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Abstract
Neural Networks (NN) have acquired great success, as they are one of the most rapidly expanding areas.
Marketing and specifically Market Segmentation (MS) is one topic that NN can be a useful tool. This work
presents an application of NN in MS. A Case Study (CS) in the market of mobile phones is used. In this
scenario, a Mobile Company wants to predict what type of mobile phone people desire, in order to construct
and promote. For this reason, a NN was developed using Matlab in order to predict the most suitable mobile
phone for different mobile users. A great number of data were collected to train the NN. The decision
capabilities of this NN were evaluated. Results show the potential of NN application in MS.
Keywords: Market Segmentation, Neural Networks, Marketing, Artificial Intelligence.
1. Introduction
Artificial Intelligence (AI) is the science and engineering of making intelligent machines, especially computer
programs [McCarthy, John (2004)]. One of the most important parts of AI is Neural Networks (NN). NN is
the element that makes computers think. For this reason, NN have acquired great success, becoming one of
the most rapidly expanding areas. NN can be utilized into many application areas such as pattern and image
recognition where much research has been done. In addition, NN can be used in business applications [Haykin,
Simon (1999)]. However, there are some fields that these networks have not been applied enough yet. One
topic that NN can be a useful tool is in Marketing and more specifically in Market Segmentation (MS).
In this work, the application of NN in MS is examined. For this reason, a Case Study (CS) in the market of
mobile phones is used. In this scenario, it is assumed that a Mobile Company wants to predict what kind of
mobile phone people desire, in order to construct and promote. A NN was developed using Matlab in order to
predict the most suitable mobile phone for different mobile users. Several training methods were explored. A
great number of collected data were used to train the NN. After training, the ability of the NN to decide was
evaluated. The evaluation presents satisfactory results, which demonstrate the potential of the NN usage in
Marketing and especially in MS.
The rest of this paper is organised as follows. In section 2 an introduction to NN is given. In section 3 the MS
method is presented. In section 4 the CS is described. In section 5 the construction and training of the Neural
Network is analyzed. In section 6 the Evaluation of the NN decision capabilities is shown. Finally, in section 7
conclusions are given.
2. Neural Networks
The first idea for development of this type of network was done in 1943 by the neurophysiologist Warren
McCulloch and the mathematician Walter Pitts by writing a paper about how neurons work [Haykin, Simon
(1999)]. The construction of one network that it can think in the same way of a human brain, attracted many
researchers because it can provide huge capabilities. Based in simple mathematic calculations, a NN tries to
simulate learning capabilities of neurons that exist in the human brain. Figure 1 depicts a representation of a
Brain Neuron. With the development of this type of network, the idea for thinking machines became a reality.
186
A NN is consisted of three basic parts; the input layer, the network layer (one or more
hidden layers) and the output layer (see Figure 2). The input signal enters the network, weighted biased
summations are performed inside the hidden layer and the results are exported in the output layer. The training
of the NN is a procedure where the network weights and biases are adapted every time that a new training data
is fed into the network. Figure 3 shows the way that NN make calculations inside the network.
The input signal matrix is composed of the signals P1, P2,..PK that are received by the hidden layers. Each
element Pi is multiplied by is corresponding weight factor wi to produce weighted sums in each node of the
hidden layer. After that, every sum is biased by the value bi to produce an output signal. Thus the output can
be expressed as:
f(ai) = ( wi,i x Pi) + bi .
, where bi f is the transfer or activation function. In Figure 3 a generic neural network topology is presented.
3. Market Segmentation
Market Segmentation is a part of marketing theory. It is the process of partitioning market into smaller
subgroups of potential customers with similar needs and characteristics [Weinstein, Art (2004)]. The purpose of
segmenting a market is to allow your marketing and sales plan to focus on the subset of prospects that are most
likely to purchase your offering. Right segmention will help to the highest return of marketing and sales
expenditures. Depending on whether you are selling your offering to individual consumers or a business, there
are definite differences in what you will consider when defining market segments [CED (2004)]. There are four
basic categories of variables in MS: Geographic Variables, Demographic Variables, Psychographic Variables
and Behavioural Variables [Brassington and Pettitt (2003)].
MS can be made with many techniques. Neural is the one of the most recent method for segmenting markets.
Moreover, there are some other methods that are used such as Regression Analysis and Multiple Linear
Regression Analysis. When compared to the above methods, NN are proved to give better performance, in most
of the times [DeTiennen, Kristen Bell (2003)]. There is the need to develop an application to prove so.
188
TrainLM Method
Neurons
MSE
Epochs
Correct %
Neurons
MSE
Epochs
Correct %
10
0.017
10000
36.7%
0.030
1000
43.3%
20
0.018
998
26.7%
10
0.012
783
56.7%
30
0.002
620
33.3%
11
0.037
918
63.3%
35
0.008
1206
50%
20
0.182
36
60%
40
9.69e-7
255
46.7%
25
9.95e-7
119
56.7%
50
0.003
306
33.3%
30
3.33e-3
303
40%
80
0.002
709
46.7%
35
0.185
1000
63.3%
100
0.002
240
40%
37
0.052
665
70%
200
0.067
243
46.7%
38
0.010
382
56.7%
500
8.63e-7
214
40%
50
0.112
211
53.3%
1000
0.002
382
33.3%
80
9.94e-7
321
33.3%
7. Conclusion
In this work, the application of NN in MS is proposed. In order to examine this, a case study regarding the
mobile phone market is presented. Several NN designs and training methods were investigated. Two training
methods produced satisfactory results dictating the potential of NN usage in MS, which can be a powerful tool
in the Marketing Science.
The presented work is an example to show the methodology for future research and implementation. This
method can be used in a very big variety of applications of Marketing. It can be used in every market that has to
be segmented. In order to improve further the performance of such application several issues have to be taken
into account:
Selection of questions (which are used as training inputs) is critical. Different formulations for the questions
may give different results.
Range of possible answers also affects the results.
Variation of the statistical sample is very significant.
The amount of training data is important. A greater database can give better results.
The network proved to be sensitive. The size and type of NN as well as the training method is critical.
The application of NN in MS requires a good background in many different scientific fields such as marketing,
neural network, sampling and statistics.
The capability of neural networks to take decisions is very hopeful for developing more applications on the
field of market segmentation. It provides to the future scientist a great area for research and development.
References
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Jonathan
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Market
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190
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