Covid-19 has been a time for customers to step back and reconsider what really matters, both from a financial standpoint and from a values one. If you’re relying on outdated customer segments – or worse, unverified assumptions – to guide your marketing, Rachael Weaver says you need to consider how those communications might land in the current climate.
The past eight months have been an incredibly trying time for businesses and consumers. Covid-19 has not just rocked the boat, it’s completely overturned it. Since the start of the pandemic, more than half (53 percent) of global consumers say their values have changed. As a brand, you need to stay on top of these changes and to understand people’s needs and what they’re motivated by now. Not what they were last year.
That why it’s critical to revisit what you think you know about your customers—even if you’ve done customer segmentation before. Chances are, priorities have shifted.
What is customer segmentation, and why do businesses need it?
Segmentation is a research process that breaks down your market and/or your customer-base by interests, attitudes, values, motivations and perceptions. If you can understand how your target audiences are thinking, feeling and behaving, it becomes easier to communicate with them more effectively.
In essence, segmentation is understanding who you’re talking to as a brand. It allows brands to talk specific sections of their customer base about the issues and interests that matter to them. Think of it like this: imagine you’re at a dinner and you’re seated next to that relative—the one who drones on and on about economics, or grammar, or some equally rather-watch-paint-dry subject in minute detail. Eventually, you turn away, tune them out and find someone more interesting to engage with. The same thing happens to brands.
Fail to know the market and your customers and your brand becomes the relative who gets tuned out.
However, knowing your audience is just one side of the coin. On the other, is the ability for businesses to identify who their most valuable audiences are and how to reach them. To use the family dinner analogy again, it’s the equivalent of your economics-obsessed relative choosing to sit next to cousin Jane, because they know she has a degree in economics, works as a stockbroker and loves talking shop with fellow economics enthusiasts.
How does customer segmentation work?
There are several ways to segment your customers—the most common is by demographics (age, location, nationality, gender and so on). Many businesses can do this on their own without expert help, but this is also the least informative segmentation you can do.
I’ve been consulting in the customer insights gig for over ten years and I always tell people the same thing. The most revealing, most valuable, customer segmentation brands can do is psychographic segmentation (quantitative surveys that segments people based on psychological characteristics combined with motivational research (qualitative motivational research in the form of focus groups or in-depth interviews). Together these will uncover underlying attitudes, beliefs, emotional and rational drivers of behaviour, and the needs of the consumer.
Why psychographic and motivational research?
All humans have basic, instinctual needs and desires that ensure survival (think fight or flight). But modern society has moved on from our hunter gatherer roots, and those instinctual needs are no longer expressed in their purest forms. Few of us have cause to undertake a 100m dash to escape the maw of a hungry predator anymore. Instead, our basic needs have moulded and adapted to emerging societal expectations. Now, our behaviours are dictated by how we choose to navigate individual need against the needs of society. This evolution of instinctual needs has led to complex behaviours that can be difficult to understand.
The short version: human behaviour is extremely complex, unconscious, and is essentially based around irrational needs.
Which is where psychographic and motivationalresearch comes in. It seeks to identify these needs and describe them; to uncover what consumers do not fully understand about themselves. It captures why consumers buy certain products and services over others, what is important to them, and who they are.
And when psychographic segmentation is combined with motivational research, we get incredible insight into why consumers behave as they do.
In the hands of your business, this information can provide a more realistic prediction of your customers’ buying behaviours, identifies their needs from both emotional and rational standpoints, and uncovers the explicit and implicit drivers of their behaviour in different situations.
Customer segments in the wake of Covid-19
Brands need to show empathy in times like these but they also need to convince people to part with their money—in the midst of an economic downturn no less—if they want to survive.
However, just as important is staying relevant to customer needs and understanding both what has changed and what hasn’t.
Currently, there’s a debate within the marketing community about whether the market has changed permanently, temporarily, or if it has changed at all. Segmentation removes that uncertainty andallows you tounderstand the degree of change within your own customer base.
Jeff Bezos once famously said, “you can build a business strategy around the things that are stable in time.” Segmentation helps you identify what those stabilities are. And that is powerful information to have in these uncertain times.
Here’s what we know
Globally, the pandemic saw a drastic reduction in leisure and activity spend, along with footwear and clothing. Meanwhile, consumers are spending more on groceries. Moreover, we’ve seen a lot of brand switching happening as consumer priorities shift towards finding brands that offer the best value. Consumers have also become more willing to share personal data to help manage the pandemic. Research from Ernest & Young found 54 percent of consumers would make their personal data available if it helped to monitor and track an infection cluster.
As for global consumer behaviour, Ernst & Young has identified five segments that are set to (re)shape the consumer landscape beyond Covid-19.
- Affordability first (30 percent): Conscious of living within their means and more likely to be older and to live alone. They’re the most pessimistic of customer segments in terms of how long they think it will take their country to recover from the pandemic. Fifty-four percent identify price as increasing in importance, 30 percent are unwilling to pay a premium for any specific product characteristic.
- Health first (26 percent): The health conscious—their health and the health of their family comes first. They will stick with brands they trust and know are safe and will minimise unnecessary risks (i.e. will shop online instead of instore). Fifty-seven percent say healthy or good for me has increased in importance in the products they buy. Pessimistic about how long it will take before life returns to “normal”.
- Planet first (17 percent): Most likely to brand hop to use brands that align with their beliefs. Happy to pay premium for high-quality, ethically sourced and sustainable goods. Because they are determined to cut down on waste and their environmental foot print, they tend to buy local with 59 percent intending to shop more locally long term.
- Society first (16 percent): Believe in working together for the greater good. Will pay attention to the social impact of the brands they purchase from. However, brands need to show proof of giving back to the community—lip service won’t cut it. Seventy-three percent are prepared to change their behaviour in order to benefit society.
- Experience first (11 percent): Live-in-the-moment consumers. Over half are Millennials and Gen Z. They like to try new brands, products and services, especially those that feel personalised. Least anxious about their health and finances. Two-thirds feel comfortable returning to a mall just days or weeks after the pandemic has stabilised in their country.
How does New Zealand compare?
New Zealand has a slightly different story compared to many of the world’s nations. Thanks to our isolated island status and quick government response, we’ve escaped the worst of the health implications of the pandemic (so far), but the economic impact still remains to be seen.
Off the back of the Level 4 lockdown in April/May and the second Level 3 lockdown in Auckland in August, we’ve seen a big shift to e-commerce with numerous SMEs moving online. Mirroring the Affordability First trend, we’ve also seen the purchasing of specialty and top-of-the-range go down while second-tier brand buying has gone up as consumers hunt for better deals and value for money. According to McKinsey, 34 percent of New Zealanders have cut back on their spending and 31 percent are being very careful with how they spend their money. Moreover, anecdotal evidence suggests more Kiwis are looking at supplementing their income with other revenue streams, such as selling items on TradeMe, undertaking paid surveys, and starting online businesses/stores.
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