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European
Journal of A new research
Marketing
36,1/2
agenda for business
segmentation
252 Susanne Goller, Annik Hogg and Stavros P. Kalafatis
Received February 1999 Kingston Business School, Kingston upon Thames, UK
Revised March 2000
Accepted September Keywords Market segmentation, Modelling
2000
Abstract Since its conception over 60 years ago by Frederick in 1934, the concept of
segmentation has gained increasing importance, in both the consumer and the business domains.
Examination of research within the latter domain indicates that, although considerable amounts
of research have been carried out, these efforts appear to focus on sub-areas of segmentation such
as the development of segmentation bases and models, at the expense of a more strategic view.
This not only has resulted in a diffused understanding of the subject-matter but also is posited to
have slowed the progress of theory development and research in business segmentation. Presents
a comprehensive conceptualisation of business segmentation in the form of an integrating
framework of business segmentation, aimed at raising new research agendas which could lead to
a better understanding of existing gaps between theory and implementation and better
recommendations to practitioners and assisting further development of theory in business
segmentation.

Introduction
Industrial or business-to-business market segmentation (hereafter referred to
as business segmentation) has received considerable attention in the academic
literature for over 60 years. Most of the attention appears to have focused on
four main areas:
(1) the development of segmentation bases and models (e.g. Hummel, 1960;
Haley, 1968; Wind and Cardozo, 1974; Bonoma and Shapiro, 1983;
Moriarty and Reibstein, 1986; File and Prince, 1996);
(2) research methodologies in terms of data requirements and collection
methodologies (e.g. Webster, 1978; Silk and Kalwani, 1982; Flodhammar,
1988; Mitchell, 1994);
(3) the development and applications of statistical analysis tools (e.g. Frank
and Green, 1968; Green and Carmone, 1977; Rao and Winter, 1977; Acito
and Jain, 1980; Klastorin, 1983; Green and Krieger, 1991; Fish et al., 1995;
Balakrishnan et al., 1996); and
(4) the implementation of segmentation into strategy (e.g. Beik and Buzby,
1973; Mahajan and Jain, 1978; De Kluyver and Whitlark, 1986; Piercy
and Morgan, 1995).

European Journal of Marketing,

Whilst the debate and research in each of these sub-areas have clearly
Vol. 36 No. 1/2, 2002, pp. 252-271. contributed to a better understanding of business segmentation, a review of the
# MCB UP Limited, 0309-0566
DOI 10.1108/03090560210412782 literature reveals that the above identified research areas have largely been
investigated in isolation from one another. Thus it is the authors' opinion that A new research
the pre-occupation with individual sub-areas of segmentation not only has agenda
resulted in a fragmented view of segmentation which fails to recognise the
long-term strategic nature of the concept but also has severely limited progress
over the last few decades.
In order to address some of these shortcomings it is the aim of this paper to
offer a framework which will reflect a comprehensive conceptualisation of the 253
issues involved as well as offer the basis for future research and improved
recommendations to practitioners.

An integrating framework of business segmentation

Figure 1 presents the proposed integrating framework of business
segmentation. Briefly it consists of four main sets of components:
(1) an antecedent to segmentation which exerts an underlying influence on
the entire segmentation process;
(2) the prerequisites of the segmentation process;
(3) the segmentation process; and
(4) an outcome of segmentation.
Each set of components and their relationships will now be discussed in more
detail.

Antecedent to segmentation
Connections to wider marketing issues surrounding segmentation do not
appear to have been explicitly noted in the extant literature. However, a
juxtaposition of the literature on market orientation and business segmentation
has resulted in the identification of a number of links between these two
concepts.
In terms of the attitudinal dimension of market orientation, it has been
argued that, while attitudes held by senior management and existing
organisational structures cannot only impede or enhance the achievement
of market orientation (e.g. Felton, 1959; Webster, 1988; Kohli and Jaworski,
1990), they can similarly impede or enhance the implementation of
segmentation (Bonoma and Shapiro, 1984). The fact that the approval and
co-operation of senior executives for segmentation studies are necessary to
ensure implementation has been emphasised in the literature (e.g. Berrigan
and Finkbeiner, 1992). Furthermore, it has been argued that attitudes and
organisational structures can lead to implicit segmentation schemes
(Winter and Thomas, 1985; Jenkins and McDonald, 1994). This would
suggest a link between the attitudinal component of market orientation and
segmentation.
Attitudes will affect behaviours in an organisation. The behavioural
components of market orientation are customer orientation, competitor
orientation and inter-functional co-ordination (Narver and Slater, 1990) and
European
Journal of
Marketing
36,1/2

