MarketingStrategyChapter02-2 4

Marketing Strategy:
Based on First Principles and Data

Analytics
Marketing Principle #1
All Customers Differ  Managing Customer Heterogeneity
© Palmatier 1
Agenda
 Introduction
 Approaches for Managing Customer Heterogeneity

 Evolution of Approaches for Managing Customer Heterogeneity
 Segmenting, Targeting, and Positioning (STP) Approach
 Customer-Centric Approach
 Framework for Managing Customer Heterogeneity

 Inputs to Managing Customer Heterogeneity Framework
 Outputs of Managing Customer Heterogeneity Framework
 Process for Managing Customer Heterogeneity
 Takeaways
 Examples/Case
© Palmatier 2
All Customers Differ
 Most basic issue facing managers, as they make strategic marketing
decisions for their firms is that all customers differ
 Customer heterogeneity is variation among customers in terms of their needs, desires,
and subsequent behaviors
 In response, firms are targeting smaller & smaller segments

 Mass marketing → niche marketing → 1 to 1 marketing
 Competitive race as firms target smaller segments
 But, it is hard to effectively compete in all segments
 Drivers
 Matches inherent customer desires (real, perceived)
 Faster response to customer trends and changes
 Technology enabled (more economical to target/customize)
 Only limited by tradeoff in efficiency (cost) versus benefit of better match to need
(solution)
© Palmatier 3
Example: Sears & Roebuck (US)
 “Big Book” catalog
 Once very successful broad line catalog operation, offering “something for
everyone”
 Over time, other firms identified and went after the best and most profitable
sub-segments
 This left Sears with a broad portfolio of diverse customers in less desirable
segments that were often slow growing and less profitable, and ultimately,
the end of the “Big Book”
© Palmatier 4
In Class Exercise on Customer Heterogeneity
 Everyone take 2 minutes to list your favorite retailer, and

why _____________________
 First reason _______________
 Second reason ____________
 How could one retailer be the best at satisfying all of you?
 What segment is each retailer targeting?
 What are Walmart’s and Nordstrom’s target segments?
 What happened to JC Penny and Gap?
© Palmatier 5
5 Sources of Customer Heterogeneity
 Individual differences
 Life experiences
 Functional needs
 Self-identity/image
 Marketing activities
© Palmatier 6
Five Sources of Customer Heterogeneity
Source Description Examples
Individual A person’s stable and consistent way Favorite colors, Big 5 personality traits (openness,
differences of responding to the environment in a conscientiousness, extraversion, agreeableness,
specific domain neuroticism)
Life An individual’s life experiences A child raised closer to the equator, in warmer climates,
experiences capture events and experiences will typically have a higher preference for spicy foods,
unique to his or her life that have as a carryover of past periods when spices were used to
lasting impact on the value and preserve and help mask the taste of food more likely to
preference he or she places on spoil in warmer climates
products and services, which in turn
affects preferences independent of
individual differences
Functional An individual’s personal decision What price can they afford to pay (income), how long
needs weightings across functional attributes does the product need to last (quality, warranty), when
based on his or her personal will they use the product (battery powered, size), and
circumstances are there any special usage features that they need
(waterproof)?
Self- Customers actively seek products that Motorcycle riders often wear leather (functional and
identity/im they feel will support or promote their image driven,) and Goths like the color black because of
age desired self-image their desire to identify with the image of a specific user
or social group
Marketing Firms’ attempts to build linkages BMW paid $25 million to have James Bond drive a BMW
activities between their brands and prototypical in the movie Skyfall, based on the belief that Bond’s
identities or meanings image would be aspirational to many potential target
customers (e.g., men aged from 30 to 50 years)
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Customer Heterogeneity: A Fundamental
Assumption of Marketing Strategy
 Customer heterogeneity is a fundamental “problem” that all firms must address
when developing an effective marketing strategy
 Customer heterogeneity may be latent or hidden

