Latent class factor models for market segmentation: an application to pharmaceuticals

Market segmentation consists in defining homogeneous groups of customers and it is one of the building blocks of effective marketing planning. Various statistical techniques are available in order to identify market segments, among these, cluster analysis and latent class models. In this paper, an extension of traditional latent class analysis, called latent class factor model, is applied to market segmentation. This approach is more parsimonious than the traditional one and allows to obtain results easier to interpret in managerial terms. The model is used to identify segments of doctors homogeneous for attitude towards pharmaceutical industries and drugs prescription behaviour.