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Addressing Concerns Over Market Segmentation in Uncertain Times

Posted by Brant Cruz on Wed, Mar 31, 2010

market segmentationStock market volatility, consumer pessimism, economic instability, healthcare legislation, spring training... these are unquestionably uncertain times. When it comes to custom market research, the easiest thing to do is nothing. Wait it out. But for how long? And what will the opportunity cost be if you don't begin the process now?

Obviously, we all need to be cognizant of economic factors when deciding when to launch any project. However, as markets and consumers evolved any good information can help, whether it's external data or indications from your customers that their sentiments have stabilized - even if that stabilization is on the pessimistic side. 

For market segmentation in particular, which involves a major investment and can be especially challenging during periods of uncertainty, it's important to at least begin the process for conducting the study. 

Below, CMB's segmentation guru, Brant Cruz, highlighted three major concerns about conducting segmentation in the current economic situation, their validity, and how to address or even overcome those challenges.

Concern #1: A market segmentation exercise is less actionable in a bad economy than in a good one

Not so. Remember that segmentations make you smarter about how you make all your investments.

And as resources get scarcer, knowing who is most important (currently and in the future) makes tough decisions a bit easier. You could even make the argument that segmentations are actually more important in bad times.

Concern #2: The research could produce different (or invalid) segments

This should not be a cause for worry, and should not stop you from launching a study. For example, if you think about the key basis variables that would make for a great motivationally-based segmentation scheme (e.g., needs, attitudes, etc.), these things would not change based on economic climate.

The one area where you should expect to see some change in priority is the price dimension. But this is not necessarily a negative thing, and certainly no reason to throw your segmentation study in the recycle bin. Price is probably more important to nearly everyone now, and you may see more variance in any price variables included today than you would have a year ago. But this is the reality you will likely need to deal with for at least the next 12 months and possibly beyond.

The key is to understand the relative price sensitivity for each segment. This is critical as you make investment decisions in the current economic climate and as recovery continues.

Concern #3: The study will have a shorter shelf life, and the ROI from the research will be materially smaller

This is a small concern. I typically consider the shelf life of a segmentation study to be roughly 18- 30 months, with 24 months being about right for most companies. A major upturn in the economy might affect some segments more than others, and therefore change how we would value those segments. Each company would need to weigh the possibility and cost of needing to explore segmentation again earlier than this benchmark against the risk of proceeding in this market without this information. 

 

market segmentationSegmentation Best Practices webinar

April 29th at Noon: Chadwick Martin Bailey's Brant Cruz will present best practices of market segmentation based on his years of experience he has as CMB's segmentation guru working with clients like eBay, Electronic Arts, Plantronics, and Microsoft.

Register here to watch the full Webinar.

Topics: webinar, market strategy and segmentation