The process of dividing the larger, homogeneous market into distinct consumer segments based on varying attributes is not a novel concept, nor is the idea that successfully meeting consumer needs with relevant products and services will drive loyalty.
NB: This is an article from EHL Insights
Segmentation, broadly speaking, is ubiquitous. What perhaps isn’t so common, is businesses engaging in the deeper, nuanced levels of segmentation.
What are the 4 levels of consumer segmentation?
There are several schools of thought in defining the types of segmentation, but generally they include 4 levels: demographic, behavioural, psychographic and motivational. Demographic, the surface level, divides consumers on attributes like gender, age, income and other socio-economic attributes.
Behavioural, one step deeper, deals with how consumers purchase and use a particular product or service, how loyal they are, how often they consume, how they purchase, etc. The psychographic level is the first step in understanding why consumers do what they do; their personality, attitude and lifestyle. Lastly, the deepest level of segmentation is motivational or emotional segmentation: what emotional needs are being met by using a product or service?
How do today’s businesses practice segmentation?
While segmentation enables businesses to understand their consumer on a deep level, it isn’t always practiced to that extent today. A 2018 study found that a quarter of marketing budgets is used on the wrong channels and strategies, identifying ‘altered consumer expectations’ as the culprit more than half the time. This is a result of improper segmentation. If you truly understand how and why your consumer buys what you sell, accuracy in decisions like channel management will fall in line. Another trend that hints at the ubiquity of basic consumer segmentation is the vast number of companies that target millennials. Today, it’s estimated that 31.5% of global population are millennials. Are we then to assume that roughly 2.5 billion people have the same needs, values and beliefs?
The importance of in-depth consumer segmentation
Put simply, emotions, to one extent or another, drive decision-making in everything. Many times, we don’t even realise our emotional brain is involved in making a decision. Like when you’re not sure why, but something doesn’t ‘feel’ right. The impact on connecting emotionally with consumers is considerable. Over half of consumers will be more loyal to human brands or brands that demonstrate core emotional attributes. In fact, when a major bank focused on this concept and introduced a new credit card designed to inspire an emotional connection, usage among the segment increased by 70%, and new account growth rose by 40%.
L’Artisan Parfumeur: A case study in thorough segmentation
To illustrate the various segmentation levels, I’ll use a case study of L’Artisan Parfumeur, a brand I find quite interesting that produces premium, niche perfumes focusing on distinctive, complex and story-driven fragrances. Their fragrances always have a unique story behind them.
Starting at the demographic level, 20-50 year olds, living in an urban environment with a fairly high amount of discretionary spending on premium goods and services. For the behavioural, this product would be used every or most mornings, often part of a grooming routine. In terms of buying habits, users of this product may visit one of L’Artisan’s several carefully-appointed stores or alternatively purchase online.
Moving onto psychographic: users of this product value their grooming and appearance, and put effort and care into it. It’s likely these consumers have a tendency to indulge, yet steer away from pretention and flashiness, preferring a more understated form of luxury. Additionally, L’Artisan Parfumeur’s consumers probably find it gratifying to discover niche, ‘under-the-radar’ products that others wouldn’t know about.
Finally, the motivational level: at the root of it all, L’Artisan Parfumeur’s consumers have a desire to be in the know, in possession of unique knowledge. For them, uniqueness is very important and intrinsically they have a desire to stand out from the crowd, to distinguish themselves. They also view fragrance as another way to express themselves, as one would with words and appearance. Lastly, these consumers are not easily influenced and prefer to make up their own mind about things rather than gravitate towards what everyone else is thinking.
How can businesses segment effectively?
The answer is simply to ask questions. Find out why your consumers are buying from you, other than the functional benefits, by asking the right questions. There will be sceptics, but generally, if you explain why you’re undertaking a survey, consumers will be open to the idea. Once you start thinking about it, there are plenty of innovative and impactful ways to do this, using one-question surveys, creating experiences around gathering this information, etc.
In a few steps, here’s how businesses can put this into practice:
- Understand your ‘why’. Use techniques like surveys, rating scales, focus groups to understand your current consumer base and why they purchase from you.
- Map out your consumer. Use all this information to map out your consumer at the 4 different segmentation levels.
- Speak to the emotional level. Develop consumer loyalty by engaging with your consumer base’s core emotional drivers, whilst keeping in mind the other levels of segmentation too.
Whilst it’s important to consider all segmentation levels, we’ve seen the difference in insight we get when comparing the surface demographic level to the deepest motivational level. Moreover, consumers are increasingly looking for emotional connection with the businesses they purchase from. If companies fail to understand the emotional/motivational drivers behind their consumers’ purchasing decisions, they won’t be able to leverage this connection and may ultimately struggle to remain relevant.
Going back to the Artisan Parfumeur case, instead of just serving a segment in their early twenties who have relatively high spending on luxury goods, they could instead choose to position themselves to serve a segment that takes pride in their appearance and that strive to distinguish themselves. There’s no denying which one is more compelling and potentially the most rewarding.