 Customers vary on some underlying preferences, but no firms are supplying
offerings that fit their desires, so those preferences are not evident
 Customers might not even know of their diverse preferences, because they
have no options to evaluate
 Assuming all customers are the same is a recipe for failure, at least in the long
term, as competitors will better satisfy subsegments with more aligned offerings,
leading to a downward spiral in which the firm has fewer, less profitable
customers that are more costly to serve
Marketing principle #1: all customers differ and an effective

marketing strategy must manage ever-present customer
heterogeneity
© Palmatier 8
Latent Customer Heterogeneity
 Latent customer heterogeneity is defined as potential differences in

desires that are unobserved and have not become manifest in customer
purchase preferences or behaviors yet
 Latent customer heterogeneity can stem from several constraints:

 Legal constraints (government regulations, patents)
 Economic constraints (prohibitive prices, due to the size of the market

or the costs of providing)
 Technological constraints (only way known to make something)
 Innovative constraints (no firm has yet identified and satisfied the
need)
© Palmatier 9
Example: AT&T (US)
 In 1984, AT&T lost its U.S. government–granted monopoly, so direct

competition began
 By 1991, the company lost 83% of its sales revenue
 Deregulation of this market allowed for the entrance of many new

competitors, determined to satisfy customer needs better
 Western Electric (the subsidiary of AT&T) came to an end in 1995
© Palmatier 10
Agenda
 Introduction


 Takeaways
 Examples/Case
© Palmatier 11
Evolution of Approaches for Managing
Customer Heterogeneity
Target Market Size

Large Small
Niche Niche
segment segment
Potential customers
Niche Niche
segment segment
Mass marketing era, Niche marketing era, which One-to-one marketing era, which
which utilizes mass media concentrates all marketing efforts advocates tailoring of one or more
to appeal to an entire on a small but specific and well- aspects of the firm’s marketing mix to
market with a single defined segment of the population the individual customer
message
Media
Few national channels Many cable channels (narrowcasting)
Printing and Manufacturing
Large batch manufacturing Modular manufacturing/digital printing
Communication
Phone/direct mail Internet/mobile
© Palmatier 12
Evolution of Approaches for Managing
Customer Heterogeneity
 Mass marketing era used mass media to appeal to an entire market with a single
message, is a marketing strategy in which a firm mostly ignores customer
heterogeneity, with the assumption that reaching the largest audience possible
will lead to the largest sales revenue
 Niche marketing era focused marketing efforts on well-defined, narrow

segments of consumers, and by specializing, this method seeks to give the firm a
competitive advantage
 One-to-one marketing era is marked by a shift towards one-to-one marketing,

such that firms attempt to apply marketing strategies directly to specific
consumers
 Across all three eras, the underlying method for dealing with customer
heterogeneity is the same: focus on smaller and smaller groups of customers,
such that the needs of each group are more similar as they get subdivided into
smaller units, until the focus reaches an individual customer
© Palmatier 13
Segmenting, Targeting, and Positioning (STP)
Approach
 In order to better match heterogeneous customer needs, firms focus their
efforts on small “homogenous” customer groups
 Segmenting: Dividing market into groups of similar customers (slice the pie
into pieces)
 Targeting: Selecting best customer group to sell to (picking the slice to eat)
 Positioning: Improve your relative advantage in the minds of your targeted

customers (also addresses Marketing Principle 3 by building SCA)
See Business Model

Analysis for
Entrepreneurs for
how to adapt this
process for startups
© Palmatier 14
Segmenting
 Consists of dividing the market into groups of customers where:

 Customers within group have very similar needs
 Customers across groups have different needs
 Needs: Needs and benefits desired by customers for your offering

 Segment on needs/benefits not descriptors
 Uses one of the “Cs” as input: customers
 Descriptors: Observable customer characteristics that help you find and

classify customers (e.g., gender, age, income, size, education, etc.)
See Customer
Segmentation in B2B
Markets
© Palmatier 15
Segmentation Steps
1. Identify and refine “pool” of potential customers needs and descriptors

