Marketing 101: Market Segmentation

In my overview of Customer Driven Targeted Marketing, I stated that no human being is like another. Two people may be very similar, but they will always be different consumers, influenced by different attitudes and beliefs. As marketers we have to accept the fact that we can't appeal to all types of buyers in the marketplace, and there is just no way to appeal to any two buyers in the exact same way.  I also stated that in order to achieve maximum value from consumers according to our working definition of marketing, we need to focus on the right target customers that will give us the right relationships that achieve maximum customer value and equity.  To do this we use Customer Drive Targeted Marketing.

Segmentation
Recall that a customer driven marketing strategy consists of four distinct "steps".  Let's focus on the first step: Segmentation.  Market Segmentation is defined as dividing a market into smaller groups that contain distinct needs, characteristics, or behaviors that may require distinct products, services and marketing mixes.  Because buyers have different wants, desires, needs, geographic locations, economic resources, buying attitudes, and buying practices, we use segmentation to divide markets into "pieces" that can be reached more effectively.  However, there is no one standard way to segment a market.  Marketers have to segment using multiple combinations of variables in order to find the best way to view the target market.

Marketers use many variables to segment a market.  The major variables we use can be divided into standard categories such as:

1) Geographic - includes world region or country, city or metro size, density, climate
2) Demographic - includes age, gender, family size, famliy life cycle, income level, occupation, education, religion, race, generation, nationality
3) Psychographic - includes social class, lifestyle, personality
4) Behavioral - includes special occassions, benefits, user status, user rates, lotalty status, purchase readiness stage, attitude towards products and brands

With so many variables available to marketers for the purposes of segmentation, it would be so easy just to pick on or two variables and "call it a day".  However, what experienced marketers know is that we rarely limit our segmentation analysis to one, two, or even a few variables.  Marketers are using more segmentation bases today than in the past in an effort to identify more focused groups of consumers.

However, using more variables does NOT guarantee that our segmentation base is effective.  In order for a segmentation to be effective, it must meet the following criteria:

Be Measurable
Be Accessible - The targeted customers can be actively reached and served.
Be Substantial - The targeted group is large enough and profitable enough size-wise to serve.
Be Differentiable - The targeted group is conceptually distinguishable and responds differently to different markeing mix elements and programs.
Be Actionable - The targeted group can be designed for attracting and servicing the segments.

Once we have defined and chosen our market segment, we can work on targeting the segment.  My next post will discuss targeting.

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Marketing 101: Overview of Customer Driven Marketing Strategies

One thing is for sure, no human being is like another. Two people may be very similar, but they will always be different consumers, influenced by different attitudes and beliefs. As marketers we have to accept the fact that we can't appeal to all types of buyers in the marketplace, and there is just no way to appeal to any two buyers in the exact same way.

In order to achieve maximum value from consumers according to our working definition of marketing, we need to focus on the right target customers that will give us the right relationships that achieve maximum customer value and equity. Stop for a moment and notice that I wrote the word "target". This was not a coincidence.

Decades ago, most marketing money was allocated towards mass marketing efforts. Products and services were created to attract and serve as many customers as possible. It was thought that the best way to make as much money as a possible was to sell as many products as possible to as many people as possible. The concept of customer equity wasn't even a part of the mindset of the marketer.

Mass Marketing (also known as undifferentiated marketing) is a marketing strategy that originated in the 1920's as a way of appealing to as many potential buyers in the marketplace as possible. Mass Marketers choose to ignore market segment differences and try to appeal to as large of a customer base as possible with a single product offering. The marketer is assuming that their product meets the needs of an entire population of consumers, and that they can appeal to those consumers in the same way. Mass Marketers aim to broadcast their messaging to as many people as possible, as often as possible. Traditionally mass marketing has focused on the mediums of radio, television and print due to their reach. The marketer assumes that by reaching the largest audience possible, exposure to the product is maximized and sales will be at their maximum.

