Goal of this Thesis
Objective of this thesis is the investigation of the target group of elderly people and the analysis of its characteristics, standards and values. It is of main interest how this target group can be best described and which differences within the group can be detected. Several key dimensions are being identified which can be used to categorize the segment of the “seniors” into different heterogeneous sub segments. Subsequently, marketing concepts are being analysed and discussed according to their effectiveness and efficiency in the target segment and how these could be optimized. Marketing to the elderly is different than for other age groups, according to Lunsford & Burnett (1992).
Relevance of the Topic
The German population is getting older. For many years now, Germany’s demographic situation is subject to constant structural change considering the distribution of age. Besides having strong influence on the macroeconomic environment and the social situation, this demographic change also has strong effects on private consumption and eventually on commercial marketing. The population group of the seniors enacts about high financial power and therefore its members are expected longer to be active consumers (Meyer-Hentschel, 2006).
Today, already ~20% of the German population is older than 65 years and it is estimated that this number steadily increases in the next forty years to about 30% (Zahn, 2006). Otherwise, the number of younger people aged between twenty to forty years is about to decrease from 30% to only 20% in the same time period. Besides the decreasing total number of younger people, the increasing number of elderly and the accompanying overall decline of the birth rate, the additional increase in life expectancy further effects an extensive shifting of the age pyramid (Gassmann and Reepmeyer, 2006).
It is being widely discussed which economic and social changes a demographic shift entails. In the field of marketing, it is of primary interest how the target group of elderly people can be effectively assessed and developed. Mistakenly, often considered as a solely homogeneous marketing segment, the ‘seniors’ are mostly targeted in a very undifferentiated and unsophisticated way (Greco, 1987[newer souce]). As a result, many customers and potential customers can not be addressed, acquired or retained with adequate marketing measures. Hupp (1997) states, it must not be assumed to categorize ‘generation 60+’ as a homogeneous market, but as a pool of many different very heterogeneous subgroups with totally different and diverse characteristics. For example, Burt & Gabbott (1995) found out that gender appears to be a more important attribute than age in determining a number of shopping traits.
To gap this bridge and to optimize respective marketing activities, a new approach of segmenting and addressing target customers is necessary. This should be done by investigating this distinctive segment very thoroughly and classifying members of the senior market according to several characteristics and standards.
Considering the demographic and socio-economic developments in association with contemporary marketing practices, the following problem statement could be qualified:
The German demographic landscape is changing drastically. In the near future more than one third of the German population will be aged 65 years and older. Therefore, the consumer market of the seniors will gain extreme importance for marketing activities. Until now, this emerging consumer segment is targeted very inconsistently and ineffectively and common proven standards of how to address this target group properly are non-existent.
Thereof, a concise research question could be developed:
How can the market segment of seniors and elderly people be characterized more precisely in order to effectively address this target group with tailored marketing activities?
Sub-questions which will help to guide through the analysis and to support the answering of the research question are as follows:
What is the current situation of the market segment of the elderly in Germany and how is it commonly perceived?
Could the emerging importance in terms of financial power and target group size be statistically proven?
Are there strong differences in characteristics and behavior traits between the individuals within the group of elderly consumers?
Which marketing concepts can be identified as being effective and most suitable in this target group?
Can the market segment of the seniors clearly be subdivided into heterogeneous (independent) target groups?
Structure and Methodology
Besides reflecting literature in the fields of demographic change, consumer and consumption behaviour and statistical data about this topic, the following thesis is based on a quantitative empirical research. Of high interest is the description of the individual characteristics and consumption behaviour of the respondents, as well as the factual perception of the own age and way of life.
