Generic Market Segmentation

 

We at BrandForward have conducted dozens of market segmentation studies for our clients, some very sophisticated testing over fifty attitudinal statements with ending samples as high as 5,000 consumers. The sophisticated studies have employed cluster analysis, factor analysis, multi-variate regression analysis and other advanced statistical techniques. These sophisticated studies identify the top few market segments for a brand together with the key messages for each.

But I am not writing about that here. I am writing about the four generic market segments:

• Price driven consumers
• Convenience driven consumers
• Brand driven consumers
• Category enthusiasts

The two scarce commodities in most people's lives are time and money. One is very blessed if he or she has an abundance of both. But most people have one or the other or neither of these. This makes the price and convenience driven segments intuitively obvious. The brand driven segment prefers a specific brand, is happy with that brand and does not want to go to the effort to discover new brands, while the category enthusiasts love the category and are constantly in search of the latest products and brands in that category.

Historically, price driven consumers have been between 20-25% of the overall market, but in the last decade or two, and especially lately, that segment has grown to 50% of the market. Recent research shows that 50% of consumers in the US have indicated that they have become more price sensitive. And with the increasing bifurcation of our society into a very large group (80+% by some measures) whose wages had not been keeping up with inflation (while the top income groups are becoming richer), this may only get worse. 

This bodes poorly for brands because the only thing that separates brands from commodities is relevant differentiation that can command a price premium. Very few brands can win by claiming lowest price. And trying to "own" that segment is a downward spiral, especially regarding profit margins and overall profits. 

It is well known that a brand's products sold in big box stores (Walmart, Home Depot, etc.) are not of the same quality as seemingly identical products sold directly to plumbers, contractors and end consumers at specialty stores. For instance, my wife and I recently bought a well-known supposedly high quality branded kitchen faucet at our local ACE Hardware store only to find out that it kept on coming loose from our counter due to a plastic washer. It also had a plastic wand. We turned around and replaced it with a kitchen faucet that we bought directly from the manufacturer. It had a brass washer and a solid metal wand. It does not come loose and it will last much longer. We discovered the same when we bought our Cub Cadet riding lawn mower. We bought ours at a speciality store. It was a higher quality than supposedly the same product that we could have bought at Home Depot. 

Brands will increasingly have to figure out how to address mass markets, which have become much more price sensitive. On the other hand, the top 5% and 1% are seeking out the highest quality in luxury categories. And these products are highly profitable. 

Here are some related articles and blog posts that you might find useful:

• Market Segmentation
• Market Segmentation
• Share of More/Less Price-Sensitive Consumers
• Increasingly Bifurcated Consumer Market
• Evolution of Luxury Brands
• Luxury Brands and Exclusivity
• Purchase Patterns of Wealthy Households
• Brands as Social Status Symbols
• Luxury Brands Quiz