Rediscovering Market Segmentation
In 1964, Daniel Yankelovich introduced in the pages of HBR the concept of nondemographic segmentation, by which he meant the classification of consumers according to criteria other than age, residence, income, and such. The predictive power of marketing studies based on demographics was no longer strong enough to serve as a basis for marketing strategy, he argued. Buying patterns had become far better guides to consumers’ future purchases. In addition, properly constructed nondemographic segmentations could help companies determine which products to develop, which distribution channels to sell them in, how much to charge for them, and how to advertise them. But more than 40 years later, nondemographic segmentation has become just as unenlightening as demographic segmentation had been. Today, the technique is used almost exclusively to fulfill the needs of advertising, which it serves mainly by populating commercials with characters that viewers can identify with. It is true that psychographic types like “High-Tech Harry” and “Joe Six-Pack” may capture some truth about real people’s lifestyles, attitudes, self-image, and aspirations. But they are no better than demographics at predicting purchase behavior. Thus they give corporate decision makers very little idea of how to keep customers or capture new ones. Now, Daniel Yankelovich returns to these pages, with consultant David Meer, to argue the case for a broad view of nondemographic segmentation. They describe the elements of a smart segmentation strategy, explaining how segmentations meant to strengthen brand identity differ from those capable of telling a company which markets it should enter and what goods to make. And they introduce their “gravity of decision spectrum,” a tool that focuses on the form of consumer behavior that should be of the greatest interest to marketers–the importance that consumers place on a product or product category.
Fifty-nine percent of recently surveyed companies executed a major market-segmentation initiative in the previous two years. Yet only 14% derived real value from the exercise. What’s wrong with market segmentation?
Segmentation typically focuses on consumer “types” (High-Tech Harry, Joe Six-Pack). This categorization may help advertisers strengthen brand identity by developing messages that speak to different consumer groups. But it doesn’t tell companies which products or services consumers might actually buy, so it can’t help firms decide which new offerings to develop.
To get more from segmentation, Yankelovich and Meer suggest several tactics. For example, tailor your segmentation to a strategic decision. (Do you want to reduce customer defections? Extend a brand?) Define segments based on consumers’ actual purchasing behavior (heaviness of use, brand switching) and their likely behavior. And redefine segments as market conditions change.
Apply such tactics, and you respond promptly to rapidly shifting market realities. You gain insight into how to compete. And you extract maximum value from scarce marketing resources.
The Idea in Practice
To segment markets effectively, apply these tactics:
Example:
A luggage company finds that many people who buy its highest-margin carry-on bags are international flyers. It thus identifies international travelers as a promising target segment.
Example:
A pet food manufacturer used conjoint analysis to determine which features to include on food packaging (such as a resealable opening and a handle on 25-pound bags). It segmented consumers according to their degree of price sensitivity and desire for convenience. It then redesigned its packaging with added features that would maintain existing customers and attract new ones. And it jettisoned features whose cost would have required charging too high an overall price.
Example:
At the dawn of the Web, many companies segmented according to consumers’ degree of online experience. “Early Adopters” felt comfortable exploring the Web on their own; “Newbies” sought extensive support. As newcomers became scarcer, companies segmented using other criteria, such as consumers’ concerns about online security and interest in games or parental control devices.
There are many different kinds of people, and they display about as many different buying patterns. That simple truth is well understood by those responsible for market research, product development, pricing, sales, and strategy. But they haven’t been getting much help from a venerable technique—market segmentation—which, if properly applied, would guide companies in tailoring their product and service offerings to the groups most likely to purchase them. Instead, market segmentation has become narrowly focused on the needs of advertising, which it serves mainly by populating commercials with characters that viewers can identify with—the marketing equivalent of central casting.
Daniel Yankelovich is chairman of Viewpoint Learning, a firm that promotes problem solving through dialogue, and DYG, a market research firm that tracks social trends. He is based in San Diego.
David Meer, a senior executive adviser at Booz & Company in New York, leads the firm’s Consumer Insights and Demand Analytics practice for North America.
Rediscovering Market Segmentation
Research & References of Rediscovering Market Segmentation|A&C Accounting And Tax Services
Source