Market Segmentation
Market Segmentation Strategy, Competitive Advantage, and Public Policy
Market Segmentation Strategy, Competitive Advantage, and Public Policy: Grounding Segmentation Strategy in Resource-Advantage Theory
Shelby D. Hunt & Dennis B. Arnett
Abstract Market segmentation is one of the most widely accepted concepts in marketing. Its fundamental thesis is that, to achieve competitive advantage and, thereby, superior financial performance, firms should (1) identify segments of demand, (2) target specific segments, and (3) develop specific marketing “mixes” for each targeted market segment. However, understanding the competitive circumstance in which segmentation strategy will work requires an understanding of the process of competition. That is, segmentation must be grounded in competition theory. This article examines the nature of market segmentation strategy and identifies the characteristics that a theory of competition must possess if it is to provide a theoretical foundation for it. The criteria are argued to be that a grounding theory must (1) provide for the existence of demand heterogeneity, (2) justify why firms would choose to produce and market a variety of market offerings, and (3) explicate a mechanism by which a market segmentation strategy can lead to superior financial performance. This article argues that resource-advantage theory, a process theory of competition, meets these criteria and, therefore, provides a theoretical foundation for market segmentation strategy. Furthermore, it argues that the use of market segmentation promotes public welfare by prompting the innovations that foster firm-level, industry-level, and societal-level productivity. Keywords: Segmentation, Competitive advantages, Resource-Advantage theory
1. Introduction All marketing strategies involve a search for competitive advantage (Bharadwaj and Varadarajan 1993; Day and Wensley 1988; Varadarajan and Cunningham 1995). For market segmentation strategy, the fundamental
Market Segmentation Strategy, Competitive Advantage, and Public Policy: Grounding Segmentation Strategy in Resource-Advantage Theory
Shelby D. Hunt & Dennis B. Arnett
Abstract Market segmentation is one of the most widely accepted concepts in marketing. Its fundamental thesis is that, to achieve competitive advantage and, thereby, superior financial performance, firms should (1) identify segments of demand, (2) target specific segments, and (3) develop specific marketing “mixes” for each targeted market segment. However, understanding the competitive circumstance in which segmentation strategy will work requires an understanding of the process of competition. That is, segmentation must be grounded in competition theory. This article examines the nature of market segmentation strategy and identifies the characteristics that a theory of competition must possess if it is to provide a theoretical foundation for it. The criteria are argued to be that a grounding theory must (1) provide for the existence of demand heterogeneity, (2) justify why firms would choose to produce and market a variety of market offerings, and (3) explicate a mechanism by which a market segmentation strategy can lead to superior financial performance. This article argues that resource-advantage theory, a process theory of competition, meets these criteria and, therefore, provides a theoretical foundation for market segmentation strategy. Furthermore, it argues that the use of market segmentation promotes public welfare by prompting the innovations that foster firm-level, industry-level, and societal-level productivity. Keywords: Segmentation, Competitive advantages, Resource-Advantage theory
1. Introduction All marketing strategies involve a search for competitive advantage (Bharadwaj and Varadarajan 1993; Day and Wensley 1988; Varadarajan and Cunningham 1995). For market segmentation strategy, the fundamental
References: 22 Australasian Marketing Journal 12 (1), 2004 Australasian Marketing Journal 12 (1), 2004 23 Market Segmentation Strategy, Competitive Advantage, and Public Policy Lancaster, K.J., 1966 24 Australasian Marketing Journal 12 (1), 2004 Australasian Marketing Journal 12 (1), 2004 25