Approaches to Market Segmentation Analysis

Author(s): Henry Assael and A. Marvin Roscoe, Jr.

Source: Journal of Marketing , Oct., 1976, Vol. 40, No. 4 (Oct., 1976), pp. 67-76
Published by: Sage Publications, Inc. on behalf of American Marketing Association

Stable URL: https://www.jstor.org/stable/1251070

JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide
range of content in a trusted digital archive. We use information technology and tools to increase productivity and
facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org.

Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at
https://about.jstor.org/terms

American Marketing Association and Sage Publications, Inc. are collaborating with JSTOR to
digitize, preserve and extend access to Journal of Marketing

This content downloaded from

129.122.0.135 on Thu, 01 Jun 2023 19:08:17 +00:00
All use subject to https://about.jstor.org/terms
 Henry Assael and A. Marvin Roscoe Jr.

Approaches to Market
Segmentation Analysis

stimuli over time; in the latter case, it is elasticity

MARKET segmentation
a strategic has
marketing tool to been
define accepted as
markets of response to changes in marketing stimuli over-
and thereby allocate resources. The concept as time.
originally defined by Wendell Smith requires an Second, does the problem involve one behav-
"adjustment of product and marketing effort to ioral criterion such as frequency of consumption
(differences in) consumer or user requirements."'1 for Brand X, or several purchase behaviors such
Marketers frequently cite segmentation studies for as identifying predispositions to purchase frozen
this purpose, and the term has become something foods.
of a buzzword in the literature. A debate has These two dimensions produce four possible
developed between research practitioners as to
approaches to market segmentation as illustrated
whether markets can be segmented in a valid and
in Exhibit 1. This article will consider these ap-
reliable manner. However, a growing number proachesofand will cite recent segmentation stud-
researchers feel that such studies characteristi- ies conducted by AT&T of its long-distance resi-
cally fail to account for the important causal dential market as examples of these different ap-
variables in purchasing behavior. proaches.
What is generally unstated in these criticisms
is that market segmentation is not a uniform ap-
proach but represents several approaches depen- Cell 1: Segmenting by a Single Behavioral Criterion
at a Given Point in Time
dent upon marketing objectives. A review of the
literature and personal involvement in a number Segmentation studies have most frequently uti-
of segmentation analyses suggest two criteria that lized a single behavioral criterion to differentiate
may help management define the type of segmen- buyers, generally at a given point in time, by em-
tation study to be conducted. ploying cross-sectional data. The behavioral crite-
First, should the behavioral criterion for seg- rion is associated to customer characteristics that
menting markets be consumer response to a given discriminate behavior to yield descriptive seg-
marketing plan at a given point in time, or to ments.2 An important rationale for utilizing this
change in the levels of marketing effort over time. approach is the reasoning that a direct associa-
In the former case, the criterion is the level of tion between marketing stimuli and response
consumer response to a defined set of marketing (Cells 3 and 4 in Exhibit 1) would be difficult due
to lack of control over external factors affecting
response. Therefore, response is measured at a
* ABOUT THE AUTHORS
given point in time and consumer characteristics
Henry Assael is professor of marketing in theare associated to behavior to serve as market
Graduate School of Business Administration, New
York Univeristy. segment descriptors, thus guiding in the selection
of marketing stimuli.
A. Marvin Roscoe, Jr. is marketing manager in the
Market Research Section of The American TelephoneProduct attitudes and demographics have been
and Telegraph Company, Morristown, N.J. most frequently employed to describe market

67

This content downloaded from

129.122.0.135 on Thu, 01 Jun 2023 19:08:17 +00:00
All use subject to https://about.jstor.org/terms
 68 Journal of Marketing, October 1976

EXHIBIT 1
APPROACHES TO BACKWARD SEGMENTATION

Behavioral Criterion Behavioral Criterion

is Response Level is Response Elasticity
at a Given Point in Time Over Time

Segment by Maximizing Segment by Differences

Univariate Definition
Differences in Response Level in Response Elasticities to
of Behavior at Given Point in Time Single Stimulus Over Time

