MMC 3420 Chapter Notes - Chapter 7: Latent Class Model, Conjoint Analysis, Database Marketing
27 May 2018
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Module 1.3 – Marketing and Segmentation
• Differences in customer preferences and needs when designing product offerings
• STP – segmentation, targeting, and positioning – identifies a firm’s potential customers,
selects which customers a firm should pursue, and formulates its value proposition for its
target customers
• Segmentation (group customers based on similar needs, profile each segment) –
o Targeting (assess attractiveness of each segment, selects segments to target) –
o Positioning (define value proposition for target segments, develop an action plan)
• Segmentation Fundamentals
o Segmentation – separation of a heterogeneous group of customers with different
needs into homogenous subgroups or segments of customers with similar needs
and preferences
o Segments with unmet needs are opportunities that can drive business strategy and
new product development
o Firms do not create segments, they uncover them
o Companies can segment the market differently depending how they view
consumers and needs
• Why Segment the Market
o Tailored needs
o Benefits to the Organization
▪ Identification of unfulfilled needs
▪ Better product design
▪ More targeted promotions
▪ Increased customer satisfaction
o Benefits to the Customer
▪ Convenience and time savings
▪ Tailored products and services
▪ Relevant offers
▪ Personalized experience
• Characteristics of a Useful Segmentation
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o Identifiable – identify customers in each segment and measure characteristics,
such as demographics or usage behavior
o Substantial – usually not cost-effective to target small segments; large enough for
a firm to serve profitably
o Accessible – not much value if the organization cannot reach the segments
o Stable – stable over a long enough period that any marketing effort would be
successful and profitable
o Differentiable – consumers in a segment should have similar needs, and these
needs should differ from the needs of consumers in other segments
o Actionable – should be able to create products and marketing programs for
attracting and serving customers in the segments identified
• How to Segment Consumers
o Can segment based on age, income, usage rate, lifestyle, etc.
o Helpful to group the segmentation variables into three categories of WHO buys,
WHAT they buy, and WHY they buy it
• Who are the customers?
• What is Customer Purchase Behavior
o Companies that have traditionally used catalogs often segment them based on
three factors (RFM): Recency, frequency, and monetary value of purchases
▪ Commonly used in database marketing and easy to implement for
companies that track customers’ transaction data
o Customer loyalty is another important variable
• Why Do Customers Buy a Particular Product?
o Only through knowing why consumers make the decisions can we truly
understand the needs and preferences
• Targeting
o Involves evaluating the attractiveness of each market segment, selecting one or
more segments to pursue, and then designing marketing programs to serve them
o Goal is to select segments that improve the organization’s chances of maximizing
its long-term profitability in those segments
o Depends on the level of segmentation in a particular situation or marketplace
find more resources at oneclass.com
find more resources at oneclass.com
