Marketing Letters 13:3, 233–243, 2002

# 2002 Kluwer Academic Publishers. Manufactured in The Netherlands.

Market Segmentation Research: Beyond Within and

Across Group Differences

GREG ALLENBY*

Ohio State University

*Co-chairs, authors are listed alphabetically

GERALDINE FENNELL*

Consultant

Wells Fargo Bank

JACKIE DAWLEY

Insight Analysis

PETER DICKSON

Florida International University

YANCY EDWARDS

University of Delaware

MARK GARRATT

Miller Brewing Company

JIM GINTER

New York University

October, 2001; January, 2002

Abstract

Market segmentation research is currently focused too narrowly on the task of segment identification as opposed

to its strategic relevance within a firm. In this paper we distinguish an ex ante approach to market segmentation

research, which begins with studying the motivating conditions that lead people to the tasks and interests in their

lives, from an ex post approach which begins with an individual’s reaction to marketplace offerings. We argue that

the marketing task of guiding managements to ‘make what people will want to buy’ will be more successful in

light of a deep understanding of behavior in the context of everyday life and work, rather than a detailed

understanding of preferences in the marketplace. Directions for future research are discussed.

groupings, which organize managerial thinking and facilitate communication by providing

concrete characterizations of consumer wants within a market.

In this paper, we examine the current state of market segmentation research and identify

avenues for development. Although research on the topic of segmentation has a long

history in marketing, recent work is too narrowly focused on the task of segment

identification as opposed to the broader issue of the informational content obtained and

segments’ strategic relevance. Market segmentation is a conceptually rich area of research

that touches on issues such as market definition, the unit of analysis, type of consumer

behavior to be explained, appropriateness of basis variables, and the relation of all of these

considerations to managerial tasks.

2. The Evolution of Market Segmentation Research

The original paper on market segmentation discussed two distinct orientations to product

policy, i.e., market segmentation and product differentiation (Smith 1956). Market

segmentation referred to making product decisions after studying and characterizing the

diversity of wants that individuals bring to a market, while, for Smith, product differentia-

tion referred to product decisions taken relative only to a firm’s competitors. Since this

original article, market segmentation and market segmentation research=analysis, while

still retained in the title of articles and books, is often replaced by a discussion of

segmentation research, which concerns a search for groups of consumers from the general

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population, and sometimes even customers, with similar within-group and different across-

thirsty, the desire to live up to one’s image as a health conscious adult, to satisfy one’s

curiosity, and to enjoy sensory pleasure.

This shift in focus over the years has important implications. While both orientations

(market segmentation and segmentation) are concerned with explaining some type of

consumer behavior, the original focus on product strategy was associated with conditions

and activities outside the marketplace. Individuals engaged in oral hygiene activities, for

example, experience a variety of conditions ranging from concern for particular aspects of

teeth care (cavity prevention, gum disease, teeth whiteness) to social expectations about

the sort of person they would be if they didn’t brush regularly. Such orientations exist in

the context of everyday life, regardless of whether or not marketers notice. The goal of

exposed to marketing communications, broad price level preference—premium, discount).

In other cases, where only a firm’s current customers are studied, a typical goal is exploring

how to generate additional business with existing offerings within that universe. Moreover,

the focus shifts from identifying wants in the conditions that prompt prospects to pursue

their tasks and interests, to identifying differences in consumer reaction to a range of

marketing variables such as price and channel of distribution. In the discussion below we

focus on market segmentation research. We consider, first, approaches aimed at under-

standing behavioral wants as they arise in the conditions of people lives outside the

marketplace. We then turn our attention to attempts to read wants from prospects’ reactions

to marketplace offerings.

product category, it considers the diverse nature of wants, current state of want satisfaction

—reflecting its own and competitive response—and its likely ability to obtain a satis-

factory return from supporting or continuing to support an offering. Providing informa-

tion about wants within a market is the task of market segmentation research.

Comprehensive models of consumer behavior have appeared in the marketing literature

motivating conditions, or wants, allocating an individual’s resources to a domain of action,

within a situation as perceived. For example, an individual eating spicy food at a party

becomes concerned about an upset stomach or bad breath; considers spending his or her

resources to use some version of a product likely to provide benefits that address the

motivating conditions; searches for a vending machine.

