In respect of what is bought, the value of the market map should now become apparent. We are really talking about the actual structure of markets in the form of volume, value, the physical characteristics of products, place of purchase, frequency of purchase, price paid, and so on.
This tells us, firstly, if there are any groups of products (or outlets, or price categories, etc.) which are growing, static, or declining, i.e. where the opportunities are and where the problems are.
For example, one carpet company whose sales were declining discovered, on analysis, that although the market in total was rising, the particular outlets to which they had traditionally sold were accounting for a declining proportion of total market sales.
Furthermore, demand for higher priced products was falling, as was demand for the particular fibre types manufactured by this company. All this added up to a decline in sales and profitability, and led the company to change its emphasis towards some of the growing sectors of the market.
Definition:䊉 Standard Industrial Classification (SIC) systems are lists of business categories for which most governments keep production statistics. Whilst there are differences between categories, most are compatible for comparison purposes
This is market segmentation at its most elementary level, yet it is surprising to find even today how many companies run apparently sophisticated budgeting systems which are based on little more than crude extrapolations of past sales trends and which leave the marketing strategies implicit. Such systems are usually the ones which cause serious commercial problems when market structures change, as in the case of the carpet company. In this case, the company changed direction too late and went bankrupt.
The same fate befell a shoe manufacturer who doggedly stuck to manufacturing the same products, in the same material, for the same kind of outlets, irrespective of the rapid changes that were taking place in the market.
Secondly, however, apart from telling us how our market works, the market map also gives us a good understanding of the market structure.
Listing what is bought
The next task is to list allrelevant competitive products/services, whether or not you manufacture them, ensuring to unbundle all the components of a purchase so that you arrive at a comprehensive list of ‘what is bought’.
Features to take into account when drawing up your list include:
䊉 Type of product – e.g. cleaners, galvanizers, installed, flat pack, made up, resident engineers, on-call engineers, bundled with a service package, etc.
䊉 Specification – e.g. 100 per cent purity, 98 per cent purity, tolerance levels, percentage failure rate, etc.
䊉 Colour – e.g. red, white, blue, pastel, garish, etc.
䊉 Size of package – e.g. single, multiple family pack, 5 litre, 20 kg, bulk, etc.
䊉 Volume used – e.g. small, medium, large, very large, etc.
䊉 Level/intensity of use – e.g. high, medium, low, etc.
䊉 Type of service – e.g. testing service, technical advice (which is some- times, unintentionally, provided by the sales force), evaluation analysis.
䊉 End-use application – where a single final-user department or individual utilizes your product/service for a number of different end- use applications, these should be listed here. For example, the Office Services department may require cleaning services, but the cleaning requirements of the public areas, general office areas and the manufacturing plant (particularly if the manufacturing process involves precision instruments) could all be different. Another example has been identified in the domestic paint market, where the selection process for paint differs according to the type of room it is being bought for – the buying criteria for gloss in the lounge being different from the buying criteria for gloss in the bedroom.
䊉 Brand – e.g. manufacturer’s, own label, single brand only, any major brand, only local brands, high profile brand.
䊉 Country of origin – e.g. UK, German, French, EEC, Scandinavian, Western European, Eastern European, Japanese, etc.
Analysis of product and purchase characteristics tells us how our market works and gives us a good understanding of the market structure.
䊉 Independent influencers, advisers, consultants (complementing or competing with the technical/advisory services provided by the manufacturers/suppliers) – e.g. specialist publications, consumer publications, accountants, financial advisers, consultants, etc., if they appear at junctions used by buyers at the junction being segmented.
䊉 Type of delivery – e.g. next day (or a listing of the competing products which provide this, e.g. courier, first class), within four hours, collected, automatically triggered via links with inventory control systems, etc.
䊉 Volume of purchase – e.g. large, medium, small (or by a more precise breakdown if appropriate).
䊉 Value of purchase – e.g. high, medium, low (or by a more precise breakdown if appropriate).
䊉 Range of products – e.g. all, single, across the range, those at the top/
middle/bottom of the range, etc.
The resulting list could be as follows:
Lawnmowers – Hover, cylinder, rotary, petrol driven, manual, elec- trically driven, 12⬙ cut, 16⬙ cut, any mower with a branded engine, extended warranty, with after-sales service, etc.
Paints – Emulsion, gloss, non-drip coat, 5 litre cans, 2 litre cans, environmentally friendly, bulk, etc.
Petrol stations – Self-service, forecourt service, with loyalty programme, etc.
As part of this step, and without attempting at this stage to link this step with the earlier step, list all the channels (if appropriate) where the listed range of products/services are bought. Note that this only refers to the products/services supplied/manufactured by you and your competitors: it therefore excludes the sourcing details for independent influencers, advisers, consultants, etc.
The channel list could include:
Direct/mail order, distributor, department store, national chain, regional chain, local independent retailer, tied retailer, supermarket, wholesalers, shed, specialist supplier, street stall, through a buying group, through a buying club, door-to-door, local/high-street/out- of-town shop, etc.