(Cell 1) (Cell 3)

Segment by Maximizing Differences

Multivariate
in Several Response Categories
Definition
Simultaneously
Segment by Differences
(Cell 2a) in Response Elasticities to
Several Stimuli Simultaneously

Segment by Grouping Customers by (Cell 4)

Similarity in Behavioral Categories
(Cell 2b)

segments: attitudes to develop promotional pro- identifying customers who tend to buy more fro-
grams for targeted segments; and demographics zen foods, or more cosmetics, or more private
to match segment and medial profiles since most brands, etc.).4
media describe their audiences by demographic
characteristics. Behavioral criteria typically used Cells 3 and 4: Segmenting by Responses to
in Cell 1 are: Changes in Marketing Stimuli Over Time

* Quantity purchased for a given brand or Another approach to behavioral segmentation

product is to group consumers by those characteristics as-
* Purchase of a given brand or product cate- sociated with differences in response to marketing
gory (On the aggregate level, this would rep- stimuli over time.5 That is, consumers could be
resent share of buyers.) identified by similarity in response to changes in
* Brand loyalists vs. switchers a specific marketing stimulus such as price, deal,
or promotional level (Cell 3) or to changes in
* Repeat purchasers vs. first trial nonrepeat vs.
some combination of these stimuli (Cell 4). Mar-
nonpurchasers
kets could then be defined by those characteristics
that identify product, deal, or price sensitive con-
sumers.6 Segmenting by the elasticity of response
Cell 2: Multivariate Definition of Response
at a Given Point in Time differs from segmenting by fixed behavioral crite-
ria (Cells 1 and 2) in two important respects.
Segmentation in Cell 2 is by more than one be-
First, marketing stimuli vary measurably over
havioral criterion. This segmentation approach
time; and second, consumer responses must be
can take two forms. Customers can be segmented measured longitudinally.
for a given product category using several behav- Unfortunately, little work has been done in
ioral classifications as in Cell 2a (for example, ob-
marketing to determine individual response elas-
taining a demographic profile of dual usersticities of to marketing stimuli, let alone use varia-
both instant and decaffeinated coffee to determinetions in elasticities as a basis for segmentation.
whether common promotional appeals and media
This is unfortunate because response elasticitity is
vehicles can be utilized for several brands within
a powerful behavioral criterion since it comes
the line).3 Or, customers can be segmented across closest to associating a segmentation strategy to a
product categories to develop typologies by simi- profit measure. Profit maximization through
larity in consumption behavior as in Cell 2b (e.g., segmentation would be achieved by differentially

This content downloaded from

129.122.0.135 on Thu, 01 Jun 2023 19:08:17 +00:00
All use subject to https://about.jstor.org/terms
 Market Segmentation Analysis 69