Viewed from left to right, the model represents a behavioral process that allocates an

individual’s resources to a substantive domain (e.g., stomach condition), and desired state

(e.g., not feeling upset), and directs how the individual deploys those resources within that

domain—favoring actions and objects (consuming brand of stomach remedy, retail outlet)

Figure 1. Model of Action and Brand Use.

likely to bring about an improved state of being. Management’s advertising promises that

the presence of offerings without corresponding motivating conditions likely leads to

insufficient sales for satisfactory return on management’s investment.

There are two approaches to market segmentation research—ex ante and ex post. An ex

ante approach begins by studying the motivating conditions that lead people to the tasks

and interests in their lives. Such an analysis provides guidance for product strategy as

implemented in brand positioning—physical and psychological formulation—and market-

ing communications. It is through a deep understanding of the conditions that give rise to

action within its product domain that management learns the attributes that people value in

brand offerings, and the conditions to portray to gain targets’ attention via advertising. In

principle, if manufacturers had accurate information on all motivating conditions within

reaction to marketplace offerings. This may take the form of ratings of product

attributes=benefits (e.g., benefit segmentation, Haley 1968; part-worths of conjoint

analysis). By focusing on what people must choose among, rather than what the conditions

they experience call for, ex post market segmentation research changes from a task of

identifying motivating conditions to guide product strategy, to trying to read wants from

reactions to product attributes and benefits as found in existing offerings.

Finding an appropriate way to measure wants is a central issue in market segmentation

research and affects the likely amount of achieved understanding available to guide

strategic action. However, the nature of the explanatory variables used in the analysis is but

one of a number of key aspects in need of clarification and development. Among such

issues are the other elements present in an analysis, including the universe being

form of motivating conditions, it is necessary to map from the product class under

consideration (e.g., shampoo) to a corresponding range of behavior (e.g., hair care). In an

ex ante analysis, the behavior of interest exists outside of the marketplace. If the product

category is shampoo, for example, market membership consists of individuals who qualify

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

instances of activity, and the relevant universe is enumerated in person-activity occasions

(e.g., individuals who shampoo their hair at least once a week, multiplied by the number of

occasions per person in an appropriate time period such as a calendar year). For some

activities, such as doing the family laundry, however, the occasions may typically occur in

a relatively unchanging objective environment, and the unit of analysis could be person-

activity (e.g., people who do family laundry). For other activities, such as snacking or

drinking beer, the activity can occur in distinct kinds of objective environment. In these

instances, it is essential to bear in mind that the universe is enumerated in person-activity

occasions (e.g., beer drinkers times occasions per person for drinking beer) rather than

only in qualified respondents across all occasions, since what consumers want may vary

As illustrated by Yang, Allenby and Fennell (2002), motivating conditions can also be

strongly related to brand preference and the importance of attribute-levels.

The motivating conditions are the independent, or basis, variables in market segmenta-

tion research. In an ex ante analysis, they can be operationalized as concerns and interests

relevant to an activity (e.g., Fennell 1997). We note that our use of the word ‘‘ motivation’’

refers to a qualitative variable that selects a domain (oiliness of hair on head) and direction

of adjustment (e.g. more=less) believed likely to improve one’s state of being. In contrast to

the term, ‘‘motive,’’ which refers to a trait-like variable intended to apply across activity

and over time (e.g. high need for cleanliness), motivation refers to a variable whose scope

is appropriate to a single occasion of an activity (e.g., my hair looks dull and oily). We

reject ‘‘motive’’ for the purpose of market segmentation because the scope of a trait-like

developed and supported, one at a time, each within its own substantive and competitive

the content of motivational variables reflects diverse contexts within product category.

Demographic and general psychographic variables are trait-like descriptors of individuals

that are presumed to hold across activity and context within activity. Similarly, environment-

descriptive (e.g., geographic region) variables refer to location variables that are context free.

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While these variables do provide information about likely users of products and the activities

and Ehrenberg 2001). This is because motivating conditions arise from intersecting personal

and environmental elements, and not from either in isolation.