However there are clear disadvantages to mass marketing practices.  First, we know now that consumers don’t all think alike; so what works well for one group of consumers does not always translate well for another. Second, consumers are becoming less and less interested in "standardized" products (think canned soup), and are very willing to pay higher prices for products that cater to their needs and desires.  Third, mass marketing usually involves much higher costs, especially for the corresponding media buys.  For smaller companies with smaller marketing budgets, mass marketing just isn't possible.  A more focused, budget-effective method of marketing is required: Customer Driven Targeted Marketing.

Customer Driven Targeted Marketing
Because of its advantages and the reality that all companies differ in their abilities to serve different market segments, most marketers have shifted over to customer driven targeted marketing.  In the process of creating a targeted marketing plan we identify one or more marketing segments, and then develop products and marketing programs that are "targeted" to each type of consumer we are pursuing.  A customer driven marketing strategy consists of four distinct "steps", typically grouped into two groups:

1) Selecting The Right Customers To Serve:
-Via segmentation: by dividing the total mass market into smaller segments
-Via targeting: by selecting the right segment or segments of the marketplace to enter

2) Deciding On a Unique Value Proposition:
- Via differentiation: differentiating the market offering (ie: the product) and thereby creating superior customer value
- Via positioning: placing the product offering in the minds of the target consumer with the right messaging

These four steps create value for the target consumer, and allow us to receive value from them.  Over the next few posts I will be diving in further to the Customer Drive Targeted Marketing process.

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Marketing 101: Post-Purchase Behavior

So far I've examined four of the five stages of the Buyer Decision Process: Need Recognition, Information Search, Evaluation of Alternatives, and the actual Purchase Decision.  We've discovered that each stage is complicated, and that marketers will need to understand their customer's journey as they construct meaningful campaigns and messaging.  These statements are even more important to reckon with in the last stage of the Buyer Decision Process: Post-Purchase Behavior.

What is Post-Purchase Behavior?
Simply defined, Post-Purchase Behavior is the stage of the Buyer Decision Process when a consumer will take additional action, based purely on their satisfaction or dissatisfaction.  The consumer's level of satisfaction or dissatisfaction is directly related to the varying relationship between their initial expectations of the product (pre-purchase), and their perception of the actual performance of the product (post-purchase) in their hands.

If after the purchase the consumer perceives the product's performance as matching their expectations, or even exceeding them, they will be "satisfied".  If their perception of the product's performance is less than their expectations, then the consumer will feel "dissatisfied".  The larger the gap between their expectations and the product's performance, the more dissatisfaction.  This dissatisfaction leads to Cognitive Dissonance.

Cognitive Dissonance is buyer discomfort caused by post-purchase conflict resulting from dissatisfaction.  The reality is that all purchases, big and small, will result in some degree of Cognitive Dissonance.  This is always the case, because every purchase a consumer makes involves some sort of compromise, however small or minute.  Since consumers form beliefs and attitudes early in the Buyer Decision Process, at some point they will be concerned about having a negative experience with the product they may chose, or potentially missing the perceived benefits of other competing brands.

The issue of Cognitive Dissonance raises an important question: Why is it so important to satisfy the consumer?  It all comes back to our basic definition of marketing: Managing profitable customer relationships.  The goal is to attract new customers through superior value, and to keep growing customers by delivering customer satisfaction.  If we are doing these things, then we will be able to capture value from customers to create profits and build customer equity.  So, if our customers are satisfied they will begin to develop brand loyalty.  This brand loyalty will help us develop profitable relationships.  Our satisfied customers will buy from us again. They will become influencers in their cultural and social groups.  They will pay less attention to competitors, and buy more of our products. 

Dissatisfaction breeds the opposite.  Consumers that perceive poor product performance will not create profits and will erode customer equity.  They will not be loyal, and they will become negative influencers in their cultural and social groups, leading others away from our brands.  What should we do with dissatisfied customers?  We should pursue them.  Even if they do not want to buy our products, we can still target them with dedicated messaging.  We can directly reach out to them, and we can figure out ways to repair the relationship.  These consumers can provide us with a wealth of primary data that can be used to improve our offerings and create focused marketing campaigns.  Dissatisfied consumers are just as valuable as satisfied ones.

