Segmentation studies are expensive, time-consuming, and labor intensive.
A high-quality market segmentation typically includes stakeholder interviews, qualitative explorations, survey-based segmentation, advanced analytic analyses, persona development to portray the segments, and an activation workshop to get maximum value from the financial and time investments. Segmentations can take months and require the ongoing efforts of both external and internal business partners. When the research and the initial activation process is finished, there remains the big task of communicating the market segments and the strategy implications throughout the organization.
How does an organization know when it is time to commit the resources to update a segmentation or to conduct a completely new market segmentation study?
- Time is the first indicator. Most segmentations are relevant and useful for two to three years, unless some major event takes place, like COVID or the war in Ukraine. If your segmentation was developed more than three years ago, it might be time to think about updating your segmentation.
- Segment sizes (percentage of consumers/decision makers who fall into each segment) change significantly. This can be measured via a typing tool to predict market segment membership. Typically, a typing tool only asks 5 to 10 questions to predict segment membership, so the survey can be very short. Survey 2,000 to 3,000 randomly chosen consumers to predict the current size of previously defined segments. Big swings in segment sizes indicate that there is migration into other segments and/or that the segments are no longer as differentiated as they once were. It might be time for a refresh.
- A merger or acquisition has occurred. We recently worked with a company that acquired a smaller company and was then acquired by a much larger company. Each company had its own segmentation, which was proving to be cumbersome. All stakeholders agreed that a new, combined segmentation was needed so that the strengths of each brand and product line could be maximized. No one wanted to target the same buyers. When a company’s product/service mix changes, it is time to reconsider its segmentation.
- Changes in distribution channels and distribution dynamics. Distribution can make or break a product or a marketing strategy. Large swings in consumers’ use of various channels of distribution might make your current segmentation scheme obsolete. The current segmentation might not account for behavioral and attitudinal changes related to shifts in how consumers are shopping various channels of distribution.
- Economic upswings and downswings. In a robust economy, lower income and middle class households tend to have more buying power and often make the choice to upgrade their lifestyles with more expensive products and services. In an inflationary environment, these same households tend to focus their incomes on necessities or resort to doing without certain items. Suddenly, those private label products don’t look too bad. Economic booms or contractions often result in changes in buying behavior, and these might be times to review your segmentation.
- Supply-chain disruptions are prolonged. As anyone who has waited several weeks or even months for a critical part for a household appliance or HVAC system can attest, supply-chain problems have a unique way of forcing behavioral and attitudinal change. Consumers who have to wait for a replacement coil for their central air conditioning (A/C) system, for example, might be more willing to try A/C window units. Consumers shopping for everything from fresh fruit to pasta to bath tissue have been making substitutions or switching to other brands. And these changes are potentially permanent. Any time markets are disrupted by unique, outside forces (like COVID or supply-chain issues), it might be time to re-think your segmentation.
- New products, new technologies, or new competitors emerge. Markets are constantly changing and mutating. Innovation is a constant force and a constant threat—the internet of things (IoT) is one example. The ability to connect appliances, garage door openers, lighting, climate control, security, and entertainment has created a new, connected-home experience. Security companies are competing with internet providers and appliance makers, and the existing segmentation plan doesn’t work anymore.
There are other factors that may signal that it’s time for organizations to refresh their segmentations. Segmentations have a limited life span, so stay on the alert for indicators that might indicate it’s time to consider a refresh.
Here are some educational resources on Market Segmentation that have been put together by Decision Analyst's Segmentation experts. These articles, blogs, and videos explain in greater detail how to gain the greatest usefulness and value from Market Segmentation studies.
Beth Horn
Senior Vice President, Advanced Analytics at Decision Analyst.
Performance Marketing | Consumer Insights | Product Development | Brand Management
1yGreat article! As for 'Economic Upswings/Downswings,' I've found monitoring economic indicators (e.g., PMI, CCI, New Housing Starts) correlated to industry performance beneficial. If two or more metrics show a significant change over four consecutive quarters it may be time for a segmentation refresh. This quantifiable approach helps avoid knee-jerk reactions.
Marketing Research Pro | Insights and Decision Support
1yBeth, this is great advice! I really liked how you called out the best practices of making the segments "real" (sometimes an overlooked or undervalued activity) and syndicating the results in a planned communications program across the enterprise (also, sometimes forgotten). Your last point can't be emphasized too much - Dynamic industries, in general, will need segmentation refreshes more often than somewhat static industries. It's also important to point out that expectations and buying heuristics can change dramatically, making the market, the journey, and customer processes very different. For example, generative AI has launched into unexpected industries. My alarm clock provider now offers bedtime stories generated by some basic information that becomes prompts for creating these hyperpersonal stories. As always, a thoughtful and comprehensive piece!