SERVICES MARKETING : CHAPTER – 3

Marketing Research & Market Segmentation in Services

LISTENING TO CUSTOMERS

Listening to Customer involves Marketing / Market Research and / or Consumer Research, and the Study of Marketing Research (MR). Marketing managers often commission formal marketing studies of specific problems & opportunities. It’s the job of marketing researchers to produce customer insight into the problem.

1. Definition – Marketing Research is defined as the systematic design, collection, analysis, & reporting of data and findings relevant to a specific marketing situation facing the company.

2. Meaning & Scope – The above definition brings out three key factors regarding marketing research :

a. Marketing Research is research on the manifold problems of marketing,

b. In achieving the mission it systematically gathers & analyses the information,

c. Its purpose is to aid decision making in marketing,

With increasing complexity of business activities MR too has been growing in complexity and it has emerged as a highly specialised function of Marketing Management. Today, carrying out MR relating to customers, products & markets necessitates specialised skills & sophisticated techniques.

Approaches to Services Research :

1. Post transactional surveys : This is a survey which takes place immediately after the service is delivered & consumed. Usually there is a standard questionnaire form which is required to be filled by the customer. This gives feedback about the quality, value & satisfaction.

a. Customer Complaints, Comment & Inquiry Surveys : As the name suggests this type of survey invites all these for attention to the complaints. further improvement, providing more information etc. Customers need to know what steps are taken to improve all these, so that they appear next time. Complaint & Suggestion System : A customer centred firm makes it easy for the customers to register suggestions & complaints. Some others use web sites, e-mails for quick two-way communication. Studies show that although customers are dissatisfied with the products or services one out of every four purchases, less than one in twenty will actually complain. Most customers will buy less or switch suppliers. A good complaint analysis system should do the following :

i. Encourage customers to complain & provide suggestions for improvements by having adequate forms (with sufficient space to write comments) and means beyond the routine “how was everything?” questions. A good approach is to include example of past customers’ comments improved services & goods.

ii. Establish “listening posts” where specially designated employees either listen to customers’ comments or actively solicit input from them (e.g. Guest books, comment books).

iii. Each complaint, by itself, provides little information. The company must have a system in which complaints are categorised & then analysed.

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iv. Use of software is very important which speeds up complaints analysis & handling. It must be used wherever possible, like tracking customers’ opinions, capturing complaints to follow up on them very quickly.

2. Total Market Surveys : This is done for the whole of target customers, and this is the regular MR. This also include the existing customers, potential customers & lost customers. Sometimes, trials and pilot studies are conducted by the companies.

3. Employee Surveys : The service staff are the direct contacts with the customers and they provide a variety of useful information regarding the customers, along with the problems of coping with them. Most of the times they come up with some practical solutions which can be analysed and if found fit may be applied. Another aspect is the satisfaction level of the service staff in their job, if they are not content in their job it’s very difficult to expect a good service delivery.

Stages in Marketing Research :

Effective marketing research involves six steps or stages :

1. Define the problem, the decision alternatives, & research objectives – Defining the marketing problem & the MR problem involved in the in the task correctly is the most important part of MR. Marketing managers must be careful not to define the problem too broadly or too narrowly for the MR group. Normally there’s nothing like the MR problem as such – it’s the marketing problem which MR tries to find an answer for, & so the MR problem is a derived one. Often the real issue may not be apparent & the apparent issue may be deceptive. So the problems have to be accurately defined & the MR people must know both “why” & “what” the company wants. Apart from this, it’s also essential to analyse the problem in depth so that exact information requirements are ascertained & finalised. Thereafter the MR group & the Marketing Manager must work in unison.

