Market segmentation: The context is as important as the action

I have to thank JD for keeping me honest in my last post about consumer behavior in this economy.  I was discussing several media reports that consumers were not spending as much during the holiday season, citing a choice to save rather than spend.  My experiences pointed to the fact that there was little inventory to buy, and that this consumer behavior was less a matter of choice, and more a matter of circumstance.

My main point is that it is easy to look at a consumer's action and jump to the conclusion that it is the result of a choice.  Very often, this is only partially true.  I'm sure that there are many consumers who are choosing to spend less.  But there are also many consumers who would have bought more at retail if the items had been in stock.  Likewise, as JD pointed out, there are multiple reasons why inventory levels were low; some retailers are trying to reduce carrying costs, and others are having trouble getting inventory due to the credit crunch.

Why is this important?  Because it leads us to an important consideration when thinking about market segmentation.  Instead of segmenting the market based on demographic or psychographic characteristics, it may serve us well to segment based on the circumstances that are influencing consumer decisions.  In the example mentioned above, the consumers who are choosing to spend less will have different needs than the consumers who found that the items they wanted to buy were out of stock.

When setting innovation goals, it's important to understand the context in which your consumers are basing their decisions.  Segmenting the market by the consumer problems that need to be solved will lead to offerings you may never have thought of otherwise.  That's the key to valuable innovation.