allocating resources offices ofbased

the Bell System.on differe
Equipment and billing
tal responses between segments
information is obtained for each customer in to
cremental changeMRIS. in marketing
In addition, demographic informationexpe
is
erating at the margin obtained by mail by from ause
subsampleof
of MRISelast
ac-
is a difficult basis for segmentation
counts.
iments must be conducted which simulate varia- The segmentation analysis was conducted on
tions in marketing stimuli. Such experiments re- the residential market in the Southern region be-
quire: cause of an historical shift from operator-handled
* Measurement of consumer response to mar- to direct-dial calling by customers in this region.
keting stimuli over time. Data for customers from eleven revenue account-
* Sufficient controls to insure that changes in ing offices were used. Of a total of 3300 customers
response are a function of variations in stim-available, 1750 were chosen for the analysis based
ulus level. on three criteria:
Simulated shopping environments could be * MRIS panel continuity during 1972 and 1973
used to test consumer sensitivity to variations in * A complete demographic questionnaire on
price, deals, and package sizes. But existing ser- file
vices do not test consumer responses over time * Valid and accurate long-distance billing
under controlled conditions. Controlled store au- data
dits might also be a basis for measuring response The sample was representative of telephone
elasticities. But such experiments generally mea- households in the Southern region.
sure aggregate sales rather than individual con-
The criterion variable for the segmentation
sumer responses.
analysis was either average monthly long-distance
billing for 1972 (used in the analysis for Cells 1
Applications of Segmentation Approaches:
The AT&T STUDY and 2a), or average changes in monthly billing
from 1972 to 1973 (used in the analysis for Cells 3
On January 22, 1973, the FCC granted theand Bell4). Billing data were available for total long-
System an increase in interstate long-distancedistance bill and were also broken out into four
rates. The rate change was designed to encourage
categories: inter- or intra-state operator-handled
shifts from weekday to off-peak calling and toor
dis-
direct-dial billing. The variables used to de-
courage operator-handled long-distance calls. scribe the market were a set of fifteen demo-
AT&T undertook a series of analyses to segmentgraphic characteristics and four telephone
the market by response to the rate change.equipment
The descriptors. The remainder of this ar-
objective was to identify customers by those ticle will describe the segmentation analysis rep-
demographic characteristics associated toresenting
a the five approaches in the basic design.
change in long-distance expenditures. This would
conform to segmentation designs in Cells 3 and 4
of Exhibit 1. Segmenting by a Single Behavioral Criterion
at a Given Point in Time (Cell 1)
Prior to analyzing changes in telephone expen-
ditures, AT&T conducted a base line analysis of The residential market was segmented to iden-
the long-distance market in 1972. No rate change tify heavy vs. light callers during 1972. The crite-
took place during this period. In this case, the rion was the average monthly long-distance bill
market was delineated by those demographic for calendar 1972. The Automatic Interaction De-
characteristics associated with the level of long tector (AID) program was employed to identify
distance expenditures rather than changes in ex- market segments by demographic and equipment
penditures. This analysis would therefore conform characteristics of customers. The final output of
to Cells 1 and 2a of the basic design. the AID analysis produced five segments as shown
The segmentation analysis was conducted by in Exhibit 2.
selecting a sample of customers from AT&T's This approach to market segmentation iden-
Market Research Information System (MRIS). tifies the segments of the long-distance market by
MRIS is a national longitudinal panel of 60,000 greatest discrimination in the level of long-dis-
customers evenly split between business and resi-
tance expenditures based on demographic and
dential accounts. MRIS panel members are se- telephone equipment variables. The analysis
lected by a multi-stage stratified sampling from
shows that the most concentrated usage segment,
customer files of each of the 100 accounting those with income over $15,000, represents only

This content downloaded from

129.122.0.135 on Thu, 01 Jun 2023 19:08:17 +00:00
All use subject to https://about.jstor.org/terms
 70 Journal of Marketing, October 1976

EXHIBIT 2

Five Segments Produced by the Final Output

of the AID Analysis % of Total
Long Distance
Average Long % of Billing accounted
Segment Profile Distance Bill Sample for by Segment
1. Income $15,000 & Over $11.10 15.4% 29.0%
2. Income less than $15,000,
one or more extensions,
higher socio-economic status 7.56 15.6 20.1
based on education and
occupation.
3. Same as #2, but medium-to-
low socio-economic status. 5.16 18.6 16.2
4. Income under $15,000, no
extensions, and family has 7.38 5.1 6.4
teenage children.
5. Same as #4, but no teenage
children. 3.69 45.3 28.3

EXHIBIT 3
SEGMENTATION OF THE LONG DISTANCE MARKET BY AVERAGE MONTHLY
LONG DISTANCE EXPENDITURES IN 1972: AID ANALYSIS
6

High
Socioeconomic
2 Status
Income 15.6% $7.56
$15,000
And Over 4
$11.10 One Or More