254

Figure 1.
An integrating
framework of business
segmentation
again, there are clear links between market orientation and the A new research
segmentation analysis, evaluation and implementation phases of the agenda
proposed framework:
. Customer orientation: Berrigan and Finkbeiner (1992) suggest that the
choice of segmentation base determines the degree of customer
orientation of a segmentation scheme, with macro-segmentation
variables producing a lesser and micro-variables a higher degree of 255
customer focus. Hence, if we refer to the proposed framework, this
would suggest a link between the antecedent to segmentation (i.e.
market orientation) and the segmentation analysis phase of the overall
segmentation process. More specifically, this link suggests that
companies who are less customer-oriented may use macro-segmentation
while those with a higher degree of market orientation may use micro-
segmentation in a single step or a combined macro-micro approach in
two or multiple steps.
. Competitor orientation: Intelligence on competitors is gathered in order
to evaluate a company's achievable competitive advantage in potential
target segments (Trout and Ries, 1985; Doyle and Saunders, 1985;
Kotler, 1991). As such, gathering competitor intelligence constitutes one
of the major elements/phases of the segmentation, targeting and
positioning model advocated by Kotler et al. (1999). Despite its
importance, empirical evidence showing that companies gather this kind
of intelligence for segmentation purposes does not appear to exist.
Nevertheless the theoretical body of work appears to suggest that not
examining competitors may result in the company not achieving or
maximising competitive advantage in target segments. As such, firms
with a lower degree of market orientation may not evaluate their
competitors in their target market segments or perhaps do so to a lesser
degree than those more competitor-oriented. Hence, referring to the
integrating framework, the literature seems to point to a relationship
between market orientation (i.e. the antecedent to segmentation in the
integrating framework) and target market selection (i.e. the evaluation
phase of the overall segmentation process).
. Inter-functional co-ordination: Inter-functional co-ordination has
been argued to be important for successful segmentation analysis
(Brown et al., 1989) as well as during the implementation of
segmentation (Ames, 1968; Greenberg and McDonald, 1989; Piercy
and Morgan, 1990). Although inter-functional co-ordination aims to
create ownership in the segmentation scheme to facilitate its
implementation, it is also necessitated by the fact that the
implementation of a segmentation scheme will impact on other
functional areas of the organisation. Hence it could be argued that
firms where different functional areas are less inter-linked through
cross-functional teams might experience greater difficulties with the
European implementation of segmentation. As such, this component of market
Journal of orientation links into the augmentation analysis and implementation
Marketing phases of the proposed framework.
36,1/2 Overall, the above debate has established that problems with the
operationalisation of the concept of segmentation may arise from the fact that
256 companies are less market-oriented. Hence recommendations to practitioners
need to adopt a far more strategic approach.
Following the above debate, we can also formulate our first research
proposition as follows:
P1. The degree of market orientation in an organisation exerts an
underlying influence on companies' behaviour in the subsequent
components of the segmentation process of the proposed framework, i.e.
that market orientation is an antecedent to business segmentation.
Although market orientation may influence the segmentation process, it is not
considered to be a sufficient condition for companies to carry out segmentation.
Two such conditions or prerequisites to segmentation have been identified
from the literature, which, unlike market orientation, do not exert any influence
on any component of segmentation, but instead represent requirements which
must be satisfied before any segmentation process can take place.

Prerequisites of segmentation
Segmentation has developed from the key premise that markets are
heterogeneous (Yankelovich, 1964; Beik and Buzby, 1973). Business markets
appear to fulfil this criterion for two reasons. First, the diverse number of end-
uses for a product means that customers can belong to an equally diverse
number of industries (Plank, 1985; De Kluyver and Whitlark, 1986). Second,
within an industry, the application of the product can vary considerably,
meaning that customers could seek different product benefits (Powers, 1991).
However, this may not necessarily apply to all industries. Some industries, for
example, the UK cement market, may be so small that companies deliberately
decide not to segment their markets and/or to serve each company with an
individual tailored strategy. Similarly the arrival of the Internet provides the choice
for sophisticated micro-segmentation and thus, even if the market is heterogeneous,
segmentation may not necessarily present the best opportunity for a company.
There may also be other reasons why companies may not opt for a segmentation
strategy, such as that segmentation is not seen as being cost-effective, that the
market is dominated by heavy users or by a single brand (Young et al., 1978;
Eckles, 1990). With the exception of Cross et al. (1990) research into such factors
which influence companies' decision to adopt a non-segmentation strategy have not
been empirically researched. Hence our second research proposition:
P2. Other factors, besides market heterogeneity, exist which influence
companies to make a decision in favour of or against adopting a
segmentation strategy.
Assuming that a company has decided to segment its market, the actual A new research
segmentation process commences, which constitutes the main part of the agenda
proposed framework.

