Consumer segmentation is a process through which consumers are divided into groups based on demographic criteria (that means income, age, gender, socio-economic class etc. ) or geographic area or even values and attitudes
This helps in developing customised marketing strategies for specific segments
But what is a segment?
Let’s use a simple example. Say we are a company that makes and markets motorbikes, and we have identified that our most likely users are the consumer groups (segments) described below
A young man, aged 20 to 32, post-graduate, working in a software or MNC firm, earning over ₹1 lakh a month, and looking for a bike that enables him to show off how dashing he is. He eats out at MacDonald’s, reads an English business newspaper and lives in a metro city.
An older man, aged 40 to 50, not so highly educated, earning around ₹50,000 a month, who wants to enjoy now what he could not in his youth. He eats out at Saravana Bhavan, reads a Tamil newspaper and lives in a metro or smaller city
Note that the segments are described in terms of demographics (age, income, gender, occupation), geo-demographics (kind of city living in), media habits (reader of Times of India or The Hindu) and lifestyle (where he eats)
So why is it such a popular concept?
Marketers, advertising agencies and researchers love consumer segmentation. It is such a neat concept; and so appealing in terms of its promised actionability.
This is because segmentation holds out the promise of enabling us to develop focused strategies to attract consumers — in terms of communication, retailing, pricing, etc. Focused strategies, in turn, ensure quicker growth and better utilisation of effort.
On what basis should consumers be segmented?
Segmentation can be done on the basis of various dimensions and also on multiple dimensions at a time. It can be on the basis of income, socio-economic class, age, gender, place of residence, purchasing patterns (owner of mobile / dual-SIM mobile, etc), lifestyle and many others.
More sophisticated forms of segmentation are based on the motivation dimension, and on dimensions such as life-stage. Thus we can segment consumers of a bike based on what they look for from a bike – basic functionality of convenience / mileage / show-off value, etc.
A company can also segment consumers on the life-stage dimension such as young couple with no kids / young to middle-aged couple with school-going kids / empty nests with kids having gone off for higher studies or employment, etc. This form of segmentation can be useful for many product categories, such as investment products, kinds of homes to buy and many more.
Does it involve a lot of statistical analysis?
It does require some sophisticated tools such as Cluster Analysis (to group consumers) and Multiple Discriminant (to later test how well the grouping has been done). But the core of the concept is not in the statistics; it is in identifying the dimensions for segmentation, and that is normally done through exploratory studies.
Sounds ideal; does it have any drawbacks at all?
Unfortunately yes. Trouble is, segmentation studies rarely give us such perfect data. Human beings (consumers!) are much more complex and do not conform to type so obligingly. We will end up with a sizeable portion of consumers who are young and earn a lot, but eat at Saravana Bhavan and read a Tamil paper, and still buy our bikes. The ideal situation of lifestyle-matching-motivation-matching-media habits is simply never found in reality.
Just to illustrate, I have a friend who is rarely to be seen without a sacred mark on his forehead, goes to temples regularly, is a teetotaller and non-smoker — in short, a traditional Tamil ‘mama’ (uncle).
Yet, he holds a timeshare – a lifestyle product favoured by quite “modern” consumers, drives out every couple of months for a weekend holiday, comes back and talks about his experiences of tandem cycling with his wife, and loves racing at night with his friends on Chennai’s East Coast Road.
Tamil ‘mamas” don’t do that, or do they?
So, segmentation can sometimes be a simplistic concept, failing to reflect the fact that consumers are individuals, and not just part of X or Y segment. The market often cannot be divided neatly into segments, and needs to be seen as a set of individual consumers.
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