Consumer Behavior: Classifying Customers

Himansu S M

The study of Consumer Behaviour focuses on how individuals decide to buy and use goods
and services. Organisations can rarely afford to develop strategies based on the behaviour
of any single individual. Instead, they must base their strategies on the behaviour of many
individuals, who behave in similar ways.
Many tasks need the attention by consumer analysts, regardless of whether the consumer
influence, post-modern, or inter-cultural perspectives are adopted. They are :
1. One such task is to understand how groups of consumers (segments of the total) vary
from one another, and how these behavioural differences affect segmented marketing
programmes of profit and non-profit organisations.
2. Another task is to understand how changes in behaviour of specific segments lead to
shifts in the behaviour of the total market.
A market is rarely homogeneous as it consists of various groups of diversified nature or
aggregate of consumers of a given product. The old and starting concept of "Mass
Marketing" where the seller engages in mass production, mass distribution and mass
promotion of one product or identical products or services for all buyers and assumes that
all customers are alike and have the same/similar types of needs. But later on this has given
way to the concept of offering different products to different groups / classes of consumers
known as segments.
In developing economies, the mass marketing or identical product strategy is often used
effectively. But as the economies grow, it becomes less effective, where most consumers
already own the functional or core benefits. Market segmentation offers variation in
functional benefits and more attention to hedonic (activities for pleasure, entertainment
and leisure) needs.
The need for segmentation arises because people vary so much from one another. On one
extreme, we have the mass marketing, where it is presumed that all humans are identical in
their preferences and behaviour, so that there would be no need for market segmentation.
Every product would be identical.
Because people differ so much in their needs, motivation, perception, decision making
process and buying behaviour, that ideally, products would be custom made for each user
to give them maximum satisfaction. Thus here exists the other extreme, where some
individually developed products or services, such as custom-tailored clothing, beauty care,
landscaping services, architectural plan for custom-designs for homes, but they are so
heavily priced, that they can't compete with more standardised products.
Effective marketing programmes usually require a mid-way or balanced approach between
the two extremes :
1. Ultimate segmentation of custom-designed products that match each individual's
behaviour, and
2. Mass marketing of standardised products that appeal none.
The analytical goal for the marketers is to study the buying and consuming behaviour of
customers and place each of them in an appropriate group or segment in such a way that it
will :
1. minimise the variance in behaviour between the members within a segment, and
2. maximise the variance between the segments.
Definitions
Market Segmentation is the process of designing or featuring a product or service, so that it
will make a particularly strong appeal to some identifiable subset of the total market. The
opposite is called "Market Aggregation" or "Mass Marketing" as explained above.
Or, in other words, this is defined as the process of dividing a market into distinct sub-sets
of consumers distinguished from one another, with common needs or characteristics and
selecting one or more segments to target with a distinct marketing mix.
In simple words, Market Segmentation is the division of a market into groups of similar
consumers and selecting the most appropriate group(s) for the firm to serve them
profitably.
Marketing Mix
While the marketing mix is a very important chapter or topic by itself in the study of
marketing management, the following describes in brief to give the readers a general
understanding about it. The process or the tools of creating, communicating and delivering
value to the customers is thru "Marketing Mix", a concept devised by McCarthy. This
concept is popularly known as "The 4Ps of Marketing". They are :
1. Products - These refer to the physical products and their attributes, like Design, Features,
Brand Name, Models, Style, Appearance, Quality, Warranty, Utility value, Resale value,
Package (design, type, material, size, appearance and labelling), Service (pre-sale, after sale,
service standards, service charges).
2. Place - This refer to the market place, or the location where exactly the products are
available. These include Channels of Distribution (channel design, types of intermediaries,
location of outlets, channel remuneration, dealer-principle relation, etc.), Physical
Distribution (transportation, warehousing, inventory levels, order processing, etc.)
3. Price - This simply is the price one has to pay or the cost one has to incur to own the
product or services. This includes Price, Pricing Policies, Margins, Discounts, Rebates, Terms
of Delivery, Payment Terms, Credit Terms, Instalment Purchase Facility, Resale Price
Maintenance.
4. Promotion - This refers to all kinds of activities which will assist, facilitate, influence or
enhance the purchase of a product or service. This includes Personal Selling, Selling
Expertise, Size of Sales Force, Quality of Sales Force, Advertising (media-mix, vehicles,
programmes, sales promotions, publicity, and public relations).
These are the basic elements of the marketing plan or programme. The marketer has to
decide on how much (quantity) of and what variety and type (quality) of these elements will
go into the designing of a particular marketing programme.
