STP Analysis:- The traditional view of the business process, is not going to work in economies where people face abundant choices. There, the ‘Mass Market’ is actually splintering into numerous micro markets, each with its own wants, perceptions, preferences, and buying criteria. The smart competitor must design and deliver offerings for well-defined target markets. This realization inspired a new view of business processes that places marketing at the beginning of planning. Instead of emphasizing making and selling, companies now see themselves as part of a value delivery process.

The value creation and delivery sequence can be divided into three phases. The first phase, choosing the value, represents the ‘homework’ marketing must do before any product exists. The marketing staff must segment the market, select the appropriate market target, and develop the offering’s value positioning. The formula ‘Segmentation, Targeting, Positioning (STP)’ is the essence of strategic marketing. Once the business unit has chosen the value, the second phase is providing the value. Marketing must determine specific product features, prices, and distribution. The task in the third phase is communicating the value by utilizing the sales force, sales promotion, advertising and other communication tools to announce and promote the product. Each of these value phases has cost implications. It is also the case that the value delivery process begins before there is a product and continues while it is being developed and after it becomes available. Ex:- Nike, Toyota, etc. prices go up.

Concept of Market Segmentation:- A Market Segment consists of a group of customers who share a similar set of needs and wants. The marketer’s task is to identify them and decide which one(s) to target. Segment marketing offers key benefits over mass marketing. A flexible market offering consists of two parts: - a naked solution containing the product and service elements that all segment members value, and discretionary options that some segment members value. Each option might offer carry an additional charge. Ex:- Automobile companies in India offer different versions of the same model with different features. Similarly in the case of Airlines or Railways.

We can characterize market segments in different ways. One way is to identify preference segments. Homogeneous preferences exist when all consumers have roughly the same preferences; the market shows no natural segments. At the other extreme, consumers in diffused preferences vary greatly in their preferences. If several brands are in the market, they are likely to position themselves throughout the space and show real differences to match differences in consumer preference. Finally, clustered preferences result when natural market segments emerge from groups of consumers with shared preferences.

Segmentation of Consumer Markets:- Some researchers try to define segments by looking at descriptive characteristics: geographic, demographic, and psychographic. Then they examine whether these customer segments exhibit different needs or product responses. Ex:- What is the different attitudes of ‘professionals, ‘ blue collars’ and other groups towards say purchasing a new car.

Other researchers try to define segments by looking at behavioral considerations, such as consumer responses to benefits, use occasion, or brands. The researcher then sees whether different characteristics are associated with each consumer-response segment. Ex:- Do people who want ‘quality’ rather than ‘low price’ say in an automobile purchase differ in their geographic, demographic and psychographic makeup?

Regardless of which type of segmentation scheme we use, the key is adjusting the marketing program to recognize customer differences.

1. Geographic Segmentation:- Calls for division of the market into different geographical units such as nation, states, regions, countries, cities, or neighborhoods. In the South Asian context, it assumes more importance due to variations in consumer preferences and purchase habits across different regions, across different countries and across different states in these countries.

One of the major geographical segmentation variables relevant for marketers in South Asia is the division of markets into rural and urban areas, as they differ on a number of important parameters such as literacy levels, income, spending power and availability of infrastructure such as electricity, telephone network, and roads as well as social and cultural orientations of people that affect the market potential, and buying patterns and habits. The size of the geographical markets is an important consideration while deciding the concentration of marketing efforts. The market potential values of India’s towns were calculated on the five indicators such as number of consumers, the means these consumers have, their consumption behavior, awareness levels and the availability of marketing – support infrastructure. The findings were that 16% of towns (out of 784 towns with a population of over 50,000 people which account for 77% of the urban population) account for 80% of the market-potential value. These patterns suggest the need to prioritize the geographical focus of marketing efforts.

Issues relating to logistics for serving the diverse geographical market segments also need attention from marketers. Many companies use sophisticated models and software to plan physical distribution and to develop route plans for their sales people to efficiently serve wide geographical markets.

Geographical markets also vary in their product requirements. Ex:- Air Coolers and Air Conditioners. Food habits. Etc.

2. Demographic Segmentation:- We divide the market into groups on the basis of variables such as age, family size, family life cycle, gender, income, occupation, education, religion, race, generation, nationality and social class. Demographic variables are highly popular with the marketers as they are often associated with consumer needs and wants and they are easy to measure.

a. Age and Life-Cycle Stage:- Consumer wants and abilities change with age. Hence, age and life-cycle stages are important variables to define segments. Johnson & Johnson’s baby products , which are highly popular in almost all the South Asian countries, are classic examples of products for infants and children. Television channels in India indicate segmentation based on age and life cycle.

b. Life Stage:- Persons in the same part of the life cycle may differ in their life stage. Life stage defines a person’s major concern, such as getting married, deciding to buy a home, sending the child to the school, taking care of older family members, marrying off their children, planning for retirement, and so on. These life stages presents opportunities for marketers who can help people cope with their major concerns.

c. Gender:- Men & women have different attitudes and behave differently, based partly on genetic makeup and partly on socialization.

