An Empirical Evaluation of Aggregation Approaches for Developing Market Segments

Abstract

In this paper criteria for aggregating customers into market segments are empirically tested. Analyses of individual customer response to relative price of a brand show that the relative price maximizing brand profits from each customer performed substantially better in terms of overall brand profits than other criteria such as elasticities and response function coefficients. When customer descriptor variables are linked to the aggregation criteria to account for imperfect segment reachability, a re-examination of brand profitability shows a decrease in overall profit levels but that aggregation criteria remain superior to creating segments based on purchase quantity.