Benefits of Market Segmentation
Segmentation is an important tool for increasing profitability, and this can happen only
when the economic value to consumers exceeds the cost of creating that value. Slowly, the
marketers are acquiring the ability to measure and identify groups within the broader
market that are sufficiently homogeneous to warrant separate products or marketing
programmes. And this increases the profitability and effectiveness of the organisation to the
extent that the economic benefits provided to the consumers far exceed the costs of
segmentation process. The following gives a list of more specific benefits of market
segmentation :
1. Facilitates proper choice of target market,
2. Helps distinguish one customer group from another within a given market,
3. Facilitates effective tapping of the market, adapting the offer to the target,
4. The "Divide and Rule" concept as a strategy of "dividing the markets for conquering
them",
5. Helps crystallise the needs of the target buyers and elicit (bring out) more predictable
responses from them, helps develop marketing programmes on a more predictable base,
helps develop marketing offers that are most suited to each group,
6. Helps specialisation required in products, distribution, promotion and pricing (marketing
mix) for matching the customer group and developing marketing offers and appeals that
match the needs of such a group,
7. Makes marketing effort more efficient and economic - helps identify less satisfied
segments and concentrate on them to improve the level of satisfaction,
8. Helps concentrate efforts on the most productive and profitable segments instead of
frittering them away over irrelevant, or unproductive, or unprofitable segments,
9. Brings benefits to the customer as well,
10. When segmentation attains high sophistication, customers and companies can choose
each other and stay together.
Levels of Market Segmentation
Segmentation generally takes place in four levels as following, this is known as Micro-
marketing :
1. Market Segmentation - Flexible market offering Naked Solutions and Discretionary
Options. One way to segment consumers on the basis of their preferences :
* Homogeneous preference - Same or similar throughout a segment
* Diffused preference - Show random preference and vary drastically as represented by a
scattered graph or diagram
* Clustered preference - Several sub segments showing similar preference within the sub
group which is the most natural situation
2. Niche Marketing : A niche is a more narrowly defined group (usually arrived at by dividing
a segment into sub segments) seeking a distinctive mix of benefits, and are willing to pay a
premium in return for the satisfaction of their needs. The niche market has enough size,
profit, growth potential for its marketer, but not enough of them to attract competitors and
generally has one or two only.
3. Local Marketing : This tends to customise the global products to the needs and wants of
the local customer groups (trading areas, neighbourhoods, individual stores). Ex. -
McDonald's Mc-Tikki and Pizza Hut's Tandoori Range in India.
4. Individual Marketing : This tends to be highly specialised and tailor-made for an Individual
who has become highly particular and demanding. Ex. - designer cars by Dilip Chabria in
India, Merc's highly customised models etc
Bases for Segmentation
In a market segmentation process, it's the "consumers" or "customers" who are classified
and not the "products" or the price, as generally understood. So product segmentation or
price segmentation are sometimes mistaken for market segmentation. After the market is
segmented, the customers classified and the target is decided on, then the relevant product
/ price programmes can be developed. The following are the broad bases for segmentation :
1. Geographic Segmentation -
* Region - Far East, south-east Asia, Middle-east, European, Atlantic, Pacific, North/South
America, Polar, Siberian, desert etc. In India North, South, West, East and North-east
* City or metro size - say below 100K, 100K-1M, 1M-10M, >10M etc. (K=Thousand,
M=Million)
* Density - Urban, Sub-urban, Rural
* Climate - Hot, Warm, Cold, Humid, Tropical, Rainy, Deserts
2. Demographic Segmentation -
* Age - Infants, Childhood, Adolescence, Young, Middle age, Old
* Sex - Male, Female, Others
* Marital Status - Single, Married, Divorced, Widowed
* Family Size - 2, 4, 6 or more
* Family Life Cycle - Young Single, Young Married (no children), Young Married (small
children), Middle aged with or without children, Old with or without children, Single
survivor
* Income - 100K pm. (in respective countries in their currencies)
* Purchasing Capacity - with or without disposable surplus, low or high
* Price Preference - General, or Premium; min / avg / high
* Education - Secondary, Senior secondary, Graduation, Post Graduate, Technical / Higher
Specialised Qualification
* Occupation - Un-employed, Students, Farmers, Workers, Govt. Employees, Self-employed,
Professionals, Technical, Business Owners, Retired Persons, Housewives, Craftsmen, etc.
