Photo by Willi Heidelbach, from Stock.Xchng
By Alison Streeter, Emerging Leader
Understanding consumer behavior provides insight to help companies better sell products and services. Market researchers often use consumer segmentation as a tool to analyze various groups of consumers. A segment is defined as “a group of present or potential customers with some common characteristics which is relevant in explaining (and predicting) their response to a supplier’s marketing stimuli” (Hutt & Speh). Once a firm has effectively “segmented” the market, it must choose to “target” one or more closely related segments in which it can focus its marketing efforts on. Firms usually prioritize segments based on a combination of factors including sales, loyalty, profitability, as well as other strategic considerations.
There have been many studies conducted to analyze the benefits of consumer segmentation. Research has shown that companies that implement formal, research-based segmentation strategies receive higher revenues and market share than competitors. By identifying the similarities of the demographics through consumer segmentation studies, it is possible to develop a more effective marketing strategy that better serves consumer needs. Effective segments must be measurable, substantial, accessible, differential, and actionable. Companies must realize the demographics, the motivations for purchasing, and the buying behavior of their target segment(s). Developing consumer profiles can be done via surveys and other tracking at data rich web sites. At the extreme end, companies such as Amazon and NetFlix are able to use predictive intelligence across their network to improve the shopping experience.
While consumer segmentation is a pervasive marketing strategy, it is important to be aware of its shortcomings. To explore how you can avoid these pitfalls, we will discuss common challenges many companies face through segmenting their audience:
Ignoring Potential Audiences
When leaving out certain segments, a company may not be able to maximize potential. Additionally, a brand may gain a permanent association with a certain group, especially when utilizing social class, race, or lifestyle, which may deter others from using the product. For example, the beer “Colt 45″, targets African-Americans, but there are many people out there who are not African Americans who may enjoy the beer as well. Therefore, the racially segregated marketing and ads for such products may make others feel like they are not meant to use the product or feel under-appreciated for their support and use of the product. Another example is Pepsi; it targets youthful, active, and edgy consumers heavily. It is likely that many more traditional, older and laid-back soda drinkers may feel like they don’t fit into this “Pepsi stereotype” so proceed to buy Coke instead. This ultimately leads to an alienation of potentially reliable consumers.
Forgetting About Individuality
Quantitative surveys produce numerous statistically significant segments, but creating the segment (or segments) for which the company should target is not a simple task. Just as every individual is unique in some way, shape or form, it is hard to classify people into buying-behavior segments. Marketing concentrated on a “segment” may only cater to a portion of the individuals within the segment, leaving the others out. There are so many factors that must be considered when segmenting, such as demographics, education level, income level, psychographics (refers to targeting consumer segments according to social class, lifestyle and personality), past purchasing behavior, that it is nearly impossible to group people into one segment.
Sending the Wrong Message
Another problem that can arise during the process of segmentation is cannibalization, in which one segment overtakes another so nothing is gained and in the worst case, sales or market share is lost. Moreover, there is a risk of sending the wrong message or an occurrence of brand “dilution” to too many segments, or different messages to different segments of the market.
Additionally, while consumer segmentation is one of the major studies of market research throughout top-performing companies, it proves very difficult to get it right –at least the first time. Despite these shortcomings, segmentation is still a valid tool to help understand your audience. As you develop your segmentation plans, consider some of these challenges, and avoid the traps. And remember, that it is always helpful to learn more about your audience…just be sure to ask questions that provide actionable insight in helping you to develop your overall strategy.
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