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The ethics of market segmentation

Updated: Mar 6

A photo of Tamilore Adeoye, one of our freelancers

Market segmentation is, for many marketers, an essential part of marketing success. But is it truly ethical?


Guest writer Tamilore Adeoye shares some insights into the ethics of market segmentation. Our CEO Lou mentors Tamilore through The Freelance Coalition for Developing Countries. Tamilore is based in Lagos, Nigeria and is a budding copywriter and student.


The key to marketing any product or service is to reach and convert the right people into customers. Experienced marketers study what their prospective customers truly desire through market segmentation and then try to satisfy those needs.

 

Market segmentation refers to the process of segmenting our audiences based on their interests, fields, career levels, or academic degrees to show them the information they find relevant. You can also delve into other categories, such as age, gender, geography, career stages, likes, survey choices, generation, etc. if you believe customers make choices based on those group identities.

 

Out of 194 countries, 137 have adopted privacy laws that limit marketers’ access to customer data for segmentation and targeting.


Is market segmentation so harmful that nations have to enforce laws around it? What does this mean for companies that largely depend on customer data for market segmentation, targeting, and positioning? Discover insights on the ethics of market segmentation in our blog post.


The question of ethics


Although audience segments often help us make better commercial decisions, segments sometimes come from stereotypes or from data obtained from customers without their consent. This raises the question of whether market segmentation is ethical or to what extent a marketer may segment customers before it is considered unethical. 

 

For marketers, ethical considerations in market segmentation involve data concerns (transparency in collection, usage, storage, and protection of customer data), potential discriminatory practices, and false marketing to customer segments.

 

One reason a marketer should consider ethical practices in market segmentation is fostering brand loyalty.

 

Conscientious marketers also need to consider their audience’s privacy. With unlimited web and social media access, consumers are particularly concerned about their safety and privacy in this new age of technology. Business North Carolina shows in an article that Gen Z and Millennials prefer brands with corporate social responsibility more than previous generations. We can see that consumers increasingly expect companies to be sensitive and inclusive in their operations and now consider this a prerequisite for patronizing a business.


‘I think this economic focus is shifting to an economic, a social, political, and, importantly, an environmental set of issues […] We’re beginning to see some units of corporate social responsibility, and similar ilk, arising in companies, but they’re still fairly few and far between. So a lot of companies are not well-positioned to think about these broad ethical issues that go beyond compliance . . . Increasingly, they’re being asked, if not required, by different stakeholders to take a range of different stances on political issues.’

Dr Steve May


There are many ways in which you can be unintentionally insensitive in your marketing actions. Misleading advertising is one thing; misrepresenting a group of people is another. Understanding how some strategies could be unethical and adopting effective measures to prevent them is the best way to avoid potential backlash against your brand.


Unsafe handling of data


Several sheets of paper containing various pieces of data on a white table, with a pair of glasses on top and a magnifying glass and pen.

Many countries have introduced policies and regulations to guide the ways in which companies use and distribute customer data.

 

The General Data Protection Regulation (GDPR), implemented by the European Union (EU), protects consumers’ data by emphasizing individuals’ consent and approval over data usage and storage. As a marketer in the EU or targeting anyone in the EU, you must grant consumers 100% control over how you use their information. This includes asking for permission to collect, store, or process their data – and stating your intentions for using them. Customers also determine how much access you have to their information.

 

The US also introduced the California Consumer Privacy Act (CCPA) and California Privacy Rights Act (CPRA), protecting consumers' privacy rights. Advertisers must now inform customers why they want their data, how they intend to use it, and any third parties involved. Companies must also allow customers to opt out of data collection at any time. These regulations apply to companies that collect or sell customer data worldwide.

 

Additionally, the Personal Information Protection and Electronic Documents Act (PIPEDA) is a Canadian data privacy law that governs how companies use, manage, and disclose personal data. This regulation applies to all marketers and organizations operating within Canada. It requires companies to be fully transparent about their use of customers’ data and to have an efficient system for addressing data threats and breaches.

 

As a marketer operating within any of these regions, it is critical that you comply with these regulations and make it clear to your customers that you do so.


Discrimination against market segments


Discrimination broadly refers to treating a group – or groups – of people with bias or prejudice based on their race, gender, age, or other socially relevant characteristics. Discriminatory practices in marketing can stem from treating one customer segment better than another because the company considers the first segment more profitable.

 

For example, if a marketer puts out an advert that depicts some people as superior to or favoured over others, they are being discriminatory. Discrimination is often widespread in real estate and luxury retail businesses, where the company may advertise exclusively to certain ZIP codes or postcodes because the people living there are likely to be wealthier.

 

Actions like these are limiting for people outside the target market, and have become common because companies can target “better customers” just by judging the characteristics of the market segments. However, many platforms – including Facebook – do not allow targeting options such as income, postal code, and race for marketers to explore. This limitation enables advertisers to avert potentially discriminatory practices. On the other hand, it takes away the benefits of robust database marketing, in which marketers can edit targeting options to reach their ideal audience.

 

One way to combine market segmentation with data privacy compliance is to be creative with advertising. For example, although you cannot specifically target African Americans for Black History Month, you can ensure your messaging has them in mind as the intended audience. Use the algorithm to help your audience naturally attract more of their segment as they engage with your content. An in-depth knowledge of your target market is the key to standing out without depending on insufficient customer data.


False advertising to market segments


The words fact/fake on four blocks, with the c, k, t and e visible so you can see both words.

Ethical advertising is truthful and has no hidden agenda. Targeting people within a vulnerable market segment might expose them to risks of deceit or manipulation, both of which sensitive advertisers should avoid.

 

Some examples of vulnerable market segments are children and the elderly. Given that these market segments do not often make ideal purchase decisions or are not qualified to do so, laws exist to protect them from harmful and false advertising.

 

The Federal Trade Commission (FTC) imposed the Children’s Online Privacy Protection Act (COPPA) to put parents in control of what information is shown to and obtained from their children. It also requires anyone advertising to children directly or through their parents to comply with its regulatory guidelines to ensure a safe environment for younger audiences.

 

Likewise, in 2021, the Federal Trade Commission issued a report, “Protecting Older Consumers 2020–2021: A Report of the Federal Trade Commission.” This report shows the methods and policies put in place to regulate the activities of anyone marketing to older audiences. The objective is to curb cyber fraud and misinformation that expose these sets of people to loss of money and property.

 

Another form of false advertising is clickbait or “empty promises” targeted at unemployed or financially insecure audiences that claim to guarantee a better life for them. Adverts like these are harmful to consumers and the economy at large. However, the Federal Trade Commission Act (FTCA) enforced a policy against deceptive practices in advertising, which will help protect more people against false advertising.


The world of marketers and ethics


As marketers, we have more work to do when incorporating ethics into our marketing strategies. Even when companies used to have more access to market data, they did not completely figure out how to sell to their customer segments.


Do you think marketers will be able to cope now that they have more limited access to their customers’ personal data?  Will ethical practices in market segmentation push more marketers to adopt a direct approach to learning about customers? And do you think artificial intelligence (AI) will affect the way we approach market segmentation in the future?


We keep up to date with marketing news, including policy changes and matters of ethics, in our weekly marketing and scholarly communications news round-up. Stay up to date with industry news by signing up to receive updates on our content.

 

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