Unit II

Consumer Behavior and CRM

Meaning and features and Factors influencing Consumer Behavior – Theories of
Buying Behavior (Economic theories – Marshallion model, psychological theories,
psycho-analytic theories, socio-cultural theories) – buying decision process - Customer
Relationship Management.
Market Segmentation
Market Segmentation – Bases of Segmenting Consumer Market and Industrial Market –
Target Marketing – Product differentiation – Product Positioning.

Consumer Behavior Meaning, Definition, Nature and Features:

Consumer Behavior Meaning and Definition:
Consumer behavior is the study of how individual customers, groups or organizations select,
buy, use and dispose ideas, goods and services to satisfy their needs and wants. It refers to the
actions of the customers in the market place and the underlying motives of those actions.
According to Engel, Blackwell, and Mansard, ‘Consumer behavior is the actions and decision
processes of people who purchase goods and services for personal consumption’.
Nature and features of Consumer Behavior:
1. Influenced by various factors:
The various factors that influence the consumer behavior are as follows:
a. Marketing factors such as product design, price, promotion, packaging, positioning and dis-
tribution.
b. Personal factors such as age, gender, education and income level.
c. Psychological factors such as buying motives, perception of the product and attitudes towards
the product.
d. Situational factors such as physical surroundings at the time of purchase, social surroundings
and time factor.
e. Social factors such as social status, reference groups and family.
f. Cultural factors, such as religion, social class—caste and sub-castes.
2. Undergoes a constant change:
Consumer behavior is not static. It undergoes a change over a period of time depending on the
nature of products. For example, kids prefer colorful and fancy footwear, but as they grow up as
teenagers and young adults, they prefer trendy footwear, and as middle-aged and senior citizens
they prefer more sober footwear. The change in buying behavior may take place due to several
other factors such as increase in income level, education level and marketing factors.
3. Varies from consumer to consumer:
All consumers do not behave in the same manner. Different consumers behave differently. The
differences in consumer behavior are due to individual factors such as the nature of the
consumers, lifestyle and culture. For example, some consumers are technoholics. They go on a
shopping and spend beyond their means.
They borrow money from friends, relatives, banks, and at times even adopt unethical means to
spend on shopping of advance technologies. But there are other consumers who, despite having
surplus money, do not go even for the regular purchases and avoid use and purchase of advance
technologies.
4. Varies from region to region and country to county:
The consumer behavior varies across states, regions and countries. For example, the behavior of
the urban consumers is different from that of the rural consumers. A good number of rural
consumers are conservative in their buying behaviors.
The rich rural consumers may think twice to spend on luxuries despite having sufficient funds,
whereas the urban consumers may even take bank loans to buy luxury items such as cars and
household appliances. The consumer behavior may also varies across the states, regions and
countries. It may differ depending on the upbringing, lifestyles and level of development.
5. Information on consumer behavior is important to the marketers:
Marketers need to have a good knowledge of the consumer behavior. They need to study the
various factors that influence the consumer behavior of their target customers.
6. Leads to purchase decision:
A positive consumer behavior leads to a purchase decision. A consumer may take the decision of
buying a product on the basis of different buying motives. The purchase decision leads to higher
demand, and the sales of the marketers increase. Therefore, marketers need to influence
consumer behavior to increase their purchases.
7. Varies from product to product:
Consumer behavior is different for different products. There are some consumers who may buy
more quantity of certain items and very low or no quantity of other items. For example,
teenagers may spend heavily on products such as cell phones and branded wears for snob appeal,
but may not spend on general and academic reading. A middle- aged person may spend less on
clothing, but may invest money in savings, insurance schemes, pension schemes, and so on.
8. Improves standard of living:
The buying behavior of the consumers may lead to higher standard of living. The more a person
buys the goods and services, the higher is the standard of living. But if a person spends less on
goods and services, despite having a good income, they deprives themselves of higher standard
of living.
9. Reflects status:
The consumer behavior is not only influenced by the status of a consumer, but it also reflects it.
The consumers who own luxury cars, watches and other items are considered belonging to a
higher status. The luxury items also give a sense of pride to the owners.
Factors influencing Consumer Behavior
FACTORS AFFECTING CONSUMER BEHAVIOUR: The marketers try to understand the
actions of the consumers in the marketplace and the underlying motives for such actions. These
motives are the factors that influence the consumer behavior. These are:
Psychological Factors: The human psychology plays a crucial role in designing the consumers
preferences and likes or dislikes for a particular product and services. Some of the important
psychological factors are:
 Motivation
 Perception
 Learning
 Attitudes and Beliefs
Social Factors: The human beings live in a complex social environment wherein they are
surrounded by several people who have different buying behaviors. Since the man is a social
animal who likes to be acceptable by all tries to imitate the behaviors that are socially
acceptable. Hence, the social factors influence the buying behavior of an individual to a great
extent. Some of the social factors are:
 Family
 Reference Groups
 Roles and Status
Cultural Factors: It is believed that an individual learns the set of values, perceptions,
behaviors, and preferences at a very early stage of his childhood from the people especially, the
family and the other key institutions which were around during his developmental stage. Thus,
the behavioral patterns are developed from the culture where he or she is brought up. Several
cultural factors are:
 Culture
 Subculture
 Social Class
Personal Factors: There are several factors personal to the individuals that influence their
buying decisions. Some of them are:
 Age
 Income
 Occupation
 Lifestyle
Economic Factors: The last but not the least is the economic factors which have a significant
influence on the buying decision of an individual. These are:
 Personal Income
 Family Income
 Income Expectations
 Consumer Credit
 Liquid Assets of the Consumer
 Savings
Theories of Buying Behavior
Economic theories: Here we shall take into consideration four major economic theories dealing
with buyer behavior.
 Marginal Utility Theory
 Indifference Theory
 Income and Savings Theory
 Raising Income Theory
Marginal Utility Theory: This theory was developed by classical economists. According to
them, a consumer will continue to buy such products that will deliver him the most utility or
maximum satisfaction at relative prices. He continues buying and consuming a product so long
the total satisfaction increases thus he avoids dissatisfaction. How a consumer calculates his total
satisfaction?
As a customer you will buy a good because you feel it gives you satisfaction or utility. A first
unit of a good gives you certain amount of psychological utility or satisfaction. Now imagine
consuming a second unit. Your total utility goes up because the second unit of the good gives
you some additional utility.
What about adding a third and fourth unit of the same good? as you consume more of the same
good, your total (psychological) utility increases. However, let us use the term marginal utility to
refer to the extra utility added by one extra last unit of a good. Then, with successive new units
of the good, your total utility will grow at a slower and slower rate because of a fundamental
tendency for your psychological ability to appreciate more of the good to become less keen.
Indifference Theory
Indifference theory states that consumers form preferences for some combination of products
over others. It also states that they (consumers) remain indifferent to some other combinations.
The combinations of products that consumers view indifferently may be plotted on a graph
which will give some points. If joined, these points will give us a curve termed as an
indifference curve. All of the combinations of products that will fall right to or above the
indifference curve will definitely be considered more satisfactory by the consumers, and as a
result they will undertake activities to buy and consume those. The combinations of products
that will fall left to or below the indifference curve will be viewed negatively as they are
considered less satisfactory than the combinations falling on or above the indifference curve.
Consumers as a result, will try to avoid buying and consuming products of these combinations
(that fall below the indifference curve).
The lesson that marketers may take from this theory is that, they should do their best to produce
and offer products in such a way that are considered falling above the indifference curve. If
viewed so, chances are that they will sell better than competing products.
Income and Savings Theory
This theory is based on the fact that purchasing power is the real determinant of buying.
Purchasing power, on the other hand, is dependent on disposable income, i.e., income left after
payment of tax and savings. To facilitate how people allocate changes in their total income
between spending and saving, there are two concepts as given by the economists:
 The marginal propensity to consume, and
 The marginal propensity to save.
The marketers are interested in examining the effect or changes in income on spending and
saving as this will have direct bearing on buying habits. The theory states that personal
consumption spending tends both to rise and fall at a slower rate than does the disposable
income. In certain situations, spending rises faster than income and, at certain other times, a
higher proportion may be saved. Though the theory does not explain consumer behavior in
specific terms, the concept is used in planning and analysis of demand.
Rising Income Theory
The rising income theory was given the present shape by Ernst Engel. This theory states that,
consumer spending pattern changes with the change in his income. As income increases,
expenditures on most items are likely to increase. But, the increases do not follow the same
pattern. According to Engel, as income rises, percentage spent on food tends to decline, and
percentage spent on housing and furniture tends to stay constant. He however, noted that
percentage of income spent on luxuries and savings tends to increase.
2. Marshallian Model:
This model is based on the assumption that consumers have complete knowledge of their wants
and of all available means to satisfy them. This model is based on the law of diminishing
marginal utility. This model states that expenditures vary directly with income (price effect);
lesser the price of the substitute product, lesser will be the utility of the product first bought
(substitution effect); and more quantity will be purchased when a person’s income is increased
(income effect).
