Mkt Segmentation Guide #3

Price is not a segmentation variable.

Remember from Marketing Guide #1 that markets are always people and thus market segments always consist of different groups of people. 

One will sometimes see market segments being described as being “high price/mid price/low price.”  This is unfortunate as price is not a people, human characteristic.  Have you ever met a person whom you would describe as being a “high price person” or a “low price person”?  I hope not or you’re doing something illegal.  Price is not an appropriate descriptor of a person.  Thus, it is not an appropriate basis for defining nor describing market segments.  Pricing is a tactical marketing activity.  Pricing is something the marketer does.

Admittedly, there is a consumer characteristic that is related to marketers’ price point, and that is price sensitivity.  Some consumers have a high degree of price sensitivity, meaning they want low prices; while others tend to have low price sensitivity, meaning they will accept higher pricing.

If you find yourself in a situation where a marketing researcher has submitted to you a market segmentation scheme where price sensitivity is one of the segment-defining characteristics, ask the researcher what is driving price sensitivity?  It has been my experience that there tend to be two drivers of price sensitivity: (1) demographics and (2) attitudes.

Demographic drivers of price sensitivity include low income.  Closely correlated with low income are down-scale occupations, low educational, and age with younger consumers being less affluent than older consumers.  Thus, there tends to be a series of demographic characteristics which drive price sensitivity.  Note that demographics do not define market segments (review Marketing Guide #2). Wants/needs and behaviors – such as price sensitivity -- define market segments.  Then demographics are used to describe the segment.

The attitudinal drivers of price sensitivity revolve around how customers view your product category.  If some customers believe that there are distinct differences between the brands in your category, those customers will have less price sensitivity.  You’re your vantage point there may be great difference between brands in your product/service category, but that doesn’t matter.  The issue is whether consumers believe there is a difference.  If they do, then some are going to pay the premium to get the best.  If other consumers view all brands as being basically the same then the category is tending toward commodity status for those consumers. They will have higher price sensitivity and will not be willing to pay a premium to get a particular brand.