The purpose of segmentation is to split consumers into similar and homogeneous groups. If there are consumption similarities among consumers, it can be assumed that they will also respond in a similar way to the 4P elements. Thus, if marketers can find similarities among consumers and develop 4P combinations appropriate for each consumer group, the company should theoretically receive similar responses to these combinations within each consumer group. This is called “product segmentation.” In other words, if a group of consumers is more responsive to price changes than to promotion campaigns, the company needs to focus on pricing rather than promotion. Thus, the major advantage of segmentation is to reduce unnecessary use of marketing-mix elements by splitting consumers into homogeneous groups according to their responses to these elements. The assumption behind the product segmentation approach is that all the consumers in the product segments are equal in terms of the specific segmentation or splitting factor (see the first graph of Fig. 3.7).
However, changes in marketing, with internet technology empowering each consumer to voice their specific tastes and needs, have shown that each consumer should, in fact, be regarded as a single segment. The major assumption is that in the digital markets, each consumer is unique in terms of any segmentation factors, and hence each consumer should be treated with a distinct mix of the marketing elements to maximize consumer engagement and response to each
Fig. 3.7 Traditional and new product segmentations element of the 4Ps. This, in turn, maximizes the marketing returns as shown in the “new product segmentation” graph in Fig. 3.7.
In new product segmentation philosophy, the individual consumer’s feedback is valued more highly in the company’s marketing strategies, indicating a new shift in today’s marketing from market valuation based on product segmentation to consumer valuation. New product segmentation is successful because of the continuous flow of feedback and information from consumers in real time. In traditional product segmentation, it is not clear how much an individual consumer has actually been influenced by specific marketing efforts, as feedback from consumer segments where all consumers are assumed to be equal in terms of the specific segmentation factor takes a really long time. It is much easier for the company to develop a relationship with a single consumer and segment—which eventually increases the value of a consumer rather than a segment (see Fig. 3.8).
In traditional product segmentation, segmentation value is measured by a group of consumers’ willingness to purchase the products through discrete time periods (see the first figure of Fig. 3.8). With the digital revolution, consumer value becomes more important than segment value as companies can easily establish continuous individualized interactions with consumers. Consumer feedback is collected easily and instantly, so companies need to interact with consumers continuously to provide a realtime solution to each consumer. Because of the increasing intensity and
Fig. 3.8 Segment and consumer value comparison number of consumer interactions, companies need to value each consumer so that they can use their 4P elements efficiently and effectively. This shift from group segment to individual segment has actually created a new marketing concept, “consumer life-time value.” Each consumer’s willingness to spend with the company during a time period is calculated and consumers are rewarded accordingly. The traditional market format is represented by a discrete mathematical series, while today’s consumer value-based segmentation approaches are represented by consumer interaction integral function (see Fig. 3.8).