The main criticism of this model is that it assumes the homogeneity of the market and similarity
of buyer behavior. It ignores the aspects such as motivation, perception, learning, attitude and
socio cultural factors.
3. Psychological Model: It is based on the famous psychologist A.H.Maslow’s theory of
hierarchy of needs.
Psychoanalytic theory: Freud’s psychoanalytic theory explains three major concepts such as
ID, ego, and superego. ID can be understood as the submarine of an iceberg. It is the
unconscious mind of a person to avoid tension and looking for pleasure. Ego is the conscious
mind that is operating the reality principle. Lastly, superego is the moral and ethical behavior
part of a human’s mind. It limits the ID’s desires.
a. ID: Driven by pleasure principle, which strives for immediate gratification of all desires,
wants and needs.
Ex: Kids
b. The EGO: Conscious, deals with reality.
Operates on the reality principle, which strives to satisfy the Id’s desires in realistic and socially
appropriate ways
c. The Super EGO:
1. The conscience includes information about things that are viewed as bad
2. The Ego ideal includes the rules and standards for behaviors.
The Marketers focus on all the three concepts.
Socio – Cultural Theory (Veblenian):
Also called the veblenian model, it labels man as a social animal whose wants and behaviour are
shaped by his peer group. Regardless of personal preferences, people tend to blend in a society.
The consumer culture theory is a family of theoretical perspectives based on the study of
consumption choices and behaviours, not from the traditional economic or psychological point
of view, but on the social and cultural side of things which address the dynamic relationships
between consumer actions, the marketplace, and cultural meanings.
It examines how emotions, attitudes and preferences affect buying behaviour. Some of the social
factors include reference groups, immediate family members and relatives' role and status in the
society, whereas the cultural influence plays on nothing but values of an individual. The values
he/she learns from their parents and relatives as a child becomes his/her culture.
Traditionally, consumer behaviour theories emerged from different psychological,
anthropological and economic theories as marketers applied them to understand consumer
wants. The Psychoanalytic theory classifies human psyche into three dimensions:
1. Id,
2. Ego, and
 3. Superego.
These dimensions drive consumer buying behaviour (Arunadevi, 2016). On the other hand,
the Pavlovian theory of consumer behaviour focuses on drive, cues, reinforcement and
motive which determines consumer purchase decisions. However, both of the theories lack
generalisability as they overlook the social legacy factor for niche customers.
The Veblenian socio-psychological model states that consumers’ social and cultural
backgrounds are important determinants of their buying behaviour. According to Veblen,
consumer purchases are driven primarily by their need to maintain a social class and prestige
rather than intrinsic needs. There are six important factors in this model:
a) Social class,
b) Level of income,
c) Culture,
d) Sub-culture,
e) Family and,
f) The reference group.
Veblenian socio-psychological model:
Thorsten Veblen had researched about the complexities of consumer behaviour in his
research article on the leisure class (Jain, et al., 2017). The model helps marketers follow the
demographic and behavioural pattern of customers to meet their expectations in online
product or service offerings. The main purpose of the model is to assess the choice and
preference of customers for delivering the product in that dimension (Yoo & Park, 2016).
Studying and applying the factors of this model helps businesses to determine trends and
preferences for enhancing profitability.
Social class
Social class refers to the division of society based on social and economic status
(Woodward, 2003). Numerous studies have found that people from different social classes
have different preferences, desires and purchasing patterns. This is due to their difference in
purchasing power. Therefore most marketing efforts are tailored to suit the needs of different
social classes. Today, people from all classes of society are making use of online shopping.
For instance, for a long time, Prada, the luxury fashion brand refused to sell its products
online. It insisted that since it was an elite brand, selling online would diminish its social
class.
However, it succumbed to the growing trend of online shopping particularly in countries
such as China and India and launched its online shop in 2018. Six months following the
launch, Prada’s profits rose considerably. Prompted by this change, Prada recently revealed
plans to launch more product categories online and sell more through social media activities
(The Fashion Law, 2018).
Level of income
Consumers’ willingness to explore the internet and make online purchases also depends on
their level of income (Akman & Rehan, 2014; Hernández, Jiménez, & Martín, 2011).
For instance, income influences customers’ preference regarding the mode of payment
(Bhatt, 2014).
Moreover, higher-income groups are shopping online more than the lower-income group.
They also have more hesitation towards payment security. Lastly, people belonging to higher
income groups will shop for expensive items more frequently than those from lower-income
groups (A Upasana, Kumar, & Gupta, 2015). There are several tools available today which
help e-commerce businesses to target different income groups.
For example, Facebook’s ad tool enables marketers to define its target segment as per the
type of phone they own, how frequently they travel abroad, small business owned, residents
of housing communities, or restaurant lovers (Poleschuk, 2018).
Such tools are specifically used by luxury e-commerce website such as Elitify.com to sell
products online.
 Culture & subculture
Culture has a deep influence on consumer buying behaviour. It consist s of various features
such as religion, nationality, geographical location, racial groups and ethnicity. Since culture
is dynamic, marketers need to analyse it continuously to target consumers appropriately.
Sub-culture also plays a crucial role in assessing the patterns of online buying behaviour.
For instance, the food delivery app Zomato have started using the tag ‘Halal’ for delivery of
non-vegetarian meals in India.
This is one way of targeting and segmenting the customers who believe that Halal meats are
safer to consume as it meets Muslim religious beliefs. Using the tags clearly entails and
segments the population into two:
1. the ones who do not want to consume Halal and,
2. the one who wants Halal.
Influence of Socio-Cultural Environment on Marketing
The socio-cultural environment is made up of institutions and other forces that affect a society’s
basic values, perceptions, preferences, and behaviors. Socio-cultural forces usually influence the
welfare of a business firm in the long-run. With ever changing society the new demands are
created and old ones are lost in due course. Thus necessary adjustments are to be made in
the marketing plan to meet the need need/wants of the target market. The socio-cultural factors
that contribute to a change are;
 Demographics
 Cultural Influences
 Environmental issues
 Animal Welfare
 Social influences
Social and cultural factors influence all aspects of consumer and buyer behavior. The difference
between these factors in different parts of the world can be a central consideration in developing
and implanting international marketing strategies. Social and cultural forces are often linked
together whilst meaningful distinctions between social and cultural factors can be made in many
ways by the way the two interact and the distinction between the various factors is not clear cut.
Differences in languages can alter the intended meaning of a promotional campaign and
differences in the way a culture organizes itself socially may affect the way a product is
positioned in the market and the benefits a consumer may seek from that product. A sewing
machine in one culture may be seen as a useful hobby but in another culture a sewing machine
may be necessary to the survival of a family.
Kotler (2003) included such things as reference groups, family roles and status within social
factors. Whilst this is a useful distinction from the broader forces of culture, social class and
social factors are clearly influenced by cultural factors. Take the example of the family which is
an important medium of transmitting cultural values. Children learn about their society and
culture through many means but the family influence is strong particularly during the early years
of a Child’s life. Moreover, the arrangement of family life varies considerably from one culture
to another.
Demographics should be an essential element of marketing. However, in today’s media too
much marketing attention is given to the younger age groups. The concentration in this area
places the organizations they represent in a situation of missing out on some of the most affluent
consumer demographics, namely those who are 45 plus.
Whilst it is important for an organization to target a demographic market if it has products
dedicated to that group, the marketer also needs to bear in mind where the concentration of
disposable income is and, in addition, the size of other consumer demographic segments. For
example, a significant proportion of individuals over the age of 50 can be the key deciders of
spending’s.
In context to socio cultural environment, we have number of different factors that affect
marketing and cause periodical change in marketing techniques. We will discuss here some of
them which have the major influence.
1. Demographics:
Demographics include those characteristics of a human population which are used in
government, marketing or opinion research. Marketing researchers should typically have two
objectives in this regard: first to determine what segments or subgroups exist in the overall
population; and secondly to create a clear and complete picture of the characteristics of a typical
member of each of these segments. These segments help to develop a marketing plan the most
important types of demographics in marketing are age, gender, income level, occupation, race
and ethnicity.
Let’s have an example to understand the importance of demographic profile. If we talk about
Nokia mobile phones, the market plan of the brand is based on different factors; one is income
level of people. Age is another factor which tended to introduce energy drinks for children and
youngsters. Some products are gender specified. Some other products are specific to family size.
So there is need of a marketer to consider all these factors to plan a successful market strategy.
2. Cultural Influences:
Culture represents the living style of the people of a specific area, the buying behavior, the taste,
the class of people to which they belong; the psychographics and the aesthetics of the
population. Cultural changes account for people’s core beliefs or values. People’s view of
themselves, others, society, organizations, nature, and the universe all play a part in shaping
one’s culture as well as influences his behavior. Companies need to consider these factors while
working in the market place. When a company decides to launch a product, it must keep in mind
what is the product and what the target population should be. Target population is chosen on the
basis of these cultural influences as well as their demographic impact. A company must know
whether it is going to launch the product for middle class or elite class? Whether such kind of
products is already running in the market? What is the taste of people? What is their purchasing
behavior? Whether they can be regular customer or not? A lot of such questions should be
satisfied first and these all are necessary to launch a successful product.
