Rediscovering Market Segmentation

The psychographic profiling that passes for market segmentation these days is a mostly wasteful diversion from its original and true purpose—discovering customers whose behavior can be changed or whose needs are not being met. 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.

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” . 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. Define segments based on consumers’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.Identify a strategic decision that would benefit from information about different customer segments.

For instance, a fast-food company is considering developing healthier menu alternatives. A personal-care company wants to extend a soap brand into deodorants.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.Current behaviors can help you predict future behaviors using a statistical technique called conjoint analysis.

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