The segmentation process

A review of the relevant literature has led to conclude that the segmentation
process consists of four phases, as depicted in the proposed framework: 257
(1) segmentation analysis;
(2) segmentration evaluation;
(3) implmenetation of segmentation; and
(4) control of segmentation.

Segmentation analysis
The segmentation analysis phase comprises all activities involved in dividing a
heterogeneous market into homogeneous sub-markets and consists of three
elements:
(1) segmentation bases and segmentation process stages;
(2) research methodologies; and
(3) data analysis.
Segmentation bases and segmentation process stages. Segmentation bases can
be grouped into two categories:
(1) macro variables; and
(2) micro variables.
The manner in which bases are formulated into a segmentation strategy is by
means of segmentation process stages[1], where bases can be used singly or in
combination for each process stage.
Segmentation process states and segmentation bases are an integral part of
normative segmentation models, of which there are primarily three types
(Plank, 1985):
(1) Unordered or single-stage models (e.g. Hummel, 1960; Webster and Wind,
1972; Cardozo, 1980; Forbis and Metha, 1981) are synonymous with
individual segmentation bases[2] and do not provide any guidance on the
selection of appropriate segmentation bases (Plank, 1985). When
employing an unordered approach, one segmentation base is used to
segment the entire market in one step; hence the term single-stage models.
(2) Two-stage models (e.g. Wind and Cardozo, 1974; Choffray and Lilien,
1980; Laughlin and Taylor, 1991; Barclay and Ryan, 1996) have been
developed in order to provide a structured approach to segmentation. To
this end they recommend: the use of both types of segmentation bases,
i.e. macro- and micro-bases, and that both types of bases be used in
European conjunction with each other by means of a funnel procedure. More
Journal of specifically, macro-variables are used in the first process stage, which
Marketing results in the identification of so-called macro-segments. In the
subsequent, second process stage, only those macro-segments which are
36,1/2 considered possible targets for the company are segmented further
using micro-segmentation variables.
258 (3) Multi-stage models (e.g. Bonoma and Shapiro, 1983; Hlavacek and Reddy,
1986; Brown et al., 1989) offer a more detailed taxonomy than two-stage
models. Multi-stage models propose three or more process stages and, like
the two-stage models involve the use of a funnel procedure.
An examination of segmentation models in terms of segmentation bases shows
that a considerable degree of variation exists within the theoretical body of work.
While some recommend specific bases (e.g. Forbis and Metha, 1981; Hlavacek
and Reddy, 1986; Laughlin and Taylor, 1991; Berrigan and Finkbeiner, 1992),
others such as Bonoma and Shapiro (1983) recommend use from the outer nest
towards the inner nest and therefore imply an order in which types of rather than
specific bases should be used. Furthermore, some models (e.g. Laughlin and
Taylor, 1991; Choffray and Lilien, 1978; Barclay and Ryan, 1996) are prescriptive
for some stages but not for others. Kalafatis and Tsogas (1998) provided some
evidence that the use of segmentation bases is industry-specific. The authors
found that the computer software industry employs predominantly ``type of
industry'' and/or ``organisational characteristics'', while the ``characteristics of the
DMU and of the individual DMs'' were primarily used in the concrete/cement
product sector. Furthermore, not all industries appear to be using segmentation
bases to actively segment or re-segment their markets. In the UK lift industry, for
example, the market has historically split over time into a number of product
segments with decision makers split into professional groups that have known
needs. It can therefore be concluded that the different models have not succeeded
in providing better guidance to practitioners with the choice of segmentation
bases. In fact due to this industry specificity perhaps the usefulness of models
lies in providing assistance with the process rather than the choice of bases.
Furthermore, the generalisability of any of the segmentation models is
questionable. Models are ``a generalised procedure or structure which purports
to represent how phenomena are scientifically explained'' (Hunt, 1991). Yet,
there is little evidence to support the generalisability of existing segmentation
models. Two observations have led to this conclusion. First, the majority of
empirical studies on models have been in the form of case studies and have
been situationally specific (e.g. Choffray and Lilien, 1980; Vollering, 1984;
Sharma, 1988; MuÈhlbacher et al., 1994; McTavish, 1996). Second, little evidence
exists that segmentation models have been generally adopted in the business
domain. Studies into practitioners' use of various segmentation models (e.g.
Wind and Cardozo, 1974; Cross et al., 1990; Schuster and Bodkin, 1987) have
equally been restricted to a case study or situational approach and have
therefore suffered from the same problems or methodological shortcomings.
Thus they cast little light on the issue. Kalafatis and Cheston (1997) provided A new research
some evidence in the pharmaceutical industry that companies do follow the agenda
models by using macro-variables for the first and micro-bases for the second
and third stages. However, some firms operating in the UK extraction industry
also segment their markets on a geographical basis, but then adopt a
relationship approach within each segment. Hence to such companies a multi-
stage segmentation approach does not apply. Consequently more empirical 259
research is needed to validate the generalisability of current segmentation
models. The use of types of specific segmentation bases has implications for
other elements of the segmentation analysis phase, e.g. the type of data to be
collected and thus research methodology.
Research methodology. Data requirements and thus choice of appropriate
research methodologies vary according to the bases (Plank, 1985) and models used
for segmentation. Macro-segmentation bases make limited methodological
demands, i.e. secondary data sources and/or expert judgement are deemed to be
