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Market egmentation esearch: eyondWithin ndAcrossGroupDifferences

Lg. Marketing etters 3:3,233-243, 2002Pi 2002 KluwerAcademic ublishers. anufactured n The Netherlands.

GREGALLENBY*OhioStateUniversity*Co-chairs,uthors re listed lphabetically

GERALDINEFENNELL*Consultant*Co-chairs,uthors re listed lphabetically

ALBERT BEMMAORESSEC

VUAY BHARGAVAElan Consulting roup

FRANCOIS CHRISTEN

Wells argoBank

JACKIEDAWLEYInsight nalysis

PETERDICKSONFlorida nternational niversity

YANCYEDWARDSUniversityf Delaware

MARK GARRATTMiller rewing ompany

JIMGINTEROhio State University

ALAN SAWYERUniversityf Florida

RICK STAELINDukeUniversity

SHAYANGNew York niversity

October, 001;January, 002

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234 ALLENBYTAL.

AbstractMarket egmentationesearchs currently ocused oonarrowly n the ask f segment dentifications opposedto ts trategic elevance ithin firm. n this aperwedistinguish n ex ante pproach o market egmentationresearch, hich eginswith tudying hemotivating onditions hat ead people o the asks nd nterests n theirlives, rom n ex post pproach hich eginswith n ndividual's eactionomarketplacefferings. eargue hatthe marketing ask f guidingmanagementso makewhat eoplewillwant o buy' willbe more uccessfulnlight f a deep understanding f behavior n the context f everyday ife and work, ather han detailedunderstanding f preferencesn the marketplace. irections or uture esearch re discussed.

Key words: market egmentation, arket efinition, otivation,ccasionfor ction

1. Introduction

Market egmentationesearchsa process hat oeson onger han hedata ollection ndanalysis. heoutput s not ust egments.t nvolves btaining ehavioralnformationhatis useful nguidingmanagerial hoices mong ptions or trategic ction. he outcome fmarket egmentation esearch s part f corporate ulture, roviding iscrete abelsforgroupings, hich rganizemanagerial hinkingnd facilitate ommunicationyprovidingconcrete haracterizations f consumer antswithin market.

In this aper,we examine he urrent tate f market egmentationesearchnd dentifyavenuesfor development. lthough esearch n the topic of segmentation as a longhistory n marketing, ecentwork s too narrowly ocusedon the task of segmentidentifications opposed othe broader ssue of the nformational ontent btained ndsegments' trategic elevance. arket egmentations a conceptually ich rea of researchthat ouches n issues such as market efinition, heunit f analysis, ype f consumerbehavior o be explained, ppropriatenessf basisvariables, ndthe elation f ll of theseconsiderationsomanagerial asks.

Theorganization f this aper s as follows. ection reviews he volution f marketsegmentation esearch, ntroducing lternative erspectives nd critical dimensions.Section introduces stylizedmodel of consumer ehavior hathelps to organize healternative erspectivesnd key lements f market egmentationnalysis the universebeing egmented, ependent ariable,ndependent ariable, ndmanagerial ask. ectionprovides discussion f topics or urther esearch.

2. The Evolution f Market Segmentation esearch

The original aper n market egmentation iscussed wodistinct rientations oproductpolicy, .e., market egmentation nd product differentiation Smith 1956). Marketsegmentation eferred omaking roduct ecisions fter tudying nd characterizinghe

diversity f wants hat ndividuals ring oa market, hile, or mith, roduct ifferentia-tion referred oproduct ecisions aken elative nly oa firm's ompetitors. ince thisoriginal rticle,market egmentation nd market egmentation esearch/analysis, hilestill retained n the title of articles nd books, s often eplacedby a discussion fsegmentationesearch, hich oncerns search or roups f consumers rom hegeneral


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MARKETSEGMENTATIONRESEARCH 235

population,nd ometimesven ustomers, ith imilar ithin-groupnddifferent cross-group esponsesee Frank,Massyand Wind 1972,Wedel nd Kamakura 000).Over-simplifyinghedifferences,uch n orientation akes s from he earch or ariables hatdescribe ehavioral ants mong rospects, .e., conditions llocating eople's resourcesto specific asks nd interest f everyday ife, ocharacterizing ow ndividuals ary ntheir eactions oa range f marketing ariables. xamples f behavioral ants re beingthirsty, hedesire o live up to one's mage s a health onscious dult, o satisfy ne'scuriosity, nd to enjoy ensory leasure.

