The Increasing Value Of Segmentation

Walker SmithFebruary 27, 20244 min

Is segmentation dead? No. Yet many think so. The supply chain snarls following COVID shrunk varieties, even brands, of foods, beverages, toys, furniture, HBAs, household goods and more. Pre-pandemic, new products were 5 percent of general merchandise. Today, 2 percent.

Skinnying down feels like walking away from segmentation, but only because we think segmentation always means more, never less. Particularly with the digital aisle to supposedly match every taste.

However, evidence is thin that consumers prefer endless variety. Researchers have found little evidence for the so-called long tail popularized by tech writer Chris Anderson. Moreover, a recent Gartner survey found nearly two-thirds of digital marketers ‘struggling’ to deliver one-to-one personalized experiences. The pandemic ratcheted up these struggles—one variety was hard enough, much less several.

Recent experience shows scant evidence, too. Macy’s CEO told analysts last year, “The consumer today does not want an endless aisle.” Newell’s CEO told The Wall Street Journal, “I don’t think any consumer would have noticed we went from 200 to 150” Yankee Candles.

This does not mean Henry Ford’s Model T maxim—any color as long as it’s black. The answer to too much variety is not too little. Retailers also cut SKU’s after the financial crisis, most notably Walmart. Two years into it, Walmart reversed course, realizing it had cut too close to the bone.

What’s different now, and the reason some are administering last rites to segmentation, is that post-pandemic shrinkage has coincided with a reappraisal of segmentation as a strategy.

Segmentation arose from pioneering work in the first half of the 20th century by Wroe Alderson, the all-but-forgotten founding father of marketing science. Attitude segmentation was developed by Russ Haley at Grey in the early sixties. In 1967, Northwestern professor Philip Kotler published the first edition of his highly influential Marketing Management textbook, that for decades has instructed aspiring business leaders that segmentation is best-practice in marketing.

Not without dissent. Larry Gibson, research head at General Mills for two decades, argued that segmentation was an inefficient heuristic construct, not an actual market feature. Gibson felt that the “radical heterogeneity” of preferences made choice modeling a better marketing platform. Such dissent has been rare, though. Until the turn of the century, that is, when a more exacting scrutiny of segmentation arose.

In 2005, Byron Sharp, director of the Ehrenberg-Bass Institute, published How Brands Grow, in which he pounced on the one-to-one objective of loyalty by showing that growth comes from more—not more loyal—customers. In 2018, Sharp published a textbook of his own that teaches mass marketing not segmentation. Because says Sharp, segmentation is constrictive, thus “anti-scale and…anti-growth.”

Sharp’s critiques in combination with pandemic-driven simplification make it seem as if a post-segmentation era is at hand. Hold your horses. Here’s the thing—the marketplace has fractured. Difference and division abound: Demographics. Localism. Gender. Race. Ethnicity. Family structure. Living arrangements. Social media. Politics. Even work from home.

The prerequisite for mass marketing is finding “bigger commonalities,” to quote Sharp. Precisely the problem. In a marketplace of increasingly radical heterogeneity (echoing Gibson), looking for viable commonalities is quixotic.

Where criticism of segmentation rings true is in the classic prescription of targeting a single segment. But mass marketing also suffers from this defect of singularity, just at a bigger scale. The future demands a diversity of targeting.

Big brands succeed with a quilt of growth. Getting big necessarily requires amassing customers of many sorts. Big brands do this by stitching together diverse, dissimilar segments, each with a unique connection to a brand, even with little in common with other segments. Big brands do not gloss over differences or mash up segments into a force-fit of uniformity. Rather, they double down on what’s distinctive for each segment.

Brands must master granularity, not try to traffic in commonalities that aren’t there. McKinsey research confirms the overwhelming majority of consumers expect this. Many marketers have found this difficult to implement, but not for long.

Technology is aligning with segmentation. AI is exploding, and with it, the ability of marketers to interact with smarter, fine-tuned precision at speed and scale. The future is more segmentation not less. More micromarketing not mass marketing. More varieties of just the right sort.

Contributed to Branding Strategy Insider By: Walker Smith, Chief Knowledge Officer, Brand & Marketing at Kantar

At The Blake Project, we help clients from around the world, in all stages of development, define and articulate what makes them competitive and valuable. We help accelerate growth through strategy workshops and extended engagements. Please email us to learn how we can help you compete differently.

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