UNDERSTANDING BUYER

UNDERSTANDING BUYER

BUY can be defined as the product that is obtained in exchange for payment.

A buying process is the series of steps that a consumer will take to make a purchasing decision. A standard model of consumer purchase decision-making includes recognition of needs and wants, information search, evaluation of choices, purchase, and post-purchase evaluation.

Need to understand:

·                     Why consumers make the purchases that they make?

·                     What factors influence consumer purchases?

·                     The changing factors in our society.

Consumer Buying Behaviour refers to the buying behaviour of the ultimate consumer. A firm needs to analyze buying behaviour for:

·                     Buyer’s reactions to a firms marketing strategy has a great impact on the firm’s success.

·                     The marketing concept stresses that a firm should create a Marketing Mix (MM) that satisfies (gives utility to) customers, therefore need to analyze the what, where, when and how consumers buy.

·                     Marketers can better predict how consumers will respond to marketing strategies.

The Buying Process

Let's take a closer look at the process by examining each step in some detail:

Step one: Recognition of needs and wants

You can't make a purchase decision unless you actually know what you want or need. A need is an essential product or characteristic of a product that you must obtain. For example, you need water to survive. A want, on the other hand, is some product or product characteristic that you desire but is not essential. For example, while you may want to quench your thirst with soda, you don't need it - water will suffice.

Needs often arise because of problems, such as breaking the cell phone you use for business. Wants may arise as part of your need for a product, or because you have been influenced to want a product because of some outside influence, such as advertising or observing someone enjoying it. For example, you may need a new cell phone, but after watching countless colleagues use their smart phones, you really want to upgrade to a smart phone.

Step two: Information search

After you determine your needs and wants, you will start to search and gather information about the potential product choices that may meet them. Sources of information may come from print, radio, television, and Internet advertising. You may also do independent product research on the Internet, looking at product review sites and consumer reviews on retail sites, such as Amazon. Finally, you may seek the opinions of friends, family, and colleagues.

Step three: Evaluation of choices

If you performed your research correctly, you should have some options from which to choose. You use your needs and wants as criteria in evaluating and comparing each product against each other. You may find trade-offs, such as higher prices for products that include more of your wants. In the end, you will rank your choices and pick the product that best matches your needs and wants based upon the budget available to you for the purchase.

Step four: Purchase

At this point, you will purchase the product. Your purchasing decision may be influenced by the manner in which you can purchase and receive the product. For example, you may purchase a product through a particular store because the product can be financed, is available immediately, or can be delivered quickly.

Step five: Post-purchase evaluation

After you have made your purchase and have had some time with the product, you will evaluate your decision. This evaluation may be conscious or unconscious. Your evaluation will play a large role in your loyalty to the product and the company that produced it.

Types of Consumer Buying Behaviour

Types of consumer buying behaviour are determined by:

·                     Level of Involvement in purchase decision. Importance and intensity of interest in a product in a particular situation.

·                     Buyer’s level of involvement determines why he/she is motivated to seek information about a certain products and brands but virtually ignores others.

High involvement purchases--Honda Motorbike, high priced goods, products visible to others, and the higher the risk the higher the involvement. Types of risk:

·                     Personal risk

·                     Social risk

·                     Economic risk

The four type of consumer buying behaviour are:

·                     Routine Response/Programmed Behaviour--buying low involvement frequently purchased low cost items; need very little search and decision effort; purchased almost automatically. Examples include soft drinks, snack foods, milk etc.

·                     Limited Decision Making--buying product occasionally. When you need to obtain information about unfamiliar brand in a familiar product category, perhaps. Requires a moderate amount of time for information gathering. Examples include Clothes--know product class but not the brand.

·                     Extensive Decision Making/Complex high involvement, unfamiliar, expensive and/or infrequently bought products. High degree of economic/performance/psychological risk. Examples include cars, homes, computers, education. Spend a lot of time seeking information and deciding.

Information from the companies MM; friends and relatives, store personnel etc. Go through all six stages of the buying process.

·                     Impulse buying, no conscious planning.

The purchase of the same product does not always elicit the same Buying Behavior. Product can shift from one category to the next.

