The New Market Segmentation

Dan Herman, PhD

If you’re trying to segment your market in the traditional way, what you may be looking for would be groups of consumers sorted out in such a way that a certain likeness exists within each group, and a difference exists between them. The variable determining the meaningful likeness or difference between those groups would be the segmentation variable. A trivial segmentation variable, just for the sake of demonstration, would be hair color. However, after having segmented the customers into groups, it is reasonable to assume that you would expect to do something with it. Let’s say that you have decided to target a certain segment. You would probably want to do some marketing activities that will appeal to this segment, or else, to communicate some kind of enticing message to it. Sometimes, the segmentation variable could suffice for the purpose, (“listen to me, all you red-heads out there…”). In most cases (for instance, the segment of those who consume beer only out side their home), you would have to characterize your segment before you could address them. In other words, you would have to define what describes the customers in that segment, beyond your segmentation variable, and also, what makes them different from consumers in other market segments. The characterization of your segment is a task that is not the same as defining your segment. It is a distinct next step. But now, if you can be truly sincere with yourself, I’m convinced that you have already found out that it does not work.

What do I mean by that? Well, according to the conventional segmenting method, people in each segment should differ – to some extent – from the people in the other segments. Nevertheless, usually, they do not. Let us say that in a certain segment, there is a majority of women: 60% versus about 50% in the entire population. Even if the difference is statistically significant, is this a ‘feminine segment’ then? And what about the other 40% who are men? Let us assume, for example, that in one of the segments, there is a relatively high percentage of religious people. Is this a ‘religious’ segment? Absolutely not. The vast majority within this segment is clearly not religious, even though their proportion is higher than it is in the general population. Thus, in each and every segment, with slight variations, you could meet almost every layer of society.

So where did this idea, on which the conventional segmenting method is based, come from? In the distant past, and in traditional societies (sectarian) the people’s behavioral patterns were pretty much modeled by their affiliation to a certain gender, a nationality/tribe/race, a certain religion, a social/economic status, a profession, and an age group – much more than today, anyway. There were clear clusters of elements pertaining to appearance, general behavior and particularly consumption. Then, back in those days, if you knew one element of a particular cluster, you could quite easily guess the others. But all this has changed. As people are becoming gradually more individualistic, and as possibilities have multiplied, people have become less and less definable as types.

Back in the 70’s we were taught that because of this process, it is worthwhile to conduct psychographic segmentations which includes characterizations according to lifestyle groups. A widely accepted approach such as VALS (Values, Attitudes, and Lifestyles) classified people into 10 ‘lifestyle groups’, later reduced to eight. Disappointingly, it was subsequently discovered that the groupings couldn’t predict, with reasonable credibility or consistency, specific purchase decisions, or preferences in specific product categories. The alternative was to use those groups for purposes of personal-psychological characterization. So, then again, just like in the case of the demographic, and socioeconomic classifications, we find in each and every segment of each segmentation project, ‘representatives’ of all lifestyle types, and, well, we didn’t make much progress here, did we?

If you have been segmenting for many years, you already know that the problem has just been worsening with time. The reason why this is so is that there has been a long lasting consumer trend going on, with numerous implications, because of which we should change the way by which we segment the market.

First of all, let's face it, our consumer refuses almost completely to abide by segments that create homogeneous groups (heterogeneous from others) according to demographic, socio-economic variables, or even according to lifestyle. Our customer will not behave and consume under our stereotypical forecasts. He is a “collector”, and therefore I call him the ‘eclectic consumer’. He likes the old (Frank Sinatra), as well as the new (fast internet), the comfortable (frozen foods) as well as the effortful (cooking, DIY), the expensive (BMW) as well as the economical (hardware do-it-yourself stores), the international (Giorgio Armani) as well as the locally rooted (folk dancing), the sophisticated (Nokia) as well as the simple (family), the epicure (a double Makiato) as well as the crude (football).

Yet, what is it that constitutes the long lasting cultural trend that has been modeling the eclectic consumer? The eclectic consumer is motivated by the Fear of Missing Out, a motive that I have been researching for the past five years. At present, over 70% of the population is motivated by the Fear of Missing Out. About 30% could be considered highly motivated by FoMO. That means a great big number of customers. The eclectic consumer has become frenzied by the abundance of opportunities, and is now addicted to the concept. She does not want to miss anything and so, her life is multiplex, yet laden. She is always accessible by cellphone or email, updated, open to new concepts, and not so afraid of changes. She spends fewer years than she used to spend in the same apartment, same job, and same marriage (that is, if she does not belong to the group of the eternally single). In contrast to the past, she is proud of being flexible and developing, and is not committed to a fixed personality. And, by the way, she is much MUCH less loyal to brands than she used to be. In fact, she embraces new brands so impetuously, that the marketers are convinced as to their own ingenuity.

