Market Segmentation and Data Mining
Posted by Dylan Wan on April 3, 2015
1. Market Segmentation in the academic world
Market Segmentation is part of marketing process. It is described in Philip Kotler’s book as part of the step of defining the market strategy.The idea is to segment consumer market by some variables and to divide the market into different segments. Selecting the segments for your products is the result of the marketing strategy. If you have multiple product lines, this definition process can be done for each product line if not done at the individual product level.
For example, my product X is targeted to sell to the consumers who are women, without kids, living in city, and having more than $90000 income.
This web page includes a very good and concise summary – Market Segmentation and Selection of Target Segments. It reminded what I learned from my Marketing course in 20 years ago.
2. Marketing Segmentation as a product feature
Once the variables and the segments are defined as part of the marketing strategy, during the execution phase, these variables become the customer/prospect selection criteria in the Marketing applications.
It was once an important feature from Siebel Analytics and available as part of OBIEE.
See also: Oracle® Marketing Segmentation Guide
Typically the product feature is to provide a set process, you can use SQL filter and use the SQL set process such as UNION, MINUS, INTERSECT, etc. to build your segments.
It assumes that the people who are involved in generating the marketing list for a specific campaign will use the tool to build and maintain the lists.
3. How Data Mining can help? What is the Advanced Analytics application opportunity?
1. Use Data Mining Clustering as a tool in defining the market strategy
Clustering is an unsupervised method available from a data mining tool, like Oracle Data Mining option. It groups objects based on their similarity. You are not using the pre-defined attributes to divide your consumers. Instead, you observe them with the helps from the data mining tool, and discover the attributes.
Here is a good material – Data Mining – Cluster Analysis
2. Use Data Mining Classification to define the segment criteria.
The criteria mentioned in the market strategy could still be very subjective. Classification can be used to test the assumption and determine the criteria.
Data Mining Classification or Classifier is a supervised method available from a data mining tool, like Oracle Data Mining option. Unlike Clustering tool, Classifier is based on the known attributes. Data Mining Classifier can determine the criteria based on the training data.
This page describes an example of using Data Mining Classifier to come up the classification rules.
Once the classification rules are identified, The rule can be plugged in to a Marketing Segmentation tool as described in #2 to automatically generate the lists.