At the beginning, a brief literary description and characterization of the target group of elderly consumers is given. Additionally, a short distinction between the chronological and the cognitive age is outlined being an important differentiating factor throughout the investigation. In chapter three, different types of determinants and changes of consumer behaviour are identified which help to determine diverse influential dimensions according to which the target market could be segmented. Consequently, segmentation approaches and criteria to subdivide the target group are discussed in chapter four. Furthermore, the “lifestyle” of the members of the target group is conceptualized being an important influencing factor for segmentation purposes. Lastly, different segmentation typologies are contrasted. In chapter five, the empirical research of this study and its methodology is described and subsequently the results of the research are discussed. Finally, practical implications of the findings and an outlook of this topic are given in chapter six. A summarizing conclusion completes this thesis in chapter seven.
Elderly Consumers as a Challenge for Marketing
Characterization of the Target Group
Nowadays, many different terms like ‘Best-Ager’ (Fösken, 2009), ‘Baby-Boomer’ (Crosby et al., 2006), ‘Silver Generation’ (Lumsden, 2009), ‘oldies’, ‘seniors’ or simply ‘mature customers’ are used to paraphrase the group of the elderly people. However, a clear demarcation or a common agreement to which age period these terms are applicable does not exist. Furthermore, Gaube (1997) states that the dimensions of medical, psychological and sociological changes cannot be separated from each other during the ageing process.
Age is a very relative term (Basting, 1998). Schewe (1989) describes aging as an individual process so that no two persons age the same way at the same time. Considering the psychological perspective, 90 year olds can still feel and act youthful, whereas younger people aged 20, 30 or 40 years might simultaneously live pessimistic, think and act conservatively and look, pretend and feel as already being old. When 50 year olds almost resigned with their lives, 80 year olds may still be overflowing with vitality and enjoyment of life (Dychtwald, 1997). Hence, it is not possible to identify a linear dependence between age and behavior in any conjuncture to precisely predict general characteristics of the group of the seniors. Friedan (1993) found out that the misbelief of predetermined physical and psychological decay while aging, results from studies made in the 1950’s with men in isolated institutions. Newer studies conclude with totally different pictures of the ageing process. In reality, aging means steadily growing, provided that one does not repudiate his or her age but accepts it as time with new possibilities (Friedan, 1993). Regarding medical progress, life expectancy continuously increases in industrial countries and thereby shifts the age at which people ultimately begin to feel old further upwards. Furthermore, research indicates that people do not perceive themselves to be ‘elderly’ until they are at least 75 years old (Sherman & Cooper, 1988). According to a survey in the USA, most respondents answered the question when seniority finally begins with “not before the age of 79” (Carter, 1999).
Due to the changed living conditions, the modern generation 60+ feels itself as being young, dynamic, wants to have fun and enjoy life to a maximum extent (Krieb & Reidl, 1999).
As a result, changes are taking place in the distinct characteristics of seniors. Even in marketing literature, there is no real consensus about a correct description of the target market of the elderly. Mostly cited referrals to this target group are ‘senior market’ (Fox & French, 1985), ‘older market’ (Schiffman, Sherman and Mathur, 2001), mature market (Shoemaker, 2000) and ’50+ market` (Silvers, 1997).
More than half of the German private capital is owned by the population aged 60 and older. Talking in numbers, this growing segment has a purchasing power of about 120 billion Euros annually and a net capital of circa 3,000 billion Euros (Destatis, 2006). Further, besides having a high purchasing power in absolute figures, the financial situation of elderly people is generally less dependent on economic and cyclical development. In typical households of the target segment of the seniors, children left home already and thus, more time and money could be spent for individual conveniences instead of saving it for the children (Hurd, 1987). Contrast to their preceding generation, many live the way of taking full advantages of their hard-earned money and want to enjoy the remaining lifetime to the fullest. Additionally, a large percentage of the ageing generations are single households, with the consequence that there are no descendants to which personal assets could be bequeathed (Russel, 2003). Russel (2003) concluded that seniors make up the largest portion of all people living alone and are therefore are the most valuable market.
