Market

Segmentation

Market Segmentation

Market Segmentation is the process of dividing up a

market into more or less homogenous subsets for which
it is possible to create different value propositions.

Purposes of market segmentation

Market segmentation can be used to
Segment potential markets to identify which
customers to acquire
Cluster current customers to offer differentiated value
propositions

Intuitive and data based segmentation

process

Market segmentation process

Identify the business you are in
Identify relevant segmentation variables
Analyze the market using variables
Assess the value of the marketing
segments Select the target
market(s) to serve

Identify the business you are in

It is an important strategic questions which helps
the companies
identify its markets and competitors at three levels:
Benefit Competitors
Product Competitors
Geographic Competitors

Identify relevant segmentation

variables and
analyze the market
Consumer
markets

User attribute
Demographic
Geographic
Psychographic

Usage attribute
Benefit
segmentation
Volume consumed
Share of category
spend

Segmenting business markets

Segmenting business market

Account value
Share-of-wallet
(SOW)
Propensity to
switch

Assessing the value in a

market segment and
selecting which markets to
serve
Potential value of a market segment
depends upon
Segment value attractiveness
Company and network fit

Segment value and attractiveness

Size of segment
Segment growth rate
Price sensitivity of
customers
Number and power of
competitors
Propensity for customer
switching

Company and network fit

Does the opportunity fit the companys objectives,
mission and
values?
Does the company and its network possess the
operational, technological, marketing, people and
other competencies and the liquidity to exploit the
opportunity?

Positioning

Positioning is the act of designing the companys

offering and image
to occupy a distinct place in the targets mind.
Philip Kotler

Steps of Positioning strategy

Identify possible competitive advantages : Competitive
differentiation
Select right competitive advantage : USP
Communicate and deliver the chosen positioning
through right
communication strategy

Different Positioning strategies

Attribute based positioning durable, better
technology
Benefit health foods
Use/application Wall putty
User best for a certain user group like kids,
women
Competitor positioning - better than the
competitor
Product category best in the product
category

Perceptual Mapping Tool for

Positioning
Is a map like diagram representing consumers
perceptions of competing
brands along relevant product attributes
How consumers perceive their brands in relation to
competition
How to determine the direction for altering
undesirable consumer perception of their brand
Gaps, in the form of un-owned perceptual positions,
that represent opportunities for developing new

Example Perceptual Mapping

Case Barclays Bank

We take a lot of advice from friends: which
shoes look best with those trousers. But
there are certain things even lifelong friends
can't advise you on: which mortgage do you
think would be best for me? Should I take out
a stakeholder pension or a money purchase
pension?
No, friends and finances just don't go
together. So why is it that for the past
Based on
Perceptionservices
Mapping, Barclays
bankhave
realisedspent
that
decade
financial
brands
the customer do not seek warmth and friendliness only from
millions
trying to convince consumers they
their bank but they want it to be a money expert
are just like their mate next door?

The Problem Current Perception

The warmer your consumers are towards you and
the more they love your brand, the more products
they will be willing to buy from you.
Be nice to them and they'll buy insurance, pensions,
savings,
mortgages, credit cards the cross-sales possibilities
are endless

Identifying the underlying customer

relationship
Nowadays every brand wants a 'relationship'. It's hard
work being a
consumer. Even Banks like to think they have a
relationship with their consumers.

But it is actually the last thing consumers think

they have or want to have:
I don't really want a relationship with the bank
I want a relationship focused on money, keeping me up
to date with tips and help manage my money better
recognise my needs, not me

The Positioning Solution

Underlined why the 'financial friendship' model was
insubstantial
Highlighted how much we admire those we perceive
as 'smart' with
money
Barclays be the financial expert
'good at dealing with complicated financial matters'

The Impact

Barclays
leading
the
competition in
the perception
of a financial
expert

Customer
Retention

What is customer retention?

Customer retention is the maintenance of
continuous trading
relationships with customers over the long term.
High retention is equivalent to low defection
(churn)

Customer retention defined..

Customer retention is the number of customers doing
business with a firm at the end of a financial year
expressed as a percentage of those who were active
customers at the beginning of the year. (repurchase
cycle)

Economics of customer retention

Increasing purchases as tenure
grows
Lower customer management costs
over time
Customer referrals
Premium prices

Customer retention drives

up CLV

Less clarity on customer defection

Location of customer related data in silos
Use of aggregates and averages in calculating
customer retention rates

Silos containing customer data

Product silos
Channel
silos
Functional
silos

Three measures
Three measures of customer
retention
Raw customer retention rate
Sales adjusted retention rate
Profit adjusted retention rate

Manage customer defection or

Share Of
Wallet?
Least
profitab
le

10%

10%
Sale and profit
spectrum

Most
profit
able

Which customers to retain?