For example, if we consider a daily product like shampoo; we see Dove, Pantene, Head &
Shoulder, Sun Silk, Life buoy, etc. all these are shampoos but made for different categories of
customers. Dove and Pantene for elite class, H & S and Sun silk for middle class and life buoy
for lower class. Different tea brands hit different classes. Education is also a variable for shaping
up decision making process. For example, a black berry mobile phone is useless for an illiterate
person. So a marketer must keep in mind the cultural factor to adopt a wise market plan.
3. Environmental Issues:
Environmental issues play an important role in the marketing of an organization. For a
multinational these factors have more influence on the marketing as for an instance we take a
refrigerator that has been marketed in the UK where the weather is not that hot as compared to
the weather in UAE so if the the company launches the same product in the new market the
product will fail as the defrost system that work in the UK will fail to operate in UAE.
4. Economic Factors:
Economic factors have always influenced consumer purchasing. From the time of the “Great
Depression” to the recent time, America has seen how radically the economy can be affected. It
is important for companies to devise strategies in accordance with the economic trends to save
themselves from losses. For multinational companies it is crucial to consider economic
conditions of a country where it is going to sell its product. And in a local market, a seller must
know the income level, inflation rate, purchasing power of the people, etc. so that he can make a
suitable product for sale.
5. Government and Political Factors:
The Political environment consists of laws, regulations, and government policies that may
influence or limit various companies or organizations in the market. The government regulates
markets by putting limits on companies which ensures that we have a free and fair market.
Where all the products provide good value for money and also government legislations imposes
different type of rules and regulations for the business to market and position their product. For
example Animal Welfare. For a long time legislation has been the commonest way of protecting
farm animal welfare but more recently growing consumer demand both for quality food products
and more ethical food production has meant that farm animal welfare is emerging as an area of
potential added value for producers, retailers and other food chain actors.
6. Technological Factors:
New technology creates new markets and new opportunities for businesses. It is important for all
businesses, whether old or new, to have state of the art technology. Companies that do not adapt
soon there products become obsolete. New technology can change the demand for a product,
render current manufacturing processes obsolete, and reduce costs to undercut competitors,
produce new products and a host of other possibilities.
7. Social Influences:
Population can he divided in to groups on the basis of similar hobbies opinions and activities,
population in the UK can be subdivided into to two groups depending on the lifestyles; there is a
group that has an attractive lifestyle and the other that is striving to fit in.
So the differences in social class can create customer groups. In fact, the official six social
classes in the UK are commonly used to foresee different customer behavior. In the UK’s
socioeconomic classification scheme, social class is not just determined by income. It is
measured as a combination of occupation, income, education, wealth and other variables,
Marketing has to track down any changes in the need and wants of the groups which may point
to decrease or increase in demand for a new product, this concept leads to product innovation for
example a cultural change towards greater concern for health and fitness has created new
opportunities for low calorie foods, exercise equipment and health clubs.
Conclusion
From the above analysis, it can be realized that the impact of socio cultural elements is so strong
that a marketer cannot pass by it. The deeper he takes interest in these factors, the better the
market plan will be. Marketer needs to determine those demographic, geographic and other
macro environment factors that influence his product and should incorporate these while
devising strategies. No strategy can be successful and long-term if these factors are ignored.
Similarly, the other marketing mix elements like pricing, distribution, after sale service, etc. also
needs to be based on these socio-cultural factors. An important fact is that seller not only needs
to market his products but also to sustain it in market. For sustaining in market, seller and
marketer should be up-to-date with the changing business environment and should adapt
accordingly. All the effort is for the customers, then why not it be the products of customer
choice which can be made possible only by knowing the customer in a better way.
Buying Decision Process:
Because organizational decisions typically involve more individuals in more complex
decision tasks than household or individual decisions, marketing efforts to affect this process are
much more complex. There are different stages in the decision-making process from problem
recognition to post purchase performance evaluation. Let’s discuss these stages one by one.
1. Problem Recognition: Like any other decision-making process, the first stage of the
organizational buying decision process involves problem recognition, where one or more
persons recognize a problem. It may occur under a variety of circumstances. For example, the
sales manager and office manager of an office play a key role in recognizing the need to add
computers to their office. Recognition of this problem, however, can come up in several ways. In
this particular instance, a continuing problem between field sales agents and internal
administrative staff may lead the office manager and sales manager to recognize the problem.
The continuation of these sources of influence eventually leads to an increased level of
importance and the subsequent stage of information search.
 2. Information Search: Information search can be both formal and informal. Site visits
to evaluate a potential vendor, laboratory tests of a new product or prototype, and investigation
of possible product specifications are part of formal information search. Informal information
search can occur during discussions with sales representatives, while attending trade shows, or
reading industry specific journals. Business buyers search for information both to help make the
best decision and to support their actions and recommendations within the organization.
3. Evaluation and Selection: The evaluation of possible suppliers and selection of a
supplier often follows a two-stage decision process. The first stage is making the buyer’s
approved suppliers list. In this case, a conjunctive decision process is very common. Using this
kind of process, the organizations screen out potential suppliers that do not meet all its criteria.
A second stage of organizational decision making could involve other decision rules such
as disjunctive and lexicographic etc. In the disjunctive decision rule, a minimum level of
performance for each important attribute is established. All brands that surpass the performance
for any key attribute are considered acceptable. The lexicographic decision rule requires the
business buyer to rank the criteria in order of importance. The buyer then selects the
supplier/product that performs best on the most important attribute. If two or more brands tie on
this attribute, they are evaluated on the second most important attribute. This process is further
complicated by the fact that different members of the decision-making unit have different
evaluation criteria.
4. Purchase and Decision Implementation: Once the decision to buy from a particular
organization has been made, the method of purchase must be determined. From the seller’s point
of view, it means how and when they will get paid. In many cases, payment is not made until
delivery. Others involve progress payments. For a construction or builders’ firm that takes years,
the method of payment is critical. On international basis, purchase implementation and method
of payment are even more critical.

5. Post purchase performance evaluation: In the final stage of business buying division
process, the new product’s performance is evaluated. The product’s actual performance is
compared to specifications and necessary adjustments are made of the product that does not
function as per expectations, the organization can ask the supplier to replace it. At the same time,
the supplier’s performance is also evaluated. If it is found to be unacceptable, the buyer will seek
corrective action from the supplier or he will search out for a new supplier.
Market Segmentation:
Market segmentation is the process of dividing up mass markets into groups or segments with
similar needs and wants. The rationale for market segmentation is
that in order to achieve competitive advantage and superior performance, firms should:
1. Identify segments of industry demand,
2. Target specific segments of demand, and
3. Develop specific 'marketing mixes' for each targeted market segment.

Customer Relationship Management (CRM): Tools, Types, Features, and Benefits

Understanding Customer Relationship Management (CRM)
The buyer’s journey has evolved through the years and running a business today has become
more complex than ever.
Business owners and salespeople must keep in touch with their customers, follow-up with
prospects, identify upselling and cross-selling opportunities, and initiate customer retention
programs while ensuring that the company revenue continues to increase.
CRM enables business owners and salespeople by helping them streamline the sales process,
improve interdepartmental collaboration, and maintain business relationships.
Customer relationship management (CRM) refers to the principles, practices, and
guidelines that an organization follows when interacting with its customers.
Definition: “Customer Relationship Management (CRM) is often referred to as a process,
strategy, or software/technology that enables organizations to manage relationships with their
customers, vendors, and suppliers.”
From the organization's point of view, this entire relationship encompasses direct interactions
with customers, such as sales and service-related processes, forecasting, and the analysis of
customer trends and behaviours. Ultimately, CRM serves to enhance the customer's overall
experience.
 Customer relationship management includes the principles, practices, and guidelines an
organization follows when interacting with its customers.
 CRM is often used to refer to technology companies and systems that help manage
external interactions with customers.
 Major areas of growth in CRM technology include software, cloud computing, and
artificial intelligence.
 Elements of CRM range from a company's website and emails to mass mailings and
telephone calls. Social media is one-way companies adapt to trends that benefit their
bottom line.
 The entire point of CRM is to build positive experiences with customers to keep them
coming back so that a company can create a growing base of returning customers.
 Increasingly, the term CRM is being used to refer to the technology systems companies
can engage to manage their external interactions with customers at all points during the
customer lifecycle, from discovery to education, purchase, and post-purchase.
 Five of the largest players in the CRM market today include cloud computing giant
Salesforce, Microsoft, SAP, Oracle, and Adobe Systems.
 CRM includes all aspects in which a company interacts with customers, but more
commonly refers to the technology used to manage these relationships.
 CRM technology is widely cited as the fastest-growing enterprise-software category,
which largely encompasses the broader software-as-a-service (SaaS) market.
CRM Technology
a. CRM Software
Special CRM software aggregates customer information in one place to give businesses easy
access to data, such as contact data, purchase history, and any previous contact with customer
service representatives.
This data helps employees interact with clients, anticipate customer needs, recognize customer
updates, and track performance goals when it comes to sales.
CRM software's main purpose is to make interactions more efficient and productive.
