Bases of Market Segmentation

Everything you need to know about the bases of market segmentation. Market segmentation is based on the assumption that all the potential customers are not identical and that the firm should address their needs with appropriate product Land other marketing strategies or else should concentrate on only one single segment and tailor the strategy accordingly. Marketers establish the basis to segment the market.

There are several basis available for segmenting the market where marketers may use any one or a combination of more than one basis to segment the market.

In this article we will discuss about the bases of market segmentation. Learn about:- 1. Demographic Segmentation 2. Geographic Segmentation 3. Geodemographic Segmentation 4. Psychographic Segmentation 5. Behavioural Segmentation.

The bases of market segmentation have gone a long way through different stages. It started with demographic segmentation, as the data was easily available. Then it moved on to Geographic segmentation, Geo-demographic segmentation, Psychographic Segmentation and Behavioural Segmentation.

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Bases of Market Segmentation: Demographic, Geographic, Geodemographic, Psychographic and Behavioural Segmentation

Bases of Market Segmentation

As product markets tend to mature, customer needs often become more specialized. Depending on the level of competition in the product market, segmentation is the natural response of marketers to deal with the situation in market. Market segmentation has become a norm today.

Market segmentation is based on the assumption that all the potential customers are not identical and that the firm should address their needs with appropriate product Land other marketing strategies or else should concentrate on only one single segment and tailor the strategy accordingly.

Market segmentation simply means dividing up a market into distinct groups that-(i) have common needs, and (ii) will respond similarly to a marketing action.

Segmentation process involves five distinct, steps:

1. Finding ways to group consumers according to their needs.

2. Finding ways to group marketing actions- usually the products offered- available to the organization.

3. Developing a market-product grid to relate the market segments to the firm’s

4. Selecting the target segments toward which the firm directs its marketing actions.

5. Taking marketing actions to reach target segments.

Though market segmentation is considered to be a natural process, yet there is always an upper limit on consideration of the number of segments in the market. The hypotheses which appears to be true also holds that as the market gets more and more segmented, marketers’ notion about their customers would get more and more clear and precise. But such narrowly defined segments may leave fewer customers in the segment and the segment may loose its shine for the marketers.

Obviously, one may get skeptical about the process of segmentation unless and until it ensures that:

1. Individuals within the segments are similar in nature, having the same needs, attitudes, interest and opinions.

2. Market segments differ from the population as a whole and segments are distinct from other segments.

3. Such market segment is large enough to be financially viable to target with a separate marketing campaign.

4. Market segment is reachable through some type of media or marketing communication model.

As a first step, marketers establish the basis to segment the market. There are several bases available for segmenting the market where marketers may use any one or a combination of more than one basis to segment the market.

Base # 1. Demographic Segmentation:

Demographics are the statistical description of population characteristics in terms of age, gender, income, education, family size and so on. People differ for their demographic characteristics and marketers’ use of these variables as segmentation basis is based on the premise that people with different characteristics have different needs and in the case of a product these differences may lead to behavioural differences as well.

Marketers need to focus more on some specific demographic groups and not all, as mentioned already the group should be distinct for its behaviours. Companies develop products and services to meet the needs of individual demographic segments and also tailor their messages to those specific groups.

Market segmentation based on differences in population age recognizes that people in different age groups seek different features or benefits of the product, choose different brands and also process the information differently. Due to differences in their information processing behaviour, marketers decide for using different promotional and advertising approaches in terms of both message and media techniques.

Coco- Cola India (CCI) in an attempt to enter, understand and influence the daily lives of its young consumers launched its brand-led mall hangout space – Coke Red lounge- in Pune. The lounge offers music, movies, surfing on internet, console gaming and videos piped in via a plasma-screen and the entire decor is in brand red colour. The purpose is to get engaged with young consumers in India and offer them the safe hangout zone.

For a product, marketers may target children, young adults, adults, middle age grownups and senior citizens, and each one of them belongs to certain chronological age group. Though senior citizens belong to 60+ age group marketers, however, recognize sub-groups within the senior citizen group and evolve more specific strategies particularly advertising strategies to approach specific sub-group.

Marketers also keep track of the likely growth of population size of various age groups as a major pointer to future growth patterns and the market size. It is, however, observed that ‘cognitive age’ rather than the ‘chronological age’ of a person is a better predictor both of his purchase and communication behaviour. For example, despite belonging to different age groups, the middle aged adult may appear similar to a young adult for his brand and media choices.

Gender-wise market segmentation is relevant when for a product category men and women differ for their purchase and purchase related behaviours.

First, there are certain gender specific products and their messages for these products are targeted only for a particular gender, e.g. ads for after-shave lotion. The tone of the message appeal may also differ for men and women.

Secondly, same products purchased for different reasons by men and women require different advertising appeals to attract their attention.

Thirdly, in the same product category, men and women may seek different features, e.g. deodorants, and these differences are taken care at the time of developing message content and its execution.

Fourthly, men and women may differ for their influences on decision making for a product purchase. Where men often are the prime purchasers in the case of automobiles, women influence the decision making for the choice of colour and design. Therefore, advertisers in their ad executions for a product prefer to include both men and women making joint decisions.

Lastly, information processing differs between men and women. As compared to men, women tend to go for more detailed information processing. Unlike women, men have more dislike for celebrity endorsements.

Income level decides one’s affordability for various goods categorized as necessities, sundries or luxuries, and also one’s sensitivity to price vis-a-vis the quality of the product. The hypothesis is that income and consumer’s price sensitivity is negatively correlated and as income tends to increase consumer looks forward to more quality purchases as against cost saving purchases.

