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 Industrial Marketing Management 36 (2007) 810 – 822

Customer segments as moving targets: Integrating customer

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value dynamism into segment instability logic
Christopher P. Blocker a,⁎, Daniel J. Flint b,1

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a
Baylor University, Department of Marketing, One Bear Place #98007, Waco, TX 76798, USA
b
304 Stokely Management Center, Department of Marketing and Logistics, College of Business Administration,
The University of Tennessee, Knoxville, TN 37996, USA
Received 13 May 2005; received in revised form 5 April 2006; accepted 1 May 2006
Available online 4 August 2006

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Abstract
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Segmentation is a mature concept in marketing strategy that continues to receive significant attention from managers and scholars alike. The
key goal in segmentation is identifying and reaching profitable segments with products and services that meet the common needs of these
customers. However, a fundamental issue needing rigorous attention is that customers' needs are dynamic and can induce segment instability. The
purpose of this paper is to draw focus to segment instability in business-to-business markets by conceptually exploring its theoretical
rs
underpinnings and integrating related theory on customer value change to propose an agenda for future research.
© 2006 Elsevier Inc. All rights reserved.

Keywords: Customer value change; Segment instability; Industrial segmentation; Changing needs
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1. Introduction
Segmentation has been called one of the most important
concepts in marketing (Dickson, 1982), based largely on its
capacity to serve as both a strategic lens for managers and a
r's
(1) measurable, (2) substantial, (3) accessible, (4) actionable, (5)
responsive, and (6) stable (Kotler, 1994; Wedel & Kamakura,
2002b). Researchers have also discussed barriers to implemen-
tation (Bottomley & Nairn, 2004; Dibb & Simkin, 2001), but
problems in segmentation frequently correspond to one or more

tool to break down markets into customers grouped by
common needs (Freytag & Clarke, 2001). Skillful segmenta-
tion equips firms to target profitable customers, understand
customers' desires, allocate resources, and position against
o
of these six requirements.
Dealing with the sixth requirement is a difficult challenge
that scholars refer to as segment instability (Farley, Winer, &
Lehmann, 1987; Hoek, Gendall, & Esslemont, 1993; Hu & Rau,

competitors (Beane & Ennis, 1987; Berrigan & Finkbeiner, 1995; Steenkamp & Hofstede, 2002; Wedel & Kamakura,
1992; Tapp & Clowes, 2002). Yet, despite decades of research, 2002b). Specifically, researchers indicate that markets are be-
th

scholars suggest that the discipline of segmentation has a long
way to go theoretically and methodologically (Bolton & Myers,
2003; Steenkamp & Hofstede, 2002; Wedel & Kamakura,
Au
coming increasingly dynamic (Barnett & McKendrick, 2004;
Douglas, 2001; Eisenhardt & Martin, 2000; Voelpel, Leibold,
Tekie, & Von Krogh, 2005) and “customers' changing needs”
and “rapidly evolving preferences” represent key drivers of this

