Segmentation and Targeting STP Segmentation Targeting and Positioning

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Segmentation and Targeting ² STP (Segmentation, Targeting, and Positioning) ² Needs-based segmentation ² Cluster

Segmentation and Targeting ² STP (Segmentation, Targeting, and Positioning) ² Needs-based segmentation ² Cluster Analysis ² Discriminant Analysis

Market Segmentation ² Market segmentation is the subdividing of a market into distinct subsets

Market Segmentation ² Market segmentation is the subdividing of a market into distinct subsets of customers. Segments ² Members are different between segments but similar within. © Decision. Pro 2007 Principles Chapter 3: Segmentation and Targeting - 2

STP is a Core Business Process STP - (Segmentation, Targeting, Positioning) is a Decision

STP is a Core Business Process STP - (Segmentation, Targeting, Positioning) is a Decision Process ² To identify and select groups of potential customers. . . § Organizations, Buying Centers, Individuals ² Whose needs within-groups are similar and whose needs between-groups are different (S) ² Who can be reached profitably (T) ² With a focused marketing program (P) © Decision. Pro 2007 Principles Chapter 3: Segmentation and Targeting - 3

How STP Creates Value Segmentation Identify segments Targeting Select segments Positioning Create competitive advantage

How STP Creates Value Segmentation Identify segments Targeting Select segments Positioning Create competitive advantage Marketing resources are focused to better meet customers needs and deliver more value to them Customers develop preference for brands that better meet their needs and deliver more value Customers become brand/supplier loyal, repeat purchase, communicate favorable experiences Brand/supplier loyalty leads to increased market share and creates a barrier to competition Fewer marketing resources needed over time to maintain share due to brand or supplier loyalty Profitability (value to the firm) increases © Decision. Pro 2007 Principles Chapter 3: Segmentation and Targeting - 4

How Many Different Groups of Cards Are Here? © Decision. Pro 2007 Principles Chapter

How Many Different Groups of Cards Are Here? © Decision. Pro 2007 Principles Chapter 3: Segmentation and Targeting - 5

The Many Uses of Segmentation Short term segmentation applications: ² Salesforce allocation/call planning ²

The Many Uses of Segmentation Short term segmentation applications: ² Salesforce allocation/call planning ² Channel assignment ² Communication program ² Pricing ² Today’s competitors and my current relative advantage to the customer © Decision. Pro 2007 Principles Chapter 3: Segmentation and Targeting - 6

The Many Uses of Segmentation Longer term: ² Emerging needs ² New and evolving

The Many Uses of Segmentation Longer term: ² Emerging needs ² New and evolving market segments to serve ² Planning for segment development/growth ² Not in kind competition/threats (satisfying customer needs in different ways) ² Lead user identification and management ² Market driving (vs. customer focused) © Decision. Pro 2007 Principles Chapter 3: Segmentation and Targeting - 7

A Four-Phase Process for Conducting a Successful Segmentation Project Phase I Planning and Design

A Four-Phase Process for Conducting a Successful Segmentation Project Phase I Planning and Design Internal Assessment & Planning • Objective(s) of segmentation • Resources • Constraints Database Review • Primary data already available • Secondary data • … Prototype Implementation Exercises • What ifs? • Relevant groups involved? • …. . Phase II Qualitative Assessment Qualitative Research • Interview Materials Development · · • Qualitative Data Collection · · • “Deep needs” Identification · · • Decision. Making Process Assessment · · Phase IV Analysis and Implementation Phase III Quantitative Measurement Quantitative Survey • Sample Design · · · Segmentation Analysis • Cluster Analysis • Portfolio Analysis • Questionnaire Development · · · • Data Collection · · · • Positioning Analysis Implementation Through Database Tools • Call Center • Web Classification Tool Development • Discriminant function • Sales call patterns • Promotion • …. • Binary (CART) tree • … Basic Idea: Do segmentation analysis on a small (random) sample of customers, but leverage the insights across the entire customer base.

