Model for market segments evaluation and selection.

Introduction

Market segmentation consists of detecting, evaluating and selecting homogeneous groups of individuals - whether they are consumers or not - with the purpose of designing and directing competitive strategies towards them. A review of academic research reveals the scant attention paid to the evaluation and selection of segments. Most of the studies merely evaluate the sales potential, the attractiveness, or the stability of each segment, with no reference to management needs. On the other hand, the creation, application and verification of quantitative methods which would build these groups, have been the main target of academic efforts (Wind, 1978). Detecting segments is of such great importance that it has very frequently been considered as a goal in itself.

Both researchers and managers need to evaluate and select segments in order to design and establish differentiated strategies. Although there are many approaches to market segmentation analysis (Assael and Roscoe, 1976; Weinstein, 1987; Wind, 1978), the existence of basic tasks is accepted, whichever the approach. Figure 1 shows basic tasks in market segmentation, ranging from searching for and selecting information, to positioning decisions or marketing mix development. Thus, the creation of segments is just one of the stages in the process of market segmentation. After this first step, we have to describe each segment, find out whether its characteristics conform to the firm's requirements, and select the most interesting ones. It is then when new decisions about product, price, channels, advertising, and salesforce have to be made.

It is worth mentioning that in the professional world - market research agencies, advertising agencies and private consultants - the general trend is to give more importance to the generation and description of segments than to the study of their possible application in organizations or companies.

This work proposes a methodology for the evaluation and selection of market segments. First, an analysis of the most relevant academic contributions will be carried out. Second, and from the results of field research, we will see how these activities in the segmentation process are perceived in professional circles. Special attention will be paid to the most common methods and techniques. After proving that these stages have not been studied in-depth, a model for market segment evaluation and selection is put forward. This model has advantages over the existing ones, because it takes into account management criteria and the period of time in which marketing managers consider the development of their marketing actions have to be carried out.

Literature review

Generally, the efforts of experts have been aimed at the evaluation of different segmentation methods and techniques (Bonoma and Shapiro, 1983; Christen, 1987; Elrod and Winner, 1982; Morrison, 1973; Novak et al., 1992; Wildt, 1976). Even in general studies on market segmentation (Beane and Ennis, 1987; Weinstein, 1987; Wind, 1978), little or no attention is paid to the evaluation and selection stages. Most frequently, authors limit themselves to analysing how to evaluate the stability of segments (Bettman, 1971; Calentone and Sawyer, 1978; Lehmann et al., 1982; Maclachlan and Johanson, 1981), their congruence (Green and Carmone, 1977), their internal homogeneity (Eckrich, 1984; Van Auken and Lonial, 1984), or their profitability (Beik and Buzby, 1973), just to mention the most relevant.

Thus, Brandt (1966) argues that it is necessary to determine the attractiveness of segments, both from the economic and strategic point of view. Since Brandt's article was published, many other contributions have followed (Assael and Roscoe, 1976; Bonoma and Shapiro, 1983; Cheron and Kleinschmidt, 1985; Choffray and Lilien, 1978; Doyle and Saunders, 1985; Garda, 1981; Green, 1977; Grover and Srinivasan, 1987; Kale and Sudharshan, 1987; Wind and Cardozo, 1974; Winter, 1979). All of them propose different schemes for market segmentation but, in common with Brandt, they have concentrated on evaluation and therefore have only taken into account very specific criteria. Beik and Buzby (1973) think that "the key criterion ... for segmenting a given market is the ability to trace sales and costs to the segments defined" (p. 49). Their proposal is based on marketing cost analysis where the "approach consists of dividing the firm's basic costs into their functional categories which are assigned within the appropiate marketing classifications" (p. 50). In short, this system focuses on carrying out a segment productivity analysis-contribution approach. Plank (1985), in his work on industrial market segmentation, points out that the study of segment stability has just been ignored (p. 88). It is obvious, then, that no thorough method of analysis on segment evaluation is possible if only a few criteria are considered, while others are omitted.

Notwithstanding, the literature on segment evaluation and selection is rather general. Winter (1979) proposes a cost-benefit approach to market segmentation. His segmentation plan begins with the consideration of organizational and managerial constraints. The final output is an optimization of the "estimate segment-marketing mix profit matrix", reducing the combinations of marketing mixes. Garda (1981) argues that each segment should be characterized by a homogeneous group of purchase-and-consumption factors, but he does not state which factors to consider. In contrast, Hlavacek and Reddy (1986) do indicate which characteristics have to be taken into account to measure the attractiveness of the segments in order to identify and qualify industrial market segments, but they do not say how to rate them. These three instances show quite clearly the general trend. In any case, the factors quoted most frequently belong to the economic field …