2002a). This is especially the case in business-to-business

markets and global contexts (Steenkamp, 2005; Sudharshan &
Winter, 1998).
The key challenges facing segmentation solutions are sum-
med up by established criteria, which require segments to be:
⁎ Corresponding author. Tel.: +1 865 748 0791; fax: +1 865 974 1932.
E-mail addresses: cblocker@utk.edu (C.P. Blocker), dflint@utk.edu
(D.J. Flint).
1
Tel.: +1 865 974 8314.
0019-8501/$ - see front matter © 2006 Elsevier Inc. All rights reserved.
doi:10.1016/j.indmarman.2006.05.016
market turbulence (Achrol & Etzel, 2003; Achrol & Kotler,
1999; D'Aveni, 1995; Joshi & Campbell, 2003). One important
consequence of rapid changes in customers' needs is that they
can render a firm's target segments unstable. Although both
consumers and business customers' needs are dynamic, scholars
suggest that segment instability is more pronounced in business
markets, which can be more sensitive to ongoing changes in
macro-economic conditions (Dickson, 1994; Mitchell &
Wilson, 1998).
 C.P. Blocker, D.J. Flint / Industrial Marketing Management 36 (2007) 810–822
As business markets evolve, customers' changing needs can
induce segment instability in two important ways. First, what is
valued by individual business customers in a segment (i.e., de-
sired value) may change, reflecting what has been termed custo-
mer desired value change (CDVC) (Flint, Woodruff, & Gardial,
1997, 2002). For example, a business customer that decides to
expand its operations internationally may begin valuing new
types of supplier benefits, such as having a global account team,
and no longer be adequately served by a supplier's offers targeted
for a domestic segment. When CDVC is widespread, the needs of
a segment's customers (over time) can diverge from the segment's
originally defined properties and weaken customers' responsive-
ness to offers (Wedel & Kamakura, 2002b). Second, when cus-
tomers undergo changes in what they value from suppliers, they
may move into or fall out of a firm's target segment, resulting in
size dynamics, i.e., the quantity of customers and revenue in a
segment increasing or decreasing.
The intensity of CDVC can be low for some customers that
experience relatively few changes in what they value from
suppliers and, thus, remain in a segment for a long time.
Industrial customers purchasing commodity products for use in
mature manufacturing processes (e.g., chemicals company
on should be used in tandem (Steenkamp & Hofstede, 2002). Thus,
purchasing raw materials) might reflect fewer changes in their
needs and desired value. CDVC can be high, for example, in
situations where customers are outsourcing business functions
(e.g., IT infrastructure) and customers' understanding of their
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needs and the available solutions are continually changing. The
software sector is one illustration of a product-market where
business customer needs are changing rapidly, given that a
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number of firms are closely considering how developments in
open-source code (e.g., Linux) and software-as-a-service (e.g.,
salesforce.com business model) might fit their evolving
business needs (Hamm, 2006).
The more extensive segment instability (SI) is, the more costly
it is for suppliers (Mitchell & Wilson, 1998; Plank, 1985). One
significant cost can be lost customers. Simply retaining an addi-
r's
tional 5% of customers can translate into millions of dollars for
many firms (Reichheld, 1996). Yet, sometimes customers leave
because their needs have changed and they no longer derive
sufficient value from existing offers (Beverland, Farrelly, &
o
Woodhatch, 2004). Thus, it is critical that marketing managers
understand more about segment instability. In order to assist
th
managers in this regard, theoretical exploration of SI must also
move forward quickly (Mitchell & Wilson, 1998; Steenkamp,
2005; Wedel & Kamakura, 2002a). Yet, recent reviews suggest it
Au
is not moving quickly enough (Steenkamp & Hofstede, 2002).
Some advocate that more theory development exploring the
dynamic nature of customer value perceptions is an important
next step (Brangule-Vlagsma, Pieters, & Wedel, 2002; Flint et al.,
2002).
Thus, the purpose of this paper is to explore the theoretical
roots of SI and integrate related concepts addressing changes in
customers' desired value and needs to propose an agenda for
future research. Our initial question is what are the likely charac-
teristics of segment instability, including the way it occurs, as well
as its drivers and outcomes? Several steps are taken to address this
question. First, we examine relevant segmentation research and
811
offer a conceptual definition of SI. Second, we present a review of
previous studies dealing with SI and integrate key perspectives on
customer change. Last, we put forth a theoretical framework of SI
and an agenda for research.
2. Segmentation theory
Theory development in industrial segmentation has received
py
far less attention than consumer segmentation and, in recent years,
has proceeded slowly (Goller, Hogg, & Kalafatis, 2002). One
explanation for this slow growth might relate to questions about
the relevance of business segmentation (e.g., Dibb, 2001) in light
co
of increasing interest in marketing to individual customers, using
customer lifetime value models (CLV) and database marketing
strategies (Kumar & Petersen, 2005). However, recent empirical
research shows that these strategies lead potentially, but not
necessarily, to greater profitability. Furthermore, the difficulties in
predicting CLV can weaken results (Malthouse & Blattberg,
2005). Other scholars suggest that the use of database marketing
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does not preclude the significant scale advantages that can be
obtained through segmentation, but rather that the two strategies
calls for more theory development in segmentation seem justified
(Wedel & Kamakura, 2002a).
Recent reviews focus on organizational barriers to segmenta-
tion, methodological approaches, and poor results in segmenta-
tion practice as weak areas within industrial segmentation (Dibb
& Simkin, 2001; Goller et al., 2002; Wedel & Kamakura, 2002b).
What research shows is that many firms are more concerned with
identifying customer groups that coincide with existing marketing
programs than employing systematic processes to uncover seg-
ments that draw meaningful distinctions between customers (Dibb
& Simkin, 2001). Methodologically, two weak spots include the
need for empirical testing of the predictive validity of segment
solutions and more frequent model comparisons to identify con-
ditions where certain models provide the best representation of
business markets (Wedel & Kamakura, 2002b).
Conceptual discussion is particularly lacking in regard to
segment instability, where comments are often limited to noting
the inconsistency of segment solutions over time. Thus, the
following section highlights relevant foundations to ground SI
in existing segmentation theory.
2.1. Heterogeneity of needs in the market
Segmentation theory stipulates that customers' needs, prefer-
ences, or desired value dimensions are heterogeneous, (i.e., they
vary greatly) and this diversity can be captured using variables
that discriminate among these different needs (Beik & Buzby,
1973; Day, Shocker, & Srivastava, 1979; Freytag & Clarke, 2001;
Green & Krieger, 1991; Smith, 1956). Firms capitalize on need
heterogeneity by identifying meaningful clusters of customers
that have relatively homogeneous sets of needs. Despite con-
siderable extensions, exploration of variables, and an abundance
of research on the topic, the essence of segmentation theory for
nearly 50 years has been this notion of customer need hetero-
geneity (Smith, 1956; Wedel & Kamakura, 2002a).
812 C.P. Blocker, D.J. Flint / Industrial Marketing Management 36 (2007) 810–822
It is well known that different business customers have
different needs and the same customer will need different things
from different suppliers. Where one customer might emphasize
low price and quick delivery, others might stress quality, reli-
ability, or service support. We can categorize what customers
value from suppliers along at least eight dimensions, i.e., pro-
duct quality, service support, personal interaction, time-to-
market, delivery, direct costs, acquisition costs, and operating
costs (Ulaga & Eggert, 2006). These differences are driven not
only by the fact that products and services are used in numerous
ways across customer industries, but also application can vary
considerably across customers within a single industry (Powers,
1991).
2.2. Philosophical perspectives
Segmentation is often differentiated between scholars who
discuss it as a strategic activity, related to the pursuit of compe-
titive advantage (Bonoma & Shapiro, 1983; Freytag & Clarke,
2001, Kotler, 1994; Smith, 1956) and scholars who focus more on
developing it as a technique that employs sophisticated mathe-
matical modeling (Brusco, Cradit, & Tashchian, 2003). A strong
on
focus on the latter perspective and model refinement in industrial
segmentation seems to convey a certain atheoretical perspective
for the field (Goller et al., 2002). A frequent debate in segmen-
tation is whether segments really exist. For example, segmenta-
rs
tion can use almost any variable (e.g., NAICS codes) to divide
customers into groups without addressing whether groups are
distinguished by truly different needs. As such, scholars indicate
pe
that (at best) segments represent managers' estimation of markets
and not the full reality of customer heterogeneity, as it exists
naturally in the marketplace (Wedel & Kamakura, 2002a).
Overall, at least two themes emerge from segmentation theory.
First, segmentation theory seeks to identify, explain, and capi-
talize on customer need heterogeneity in the marketplace. Second,
although there have been significant advances in mathematical
r's
modeling and data analysis techniques, there seems to be a
shortage of theory development in industrial segmentation in
general (Dibb & Wensley, 2002; Dowling, Lilien, & Soni, 1993;
Goller et al., 2002) and conceptual understanding of segment
o
instability, in particular (Wedel & Kamakura, 2002a). Yet, before
exploring ideas that might begin to address this gap, we must first
th
define segment instability.
3. Conceptual definition of segment instability
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In its current form, segmentation logic offers static snapshots
of a moving marketplace. Whereas, segmentation research has
explored the types of need heterogeneity from multiple angles
(e.g., variables to serve as a basis for segmenting customer
needs), there has been a dearth of work attempting to understand
the dynamics of need heterogeneity, that is, the nature and
manner in which a segments' needs change over time. This is
particularly the case in industrial segmentation where there are
few known studies that conceptually or empirically address SI,
despite stability being a core requirement for business segments
(Mitchell & Wilson, 1998; Dickson, 1994).
Given that a conceptual definition of SI has yet to be offered,
the following serves as an initial effort to define SI: Segment
Instability refers to a state of change in customers' needs and
what they value within identified market segments, as well as
changes in segment membership, as triggered by internal to the
customer and external to the customer change drivers, and
reflected by changes in segment contents and segment structure.
One challenge for defining SI this way is that researchers
py
continue to search for the best variables to measure what
customers currently need and value from suppliers. Still, recent
research outlines both the importance and the process for
conducting need-based industrial segmentation (Albert, 2003).
co
Also, advances such as measuring multiple need-related
concepts (e.g., attributes, benefits, and values) make progress
toward capturing a holistic view (Hofstede et al., 1999).
Additionally, it is important to note that SI might also be
construed as being caused by shifts in managers' strategies to
approach business markets in new ways and introduce innova-
