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Market Segmentation and
Customer Relationship MarketingChapter FiveChapter Five
MMarket-Basedarket-Based Management, 4Management, 4thth editionedition
5-2
Market Segmentation and Market Segmentation and Customer Relationship Customer Relationship
MarketingMarketing
Chapter Five
-Market Segments; Defined and Explained
-Needs-Based Market Segmentation
-Segment Strategies
- Customer Relationship Marketing
- Customer Relationship Management
5-3
Customer Needs and Customer Needs and Market SegmentationMarket Segmentation
• What is a Market Segment?• Why is Market Segmentation Important?• How are Markets Segmented?
5-4
Business Needs and Market Business Needs and Market SegmentationSegmentation
5-5
Needs-Based Market Needs-Based Market SegmentationSegmentation
5-6
Needs-Based Segmentation Needs-Based Segmentation and Segment Identificationand Segment Identification
Why Should Segments be Identified?
5-7
Segment AttractivenessSegment Attractiveness
What Makes a Segment Attractive?
5-8
[ ( )] Segment Segment Rev Variable Cost Marketing
Demand Share per Cust per Cust Expenses X X - -
Segment ProfitabilitySegment Profitability
NMC =
Marketing ROS = NMC/Segment Sales Revenues
Marketing ROI = NMC/Segment M&S Expenses
NMC: Net Marketing Contribution
M&S : Marketing and Sales
5-9
Segment PositioningSegment Positioning
• How does positioning simplify promotional efforts?
• How does a firm determine if its segmentation strategy is meaningful?
• What is meant by Segment Strategy Acid Test?
• What is the importance of the marketing mix in the segmentation strategy?
5-10
Segmentation StrategiesSegmentation Strategies
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Customer Relationship Customer Relationship MarketingMarketing
5-12
Customer Relationship Customer Relationship ManagementManagement
• How does a firm justify the use of CRM?
• CRM vs. Needs-Based Market Segmentation
• 4 Critical Steps in Developing CRM Programs
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TakeawaysTakeaways//ReviewReview
• Market Segmentation and Identification
• Key Steps in the Market Segmentation Process
• Segmentation Strategies
• Sub-segment Strategies
• Customer Relationship Marketing
• Customer Relationship Management
5-14
Marketing Performance ToolsMarketing Performance Tools
Profit Impact of Segment Strategy
Marketing Strategy Mass Market Segment Strategy Segment
Strategy Quality Segment Price Segment Strategy
Market Demand 3,000,000 1,000,000 2,000,000 3,000,000
Market Share 5.0% 5.0% 5.0% 5.0%
Unit Volume 150000 50000 100000 150,000
Average Price $1,350.00 $2,500.00 $1,250.00 $1,666.67
Sales Revenues $202,500,000 $125,000,000 $125,000,000 $250,000,000
Percent Margin 25.9% 40.0% 20.0% 30.0%
Gross Profit $52,447,500 $50,000,000 $25,000,000 $75,000,000
Marketing & Sales (% sales) 10.0% 15.0% 5.0% 10.0%
Marketing & Sales Expenses $20,250,000 $18,750,000 $6,250,000 $25,000,000
Net Marketing Contribution $32,197,500 $31,250,000 $18,750,000 $50,000,000
Marketing ROS 15.9% 25.0% 15.0% 20.0%
Marketing ROI 159% 167% 300% 200%
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Marketing Performance ToolsMarketing Performance Tools
Profit Impact of Customer Relationship ManagementAnnual Segment Mass Mass Customer
Customer Performance Average Personalization Customization Relationship Mgmt
Revenue per Customer $1,000 $1,000 $1,200 $1,500
Percent Margin 40% 40% 50% 60%
Gross Profit per Customer $400 $400 $600 $900
Acquistion Cost $500 $500 $500 $500
Retention Cost $100 $150 $200 $250
Customer Profits $300 $250 $400 $650
Customer Retention 0.60 0.67 0.75 0.80
Customer Life (years) 2.5 3.0 4.0 5.0
Discount Rate 20% 20% 20% 20%
Customer Cash Flow
Year Cash Flow Cash Flow Cash Flow Cash Flow
0 -$500 -$500 -$500 -$500
1 $300 $250 $400 $650
2 $300 $250 $400 $650
3 $150 $250 $400 $650
4 $400 $650
5 $650
6
7
8
9
10
Lifetime Value $45.14 $26.62 $535.49 $1,443.90