Each segmentation method has advantages and disadvantages, giving the marketer a great deal of choice. For even greater
flexibility, marketers can: use multiple segmentation methods.
After identifying potential market segments, marketers ask and address questions such as "Is the segment substantial?"
(i.e., are there enough people to potentially sell to?) and "Will the segment be responsive?" (i.e., are segment members likely to
respond to the firm's marketing strategy). Whether or not the potential segment is profitable is another obvious concern. Whether or
not the segment is reachable (can the marketer communicate with and deliver their goods to that segment?) is also critical to
The potential profitability of segment depends on many factors including fixed costs, segment size, segment adoption
percentage, and profit margin percentage.
No marketer has sufficient resources to create value for all consumers. The essence of target marketing is matching the firm's
competency with a market segment's attractiveness.
Firms should establish the target strategy as the first step. Mass marketing, differentiated segmentation,
concentrated segmentation, and micromarketing are the choices.
Once segmentation and targeting have been completed, the marketer turns to positioning, often using a perceptual map to
display graphically the customers' perceptions of the product and of its competitors' products. Positioning involves five
steps: determining consumers' perceptions and evaluations, identifying competitors' positions, determining consumers'
preferences, selecting the position, and monitoring the positioning strategy. Perceptual maps can be useful in evaluating a product's
position compared to competitors and to consumers' ideal points.
Positioning refers to how consumers think about a product, service, or brand in the market relative to competitors’ offerings.
When developing a positioning strategy, companies go through five important stages: determining consumer’s perceptions and
evaluations of the product or service in relation to competitors’; identifying competitors’ positions’ determining consumer preferences;
selecting the position; monitoring the positioning strategy. This data can be plotted on a position map to illustrate the market
Chapter 9 Notes:
Marketing research is the systematic design, collection, analysis, and interpretation of data to assist with marketing
Data mining uses a variety of statistical analysis tools to uncover previously unknown patterns in data or relationships among
Consumers are more anxious about a lot. Market research often involves gathering detailed information about
consumers. With today's information technology, consumers are concerned about privacy in many different forms. This directly
affects market researchers' attempts to directly survey individuals.
The AMA guidelines for marketing research include all of the following such as prohibiting selling under the guise of conducting
research, supporting research integrity, encouraging fair treatment of clients, supporting the duty of researchers to respect the
consumer’s privacy EXCEPT: supporting efforts to overcome consumers' concerns about privacy.
One of the most important issues marketers must address before beginning a marketing research project is: whether or
not senior management is willing to abide by the results.
Scanner data, U.S. Census data, internal company data and internet background research are all examples of secondary data.
Secondary data are pieces of information that have already been collected from other sources and are usually readily available. CLV:
1. National Insurance Company is trying to estimate the customer lifetime value of a
typical customer. National estimates that they spend about $100 in marketing costs to
acquire a new customer. The company spends, on average, $40 per customer yearly
for ongoing marketing expenses. The annual retention rate is 75%. Average gross
margin per customer is forecasted to be $260 per year. The discount rate is 10%.
a) What is the expected lifetime for the typical National customer?
1 1 1
1−retention_rate 1−.75 .25= = 4
b) What is the expected CLV for a typical customer?
Time 0 Year 1 Year 2 Year 3 Year 4
Acquisition cost $100
Gross Margin $260 $260 $260 $260
Retention cost $40 $40 $40 $40
Net Value ($100) $220 $220 $220 $220
Discount factor 1 0.909 0.826 0.751 0.683
Net Present Value ($100) $200 $182 $165 $150
Cumulative NPV ($100) $100 $282 $447 $597
c) National is under pressure to increase profitability by cutting costs. The VP of
Marketing is planning to cut ongoing marketing expenses by 25%, from an average of
$40 per customer yearly, to $30 per year. This will save on costs per customer, but it is
expected to decrease the retention rate to 67%. Should National implement this cost
1 1 1
= = = 3
new expected lifetime = 1− retention_rate 1−.67 .33 years
Time 0 Year 1 Year 2 Year 3
Acquisition cost $100
Gross Margin $260 $260 $260
Retention cost $30 $30 $30
Net Value ($100) $230 $230 $230
Discount factor 1 0.909 0.826 0.751
Net Present Value ($100) $209 $190 $173
Cumulative NPV ($100) $109 $299 $472
Cutting marketing (retention) costs will increase profitability per
customer within a single year (for example, compare $282 versus $299
at the end of year 2). However, cutting retention spending will also decrease retention rates, leading to a decrease in CLV from $597 to
$472. Based on the CLV analysis, it would not be wise to cut ongoing
marketing expenses by 25%.
2. Joyful Voyages, Inc., a cruiseship company, sponsors yearround cruises to a
variety of destinations. They are currently targeting older customers, over 60
years old, although a small portion of their customers is “younger,” typically
between the ages of 45 to 60 years old. The CEO is putting pressure on the VP of
Marketing to switch focus to a younger target audience, arguing that younger
customers have, relatively speaking, substantially more years left for repeat
business before they are too old to take a cruise. The Marketing VP decides to
undertake a CLV analysis to determine if Joyful should begin targeting younger
customers rather than older customers.
She does some number crunching and determines that Joyful incurs about $2,000
in marketing expenses for every newly acquired customer. Joyful’s retention
spending is primarily focused on promotions mailed directly to passengers that
have sailed with them, at an annual cost of $25 per household. The typical
younger customer spends $4,000 on his first trip, and spends an additional 10%
each trip thereafter (assume he takes one trip per year). The typical older
customer spends $3,800 on his first trip, and spends an additional 10% each trip
thereafter (assume he takes one trip per year). The gross margin for each
passenger voyage is 50%. Older customers tend to be more loyal, and have a
retention rate of 67%, while younger customers are less loyal and have a 50%
a. Should Joyful begin targeting the younger customer segment rather than
the old customer segment? Assume a discount rate of 12%.
For the OLDER customer segment:
1 1 1
= = = 3
expected lifetime = 1− retention_rate 1−.67 .33 years
Time 0 Year 1 Year 2 Year 3
Acquisition cost $2,000
Revenue $3,800 $4,180 $4,598
Gross Margin $1,900 $2,090 $