The conclusion is clear: Our job is not done once the consumer buys our product.  Once a consumer buys a product they will enter some degree of post-purchase behavior.  These behaviors, based on their satisfaction or dissatisfaction, will either build customer equity and brand loyalty, or lead to eroding sales and brand image issues.  This all is related to their relationship between their expectations and the perceivced performance of the products in their hands.  As marketers, we must have messaging ready for this specific part of the Buyer Decision Process.  It is our job to encourage happy consumers to share their experiences and dive deeper into brand offerings.  It is also our job to be brand advocates by reaching out to dissatisfied consumers and transforming their experience into one that leads to a profitable relationship.


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Marketing 101: Purchase Decision

In my examination of the Buyer Decision Process I've explored the first three steps: Need Recognition, Information Search, and the Evaluation of Alternatives. Generally the completion of alternative evaluation will lead to our fourth step, the Purchase Decision.

The Purchase Decision
We can define the Purchase Decision simply as the consumer's choice of which brand to purchase.  Once the consumer forms their beliefs and attitudes about a product segment's brands, the consumer will usually purchase the most preferred brand.  Notice that I said usually.  Sometimes two factors can come between the purchase intention and the purchase decision: the attitudes of others, and unexpected situations.

Sometimes the attitudes of others can change our minds before the sales transaction. For example, someone in a family group or social group might think that you should get an Apple iPad instead of a comparable competitor's tablet device.  If this person is important enough in your life, they may exert enough "peer" pressure to cause you to suddenly alter your attitudes and beliefs, greatly reducing the chances of you buying another brand of tablet.

Your tablet purchasing decision may also be altered by our second factor: unexpected situations.  Consumers will usually form their purchase decisions based on factors such as their current income level, expected prices, and assumed product benefits.  However unexpected events often will change their original purchase intention.  Some examples of purchase altering situations are unexpected sales, competitors dropping their prices, a sudden economic downturn, or a sudden change in employment.

Marketers need to understand that their work is not done once a consumer reaches the point of making a purchase.  Because consumers can, and often will change their minds, consistent messaging needs to be placed in front of the consumer all the way up to the actual sales transaction.  Even then our job is not done.  In my next post I will explore Post-Purchase Behavior.

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Marketing 101: The Buyer Decision Process: Evaluation of Alternatives

In my examination of the Buyer Decision Process, I've started by exploring the first two stages: Need Recognition and Information Search.  Need Recognition refers to the instance when a consumer recognizes that a need, or problem exists that needs to be satisfied, ie: I need a new refrigerator.  If the need is strong enough, an Information Search is usually initiated.  As a consumer does more research they will inevitably become aware of competing brands and products that are available for purchase.  It is at this point that the Evaluation of Alternatives begins.  An Evaluation of Alternatives is the stage of the buyer decision process in where a consumer uses the information gathered in the Information Search to evaluate alternative brands in the product category.

So how does a consumer choose among these alternatives?  The truth is that there are several processes at work inside the consumer's mind, forming beliefs and attitudes about all of the products to choose from.  However these processes all "evolve" based on the individual's buying situation.  The situation evolves from the set of attributes the consumer is choosing to evaluate products by.

Let's say a consumer is evaluating the attributes of a groups of computers. They have identified four attributes: performance, design, price, and value.  During the evaluation the consumer will place different levels of importance with each attribute based off of what is most important to them.  The consumer will "evaluate" each brand and form beliefs on how each brand rates on each attribute.  The consumer may turn to friends and family, consult consumer reviews, or discuss their situation with sales people during the Information Search.

We know that all brands vary in their degree of appeal to each consumer.  A consumer may buy a brand based on a single attribute, or a number of them.   If during the Information Search you were able to deduce how a consumer assigned value to each attribute you could predict the buying behavior more accurately.  Marketers must study buyers to discover how they actually evaluate brand alternatives.  If you know how your target customer's evaluation process occurs, you can take steps to influence the buying decision early on and lead the buyer to purchase much faster.

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