Time to ditch demographic segmentation? Better segmentation is the key to better insights

When I first read this article in Marketing Week (no subscription required), I was a little shocked. Could it really be true that many of the world’s apparent marketing experts were only just learning that perhaps demographic segmentation isn’t the only, or best, way of looking at the world? And then I thought back to so many projects I’d worked on, and so many market research briefs I’d seen with simple demographic targets and segmentation models and realized that of course – the marketing world still has a long way to go when it comes to targeting and segmentation.

Why we need targeting and segmentation models anyway

There are some who suggest that targeting and segmentation models are a waste of time: that we should just aim to get as many people to buy our brand as possible, and target them all with equal focus. So before we get into whether demographic segmentation is a good or bad thing, and a look at alternative segmentation models, I guess we’d better address this one.

If every consumer or shopper was the same, ignoring segmentation models would be OK. If every consumer and shopper was of equal value to our brand, then not bothering with targeting and segmentation models would be OK. If our marketing budgets were limitless, then we could bundle loads of cash at everyone, and we wouldn’t need to worry about targeting and segmentation models. In reality, none of these are true. Consumers and shoppers are different. Different consumers and shoppers represent different value to our brand. And of course we don’t have limitless budgets. In reality, consumer marketers and shopper marketers need to work out which people are of most value to their brand, work out what they want, and target them accordingly.

Targeting and segmentation models recognize that we don’t need to win with everyone

Additionally, unless you are shooting for 100% market share, you don’t need to win with everyone anyway. So we choose the segments which represent maximum value to the brand, deliver the best return on marketing investment, and will help us achieve our targets. For every brand, this will be a subset of the total population. That is why we need targeting and segmentation.

What is the problem with demographic segmentation?

On one level, there is nothing wrong with demographic segmentation (as long as it fulfils the criteria below). But there are a number of major challenges with having demographic segmentation as your ‘go to’ segmentation model. Firstly, demographic segmentation models, while they gather people together based on that demographic, cover a huge amount of variety within a segment. This is best summed up with a quote from Marketing Week’s Mark Ritson about millennials: on average, millennials have ‘0.3 kids, two-thirds of a degree and one testicle each’.

But the biggest problem with using demographic segmentation is that it discourages marketers to look at other segmentation models. Too often, agencies present data with neat demographics: lifestage, age, income, etc. And we look at the charts and then get on with our day.

How to find the ‘best’ segmentation model?

But there are so many other ways of cutting the data! Which way is best? Well – unfortunately, you only know this when you’ve tried a few options. There is no ‘right’ segmentation model, unfortunately. But by trying a few different ones it is possible to find segmentation approaches which are better. And by that, I mean they create more value.

There is no right or wrong segmentation model – but there are some that add value and some that do not. So how should consumer marketers and shopper marketers find the best segmentation model for them?

Make sure your segmentation model is valid

Firstly, we need to make sure that the segmentation approach is valid. For this to be true, all each segment needs to fit a certain set of criteria.

Homogenous – they must be similar

Differentiated – they must be markedly different from the rest of the universe

Measurable – we need to measure them if we are to measure our effectiveness

Marketable – if we can’t market to them what is the point?

Choose a segmentation model that creates value for you

Secondly, the shopper segmentation model needs to be valuable. There are many to choose from. So which type of segmentation should be chosen? I share many of my favorites in the book I wrote with Toby Desforges. For me, it depends, but the simple answer is that to which segmentation creates the most value. Sometimes it’s hard to know at the outset, so there is a degree of iteration in the process. When we work with clients, we cycle through a number of different segmentation models, tried and trusted ones and new ones too. After a fair amount of hard work we find a segmentation model that works. How do we know? Because value leaps from the page. Interesting things start happening in the data. And that is when insights begin to appear.

Where to start in finding the right segmentation model?

As with most insight and data challenges, the hardest question is where to start? I guess this is why so many marketers end up stuck in a demographic segmentation rut. With practice, its possible to find a number of models that are likely to create value, but my best advice is to start with behaviors and attitudes. Check users and non-users: buyers versus non-buyers. Check out planning versus impulse. Look at occasions, channels, response to stimulus. Think about how they feel towards your brand and category. Find an angle, cut the data, and see what pops out! And sure – take a look at relevant demographic segmentation models. Just make sure you try some others too!

One size doesn’t fit all

I’m not here to preach about one specific segmentation model, but really to encourage both consumer marketers and shopper marketers to be a little more adventurous in the way they look at data, and in the way the define their target market. Who knows, a demographic segmentation might be the answer for you, though in my experience it rarely is.

Beware generic models from an agency: they might be useful, but it is unlikely that the research agency will have considered all of the options. Be careful when adopting a retailer’s segmentation model too. There are pros and cons of this approach (as discussed here).

If you’d like help creating value from your existing research data, or are about to conduct some new research and want to make sure you get it right, just get in touch and we’ll be happy to help.