Segmentation Blogs

Market Segmentation: Common Mistakes

Segmentation studies tend to be large and complicated, so it’s easy for errors and mistakes to be made. Some of the most common mistakes:

Segmenting a Segment

For example, someone might want to segment the market for widgets among 18- to 24-year-olds who live in Vermont and buy brand XYZ. As is evident, the client is asking that a tiny sliver of the market be segmented. True, this tiny sliver can be segmented, but rarely are the resulting segments of any value, because they are just too small. General rule: segment the whole market, including all age groups. The market should be broadly defined for a segmentation analysis to be most effective. In other words, don’t preordain the results by sampling restrictions.

Overlooking the “Universals.”

Many attitudinal statements in the questionnaire will not show up in the final segments, because they tend to be the same across all segments. Statements that everyone agrees with or everyone disagrees with (we call them “universals”) cannot explain much in the multivariate analyses. Variables have to move up and down for the multivariate analysis to work. The highest-rated variables, and the lowest-rated, are likely to fall out of the multivariate equations. However, you should always look at these universal statements. Any one of them might be the basis for a positioning or a strategy that would appeal to everyone. If you find something unique that appeals to everyone, the heck with segmentation. Go for the whole hog.

Creating Too Many Segments

There is a practical limit to the number of segments that companies can effectively target. If you create more than four or five market segments, you run the risk that the resulting segments will be too small to target, at least by mass media. This is not always true, but it is a good rule of thumb. If your media is direct mail, or some other media that allows pinpoint targeting, then the number of segments can often be increased to 10 or 15 or more, because each segment can be targeted without fear of message-confusion across segments.

Targeting All Segments

So you have carefully subdivided your target market into five mutually exclusive psychographic segments, and your boss tells you to develop a marketing plan to attack each segment. If all of your marketing is direct mail, and you can identify the addresses that belong to each segment, then you can attack all segments (assuming your product is relevant to all segments). But if you use broadcast media in marketing your product, it is very difficult to target multiple segments because of media “spillover.” What you say to one segment will be muddled and confused by the different messages targeted to other segments.

Confusing the Results

Segmentation studies are large and complicated with enormous amounts of data. It is easy to get lost in this treasure trove of answers and come up with confusing and baffling results.

Overlooking the Basics

The dazzle and glitter of the advanced, rocket-science multivariate analyses attract everyone’s attention. No one ever opens up the cross-tabs and looks at the answers to the hundreds of questions asked. Often, hidden in plain view in the cross-tabs are tremendous findings that could form the basis for new or improved marketing strategies, advertising campaigns, or new products. Rarely does anyone analyze this basic data, however.

Targeting People Instead of Dollars

A market segment might represent a large percentage of the population, but a small part of the market. Always look at the dollar potential of each market segment, not just the number of people in each segment.

Speeding Through the Preplanning Phase

A great deal of money is wasted on segmentations that never lead to any marketing actions, because of inadequate or incomplete analysis of the data or so much analysis that the important ideas are lost in a sea of minutiae. The preplanning phase of the segmentation is the most important part. It identifies what decisions will be made based on the segmentation, and it aligns the high-level executives and stakeholders on the study objectives, desired outcomes, what will be segmented, and how the segmentation will be used.

Final Thoughts

Segmentation is one of the most powerful concepts in the marketing toolbox. It’s a chance to apply maximum pressure by concentrating marketing and advertising activities on a segment of the market in order to change human behavior; for example, to persuade people to accept a new product, buy brand A over brand B, attend an event, or even to stop littering. Segmentation permits intelligent focusing and concentration of marketing effort to maximize returns on marketing investments. Concentrate your marketing dollars on a high value market segment and you just might become rich and famous, or win a seat in congress.

Jerry W. Thomas

Chief Executive Officer

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Jerry founded Decision Analyst in September 1978. The firm has grown over the years and is now one of the largest privately held, employee-owned research agencies in North America. The firm prides itself on mastery of advanced analytics, predictive modeling, and choice modeling to optimize marketing decisions, and is deeply involved in the development of leading-edge analytic software. Jerry plays a key role in the development of Decision Analyst’s proprietary research services and related mathematical models.

Jerry graduated from the University of Texas at Arlington, earned his MBA at the University of Texas at Austin, and studied graduate economics at SMU.