Chronological versus Cognitive Age
To enable marketers a better understanding of the characteristics of the senior consumer, emphasis must be put on the different consumption behaviours within this large and lucrative market (Iyer, Reisenwitz and Eastman, 2008). Many segmentation strategies are commonly based on the chronological age. It is a universal attribute, which is objective and easily assessable in general (Settersten & Mayer, 1997). As a demographic variable, the chronological age is by far the most applied variable in terms of the frequency of use. Although clear subgroups exist within this large group of people (Moschis, Curasi and Bellenger, 2003), a partition of this segment purely based on chronological age is not advisable. Age-related research among elderly consumers regarding behavioural and attitudinal patterns is problematic. Neugarten and Hagestad (1976) even named a segmentation approach based on chronological age as meaningless, unless a distinct social consideration is attached to it.
Moreover, Schiffman and Sherman (1991, p.88) claim that “Age is revealing itself to be more a state of mind than a physical state (i.e., chronological age)”. Therefore, a recommendable segmentation approach has been defined by Barak and Schiffman (1981) as the concept of measuring self-perceived age, or cognitive age.
According to the authors, people oftentimes perceive themselves to be younger or older than their real chronological age, which ultimately influences their daily behaviours.
Not only that cognitive age can impact but it also is impacted by different attitudes and activities of seniors. People use salient attributes to compare themselves with others and to self-categorize them. Different extrinsic factors are identified as triggers for this kind of self-categorization process (Maldonado, Muehling and Tansuhaj, 2003). It is an unconscious and spontaneous process which is provoked by extrinsic factors like race or ethnicity, gender, economic status, or simply age (Deshpande & Forehand, 2001). Thus, when consumers are exposed to any kind of advertising for example, they are likely to categorize the promoted product as ‘for-me’ or ‘not-for-me’, based on these extrinsic cues (Chang, 2008). This means, consumers pay attention to product ads when the portrayed lifestyle and image is congruent with their self-perceived age. Consequently, cognitive age is described in marketing literature as an important predictor of consumer buying behaviour.
According to a variety of reports, adults aged 55 years and older are inclined to perceive themselves as being younger as their real chronological age (Barak & Schiffman, 1981). The differences between cognitive and chronological age of seniors shows that they frequently tend to perceive themselves as perceptually younger, sometimes even about ten and more years (Anderson, Barry and Van Auken, 1993). Many different reasons can be identified as triggers for this self-perception. Our today’s social community we are interacting with, higher mental fitness as well as better physical health, only to name three of them. Additionally, many people also act and look much younger than their same-aged cohorts. Man and women with the same chronological age are also likely to differ in their cognitive age, due to different psychological character traits. Women are said to be more sensitive to aging than men and therefore tend to feel cognitively younger than same-aged men in average, according to Peters (1971).
Since Kastenbaum, Derbin, Sabatini and Artt (1972) found out that cognitive age captured more different and separate aspects of age than chronological age did, they defined cognitive age according to four dimensions: (1)feel-age; the age how old a person feels, (2)look-age; the age how old a person looks, (3)do-age; the involvement of a person in doing things, favoured by a certain age group, and (4)interest age; the similarity of individual interests of a person and the interests of members of a certain age group.
Besides thinking and feeling according to their cognitive age, people also engage in activities and interests which are coherent with their individually perceived age. Iyer, Reisenwitz and Eastman (2008) expose that there is a variety of distinct products, activities and interests experienced by people who actually feel younger than their real chronological age. The cognitively young in the seniors segment are said to have a higher degree of self-confidence, are keen for new experiences and personal challenges, as well as they are less resistant to changes (Carrigan & Szmigin, 2000).
Seniors with a relatively younger cognitive age have an overall better perception of health, economic comfort and general life satisfaction, than their same-aged cohorts who are respectively older in terms of cognitive age (Barry and Van Auken, 2004). They tend to have a more liberal and a less traditional outlook on life (Bengston & Cutler, 1977). Moreover, they are said to seek more technology information, have a lower anxiety toward innovative technology and simply use more high-tech products (Bei and Wei, 2003). In general, they are described as being more venturesome than older people on average. Additionally, Wilkes (1992) concluded that cognitive age is further associated with higher work-orientation, fashion-interest, entertainment and cultural activities.