15.4%Extensions7
N = 1750 $6.26 18.6% Medium-low
Socioeconomic
Status

All Customers 34.2%$5.16

$5.90

84.6% 3
Income

Under $15,000F8
Family Has
$4.96 Teenage Children
39
50.4% 5.1% $7.38

No Extensions

$4.071 45.3% NO 9
Teenage
Children
$3.69

This content downloaded from

129.122.0.135 on Thu, 01 Jun 2023 19:08:17 +00:00
All use subject to https://about.jstor.org/terms
Market Segmentation Analysis 71

15% of the sampleSegmenting

but by Several
29% Behavioral
of Criteriatotal
at a Given Point in Time (Cell
billing. Thus, this segment has 2A) twic
leverage of the average segment. Mo
Long-distance expenditures can
is a three-to-one difference be classified by
between
levels for the most
type of call and
(direct-dial least conc
vs. operator-handled) and
segment. The leastby inter- vs.concentrated
intra-state calls. An important con- u
(segment #5) represents
sideration for AT&T is whether 45% a segmentofcan be t
only 28% of theidentified
revenue by demographic contribu
characteristics that
though segments #1 discriminate
simultaneously and several #5 repre
of these
revenue contribution, AT&T
long-distance usage categories. As would
in Cell 1, seg- h
three times as many people
mentation is by expenditure level to get
at a given point t
nue in segment #5 as
in time. In in
this case, segment
the market is defined by four #
The analysis also behavioral criteria simultaneously:
provides average
guidanc
tional allocations.monthly
It expenditures
suggests that
in 1972 for inter-state di- in
rect-dial (DD) and
a sufficient criterion for operator-handled
reaching (OPH) calls, t
group. It also identifies a calls.
and for intra-state DD and OPH relativel
segment in the lower income
Canonical correlation group
analysis was used to de-
extensions who velop
are above average
the segments.8
nomic criteria (see Box
Of four 6 in produced
sets of associations Exhibit by the ca-
groups alone represent one-half
nonical analysis, only ofat t
the first was significant,
distance billing. Moreover,
the 95% level, and the second marginallyamoso. These
usage group, it are
identifies
presented in Exhibit 4. The afirstsmall
column pre-
teenage children, that
sents the is
first canonical well
function, abo
represented by
expenditures (see Box canonical
standardized 8 in Exhibit
weights producing a

EXHIBIT 4
SEGMENTATION OF THE LONG DISTANCE MARKET BY FOUR
EXPENDITURES CATEGORIES FOR 1972: CANONICAL ANALYSIS

Long Distance Expenditure Weights For First Weights For Second

Variables Canonical Function Canonical Function

Interstate Direct-Dial .43* .28

Intrastate Direct-Dial .36 .60
Interstate Operator-Handled .47 .17
Intrastate Operator-Handled .23 -1.09

Demographic and Equipment Variables

Own or Rent .14 .33
Residence Type (Single
multi-family) .06 -.16
Number of floors .04 .22
Number of rooms .26 -.31
Length of residence -.04 -.71
Sex of head of house .12 -.15
Age .11 .68
Family Size .25 -.08
Income .61 .10
Class of Service (type of rates) -.02 .09
Grade of Service (single party vs.
multiparty lines) .11 .27
Number of Extensions .32 .27

Correction Between First and Second Set of Variables

.37 .11

* A cutoff point of .40 and

The sign associated with the
is positive, it means higher
negative, it means househo
fewer intrastate operator-h