(qualitative research)
2. Collect data from random assortment of potential customers on

“importance” of needs/benefits to purchase decision
3. Use “needs/benefits” to segment the market into 3 to 7 homogeneous

customer groups
 Often need to group like questions together using factor analysis
before clustering customers
 # segments based on results, ability to manage, and actionable
4. Name segments (communication tool)
© Palmatier 16
Factor Analysis
 Factor analysis is a data reduction technique that can be used to identify

a small number of latent “factors” that explain the major variation in a
large number of observed variables
 When to use it?

 To condense a large “pool” of potential customer needs, wants, and
preferences into a short set of similar characteristics
 To reduce high correlation among predictors
 Factor analysis groups similar questions (purchase attributes) together

to avoid biasing the further analyses; the cluster analysis groups similar
customers together into segments; and the multiple discrimination
analysis (MDA) predicts true segment membership using demographic
variables to facilitate targeting and positioning decisions
© Palmatier 17
DAT 2.1 Factor Analysis
Description When to Use It

Factor analysis is a data reduction technique that can be • To condense a large pool of potential customer needs, wants, and preferences into a
used to identify a small number of latent “factors” that short set of similar characteristics.
explain the variation in a large number of observed • To reduce high correlation among predictors.
variables.
How it Works
We begin with a large number of measured variables (e.g., 30) of customer survey measures. The factor analysis algorithm synthesizes the large number of measured
variables into smaller sets (e.g., 3–4) of latent “factors” that capture the essence of the meaning in the larger number of measures. To choose the total number of factors
to retain, we observe how many factors have an Eigenvalue greater than 1. The strength of the association between a measure variable and its factor is called the “factor
loading.” When a measured variable has a factor loading greater than 0.3, it is generally associated with a factor. We categorize the measured variable with a factor
where it has the highest loading (e.g., if a measured variable has factor loadings of 0.01 and 0.8 with Factors 1 and 2, we would associate the measured variable with
Factor 2). Finally, we interpret what each latent factor represents, by surmising the conceptual commonality underlying the measured variables’ loading on the factor.
Example
The manager of an online website collected customer satisfaction data from a survey of 1,000 customers on eight aspects of the company’s focal product.
The table shows the factor loadings of a few variables after conducting a factor analysis with three factors. Factor 1 is highly associated with product
diversity, specialty, and price; thus, it can be interpreted as the “product” factor. Factor 2 is associated with cash back and discounts, and is thus labeled the
“promotion” factor. For Factor 3, the “service” factor, delivery service and customer service have the highest factor loadings. The factors can be used as
data input for segmentation analyses. The figure shows the focal attributes associated with each factor.
© Palmatier 18
DAT 2.2 Cluster Analysis

