Marketing Management. Analyzing Consumer Markets


There have been a lot of changes since mass marketing ended and market segmentation begun. Henry Ford used mass marketing in his automobile business by giving all consumers the same car color. Later, after World War II, market segmentation became the new trend. Marketers want their products to be the same as what the consumers wanted. These issues, finding out what the consumer wants to purchase and why they purchase those products are the main concern of studying consumer markets (Zaichkowsky, 1991).

This paper shows first how did analyze consumer markets became important, starting from the economic paradigm of the 1940s up to the modern consumer markets. The paper also presented the relevance, strength and weaknesses, and current trends in analyzing consumer markets including discussions on market segmentation and positioning. Lastly, the marketing strategy of Lever Brothers, USA on its success in launching its product Lever 2000 in 1993 by using the concept of market segmentation and understanding its consumer market is presented.

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History

The economic paradigm of the 1940s started the theoretical model of how consumers make purchases. This view of the consumer in the marketplace says that consumer behavior is based on largely “rational” and conscious economic calculation. Meaning, consumers will only purchase products that are expected to satisfy his or her tastes relative to the price of the product. Generally, this view argues that the lower price of the product is, the higher the sales would be. This general assumption is not always true though as explained in economic theories about goods that do not follow the supply and demand rule.

The fact is, there are consumers called irrational consumers. They buy goods not only on their taste and price but also they are aware of the “hidden meaning” of the goods. Scholars regarded consumers as irrational, impulsive decision-makers. In the 1950s, the theories of Freud and Maslow about the personality to motivation theory became relevant in studying consumer behavior. In the 1960s, John F. Kennedy as president elevated the status of consumers. The Consumer Bill of Rights of 1963 that he put forth gave consumers the right to safety, the right to be informed, the right to choose, and the right to be heard.

The result of this is that companies now produce what the consumers want and not what the companies wanted to produce. The choice of the consumers became the dominant marketing factor in determining what products that should be in the market. These prompted companies to study what the consumer wants. Eventually, it was realized that not all the needs of the consumers can be satisfied by a single product, this led to market segmentation. Companies started to find a target market that they wish to concentrate their marketing efforts on. (Zaichkowsky, 1991)

Relevance

Michael Porter depicted a category scheme that consists of three general types of marketing strategies that are most commonly implemented by different businesses to attain and maintain a competitive advantage. These three generic strategies can be described by two dimensions: strategic scope and strategic strength. Strategic strength is a supply-side dimension and it pertains to the core competency and strengths of the firms.

On the other hand, the strategic scope is a demand-side dimension. This means that it relates to the composition and size of the market a company plans to target. In Porter’s Competitive Strategy: Techniques for Analyzing Industries and Competitors (1980), he introduced a scheme of the three best marketing strategies. These are cost leadership, differentiation, and market segmentation. Researches on the profit impact of marketing strategies suggest that companies that have a high market share are most likely profitable, and at the same time, companies with low market share are profitable too. Companies with a moderate market share are the least profitable of all.

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Porter said that firms with high market share are successful because they practice a cost leadership strategy. On the other hand, companies with low market share are profitable because they focus on a specific market segment. They know their niche in the market. Those companies in the middle were less successful because they do not employ a viable generic strategy (Porter, 1980).

The need for understanding consumer behavior comes with market segmentation. This strategy makes use of a target market and concentrates all its marketing effort on that segment. It is also called niche strategy or focus strategy. It is believed that you can meet the need of your target market by selecting one or two narrow market segments and customizing a marketing mix in that specialized market. Competitive advantage can be gained through effectiveness instead of efficiency.

This strategy is suggested for firms with relatively small sizes but it does not mean that it can not be used by larger companies. It is preferable to select targets that are less vulnerable to substitutes. Products with fewer substitutes have the weakest competition.