For example:

Going out for dinner for one person may be extensive decision making (for someone that does not go out often at all), but limited decision making for someone else. The reason for the dinner, whether it is an anniversary celebration, or a meal with a couple of friends will also determine the extent of the decision making.

Categories that Affect the Consumer Buying Decision Process

A consumer, making a purchase decision will be affected by the following three factors:

1.                  Personal

2.                  Psychological

3.                  Social

The marketer must be aware of these factors in order to develop an appropriate MM for its target market.

Personal

Unique to a particular person. Demographic Factors. Sex, Race, Age etc.

Who in the family is responsible for the decision making?

Young people purchase things for different reasons than older people.

Psychological factors include:

·                     Motives--

A motive is an internal energizing force that orients a person's activities toward satisfying a need or achieving a goal.

Actions are effected by a set of motives, not just one. If marketers can identify motives then they can better develop a marketing mix.

MASLOW hierarchy of needs!!

o                  Physiological

o                  Safety

o                  Love and Belonging

o                  Esteem

o                  Self Actualization

Need to determine what level of the hierarchy the consumers has to determine what Perception--

What do you see? Perception is the process of selecting, organizing and interpreting information inputs to produce meaning. IE we chose what info we pay attention to, organize it and interpret it.

Information inputs are the sensations received through sight, taste, hearing, smell and touch.

Selective Exposure-select inputs to be exposed to our awareness. More likely if it is linked to an event, satisfies current needs, intensity of input changes (sharp price drop).

Selective Distortion-Changing/twisting current received information, inconsistent with beliefs.

Advertisers that use comparative advertisements (pitching one product against another), have to be very careful that consumers do not distort the facts and perceive that the advertisement was for the competitor. A current example...MCI and AT&T...do you ever get confused?

Selective Retention-Remember inputs that support beliefs, forgets those that don't.

Average supermarket shopper is exposed to 17,000 products in a shopping visit lasting 30 minutes-60% of purchases are unplanned. Exposed to 1,500 advertisements per day. Can't be expected to be aware of all these inputs, and certainly will not retain many.

Interpreting information is based on what is already familiar, on knowledge that is stored in the memory.

·                     Ability and Knowledge--

Need to understand individual’s capacity to learn. Learning, changes in a person's behavior caused by information and experience. Therefore to change consumers' behavior about your product, need to give them new information re: product...free sample etc.

South Africa...open bottle of wine and pour it!! Also educate american consumers about changes in SA. Need to sell a whole new country.

When making buying decisions, buyers must process information.

Knowledge is the familiarity with the product and expertise.

Inexperience buyers often use prices as an indicator of quality more than those who have knowledge of a product.

Non-alcoholic Beer example: consumers chose the most expensive six-pack, because they assume that the greater price indicates greater quality.

Learning is the process through which a relatively permanent change in behaviour results from the consequences of past behaviour.

·                     Attitudes--

Knowledge and positive and negative feelings about an object or activity-maybe tangible or intangible, living or non- living.....Drive perceptions

Individual learns attitudes through experience and interaction with other people.

Consumer attitudes toward a firm and its products greatly influence the success or failure of the firm's marketing strategy.

·                     Personality--

All the internal traits and behaviours that make a person unique, uniqueness arrives from a person's heredity and personal experience. Examples include:

o                  Work holism

o                  Compulsiveness

o                  Self confidence

o                  Friendliness

o                  Adaptability

o                  Ambitiousness

o                  Dogmatism

o                  Authoritarianism

o                  Introversion

o                  Extroversion

o                  Aggressiveness

o                  Competitiveness.

Traits effect the way people behave. Marketers try to match the store image to the perceived image of their customers.

There is a weak association between personality and Buying Behavior, this may be due to unreliable measures. Nike ads. Consumers buy products that are consistent with their self concept.

·                     Lifestyles--

Recent US trends in lifestyles are a shift towards personal independence and individualism and a preference for a healthy, natural lifestyle.

Lifestyles are the consistent patterns people follow in their lives.

EXAMPLE healthy foods for a healthy lifestyle. Sun tan not considered fashionable in US until 1920's. Now an assault by the American Academy of Dermatology.

