Marketing 0

Four Methods of Segmentation
Marketers always start with geographic segmentation, which is to
divide the market by countries, regions, cities, and locations. Once
they realize that geographic segments are too broad, they add
demographic variables: age, gender, occupation, and socioeconomic
class. “Young, middle-class women living in Illinois” or “affluent New
York Baby Boomers” are examples of segment names with
geographic-demographic variables.
On the one hand, geographic and demographic segmentation
methods are top-down and thus very easy to understand. More
importantly, they are actionable. Companies know exactly where to
find and how to identify the segments. On the other hand, the
segments are less meaningful as people with the same demographic
profile and who live in the same locations might have different
purchase preferences and behavior. Moreover, they are relatively
static, which means that one customer can only be classified in one
segment across all products. In reality, the customer decision
journey differs by category and lifecycle.
As market research becomes common, marketers use a more
bottom-up approach. Instead of breaking down the market, they

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cluster customers with similar preferences and behavior into groups
according to their responses to survey questions. Despite bottom-up,
the grouping is exhaustive, which means every single customer in the
population gets into a segment. Well-known methods include
psychographic and behavioral segmentation.
In psychographic segmentation, customers are clustered based on
their personal beliefs and values as well as interests and motivation.
Resulting segment names are usually self-explanatory, such as
“social climber” or “experiencer.” A psychographic segment also
demonstrates an attitude toward a specific product or service feature,
for example, “quality-oriented” or “cost-conscious.” The
psychographic segmentation provides a good proxy for purchase
behavior. One's values and attitudes are the drivers of their decision
making.
An even more accurate method is behavioral segmentation, as it
retrospectively groups customers based on actual past behavior. The
behavioral segments may include names that reflect purchase
frequency and amount, such as “frequent flyer” and “top spender.” It
can also show customer loyalty and depth of interaction with names
such as “loyal fan” or “brand switcher” or “first-time buyer.”
The techniques are highly meaningful as the segments precisely
reflect clusters of customers with different needs. That way,
marketers can tailor their strategies to each group. Psychographic
and behavioral segmentation, however, is less actionable. Segments
with names such as “adventure addict” or “bargain hunter” are only
useful to design advertising creative or pull marketing. In push
marketing, however, it is harder for salespeople and other frontline
staff to identify these segments when they meet the customers.
Segmentation should be top-down and bottom-up. In other words, it
should be both meaningful and actionable. Thus, it should combine
all four variables: geographic, demographic, psychographic, and
behavioral. With psychographic and behavioral segmentation,
marketers can cluster customers into meaningful groups and then
add the geographic and demographic profile to each segment to
make it actionable.