sufficient. In contrast, the use of micro-segmentation bases requires the collection
of primary data, that is methodologically more demanding.
A review of normative models reveals that they exhibit considerable
variations in two aspects:
(1) Models vary in the degree to which they make recommendations per se in
respect of data collection requirements, i.e. research methodologies. The
majority of the models provide a detailed guide on data requirements and
collection methodologies (Laughlin and Taylor, 1991; Barclay and Ryan,
1996; Hlavacek and Reddy, 1986; Choffray and Lilien, 1978; Brown et al.,
1989; Berrigan and Finkbeiner, 1992). However, others provide only
general guidelines (e.g. Bonoma and Shapiro, 1983) or offer no indication
of data requirements (Cheron and Kleinschmidt, 1985). Thus the literature
points to wide differences in the theoretical body of work.
(2) Models vary in their recommendations in terms of data collection
methodologies to be employed in conjunction with specific bases. For
example, in order to segment by ``benefits'', Barclay and Ryan (1996)
propose that data need to be collected directly from customers by means
of a survey. However, for the same base Flodhammar (1987) suggests
that customer contact is not necessary and that the collection of opinions
from sales and marketing personnel can provide the required data.
Some of the prescriptions clearly reflect what Cross et al. (1990) call a
``satisficing'' strategy. The authors reported that managers regarded finding
optimal solutions as entailing unnecessarily high levels of effort and cost in
relation to its worth. Reasons could be the difficulties in identifying the
members of the buying centre and the lack of available panel data (Plank,
1985) or simply a lack of resources. However, in business-to-business markets
the salesforce will collect of the required data and hence research may be
carried out on a much more informal basis. For example, in the
pharmaceutical industry this approach has been adopted partly because of
European difficulties in getting prescribers to complete lengthy questionnaires.
Journal of Nevertheless, satisficing behaviour may equally constitute taking short-cuts
Marketing that could lead to difficulties at a later stage. For example, basing benefit
segmentation purely on managerial judgement may result in an inappropriate
36,1/2 strategy being formulated, the cost of which may easily be higher than the
cost of research.
260 Considering the above, it is felt that the existing degree of variation
among the theoretical body of work is unlikely to assist practitioners in
identifying the appropriate processes for their company and their industry,
and that consequently more research is desirable to improve guidelines
given to firms.
We now turn our attention to issues related to the analysis of the data
collected for segmentation purposes.
Data analysis. Macro-variables can, but do not necessarily, require the use of
statistical tools for data analysis. Statistical analysis tools might be used, if the
data collected from secondary sources, such as government statistics, require
modification or, for example, are used as inputs to clustering procedures.
Contrary to this, data collected for micro-segmentation invariably require some
statistical analysis. The tools available for data analysis range from summary
statistics and graphical representation to advanced multivariate analytical
procedures.
An examination of 12 two-stage and multi-stage models (Wind and Cardozo,
1974; Choffray and Lilien, 1980; Bonoma and Shapiro, 1983; Cheron and
Kleinschmidt, 1985; Doyle and Saunders, 1985; Hlavacek and Reddy, 1986; De
Kluyver and Whitlark, 1986; Brown et al., 1989; Laughlin and Taylor, 1991;
Berrigan and Finkbeiner, 1992; Piercy and Morgan, 1993; Barclay and Ryan,
1996) reveals that, although six models do not cover data analysis at all, four
recommend one or more of the following analytical techniques: cluster analysis,
factor analysis, discriminant analysis, and structural equation modelling. The
remaining two models, despite employing the same multivariate procedures,
simply use specific techniques to demonstrate the applicability of a particular
theory rather than to make recommendations. Hence we can conclude that the
relevant body of work appears to converge on the use of multivariate tools for
data analysis.
An investigation into the practices of UK companies showed, though, that,
while segmentation was, after forecasting, the second most often specified
application for statistical analysis tools, sophisticated tools such as
multivariate statistics were the least often used (Hussey and Hooley, 1995).
This points to a gap between theory and practice for which various
explanations can be found. For example, companies may not collect the types of
data on which multivariate data analysis can be performed. This would apply
particularly to industries such as the pharmaceutical, lift or extraction
industries, where the data collected by the salesforce are of a qualitative as
opposed to a quantitative nature. Alternatively, it may be the case that
companies do not make the most of the data they collect.
 The above review on the segmentation analysis phase leads us to conclude A new research
that a pathway exists throughout this phase of the proposed integrated agenda
framework. This suggests that recommendations to practitioners could be
based on a ``best practice'' approach, which makes recommendations all
through the pathway, commencing with the choice of type of base, through to
the appropriate research methodology and data analysis techniques.
Furthermore, considering the diverging recommendations in the literature as 261
well as the small number of research studies carried out in this area, our third
research proposition will be formulated as follows:
P3. Companies have adopted existing segmentation models, but the degree
to which they follow any of the pathways recommended by the
theoretical body of work varies through the segmentation analysis
phase of the proposed integrating framework.
The analysis phase results in the identification of a segmentation scheme,
which should undergo an evaluation in the next phase of the segmentation
process (Kotler, 1997). This evaluation constitutes the next phase of the
proposed framework and aims to determine the suitability of the segmentation
scheme.

