Chp 3

Question 1

why are markets heterogeneous

Answer 1

customers differ in their needs, wants, constraints, belief, values, and incentives to act

Question 2

why does a firm segment a market?

Answer 2

firm aims for happy middle group where it doesn’t incur high costs of developing unique program for each customers - provides foundation to address which markets or customer groups should we serve?

Question 3

define customer in a market segment

Answer 3

looking for offering to provide the same types of benefits/solutions to their problems

Question 4

define segmentation

Answer 4

business process that enables a firm to evaluate the attractiveness of each group (segment) and select those segments that it is able to serve effectively and profitably

Question 5

what are the 3 factors that create the opportunity for a firm to segment a market

Answer 5

1. heterogenity of the customer needs + wants
2. customers are abl to be clustered into specific groups
3. overall costs of serving customers in a segment must =< prices that they are willing to pay for

Question 6

define the process of Segmentation, targeting, and position (STP)

Answer 6

segmentation groups customers with similar wants, needs, and responses; targeting determines which groups a firm should try to serve (and how); position addresses how the firm’s offering competes with other offerings in the targeted segment

Question 7

what’s the benefit of STP process

Answer 7

1. firm can profitably deliver more value to those customers by focuing marketing resources to better meet the needs of customers
2. customers who perceive and realize more value from a specific brand will develop a stronger preference for it than for competing brands
3. as a firm continues to provide good value to its customers, those customers become loyal to its brands and tend to repeat their purchases and communicate their favourable experiences to other potential customers
4. strong brand loyalty can lead to increased market share and provide a barrier to competition + requires fewer marketing resources over time to maintain market share.

Question 8

why do firms use segmentation and STP process

Answer 8

to address a wide variety of strategic + tactical challenges - they must first understand the potential responses of each market segment to proposed strategies and apply them, to each segment

Question 9

what are the 3 conditions of the marketing engineering segmentation model

Answer 9

homogeneity/heterogeneity, parsimony, accessibility

Question 10

would a company develop + deliver unique services to each micro segment?

Answer 10

no, bc it becomes too costly to justify relative to its benefits

Question 11

what’s the role of descriptor variables in segment

Answer 11

descriptor segments characterize segments

Question 12

what is a dependent variable and independent variable called in a segmentation model?

Answer 12

dependent variable = segmentation basis

independent variables = segment descriptors

Question 13

what are the 2 phases in segmentation

Answer 13

phase 1: segment hte market using basis variables
phase 2: describe market segments identified using variables that help the firm understand how to serve those customers, how to talk to these customers, and buyer switching costs

Question 14

what are the 3 phases for targeting

Answer 14

1. evaluate the attractiveness of each segment using variables that quantify the demand levels and opportunities associated with each segment, the costs of producing the offerings that customers want and the fit between the firm’s core competencies and the target market opportunity
2. select one or more target segments to serve on the basis of their profit potential and fit with the firm’s corporate strategy; determine the level of resources to allocate to those segments.
3. find and reach targeted customers and prospects within targeted segments in a variety of ways (ads, direct mail)

Question 15

what are the 3 types of segmentation methods

Answer 15

1. Priori Segmentation - using industry knowledge or marketing research, firms can directly segment customers according to their observable characteristics, assuming such criteria are related to differences in their underlying needs.
2. traditional segmentation methods - employ analytic methods to segment customers on the basis of a single composite measure developed from a set of observable characteristics
3. latent class segmentation - customers belong to groups that differ in ways that cannot be descried in terms of observable mean differences between segments, requires larger sample sizes than traditional methods

Question 16

how should firms be reacting to segmenting their market

Answer 16

should be proactive - should be actively identify differences in customers needs, ants and preferences and hen determine if they can design offerings and corresponding marketing strategies to serve those different needs profitably

Question 17

what’s the 5 step approach to proactively segmenting the market

Answer 17

1. firm outlines the role of market segmentation in its strategy.
2. selecting segmentation variables on aspect of potential customers’ needs or wants and reflect differences between customers
3. company chooses mathematical and statistical procedures to aggregate individual customers into homogenous groups - entails implicit strategic decision; should customer segments be discrete (each customers appears in only 1 segment), overlapping (customer can appear in 2 or more groups), or fuzzy (each customer is assigned proportional membership in each segment).
   4 + 5. firm decides to specify the max # of segments to construct according to the segmentation variables and search across those segments to determine how many to target using statistical criteria and managerial judgement

Question 18

how to describe market segments

Answer 18

2 types of variables are available; those that outline broad market characteristics and those that provide insight into serving one or more segments.