This content downloaded from

129.122.0.135 on Thu, 01 Jun 2023 19:08:17 +00:00
All use subject to https://about.jstor.org/terms
 72 Journal of Marketing, October 1976

maximum correlation of .37 between the two sets These 32 variables were reduced by factor anal-
of variables. ysis.9 The analysis reduced the 32 usage variables
These weights suggest that respondents whoto four factors (see Exhibit 5). These were iden-
spend more on inter-state direct-dial in 1972 tendtified as follows:
to spend more on inter-state operator-handled 1. Respondents who called longer distances in
calls and to a lesser degree on intra-state direct- one rate category tended to do so for all rate
dial. These respondents were more likely to be in categories. Further, these respondents were
the higher income group. also likely to talk longer when calling di-
This closely conforms to the findings in Exhibit
rect-dial during day, evening, and week-
3. But it suggests that the higher income segment ends.
is more closely associated with heavier usage for
2. More direct-dial calls during off-peak periods
inter-state rather than intra-state long-distance
were associated to fewer operator-handled
calls, and more closely identified with direct-dial
daytime calls. This was true for both mes-
rather than operator-handled calls.
sages and billing.
The second canonical function was marginally
significant and suggested a segment of users 3. More operator-handled calls in off-peak pe-
riods were associated to fewer direct-dial
maintaining an inverse relationship between
intra-state direct-dial and operator-handled calls. daytime calls.
This inverse association did not occur for inter- 4. More direct-dial evening calls were related
state calls. Those who are older and in their cur- to fewer person-to-person calls.
rent location a shorter period of time are likely to Although these classifications were useful in
spend more on intra-state direct-dial compared tounderstanding the dynamics of inter-state long-
operator-handled calls. Thus, the historical shift
distance calling, they were not used to replace
in the Southern region to direct-dial seems to beactual long-distance usage variables in the seg-
most characteristic of this group. mentation analyses.

Developing a Multivariate Classification

of Consumer Behavior: Cell 2B Segmenting by Differences in Response to a
Single Stimulus Over Time: Cell 3
Another important consideration facing AT&T
was the interrelationship between various types
The basic question under study was whether
of long-distance calls. That is, could customers bedifferential responses to the rate change could be
classified by propensity to call at certain times, associated
by to key demographic descriptors. This
distance of calls, by frequency, and by type of call.
required using differences in expenditure level for
The MRIS data base has not only the type of long-distance
call calls between 1972 and 1973 as the
(DD vs. OPH) on an individual customer basis,
behavioral criterion.'0
but it also has information on four different time The analysis conducted was a replication of Cell
categories based on variations in rates for dis- 1 except that the individual response variable was
tance of call, length of conversation, billing, and
identified as average monthly long-distance bill-
total messages. Thus, there are 32 long-distance ing for 1973 minus 1972. The Automatic Interac-
usage variables for inter-state calls alone based tion
on Detector program was used to define those
the combination of these variables in MRIS. demographic segments that maximized differ-
It would have been too complex to attemptences
to in changes in the level of expenditures be-
develop separate segments for each of these crite-tween 1972 and 1973." The analysis produced
ria individually (Cell 1) or to attempt to relate data
all shown in Exhibit 6.
32 variables simultaneously to demographic de-
The significance of the first group in contribut-
scriptors (Cell 2a). So an attempt was madeing
toto revenue increases is apparent. This group
reduce the 32 usage variables to a smaller num-
had an average increase in long-distance billing of
ber of behavioral dimensions. In this case, de-
$1.61. It represented 16% of the sample, but ac-
scriptive customer variables were not associated counted for almost one-half of the increase in ex-
to usage. Rather the purpose was one of classifica- penditure levels after the rate change. The next
tion so that a composite set of usage variables two segments were almost equal in contributing
might be used in future analysis. The analysis to increases in expenditure level. The last group
would also lend insight into the interrelationships had an average increase in long-distance billing of
between usage; that is, if those calling at a certain only three cents. It represented 43% of the sam-
time of day are more likely to talk longer, call ple, yet accounted for only 4% of the increase in
farther, use direct-dial, etc. expenditures.

