Editorial Articles

Marketers truly appreciate the need to understand their consumers but seldom do they successfully go beyond the demographic diagnosis of their consumers. Demographic attributes like geography, age, household income, marital status, affluence levels etc are critical for targeting. However, with so much marketing stimulus hitting the consumers, there are deeper behavioral differences among consumers which differentiate the way they shop and the products or brands they consume.

So how does one identify these differences and capitalise on them, which can become any brand’s competitive advantage. Psychographic segmentation is a powerful tool which can be used to divide the universe of consumers into behaviorally heterogeneous groups or segments which are homogenous within. The word “behaviorally” can refer to:

1) Attitudes & Value System – Internal or How they think
2) Consumer Interaction with the category – External or What they do and buy

While the former requires a survey approach, the latter can be derived from the POS or any other transactional data existing in the eco system of the organisation.

For example when a global CPG giant wanted to explore a business opportunity in retailing car care services; as a first step it segmented the consumers based on attitudes & value system along with their claimed purchase history using the survey approach to gauge if the segments with a pro car care mindset are sizeable & sustainable. Similarly, when a leading payment processing company wanted to understand its huge base of customers for specific targeting based on internal transaction data, segmentation provided insightful results. Ideally you might want to use dimensions of both for a holistic understanding, but you can still have very effective results with transactional data, loads of which lie unutilised in any organisation. The figure below illustrates the key questions answered through Segmentation.

Psychographic segmentation allows the marketer to look at its consumers as real people or entities. It can be applied anywhere – on customers, partners, stores, employees. At the end of segmentation exercise, a marketer is expected to know his consumers better and make appropriate changes to the 4P’s of the marketing mix to increase the market width or depth. But every segmentation exercise should have a very clear objective which states the key reasons why it needs to be done in the first place for most effective results. For example, is it the blue sky approach to explore business opportunities or is it a very focused study to identify specific opportunity for activities like cross sell or up sell.

Segmentation process is typically done at least once in 3 to 5 years depending on the pace at which category or consumers are evolving. Also consumers might be migrating from one segment to another and it might have immediate consequences in some industries like banking or telecom.

However, it is good to remember that there is no right or wrong in segmentation. Since it is a very iterative process, marketers need to push agencies to deliver segments which are most relevant & actionable to their organisation. After all, it is not an academic pursuit but a stepping stone to increase profitability. So as a marketer, if you are looking for that break through innovation it’s just a matter of tying up with an agency which can work magic on your data.

Sumit Oberoi
Senior Analyst, Knowledge Services, MindTree Ltd