Demand Segmentation and Concept of Demand Drivers – A Marketing Article (By Luthando)

Segementing the Demand for Products/Services by Analyzing Demand Drivers

Traditionally, marketers try to seduce customers to buy product of their choice with tools like ads, POPs, offers and freebies, discounts and credit limits, better service offers and product features, etc.

But can we segment the total available demand? This article discusses how we can do that that.

Marketers have been interested in cracking demand by making more of sales by tools like increased sales force, increased visibility and by direct Marketing tools. These have been instrumental in increasing the bottom lines of most of the organizations in India. A backward integration of the same demand would arise into need generation. A simple difference between need and demand is that demand would be backed by the ability, whereas need would only take care of the willingness to buy the product or service. A Beggar dreaming for air travel can be taken the case of need, though he dreams of it (willingness), he doesn’t have the money (ability) to pay for it. This is a case of need and marketers are not interested here. Now comes the case of a businessman aspiring for air travel. He has got both the ingredients needed, Ability as well Willingness. And marketers are interested here since it makes demand, cracking it as per your wish is their job. Now the question is; can you crack demand from the point of need arisal?

Demand Segmentation

Segmenting the available demand would be of real interest. It shall be important for analysis as well action. We shall analyse the demand in three simple tiers. How a brand is effective in creating demand rather than fulfilling it shall be analysed, The concept of Demand Drivers also shall be analysed.

Need Based Demand

I have seen when a train approaches station many local vendors might be selling consumable items depending on the time. Suppose if a customer has got thirst (Need) and he has the money to buy a bottle of packaged drinking water (Demand), He will wait till the vendor selling water comes. Two cases arise here. Either he can opt to consume whatever the vendor sells ( His need is addressed) or he can wait for a specific brand to come ( He has a brand choice ). The latter would fall to 2 nd category. We would analyse the former case here. Coming back to the example given his need of thirst is being addressed by the water available with the vendor. The brand which is available with the vendor gets sold, not the one of marketers choice. This is diagrammatically represented by figure I in which bottom of the pyramid gives the volume of demand and the area of the trapezium is propotional to the total demand for it. Since the area is large the demand would be more. But since the demand is more there would be more brands/products to satisfy it. Here the point to be noted is that not the brand is pulling the customers towards buying it, but the need of the consumer. Brands fitting here are a “Me too” type of brand, where due to customer need the brand sells. An increased sales force than other marketing functions will result in increased sales of the brand. A brand fits in here when it is a me too type brand satisfying the need. More number of choices will be available since the demand in that segment is more. It would be hard to create a brand awareness in this segment as only need pulls the demand and not brand. There is very little or no differentiation in this part as literally all products deliver the same benefit. Customers tend to prefer those products whose perceived benefits are more compared to others. Ie value for money products.

The need based demand of course satisfies the basic needs of the consumer. He doesn’t have a brand choice here because he cannot postpone the need/requirement. What ever comes in his way he is ready to consume to satisfy his need. Rather a first come/ first serve kind. Need based demand forms the largest portion in the figure as this need arises for everyone, even for a layman. The basic needs as proposed by Maslow arises for one and all, even for animals! There are no choices here like “I want this/ I want that”. The need if strong will be satisfied by anything that comes in sight. Returning to the before said “first serve” method. The need based demand though the largest in the pyramid is the hardest to crack. I am not saying that its not possible to crack this, but its hard and is possible only if the consumer is able to postpone his need, so that his brand choice surfaces. Its simply because the consumers are unable to postpone their need, or rather have a specific brand choice. For marketers it will be hard to crack this zone and all the marketing efforts put here is will be in vain.

Brand Based Demand

We shall return to the previous example, where the consumer is looking to quench his thirst. Suppose a vendor is selling X brand water whereas he needs Y brand, and if he is prepared to wait, till Y brand arrives, or he is not prepared to purchase X brand since he does not have Y, we can say that the demand is brand based. This forms the middle tier of the demand pyramid where the demand though little is well segmented. Different brands carry different market share and the offering is well differentiated. Customers are aware of the fact that the brands they buy in fact speak of themselves and so make choices. As seen in the demand pyramid the demand here is less than that in tier 1 – need based demand. Marketing tools will work here as they try to reinforce the customer minds with the brand image. Success of these tools can be determined by how good is the brand in making a preferred choice of the customer.

Brand based demand arrives when the customers brand choice comes. He is able to postpone/change the demand so that his brand choice prevails. Unlike in tier1 – Need based demand marketers are interested in this segment, though the volume of demand is less than that in tier1, because they can crack this segment. And although customer has a brand choice here unlike that in the first, his choice can be changed by the activity of the marketer. Here the before said sales tools come into picture. Marketers, majorly focuses their activities here, as they are bound to yield results better. A brand choice of a customer can be changed to another one of marketers choice by wooing the customer to his side by the tools mentioned above. Its of marketers delight to make more and more of those. Offers / discounts / freebies are the easier way of showing results for the efforts put in.

Demand Drivers

These form the top most portion of the demand pyramid. These are essentially need/Demand creators. This can be well explained with an example. We shall take example from the passenger car industry. Currently in our country depending on the price a customer can go to any levels of purchase, from the Rs 1 Lac Nano to the Crore Buggatty. Now we shall take the example of a customer going for a Rs 10 Lac car. Suppose he saves close to Rs 3 Lac a year in the next five years he can opt for an entry level Benz or Audi. Rather than going for the Rs 10 Lac car, which many might have, he can dream of Owning a Mercedes within the next five years, Now is demand created here? The demand which was there initially for a Rs 10 Lac car has been postponed for something higher. The brand appeals to the emotional part of the customer as well others. Mercedes car often carry the tag of ‘I have arrived’, a feeling appealing to the emotional part. Reminds me of the old Britannia jingle when a little girl is thinking of growing up like her elder brother. True when she grows up she will have demand, from her pocket money or whatsoever. But it will be specific. Now the point is to crack her demand in the latter stage from the point of need generation (At the young age ). After becoming a specific demand, marketers will be able to do less only as demand is specific and unchanging. Demand drivers do this job, they are effective in creating demands, and that too specific. This is not only true in the premium offerings but in the mass category too if a brand is successful in differentiating itself from others. The demand as the pyramid shows is the least when compared to others but is the most specific. Customers who fall in this category are brand specific and have their choices. It will be hard to woo the customers from one brand to another. Another example would be a customer using a parker writing pen. Though he can use a popular Rs 5 pen he has opted for the Rs 100 more parker pen because gives him an elated feeling. He will save for many a month to buy this offering. And since he carries a parker pen he won’t hesitate at any chances to show off his pen. I know of people who buy a second hand Mercedes and keep it in front of their house only for other people to say that his house owns a Mercedes, will not take it out for a ride because of low mileage. Only for showing off.

Demand drivers in fact appeal to the emotional part of a person as well. A touch and feel of the product makes him feel elated, and owning it increases his image. Demand drivers are effective in creating need at the initial stage and then move on to create specific demand at the latter stage thereby performing as demand creators. Marketers should work on the brand and continue to position it as a dream brand in the minds of customer. Aspiration for the brand should be created. Its like a dream product for the customer. In short a demand driver can be termed as a product which is capable of creating demand by itself!

Source: www.askpaccosi.com