This shift n focus ver he yearshas important mplications. hileboth rientations{market egmentation nd segmentation) re concerned ith xplaining ome type ofconsumer ehavior, he riginal ocus n product trategy as associatedwith onditionsand activities utside he marketplace.ndividuals ngaged n oralhygiene ctivities, orexample, xperience variety f conditions anging rom oncern or articular spects fteeth are cavity revention, umdisease, eethwhiteness) osocialexpectations boutthe ort f person hey wouldbe if they idn't rush egularly. uch orientations xist nthe context f everyday ife, egardless f whether r not marketers otice.The goal ofmarket egmentationnalysis s to describe uch within-productategory onditions hatpoint ovalued ttributes nd benefits.

In contrast o market egmentation esearch, egmentation esearch s an approachaimed t

characterizingcross

roupifferencesndomains ther han

roduct trategy.n

instances here t is conducted mong members f the general adult) population, timplicitly ddresses ssues f market efinition e.g.,where nd howconsumers hop, reexposed omarketing ommunications,road rice evelpreference premium, iscount).Inother ases,where nly firm's urrent ustomers re tudied, typical oal sexploringhow o generate dditional usinesswith xisting fferings ithin hat niverse. oreover,the focus hifts rom dentifying ants n the onditions hat rompt rospects opursuetheir asks nd interests, o identifying ifferences n consumer eaction o a range fmarketing ariables uch s price nd channel f distribution.n the discussion elow wefocus n market egmentation esearch.We consider, irst, pproaches imed t under-

standing ehavioral ants s they rise n the conditions f people lives outside hemarketplace. ethen urn ur ttention oattempts oreadwants rom rospects' eactionsto marketplace fferings.

3. A Framework or Market Segmentation

For lose to a century, uthors re on record s appreciatinghe omplexity f deliveringproduction's bligation orespond o human wants, iven hediversity f wants Shaw1912,Smith 956).Market egmentation esearch as been ndustry's ractical pproachto finding uidance or his ask. Considerwhat s at issue.Regarding ny one offering,management as resources o nvest nresponding o a finite etofhumanwants.Withinproduct ategory, t considers he iverse ature f wants, urrent tate f want atisfaction- reflecting ts own and competitive esponse and its ikely bility o obtain satis-factory eturn rom upporting r continuing osupport n offering. roviding nforma-tion bout wantswithin market s the ask of market egmentation esearch.


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236 ALLENBY ET AL.

Comprehensive models of consumer behavior have appeared n the marketing iteraturefor more than 30 years and describe a complex, multi-event ehavioral process (Nicosia1966; Engel, Kollat, and Blackwell 1968; Howard and Sheth 1969; Dickson 1982;McFadden 1986; Fennell 1988; Ben-Akiva et al. 1999). An abbreviated model of brandchoice based on Fennell 1988, 1980; cf. Dickson 1982) that ocusesattention n variablesof interest s displayed n Figure 1 Personal and environmental ystems ntersect o formmotivating onditions, r wants, llocating n individual's esources o a domain of action,within situation s perceived. For example, an individual eating spicy food at a partybecomes concerned about an upset stomach or bad breath; onsiders spending his or herresources to use some version of a product ikely to provide benefits hat address themotivating onditions; earches for a vending machine.

Viewed from eft o right, he model represents behavioral process that allocates anindividual's esources o a substantive omain e.g., stomach condition), nd desired tate(e.g., not feeling upset), and directs how the ndividual deploys those resources within hatdomain favoring ctions and objects consuming brand of stomach remedy, etail utlet)

Figure 1 Model of Action and Brand Use.

Personal Systems

SITUATION AS PERCEIVED Brands Asj Perceived] (Brand

I I j | 1 Beliefs); Brand Action,Motivating Desired Consideration Including

-Conditions *j Benefits/

* Set; Brand Brand; Attributes Preference usei ' ' ] I 1 Ordering

Environmental ystems S

Ex-Ante |Analysis ^ __; ^ ^

* -** Analysis


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MARKET SEGMENTATIONRESEARCH 237

likely obring bout an improved tate of being. Management's dvertising romises thatits brand offers ertain ttributes nd benefits, which management as arranged o delivervia the brand's physical nd psychological formulation. or benefits o exist, heremust bebrand triers nd users who value the outcome that he brand's attributes an deliver, findand select the brand, nd use it with satisfaction. he presence of motivating onditionswithout orrespondingmarketplace fferings an be regarded s unmet demand. Similarly,the presence of offerings without corresponding motivating onditions ikely leads toinsufficient ales for atisfactory eturn n management's nvestment.

