week 1: all customer differ

Question 1

List the 4 principles of marketing strategy, and the key marketing decisions related

Answer 1

MP1: All customer differ –> managing customer heterogeneity
MP2: All customers change –> managing customer dynamics
MP3: All competitors react –> managing SCA
MP4: All resources are limited –> managing resource tradeoffs

Question 2

Formula for firm’s sales revenues

Answer 2

Sales revenues = Market Demand * Market Share * Firm’s Average Selling Price

Question 3

Formula for firm’s profits

Answer 3

Firm’s profits = Sales Revenues *Gross Margin - Sales&Marketing Expenses - G&A Expenses

Question 4

List and explain the 5 sources of Consumer Heterogeneity

Answer 4

1) **Individual differences **(stable and consistent way of responding to environment, eg. fav colour)
2) Life experiences (eg. warm climate spicy food)
3) Functional needs (eg. electronic devices; needs vary)
4) Self-identity / image (eg. goths with black)
5) Marketing activities (eg. James Bond and BMW –> firm tries to link brands with identity or meaning, which might influence consumer eg. BMW becomes aspirational)

Question 5

List and explain the 3 inputs of the Managing Customer Heterogeneity Framework

Answer 5

The 3 C’s:
- All Potential Customers: needs, demographics, size, growth, perceptions
- Your Company: SWOT
- Your Competitors: SWOT

Question 6

List the 3 approaches and processes in the Managing Customer Heterogeneity Framework

Answer 6

1) STP approach (Segmenting, Targeting and Positioning)
2) Perceptual/positioning maps
3) Customer-centric view

Question 7

List and briefly explain the use of the 3 types of analysis in the Managing Customer Heterogeneity Framework

Answer 7

1) Cluster Analysis: used in Segmenting
- to identify and classify a large set of heterogenous consumers or companies into a small number of homogenous segments.

3) GE matrix: used in Targeting
- to help visualise and select target segments.

2) Factor Analysis: used in Positioning
- to identify small number of latent factors that explain the major variation in large number of observed variables

Question 8

Explain SWOT Analysis with examples, and its inputs

Answer 8

SWOT:
1) Internal:
- Strengths (current)
- Weaknesses (current)
2) External
- Opportunities (future)
- Threats (future)

Each point comes with strategy implications

Inputs:
External (Environmental) factors: eg. relevant legal structure, competitor’s core competencies
Internal (Company-level) factors: eg. your core competencies

Question 9

Explain 3C Analysis

Answer 9

2) Potential Customers: who? needs of various segments?
2) Company: competencies, aspirations, resources
3) Competitors: what are they offering? what can we offer that they can’t?

Question 10

List and explain outputs of Managing Customer Heterogeneity Framework

Answer 10

STP

1) Industry Segmentation: describe and name each segment, include for each one:
- salient purchase preference
- demographics
- potential demand opportunities
–> Marketplace split into homogenous groups that differ between each other: what does each one want?

2) Target Segment: moving from overall market to specific segment(s) of interest –> more detailed description of each.
- which are we pursuing? how do we identify each target group?

3) Positioning Statement: 3 questions into one concise statement:
1) Who should we target?
2) What needs and benefits are being fulfilled?
3) Why does this offering provide a relative advantage over competitive offerings?

Question 11

How is building customer centricity different from executing an STP process?

Answer 11

Customer centricity requires top-down commitment to integrate this philosophy.

Firm organised around customer segments (instead of dividing it by product-centric categories)

Question 12

Describe evolution of Approaches for Managing Customer Heterogeneity ove

Answer 12

1) Mass Marketing era: use mass media to appeal to entire market with single message
- Ignores customer heterogeneity. Assumes max audience => max revenues

2) Niche Marketing era: small but specific and well-defined segment(s)
- Specialisation to gain competitive advantage

3) One-to-one Marketing era: tailoring aspects of marketing mix to individual customer
- Apply marketing strategies directly to specific consumers

Question 13

Describe underlying method for dealing with customer heterogeneity across all eras

Answer 13

Focus on smaller and smaller groups of customers –> needs of each group are more similar –> subdivided into increasingly smaller units until focus reaches individual customer

Question 14

Describe how Media, Printing&Manufacturing, and Communication have evolved over time, along with approaches

Answer 14

1) Media: Few national channels –> Many cable channels (narrowcasting)

2) Printing and Manufacturing: Large batch manufacturing –> Modular manufacturing (products built from standardised interchangeable parts; more flexible and customiseable and faster production cycles) / digital printing (from digital files)

3) Communication: Phone / direct mail –> Internet / mobile

Question 15

STP Approach: describe Segmenting, list steps and analysis type

Answer 15

• Within groups: similar needs. Across groups: different needs
• Segment on needs/benefits, not descriptors

Steps:
1) Qualitative research: identify potential customers’ needs and descriptors
2) Data on importance of needs to purchae decision (from random pool of potential customers)
3) Use NEEDS to segment into homogenours groups
4) Name segments (for communication)

Use Cluster Analysis!

