Architectural products consist of new varieties of existing technologies that serve new applications. In such cases the important factor is to identify or create new market segments.
Market share, the marketer also considers profitability: market leaders earn three times the rate of return of businesses. Therefore the goal is to segment a market into a sufficiently small and isolated segment which can be defended and increase the market share. This allows the product and distribution channels to be closely matched to the needs of a particular group of customers.
Buyer segmentation is simply the process of identifying groups of customers with sufficiently similar purchasing behaviour so that they can be identified and treated in a way of equal importance. This is important because different groups are likely to have different needs. By definition the needs of customers in the same segment will be more or less the same.
In practice, segmentation is conducted by studying customers’ buying behaviour. The principle of segmentation applies to both consumers and business markets, but the process and basis of segmentation is different in each case.
Much of the research on the buying behaviour of consumers is based theories adapted from the social and behavioural sciences. It is assumed for analysis that consumers are rational and make purchasing decisions by comparing product utility with their requirements.
However, such rational processes do not appear to have much influence on actual buying behaviour. For example, in the UK the Consumers’ Association routinely tests a wide range of competing products, and makes buying recommendations based on largely objective information. If the majority of buyers were rational, and the Consumers’ Association successfully identified all relevant criteria these recommendations would become best sellers but this is not the case.
Behavioural approaches have greater explanatory power. The buying decision follows a sequence of changing attitudes to a product – awareness, interest, desire and finally action. The goal of advertising is to stimulate this sequence of events.
In practice the balance between rational and behavioural influences will depend on the level of customer involvement. Clearly, the decision making process for buying an aircraft or machine tool is different from the process of buying a toothpaste or shampoo. Many purchasing decisions involve little cost or risk, and therefore low involvement. In such cases consumers try to minimize the financial, mental and physical effort involved in purchasing. Advertising is most effective in such cases. In contrast, in high involvement situations, in which there is a high cost or potential risk to customers, buyers are willing to search for information and make a more informed decision. Advertising is less effective in such circumstances and is typically confined to presenting comparative information between rival products.
There are many bases of segmenting consumer markets including socio-economic class, life cycle groupings and by lifestyle or psychological – demographic factors.
There is often a strong association between a segment and particular products and services. For example, the yuppy of the 1980s was defined by a striped shirt and braces, personal organizer brick sized mobile phone and, of course a BMW. Annual sales of Filofax were just £100,000 in the UK in 1980, but the deregulation of the city of London in 1986 created 50 000 new, highly paid jobs. As a result annual sales of Filofax reached a peak of £ 6m. in1986, the year before the city crashed.
Such segmentation is commonly used for product development and marketing in fast moving consumer goods such as foods or toiletries and consumer durables such as consumer electronics or cars. It is of particular relevance in the case of product variation or extension, but can also be used to identify opportunities for new products such as functional foods for the health conscious and emerging requirements such as new pharmaceuticals and health care services for the wealthy elderly.
Segmenting Business markets:
Business customers tend to be better informed than consumers and, in theory at least make more rational purchasing decisions. Business customers can be segmented on the basis of common buying factors or purchasing processes. The basis of segmentation should have clear operational implications, such as differences in preferences, pricing distribution or sales strategy. For example, customers could be segmented on the basis of how experienced, sophisticated or price sensitive they are: However, the process is complicated by the number of people involved in the buying process:
The actual customer or buyer, who typically has the formal authority to choose a supplier and agree to their terms of sales. The ultimate users of the product or service are normally involved in the initiation and specification of the purchase.