2. Develop the research plan – The second step is to develop a suitable & efficient plan for gathering the needed information. The choice of research design depends on the depth & extent of data required, the cost & benefit of the research, the urgency of the job, and the time available for completing it. The MM needs to know the cost of the research plan before approving it. Designing a research plan calls for decisions on the data sources, research approaches, research instruments, sampling plan & contact methods.

a. Data sources are basically of two types – primary & secondary. For the MR any or both can be used. Secondary data are those which are already collected for another purpose & are available for the purpose. Primary data are freshly gathered for a specific purpose or MR project.

i. Secondary data - Researchers generally start with investigating by examining secondary data to see whether the problem can be solved partly or wholly without collecting primary data which is expensive. Secondary data provide a starting point for research and are of low cost & ready availability.

ii. Primary data - When the needed data don’t exist or not available or are outdated, inaccurate, incomplete or unreliable, then the researcher has to collect primary data which is expensive. Most MR projects involve some primary data collection & with secondary data collection job may be complete.

b. Research approaches – Primary data can be collected in five methods. They are thro’ observation, focus groups, surveys, behavioural data, & experiments.

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c. Research instruments – are the methods or means employed to collect the primary data, information, responses etc. The main research instruments are questionnaires, psychological tools, mechanical devices, and qualitative measures.

d. Sampling plan – the MR people cannot reach the whole target mass. So they employ a sampling plan & design it effectively. This calls for three decisions –

i. Sampling unit – who is to be surveyed

ii. Sampling size – how many people are to be surveyed

iii. Sampling procedure – how should the respondents be chosen

e. Contact methods (also known as sample media) – this is the method how the people can be contacted from whom the information are to be gathered. It can be thro’ mail, telephone, personal interview or online interview etc.

3. Collect the information – After the plan is set as above, the actual data / information collection is the most expensive & critical aspect of MR process. This is the weakest link in the chain. Almost all the MR limitations arise here – expensive, time consuming, error prone, non-quantifiable parameters etc. But fortunately, due to advanced communication methods & computers, and of course the highly trained work force it’s getting easier. Often the MR field staff reward the target sample satisfactorily. Now the automated billing system program of a selling point can be slightly modified to give automatic info regarding several pre-set attributes. MR people are finding new ways to do the complex procedure.

4. Analyse the information - The pen-ultimate step is to analyse the data / info to arrive at a meaningful finding. This is done by tabulation, classification, frequency distribution, standard deviation & other methods of statistical analysis. Measures of dependent & independent variables are found out. The relevant steps are :

a. To calculate the relevant measures of central tendency as well as dispersion highlighting the major aspects of data.

b. To cross tabulate the data to ascertain some useful relationships.

c. To calculate the correlation coefficient & undertake regression analysis between variables.

d. To undertake a multi-variate analysis which uses a verity of techniques to determine the important relationships amongst several variables.

5. Present the findings or Preparing the Research Report – As the last step of MR the researcher presents the findings that are relevant to the major marketing decisions facing the management. The presentation of findings as a report is very important and the researcher must give sufficient thought & care to its preparation. Some of the principles of writing a report are objectivity, coherence, clarity in the presentation of ideas, use of charts & diagrams. The essence good research report is that it effectively communicates its research findings.

6. Make the decision – Now it’s the turn of marketing managers to make a decision on the basis of the MR report. Sometimes the MM is not satisfied & orders for some changes or more detailed research or in some other cases he ignores the report.

Use of Marketing Research Information,

Importance & Benefits of MR :

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1. Helps to know the details about the Consumers- marketers, especially B2B & service marketers normally try to know their customers individually. They develop a list of their prospects / customers with all essential details about them – their profiles, lifestyle, needs & buying habits.

2. Helps pick & choose and make focused offer – on the basis of consumers’ detailed info, the marketers can decide on which consumers to focus / concentrate on & which ones to shift focus from,

3. Helps know which products/services move in market & why – in the product related research, the marketers get to know about which products/services move (sell) in the market & for what reasons. Then the researchers come up with the possible areas to search for solutions or remedial actions to be taken,

4. Helps to make better decisions for Marketing Strategy – on the basis of the research findings the marketing strategies can be changed, modified, renewed, tested or experimented,

5. Helps new entrants plan their distribution channel by studying existing ones – often new entrants entering the market conduct some research on existing distribution channels for products & collect useful information regarding channel practices existing in that industry.

