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The Psychology Behind Digital Customer Segmentation

July 24, 2019 Posted by: Surpriya Garg
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By Surpriya Garg

My first lesson in customer segmentation came early in life when 5-year old me and my 8-year old brother decided to start our own business during summer vacation. Our idea: helping neighbors with their daily chores. My brother and I made a large amount of money from our small business that summer. However, we wasted one entire month, during our start-up days, trying to find the right doors to knock on. Turns out, most of the people were not taking us seriously. The only people who wanted our services were elderly customers. It just so happened that one family member allowed us to provide our “services” on a special occasion. For us, this was a great starting point! We now knew whom to target. We kept a special price for the elderly, after all they were regulars. Families were targeted only when there was a family-specific event coming up (never underestimate the network of a 5-year old) and were marked up a little.

Twenty years later, I started my graduate program at the University of Arizona (Bear Down!), and guess what was the second thing my marketing professor discussed, customer segmentation! This completely changed my perspective, broadening my horizons, as I started seeing every advertisement in a completely different light.  What I learned would have helped my brother and I in our early business phase so much more, but also reaffirmed the hands-on learning, during that childhood summer. 

I began to ask myself, “Why does one company have college kids in their ads and another company with same product have a family?”

“Why do feminine product companies mostly have models posing as sports women?” 

The principles of customer segmentation were starting to become clear to me.  Today, I am using my experiences as a child, my great education from the University of Arizona, and my in-depth knowledge of customer segmentation to assist multiple clients, as they analyze and understand their customer segments.

So, what makes customer segmentation so difficult? Traditionally, companies find customer segmentation one of the most frustrating activities, due to three main reasons. 

First, segmentation teams do not know if they can truly trust the market research on typical consumers. 

Second, a company must decide how many customer segments to create and determine the correct level of granularity. Too many segments may make their story too complex and might over-analyze these segments, wasting unnecessary time and energy. However, too little granularity may not give a clear picture of the company’s ideal customer.

Third, and most important, companies begin to focus too much on age, demographics, and other factual features. Traditional customer segmentation operates on reliability, performance, and customer cost savings measures. However, now with incorporation of digital technologies, including social media, we can now look at actual customer behavior, and dive deeper into the psychology of customer.

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The Digital Age: Reshaping Customer Segmentation via Psychology & Social Media

The increased use of digital platforms by customers has been a blessing to many and a curse to some. With new insights comes more layers of complexity. Add to the mix the current social media trends, scandals and lifestyle changes, and the entire recipe becomes too complex for traditional markets. You are now operating on a global level with customers five miles away and some five-thousand miles away, with backgrounds and interests that can turn marketing efforts upside down.

Think about the ideal customer for one of the largest fast food entities. One could be a traveler looking for a quick meal that is filling enough to sustain that person for a few hours. Another, may be a shopper or office goer with a similar goal. Next there could be birthday parties for kids (economies of scale providing cheap meal and hassle-free parties), and last could include someone looking for inexpensive meal options.

In 2012, this fast food entity wanted to test the social media waters, creating a hashtag campaign designed to let the voice of the customer shine, through #MeetTheFarmers and #FastFoodStories.  The purpose was to engage the social media audience and encourage them to share their own amazing stories involving the fast food giant.  However, the company soon realized that the second hashtag is horribly vague and has become a medium for ex-employees and others to take out their frustration.  The result: the company alienated every other customer, who read horror stories, especially the ones discussing ingredient compromises.

How has this affected this fast food giant's customer segmentation?  The fast food giant now can look at the psychology of its traditional consumers and can divide them into three new segments. 

#1) People who have forgotten the business or never followed it (after all, it was 7 years ago).  This segment also includes teenagers who recently got full access to social media, teenagers experienced with social media, or people in their twenties who are more interested in posting their own content.

#2) Customers who know about the restaurant chain and believe that the horror stories were untrue or “they aren’t true for the restaurant that I go to.” 

#3) The segment that liked the entity earlier, but now no longer visit the store due to the horror stories changing their perception.

Who should this fast food entity target in a customer growth plan?  Can the company really ignore the third segment of its traditional customer base?  

The answer is subjective, and can be yes or no, based on which direction the company wants to take its brand image. With the advent of digital, we now have ever-fluctuating customer segmentation, providing us information allowing businesses to change their practices at moment's notice, if necessary.

At CGN, we conduct extensive market research to analyze our clients’ customer base, its psychology, and social media presence. We help our clients select the most suitable segment that has potential to grow and matching with the company’s vision and mission, which can be utilized in a situation like the fast food company discussed earlier. 

We assist clients in developing social media strategy for the targeted audience that includes identifying the right platforms to socialize, create a following, and how to convert followers into consumers.  The goal being to create meaningful market segments beyond the traditional elements, giving the business a full understanding of its strategic market segments, designed with the pursuit of maximum market growth and stability in mind. 

Want to hear more of our exciting social media and customer segmentation stories? Reach out to us on LinkedIn, Facebook, and Twitter.