Usefulness of Demographic Information in Segmentation - Coursework Example

USE OF DEMOGRAPHIC INFORMATION IN SEGMENTATION A CRITIQUE Table of Contents Page 3 2 Introduction 4 3 Segmentation 6 4 Usefulness of Demographic Information 8 5 The Critique 10 6 Conclusions 12 7 Bibliography 13 1 Abstract Market strategies depend upon segmentation of the markets to determine the ideal group of customers demographically for best results. This data is available mainly through the US Postal Department as well as other agencies. Accurate segmentation is possible with the use of this data. Segmentation is carried out on a variety of criteria and they have been examined. The consumer behaviour is dependant on the 4P’s of marketing to which another 3 P’s have been added for better understanding of the consumer. Some critics perceive use of demographic data as invasion of privacy but their qualms have been answered in the conclusion. 2 Introduction To understand markets, we begin with understanding what a Market means in this context. A Market is the demographic and/or geographic group or groups of buyers for products and services on offer. It may be limited to a small area or may be worldwide but that is dependant on the type of product or service on offer. But a market can be defined only through the Marketing effort that is put in to exploit this market. The potential market may be larger but the market for a product or service is the targeted market for which it makes this effort. Using different methods, Marketing determines the size of the market that is being approached but this has to be a controlled exercise otherwise the effort will be aimless. Preceding the marketing exercise the organization needs to do market research to determine its marketing strategy. This is a three stage effort in which data is required about potential customers. Usually this data is drawn from valued sources such as the U.S. Postal Service Deliverable address counts, Equifax TotalSource™ consumer database household counts, as well as state and local agencies. Some important databases are: National Change of Address (NCOA) is a database owned and updated by the United States Postal Service (USPS) It containing approximately 160 Million permanent address records filed with the USPS over the last 48 months. (NCOA) There are other services through which the organization can reach the most select audience for any mailing, by flagging addresses that matches key criteria. (Suppression Services) There are also more focused services offered by the US Posts department such as:  Mail Preference Service (MPS) -  This list is managed by the Direct Marketing Association and lists people who have opted not to receive advertisements through mails.  Deceased Master File Suppression – This list flags addresses whose primary residents have died.  Prison Suppression – Identifies all prison addresses  Business/Shopping Center Addresses – This is a compilation from White Pages.  College Addresses – Contains over 220 zip codes for college addresses.  Military ZIP Codes – This flags addresses marking ZIP Codes matching military installations.  Nursing Homes – This one matches addresses of nursing homes.  Retirement Homes  - This one identifies the retirement homes.  Trailer Park - Flags mobile home/trailer park addresses (BCC) With this data it is possible to segment the market and subsequently to determine the target customers for the organization’s products. Once this data is available, the serious exercise of Segmentation begins. This data on consumers from various sources contains the following information. Demographics like age group (teens, retirees, young adults), gender, education level, ethnicity, income, occupation, social class and marital status Geographics like location (national, regional, urban/suburban/rural, international) and climate Purchasing habits by identifying brands used, purchase frequency, current suppliers Local Environment like cultural, political, legal framework. Benefits sought by buyers by price, overall value, specific feature, ease-of-use, service, etc. Knowledge of how the product is used, situation when used, etc. Purchase Conditions by studying time of day/month/year of purchase, credit terms, trade-in option, etc. Characteristics of Individual Buyer by observation of purchase experience, how purchase is made, influencers on purchase decision, importance of purchase etc. 3 Segmentation Markets are heterogeneous and are created by reasons of different values, needs wants, constraints, beliefs and incentives. Customers differ in their values and perceptions and want to purchase things that have value for them. Value is not just the monetary part, but also the usefulness and emotions that with go with it. The need and want play a great role in determining this value. The price actually determines the location from which this purchase will be made. Service and reliability are other important determining factors. Therefore a market segment is a set of customers that have a common approach to above questions and have a common desire to purchase a common set of goods and or services. They also respond to such offers in a common way. Marketing segmentation would therefore cover the process of dividing customers who have a common need for common variety of products whose preferences vary in very narrow bands for these items. There are many variables of demography and geography that help to determine segmentation. The company needs to consider if the segment is large enough to support its intended sales by price and quantum. Then is there a growth possibility or is it restricted or even declining by nature. It consists of variables that can be easily identified through demographics (i.e., statistics that describe a population), geographics (i.e., location issues) and financial information.  For both consumer and business segmentation this information focuses mostly on easy to obtain data from such sources as government data (e.g., census information), examining secondary data sources (e.g., news media), trade associations and financial reporting services.  The company’s own skills and those of its workers are important too in being able to service the segment being carved out. Both knowledge and communications skills have to be developed and training must be carried out for improvements. Finally it must also be borne in mind that such segmentation must be within the scope of the company and stakeholders policy. Marketing success depends largely upon the ability to divide the segments of different class of customers and catering to their particular and peculiar requirements at the lowest cost. What determines the customer motivation and behaviour is normally determined by the 4P’s, viz, Product, Price, Promotion and Place. (Dibb, Simkin and Bradley) Lately another 3P’s have been added to the list and they are People, Process and Physical Evidence. (Chartered Institute of Marketing) 4 Usefulness of Demographic Information The information contained in the demographic charts will throw up the following questions. Is the segment large enough to sustain the organization’s goals?  