“Change is the law of life. And those who look only to the past or present are certain to miss the future.”- John Fitzgerald Kennedy, 1917-1963
To succeed in today’s fiercely competitive world of business, classical market seg-mentation characterized by demographic, socioeconomic and geographic criteria won’t cut it any more. A powerful new tool to forge a cutting edge is segmentation based on psychographic criteria, as demonstrated in Germany’s energy market.
The German energy sector is characterized by an attempt at liberalization, that after ten years has created a fragmented scene of multiple small companies and four loom-ing giants. In their struggle to distinguish themselves from the competition, some of the companies have adopted innovative customer segmentation techniques – cutting-edge marketing strategies based on defining customer groups by signs and lifestyle types. The following describes a range of psychographical market segmentation tech-niques, followed by their implementation in the energy sector.
Changing business conditions
Social and technological changes have been challenging the way business is done. In the past, the consumer wielded little influence over product characteristics and variety.
This is changing. We are in an era of individual consumer empowerment, which is even influencing product development processes.
Once, cultural values and consumer behavior had been relatively predictable. Recent data imply a strong individualization, and rapid changes in how the consumer acts. Unsaturated markets turned into mature markets with exchangeable products in which added value and target-group aligned campaigns become increasingly important. Companies today acknowl-edge that not every offer will suit every customer, nor will every customer be equally re-sponsive to a given marketing activity.
Not only is the nature of the market changing: by nature businesses, however successful, are also vulnerable to change in the general economic environment, including demographic change, urbanization (where applicable), individualization and fragmented global societies. The way to remain relevant in this rapidly changing world is to track who the customers are, what their needs and values are, and where future potential lies in a world in which indi-viduals have very different requirements. Each individual becomes a segment of its own in a global market.
For example, the so called “hybrid customer” buys basic groceries at a discount outlet, but eats the weekend luxury dinner at a five-star restaurant. It is important to understand that price is not always the key purchase criterion. It is poor understanding of the actual desires of customers that leads suppliers to focus on price competition.
The need for new market segmentation models
The ultimate objective of an efficient segmentation model is to enhance profitability by rec-ognizing that each identified customer group has different needs, priorities and economic levers. Armed with that knowledge, customer service can be adapted and resource alloca-tion can be optimized.
Put otherwise, the ultimate goal of segmentation is the pragmatism of superior deployment: how best to utilize corporate performance capabilities to meet the needs and expectations of the customer population.
The final outcome of segmentation for the customer is superior satisfaction. Companies for their part expect the market segmentation model to deliver clearly defined groups of cus-tomers, unique customer insights, and market insight concerning future opportunities and innovations.
Traditional segment classification focuses on statistical characteristics such as geography (city, region, size of place of residence), demographics (age, gender, nationality, income, family status, size of household), and so forth. This approach is convenient because the data is usually easy to collect, and is clear-cut and objective. But it fails to take into ac-count that customers do not behave consistently within these defined clusters.
Also, because new markets are difficult to locate, it is necessary to actively cultivate the market and explain or model customer behavior.
Traditional sociodemographic criteria are not capable of describing the (potential) customer of today. For instance the same data set of “gender-age-income-habitation” would apply equally to Ozzy Osborne and to Prince Charles.
Examples of innovative segmentation models
To fulfill future segmentation requirements, psychographic and behavior-based models be-come significant. Characteristics such as lifestyle, values, social standing, media usage, buying patterns, brand preference, product usage pattern, and the like can be used to de-scribe customer groups.
One example for a state-of-the-art segmentation model is the Sinus-Milieus® approach, which clusters homogeneous groups by shared aspirations in life, value systems and life-styles. When individuals share similar life contexts, they are likely to be part of the same milieu. The model distinguishes several milieus and builds a quantitative conclusion through a representative sample of the given population.
Another example of an innovative segmentation approach is semiometrie, a quantitative tool to distinguish groups by values and attitudes. This methodology is based on evaluating 210 selected words such as hero, victim, present, and fire on a seven-stage range, from “very agreeable” to “very disagreeable”, to quantify the person’s values.
The four dimensions of the “words/value map” are sociality, vitality, individuality and re-sponsibility. The identified customer cluster is characterized by 14 value fields, such as familial, social, religious, rational or dominant. The data are then statistically evaluated for the specific product, service or brand.
Another psychographic model, developed by the international market research company GfK Group, is called Euro-Socio-Styles. Its Value Map is based on four dimensions: ap-pearance and reality, change and stability. Arranged behind these four dimensions are dif-ferent needs: appearance implies materialism and price orientation, reality stands for qual-ity orientation, change for dynamic, and stability for security. GfK identified eight Euro-Socio-Styles: magic world, secure world, steady world, standing world, authentic world, new world, cosy tech world and crafty world. Each segment is described with typical attributes, attitudes and habits.