There are two approaches to market egmentation esearch ex ante and ex post. An exante approach begins by studying he motivating onditions hat ead people to the tasksand interests n their ives. Such an analysis provides guidance for product strategy simplemented n brand positioning physical nd psychological formulation and market-ing communications. t is through deep understanding f the conditions hat give rise toaction within ts product omain that management earns the attributes hat eople value inbrand offerings, nd the conditions o portray ogain targets' ttention ia advertising. nprinciple, f manufacturers ad accurate nformation n all motivating onditions withinthe focal behavioral domain, and the ability to produce and deliver unique productofferings t low cost, then even individual customization f offerings ould be a viableproduct trategy. s more data are collected from multiple "touch-points" uch as the

Internet, oint-of-purchasend direct

marketing,nd were cost of customization to

decline, does market egmentation esearch ecome obsolete? We return o this opic ater.An ex post approach to market segmentation esearch begins with an individual's

reaction to marketplace offerings. This may take the form of ratings of productattributes/benefits e.g., benefit segmentation, Haley 1968; part-worths f conjointanalysis).By focusing n what people must hoose among, rather han what the conditionsthey experience call for, x post market egmentation esearch changes from task ofidentifying otivating onditions o guide product trategy, o trying o read wants fromreactions o product ttributes nd benefits s found n existing fferings.

Finding n appropriate way to measure wants s a central ssue in market egmentation

research and affects he likely amount of achieved understanding vailable to guidestrategic ction. However, henature f the explanatory ariablesused in the nalysis s butone of a number of key aspects in need of clarification nd development. Among suchissues are the other elements present in an analysis, including the universe beingsegmented nd the behavior to be explained. These issues are discussed next.

3.1. Ex Ante Market Segmentation esearch

Market egmentation esearch tarts y specifyingmembership ualification or he market

in which the diverse nature f demand s to be described. Since this demand exists n theform of motivating onditions, t is necessary to map from the product class underconsideration e.g., shampoo) to a corresponding angeof behavior e.g., hair care). In anex ante analysis, the behavior of interest xists outside of the marketplace. f the productcategory s shampoo, for xample, market membership onsists f individualswho qualify


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238 ALLENBY ET AL.

as likely to spend on buying shampoo, e.g., people who wash their hair at least once aweek.

Qualitative research among market members to investigate motivating conditions(relevant o hair care) starts with the broader domain of personal grooming, nd withinthat omain,narrows own through ersonal hygiene outines, o hair washing. The unit fanalysis, then, for describing human behavior s the context for engaging in individualinstances of activity, nd the relevant niverse s enumerated n person-activity ccasions(e.g., individualswho shampoo their air at least once a week, multiplied y the number foccasions per person in an appropriate ime period such as a calendar year). For someactivities, uch as doing the family aundry, owever, he occasions may typically ccur na relatively nchanging bjective environment, nd the unit of analysis could be person-activity e.g., people who do family aundry). For other activities, uch as snacking ordrinking eer, the activity an occur in distinct inds of objective environment. n theseinstances, t is essential to bear in mind that he universe s enumerated n person-activityoccasions (e.g., beer drinkers imes occasions per person for drinking eer) rather hanonly in qualified respondents cross all occasions, since what consumers want may varyintraindividually Belk 1975, Dickson 1982, Miller and Ginter 1979). For example,consider someone contemplating beer to sip in an up-scale, pricey bar after work vs.a nightcap n the neighborhood avern vs. after Sunday morning mixed doubles tennis.Motivations are

heterogeneouswithin

objectiveenvironment. As shown in Figure 1,

motivating onditions rise from ntersecting ersonal and environmental ystems, nd canchange within nd across individuals, s personal and environmental onditions hange.As illustrated y Yang, Allenby and Fennell (2002), motivating onditions can also bestrongly elatedto brand preference nd the importance f attribute-levels.

The motivating onditions re the ndependent, r basis, variables n market egmenta-tion research. n an ex ante analysis, hey an be operationalized s concerns nd interestsrelevant o an activity e.g., Fennell 1997).We note that ur use of the word "motivation"refers o a qualitative ariable that elects a domain oiliness of hair on head) and directionof adjustment e.g. more/less) believed ikely oimprove ne's state f being. n contrast o

the term, motive," which refers o a trait-like ariable intended o apply across activityand over time e.g. high need for leanliness), motivation efers o a variable whose scopeis appropriate o a single occasion of an activity e.g., my hair looks dull and oily). Wereject "motive" for the purpose of market egmentation ecause the scope of a trait-liketerm is unnecessarily broad in the context of marketing where goods/services aredeveloped and supported, ne at a time, each within ts own substantive nd competitiveuniverse. Examples of items written o reflect motivating onditions for darkening heedges of one's eyelids as found through ualitative research nclude "my appearance isweak and nondescript," I look too pale around my eyes," and "it makes me looksophisticated" see Fennell, Saegert and Hoover 1997).