Social Factors

Consumer wants, learning, motives etc. are influenced by opinion leaders, person's family, reference groups, social class and culture.

·                     Opinion leaders--

Spokespeople etc. Marketers try to attract opinion leaders...they actually use (pay) spokespeople to market their products. Michael Jordon (Nike, McDonalds, Gatorade etc.)

Can be risky...Michael Jackson...OJ Simpson...Chevy Chase

·                     Roles and Family Influences--

Role...things you should do based on the expectations of you from your position within a group.

People have many roles.

Husband, father, employer/ee. Individuals role are continuing to change therefore marketers must continue to update information.

Family is the most basic group a person belongs to. Marketers must understand:

o                  that many family decisions are made by the family unit

o                  consumer behavior starts in the family unit

o                  family roles and preferences are the model for children's future family (can reject/alter/etc)

o                  family buying decisions are a mixture of family interactions and individual decision making

o                  family acts an interpreter of social and cultural values for the individual.

The Family life cycle: families go through stages, each stage creates different consumer demands:

o                  bachelor stage...most of BUAD301

o                  newly married, young, no children...me

o                  full nest I, youngest child under 6

o                  full nest II, youngest child 6 or over

o                  full nest III, older married couples with dependant children

o                  empty nest I, older married couples with no children living with them, head in labor force

o                  empty nest II, older married couples, no children living at home, head retired

o                  solitary survivor, in labor force

o                  solitary survivor, retired

o                  Modernized life cycle includes divorced and no children.

Reference Groups--

Individual identifies with the group to the extent that he takes on many of the values, attitudes or behaviors of the group members.

Families, friends, sororities, civic and professional organizations.

Any group that has a positive or negative influence on a persons attitude and behavior.

Membership groups (belong to)

Affinity marketing is focused on the desires of consumers that belong to reference groups. Marketers get the groups to approve the product and communicate that approval to its members. Credit Cards etc.!!

Aspiration groups (want to belong to)

Disassociate groups (do not want to belong to)

Honda, tries to disassociate from the "biker" group.

The degree to which a reference group will affect a purchase decision depends on an individuals susceptibility to reference group influence and the strength of his/her involvement with the group.

·                     Social Class--

an open group of individuals who have similar social rank. US is not a classless society. US criteria; occupation, education, income, wealth, race, ethnic groups and possessions.

Social class influences many aspects of our lives. IE upper middle class Americans prefer luxury cars Mercedes.

o                  Upper Americans-upper-upper class, .3%, inherited wealth, aristocratic names.

o                  Lower-upper class, 1.2%, newer social elite, from current professionals and corporate elite

o                  Upper-middle class, 12.5%, college graduates, managers and professionals

o                  Middle Americans-middle class, 32%, average pay white collar workers and blue collar friends

o                  Working class, 38%, average pay blue collar workers

o                  Lower Americans-lower class, 9%, working, not on welfare

o                  Lower-lower class, 7%, on welfare

Social class determines to some extent, the types, quality, quantity of products that a person buys or uses.

Lower class people tend to stay close to home when shopping, do not engage in much prepurchase information gathering.

Stores project definite class images.

Family, reference groups and social classes are all social influences on consumer behavior. All operate within a larger culture.

·                     Culture and Sub-culture--

Culture refers to the set of values, ideas, and attitudes that are accepted by a homogeneous group of people and transmitted to the next generation.

Culture also determines what is acceptable with product advertising. Culture determines what people wear, eat, reside and travel. Cultural values in the US are good health, education, individualism and freedom. In american culture time scarcity is a growing problem. IE change in meals. Big impact on international marketing.

Marketing Information Systems

Marketing information systems are important tools that help marketing managers and business owners make decisions about product development and promotional activities.

A marketing information system (MIS) is a set of procedures and methods designed to generate, analyze, disseminate, and store anticipated marketing decision information on a regular, continuous basis. An information system can be used operationally, managerially, and strategically for several aspects of marketing.

A marketing information system can be used operationally, managerially, and strategically for several aspects of marketing.

