new segmentation methods and clv gerald e. smith mk719
TRANSCRIPT
New SegmentationMethods and CLV
Gerald E. SmithMK719
DEFINITIONS
• MARKET SEGMENTATION: Customer oriented -- identifies customer subgroups of the market as they currently exist.
• PRODUCT DIFFERENTIATION: Product oriented -- identifies subgroups of competing products.
RULE OF MARKET SEGMENTATION
• Maximize homogeneity within market segments
• Maximize heterogeneity between market segments
BASES FOR SEGMENTINGMARKETS
CONSUMER:• Geographic• Demographic (age,
income, marital, occupation, ethnicity, etc.
• Psychographic (AIO, lifestyles)
• Behavioral (occasions, user status, usage rate, loyalty status, hierarchy of needs)
• Benefits
BUSINESS TO BUSINESS:• Demographic (industry, size, location)
• Customer Variables (technology, user/nonuser, loyalty status)
• Purchasing(centralized/decentralized, functional orientation, contracts vs. bids vs. lease)
• Situational (urgency, order size, product application)
PSYCHOGRAPHIC SEGMENTATION
• Actualizers (taste, finer things)• Fulfilleds (functionability, value, durability)
• Believers (established products/brands)• Achievers (visibility to peers)• Strivers (emulation)• Experiencers (experiential consumption)• Makers (basic practical possessions)• Strugglers (urgent basic needs)
BENEFIT SEGMENTATIONToothpaste Category
Prevents Cavities Freshens Breath Provides Medical Benefits
Demographics Families with children at homeYoung and middle aged parentsModerate incomeModerate to higher educationModerate to high incomes
Single adultsYoung adults, teensWorking incomesWorking or going to schoolModerate incomes
Empty nesters, mature adultsSenior citizens, “Mod Maturity”’sFixed incomeMore educatedWealth driven
Psychographics (Lifestyles) Believers, Fulfilleds, driven byprincipleInvolvement with school andcommunity activitiesEducation is importantHygiene is important
Achievers, Strivers, Experiencersdriven by status, acceptanceActive social lives, social goalsActive physical activitiesAppearance is importantAvoiding halitosis is important
Makers, Believers, Strugglers,driven by survival, healthActive health interestsDiet, exerciseRegular medical visitsMedical education, lectures, etc.
Usage Use Occasions: At least 2x dailyTime of Use: Morning/EveningRelated Behaviors: Regular dentalcheckups, floss usageLoyalty: MoreUsage Level: HeavyAttitudes: Primary product
Use Occasions: IncidentalTime of Use: Prior to socialinteractionsRelated Behaviors: Use withbreath productsLoyalty: LessUsage Level: LightAttitudes: Secondary product
Use Occasions: Several timesdailyTime of Use: Morning/Evening,after mealsRelated Behaviors: Regular dentalcheckups, doctor visits, floss usage,special dental productsLoyalty: More, dependent ondoctor directionUsage Level: ModerateAttitudes: Supplementary product
Most Important Attributes FluorideCavity preventing attributes
TasteStrength of tasteBreath freshening attributes
Medical ingredientsEffects, and side effectsEndorsements
Segmentation UsingMeans End Laddering
Source: Perry, Strategic Marketing Management (2001).
Segmenting UsingMeans End Laddering
Segmentation Framing
Source: Barron and Hollingshead, “Making Segmentation Work,” Marketing Management (2002).
DocumentSecurityService
e.g.,Federal Express
Point-to-PointShippingService
e.g.,UPS
$10-$12per small parcel
$14-$16per small parcel
Segmenting byFrames of Reference and
Contrasting Reference Value Profiles
Source: Smith, “Segmenting B2B Marketing Using Economic Value Analysis,” Marketing Management (2002).