3. Psychological / Behavioural Segmentation based on personal attributes - (This will be
dealt in details in "Understanding Customer Behaviour with psychological influence")
* Need Motivation - Food, Shelter, Clothes, Safety, Security, Self-confidence, Love
* Personality - Optimistic, Pessimistic
* Perception - Risk, Quality, Health, Safety,
* Learning Involvement - Low / High Involvement
* Attitude - Positive, Negative, Neutral
* Loyalty Status - None, Some, Total
4. Psychographic Segmentation - (Based on AIO - Activities, Interests and Opinion) -
* Lifestyle - Culture Oriented, Sports Oriented, Outdoor Oriented, Urban Mobile, Couch
Potato, Traditionalist, Sophisticate, Swinger
* Personality - Ambitious, Compulsive (with Obsession), Gregarious (liking of association or
companionship), Authoritarian, Aggressive, Introvert, Extrovert, Compliant, Detached
5. Socio-Cultural Segmentation -
* Culture - Indians, Asians, Europeans, Americans, Chinese, Japanese, Africans
* Sub-Culture - South Indians, Kashmiris, Gujaratis, Marathis, Bengalis, Oriyas, people of N-E
states and BIMARU states, in India
* Religion - Hindus, Muslims, Christians (Catholic, Protestants), Buddhists, Jews,
* Language - English, Chinese, Japanese, European Languages, Arabic, Hindi and other
Indian Languages
* Social Class - Lower Class (lower and upper), Working Class, Middle Class (lower and
upper), Upper Class (lower and upper)
6. Use related Segmentation -
* Usage Rate - Heavy users, Medium users, Light users, Active users, Rare users, Non-users
* User Status - Non-user, Ex-user, Potential User, First-time user, Regular User
* Awareness Status - Unaware, Aware, Interested, Enthusiastic,
* Attitude towards Product - Negative, Positive, Indifferent, Hostile
* Brand Loyalty - High, Moderate, Low, Non-Loyal
7. Use Situation Segmentation -
* Time - Leisure, Work, Rush, Morning, Night
* Objective - Personal, Fun, Gift, Time-pass, Achievement
* Location - Home, Office, Road, Restaurants, In-store
* Person - Self, Family members, Boss, Friends, Peers
8. Benefit Segmentation -
* Economic,
* Durable,
* Value for money,
* Convenient
9. Hybrid Segmentation -
* Demographic / Psychographic - Young Urban Mobile
* Geodemographics - Working Women in India
* SRI Consulting Business Intelligence's VALS (Value and Life-style System) -
* Actualisers - Successful, sophisticated, active "take-charge" people. Purchases often
reflect cultivated tastes for relatively upscale, niche-oriented products.
* Achievers - Successful, career- and work-oriented. Favour established prestige products
that demonstrate success to their peers.
* Believers - Conservative, conventional and traditional. Favour familiar products and
established brands.
* Fulfilled - Mature, satisfied, comfortable, and reflective. Favour durability, functionality,
and value in products.
* Experiencers - Young, vital, enthusiastic, impulsive and rebellious. Spend a comparatively
high proportion of income on clothing, fast food, music, movies & video.
* Makers - Practical, self-sufficient, traditional, family-oriented. Favour only products with a
practical functional purpose such as tools, utility vehicles, fishing equipment.
* Strivers - Uncertain, insecure, approval-seeking, resource constrained. Favour stylish
products that emulate the purchases of those with greater material wealth.
* Struggler - Elderly, resigned, passive, concerned, resource constrained. Cautious
consumers who are loyal to favourite brands.
Bases for Segmenting Business Marketing
Business markets can be segmented with some of the same variables used in consumer
market segmentation, but they also use certain other variables as follows. The marketers
need to answer these questions to get the appropriate input for segmentation :
1. Demographic
* Industry - Which industry should we serve?
* Company size - What size companies should we serve?
* Location - What geographical areas should we serve?
2. Operating Variables
* Technology - What customer technologies should we focus on?
* User or Non-user status - Should we serve heavy users, medium users, light users or
nonusers?
* Customer Capabilities - Should we serve customers needing many or few services?
3. Purchasing approaches
* Purchasing-function organisation - Should we serve organisations with highly centralised
or decentralised purchasing organisations?
* Power structure - Should we serve companies that engineering dominated, financially
dominated or so on?
* Nature of existing relationships - Should we serve companies with which we have strong
relationships or simply go after the most desirable companies?
* General purchase policies - Should we serve companies that prefer leasing? Service
contracts? System purchases? Sealed bidding?
* Purchasing criteria - Should we serve companies that are seeking quality? Service? Price?
4. Situational factors
* Urgency - Should we serve companies that need quick and sudden delivery or service?
* Specific applications - Should we focus on certain application of our product rather than all
applications?
* Size of order - Should we focus on large or small orders?
5. Personal Characteristics
* Buyers-seller similarity - Should we serve companies whose people and values are similar
to ours?
