10 Jun 2020 21:18 IST

Impact of segmentation and the path to the new normal

Customers have varied needs; hence marketers must turn their efforts to targeting them individually

Marketers have long relied on segmentation to learn consumer behaviour. Now that the marketing playbook has changed, it’s time to revisit target audiences.

Market segmentation traces its roots back to the 1930s, when the popular theories of superfluous competition and true monopoly no longer appeared to fit the bill. A distinct monopolistic theory was developed around the belief that every firm was, in itself, unique in some significant way.

Every business was empowered to create its restricted monopolistic position by offering a product reformed in some way from others. That differentiation could be based on specific product attributes — packaging, distribution, or the real or perceived value associated with, for example, a brand name.

Product differentiation

Keynesians called this process “product differentiation” and inferred that it resulted in varying demand curves for each group of distinct buyers. The concept of “market segmentation” has been associated with Wendell R Smith, a marketing consultant. His 1956 paper, “Product differentiation and market segmentation as alternative marketing strategies”, published in The Journal of Marketing, won the Alpha Kappa Psi award as the most notable marketing paper of the year.

Customers have varied needs; hence marketers need to develop their marketing effort to target those individually. Customers and prospective customers have to be classified into groups of ‘similar’ types.

For example, Netflix takes behavioural segmentation to the next level, with each user receiving a unique experience. Being notified of the content that matters to you and presented recommendations based on your behaviour work like magic. In fact, according to Business Insider, Netflix holds its personalised recommendation engine that could be worth around $1 billion. With 80 per cent of Netflix views coming from recommendations, the bulk of its customers are dazzled by it. Netflix takes charge of its data by understanding its customers and feeding them precisely what they are looking for.

Every business has segmentation criteria specific to its industry and current needs.

Psychographic segmentation

This categorisation classifies individual consumers into social groups such as ‘YAMI’ (young, aspirational, mobile-native, and impulsive millennials), ‘YUMPS’ (young, upwardly mobile-savvy professionals), and ‘BUMPS’ (borrowed-to-the-hilt, upwardly mobile, professional show-offs). A recent extension is Generation C, born out of the Covid-19 pandemic, though predictably there is very little firm consensus on their characteristics. These categories try to reflect how social behaviour impacts buyer behaviour.

Market research company Forrester Research claims that when it comes to ascertaining whether consumers will or will not browse the internet, how much they will spend and what they will buy, demographic factors such as age, gender, and religion don’t matter anywhere near as much as the consumers’ attitudes towards technology.

Forrester used two categories like “technology optimists” and “technology pessimists” and has used these alongside income and what it calls “primary motivation” like career, family, and entertainment to divide up the whole market. Each segment is given a new name like “Digital Hopefuls”, and “Techno-strivers”, and so forth.

Benefit segmentation

This process identifies that different people can get mixed satisfaction from the same product or service. An online travel and leisure retailer, lastminute.com, claims two unique benefits for its users. First, it intends to offer people discounts that appeal because of the price and value. Second, the company, of late, has been putting more stress on the advantage of immediacy. This approach is rather similar to the impulse-buy products placed in the checkout carts, which you never thought of buying until you crashed into them on your way out. Whether five days on a beach in Seychelles or a trip to Jordan are the sort of things people “pop in their baskets” before turning off their computers, time will tell.

Although segmentation studies are foundational, they are long-drawn efforts that give strategic rather than tactical direction. It’s time to take hold of the social distancing time-frame to classify the new dimensions, get key stakeholder buy-in, and design and draft the segmentation contours. This way, you will be able to launch data collection as soon as the time is right. Again, the ‘when’ will differ by category.

As with all things pandemic-related, staying ahead of the curve helps you flatten its impact on your life and your business. If you beat your competitors to the realisation that the traditional segmentation has changed and needs to be tweaked, you will be in a position to win when the market rebounds.