Identifying the best Market segment

Because different individuals, households and organizations consume products and services at different rates, marketers try to identify groups which represent the greatest sales potential. By directing their marketing efforts toward these markets, rather than toward the population as a whole, they can employ their marketing resources more efficiently. Research used to identity these groups is called market segmentation research. The process by which a market is segmented consists of three major steps: (1) identifying market segments in terms of their descriptors – the characteristics of the customers they contain; (2) investigating differences between segments – usually on the basis of attitudes, lifestyles or benefits sought; and (3) evaluating the relative long term attractiveness of each segment.

There are two general approaches to segmentation: (1) classifying respondents on an a priori basis, based on the types of consumers or their purchase behavior, or both; or (2) clustering respondents on the basis of their similarities in regard to a set of relevant variables.

A priori segmentation starts with established groups of consumer and proceeds to see how they differ with respect to their purchases of a given product and exposures to different advertising media. Cluster based segmentation, on the other hand groups respondents on the basis of their similarities with respect to lifestyle, attitudes and product benefits sough. There is a great variety of techniques that can be used to cluster respondents into relatively homogeneous groups, including multidimensional scaling and conjoint analysis.

Marketing research can make valuable contributions to the determination of a segment’s attractiveness. The major criteria used in evaluating the relative attractiveness of various segments include size, growth, suitability, competition, penetrability, protectability, interaction with other segments, and risk. Some data of relevance can be obtained from a variety of secondary sources including syndicated commercial services, census and registration data, and some computerized databank. In many cases, it is necessary to rely on survey research to obtain the needed data.

Segmentation studies are difficult ones to undertake. Since they need to be projected to the appropriate universe, a probability sample should be used, but seldom is. Most studies pay little attention to the non-respondent problem. There is always the difficulty of defining operationally both the dependent and independent variables and few segmentation studies have concerned themselves with the question of data reliability.

Morning Treat Coffee Bags:

William Brandt, marketing manager of the Morning Treat Coffee Company, was trying to decide of the company’s newest product was ready for a test market. The product – real, fresh coffee in a bag similar to a tea bag had been tested by a consumer panel for several months. The results were encouraging and suggested that the product would have appeal because it offered the convenience of instant coffee combined with the aroma and flavor of fresh coffee. Mr. Brandt was concerned about going into test marketing without a better understanding of the types of coffee drinkers most likely to use the new coffee bag.

Approximately 2 billion pounds of coffee were sold annually through food stores in the United States. About 35 – 40 percent of total coffee sales were in the instant or freeze dried form, which was a growing segment of the coffee market. This growth in instant and freeze dried coffee was due to the increased popularity of convenience foods. The demand for convenience in beverages was reflected in the fact that over 90 percent of the loose tea sold in the United States was packaged in individual bags.

It had taken more than 20 years to develop a process for packaging coffee in individual bags. Tea can be packaged in a cellulose fiber bag placed inside an individual paper bag because it is organic material that is relatively unaffected by exposure to air. However, coffee is a more complex substance, consisting of oils, solids and gases that are affected by oxygen. Because of its complex chemical composition fresh ground coffee cannot be packaged in a tea bag. The newly developed coffee bagging process used a specially developed synthetic fabric which sealed freshly ground coffee in a bag containing no oxygen. The shelf life of the coffee in the new bag was in excess of one year.

Mr. Brandt and other members of the marketing staff believed that Morning Treat Coffee Bags would appeal to convenience-oriented consumers. It was felt that heavy drinkers of fresh coffee were not likely to be included in this group because of the ingrained habit of brewing a large pot of coffee. The target groups were thought to be moderate and light drinkers of fresh coffee and all drinkers of instant and freeze-dried coffee. The marketing staff believed that many users of instant and freeze-dried coffee liked the convenience, but that they were less than satisfied with the flavor, taste, and aroma of that beverage. Heavy users of instant and freeze dried coffee were considered to be the main market for the new product. Some staff members were concerned, however that the coffee bags might appeal most to a relatively unimportant market segment – households of only one, two, or three individuals who consumed small quantities of fresh coffee.

Identifying the best market segments for coffee bags and the reasons why some segments would be attracted to coffee bags were thought to be critical issues that had to be resolved before going into test markets. The J M South Company, a marketing research firm, was invited to propose research that would clarify these issues.

The following Research design is proposed:

1. Use the US Postal service to distribute free packages containing 3 coffee bags to selected households on selected blocks in selected ZIP codes.
2. Follow up personal interviews will be made 3 to 6 weeks after the sample mailing.
3. Respondents will be identified as potential users or non-users depending on how they score on product attitude rating.
4. All Respondents will be classified as potential users or non-users. These findings will identify the most important market segment for coffee bags.