* Attitude towards risk - Should we serve risk taking or risk avoiding companies?
* Loyalty - Should we serve companies that show high loyalty to their suppliers?
Steps in Segmentation Process
Effective segmentation has following steps :
1. Needs-Based Segmentation - Group the customers into segments based on similar needs
and benefits sought by customer in solving a particular consumption problem.
2. Segment Identification - For each needs-based segment determine which demographics,
lifestyles and uses behaviour, make the segment distinct and identifiable (actionable).
3. Segment Attractiveness - Using pre-determined segment attractiveness criteria (such as
market growth, competitive intensity, and market access), determine the overall
attractiveness of each segment.
4. Segment Profitability - Determine profitability of the segment.
5. Segment Positioning - For each segment create a value proposition and product price
positioning strategy based on that segment's unique customer needs characteristics.
6. Segment Acid Test - Create "segment storyboards" to test the attractiveness of each
segment's positioning strategy.
7. Marketing Mix Strategy - Expand segment positioning strategy to include all aspects of
the marketing mix products, price, place and promotion.
Market Targeting
Evaluating, choosing, selecting and finally adopting the market segment(s) to develop
appropriate marketing programmes with relevant marketing mix is known as market
targeting. The following are the broad steps that must be followed to achieve a successful
and effective market targeting :
Effective Segmentation Criteria : To be useful, market segment must have following
attributes :
1. Measurable or Measurability - These refer to the information obtainable about the size,
purchasing power and characteristics of the market segments. Unless these attributes can
be measured the formulation and implementation of a marketing programme and
marketing mix becomes very difficult.
2. Substantial or Substantiality or Meaningful - These refer to the size of segments,
whether they are large and profitable enough to serve. A segment should be the largest
possible homogeneous group worth going after with a tailored marketing programme. But
also sometimes smaller companies prefer smaller segments, where the competition with
large companies are less likely.
3. Accessible or Accessibility or Marketable - These refer to the extent by which the
segments can be effectively reached and served for the convenience of both the marketer
and the customer.
4. Differentiable or Differentiability - These refer to the degree that the segments are
conceptually distinguishable and respond differently to different marketing mix elements
and programmes.
5. Actionable or Actionability - These refer to the extent that effective programmes can be
formulated for attracting and serving the segments.
6. Congruity - This refers to how well the members of a market segment fit together.
Congruity is also a measure of appropriateness of the classification in explaining the
behaviour of the group. This is helpful in predicting the nature of response to marketing
programmes by segments. The marketers' goal is to find groups of customers with intra-
segment congruity which are also congruous with the firm's ability to market the products.
Evaluating and Selecting Market Criteria : Once the firm has identified its market segment
opportunity it has to decide how many and which ones to target. The firm must look at two
factors :
1. The segments' overall attractiveness and profitability, which can be determined by the
check-list mentioned above,
2. The company's overall objectives and resources must match with the marketing
objectives, and both of them together must be in conformity of the selection of the
segments.
Marketing Strategy decisions : Having evaluated different segments the company can
consider the following patterns of target market selection :
1. Single Segment Concentration (Concentration Strategy) - In this type of marketing, the
company focuses on a single segment with a limited variation but usually high quality in the
products or services. It's also the basis of niche marketing, and the goal is to dominate a
particular segment. Jerry Garcia of the Grateful Dead had said it well : "You don't merely
want to be considered just the best of the best. You want to be considered the only ones
who do what you do".
2. Differentiated Marketing (Multi-Segment Marketing Strategy) - An alternative approach
is to concentrate on two or more segments offering a differentiated marketing mix for each.
This is based on the principle of diversity and has a distinct trend towards multiple product
offerings targeted at different segments. This strategy is key to growth for many companies
because it offers the potential benefit of enhanced market position and access to more of
the market. But the disadvantages are the loss of core markets, unless precautions are
taken. No products can be all things to all people. This approach can be of broadly three
types as :
3. Selective Specialisation (Selective Segmentation Strategy) - In this approach the
marketers choose the segment and a matching market offering from the available ones. It
means if the company has several products to offer to several selected segments, it can
offer a particular product to a particular segment, and so on.
4. Product Specialisation Strategy - In this strategy, one particular product is usually offered
to two or more segments.
5. Market Specialisation Strategy - Similarly, in this strategy one particular segment is
usually offered with two or more products.