Question 16

Describe cluster analysis (and steps)

Answer 16

• Data-driven partitioning technique
• Used to identify and classify large set of heterogenous consumers/companies into small number of segments

2 steps:
1) Segmentation step: identify subsamples that are homogenous in their base variables, and strongly different from other subsamples
2) Describing step: use descriptor variables to explain how they differ (to derive efficient targeting strategies)

Question 17

Give examples of base variables and descriptor variables

Answer 17

Bases: eg. desired product features or pricing requirements

Descriptor: eg. demographic and geographic info

Question 18

Describe the 4 criteria to evaluate validity of segmentation results and corresponding targeting strategy

Answer 18

1) Identifiability: real segments of customers? can they be labelled using descriptors?
2) Stability: segments likely to rapidly change over time?
3) Responsiveness: will each target respond to the planned marketing strategies?
4) Viability: can firm achieve desired financial objectives with this segmentation scheme?

Question 19

Describe a dendogram

Answer 19

Visual representation of hierarchal clusterring procedure. Shows which customers get grouped together, and how much information is lost when you merge them (vertical axis).

Start at bottom: each individual is a separate cluster. Start going up. Stop when information loss gets too large.

When to stop clustering? Either:
1) Right before the big jump (elbow rule)
2) Using some criteria (eg. Ward’s minimum variance within cluster criteria)

Question 20

STP Approach: describe Targeting selection criteria and analysis tool

Answer 20

Selection criteria (axes of GE matrix)

• Market attractiveness: size, growth rate, price sensitivity, etc.
• Competitive Strength: relative strength of firm vs. competitor at securing and maintaining market share in a given segment

Analysis tool: GE Matrix

Question 21

What 6 criteria should an IDEAL target segment meet?

Answer 21

1) Based on customer needs
2) Different than other segments (little crossover competition)
3) Differences match firm’s competences aka can execute without resource constraints
4) Sustainable (can keep customers)
5) Customers are identifiable (can find targeted customers
6) Financially valuable (in the long term)

Question 22

Describe GE Matrix for tageting

Answer 22

X axis: Firm’s competitive strength
Y axis: Market Attractiveness

Size of each bubble: size of marke segment

Better: upper right corner, and large bubble

Question 23

STP Approach: Desribe positioning and analysis tool, and repositioning

Answer 23

Positioning: process of improving relative advantage in the MINDS of your TARGETED customers –> changing both actual and perceived offering

Analysis tool: perceptual map –>x/y axes with different characteristics

Repositioning: shift in target market –> movement across this 4-quadrant plane

Question 24

What 3 questions does a positioning statement answer?

Answer 24

1) Who? (are the customers)
2) What? (is the set of needs/benefits fulfilled by product/service)
3) Why? (is this product/service the best option to satisfy them, relative to sompetition or substitutes)

Question 25

Describe and explain factor analysis

Answer 25

Data reduction technique used to identify small number of "latent factors" that explain major variation in large number of observed variables. It's like clustering but for variables instead of individuals. - Many dimensions into fewer factors - Correlated attributes 1) Group dimensions that are **highly correlated** with one another. "Factor loading" = correlation - If measured variable has factor loading > 0.3, generally associated with a factor 2) Interpret what each latent factor represents based on **conceptual commonality**

Question 26

Desribe the two types of factor analysis

Answer 26

1) Exploratory (EFA): look for structure in the data, "let the data speak" - Flexibility - Explore without preconceived notions 2) Confirmatory (CFA): confirm theoretically divided structure - Clear hypothesis - Test preconceived notions

Question 27

How do we decide how many factor to keep in factor analysis?

Answer 27

As we extract consecutive factors, each one accounts for less and less variability (lower and lower EV) Eigenvalue: how much variance is explained by each factor Rule of thumb: keep factors with EV > 1 (or the number of factors above elow point)