Demographic consumer segmentation has long been comme il faut, but are gender, year of birth, geography, and such still relevant in an increasingly fragmented world full of people with liquid identities? We take a critical look at classical generational market segmentation and suggest new ways to segment in the future.
The Future Belongs to the Liquid Consumer
Knowing the consumer used to be easy. Every generation had its own characteristics and value sets, shaped by the social context in which that generation had grown up, and we all know the terms: Baby Boomers were characterised by their post-war optimism. Generation X was the first generation designated by a letter, the first to grow up with a rapid shift in social values, and the first generation to grow up as divorce kids. After that came Generation Y, the Millennials, who grew up with the internet. After Y came Generation Z, which is only now beginning to define its characteristics, and right about now, we see Generation Alpha born as the kids of Generation Y.
Consumer segmentation based on such so-called ‘cultural generations’ (combined with gender, work, social status, and other characteristics that can fit individuals into well-defined groups) has long been the closest we have come to understand consumer needs and inclinations. Today, however, this sort of generational segmentation is made increasingly irrelevant by new shifts in behaviour and technology that enable ever better understanding of individual desires.
Two options remain: To start over with a new serving of alphabet soup and continue with a Generation Beta, or to take a different view of generations when it comes to segmentation.
An example: Bertel Haarder is the grand old man of Danish politics. He is 72 years of age and has been a member of parliament for the liberal-conservative party Venstre since 1975. An old Baby Boomer who also happens to be one of Denmark’s biggest fans of the Norwegian teen drama tv series SKAM. In April 2017, he wrote on Facebook:
“Time for SKAM again! The Norwegian teen series has taught young Danes to understand Norwegian in no time. Now the fourth season is coming out, with Sana as the lead character. Judging from the first teasers, it is looking really good!”.
The Liquid Consumer
Future consumption patterns will be unlike those of the past, and a lot suggests that traditional demographic segmentation isn’t the best way to understand consumers in the future. Instead, we should look at future consumption as being liquid, which is to say that people of all ages and in all markets more freely and to a greater extent construct their own identities, which will influence what and how they consume. Such identities tend to be temporary and context-dependent.
The liquid consumer has a range of new opportunities, and by taking a closer look at them, we can learn more about why the changes in consumer behaviour are happening. The new opportunities relate to access, permission, ability, and desire. The modern consumer has access to global information flows at a hitherto unseen scale, and consumers across demographic and generational boundaries are increasingly familiar with the same brands. This contributes to breaking down generational boundaries and promotes more post-demographic consumption patterns. Meanwhile, a society less characterised by traditions and social conventions means that the consumer has more freedom – is permitted – to construct their own identity. The opportunity to experiment with personally tailored products and services on a global market also contributes to breaking down any ‘one size fits all’ mentality across generations. This gives consumers the ability to buy products and services that are tailored to them as individuals. The hunt for status has always been closely tied to consumption, but as status symbols shift from being material goods – expensive cars, watches, jewellery, clothes, etc. – to achieving a Better World and a Better Me, the traditional relationship between money and social status erodes.
The new opportunities relate to access, permission, ability, and desire. The modern consumer has access to global information flows at a hitherto unseen scale
This development contributes to changing the balance of power between generations. The post-demographic competition for status is open to all, regardless of income, age, and residence. This erosion also has significance for the individual consumer; we might say the development is moving in the direction of Heraclitus’ old saying: “You cannot step into the same river twice.” The river (in this case the market) will have changed, and so will the individual. Everything becomes liquid.
A New Look at Consumer Segmentation
In today’s society, ideas are so readily available and markets so efficient that the risk and cost of trying new things are very low, no matter how old you are or where you live. As a result, and combined with the new opportunities described above, consumers are not behaving as they ‘should’ according to traditional demographic segmentation. This means that in the future, it becomes less important to define what characterises the next generation. Getting to know consumers will increasingly be a matter of how they behave – not just who they are. In the next section, we will examine how this can be approached.
Consumer segmentation with a focus on behaviour rather than demographics is becoming more important. When the consumer expects their positive and tailored experience from one shopping situation to be matched in other situations, companies will need to start relating to the highest common denominator from each consumer’s experiences. According to a report from Forrester Resrach, Inc., only 33% of companies using customer segmentation say they find it significantly impactful. The main reason why companies’ segmentation models don’t work is that they still use traditional demographic segmentation rather than taking advantage of the consumer data and advanced analytics technology available today. By looking at behavioural patterns, companies can divide customers into segments according to what specific services and products they use and how they use them. The benefit of such segmentation is that it becomes easier to predict behaviour and personalise products or services based on individual demands and expectations. In addition, companies can follow consumer behaviour on an on-going basis and form a form a real-time image of their needs. An example of behavioural segmentation can be found in futurist Brian Solis’ concept of Generation C (or the ‘connected consumer’). Unlike traditional demographic categorisation, Generation C isn’t associated with a year of birth, but with consumers who know a lot about technology and use technology in specific ways. A member of Generation C could just as well be a retiree who is knowledgeable about technology as a teen who has grown up with smartphones and the internet. Here we can speak of a consumer segment based on behaviour and categorised outside the traditional demographic divisions. Brian Solis also suggests paying more attention to ‘micro-moments’ which are the windows of opportunity for companies to engage in Generation C’s fleeting and digital lives.