Needs-Based Segmentation Distinguish Between Bases and Descriptors ² Bases—characteristics that tell us why segments

Needs-Based Segmentation Distinguish Between Bases and Descriptors ² Bases—characteristics that tell us why segments differ (e. g. , needs, preferences, decision processes). ² Descriptors—characteristics that help us find and reach segments. (Business markets) Industry Size Location Organizational structure © Decision. Pro 2007 (Consumer markets) Age/Income Education Profession Life styles Media habits Principles Chapter 3: Segmentation and Targeting - 9

Variables to Segment and Describe Markets Consumer Markets B 2 B Markets Segmentation Bases

Variables to Segment and Describe Markets Consumer Markets B 2 B Markets Segmentation Bases Needs, wants, benefits, solutions to problems, usage situation, usage rate, size*, industry*. Descriptors Demographics Age, income, marital status, family type & size, gender, social class, etc. Lifestyle, values, & personality characteristics. Use occasions, usage level, complementary & substitute products used, brand loyalty, etc. Individual or group (family) choice, low or high involvement purchase, attitudes and knowledge about product class, price sensitivity, etc. Level of use, types of media used, times of use, etc. Industry, size, location, current supplier(s), technology utilization, etc. Personality characteristics of decision makers. Use occasions, usage level, complementary & substitute products used, brand loyalty, order size, applications, etc. Formalization of purchasing procedures, size & characteristics of decision making group, use of outside consultants, purchasing criteria, (de)centralizing buying, price sensitivity, switching costs, etc. Level of use, types of media used, time of use, patronage at trade shows, receptivity of sales people, etc. Psychographics Behavior Decision Making Media Patterns © Decision. Pro 2007 Principles Chapter 3: Segmentation and Targeting - 10

Segmentation (for Carpet Fibers) Strength (Importance) A, B, C, D: Location of segment centers.

Segmentation (for Carpet Fibers) Strength (Importance) A, B, C, D: Location of segment centers. Typical members: A: schools B: light commercial C: indoor/outdoor carpeting D: health clubs . . . . A. . . B. . . Perceptions/Ratings for one respondent: Customer Values . . . D. . . C. . . Distance between segments C and D Water Resistance (Importance) © Decision. Pro 2007 Principles Chapter 3: Segmentation and Targeting - 11

Targeting Segment(s) to serve Strength (Importance) . . . Water Resistance (Importance) © Decision.

Targeting Segment(s) to serve Strength (Importance) . . . Water Resistance (Importance) © Decision. Pro 2007 Principles Chapter 3: Segmentation and Targeting - 12

Example Criteria for Determining Which Segments to Serve Criterion Examples of Considerations I. Size

Example Criteria for Determining Which Segments to Serve Criterion Examples of Considerations I. Size and Growth 1. Size 2. Growth • Market potential, current market penetration • Past growth forecasts of technology change II. Structural Characteristics 3. Competition • Barriers to entry, barriers to exit, position of competitors, ability to retaliate 4. Segment saturation • Gaps in the market 5. Protectability • Patentability of products, barriers to entry 6. Environmental risk • Economic, political, and technological change III. Product-Market Fit 7. Fit 8. Relationships with segments 9. Profitability • Coherence with company’s strengths and image • Synergy, cost interactions, image transfers, cannibalization • Entry costs, margin levels, return on investment © Decision. Pro 2007 Principles Chapter 3: Segmentation and Targeting - 13

Most Common Approach: Some Form of GE Matrix Process 1. Specify drivers of two

Most Common Approach: Some Form of GE Matrix Process 1. Specify drivers of two dimensions: Specify the Criteria 2. Rate portfolio elements (segments, products, markets, etc) on each driver 3. Weight drivers 4. Multiply weights times rates for each element 5. View resulting graph 6. Review/sensitivity analysis 7. IMPLEMENT? ? ? © Decision. Pro 2007 Principles Chapter 3: Segmentation and Targeting - 14

Selecting Segments Using GE/Mc. Kinsey Portfolio Matrix Competitive Strength Low Average 1. 0 High