We all know that no marketing activity can be carried out in isolation, know when we say it doesn’t work in isolation that means there are various forces could be external or internal, controllable or uncontrollable which are working on it. Thus to know which forces are acting on it and its impact the marketer needs to gathering the data through its own resources which in terms of marketing we can say he is trying to gather the market information or form a marketing information system.

This collection of information is a continuous process that gathers data from a variety of sources synthesizes it and sends it to those responsible for meeting the market places needs. The effectiveness of marketing decision is proved if it has a strong information system offering the firm a Competitive advantage. Marketing Information should not be approached in an infrequent manner. If research is done this way, a firm could face these risks:

ü  Opportunities may be missed.

ü  There may be a lack of awareness of environmental changes and competitors’ actions.

ü  Data collection may be difficult to analyze over several time periods.

ü  Marketing plans and decisions may not be properly reviewed.

ü  Data collection may be disjointed.

ü  Previous studies may not be stored in an easy to use format.

ü  Time lags may result if a new study is required.

ü  Actions may be reactionary rather than anticipatory.

The total information needs of the marketing department can be specified and satisfied via a marketing intelligence network, which contains three components.

ü Continuous monitoring is the procedure by which the changing environment is regularly viewed.

ü Marketing research is used to obtain information on particular marketing issues.

ü Data warehousing involves the retention of all types of relevant company records, as well as the information collected through continuous monitoring and marketing research that is kept by the organization.

Depending on a firm’s resources and the complexity of its needs, a marketing intelligence network may or may not be fully computerized. The ingredients for a good MIS are consistency, completeness, and orderliness. Marketing plans should be implemented on the basis of information obtained from the intelligence network.

An Marketing Information System offers many advantages:                                 

ü  Organized data collection.

ü  A broad perspective.

ü  The storage of important data.

ü  An avoidance of crises.

ü  Coordinated marketing plans.

ü  Speed in obtaining sufficient information to make decisions.

ü  Data amassed and kept over several time periods.

ü  The ability to do a cost-benefit analysis.

The disadvantages of a Marketing information system are high initial time and labor costs and the complexity of setting up an information system. Marketers often complain that they lack enough marketing information or the right kind, or have too much of the wrong kind. The solution is an effective marketing information system. S

Demand Forecasting refers to the process of predicting the future demand for the firm’s product. In other words, demand forecasting is comprised of a series of steps that involves the anticipation of demand for a product in future under both controllable and non-controllable factors.

Predicting the future demand for a product helps the organization in making decisions in one of the following areas:

ü  Planning and scheduling the production and acquiring the inputs accordingly.

ü  Making the provisions for finances.

ü  Formulating a pricing strategy.

ü  Planning advertisement and implementing it.

Demand forecasting holds significance in the businesses where large-scale production is involved. Since the large-scale production requires a long gestation period, a good deal of forward planning should be done. Also, the potential future demand should be estimated to avoid the conditions of overproduction and underproduction. Most often, the firms face a question of what would be the future demand for their product as they have to acquire the input (labour and raw material) accordingly.

The objective of demand forecasting is attained only when the forecasting is done systematically and scientifically. Thus, the following steps in demand forecasting are followed to facilitate a systematic estimation of future demand for product:

ü  Specifying the Objective

ü  Determining the Time Perspective

ü  Choice of method for Demand Forecasting

ü  Collection of Data and Data Adjustment

ü  Estimation and Interpretation of Results

Thus, demand forecasting is a systematic process that assumes greater significance in large-scale producing firms. Demand forecasting may not be a serious issue for the small scale firms which supply a small portion of total demand or produces the product that caters to the short demand or seasonal demand. Such firms can plan their production on the basis of the business skills and their past experiences.

There are several methods of demand forecasting applied in terms of; the purpose of forecasting, data required, data availability and the time frame within which the demand is to be forecasted. Each method varies from one another and hence the forecaster must select that method which best suits the requirement.

Gap Analysis

Definition: Gap Analysis can be understood as a strategic tool used for analyzing the gap between the target and anticipated results, by assessing the extent of the task and the ways, in which gap might be bridged. It involves making a comparison of the present performance level of the entity or business unit with that of standard established previously.