Marketers, therefore, decide about targeting different income groups and accordingly vary the message content of ads, with less or more emphasis on savings in the product price. Media and programme preferences also vary for different income groups. While targeting specific income groups marketers also consider changing patterns of saving and expenditure in the light of growth of dual income households.

Base # 2. Geographic Segmentation:

Depending on their area of location, consumers are often found to have differences in their consumption behaviour. Marketers divide the markets into different geographical units at national, regional. State, local or neighbourhood level. These locations differ for their spread as well as for the extent and types of differences and the level of complexity.

The message and media strategies, therefore, differ for each of the location. Small firms targeting a local area employ local media as against national marketers who develop specific advertising and marketing programmes for specific regions of the country. The multinational firm operating in different nations requires greater adaptations to suit the differences in culture and language.

Base # 3. Psychographic/Lifestyle Segmentation:

Information about consumers’ psychographics or lifestyle factors adds richness to the demographic information because it attempts to explain that why demographically alike people buy different products or require different message appeals to approach them. Psychographic profiles are prepared on the basis of patterns of responses that emerge from people’s activities, interests and opinions called as AIO inventory.

With the help of various market analysis techniques marketers identify such groups which exhibit unique lifestyle patterns and thus generate market segments based on differences in their lifestyle. Lifestyle as a segmentation variable is found useful mainly for product categories where user’s self/image is important. When the differences in lifestyle are correlated with the consumers’ product, brand and/or media usage, it allows for a fine-tuning of marketing strategies, particularly media and message strategies.

Base # 4. Segmentation Based on Product Usage:

The frequency of product use, i.e. the usage rate, could be heavy, medium or light and the markets may be segmented to align the product with the given usage rate for the product. Market research provides that out of the total customers, light and medium users are 70 to 80 per cent and constitute only 20 to 30 per cent of the product demand.

Whereas heavy users are only 20 to 30 per cent of the population, but for their usage rate they take 70 to 80 per cent of the product demand. This is known as 80- 20 rule for product demand and marketers often use it to build demand for their product through appropriate marketing and communication programmes targeted at different user groups.

There may be different usage occasions for the product and consumers seek different benefits in different usage occasions. Ad campaigns promote the different use occasions for the product to make the consumer learn about new uses for the product. This is done to push forward the product usage rate.

Base # 5. Segmentation Based on Brand Loyalty:

Market for the product may differ on the basis of user’s status also. There are always some users and some non-users of the product category. The users of the product are of .various types-category users (NCU), brand loyal users (BL), frequent brand switchers (FBS), other brand switchers (OBS), or other brand loyal (OBL). The potential brand purchaser belongs to any of these five groups which are mutually exclusive and also define the potential customers of the product.

New category users (NCU) do not always provide good sales potential for the product as it all depends upon the level of awareness about the product in the market. Among the category users those who buy the brand on a regular basis are referred to as brand loyal. Frequent brand switchers of the product hold moderately favorable attitude towards the brand.

Together these two types represent the brand sale in the market. The non-loyal group of consumers, FBS and OBS, often seek the least expensive or the most convenient brand selection. They can be made to increase their proportion of product purchase by creating ads that tend to reinforce the loyalty of such purchasers.

However, marketers do not keep much faith in other brand loyal (OBL) category of buyers as they are likely to hold a negative or neutral attitude towards the advertiser’s brand. The group of other loyal buyers tends to avoid advertising for other brands; they do not seek information and need solid reasons to get convinced about the brand. This makes the entire exercise of attracting them to a trial purchase costly and difficult. However, for their tendency to be loyal, if once attracted, there is a greater chance of their becoming loyal buyers of the brand.

Base # 6. Segmentation Based on Benefits:

Markets are also segmented for the benefits that the customer seeks in product use. The rationale for a benefit based market segmentation lies in the fact that products are actually the bundle of benefits and various products available in the market serve not all but some benefits to the customers. Different customers seek different benefits from the product; marketers choose some specific products and communicate those benefits using specific promotional programmes.

Advertising programmes differ for the use of different media and copy elements. Russell Haley carried out a benefit based segmentation of the toothpaste market and identified four market segments, viz. sensory segment, sociable, decay prevention and independent segment. Each segment had its preferred brands of toothpaste serving the required benefits. Details on various benefit based segments in the toothpaste market.

Base # 7. Segmentation Based on Attitudes:

There are different attitude groups in the market. There may be some who feel enthusiastic about the product, while others may just hold a positive attitude but less excitement about the product. There are some who seem to be neutral, some as indifferent and some with a negative attitude for the product.

At times marketers decide about targeting specific attitude groups and carry out required ad campaigns to sustain the declining product sale or to give a further boost to it. Honda, the manufactures of motor bikes in Japan, once initiated aggressive ad campaigns to change potential customers’ negative attitude that motorbikes are used by bad people. Through an appropriate ad campaign saying ‘one meets good people while riding on motorbikes’, people were made to feel positive towards motorbikes.

The rest is the success story of Honda’s motorbikes. Marketer, however, needs to know that for a given product it is the positive attitude of the people which forms the basis to the product sale and not simply the familiarity and knowledge about the brand. There are certainly many purchase situations where attitude formation does not really take place before the actual purchase like in the case of low involving products.

To select a particular segmentation basis, it can be noted that the geographic specifications of the market is simple and easy to apply, but it confines the target selection process to geographical boundaries only. Most commonly, markets are segmented logically on demographic and/or psychographic basis to expect differences in behaviour.

However, the knowledge about potential customers’ membership to a buyer group, viz. NCU, BL, FBS, OBS or OBL brings more clarity to the target audience selection. The overlapped area between the two circles, representing different market specifications in, constitutes a clear representation of the target audience for the product. Otherwise, also if not looking for the overlapped area, the understanding of the buyer status of targeted audiences may help in sharpening of the strategies.