Another marketing strategy that is related to understanding the consumers’ behavior is positioning. Positioning is the process of generating an image or identity of what your product is in the minds of your target market. It refers to the relative competitive comparison that their product possesses in a market. The concept of positioning was first introduced by Al Ries and Jack Trout. They said that any brand is valued in the customers’ minds by the perception they have about the product.

They defined positioning as a system organized to find a window in the mind of the consumers (Ries and Trout, 1981). To achieve this, first, the market segments must be identified and the target market selected. The market is segmented by the use of different factors. The factor to be used is the prerogative of the company. They should know where they want to position their product.

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The buying behavior of consumers is influenced by cultural, social, and personal factors. Cultural factors are the fundamental determinant of a person’s wants and behavior. This is true because an individual tends to use products that are being used by the people around him or her. As a child grows, he/she obtains a set of values, perceptions, preferences, and behavior via his or her family and other institutions to which he or she is exposed.

Every culture can still be subdivided into different subcultures. Subcultures offer a more precise identification and socialization for their members. Subcultures can be defined by the members’ religion, nationality, geographic region, or racial groups. The presence of these subcultures enables marketing managers to formulate strategies that will focus on a specific subculture. In turn, it can generate more profit for the company and it can give a stronghold on that specific market. Marketing research showed that different ethnic and demographic groups react differently and are not always favorable to mass-market advertising.

This prompted marketing managers to adopt the so-called multicultural marketing. Companies now focus on a specific group and understanding their needs. The result of which is, the company can give what the group wants. Another form of grouping is, by the population’s social class. This takes the form of a caste system. Social classes are homogeneous divisions of society. They are hierarchically ordered. each class has similar values, interests, and behavior. An example of this is grouping the population as lower lowers, upper lowers, working-class, middle class, upper middles, lower uppers, and upper uppers.

Other methods of classifying are by using letters from letter A to letter E, A being equivalent of the uppermost class and E as the lowest class. Usually, this type of classification is based on income, wealth, education, and value orientation. Because of the different characteristics of each class, the challenge for marketing managers is to identify who belongs to each class and the specific needs of each class. Different classes have different product and brand preferences in a lot of product lines, be it on clothing, home furnishings, leisure activities, and automobiles. (Kotler and Keller, 2005)

If a company has successfully identified the consumers’ characteristics, they can target those areas which they believe will like their product. The result will be an increase in the number of frequent users. (Levitt, 1974).

The market has portions that are dissimilar from each other. Market segmentation aims to identify those different portions. Better satisfaction of potential consumers’ needs is achieved through segmentation Understanding the customers and how to satisfy their needs better than what is already in the market is necessary to make this marketing concept effective. The problem is that customers have different needs and it is close to the impossibility to satisfy them all by treating each the same way as you treat the others.

However, there is a treatment of the market called mass marketing that regards the market as a homogeneous group and by presenting the same marketing mix to all the customers. Economies of scale are permeated by mass marketing. This is fulfilled through mass distribution, mass production, and mass communication. The problem with mass marketing is that the needs of the customers and their respective preferences differ and the same offers are doubtful to be perceived as optimal by all customers.

The likely result when a firm disregards the differing needs of the customer is, a firm might enter the market and bring with them a product that can serve a specific group in the market, thus the present firms would lose that market share. To avoid this, companies must identify who their target customers are. In turn, provide them with the specific product they opt to have. This is called target marketing. The variety of customers is recognized by target marketing. Pleasing everyone with a single offering is not the aim of target marketing. To do this, first, a company must identify the different market segments and their needs. (ICMBAI, 2002-2007)

Strengths and Weaknesses

Every segment has varying characteristics from the entire market for the product. Better targeting of the organization’s value plan to consumers with matching value requirements is achieved because the buyers’ needs within a segment are similar. When firms are market-driven, they can sense what is happening in their market, thus they can easily develop business and marketing strategies to get hold of opportunities and counteract threats, and also to forecast and prepare for future changes in the market. Of course, this can only be achieved if the company understands consumers’ behavior.