6. Undifferentiated Marketing (Full Market Coverage) - Some marketers are of the opinion
that the best approach is to market products and services without creating a separate
marketing strategy for specific market targets. This means offering the whole range of
products to the entire market. This strategy may have worked well with some companies to
make them successful. But over a period of time these gave rise to a situation which calls for
a differentiated approach. The problem with the undifferentiated marketing is that it often
becomes difficult to maintain market position, if the needs of buyers are varied and they
change because of variation in certain other factors, like buying capacity, more concerned
about style, fashion and status, more disposable surplus, etc.
7. Counter Segmentation - As happens with all things, the market and its segmentation
don't remain static. Times change, people change, companies change, products change, and
so on. A new segment may arise, which needs to be considered independently. And
similarly, the difference between two or more segments may get more insignificant over
time and the segments no longer remain viable for individual consideration. This is a result
of several influential factors changing independently or dependently. In such a situation, the
company may decide the clubbing of two or more segments and to have a common strategy
of marketing mix. This is called counter segmentation.
Uses of Segmentation in Marketing Strategy
The following are the major uses of segmentation :
1. Product Positioning : This refers to the ways in which consumers think of a particular
product or personally identify a product with a perceived set of attributes. This is usually
done in relation to the competing products in the minds of consumers.
2. Promotional Strategy : This refers to the designing of the basic appeal to show how the
company offering delivers perceived benefits and in selecting the specific media most useful
in reaching the targeted market segments.
3. Distribution Strategy : This refers to the physical delivery of goods and services at a place
most convenient and preferable to the target segments. Today, lifestyle affects where
consumers prefer to buy, whether at home, or nearby shop or in a mall or in a big store.
4. Price Policy : This refers to the customers' ability to pay. This is affected by income,
lifestyle, social class, disposable surplus, family size, and above all a buyers' willingness to
pay. Whether a consumer wants to pay for the value, or usefulness, or status, or just plain
low-priced articles is very important to the marketer to decide for market segmentation.
Product Positioning
This is the most important use of the marketing segmentation. The key objective of the
positioning strategy is to form a particular brand image in consumers' mind with respect to
others. This is accomplished by developing a coherent strategy that may involve all the
marketing mix elements. The different types of approaches are given below :
1. Positioning by Attribute : Probably the most frequently used positioning strategy is
positioning by attribute - that is, associating a product with an attribute, a product feature,
or a customer benefit. A new product can also be positioned with respect to an attribute tat
competitors have ignored till now. Sometimes a product can be positioned in terms of two
or more attributes simultaneously. The price/quality attribute dimension is commonly used
for positioning product as well as stores. In many product categories, some brands offer
more in terms of service, feature, or performance, and a higher price associated with it.
More often than not, the higher price is a signal of higher quality to the customers.
2. Positioning by Use or Application : Another strategy is positioning by use or application
or utility, like instant food or ready to eat food. Products can of course have multiple
positioning strategies, although increasing the number involves difficulties and risks. Often a
positioning-by-use strategy represents a second or third position designed to expand the
market.
3. Positioning by Product User : Another approach is positioning by product user or a class
of users. For example, Johnson & Johnson's baby shampoo was positioned for adults who
need a mild natured shampoo, with success.
4. Positioning by Product Class : Some critical positioning decisions involve positioning by
product class. The soap Caress made by Lever Brothers was positioned as a bath-oil product
rather than a soap.
5. Positioning by Competitors : In most explicit or implicit frame of reference is given to the
competition. This is known as the positioning by competitors. Often, the major purpose of
this type of positioning is to convince the customers that a brand is better than the market
leader (or another well accepted brand) on important attributes. Positioning with respect to
the competitor is commonly done in advertisements in which a competitor is named and
compared. The classic example of this type of positioning is the Avis : "We are number two,
so we try harder to be the number one".
Conclusion
Effective marketing strategy requires that each element of marketing mix fits together to
deliver a co-ordinated and integrated appeal to the appropriate group of customers. This is
the cardinal principle of market segmentation. There are innumerable players in the market,
which makes the competition in the market place very tough today, and to expect anything
less is not a successful proposition. Efficiency in segmentation strategy depends on the
determination of ways of classifying customers with respect to behavioural congruity rather
than descriptive, static, characteristics. The complexity of consumer behaviour makes this a
very difficult task and the one that is continuously changing.
Key Words :
Mass Marketing, Marketing Aggregation, Niche Marketing, Micro-Marketing, Marketing
Segmentation, Counter Segmentation, Marketing Mix, Customisation, Market Targeting,
Market Positioning, Bases for Segmentation, Homogeneous Market, Diversified Market, STP
(Segmenting, Targeting and Positioning), Standardisation, Differentiated Marketing,
Undifferentiated Marketing, Product Specialisation, Market Specialisation, Concentration
Marketing, Classifying Customers. VALS (Value and Lifestyle System)
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