Ex ante analysis provides insights into the conditions prompting individuals to pursue

their tasks and interests. Such an analysis guides management regarding the nature of

benefits for which individuals may consider spending resources. Strategic considerations

such as positioning (physical and psychological formulation), writing selling propositions,

and choosing executional elements to engage targets’ attention are better crafted in light of

motivating conditions as understood from an ex ante perspective.

prospects will value. For example, dog owners who give a high rating to ‘‘good canine

nutrition,’’ may do so because their dog is experiencing poor health, they want to nurture a

pampered pet, or ensure that a working watchdog is properly nourished. Accordingly, not

only guidance on brand formulation but advertising execution is indeterminate from

information obtained in the form of reactions to product attributes=benefits, e.g., high

ratings of ‘‘good canine nutrition.’’ Moreover, if motivating conditions are not fully

reflected in the current set of product attributes and benefits, then wants will be less than

optimally served and an ex post analysis will again provide an incomplete view of the

sources of human action. Finally, the real world facts concerning the unit of analysis (i.e.,

an occasion for engaging in the focal activity), as well as how the market is properly

enumerated (i.e., qualified individuals times occasion per person for engaging in the focal

conditions upstream from the marketplace.

As McFadden notes (1986, p. 275) ‘‘revealed market data’’ are inadequate in describing

the underlying mechanisms that govern behavior. Manufacturers therefore do not have

access to sufficiently accurate information to execute mass-customization strategies with-

out substantial participation, or co-production, by consumers. While co-production

strategies can result in a proliferation of offerings when component-based manufacturing is

Another problem with ex post segmentation is that the co-evolution of supply and

demand creates evolving peaks in the preference space around the successful extended

product or service, including the distribution=service channel (see Dickson 1992; Arthur

1994; Dickson, Farris and Verbeke 2000). This evolution in the cumulative design of

products and the marketing mix that builds incrementally on past actions can develop

technological, asset and learning path dependencies that blind the firm to other ex ante

segment opportunities and create severe barriers to mobility (i.e., through the redeploy-

ment of resources). Ex ante research that starts from understanding the conditions that give

rise to a person’s activity, rather than how a specific product category satisfies, is likely to

spot new market growth opportunities as it is somewhat (but not totally) freed from the

light of an extended model of behavior that includes variables such as motivating

conditions, product benefit=attribute importances, consideration set, and brand beliefs,

they are seen to be under-specified. These approaches suffer from the same limitations

discussed above that are associated with all ex post approaches for understanding human

wants. In addition, to the extent that management uses such data for strategic guidance, it

should bear in mind that, obtained from a universe of customers, the data do not reflect the

full range of market response, omitting as they do information from prospects who are not

customers.

4. Discussion

Marketing success, just as business success, depends on the return from management’s

level of analysis, which includes all the variables that are relevant to brand use, as outlined,

for example in Figure 1.

From the start, market segmentation research has had the clear, strategically essential

objective of providing a description of the diverse nature of demand and state of want-

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satisfaction within management’s product market. Huge consumer data-bases (that must

et al. 1999), for example, lacks the substantive focus needed to guide strategic decisions,

including how best to deploy its resources in a particular product market by responding to

some subset of behavioral wants as found.

Additional research is needed on the key elements of market segmentation analysis—

the universe being segmented, dependent variable, independent variable and managerial

task. As noted, market segmentation starts by specifying membership qualification for the

market in which the diverse nature of demand is to be described. As this demand exists in

the form of motivating conditions, it is necessary to map from the product class under

consideration to a corresponding range of behavior. Since the universe is properly

enumerated in person-activity occasions, the sampling plan should consider such occa-

conditions occur, the part-worths of attribute-levels, brand beliefs, consideration sets and

actual brand use. Methods are needed for studying marketplace variables (e.g., part-

worths) for strategically interesting groups based on the motivating conditions. Such

analysis is at the core of market segmentation research, as managements attempt to

understand how prospects with a particular kind of behavioral demand view existing

offerings.

The relationship between market segmentation research and the managerial task is the

final area where we discuss opportunities for research. Once management learns of the

diverse nature of wants through market segmentation research, it also considers the current

state of want satisfaction, reflecting its own and competitive responses, and its own

abilities, in deciding whether or not to continue to support in same or altered form, to

considerations, possibly with the use of statistical decision theory, are needed.

cross-selling and tactical price management, but these data lack information about the

upstream conditions that lead to a deep understanding of consumer preference for a

specific brand. The search for useful ways to describe human ‘‘ wants’’ and ‘‘ prospect

requirements’’ is ongoing. We hope that the spotlight we have shone on market