A research study examining how men and women shop found that men often need to be invited to touch a product, whereas women are likely to pick it up without prompting. Men often like to read product information; women may relate to a product on a more personal level.

Gender differentiation has long been applied to product categories such as clothing, hairstyling, cosmetics and magazines. Some products have been positioned as more masculine or feminine. Park Avenue now known as Parks, the brand of ready-made apparel from Raymond is positioned as a masculine brand, whereas the company introduced a range of women’s apparel under the brand Be. Shopping behavior of men and women also vary. Men prefer to drive motorcycles whereas for women there are specific brands of scooters, like Hero Honda’s Pleasure, Honda’s Activa etc.

But it’s not enough to tout a product as masculine or feminine. Hyper-Segmentation is now occurring within both male and female personal care segments.

Media have emerged to make gender targeting easier. A large number of women’s magazines in various language make it easy for marketers to reach the target customers more easily and vise versa.

c. Income:- Income segmentation is a long-standing practice in a variety of products and services. Income determines the ability of consumers to participate in the market exchange and hence this is a basic segmentation variable. However, income does not always predict the best consumers for a given product. Even, if two consumers have similar income levels, each may own different types and brands of products based on a host of factors such as lifestyle, attitudes, and values. Given the nature of income distribution in India and South Asia, opportunities exist for companies to serve the requirements of different income classes.

Ex:- the target segments of Surf and Nirma.

d. Generation:- Each generation is profoundly influenced by the times in which it grows up – the music, movies, politics, and defining events of that period. Demographers call these generational groups cohorts. Members share the same major cultural, political, and economic experiences and have similar outlooks and values. The younger generations play significant roles, not only as consumers, but also as initiators and influencers of buying decisions. A study reveals that 63% of the children in the age group of 8 to 14 years, are involved in purchase decisions for a wide range of product categories such as clothes, televisions, and automobiles.

Different generational cohorts also influence each others. For instance, parents are getting influenced by what demographers are calling a “Boom - Boom effect’. The same products that appeal to 21 – year – olds are appealing to youth – obsessed baby boomers.

e. Social Class:- Social class has a strong influence on preferences in cars, clothing, home furnishings, leisure activities, reading habits, and retailers, and many companies design products and services for specific social classes.

The concept of social class in India is influenced by the caste system. This is a very unique system peculiar to India. The caste system prevalent in India sometimes even transcends the income level. As a consequence, market segmentation schemes become a very complex process. This complexity of the Indian market has prompted the development of ‘Socioeconomic classification’ or as a viable method to segment markets.

Consumption behavior in India is found to be influenced by the socioeconomic factors governed by the person’s educational as well as occupation.

Ex:- Senior – level executives with higher educational qualifications exhibit different purchase preferences and habits compared to a person with a similar income level, but a different occupation and lower education level.

3. Psychographic Segmentation:- Psychographics is the science of using psychology and demographics for better understanding of the consumers. In psychographic segmentation buyers are divided into different groups on the basis of psychological / personality traits, lifestyle, or values. People within the same demographic group can exhibit very different psychographic profiles. Values and life styles significantly affect product and brand choice of consumers. Religion has a significant influence on values and lifestyles. The strict norms that consumers follow with respect to food habits or even dress codes can be representative examples in this regard. Ex:- A significant number of people in India are vegetarian.

And these things are so strong that McDonald’s has to change it’s menu for the first time when they started their operation in India. The market for wristwatches provides another illustration of segmentation based on lifestyle parameters. Titan watches have a wide range of sub – brands within their Titan range such as Edge, Regalia, Nebula, and Raga, to appeal to different lifestyle segments. The company’s range of watches under the ‘Fasttrack’ brand appeals to the youth segment. The company has another value – for – money brand, ‘Sonata’, targeted at people who want to own good – looking watches at affordable prices.

4. Behavioral Segmentation:- In behavioral segmentation, marketers divide buyers into groups on the basis of their knowledge of, attitude toward, use of or response to a product.

a. Decision Roles:- People play five roles in a buying decision:- Initiator, Influencer, Decider, Buyer and User. Recognition of the different buying roles and specification of the people who play these roles for specific products and services are vital for marketers.