Evaluation of segmentation
To assess the suitability of the segmentation scheme and to choose target
segments prior to implementation, two types of evaluation are proposed in the
literature:
(1) Segmentability refers to the effectiveness of a segmentation scheme
(Kotler, 1997). Criteria which segments should satisfy are homogeneity
within and heterogeneity between segments. Kotler et al. (1999) list
four other segmentability criteria, which are widely accepted in the
literature (e.g. Beik and Buzby, 1973; Dickson and Ginter, 1987; Cross
et al., 1990). These are measurability, substantiality, accessibility and
actionability.
(2) Target market selection criteria have been identified from a review of the
strategic management literature as strategy drivers, i.e. key factors
which determine the choice of strategy. They comprise factors such as
segment size and growth, expected market shares, compatibility with
company objectives and resources as well as structural segment
attractiveness (Kotler, 1991; Wilson, 1986). In addition the evaluation of
company capabilities vis-aÁ-vis competitors is regarded as an important
criterion in order to assess whether competitive advantage can be
achieved in potential target segments (Doyle and Saunders, 1985; Kohli
and Jaworski, 1990; Kotler et al., 1999).
A closer examination of two types of evaluation criteria given above, whilst
pointing to conceptual differences, also points to a conceptual overlap. In terms
of the conceptual difference the authors purport that only four criteria, i.e.
European homogeneity within, heterogeneity between, measurability, and accessibility,
Journal of should be classified as ``segmentability criteria'', since they screen
Marketing segmentation schemes for usefulness and relevance but do not represent
factors which determine the choice of strategy. As such the authors view
36,1/2
segmentability criteria as representing a step in the evaluation process prior to
assessing segments further by means of target market evaluation criteria. The
262 conceptual overlap, which has not been noted in the extant literature, concerns
the segmentability criteria ``substantiality'' and ``accessibility''. Kotler's (1991)
segmentability criterion ``substantiality'' refers to segment size and
profitability. Since growth rates are also a determinant of profitability, the
authors contend that ``substantiality'' shows obvious similarities to the target
market selection criteria ``size and growth'' (Doyle and Saunders, 1985).
Furthermore, ``actionability'' is the capability of a company to implement
marketing programs and thus refers to an assessment of the compatibility of
the target segment with company resources, something that can be identified
as a strategy driver in the strategic management literature (e.g. Johnson and
Scholes, 1993).
Despite the importance of evaluation prior to the implementation of
segmentation, i.e. strategy formulation and operationalisation, not all
segmentation models extend their prescriptions beyond the segmentation
analysis phase to include an evaluation phase (e.g. Choffray and Lilien, 1980;
Cheron and Kleinschmidt, 1985; Brown et al., 1989). It is the authors' view that
this reflects a preoccupation with analysis at the expense of a long-term
strategic view of segmentation. In respect of those models which do extend
their prescriptions to an evaluation phase (e.g. Wind and Cardozo, 1974;
Bonoma and Shapiro, 1983; Doyle and Saunders, 1985; Berrigan and
Finkbeiner, 1992; Piercy and Morgan, 1993), the number and specific criteria
recommended appear to be author-specific.
Research into company evaluation practices is rather sparse and based on
small sample sizes, but does provide some evidence that both types of
evaluation criteria are used by practitioners (e.g. Wind and Cardozo, 1974;
Cross et al., 1990). Most firms are likely to apply some criteria to evaluate
their markets or potential customers at least in terms of measures such as
ROI, profits or growth rates. However, more research is necessary to
determine also whether the criteria used are industry-specific. For example,
future government regulations play a far more important role in the
pharmaceutical industry than in the IT industry. From this we derive our
fourth and fifth propositions:
P4. The degree to which a segmentation scheme can be successfully
implemented and leads to competitive advantage is determined, to some
degree, by whether or not companies carry out any evaluation of
segmentation.
P5. Evaluation criteria used by companies vary between industries.
The evaluation of the segments provides the basis for strategy formulation, i.e. A new research
the implementation of segmentation, which is the next phase in the proposed agenda
framework.

