Understanding Customers:Segmentationcontd Shantanu Dutta

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Understanding CustomersSegmentation(contd)Shanta
nu 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

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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.

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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

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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 email 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

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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

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Benefit Cluster In the Cellular Phone Market
High convenience
1
2
Low convenience
Price sensitive
Price insensitive
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).
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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

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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.

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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 C90000
• work entailed traveling at least couple hours in
  the car each day
• work entailed traveling frequently out of town
• lived in specific neighborhoods

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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.

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Data Base Marketing and A Segment of One

• In the initial stages of marketing firms made
  products for the mass market, Fords 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

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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

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Data Base Marketing MCI Friends And Family
Worldwide
MCI Proof of Savings Versus ATT
Shantanu Dutta, we have reviewed your last three
bills at [phone]. Great News --look at how
much you have already saved with Friends
and Family Worldwide for your bills from
11/95-01/96
Your Total Savings With MCI November
4.10 December 11.95 January 7.70 Total
23.75
MCI Billed You Only November
73.94 December 98.78 January 105..74
ATT True World Savings Plan November
78.04 December 110.73 January 113.44
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Data Base Marketing

• Data base marketing allows companies to have a
  precise understanding of a particular customers
  buying patterns and reach that customer through
  promotional material to show how the companys
  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 ATT.
• 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.