market segmentation

Definition:
In essence, the concept of market segmentation rests upon recognition of a differentiated demand for a product, while its use as a marketing tool depends upon identification of the most appropriate variable or variables with which to subdivide total demand into economically viable segments. 'Economically viable segment' may be understood as 'being of sufficient size to enable a marketer to earn an adequate profit by catering to the specific needs of its members'. In a survey, 'Issues and Advances in Segmentation Research' (Journal of Marketing Research, August 1978). Yoram Wind identifies four basic procedures or methods for segmenting markets, namely a priori, clustering, flexible and componential. In general, a priori segmentation models have as the dependent variable (the basis for segmentation) either product specific variables such as product usage or loyalty, or general customer characteristics, e.g. demographic factors. The typical research design for an a priori segmentation model involves seven stages: (a) selection of the a priori basis for segmentation; (b) selection of a set of segment descriptors (including hypotheses on the possible link between these descriptors and the basis for segmentation); (c) sample design - mostly stratified - and occasionally a quota sample according to the various classes of the dependent variable; (d) data collection; (e) formation of the segments on a sorting of respondents into categories; (f) establishment of the (conditional) profile of the segments using multiple discriminant analysis, MULTIPLE REGRESSION ANALYSIS, or some other appropriate analytical procedure; (g) translation of the findings about the segments estimated size and profile into specific marketing strategies, including the selection of target segments and the design or modification of specific marketing strategies. In the case of CLUSTERING or post-hoe segmentation, the only significant difference is that the segments are determined after the data has been collected on the basis of perceived groupings or clusters within the data. Frequently such clusters will be determined through the use of FACTOR ANALYSIS whereby variables will be grouped on the basis of their correlation with each other (and their lack of correlation with variables included in other factors) and the amount of variance in the dependent variable which they are able to 'explain'. Flexible segmentation is a dynamic procedure in which CONJOINT ANALYSIS is combined with a simulation model to allow managers to explore the large number of alternative approaches to segmenting a particular market. The componential procedure is an extension of conjoint analysis and shifts the emphasis of the segmentation model from the partitioning of a market to a prediction of which person type (described by a particular set of demographic and other psychographic attribute levels) will be most responsive to what type of product feature.

Cross-References:
[cluster sampling] [conjoint analysis] [multiple regression analysis] [clustering techniques] [cluster analysis] [factor analysis]

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