Issues and Advances in Segmentation Research – A Summary

Today we will be reviewing a segmentation research article titled “Issues and Advances in Segmentation Research.” Yoram Wind is the author of this article. It was published in 1978 in the Journal of Marketing Research on the behalf of the American Marketing Association. The article serves as important base information for marketers to innovate their segmentation research designs and implementation process for more profitability.

Segmentation – The Fundamental Concept of Marketing

Inspired by the pioneering article of Wendell Smith from the 1950s, the author has reviewed the significance of segmentation as a fundamental concept of marketing, underlying concepts, research designs, and data collection procedures and analysis techniques. The article identifies significant findings for the future research area in segmentation that is intended to help businesses segment their markets more efficiently. Doing so, the author defines the problem based on three considerations, i.e., (1) managerial requirements (finding products that evoke the highest response) versus the requirements proposed by the normative theory of segmentation (this theory focuses on how information about customer characteristics and their relation to marketing strategy variables should be used in the development and evaluation of a marketing strategy), (2) conducting a large-scale baseline segmentation study versus a continued series of ongoing segmentation studies, and (3) specification of the desired segmentation model (the model requires the selection of a basis for segmentation including dependent variables as well as descriptors i.e. independent variables various segments).

The author has also highlighted that most of the segmentation studies are focused on consumer goods, often neglecting the applicability of segmentation in industrial market cases (i.e., in B2B). The study aims to bring into light the problems and aspects of segmentation in both the markets, i.e., consumer and industrial markets; thus, illustrating that segmentation approaches are applicable for a wide range of businesses, not only for those operating in consumer markets.

In doing so, the author highlights the five key segmentation phases, including (1) research-problem definition, (2) research design considerations, (3) data collection approaches, (4) data analysis procedures, and (5) data interpretation and implementation, which makes the basis of effective segmentation approaches and have a great influence on the segmentation strategy.

Five key segmentation phases
Five key segmentation phases

The Comprehensive Nature of Segmentation Research Studies

To solve the research problem where businesses would find themselves in the dilemma of what to and what not to choose for their segmentation approach, the author discusses the key considerations involved in segmentation research studies; which include the above mentioned three considerations along with research design, data collection, data analysis, data interpretation and methods of implementation of results.

The problem definition phase has been pointed out by the author as something beyond the problem statement. Many prior researches rely on the weaker or poorly-crafted problem statements, which became the basis of inaccurate segmentation strategy. In this study, problem definition is based on considering managerial requirements, fixed and changing segmentation policies, and segmentation models. It further comes down to the careful selection of variables for the segmentation model and comparison of the conventional and new segmentation designs.

Moreover, irrespective of baseline studies, the segmentation must be a part of the process since it helps to know the product’s performance on a segment level and not just market level. Similarly, the variables that make the segmentation models, including dependent variables and descriptors, should be chosen carefully. The variables to be included must be both characteristics of the related organizational decision-making units and organizational properties like the size.

For the research design’s exclusivity, the author proposes nine key considerations, which would form the concrete research model for segmentation data analysis. These include (1) a unit of analysis, (2) the definition of variables, (3) sample design, (4) ways to treat reliable and unreliable data, (5) stability of segments, (6) uniformity of segments (how homogeneous the segments are) (7) how segmentable is the market,  (8) validation of segmentation study, and (9) cost considerations for segmentation study model.

As indicated by the author, many previous studies have neglected alternative data collection procedures, especially in the academic settings, which prohibited more innovative data collection procedures for segmentation. Unlike in previous studies where data was collected from mail questionnaires and personal interviews, the author highlights the use of technology to have alternative methods like telephone interviewing, and a combination of different data collection approaches. Furthermore, the data analysis strategy should be updated per their key areas including analytical techniques used in segmentation analysis, analytical developments proposed in the recent marketing literature, and analytical procedures not yet been coined in the marketing literature but hold some potential in the segmentation strategy.  The new development strongly focuses on clustering models and algorithms (like -type factor analysis and linear type analysis etc.) usage for segmentation.

