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Wednesday, November 19, 2008

“What’s self-segmentation and is there such a thing?”

MarketingRx for October 31/November 7, 2008:

By Dr Ned Roberto with Ardy Roberto


Q: We heard that you recently gave a talk on market segmentation and self-segmentation. We read your book on market segmentation and we’ve been helped by the segmentation approaches you introduced. But that book didn’t at all talk about self-segmentation.

Our news said that you told your audience that self-segmentation is more useful than market segmentation. What’s the difference between market segmentation and self-segmentation? How exactly is self-segmentation of more practical use?

Is this a new book of yours? If it is, where can we buy it? If not, please give us a brief explanation so we can benefit from it just as we gained better understanding of market segmentation from your book.


A: That recent talk isn’t that recent. It’s been some two months ago. Anyway let’s take up your questions. We’ve been asked those questions before and for quite a number of times.

The most instructive way to be clear about the difference between market segmentation and self-segmentation is to think of segmentation as a behavior. Our traditional practice of market segmentation is the marketer’s segmenting behavior. That’s basically your partitioning as a marketer of your total market into segments.

The partitioning may be by socio-economic classification. This is probably the most used segmenting variable. It’s a conventional practice in the shopping mall, restaurant and hospitality services business. The practice typically yields the Class AB (upper class) segment, Class C (middle class) segment, Class D (borderline poor) segment, and Class E (extreme poor) segment. In another occasion as in the apparel and food supplement categories, you may partition by age to come out with the young adult segment, the mature adult segment, and the post-mature adult segment. Others like to partition by gender (the male segment versus the female segment), or even by geographical residency.

The classic pHCare example
Self-segmentation is the consumer’s segmentation behavior. This was what the pHCare market launching team at Unilab found in the feminine wash market in year 2000. The total population of menstruating women at that time self-segmented themselves into the femwash user segment and the femwash non-user segment. According to AC Nielsen, the user segment made up 12% of the total menstruating population while the non-users were a large 82%.

The 82% non-users self-segmented into 3 sub-segments. There were about 50% out of this 82% who for their feminine hygiene needs used 2 substitutes, namely, soap or water. This 50% divided about equally between soap and water. The remaining 32% out of the 82% were the “true” femwash non-users whose reason for non-use was something like this: “Wala naman akong UTI. So di ko kailangan yan.” (I don’t have UTI. So I don’t need that.) This is the most difficult market segment to go after for converting into femwash usage.

The other 2, the soap-using segment and the water-using segment, are not as difficult a segment for conversion. This is because the first of these 2 is already unhappy with soap as a femwash substitute. Soap users say something like this: “It makes me dry and itchy down there.” So demonstrating that a femwash like pHCare won’t dry and won’t make its user feel itchy will lead to conversion in favor of pHCare. On the other hand, the water-using femwash prospects reason out this way: “Okay na ang tubig. Gastos pa yang feminine wash” (Water is okay. It’s extra expense to use feminine wash.) That’s a resolvable issue of affordable value-for-money pricing.

In population size, each of these 2 non-user segments is somewhat larger than the current18% femwash users. The consumers in the soap-using segment count to 20.5% prospective femwash users (= 25% x 82% non-users). That’s the same population size of consumers in the water-using segment.

Converting the soap users into becoming femwash users doubles (about a little bit more) the current femwash user market. Then bringing in the consumers in the water-using segment will more than triple that current femwash user market! As you can see, this is the argument in favor of taking advantage of consumer self-segmentation for its more practical business-growing benefits. As we often tell our seminar participants, the ultimate source for growing your business is a new user market segment. Find one and your double or even triple your business. Because the period of owning a new market segment has been getting shorter and shorter, you can appreciate why searching and locating a new user market segment has become ever more critical.

The AyalaLand example
Here’s another instructive case that reinforces this practical business-growing advantage of self-segmentation but with a different twist. This is the self-segmenting behaviour of home owners of AyalaLand.

Originally, the market segmentation that AyalaLand adopted was by the socio-eco classification of the upper-upper class, i.e., the Class A market. This real property company partitioned the Class A market into the Class AAA (triple A) segment, the Class AA (double A) segment and the Class A (single A) segment.

Over the years, as these market segments got “saturated,” research on home owners in these segments revealed that home owners here were self-segmenting themselves into a first repeat customers for another house and lot, and even as second repeat customers. At the life cycle stage of “Full Nesters 1” where the couple’s youngest kid is less than 6 years old, this Class A customer has been observed to be at its first peak repeat home buying. This is a potentially double-the-business opportunity.