Cluster analysis is a data-driven partitioning technique • To demystify customer heterogeneity by understanding preference commonalities
that can be used to identify and classify a large set of across subsets of customers.
heterogeneous consumers or companies into a small • To discover how consumers naturally differ and cater to the unique needs of chosen
number of homogeneous segments. target customer segments.
How it Works
Cluster analysis usually consists of two steps: segmenting and describing. To perform these two steps, we need to collect two kinds of
variables: bases and descriptors. Bases, such as desired product features or pricing requirements, provide the foundations for segmenting
consumers according to their differences. Descriptors, such as demographic and geographic information, serve to pro le and eventually target
the derived segment.
1. In the segmentation step, we identify underlying subsamples of customers that are homogeneous in their bases (e.g., ratings on product
preferences) and markedly different from other subsamples. For example, customers in one cluster might have very high preferences for
quality and do not mind paying a high price, but customers in another cluster may be very value conscious and refuse to pay high prices.
1. In the describing step, we use descriptor variables to explain how the subsamples differ and thereby can derive efficient targeting
strategies, tailored to each subsample. For example, customers in the quality cluster might be mostly men in their early forties, whereas
those in the price cluster are mostly women in their early twenties. Using both bases and descriptor variables, we can discover how
customers differ, which customers to target, and what marketing program to use.
Marketing Engineering, SAS, and SPSS software packages are tools that can help conduct the segmenting step; and K-means and hierarchical
clustering are approaches to enable cluster analyses.
After the cluster analysis is done, a review of the segmentation results should determine whether the derived clusters make intuitive sense.
Evaluations of the validity of the segmentation results and corresponding targeting strategy should consider the following important criteria:
• Identifiability: Do the derived segments represent real segments of customers, and can they be pro led using descriptors?
• Stability: Are the derived segments likely to change rapidly over time?
• Responsiveness: Will each targeted segment respond to the planned marketing strategies?
• Viability: Can the company achieve its desired financial objectives with the segmentation scheme?
© Palmatier 19
DAT 2.2 Cluster Analysis (cont.)
Description
Example 1
Imagine there are five customers, rated on their intention to purchase (1–15 scale). A hierarchical clustering procedure, based on Ward’s minimum
variance criteria to minimize the sum of the square of errors, starts by assuming each customer is its own cluster. However, combining customers 3
and 4 seems intuitive since they have similar purchase intentions and it results in limited loss of information (0.5 on the dendogram). Similarly,
combining customers 1 and 2 results in limited loss of information (4.5). Thus, five customers could be combined into three segments (1,2), (3,4), and
(5). If we then try to combine (3,4) and (5) as one customer, the loss of information (25.8) is prohibitive. Thus, we stop at three segments (1,2), (3,4),
and (5)
© Palmatier 20
DAT 2.2 Cluster Analysis (cont.)
Description
Example 2
A company conducted an annual customer satisfaction survey for an advertised product, collecting perceptions of the product’s price,
quality, and distribution (on a 5-point scale). To improve customer satisfaction and design more efficient targeting strategies, the
company conducted a partition-based clustering analysis of the data and thereby identified three segments: consumers who are
dissatisfied on all three attributes (Segment 1), consumers who are highly satisfied on all three attributes (Segment 2), and consumers
who are highly satisfied on quality and distribution but dissatisfied on price (Segment 3). The table gives the mean statistics for each
segment.
© Palmatier 21
Cluster Analysis is a Good Tool To Group
Customers
a = distance from member to cluster

center
b = distance from I to III
•
• Analysis: minimizes sum of a’s
• • while maximizes sum of b’s
•
Dimension 2 III
Perceptions or ratings data
b from one respondent
• • •
• • • •
a
I II
Dimension 1
© Palmatier (See Data Analytic Technique 2.2 for more details) 2222
Hierarchical Clustering Procedure Gives
Dendogram
• Numbers represent
(2 clusters) amount of variance
98.80 explained (don’t worry
about actual numbers but
rather change)
25.18 • Pick number of clusters
(3 clusters) where variance explained
is relatively large
• 3 clusters look best since
4 clusters only gives “5”
5.00
(4 clusters) more units versus 99 and
25
• But, look at 4 clusters to
0.50 see what is different
A B C D E

Discriminant and Classification Analyses
 Discriminant and classification analyses are multivariate

statistical techniques used to determine how segments of
consumers differ in their characteristics
 When to use:
 To classify a large set of customers into small sub-groups
that have different characteristics
 To predict or classify which sub-group a new customer
belongs to, so as to better target marketing activities

Targeting
 A market needs to select segments to target based on certain selection criteria

 Market attractiveness (size, growth rate, price sensitivity, etc.)
 Competitive strength (captures the relative strength of a firm, versus
competitors, at securing and maintaining market share in a given segment)
 Uses all three “Cs” as input: customer, company, and competitors
 An ideal target segment should meet six criteria:

