30 May 2018 19:18 IST

Looking beyond demographics to target customers

To understand the motivations and behaviours of a target audience today, we need a more holistic picture of their interests, motivations, values and purchase drivers | Jirsak/iStock.com

Psychographic segmentation uses behavioural insights to convert a prospect into a customer

Can we still think of customers in terms of age, gender and location? We can all agree that to understand the motivations and behaviours of a target audience today, we ought to look beyond just demographics. We need a more holistic picture of people’s interests, motivations, values and purchase drivers.

And this is where psychographics comes in. But what is psychographic segmentation all about?

What is it?

Does it include the consumer’s hobbies, spending habits, values and more; is it an evil plot to manipulate gullible people into voting for terrible candidates and causes? Or is it a marketing approach to comprehend how people think, before trying and selling them something they may not know they want?

Unarguably, the real answer is the latter. A reader can be forgiven for choosing the first option, because this is how everybody got acquainted with the topic, thanks to the infamous and now-defunct research firm, Cambridge Analytica.

The scandal caught the industry by surprise because the firm had used seemingly innocent quizzes to gather data for its segmentation. The company had figured out how to re-engineer segments based on Facebook ‘likes’, instead of relying on questionnaires, surveys and focus groups.

Psychographic segmentation isn’t a new approach; it has been around for decades, and has been used to gain insights on how people think. It then uses these insights to convert a prospect into a customer.

Purchase decision: the why

To find a cohort to sell to, you need to separate the sceptics from the idealists, and the liberals from the conservatives and rigid thinkers. Then, you can administer questionnaires designed to polarise the respondents. You bring the like-minded people together, but distinguish them from other segments by asking questions that result in distinct groupings. Further, by correlating the respondents with their purchase histories, one can develop marketing campaigns the respondents can relate to.

From a marketing point of view, early adopters are more likely to buy a new product, but that may not be the case for rigid thinkers, who need to be convinced that the product will work for them.

A new dimension

Psychographics provides a much-needed behavioural dimension that encompasses personality traits, interests, activities, and opinions. While two individuals may appear demographically similar, their intellectual outlook might be quite different, and this may impact their personal decisions and purchase behaviour. Many brands now go beyond demographics to factor in lifestyles and behavioural preferences.

Let’s take the example of a luxury clothing service that might want to target women with household incomes of ₹50 lakh or more in Mumbai. The brand might want to look for career-driven women, who are usually short on time. The association of those two segmentations gives marketers a deeper insight into what the target customer looks like.

More work, more reward

In-depth interviews, surveys and focus groups are still useful tools for profiling. You can add artificial intelligence, data and social media analytics to your tool basket to segment customers further, but limits exist. Marketers need to understand nuance and be discerning.

Big data alone doesn’t really answer the ‘why’ of purchase decisions. Sometimes, data groups overlay, forcing you to talk to people to find out why they feel a certain way.

Gathering data for psychographic segmentation is an arduous task. It has conventionally been a luxury available only to resource-rich companies. However, the use of AI and machine learning will help lift some of the operational encumbrances of analysing responses and organising segments, and we may just see more applications that follow this approach.

This kind of segmenting is still beyond the means of small and medium-sized businesses. I reckon it will be used more in the next few years as innovative syndicated providers (web-based information service firms) offer more affordable services, that serve as proxies to conduct large-scale, custom studies. These currently do a good job of serving the SME market and could go on to offer detailed psychographic information.

While psychographic studies may seem a gruelling exercise, the gain is worth the pain. The companies that use this tool to categorise their customers are rewarded, resulting in an increase in business performance when compared to firms not using this method of segmentation.

Psychographic analysis has caught the imagination of consumer marketers and most major research studies about customers now incorporate this approach into their analyses. To this end, it can successfully complement traditional demographic marketing techniques.