Implementation of segmentation
It has long been recognized that segmentation should be linked directly to
strategy formulation (Beik and Buzby, 1973; De Kluyver and Whitlark, 1986) 263
and resource allocation (Mahajan and Jain, 1978). Despite this recognition, there
appears to be confusion as to the level(s) of organisational decision making at
which implementation of segmentation into strategy should or indeed does take
place. On the one hand, segmentation is seen as feeding into the formulation
some or all elements of the marketing mix (Yankelovich, 1964; Green and
Krieger, 1991) and thus deals with the implementation of segmentation at the
operational level. On the other hand, segmentation is seen as providing
guidelines for resource allocation not only among products but also among
markets (e.g. Wind, 1978), reflecting implementation of segmentation at the
business unit and corporate level.
A more integrating view has recently been taken by Piercy and Morgan
(1995). Using a case study methodology, they have identified three levels of
implementation of segmentation:
(1) strategic segmentation, i.e. the choice of global industry markets which
are compatible with the core competencies of the firm;
(2) managerial segmentation, i.e. the identification of sub-industries within
the global markets; and
(3) operational segmentation, i.e. sub-markets are targeted with marketing
programs.
Implicit in Piercy and Morgan's (1995) concept are two issues. First, decisions
taken at all three levels of organizational decision making must be based
directly on results obtained during the segmentation analysis and evaluation
phases. Second, their concept suggests that, while each level involves different
types of decisions, these are closely interrelated, and therefore implementation
at each level needs to be carried out in a co-ordinated manner. Thus the choice
of markets and/or segments at the corporate level is translated into strategic
plans for these markets and/or segments at the business unit level. These
strategic plans in turn are subsequently implemented through the allocation of
resources at the operational/functional level. Consequently the following is
proposed:
P6. Segmentation should not only be integrated into all three levels of
corporate decision making but it must do so in a co-ordinated manner.
Empirical evidence to support the view that companies integrate
segmentation into company strategy appears to be sparse (Piercy and
Morgan, 1995). In terms of the integration of segmentation at the business
unit and the operational levels, Wind and Cardozo (1974) came to the
European conclusion that, even though firms differentiated various elements of the
Journal of marketing strategy, this was more an after-the-fact explanation of marketing
Marketing activities than a carefully designed strategy. Thus Wind and Cardozo (1974)
implied not only that segmentation was not integrated into strategy, but also
36,1/2 that the allocation of resources, while differentiated according to segments,
was not based on prior strategy formulation. Further evidence of non-
264 integration at the operational level is provided by Danneels' (1996) study of
the apparel retail industry. His research indicated that segmentation and
targeting did not provide the basis for resource allocation. Research into the
reasons behind such behaviour may find that segmentation is not the only
factor on which companies base their market/segment entry decisions. In the
IT industry, for instance, some segments may be entered in order to
counteract new competitors from gaining market share and becoming a
potential threat. Studies to demonstrate that segmentation feeds into
corporate decision making or in fact that it is integrated into strategic
decision making at all three levels in a co-ordinated fashion could not be
identified from the extant literature:
P7. Companies adopt an ad hoc approach to choosing in which markets/
segments to operate, strategy formulation and resource allocation and
their decisions at all three levels are not based on thorough
segmentation analysis and evaluation, indicating a gap between theory
and practice as well as continuing pre-occupation with analysis at the
expense of a more strategic orientation.
Following the implementation phase of the proposed framework, controls are
necessary to ensure that the intended goals are realised.