1. Based on customer needs (customer care)
2. Different than other segments (little crossover competition)
3. Differences match firm’s competences (firm can execute within resource
constraints)
4. Sustainable (can keep customers)
5. Customers are identifiable (can find targeted customers)
6. Financially valuable (valuable in the long term)
 The GE matrix is one analysis tool designed to helps managers visualize and
select target segments
© Palmatier 25
GE Matrix: Analysis Tool for Targeting
High
Best Segments
Gym
Socialites
Fashion Trend
Market Attractiveness
Setters
The size of each

“bubble” indicates the
Urban size of the market
Seasonal Gym Athletes segment. Gym
Members Socialites or Fashion
Trend Setters are the
“best” segments for
Elite this firm as they are
Athlete in the upper right
Worst Segments
Low
corner of the matrix

and are larger
markets.
Weak Strong
Firm’s Competitive Strength
© Palmatier 26
Positioning
 Process of improving your relative advantage in the minds of your targeted

customers
 Changing both your actual (e.g., innovation) and perceived offering (e.g.,
branding, relationships)
 Uses all three “Cs” as inputs: customer, company, competitors
 Nearly everything you do impacts your positioning

 Channel (place): Samsung dropping Kmart
 Price: No discounts at Tiffany
 Promotion: Tiger Woods at Nike, Starbucks
 Product: Bose, Apple
 Perceptual maps: analysis tool to aid in positioning decisions
 Repositioning: process by which a firm shifts its target market
© Palmatier 27
Perceptual Map: Analysis Tool for Positioning
Edgy Hot Topic
Punk
Teens
Wet Seal
H&M
Forever 21
American Eagle
Abercrombie &
Fitch
All American
Traditional Teenagers Contemporary
L.L. Bean
Abercrombie & Fitch

Baby Boomers changed its positioning, to
Abercrombie and move from a traditional and
Fitch conservative segment to a
Dickies more contemporary, edgy
segment by adjusting several
Working elements of its marketing
mix, including products,
Man Carhart
store designs and locations,
price points, and marketing
© Palmatier Conservative 28
communications.
Perceptual Map (Markstrat Example)
© Palmatier 29
Positioning Statement Must Address Three
Key Questions
1. Who are the customers?
2. What is the set of needs that the product or service fulfills?
3. Why is this product/service the best option to satisfy your needs

(relative to competition or substitute; support for why)?
 This statement is the roadmap for a plethora of implementation decisions

involved in marketing a product (both inside and outside the company)
See Positioning:
The Essence of
Marketing
Strategy
© Palmatier 30
Evaluating a Positioning Statement
JC Penney: For [Modern Spenders and Starting-outs in mid-income levels

who shop for apparel, accessories, and home furnishings] we offer
[private-label, supplier exclusive, and national brands] that [deliver
greater value than that of our competitors] because of [our unique
combination of quality, selection, fashion, service, price, and shopping
experience].
1. Who are the customers?

2. What is the set of needs that the product or service fulfills?
3. Why is this product/service the best option to satisfy your needs
(relative to competition or substitute; support for why)?
© Palmatier 31
MBA Program Segmentation Analysis
1. Identify and refine “pool” of potential customers needs and descriptors

 Needs: price, rankings, location, focus, facilities
 Descriptors: age, gender, income, zip, house, firm size
2. Collect data from “random” sample on importance of needs

