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The New Marketing Segmentation

If the changes in marketing communication didn't scare you enough, let's talk about the fundamental changes in market segmentation.

Market segmentation is the fancy marketer's term for dividing up the pool of potential customers based on shared characteristics. So a consumer marketer might segment markets based on demographics (such as age or gender) while a business-to-business (B2B) marketer might use firmographics (such as company size or industry).

With old-fashioned marketing, the best creative folks come up with a great message for the mass market (something clever, like "Coke is it!"), test it against focus groups, and push it out there—over and over again. It's on TV, on the radio, on billboards, on just about anything in front of a consumer's face. To decide exactly where to place those ads, we segment our markets based on their characteristics. Need to reach folks in the publishing industry? Buy an ad in Publisher's Weekly. Want authors, also? Put the same ad in Writer's Digest, too. For some companies, deciding where to place their ads is all they ever do with market segmentation.

Other businesses are more sophisticated—they might target different messages to different segments. Perhaps a B2B company might target by industry, using print ads emphasizing different concepts and examples in magazines for different industries. Some companies act like the politician with a different stump speech for each constituent group.

But the old-fashioned ways don't work on the Web because everything you say is now in public. If you publish conflicting messages in different magazines, your customers will "Google" their way to every message you've sent. If you sell "freedom fries" in your U.S. restaurants and "French fries" over the border in Canada, expect someone to call you on that. Hearing you talk out of both sides of your mouth won't do wonders for your credibility.

But that's not the biggest change. There is a way on the Web that you can differentiate messages to market segments (as long as they don't conflict). You allow the customers to segment themselves.

Segment themselves? Doesn't the marketer decide the market segments? The customers don't even know what segments we put them in. How can they segment themselves? Well, they can. The Internet allows customers to self-segment in ways never before possible.

One way of self-segmenting uses search. Every time people enter a few words into Google, they tell you what they are interested in. Subtle differences in wording identify different target segments. For example, a searcher who is looking for "lodging" is vastly different than one who searches for "hotel"—"lodging" searchers want a "bed and breakfast" or some other hotel alternative, which is why they search for a less-common word. These searchers are self-segmenting—they are dividing themselves into your target market segments.

Subscriptions provide similar self-segmentation possibilities. E-mail newsletters allow prospective customers to raise their hands and tell you they are interested in a certain subject. But some people are reluctant to give out their e-mail addresses because they don't know what else you'll send them. Web feeds (such as RSS) are a new way to subscribe to information with no loss of privacy—anyone using a blog reader (such as Bloglines) is already using Web feeds to subscribe to their favorite bloggers. We'll dive deeper into more of these new marketing methods in Chapter 2.

Self-segmentation goes beyond these marketing tactics, however. Because the Web is an interactive medium, anything your customers do has the potential to place them into a market segment. If you can get a customer to your Web site, every click reveals information you can use for segmentation. Every product viewed demonstrates interest. Rather than revealing the customer's demographics or firmographics for traditional market segmentation, however, you are instead learning what they are interested in. Customers self-segment based on their needs.

Traditional segmentation often ignores differentiation based on needs because it is hard to know when someone needs something, but the Web makes it much easier to do. And it is very powerful. If you know that the customer is in the market for your product now, you have a much better chance of selling it.

Clothing retailer Jo-Ann Fabrics set up their navigation to target different messages and products for people in various areas of their Web site. For example, if someone enters the sewing area, they assume she is a seamstress—interested in different products than knitters are, for example.

Web geeks even design software to respond to your customer's every click, called personalization software. If you've ever visited amazon.com, you've seen personalization in action. Anytime you look at a product or (even more telling) purchase a product, Amazon remembers what you did and designs your experience to suggest related products in the future. That's personalization. It's also self-segmentation based on needs—each Amazon customer creates a unique experience based on where they go and what they do on amazon.com.

But Web segmentation methods go farther than that. In classical marketing, the purpose of segmentation is to differentiate your entire offering—the communication about your product and your actual product. We've talked about differentiating the marketing communication, but how can the Web help differentiate the product itself?

At first, you might not see how the Web can differentiate your product. After all, you make what you make, and the Web can only sell it. This is true, but only up to a point. The Web excels in making vastly complex choices simpler, so your Web site can offer hundreds or thousands of variations on your product that can be customized in ways that would be expensive or impossible any other way.

Think about how Dell sells laptop computers—they let customers "build" their own computers on their Web site. By providing an easy way of selecting how much memory or disk space is desired, Dell simplifies a very complex task and provides exactly what the customer requested. Talk about self-segmentation! Dell can reach customers that want a three-to-five pound laptop built for games for under $1000—and show them exactly what they are looking for at the moment they want it. The Web is a great way to mask the complexity of a customized manufacturing process.

But you don't need to have Dell's customized manufacturing process to provide a similar experience to your customer. Retail Web sites can provide similar choices to customers without manufacturing anything. Look at Exhibit 1-1 to see how strikingly similar the experience can be. Circuit City allows customers to narrow down their choice of laptop using almost any characteristic (price, memory size, disk space, processor, brand, and many more) by listing all the choices and letting customers click what they want.

The Web allows a nearly endless number of variations to be chosen, which is the equivalent of custom manufacturing. So even though manufacturers and retailers might take different approaches, the customer's ability to get exactly what is desired doesn't change one iota. (For some reason, iotas never come in pairs.) A customer experience that formerly demanded a massive investment in custom manufacturing now needs not much more than a Web server. In Chapter 5, "The New Customer Relations," we'll see how you might provide this experience for your customer.

So what's the big change here? Market segmentation is becoming market personalization. You don't target markets anymore; you target individuals personally, using technology to do it. And you can't separate sales from marketing anymore—that clear dividing line is gone. You need to be ready to speak to customers as individually as possible from start to finish and to offer them the exact product they want, not just what's "on the truck."

  • (Dell screen image ©2007 Dell Inc. All Rights Reserved)
Exhibit 1-1

Exhibit 1-1 Self-segmentation experiences from manufacturers and retailers

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