tions to influence changes in what customers value. Scholars have
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discussed the factors that influence dynamic market behavior and
contend that both sellers' strategies/innovations and customers'
changing needs have reciprocal effects on each other (Boulding,
Staelin, Ehret, & Johnston, 2005; Dickson, 1992; Ratneshwar,
Shocker, Cotte, & Srivastava, 1999). We concur with this logic
and recognize the influence of suppliers in examples throughout
this discussion. Yet, we focus on the latter perspective of dynamic
customer value and needs given their association with customer
need heterogeneity and segmentation theory.
To advance conceptual understanding, several representa-
tions of SI are presented in Fig. 1.
3.1. Segment content change
Fig. 1 proposes two classes of segment change, i.e., content
changes and structural changes. Segment content change offers
an explanation for how customers' changing needs can induce
SI. Content changes can be construed in two ways. Latent
content change suggests that, within a market, segment types
and their properties, e.g., low-cost segment, premium segment,
etc., remain relatively stable while customers move in and out of
those segments in a varied manner. When an electronic com-
ponents manufacturer changes its down-stream strategy from
targeting automotive manufacturers to targeting aerospace man-
ufacturers, they may change processes, people, and locations
that result in major shifts in what they value from an up-stream
supplier. Depending on how this supplier segments their mar-
kets, the electronics component customer might drop out of a
current segment (e.g., segment A) and enter another existing
segment (e.g., segment B). Although customers similar to this
one might leave segment A, latent content change suggests that
this segment will be viable over time, if its customer inflow is
equal or greater to the outflow.
Conversely, manifest content change proposes that groups of
customers can move together through similar shifts in their
desired value and needs to arrive at sets of needs that compose
new segments. Manifest content change might be best reflected
by segment changes that occur during the initial phases of new
 C.P. Blocker, D.J. Flint / Industrial Marketing Management 36 (2007) 810–822
on
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Fig. 1. Representations of segment instability.
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product cycles, where the market as a whole and segments
within it are making sense out of new products, their features,
their uses, and formulating preferences. For example, during
initial years of the product's existence, laptop computers were
categorized and targeted to business markets (among other
criteria) by their size and weight. Over time, as customers
r's
became more sophisticated and laptop design matured, the
importance of size/weight to customers diminished and gave
way to other features (Ulrich & Ellison, 1999). Thus, segments
whose properties included needs for specific size/weight ranges
o
likely experienced broad shifts. A more recent example is seen
in high-end server markets, where the needs of some customers
th
preferring proprietary-server architectures have begun shifting
toward open-standard server architectures that require more
training, but offer more flexibility and scalability (Corcoran,
Au
2003).
An extreme illustration of manifest content change would be
the dramatic shift that occurred in the commercial catering
industry's airline segment in the wake of 9/11 terrorist attacks in
the U.S. Due to fluctuations in the demand for air travel and the
pressure of offering low fares while simultaneously upgrading
security, a majority of airline firms demoted in-flight meals to a
lower priority and reduced spending with catering suppliers by
eliminating 90% of in-flight meals in favor of “buy-on-board”
programs (Deutsche Lufthansa AG, 2005). Whereas rapid
changes like this occur less frequently, corporate history is replete
with examples of firms that were impacted by shifts in market
813
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co
al
segments triggered by environmental changes (e.g., see Day &
Schoemaker, 2004).
Together, the notions of latent and manifest change, as de-
lineated here, represent the most in-depth theoretical articulation
of SI thus far and have served as key assumptions in modeling
techniques (Wedel & Kamakura, 2002b). Despite being described
separately, latent and manifest change are not mutually exclusive.
Some customers in a given market might undergo similar shifts in
needs (manifest content change) such as in growth segments,
while other customers remain within or shift between relatively
stable segments (latent content change) over time.
3.2. Segment structural change
Segment structural changes represent the spatial outcomes of
segment content changes and provide an analytical assessment
of the change that has occurred from a firm's perspective.
Changes in segment size, dispersion of customers' needs within
a segment, and boundary clarity are suggested as key descrip-
tors of structural change. Segments grow (shrink) when the
needs of customers shift toward (away from) the defined pro-
perties of a segment and, thus, its target offers. One illustration
of an industry sector likely experiencing significant structural
changes is business telecommunications. Although a majority
of business customers reside within segments whose needs are
met with traditional digital phone lines to office desks, a large
number of customers' needs are shifting toward emerging
814 C.P. Blocker, D.J. Flint / Industrial Marketing Management 36 (2007) 810–822
segments that target business offices with voice-over-the-
Internet (VoIP) phone lines to each desk (e.g., 11.5 million
new VoIP lines delivered in 2005, representing a 46% increase
over 2004, see Crockett, 2006). These growth segments cater to
business firms that desire to leverage their investments in
computing infrastructure and integrate employees' phones and
personal computers, even if the start-up costs are much higher.
Segment dispersion refers to how tightly or loosely that
customers within a segment share a set of core needs. Boundary
clarity describes the degree to which customers' needs overlap
more than one segment. In both cases, these structural charac-
teristics are originally determined by how tightly (dispersion) and
distinctly (boundary clarity) a firm's defined segments—includ-
ing mean scores for variables—correspond to the market's needs.
The point is that changes in segment dispersion and boundary
clarity can occur when customers are changing what they value
from suppliers. For example, mature industries, e.g., steel, petro-
leum, commercial construction, etc., might contain segments
where customers' needs have been continually converging around
a few core requirements (less dispersion, higher clarity in segment
boundaries). Conversely, segment dispersion might be increasing
and boundary clarity more ambiguous in sectors like management
on
consulting. Over time, the fragmentation of customer needs, growth
of outsourcing, and evolution of consulting has spawned dozens of
sub-markets and segments, such that customers can now obtain
expertise from firms who specialize in strategic planning, change
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management, information technology, forecasting, supply-chain
integration, accounting, satisfaction measurement, etc.
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4. SI in segmentation literature
Despite no known studies that empirically test SI in business-
to-business segmentation either through longitudinal or cross-
sectional methods, there has been some development on the
topic in consumer segmentation literature. This research in-
cludes (1) model extensions, (2) selecting stable, undynamic
r's
variables, (3) longitudinal studies (see Table 1), and (4) sug-
gestions for continuous segmentation to mitigate the impact of
SI.
o
4.1. Model extensions in segmentation literature
th
First, several have attempted to integrate dynamic components
of segments into mathematical models. Kamakura, Kim, and Lee
(1996) extended a brand choice mixture model to accommodate
Au
changes in segment sizes and structural composition over time.
Within the context of new product introductions, Ramaswamy
(1997) developed a latent Markov model to examine the temporal
shifts of preference segments. This model, based on synthetic
data, allows for the creation of new segments during a new
product introduction phase, similar to what might be classified as
manifest segment change. Wedel and Kamakura (2002b) dedicate
a chapter in their book on segmentation to discussing latent and
manifest models that account for changes in segment sizes. Gen-
erally, these solutions relax assumptions from previous models
and extend them to include dynamic elements (Bockenholt &
Dillon, 1997, 2000). For example, Bernoulli processes and Markov
models use brand switching matrices and assume transition pro-
babilities exist between segments, i.e., probability that a customer
will switch from one segment to another. A key distinction between
this research and recent calls for SI theory development seems to be
that these models allow for changes in segment solutions, but have
not sought to explain or predict them.
4.2. Selecting ‘undynamic’ variables
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Second, some studies attempt to mitigate SI by selecting less
dynamic variables like geography, demographics, or personal
values (Brangule-Vlagsma et al., 2002). Unfortunately, studies
co
show that these general variables perform poorly when it comes to
linking them with actual customer needs and responses
(Steenkamp & Hofstede, 2002). For example, even though a
customer's geographic location is less dynamic, this does not
diminish the reality that customers within those geographies have
needs that frequently change. If sets of homogeneous needs lie at
the core of segments—and these needs are dynamic in nature—
al
attempts to suppress this reality by choosing change-resistant
variables would seem to give a false impression of success.
4.3. Longitudinal studies
Third, some consumer segmentation studies have measured
segment membership longitudinally as a way to explore the
instability. These studies–although limited in explaining the
antecedents, complexities, and outcomes of SI–are arguably
where the most insight of the phenomenon has been generated.
Calantone and Sawyer (1978) were the first to examine
instability of the benefits customers seek for banking services.
This study found that over a 2-year period, although the overall
classes of benefits (e.g., one-stop bankers wanting convenient
hours) and segment sizes were relatively consistent, segment
membership at a consumer level changed substantially. In one
segment, only 28% of the members were the same between
periods. Yuspeh and Fein (1982) found similar results in a 12-
month study of an undisclosed consumer product, except that
the level of instability was even greater. Less than half the
sample (40%) remained within the same segments, and some
key segments experienced even greater turnover.
Farley et al. (1987) found significant SI and reported evidence
of change patterns between shifting consumers and non-shifting
consumers. They speculated that changing use situations, va-
riety-seeking, promotional activity, and household lifecycle
changes were potential causes of observed change patterns.
Change patterns were also reported by Hu and Rau (1995).
Finally, Brangule-Vlagsma et al. (2002) recently showed
evidence of consumers shifting between segments defined by
personal values (Rokeach Value Survey). An interesting finding
here is that segments did not change in the same ways over time,
in terms of rate or composition of change. Yet, uncovering the
“underlying mechanisms and reasons for change patterns” was a
limitation of the study (Brangule-Vlagsma et al., 2002, p. 282).
Beyond comparing consumers to business buyers, one
challenge for extrapolating these findings to theory develop-
ment for industrial SI is that–with the exception of Calantone
 C.P. Blocker, D.J. Flint / Industrial Marketing Management 36 (2007) 810–822 815