Mathur et al. (1998) added that consumers who feel cognitively younger are more decisive and more individual decision makers. They feel more in control of their lives, have a greater interest in social activities, outdoor activities, travel, financial markets, volunteer work and further education and are generally more eager to learn new things.
For segmentation purposes, marketers of these respective services (e.g. recreation, travel, entertainment, etc.) should use the cognitive age as a key segmentation variable.
It is a highly capable predictor of consumption behaviours and internalizes information of other important consumer demographic variables. Therefore, high efficiency could be gained since marketers do not need to survey many different demographic variables but simply focus on cognitive age (Wei, 2005).
Determinants of Consumer Behavior
The ageing itself and an analysis of its biological consequences is relevant to identify the main drivers of consumer behavior change. Important influencing factors of the actual consumption behavior could therefore be related back to psychic criteria. Psychic determinants belong to the non-observable variables in consumer research (Berndt, 1996). During the ageing process, significant changes and developments can be identified in this area. According to Gröppel-Klein, Kroeber-Riel and Weinberg (2008), the main influencing criteria in this area of research originate from emotions, attitudes, decision-making processes, individual memories and learning habits. The authors differentiated the psychic processes into ‘activating processes’ and ‘cognitive processes’, which influence the consumers’ decision process. Further, the authors claim that these processes are subject to biological ageing effects, like changes in sense perceptions or the general processing of information. These ageing effects are said to occur for each individual at a specific age (Gröppel-Klein, Kroeber-Riel & Weinberg, 2008).
Activating processes supply consumers with energy in terms of a driving force and make them committed and capable to act. As long as this activation is non-specific, emotions are subjective feelings and perceptions which express themselves as a form of positive or negative inner arousal. In general, every human being aspires after obtaining positive or pleasant arousal and therefore seeks for exciting and arousing stimulus to achieve his or her optimal level of arousal (Gröppel-Klein, Kroeber-Riel & Weinberg, 2008). This optimal level of arousal decreases with advancing age. Reasons are slower signal processing in the cerebral cortex and generally reduced hormone releases which result in the weakened ability to cope with activating situations. This is why elderly people oftentimes avoid situations where they are exposed to unconventional stimuli or innovative attractions which would trigger their arousal. Hence, it is of high importance to identify the desired level of stimuli and attraction of the elderly customers to effectively address this consumer group in an emotional way.
Through targeted activating stimuli in advertising and promotions, customers can receive information more effectively, process information faster and memorize them better. The activation itself is a necessary but not a sufficient condition to show an advertising message’s advantage. The importance of the activating processes within the field of marketing is particularly emphasized by the changing framework conditions. Today, consumers are constantly exposed to a vast abundance of brands and products which makes it impossible for him or her to stay on top of things. Additionally, the quality of different products and services is increasingly converging. Therefore, communicative measures and marketing activities to differentiate brands and products in the market are becoming more and more important (Esch, 2004).
On the other hand, attitudes to products or services stabilize while ageing. An attitude to a product results from learned and consolidated experiences from preceded product perceptions. With the ongoing stabilization of these attitudes, the general propensity to further change them diminishes. The older and considerable an attitude is, the lower is the probability of changing it (Gröppel-Klein, Kroeber-Riel & Weinberg, 2008).
Die Einstellung ist eine wesentliche Variable zur Erklärung des Käuferverhaltens und zählt zu den Antriebskräften menschlichen Verhaltens (Balderjahn 1995, Sp. 542 ff.). Einstellungen sind auf bestimmte Gegenstände, z. B. ein Produkt, gerichtet, über das ein subjektiv und emotional ausgerichtetes Urteil entsteht. Sie haben aus dem Bereich der aktivierenden Prozesse die größte Bedeutung für das Marketing und richten sich auf Gegenstände der Umwelt, über die ein subjektives, emotional fundiertes Urteil gefällt wird.
Cognitive processes are procedures in which the individual recognizes her- or himself as well as the surrounding environment. Thus, cognitive processes are procedures of intellectual information processing to mentally control and regulate ones behavior.
