‘Why is segmenting by socio-demographics wrong?’

Q: I own a medium-sized pharma company. We import generics and are doing more than we expected. I recently sent our marketing director to your market segmentation seminar. When she echoed your seminar, I was in disbelief when she mentioned that you said in one part of the seminar that segmenting the market by socio-demographics especially by socio-economic classes is wrong.

We’re a 5-year-old company and over all those five years, we’ve been segmenting our market for generics by socio-economic class. If it’s true that as you said this way of segmenting is wrong, then we could not have grown in sales as we have experienced it every year for the past five years. I once heard you speak at a PMA [Philippine Marketing Association] conference. I recall you saying: “Wrong segmenting, wrong marketing.”

My marketing director could not give us the explanation that we’re sure you must have given. So would you mind telling us why is segmenting by socio-demographics wrong? And she also said you don’t like psychographic segmentation at all. But why? That’s so useful to us for our advertising and ad agency.

A: We appreciate your asking your questions. We decided to answer via this column and not by the way we received it, namely, by e-mail. That’s because we continue to be asked these two questions of yours.

It’s useful to start with a clarification. That “segmenting by socio-demographics is wrong” is not exactly what I said. Here’s what I said: Segmenting by socio-demographics especially by socio-economic classes is often not enough for business growing.” To say that something is “not enough” is definitely not the same as saying it’s “wrong.”

Why is segmenting by socio-demo not enough? Because by going beyond socio-demographic segmentation and into “behavioral” segmentation you will grow your business much more, and sometimes exceedingly much more.  Sure, often going after socio-demo segments will grow your business but targeting a specific socio-demo segment, say, Class Broad C, will give you only sub-optimal business growth. It’s going after your Broad C segments of, say, non-users to be transformed into users or occasional users to be motivated to become regular users where the optimal and not just the sub-optimal growth will come.

This is why I often tell both clients and students to go to a second level behavioral segmenting after they’ve done socio-demographic segmentation. So what does this make of the segmenting purpose of socio-demo segmentation?

Socio-economic segmenting, for example, defines and sets the boundary around the arena where and within which you will play the marketing game.

As a game, marketing is after changing consumer behavior. There are just two end consumer behaviors that as marketers, we are after. That’s purchase behavior and after purchasing, we want consumers to use what they bought so that they are ready for repeat purchase. Socio-demo variables are not behaviors. Your next-year marketing plan does not target changing the socio-eco class of your PTM segment nor its age belonging. Their usefulness is in telling you the territory and the bounded arena where you will do marketing. This actually leads us to your second but side question about why I don’t like psychographic segmentation.

This time, let me categorically say that this is not true. What I said is that psychographic segmentation has its usefulness especially in advertising. But for other purpose or purposes, it won’t wrong. To say that something “won’t work” is surely not the same as saying that I “don’t like” it.

Let’s go back and continue with our example of your having chosen to play the marketing game within the boundary of your primary target market (PTM) segment of Class Broad C. Supposing you’re helping Sales to implement your marketing plan and then Sales gave you the feedback that the major concern of the customers of their retail accounts is pricing.  Because you’re in generics, you’re most likely to feel reinforced about this news. However, you know that even in generics, there are low- and high-priced generics.

Supposed you’re asked: “Are all Class Broad C consumers the same in their responsiveness to pricing?” You’ll have to admit they’re differentially price sensitive. So to grow your business in your PTM Class Broad C market segment, you need to price segment consumers here. For a detailed answer, please refer to my 2006 book, “User-Friendly Marketing Research” (the chapter on price sensitivity testing) and my 2010 book, “Market Segmenting, Self-Segmenting and Desegmenting.”

So for the purpose of helping Sales, price segmentation is often the appropriate segmentation. But suppose you want to advertise to, say, Class Broad C non-users of generics and persuade them to try using and eventually to stay with generics? Is price segmentation still the most relevant segmentation? Your ad agency will tell you that it’s not because the more suitable segmentation is psychographic segmentation.

In communicating with consumers and in persuading them, it’s the serious consideration of their psychographics, namely, their preferences, perceptions, lifestyle, interests and values that matter. So for the purpose of using advertising to help in business growing, it’s psychographic segmentation that’s more appropriate.

As you can see, different purposes may require different segmentation. I preach segmentation as Rick Warren preaches about life. For growing your business, it’s purpose-driven segmenting that will help in the same way that for saving your soul, it’s leading a purpose-driven life that’s key.

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