This is especially useful for designing the communication strategy. Ex:- In pharmaceutical products, doctors prescribe medicines and the pharmaceutical companies influence doctors’ prescription behavior by providing technical information about the products; patients’ relatives buy medicines and the patient uses the product. Men choose their shaving equipments and women their cosmetics. Women, play a significant influencing and deciding role for kitchen appliances.

b. Behavioral Variables:- Many marketers believe behavioral variables – occasions, benefits, user status, usage rate, buyer – readiness stage, loyalty status, and attitude – are the best starting points for constructing market segments.

I. Occasions:- Greeting card brands such as Archies and Hallmark make cards for different occasions. The Amul brand of chocolates is promoted as ‘a gift for someone you love’. A number of durables are heavily promoted during the festive occasions. Monaco biscuits come with suggestions for toppings so that biscuits can be served as snacks at parties, or when guests come home.

II. Benefits:- Buyers are classified according to the benefits they seek. Many product categories offer different products targeted at people who seek different sets of benefits. Ex:- Shampoos, offer benefits such as basic cleaning of hair, conditioning effects, medicinal properties, and suitability to hair types. Brands such as Clinic, Head & Shoulders, Sunsilk offer different variants addressed to diverse benefit segments.

Since benefits that consumers seek from the same product or service category varies, this segmentation approach is a very useful tool in identifying market opportunities and for deciding the value proposition that can be offered.

III. User Status:- Every product has its nonusers, ex-users, potential users, first – time users and regular users. Ex:- Blood banks cannot rely only on regular donors to supply blood; they must also recruit new first – time donors and contact ex – donors, each with a different marketing strategy. The key to attracting potential users, or even possibly nonusers, is understanding the reasons they are not using. i.e. to find out that do they have deeply held attitudes, beliefs, or behaviors or just lack knowledge of the product or brand benefits and usage?

Included in the potential – user group are consumers who will become users in connection with some life stage or life event. Ex:- Mothers – to – be are potential users who will turn into heavy users of the infant and child products.

Market share leaders tend to focus on attracting potential users because they have the most to gain. Smaller firms focus on trying to attract current users away from the market leader.

IV. Usage Rate:- Markets can be segmented into light, medium and heavy product users. Heavy users are often a small percentage of the market but account for a high percentage of total consumption. Ex:- In the mobile phone service market, heavy users account for a significant proportion of the revenue earned by the service providers and hence mobile service providers target this segment by giving special packages or offers to retain their patronage.

V. Buyer – Readiness Stage:- Some people are unaware of the product, some are aware, some are informed, some are interested, some desire the product and some intend to buy. To help characterize how many people are at different stages and how well they have converted people from one stage to another, some marketers employ a marketing funnel.

The relative numbers of consumers at different stages make a big difference in designing the marketing program.

VI. Loyalty Status:- Marketers usually envision four groups based on brand loyalty status:-

Hard – Core Loyals:- Consumers who buy only one brand all the time.

Split Loyals:- Consumers who are loyal to two or three brands.

Shifting Loyals:- Consumers who shift loyalty from one brand to another.

Switchers:- Consumers who show no loyalty to any brand.

A company can learn a great deal by analyzing the degrees of brand loyalty. Hard – core – loyals can help identify the products’ strengths; Split loyals can show the firm which brands are most competitive with its own; and by looking at customers who are shifting away from its brand, the company can learn about its marketing weaknesses and attempt to correct them.

VII.Attitude:- Five attitudes about products are :- enthusiastic, positive, indifferent, negative, and hostile. Door – to door workers in a political campaign use voter attitude to determine how much time to spend with that voter. They thank enthusiastic voters and remind them to vote; they reinforce those who are positively disposed; they try to win the votes of indifferent voters; they spend no time trying to change the attitudes of negative and hostile voters.

Combining different behavioral bases can help to provide a more comprehensive and cohesive view of a market and its segments.

c. The Conversion Model:- The Conversion Model measures the strength of consumers’ psychological commitment to brands and their openness to change. To determine how easily a consumer can be converted to another choice, the model assesses commitment based on factors such as consumer attitudes toward, and satisfaction with current brand choices in a category and the importance of the decision to select a brand in the category.

The model segments users of a brand into four groups based on strength of commitment, from low to high, as follows:-

I. Convertible (most likely to defect).II. Shallow (uncommitted to the brand and could switch – some are

actively considering alternatives).III. Average (also committed to the brand they are using, but not as

strongly – they are unlikely to switch brands in the short term).IV. Entrenched (strongly committed to the brand they are currently

using – they are highly unlikely to switch brands in the foreseeable future).

