Combinatorial Optimization Approaches to Constrained Market Segmentation: An Application to Industrial Market Segmentation

Proper market segmentation schemes should address not only how to develop feasible schemes of homogeneous market segments within designated managerial, institutional, and environmental restrictions, but also how to construct such schemes simultaneously in conjunction with associated resource constraints. Current existing methodological approaches to market segmentation fall short of such development issues. This manuscript proposes an alternative approach for the construction of market segments particular to the needs and constraints for a particular application (NORMCLUS). We employ some recent developments in combinatorial optimization algorithms and heuristics in forming managerially relevant market segments. We illustrate a few aspects of this general methodology in the context of an actual industrial marketing application concerning the differential drivers of customer perceived overall quality for an electric utility company.