This content downloaded from

129.122.0.135 on Thu, 01 Jun 2023 19:08:17 +00:00
All use subject to https://about.jstor.org/terms
Market Segmentation Analysis 73

EXHIBIT 5

FACTOR ANALYSIS OF 32 LONG-DISTANCE USAGE VARIABLES

Factors

Rate

Type of Call Period 1 2 3 4

Direct-Dial Day
1 0.93* 0.09 0.20 -0.17
2 0.60 0.43 0.39 -0.12
3 -0.31 -0.14 -0.79 0.05
4 -.41 -0.27 -0.73 0.17
Evening (E)
1 0.94 0.07 0.22 -0.07
2 0.56 -0.03 0.44 -0.09
3 -0.01 0.66 0.09 0.62
4 0.06 0.71 0.17 0.55
Night (N)
1 0.80 0.02 0.37 0.14
2 0.29 0.10 0.63 0.07
3 -0.02 0.58 0.42 0.24
4 0.08 0.74 0.35 0.02
Week-end (W/E)
1 0.94 0.07 0.19 -0.06
2 0.71 0.11 0.45 -0.24
3 0.38 0.75 -0.02 0.39
4 0.25 0.75 -0.07 0.49
Operator Ass't.
Station Day
1 0.95 0.02 0.25 0.01
2 0.48 0.03 0.26 0.33
3 0.08 -0.79 0.09 0.15
4 -0.02 -0.78 0.18 -0.08
ENW/E
1 0.92 0.05 0.22 0.04
2 0.46 0.20 0.52 0.35
3 0.11 -0.46 0.67 -0.14
4 0.30 -0.47 0.63 -0.34
Person Day
1 0.92 0.05 0.06 0.12
2 0.36 -0.11 -0.14 0.21
3 0.02 -0.46 -0.38 -0.67
4 0.00 -0.41 -0.23 -0.78
ENW/E
1 0.93 -0.01 0.05 0.13
2 0.18 -0.08 0.43 0.34
3 0.00 -0.13 0.22 -0.90
4 0.07 -0.03 0.31 -0.90
Variables are: 1. Average length of haul
2. Average length of conversation
3. Percentage of total revenue per custom
4. Percentage of total messages per cust
* Factor loadings of .50 and above are underline

This content downloaded from

129.122.0.135 on Thu, 01 Jun 2023 19:08:17 +00:00
All use subject to https://about.jstor.org/terms
74 Journal of Marketing, October 1976

EXHIBIT 6
MAXIMIZED DIFFERENCES IN CHANGES
IN THE LEVEL OF EXPENDITURES
BETWEEN 1972 AND 1973.

% of Increase in
Average Increase in % of Expenditures Accounted
Segment Profile Long-Distance Bill Sample for by Segment

1. Young married or married with

children over 13, and head is a
manager or professional $1.61 16% +46%
2. Young married or married with
children over 13, and head is
not a manager or professional .61 25 +27
3. Single; married with children
12 or under; or older married;
head is in blue collar or
sales occupations. .83 16 +23
4. Single; married with children
12 or under; or older married;
and head is in other than
blue collar or sales
occupations. .03 43 + 4