 Sample: GMAT, mail list, contacts, undergrads (problems?)
 Example: “MBA program ranking is very important to my decision” (1 to 7,
strongly disagree to strongly agree)
3. Do factor analysis to combine like questions if needed
4. Do cluster analysis to group like customers on these factors
5. Name clusters
© Palmatier 32
Factor Analysis (Grouped 12 Questions into
5 Factors)
CONVENIENCE
Classes are taught within 45 minutes of my work or home.
The program is completed in one year or less.
Classes do not interfere with normal work hours (8:00 to 5:00 on M to F).
AFFORDABILITY
The price of the program is critical to my decision to attend a program.
The program is less expensive than other similar programs.
CONTENT FIT
I can customize all of my course work based on my interests and goals.
The program is tailored to my specific job function (e.g., accounting, marketing, etc.).
The program is tailored to my specific industry (e.g., medical, technology, etc.).
PRESTIGE
The program is highly ranked by independent sources (i.e., Business Week, US News,
Economist).
The program has a strong reputation.
NETWORKING
The program facilitates frequent networking with other students.
The program offers frequent networking with local business contacts.
© Palmatier 33
61% of Respondents Are Split Between Two
Large Segments
Easy Mobility
Promotions Minded
Young Status
Analysis
Seekers results
Relevant
Learners
Cheap and
Easy New Career
© Palmatier
Networkers 34
Interested in Degree
Age: 36 (+5%)
Sample Size: 515 (31%) Easy Promotions Income: $119,612 (+8%)
1.2 Preferences Decision Criteria % Selecting Reason for Degree

1.0
Career Impact 24%
.8
8.00
.6 Prestige 13%
.4 3.00
Relevance 19%
.2
-2.00
.0 Affordability 22%
-.2 -7.00
Convenience 21%
-.4
-.6 -1.5 -1 -0.5 0 0.5 1 1.5 2 2.5 3 -12.00
Top 5 industries: Wants an easy (convenient and cost) MBA Demographics

1. Technology (20%) to get promoted at existing firm. They 73% (+10) married
2. Financial Services (8%) 29% (+3.9) have kids <5 yrs
are often older, married, and fewer 67% (-4.6) male
3. Media & Entert (7%)
4. Consumer Prod. (7%) alumni. 58% (+4.1) within 50 mi. of UW
5. Healthcare (7%)
Top 5 functional areas: Barriers to Attending UW Degree Timing
32% (+3.1) starting within 1 year
.50
1. Strategy (23%) 41% (+7.5) starting in 1-2 years
.30 12% (+1.4) starting 2-3 years
2. Management (23%)
.10 3% (-4.0) starting 3+ years
3. Entrepreneurship (9%) -.10
Cost is a Location is a Eligibility is a 12% (-11) already started
4. Information Syst. (9%) -.30
5. Finance (8%) Barrier Barrier Barrier
-.50 Attendance
Likely to attend UW? -0.08
*For all segments, technology was top industry and Note: unless indicated as %, all reported scores are z-scores,
strategy and management were top functional areas What proportion of alumni fall into this
where each increment of .5 represents 17% above average and
– results did not differ by group; % indicates segment? 24% (70% undergraduates)
© Palmatier
proportion of boxes checked
each decrement (-.5) represents 17% below average. 35
Interested in Degree
Sample Size: 503 (30%) Mobility Minded Age: 33 (-5%)
Income: $106,084 (-4%)
1.2 Preferences Decision Criteria % Selecting Reason for Degree

1.0
Career Impact 28%
.8
8.00
.6 Prestige 27%
.4 3.00
Relevance 18%
.2
Affordability 15% -2.00
.0
-.2
Convenience -7.00
12%
-.4
-.6 -1.5 -0.5 0.5 1.5 2.5 -12.00
Top 5 industries: Wants a high impact MBA (status and Demographics