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Bases of Market Segmentation – Geographic, Demographic, Psychographic and Behavioural Segmentation

Market segmentation is about creating divisions. A market is a collection of consumers who can be divided into different groups using some criteria. These include consumer characteristics such as age, income, occupation, gender, personality, usage quantity, age, and lifestyle.

The bases of segmentation could be classified into the following four categories:

1. Geographic segmentation (i.e., region, city size, density of population, and climate)

2. Demographic segmentation (i.e., age, gender, marital status, income, education, and income)

3. Psychographic segmentation (i.e., motivation, personality, perception, attitude, and lifestyle)

4. Behavioural segmentation (i.e., benefit, usage rate, loyalty, and awareness state)

Geographic and demographic segmentation are easy to practise. For instance, a market can be divided easily on the basis of age, gender, income, or region. These segmentation bases are also called descriptive bases because these variables are used to describe the consumers.

Behavioural and psychographic bases are difficult to use because of complexity and complications involved in their measurement. For instance, categorization of people in a market on the basis of personality or loyalty requires development of an appropriate measure and complicated analysis.

Unlike objective demographic variables, behavioural variables tend to be subjective constructs. These are not outside descriptors such as age or sex rather mental constructions that need to be captured through psychological instruments.

Another way of looking at segmentation bases is to distinguish whether they are priori or post hoc methods of segmentation. Priori bases of segmentation involve choosing a basis of segmentation variable based on presumptive bases without examination or analysis.

For instance, it is assumed that consumers across age groups or genders are likely to be different. Priori bases of segmentation automatically create groups in a market. When gender is used as a basis of segmentation it would compulsorily break a market into two groups (i.e., male and female).

Once a variable is chosen priori, consumers are assigned to categories with the assumption that they are similar within the segment and are different inter-segment. However, this may not be true.

For instance, men and women are different on the basis of gender but may behave similarly with regard to a product, for instance, preference for a cola drink or ice cream. This behavioural similarity makes this basis of segmentation superfluous. Therefore, priori bases of segmentation may be efficient but may not be effective.

Post hoc methods of segmentation do not automatically create segments; instead they identify or establish various groups. No assumption is made about the presence of consumer groups in the market. Rather, their presence is inferred after data collection and analysis.

Post hoc segmentation uses clustering procedures on data collected to identify similar groups hidden in a larger set. This method is used in psychographic segmentation. After designing an instrument to measure lifestyle, data is collected from the market to check whether it contains different psychographic clusters.

Demographic segmentation scores high on ease and is less expensive but they score low on consumer behaviour prediction. On the other hand, psychographic segmentation is difficult to conduct and costs more but is more effective in predicting consumer behaviour.

1. Geographic Segmentation:

Geography as a discipline deals with the surface characteristics of earth including climate, elevation, soil, and population. Geographic segmentation involves segregating the market into different geographical units. The division of land into different continents, regions, and nations, which is further divided into states and cities, is geographical segmentation.

This method of segmentation is useful when variations in consumers occur with the change of coordinates. Geography influences the way people live and behave. For instance, markets are likely to be different in extreme cold and hot regions.

Similarly, differences can be observed in people of North America, Europe, Middle East, and Asia. Within India, people from east, west, north, and south differ from one another in their buying and consumption behaviours. These geographic differences render standardized marketing ineffective. For instance, coffee is a common beverage in south of India while tea is more prevalent in north of India.

HUL exploited this difference to market Brooke Bond tea and Lipton tea along with Bru coffee. Similarly, Bharti Airtel segmented its market on the basis of geography. It divided the Indian market into east, west, south, north, and central regions. The company runs advertising campaigns created in accordance to tastes and preference of each region. Duckback, makers of waterproof coats, bags, and umbrellas, markets its products in regions that experience high rainfall.

2. Demographic Segmentation:

Consumers in a market have different demographic characteristics such as age, gender, income, religion, education, and occupation. These characteristics are easy to measure and are therefore most frequently used by marketers. One of the reasons for their popularity is that demographic characteristics are closely related to consumer needs, wants, and preferences.

This correlation between demographic characteristics and consumer behaviour lends support to this type of segmentation. For instance, income is a powerful predictor of consumer needs and wants. Demographic characteristics are very useful in locating the target market because they can be easily observed.

It is easier to locate consumers by age or income. Demographic variables, however fail to describe how people within a segment think and feel. Very little insights can be gleaned in terms of their cognitive behaviour. Two people who belong to a particular income class are certainly similar with respect to income, but may be radically different from each other in terms of their thinking.

If thinking has more influence on consumer behaviour, then demographic segmentation may offer little insights in strategy development. The intra- segment similarity produced by income is therefore superfluous.

Demographic bases of segmentation are briefly discussed here:

i. Age:

People in a market can be divided into different age categories. Age is taken as a variable to perform segmentation with the assumption that consumer needs vary across age groups. This is not an invalid supposition.

For instance, kindergarten, toys, and cartoon channels are directed at kids’ age group; while motorcycles and colleges are aimed at youths. Age-based classification produces segments such as infants, kids, teenagers, adults, and senior citizens.

ii. Gender:

It is one of the most palpable differences between people. Biological dissimilarity and social conditioning make men different from women. These differences manifest in their varying responsiveness to products and communication appeals. For instance, sanitary pads are purely female products.

Cultural conditioning and social roles also link product categories with specific genders. For example- jewellery, dolls, beauty products, home making goods, and hair care products have been conventionally linked with women, whereas products such as toy guns, automobiles, hardware, and consumer durables are connected with men. Gender-based segmentation easily divides the market to identify what products and services would typically appeal to these groups.

