Bad Shopper Segmentation Models

Consistent Shopper Behavior

In recent years, there has been a rush of shopper-segmentation models. Research agencies, looking to find a common approach to analyzing their clients’ data, have created their own shopper-segmentation models.

For example, Ipsos has developed a segmentation model that it uses globally to analyze data. The model identifies five shopper segments: “Brand Lovers,” who spend money on expensive brands and are more likely to value convenience; “Price Driven” shoppers, who are more likely to make shopping lists, compare prices, and go to discount stores; “Indulgents,” who are more impulsive, love new things, have great taste, and will typically pay more for brands; “Responsible Planners,” who have a fixed budget, compare prices, often shop online, and have changed their habits to shop in a sustainable way; and “Bargain Hunters,” who hunt for deals, are not necessarily constrained by price, are often impulsive, and are less likely to buy online.

Marketing agencies, too, have their models. G2/Grey, part of WPP, identified four key shopper segments in Asia: “Loyal Listers,” “Whim Indulgers,” “Engaged Info Seekers,” and “Passive Value Fans.” According to Grey, 44 percent of Japanese shoppers are “Whim Indulgers,” to whom shopping is an unplanned adventure.

Manufacturers, too, have developed their own models (Coca-Cola launched a global shopper-segmentation model in 2008), but retailers, with their huge databases of shopper transaction data, have arguably made the most effort in the shopper-segmentation area.

According to Deloitte, “all leading retailers (e.g., Safeway, Walmart, Kroger, Sam’s, CVS, Best Buy) use segmentation models to understand the different types of customers that they are targeting, and develop strategies to appeal to them.” Ahold, a Dutch international retailer, segments shoppers into six different classifications: “Urban Seekers,” “Traditionalists,” “Quick Fixers,” “Good Lifers,” “Deserving Diners,” and “Budgeters.”

Standard segmentation models have many upsides–they create a common language throughout an organization and, in particular, between manufacturers and retailers. Manufacturers who do not understand how their retail customers look at shoppers will increasingly find it difficult to gain traction for their initiatives. They create significant levels of efficiency, too, and avoid the need to crunch data through multiple statistical models to find new segmentations.

The difficulty, however, with all of these segmentation models lies in exactly how to apply them. Shoppers do not typically behave consistently. As Herb Sorensen puts it, “A great deal of segmentation is misguided, because shoppers move from segment to segment with disturbing regularity.” Someone who is highly planned in one category may be impulsive in the next; brand loyal on a Saturday but buying a competitor on a Monday. It is difficult to understand what a manufacturer of floor cleaners would do with the knowledge that 44 percent of Japanese shoppers are “Whim Indulgers.”

These models are useful and are a step forward from thinking in terms of a homogeneous, generic shopper; unfortunately, standardized models rarely create competitive advantage. If marketing guru Michael Porter is correct that “the greatest opportunity for creating competitive advantage often comes from new ways of segmenting, because a firm can meet true buyer needs better than competitors or improve its relative cost position,” then relying on a standard model created by an agency or using a model that was designed to support another organization’s competitive advantage is perhaps not the best idea.

This blog found in Course 16: Shopper Segments.

May 16, 2018

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