The model also classifies nonusers of a brand into four other groups based on their ‘balance of disposition’ and openness to trying the brand, from low to high, as follows:-

V. Strongly Unavailable (unlikely to switch to the brand – their preference lies strongly with their current brands).

VI. Weakly Unavailable (not available to the brand because their preference lies with their current brand, although not strongly).

VII.Ambivalent (as attracted to the brand as they are to their current brands).

VIII.Available (most likely to be acquired in the short run).

Segmentation of Business Markets:- The Business Market can also be segmented with some of the same variables we use in consumer markets, such as geography, benefits sought, and usage rate, but at the same time business marketers also use other variables like operating variables and personal characteristics of the buyers.

Some major questions are to be answered in determining the segments and customers the business marketers want to serve.

Ex:- A rubber – tire company for instance can sell tires to manufacturers of automobiles, trucks, farm tractors, or aircraft. Within a chosen target industry, a company can further segment by company size. The company might set up separate operations for selling to large and small customers.

These questions can be as follows:-

Demographic:- Industry: Which industries should we serve? Company Size: What size companies should we serve? Location: What geographical areas should we serve?

Operating Variables:- Technology: What customer technologies should we

focus on? User or Nonuser Status: Should we serve heavy users,

medium users, light users or nonusers? Customer Capabilities: Should we serve customers

needing many or few services?

Purchasing Approaches:- Purchasing – function Organization: Should we serve

companies with highly centralized or decentralized purchasing organization?

Power Structure: Should we serve companies that are engineering dominated, financially dominated, and so on?

Nature of Existing Relationship: Should we serve companies with which we have strong relationship or simply go after the most desirable companies?

General Purchasing Policies: Should we serve companies that prefer leasing? Service contract? Systems purchases? Sealed bidding?

Purchasing Criteria: Should we serve companies that are seeking quality? Service? Price?

Situational Factors:- Urgency: Should we serve companies that need quick and

sudden delivery or service? Specific Application: Should we focus on certain application of

our product rather than all applications? Size or Order: Should we focus on large or small orders?

Personal Characteristics:- Buyer – Seller Similarity: Should we serve companies whose

people and values are similar to ours? Attitude Toward Risk: Should we serve risk – taking or risk –

avoiding customers? Loyalty:- Should we serve companies that show high loyalty to

their suppliers?

Within a given target industry and customer size, a company can segment further by purchase criteria. Ex:- Govt. laboratories need low prices and service contracts for scientific equipment; university laboratories need equipment that requires little service; and industrial laboratories need equipment that is highly reliable and accurate.

Business marketers generally identify segments through a sequential process. Ex:- Consider an aluminum company. The company first undertook macro-segmentation. It looked at which end – use market to serve: automobile, residential, or beverage containers. It has to choose the best customer size and chose large customers. The second stage consisted of micro-segmentation. The company distinguished among customers buying on price, service, or quality.

Effective Segmentation Criteria:- To be useful, market segments must rate favorably on five key criteria:-

I. Measurable:- The size, purchasing power, and characteristics of the segments can be measured.

II. Substantial:- The segments are large and profitable enough to serve. A segment should be the largest possible homogeneous group worth going after with a tailored marketing program. It would not pay, for ex:- for an automobile manufacturer to develop cars for people who are less than four feet tall.

III. Accessible:- The segments can be effectively reached and served.

IV. Differentiable:- The segments are conceptually distinguishable and respond differently to different marketing – mix elements and programs. If married and unmarried women respond similarly to a sale on perfume, they do not constitute separate segments.

V. Actionable:-Effective programs can be formulated for attracting and serving the segments.

Additional Considerations:- Two other considerations should also be considered in evaluating and selecting segments. These are:-

1. Segment – By – Segment Invasion Plans:- A company would be wise to enter one segment at a time and the competitors must not know to what segment(s) the firm will move into next.

A company’s invasion plans can be thwarted when it confronts blocked markets. The invader must then figure out a way to break in, which usually calls for a megamarketing approach Megamarketing is the strategic coordination of economic, psychological, political, and public relations skills, to gain the cooperation of a number of parties in order to enter or operate in a given market. Ex:- Entry of Pepsico in India.

2. Ethical Choice Of Market Targets:- Some consumers may resist being labeled. Ex:- Elderly consumers who don’t feel their age, may not appreciate products that identify them as “old”.

Marketers can also generate public controversy. The public is concerned when marketers take unfair advantage of vulnerable groups (such as children) or disadvantaged groups (such as inner – city poor people) or promote potentially harmful products. Ex:- Toy companies, Child products and chocolates through celebrities etc.