1. Technology (17%) networking) to enhance career. They 51% (-11) married
2. Consumer Prod.(9%) 22% (-3.2) have kids <5 yrs
are also interested in full time MBA/MS 73% (+1.8) male
3. Financial Services (8%)
4. Media & Entert. (7%) programs. 48% (-6.2) within 50 mi. of UW
5. Healthcare (7%)
Top 5 functional areas: Barriers to Attending UW Degree Timing
26% (-2.4) starting within 1 year
.50
1. Strategy (23%) 36% (+2.9) starting in 1-2 years
.30 6% (+3.9) starting 2-3 years
2. Management (16%)
.10 9% (-1.2) starting 3+ years
3. Entrepreneurship (11%) -.10
Cost is a Location is a Eligibility is a 23% (+0.3) already started
4. Marketing (10%) -.30
5. Int’l Business (10%) Barrier Barrier Barrier
-.50 Attendance
Likely to attend UW?: +0.09
*For all segments, technology was top industry and Note: unless indicated as %, all reported scores are z-scores,
strategy and management were top functional areas What proportion of alumni fall into this
where each increment of .5 represents 17% above average and
– results did not differ by group; % indicates segment? 31% (51% undergraduates)
© Palmatier
proportion of boxes checked
each decrement (-.5) represents 17% below average. 36
MBA Example: Targeting Segments
Attractiveness
1. Size of segment: proportion of respondents in segment out of total respondents
across segments
2. Growth rate: estimation using segment information
3. Price sensitivity: importance-weighted measure of affordability rating
Competitive strength
1. Likelihood to attend UW: self-reported likelihood to attend UW
2. Relative competitive strength: an index of segment needs met by UW that are

unmet by top 3 best competitors; computed as difference between UW perception
and segment need, summed for each need and compared to top 3 competitors, for
each segment
3. Fit with current UW offerings: estimation based on segment preferences and UW

current offerings
© Palmatier 37
GE Matrix
MAP KEY Mobility
0.6 • Attractiveness computed as average index of (1) willingness to
pay, (2) price sensitivity, (3) market size, and (4) growth rate*;
Minded
all values standardized
• Competitive strength computed as average index of (1)
likelihood to attend UW, (2) needs met by UW that are unmet
0.5 by competition, and (3) fit with current UW offerings *
Easy
Note: all values based on survey responses except those indicated
by asterisk (*)
Promotions
Attractiveness
0.4
0.3
New Career
Networkers
0.2 Young Status
Seekers
Relevant
Learners
0.1
Cheap and Easy
0
0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00
Competitive Strength
© Palmatier 38
More Convenient
Easy Promotion: 1.00
Perceptual Map Easy Promotion

0.80
Segment
0.60
0.40 UW Bothell
Seattle U
0.20 UW Seattle
Less
SPU More
Affordable
0.00 Affordable
-1.00 -0.80 -0.60 -0.40 -0.20 0.00 0.20 0.40 0.60 0.80 1.00
UW Tacoma
-0.20
Western Governor’s
UCLA
U Oregon WSU
-0.40
Berkeley
Cornell -0.60 MAP KEY
• Diamonds are values on dimensions shown
• Circle size represents relative size of segment
-0.80 • Proximity to axis endpoint represents higher or lower
values on that axis
Questions used to form axes:
“[School] offers convenient business education programs.”
-1.00 “[School] offers affordable business education programs.”
© Palmatier
Less Convenient 39
Relevant More Relevant
More Convenient Appendix B: Learners
Appendix B:
1.00
MAP KEY
Positioning
1.00 • Diamonds are values on dimensions shown
• Circle size represents relative size of segment
Positioning Map 1 Easy 0.80 • Proximity to axis endpoint represents higher or lower
Map 2
values on that axis
0.80 Promotions Questions used to form axes:
“[School] offers business education programs that are
0.60 relevant to my career.”
0.60 “[School] offers affordable business education programs.”
Berkeley 0.40
0.40 UW Bothell
UW Seattle
Seattle U
Cornell 0.20
UW Seattle UCLA Easy
0.20
SPU Less Promotions More
Less Cheap and More Affordable Affordable
Affordable Easy Affordable 0.00
0.00 -1.00 -0.80 -0.60 -0.40 -0.20 0.00 0.20 0.40 0.60 0.80 1.00
-1.00 -0.80 -0.60 -0.40 -0.20 0.00 0.20 0.40 0.60 0.80 1.00
Relevant UW Tacoma Western Governor’s
Mobility -0.20 Mobility -0.20 UW Bothell
Learners
Minded U Oregon WSU Minded Seattle U
UCLA
-0.40 New Career
-0.40 U Oregon
Berkeley Networkers UW Tacoma Cheap and
SPU WSU
Cornell Easy
MAP KEY -0.60
New Career -0.60
• Diamonds are values on dimensions shown Young Status
Networkers • Circle size represents relative size of segment
Young Status Seekers
• Proximity to axis endpoint represents higher or lower
Seekers values on that axis -0.80
-0.80
Questions used to form axes:
“[School] offers convenient business education programs.”
“[School] offers affordable business education programs.” Western Governor’s
-1.00 -1.00
Less Convenient Less Relevant
Young Status More Prestige Higher Career

