Segmentation

Question 1

Customer Life Cycle

Answer 1

Prospects (Stage 1)
First-Time Buyers (Stage 2)
Early Repeat Buyers (Stage 3)
Core Customers (Stage 4)
Core Defectors (Stage 5)

Question 2

Prospects (Stage 1)

Answer 2

Not yet customers but they represent potential value
Management of prospects crucial
Should they be offered lower prices relative to those given to existing consumers
What level of sales effort to allocate?
What type of communication to offer?
In the prospect stage the consumer develops an initial set of
expectations about product/service
Fulfillment of expectations critical to both initial purchase and subsequent purchases

Question 3

First-Time Buyers (Stage 2)

Answer 3

Customers move into this stage after first purchase
They have the lowest retention rates of all in a firm’s
customer base
For FPP (frequently purchased products) such as air
express services, industrial maintenance – converting
these customers into repeat buyers is very important
Not as important for durable products or products with
long purchase cycles

Lowest retention rate
most money made is through repeat purchases

Question 4

Early Repeat Buyers (Stage 3)

Answer 4

Customers advance to this stage after the first repeat
purchase

More likely to repeat purchase relative to first-time buyers

Still evaluating the relationship and may defect

Question 5

Core Customers (Stage 4)

Answer 5

Customers enter this stage after they begin to repeat
purchase regularly

Barring major problems seldom reevaluate the
product/service

Highest retention rates and highest sales/customer

These customers are special and should be treated as
such – ironically, most firms take them for granted!

Tends to churn the least. The Cash Cow.

Question 6

Core Defectors (Stage 5)

Answer 6

Core customers become willing to switch suppliers or
brands (not thru fault of the company).

Factors contributing to this: new competing products,
problem with own product. Usually people churn bc there are better technology elsewhere or deregulation.

Controllable/uncontrollable factors

Understanding of the cause of defection is important

Question 7

You can customize the marketing mix thru

Answer 7

segmentation

Question 8

What do you base segmentation on?

Answer 8

Age, income, attitude towards the product, etc

Question 9

For DBM applications

Answer 9

Behavioral measures are most important
−Example: churn behavior, defection, purchasing behavior – volume, frequency, monetary value etc.
-want ppl that are behaving similarity when segmenting

Question 10

Segmentation I

Answer 10

Decile analysis (sorting analysis)

Question 11

Segmentation II

Answer 11

Cluster analysis

Question 12

RFM

Answer 12

Recency, Frequency and Monetary value (RFM) analysis

Question 13

Decile Analysis

Answer 13

Common and simple procedure

Deciles are 10 percent groupings computed by
ranking each consumer according to the
segmentation variable – volume of purchase,
profitability, recency etc.

5% or even 1% groupings can be can be done

Top 3 deciles typically account for 60 to 80% of
firm’s sales/profits

Question 14

RFM Analysis

Answer 14

Relative to Decile analysis RFM is a better predictor of future consumer behavior

The goal is to create a RFM matrix (segments)

Question 15

how to come up w thresholds in rfm analysis

Answer 15

look at context/insights from other data to determine thresholds