Table 1
Studies addressing segment instability
Study Context Approach Segment base Key findings on SI Reasons
given for
change
(SI)?
Brangule- Netherlands Consumer Modeling and longitudinal Personal valuesFound segment types stable, but substantial size No
Vlagsma et al. Survey, (no product) survey instrument (Rokeach Value changes and systematic membership switching over a

py
(2002) administered in three waves Survey) 36-month period. Certain segments showed high
over 36 months proneness for switching. Rate and composition of
change varied across segments.
Ramaswamy Synthetic data set Modeled brand preference Brand preference Illustrate a modeling approach that could N/A
(1997) studying new product segments before and after new accommodate and detect segment evolution in a new

co
introduction product introductions product scenario (manifest change)
Hu and Rau U.S. households, Analyzed segment Product usage- Found segment types and sizes relatively stable over No
(1995) consumer long- membership changes within volume 12 months but membership changed significantly;
distance service a single brand over 12 months evidence of shifting patterns.
Farley et al. U.S. households, low- Use of survey and a split-cable Response to Four household segments revealed high degree of No
(1987) cost grocery items TV panel, whereby study could marketing media instability with over 50% of households changing in a
incorporate increased 2-year period; Follow-up study suggests that heavy
advertising to experimental advertising can curb some segment switching

