My name is Ivan Tuzov, and I am a manager at CIMA Digiagentuur, where, in addition to advertising, we are also engaged in the development of new products. I have long concluded that if you do not determine the price segment during development, the result will be a completely unsellable product.
It is crucial to define the price segment in order to "charge" the product with properties corresponding to the chosen segment.
Now, let’s talk directly about segmentation.
Here is how my colleagues and I see the price pyramid:
It includes six segments, each of which I will try to describe separately, starting with the most mass-market ones:
Economical Segment
Here everything is very simple, the key to success for economical products is the price. In this segment, those creators of products who can offer the lowest price win.
Other properties of our client's product do not encourage purchase.
Economical products are not branded, as creating a brand is a resource-intensive process, which in this segment would only lead to an increase in the cost of the product, i.e., make the product weaker.
However, the product must be functional, for example, if your product is a corkscrew - it should open bottles.
Economical products can be found in supermarkets, fix-price stores, spontaneous markets, and also on internet marketplaces, for example, on Aliexpress.
No separate distribution channels are required for such products.
Lower-Middle Segment or Low Middle
I want to immediately note that this segment houses the most challenging customers, those who want to pay just a little more than an economical product costs, while expecting a premium one.
This complexity arises from the heightened expectations of the buyer clashing with the properties of the purchased goods, after which the buyer begins to experience frustration and starts complaining to the manufacturer, distributor, or retailer about their dissatisfaction with the product.
However, those who know how to work with this type of customer win in the market.
The characteristic of the low middle customer's thinking is that they will not buy a product unless they know of a product with a lower price (comparative pair).
That is, they compare the price of the product under consideration with products of the economical segment, and if everything matches up (there is a cheaper product), they make a purchase, accompanying the process with the thought - I can afford not the cheapest.
In the lower-middle segment (unlike the economical), the product starts needing a brand, as our target buyer needs status adjustment.
If we are talking about the brand, let's briefly outline its functions for the buyer, there are two:
By the way, this segment of buyers is almost entirely targeted by the entire market of replicas, imitations, counterfeits (fakes).
As for the functionality of products, here the buyer is demanding in terms of the number of functions, but not their refinement.
For example: the product will have a large screen, high resolution, powerful acoustics, a bright design, while the actual image quality will not be very good (minimally sufficient), the sound will be loud, but not voluminous and not quite clear, and the materials used will be very much not up to premium products.
And also, a very important factor in selling the product is its availability, Low middle clients are not ready to wait.
Examples of low middle segment products: Kia cars, H&M and Zara clothing, Xiaomi TVs.
Upper-Middle or High Middle
Here, for the customer, price is no less important than for the representatives of the segments described above, while the characteristic of the high middle buyer's thinking is that they compare prices not with cheaper "analogs" (as representatives of the low middle segment do), but on the contrary, with premium "analogs".
Very often, people from this segment are given away by the phrase - I don't want to overpay for the brand.
These are the ones who buy Volkswagen with the conviction that they are buying Audi, while simply not overpaying for the premium brand.
Besides the price "cheaper than premium," products of the high middle price category need a strong brand, whose function is to adjust the status of the buyer.
Functionally, high middle segment products numerically lose to products of the previous segment, while each function is developed to a sufficiently high level.
Examples of high middle segment products: Toyota cars, American Tourister suitcases, Tommy Hilfiger clothing, LG TVs.
Premium Segment
This segment houses the biggest misers with a very unusual (unlike representatives of other segments) approach to price perception.
They are often not interested in how much a product costs; instead, the decisive factor for them is the cost of owning
the product.
For example, a Paul Smith shirt costs 150 euros, and an H&M shirt - 25 euros, while Paul Smith will survive 30 washes without changing the properties of the product, and H&M - a maximum of three.
Calculate which product will be cheaper to own?
Premium products have extended functionality, while each function is worked out to perfection.
Brand in this segment performs the function - reducing consumer risks, in adjusting the status clients of this segment due to their self-sufficiency, usually do not need.
Examples of premium products: Volvo cars, Samsonite suitcases, Cucinelli clothing, Sony TVs.
Luxury
The key feature of luxury goods is their unavailability to the overwhelming number of people who want to own these goods.
Unavailability is achieved in three ways: very high price, low production runs, and artificially created difficulties in acquisition.
Of course, luxury products cannot do without a brand, and here the brand primarily performs the function of adjusting the status. In terms of functions, luxury products often lose to premium ones.
Examples of luxury products: Maserati cars, Louis Vuitton suitcases, Chanel clothing, Bang & Olufsen TVs.
…and the most interesting segment - cross-segment products
These are phenomenal products that simultaneously fall into all of the above segments, you can find them among buyers of economical goods as well as owners of luxury products.
Windows, Siri, Facebook, Lego, iPhone, Mini, IKEA…
Creating such products is a real stroke of luck.
It's like writing a musical hit, and as a result, getting a classical masterpiece.
