Should I Use Behavioral Segmentation Bases?

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Behavioral segmentation is looking at how consumers behave as consumers in the marketplace. It revolves around their actions, behavior, and attitudes and opinions towards products and brands.

It does not refer to their lifestyle behavior, which is psychographic segmentation, but only to their behavior as a buyer and consumer in the marketplace.

But how helpful and effective is this approach to segmentation? This article explores the advantages and limitations of using behavioral segmentation bases when identifying target markets.

Covered in this article…

  • Introduction to behavioral segmentation
  • How behavioral data is obtained
  • Advantages of using behavioral segmentation
  • Limitations of using behavioral segmentation

Introduction to Behavioral Segmentation

Behavioral market segments are constructed around how consumers interact in the marketplace with products and brands. It is a very descriptive form of segmentation, which classifies consumers into segments based upon their in-market behavior.

For example, consumers can be classified as:

  • non-consumers
  • occasional users
  • light users
  • moderate users
  • heavy users

of a particular product category. This classification simply groups consumers based upon the frequency and volume of their purchases of any product category.

As another example, consumers could be classified as:

  • having a positive attitude towards our brand
  • having a neutral attitude towards our brand
  • having a negative attitude towards our brand

In this case, consumers have been segmented based upon their attitude and perception towards our brand. This is an important aspect of behavior, as underlying attitudes will drive purchase decisions and whether or not our brand is perceived as a suitable purchase for their needs.

You should note that, as you most likely already know from your study of marketing, behavioral segmentation is just one approach to dividing an overall market into smaller segments. Different marketing textbooks will provide a slightly differing choice of segmentation bases, but will usually include:

  • geographic,
  • demographic,
  • psychographic,
  • behavioral,
  • benefits sought, and
  • hybrid (a combination of the above)

It should be noted that in some textbooks benefits sought segmentation is included as a subset of behavioral segmentation. However, given its relatively extensive use, there is a separate article covering benefits sought segmentation on this website. Please see link at the bottom of this article.

And remember that each of the above segmentation bases can be broken down further into smaller dimensions. For example, with behavioral segmentation, we can drill down to:

  • level of usage of the product category
  • attitudes to different brands
  • awareness of different brands
  • brand loyalty/switching behavior
  • occasions when the product category is used/purchased
  • retailer preference
  • price sensitivity

How is Behavioral Information Obtained?

Behavioral segmentation information is reliant upon either market research or capturing transactional data by customer. In large supermarkets, many chains will use a loyalty program and encourage customers to scan their loyalty card at each purchase, including online purchases.

A loyalty card system is the easiest way to track and construct customer behavioral segments. This is because purchases can be matched back to the same customer over time. This works most effectively when customers are willing to use their loyalty card on all/most occasions.

However, in retail settings where consumers only use their loyalty card occasionally, the data captured would not be as robust as there would be many missing purchases.

An alternative way to construct behavioral segments is to rely on market research surveys, asking consumers about their shopping behavior. This is somewhat helpful but is nowhere near as accurate as an active loyalty program system, which has the advantage of capturing more data and more accurately.

Advantages of Using Behavioral Segmentation

 Great insight to their actions and behavior as a consumer

The prime advantage of behavioral segments is that we have an excellent understanding of the actions undertaken by consumers in the marketplace. We can measure fairly precisely (particularly through loyalty programs) what consumers purchase, how often they purchase it, and on what occasions do they purchase it.

This is very helpful information for matching back customer actions versus our underlying marketing mix variations. And as is pointed out below, this allows us to fine-tune our operations.

Alternative to loyalty programs, many online platforms (such as Google) capture substantial information about each user’s online behavior – websites visited, links followed, time on site, and so on. Through this information we can build a very powerful profile about how the user operates and behaves.

As a result, behavioral segmentation is considered superior in measuring and understanding consumers actions.

Can conduct market experiments to fine-tune our marketing mix

Following on from the above point, if as marketers we can measure the outcome of consumers purchase decisions (and even level of interest of products via their online searches), this will allow us to construct robust marketing experiments.

For example, as a manufacturer we could introduce product line extensions or revisions to packaging or revisions to pricing (or other changes to any marketing mix element) and then monitor how consumers react and which segments react.

Over time, these marketing experiments will allow us to build analytical marketing models that will allow us to further refine and enhance our marketing efforts.

Likewise, an online sales platform can also do the same through various revisions to copy, presentation, product mix – where they can measure how different consumers react and then work out the optimal offering, ideally on a segment basis.

In terms of segments, they may identify that light/occasional users are more responsive to price offerings, whereas heavy users are more responsive to product line variations. This would allow us to construct unique marketing mix offerings per segment.

Measurable via large-scale loyalty programs (e.g. supermarkets)

Large-scale retailer-based loyalty programs and large online players (Facebook, Amazon, Google) are able to capture behavioral information very accurately and for significant numbers of consumers. This allows behavioral segments to be constructed that are quite robust and precise.

In addition, as mentioned above, changes to the marketing mix can be measured by each segment’s reaction – allowing precise and measurable improvements over time.

Quite useable for industries with access to this data (e.g. FMCG)

FMCG = fast-moving consumer goods, and are products primarily sold by supermarkets. Think of beverages, snacks, bread, soup, rice, pasta, sauce, and so on. These are consumer products, that are sold in large numbers every day.

As these players are often in a market share battle, and are sold through the same/similar retailers, behavioral data and segments are quite valuable for these industries. This it because they can measure their performance by segment directly against their competitors.

For example, Coca-Cola could measure the impact of their sales promotions against Pepsi-Cola, for both heavy users and occasional users market segments.