Automated procedures within a CRM module include sending sales team marketing materials
based on a customer's selection of a product or service.
Programs also assess a customer's needs to reduce the time it takes to fulfill a request.
b. CRM Cloud Solutions
Cloud-based systems provide real-time data to sales agents at the office and in the field as long
as a computer, smartphone, laptop or tablet connects to the internet. Such systems boast
heightened accessibility to customer information and eliminate the sometimes-complicated
installation process involved with other CRM products or software.
The convenience of this type of system, however, has a trade-off. If a company goes out of
business or faces an acquisition, access to customer information may become compromised. A
business might have compatibility issues when and if it migrates to a different vendor for this
kind of software. Also, cloud-based CRM programs typically cost more than in-house
programs.
c. CRM Human Management and Artificial Intelligence
All of the computer software in the world to help with CRM means nothing without proper
management and decision-making from humans. Plus, the best programs organize data in a way
that humans can interpret readily and use to their advantage. For successful CRM, companies
must learn to discern useful information and superfluous data and must weed out any duplicate
and incomplete records that may give employees inaccurate information about customers.
Despite this human need, industry analysts are increasingly discussing the impact that artificial
intelligence applications may have on CRM management and the CRM market in the near
future. AI is expected to strengthen CRM activities by speeding up sales cycles, optimizing
pricing and distribution logistics, lowering costs of support calls, increasing resolution rates,
and preventing loss through fraud detection.
Tangible AI applications for CRM, however, are in the early stages of adoption, although
Salesforce and Microsoft have already started to integrate AI components into their existing
CRM systems.
Industry research estimates that the CRM market was valued at $52.4 billion in 2021, and will
grow at an average annualized growth rate of 13.3% through 2030.
A CRM software system performs the following activities:
1. Collects customer data from multiple sources and applications and stores it in a
centralized location
2. Automates repetitive sales, marketing, and customer service processes
3. Tracks prospects and customers through their purchase journey
4. Identifies upselling and cross-selling opportunities
5. Promotes interdepartmental collaboration
Types of CRM Software:
Holistically, we can segregate CRM tools in two categories, viz.
1. Based on installation/implementation
2. Based on functionality
Let’s look at each of them in brief:
1. CRM Software Based on the Type of Installation
We can further segregate this type of category into two types:
1. On-premise CRM Software: Companies that handle sensitive customer
information such as financial or healthcare institutions prefer on-
premise CRM software. These systems incur a hefty upfront investment as it
includes infrastructure as well as software development costs.
These CRM systems are rigid in terms of functionality as adding a new feature is
often expensive. Further, the organization itself must take care of data
maintenance, security, and disaster recovery plans. Organizations can outsource
these services to a third-party vendor, but they incur additional costs depending on
your requirements.
2. Cloud-based CRM Software: A business can use web-based/cloud CRM at a
monthly recurring cost.
Compared to on-premise CRMs, cloud CRMs are more flexible and budget-
friendly as these CRMs are device-agnostic, and the service provider offers
maintenance and data security.
These CRMs take a one-size-fits-all approach. Therefore, customizations may not
always be possible. And since your data is stored at the vendor’s servers, you are at
the mercy of the vendor in case of a server outage.
2. CRM Software Based on Functionality
There are three types of CRM tools based on their functionality:
1. Operational CRM: These CRMs help businesses run their routine sales,
marketing, and customer service operations. An operational CRM system enables
you to track the customer journey through activities such as contact management,
lead generation, lead scoring, and marketing automation Opens a new window.
2. Analytical CRM: Analytical CRMs collect and analyze heaps of customer data
and help businesses make data-driven decisions. These CRMs offer data
 management, customer acquisition, and retention activities through data mining,
sales forecasting, conversion attribution, etc.
3. Collaborative CRM: Collaborative/strategic CRM software enables organizations
to share customer data across internal departments and external stakeholders
(vendors, partners, etc.) to enhance Customer Experience (CX). While operational
and analytical CRMs are also capable of information sharing,
collaborative CRMs emphasize, particularly on the CX aspect.
The Essential CRM Glossary:
Before we delve further into CRM, let’s understand the meaning of commonly used terms in
the CRM realm. You may not come across all the terms mentioned here in this article, but it’s
worth to know these terms as you continue to learn about CRM:
1. 360-degree Customer View: This is an exhaustive view of a customer, including
their contact details, past communication, campaign history, and other pertinent
information.
2. Automation: Sales and marketing activities such as email campaigns, contact
management, activity tracking, etc. that can be constantly monitored by the system.
3. Contact: An entry that stores an entity’s name, email address, phone number,
physical address, and other information. The entity could be a customer, prospect,
company, partner, or a vendor.
4. Contact Management: It refers to organizing, updating and storing contact
information in the CRM software.
5. Dashboard: It’s the landing page when a user logs into the CRM software. The
dashboard displays crucial analytics information and sales data and navigation
options.
6. Deal: Also known as an opportunity, a deal is a potential sale that has moved to
the last stage of the sales funnel.
7. Integrations: This is a feature that lets you connect the CRM software with other
software applications in your MarTech stack to enable seamless data import and
export. For example, you can integrate your CRM system with a Marketing
Automation Platform (MAP) Opens a new window, social media management
tool, etc. to get a holistic picture of the customer.
8. Lead: A lead has expressed their interest in your offerings. Leads are generally at
the first stage of the sales funnel.
9. Lead Conversion: Lead conversion signifies the conversion of a lead into a
customer
10. Lead Management: Lead management/nurturing activities help users stay in
touch with leads to ensure that they don’t drop-off from the sales funnel.
11. Pipeline: Sometimes referred to as a funnel, a pipeline shows various stages of the
purchase journey. A pipeline is generally divided into four stages, viz. lead
generation, qualification, proposal, and sale.
12. Prospect: A prospect is a sales-ready lead that is interested in your product and
can purchase it.
Essential CRM Features
Choosing a CRM system can be confusing because not all CRMs are the same, and each offers
vastly different features compared to its contemporaries. So, if you’re looking to buy a CRM, but
can’t decide, this section will help you understand the eight essential features you need in
a. CRM software.
All the essential information related to a lead/customer’s contact such as their name, email
address, phone number, work details, past communications, etc. should be easily accessible and
modifiable.
b. Lead Management
Keeping track of leads can often be tedious if you’re still relying on spreadsheets or other
incompatible tools. The lead management Opens a new window feature gives you an overview
of your leads with their status, lead score, etc. By clicking on an entry, you can view their
profile, recent activities on your website, prior communication, complaints, and so on.
c. Pipeline Management
The pipeline management feature gives you a visual representation of your current leads and
deals. The deals are segregated according to the stage of the sales pipeline. This makes it easy
for salespeople to understand the status of each lead and helps them decide which leads to
pursue.
d. Sales Automation
The sales department is possibly already taxed with too much work. The addition of repetitive
administrative tasks such as sending invoices or following-up with a cold lead can negatively
impact their productivity.
With the sales automation feature, salespeople can automate repetitive tasks so that they can
focus on hitting the sales target. Automation workflows are initialized based on triggers or rules.
For example, if a lead hasn’t replied after three days, the follow-up workflow will be activated
wherein a reminder email will be automatically sent to the contact.
e. Sales Forecasting
A CRM tool processes tons of data daily. The sales forecasting feature uses this data to predict
future sales. This way, salespeople can get an approximate understanding of their pipeline and
how efficiently they can push sales. Salespeople can effectively use this information and convert
hot leads.
f. File Storage and Sharing
Rather than relying on external file storage applications, salespeople can store important and
frequently required files such as quotes, feature sheets, sales scripts, etc. in a centralized
repository and share them with co-workers instantly.
g. Email Management
You can integrate your email with CRM so that you don’t have to jump between multiple tabs to
send an email. With the email management feature, you can send emails right from
the CRM interface, mark the status of the lead, mention a remark, and prioritize emails. This
way, you won’t miss out on connecting with any of your leads.
h. Reporting and Analytics
This feature summarizes sales performance in a single dashboard. You can customize or create
new types of reports based on your requirements and export them in different formats.
Benefits of a CRM
Here are the five benefits of implementing CRM software at your organization.
1. De-silos Customer Facing Departments
An organization can be customer-centric when its customer facing departments work together.
As you can integrate your MAP and customer support software with CRM, it promotes
interdepartmental collaboration and allows organizations to serve their customers better.
2. Improves Communication with Customers
As you track each lead through the different stages of the sales pipeline, you can deliver the right
message at the right time.
3. Brings Efficiency through Automation
From the time a lead fills-in a form to following-up with them, everything is automated. Also,
since the data is fetched automatically from multiple sources, there’s no need to invest time
manually entering data. Salespeople can focus on what matters the most — closing more deals.
4. Helps Make Data-driven Decisions
As all customer data is centralized in one place along with sales analytics, the sales team can
accurately identify their prospects’ needs and understand what is working and what’s not. Armed
with this knowledge, sales teams can make decisions backed by actionable data.
5. Boosts Revenue
A 360-degree view of customers enables organizations to understand their requirements. Using
this information, organizations can introduce upselling, cross-selling, and customer retention
programs.