Selecting Segments Using GE/Mc. Kinsey Portfolio Matrix Competitive Strength Low Average 1. 0 High 3. 0 5. 0 Attractive Neutral Unattractive Market Attractiveness 5. 0 3. 0 1. 0 Market Segment 1 Market Segment 4 Market Segment 2 Market Segment 5 Market Segment 3 Market Segment 6 = $10 MM Sales © Decision. Pro 2007 Principles Chapter 3: Segmentation and Targeting - 15

Example Criteria for Segment Selection Source: John De Leon © Decision. Pro 2007 Principles

Example Criteria for Segment Selection Source: John De Leon © Decision. Pro 2007 Principles Chapter 3: Segmentation and Targeting - 16

Segment Strategies Based on GE/Mc. Kinsey Portfolio Analysis Market Segment Attractiveness (adaptation of Porter

Segment Strategies Based on GE/Mc. Kinsey Portfolio Analysis Market Segment Attractiveness (adaptation of Porter Five Forces Model) Capitalize on Attractiveness • Selectively position to improve base business • Create well-defined and rigidly enforced cut-off criteria • Monitor closely Harvest • • Challenge for Top Position • Invest for growth • Build on major strengths • Protect areas of vulnerability Build Preemptive Position • • Preserve Position Reduce fixed costs Minimize capital expenditures Reduce product line Seek opportunistic sale Exit • Exit market or prune product line • Determine timing so as to present maximum value • No further commitment of resources • Make selective investments to maintain position • Seek opportunistic growth • Apply strengths in more attractive areas Strict Cash Flow Management • Minimum commitment of resources • Protect position in attractive areas Invest for growth Diversify globally Consolidate position Focus on long-term cash flow Expand Selectively • Seek most desirable areas of segment • Trade share for earnings as appropriate • Monitor closely for further decline Protect/Refocus • • Selectively invest for earnings Defend strengths Refocus to attractive segments Monitor for harvest or divestment timing Competitive Strength (Available Levers)

Segment Economics for Driving Segment Selection Source: Mc. Kinsey & Co. Report, October 2001

Segment Economics for Driving Segment Selection Source: Mc. Kinsey & Co. Report, October 2001 © Decision. Pro 2007 Principles Chapter 3: Segmentation and Targeting - 18

Managing Segmentation 1. 2. 3. 4. 5. 6. Define segmentation problem Conduct market research

Managing Segmentation 1. 2. 3. 4. 5. 6. Define segmentation problem Conduct market research Build segmentation database Define market segments Describe market segments Implement results © Decision. Pro 2007 Principles Chapter 3: Segmentation and Targeting - 19

1. Define Segmentation Problem ² View market segmentation problem as a series of hierarchical

1. Define Segmentation Problem ² View market segmentation problem as a series of hierarchical stages -- for example § Identify broad strategic “macro-segments” that effectively define market structure ► Industry groups ► Product usage (rate of usage, application, etc. ) ► Geographic location, etc. § Within macro-segments, conduct research to find “microsegments” for competitive advantage ► Segmentation on buyer needs and value ► Segmentation on product benefits © Decision. Pro 2007 Principles Chapter 3: Segmentation and Targeting - 20

2. Conduct Market Research Phase 1 Phase 2 Phase 3 Exploratory Study Market Segmentation

2. Conduct Market Research Phase 1 Phase 2 Phase 3 Exploratory Study Market Segmentation Study Segment Response Analysis & Planning Implement Marketing Program Market research supports the segmentation process © Decision. Pro 2007 Principles Chapter 3: Segmentation and Targeting - 21

Respondent Selection/Aggregation Issues ² Who makes the purchasing decision: ? DMU (decision making unit)?