Upward Communications :

In most organisations the information normally flows from the top to the bottom, and only when it is critically necessary to deliver services. The communication which flows from the bottom to the top is known as upward communication. This is of two types to suit our context :

1. Between the management & employees – This will improve the relationship between them and give a detailed information as to what the customers want.

2. the management and customers - This will improve the understanding of customer expectation, information about their liking & preferences, and goodwill between them.

Approaches to Upward Communications :

1. Executive visit to customers : Direct interactions the best source of first-hand information. For the best effect all the departmental heads should visit the customers to see, feel, know & understand them.

2. Executive or management listening approaches : Personally listening to the problems, feedback or suggestions of the customers. This can be made thro’ visits, email, feedback systems, or even personally mingling with a few of their representatives, etc.

3. Research on external customers : This is in general the market research.

4. Research on internal customers : This is the interaction of the employees with the management. This can be done periodically, before and/or after the service delivery.

5. Research on intermediate customers : Sometimes we have intermediaries in service delivery, like banks act as agents of insurance & MF companies. The customers, the intermediary are now the target and the source of communication.

6. Employee suggestions : In an upwardly mobile company, this is taken as a constructive step. Employees are encouraged to suggest better methods, ideas,

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procedures, for improvement of quality & value and reduction of cost. Awards & rewards are instituted for inspiration.

MARKET SEGMENTATION & TARGETING IN SERVICES :

Earlier, the emphasis was on the mass production of goods & services, and reaching them to people. So the goods & services used to be more or less homogeneous. The old and starting concept of “Mass Marketing” where the seller engages in mass production, mass distribution and mass promotion of any goods & services for all buyers has assumed that all customers are alike and have the same/similar types of needs. But things slowly changed. Today a market is rarely homogeneous as it consists of various groups of diversified nature or aggregate of consumers of any goods & services. But later this has given way to the concept of offering different products & services to different group / class of consumers known as segments. Market means the customers and the place where the marketing activities take place. For the purpose of segmentation the customers are taken.

1. Definition : Thus Market Segmentation is defined as the process of dividing a market into distinct sub-sets of consumers distinguished from one another, with common needs or characteristics and selecting one or more segments to target with a distinct marketing mix. But again, after having segmented a market, the marketers may choose the style of market coverage as follows :

2. Undifferentiated marketing approach : A single common attribute of the requirements of all the segments are chosen and any goods & services are targeted. That is, the same goods & services are offered to all without differentiation, like the basic Risk Coverage Life Insurance schemes. Here there is an advantage of cost in all areas of marketing. Disadvantages are some customers whose needs are more are unsatisfied.

3. Differentiated marketing approach : This approach is the middle approach where a few segments are chosen and the goods & services are offered to these target segments. Like 3 classes in air/train travel. Advantages are enhanced customer satisfaction, but cost is higher, so the company needs more planning.

4. Concentrated Marketing Approach : This is more or less specialised approach, where only one or two segments are chosen on the basis of company objectives & available resources, and the goods & services are offered. E.g., Ponds or Lakme`.

Benefits of Market Segmentation :

No one can satisfy all the people all the time, can satisfy some people all the time or all people for some time. This concept is reflected in market segmentation.

