Is it time to rethink customer segmentation?by Graham Brown

Last week we established 3 reasons why youth are important to your business. Now you have the business case, how do you start to manage the youth market?

Before we jump into segmentation, let’s first look at youth market. A good a places as any is to start with music because if you want to understand young people today, look at the changes in the music industry:

• Musical genres like “rock”, “pop” and “world music” have become irrelevant• Successful artists like Jay-Z, Madonna and Bowie transcend genres• Success has moved from servicing a genre to joining the dots between them

Music is an analogy for identity and, therefore, a powerful insight into marketing.

Consider these points in terms of marketing:

• Market segmentation has become irrelevant• Successful brands like Red-Bull, Apple and Amazon aren’t defined by segment• Success is about defining your own tribe of followers and connecting the dots between this

diaspora

Shawn Carter’s Story

Shawn Carter is a true American rags-to-riches story. Born into a poor neighborhood in Bedford-Stuyvesant, New York, Carter, through a series of shrewd business dealings, amassed a net worth of $500 million by his 40th birthday.

You may better know him as the 17 time Emmy award winning hip-hop artist Jay-Z, ex president of Def-Jam and Rocafella records. His music empire knows no bounds – from clothing to movies to courting the paparazzi with his celebrity wife Beyonce.

When he sat down to interview with Steve Forbes and Warren Buffet (yes you read that right) wearing a tailored suit more Savile Row than Brooklyn you could have been forgiven for thinking that this was a kid straight out of the Hamptons and Yale rather than Brooklyn. Except for one detail, Shawn Carter is black.

“There is no Black or White music anymore”

For Carter, he tells the story of a young black man, hustling the streets but if you look at the industry data, between 65% and 85% of hip hop fans are non-black. (sources: Soundscan, SMLG, MRI). Without the white kids, rappers like Notorious B.I.G and Busta Rhymes, all who attended Trenton High with Jay-Z would simply have been niche artists rather than multi-millionaires. A recent Soundscan report concluded that “as much as 70 percent of the paying (and downloading) hip-hop audience is white kids living in the suburbs.” Hardly the projects in Brooklyn.

After a recent gig at Arizona State University, Jay-Z issued a press statement that said “there is no black or white music anymore, just good and bad music” pointing to the blurring of lines in a once heavily demarcated musical genre. How can hip-hop be the sound of the ghetto the president be black and the nation’s most popular hip hop artist (Eminem) be white?

• Traditional music marketing offered and black & white view of the world• Demographics used to be an effective tool for predicting behavior but not anymore• The shared themes that connect people across demographic and genre are more predictive of

behavior and attitude

Traditional segmentation is broken

Business-wise, Jay-Z makes sense. What of those fans who were teens back when Jay-Z went solo at 26 almost 15 years ago? Do they suddenly turn over to “easy listening”? No, he keeps telling the story but he grows up with them.

It’s a challenge industry faces every day – segmentation. If you look at the recording industry’s sales by genre, Rock accounts for the majority of all sales, followed by Pop and R&B. But, according to the RIAA, there are only 10 genres, including anomalies like “easy listening”, “new age” and “world music”. You only have to check Wikipedia to see the market reality – Wiki lists 200+ genres of electronic music alone.

• The whole music industry used to be organized around genre but now this DNA is changing• The industry has lost control of the definition, now customers decide on genres• Genres are becoming so fragmented that they are becoming useless for marketing purposes

Genres fall apart

The modern customer is an anomaly. French teens close down Charles de Gaulle airport to herald the arrival of a K-pop band. Female Indonesian soccer fans flood twitter during the world cup. Bollywood pop artists like Daler Mehndi find fan bases in Korea. A middle aged hip-hop superstar from Brooklyn sits down with the sage of Omaha (aka the richest man in the world)?

As Steve Forbes himself said, “You two are unique even though you are in different spheres”. Both a genre of one yet more similar than traditional marketers would care to think.

Connecting the dots

The anomaly exists only in the eyes of the traditional marketer – one who holds on to the idea of segmentation. Women don’t want pink phones. Female technology enthusiasts want to connect with other technology enthusiasts, not other females.

The differences within traditional demographic segments are far greater than the differences between them. When a 17 year old Filipino female student and a 45 year old American marketing executive both love Jay-Z, segmentation becomes irrelevant. No more “we’re different here”.

Traditional marketing bases categorization around how customers relate to products, modern marketing needs to base it around how customers relate to each other. Modern marketing needs to move beyond demographics and psychographics and look at connecting people through the shared stories that are meaningful to their lives.

Segmentation serves no purpose

Segmentation isn’t useful to the customer (who searches in “Rock” on iTunes or Spotify) and offers little to the brand (more segmentation does not lead to more accuracy). What becomes relevant are the stories that these artists and brands tell. In this case, that of an underdog trying to get ahead in the world. The only markets left are the markets of one, connected by themes that transcend traditional barriers.

• More segmentation does not lead to more accuracy• Customers no longer rely on segmentation for discovery or identity, they turn to each other• The emotional stories and themes that connect people are replacing segmentation as the

most predictive and useful way of organizing marketing

Moving beyond segmentation

So why do we segment in the first place? According to Wind and Cardozo (1973) segmentation “involves appropriate grouping of individual customers into a manageable and efficient (in a cost/benefit sense) number of market segments, for each of which a different marketing strategy is feasible and likely profitable.”

Segmentation is a byproduct of the industrial process. We segmented markets to for management and efficiency. Like advertising, segmentation is the symptom of an information problem, of an era of scarcity and shelfspace rather than digital abundance.

This isn’t 1989 anymore

Now, however, the Pepsi Generation is over. This isn’t 1989 anymore. Like advertising, segmentation becomes increasingly ineffective. Of course, segmentation will be around for a long time yet. But consider why. So, do you invest your skills and knowledge in a ship destined to sink or one with a future?

◦ Segmentation is a product of the industrial era◦ Many interests are built on segmentation (e.g. job titles, departments, internal

reporting) so many interests will try to defend the idea of segmentation and prevent change rather than do what’s right for the business or customer

◦ Segmentation will still be around in years to come but, like advertising, its effectiveness is already in decline

The future lies in connecting the dots between these diffuse digital diasporas – the fans that sit across segments and the advocates that transcend demography. As Jay-Z said on his Forbes interview, “I didn’t focus on any particular demographic, I just focused on telling my story.”