Consumer Market Segmentation 101

In the not-too-distant past, the conventional wisdom was that marketers viewed the consumer marketplace in terms of single, mass markets.  In the post-World War II era of the 1950s and 1960s, advertising messages were delivered through mass marketing media.

Leading print media included such magazines as Life, Look, Saturday Evening Post, Time (TWC), and Newsweek.  Key broadcast media focused on the three major networks – CBS, NBC, and ABC.  As costs escalated, smart marketers soon discovered the wastefulness of marketing through mass media.  It made no sense to spend huge chunks of the marketing budget to advertise Campbell’s Soup in the same media that ran full-page color ads for Cadillac and Lincoln automobiles.  The highly popular cable TV series “Mad Men” effectively captures this era of mass marketing, which also was a golden era for the big advertising agencies.

Starting in the1970s and continuing through the present day, the principle of “market segmentation” began dominating the consumer marketing landscape.  If Proctor & Gamble (PG) wanted to sell Tide detergent they could use Good Housekeeping or Ladies Home Journal to reach females concerned with washing clothes instead of marketing through the same media channels that General Motors (GM) and Ford (F) used to sell cars to male buyers.  The whole market segmentation principle made so much sense that the mass marketing magazines like Life and Look quickly vanished from the scene to be replaced by hundreds of magazines that focused on specific markets and audiences.  It is interesting to note that despite the migration of advertisers to the focused media, the mass market media never lost circulation and readership.  If Life Magazine were still in existence it would continue to sell millions of copies every week. What the mass circulation media lost was the advertisers, the lifeblood of their income streams.

Market segmentation soon adapted to virtually all media – radio, television, and print.  The newest manifestation of segmented marketing has found a home in interactive (computer-generated) media that has now reached its pinnacle with the emergence of social media like Facebook, Twitter, and a host of other social networking websites.

Segmentation Criteria

In developing the ideal market segmentation strategy, the following issues should be included:

Measurability

You need to know the size of the segments to determine the value of monetization.

Profitability 

The key to segmentation is help the marketer maximize profits by honing into the optimum market segments.

Stability

The segments or segments selected must evidence some form of stability over time in that these segments don’t change or vanish.

Compatibility with channels of trade

Members of the target market should be reachable through the organization’s normal promotion or distribution channels.

Reachability 

There has to be some way that members of a market segment can be reached through some form of media.

Homogeneous within

Members or the target market should evidence homogenous qualities in that they prefer the same behavioral qualities.

Heterogeneous without

Here we observe that different customers from different segments evidence different behavioral qualities.

Consistency

Members of a segment should respond consistently to the same stimulus.

Cost-Effectiveness  

It is necessary to be able to reach members of the segmented target market in a cost-effective manner.

Segmentation Dimensions

We can now turn our discussion to the dimensions of segmentation and how we segment consumer markets.  Following are the key avenues:

Geographic – Where people live is the key to this dimension.  We would focus on regions of the country, i.e. North vs. South, East vs. West.  We also can geographically segment based on urban vs. rural or city vs. suburban.  Other dimensions might be things like coastal areas vs. land-locked areas.

Demographic – Here we are subdividing our target markets along the lines of age, income, education, ancestry, religion, and factors based along similar lines.

Psychographic – Here we are diving markets based on stereotypic lifestyles.  When we see advertisements depicting the “helpless homemaker” or the “affluent urban dweller” we are looking at certain lifestyle characteristics.  Advertisers like this dimension because it focuses on perceived images of behavior based on these lifestyle characteristics.

Benefits – This is a wide segmentation area based on how people perceive and make use of certain products.  For example there is a basic benefit for every product and there are special benefits in addition to the basic benefit.  For example, the basic benefit of a watch is to tell time but there is a major difference between using a Timex watch to tell time and a Rolex watch.  The benefit sought from the Rolex transcends the basic benefit of telling time and extends into a new benefit focusing on making a statement about one’s hopes, goals, and aspirations.  Bundled into this benefit segmentation area are diving markets into frequent users versus infrequent users, and the whole concept of brand loyalty lies in this area.  The brand-loyal customer clearly reacts differently toward products than the infrequent user.

There are many other dimensions as well. Consumers can be categorized as to knowledge, attitudes, and biases toward certain brands and products.  Markets can also be segmented based on occasions such as birthdays, holidays, and other life-cycle events.

Clearly, those people who make use of the social media such as Facebook, LinkedIn, Twitter constitute viable market segments and are reachable through the social websites.  Booksellers have discovered that Oprah Winfrey is a segmentation dimension based on her influence as an opinion-maker with her reading recommendations.

It is the smart marketer today who will recognize key segmentation opportunities and use this important principle to create and develop new markets and profits. Customers and businesses both gain through smart segmentation.  Profitable marketing leads to profitable selling, and better-targeted marketing improves the consumers’ experience with and enjoyment of the products they buy.  Here’s to talking to people who care—a position I suspect we all benefit from.