Question

What are the segmented structures (i.e., different prices to different buyers for different applications) that affect strategic pricing? What roles do price-offer configuration, price metrics, price fences and gain-loss framing play in segmented structures, and how do they affect a pricing decision? Explain your answer.

Answer 1

Marketing segmentation strategies would completely depend on your Market Needs.

Markets consist of customers with similar needs. For example, consider the wide variety of markets that exist to meet the following needs

• Eat • Drink • Exercise • Travel • Socialise • Educate

As you can imagine, such markets (if they were not further divided) would be very broad.

Customers in a market are not the same. For example, within the market to provide meals, customers differ in the:

• Benefits they want • Amount they are able to or willing to pay • Media (e.g. television, newspapers, radio stations) they see • Quantities they buy • Time and place that they buy

It therefore makes sense for businesses to segment the overall market and to target specific segments of a market so that they can design and deliver more relevant products and services

A market segment can be defined as follows:

A customer group within the market that has special characteristics which are significant to marketing strategy

Segmentation is most often applied to markets, but it is equally relevant to distribution channels and customers. However, similar principles of how to segment apply to all three.

Overall definition of segmentation

Segmentation involves subdividing markets, channels or customers into groups with different needs, to deliver tailored propositions which meet these needs as precisely as possible.

Segmentation Basis:

It is widely thought in marketing that than segmentation is an art, not a science.

The key task is to find the variable, or variables that split the market into actionable segments

There are two types of segmentation variables:

(1) Needs

(2) Profilers

The basic criteria for segmenting a market are customer needs. To find the needs of customers in a market, it is necessary to undertake market research.

Profilers are the descriptive, measurable customer characteristics (such as location, age, nationality, gender, income) that can be used to inform a segmentation exercise.

The most common profilers used in customer segmentation include the following:

Profiler Examples

Geographic

• Region of the country • Urban or rural

Demographic

• Age, sex, family size • Income, occupation, education • Religion, race, nationality

Psychographic

• Social class • Lifestyle type • Personality type

Behavioural

• Product usage - e.g. light, medium ,heavy users • Brand loyalty: none, medium, high • Type of user (e.g. with meals, special occasions)

Market Segmentation - Behavioural Segmentation

Behavioural segmentation divides customers into groups based on the way they respond to, use or know of a product.

Behavioural segments can group consumers in terms of:

Occasions

When a product is consumed or purchased. For example, cereals have traditionally been marketed as a breakfast-related product. Kelloggs have always encouraged consumers to eat breakfast cereals on the "occasion" of getting up. More recently, they have tried to extend the consumption of cereals by promoting the product as an ideal, anytime snack food.

Usage

Some markets can be segmented into light, medium and heavy user groups

Loyalty

Loyal consumers - those who buy one brand all or most of the time - are valuable customers. Many companies try to segment their markets into those where loyal customers can be found and retained compared with segments where customers rarely display any product loyalty.

Benefits Sought

An important form of behavioural segmentation. Benefit segmentation requires Marketers to understand and find the main benefits customers look for in a product. An excellent example is the toothpaste market where research has found four main "benefit segments" - economic; medicinal, cosmetic and taste.

Demographic segmentation

Demographic segmentation consists of dividing the market into groups based on variables such as age, gender family size, income, occupation, education, religion, race and nationality.

As you might expect, demographic segmentation variables are amongst the most popular bases for segmenting customer groups.

This is partly because customer wants are closely linked to variables such as income and age. Also, for practical reasons, there is often much more data available to help with the demographic segmentation process.

The main demographic segmentation variables are summarised below:

Age

Consumer needs and wants change with age although they may still wish to consumer the same types of product. So Marketers design, package and promote products differently to meet the wants of different age groups. Good examples include the marketing of toothpaste (contrast the branding of toothpaste for children and adults) and toys (with many age-based segments).

Life-cycle stage

A consumer stage in the life-cycle is an important variable - particularly in markets such as leisure and tourism. For example, contrast the product and promotional approach of Club 18-30 holidays with the slightly more refined and sedate approach adopted by Saga Holidays.

Gender

Gender segmentation is widely used in consumer marketing. The best examples include clothing, hairdressing, magazines and toiletries and cosmetics.

Income

Another popular basis for segmentation. Many companies target affluent consumers with luxury goods and convenience services. Good examples include Coutts bank; Moet & Chandon champagne and Elegant Resorts - an up-market travel company. By contrast, many companies focus on marketing products that appeal directly to consumers with relatively low incomes. Examples include Aldi (a discount food retailer), Airtours holidays, and discount clothing retailers such as TK Maxx.

Social class

Many Marketers believe that a consumers "perceived" social class influences their preferences for cars, clothes, home furnishings, leisure activities and other products & services. There is a clear link here with income-based segmentation.

Lifestyle

Marketers are increasingly interested in the effect of consumer "lifestyles" on demand. Unfortunately, there are many different lifestyle categorisation systems, many of them designed by advertising and marketing agencies as a way of winning new marketing clients and campaigns!

Geographic segmentation

Geographic segmentation tries to divide markets into different geographical units: these units include:

• Regions: e.g. in the UK these might be England, Scotland, Wales Northern Ireland or (at a more detailed level) counties or major metropolitan areas

• Countries: perhaps categorised by size, development or membership of geographic region

• City / Town size: e.g. population within ranges or above a certain level

• Population density: e.g. urban, suburban, rural, semi-rural

• Climate: e.g. Northern, Southern

Geographic segmentation is an important process - particularly for multi-national and global businesses and brands. Many such companies have regional and national marketing programmes which alter their products, advertising and promotion to meet the individual needs of geographic units.

Why Segment a Market?

There are several important reasons why businesses should attempt to segment their markets carefully. These are summarised below Better matching of customer needs

Customer needs differ. Creating separate offers for each segment makes sense and provides customers with a better solution

Enhanced profits for business

Customers have different disposable income. They are, therefore, different in how sensitive they are to price. By segmenting markets, businesses can raise average prices and subsequently enhance profits

Better opportunities for growth

Market segmentation can build sales. For example, customers can be encouraged to "trade-up" after being introduced to a particular product with an introductory, lower-priced product.

Retain more customers

Customer circumstances change, for example they grow older, form families, change jobs or get promoted, change their buying patterns. By marketing products that appeal to customers at different stages of their life ("life-cycle"), a business can retain customers who might otherwise switch to competing products and brands

Target marketing communications

Businesses need to deliver their marketing message to a relevant customer audience. If the target market is too broad, there is a strong risk that (1) the key customers are missed and (2) the cost of communicating to customers becomes too high / unprofitable. By segmenting markets, the target customer can be reached more often and at lower cost

Gain share of the market segment

Unless a business has a strong or leading share of a market, it is unlikely to be maximizing its profitability. Minor brands suffer from lack of scale economies in production and marketing, pressures from distributors and limited space on the shelves. Through careful segmentation and targeting, businesses can often achieve competitive production and marketing costs and become the preferred choice of customers and distributors. In other words, segmentation offers the opportunity for smaller firms to compete with bigger ones.