Gap Analysis

Gap Analysis is a process of diagnosing the gap between optimized distribution and integration of resources and the current level of allocation. In this, the firm’s strengths, weakness, opportunities, and threats are analyzed, and possible moves are examined. Alternative strategies are selected on the basis of:

§  Width of the gap

§  Importance

§  Chances of reduction

If the gap is narrow, stability strategy is the best alternative. However, when the gap is wide, and the reason is environment opportunities, expansion strategy is appropriate, and if it is due to the past and proposed a bad performance, retrenchment strategies are the perfect option.

MARKET SEGMENTATION

According to Philip kotler , 

“Market segmentation is sub-dividing a market into distinct and homogeneous subgroups of customers, where any group can conceivably be selected as a target market to be met with distinct marketing mix.”

1. BASES FOR SEGMENTATION IN CONSUMER MARKETS :

1. GEOGRAPHIC SEGMENTATION:

Geographic segmentation refers to dividing a market into different geographical units such as nations, states, regions, cities, or neighbourhoods.

For example, national newspapers are published and distrib­uted to different cities in different languages to cater to the needs of the consumers.

Geographic variables such as climate, terrain, natural resources, and population density also influence consumer product needs. Companies  divide markets into regions because the differences in geographic variables can cause consumer needs and wants to differ from one region to another.

Claritas Inc has developed a geoclustering approach called PRIZM (Potential Rating Index by ZIP Markets ) that classifies over half a million people into 14 distinct groups.

Marketers use PRIZM to answer questions like : 

·                     Which geographic areas contain most valuable customers ?

·                     How deeply have we penetrated the markets?

·                     Which distribution and promotional media will work best ?

EXAMPLES : GEOGRAPHIC SEGMENTATION : 

1.Climate: 

A company that sells both rain gear and summer wear has to consider weather changes while marketing such products. 

It has to focus on marketing rain wear in rainy regions and summer wear in places with hot weather. 

This strategy is mainly applicable for those sellers, who have customers in various locations with different climatic conditions. So, geographic segmentation is very important in international marketing.

2. Population Density: 

Certain products are marketed on the basis of population density in different locations. High-density cities, like New York, create a higher demand for products, like ready-to-eat meals. Even fast food restaurants are commonly found in such cities, rather than urban areas.

GEOGRAPHIC SEGMENTATION :-

ADVANTAGES	LIMITATIONS
1. Valuable approach for a large company that operates across many countries, as geographic segmentation would allow them to consider cultural differences. 2. It is also quite an effective approach for small firms, with limited resources that often need to operate in a defined geographic area for efficiency purposes.	1. This segmentation base is quite limited as it assumes that all consumers in a geographic area are similar in needs. 2. Geographic segmentation typically needs to be used in conjunction with another segmentation base .

2. DEMOGRAPHIC SEGMENTATION : 

Demographic segmentation divides the markets into groups based on variables such as age, gender, family size, income, occupation, education, religion, race and nationality. 

Demographic factors are the most popular bases for segmenting the consumer group. One reason is that consumer needs, wants, and usage rates often vary closely with the demographic variables. Moreover, demographic factors are easier to measure than most other type of variables.

1. Age:

It is one of the most common demographic variables used to segment markets. Some com­panies offer different products, or use different marketing approaches for different age groups. 

For example, McDonald’s targets children, teens, adults and seniors with different ads and media. Markets that are commonly segmented by age includes clothing, toys, music, automobiles, soaps, shampoos and foods.

2. Gender:

Gender segmentation is used in clothing, cosmetics and magazines.

EXAMPLE- 

Lakme sells beauty care products to women . 

3. Income:

Income is used to divide the markets because it influences the people’s product purchase. It affects a consumer’s buying power and style of living. 

Income includes housing, furniture, automobile, clothing, alcoholic, beverages, food, sporting goods, luxury goods, financial services and travel.

4. Family cycle:

Product needs vary according to age, number of persons in the household, marital status, and number and age of children.

These variables can be combined into a single variable called family life cycle. 

Housing, home appliances, furniture, food and automobile are few of the numerous product markets segmented by the family cycle stages. 