Types of CRM
Today, many comprehensive CRM platforms integrate all parts of the customer relationship the
business may have. However, some CRMs are still designed to target a specific aspect of it:
 Sales CRM: to drive sales and increase the pipeline of new customers and prospects.
Emphasis is placed on the sales cycle from tracking leads to closing deals.
 Marketing CRM: to build, automate, and track marketing campaigns (especially online
or via email), including identifying targeted customer segments. These CRMs provide
real-time statistics and can use A/B testing to optimize strategies.
 Service CRM: integrated dedicated customer service support with sales and marketing.
Often features multiple contact points including responsive online chat, mobile, email,
and social media.
 Collaborative CRM: encourages the sharing of customer data across business segments
and among teams to improve efficiency and communication and work seamlessly
together.
 Small Business CRM: optimized for smaller businesses with fewer customers to give
those customers the best possible experience. These systems are often much simpler,
intuitive, and less expensive to implement than enterprise CRM.
Market Segmentation:
Market Segmentation- Meaning:
Market segmentation is a marketing term that refers to aggregating prospective buyers into
groups or segments with common needs and who respond similarly to a marketing action.
Market segmentation enables companies to target different categories of consumers who
perceive the full value of certain products and services differently from one another.
Market segmentation is a process that consists of sectioning the target market into smaller
groups that share similar characteristics, such as age, income, personality traits, behavior,
interests, needs, or location.
 Market segmentation seeks to identify targeted groups of consumers to tailor products
and branding in a way that is attractive to the group.
 Markets can be segmented in several ways such as geographically, demographically, or
behaviorally.
 Market segmentation helps companies minimize risk by figuring out which products are
the most likely to earn a share of a target market and the best ways to market and deliver
those products to the market.
 With risk minimized and clarity about the marketing and delivery of a product
heightened, a company can then focus its resources on efforts likely to be the most
profitable.
 Market segmentation can also increase a company's demographic reach and may help
the company discover products or services they hadn't previously considered.
Understanding Market Segmentation:
Companies can generally use three criteria to identify different market segments:
1. Homogeneity, or common needs within a segment
2. Distinction, or being unique from other groups
3. Reaction, or a similar response to the market
For example, an athletic footwear company might have market segments for basketball players
and long-distance runners. As distinct groups, basketball players and long-distance runners
respond to very different advertisements. Understanding these different market segments
enables the athletic footwear company to market its branding appropriately.
Market segmentation is an extension of market research that seeks to identify targeted groups of
consumers to tailor products and branding in a way that is attractive to the group. The objective
of market segmentation is to minimize risk by determining which products have the best
chances of gaining a share of a target market and determining the best way to deliver the
products to the market. This allows the company to increase its overall efficiency by focusing
limited resources on efforts that produce the best return on investment (ROI).
Market segmentation allows a company to increase its overall efficiency by focusing limited
resources on efforts that produce the best return on investment (ROI).
Characteristics of good segmentation
 Choosing the right segmentation type should ensure that the segments are relevant,
accessible, measurable, profitable, and easy to use.
 Different types of segmentation don’t meet these requirements in the same way.
Sociodemographic criteria make it easier to get measurable segments than psychographic
criteria.
 Multi-criteria segmentations usually lead to a quantitative and objective description of
the segment.
 In contrast, criteria can lead to a qualitative description of the segment that is richer and
more relevant but harder to measure.
Objectives of market segmentation
The primary objective of market segmentation is
1. Identify targeted groups of consumers
The main objective of market segmentation is to identify targeted groups of consumers and
group them in several ways, such as geographically, demographically, or behaviorally, so that
products and services can be made to appeal to those specific groups.
2. Introduce the product according to the needs of the consumers
Creating successful products is one of the main objectives of organizations and one of the
reasons why they conduct a market segment. This allows to add the right features to the product
and will also help reduce costs to meet the needs of the target audience.
One objective of market segmentation can be to figure out what features to add to a product.
When you divide your market into groups of customers who are similar, you can figure out what
each group needs. If the group is big enough and you can meet their needs with an extra feature,
it makes sense to go ahead and make a product that is more appealing to that segment of the
market.
3. Allocating a marketing budget
Market segmentation helps marketers decide how much money to spend on advertising. This
budget helps marketers set up and plan their marketing strategies. They can also decide how to
spend their money based on how well the product does.
4. Better service
The objective of market segmentation is to make services better. Therefore, if the market is
segmented, the marketer can focus on all the resources, tools, skills, and techniques to improve
the organization’s service.
5. Market specialization
Continuous and steady service in the different markets gives a full understanding of the market.
As a result, the organization’s products and policies become more customer-friendly.
6. Spot marketing opportunities
In addition to expanding a company’s demographic reach, market segmentation can help
businesses discover products or services they had not previously considered.
7. Price: Another market segmentation objective is establishing the right price for your products.
Identifying which is the public that will be willing to pay for it.
8. Promotion: It helps you target each segment’s members and select them in different
categories so that you can direct your strategies appropriately.
9. Place: The ultimate goal of segmentation is to decide how you offer a product to each group
of consumers and make it pleasant to them.
Basis for Market Segmentation: There is an excess of ways to segment the market in order to
reach the most ideal consumers for certain products or services. Some of these include
geographic segmentation, demographic segmentation, psychographic segmentation, and
behavioral segmentation.
Advantages of market segmentation
Knowing what market segmentation is and the benefits it has for your organization will help you
implement it correctly. Here are some of its advantages:
 Create stronger marketing messages: When you know who you are targeting, you can
create strong, personalized messages that respond to the needs and wants of your target
audience.
 Find the ideal marketing strategies: You may not know which the right strategy to
attract the ideal audience is. It allows you to know the audience, create a plan that will
work successfully, and determine better solutions and methods to reach them.
 Design-targeted advertising: Market segmentation allows you to target your advertising
to the audience successfully and effectively, knowing their age, location, buying habits,
interests, etc.
 Attract potential customers: By sending direct and clear marketing messages, you
attract the right audience and are more likely to convert them into buyers.
 Differentiate your brand from the competition: By creating messages specific to your
value proposition, you can stand out from the competition. Segmentation allows you to
differentiate your brand by focusing on specific customer needs and characteristics.
 Identify your niche market: It helps you discover your niche market. Identify the niche
with the broadest audience and whether it has needs that your brand can effectively
address.
 Focus your efforts: This allows you to identify new marketing opportunities and avoid
distractions that take you away from your target market.
 Create a customer connection: You can create effective strategies when you know what
your customers want and need. This allows you to create strong bonds between your
brand and the customer to create brand loyalty and customer satisfaction.
 Higher customer satisfaction: Market segmentation helps a company focus its
marketing efforts on the needs and wants of customers. It helps the company better serve
its customers, which is the ultimate goal of any business. So, this is one of the benefits of
market segmentation.
 Media selection: Market segmentation makes it easier to choose the right advertising
channels and spend the right amount of money to reach the right people.
 Lower costs: As a result of the increased efficacy of your marketing campaigns, you
incur fewer expenses because you maximize the revenue from each advertisement.
Additionally, you can use popular digital platforms, such as Google or Facebook, to
create advertisements and target them to the most promising potential customers.
Disadvantages of market segmentation
Market segmentation can help a business in many ways but can also have some negative effects.
 Increased costs: If you want to target specific segments, you may need a bigger
marketing budget to make customized products, create targeted advertising campaigns,
and do a market segment.
 Overlooking potential customers: If you focus too much on specific segments, you
might miss out on potential customers who don’t fit into your identified segments.
 Complexity: It can be a difficult process that requires detailed analysis and research.
This can be hard for smaller businesses with fewer resources to do.
  Measuring effectiveness: It may be hard to know how effective a segmented marketing
strategy is because it may not always be clear which segment is responsible for the
success or failure of a campaign.
 Risk of stereotyping: There is a risk of stereotyping certain groups based on their
demographic or psychological characteristics, which could lead to negative perceptions
and backlash.
Businesses need to consider the pros and cons of market segmentation to decide if it’s the right
strategy for their products or services.
Types of Market Segmentation: Geographic Segmentation
Geographic segmentation is a component that competently complements a marketing strategy to
target products or services on the basis of where their consumers reside. Division in terms of
countries, states, regions, cities, colleges, or Areas is done to understand the audience and
market a product/service accordingly.
Geographic segmentation is putting your people into different groups or categories based on
where they live. In this type of market segmentation, customers are put into groups based on
factors like temperature, population, food habits, clothing, etc., as well as where they live.
Customers’ choices and habits are often affected by where they live. For example, people are
more likely to buy tea and coffee in the winter because of the weather. During the summer, more
people would be drinking cold drinks.
1. Geographic segmentation is the practice of segmenting a campaigns target audience
based on where they are located.
2. Segments can be as broad as a country or a region, or as narrow as one street of homes in
a town.
3. Geographic segmentation is useful for both large and small businesses alike. Large
businesses with international markets may choose to offer products or services
specifically for audiences in particular locations.
