Why Doesn't My Market Segmentation Work?

This article shares scenarios where you might run into problems with market segmentation.

Why doesn't my market segmentation work? It’s a question/complaint we hear on a regular basis.

After a rather sizable investment of time and resources, sometimes after major organizational or brand restructuring even, when it comes to using the results of a market segmentation research exercise to make decisions about what new products to offer or where to place advertising, marketers run into problems.

Recently, for example, the CMO of a marketing powerhouse—the No. 1 in its industry—asked us in after he’d decided to throw in the towel trying to figure out how to work with his existing market segments. As he told us, "We were doing well until last year when we decided to restructure all of our marketing efforts (advertising, product design, promotion, channel choice, pricing, and so on) based on the results of a new psychographic market segmentation."

Curious, we asked about how the study was designed and executed. The CMO explained that the company gave a psychographic battery of 46 questions (e.g., "I always like to be surrounded by a lot of people" versus "I consider myself to be a loner"; "I am an extroverted, garrulous person" versus "I tend to be a reticent person with not much to say"; "In any group activity, I always find myself in a leadership position" versus "I'm much more of a follower than a leader") to 1,000 people over the internet, analyzed the data, and clustered respondents into groups based on their answers.

Now, we’re not trying to pick on a psychographic approach to market segmentation here. After all, if you pick ANY set of variables—demographics, attitudes, needs, etc.—to use to develop market segments BEFORE determining if they are at all predictive of brand-positive behavior or profitability, never mind if they help you with the decisions you need to make, it’s going to be an uphill battle to get your money’s worth out of the research effort.

In the case of the CMO that called us in, to his knowledge, the items used to delineate and define the groups were of unknown reliability and validity at foretelling (among other things) purchase intent in the category. No serious thinking or analysis was undertaken to determine whether psychographics might be a useful, practical, or helpful way of segmenting that market. No attempt was made to evaluate each respondent or cluster in terms of potential profitability. No attempt was made to assess whether any of the groups could be found in existing databases. Yet standing orders were to develop marketing programs against the five resulting buyer segments.

Why didn’t this market segmentation work? Well, we eventually discovered that few of the psychographic items in this CMO’s market segmentation had anything to do with behavior in the category. The five segments were perfectly flat in terms of product motivations, problems, demographics, media exposure patterns, and anything else you might care to look at. And when we did try to find the groups in databases, it was impossible; they were all the same.

The big take away here: there's just no way to know ahead of time what factors will be predictive of behavior and profitability. Marketers should consider hundreds of ways to break up the market—not some pre-prescribed list—in order to create detail-rich, proprietary market segments that competitors don't even know exist. This is how a market segmentation can become a valuable strategic asset instead of a major source of frustration.

-January 2010

This content was provided by Copernicus Marketing Consulting and Research. Visit their website at www.copernicusmarketing.com.