Exploring the Construct of Segmentation Effectiveness: Insights from International Companies and Experts

Abstract

In the past two decades, the concept of international segmentation has received increasing attention in the strategic marketing literature. However, although segmentation decisions are critical for achieving competitive advantage in an increasingly globalizing marketplace, there is a lack of a sound measurement instrument capturing the effectiveness of international segmentation decisions. In this study, we conduct in-depth interviews with international companies and external experts and identify a reliance on bottom-line measures which, however, inadequately capture the effectiveness of segmentation. Based on the interview material as well as the extensive literature on segmentation, we subsequently conceptualize segmentation effectiveness as a multidimensional construct, capturing four core dimensions of segmentation success (namely targeting performance, positioning performance, cost reduction and increased adaptability to environmental uncertainty). A formal measurement model to operationalize the construct is also proposed as are suggestions for further research on the topic of segmentation effectiveness.

Hit with One Shot: Assessing the Drivers of Target Marketing Effectiveness

“…In accordance with the STP process, targeting decisions follow the outcomes of segmentation analysis. In this sense, organizational capabilities in collecting and making sense of market information (Wei and Wang, ) by means of managerial experience (Palmer and Millier, ) are crucial, as segmentation decisions affect firm success (Foedermayr and Diamantopoulos, ). Despite the several benefits a firm could obtain from segmentation and targeting (Dibb and Simkin, ; Cahill, ; Badgett and Stone, ; Hassan and Craft, ), there are critics.…”

“…In accordance with the STP process, targeting decisions follow the outcomes of segmentation analysis. In this sense, organizational capabilities in collecting and making sense of market information (Wei and Wang, 2011) by means of managerial experience (Palmer and Millier, 2003) are crucial, as segmentation decisions affect firm success (Foedermayr and Diamantopoulos, 2008 (Dibb and Simkin, 1991;Cahill, 1997;Badgett and Stone, 2005;Hassan and Craft, 2005), there are critics. Among these, some refer to low inter-reliability of segmentation methods that lower the effectiveness of targeting decisions (Wright, 1996) and to excessive segmentation and (then) targeting that may reduce social network effects (Sinha and Rosenthal, 2009).…”

“…If combined with organizational and industrial effects, these criteria could be used for evaluating segment attractiveness. Recalling the measurability and differentiability criteria, effective measures require organizational capabilities to collect and make sense of market information (Wei and Wang, 2011); moreover, as in practice, the definition of the market, the customers, and the competitors is not simple (Sollner and Rese, 2001), managerial experience is strongly important in segmentation and targeting decisions (Palmer and Millier, 2003) as segmentation decisions can affect firm success (Foedermayr and Diamantopoulos, 2008). Focusing on the substantiality and accessibility aspects, issues on industry structure should be taken into account, as it explains the profitability in the industry and the existence and extent of barriers to enter the segment (Porter, 2008).…”

Target market selection in B2B technology markets

“…As Dibb and Simkin (2010) note, segmentation effectiveness is challenging to measure because it includes 'hard' (statistical) and 'soft' (segment quality) measures. Foedermayr and Diamatopoulos (2008) add that segmentation effectiveness is difficult to capture and is often confused with marketing performance and success metrics. Based on the current study, measures should be refined for the target marketing success variable.…”

Judging the quality of customer segments: segmentation effectiveness

“…Recent work by Foedermayr and Diamantopoulos (2008) addresses this issue through its conceptualisation of segmentation effectiveness in the international context and through the development of a formal measurement model. Other researchers have tackled the problem through checklists of criteria for judging segment quality.…”