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group over 24 months
Yuspeh and Fein U.S. households Longitudinal survey Product benefits Despite a stable product market environment only 30– No
(1982) (undisclosed product) administered to 1200 40% of original segment members were re-classified in
households over a 12-month the same segment over a 12-month period
on
period
Calantone and U.S. households, retail Longitudinal survey Desired attributes Found segment types and sizes relatively stable over No
Sawyer banking market administered at two time and benefits 24-month period, but membership changed
(1978) periods, 2 years apart significantly
rs

and Sawyer (1978) and Yuspeh and Fein (1982) who measured 4.4. Continuous segmentation
desired attributes and benefits–some variables in these studies
pe

do not correspond closely to needs. For example, personal
values measured by Brangule-Vlagsma et al. (2002) are linked
to buying needs through a means-end hierarchy (Gutman,
1982), but research shows them to be distal indicators, i.e.,
change in an individual's personal values (e.g., friendship)
would not necessarily equate to change in actual buying needs.
Furthermore, the needs of business customers such as reliable
r's
Finally, several authors suggest, in light of the dilemmas
posed by SI, managers should simply commit to constantly re-
analyzing segment solutions (Freytag & Clarke, 2001; Goller
et al., 2002; Hlavacek & Reddy, 1986). While this approach
seems inevitable to a degree, it is inherently reactive, in that no
attempt is made to predict shifts in needs, segment sizes, or
segment membership. This practice falls short of current

delivery or having a good supplier working relationship might
show different sensitivities to segment instability.
That said, these five studies helps us begin to understand
industrial SI in at least three ways. Specifically, they (1) validate
o
strategic thinking urging firms to practice foresight about
changing market needs (Prahalad & Ramaswamy, 2004).
Additionally, the hefty costs of segmentation research might
challenge the practicality of this approach (Dibb & Wensley,

the existence of the SI phenomenon in downstream consumer 2002).

markets, (2) suggest that, in some cases, classes of needs are
th

relatively stable while segment membership changes significantly 5. Perspectives on customers' changing needs
(e.g., latent content change) and (3) suggest that need change
patterns can exist, such that segment members go through need Several streams of literature in marketing discuss change in
Au

changes and contribute to SI in different ways. These points can
serve as a springboard for understanding SI in an industrial
context. However, as is common with most research, more
questions arise and some existing questions remained unan-
swered. For instance, Calantone and Sawyer's concluding ques-
tion of why or how customers' attribute and benefit importances
change over time has yet to be tested or explored further (1978,
p. 403). Additionally, whereas all of these studies support the
notion of latent content change, none involved contexts such as
new product introductions or products fading from the com-
mercial landscape, which might lean toward a manifest content
change model.
customer markets and may offer insights for further under-
standing segment instability. While SI is concerned with change
at a segment unit of analysis, it originates with the changing
desired value and needs of individual customers. Therefore,
conceptual understanding can incorporate insights ranging from
an individual customer level to a market level. Also, where
knowledge concerning the changing needs of industrial custo-
mers is lacking, consumer-based perspectives should be given
consideration.
With this in mind, several perspectives on need change are
briefly summarized in Table 2: (1) market-level perspectives,
including environmental turbulence and market definition; (2)
816 C.P. Blocker, D.J. Flint / Industrial Marketing Management 36 (2007) 810–822

Table 2
Review of literature related to customer need change and segment instability
Level of analysis Potential linkage to need change Key question(s) to ask Illustrative authors
Market level
Environmental Characterizes external drivers of need change and – What is the relative influence of environmental (Bourgeois and Eisenhardt, 1988;
turbulence purportedly measures the overall rate of industry turbulence on customer need change and overall SI? Dess and Beard, 1984; Glazer and
change – How do specific drivers impact SI (i.e., regulatory Weiss, 1993)
vs. industry events)?
References the dynamic nature of customer needs as – At a market level, in what ways do the ongoing

py
Market (Anderson, Salisbury, Mick, &
definition a key aspect and proposes that the dynamic process dialogue between customers and suppliers as Lehmann, 2003; Ratneshwar et al.,
of market definition is built upon an ongoing reflected by shared knowledge (e.g., market 1999; Rosa, Porac, Runser-Spanjol,
dialogue between customers and suppliers. Also stories, media) influence need change and overall & Saxon, 1999)
suggests the degree of rigidity within the SI?

co
sociocognitive framework of the market might – How might levels of market maturity, norms, and
impact patterns of need change. overall degree of rigidity impact patterns of need
change and overall SI?

Customer firm level

Brand Represents a key platform for and potential outcome – What is the relationship between need change and (Brusco et al., 2003; Kamakura and
switching of customer need change. brand switching in various contexts? For example, Russell, 1989; Sun, Neslin, &
do high levels of brand switching reflect high Srinivasan, 2003)

al
degrees of SI and under what conditions?
Loyalty In certain cases, might serve as an inhibitor for need – What is the role of customer loyalty to need
change or explain specific change patterns change and overall SI?
– Might certain contexts or product markets
on
conducive to higher levels of loyalty inhibit SI?
Organizational Characterizes internal drivers of need change and a – How might aspects of organizational learning
Learning process by which it can occur in customer reflect the internal drivers or process of need
organizations. change?
– How can suppliers capitalize on various learning
rs
(Chaudhuri and Holbrook, 2001;
Sirdeshmukh, Singh, & Sabol,
2002; Too, Souchon, & Thirkell,
2001)
(Bell, Whitwell, & Lukas, 2002;
Hurley and Hult, 1998; Sinkula &
Baker, 1997; Slater and Narver,
1995)

techniques to identify and predict need changes in

customers and segments overall?

