chapter 2 - marketing principle #1: all customers differ -> managing customer heterogeneity

Question 1

customer heterogeneity

Answer 1

= all customers differ, which is a foundational assumption that customers vary widely in their needs and preferences, whether real or perceived
–> only exception: monopoly power; some situations allow marketers to ignore some elements of customer heterogeneity, such as electrical utilities’ one-size-fits-all offerings

Question 2

latent customer heterogeneity

Answer 2

= defined as potential differences in desires that are unobserved and have not yet become manifest in customer purchase preferences or behaviours, these may stem from;
1. Legal (government regulations, patents)
2. Economic (prohibitive prices, due to the size of the market or the costs of providing)
3. Technological (only way known to make something)
4. Or innovative (no firm has yet identified and satisfied the need) constraints.
- One way to deal with customer heterogeneity is by assuming that most customers will
sacrifice many product attributes if the price is low enough, parallel to a classic low- cost strategy.

Question 3

sources of customer heterogeneity

Answer 3

• individual differences
• life experiences
• functional needs
• self-identity/image
• marketing activities

Question 4

STP analysis

Answer 4

= grouping customers into segments, selecting target segments and using marketing activities to improve a firm’s positioning in the target segment

Question 5

STP approach

Answer 5

= Segmenting, Targeting, and Positioning (STP) Approach

Question 6

segmenting

Answer 6

= the process of dividing the overall market into groups, such that potential customers in each group have similar needs and desires (basis of segmentation) for a particular product or service category (not based on demographic characteristics). The core goal of segmentation is to identify groups of customers who have similar needs, desires, and subsequent behaviours.
- Key important points in segmenting; start with a random sample of potential customers, not just the existing customers, divide people into groups on the basis of needs and desires, not demographic variables, and it is ideal to maximize the differences between segments to offer more clearly differentiated products.
- Cluster analysis= refers to the primary, data-driven partitioning technique that can identify and classify a large set of heterogeneous consumers or companies into a few homogeneous segments.
- Factor analysis= used to identify a small number of latent factors that explain the variation in a large number of observed variables.
- Multiple discriminant analysis (MDA)= classify respondents into appropriate segments, using a set of demographic characteristics as predictors. Because demographics are easier to observe, as interest etc. are not.

Question 7

targeting

Answer 7

= deciding on which segment of customers you want to focus. There are two dimensions to aid the choice;
- Market attractivenss= captures external market characteristics that make a given segment strategically and financially valuable to serve, such as size, growth rate, and price sensitivity.
- Competitive strength= captures the relative strength of a firm, versus competitors, at securing and maintaining market share in a given segment.
- An ideal target segment should meet six criteria;
1. Based on customer needs – customers care.
2. Different from other segments – little crossover competition.
3. Differences match the firm’s competencies – the firm can execute within resource constraints.
4. Sustainable – can keep customers from switching to the competition.
5. Customers are identifiable – can find targeted customers.
6. Financially valuable – valuable in the long term.
- GE matrix= analysis tool designed to help managers visualize and select target segments.

Question 8

positioning

Answer 8

= entails changing both the actual offering (=innovating products or reducing manufacturing costs) and the perceived offering (=building a new brand image)
- Nearly every marketing mix decision, including product, price, place (channel), and product activities (often termed the 4Ps), that managers make affects the positioning of the firm’s offering in customers’ minds.
- Perceptual maps= customer segments, competitors, and a firm’s own position in a multidimensional space defined by the purchase attributes identified during the segmentation process.
- Repositioning= the process by which a firm shifts its target market.

Question 9

customer-centric approach

Answer 9

= a more continuous/ ongoing (different) approach for managing customer heterogeneity (compared to the STP analysis), that places customers’ needs at the centre of an organization’s strategic process and uses the insights to make decisions.
1. Alignment
2. Restructuring
3. Follow STP
- This approach depends on strong market orienentation= the organization-wide
generation of market intelligence, dissemination of the intelligence across departments and organization-wide responsiveness to it. Three dimensions; intelligence generation, intelligence dissemination, and responsiveness.

Question 10

discriminant and classification analyses

Answer 10

= provide an empirical approach for identifying target customers, using publicly available data versus surveys or other techniques that are not viable for acquiring new customers due to their lack of purchase history.

Question 11

process for managing customer heterogeneity

Answer 11

Step 1: Segmenting
Step 2: Targeting
Step 3: Positioning
Step 4: Building customer centricity