Slicing the market pie

Here’s another interesting exchange of e-mails from one of our regular reader which, I am sure, would prove of benefit to other entrepreneurs concerned about market share.

E-mail no. 1

I have learned a lot of things from your column that are applicable to my own business and I was particularly struck by your article on customers and beneficiaries.

I am in the retail clothing business and have set up several shops located in major malls. I have observed that our customers are female, 25-35 years old, from the A-B income bracket, with children. Roughly 60% of them buy for their kids, whose age range is from 6-12 years old; while the other 40% buy for themselves. Clearly, the majority of our market would be the kids, who are the beneficiaries, while the mothers are our customers. Incidentally, our merchandise mix is 70% adults and 30% kids. But mothers also buy from the adult line for their big kids and teenagers.

My confusion stems from the fact that while the kids influence the choice of the mother, it is the mother who pays for it. So my question is: Where should we focus our marketing and advertising activities – on the kids or on the mothers?

For the past four years, we have focused our marketing efforts on teenagers and mothers because we do not want to be branded as an item for kids. But people still perceive us as a kids’ label, maybe because of our type of merchandise. Given this, should we, therefore, shift to being a kids’ label or should we change the customers’ perception that we are just a brand for kids?

I look forward to your comments and suggestions.

My response:

Your questions relate to the current way of looking at the market via demographics. This is what we have traditionally called market segmentation. The basis of cutting the market pie are gender, income class, age bracket, and so on.

A different way to cut the market pie is through psychographics. It has been proven that the same person from a particular gender, economic class and age, would buy products or services that were originally meant for another demographically defined market. For example, a business executive sometimes eats in a turo-turo or sidewalk food stall. A family from a lower income class would also dine in a first-class restaurant on special family occasions such as birthdays, graduations, baptisms, and the like. As such, a different way of looking at the market is by using the kind of lifestyle experience being sought after. Segmentation based on lifestyle or image will cut across demographics.

It is the ability of entrepreneurs to cut the market segment so thinly that affords them the opportunity to own a niche. This is the greatest weapon entrepreneurs can use to defend themselves against business. In segmenting the market so thinly, big business winds up looking generic and unexciting. In a highly segmented market, big business will look like a "to-whom-it-may-concern" product or service. In this same segment, the entrepreneur’s product/service will look like a "perfect fit" with no other comparison in sight.

In the process of defining the market thinly, just be sure that there is an economic size to be served. The risk in a finely defined market is the lack of volume. But lack of volume only becomes an issue if there is a large fixed cost. However, having a large fixed cost is the characteristic of big business and not of entrepreneurs. But still, the point is that there must be an economic size to make the segment attractive and financially rewarding to the entrepreneur.

E-mail no. 2

The psychographic approach is a good ideal. We can position our marketing activities based on this. But what about our merchandising plans? It is difficult to plan our merchandise (shirt sizes, designs, accessories, etc) if we don’t segment our market according to traditional demographics, right? What do you think?

My response:

Merchandising plans can be made with psychographics. Many have cut the market on this basis. Having the entrepreneur’s product or service represent a lifestyle or an image that is sought after by a market is not new in the market place.

Yes, at the end of day, the marketing activities will have to result in the actual purchase of your items. And, therefore, design, accessories, and size will have to be ordered. Design and accessories must be considered with the lifestyle or image. Shirt sizes will have to fit across demographic cuts. There will be rich people who need to fit into small, medium, or large sizes in the same way that there will be non-rich individuals who will wear small, medium, or large sizes.

However, the quantity to be ordered will depend on the size of the market that wants the lifestyle or image. Since it is niched, I suspect that this will be relatively small (relative to big business). But I think that it is big enough to be economically sustainable and financially rewarding to entrepreneurs. Remember, this is how the market thinks today. It is driven by lifestyle and image.

E-mail no. 3

I didn’t realize that psychographics will also guide our merchandise planning. Thanks so much for your invaluable insight. It has made me look at things from a different point of view and it’s definitely a revelation!

(Alejandrino Ferreria is the dean of the Asian Center for Entrepreneurship of the Asian Institute of Management. For further comments and inquiries, you may contact him at: [email protected]. Published "Entrepreneur’s Helpline" columns can be viewed on the AIM website at http//: www.aim.edu.ph).