Decision maker level

pe

Attitude Suggests suppliers can play a role in need changes – What is the role that various tools of persuasive (Farley et al., 1987; Lutz, 1991;
through use of persuasive communication communication (e.g., advertising, sales, etc.) can Meyers-Levy and Malaviya, 1999)
play in actively shaping need change and SI in
critical segments?
Satisfaction Serves an internal driver of need change through – How might aggregate measures of satisfaction (Anderson et al., 2003; Oliver, 1997;
feedback loops into customer expectations and new serve as clues to SI in various contexts? Woodruff, Cadotte, & Jenkins, 1983;
desires from suppliers Woodruff and Gardial, 1996)
r's

customer-level perspectives, including brand switching, loyalty, 6. Customer value change and segment instability
and organizational learning; and (3) individual decision-maker
perspectives, including changes in attitudes and satisfaction. Whereas insights from the literature areas mentioned above
o

Concepts like environmental turbulence, organizational learn- provide some knowledge about changing needs and change-
ing, and customer satisfaction point to drivers of change, while related behavior, recent advances in customer value and value
th

others such as customer loyalty identify potential moderators. change theory appear to capture the role of customers' changing
Market definition and the role of persuasive communication in needs in a holistic way. Customer value change theory explores
attitude changes suggest that need changes extend beyond the way change occurs for customers, ranging from its drivers, to
Au