Respondent Selection/Aggregation Issues ² Who makes the purchasing decision: ? DMU (decision making unit)? ² Roles of individuals § Purchasing agent? § User? § Specifier? § Gatekeeper? § Financial analyst? ² How many respondents per unit? ² If more than one, how to aggregate? © Decision. Pro 2007 Principles Chapter 3: Segmentation and Targeting - 22

3. Build Segmentation Database Importance Competitor Usage Response Importance ratings perceptions variables Demog Factors

3. Build Segmentation Database Importance Competitor Usage Response Importance ratings perceptions variables Demog Factors Org # BC # Resp # 1 …………k 1…………. . r 1………. s 1…………t 1……. v 1………. m<k 1 1 1 1 2 2 2 etc. 1 1 1 2 2 1 1 2 3 4 1 2 3 8 9 3 4 2 5 9 8 9 6 9 8 8 6 etc. 9. . . 8 2 9 3 etc. © Decision. Pro 2007 Principles Chapter 3: Segmentation and Targeting - 23

4. Define Market Segments ² Assume the following data matrix includes the responses from

4. Define Market Segments ² Assume the following data matrix includes the responses from six customers on four key components of value (10 point rating scale of importance) ² How would you segment this “market”? © Decision. Pro 2007 Principles Chapter 3: Segmentation and Targeting - 24

5. Describe Market Segments ² Table represents the market for industrial adhesives Segments based

5. Describe Market Segments ² Table represents the market for industrial adhesives Segments based on needs Organization size as a descriptor ² What can we conclude? © Decision. Pro 2007 Principles Chapter 3: Segmentation and Targeting - 25

6. Implement Results: Classify Prospect List Seg 1 Profit Growth Segmentation Study Seg 2

6. Implement Results: Classify Prospect List Seg 1 Profit Growth Segmentation Study Seg 2 Seg 3 Prospect Y = Size = 2. 5 Profit Growth = 2. 0 678 Company Size Þ Segment 3 Implication: When targeting Prospect Y, use marketing strategy (Channels, positioning, etc. ) appropriate for Segment 3. © Decision. Pro 2007 Principles Chapter 3: Segmentation and Targeting - 26

Segmentation Process Summary 1. Articulate a strategic rationale for segmentation (i. e. , why

Segmentation Process Summary 1. Articulate a strategic rationale for segmentation (i. e. , why are we segmenting this market? ). 2. Select a set of needs-based segmentation variables most useful for achieving the strategic goals. 3. Select a cluster analysis procedure for aggregating (or disaggregating customers) into segments. 4. Group customers into a defined number of different segments and describe them…and target them with descriptor data. 5. Target the segments that will best serve the firm’s strategy, given its capabilities and the likely reactions of competitors. © Decision. Pro 2007 Principles Chapter 3: Segmentation and Targeting - 27

Segmentation: Methods Overview ² Factor analysis (to reduce data before cluster analysis). ² Cluster

Segmentation: Methods Overview ² Factor analysis (to reduce data before cluster analysis). ² Cluster analysis to form segments. ² Discriminant analysis to describe segments. ² GE/Mc. Kinsey model for selecting segments to serve. © Decision. Pro 2007 Principles Chapter 3: Segmentation and Targeting - 28

Cluster Analysis for Segmenting Markets ² Select variables for analysis – these should be

Cluster Analysis for Segmenting Markets ² Select variables for analysis – these should be based on their potential for providing meaningful ways to define the needs of customers. ² Define an overall measure to assess the similarity of customers on the basis of the needs variables. ² Group customers with similar needs. The software uses the “Ward’s minimum variance criterion” and, as an option, the KMeans algorithm for doing this. ² Select the number of segments using numeric and strategic criteria, and your judgment. ² Profile the needs of the selected segments (e. g. , using cluster means). © Decision. Pro 2007 Principles Chapter 3: Segmentation and Targeting - 29

Single Linkage Cluster Example Distance Matrix Co#1 Company #2 Company #3 Company #4 Company

Single Linkage Cluster Example Distance Matrix Co#1 Company #2 Company #3 Company #4 Company #5 0. 00 Co#2 Co#3 Co#4 Co#5 0. 00 1. 49 3. 42 1. 81 5. 05 0. 00 2. 29 1. 99 4. 82 0. 00 1. 48 4. 94 0. 00 4. 83 Resulting Dendogram 1 2 Company 3 4 5 1 2 3 Distance © Decision. Pro 2007 4 5 Principles Chapter 3: Segmentation and Targeting - 30

