Date:27/05/2005 URL: http://www.thehindubusinessline.com/2005/05/27/stories/2005052700280900.htm
Back Creating a market by segments

Anuj Jain

WITH satellite technology having entered our lives in a big way, the chances of us being bombarded with messages every second is extremely high. Messages are everywhere. When you wake up in the morning, the breakfast show on your favourite television channel breaks the morning silence; when you stand at a bus-stop surrounded by hoardings; when you get on the train; when you read the newspaper, when you log on to the Net and when you watch TV at the end of the day, the commercial assault on your mind seems relentless.

Modern companies are complex organisations with diverse business needs. But whether they are involved in printing newspapers, refining sugar, baking bread, or developing personal digital assistants, the fundamental reasons why we all advertise today are essentially the same as they were for businesses 300 years ago. These reasons are to do with the micro-economic needs of business and, primarily, the need to stimulate demand.

When a market becomes saturated and supply outstrips demand, the producers often merge, concentrate their businesses and try to expand the market in other ways. Sometimes, this means finding new geographical markets by exporting abroad, or finding new consumer markets by segmenting their products and targeting them at different users .

In economic terms, a market denotes the demand for a particular product while in commercial technology, market is a place where buyers and sellers meet, goods and services are offered for sale, and transfer of ownership occurs. In marketing, a market is defined as people with needs to satisfy, the money to spend and willingness to spend it.

We live in a world today where the segmentation of any market in two groups — consumer and industrial — is of utmost importance for the simple fact that these two groups function differently. For all product types and markets, different groups of customers will have different requirements.

The market for any product can be split into individual segments, where each segment describes a number of customers with similar requirements, tastes, characteristics, interests, lifestyles or responses to the `marketing mix'. Effective segmentation can indicate gaps in the market and provide insights into the requirements of different types of users, enabling potential product offerings to be carefully positioned to meet those needs.

Successful market segmentation requires:

  • understanding the market as it really is, not as you would prefer it to be — how we work;

  • a clear definition of the market to be segmented — project parameters;

  • focussing on key decision-makers — market mapping;

  • insight into how you win and retain different customer groups — market segmentation.

    Those at the helm of creating marketing initiatives for our consumers realise that the heart of any marketing initiative is the product and the position it occupies in people's minds. Market segmentation is the selection of groups of people who will be most receptive to a product.

    The most frequent methods of segmenting include demographic variables such as age, sex, race, income, occupation, education, household status, and geographic location; psychographic variables such as life-style, activities, interests, and opinions; product use patterns; and product benefits. Segmentation usually involves combinations of these methods. No matter how segments are defined, they are characterised by considerable change over time. The different reasons why we need to segment markets is because customer needs differ. Creating separate offers for each segment makes sense and provides customers with better solutions.

    Enhanced profits for business: Customers have different disposable incomes. They are, therefore, different in how sensitive they are to price. By segmenting markets, businesses can raise average prices and, subsequently, enhance profits.

    Better opportunities for growth: Market segmentation can build sales. For example, customers can be encouraged to `trade-up' after being introduced to a particular product with an introductory, lower-priced product.

    Retain more customers: Customer circumstances change; for example, they grow older, form families, change jobs or get promoted, change their buying patterns. By marketing products that appeal to customers at different stages of their lives (`life-cycles'), a business can retain customers who might otherwise switch to competing products and brands.

    Target marketing communications: Businesses need to deliver their messages to a relevant customer audience. If the target market is too broad, there is a strong risk that:

  • the key customers are missed; and

  • the cost of communicating to customers becomes too high/unprofitable. By segmenting markets, the target customer can be reached more often and at lower cost.

    Gain share of the market segment: Unless a business has a strong share of the market, it cannot maximise its profitability. Minor brands suffer from a lack of scale economies in production and marketing, pressures from distributors and limited shelf-space.

    Through careful segmentation and targeting, businesses can often achieve competitive production and marketing costs and become the preferred choice of customers and distributors. In other words, segmentation offers smaller firms the opportunity to compete with the bigger ones.

    There are demographic bases for segmentation by factors such as education, occupation, religion or race. Income levels and expenditure patterns also govern segment criteria.

    With the market getting more consumer-centric, a segmentation study has become mandatory before setting shop. This is as much a meticulous science as about experimenting with the human psyche itself.

    (The author is Vice-President, Sales and Marketing, Goodlass Nerolac Paints Ltd.)

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