Segmenting by Latent Heterogeneity

Segmentation methods used in marketing literature range from those based on demographic variables to those relying on more sophisticated clustering techniques. Grouping consumers into relatively homogeneous classes is of great importance for marketers since it enables them to develop specific products and marketing strategies to better cater these segments. A new segmentation method based on the heterogeneity among consumers' perceptions of underlying product-related factors, is proposed. Specifically, variation of factor loadings, coupled with a highly intensive computer technique (bootstrap) is used to classify consumers into homogeneous groups. The validity of this segmentation scheme is compared to those of traditional segmentation methods, by examining the forecasting abilities of a choice model under these different scenarios.