Yet like many topics, segmenting customers isn’t quite as simple as the textbooks make it seem. In fact, it can be quite challenging to group consumers into segments that are both accurate and valuable. We need the segments to capture enough of the similarities and differences across consumers to be valuable, without creating so many distinct segments that there are too many to feasibly target. Detractors of segmentation may argue that a more mass-market approach is better to appeal to a broader range of consumers (the one-to-many approach), or argue the opposite – that with increased data and technology, brands should be personalising every single offer and communication (the one-to-one approach).
I’m a fan of segmentation as a middle ground between these approaches – ‘one-to-few’ if you will. I, and our CXI group more broadly, have used segmentation many times in both peer-reviewed academic papers and commercial consulting projects, to better understand how different consumers think or behave. Just recently, Beatrice Romano and I shared a piece for Inside Retail that detailed how different consumer segments respond to augmented reality (AR), and how retailers can appeal to these different groups. However, it’s not enough just to haphazardly group consumers. To unlock the power of segmentation, we need to create valuable segments. To be useful, customer segments should be homogenous – meaning that people within the segment should closely resemble one another in their meaningful characteristics. For example, people within the segment should have a shared value, interest, or behaviour that can be used as the basis for designing a product, offer, or communication (the targeting and positioning steps)https://61e0d40d24bde7b9781e4027d6d415b4.safeframe.googlesyndication.com/safeframe/1-0-38/html/container.html
Too often, I see retailers and brands settle for demographic segments, such as males 18-24 or Gen Z. The problem with demographic segments is that in many situations (admittedly not all) they lack both critical characteristics to be meaningful. Demographic segments are rarely homogenous, except perhaps in a few very specific categories such as medical health products. A famous example that many textbooks use to demonstrate this point is the comparison of Ozzy Osbourne and Prince Charles. If we were to rely on demographics, we would put them in the same segment, both being males having been born in 1948 in the UK. Yet, as marketers, we would probably not want to design or sell a product to them in the same way, because despite their demographic similarities, their values and behaviour differ markedly. The point is that as much as stereotypes based on age or gender may be accurate for some people (a broken clock is right occasionally, too), they will be very wrong for others.
By relying on demographic segments then, brands risk making broad assumptions about people that will be wrong many times. By then designing products or targeting consumers based on these sectors, retailers could be unnecessarily limiting their potential target market and alienating many consumers. I have experienced this personally multiple times recently. Let me share my experiences, and then suggest a better approach.
‘For Him’ gift cards
Walking through a grocery store recently, I noticed a wall of gift cards labelled ‘For Him’, ‘For Her’, ‘For Teen’ and so on. Intrigued, I picked up the ‘For Him’ card to see what sort of things this retailer assumed I would grab my interest. The answer could have been straight out of a VB ad from the ’70s; this gift card consisted of retailers focused on cars, fishing, and sporting goods. Only the latter even remotely resembled any of my interests. In truth, the ‘For Her’ card sounded more relevant, consisting of beauty and hair, relaxing day spas, and fashion. As a parent of young kids, a massage sounds great right now, as does shopping for new non-spewed-on clothes. Or even better, the ‘For Teen’ card hit on nearly all my interests, being redeemable for gaming, music, and streaming services.
Seeing these gift cards was a reminder that while as an industry we talk about knowing our customers and providing more targeted experiences, we still often make many assumptions based on simple demographics. While many people who would identify with a ‘For Him’ card might also enjoy cars, fishing, and football, the overlap is not 100%. That is, there are surely other men who are as uninterested in these categories as I am. At the same time, why would the retailer want to limit their targeting of these product categories to <50% of the population? What about the many people who don’t identify with ‘him’ that still enjoy these categories?
I experienced another example when recently trying to buy Easter pyjamas for my kids: a 3-year-old boy and a 1-year-old girl. We walked through one of the major discount department stores and by chance saw the boys’ section first. The range there was limited and generic. Not finding any options appealing, we went looking in the girls’ section where we discovered a much wider range, including an entire Peter Rabbit collection. Our son has been interested in Peter Rabbit since the Myer Christmas windows last year. He sings the ‘fly on his nose’ song intermittently still. Yet, everything in this section was labelled as ‘girls’ pyjamas’ despite being the exact same sizes, shapes, and range of colours as all the boys’ clothes.
Like the gift cards, this struck me as an example of unnecessarily limiting the appeal of products based on demographic segmentation. Admittedly, there are important differences between toddler boys and baby girls, particularly when buying nappies. Yet, I’d argue that both could enjoy pyjamas, Easter, and Peter Rabbit – at least that is my experience. In our case, we had no problem buying our son the so-called girls’ Easter pyjamas. He (and everyone else before I wrote this article) would have no idea they were designed for girls except if they saw our receipt. The point is not that we were against buying girls’ pyjamas – the point is that the retailer was limiting the target market of this product based on simple demographics. Had we followed the retailer’s store layout and stayed in the boys’ section, we would never have seen these items. How many other families had this experience and walked out empty-handed unnecessarily?
Moving past demographics
With these examples, I am hoping to demonstrate that there are often much better ways to segment consumers than simple demographics. Consider the gift card example. Rather than starting out to design a gift card ‘For Him’, why not create a gift card ‘For Adventure’ or ‘ForRelaxation’. Similarly, rather than assuming only girls would buy Peter Rabbit pyjamas, why not design a range of Easter pyjamas and let families choose?
Going back to our marketing textbooks, I’m advocating for a shift from demographic segmentation to either psychographic (attitudes, values etc.) or behavioural (what people actually buy) segmentation. The idea is to delve into what really matters: what they like and how they think or even how they behave. An example would be the difference between a new brewery targeting men because they hope they drink beer (demographic segments), to targeting people who say they like beer (psychographic), or even better, targeting people who actually do drink a lot of beer (behavioural). This approach lets brands design products and services that directly appeal to these segments – rather than hoping that stereotypes and assumptions will hold true and missing out when they don’t.
This is not to say retailers should ignore consumer demographics, they can be relevant in some situations and are often the first data a brand collects about a consumer. Just don’t use them as the entire basis for your segmentation, targeting, or positioning. Instead, if you are going to segment consumers (which I think you should) then have a clear purpose for doing so, and segment in a way that will help you achieve your goals. For most retailers, you’ll see it’s time to move past demographics and start segmenting on what really matters to your customers. Because if you don’t, your competitors will.