What Lies Beneath

Goodbye Mass Market, Hello Nanomarket

In his book, Smith writes that increasing diversity has transformed the mass market into what he calls the "nanomarket," an explosive growth in consumer segments, preferences, tastes and lifestyles that's fragmenting the marketplace into tiny pieces beyond the measuring ability of traditional demographics. The word demographics isn't out of vogue, but its connotations are dated. According to Smith, "The term implies an old-fashioned way of thinking about the marketplace."

Demographics alone no longer work in a mass market that's more or less dead, says Robbie Blinkoff, principal anthropologist and managing partner of Context-Based Research Group, an ethnographic market research firm in Baltimore. "It's an individualized, customized, personalized marketplace," he says. "It is now the producers--companies, manufacturers, marketers and retailers--who need to adapt."

Many companies, however, continue to operate on old beliefs based on demographic data, and it's leading to a disconnect between companies and consumers. Many advertisements, for example, continue to portray women as married, stay-at-home moms in a world where an increasing number of women stay single into their 40s, become single moms by choice and take on primary-breadwinner roles within their families.

Amid such shifts, simply saying your company targets women 18 to 49 has become meaningless. Demographics "don't tell you the whole story," says Jennifer Ganshirt, co-founder and head of strategic planning of Frank About Women, a Winston-Salem, North Carolina, marketing and communications company that studies the female consumer. "Companies know [targeting the 18-to-49 demographic] isn't working for them. It gives them nothing."

Sensing a problem, big companies are going deeper into consumers' heads to understand what drives them to buy--and this, in turn, is driving market research methods such as ethnography. Ethnographers are cultural anthropologists who observe how consumers use products and services in their natural environments. They write reports using the words and phrasing of the people they study, and the information helps companies figure out the behaviors and reasoning behind people's purchasing decisions.

In addition, Blinkoff says 9/11 drove consumers to reconnect with their core values, and what's emerged in full force is the "prosumer," a term coined 25 years ago by business futurist Alvin Toffler to describe someone who is part producer and part consumer. Prosumers gravitate toward activities, such as knitting and book clubs, that combine creativity, consumerism and interaction within a larger social group. Blinkoff says the best products today, like the iPod, "let people put themselves into [them]."

Instead of boxing their customers into one profile, large companies are segmenting customers into ever-narrower lifestyle profiles and categories to understand their core values. They're targeting the 20 percent of customers who generate 80 percent of their business, says James Chung, founder of Reach Advisors, a Belmont, Massachusetts, strategy and research firm. Electronics retailer Best Buy, for example, now focuses its business on five customer profiles instead of trying to broadly tailor its marketing to fit every customer profile. Most entrepreneurs, however, still try to be everything to everyone by targeting a wide demographic. "Most small businesses are afraid of planting a flag and saying that their business focuses on a specific, high-value target audience," Chung says. "[But] it's a lot easier to focus on a profitable target, then do everything you can to engage them."

Sunlight Saunas, a 5-year-old Lenexa, Kansas, company that makes saunas that retail for between $1,695 and $5,595, separates its customer base into luxury and health markets based on data it gathers from visits to its website and conversations with potential customers. Two different markets require two different marketing messages, says CEO Aaron Zack, 29, who co-founded the company with his wife, Connie, 37, and Jason Lincoln Jeffers, 39.

"A lot of entrepreneurs get caught up in making sales, but they don't understand why and how they're making those sales," Zack says. "When you take the time to understand why and how, you can better take that product to your market." Company sales hit $6.8 million in 2004, and Zack projects sales of $12 million this year.

Demographics aren't becoming obsolete, Chung says--they're just taking on a new role as marketers get smarter in how to apply them. "People have become more interested in the range of data available," he explains. "There are other ways of looking at your customers."

Smith believes consumer attitudes will replace demographics as the basis for marketing execution, and companies will have to incorporate attitudes into their databases the same way they've used demographics in the past. "If you don't speak with lifestyle relevance to your customers, they'll tune you out," he says.

Understanding their lifestyles is crucial to understanding your customers, agrees Amy Jo Gladstone, whose $1 million-plus New York City company of the same name designs and manufactures women's footwear. "Without that, you're just a flat brand," she says.

For Gladstone, 44, understanding her customer is one part intuition and one part data mining. She uses an outside company to gather customer household income, age and other lifestyle information that helps her make marketing and product-design decisions. "[The internet] is how we learn about our customers," she says. "It's much more alive than an old [demographics] list."

Chris Penttila is a Washington, DC-based freelance journalist who covers workplace issues on her blog, Workplacediva.blogspot.com.

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This article was originally published in the May 2005 print edition of Entrepreneur with the headline: What Lies Beneath.

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