When Customers Think Differently: A Customer-side Categorization Approach to Strategic Groups

This paper draws upon categorization theory and applies it to segmentation and strategic group research. In contrast to existing approaches that have investigated the categorizations of managers and industry experts, we investigate customers' patterns of brand categorization. Customer groups defined by their pattern of brand categorization can be conceptualized as the demand-side counterpart of strategic groups. Characterising customer segments or strategic groups by their respective probabilities of brand categorization (brand consideration, brand neutrality, brand rejection) helps to understand the competitive structure of a market and preference barriers that exist for brands (i.e. it is very difficult for a firm to enter a segment/strategic group where its brand is rejected). These preference barriers in effect represent mobility barriers for firms and are crucial for understanding the dynamics of competition in a given market. Conceiving brand categorization as a goal-derived categorization process, we propose and show that product category goals and category-specific benefits differ across brand categorization segments. Applying our approach in the automotive industry helps to explain market phenomena that are difficult to account for with solely a traditional resource based perspective on strategic groups.