A Segmentation You Can Act On

Abstract

Value-based segments usually don't fit neatly into demographic ones I Some solutions step around the problem; others meet it head on Remember when marketing was simple? Your division operated in a manageable geographic region. You defined your consumer targets by age, say, and by income. If you were in a business-to-business market, you divided up companies by size. But the wild proliferation of brands and channels in rapidly globalizing markets now flusters even the most sophisticated marketers. In this environment, how should your sales force tailor its strategies to its accounts? Different customers have different attitudes, needs, and preferences, but the old distinctions no longer take you very far. What should you be looking at today? The current purchasing behavior of your customers? The benefits they seek to obtain? Demographics or its business-to-business equivalent: firmographics? Ford's Model T strategy--any color you wanted, so long as it was black--worked until customers had an alternative. Soon-to-be-deregulated utilities, among other companies, are now miserably aware of this reality. How will the utilities build loyalty among the most profitable customers before competition takes them away? Utilities had so little need for marketing in the past that some know very little about them and have no idea what products and services might keep them loyal after the coming of choice. Companies often address this problem by developing segmentation schemes breaking down markets into sets of customers or potential customers who share attributes that might be based on demography (income, say, or age) or on values or needs. [1] Consider some obvious examples. Video camera manufacturers capitalize on the fact that families expecting their first children are likely customers. Telephone companies try to sell call waiting to families with teenage children. The USAA insurance agency targets military personnel because it has come to believe, correctly, that this group is likely to be significantly more loyal, and therefore more profitable, than others. Unfortunately, easy cases permitting marketers to establish meaningful differences among groups of customers and then to identify them-- a phenomenon we call actionable segmentation--are rare. More often, despite decades of research and many refinements in the basic model, the segmentation process creates very real difficulties for marketers. No doubt such methodologies as conjoint or latent-class analyses permit them to use values, needs, and attitudes to devise groups (for instance, price-, service-, and quality-oriented segments) that include almost all customers. Yet it usually turns out to be very difficult to identify the flesh-and-blood people actually inhabiting the segments. How do you find customers who care mainly about service or quality without interrogating them all? A leading insurance company based in the United States spent a lot of time, trouble, and money dividing its world into segments, only to run into exactly this problem. In the end, the company abandoned segmentation entirely. The basic difficulty is that value-based segments generally don't fit neatly into demographic ones. Many companies therefore start with the simpler task of identifying differences based on demography or on the different attributes of different companies. Companies in consumer markets, for example, typically divide their customers into baby boomers, generation Xers, and so forth. Likewise, many companies that sell to other businesses segment customers on the basis of such characteristics as their size, the volumes of their accounts, and the industries in which they compete. Unfortunately, though advertising agencies and sales forces find this approach easy to understand and to implement, it really is no more effective than value-based segmentation schemes: by no means do all baby boomers have the same preferences and purchasing behavior, and businesses of the same size, account volume, and industry may very well have rather different values and needs. …