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Luxury Mindset Segmentation

K-means clustering example
Project Overview

 

The goal of the Luxury Mindset Segmentation Study, conducted in March 2019, was to understand and define distinct and actionable customer segments in the luxury market for soft goods in the U.S. The study focused on respondents aged 18-85 who had purchased a new luxury items in the past 2 years. By segmenting the market based how consumers define the meaning of luxury, the study sought to identify actionable insights to enhance user experience, increase conversions, and optimize marketing strategies.

 

The defining characteristics of "luxury", which were used to identify distinct consumer mindsets, were based on existing research on the topic of luxury shopping (reference 1, reference 2, reference 3). Prior research indicates that luxury consumer mindsets vary significantly, from aspirational shoppers to those who can afford luxury without financial concerns. Digital experiences, mobile engagement, and personalized customer service play crucial roles in influencing luxury purchases. Understanding and leveraging the distinct personality dimensions of luxury brands are essential for effectively engaging with different types of luxury consumers. Those "personality dimensions" of luxury brands formed the basis variable used in the attitudinal segmentation.

 

Business Impact and Objectives

 

The study's findings were designed to impact several business functions at a major online retailer in the US. By understanding consumer behavior and preferences, the company aimed to enhance user experience, increase conversion rates, and develop targeted B2C marketing strategies in the luxury soft goods space. The insights were expected to drive significant business opportunities, such as increasing unique site visits, optimizing communication strategies, and identifying new merchandizing opportunities. The segmentation study provided a comprehensive understanding of the luxury soft goods consumer market, enabling the retailer to tailor its offerings and marketing efforts to meet the needs of different consumer segments.

 

Segmentation Approach and Scope

 

The segmentation approach categorized respondents based on various factors, including demographics (age, gender, income, zip code), psychographics (attitudes, values, personality), technographics (use of computers, web, mobile, social networking), and specific activity-related motivations, blockers, and frequency of participation. The data collection process involved surveying 1,380 participants from the U.S. population of luxury shoppers and 850 customers of the online retailer. This detailed segmentation enabled the identification of key consumer segments that could be targeted for specific marketing and product development efforts. The project took about 5 weeks to complete in house with minimal budget.

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Methodology and Research Approach

 

Research Preparation​

The psychographic segmentation research began with kick-off meetings to align with key stakeholders on the business goals and understand current customer definitions. This phase involved conversations with business stakeholders and in-house subject matter experts to gather insights into customer behaviors and preferences as well as the key business objectives. The preparation phase also included review and summary of third-party research on luxury shopping behaviors and attitudes. Clear definition of objectives and executive buy-in on survey design were crucial at this stage.

 

Survey Design and Programming​

Insights from third-party research were used to draft the initial survey, which underwent several iterations based on stakeholder input. The survey was then programmed, using Qualtrics, and fine-tuned based on pilot testing. The final survey included sections on psychographics, demographics, and a screener with quotas to ensure representative sampling.

 

Data Collection and Analysis​

Data collection was conducted through a third-party survey panel, starting with a soft launch to check for errors. The collected data underwent exploratory analysis and segmentation using K-means clustering to identify viable segments. The criteria for good segments included being:

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  • Heterogeneous (maximally different on basis variables between segments)

  • Homogeneous (minimally different on basis variables within segments)

  • Valuable (differences in value to the company between segments, e.g. some segments spending more than other segments)

  • Identifiable (observable differences between segments so they can be targeted with the right marketing messages)

  • Substantial (segments need to be large enough or valuable enough to warrant further investment)

 

Solution Workshops and Tools​

The viable segmentation solutions were reviewed in workshops with stakeholders to discuss their implications, such as uncovering underserved customer segments and suggesting new online experience and merchandising opportunities. Results were socialized through interactive dashboards and typing tools, which help in visualizing and predicting segment membership. This comprehensive approach ensured actionable insights that align with business goals and improve customer experience and luxury product selection as well as relevant marketing communications.

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Key Insights

 

Luxury Mindset Segments

The K-mean clustering approach used in the segmentation study identified 6 possible segment solutions ( a menu of options) which explained the data in a systematic and valid way - from a 4-factor solution to a 9-factor solution. Next, the team facilitated a stakeholder executive workshop to apply a business lens to the scientific analysis and identify the segmentation solution that was most practical for the business, in other words, the most valuable, identifiable and substantial solution. To do that, demographic and behavioral variables were overlaid on top of the psychographic basis variable. The group selected the eight-segment solution as the most viable and valuable for the business. These segments differed meaningfully along the key dimensions of the basis variable (the luxury brand personality breakdown).

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​A Factor Analysis of the 15 brand personality attribute ratings revealed that those grouped meaningfully into 5 factors, or meta personality dimensions: status, trend, strength, artistic/creative, and friendly/warm.

 

After​​​ evaluating the business value of all the segmentation solutions, leadership selected the 8-segment solution as the most suitable for the business goals and strategies. 

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Here is how the eight segments mapped onto the:

 

Next, the team, in collaboration with Advanced Analytics and Data Science, identified the value of each of the 8 segments to the business.

 

Segment Value Calculation​

Based on the self-reported participation rates and spend as well the current customer database mining, the Analytics team calculated the potential value of the newly identified segments:

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Recommendations

 

  1. Segment Targeting: Based on the value analysis, it was recommended to focus on luxury mindset segments 2, 4, 5, and 8

  2. Positioning Strategies: Develop marketing campaigns that address the specific motivations and barriers of each segment. For example, campaigns targeting Health Fitness Looks should emphasize fitness benefits and appearance improvements, while those targeting Peaceful Outdoor Socials should highlight stress relief and peaceful experiences.

  3. Customized Product Offerings: Create product and service offerings tailored to the needs of each segment. For instance, offering premium fitness coaching for Health & Fitness Hopefuls or organizing social sports leagues for Competitive Social Spenders can enhance engagement and satisfaction.

  4. Enhancing Support Systems: Implement support systems to overcome common barriers. This could include providing beginner-friendly resources to help new participants get started, creating social groups to offer peer support, and ensuring easy access to facilities and equipment.

  5. Leveraging Technology: Utilize technology to enhance user experience and engagement. This includes developing apps or online platforms that provide personalized recommendations, track progress, and connect users with similar interests.

 

By implementing these recommendations, businesses can effectively engage and retain different consumer segments, ultimately driving higher participation rates and increasing overall revenue. These findings and recommendations highlight the importance of understanding the diverse motivations and barriers within the active consumer market, allowing businesses to create targeted strategies that meet the specific needs of each segment.

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