to lifestyle/psychographic segmentation is based on information collected from self-administered questionnaires embracing respondents’ Activities, Interests, and Opinions (AIO measures) together with motives, attitudes, and aspects such as values. The updated system of VALS (and VALS 2) (which stands for Values and Life Styles) uses two key dimensions to classify customers into eight lifestyle types. These two dimensions are ‘Self Orientation’, and ‘Resources Available to Sustain the Self Orientation’. These are used to classify a customer into one of the following lifestyle categories:
For example, ‘experiencers’ are action-oriented with regard to the self-orientation dimension and have a lifestyle characterized by a high degree of physical and social activity coupled with varietyseeking and risk-taking behaviour. With regard to the ‘resources available’ dimension, they have the most resources of any of the eight lifestyle groups to sustain their self-orientation. This lifestyle group seeks wealth, power and fame, and are substantial consumers of exercise and sports products, tending not to be conformist in their purchasing. The VALS2 system is now regarded as the major lifestyle/psychographic system in the USA. Like the ‘4 Cs’ system, VALS 2 is used predominantly to develop promotional appeals.
These are two of a number of lifestyle systems for classifying consumers. In recent years, marketers have become increasingly interested in the potential of lifestyle segmentation for developing more effective marketing strategies. Not without problems with regard to underpinning concepts and problems of data collection and analysis associated with many lifestyle segmentation techniques, lifestyle segmentation has proved powerful for developing marketing and particularly promotional strategies.
These approaches to consumer market segmentation are examples of associative segmentation. That is, they are used where we feel that differences in purchasing behaviour/customer needs may be associated with them. If we use social class or lifestyle to segment a market, we assume that purchasing behaviour is a function of social class or lifestyle. Most problems with using such associative bases tend to be related to the issue of the extent to which they are truly associated with, or are a reflection of, actual purchasing behaviour. Because of this, many marketers believe it is more sensible to use direct bases for segmenting markets. Such bases take consumer behaviour as the starting point for identifying different segments, and they are referred to as behavioural segmentation bases.
Behavioural bases for segmentation
Examples of the more frequently used behavioural bases in consumer markets include:
Occasions for purchase
Here, segments are identified on the basis of differences in the occasions for purchasing the product e.g. in the market for perfume, occasions for purchase might include a Christmas gift, a birthday gift or a wedding anniversary present or simply an opportunity to try out the perfume brand.
The distinction here may be made between ‘heavy’, ‘light’ and ‘non-user’ segments.
The total market for a product or service is broken down into segments distinguished by the principal benefits sought by each segment e.g. the shampoo market includes these benefit segments that can be observed from manufacturers’ advertisements:
A ‘benefits sought’ basis for segmentation can provide useful insights into the nature and extent of competition and the possible existence of gaps in the market. Benefits sought bases of segmentation have been shown to be useful in markets ranging from student clothing through to the market for beef in Brazil.
This direct approach is based on the extent to which different customers are loyal to certain brands (brand loyalty) or retail outlets (store loyalty). Identifying segments with different degrees of loyalty enables a company to determine which of its customers or prospective customers may be brand or store-loyal prone. Once they are convinced of the relative merits of a brand or supplier, such customers are unlikely to transfer their allegiances.
Where existing brand loyalty is already strong in a market, the would-be new entrant is faced with a difficult marketing problem. In such a situation, it may be necessary to identify and target the non brand loyal segment.
Combination segmentation bases
Often individual segmentation bases are used in combination to segment markets and delineate target customers e.g. the marketer may determine that targets are best identified in a particular market by using a combination of gender, income, social class etc. Some approaches to segmentation have been specifically developed to combine certain selected variables as the overall basis for segmenting a market. An example of this approach is SAGACITY developed by Research Services Ltd in the UK. This segmentation technique is based on a combination of family life cycle, occupation and income.
These combinations are used to identify and describe some 12 consumer segments which the company suggests have differing purchasing needs and purchasing behaviour. Such a combination of individual segmentation bases in ways which are meaningful for a product market application represents a flexible way to delineate market segments.
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