The processing of information begins with the reception of a stimuli and its decoding (Schiffman & Kanuk, 2004). During this process, the transported information is linked to already existing information and finally is long-term memorized under particular circumstances. Common indications about when someone is considered being old can be traced back to having difficulties in learning and memorizing. Three different forms of how information can be memorized are named in literature: in the ultra-short-term memory or sensorial memory, in the short-term memory and in the long-term memory (Gröppel-Klein, Kroeber-Riel & Weinberg, 2008).
The ultra-short-term memory records all sensory impressions, in particular visual and acoustic stimuli, only for a short time. Current studies show that this cognition ability constantly reduces while ageing (Brandenburg & Domschke, 2008). Next, the short-term memory takes only fragments of the stimuli from the ultra-short-term memory for further processing. In this way organized and processed information will ultimately be stored in the long-term memory of the individuals.
Gröppel-Klein, Kroeber-Riel and Weinberg further assert that problems while storing information frequently occur for the seniors under time pressure and when they are exposed to complex stimuli. Kermis (1984) claims that the reducing ability to store information is not subject to the ageing process, while the ability to recall this information in fact reduces proportionally with the age.
The amount and type of information the short-term memory processes from the sensorial memory is dependent on the activation level of the stimuli. However, the optimal stimuli level decreases with increasing age and the human brain loses its ability to evaluate unknown and unfamiliar stimuli (Moschis, Bellenger & Curasi, 2003). This might explain why seniors oftentimes have greater difficulties in processing complex situations than younger people have and therefore find it hard to use new information from their commercial environments, since complexity enhances activation. If this activation level is above the as optimally perceived arousal level, the situation feels unpleasant and results in an avoidance of the reception of information by the individual. This also explains the reduced likelihood of the elderly making impulsive purchases. Indications exist, that purchase decisions of elderly people are made with much lower cognitive efforts. Senior customers therefore rely much more on prior experiences during their purchase. For marketing purposes, new products or services should use familiar and popular brand names to not overwhelm senior audiences with unfamiliar information.
According to Cunningham and Brookbank (1988), the ageing process is by no means a psychological deterioration process. The individual achievement potential even increases over time, since experience, self-confidence, judgment, social competence, etc. advances over time. In my view, this shows that behavior changes which occur during the lifespan can only be described as a highly individual and multidimensional process, taking further environmental influences in consideration. Moschis already concluded in 1985 that there is no single theory or approach which can appropriately explain changes in customer behavior (Moschis & Smith, 1985).
Further determinants of consumer behavior which also influence the psychic processes of the individual but can be separated from the behavior itself are identified as environmental determinants. Foscht and Swoboda (2007) subdivided these environmental influences into personal determinants, social determinants and cultural determinants.
While abovementioned ageing effects generally occur for each individual at a specific time, the so-called cohort effects appear only for individuals within generations and do not spread to following generations when they attain the same age (Rentz & Reynolds, 1981). Cohorts are defined as an aggregate of individuals who share common values, experiences or characteristics within a defined period. Corresponding to Meredith and Schewe (1994), differences which occur between cohorts of the same age attributable to different social and environmental influences are termed cohort effects. Such influences could also appear due to historical events like world wars or political systems. Market researchers are claiming that consumption behaviors of each generation are fundamentally characterized by the time in which the generation grew up. Music, movies, and further great cultural events are also factors influencing behavior, next to prevalent economic and social conditions in these times. For example, differences in the characteristics of the generations born before and after 1940 could be identified. While the men and women born before 1940 actively witnessed the Second World War and the preceding years of scarcity, people born after 1940 were part of the so-called German economic miracle and never experienced times of hunger or war. Thus, the prevailing living conditions and circumstances in which individuals are born and raised influence their later purchase and consumption behavior to a significant extent (Meredith & Schewe, 1994).