Then at another life cycle stage of “Empty Nesters 1” where you now have older couples, with or without kids at home, but the household head is still working, a Class A customer in this stage has been recorded to be at its second peak repeat home owning. This time and in most cases, this customer buys for gift giving. One of the children is now getting married and what can be a more welcome wedding gift than a house for the newly wed. That’s potentially another double-the-business opportunity.

Where’s the difference in this case? Notice that the new market at each of the 2 peak repeat home buying opportunities comes from the same original customers. The same customer has segmented himself or herself to participate in 2 new market segments. That’s growing business from your already acquired customers. It’s not new customer acquisition as in the femwash case. That’s the most cost-effective sourcing of business growing.

So there you are. There’s hopefully the clear difference between market segmentation and self-segmentation, and the true practical business-growing advantage to navigating through this fast changing waters and times via customers’ self-segmentation.

Keep your questions coming. Send them to ardy.roberto@gmail.com or visit www.marketingrx.org . God bless!

“What about de-segmentation? What’s that for?”

MarketingRx –November 14, 2008

By Dr Ned Roberto with Ardy Roberto

Q: We read your recent column on self-segmentation. We never thought about market segmentation that way. That is, as a consumer behavior and not only as a marketer behavior. We were having a lunch discussion on this concept when someone reminded us that in one other previous column you were also talking about another segmentation idea, namely, “desegmentation.” The lady who reminded us said she read it in your column regarding Kartajaya’s Philippine Marketing Association keynote speech where he provoked the audience by saying that marketing is better off today if it gets rid of market segmentation.

Then another person told us that you actually talked about desegmentation in your last Blue Ocean Forum two months ago. He told us that the title of your talk was in fact “Market Segmentation, Self-Segmentation and Desegmentation.” In your column last Friday, you explained the first two but didn’t say anything about the third, that is, desegmentation.

So please tell us about desegmetnation. How useful is this for us marketing practitioners? What is it for? It seems to us that market segmentation and self-segmentation are enough for our segmentation requirements. A mystical sounding third called desegmentation sounds to us like a redundancy and even a contradiction.


A: The concept of “desegmentation” comes from the best seller and voted #1 strategy book of 2005 and 2006, Blue Ocean Strategy. That’s by W. Chan Kim and Renee Mauborgne, 2 professors from INSEAD, Europe’s leading MBA school. In chapter 5 of the book, Kim and Mauborgne explain desegmentation by defining it as follows: “Desegmentation is putting a stop to the pursuit of finer segmentation”… when you’ve identified a “product category non-customer” segment who when combined with the “current product category customer” segment surface a “common product category value” that can be satisfied with a new offering that will reach and “aggregate to a new much larger demand.”

Of course, every time we quote that we hear marketers say and ask: “Wow! That’s a whole lot. What does it mean?” It is a lot to chew and swallow. So read carefully and you’ll be amply insightfully rewarded.

Let’s start from what desegmentation obviously is not. It’s not doing away with segmentation. Unfortunately, that’s the most common first impression that our clients and students get from just reading this compound term. In forming the compound, desegmentation, the use of “de-” creates in the reader’s mind a negation of the term to which it is affixed. That is what happened to you and your business friends in your own impression of the contradictory connotation of the term. So if you want to understand the concept and put it to practical use, this misinterpretation is what you have to first unlearn.

This clears the way for understanding what desegmentation really is. Firstly, it’s about doing several levels of segmenting. It’s first a process of “finer and finer segmentation” of your total market. Secondly, it’s about knowing at what level of refinement to stop the process. And thirdly, it’s about stopping at the level where your best candidate PTM (primary target market) segment represents a source of “a new much larger demand.” It is this unique 3-step disaggregating of the segmenting process that is the outstanding contribution of Kim and Mauborgne to the strategy of market segmentation.

The idea of segmenting beyond the first level and refining down to the “behavioral segments” is not Kim and Mauborgne’s. That’s from the senior MRx-er’s Strategic Market Segmentation book. The logic of the process is simple. The first level segmentation is usually by socio-eco and demographic variables such as, for example, by socio-economic classes like Class AB (rich) segment, Class C (middle class) segment, Class D (borderline poor) segment and Class E (extreme poor) segment. Or by age, or by gender, etc.

To target any one of these first level segments and change its purchase or usage behavior, the marketer must ask: “Are the consumers in, say, the Class C segment the same in, for example, their sensitivity to pricing?” The answer will almost always be “no.” This means that for targeting and consumer behavior change purposes, that Class C segment should further be segmented by price responsiveness. When this is done, it will result, for example, in identifying an economy Class C price segment (whose consumers are immediately price sensitive), a premium Class C price segment (whose consumers are less price sensitive), and even a super-premium Class C price segment (whose consumers are not at all price sensitive).