Social class can be divided into upper class, middle class and lower class. Many companies deal in clothing, home furnishing, leisure activities, design products and services for specific social classes.

DEMOGRAPHIC SEGMENTATION :-

ADVANTAGES :

1. The demographic information that will help business segment the market is easily accessible through census data. 

 2.Using demographic segmentation also leads to customer retention and loyalty. 

 3. It will save the time and money in the long run, because efforts to expand business will be carefully calculated and to the point.

LIMITATIONS :

1. If company don’t have a clear idea from the very beginning about what their goals are,  there is waste of time and efforts chasing after the wrong market segment.

2. While trying to move certain products, marketers may overlook a particular group of potential customers. 

3. PSYCHOGRAPHIC SEGMENTATION:

Psychographic is the science of using demographics to understand consumers better .

This segmentation pertains to lifestyle and personality traits. In the case of certain products, buying behaviour predominantly depends on lifestyle and personality characteristics.

One of the most popular commercially available systems based on psychographic measurement is SRI consulting Business Intelligence's Framework . (SRIC-BI) VALS™.

VALS signify values , attitudes and lifestyle .

Primary Motivation: Ideals, Achievement, and Self-Expression

The concept of primary motivation explains consumer attitudes and anticipates behavior. VALS includes three primary motivations that matter for understanding consumer behavior: ideals, achievement, and self-expression.

1.                  Consumers who are primarily motivated by ideals are guided by knowledge and principles. 

2.                  Consumers who are primarily motivated by achievement look for products and services that demonstrate success to their peers. 

3.                  Consumers who are primarily motivated by self-expression desire social or physical activity, variety, and risk. 

These motivations provide the necessary basis for communication with the VALS types and for a variety of strategic applications.

Resources

A person's tendency to consume goods and services extends beyond age, income, and education. 

Energy, self-confidence, intellectualism, novelty seeking, innovativeness, impulsiveness, leadership, and vanity play a critical role. 

These psychological traits in conjunction with key demographics determine an individual's resources. Various levels of resources enhance or constrain a person's expression of his or her primary motivation.

THE 4 GROUPS WITH HIGH RESOURCES:

1. Innovators.

 These consumers :

·                     The leading edge of change           Have the highest incomes

·                     High self-esteem                            Successful , Sophisticated.

·                     Image is important to them as an expression of taste, independence, and character. Their consumer choices are directed toward the "finer things in life."

2. Thinkers. 

These consumers are :

·                     The high-resource group of those who are motivated by ideals. They are mature, responsible, well-educated professionals. 

·                     Their leisure activities center on their homes, but they are well informed about what goes on in the world and are open to new ideas and social change.

·                     They have high incomes but are practical consumers and rational decision makers.

3. Achievers.

·                     These consumers are the high-resource group of those who are motivated by achievement. 

·                     They are successful work-oriented people who get their satisfaction from their jobs and families. 

·                     They are politically conservative and respect authority and the status quo. 

·                     They favor established products and services that show off their success to their peers.

4. Experiencers. 

·                     These consumers are the high-resource group of those who are motivated by self-expression. 

·                     They are the youngest of all the segments, with a median age of 25. 

·                     They have a lot of energy, which they pour into physical exercise and social activities. 

·                     They are avid consumers, spending heavily on clothing, fast-foods, music, and other youthful favorites, with particular emphasis on new products and services.

THE 4 GROUPS WITH LOWER RESOURCES:

1. Believers. 

·                     These consumers are the low-resource group of those who are motivated by ideals. 

·                     They are conservative and predictable consumers who favor local products and established brands. 

·                     Their lives are centered on family, community, and the nation. They have modest incomes.

2. Strivers. 

·                     These consumers are the low-resource group of those who are motivated by achievements. 

·                     They have values very similar to achievers but have fewer economic, social, and psychological resources. 

·                     Style is extremely important to them as they strive to emulate people they admire.

3. Makers. 

·                     These consumers are the low-resource group of those who are motivated by self-expression. 

·                     They are practical people who value self-sufficiency. 

·                     They are focused on the familiar-family, work, and physical recreation-and have little interest in the broader world. 

·                     As consumers, they appreciate practical and functional products.