This analysis has

well be better informed thus ide
and more capable of tak-
segments of the
ing advantage of long-distan
favorable rate changes.
differentiate changes
The second in
canonical function was marginally e
sponse to a change in
significant. It suggested a segment rate
that increased
expenditures for inter-state operator-handled and
Segmenting by Differences in Response to direct-dial calls and intra-state direct-dial calls.
Several Behavioral Criteria: Cell 4
These customers were younger with smaller
families. Greater inelasticity in the face of an in-
This analysis was a replication of the approach
crease
taken in Cell 2a in which four long-distance ex- in rates for operator-handled calls could be
penditure categories were simultaneously relatedtheir age and household composition.
due to
to customer's demographic and equipment char-
acteristics. The difference is that in Cell 4, inter-
and intra-state direct-dial and operator-handled Summary and Conclusions
calls are defined as the difference in expenditure
between 1973 and 1972. This article has considered various approaches
to market segmentation. Market segmentation
This analysis was particularly important since
the rate change was designed to encourageanalysis will vary depending on whether:
direct-dial and to discourage operator-handled * Segments are to be formed based on re-
calls. Therefore, one would expect an inverse rela- sponses to a given set of marketing stimuli or
tionship between changes in direct-dial and based on responses to changes in the levels of
operator-handled calls. marketing stimuli.
Canonical correlation analysis was again used * Segmentation is based on one or several be-
to develop the segments. The first canonical func- havioral criteria.
tion (Exhibit 8) showed that those who had higher
* The purpose is to develop a typology of con-
inter-state direct-dial billing tended to have lower
sumer behavior (as shown in Cell 2b) or a
inter-state OPH and intra-state direct-dial billing.
profile of consumer segments based on de-
Therefore, the inverse relationship between inter-
scriptive characteristics that discriminate
state direct-dial and operator-handled calls was
behavior (as shown in Cell 2a).
verified. These respondents tended to be renters,
have higher incomes and more extensions. This The AT&T study was cited as an example of
segment is more elastic in responding to a rate implementation of these varying approaches to
decrease for direct-dial. These customers may behavioral segmentation. The company sought to

This content downloaded from

129.122.0.135 on Thu, 01 Jun 2023 19:08:17 +00:00
All use subject to https://about.jstor.org/terms
 Market Segmentation Analysis 75

EXHIBIT 7

SEGMENTATION OF THE LONG DISTANCE MARKET BY CHANGES /4

IN AVERAGE MONTHLY LONG DISTANCE EXPENDITURES
FROM 1972 To 1973: AID ANALYSIS Managers
16.1% Or
Professionals

/2

+ $1.61

40.8% Younger Marrieds

With No Children,
Or Children
Over 13
Blue Collar,
+ $1.01 Foreman,
24.7% Sales,
N = 1750 Homemaker
and
Unemplo
+$.61

All Customers

/6

+ $.56

15.8% Blue Collar

And
Sales
/3

Single, + $.83
+ $.83

59.2% Married With

Children Under 12,
Or Older Married./7
+ $.25 Managers,
Professionals,
43.4% Foremen,
Homemakers
and
Unemployed
+ $.03

define the market both by response to a rate 2. Identification of the demographic charac-
change (changes in expenditures from 1972 to teristics of heaviest users of long-distance
1973) and for a given set of rates (1972 expendi- service also permits allocation of promo-
tures). Further, it defined the behavioral criterion tional revenues to this group through media
on a univariate basis (total long-distance expendi- selection. Media profiles can be matched to
tures) and on a multivariate basis (inter- and user profiles based on demography.
intra-state direct-dial and operator-handled call-
3. The analysis provides insights into differen-
ing). Finally, it sought to develop a classification tial reactions of user groups. This would
of long-distance usage by a variety of rate struc-
have implications in analysis of rates to de-
tures and usage criteria. termine whether a desired effect (shift to
The study has important ramifications for mar-
off-peak, greater use of direct-dial, etc.) is
keting and promotional strategy in the following evident only for a segment of users. If so,
ways:
demographic profiles would provide guid-
1. By identifying the rate elastic segment of the ance in directing information to user groups
market, the analysis permits AT&T to direct that are not demonstrating the desired
messages encouraging shifts to off-peak pe- changes in an effort to change usage pat-
riods to this segment. terns.