Without accurate data interpretation and effective implementation of outcomes, even the most precise segmentation model fails eventually. The author identified that the problem usually comes at that stage when there is no coordination among the involved parties. It implies that the data interpretation must jointly be done by the researcher and user, taking into account the researcher’s statistical judgment and the manager’s product/market knowledge. Here, two issues to tackle include determining the number of segments (like flexible segmentation, componential segmentation, and COSEG model offering a new conceptualization for market segmentation since it offers simultaneously an analysis of the market segment for a given product), and ways to target segments, and how to convert these findings into a marketing strategy (involving all relevant personnel, etc. in the problem definition, research design, and data interpretation stages, viewing segmentation data as one input to a total marketing information system and combining them with sales and other relevant data and using the segmentation data on a continuous basis).

Translation of the Segmentation Findings – Last but Not the Least

As per the author, previous studies mostly revolve around the formation of the segmentation models and implementation for the new products’ target markets; doing so, these neglect one of the most crucial aspects, i.e., translating the segmentation analysis into a marketing strategy to position the product well in the market.

The translation of the segmentation findings is much more complex when they are used to appraise (instead of generating) some marketing strategy. In such a scenario, two situations should be considered: (1) the consumer responses to the new strategy and (2) consumer satisfaction with the company’s existing offerings. In both these cases, businesses must conduct a meaningful evaluation at the market segment level since it helps to precisely define the segments in favor of management decision makers’ objectives.

Converting the segmentation findings into new ideas as well as strategies is typically limited just by the creativity of users. Most of the segmentation studies, and particularly those revolving around consumers’ needs, lifestyles, benefits, or psychographic characteristics, provide a rich profile of possible target segments which; thus, this can help produce a wide range of diverse ideas and strategies. Also, if one is concerned, for instance, with the design of the product or a communication campaign, every idea may be executed in several ways, the success of which is based more on the designer’s creativity than the segmentation finding itself.

Future Research Ideas on Customer Segmentation

The current study and the previous studies related to the context of customer segmentation bear significant implications for future work. The future work suggested by the authors includes replacing the fixed ways of conducting segmentation studies with more innovative approaches and the inclusion of new conceptual and methodological areas of segmentations into the strategy.

The study also serves as a future point of reference for the businesses looking for expansion opportunities in new markets.  Customer segmentation has almost tremendous potential as a tool that can surely help businesses adopt more effective approaches to market products and create new ones. Being a detailed and foundational introduction to the notion of segmentation, the author defines how an innovative business can develop an effective set of segmentation strategies. This further pushes the businesses to think beyond the box and construct novel and resourceful approaches that can bring great value to the segmentation model of the business.

Implications for Practitioners Working with Customer Segmentation

Practitioners, including marketers and research analysts, can have a valuable foundation in the shape of this study, for their future research strategy and marketing projects that demand experimentation and innovation. The study helps practitioners determine the new conceptualization of the segmentation problem, do a re-evaluation of the implementation of a normative theory of segmentation, find new variables and behavioral patterns to be used as a base for segmentation, apply new research designs, data collection, and analysis techniques, carry out the performance of segmentation strategies, apply multi-trait, multimethod approaches to segmentation research, perform integration of segmentation research with the marketing information systems and adopt alternative approaches for segmentation findings to be turned into marketing strategies.

The in-depth knowledge of the segment structure is of high significance for the marketing due to its managerial utility, mainly in what concerns positioning and targeting. Businesses that recognize underserved segments may then outdo the competition by designing uniquely appealing offerings. This study started with an overview on segmentation aspects, goals, issues, and problems with the previous literature, and presents the mixed research scheme, based on novel ways of thinking about and using the factors and elements involved in the segmentation, to discover the segment structure related to the target customer databases. We believe that in this way, this research opens new doors of wisdom for the practitioners working with customer segmentation, especially those who are unaware of the current issues and challenges involved in the segmentation process.