Section: F Market Segmentation
Describe the benefits of market segmentation
As cusomters begin to assume that products and service will be of high quality, the competitive differentiator becomes price or value. (Custoemrs become more profitable the longer they are retained. Liftetime customer relationships are more likely when customers feel that a business is meeting their unique needs. Segmentation also halep buisnesss get a better return on their promotional budgets. Businesses can be more confident that they are reaching the right audience with the message that is most meaning ful to that audience.
Define the marketing concepts behind customer-driven marketing
Customer driven is defined as a company consideration of customer wants and desires in deciding what is produced and its quality. Customer requirements must drive product and service design- Design starts with analysis of actual customer requirements or needs. For example, the results could show that color is irrelevant but a particular design feature is worth a premium. All products and services have more than one market segment. The primary justification for defining market segments is the marketing assertion that no single set of customer requirements describes all potential customers. Each customer will have unique requirements. but groups of customers with similar requirements can be discovered. Logistics and marketing strategy must focus on customer segments- marketing must enable possession of the product or service by providing marketing information in a manner likely to reach and be appreciated by that segment. Logistics must then make that product or service available to the customer at a time and place the customer segment finds convenient. (multiple supply chains) Profitability Is more important than sales volume- All strategic decisisons on prouct form, marketing expense, and logistical timing and placement have an associated cost. Each additontal cost must be justified by incremental increases in profits. An essential benefit of customer segmentation is an identification of the size and value of each segment. (increased profitability of customer segment over single transaction.
Describe how markets can be segmented by demographics, attitudes, or psychological profiles or by customer value, customer needs, or preferred contact channel.
Historically market segments were based on preconcptions about the behaviors or desires of certain groups or, in the best case on research into small' Representative " groups of customers. Today segments can be defined by customers actual buying behaviors, and the result is more accurate segmentation. The three ways of segmentation might occur in a customer-driven strategy. Customer value In the past organizations treated cusomters as if they were all the same. Today more and more organiztions are treating cusomters differently based on the differences in the customers contributions to the bottom line. The greater the cusomter value the better treatment the cusomter receives. Leading organization drive to incrase value generation from high yield customers. Customer needs needs refer to specific product or service features, contact channels, or logistics channel (time and placement) It is important for businesses, therefore, to understand what the customer want, why and how much. (value profile) Preferrred contact channel Customers growingly prefer technology contact channels. some business sectors have chosen to reward customers that use technology channels, such as a discount for setting up automated bill payment. Another option has been to educate customers on the benefits of a particular channel.
Describe the pareto effect in relation to customer value
The pareto effect states that 20 percent of the output will get you 80 percent of the results, so a firm wants to focus on 20 percent of their customers that bring in 80 percent of the benefit or placed their customers in different class brackets by value.
Describe the reason to identify and understand market segments
The primary reason to identify and understand market segments is to increase the organizations profits over the long term. How segmentation helps accomplish this goal will be discussed. Customer segmentation- the practice of dividing a customer base into groups of individuals that are similar in a specific way relevant to marketing. Traditional segmentation focuses on identifying customer groups based on demographics and attributes such as attitude and psychological profiles. *Intermediate customers are those customers that are not at the end of the supply chain *ultimate customers are the final recipients of products or services. The ultimate customer could be an organization that is purchasing goods or services for employees or constituents. Most organizations now recognize that successful business strategy is customer drive, and customer driven markeing typically requires identifying and understand market segments.
Explain how customer information can be used to understand the wants and needs of each segment.
Understanding the wants and needs of each segment involves market research and gathering information from multiple sources, including customers themselves, which is called the voice of customer (VOC). Transaction records- show purchase frequency Sales representatives- relay info about what various customer segments are asking for, what they are not interested in. Service representatives- provide information about how products or services are being used currently and how specific customer segments would like to use them. Disribution points- provide information about customer segment values, purchasing habits, and preferences Purchased data- may be more useful in acquiring new cusomters than in managing relationships with exisiting customers. VOC- is a reseach and measurement toll used in complex selling stiuations when it may not be easy to ask the right questions. Allows customers to talk freely and identify topics for discussion rather than simply respond to topics chosen by researcher.