It must also be borne in mind that gender differences and roles are changing. Product classification based on gender is subtly undergoing a change. Therefore, product classification based on stereotypes may fail to capture the true essence of the market. Consider how cosmetics and beauty products have become gender neutral over time.

This has given birth to a whole array of cosmetics and beauty brands that target men such as Fair and Handsome, Brylcreem, Gamier face wash, Nivea, VLCG, and Looks Salon. The reverse is also true; women have become prime target for typical men’s products such as DSLR camera, scooters, and cars.

iii. Income:

It is one of the critical determinants of consumer behaviour. Consumer segmentation based on income categories is useful in gaining insights about what kind of products are likely to be consumed. For instance, income’s influence on people determines what they use for transportation, that is, whether they use a cycle, moped, motorcycle, economy car, or luxury car.

Marketers thus cater to different income groups by appropriately designing their products and services. For instance, HUL markets three variants of detergent power, namely Wheel, Surf, and Surf Excel that target the economy, middle, and top end of the market respectively.

Automobile marketers commonly use income-based segmentation to divide their market and sell different variants according to affordability. Income is believed to be the prime driver of consumption but it would be wrong to assume that it is the sole driver. Income determines affordability but consumption is influenced by other factors also.

It would be wrong to assume that people with high incomes are the only buyers of luxury cars and everybody at the lower end of the spectrum buys economy cars. Cars bought on loans suggest that people do jump income boundaries in their consumption behaviour. Similarly, some affluent people drive small cars too.

3. Psychographic Segmentation:

In demographic segmentation, consumers are divided in terms of who they are or what their descriptors are (i.e., age, income, gender, geographic location, and occupation). Psychographic segmentation banks upon the use of psychological, sociological, and anthropological factors to determine how a market is segmented.

Psychographic means measurement of psychological characteristics. Hence, psychographics is about measurement of inner characteristics of an individual. Inner psychological characteristics such as personality, self- image, perception, attitude, and motivation play a role in driving consumer behaviour.

The term psychographic is often used interchangeably with lifestyle. Etymologically, ‘psycho’ signifies that this area of research seeks to explain consumer behaviour by probing below the surface characteristics of a human. Demographic segmentation profiles or classifies consumers on the basis of tangible criteria, whereas psychographic segmentation divides people in terms of what they do, what they prefer, and what they think.

Lifestyle or style of life means pattern of life of a person. Psychological makeup manifests in what a person does (i.e., activities), prefers (i.e., interests), and thinks (i.e., opinions). Psychographic segmen­tation involves measurement of consumer AIOs (Activities Interests and Opinions).

Usually a ques­tionnaire containing a battery of statements articulated to capture consumer response on activities, interests, and opinions is administered on a representative sample. The data is then statistically ana­lysed to discover clusters of consumers based on their similarity.

One of the pioneering psychographic segmentation studies was done by SRI International. Their VALS2 survey (values and lifestyle) iden­tified eight consumer segments. People in these segments differ in their psychological construction.

Psychological insights matched with demographic information can provide the marketers a complete picture of the segments they are facing. Decisions regarding what kind of products and communication will make sense to them can be made effective by using these insights.

Some of the VALS2 segments are – (i) actualizers (independent, leaders, risk takers), (ii) fulfillers (organized, self-assured, intellectual), (iii) believers (literal, respectful, loyal), (iv) experiencers (impatient, impulsive, spontaneous), and (v) strugglers (cautious, conservative, conformists).

4. Behavioural Segmentation:

This method of segmentation uses consumer behaviour aspects for dividing the market. Consumers differ their ways of usage and faithfulness to a product. Divid­ing consumers into different groups based on behavioural aspects can help in appreciating their uniqueness and its marketing implications.

i. Usage Quantity:

Consumers in the market can be divided on the basis of usage quantity. One of the easiest ways to arrive at this division is by breaking the market into light, medium, and heavy users.

For instance, market differences in usage can be detected in the consumption of cola. Some consumers occasionally drink cola with an average consumption of less than two litres in a month. Medium users group may consume two to four litres, whereas heavy consumers can consume more than five litres. Coca-Cola’s bigger pet bottles of one litre are aimed at heavy consumers.

ii. Occasion:

Marketers do not pre-specify the occasion of consumption of a product. Hence, a product category could be used on various occasions. Market can therefore be segmented on the basis of occasion. For instance, soft drinks can be consumed at different occasions such as quenching thirst while out in the sun, entertaining guests at home, or with dinner.

Tropicana in its bid to expand consumption targeted morning breakfast with the message ‘Now breakfast shall win’. Occasion can also be linked to seasons. For instance, consumer durables, home decor, and wall paint are linked with festival seasons in India. Titan has also promoted watch buying for gifting.

iii. Loyalty:

Consumers exhibit different levels of allegiance to the brands consumed. Market could also be segmented on the basis of loyalty status. There are buyers who would never move -away from their preferred brand. They are called true or hard loyal. Consumers who do not care about what brand they consume switch from one brand to the other easily.

This set of consumers is called switchers. Loyalty-based segmentation has gained importance lately because loyal consumers are more profitable. Companies profile their consumers to identify loyalists so that they can be given preferential treatment. Loyalty cards and reward programmes are tools to gauge and manage loyal consumers.

iv. Benefits Sought:

Consumers may seek different benefits from a product. These differences provide a logical ground to divide a market on the basis of benefits sought. For instance, two groups of customers in the real estate market are investors and home buyers. Investors buy houses to multiply their investment whereas home buyers buy to live in the dwelling.

Similarly, some people buy gold and diamonds as jewellery while others buy to invest. Benefit segmentation is clearly visible in the toothpaste market. The segments include seekers of social benefit, protection benefit, and economy benefit.

