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Segmentation in a Web 2.0 World—and Beyond

by Nilofer Merchant  |  
April 10, 2007

Imagine using a piece of technology from 1964 and expecting it to be relevant. Is anyone still using an IBM System/360? No? Then why are you still using customer segmentation that's as passe as old hardware?

In 1964, in the Harvard Business Review, Daniel Yankelovich introduced the concept of "non-demographic" segmentation. Before that, the common classification of consumers was by rough cuts of attributes like age, home ownership, income levels, and others that could generally be found in census-type information.

By moving past demographics, Yankelovich's goal was to look at things that mattered more—customer usage and adoption patterns. This meant that marketers could craft better messages and develop improved channels to reach them.

While this revolution helped us to understand customer requirements and interests, it has its own limits.

Traditional segmentation does broad well

Because marketers haven't been able to do an infinite cut of segments, we end up with segmentation based on attributes like these:

  • Usage. Users who select and use devices for information gathering vs. entertainment.

  • Interests. Women 20-40 interested in recording family events and creating movies to share online.

  • Priorities. Which nonprofit (social justice nonprofit vs. clean water nonprofit) receives the greatest amount of funds.

  • Purchase drivers. Ease of purchase (read: online shopping, simple return policy, purchase guarantee) may trump many other product attributes (price, quality, brand) for time-starved consumers.

After doing good research and finding some natural "clumps" of interests, usages, priorities, or purchase drivers, we typically end up with 3-5 segments for any particular product, service, or solution area. If we had the money and the time, we might even be able to do some "psychographic" detail and in-home research that would allow us to get a clear "snapshot" of what that typical user's life is like.

But, in the end, most technology firms catering to consumers have four or so groups that look like this:

  • Technology enthusiasts. Typically male, 30-45.

  • Families with children. Price-sensitive, focused on protection and safety.

  • Older with money. They may tend to be price insensitive but need guidance on what to purchase and how to use/service it.

  • Teens and entertainment addicts. Low threshold for boredom, on the go, want the latest.

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Nilofer Merchant is the CEO of Rubicon Consulting (, a strategy and marketing consultancy based in Silicon Valley that solves complex business challenges for high-tech companies.

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