Strategically Significant Customers
High CLV : contributes significantly to the companies
Benchmark : customers that other customers follow
Inspiration : customers that bring about improvement in
suppliers
business like new applications, new products
Door Openers : customers that allow the supplier to gain
access to the new markets

Recently acquired customers

Using Positive and Negative retention strategies

Strategies for customer retention

Negative strategies
Imposing high switching costs / exit
penalties

Fear Strategy

Positive strategies
Customer delight
Add customer perceived value : loyalty schemes, customer
communities, sales promotion
Bonding : soc, struc: interpersonal, tech, legal, process
Build customer engagement: cognitive, affective, behav, soc

Customer delight
Customer Delight occurs when the customers
perception of their experience of doing
business with you exceeds their expectations
Customer delight
(CD=P>E)
Customers have expectations of many attributes
eg. Product quality, service responsiveness,
price stability and physical appearance of your
people and vehicle.

Customer retention is an outcome of 3 variables critical for

customers
1. Order fulfilment (on-time, in-full no-error OTIFNE)
2. Product performance(frequency of problems encountered
by customers)
3. After sales-service (percent of problems fixed first time by
technicians)

Priorities for Improvement

(PFIs) for a restaurant

Add customer perceived value

Customers to experience additional value (without
creating additional
cost for supplier)
Loyalty schemes
Customer Clubs
Sales promotion

Loyalty schemes
A loyalty scheme is a customer management programme that

offers delayed or immediate incremental rewards to customers

for their cumulative patronage.
Loyalty programmes provide value to the customer at two
points
1. During credit acquisition (psychological benefits)
2. At redemption (psychological and material benefits)
. Expensive to establish and manage
. Less distinctive and value adding

Customer communities/ clubs

A customer club is a company-run membership
organization that offers
a range of value-adding benefits exclusively to members.
Eg. IKEA Family
Harley Owners Group (HOG)
Nestles mother and baby club

Sales promotions
In pack or on-pack voucher discount vouchers on or inside
the packs for
next purchase. Example often used by telecom
companies, Dominos
pizza
Rebate or cash back customer receives the refunds post
purchase
Patronage award customers collect the proof of purchase
and surrender
for cash or gift. The higher the purchase, the bigger the gift
Free premium for continuous purchase the consumer
collects proofs of purchase and surrenders them at point
of sale to redeem gifts.

Bonding
Social bonds
Social bonds are found in positive interpersonal relationships
between people. Positive interpersonal relationships are
characterised by high levels of trust and commitment.
Structural bonds
Structural bonds are established when companies and
customers commit resources to a relationship. Generally
these yield mutual benefits for the participants

About bonds
Key feature of structural bonding is investment in
adaptations
Power imbalances can produce asymmetric
adaptions
Social bonds are generally easier to break than
structural bonds
Structural bonds link organizations . Social bonds
link people.

Customer Engagement
Gamification - It is the use of game like mechanics in nongame context
Relational attachment An emotional attachment is
created between the customer and the company. the
customer often address their company as my banker, my
builder etc. The customer starts believing its people to
better than the competitors on important dimensions to
the customer
Value- based attachment Customers develop a strong
sense of emotional attachment when their personal values

Examples

Examples

Contextual considerations with

respect to
customer
Number of competitors
less no.
of competition prevents
retention
strategies
customer churn as the customer has fewer options
Corporate culture A customer caring corporate culture
nurtures long
term relationship with the customer whereas retention rate
can be higher
in business with short term profit vision
Channel configuration sellers rely on intermediaries or
distributors to sell or provide service to their consumers.
Example Maruti service centres
Purchasing practices The purchasing practices of buyers
can make the
retention offers futile in certain cases

KPI for customer retention program

Raw/ sales adjusted/ profit adjusted customer retention
rate
Raw/ sales adjusted/ profit adjusted customer retention
rate in each customer segment
Cost of customer retention
Share-of-wallet of retained customers
Customer churn rate per product category, sales region
or channel
Cost effectiveness of customer retention tactics.

Virgin Airlines Case Questions

Explain the strategies behind making Virgin airlines a
lovable brand
with customers
How do you think Virgin airlines crack the code of
psychological
benefits to materialistic benefits for the loyalty
program