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Working Paper

A New Dynamics-based Segmentation Approach for Maximizing Long-term Marketing Impact

Catarina Sismeiro, Natalie Mizik, and Randolph E. Bucklin, 2008 [08-109]

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Like products, industries, and markets, individual consumers may be at different stages in their consumption life cycles, and different types of consumer behavioral patterns may coexist within a single product market at the same time. Current segmentation approaches, however, do not address long-term dynamics in customer response and do not adequately capture this phenomenon.

The authors develop an approach for modeling the coexistence of multiple dynamic behavioral patterns within a single product market. They apply this approach to physician panel data on drug prescriptions and direct-to-physician promotions, using data from an anonymous panel of 5,000 U.S. physicians tracked monthly over a period of approximately two years for a single drug.

Their results show markedly different responses across identified physician segments. For firms that track customer-level marketing activity and response over time, market segmentation based on dynamic response can provide a new tool for targeting and efficient resource allocation.

In particular, the authors explore the notion that multiple behavioral scenarios coexist in a single market. They consider the case of a new prescription drug in the final stages of the growth phase of its life cycle. One group of doctors began prescribing the drug to their patients early on. A second group is just beginning to adopt, switching over to the new drug from other treatments. For the first group, a temporary increase in advertising may produce only short-term effects (a business-as-usual scenario), but for the second group, the same investment may produce long-run or permanent effects (a hysteresis scenario). The scenarios (business as usual, escalation, hysteresis, and evolving business practice) can have radically different implications for management and for the efficient allocation of scarce marketing resources.

The authors’ results suggest that companies can construct meaningful and actionable segments for targeting and allocating marketing activity. By regularly reclassifying customers and tracking changes in classification, managers can draw more specific implications for when—and to whom—to accelerate, decelerate, or even stop marketing activity.

About the authors
Catarina Sismeiro is Lecturer, Tanaka School of Business, Imperial College, London. Natalie Mizik is Gantcher Associate Professor of Business at the Columbia Business School. Randolph E. Bucklin is Peter W. Mullin Professor, UCLA Anderson School.

Included in the following collections:
Executive Director's Letter 08-002
MSI Reports 2008

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