Also, draw up a list which covers the different frequencies of purchase experienced for your own, and your competitors’, products/services.
The purchase frequency list could include:
Daily, weekly, monthly, seasonally, every two years, at 50,000 miles, occasionally, as needed, only in emergencies, degrees of urgency, infrequency, rarely, special events, only during sales, at the bottom of the market, etc.
Next, draw up a further separate list covering the different methods of purchase and, if applicable, the different purchasing organizations and procedures observed in your market.
Examples which may help in drawing up your list include:
䊉 Methods of purchase – credit card, charge card, cash, direct debit, standing order, credit terms, Switch, outright purchase, lease-hire, lease-purchase, negotiated price, sealed bid, etc.
䊉 Purchasing organization – centralized or decentralized; structure and distribution of power in the decision-making unit (DMU), which could be as equally applicable in a household as in a business, e.g. decision to purchase made at one level, with the choice of suitable suppliers able to meet the specification/price, etc. made at a technical level, negotiating of price left to the purchasing department and the final decision left to senior management.
Next, attempt to build a representative model of the market by recording all the unique combinations of ‘what is bought’ and identify for each of these ‘micro-segments’ the different customer character- istics associated with them (‘who buys). An exercise for doing this is provided at the end of this chapter (Exercise 4.6).
This often produces a large number of micro-segments, each of which should have a volume or value figure attached. These can be reduced in number by determining the important features from the unimportant features and by removing anything that is superfluous. A full explanation of this procedure can be found in Market Segmentation: How to do it; How to profit from it by Malcolm McDonald and lan Dunbar (London, Macmillan, 1998), Chapters 4 and 5.
Some preliminary screening at this stage is vital in order to cut this long list down to manageable proportions.
Why they buy
The third stage of analysing customer behaviour is trying to understand why customers behave the way they do, for, surely, if we can explain the behaviour of our customers, we are in a better position to sell to them.
Basically, there are two principal theories of customer behaviour. One theory refers to the rational customer, who seeks to maximize satisfaction or utility. This customer’s behaviour is determined by the utility derived from a purchase at the margin compared with the financial outlay and other opportunities foregone. While such a view of customers provides some important insights into behaviour, it must be remembered that many markets do not work this way at all, there being many examples of a growth in demand with every rise in price.
Another view of customer behaviour which helps to explain this phenomenon is that which describes the psycho-socio customer, whose attitudes and behaviour are affected by family, work, prevailing cultural patterns, reference groups, perceptions, aspirations, and life style.
While such theories also provide useful insights, they rarely explain the totality of customer behaviour. For example, it is interesting to know that opinion leaders are often the first to adopt new ideas and new products, but unless these people can be successfully identified and communicated with, this information is of little practical use to us.
The most useful and practical way of explaining customer behaviour has been found to be benefit segmentation, i.e. the benefits sought by customers when they buy a product. For example, some customers buy products for their functional characteristics (product), for economy (price), for convenience and availability (place), for emotional reasons (promotion), or for a combination of these reasons (a trade-off).
Otherwise, how else can the success of firms like Rolls-Royce, Harrods, and many others be explained? Understanding the benefits sought by customers helps us to organize our marketing mix in the way most likely to appeal to our target market. The importance of product benefits will become clearer in Chapter 5 in our discussion of product management.
‘Customers don’t buy products; they seek to acquire benefits.’ This is the guiding principle of the marketing director of one of America’s more innovative companies in the hair-care business. Behind that statement lies a basic principle of successful marketing. When people purchase products, they are not motivated in the first instance by physical features, or objective attributes of the product, but by the benefit that those attributes bring with them.
Marketing insight
To take an example from industrial marketing, a purchaser of industrial cutting oil is not buying the particular blend of chemicals sold by leading manufacturers of industrial lubricants; rather, he is buying a bundle of benefits which includes the solving of a specific lubrication problem.
The difference between benefits and products is not just a question of semantics. It is crucial to the company seeking success. Every product has its features: size, shape, performance, weight, the material from which it is made, and so on. Many companies fall into the trap of talking to customers about these features, rather than about what those features mean to the customer.
A simple formula to ensure that a benefit-orientated approach is adopted is to use the phrase ‘which means that’ to link a feature to the benefit it brings:
‘Maintenance time has been reduced from four to three hours, which means thatmost costs are reduced by. . .’
‘The engine casing is made of aluminium, which means thatsix more units can be carried on a standard truck load, which means that transport costs are reduced by. . .’
‘The size of the quench tank has been increased by 25 per cent, which means thaton oil purchases alone it is possible to save . . .’
‘The new special bearing has self-aligning symmetrical rollers, which means that the rollers find their own equilibrium, with the load always symmetrically distributed along the length of the roller, which meansan extended life capacity of a year on average.’
The most useful and practical way of explaining customer behaviour has been found to be benefit segmentation.
Benefit analysis
A company must undertake a detailed analysis to determine the full range of benefits they have to offer their customers. This can be done by listing the features of major products, together with what they mean to the customer.