Nevertheless, this cohort effect must not be mixed up with the so-called period effect. The term period effect is used when economical and social conditions influence the behavior of the individuals in a defined period or at a certain point of time equally and independent of their age (Glenn, 2003).
Besides to societal, economical, political and general environmental changes someone experiences during her or his life, also personal life events significantly shape individual behaviors. Events, such as marriage, the move to a different place or the birth of a child depict momentous experiences during an individual’s life. When people change roles, assume new roles, shoulder further responsibilities or relinquish old roles, their behavior also adapts (Mathur, Moschis & Lee, 2003). Furthermore, the authors champion the notion that the adoption of new roles accompanies the need to redefine ones self-concept in life.
Life events are not only single triggers of sudden behavior change, but they are rather triggers of a cause and effect chain. While an accident may result in a physical handicap, financial constraints, job alterations and changes in social relations, a divorce, for instance, could create psychic stress which results in altered product consumption habits, financial duress and the moving to a different place.
Mathur, Moschis and Lee (2003) profess that marketing researchers have documented in various literature that periods of life transition are directly associated with significant changes in consumer behavior in general. Moreover, Moschis (2007) discerned that marketing researchers are more and more recognizing the importance of prior life experiences and their influences in shaping consumer behavior patterns during later stages in life. Nevertheless, Moschis claims that they lack of adequate theoretical and methodological bases for examining and investigating these behavioral issues over the consumer life cycle.
Many marketers continue to solely use age-based segmentation approaches, although recent research has indicated that age has no direct influence on consumer behavior (Anil & Moschis, 2006). Hence, age as a segmenting variable is not adequate in appropriately explaining the consumption behavior of individuals (Schiffman & Sherman, 1991). Anil & Moschis conclude in their study that it seems more desirable to use not only age for market segmentation but to incorporate segmentation methods based on life events. The authors claim, thereby not only the basis for observed differences can be understood and identified, but also objectively measured variables can be used for detailed segmentation purposes.
There may be other factors that have greater impact on one’s behaviour. Indeed, as stated by Neugarten and Neugarten,
‘age has become a poor predictor of the timing of life events, as well as a poor predictor of a person’s health, work status, and therefore, also, of a person’s interests, preoccupations, and needs’ (p. 36). Therefore, it seems more desirable to use life events along with age to predict behaviour.
Segmentation methods based on life events provide an opportunity for one not only to understand the basis for observed differences, but also to use objectively measured variables (events). Although collecting information on life events is still dif¬cult, the proliferation of information technologies have made data
gathering on life events experienced by a person easier than ever before. For example, information regarding events such as marriage and birth of a child is obtainable from public records. Moreover, these events represent marketing opportunities, as people buy products and services to accommodate change and ease transitions. As people experience major life-changing events, they re-evaluate their priorities, product needs, brand and store preferences, and the criteria by which they select products. Segments based on such life-changing events re¬‚ect such differences in consumer behaviour, making certain segments more receptive to marketing offerings than other segments. Thus, there is an opportunity for targeting different segments with different products.
Personality traits and experiences are an important framework in which activating and cognitive processes proceed.
Consumers whose behavior is characterized through their personality, prior experiences and social environment are mostly targeted with marketing activities aiming at directly changing their individual purchase behaviors.
Basic Principles and Relevancy of Market Segmentation
Segmentation of the target market
Basic Principles and Relevancy of Market Segmentation
To run a successful business, companies must work the market systematically and goal-oriented. The distinct way of operations with which the company is trying to be profitable and address the market is called marketing strategy. A fundamental cornerstone and basis of the marketing strategy is appropriate market segmentation. Current studies prove that market segmentation is a very powerful strategic tool (Steward, 2006) in association with prevalent demographic change. Nevertheless, many firms see market segmentation merely as function of advertising, and make use of it mainly by populating commercials with characters the target group audience can identify with (Yankelovich & Meer, 2006). It is therefore utilized as a psychographic tool for the simple description of various customer types and hence lost its link to action and simultaneously much of its power and value to the firm (Steward, 2006). Yankelovich and Meer emphasize t
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