Control of segmentation
The rationale for control strategies lies within the domain of managing by
objectives. Two specific issues relating to control of segmentation have been
identified from the available literature:
(1) Monitoring of segmentation in terms of segment stability. Segment
stability, i.e. the degree to which a segment remains homogeneous in
terms of one or more key characteristics over time, can erode because of
changes in these characteristics of the selected base(s), e.g. benefits
desired, segment size, demographic characteristics etc. (Calantone and
Sawyer, 1978; Hu and Rau, 1995). Furthermore, different segmentation
bases have been reported to produce segments which exhibit varying
degrees of stability. For example, Calantone and Sawyer (1978) and
Yuspeh and Fein (1982) presented contradicting evidence as to the
stability of segments based on benefits. Control in the form of periodical
re-evaluations through customer tracking and segment monitoring is
therefore considered to be necessary (Bennion, 1987; Hlavacek and
Reddy, 1986). Monitoring segment stability then serves the purpose of
re-confirming the existence of originally identified segments. The
 detection of changes in segment stability will act as an indication of a A new research
need to re-segment the market and serves as a learning process which agenda
should feed back into the choice of future segmentation bases. Therefore
the inclusion of a feedback loop from the control phase of the proposed
framework back to the analysis phase is recommended.
(2) Monitoring the market effectiveness in the various segments. In order
to assess the effectiveness of the implemented marketing strategies 265
in the various segments, control measures such as customer
conversion analysis and segment profitability analysis have been
proposed (e.g. Bonoma and Shapiro, 1984). Such measures facilitate
the identification of possible gaps between intended and realised
strategies and thus enable corrective actions to be designed and
implemented. Inherent in such a gap identification is competitive
analysis, which can establish whether the intended strategies
achieve their aim, i.e. to attain competitive advantage. Hence
monitoring the effectiveness of the strategies in each segment should
feed back into future strategy. In the proposed framework therefore a
feedback loop is provided from the control phase back to the
implementation phase.
Studies into control of segmentation are, once more, very sparse. Schuster and
Bodkin (1987), examining the segmentation practices of 68 US exporting firms,
concluded that ``most marketing managers did not evaluate their marketing
strategy''. Those who did were reported to use sales data, feedback from sales
staff or intuition to provide information for control purposes. Studies
investigating the control of segmentation in terms of segment stability could
not be identified from the available literature. This leads to the following two
propositions.
P8. Companies do not control segment stability and strategy effectiveness
and identified discrepancies are not fed back into the future choice of
segmentation bases (i.e. the segmentation analysis of the proposed
framework) and strategy formulation (i.e. implementation phase of the
proposed framework).
P9. Companies do not adopt a consistent approach across the four phases of
the overall segmentation process of the proposed framework, which
would reflect a preoccupation with analytical techniques at the expense
of a more strategic role.
While the segmentation process concludes with the control phase of segmentation,
this overall process is posited to have an outcome or goal, i.e. competitive
advantage.