1. Facilitates proper choice of target market

2. Helps distinguish one customer group from another within a given market

3. Facilitates effective tapping of the market, adapting the offer to the target

4. The “Divide and Rule” concept as a strategy of “dividing the markets for conquering them”

5. Helps crystallise the needs of the target buyers & elicit (bring out) more predictable responses from them, helps develop marketing programs on a more predictable base, helps develop marketing offers that are most suited to each group

6. Helps specialisation required in products/services, distribution, promotion & pricing (marketing mix) for matching the customer group & developing marketing offers & appeals that match the needs of such a group

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7. Makes marketing effort more efficient and economic – helps identify less satisfied segments and concentrate on them to improve the level of satisfaction

8. Helps concentrate efforts on the most productive & profitable segments instead of frittering them away over irrelevant, or unproductive, or unprofitable segments

9. Brings benefits to the customer as well, in various ways

10. When segmentation attains high sophistication, customers & companies can choose each other & stay together.

Bases for Market Segmentation :

In Market segmentation, it’s the Consumers, who are classified and not the products/services or the price. So Product/service segmentation or Price segmentation are sometimes mistaken for Market segmentation. After the market is segmented, the customers classified and the target is decided on, then the relevant product/price can be developed. These are the broad bases for segmentation :

1. Geographic :

a. Region – Far east, south-east Asia, Middle-east, European, Atlantic, Pacific, North/South America, Polar, Siberian, Deserts etc. In India, North, South, West, East & North-east

b. City or metro size – below 1L, 1-10L, 10L-1Cr, >1Cr etc.

c. Density – Urban, Sub-urban, Rural

d. Climate – Hot, Cold, Humid, Tropical, Rainy, Deserts

2. Demographic :

a. Age – Childhood, Adolescence, Young, Middle age, Old

b. Gender – Male, Female

c. Marital Status – Single, Married, Divorced, Widowed

d. Family Size – 2, 4, 6 or more, joint, nuclear, etc.

e. Family Life Cycle - Young Single, Young Married (no children), Young Married (small children), Middle aged with or without children, Old with or without children, Single survivor

f. Income - <5K, 5-10K, 10-25K, 25-50K, 0.5-1L, >1L pm.

g. Purchasing Capacity – with or without disposable surplus, low or high

h. Price preference – general, or premium; min / avg / high

i. Education – Secondary, Senior secondary, Graduation, Post Graduate, Technical / Higher specialised Qualification

j. Occupation – un-employed, students, farmers, workers, Govt. Employees, Self-employed, Professionals, Business Owners, Retired Persons,

3. Psychographic,

a. Lifestyle – Culture Oriented, Sports Oriented, Outdoor Oriented, Urban Mobile, Couch Potato

b. Personality – Ambitious, Compulsive (with Obsession), Gregarious (liking of association or companionship), Authoritarian, Aggressive, Introvert, Extrovert

4. Behaviouristic.

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a. Benefit Segmentation – Economic, Durable, Value for money, Convenient

b. Purchase Occasion

i. Time – Leisure, Work, Rush, Morning, Night

ii. Objective – Personal, Fun, Gift, Time-pass, Achievement

iii. Location – Home, Office, Road, Restaurants, In-store

iv. Person – Self, Family members, Boss, Friends, Peers

c. User Status – Nonuser, Ex-user, Potential User, First-time user, Regular User

d. Usage rate :

i. Usage Rate – Heavy users, Medium user, Light users, Active users, Rare users, Non users

ii. Awareness Status – Unaware, Aware, Interested, Enthusiastic,

iii. Attitude towards Product - Negative, Positive, Indifferent, Hostile

e. Brand Loyalty – High, Moderate, Low, Non-Loyal

f. Buyer Readiness & marketing Factor – some customer are more willing to buy certain goods & services than others, may be due to their prior knowledge or exposure.

Requirements for Effective Segmentation :

Effective Segmentation Criteria – To be useful market segment must be :

1. Measurable – the size, purchasing power & characteristics of the segments can be measured.

2. Substantial – the segments are large & profitable enough to serve. A segment should be largest possible homogeneous group worth going after with a tailored marketing program.

3. Accessible – the segments can be effectively reached & served.

4. Differentiable – the segments are conceptually distinguishable and respond differently to different marketing mix elements and programs.

