Advantages of Life-Stage Segmenting
They aren't the same people they were three months ago, let alone three years. So why are most marketers still using a consumer segmentation system that depends on overly broad geographic data updated every 10 years? That's no way to build a relationship.
Just as customers evolve over time, so does the science of consumer segmentation. A new breed of segmentation systems takes into account the multidimensional character of consumer and economic behavior: specifically, the effects of social, cultural, historical and life-stage factors on consumer behavior and individual preferences. And they do it at a household level, not the neighborhood level.
The study of social psychology in the past quarter-century has produced several major findings contributing to the belief that segmenting by life stage yields the best understanding of consumer behavior. This requires the synthesis of key research from developmental psychology and social psychology scholars like Jean Piaget, Daniel Levinson and Helga Dittmar. Using a series of observations by Dittmar in her 1996 paper "The Social Psychology of Economic and Consumer Behavior," a framework for these beliefs can be outlined:
There are undeniable requirements tied to life stage that drive consumer behavior. One obvious example of a life-stage change is the birth of a child. According to the National Center for Health Statistics, 1.53 million people in the United States have a first child each year. For those 1.53 million, this addition triggers a dramatic shift in economic behavior. Suddenly there is a driving need for a host of consumer items, not to mention saving for a college education, weddings, future automobiles and the possible need for a new or larger home.
Economic and consumer behavior is inextricably bound to attitudes, beliefs, social group membership, personal history, social history, lifestyle and shared cultural understandings. These characteristics are a function of attitudes cemented in an individual's formative stage and an individual's life stage.
Take, for example, two households, next-door neighbors on a suburban block.
Couple No. 1 fits what I call the "Cash & Careers - Dynamic Duos" cluster. When this well-educated group of married couples in their 40s grew up, "Kramer vs. Kramer" was released, "Monday Night Football" was at the height of popularity, Jimmy Carter was president, the first artificial heart was transplanted and Fleetwood Mac had the Album of the Year.
Compare that couple with its neighbors, whose cluster I call the "Golden Years - Platinum Oldies." These well-heeled, suburban retirees and soon-to-be-retirees grew up listening to the Glenn Miller Band, remember when the United States dropped the atomic bomb and when Japan surrendered.
Identifying and appreciating the effect of each couple's social group membership, personal history, social history, lifestyle and shared cultural understandings are key to unlocking segmentation opportunities and power.
Ownership of goods and use of services are affected by the socio-historical climate individuals were socialized in, said Dittmar in her paper, leading to generational differences in spending and saving habits. As a result, people at different stages in their life course clearly have distinct patterns of consumption that reflect generational beliefs.
"When I was a kid, it only cost ... (Fill in your favorite memory here. Mine is 8 cents for lunchroom milk in elementary school). The economic environment we experienced in our formative years colors our perspective for life. Think about the perception of reasonable consumer expenditures for adults who came of age during the boom and largess of the 1990s vs. the energy crisis and inflation of the 1970s vs. the Depression era. Though 1990s-boom-era adults are learning to live with a different economy, they still share that boom experience during their formative years unlike any other group.
It is vital to understand the social context in which individuals make spending decisions, particularly the link between individual and social factors as they affect decision making. This acknowledges that "keeping up with the Joneses" is important but that it depends on which Jones you're talking about.
Each life stage group has a different set of peer definitions and hence a different definition of the Joneses to keep in mind as they make consumer decisions.
The significance of possessions and products, and attitudes toward them, change dramatically depending on an individual's life stage. When we migrate from one life stage to the next, our attachment to previous consumer behaviors, priorities and attitudes often destabilizes, allowing us to re-evaluate how we spend money.
Whether it's the introduction of a baby, approaching retirement, buying a home or renting your first apartment, these events affect not just who we are demographically but who we are as consumers.
Today's one-to-one marketers should consider the following advantages when assessing the new life-stage-based approach to segmentation:
• The ability to predict behavior over time, as specific segments migrate from one life stage to another.
• The descriptive and predictive power of this methodology has shown to be superior to traditional geo-demographic methodologies in analytical testing.
• The approach accurately reflects key demographic trends validated by the U.S. census, including the growth of single-parent households, later marriages and later family starts, growth of grandparents raising kids as well as greater differentiation in the mature marketplace as a whole.
• The ability to take marketing actions when a household migrates from one life-stage cluster to the next.
• The ability to analyze and predict trends in the migration of consumer segments.