Additional market research can be added for a richer segment view

Obviously, behavioral segments are derived around an output of actions by the consumer. As will be mentioned below in the disadvantages, there is limited information about their motivation and the consumer as a person.

However, it is possible to obtain additional market research or third-party data to build out a richer view of each segment by adding demographic and lifestyle information.

So while independently, behavioral segments may be a little sparse on consumer-based information, given that we often have some identification of the consumer, it is quite possible that we can build onto and add to that profile relatively easily.

There is some connection between consumer behavior and lifestyle

Again, while behavioral segments are more action oriented than other approaches to segmentation, even without the additional market research mentioned above, it should be possible to create a reasonable profile of the segment based upon the combination of products that they buy.

By analyzing their “basket of goods” that they purchase over time, or the combination of purchases that they make online, we could use a series of assumptions to “paint a picture” of the consumer and their lifestyle.

This information is helpful for constructing marketing communications, selecting media, and tapping into underlying motivations of what is important to them in their life.

Effective sales promotion design

Sales promotions are effective tools for generating short-term sales and increases in market share. If we construct our segments around product usage, brand attitude, price sensitivity (or other similar construction), then it should be clearer to us on which types of sales promotions would be more effective.

For example, consumers who have a positive brand attitude towards us would be more likely to adopt any new product line extensions, including short-term flavors and variations. They are also more likely to engage with a link/QR code to our website, our social media, or a competition.

This would be opposed to price-sensitive segments, who are more likely to engage in discount offers and special pricing deals.

Obviously, sales promotions are generally expensive to run and require an immediate return on investment. So by understanding the needs of the segment that we are targeting, we should be able to construct more effective sales promotions and return on investment.

Limitations of Using Behavioral Segmentation

Attitude segments may not be as reliable as behavioral segments

As noted above, we can construct quite precise behavioral segments by measuring sales and purchase variations over time – either through loyalty programs or online observation.

However, attitudes to brands either have to be assumed based upon purchase behavior or captured by market research surveys. This means that attitude segments (a form of behavioral segmentation) will not be as robust as the sales-based behavioral segments.

This is a limitation, as the consumer’s attitude is often quite important and will drive the selection of suitable and unsuitable brands.

Explains them as a consumer, but NO understanding of WHY

This disadvantage is the opposite to psychographic segmentation, which works hard to explain behavior from a lifestyle perspective. Instead, behavioral segmentation is very effective for describing consumer-based actions only, with often limited insight to lifestyles and motivations.

In other words, we have limited information on the consumer as a person. What is important to them? Why do they prefer specific brands? Why do they sometimes switch brands? And so on…

While it is helpful to monitor sales actions and outcomes, particularly against our marketing mix changes, it is also very helpful from a marketing perspective to gain some market insight into the consumer and how they think.

Unfortunately, relying on sales outcomes only does not help construct effective marketing communications and may also be limiting on our future product development, as we only understand what consumers are doing today.

However, as noted in the advantages, it is possible to add additional information to behavioral segments and to build more relevant and powerful segment profiles.

Likely to end up with common segments to competitors, such as “heavy users”

In many fast-moving consumer goods markets, a common segment to target is “heavy users”. Heavy users are those consumers who purchase a product category on a regular basis and often account for a substantial proportion of purchases.

In many product categories, heavy users could account for over 50% of all sales. For example, some consumers may be heavy users of diet soda and consume multiple products per day, as opposed to light users who may consume one or two products per month.

As a result, we may end up in a head-to-head competition with similar brands, which is likely to result in a sales promotion (pricing) driven market. Please see disadvantage of sales promotions below.

More of a transactional view of consumers

Behavioral segments are based upon actions in the marketplace, particularly sales, where we are looking at individual purchases at times. If we have a robust way of capturing data, then we can review the customer overall over a long period of time and get a good sense of a relationship view of the consumer.

However, we would generally be capturing individual transactions (or related sets of transactions). For example, if we have a simple loyalty card that does not capture customer information – such as a loyalty card at a coffee shop – then we are only capturing what products that were bought at the same time and at what price. We have no history for that customer (that we have captured) to compare it to. As a result, we have a very simplistic transaction-based perception of our customers.

Could be expensive to obtain data

Because we are measuring so much consumer data, we need a platform and system that allows us to capture and then analyze the data.

As mentioned above, retailer loyalty programs can capture this information in supermarket settings, in particular. However, that data is then owned by the retailers themselves, and would look to on-sell it at a profit.

While this data cost would be relatively insignificant for a large brand, it could be cost prohibitive for a small player. In addition, the company would also need marketing analysts to dig into the data and identify market insights – and not rely on top-level results only.

Some industries may not have easy access to this data

In many industries, behavioral segments are simply not possible to construct with any sense of accuracy. They are more suited to fast-moving consumer goods (particularly the sales-based segments).

Outside of those industries, it is not possible to obtain suitable data. For example, in the banking sector, we have limited knowledge on other banking relationships per customer. While we know Customer X banks with us, we would not have direct knowledge of their other banking relationships. This means that we cannot construct a segmentation built around light/heavy users – as we simply don’t know.

We may become too sales promotion-based

Because behavioral segments are often built around usage and volume and occasion, there is a risk that our marketing becomes too reliant on sales promotions. This would happen because we can measure the impact of a sales promotion by behavioral segment and calculate a return on investment.

In other words, we could become trapped in a game of winning short-term market share through discounts, deals and special offers. While this will mean that we may have a series of short-term wins, it is likely that our competitors will implement similar sales promotions to defend their market share.

Therefore, we end up in a zero-sum game, where market share goes back and forward between the major brands, and there is limited overall growth and profit improvement in the product category.

A Summary Video outlining the Advantages and Limitations of Behavioral Segments

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