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Prediction and profitability in market segmentation typing tools

Author

Listed:
  • Marco Vriens

    (Kwantum Analytics)

  • Nathan Bosch

    (Kwantum Analytics)

  • Chad Vidden

    (University of Wisconsin, La Crosse)

  • Jason Talwar

    (Brown University School of Engineering)

Abstract

A vital component in strategic segmentation is the typing tool. Little is known about their prediction performance. Even less is known how well they perform at the segment-level, in imbalanced situations, and how well they predict the smallest (minority) segment. We investigate using simulated and real-life data, how well typing tools perform overall and at the specific segment-level and we show the following. One, even when overall prediction accuracy is good, specific segments may be predicted poorly. Two, for valuable (minority) segments with high targeting costs misclassification can have a substantial impact on the profitability of the segmentation strategy. Poor prediction of a minority segment can happen in high and mildly imbalanced segments. Three, prediction of minority segments can vary substantially across different base classifiers and across imbalance correction methods. We find that performance can vary substantially across base classifiers and that support vector machines, overall, perform best. Four, the prediction of a (minority) segment can always be improved by using imbalance correction methods, and overall random under-sampling performs best.

Suggested Citation

  • Marco Vriens & Nathan Bosch & Chad Vidden & Jason Talwar, 2022. "Prediction and profitability in market segmentation typing tools," Journal of Marketing Analytics, Palgrave Macmillan, vol. 10(4), pages 360-389, December.
    • Handle: RePEc:pal:jmarka:v:10:y:2022:i:4:d:10.1057_s41270-021-00145-4
    DOI: 10.1057/s41270-021-00145-4
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    References listed on IDEAS

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    1. Maria Petrescu & Anjala S. Krishen, 2023. "Mapping 2022 in Journal of Marketing Analytics: what lies ahead?," Journal of Marketing Analytics, Palgrave Macmillan, vol. 11(1), pages 1-4, March.

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