Instead of the year a person is born, it makes more sense to segment according to where a person is in his or her life. Life phases are becoming a more relevant criteria for looking at groups of consumers, and the different life phases each individual pass through are not as standardised as they used to be (back when a nuclear family was a nuclear family and a widow was a widow). Today, life phases are based more on choice than convention. They have become liquid and are decided by the consumers themselves.
Another method is segmentation according to the consumer’s mindset, e.g. how tech-savvy the consumer is, how comfortable he or she is shopping online, or how much instant gratification means to the consumer (how important it is that the product or service is available right away).
Mindset consumption recognises that different consumers may have attitudes that are typically ascribed to another generation. For example, Bain & Company writes about a “Millennial State of Mind”. It turns out that, particularly in luxury consumption, the behaviour generally ascribed to Generation Y (the Millennials) is apparent in many other generations, meaning consumption characterised by:
• Uneasiness. Digital interaction with peers is on the rise when choosing to purchase a product
• Urgency. “I want it now.” The time to make a purchase is decreasing, with younger customers taking one-third less time than older customers to make decisions
• Uniqueness. Consumers now expect brands to align with their personal values and passions
Time Perception Consumption
Time perception is The Copenhagen Institute for Futures Studies’ (CIFS) suggestion for segmentation by mindset. Surveys of time perception have been carried out by CIFS three times a decade apart. It segments Danes into pastoriented, present-oriented, and futureoriented time perceptions independent of age. Anything from work life, family life, and consumption is characterised by how a person relates to changes. The categories are 1) Creators, who are the most future-oriented, 2) Navigators, who are both future-oriented and present-oriented, 3) Adaptors, who are both past-oriented and present-oriented, and 4) Retainers, who are past-oriented.
There are many ways to approach post-demographic behaviour segmentation. The common denominator is that we, in a future characterised by new behaviour patterns and technological innovation that makes it possible to get close to the consumer, no longer need to resort to the old demography-based segmentation models.
The future belongs to the liquid consumers. This doesn’t mean that everything is liquid at all times for every consumer. As described in the following parts of the report, the need for simple, convenient, and seamless solutions that help create a Better Me or a Better World will be increasingly relevant. But the changing behaviour of consumers and the subjective nature of what constitutes a Better Me or a Better World cannot be captured in the standard segmentation models of the past.
This has several consequences for companies and brands:
1. There will be a growing need for being able to follow consumers in real time and offer services designed for specific situations. How do companies get up close and personal? Not only by knowing the consumer but by using this knowledge to offer relevant situational services. Consider, for example, the street salesman who is prevalent throughout European cities. One moment he is selling plastic souvenirs, and the next moment, when there is a shower of rain, he is selling umbrellas and ponchos.
2. It will be necessary to develop a more fundamental and deep understanding of the kinds of behavioural segmentation that are relevant to the specific market in which the company operates. Most companies can ask themselves: Do we understand why consumers come to us? There is an old urban legend from IKEA in Europe about a customer who was asked: How often do you shop in IKEA? And the answer was: “Tuesday.” Why? Because Tuesday was the day when the older gentleman was babysitting his grandchild – and he always did that at the IKEA playground and in the IKEA restaurant.
3. With the fundamental changes in life-phases and growing life expectancy age as a measure for segmentation and understanding of the consumer will be less relevant.
4. It will be necessary to consider what services and products will (or won’t) survive in the liquid future. When will the consumer say: “In this specific situation, I fit well into this specific category.”. A Danish football club once had a slogan that, loosely translated, went: “It’s OK when you’re on the stadium.” What is implied is that when you are watching football, it is accepted that you behave a certain way.
As a challenge for companies and brands we can ask the following question: How does all this affect the meeting between the customer and the employee? It is evident that many of the above suggestions demand radical rethinking of the digital interface between company and customer. There can also be little doubt that AI will play an increasing role in companies’ attempts to engage with the liquid consumer.
Perhaps the winning concepts of the future will be those that succeed in combining the digital customer journey with physical touch points that involve humans. We need employees that can contribute to making the meeting with the customer as unique and tailored as possible and employees that don’t just blindly follow the brand manual or follow a predefined pattern in their engagement with the customer. The valuable employee will be the one that starts from the unique need of the customer and who understands how to adapt to the specific situation that the customer is in.
To phrase it another way: The company needs to behave like it has become the consumer’s butler, constantly adapting to shifting situations, mindsets, and needs. Siri, Alexa, and other digital assistants are first-generation solutions to this. How will the second and third generations look? And if they are not confined to the digital world, how will the setup look then?