Compared with he general ontent f demographic nd generalpsychographic ariables,the content of motivational variables reflects diverse contexts within product category.Demographic and general psychographic ariables are trait-like escriptors f individualsthat re presumed o hold across activity nd context within ctivity. imilarly, nvironment-descriptive e.g., geographic egion)variables efer o ocation variables hat re context ree.


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While these variablesdo provide nformation bout ikely sers of products nd the ctivitiesin which hey ngage e.g., young people drink more beer than old people and participate nmore strenuous xercise;old compared with young people are more ikely owear denturesand use related products), hey ack content elevant o the specific personal and environ-mental lements resent n the context or ction and relevant o the attributes nd benefitsthat marketmembers ikely ind aluable in brands Fennell nd Allenby 2002; cf. Kennedyand Ehrenberg 001). This s because motivating onditions rise from ntersecting ersonaland environmental lements, nd not from ither n isolation.

Ex ante analysis provides nsights nto the conditions prompting ndividuals o pursuetheir asks and interests. uch an analysis guides management egarding he nature ofbenefits orwhich ndividuals may consider spending resources. Strategic onsiderationssuch as positioning physical nd psychological formulation), riting elling propositions,and choosing executional lements o engage targets' ttention re better rafted n light fmotivating onditions s understood rom n ex ante perspective.

3.2. Ex Post Market Segmentation esearch

In ex post market segmentation esearch, researchers eek information bout wants

through espondents'eaction o

productttributes nd benefits

e.g., ratingsf

attributes/benefits; onjoint nalysis). A limitation f this pproach s that t fails to shed ight n themotivating onditions hat ultimately etermine he kinds of benefits nd attributes hatprospects will value. For example, dog owners who give a high rating o "good caninenutrition," aydo so because their og is experiencing oor health, heywant to nurturepampered pet, or ensure that working watchdog s properly ourished. Accordingly, otonly guidance on brand formulation ut advertising xecution is indeterminate rominformation btained in the form of reactions to product attributes/benefits, .g., highratings of "good canine nutrition." Moreover, if motivating onditions are not fullyreflected n the current et of product ttributes nd benefits, hen wants will be less than

optimally erved and an ex post analysis will again provide an incomplete view of thesources of human action. Finally, he real world facts oncerning he unit of analysis i.e.,an occasion for engaging in the focal activity), s well as how the market s properlyenumerated i.e., qualified ndividuals imesoccasion per person for ngaging n the focalactivity), re not accessible in an ex post view, which as noted acks variables to representconditions pstream rom he marketplace.

The limitations f marketplace ata in not revealing he environments n which brandsare consumed,nor the motivating onditions f the current nd potential ustomers withinthese environments, s not resolved by obtaining, ntegrating nd analyzing data frommultiple touch-points." All marketplace ata suffer rom hese same limitations, hich

are not resolved by pooling information cross different ransactions nd/or consumers.As McFadden notes 1986, p. 275) "revealed market data" are inadequate in describingthe underlying mechanisms that govern behavior. Manufacturers herefore o not haveaccess to sufficiently ccurate nformation o execute mass-customization trategies with-out substantial participation, r co-production, by consumers. While co-production


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240 ALLENBY ET AL.

strategies an result na proliferation f offerings hen omponent-based anufacturingsemployed e.g., personal omputers, ersonalizedmusic CD's),manufacturers ill stillneed to strategically etermine he componentsmade available for assembly. uchconsiderationslongwith he bviously roublingamplingssues, ncluding elf-selectionmean hat market egmentationesearch/analysis illcontinue oplay ts ssential ole nguiding roduct nvestment ecisions.

Another roblemwith x post segmentations that he co-evolution f supply nddemand reates volving eaks n the preference pacearound he successful xtendedproduct r service, ncluding hedistribution/servicehannel see Dickson1992;Arthur1994;Dickson,Farris nd Verbeke 000).This evolution n the cumulative esign fproducts nd the marketing ix that uilds ncrementally n past actions an developtechnological,sset and learning ath dependencies hat lind hefirm o other x antesegment pportunities nd create evere arriers omobility i.e., through heredeploy-ment f resources). x ante esearch hat tarts rom nderstandinghe onditions hat iverise oa person's ctivity, ather han ow specific roduct ategory atisfies,s likely ospotnew market rowth pportunities s it s somewhat but not totally) reed rom heinfluence f current nd feasible echnologicalpproaches.