So, how do you market to the eclectic customer who is afraid of missing out? Well, there are many facets to this art; however, at this point I want to focus on market segmentation at an era in which customers refuse to be classified in convenient clusters, considering that this phenomenon is prevalent in many product categories. One central insight for the re-designing of market segmentation is as follows: the eclectic consumer, who will not miss anything, ‘connects’ to different, even contradictory, motivations he has at different times. Because these motivations are not necessarily compatible with one another, the eclectic consumer is constantly in motion from one stereotype to another, from one lifestyle to another. That is why he chooses to drink pro-biotic yogurt when he gets up in the morning, and to grind up a stake & French fries lunch at noon, topping it off with a cigarette. After work, he meets up with friends for a delicate Japanese dinner, which he concludes with a bottle of fine French cognac.

In order to adapt to this consumer reality, our segmentation (and subsequently, our products and services, our advertising and so on) should be formulated not according to groups of people, but according to motivations and uses. Note that when I refer to ‘uses’ I mean, among other things, psychological uses, such as mood control, self-esteem enhancement, and fantasy support, and I also mean social uses, such as signaling others things like group affiliation, specific atmospheres, or impression control.

Note that this constitutes a formation of a real revolution in segmentation thinking. Some of you would probably comment that this is not so much about segmentation as it is about consumer behavior analysis. Well, let me answer you. Let us recall the original purpose of market segmentation. It is the furcation of the market into smaller units enabling us to focus our marketing/branding/advertising activities, and to achieve differentiation, so that we could win advantages we could not get when working with the entire market. The search for small consumer groups has evidently stopped delivering results. However, the pursuit after groups of ‘purchases/consumptions’ rather than of people, could offer new horizons.

Let us sharpen things a little. According to the old segmentation, each group is characterized by a need/preference/motivation. The new approach preserves this concept. Yet, in the new reality, and according to the new approach, the motivation is no longer common within a defined consumer group. A ‘segment’ is now a group of ‘purchases/consumptions’ qualified by a certain context of purchasing or consuming a product plus a specific motivation.

When we segment according to this approach, we analyze consumer behavior; we identify the various contexts of product consumption, and the different motivations that characterize consumers who experience those contexts. The new relevant segments could consist of certain moods (such as the ‘I’m going to teach that husband of mine a lesson he’s never going to forget’ segment), certain social situations (such as the ‘Wow, I haven’t seen YOU in a long time’ segment), all according to what is relevant to that specific product category. Note that when we meet a given purchasing context (a dinner at a restaurant) there are varied consumer motivations that exist (‘tonight we’re going out solo, no kids’, versus ‘we’re celebrating grandpa’s birthday’), and they would be considered different market segments. A specific consumer is likely to participate in one segment, few segments, or no segment. Nevertheless, much like the old segmentation, every segment accounts for a share of our sales, and we can do our profitability calculations accordingly.

I know this can seem a little strange at first, so let us examine an additional example. Let us say that you are a shampoo manufacturer. Then, the segment of “I’m going to look fabulous in that party” would be responsible for a certain percentage of your income, and so will the segment of “I do so need a half an hour to myself”, and the segment of “my god, all those expenses are wearing me out, I must cut down a little”. The same consumer could belong to each of those market segments, at different times.

According to this approach, then, our marketing activities, at all levels, should be aimed towards a context of purchasing/consumption plus a certain motivation, and not towards groups of consumers.

Finally, let us examine one more example, a segment of the big and significant market of fashion accessories, especially the low priced ones. That’s the segment of “Hey, that’s new, where did you get it from?”. The central benefit motivating this segment is the psychological/social instrumentality: the opportunity to win a little bit of renewed attention from their surroundings. Marketers specializing in this segment tend to launch short-term brands (although many do not go beyond short-term products). Why short? Because novelty is very quick to fade and this need is one of the regenerating needs (that require ever-new sources of satisfaction) aptly catered to by Short-Term Brands. According to the new approach described here, you could launch such a product or a brand; however, it will not be designed to appeal to a particular group of customers. Entirely different customers, with relation to their genders, age groups, socio-economic layers, family orientations, and achievement seeking levels, will purchase your product when ever they experience a longing for getting a little bit of extra attention, again.

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Dan Herman, PhD, is owner and CEO of Herman – Strategic Consultants. For more information and free content visit his website: www.danherman.com .

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