Target Market Identification:- Target marketing includes three activities:- Market segmentation, Market targeting and Market Positioning. We can target markets at four levels:- Segments, Niches, Local Areas, and Individuals.

1. Segment Marketing:- A Market Segment consists of a group of customers who share a similar set of needs and wants. The marketer’s task is to identify them and decide which one(s) to target. Segment marketing offers key benefits over mass marketing. The company can offer better design, price, disclose and deliver the product or service and also can fine-tune the marketing program and activities to better reflect competitors’ marketing.

Business – to – business marketing suggests that the marketers should offer flexible market offerings to all members of a segment. A flexible market offering consists of two parts: - a naked solution containing the product and service elements that all segment members value, and discretionary options that some segment members value. Each option might offer carry an additional charge. Ex:- Automobile companies in India offer different versions of the same model with different features. Similarly in the case of Airlines or Railways.

We can characterize market segments in different ways. One way is to identify preference segments. Homogeneous preferences exist when all consumers have roughly the same preferences; the market shows no natural segments. At the other extreme, consumers in diffused preferences vary greatly in their preferences. If several brands are in the market, they are likely to position themselves throughout the space and show real differences to match differences in consumer preference. Finally, clustered preferences result when natural market segments emerge from groups of consumers with shared preferences.

2. Niche Marketing:- A niche is a more narrowly defined customer group seeking a distinctive mix of benefits. Marketers usually identify niches by dividing a segment into a subsegment. Ex:- Ezee, from Godrej, is a fabric-washing product for woolen clothes. Because of its mildness, customers use this detergent to wash delicate clothes that could get damaged if harsh and strong detergents are used instead. Crack Cream, Neem toothpaste, etc.

Several television channels today are niche focused. Ex:- Aastha and QTV, that focus on religion and spirituality. STAR Cricket, directed exclusively at cricket lovers in South Asia.

Niche marketers aim to understand their customers’ needs so well that the customers willingly pay a premium. Ex:- Ayurvedic products and ‘all-natural’ products usually command a premium.

As marketing efficiency increases, niches that were seemingly too small may become more profitable. Ex:- when every apparel company in India was classifying women’s clothing into L, XL and XXL sizes, it was Revolution Clothing Pvt. Ltd. that pioneered the concept of ‘plus sized fashion’ in India. The idea not only forced the established players to follow suit, but also gave women pride and self – confidence, while helping Revolution notch up millions in revenue.

The low cost of setting up shop on the internet has led to many small business start –ups aimed at niches. These firms have realized that the best recipe for internet success is to choose a hard – to – find product that customers don’t need to see and touch.

3. Local Marketing:- Target marketing is leading to marketing programs tailored to the needs and wants of local customer groups. In trading areas, neighborhoods, even individual stores. Many banks in India have specialized branches that exclusively cater to the to the corporate customers and some branches to the NRI customers.

There are some ‘In – City’ courier companies in many cities that specialize in delivering mail and packets on the same day within a specified geographical area, usually within the city. The movie Spiderman 3 was released in India in five different languages, including Bhojpuri and owing to such local marketing, the movie broke a number of collection records for a foreign movie released in India.

Local marketing reflects a growing trend called grassroots marketing, as the marketing activities concentrate on getting as close and personally relevant to the individual customers as possible. Ex:- Big giants like Nike also initially targeted customers through grassroots marketing such as by sponsoring local school teams.

4. Individual Marketing:- The ultimate level of segmentation and targeting leads to “Segment in One”, “Customized Marketing” or “One – to – One Marketing.” Now a days, customers are taking more individual initiative in determining what and how to buy.

Customerization combines operationally driven mass customization with customized marketing in a way that empowers consumers to design the product and service offering of their choice. The firm no longer requires prior information about the customer, nor does the firm need to own manufacturing. The firm provides a platform and tools and ‘rents’ out to customers the means to design their own products. A company is customerized when it is able to respond to individual customers by customizing its products, services, and messages on a one-to-one basis.

Customization is certainly not the cup of tea for every company. It may be very difficult to implement for complex products such as automobiles. Exception is BMW. Customization can also raise the cost of the goods by more than the customer is willing to pay. Some customers don’t know what they want until they see the actual products. At the same time they also cannot cancel the order after the company has started to work on the product. More over these type of products may be hard to repair and have a little resale value.

In spite of this, customization has worked well for some of the product. Ex:- Paint companies Asian Paints, Nerolac, Jenson & Necholson, and Berger Paints, follow the mass-customization strategy in paint retailing which is pretty successful.