4. Survivors. 

·                     These consumers have the lowest incomes. 

·                     They have too few resources to be included in any consumer self-orientation and are thus located below the rectangle. 

·                     They are the oldest of all the segments, with a median age of 61.

·                      Within their limited means, they tend to be brand-loyal consumers.

PSYCHOGRAPHIC SEGMENTATION :-

ADVANTAGES	LIMITATIONS
1. Psychographic segmentation gives a much better insight into the consumer as a person, which gives  better identification of the underlying needs and motives. 2. It delivers a much better understanding of the consumer, which in turn create more valid and responsive segments and subsequent marketing programs.	1.It requires the organization to have detailed data/research on the consumer. Hence it is far more suitable for a larger organization and is probably beyond the scope of a small business 2. There are also some concerns regarding data and interpretation, and perhaps the creation of segments that cannot be easily accessed or practical in real life.

4. BEHAVIOURAL SEGMENTATION :

In behavioural segmentation, buyers are divided into groups on the basis of their knowledge of, attitude towards, use of, or response to a product. 

Behavioural segmentation includes segmentation on the basis of :

1. Occasion:

Buyers can be distinguished according to the occasions when they purchase a product, use a product, or develop a need to use a product. It helps the firm expand the product usage. 

Example :

1.Cadbury’s advertising to promote the product during wedding season is an example of occasion segmentation.

2. The Indian festivals like Diwali , Rakshabandhan sweets are sold at high prices .  

2. User status:

Sometimes the markets are segmented on the basis of user status, that is, on the basis of non-user, ex-user, potential user, first-time user and regular user of the product. 

Large compa­nies usually target potential users, whereas smaller firms focus on current users.

3. Usage rate:

Markets can be distinguished on the basis of usage rate, that is, on the basis of light, medium and heavy users.

Heavy users are often a small percentage of the market, but account for a high percentage of the total consumption. 

Marketers usually prefer to attract a heavy user rather than several light users, and vary their promotional efforts accordingly.

EXAMPLE-

FMCG and electronics works on the basis of a channel with dealers and distributors.  In these segments, the maximum discount goes to the one who buys the maximum whereas others get lesser profits as they also get lesser discounts.

4. Loyalty status:

1.                  Buyers can be divided on the basis of their loyalty status :

2.                  Hardcore loyal (con­sumer who buy one brand all the time)

3.                  Split loyal (consumers who are loyal to two or three brands) Shifting loyal (consumers who shift from one brand to another) Switchers (consum­ers who show no loyalty to any brand).

5. Buyer readiness stage:

The six psychological stages through which a person passes when deciding to purchase a product.

The six stages are awareness of the product, knowledge of what it does, interest in the product, preference over competing products, conviction of the product’s suitability, and purchase. 

Marketing campaigns exist in large part to move the target audience through the buyer readiness stages.

BEHAVIOURAL SEGMENTATION :- 

ADVANTAGES	LIMITATIONS
1. This style of segmentation is often used in mature markets, where the firm is looking to understand: how to activate a non-user, target switchers, convert a medium user to a heavy user and so on.	1. This approach does not really consider why consumers buy the product, their needs or their lifestyles – so the level of market understanding may not be as high.   2. It also heavily relies upon obtaining detailed market intelligence, and probably the use of a marketing models and databases for market testing and experimentation.

 

2. BASES FOR SEGMENTATION IN INDUSTRIAL MARKETS :

In contrast to consumers, industrial customers tend to be fewer in number and purchase larger quantities. They evaluate offerings in more detail, and the decision process usually involves more than one person. These characteristics apply to organizations such as manufacturers and service providers, as well as resellers, governments, and institutions.

Many of the consumer market segmentation variables can be applied to industrial markets. Industrial markets might be segmented on characteristics such as:

·                     Location.

·                     Company type.

·                     Behavioral characteristics.

2.LEVELS , PROCEDURE , REQUIREMENT  for effective segmentation :

LEVELS OF MARKET SEGMENTATION :

 

1. Global

A global market segment is that portion of the population that fits a general demographic profile of the target audience.

