Market segmentation capability and business performance : a reconceptualisation and empirical validation

Recent developments in marketing and technological fields have raised concerns about the usefulness of market segmentation as an effective marketing practice. Furthermore, the segmentation literature has highlighted significant implementation problems, due to a gap between academics’ focus on the research methodology involved in identifying segments and practitioners’ concerns for impactful and implementable segmentation strategies. Consequently, research providing quantifiable evidence of the impact of segmentation has been identified as a priority. This research addresses this issue by reconceptualising market segmentation as a dynamic capability, identifying the components of a firm’s segmentation capability and determining its influence on business performance. The research is conducted within the critical realism paradigm and adopts a sequential qualitative-quantitative methodology. Through 24 in-depth interviews with marketing managers and segmentation experts, the processes, mechanisms and structures affecting segmentation implementation and its outcomes are identified. Based on the qualitative findings and extant literature, market segmentation capability is delineated and a model of the relationships between market segmentation capability and business performance is developed and tested empirically with survey data from a sample of 205 marketing directors from eight industries. The quantitative findings support a process of analysis-integration-execution of segmentation schemes and also suggest three additional pathways of influence from segmentation analysis to business performance. These pathways are found to depend on the market growth rate and firm’s marketing resources. This research bridges the gap between market segmentation theory and practice by broadening the segmentation field to include the study of managerial practices and performance implications of segmentation. The main theoretical contribution relates to the delineation of market segmentation as a dynamic capability, providing new insights into market segmentation as a managerial practice. Significant contributions are also generated by the confirmation of a significant relationship between segmentation capabilities and business performance and the identification of pathways of influence between them, explained by the development of segmentation execution capability and generic marketing capabilities.