4. Particularly for small businesses, geographic segmentation can be used to target specific
customers without wasting excess advertising dollars on impressions that will not turn
into leads.
5. Geographic segmentation is one type of customer segmentation that is extremely easy to
implement, as many companies often have their customers‗ addresses from landing
pages, or their credit cards.
Uses of geographic segmentation
 Learn more about your target audience
By using geographic segmentation, you can learn more about your customers and target
market. Several things, including regional segmentation, affect how customers act.
 Make effective marketing plans
You can make better marketing strategies and plans for your product or service if you
know how local factors affect market trends and buyer behavioral segmentation. You can
use regional segmentation to make ads that appeal to people in a certain area.
 Better experiences for customers
Making personalized experiences for different geographic segments can give your target
market more value and improve the customer experience. You will be able to determine
each group or segment’s unique problems and needs and how to solve them.
Types of Market Segmentation: Demographic Segmentation:
Demographic segmentation is made up of two words. The word demography is derived from the
Greek word “demos,” meaning people and the English word “graphy,” which means “the study
of.” When these two words are combined, they mean “the study of people.”
In market research, however, there is a slight deviation in the usage of the word. Marketing
defines people who form a specific market for a product or a service based on demographics. It
is essential to know demographics to study the market space.
 1. Demographic segmentation is segmenting the market based on certain characteristics of
the audience.
2. Characteristics often include, but are certainly not limited to: race, ethnicity, age,
gender, religious, education, income, marital status, and occupation.
3. Also fairly easy to implement, demographic segmentation can be useful in a variety of
ways. Luxury brands may choose to market to a demographic consisting of people with
household income > Rs.200,000. Colleges may use messaging in their advertising that
appeals to 17-22 year olds.
4. Demographic segmentation is even more efficient when targeting multiple segments at
once. Bridge ran an email marketing campaign where we targeted local (geographic)
females (demographic: gender) aged 25-50 years old (demographic: age) with a
household income of less than Rs.100,000 (demographic: income) and an interest in
furniture (behavioral).
5. Targeting several segmentations in conjunction with one another led to over 440 sales for
the local furniture retailer, driving more than $180,000 in revenue. Combining various
customer segmentation criteria has the potential to reach a much targeted niche market
and drive sales while maximizing the value of every marketing dollar spent.
Types of demographic segmentation
One of the types of segmentation that is closely related to demographic segmentation is
geographic segmentation.
Within demographic segmentation, there are several variables:
1. Demographic segmentation based on age: One of the most important variables for
demographic segmentation is age. A generation is a set of people who were born during the
same era, grew up with the same type of experiences with some geographic segmentation.
For example, baby boomers are those born between 1946 and 1964. People born in this
generation have certain similar characteristics and thought processes. People in generation X
were born between 1965 and 1981.
Therefore, if your market research is targeting baby boomers and generation X with the same
strategic planning and asking the same questions, it is likely to get inconclusive results as there
is a big gap between how these two generations think and act.
2. Demographic segmentation based on gender: Men and women have differences in how
they perceive the ways in which the market works. Even market researchers are very clear about
the difference in the reasoning of the two groups and for this reason, make gender-specific
products.
For perfumes, clothing, shoes, and even cars there are gender specifications that product
manufacturers understand and work based on those specific needs.
3. Income-based demographic segmentation: Income is also an important variable, as it helps
determine product pricing. Most manufacturers take the demographic segment into account
when pricing the product.
However, there are other manufacturers that only focus on the higher-income segment of
society. Cars, technology, clothing, etc. are created more specifically for these segments as they
prefer luxury over anything else.
4. Demographic segmentation based on religion, race, and nationality: Alcoholic beverages
have a very limited reach in Middle Eastern countries, leaving room for soft or carbonated
beverages due to the hot climate. Brands around the world have large-scale advertising
campaigns.
With the increase in international business, these brands have created campaigns that better suit
religious beliefs, and even nationality, and make sure not to hurt anyone’s feelings. With the
increase in the geographic area of business, there is also an increase in demographic
segmentation based on religion, race, and nationality.
Pros of demographic segmentation
1. Easy to find: It is accessible and easy to use. For example, government censuses are available
in most countries.
2. Identify potential market: When an organization looks at the demographic segmentation, it
focuses on the people who are most likely to buy a product. This helps in identifying the target
market.
3. Marketing: Demographic customer segmentation helps organizations in developing market
outreach for better marketing strategies.
Cons of demographic segmentation
1. Assumptions: Demographic segmentation is based on the assumption that consumers in the
same demographic group will have similar needs.
For example; not everyone in their 30s will have the same needs when it comes to buying a
mobile phone. Some might want a high-resolution camera, others might want storage
capabilities, better speakers, etc.
2. Constant changes: Behavior is never constant. Marketers cannot collect demographic data
once, and use that same information for years. Because the population changes. Census data is
updated every year. This information must be collected constantly to get a real scenario.
Types of Market Segmentation: Firmographic Segmentation:
Firmographic segmentation is the same concept as demographic segmentation. However,
instead of analyzing individuals, this strategy looks at organizations and looks at a company's
number of employees, number of customers, number of offices, or annual revenue.
Example: A corporate software provider may approach a multinational firm with a more
diverse, customizable suite while approaching smaller companies with a fixed fee, simpler
product.
1. Demographic segmentation can also be used in B2B markets. In this case, common
demographics include: company size, industry, role, time working for the company,
and more.
2. Agencies may choose to segment the market by industry when searching for prospective
clients. An advertising agency that specializes in auto advertising may segment the
market by industry. They can further segment the market by role when opting to contact
marketing managers and creative directors. Again, using multiple demographic criteria
while segmenting targets a very specific list of prospective customers.
Psychographic
Customers’ ideas, thoughts, and beliefs greatly impact the decisions they make in the market.
Psychographic segmentation is important if you want to understand how these things affect how
people act and use this information to help your business.

1. Psychographic segmentation is far less concrete than both geographic and demographic
customer segmentation, as the characteristics used to segment are less ―tangible than the
latter two.
2. Psychographic segmentation divides the market on principles such as lifestyle, values,
social class, and personality.

This type of customer segmentation is significantly more difficult to implement than

geographic or demographic segmentation. To properly segment the market based on
psychographics, marketers must really take the time to get to know their current and past
customers. This includes clearly defining the ideal buyer persona for the product or service and
developing relationships with the customer base.
A prime example of psychographic segmentation is targeting those who are budget
conscious. These people value a good deal and tend to be smart shoppers.
 Discount stores, like Wal-Mart, utilize this tactic nicely. Wal-Mart uses messaging like
―Unbeatable Prices‖ and ―Best Online Specials‖ because it will resonate with the audience
they are trying to reach.
Importance of Psychographic segmentation
Psychographic segmentation could be an important part of the marketing strategy of an
organization for a number of reasons:
1. Deeper understanding of customer needs:
Psychographic segmentation can assist businesses in better comprehending the values, attitudes,
and beliefs of their target market. As a result, they are able to produce goods and services that
more closely match the requirements and preferences of their customers.
2. More targeted marketing
Businesses can develop more focused and individualized marketing strategies by segmenting
their audiences based on psychographic traits. Higher conversion rates and better returns on their
marketing investments may result from this.
3. Improved customer loyalty
Increased customer loyalty can result from businesses demonstrating that they have a deeper
understanding of their customers. Customers are more inclined to remain loyal to a company
whose values and ideas match their own.
4. Competitive advantage
Organizations that use psychographic segmentation can position themselves favorably by
developing products and services better suited to their target market’s wants and needs. In a
congested market, this can make them stand out and draw in more customers.
5. Better resource allocation
Businesses can allocate their resources more effectively and economically by concentrating their
marketing efforts on particular psychographic categories. By doing this, they can increase their
marketing ROI and raise their bottom line.
Types of Market Segmentation: Behavioral segmentation
Behavioral segmentation is a marketing strategy that divides customers into groups based on
how they act when they connect with a business or website.
Customers could be put into these groups by:
 Their opinion of your product, business, or service; how they use it;
 Their knowledge of your company and its products as a whole,
 Their buying habits, like buying only on special days like birthdays or holidays, etc.
Marketing campaigns can be more successful when they go beyond standard demographic and
geographic segmentation methods and use behavioral data.
At the very least, behavioral segmentation gives marketers and business owners a better
understanding of their audience, which lets them tailor their goods or services to meet specific
customer needs. Here are four more reasons why behavioral division is a good idea.
Importance of behavioral segmentation
Behavior segmentation is an important marketing strategy because it helps businesses
understand and target their customers based on their unique behaviors, actions, and patterns.
Here are a few reasons why it’s important to divide people by their behaviors:
 Precise targeting
Businesses can target certain groups with comparable traits with their marketing initiatives by
segmenting their consumer base depending on their actions. As a result, they may develop
customized messaging and offers that appeal to the target market and boost conversion rates.
 Relevant messaging
Behavioral segmentation enables companies to send their clients timely and pertinent
messaging. Businesses can offer customized messages that speak to particular needs, interests,
and preferences by knowing their customer behavior. Thus, there is a greater chance of engaging
and attracting customers.