Segmentation Effectiveness:

Segmentation is the process of dividing a market into homogeneous groups based on one or more consumer variables. However, segmentation is useful only when it produces groups that are significant for marketing purposes. Six criteria are used to judge segment effectiveness, namely similarity, heterogeneity, sufficiency, stability, accessibility, and profitability.

i. Similarity:

The requirement of similarity between consumers within a segment is fundamental. The segmentation process must group consumers in such a way that intra-segment similarity is maximized. Intra-segment similarity implies that consumers within a segment have similar responsiveness to a given marketing stimuli.

ii. Heterogeneity:

Segmentation variable sometimes creates segments that have high inter-segment heterogeneity. A segmentation process that breaks the market into different groups but if consumers in these groups exhibit similar responsiveness to a marketing stimuli, then it is a case of superfluous segmentation.

iii. Sufficiency:

Segments may differ in terms of the number of consumers contained therein. The number of members in a segment often corresponds with the size of that market. For a segment to be of interest to a marketer, it must have sufficient scope for doing business. The size of a particular segment can be estimated or ascertained by looking into available published statistics. The measures often used to gauge segment sufficiency are expressed in terms of sales and market share.

iv. Stability:

A marketer must select a stable and steady segment. This characteristic ensures certainty and assurance that the segment is likely to stay for some duration. Unstable and fickle segments are unpredictable therefore risky. For instance, the fashion segment is erratic and inconsistent and therefore involves risk.

v. Accessibility:

An inaccessible segment increases the costs and thereby becomes unattractive in terms of marketing outcomes.

vi. Profitability:

Segments are meant to produce surpluses. If for some reasons a segment fails to survive the test of profitability it is not worth pursuing.

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Bases of Market Segmentation – With Variables Used by Marketers for Each Type of Segmentation

1. Geographic Segmentation:

It is the segmentation on the basis of region of a country or the world, market size, market density, or climate. Market density means the number of people within a unit of land, such as a census tract. Climate is generally used for geographic segmentation because of its dramatic impact on residents’ needs and purchasing behaviour.

Snow-blowers, water and snow skis, clothing, and air-conditioning and heating systems are products with varying appeal, depending on climate.

A regional approach is taking by companies producing consumer goods to marketing for four reasons, which are as follows:

(i) Due to the emergence of sluggish and intensely competitive markets, firms look out for new ways to increase their sales by expanding markets geographically.

(ii) When new regional brands are introduced to appeal the local preferences by packaged-goods manufacturers.

(iii) Computerised checkout stations give retailers an accurate assessment of the best brand in the region.

(iv) A more regional approach allows consumer goods companies to react more quickly to competition.

2. Demographic Segmentation:

For demographic segmentation market is divided into groups on the basis of variable such as age, family size, family life-cycle, gender, income, occupation, education, religion, race, generation, nationality and social class. For distinguishing customer groups’ demographic variables are used.

Some of the demographic variables used are:

(i) Gender and sexual orientation – The gender segmentation is a popular forms of segmentation catering to the different needs of male and female as they have been vocal about their separate needs.

(ii) Age and life-cycle stage – The variation in the wants and liabilities of consumer comes with age. On the basis of age, a market can be divided into four parts viz., children, young, adults and old.

(iii) Marital status – Marital status of a person largely influences a person’s lifestyle. While single individual have a more independent and spendthrift attitude, with more expenditure on food and entertainment, individuals who are married allocate large part of their income on durable goods and household needs.

(iv) Family size – The size of the family determines the amount and size of purchases. The consumption pattern of a big-sized joint family differs from a small-sized nucleus family.

(v) Social class – Strongly influences the preference like in cars, clothing, home furnishings, leisure activities, reading habits, etc. Many companies design products and services for specific social classes.

(vi) Educational level – The academic standard segments people with same income, i.e., with a similar ability to buy into their different likelihood to buy.

(vii) Occupation – Various occupations determines the buying behaviour. People in sales and people in academic training will have different purchase behaviour.

(viii) Religion – Religious rituals, cultures traditions and also differentiate and segment the market.

(ix) Income – Differences in income along the population in any country. In India it is as diverse as from few hundred rupees a month to millions a month. In this scenario, the customers will behave differently in terms of wants as per their income.

3. Psychographic Segmentation:

It has been seen that two consumers with the same demographic characteristics may act in an entirely different manner. Despite having same age, from the same profession, with similar education and income, each of the customers may have a different attitude towards risk-taking and new product and stores.

This is because of the following psychographic variables:

(i) Personality – In segment markets marketers have used personality variables. They endow their products with brand personality that matches to consumer personalities.

(ii) Beliefs – It is a parameters of segmentation utilised by marketers to sell products. People according to their situation and bringing-up develop their own beliefs. For example, people develop religious beliefs as per the religion they follow. And their purchase behaviours are greatly influenced by their beliefs. Not only during festivals but in normal life also people with different religious beliefs develop different lifestyles and different behaviour as consumer.

(iii) Values – On the basis of core values some marketers segments i.e., belief systems that consumer attitudes and behaviour. Core values go much deeper than behaviour or attitude and determine, at a basic level, people’s choices and desires over the long term. Marketers who segment by values believe that by appealing to people’s inner selves it is possible to influence their outer-selves, their purchase behaviour.

(iv) Lifestyles – As lifestyle reflects the overall manner in which persons live and spend time and money it is considered as an important factor. It is behavioural concept enabling us to grasp and predict buyer behaviour. Lifestyle concept has interdisciplinary approach as it involves sociology, culture, psychology and demography. Lifestyle concept as a basis for segmentation is quite reasonable and desirable.