Segmenting by Value Delivery Model and
Composite Channel Customer Value Models
Commercial Volume DrivenSegment
Brand Awareness$41,000
Brand Likelihood ofPurchase $41,000
Brand Tie-In Purchase$36,000
Product Failure-Reinstall $21,000
Experienced Installers$19,000
Reference Value$400,000
PositiveIncremental
Value$158,000
NegativeIncremental
Value$114,000
NetEconomic
Value$444,000
Info Accuracy-Lost Sales$20,000
Delivery Errors-Lost Cust$16,000
Delivery Errors-Opp Cost$16,000
Delivery Errors-Rep Bus$10,000
Out of Stock-Lost Bus$11,500
Out of Stock-Rep Bus$12,000
Management Time Lost$10,000
Carpet Products Probs$7,000
Out of Stock-Opp Cost$11,500
Residential High ServiceSegment
Brand Awareness$45,000
Brand Likelihood ofPurchase $42,000
Brand Tie-In Purchase$31,000
Product Failure-Reinstall $18,000
Product FailureOpp Cost $21,000
Reference Value$500,000
PositiveIncremental
Value$234,000
NegativeIncremental
Value$70,000
NetEconomic
Value$664,000
Experienced Installers$22,000
Experienced InstallersOpp Cost $19,000
Extra Installers$36,000
Info Accuracy-Lost Sales$25,000
Delivery Errors-Lost Cust$20,000
Delivery Errors-Rep Bus$12,500
Management Time Lost$12,500
Source: Smith, “Segmenting B2B Marketing Using Economic Value Analysis,” Marketing Management (2002).
Location Awareness$275
Consumer ConfidenceSecond Tier Brands
$305
$2,000
Trained Flooring Installers$185
Flooring InstallerAvailability
$325
Brand Awareness$335
Consumer ConfidenceTop Tier Brands
$425
Availability ofComplementary Products
$280
Custom Flooring Installers$340
$2,000
DifferentiationValue
ReferenceValue
DifferentiationValue
ReferenceValue
Best Brand Retailers Volume Driven Retailers
Contrasting Differentiation Value Profiles
Source: Smith, “Segmenting B2B Marketing Using Economic Value Analysis,” Marketing Management (2002).
Evaluating Segments UsingEconomic Value Pools
$30 Reference Value
Courts and Law Enforcement Agencies
Academic Research Labs
Pharmaceutical Drug Discovery
Clinical Services(paternity,
inheritance, infidelity)
Immigration
$1,655
$2,500
$400
Millions of kits of market potential
Eco
nom
ic V
alu
e p
er
Kit
$900
$1,300
Source: Nagle and Hogan, The Strategy and Tactics of Pricing (2006).
Evaluating Segments UsingProfit Pools
Source: Gadiesh and Gilbert, Harvard Business Review (1998).
Evaluating Segments UsingProfit Pools
Source: Gadiesh and Gilbert, Harvard Business Review (1998).
Evaluating Segments UsingProfit Pools
Source: Gadiesh and Gilbert, Harvard Business Review (1998).
CALCULATING CUSTOMER LIFETIME VALUE
1. Customer Acquisition Costs2. Customer Break-even Analysis3. Lifetime Value Analysis
CUSTOMER ACQUISITION COSTS
AC = _____________________
Prospecting Costs:Production, Mailing,Advertising, Lists
Response Rate
RETENTION AND SURVIVAL
Survival (t) = Retention Rate(t-1)
CUSTOMER LIFETIME VALUE
CUSTOMER LIFETIME VALUE
Infinite Life
QuickTime™ and a TIFF (LZW) decompressor are needed to see this picture.
BREAK-EVEN ANALYSISFrequent Buyers
QuickTime™ and a TIFF (LZW) decompressor are needed to see this picture.
BREAK-EVEN ANALYSISOccasional Buyers
QuickTime™ and a TIFF (LZW) decompressor are needed to see this picture.
LIFETIME VALUE ANALYSIS
Frequent Buyers
QuickTime™ and a TIFF (LZW) decompressor are needed to see this picture.
LIFETIME VALUE ANALYSIS
Occasional Buyers
QuickTime™ and a TIFF (LZW) decompressor are needed to see this picture.
Segmenting Using CLV
• Likely value of each customer• Buying patterns of each customer
• Optimal marketing strategies– For different customer segments– For each customer over time or situation