Ward’s Minimum Variance Agglomerative Clustering Procedure First Stage: 10 A = E = 2

Ward’s Minimum Variance Agglomerative Clustering Procedure First Stage: 10 A = E = 2 15 B = 5 C = 9 AB = 4. 5 BD = 12. 5 AC = 24. 5 BE = 50. 0 AD = 32. 0 CD = 0. 5 AE = 84. 5 CE = 18. 0 BC = 8. 0 DE = 12. 5 CDA = 38. 0 CDB = 14. 0 CDE = 20. 66 AB = 85. 0 BE = 50. 5 ABE= 93. 17 CDE = Second Stage: Third Stage: 5. 0 AE = Fourth Stage: 25. 18 Fifth Stage: ABCD = 41. 0 © Decision. Pro 2007 D = ABCDE = 98. 8 Principles Chapter 3: Segmentation and Targeting - 31

Ward’s Minimum Variance Agglomerative Clustering Procedure 98. 80 25. 18 5. 00 0. 50

Ward’s Minimum Variance Agglomerative Clustering Procedure 98. 80 25. 18 5. 00 0. 50 A B © Decision. Pro 2007 C D E Principles Chapter 3: Segmentation and Targeting - 32

Interpreting Cluster Analysis Results ² Select the appropriate number of clusters: § Are the

Interpreting Cluster Analysis Results ² Select the appropriate number of clusters: § Are the bases variables highly correlated? (Should we reduce the data through factor analysis before clustering? ) § Are the clusters separated well from each other? § Should we combine or separate the clusters? § Can we come up with descriptive names for each cluster (e. g. , professionals, techno-savvy, etc. )? ² Typically, the market is segmented first, and then you independently evaluate your ability to reach the segments (i. e. , separately evaluate segmentation and discriminant analysis results). However, such an approach may not necessarily result in segments that can be targeted. © Decision. Pro 2007 Principles Chapter 3: Segmentation and Targeting - 33

Doing K-Means Cluster Analysis a = distance from member to cluster center b =

Doing K-Means Cluster Analysis a = distance from member to cluster center b = distance from I to III • Dimension 2 • • Perceptions or ratings data from one respondent III b I • • a • • • II Dimension 1 © Decision. Pro 2007 Principles Chapter 3: Segmentation and Targeting - 34

Profiling Clusters (PDA Example) © Decision. Pro 2007 Principles Chapter 3: Segmentation and Targeting

Profiling Clusters (PDA Example) © Decision. Pro 2007 Principles Chapter 3: Segmentation and Targeting - 35

Discriminant Analysis for Describing Market Segments ² Identify a set of “observable” variables that

Discriminant Analysis for Describing Market Segments ² Identify a set of “observable” variables that helps you to understand how to reach and serve the needs of selected clusters. ² Use discriminant analysis to identify underlying dimensions (axes) that maximally differentiate between the selected clusters. © Decision. Pro 2007 Principles Chapter 3: Segmentation and Targeting - 36

Two-Group Discriminant Analysis Price Sensitivity XXOXOOO XXXOXXOOOO XXXXOOO XXOXXOXOOOOOOO X-segment Need for Data Storage

Two-Group Discriminant Analysis Price Sensitivity XXOXOOO XXXOXXOOOO XXXXOOO XXOXXOXOOOOOOO X-segment Need for Data Storage Discriminant function O-segment x = high propensity to buy o = low propensity to buy © Decision. Pro 2007 Principles Chapter 3: Segmentation and Targeting - 37

Interpreting Discriminant Analysis Results ² What proportion of the total variance in the descriptor

Interpreting Discriminant Analysis Results ² What proportion of the total variance in the descriptor data is explained by the statistically significant discriminant axes? ² Does the model have good predictability (“hit rate”) in each cluster? ² Can you identify good descriptors to find differences between clusters? (Examine correlations between discriminant axes and each descriptor variable). © Decision. Pro 2007 Principles Chapter 3: Segmentation and Targeting - 38

Successful Segmentation Results in a Simple-to-Use Targeting Tool Classify a potential customer/target into segments.

