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Market-Based
Management, 4th
edition
Market Segmentation and
Customer Relationship
Marketing
Chapter Five
Market Segmentation and
Customer Relationship
Marketing
Chapter Five
-Market Segments; Defined and Explained
-Needs-Based Market Segmentation
-Segment Strategies
- Customer Relationship Marketing
- Customer Relationship Management
5-2
Customer Needs and
Market Segmentation
• What is a Market Segment?
• Why is Market Segmentation Important?
• How are Markets Segmented?
5-3
Business Needs and Market
Segmentation
5-4
Needs-Based Market
Segmentation
5-5
Needs-Based Segmentation
and Segment Identification
Why Should Segments
be Identified?
5-6
Segment Attractiveness
What Makes a Segment
Attractive?
5-7
Segment Profitability
NMC =
[
Segment
Segment
X
X
Demand
Share
(
Rev
per Cust
-
)]
Variable Cost
per Cust
-
Marketing
Expenses
NMC: Net Marketing Contribution
Marketing ROS = NMC/Segment Sales Revenues
Marketing ROI = NMC/Segment M&S Expenses
M&S : Marketing and Sales
5-8
Segment 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?
5-9
Segmentation Strategies
5-10
Customer Relationship
Marketing
5-11
Customer Relationship
Management
• How does a firm justify the use of CRM?
• CRM vs. Needs-Based Market Segmentation
• 4 Critical Steps in Developing CRM Programs
5-12
Takeaways/Review
• Market Segmentation and Identification
• Key Steps in the Market Segmentation Process
• Segmentation Strategies
• Sub-segment Strategies
• Customer Relationship Marketing
• Customer Relationship Management
5-13
Marketing Performance
Tools
Profit Impact of Segment Strategy
Marketing Strategy
Market Demand
Mass Market
Segm ent Strategy
Segm ent
Strategy
Quality Segm ent Price Segm ent
Strategy
3,000,000
1,000,000
2,000,000
3,000,000
5.0%
5.0%
5.0%
5.0%
150000
50000
100000
150,000
$1,350.00
$2,500.00
$1,250.00
$1,666.67
$202,500,000
$125,000,000
$125,000,000
$250,000,000
25.9%
40.0%
20.0%
30.0%
$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%
Market Share
Unit Volume
Average Price
Sales Revenues
Percent Margin
Gross Profit
5-14
Marketing Performance
Tools
Profit Impact of Customer Relationship Management
Annual
Segm ent
Mass
Mass
Custom er
Custom er Perform ance
Average
Personalization
Custom ization
Relationship Mgm t
$1,000
$1,000
$1,200
$1,500
40%
40%
50%
60%
Gross Prof it per Customer
$400
$400
$600
$900
Acquistion Cost
$500
$500
$500
$500
Retention Cost
$100
$150
$200
$250
Customer Prof its
$300
$250
$400
$650
0.60
0.67
0.75
0.80
2.5
3.0
4.0
5.0
20%
20%
20%
20%
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
$400
$650
Revenue per Customer
Percent Margin
Customer Retention
Customer Lif e (years)
Discount Rate
Custom er Cash Flow
4
5
$650
6
7
8
9
10
Lifetim e Value
$45.14
$26.62
$535.49
$1,443.90
5-15