This advantage can be influence by numerous situational factors. These include industry characteristics, type of firm, degree of dissimilarity of buyers’ needs, and the specific competitive advantage of the firm that implements that marketing strategy. (Day,1994)

The targeting and positioning strategies can be used to help a new brand successfully enter a market like what happened to ConAgra Inc., which launched the Healthy Choice frozen food line in the early 1990s. Their product, which is a low-calorie, low-cholesterol, low-sodium frozen food line quickly gets hold of a strong market. At that time, frozen food is in a very competitive category of a supermarket. There is limited freezer space then.

The company introduced Healthy Choice into the male-oriented frozen dinner segment of the market. The product was positioned as a “health product”. Although health products are often described as products with poor tastes, and the female-oriented market segment is on rapid growth, the strategy of ConAgra was still successful. Healthy Choice appealed to 25 percent of the market share in the $700 million frozen dinner market. Eventually, price competition became very strong, new products were launched, and the promotion actions of other competitors in the industry battered Healthy Choice’s share in the market. Despite all this, Healthy Choice made a mark by building a strong brand position on different food categories (Loden, 1992).

This only shows that making use of a segment in a market can drive a product towards a strong market share. This indicates that another strength of a market strategy that is based on consumer behavior is that it identifies the need of the target market, thus you can put your product in a position where the consumers’ needs are.

The problem with identifying the consumer behavior and eventually targeting a specific segment of the market is, that cost efficiencies of large-scale production are lost. At the same time, revenue leverage that can be made when a lot more people buy a certain product more often is not realized. When you produce more and target the whole mass market, economies of scale can reduce costs and simultaneously create more revenues. Products that are marketed towards the whole market have the lowest costs and have the greatest revenue on top. Heavy brand buyers and the whole continuum of buyers are the ones who bring the revenue leverage for the firm (Anschuetz, 1997).

The U.S. Bureau of Labor recently reported the Consumer Expenditure Statistics in 2005. According to the report, the foremost components of spending are on food, housing, apparel and services, transportation, healthcare, entertainment, and personal insurance and pensions. All of these accounts for 90 percent of the overall expenditures. Furthermore, all these factors indicated increases. There is a 2.6 percent increase in food, 9.0 percent for housing, 7.0 percent for transportation, and 7.9 percent for personal insurance and pensions.

In addition, it should be noted that there is a 1.5 percent decrease in spending on food at home but at the same time, spending on food away from home increased by 8.2 percent. Among income groups, food spending increased the most on the highest income earners. The highest income earners showed increases in food spending at home while there is a decrease among the lower-income earners. The consumer expenditure on housing was classified across races.

Housing accounts for the largest percentage of the total spending of consumers. The percentage increase in housing expenditure for the white and the other Asian class increased with the same percentage. On the other hand, black or African-American consumer units indicated a slightly lower increase in housing expenditures. For Asian consumer units, the largest increase in spending can be seen on their household furnishings and equipment.

On the contrary, spending on housekeeping supplies decreased among the Asian and the black or African-American consumers. The Asian and the African-American group indicated the highest increase in spending for utilities, fuels, and public services, and household operations. Spending on apparel and services also increased in 2005. the highest increase can be attributed to spending on men’s and boys’ apparel.

Expenditures for children’s apparel increased less than that of men’s and boys’ but a little higher than the increase in spending for girls’ apparel. Single consumers increased spending on apparel while 2-person consumers (couples) indicated a decrease in spending for apparel. Marketers in the clothing industry must take note of these statistics for them to know whether they are in the right tract of targeting the right market. (U.S Bureau of Labor Statistics, Consumer Expenditures in 2005, February 2007)

The study shows that more people like to eat outside, in restaurants, carry out, catered affairs, or food on out-of-town trips rather than to buy raw food and cook it for their consumption. In addition, the study also shows that companies that are in the housing industry must consider targeting the Asian and/or African-American markets. Another notable finding of the study is that male consumers indicated the highest increase in spending for apparel and the single consumer units also indicated an increase in spending for apparel. Studies like these should be monitored by marketers for them to know the latest consumer behavior of their market.