Let’s have an example of the multi-level process of segmenting so we can continue discussing in the concrete. The senior MRx-er recently had a 3-day marketing consulting engagement with the Singapore government’s Civil Service College. In one half day of the 3 days, the consultant had a workshop session with the Health Promotion Board. One of the programs discussed during this session was the Board’s campaign to accelerate the acceptance and participation by Singapore company employees in the Board’s “Workplace Physical Activity Promotion Campaign.” The idea of developing a 3-level segmentation of the total market of company adult employees was proposed and taken up.

The Board was already segmenting at a first level by age. This identified 3 segments; (1) young adult company employees, (2) mature adult employees, and (3) post-mature adult employees. To get the 3 age segments into identifying each one’s “behavioral segments” called for going beyond this first level segmentation. In order to proceed to a second level segmentation, the Board members in attendance were asked to first answer this question: “Which segment among the 3 has the most need for the workout?” This was for setting priorities among the 3 identified age segments.

The Board chose the young adult segment. This segment became the subject of a second level segmenting. This time it’s segmenting by the working out behavior. This led to 2 identified behavioral segments: (1) the young adult company employees who are now working out, and (2) those young adults who are not working out.

Since the Board wanted to get to a “finer” third level behavioral segmentation, it had to prioritize the 2 just identified second level segments. To do this, the consultant the audience to answer this question: “Between the 2 segments, who is less difficult to reach and persuade about more regular or more intensive work outs?” The Board’s answer was “those now already working out.”

For the third level segmentation, segmenting was by “working out frequency.” The session on this yielded 3 third level behavioral segments: (1) those working out irregularly, (2) those are regular in their work out, and (3) those working out vigorously. To arrive at a prioritizing of these 3, the Board answered this question: “Among the 3 segments, who has the most need for help in their working out frequency?”

After some quick exchange of opinions, the Board members ended by choosing as its PTM (primary target market) segment those who are irregularly working out. Those following a regular work out schedule were designated as the STM (secondary target market) segment. The TTM (third target market) segment was the segment of employees who are vigorous in their work out frequency.

So as this example illustrates, repeating the responsiveness question for some other segmenting variables like product needs or benefits can bring the process to a next or another level segmentation. This particular level will identify what used to be popularly known as “benefits segments.” As our Singapore example shows, it’s possible to go on repeating but every time a marketer is tempted to make the repetition, the critical and practical question must first be answered: “Where do I stop? Is it in the next level of finer segmenting of the market or in this level?”

Here is where the Kim and Mauborgne “desegmentation rule” comes to a most welcome rescue and serves as a most useful decision handle. So in our example, we saw that the Health Promotion Board deciding to stop at the third level segmentation. At that level, it chose for its PTM segment, the segment of those young adult company employees who are already working out but doing so irregularly. Does this choice satisfy the desegmentation rule? That is: Is this the segment representing a source of “a new much larger demand?”

There was not enough time for answering the question with “facts and figures” and not just anecdotally. But one or two Board members mentioned that in terms of segment population size, the chosen PTM segment is known to make up the larger population size. There are also some experts’ opinions to consider. Psychologists and physical therapists working in the campaign hold that it is this young adult segment that promises more than any other segments a “multiplier effect” on other segments including mature adults and post-mature adults. Both of these 2 segments look up to the youth for healthy working out practices and reminisce about their own youth period when they were at the “pink of health.”

There was a final challenging and quite provocative question that was raised. It asked something like the following: “What about those other 2 segments of mature and post mature adults? This is a real problem with segmentation. As a government agency, we must reach all, everyone. That’s the democratic rule. The desegmentation and market segmentation rule violates the mandate of democracy. So how can all segments be reached?”

This basic objection to segmentation has been raised before. Government and non-government organizations who are struggling with the relevance of marketing in their work are particularly concerned about it. There have been different answers from marketing experts. Here’s the answer and explanation in abridged form from the consultant:

“The Rule of Democracy is usually interpreted as the Majority Rule. The logic assumes that if you reach and serve the majority, the minority will soon be reached and served as well. But the history of democracy tells us that this is rarely true. Once the majority is served, the minority is forgotten. And this is why Sir John Mortimer, the noted English barrister and playwright, came out with what we may call the Mortimer Rule of Democracy. It says: “The test of democracy is not that the majority should always get its way but how far minorities are respected.” Majority and minority. These are essentially market segments. And the Mortimer Rule is no different from the Segmentation Rule. So to reach both segments, follow the Mortimer version of the Rule of Democracy, which is the Segmentation Rule.”


Keep your questions coming. Send them to us at MarketingRx@pldtDSL.net or visit www.marketingrx.org . God bless!