Outcomes
Outcomes or goals of the segmentation process is an issue on which there
appears to be considerable disagreement in the theoretical body of work.
European Griffith and Pol (1994) contend that ``the goal of segmentation . . . is to divide
Journal of large markets into smaller components that are homogeneous with respect to
Marketing their response to a marketing mix''. On the other hand, segmentation is viewed
as more far-reaching and resulting in competitive advantage. While some
36,1/2 authors (e.g. Corey, 1975; Henderson, 1981) only make an implicit association
by contending that inherent in the choice of market is the choice of competitive
266 environments, others have, in addition, also theoretically recognised the
existence of a direct relationship between segmentation and competitive
advantage. Bonoma and Shapiro (1983) contended that one of the major reasons
for segmentation is to ``provide the company with a distinctive competitive
advantage''. Danneels (1996) identified the marketing mix as the means to
achieving competitive advantage rather than as an outcome itself. He
contended that ``once the target market has been chosen, the firm must develop
a marketing mix tailored to the target market, to try to create a sustainable
competitive advantage''.
The above debate has challenged the view that the outcome of segmentation
is restricted to operational matters of strategy. Linking segmentation to
competitive advantage clearly establishes the basic strategic long-term
orientation of the concept of segmentation and forms the basis of our last
research proposition:
P10. Segmentation is a facilitator in the achievement of competitive advantage.

Conclusions and discussion

This article presents a framework that is believed to offer a comprehensive
conceptualisation and synthesis of the different issues of business
segmentation. The discussion has highlighted two major points. First,
substantial variations have been identified within the theoretical body of work,
which have led to a lack of clear recommendations to practitioners. This was
found to be the case for all phases of the overall segmentation process of the
proposed framework. The challenge to provide better guidelines appears to be
particularly difficult due to the differences between the way in which industries
are organised and operated. It was pointed out that, while there is a clear path
through the segmentation analysis from the choice of segmentation bases,
through research methodology to data analysis, the way that some industries
are organised means that some pathways may be more appropriate for some
industries than for others. Consequently, research in terms of the segmentation
analysis phase needs to identify the types or specific segmentation bases used
at each level of segmentation, and subsequently to link these to the research
methodologies and types of data analysis carried out. This would provide
insight not only into whether bases are industry-specific, but also whether
practitioners indeed follow the proposed segmentation models such as the
nested approach by Bonoma and Shapiro (1983) and move from the outer nests
towards the inner nests of the proposed framework. Cross-sectional research is
urgently needed in order to assess the gap between theory and practice and
subsequently evaluate the possibility of a re-formulation of theory to arrive at a
truly generalisable segmentation model. It is has also become obvious that such A new research
a model should no longer be restricted to the analysis phase, but must agenda
encompass all phases of the proposed framework. Hence an assessment of a
gap between practice and theory for each of the components needs to be
conducted in order to provide clearer and perhaps less ambiguous guidelines in
respect of each component to practitioners.
This leads us to the second major point made in this paper, namely that a 267
much more strategic view of segmentation has been called for. In particular
the relationship between wider marketing issues, such as market orientation
and competitive advantage and segmentation, needs to be established and
investigated. For example, an investigation into the degree to which
segmentation facilitates achieving competitive advantage may identify
whether different segmentation processes lead to different outcomes.
Problems experienced by practitioners with the implementation of
segmentation may be a result of a company's overall low market orientation,
which would impact on a successful segmentation analysis and
implementation. Further research may also indicate that the reasons for
practitioners' problems with segmentation stem from an inconsistent
approach, i.e. that choice of markets, strategy formulation and resource
allocation are not based on thorough segmentation analysis and evaluation.
Although there are companies such as Hewlett Packard which carry out
symbiotic segmentation, where their information systems allow for all these
phases being carried out in an integrated and continuous fashion, these are
more likely to represent a minority.
Therefore particularly cross-sectional research is required to understand
possible situational variations in segmentation processes between companies
and industries. The lack of empirical research means that current theory has
not been sufficiently validated and that so far a thorough assessment of the gap
between theory and practice has not been possible. The proposed framework
constitutes a useful new tool that allows not only a detailed analysis but also a
synthesis of the theoretical body of work. Furthermore, it can be used for a
detailed analysis of company actions in order to assess the gap between theory
and practice as well as identify implementation problems experienced by
companies. As such the proposed research propositions should bring new
impetus to theory development and improved recommendations to
practitioners.

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