Successful Segmentation Results in a Simple-to-Use Targeting Tool Classify a potential customer/target into segments. Discriminant Function Approach Compute discriminant function scores for each customer/ prospect on each discriminant function, and assign the customer to the segment that has its centroid closest to that customer. Other Approaches (e. g. , Tree-based) for Assignment Classification and Regression Trees (CART) © Decision. Pro 2007 Principles Chapter 3: Segmentation and Targeting - 39

Tree-Based Classification Tool Q 1_1: How would you rate your current overall health? Q

Tree-Based Classification Tool Q 1_1: How would you rate your current overall health? Q 1_16 J: My doctor is very competent and good at what s/he does. Q 3_13 AA: Prescription medication reduces risk of heart attacks and stroke. Q 4_15: Have you ever asked your doctor about a specific brand medication for your high cholesterol? Q 1_16 J: My doctor is very competent and good at what s/he does. Q 3_13 CJ: Exercise makes me feel better/healthier. Q 3_13 AA: Prescription medication reduces risk of heart attacks and stroke. Each segment is represented in a different color © Decision. Pro 2007 Principles Chapter 3: Segmentation and Targeting - 40

Integrating Targeting and Relationship Management “Best Offer” Query Model: Female-owned small business Other ____

Integrating Targeting and Relationship Management “Best Offer” Query Model: Female-owned small business Other ____ Alternative Model N Customer Access Problem? Y Y Call/Caller Priorities? Work at Home? Y Caller ID? N N Offer A N N Which Complaints? • Can’t Find You • Busy Signal • Frustrating Voice-Mail • Put on Hold Too Long • Other Professional/Social/Personal Services Line of Business? Offer D N Offer C Terminate Have Website? N Terminate Customized Recommendation © Decision. Pro 2007 Y Customer Access Problem? Y Compete with personalized service? Y Offer B Y Offer D Principles Chapter 3: Segmentation and Targeting - 41

Obtaining Data for Needs-Based Segmentation Studies ² Conduct traditional marketing research surveys for gathering

Obtaining Data for Needs-Based Segmentation Studies ² Conduct traditional marketing research surveys for gathering needs data from a random sample of respondents. Often, a qualitative study (e. g. , focus group) is conducted to determine the appropriate needs variables. § Ratings data § Constant-sum importance data. ² Gather data through a “Conjoint” study. ² Obtain descriptor data through a combination of secondary and primary data sources. © Decision. Pro 2007 Principles Chapter 3: Segmentation and Targeting - 42

Implementation Issues

Implementation Issues

Most Segmentation Projects Typically Provide…. General Insights… Not Action Plans … © Decision. Pro

Most Segmentation Projects Typically Provide…. General Insights… Not Action Plans … © Decision. Pro 2007 Principles Chapter 3: Segmentation and Targeting - 44

In the Final Analysis…. Little Measurable Value from many segmentation studies …… They are

In the Final Analysis…. Little Measurable Value from many segmentation studies …… They are one-time Projects that drain resources © Decision. Pro 2007 Principles Chapter 3: Segmentation and Targeting - 45

Because of How We Think About Segmentation ² Instinctively, firms think about target market

Because of How We Think About Segmentation ² Instinctively, firms think about target market segments that are: § Easily defined § Clear-cut § And reachable. . . © Decision. Pro 2007 Principles Chapter 3: Segmentation and Targeting - 46

Reality of Market Segments ² In practice, market segments are. . . § Hard

Reality of Market Segments ² In practice, market segments are. . . § Hard to define § Fuzzy, and § Overlapping Seg A Overlap Seg B Seg C ² And, customer needs evolve over time. © Decision. Pro 2007 Principles Chapter 3: Segmentation and Targeting - 47

On the Other Hand… What About This “Segmentation”? Ad in London Newspapers, 1913* Men