4. Behavioural Segmentation:

On the basis of buyers knowledge, attitude, use, or response to a product they are divided into groups. Many marketers have the trust that behavioural variables—benefits, occasions, user status, loyalty status, usage rate, buyers-readiness stage, and attitude are the best starting points for consulting market segments.

Buyer ‘readiness’ or preparedness is one of the important variable used for segmenting the market. At any given time, buyers are at different stages of readiness. There are unaware buyers, people who are aware but not interested, people who are interested and are desirous to buy and lastly, those who will positively buy the product.

The major behavioural variables used by marketers to segment the market are as follows:

(i) Benefits – The marketer identifies the benefits a customer looks while purchasing a product.

(ii) Occasions – Buyers / customer can be distinguished as per the occasions in which they purchase or use a product.

(iii) User States – A product is determined by the usage different groups undertake.

(iv) Quality Consumed – The quality consumed at a certain period serves as the basis of distinctions.

(v) Buyer-Readiness stage – Whether a consumer is ready or prepare to purchase also serves as the basis of segmentation.

(vi) Loyalty Status – The behaviour of customer that suggests their loyalty to brands.

(vii) Attitudes – At different stages of life, people have attitudes that determines their purchasing power that works as per their moods.

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Bases of Market Segmentation – 4 Main Bases: Geographical, Demographic, Psychographic and Behavioural Segmentation

1. Geographical Segmentation:

In this type of segmentation the market is divided on the basis of regions or areas like Nations, States, Cities, Towns, North, South, East, & West. Take for example, the world is a market, a mobile manufacturer may focus on the Asian Countries, further he may concentrate on the Indian market and further divide the Indian market into North, South, East and West regions.

The manufacturer may want to first start in the Southern region and concentrate on Karnataka, Bengaluru North Region.

2. Demographic Segmentation:

Segmentation can further be done on the basis of demography (demographics is the study of Population). The market may be segmented into regions but the people residing in those regions will be of different age groups or gender, will have different occupations and education.

Therefore, it then becomes necessary to further group them on the demographic elements as follows:

a. Segmenting on the basis of age

b. Education

c. Occupation

d. Income

e. Religion

f. Gender

g. Family size, and

h. Social Class etc.

Example:

A mobile phone manufacturer divides the region into North, South, East & West, he targets the Northern region and further divides the market on the basis on gender, income, occupation etc. Offers handsets to the respective groups based on their likes and preferences.

3. Psychographic Segmentation:

In this the market is segmented on the basis of the psychology of the people, that is, the way people think and live their life, in other words it is the lifestyle of the people. Market may be divided on the basis of demography, but it has been found out that, though people belong to the same demographic group, their thinking and way of living is different.

Example:

People belonging to the high income group may live a simple lifestyle and prefer simple products. Therefore a mobile manufacturer needs to offer luxury high priced mobile phones to this group along with reasonably priced low end handsets.

Another example can be for clothes, women form a major group, but all women do not have the same lifestyle, some are fashionable, some prefer simple branded clothes and some prefer good quality unbranded and reasonably priced clothing.

4. Behavioural Segmentation:

In this type of segmentation the market is divided into groups as per their behavior towards the products. The behavior relates to the frequency of usage, volume of consumption, loyalty towards the brand, behavior during occasions like festivals, marriages etc. This type of segmentation is needed so that the marketer can gain advantage and satisfy the group in a better manner.

Example:

During festivals, certain group of people based on their religion purchase more products. Some groups use more of certain products and are frequent buyers, for example, dual income families may buy bread more frequently and maybe loyal to a certain brand.

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Bases of Market Segmentation – 5 Ways to Segment the Market

The bases of market segmentation have gone a long way through different stages. It started with demographic segmentation, as the data was easily available. Then it moved on to Geographic segmentation, Geo-demographic segmentation, Psychographic Segmentation and Behavioural Segmentation.

Following is the five ways to segment the market:

Way # 1. Demographic Segmentation:

Demographic segmentation is most commonly used base for segmentation. The basis of the segmentation is age, sex, education, income, occupation, marital status, family size, family life cycle, religion, nationality and social class. All these variables are either used as a single factor or in combination to segment the market.

(a) Age:

Age is most commonly used basis, as the same age group people behave in the identical manner and will have identical needs. Marketers design, produce, package and promote products differently to meet the needs of different age groups.

For example, Colgate has different products for different age groups like Colgate Dental Cream and Colgate Kids Toothpaste. On the basis of age only, the leading toy manufacturer Fisher-Price has seven categories of toys based on the age right from Birth to 5 Months, 6 Months to 11 months, 12 months to 23 months, 2 Years, 3 Years, 4 Years to 5 Years and up.

On the whole, age can be broadly categorized in the following manner:

Infant: Newly born to 1 year

Child: 1 to 12 years

Adolescent: 12 to 15

Teens: 16 to 19

Youth: 20 to 35

Middle Aged: 36 to 50

Elders: 51 to 60

Seniors: 60 and above

Johnsons & Johnsons, JAM, Magic Pot, Aastha Channel, MTV are few of the examples on the basis of Age segmentation.

(b) Income:

Income has been a key driver in segmenting the market. It is based on the belief that the behaviour of the consumer changes with the changes in income. Many automobile, consumer durable, financial services, hospitality, apparels, cosmetics and travel companies segment their market on the basis of income.

Broadly, on the basis of income, market can be segmented as – Low Income, Low Middle income, middle income, upper middle income and high income. It has also been found that with the increase in income, the percentage expenditure on food and other basic necessities goes down.

