The Difficulties of Market Segmentation

Lawrence Zammit's article on The Times of Malta.

One of the issues that keeps bothering marketing persons is the way to segment and analyse the market. Wikipedia defines market segmentation as “the process of dividing a broad consumer or business market, normally consisting of existing and potential customers, into sub-groups of consumers (known as segments) based on some type of shared characteristics”.

There was a time when it was possible to use simple demographic and geographic criteria such as age, gender, occupation, location of residence, etc. Over the years this has changed for two main reasons.

The first is the need to have as much granular information as possible. Businesses are being increasingly required to target customers on an individual basis. Thus segmentation on the basis of age is too broad. Even if one were to segment a market on the basis of age and gender together, one would still end up with a large group, as to render individualised messages practically impossible to achieve.

The second is a more interesting phenomenon. If we take age as an example, we are having a blurring of the boundaries between generations. For example we hear about kids growing faster and start behaving like teens earlier. We have young adults who enjoy an extended adolescence, with the result that they continue to reply on their parents. We have had a redefinition of what is mid-life. We have persons who have reached pensionable age and who still work and behave like persons ten years younger.

Such blurring of traditional boundary lines may render useless marketing campaigns. Therefore trying to segment the market in a meaningful way on the basis of traditional generational identities has become an arduous task. This has given a big boost to activities like data analytics and behavioural studies.

There is another consideration that needs to be made. There are significant differences between the way persons describe themselves and the way they describe their generation. Research has consistently shown that respondents would describe themselves one way, and then would describe persons of their own generation in a totally different manner.

For example a research study showed that 30% of the so-called “baby boomers” describe themselves as followers. However 60% of them describe persons belonging to the “baby boomer” generation as followers. This shows how difficult it is to even use familiar terminology such as “baby boomers” or “generation X” or “generation Y” as a basis for market segmentation.

Evidence also suggests that when analysing research data by traditional demographic market segments, very few marked distinctions emerge between different segments. Therefore to understand better the make up of a market, other approaches would be required.

Other aspects have been used to enable more meaningful market segmentation such as the lifestyle or behaviours of different segments of the population. However in certain respects this will always be works in progress as society keeps changing and as a result segmentation on the basis of lifestyle keeps changing.

For example the pop-up ads that one gets on internet are based on the actual behaviour of each individual, as measured through the sites one visits. This makes possible personalised marketing campaigns based on actual behaviour. On the other hand, once individual and collective behaviour change, there would be the need for a rethinking.

The British Broadcasting Corporation had undertaken a significant study in 2013 and sought to redefine social classes according to a set of economic, social and cultural criteria. Obviously this study applies to the UK as segmentation would also differ from one country to another, making a uniform approach very difficult.

This week’s contribution was not meant to provide an answer to the question as to how to segment the market better. It was meant rather to highlight the need to look at using different approaches to obtain a better insight into markets.

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