On the Other Hand… What About This “Segmentation”? Ad in London Newspapers, 1913* Men wanted for hazardous journey. Small wages, bitter cold, long months of complete darkness, constant danger, safe return doubtful. Honor and recognition in case of success. — Ernest Shackleton, Did it work? Absolutely yes! * It is not entirely clear whether Ernest Shackleton actually placed such an ad. At worst, this makes for an interesting apocryphal story. © Decision. Pro 2007 Principles Chapter 3: Segmentation and Targeting - 48

A Good Segmentation Study … ² Identifies segments of customers with differentiated needs. §

A Good Segmentation Study … ² Identifies segments of customers with differentiated needs. § How many different segments? § How do their needs differ? ² Enables segments to be separately targeted/reached (this can be problematic even if segments have distinctly different needs). ² Finds one or more attractive segments (i. e. a profitable and separate marketing program can be designed for selected segments). ² Facilitates the implementation of the segmentation scheme as an ongoing process, not a discrete project. © Decision. Pro 2007 Principles Chapter 3: Segmentation and Targeting - 49

Segmentation Barriers and Solutions: Front End ² Barrier ² Solution 1. The blind man

Segmentation Barriers and Solutions: Front End ² Barrier ² Solution 1. The blind man syndrome 1. Prototype sessions 2. Bad history 2. Diagnosis and prescription 3. Salesforce resistance 3. Salesforce involvement 4. Integrating database marketing 4. Value added 5. Project positioning 5. Position as a process or a program © Decision. Pro 2007 Principles Chapter 3: Segmentation and Targeting - 50

Segmentation Barriers and Solutions: Research / Analysis ² Barrier 1. Wrong segmentation unit 2.

Segmentation Barriers and Solutions: Research / Analysis ² Barrier 1. Wrong segmentation unit 2. Multiple purchase influences 3. Segmentation results conflict with strategy 4. Difficulty in reaching | segment members ² Solution 1. Use the buying location 2. Key informant or integration 3. Pre-specify/Constrain the analysis 4. Design in a targeting process © Decision. Pro 2007 Principles Chapter 3: Segmentation and Targeting - 51

Segmentation Barriers and Solutions: Implementation ² Barrier 1. Lack of acceptance amongst key use

Segmentation Barriers and Solutions: Implementation ² Barrier 1. Lack of acceptance amongst key use communities 2. No implementation process 3. No performance metrics 4. No continuous improvement/ updating process 5. Reorganizations, mergers and acquisitions 6. The ten commandments syndrome Solution 1. Involvement and education ² 2. Blueprint development 3. Develop performance metrics 4. Integrate an improvement / updating process into the segmentation 5. Document success and make it a high ROI investment 6. A balanced, flexible view © Decision. Pro 2007 Principles Chapter 3: Segmentation and Targeting - 52

Other Ways to Segment ² Choice-Based Segmentation (Chapter 2). Compare with Needs-Based Segmentation. ²

Other Ways to Segment ² Choice-Based Segmentation (Chapter 2). Compare with Needs-Based Segmentation. ² Latent class methods § Segment based on unobservable characteristics (e. g. , price sensitivity). § Two approaches: (1) Latent cluster analysis, (2) Latent regression analysis. ² Bayesian classification § Use (updatable) prior knowledge to improve classification accuracy. © Decision. Pro 2007 Principles Chapter 3: Segmentation and Targeting - 53

Industries Where Traditional Segmentation Analysis is Widely Applied ² Consumer packaged goods ² Pharmaceuticals

Industries Where Traditional Segmentation Analysis is Widely Applied ² Consumer packaged goods ² Pharmaceuticals ² Banking and insurance ² Services © Decision. Pro 2007 Principles Chapter 3: Segmentation and Targeting - 54

Concluding Remarks In summary, ² Use needs variables to segment markets. ² Select segments

Concluding Remarks In summary, ² Use needs variables to segment markets. ² Select segments taking into account both the attractiveness of segments and the strengths of the firm. ² Use descriptor variables to develop a marketing plan to reach and serve chosen segments. ² Develop mechanisms to implement the segmentation strategy on a routine basis (one way to do this is through information technology). © Decision. Pro 2007 Principles Chapter 3: Segmentation and Targeting - 55