C. K. Prahlad in his book ‘The Fortune at the Bottom of the Pyramid’ has talked about the marketing opportunities lying at the bottom of the pyramid i.e. Lower income segment. The success of Nirma, Ghadi, and 555 are examples of successful marketing at the bottom of the pyramid.

(c) Gender:

Gender differentiation forms a fundamental segment in the marketing, as the needs of male and female are very different. Clothing and apparels, cosmetics, magazines, shoes are few of the areas, where gender differentiation creates its own market. Axe, Raymond, Pulsar are the brands targeted towards male, while Scooty, Femina, Revlon, Titan Raga are the brands targeted towards female.

Few brands target both the genders like Reebok and Gamier, through their different products or through sub branding.

(d) Occupation:

Occupation is also an important variable in segmenting the market. The consumption behaviour of a working executive differs from a self-employed person or a blue collar worker or a businessman. In the same way, there are professionals like Doctors, Lawyers, Teachers, Professors, Chartered Accountants or Traders or Students or Shopkeepers or Housewives, whose consumption habits are similar in their segment.

Financial companies and banks like ICICI Bank, State Bank of India, Central Bank of India etc. regularly target these on the basis of their occupation with their different schemes. Recently State Bank of India has offered special benefits for its defense personnel customers.

(e) Education:

Education also played an important role in segmenting the market. Indian market can be classified as Illiterates, Literates, High School Pass-outs, University educated and professionally qualified people. The business of information like Newspapers, magazines, books etc. gets seriously affected by the education variable.

(f) Marital Status:

Being single or being married influences the behaviour patterns of the customers and thus it paves the basis for market segmentation. Unmarried people generally use more of fast food and packaged food than their married counterpart. Similarly married people tend to spend a lot on consumer durables, cars, travel plans and financial products.

Few businesses like Matrimonial websites, wedding management companies, wedding video and photographers are directly dependent on the status of marriage.

(g) Family Size:

Family size and structure is also an important variable in segmenting the market. With the passage of time and effective implementation of family planning measures, the average Indian family size is declining. Earlier there used to be at least 3 or 4 Children the family, which has largely gone down to two or even 1 in many families.

The social fabric of life is also changing, with more and more nuclear families than the joint families. It has led to the changes in the purchasing behaviour. Earlier, if you splurge, then there was a guilt feeling of spending money. But now you feel better off after splurging.

With easy credit availability and younger earning population with more nuclear families and singles living in metros and cities, a new segment has been created and the companies are cashing on it with their different product and service offerings.

Most of the malls in Gurgaon are doing brisk business, thanks to the large customer base among the single males and females working in the BPOs (Business Process Outsourcing). Right from the apparels to shoes to accessories to multiplexes, all have benefited largely in the post liberalization era with the changing family size and structure.

(h) Socio Economic Status:

According to Marketing Research Society of India (MRSI), the consumption behaviour of the consumer is determined by his / her social class, which refers to the occupation of the earning members of the family. Till April, 2011, MRSI had divided Indian population in the urban area in to eight socio-economic groups of consumers on the basis of the education and occupation of the chief wage earner of the household. These groups are SEC A1, A2, B1, B2, C, D, E1 and E2.

A1 and A2 include graduates, white collar workers and professionals and account for 9.5% of the population. B1 and B2 include SSC qualified as well as 40 % graduates, whose occupation is clerical or are shopkeepers and account for 17% of the population. C includes skilled workers, clerks, salespersons etc and account for 19.5% of the population. D again includes skilled workers, clerks, sales persons and account for 22.4%. While, E1 and E2 include unskilled labour and account for 31.6% of the population.

Till April, 2011, the Rural Indian Households are classified into SEC R1, R2, R3 and R4. In the rural classification, the parameters are education of the chief wage earner and the type of the house. SEC R1 includes population, who is graduate and having a pucca house, while R2 includes graduates with semi pucca house. R3 includes Graduates with Kuccha house and R4 include below SSC educated population with kuccha house.

Now, in a bid to keep pace with the fast-evolving economic outlook, consumer attitudes and preferences in the country, this system has been revamped on 3rd May, 2011 by the Media Research Users’ Council (MRUC) and the Market Research Society of India (MRSI) have unveiled a new Socio-Economic Classification (SEC) system.

The new Socio-Economic Classification (SEC) system is used to classify households in India. It’s based on two variables:

i. Education of chief wage earner and

ii. Number of “consumer durables” (from a predefined list)-owned by the family.

The list has 11 items, ranging from ‘electricity connection’ and ‘agricultural land’-to cars and air conditioners. These are:

Based on the above two parameters, each household are classified in one of 12 SEC groups—A1, A2, A3, B1, B2, C1, C2, D1, D2, E1, E2 and E3. These 12 groups are applicable to both urban and rural India. The top-most new SEC class A1 comprises of 0.5% of all Indian households.

Nearly 2% of urban households and less than 0.1% of rural households belong to the new SEC A1. More than half of all SEC A1 households reside in the top six Indian cities— Delhi, Mumbai, Kolkata, Chennai, Bengaluru and Hyderabad. At the other end of the spectrum, the bottom-most new SEC class E3 comprises of 10% of all Indian households. Only 2% of urban households and 13% of rural households belong to new SEC E3. Nearly 93% of all SEC E3 households are in rural India.

The formulation of the new SEC system has largely been done using the Indian Readership Survey (IRS) database. The developmental work has also used IMRB’s ‘Household Panel’ data. IRS is the largest survey of Indian households with a sample size of over 260,000— of this, roughly 175,000 are from urban India while around 85,000 hail from rural India. It was the sampling rigor and spread that led to the IRS being identified as the most appropriate database for the development of the new SEC Classification system.

Besides the above, religion, race, nationality and language are also the bases for segmenting the market.