Question 19

how should firms select variables to help determine their segmentation/target strategy

Answer 19

1. measure the size of purchasing power of the segments
   2, determine the degree to which they can effectively reach and serve the segments
2. develop effective programs to attract customers

Question 20

how to evaluate segment attractiveness

Answer 20

strat with 9 measure grouped into 3 braod factors
1. the size of segment and its growth potential - large markets attract many aggressive competitors and tough competition vs smaller niche market
2. structural characteristics of the segment (competition, segment saturation, protectability, environmental risk)
3. product-market fit - does serving a particular segment fit the company’s strengths and desired corporate image, can the company gain synergy from serving this segment, can the company sustain the cost of entering the segment and can it price its products and services to achieve the desired margins and ROI?

Question 21

how do firms select target segments and allocate resources t segments

Answer 21

firms select the segments to serve, these are their options:
1. concentrate on a single segment
2, select segments in which to specialize
3, provide a range of offerings to a specific segment
4 .provide one offering to many segments
5, cover the whole market (all offerings to all segments)

Question 22

what’s the process to select those segments that rate highest on the attractiveness criteria?

Answer 22

1. specify drivers of each dimension
2. weight drivers
3. rate segments on each driver
4. multiply weights by ratings for each segment
5. view resulting group
6. review/sensitivity analysis

Question 23

risk of concentrating on 1 segment and how to mitigate it

Answer 23

high risk by putting all its eggs in 1 basket

mitigate: use market specialization - offering broad range of products and services to meet its needs, product line specialization

Question 24

what’s the process of finding targeted customers

Answer 24

3 strategies to identify specific customers
1. customer self-selection
2. scoring/classification methods - discriminant analysis
3. broad strategies
page (88-90)

Question 25

how to collect primary source data

Answer 25

1. develop the measurement instrument - what + how info needs to be collected
2. select a sample- who needs to be studied - which respondents, where, in what household organizations?
3. select + aggregate respondents - how do different responses from individuals in household/organization combine to predict how they will behave?
4. analyze the data and segment the market - what statistical procedures will segment customers and describe aspects that are crucial to serving their needs

Question 26

what types of data is collected for segmentation

Answer 26

demographic descriptors, psychological descriptors, demand, needs, attitude, media + distribution channel.

Question 27

when constructing a data matrix, what are the key issues to address.

Answer 27

1. who are the respondents + how will they be identified in the data matrix
2. what are the characteristics of the gathered data?
3. are the measurement scales the same?
4. are the variables correlated?
5. what is the procedure for handling outliers

Question 28

is segmentation an ongoing process?

Answer 28

yes, so it’s important to update it

Question 29

are the 3 related technical criteria to the 3 managerial criteria

Answer 29

1. homogeneity - measure the degree to which potential customers within a segment have similar needs and values. heterogeneity measure the degree to which groups of customers differ
   identifiability - the degree to which marketers, using observable characteristics of the segments can identify segment members - measure of accessibility
   parsimony - measure of how well the segmentation scheme derived from the data about potential customers trades off the amount of within group homogeneity against the amount of between-group heterogeneity in a cost effective-way.

Question 30

is there a best segmentation method?

Answer 30

no, must use multiple approaches and cross-validate any findings

Question 31

what are the 5 steps to applying traditional segmentation methods

Answer 31

1. reduce the data
2. develop measures of association
   3 identify and remove outliers
3. form segments.
4. profile segments and interpret results

Question 32

what happens to customer data in a direct segmentation task

Answer 32

must be assembles into 2 data matrices, in which each row represents information about a particular customers = one data matrix contains the variables that create the basis for the segmentation, and the other contains descriptor variables. the basis variable data matrix applies to steps 1-4, and the descriptor data matrix functions for step 5