Customer Equity-Based Segmentation of Service Consumers

The current research is undertaken to demonstrate the efficacy of segmenting consumer markets. In doing so, the current research reveals that the understanding of consumer behavior is greatly improved when service markets are segmented using clustering procedures. The effectiveness of these clustering procedures is tested across three studies and eight industries. In the first study, the prediction of overall service quality is improved by applying a bicriterion cluster wise regression to the data. In the second study, a multicriterion procedure is used to optimize the ability of eighteen customer equity drivers to predict a series of customer outcomes. Finally, in the third study, a bicriterion cluster wise logistic regression application is developed and is used to test the efficacy of the customer equity drivers in predicting actual customer behavior. The results of each study suggest that managers and researchers must acknowledge that consumer markets are heterogeneous and by modeling this heterogeneity prediction in outcome behaviors can be greatly improved. Moreover, the current research develops a new methodological technique for predicting binomial outcomes in a clustering framework.