The Reshaping of Market Segmentation

November 12th, 2010

Segmentation is at the heart of every marketing strategy. Consumer market segmentation is viewed as a “best-in-class” practice across the marketing world. An entire industry has grown around segmentation and clustering products and tools (think shotguns and pickups). And there is a constant drive to better segment our customer and prospect base because conventional wisdom holds that the better we segment, the better we can market.

The challenge is that the static definitions of consumer segments are becoming less reliable in our fast changing and volatile society, especially in today’s economic climate.

First, consumers are never just part of one segment. We’re complex beings by nature. Accountant by day, biker by night. Zealot sports fan on Sunday, kindergarten teacher on Monday. Consumers rightfully feel that they belong to a multitude of segments because they are multidimensional.

Secondly, external factors like the Internet and mobile connectivity influence the decision-making process by providing constant access to tons of information and people.

As a result, how we think about segmentation is being reviewed and reshaped on an ongoing basis. The fact consumers are segmenting themselves when participating in social networks provides a great opportunity for insights. Based upon their interactions, the different roles people can have in communities and the content which is generated by them can be analyzed to create a self-segmented model. So self-segmentation is quickly emerging as a viable and valuable segmentation approach.

The best way to think about the difference between traditional consumer market segmentation and self-segmentation is to think of segmentation as a behavior. Our traditional practice of market segmentation is the marketer’s segmenting behavior. That’s basically your partitioning as a marketer of your total market into segments. Self-segmentation is the consumer’s segmentation behavior.

The core axiom driving self-segmentation is that the customers (not the provider of a good or service) know best what they want.

Offer your customers and prospects networking opportunities based on self-acclaimed interests.  Use Facebook, LinkedIn or even consider creating your own community via Ning.

Create correlations between purchased products and services, and serve them up as recommendations. Think about how Apple’s Genius service works — you like this, you might also like this.

Make it easy to share content or feedback in the context of your brand. It can be as simple as incorporating the Facebook Like button on your website or elaborate as creating an entire sharing effort like the “Power of the Human Voice” campaign that Blue Cross launched to let consumers share their ideas about healthcare.

Create ways that consumers can opt in to alerts by various interest categories or deal-driven options like Orbitz Fare Alert.

While more and more companies are shifting some emphasis from brand-controlled segmentation to enabled self-segmentation, it doesn’t diminish marketers’ need to understand their consumer base and provide relevant information based on that knowledge.

Traditional consumer segmentation will continue to play a critical role in aligning media strategy and related intersection insights with the core segments of a particular brand, matching the right channel moment with the most appropriate segment and in identifying the right segment for a new product or product design.

A decade ago, Lewis and Bridger argued that a new type of consumer began emerging some 30 years prior. Christened “the New Consumer” (NC), today these NCs have established a firm foothold and are even more common than the Old Consumer. The NC is far more rational in terms of using up his/her resources, especially time, trust and attention. These resources have gained the same importance as money. This has a serious impact on marketing and segmentation. NCs are independent, informed, involved and individualistic. They are more independent in the sense that the simple cause and effect relationship between seeing an advertisement and then buying a product — much like a Pavlovian reflex — has been replaced by something like an ironic distance. The psyche of the individualist has freed itself subtly but decisively from the shackles of mass convention; the NC decides more or less autonomously and spontaneously which advertising message is used as a consumption trigger. She/he no longer needs the security of the group and instead values individuality.

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