Segmentation/Targeting is an analytic technique that helps firms to segment customers in a market.

Segmentation is the process of classifying customers into homogenous groups (segments) such that each group of customers shares enough characteristics in common to make it viable for the firm to design specific offerings or products for selected segments. The application finds customer segments using needs-based variables called basis variables. Cluster analysis helps firms to:

• Better understand their customers.
• Identify different segments in a market.
• Choose attractive customer segments for targeting its marketing programs.

Resource Allocation helps optimize resource sizing and resource allocations across segments, products, channels, etc. It answers such questions as

• How much should we spend in total during a given planning horizon?
• How should that spending get allocated to each product or market segment? To each marketing mix element? How much of our budget should be spent on advertising and other forms of impersonal marketing communications? On sales promotions? On the sales force?
• How should budgets given to an individual (e.g., salesperson, manager of department) be allocated? To customers? To geographies? To sub-elements of the marketing communications mix? Over time?

There are four primary steps:

• Enter data for current efforts and outcomes-- typically these are hard data about current market situations.
• Enter calibration data--typically these are judgmental data, unless there are data available from experimentation.
• Calibrate the response curves. Check to ensure that the curves fit the points.
• Run the analysis (and optionally enter constraints).