customer borders to include suppliers' actions and other mar-
ket actors such as the media. Together, these perspectives
stimulate some interesting questions about segment instability
(Table 2).
Yet, we do not believe any of these perspectives addresses the
notion of business customers' changing needs in a comprehensive
manner. While they highlight the importance of understanding
change in markets and point to its drivers and outcomes, they do
not directly explore the complexity of the change phenomenon
itself, which is a critical step in the conceptual development of SI.
Hence, the next section turns to customer value change theory as a
promising area to build upon.
the complex nature of the change phenomenon, and its potential
outcomes. It also has a research agenda that lies close to the pulse
of the phenomenon. Specifically, it starts with an assumption that,
before being able to predict or respond to change, we must
understand the change process itself (Flint et al., 1997). This paper
proposes that a similar theoretical agenda is needed to make
progress in understanding segment instability.
Additionally, customer value and value change theory can be
seen as a nexus for the convergence of several core need-related
concepts, such as customers' desired: attributes, benefits/conse-
quences, preferences, goals in use-situations, and overall needs
sought from sellers. This is due, in large part, to its ties with
 C.P. Blocker, D.J. Flint / Industrial Marketing Management 36 (2007) 810–822
means-end chain (MEC) theory, which links customer needs at
several levels (Gutman, 1982; Holbrook, 1994; Woodruff, 1997;
Zeithaml, 1988). A recent review defines customer value as “a
customer's perceived preference for and evaluation of those pro-
duct attributes, attribute performances, and consequences arising
from use that facilitate (block) achieving the customer's goals and
purposes in use situations” (Woodruff, 1997, p. 142). One draw-
back, however, is that customer value change research is in its
infancy and, despite rigorous work, has been explored in limited
contexts (Beverland et al., 2004; Beverland & Lockshin, 2003;
Blocker & Flint, in press; Flint et al., 2002).
As a way of integrating customer value change theory into an
aggregate level theory of SI, a brief review of customer value and
customer value change theory is outlined. Then, a discussion of
SI, which builds on customer value change theory, is presented
along with a conceptual framework.
6.1. Customer value theory
The study of customer value has grown in importance. For
example, the American Marketing Association recently revised
its definition of marketing around the notion of value for
on mer and one time to the next.
customers and important debates about dominant logic in the field
suggest that customer value plays a central role (American
Marketing Association, 2006; Vargo & Lusch, 2004). Despite
being discussed in various ways, a consensus seems to be
rs
emerging in key areas of customer value (Flint et al., 2002; Peteraf
& Bergen, 2003; Prahalad & Ramaswamy, 2004; Slater & Narver,
2000). For one, customer value is seen as the customer's
pe
perceived trade-off between benefits (“what you get”) versus
sacrifices (“what you give”) within use situations (Lapierre, 2000;
Slater & Narver, 2000; Ulaga & Eggert, 2006). These tradeoffs are
o r's
th
Au
Fig. 2. Conceptual framework of B2B Segment Instability (SI).
817
subjective and relative to competitive offers (Gale, 1994).
Researchers also agree that customers' value perceptions are
dynamic (Woodruff, 1997). Attention to this reality has led to
initial work exploring customer desired value change.
6.2. Customer-desired value change theory
Customer-desired value change in a business context is
py
generally defined as any alteration in what a customer desires
from a supplier. Based on a grounded theory study, Flint et al.
(2002) proposed an initial model of customer desired value
change (CDVC) that arose out of business customers' perceptions
co
of their changing needs and desires from suppliers. The CDVC
model posits that changes in desired value can take numerous
forms, such as (1) changes in the desired attributes, consequences,
and/or end goals in a customer's value hierarchy; (2) the emer-
gence of completely new desires; (3) a rise in the standard of
existing desires; and (4) changes in relative priorities for existing
desires. Desired value changes can also vary in intensity. Spe-
al
cifically, the rate, magnitude and number of changes taking place
within customer organizations will vary from customer to custo-
In addition to the change itself, CDVC can be driven by
external to the customer organization (e.g., economic events or
shifts) and internal to the customer organization (e.g., strategic
changes) environmental turbulence. It also can result in actions
customers take to alter their relationships with suppliers. Finally, it
has been suggested that firms could use customer desired value
change as a factor in segmenting customers (Flint et al., 2002). In
this way, types and/or degree of change might be factored into the
way customers are grouped. Certain groups might exhibit intense
change, while others go through change more slowly. Along with
818 C.P. Blocker, D.J. Flint / Industrial Marketing Management 36 (2007) 810–822
longitudinal research, this might be one way to capture levels of SI
in a single study.
7. B2B segment instability framework
In light of this discussion, we present a theoretical framework
for SI in business-to-business markets (Fig. 2). The framework
incorporates several levels of change for segments ranging from
the individual business customer, to the segment, and overall
market. This is the first known attempt to pull together theoretical
concepts involved with SI and is purposefully broad in scope.
7.1. Nature of SI
7.1.1. Segment member change
At the core of the model is a progression of change beginning
with individual customer's need change within a segment. Changes
here are proposed to follow a process like the one outlined in
customer desired value change theory. The basic extension is that,
as customers change what they value, so does their degree of
belongingness to the segment. Degree of belongingness is mea-
sured by comparing a customer's set of needs to the segment's
on
average scores across its core properties or variables. Individual
customer change feed into aggregate changes across customers in
the segment.
rs
7.1.2. Segment content change
The content of segment change can be construed to follow
some combination of latent change and manifest change depend-
pe
ing on the context. The only known empirical studies demonstrate
latent change, but none include contexts where an entire market's
needs might be shifting, e.g., new product introductions, which
might reveal manifest change. Based on customer value change, it
is proposed that the understanding of content change might be
enhanced by examining the variety of change types and intensity
of changes on a segment level.
r's
These two constructs build off the customer value change
process and link changes at a customer level to the types and
intensity of need changes at a segment level. These concepts might
be used in segmentation studies to capture change probabilities or a
o
measure of SI for a segment. Observing need-change form variety
and need-change intensity for the segment might also provide
th
clues about SI patterns. Segments whose need-change form variety
and need-change intensity have low means and variance are likely
stagnant, whereas high averages and variance might reveal chaotic
Au
segments. Also, different types of variance found among members
might be one indicator of whether a latent (high variance) or
manifest model (low variance) of change is prevalent.
7.1.3. Segment structural change
Finally, SI can be analyzed through resulting structural
changes to the segment. Dispersion is a type of spatial shift that
occurs as customers' changing needs move them around within a
segment or potentially out of it. Segments are based on members'
similarity to a common set of needs. So, as needs change, one can
envision customers moving within or outside some acceptable
range or confidence interval of the segment. Segment size is a
result of members entering or exiting segments based on need
change. One could also argue that degree of growth/decline of
members themselves (e.g., financially, etc.) might represent ano-
ther measure of size changes. Boundary clarity, describes whether
the segment in question has a clear distinction or overlaps with
other segments, such that some members belong to more than one
segment. Overall the framework seeks to capture the origins,
content, and structure of SI.
py
Looking beyond a single segment, market instability is an
aggregate concept that describes change across segments and is
made up of similar structural characteristics. At this level, one
could analyze relationships between segments, for example, by
co
looking at overlapping segments to assess whether SI in one
segment influences the size or changing characteristics of ano-
ther. Market instability is similar to but more explicit than the
notion of market turbulence.
7.2. Environmental drivers of SI
al
The framework proposes that changes are driven by external
conditions and organizational changes occurring inside the firm,
which are extensions made directly from customer value change
theory. Evidence from value change research shows that these
factors contribute individually to customer firm change (Flint et al.,
2002), but research has yet to explore how external drivers might
interact or impact value change across members of a market
segment(s). For example, one might expect that significant in-
creases in interest rates might trigger more noticeable changes in
the buying needs of firms with relatively high debt-to-equity ratios
but have less of an impact on customer firms with relatively low
ones. The point is that external drivers of change, e.g., from
changes in technology, customers' competitors' actions, and sup-
pliers, are likely to have a varying impact on customers' desired
value changes in a segment. Furthermore, it seems there has been
an extensive amount of work describing external change drivers,
but less so on internal change drivers (Flint & Mentzer, 2000). For
instance, there is little research explaining how managers and their
mental models of supply markets, impacts changes in segments. At
this point, it is recognized that internal organizational events can
play a significant role in change and likely operate through an
organizational learning process, as described by customer value
change theory.
7.3. Outcomes of SI
Several potential outcomes of SI are expected. The segmenta-
tion literature is limited to discussing a few negative SI outcomes,
such as wasted investment on segmentation when segments
change. However, the significant evidence for results of good,
stable segments can be examined for further clues. Segmentation
studies generally link well-defined segments to several potential
benefits, including closer matching of a firm's products and capa-