If there are many competitors then this assumes vital importance. What are the growth possibilities?  There could be disaster if the organization is entering a market where growth is on the decline. What is the skill and knowledge level of the organization in the segment it which it is set to step in?  Unless the organization is able to communicate well with the consumers it will face failure in its attempts to cater to the segment. Is the segment meeting the organization’s vision and mission?  Limits must be set within the parameters the organization has set for itself or it will overextend itself and fail in its objectives. Before embarking on the segmentation exercise due consideration must be given to above questions. For an effective and efficient Marketing strategy, segmentation is an important tool, but segmentation research data precedes selection and segmentation methods models and procedures are based on customer profiles. Profiling requires certain pre-conditions and they are that a group of customers need specific products and there is nominal variance in their expectations. This will result in effective and profitable Targeting. Customers, by nature are of three distinguished types and a company needs to handle each with great care. They are purchase decision makers and they must be cultivated according to their outlook and preferences. There is the ultra-conservative type. This segment is highly consistent with their way of doing things. In their case any deviation might alienate them therefore it is very important to cater to them repeatedly in the same form and manner as the last time. Once established they seldom change preferences. They become wary if discounts are offered or premium charged as for them it translates into loss of consistency. Cost effectiveness is acceptable if it does not disturb the status quo and bulk offerings are acceptable on similar conditions. They are very negative towards complex offerings. Then there are the conservative ones who will veer towards the new or unknown only if it involves low risk and competitive pricing. They are neutral to complex offerings and prefer to stay within a wide band of preferences, making few experiments. Lastly the Liberals who would like to try anything new and willing to take up a challenging offer. For them the price is secondary and the end result is foremost. They are the daring types who will experiment with new offerings. The fundamental factors for an organization deciding on segmentation can be explained as: Similarity of customer needs and wants and the customers are willing to pay premium for the products. Customers cluster into groups by need (viz., Religion, Ethnicity, Race) Cost of serving may be higher but is lower than the customer expectations and thereby a premium price can cover that escalation 5 The Critique Segmentation offers great advantages to a company. The obvious ones are: 1. Reduction in expenses – direct result of targeted customer strategies. 2. Improved cash flow – advertisements are segment oriented only. 3. Improved productivity – easier to produce for specified products. 4. Improved manufacturing quality – this is a result of standardization of products. 5. Improved service delivery – schedules for fewer goods are easy to achieve. 6. Improved employee working conditions/benefits – employees with skills will benefit from this. 7. Improvement in market share – result of customer loyalty. Segmentation improves the image of the company and customer recall is higher. This is the ultimate benefit the managers look for. This is also to the advantage of the stakeholders, both employees as well as shareholders. Using a target market approach, segmentation is done by breaking a large market into smaller ones by grouping common characteristics of customers. This makes marketing a more focused effort and produces better results and returns. There are people that view use of the primary data, collected through the agencies described above, as an infringement of the privacy of the consumer or customer. However Marketing is all about customers. Their behaviour and attitude towards buying a product is of paramount importance. Their needs and wants and their likes and dislikes are decisive factors and purchase decisions depend on these issues. It is the understanding of these factors that will develop a marketing strategy. Therefore Marketing is all about understanding the customers and of finding ways and means to for providing product or service as per his requirements. If an organization is unable to segment its customers based on available demographic data then it is the customer that will suffer too. They will find it difficult to obtain their choices at there preferred location and at their perceived values since the organization will not know precisely who it is aiming to service and satisfy. There will be mismatches in expectations and deliveries. The demographic data therefore serves as the missing link between the organization and the customer for creating the right exchange environment. The American Marketing Association (AMA) defines Marketing in the following way. “Marketing is an organizational function and a set of processes for creating, communicating and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stakeholders”. (AMA). This comprehensively calls for Market segmentation based on demographic data and results in two way satisfaction of both the customer and the organization. 6 Conclusions Over a period of time Marketing has evolved to the extent that it is now a common practice to divide markets into different identifiable segments. This helps in identifying the target audience and delivery of products and service becomes more accurate and the result is satisfactory for the customer as well. This information has to be taken from data collecting agencies that collect this data in the ordinary course of their business and make it available to the marketing organization. They in turn convert this by segmentation process. Those who are against this perceived infringement of privacy of the customers habits, purchase power and similar personal information need to understand that without this kind of information it is not possible to segment markets. And without segmentation it is not possible to offer satisfactory service to the customer. Therefore this argument is weak and if accepted will be detrimental to the consumers. 7 Bibliography AMA, Available at:  http://www.marketingpower.com/content24159.php BCC available at: : http://www.quicksilvermailing.com/datasrvcs.htm Chartered Institute of Marketing, Available at http://www.cim.co.uk/cim/ser/html/infQuiGlo.cfm?letter=M Dibb, Simkin and Bradley) The Marketing Planning Workbook (Dibb, Simkin and Bradley), both originally published in 1996 by Thomson, London. NCOA available at: http://www.quicksilvermailing.com/datasrvcs.htm Suppression Services available at: : http://www.quicksilvermailing.com/datasrvcs.htm Read More