Way # 2. Geographic Segmentation:

Geographic segmentation is the starting point and the simplest form of segmenting the market. Here, the market is divided into countries, states, regions and cities. For a large company like LG or Samsung, it is easy to sell the products all across the country or many countries in the world; but a small player like Ghari Detergent, based in Kanpur, Uttar Pradesh needs to expand step by step in different regions of India.

Earlier MTR ready to eat food was sold in southern India only and then it expanded to all the other regions in India. A courier service like Vichare is only operational in Mumbai and its suburbs; but a university like Amity, is trying to expand its operations all across India besides its main campus at Noida to Jaipur, Lucknow, Gurgaon, Mumbai and so on. Nirma was also started small by Karsanbhai Patel in 1969 from a small place called Kishnapur in Gujarat and then expanded to all across India. This segmentation method helps the company to expand their markets on a logical basis.

Way # 3. Geodemographic Segmentation:

Based on the philosophy of ‘Birds of a feather flock together’, Geodemographic segmentation combines the geographic and demographic segmentation. It is based on the philosophy that consumers staying in the same area have got similar characteristics and needs. This kind of segmentation helps the companies to market their products efficiently.

For example, you won’t find HUL’s Pureit water purifier priced at Rs. 2000/- and now Pureit compact at Rs. 1000/-, being sold in Colaba, Mumbai, but you will find the purifier selling in the areas like Goregaon, Borivali and Mira Road in Mumbai. It is all due to the presence of the respective market segment of Pureit in these areas in Mumbai.

Way # 4. Psychographic Segmentation:

It has often been found that people with the same demographic profile may act in a totally different manner. This happens due to the difference in their personality, lifestyle and values. Psychographics is the science of using psychology and demographics to understand the consumers better. Marketing researchers have tried to map individual lifestyle patterns to segment the market.

One of the famous methods of psychographic study is AIO Framework (Activities, Interests and Opinions). AIO framework explains the individual lifestyle patterns based on the activities, interests and opinions with demographic variables.

Personality is also an important factor in segmenting the market. Generally, the marketers try to project the brand personality, which imitates the target consumer personality. Once you hear about Nike (Athlete in all of us), Reebok (Success / Cricket), Levi’s (American, Real and Authentic, Rugged) and Shoppers Stop (Exclusivity, Individuality); it sounds you something.

The brand personality is also endorsed by the celebrity, whose personality matches the consumer’s persona. That’s why Akshay Kumar advertises for Levi’s, M. S. Dhoni, John Abraham and Nargis advertises for Reebok and Yuvraj Singh advertises for Fiat Grande Punto; while you see a young couple in Tata Indica Vista ad. Though both – Fiat Grande Punto and Tata Indica Vista are targeting the same demographic customers’ profile.

Psychographic Segmentation can also be understood in American context through Sri Consulting – Business Intelligence (SRIC-BI) VALS (Values and Lifestyle) Model Framework. VALS is based on 4 demographic factors (Sex, Age, Education and Income) and 35 Attitudinal Questions (I am often interested in theories /1 like a lot of variety in my life /1 like to learn about art, culture, and history….) to profile the consumers.

The VALS framework divides the American adults into eight typologies under two categories – higher resources and lower resources. Higher resources include Innovators, Thinkers, Achievers and Experiencers and lower resources include Believers, Strivers, Makers and Survivors. Although the framework is not very useful in Indian context; but it can give an insight and can be modified to suit the Indian environment.

Titan, the topmost watch brand in India, offers different watches under sub brands like Octane, Orion, Edge, Heritage, WWF Collection etc. to target the different psychographic customer base.

Way # 5. Behavioural Segmentation:

In the case of behavioural segmentation, the buyers are divided into different groups on the following basis:

I. Buyer’s purchase decision role

II. Product or brand usage

III. Occasions

IV. User status and

V. Usage rate

On the basis of occasions, the consumers can be divided into market segments. Archies has built their business on the basis of occasional greetings. Kurkure is trying to sell more on the occasion of Diwali through its gift packs. Cadburys is trying to associate its chocolates with the happy occasion and also promoting it as a replacement of age old traditional sweets.

ICICI Bank and other banks sell Gold coins on the auspicious occasions like Akshay Tritiya, Diwali etc. On Valentine’s Day, a company like Ferns and Petals gets the highest order to deliver flowers all across India.

User status also defines a market segment. Users can further be segmented into first time users, regular users, ex users, potential users and non-users. In the different stages of family life cycle, a nonuser may turn into a first time user and then it can become regular user.

For example, a kid may use Johnson’s Baby soap for the first time and can become a regular user for few years and then the baby can leave the usage and become an ex users. On the other hand, potential user group are mother-to-be_; who will buy the products relevant to their baby after a certain period of time.

Usage rate also helps to segment the market. Telecom companies like Airtel, Vodafone, Reliance etc. regularly segment their customers on the basis of light, medium or heavy users for their services. In the case of cigarettes, the heavy users are very loyal to the brand, but in the case of beer it has been found that either the heavy drinkers are loyal or they look out for the lowest price. Consumers can also be segmented on the basis of varying degree of loyalty.

George H. Brown has divided the brand loyalty status into four groups-Hard Core Loyals, who buy the same brand all the time; Split loyals, who are loyal to two or three brands; Shifting loyals, who shift from one brand to another and switchers, who show no loyalty to any brand. It has been found that in beer, toothpaste, cigarettes and in newspaper category, the consumers are highly loyal to the brand.

Buyer Readiness Stage:

In any market, the buyers are happened to be in different buyer readiness stage. It goes right from being unaware about the product to being aware about the product, and then progresses to interest in the product, to desire and then to the intention to buy the same.

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