bilities with customer needs (Dibb & Simkin, 2001; Tapp &
Clowes, 2002), greater understanding of how to maximize com-
munication with customers (Van Raaij & Verhallen, 1994), better
strategic decision-making about new products or re-positioning of
old ones (Hoek et al., 1993; Van Raaij & Verhallen, 1994), and
 C.P. Blocker, D.J. Flint / Industrial Marketing Management 36 (2007) 810–822
better resource allocation among served customers (Lindridge &
Dibb, 2003; Wind, 1978). Based on these premises, a logical
extension to segment instability is that–to the degree firms rely
upon segmentation to design offers, align strategy, and allocate
resources to fit their view of the market–SI weakens the effective-
ness of these efforts and, thus, overall market performance.
Three potential mismatch outcomes for SI include customer
needs-offering mismatch, market strategy mismatch, and a re-
source allocation mismatch. The ability to match products and
services to fit the needs of the segment is a central benefit of
segmentation. As the content and structure of segments change,
however, the strength of the match could weaken. When needs are
changing rapidly, a needs-offering match could disappear entirely,
such that a supplier's offers are seen as “out of touch.” Firms also
depend on segmentation to aid in decision making about market
strategy, including positioning new and existing products. As
segments change, target marketing strategies designed to align
with individual segments and the overall market can become less
relevant. Thus, SI may force firms to consistently reexamine
communication strategies, pricing schedules, and other key
variables. Today's firms are urged to realize that not all customers
are created equal (Selden & Colvin, 2003), and resources should
on its outcomes can represent both a dilemma and an opportunity.
be allocated to serve profitable, growing customers first. SI can
blur the picture on which segments deserve greater focus. This can
be the case as segments grow or shrink, potentially creating a
resource deficit or excess scenario. For example, segments might
rs
take on new needs, which cannot be served as profitably.
Finally, potential mismatches are connected to market perfor-
mance. While this relationship is speculative, mismatches of
pe
strategy and resources likely contribute to suboptimal cost struc-
tures and needs-offer mismatches can lead to unhappy, dissatis-
fied customers that are more susceptible to take their business to
competitors. This could occur as customers feel under-served or
confused by suppliers who communicate or approach them in
ways more suited for other segments.
r's
8. Discussion
All things being equal, suppliers would prefer customers'
needs to stay relatively stable and predictable. Unfortunately,
o
few market segments can boast this trait. Rather, studies suggest
that customers are constantly undergoing changes in what they
th
value from suppliers. In his review of industrial segmentation
literature, Plank went so far as to say “segment stability has
been ignored both conceptually and empirically, as there has
Au
been no longitudinal work, nor suggestions for the same” (1985,
p. 87). Unfortunately, almost 20 years later, it is fair to say the
only considerable difference is more concerns have been
expressed (Freytag & Clarke, 2001; Mitchell & Wilson, 1998;
Steenkamp & Hofstede, 2002). Likely reasons for this gap
include an overemphasis on quantitative modeling coupled by
an ongoing search for better variables and the difficulties of
longitudinal research. Furthermore, attempts to understand what
segments currently need has been a significant challenge, and
until recently, most marketing literature has not focused deeply
on understanding the complexity of customers' change process-
es (Flint et al., 2002).
819
We sought to take an initial step toward closing this gap by
offering several contributions to the exploration of SI. First, our
discussion represents an initial attempt to conceptually define the
SI phenomenon and highlight the issues it creates in industrial
contexts. Second, a review of literature directly addressing SI in
consumer settings and in other perspectives attempts to under-
stand the phenomenon from several levels of analysis. Third, we
proposed a theoretical framework of SI to guide further con-
py
ceptual development and empirical study. This framework at-
tempts to provide an initial response to the question posed earlier,
which calls for clarity around the characteristics of SI and the way
it occurs, including its drivers and outcomes. In this process, we
co
explored theoretical insights for understanding the dynamics of
customer need heterogeneity within segments (Wedel &
Kamakura, 2002a). Finally, the model extends current customer
value change theory by conceptualizing it at a broader level of
analysis and applying it in a strategic context.
8.1. Managerial relevance
al
Depending on a supplier's approach, segment instability and
Firms taking a reactive approach to SI are relegated to two main
options. They can serve existing segments, hoping that classes
of segments are relatively stable and the inflow of customers
into those segments is greater than or equal to their outflow.
Alternatively, firms can wait until segment change is readily
apparent, in which case, they must play catch up with customers
and competitors who are tracking changes more closely.
Conversely, firms who can proactively measure and under-
stand SI, as it is occurring, position themselves to not only track
along with customers, but potentially give themselves the oppor-
tunity to shape the change as it occurs. Managers wanting to take
this approach might begin to explore implementing feedback
loops into current segmentation processes to understand SI.
Analyzing SI could be handled by a number of teams within the
firm, including strategists, forecasters, and front-line personnel
dealing with customers on a daily basis. However, at this point,
more research is needed to offer practical means of understanding
and predicting SI.
8.2. Future research agenda
This review has stimulated several questions about SI
needing further exploration.
– Understanding models of segment content change in different
contexts. The limited evidence suggests that SI follows a
model of latent segment change, but exploring this assump-
tion in other contexts could reveal otherwise. Other than one
known study in a single western European country, SI has
not been explored in international contexts. A key question is
whether segment members change in generally the same
ways or in a divergent manner across global markets. Gene-
ralizing this principle through empirical research to under-
stand SI across contexts could be a fundamental step in
making progress towards understanding the phenomenon.
820 C.P. Blocker, D.J. Flint / Industrial Marketing Management 36 (2007) 810–822
– Exploring change patterns. Do patterns of change exist for
customers, such that one might find evidence of frequent
segment shifters as well as a stable core? Conversely, might
types of segments lend themselves to change patterns (e.g.,
market for Y2K systems readiness)? If so, what underlying
characteristics influence change in the way it occurs and,
would segments with diverse “change” profiles respond dif-
ferently to various value propositions? If no patterns exist,
change variance is driven purely by environmental drivers. If
the potential for patterns do exist in certain contexts, under-
standing those patterns could lend themselves to customer
change profiles that could play a significant role in predicting
segment change.
– Assessing strategic implications of serving changing seg-
ments. Research should further explore what it means from a
cost/profit standpoint to serve changing customers and seg-
ments. An initial assumption is that, all things equal, SI
makes serving customers more difficult for suppliers. Yet,
this fails to account for the possibility of developing a com-
petitive advantage based on proactively anticipating change.
As knowledge emerges about SI, research should assess how
firms might alter their resource allocation strategies for par-
on
ticular segments (Bolton & Myers, 2003) that are experi-
encing higher or lower degrees of changing needs.
– Measuring segment instability. Development of a change
construct, possibly customer desired value change, could
rs
capture SI in segmentation analysis, but further work is
needed to understand this variable. To start, empirical work
to examine CDVC under different contexts is needed. Ano-
pe
ther possibility would be developing a taxonomy of cus-
tomer change profiles based upon characteristics or contexts
that might influence change tendencies or patterns. Finally,
longitudinal research might measure segments on numerous
types of variables to uncover degrees of SI and which vari-
ables are the best predictors of instability.
– Exploring the interactive nature of segment instability.
r's
Evidence suggests that suppliers and other market actors
can play an active role in customer need change (e.g., per-
suasive communications or market innovations). Yet little is
known about how this occurs. For instance, how might
o
marketers actively influence, knowingly or unknowingly, SI
among served customers (e.g., through price changes, adver-
th
tising, etc.)? Knowledge here could provide powerful in-
sights to managers as they seek to interact and influence
dynamic customers.
Au
– Developing managerial tools and processes to deal with SI.
Finally, as insight about this phenomenon emerges, work is
needed to translate SI knowledge into prediction tools. These
tools might alert managers to the likelihood of changes
occurring and should draw attention to learning about: seg-
ment instability itself, predicting its rate of change and
direction, and how to develop new value propositions and
strategies to respond to it.
In summary, more research is needed to develop an
understanding of SI and the processes for suppliers to effectively
deal with it. Hopefully, this discussion takes a step in this direction.
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2−21.
Christopher P. Blocker is an Assistant Professor in the Department of
Marketing at Baylor University and has past experience in business-to-business
marketing and global account management. His research interests include
customer value management, international buyer behavior, and global market-
ing strategy. He has published research in the Journal of Business and
Industrial Marketing and a number of conference proceedings of leading
al
marketing academic organizations.
Dr. Daniel J. Flint is the Proffitt's, Inc. Professor of Marketing and an
on
Associate Professor of Marketing in the Department of Marketing and Logistics
at the University of Tennessee. He received his Ph.D. in the areas of marketing
and logistics from the University of Tennessee and has published numerous
articles in the Journal of Marketing, Industrial Marketing Management,
Journal of Business Logistics, International Journal of Physical Distribution
and Logistics Management, and other journals.