Lever Brothers, USA

The bar and liquid soap markets seem in boom with nearly $2 billion in sales with a steady increase rate of 3 percent annually. Figures can be deceiving. The soap market has been growing at a relatively slow pace. The industry has become already saturated with a lot of products because the companies fight for the same market shares.

Lever Brothers, a New York unit of the Anglo-Dutch Unilever Group, has been competing with Procter & Gamble in the soap market for 100 years now. Lever used a targeting and positioning strategy for their product, Lever 2000 which was launched in 1991. Their marketing strategy was a major factor in the successful performance of the brand. For the first time, the market share of Lever in the toilet-soap market surpassed Procter & Gamble’s share.

The Lever 2000 brand contributed $113million of sales out of the $1.6 billion total market sales. The brand was the major reason for Lever’s increase in market share. The company targeted the ‘family market’ rather than individually targeting the gender or age-based market. At the same time, it made use of the current trend on antibacterial and mild soap. Lever positioned their product as the “mildest antibacterial soap ever created”, “a soap for 2000 body parts.” They used $25 million in advertising, sampling, and coupons to persuade households that a single soap will be able to answer all their soap needs. They are priced at a premium compared to Ivory and Dove (Reilman, 1992.)

A senior group manager of the personal wash division of the Lever Brothers, USA was quoted saying that consumers today regards moisturizing, deodorizing, and killing germs are the secondary uses of soaps. He said that they have findings that those secondary benefits were becoming more important in the decision-making of the consumers about cleansing products such as soaps (Colwell, 1993).

The success of Lever can be accounted for by their marketing strategy. They introduced a soap that is new to its category. Most other soaps are only variations of other soaps that already exist in the market. This is the essence of studying consumer markets and their behavior. Just like what Lever did, they tried to find out what their consumers value the most in a product, and gave them what they want. The result was, they experienced a significant increase in their market share in the toilet soap industry.

Every company must learn to identify who its target markets are. This is done by analyzing the consumer market based on different factors such as demographics, cultures and subcultures, age, social factors, among others. After doing this, the company can now focus all its marketing effort on its chose target market. If this is done correctly, it can be expected that the company will realize the benefits of targeting a specific market that is higher revenue and more loyal customers.

References

Anschuetz, Ned. (1997). “Building brand popularity: the myth of segmenting to brand success”. Journal of Advertising Research, 37.n1 63(4).

Bowman, C. (2008) “Generic strategies: a substitute for thinking?, 360°” The Ashridge Journal, pp. 6 – 11.

Colwell, Shelley M. (1993). “Soap wars”. Soap/Cosmetics/Chemical Specialties. Web.

Consumer expenditures in 2005. (2007). Report 998. U.S. Bureau of Labor Statistics, U.S. Department of Labor.

Day, George S. (1994). “Continuous Learning about Markets.” California Management Review. 9-31.

Internet Center for Management and Business Administration, Inc. (2002-2007). “Market Segmentation”. Web.

Kotler, P. & Keller, K. (2005). Marketing Management Upper Saddle River, NJ Prentice Hall.

Levitt T. (1974). Marketing for Business Growth, Mc Graw Hill, New York.

Loden, D.J. (1992). “Megabrands”. Business One Irwin. Homewood, Il: 184-5.

Porter, M. (1980). Competitive Strategy: Techniques for Analyzing Industries and Competitors.

Reilman, Valerie. (1992). “Buoyant sales of Lever 2000 soap bring sinking sensation to Procter & Gamble”. The Wall Street Journal, p.B1 & B8.

Ries, A. and Trout, J. (1981). Positioning, The battle for your mind. Warner Books – McGraw-Hill Inc., New York.

Zaichkowsky, Judith Lynne. (1991). “Consumer behavior: yesterday, today, and tomorrow”. Business Horizons 34.n3: 51(8).

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