This is an all-encompassing level of segmentation that contains general information on the specifics of your audience such as age, median income, geographic layout and buying patterns. The global market segment is not compartmentalized or broken down in any way. 

It is analyzed as a group with its behaviors generalized to fit a marketing profile.

2. Niche

Within the global market segment is a series of niches.

A niche is a group of consumers that have product preferences that group them together.

For example, if you sell sports cars, then you may find that the global target market is males from the ages of 18 to 55. But, within that global segment, there are niches of consumers that prefer red cars, cars with leather seats and cars.

3. Localized

The localized market segments are used to determine where to do specific kinds of marketing and where product needs may be the greatest. 

For example, if business find that the majority of the consumers in the red sports car niche are located in the southern United States, business will try to stock as many red sports cars in that geographic region as possible.

4. Individuals

The final level of market segmentation deals with the consumer habits of individual people.

This level is concerned mostly with collecting data from individuals so that you can put them into niches and have data to better understand the overall makeup of your global segment. 

Sales people and customer service representatives maintain contact with customers at the individual level to help maintain brand loyalty and preserve repeat business.

PROCEDURE OF MARKET SEGMENTATION :

1.  Needs Based Identification - Grouping consumers on the basis of similar needs and benefits .

Example- A group of kids and adults .

2. Segmentation Identification -  For each group identify demographics , lifestyle. 

3. Segment Attractiveness- Growth of the market group .

4. Segment Profitability - Create value proposition and product price positioning strategy .

5. Marketing Mix Strategy : Establish price , promotion , place and various marketing strategies . 

REQUIREMENTS OF MARKET SEGMENTS :

1. Identifiable: The differentiating attributes of the segments must be measurable so that they can be identified.

2. Accessible: The segments must be reachable through communication and distribution channels.

3. Substantial: The segments should be sufficiently large to justify the resources required to target them.

4. Unique needs: To justify separate offerings, the segments must respond differently to the different marketing mixes.

5. Durable: The segments should be relatively stable to minimize the cost of frequent changes.

3.SELECTING AND EVALUATING MARKET SEGMENTS

These evaluations identify the segments which will be the most valuable for your company :(TO BE SELECTED )

1. Market Potential

Business can evaluate the market potential of a segment by looking at the number of potential customers in the segment, their income and the number of people in the segment who need the kind of product you offer.

A market participant is one who is going to buy such a product, and the total number of participants times their purchases forms the total market. A market participant has to need the product, have the ability to pay the price of the product and has to want to buy the product. Evaluating how many such people are in each segment lets you gauge the potential market.

2. Sales Potential

The sales potential is the share of the potential market of a segment that  company expects to achieve. It can be estimated by company's share based on your performance in other markets.

The result of this evaluation gives  an idea of how valuable each segment is to the company.

3. Competition

A key factor in the evaluation of each segment is the competitive situation. 

If the total sales of existing suppliers are below the market potential, then company can achieve sales without taking business away from competitors. 

If the sales of competitors are close to the market potential, then any sales business make will result in fewer sales for them.

4. Cost

Some markets cost a lot of money to service and this affects the value of the segment. 

If company physically have to deliver large items over long distances, the freight costs will be high and the resulting prices may put the product out of the reach of the customers' income range. 

If the cost of the promotional campaign is required to introduce your product to a particular segment is high in relation to the expected sales, then the value of the segment is low.  

MARKET PREFERENCE PATTERNS -

1.         Homogeneous Preferences: 

Shows a market where all the consumers have roughly the same preferences. The market shows no natural segments. We would predict that existing brands would be similar and cluster around the middle of the scale in both sweetness & saltiness.

2.     Diffused Preferences: 

At the other extreme, consumer preferences maybe scattered throughout the space, indicating that customers vary greatly in their preferences. The first brand to enter the market is likely to position in the center to appeal to the most people.

3.   Clustered Preferences:  

The market might reveal distinct preference clusters, called natural market segments. The first firm in this market has three options. It might position in the center, hoping to appeal to all groups. It might position in the largest market segment (concentrated marketing). It might develop several brands, each positioned in a different segment. If the first firm developed only one brand, competitors would enter and introduce brands in the other segments

REFERANCE http://notesmagic.blogspot.in