Market segmentation

Why top marketers turned their backs on segmentation

Segmentation is supposed to be a core building block of marketing, an idea pushed relentlessly by Philip Kotler, the economist who wrote the seminal marketing textbook. It even makes the very first, 1967 edition of his Marketing Management tome, when the fully formed theory of Segmentation, Targeting and Positioning was still to be invented. By Kotler’s 1976 third edition, he declared that “the analysis of market segments lies at the heart of marketing strategy”.

In fact, segmentation is mostly a nonsense, made worse by marketers often splitting their markets into segments in random ways.

When done well, segmentation is based on clustered preferences – that is to say, there is a group of prospective customers who would like a cheap, basic printer for home, and there is another group of prospective customers who want a big, high-speed printer that’s robust enough to support dozens of workers in an office. But here, what we are really talking about is the need for brands to adopt a product range strategy – rather than trying to exclude segments or create different brands to cater for individual segments. The most successful companies in the market, such as Epson and Canon, don’t try to pick one or two segments but apply their brands to products in every segment.

Where segmentation goes awry when people try to apply demographic and psychographic segmentation and give those segments names such as “Quipster Hipsters” or “Worcestershire Women”. Often, marketers don’t base these segments on actual clustered preferences – they just invent them in a meeting room, with no data. Or they use generalisations from consumer research firms about people that have nothing to do with their sector.

The main problem with these sort of crass generalisations is that, as Prof Byron Sharp (the top marketing effectiveness academic in the world) points out, “competing brands sell to the same sort of people. Within each brand’s customer base there is a lot of variation (i.e. different types of people), but each brand has the same variation.” In other words, despite the fact that many brands try to pigeon hole themselves into catering for specific segments, consumer behaviour is way more complicated. For example, a luxury handbag brand might think its segment is the super-wealthy globetrotter with multiple passports who would think nothing of spending £1,000 on a handbag. In fact, probably the reason why the brand has been able to grow is that people on relatively ordinary incomes visit its stores and splash out on a special occasion. As Prof Jenni Romaniuk, a colleague of Prof Sharp, says: “The desire to target just a fraction of the market is often based on the idea that the brand is highly differentiated and so much appeal to some and not others … Data on real-world buying does not support this view.”

Prof Romaniuk goes further and writes: “A really dangerous practice in modern marketing is to describe a market as a single person: for example, ‘our target consumer is Nicole, she’s 28 years old, is passionate about the environment and sustainability, shops at Whole Foods Market, likes new experiences, reads classic literature but also watches Keeping up with the Kardashians as a guilty pleasure’. This is the height of inane target marketing: to treat all of those very different customers as if they are clones of Nicole. In defence, some will say this caricature is just to ‘bring the customer alive’, to ‘help thinking’, but it is lazy, dangerous thinking that often finds its way into advertising and media plans, and the brand ends up talking to only a tiny fraction of its potential market.”

Segmentation as a term is often used loosely in all manner of marketing tools – e.g. in Google Analytics it can refer to website visitors who have visited a particular page. I have no objection to this sort of “segmentation”. Or, indeed, of trying to create products and services that appeal to different customer preferences. But in its original sense of a brand choosing only specific market segments to target, it is likely to curb growth and profitability.

Some marketers have long opposed segmentation. As Drayton Bird, the doyen of direct marketing, says, there are marketers who “segment [customers], using pretentious phrases, like ‘upwardly mobile’ or creative language their research people have dreamt up so as to charge more – like dividing them up into different kinds of fruit or animals … [In fact] your customers are individuals, not types.” Which brings me to my use of supermarkets. I shop at Waitrose, Sainsbury’s, Tesco, Lidl, Aldi and, about once a year, at Fortnum and Mason. And I appreciate the highly differentiated offering of some of those retailers, but like many individuals I probably don’t conform to some marketing strategy’s segmentation, instead picking and choosing the from a range of propositions. The clever targeting for those supermarkets is to target the whole market, not a supposed segment, and if I’ve shared my contact details with them to keep on communicating with me so to influence me to give them a greater share of my expenditure.

Since Byron Sharp’s groundbreaking book, How Brands Grow, was published, top marketers have realised the futility of segmentation. But, as John Maynard Keynes said: “Practical men [people], who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist”.

Share [wpsr_button id="sb-30"]