To Segment or not to Segment? An Investigation of Segmentation Strategy Success under Varying Market Conditions

Abstract

A computer simulation study is conducted to explore the interaction of alternative segmentation strategies and the competitiveness of the market environment, a goal that can neither be tackled by purely analytic approaches as there is neither sufficient and undistorted real market data available to deduct findings in an empirical manner. The fundamental idea of the simulation is to increase competition in the artificial marketplace and to study the influence of segmentation strategy and varying market conditions on organisational success. Success/failure is measured using two performance criteria: number of units sold and survival of organisations over 36 periods of time. Three central findings emerge: (1) the more competitive a market environment, the more successful the concentrated market segmentation strategy; (2) increased levels of marketing budgets do not favour organisations following a concentrated segmentation strategy; and (3) frequent rethinking and strategy modification impairs organisations that concentrate on target segments.