Understanding Customers:Segmentation(contd) Shantanu Dutta Objectives –Use of market segmentation to better classify and understand customers according to their characteristics –Examples of segmentation Segmentation by benefits in cellular phone market Perfect segmentation the example of MCI

Market Segmentation Definition: Market segmentation is the process of dividing a market into distinct subsets of customers. Each segment consists of people with similar needs and characteristics that lead them to respond in a similar way to a particular product/service offering.

Understanding And Segmenting Customers In the Cellular Phone Market Study conducted for a company in the Canadian market to segment the Cellular Phone market. Discussions with managers in this industry and study of the trade literature showed that an appropriate way of segmenting this market is to assess the benefits which customers want when they buy cellular A list of perceived benefits was generated and a random sample customers were asked to rate the importance of these benefits, in their decision to purchase a cellular phone

List of Benefits In the Cellular Phone Market The participants in this study rated the following benefits on a 4 point scale with (1) being rated as very important and (4) being rated as not at all important –(a) immediate access to telephones for possible emergencies –(b) be contacted all the time, at any time –(c ) make calls whenever I want to –(d ) conduct job related business when at home or away from home –(e) retrieve messages when I am on the road –(f) have a phone that I can take with me and use when I am outside the town

List of Benefits In the Cellular Phone Market The participants in this study rated the following benefits on a 4 point scale with (1) being rated as very important and (4) being rated as not at all important –(g) restrict the time when people can reach me –(h) be contacted by certain people but not by others – (i) limit the phone number that other members of my household can call –(j) screen my calls before I answer them –(k) low price is very important to me in my decision to buy

Benefit Cluster In the Cellular Phone Market High convenience Low convenience Price sensitivePrice insensitive 1 2 Cluster 1 consisted of respondents who thought that benefits (a) thru (f) were very important but not benefits (g) thru (j). Cluster (2) is the reverse.They were reverse on(k).

Benefit Cluster In the Cellular Phone Market There seem to be two clusters in this market based on the benefits sought by customers: cluster 1 consists of customers who care a lot about convenience and less price sensitive while cluster 2 is the reverse. Having identified these two clusters, the next task is to see if there are other consumer characteristics/descriptors which will enable the company to identify these customers and then offer them services with the appropriate benefits

Identifying The Benefit Clusters An important issue in market segmentation after identifying customers who seek different benefits is to develop a profile of those customers which enables the firm to reach those customer segments. It is important to identify customer characteristics which make it easy for the firm to identify and reach those customer segments. This was the next step in the cellular phone market in Canada.

Linking Benefit Cluster With Consumer Characteristics In the Cellular Phone Market Correlating the benefits sought with consumer characteristics it was seen that consumers who sought high convenience and were less price sensitive (Cluster 1)had the following characteristics –both husband and wife were working professionals –had young children –household income greater than C$90000 –work entailed traveling at least couple hours in the car each day –work entailed traveling frequently out of town –lived in specific neighborhoods

Summary: Consumer Segmentation In the Cellular Phone Market The cellular phone example shows that customer segmentation can entail a number of steps. –In this case the firm first identified customers according to the benefits they were seeking and cared about. – Having segmented according to benefits desired then try to see if there are other customer characteristics which distinguishes each of these benefit segments and can enable the firm to identify the customers in each benefit segment so that when the firm contacts customers in each segment they can make the right pitch.

Data Base Marketing and A Segment of One In the initial stages of marketing firms made products for the mass market, Ford’s model T. This was followed by the age of market segmentation where firms came up with different ways of segmenting their customers offering different sets of benefits to each segment. Now new generations of faster and more powerful computers are enabling marketers to zero in on ever smaller niches of the customer segment ultimately aiming for the smallest consumer segment of all: the individual. Example: MCI Friends and Family Worldwide

Claritas: Prizm System Prizm Approach to Understanding Customers is based on two assumptions: -The best customers for your product are existing customers: The people who already used your product or a similar one, or other people like your existing customers -Birds of a feather flock together: In choosing a place to live, people tend to seek out neighborhoods compatible with their lifestyles, where they find others in similar circumstances with similar consumer behavior patterns. -Identifying the types of neighborhoods in which you find your existing customers, you can predict the types of neighborhoods where you will find your customers in the future

Data Base Marketing :MCI Friends And Family Worldwide MCI Proof of Savings Versus AT&T Shantanu Dutta, we have reviewed your last three bills at (312) Great News --look at how much you have already saved with Friends and Family Worldwide for your bills from 11/95-01/96 MCI Billed You Only November $73.94 December $98.78 January $ AT&T True World Savings Plan November $78.04 December $ January $ Your Total Savings With MCI November $4.10 December $11.95 January $7.70 Total $23.75

Data Base Marketing Data base marketing allows companies to have a precise understanding of a particular customer’s buying patterns and reach that customer through promotional material to show how the company’s offering is providing greater value to that customer relative to competition. In my case the savings I was making by staying with MCI versus moving to AT&T. Other examples: Kraft General Foods sends nutrition and recipe information and coupons for specific Kraft brands based on the information they have collected on these customers.