  Improved customer satisfaction
Businesses may anticipate their wants and offer more individualized experiences when they
comprehend the behaviors of their clients. Businesses may increase customer happiness and
loyalty by providing goods, services, and offers that are in line with the customer journey, which
includes tastes and behaviors.
 Increased conversion rates
Businesses can identify customers who are more likely to buy something or do something they
want by using behavioral segmentation. Businesses can optimize conversion rates and raise total
marketing ROI by concentrating their efforts on certain target markets.
 Enhanced product development
Understanding how customers behave can help businesses learn more about how customers use
their products and what they prefer. Businesses can find chances for product innovation,
enhancement, and customization to better match customer demands and desires by studying
behavioral data.
 Efficient resource allocation
Businesses can more effectively distribute their marketing budgets with the use of behavioral
segmentation. Businesses can maximize their budget, time, and efforts by focusing on targeted
consumer categories with the highest conversion potential, avoiding needless expenditure on
wide and generic marketing initiatives.
 Competitive advantage
Businesses can get a competitive edge through behavioral segmentation by better knowing their
clients and providing individualized experiences. Businesses may stand out from rivals, draw in
and keep customers, and improve their market position by offering focused and customized
offers.
Objectives of behavioral segmentation
The main objectives of behavioral segmentation are:
 Identify segments based on the behavior displayed by customers.
 Determine how your product or service satisfies the needs of each segment.
 Tailor the product or service to meet the needs of consumers.
 Create marketing campaigns tailored to a specific segment and increase the probability of
purchase.
 Let organizations know the brands consumers purchase most frequently and identify the
competition.
1. Behavioral segmentation is similar to psychographic segmentation on the basis that it is
less concrete than demographic or geographic segmentation.
2. Behavioral segmentation is the practice of dividing consumers into groups according to
any of the following attributes: usage, loyalties, awareness, occasions, knowledge,
liking, and purchase patterns.
3. Behavioral segmentation can be used in a variety of ways. When segmenting based on
awareness, companies may opt to send their loyal customers one ad campaign, whereas
target an additional campaign to prospective customers who have yet to build a
relationship with the brand.
4. When segmenting based on occasions, companies can target consumers who are less
price sensitive during times like graduation season and the holiday season. Behavioral
segmentation allows marketers to be more relevant and produce messaging that will
resonate well with their desired target market.
Target marketing:
Target marketing:
A target market is a group of people that have been identified as the most likely potential
customers for a product because of their shared characteristics such as age, income, and
lifestyle. Target markets consist of consumers who exhibit similar characteristics (such as age,
location, income, and lifestyle) and are considered most likely to buy a business's product or
service.
Marketing professionals divide consumers into four major segments:
Demographic: These are the main characteristics that define your target market. Everyone can
be identified as belonging to a specific age group, income level, gender, occupation, and
education level.
Geographic: This segment is increasingly relevant in the era of globalization. Regional
preferences need to be taken into account.
Psychographic: This segment goes beyond the basics of demographics to consider lifestyle,
attitudes, interests, and values.
Behavioral: This is the one segment that relies on research into the decisions of a company's
current customers. New products may be introduced based on research into the proven appeal
of past products.
Target Marketing Strategy: A target market strategy is a business plan focused on growing
sales and brand awareness within a specific group of consumers. To do this, businesses
strategize based on demographics that make up a market, which is an area or group specified for
product sales.
How to Create Target Marketing Strategy
1. Identify your current consumer base
The first step to engaging a target market is to determine the scope of your existing consumer
base. Once you know the traits and habits of your current customers, you can decide whether to
pursue new ways to reach customers in that market or find other groups to target as potential
customers. Startup companies do this by examining their competitors' target markets.
2. Evaluate target markets for viability
Before you spend time shaping marketing campaigns to reach a chosen market, decide if this
group will be worth the effort. Use metrics like competitors' market share to project the amount
of business you expect to gain from the target market. The goal of choosing a target market is to
decide which segment can bring the most value to your business.
3. Determine the best marketing strategy
There are several ways a business can determine and reach a target market. Here are the key
strategies companies typically use:
 Mass marketing (undifferentiated): This strategy is used only when a business decides
to target everyone as a possible market. Choosing the entire consumer marketplace as a
target can be a challenging goal, but it can also be effective for reaching as many people
as possible. Companies who use this strategy typically sell goods or services that
everyone needs, such as food, basic hygiene products or furniture.
 Segmented marketing (differentiated): Using consumer segments to market to a target
audience is a traditional strategy. In this strategy, businesses identify key groups or
segments of consumers and tailor their marketing to reach these audiences. This strategy
allows businesses to concentrate their efforts on multiple target markets at once while
still finding specific groups that best fit their consumer profile.
 Concentrated (niche marketing): In a niche market strategy, business professionals
break market segments into more detailed concentrations of consumer groups.
Businesses that choose this strategy often narrow their focus to gain more market share
over their competition within a specific customer base. Niche marketing methods often
combine consumer traits to create highly specialized audiences.
  Micromarketing: A micromarketing strategy is the most concentrated form of target
marketing. In this method, businesses concentrate on marketing to individuals within a
target audience. This strategy often involves personalized marketing content based on a
user's purchasing choices and preferences.
4. Create a client profile
To help make decisions for marketing efforts, companies create sample customers based on their
target market. Client profiles are formed with detailed characteristics of a fictionalized but
realistic potential or existing customer.
By using software to compose a sample consumer or simply discussing a typical client in a
meeting and recording the team's choices, marketing professionals are able to reference this
profile in a variety of ways. Marketing teams use sample client profiles for presentations,
data analysis models and ad campaign prototypes. Sample client profiles can also help you
visualize future customers.
5. Analyze your data
To find out if your strategy is successful, choose certain metrics to analyze. This can help you
determine how effectively you are reaching your target markets. Look for key performance
indicators (KPIs) that your team decides on prior to launching your strategy. Data analysis will
also give you an idea of ways you can implement changes to your marketing plan to better reach
your chosen market. Use marketing software tools that help quantify complex consumer
behaviors like website traffic, social media engagement and advertising conversions.
Tools to reach the target customers
Content marketing: This includes tools like blogging, video content, infographics and ebooks.
Content marketing presents shareable information to a target audience.
Email marketing: When potential customers visit your website, create an opportunity for them
to sign up for email communications. Sending an email newsletter with relevant product
information, discounts and special events can establish your position as an expert and create
brand loyalty.
SEO: Search engine optimization uses keywords relevant to a target market to increase website
traffic. Once you identify the keywords your target market uses to search for a product or
service, you can optimize your website to reflect these keywords through different content.
Online advertising: Banner ads are a key way to advertise online. Including banner advertising
means your target market is more likely to see an ad related to your product or service during
their web browsing.
Traditional advertising: Radio ads, television commercials and direct mail can also be
effective tools for reaching a target audience as a supplement to other methods.
Product differentiation
Marketing teams use many approaches to promote products and services and encourage
consumers to buy them. One of these strategies is product differentiation, which involves
evaluating other products in the market to determine how to compete with them.
Product differentiation is a marketing process used to distinguish a product or service
from others in the market to appeal to a target demographic. It involves highlighting the
features of a product or service that make it unique and valuable to customers.
Product differentiation is the introduction of unique, distinctive characteristics or features to a
product to ensure a USP (unique selling proposition) of the product. The differentiation enables
a company to achieve a competitive advantage over other companies offering similar product
substitutes. It is an essential marketing process that is of vital economic importance to a
business.
 It may also serve as a catalyst in a buyer's decision-making process.
It basically sets one product apart from the rest and serves as the deciding factor in
purchase decisions.
Breaking down Product Differentiation
The product differentiation process may be as simple as redesigning of packaging to introducing
a brand new functional feature in a product. The different factors through which the process is
implemented include:
1. Price differentiation
Products in the market are differentiated solely on the price factor. This establishes a price
hierarchy for a particular product from lower to higher costs.
2. Non-price differentiation
Products, in this case, are differentiated by form, shape, feature, function, colour, customization,
durability, quality, services, etc.
Types of Product Differentiation:
Types of Product Differentiation
There are different types of product differentiation, with each type focusing on specific aspects
of a product. Here are the differentiation approaches you can consider when developing a
marketing strategy for a product:
1. Horizontal differentiation:
Horizontal differentiation refers to making distinctions in products consumers choose based
more on preference than quality or price. Products associated with horizontal differentiation
offer the same primary features at similar price points. Factors that influence horizontal
differentiation may include packaging, shapes, flavours and colours.
Under this method customers choose the product subjectively. They have no objective
measurement to distinguish between the best or worst.
The customer chooses a product or brand according to personal preference, for example, Coca-
Cola or Pepsi.
2. Vertical Differentiation
Vertical differentiation refers to distinctions in products customers make based on measurable
qualities like price or quality.
Some customers choose certain products based on how well they compete with other brands, as
those with high levels of recognition may indicate quality. Other customers choose the same
products based on their price and may feel more inclined to buy a product with a lower price
than competing products.
In any market, a quality or price hierarchy exists for a particular type of product that ranks
products of one kind from a position of low quality or price to the highest quality or price
product.
