Empirical testing reveals the importance of segment analysis in disaggregate choice models, highlighting potential managerial pitfalls.
All disaggregate multiattribute choice models contain the assumption that the population is reasonably homogeneous with respect to the aggregate parameters estimated by the model. The author points out that one particular choice model, logit, has a structure that makes it particularly suited to test a data set for possible segments. A real-world data set is used to illustrate a simple procedure for testing the homogeneity assumption. The analysis provides a warning that managers may easily derive suboptimal or counterproductive strategies if they fail to test this assumption.
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Dennis H. Gensch (1985) studied this question.
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