SMABS 2004 Jena University
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European Association of Methodology

Department of methodology and evaluation research

Jena University

Contributions: Abstract

Extending dynamic segmentation with lead generation: a latent class Markov analysis of financial product portfolios

Leo J. Paas Tammo H.A. Bijmolt Jeroen K. Vermunt
Tilburg University
The Netherlands

A recent development in marketing research concerns the development of dynamic segmentation techniques. In this paper the authors extend the latent class Markov model (Vermunt, Langeheine and Böckenholt, 1999), a suitable technique for conducting dynamic segmentation (Wedel and Kamakura, 2000), to accommodate for predicting the next product acquisition consumers make. We show that this is relevant for the important marketing issue of lead generation (Winer, 2001).

We illustrate the utilization of this extension of the latent class Markov model on empirical data. The analyzed database contains information on the ownership of twelve financial products and demographics, collected in four bi-yearly measurement waves, 1996, 1998, 2000 and 2002. The information is on 7676 Dutch households. The proposed latent Markov model defines dynamic segments on the basis of consumer product-portfolios and shows the relationship between the dynamic segments and demographics. It is also demonstrated that the dynamic segmentation resulting from the latent class Markov model is applicable for lead generation purposes.


Vermunt, J.K., R. Langeheine and U. Böckenholt (1999). Latent class Markov models with time-constraints and time-varying covariates. Journal of Educational and Behavioral Statistics, 24, 178-205.

Wedel, M. and W.A. Kamakura (2000). Market segmentation: Conceptual and methodological foundations (second edition). Boston, Dordrecht, London: Kluwer Academic Publishers.

Winer, R.S. (2001). A framework for customer relationship management. California Management Review, 43 (Summer), 89-105.