5. Actionable – effective programs can be formulated for attracting & serving the segments.

Process of Segmentation :

Many aspects of the market segmenting process are common for goods & services. The two basic differences are (1) Compatibility – generally the services are delivered in the presence of other customers, so the segments need to be compatible, (2) Ability to customise – while delivering the services, the service personnel generally do a real-time customisation which is not possible in manufacturing of goods. Effective segmentation has following steps :

1. Needs-Based Segmentation – Group customers into segments based on similar needs and benefits sought by customer in solving a particular consumption problem.

2. Segment Identification – For each needs-based segment determine which demographics, lifestyles & uses behaviour make the segment distinct and identifiable (actionable).

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3. Segment Attractiveness – Using pre-determined segment attractiveness criteria (such as market growth, competitive intensity, & market access), determine the overall attractiveness of each segment.

4. Segment profitability – Determine profitability of the Segment.

5. Segment Positioning – For each segment create a value proposition & product price positioning strategy based on that segment’s unique customer needs characteristics.

6. Segment Acid Test – Create “segment storyboards” to test the attractiveness of each segment’s positioning strategy.

7. Marketing Mix Strategy – Selecting Customer Segments - Expand segment positioning strategy to include all aspects of the marketing mix products, price, place & promotion.

Another service marketing expert has given the following steps :

1. Identify the bases for segmenting the market : The firm should choose a single or a few attributes which are common amongst the consumers, which are in some way meaningful to the design, delivery, promotion or pricing of the services. Then the segmentation is done on one such basis or a combination of a few of the bases.

2. Develop profiles of resulting bases : A profile of customers from each of the segments have to be developed. These profiles need to be different from each other, or else the benefit of segmentation will be lost and the cost increases on having different profiles.

3. Develop measures of segment attractiveness : The segments must be evaluated for their attractiveness or commercial viability. This is the requirement of effective segmentation.

4. Select the target segments : Then the company selects the systems which is decided by evaluating & selecting market criteria.

5. Ensuring the compatibility of the customers : This is because of the presence of other customers while delivering the services

Market Targeting in services :

1. The basis on which marketers target the identified segments : Evaluating and Selecting Market Criteria – Once the firm has identified its market segment opportunity it has to decide how many and which one to target. The firm must look at two factors :

a. Segment size & growth potential : The size of the different segments in the market should be compared on the basis of their present capacity and their future potential to grow.

b. The segments overall attractiveness & profitability : Marketers should analyse several factors like competition – present & future, presence of substitutes – present & future, availability – present & future. Then on the basis of the critical assessment this targeting should be decided.

c. The company’s objectives & resources : Companies differ in sizes, styles, resources, specialisations, expertise, standings, objectives, etc. The target selection should match the overall objectives & resources philosophy of the company

2. Targeting Strategies : Having evaluated different segments the company can consider five patterns of target market selection :

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a. Single segment concentration (concentration strategy) – Only a single segment is targeted and concentrated effort is given,

b. Selective specialisation (Selective segmentation strategy) – Only a few segments are targeted depending on the company criteria and concentrated effort is given,

c. Product/Service specialisation strategy – All the available market segments are targeted for a single category of products & services,

d. Market specialisation strategy – Only a particular market segment is targeted for all the categories of products & services,

e. Full market coverage – All the available market segments are targeted for all the categories of products & services.

3. Counter segmentation – The market & its segmentations don’t remain static. The difference between the segments may get more insignificant over time and some other segments no longer remain viable. This is a result of several variable factors changing independently or dependently. In such situation clubbing of two or more segments is done to have a common strategy of marketing mix. This is called counter segmentation.

Mass Customisation :

This means the services are customised to such an extent that the mass production of these services are not hampered. So we have both customisation & mass production, i.e., having customer satisfaction & cost benefit both simultaneously.

1. What are the factors that companies need to consider before adopting customisation,

2. What are the various approaches to mass customisation.

a. Collaborative Customisation

b. Adoptive Customisation

c. Cosmetic Customisation

d. Transparent Customisation

© Himansu S M / Written Sep-2006, Published Feb-2010

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