Essentially, vertical differentiation is aimed at differentiating the product in order to move up the
hierarchy toward higher quality or price and use the trait as a competitive advantage to sell the
product.
3. Mixed differentiation:
Customers making more complex purchases tend to use a mix of horizontal and vertical
differentiation when making purchase decisions.
Thus this type of differentiation is a combination of horizontal and vertical.
You may find this type of differentiation in a product that customers may consider at a higher
price point if the product offers certain benefits.
Customers may choose a product based on mixed differentiation at a medium or high price point
if the product meets specific preferences. They often consider both price and quality when
deciding on major purchases they intend to use for long periods.
For example, a consumer may choose a new car from the same class of vehicle and consider the
price points of the different brands (vertical differentiation) but also the colors of the interior
(horizontal differentiation).
Advantages of Product Differentiation
1. Provides economic benefits
Product differentiation is economically advantageous to a company. It provides a reason for
consumers as to why their product is worth investing in, as opposed to all the other substitute
products available in the market. A successful differentiation campaign boosts sales for a
company by a significant margin and gives it a competitive advantage in the market as
to why they deserve a consumer’s investment more than the others.
2. Helps achieve a higher price point
In addition, product differentiation helps a company operate at a higher price point just because
of that additional benefit or feature introduced in a product. When that one distinct feature or
difference introduced in the product makes it better than its substitutes, consumers more often
than not perceive it to be worth the increased price.
3. Promotes brand loyalty
Another implication of product differentiation is that very often, it brings brand loyalty into the
picture. When a company efficiently differentiates its products, and a few essential products
stand out, it usually brings out brand loyalty on the consumer’s part.
This is because once a consumer is satisfied with a few products of a brand, they tend to just
start buying other products from that one particular brand. The consumer believes that the
company’s other products are as good and stand out just as much as the ones they use.
Factors of Product Differentiation
You can differentiate a product from its competition in the marketplace by developing a strategy
based on several factors. Here are some common ways to differentiate your product or service:
 Performance and Quality: A product with exceptional quality may appeal to customers
more than a low- or standard-quality product.
 Features: Distinct product characteristics like as organic ingredients, unconventional
appearance and convenient sizing can help differentiate products that are in the same
price spectrum.
 Distribution Channels: Channels of distribution, such as items sold directly to
consumers with free and quick shipping, can help a product compete with similar
products.
 Location: The location of a business, such as a hometown brand with an established
reputation, can help differentiate a product from its rivals.
 Price: Price is an essential determinant of what the target market may pay for a product
based on quality and competitor pricing.
 Reliability: Product reliability provides customers with an estimated time frame in
which the product may perform as expected.
 Complexity: Ease of use has an important role in differentiating some products from
their competition, especially in the technology industry.
 After-Sale Service: This factor determines the impression a product leaves on a
customer and whether it establishes trust in the brand and strengthens the consumer's
relationship with the company.
How to Develop a Product Differentiation Strategy
Having an effective strategy is critical to successful product differentiation. Here are the steps
you can take to develop one:
1. Know your market
Researching consumer trends can tell you what consumers are buying, the factors they consider
before making a purchase and how much they pay for different products. To identify the market
you want to target, you can create a persona based on who may feel most inclined to purchase
your product. Consider demographics like age group, occupation and income level when
developing a persona so you have a thorough understanding of your target market.
2. Gather ideas
Once you have defined your market, you can explore products competitors offer to the same
consumers. This allows you to identify marketing gaps, which refer to areas in the market where
competitors are not meeting consumers' needs. Once you have collected information about these
gaps, you can collaborate with your team to share ideas about how to address them.
3. Identify a strategy
After considering the different perspectives of team members, you can develop a product
differentiation strategy that provides opportunities for highlighting product features that can fill
the gap. You might also promote other features that might benefit the consumer, particularly if
they relate to the primary focus of your strategy. This phase may also be an ideal time to
evaluate where these opportunities belong in the company's strategic product roadmap.
Ways to Achieve Product Differentiation
Achieving product differentiation allows your company to provide superior value to customers at
an affordable rate, which can improve the overall profitability and viability of your business.
Here are some methods that may help you develop and maintain a successful product
differentiation strategy:
1) Size Differentiation: Offering sizing options for certain products can help you cater to
customers who want a product in a smaller or larger version than what companies
typically offer.
2) Brand Differentiation: Creating a strategy that associates the brand with superior
quality may encourage customers to switch from your competitors.
3) Package Differentiation: Using different packaging than your competitors, like
biodegradable materials or brightly coloured boxes, may influence customers to choose
your product.
4) Feature Differentiation: Providing customers with features competitor products do not
offer or giving them customisation options can help you successfully differentiate a
product.
5) Bonus Differentiation: Bonus differentiation involves giving customers a bonus feature
or product customers may find valuable.
6) Customer Analysis Differentiation: Consumer analysis differentiation allows you to
develop a differentiation strategy based on customer reviews of competitor products.
Case Study: Blackberry in the 2000s
In the early 2000s, Canadian company Blackberry Ltd. stood out exceptionally through product
differentiation. Blackberry was the only smartphone brand that offered an in-device instant
messaging feature called BBM. It helped the company stand out significantly in the market.
Product Positioning
POSITIONING:
Positioning refers to the place that a brand occupies in the mind of the customer and how it is
distinguished from products from competitors.
In order to position products or brands, companies may emphasize the distinguishing features of
their brand (what it is, what it does and how, etc.) or they may try to create a suitable image
(inexpensive or premium, utilitarian or luxurious, entry-level or high-end, etc.) through the
marketing mix.
Once a brand has achieved a strong position, it can become difficult to reposition it. Positioning
is one of the most powerful marketing concepts. Originally, positioning focused on the product
and with Ries and Trout grew to include building a product's reputation and ranking among
competitor's products.
Schaefer and Kuehlwein extend the concept beyond material and rational aspects to include
'meaning' carried by a brand's mission or myth.
Primarily, positioning is about "the place a brand occupies in the mind of its target audience".
Positioning is now a regular marketing activity or strategy. A national positioning strategy can
often be used, or modified slightly, as a tool to accommodate entering into foreign markets.
Positioning is part of the broader marketing strategy which includes three basic decision levels,
namely segmentation, targeting and positioning, sometimes known as the S-T-P approach:
The STP approach highlights the three areas of decision-making
Segmentation: refers to the process of dividing a broad consumer or business market, normally
consisting of existing and potential customers, into sub-groups of consumers (known as
segments)
Targeting: refers to the selection of segment or segments that will become the focus of special
attention (known as target markets).
Positioning: refers to an overall strategy that "aims to make a brand occupy a distinct position,
relative to competing brands, in the mind of the customer".
POSITIONING STRATEGY
A clear understanding of the market includes target demographics, strength of the competitors'
products, how you give value, and your own strengths and weaknesses. After you have a
thorough understanding of the landscape of your market, you can decide which positioning
strategy will be the most successful for your products.
1. Target Demographics
A product cannot be all things to all people. Products are designed to appeal to a specific
demographic group. Several characteristics of a demographic are age, gender, education, and
language and income level. For example, Telemundo is a Spanish language television network
that offers programming to Latino and Hispanic customers. A strategy that does a good job of
targeting a market segment delivers more value to the consumer, establishes a stronger position
against competitors, has more compelling communications and has a higher probability of
keeping its customers.
2. Low-Price Strategy
Pricing is a major consideration for most consumers. If a company can convince consumers that
they are receiving more value for their money, they will buy the product. A lower price strategy
may require compromises in product quality or to reduce the range of offerings. For example, a
car manufacturer might offer a lower price in exchange for a smaller engine and fabric
upholstery instead of leather. Fast-food restaurants are famous for their menus, with many items
selling for only $0.99. Consumers that have limited budgets will buy these lower-priced
offerings because they believe that the 99 cent items represent good value for the price.
3. High-Price Strategy
Consumers perceive products with higher prices as having superior quality and are worth the
price. However, to create this perception in the mind of the consumer, the company must focus
its advertising on how its features and benefits are superior to those of its competitors. The Five
Guys hamburger chain has created the impression that their hamburgers and fries are higher
quality than McDonald's and Burger King. As a result, Five Guys is able to charge higher prices,
and people will stand in line to pay.
4. Distribution
Companies can create the perception of better value by restricting the distribution of their
products. Golf equipment manufacturers have certain clubs and balls that are only available in
pro shops and are sold at higher prices. The golfer believes that the products must be of higher
quality because they're not available in Target or Walmart.
5. Competitive Comparisons
The objective of competitive comparisons is to reposition a competitor's products in the minds of
consumers. This strategy is helpful when a market has two strong competitors. One company
focuses its advertising on showing how its products differ from its competition. Marketers must
determine where and how to position their products in the marketplace. They need to know who
is going to buy their products, and why. How significant is the price? Do consumers perceive
that the product has sufficient value to justify paying a higher price -- or do they simply want the
lowest price possible? These are all questions that a marketer must answer to have a successful
positioning strategy. ((https://www.productplan.com/glossary/product-differentiation/)