Finally, here xists recent iterature n statistical echniques ormarket egmentationthat uses sales scanner ata to make inferences bout brand preference nd attribute

importanceKamakurand Russell 1989;Fader nd Hardie1996).A

potentialdvantage

of this pproach s that t results n groupings hat re more directly inked o actualmarketplace references nd behaviors. owever, hen hese pproaches re viewed nlight of an extended model of behavior hat ncludesvariables uch as motivatingconditions, roduct enefit/attribute mportances, onsideration et, and brand beliefs,they re seen to be under-specified. hese approaches uffer rom he same imitationsdiscussed bove that re associatedwith ll ex post pproaches or nderstanding umanwants. n addition, o the xtent hatmanagement ses such datafor trategic uidance,tshould ear n mind hat, btained rom universe f customers, hedatadonot eflect hefull ange f market esponse, mitting s they o information rom rospects ho re not

customers.

4. Discussion

Marketing uccess, ust as business uccess,depends n the return rom management'sinvestmentndesigning, roducing, romoting,nd elling n offering. heoffering hat sthe object f marketplace xchange s a brand. rand urchase/use, epeat urchase/useare prime measures f marketing nd business uccess.Such measures re central omarketing s a managerial unction nd disciplinary omain. Correspondingly, he

essential ocus or esearch nd conceptual evelopmentn marketing s the ntra roductlevel f analysis, hich ncludes ll the ariables hat re relevant obrand se, s outlined,for xample n Figure .

From he tart,market egmentation esearch ashad the clear, trategicallyssentialobjective f providing description f the diverse ature f demand nd state f want-


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satisfaction within management's roduct market. Huge consumer data-bases that mustdeliver more "confidence"?) and highly sophisticated tools (that must deliver more"insight" and "rigor"?) when used to analyze the ex post behavior of consumers,cannot retrieve rucial analytic distinctions nd relevant ata pertaining o the conditionsthat rospects xperience utside the marketplace, hich are accessible only via an ex anteapproach. Much of the current esearch n heterogeneity Allenby and Rossi 1999;Wedelet al. 1999), for xample, acks the substantive ocus needed to guide strategic ecisions,including how best to deploy ts resources n a particular roduct market y responding osome subset of behavioral wants as found.

Additional research s needed on the key elements of market egmentation nalysisthe universe being segmented, ependent variable, ndependent ariable and managerialtask. As noted, market egmentation tarts y specifying membership ualification or hemarket n which the diverse nature f demand s to be described. As this demand exists nthe form of motivating onditions, t is necessary to map from he product class underconsideration to a corresponding range of behavior. Since the universe is properlyenumerated n person-activity ccasions, the sampling plan should consider such occa-sions over time and geographic space. When values of personal and environmentalvariables are stable, ntraindividually, cross occasions, it is likely possible to cut cornersby asking respondents o reply by summarizing ver occasions. Research is needed to

investigatehe extent o which such an

approacheads to

misleadingresults.

Numerous variables exist in market segmentation esearch, ncluding the personalrelevance of motivating onditions and the frequency with which qualitatively istinctconditions ccur, the part- orths f attribute-levels, rand beliefs, consideration ets andactual brand use. Methods are needed for studying marketplace variables (e.g., part-worths) for strategically nteresting roups based on the motivating onditions. Suchanalysis is at the core of market segmentation esearch, as managements attempt ounderstand how prospects with a particular kind of behavioral demand view existingofferings.

The relationship etween market egmentation esearch nd the managerial task is the

final area where we discuss opportunities or research. Once management earns of thediverse nature f wants hroughmarket egmentation esearch, t also considers he currentstate of want satisfaction, eflecting ts own and competitive esponses, and its ownabilities, n deciding whether r not to continue to support n same or altered form, owithdraw ts offering, r design a new entry. Methods of taking account of the variousconsiderations, ossibly with the use of statistical ecision theory, re needed.

To some practitioners nd scholars our lack of emphasis here on "segmenting"consumers by their shopping behavior or responsiveness to marketing mix elementsmay seem out of touch with the potential for mining today's data-bases. Understandingwhere nd how prospects hop is one facet of the task of market efinition, ut not market

segmentation. tudying choice among currently vailable alternatives s important orcross-selling nd tactical price management, ut these data lack information bout theupstream conditions that lead to a deep understanding f consumer preference or aspecific brand. The search for useful ways to describe human "wants" and "prospectrequirements" s ongoing. We hope that the spotlight we have shone on market


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242 ALLENBY ET AL.

segmentation esearch ill help to bring t back to center tage oreceive he researchresources ts trategic elevance arrants.

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