A Decision Support System for Market Segmentation - A Neural Networks Approach

Market segmentation refers to the subdividing of a market into distinct subsets of customers where any subset may conceivably be selected as a market target to be reached with a distinct marketing mix [Kotler 1980]. The reason for segmenting a market is that consumers are often numerous, geographically dispersed, and heterogeneous, and therefore seek varying benefits from the products they buy. Consumers within a segment are expected to have homogeneous buying preferences whereas those in different segments tend to behave differently. By properly identifying the benefit segment of a firm\u27s product, the marketing manager can target the sales effort at specific groups of consumers rather than at the total population. The identification of consumer segments is of critical importance for key strategic issues in marketing involving the assessment of a firm\u27s opportunities and threats. The marketing manager must evaluate the potential of the firm\u27s products in the target segment and ultimately select the most promising strategy for the segment. In thisresearch, we introduce a new approach, a neural networks based method, to discover market segments and configure them into meaningful structures. The particular type of neural networks, the Self-Organizing Map networks, can be used as a decision support tool for supporting strategic decisions involving identifying and targeting market segments. The Self-Organizing Map (SOM) network, a variation of neural computing networks, is a categorization network developed by Kohonen. The theory of the SOM network is motivated by the observation of the operation of the brain. This paper presents the technique of SOM and shows how it may be applied as a clustering tool to market segmentation. A computer program for implementing the SOM neural networks is developed and the results will be compared with other clustering approaches. The study demonstrates the potential of using the Self-Organizing Map as the clustering tool for market segmentation

Managerial Applications of Neural Networks: The Case of Bank Failure Predictions

This Paper introduces a neural-net approach to perform discriminant analysis in business research. A neural net represents a nonlinear discriminant function as a pattern of connections between its processing units. Using bank default data, the neural-net approach is compared with linear classifier, logistic regression, kNN, and ID3. Empirical results show that neural nets is a promising method of evaluating bank conditions in terms of predictive accuracy, adaptability, and robustness. Limitations of using neural nets as a general modeling tool are also discussed

A Framework for Analyzing the Potential Benefits of Internet Marketing

The Internet has provided a rare opportunity especially for small to medium sized enterprises. It moves organizations beyond the physical constraints of their traditional distribution channels and creates a world wide virtual community in which small and medium sized companies can compete with large enterprises. In this research, we focus on the use of the Internet as a virtual storefront where products are offered directly to customers. Our contention is that product characteristics play a major role in the successfulness of its marketing on the Internet. We reviewed benefits of online marketing along three channel functions and identified factors that impact the use of online marketing approach. A framework is proposed to help evaluate the chance for a company to succeed in ecommerce. Data of failed e-tailers in the last two years were collected and analyzed using the proposed framework