Analyzing Client Profitability across Diffusion Segments for a Continuous Innovation

While a time-based segmentation approach to customer segmentation for new products allows firms to identify consumers in the innovators and the early adopters segments, we add a profitability-based perspective to generate new insights. Using six years of data on the adoption of technology services over three generations from a large technology manufacturer-service provider across seven countries, we provide empirical evidence that the per period short-term and long-term profitability of clients in the early majority segment is the highest, followed by the late majority, the innovators, the early adopters, and the laggards, respectively. While a time-based segmentation approach allows firms to identify consumers more likely to adopt new products sooner than others, a profitability-based perspective can complement their targeting strategy and enhance overall profits. Managers can make informed decisions on investments required to develop new markets with better estimates of the profitability of consumers from later segments. Our study offers managers the necessary insights to develop a road map to identify and target the most profitable clients to increase overall profits.