This content downloaded from

129.122.0.135 on Thu, 01 Jun 2023 19:08:17 +00:00
All use subject to https://about.jstor.org/terms
 76 Journal of Marketing, October 1976

EXHIBIT 8

SEGMENTATION OF THE LONG DISTANCE MARKET BY CHANGES

IN FOUR EXPENDITURE CATEGORIES BETWEEN
1972 AND 1973: CANONICAL ANALYSIS

Long Distance Weights for 1st Weights for 2nd

Expenditure Variables Canonical Function Canonical Function
Interstate Direct-Dial .95* .35
Interstate Operator-Handled -.26 .59
Intrastate Direct-Dial -.43 .71
Intrastate Operator-Handled +.05 -.30
Demographic and Equipment Variables
Own or Rent .51 .35
Residence Type .00 -.22
Number of Floors -.04 -.28
Number of Rooms -.20 -.24
Length of Residence -.02 .31
Sex of Head of House .12 .00
Age .12 -.83
Family Size -.12 -.50
Income .70 .20
Class of Service -.06 -.05
Grade of Service .03 -.20
Number of Extensions .53 -.26

Correlation Between First and Seco

.14 .08

* A cutoff point of .4
the two variable sets.

ENDNOTES

1. Wendell R. Smith, "Product Differentiation and Mar- 5. Henry Assael, "Segmenting Markets by Response
ket Segmentation as Alternative Marketing Strategies," Elasticity," Journal of Advertising Research, Vol. 16 (April
Journal of Marketing, Vol. 20 No. 3 (July 1956), pp. 3-8. 1976), pp. 27-35.
2. For examples of studies utilizing the approach in Cell 6. For an example of one of the few studies in this area,
1, see: Henry Assael, "Segmenting Markets by Group Pur- see: Ronald Frank and William Massy, "Short Term Price
chasing Behavior: An Application of the AID Technique," and Dealing Effects in Selected Market Segments," Journal
Journal of Marketing Research, Vol. VII (May 1970) pp. 153- of Marketing Research, Vol. II (May 1965), pp. 171-185.
157; Frank M. Bass, Douglas Tigert and Ronald T. Lonsdale, 7. For a description of the program, J. A. Sonquist and J.
"Market Segmentation: Group vs. Individual Behavior," N. Morgan, The Detection of Interaction Effects, Survey Re-
Journal of Marketing Research, Vol. V (August 1968), pp. search Center, Monograph No. 35 (Ann Arbor: Institute for
264-270; William H. Peters, "Using MCA to Segment New Social Research, University of Michigan, 1964); and Assael,
same as reference 2 above.
Car Markets," Journal of Marketing Research, Vol. VII (Au-
gust 1970), pp. 360-363; Frederick Wiseman, "A Segmenta- 8. For a description of the program, see Frank and
Strain, same as reference 3 above.
tion Analysis on Automobile Buyers During the New Model
Year Transition Period," Journal of Marketing, Vol. 35 No. 2 9. For a description of factor analysis, see Paul E. Green
(April 1971), pp. 42-49; E. B. Evans, "Psychological and Ob- and Donald S. Tull, Research for Marketing Decisions (En-
jective Factors in the Prediction of Brand Choice: Ford vs. glewood Cliffs: Prentice-Hall Inc., 1970), Chapter 12.
Chevrolet," Journal of Business, Vol. XXXII (October 1959), 10. Percentage change in billings from 1972 and 1973
pp. 340-369. would have been a more accurate measure of elasticity of
response than absolute change. However, since a number of
3. For an example, see: Ronald Frank and Charles people in the sample had a zero, or very small, average
Strain, "A Segmentation Research Design Using Consumerlong-distance billing for 1972, it was felt that percentage
Panel Data," Journal of Marketing Research, Vol. IX (No-change might distort the results. Analysis based on absolute
vember 1972), pp. 385-390.
change was therefore conducted. An analysis based on per-
4. See: William Wells, "Backward Segmentation," in In-centage change is currently being conducted, deleting re-
sights Into Consumer Behavior, Johan Arndt, ed. (Boston:spondents with a zero or very low billing.
Allyn & Bacon, 1968), p. 85. 11. Sonquist and Morgan, same as reference 7 above.

This content downloaded from

129.122.0.135 on Thu, 01 Jun 2023 19:08:17 +00:00
All use subject to https://about.jstor.org/terms