Seekers
1.00 Appendix B: New Career
Networkers Impact
1.00
Appendix B:
Berkeley
0.80
Positioning Positioning
Mobility
Map 3 Map 4
0.80
Cornell Minded
0.60 Berkeley
0.60
UCLA
Cornell
0.40
0.40
UW Seattle UCLA
0.20
0.20 UW Seattle
Less More
Affordable Affordable Less Mobility More
0.00 Affordable Minded Affordable
-1.00 -0.80 -0.60 -0.40 -0.20 0.00 0.20 0.40 0.60 0.80 1.00 0.00
-1.00 -0.80 -0.60 -0.40 -0.20 0.00 0.20 0.40 0.60 0.80 1.00
New Career -0.20 Relevant

Networkers Learners -0.20 Easy
Easy Promotions
Relevant Young Status
Promotions Seattle U UW Bothell
Learners -0.40 Seekers
-0.40
Seattle U WSU
U Oregon
-0.60 U Oregon
MAP KEY MAP KEY -0.60 UW Tacoma
• Diamonds are values on dimensions shown UW Bothell • Diamonds are values on dimensions shown
• Circle size represents relative size of segment UW Tacoma WSU Cheap and • Circle size represents relative size of segment
• Proximity to axis endpoint represents higher or lower -0.80 • Proximity to axis endpoint represents higher or lower
values on that axis Easy -0.80 Cheap and
SPU values on that axis
Questions used to form axes: Questions used to form axes: Easy
“[School] is a very prestigious university.”
SPU
Western Governor’s “Attending a business program at [School] would have a
Western Governor’s
“[School] offers affordable business education programs.” -1.00
large impact on my career.”
Less Prestige “[School] offers affordable business education programs.” -1.00
Lower Career Impact

© Palmatier 40
Exercise: Take 5 Minutes and Describe your
Firm’s STP
1. Segmenting: (slices of the the pie):

__________________________________________________________
__________________________________________________________
2. Targeting: (your firm’s slice)
__________________________________________________________
__________________________________________________________
3. Positioning: (who, what, and why/support)
__________________________________________________________
__________________________________________________________
© Palmatier 41
Customer-Centric Approach
 The customer-centric approach to managing customer heterogeneity is a

company-wide philosophy that places customers’ needs at the center of
an organization’s strategic process and uses the insights to make
decisions
 Successful customer centricity depends on a strong market orientation
 A marketing orientation comprises three dimensions:

1. Intelligence generation (“We often meet with customers to
understand their future needs”)
2. Intelligence dissemination (“There is a high level of communication
among our employees about customers”)
3. Responsiveness (“We respond quickly to customers needs”)
© Palmatier 42
What Does it Mean for a Firm to be Customer
Centric?
 Places customer at center of organization's
vision/mission/strategy/structure/culture/metrics
 Input: uses customers’ needs to drive decisions

 Customer and channel councils
 USAA managers spend a day per month in call center
 Output: measures success from customer's perspective

 Customer satisfaction
 Net Promoter Score (NPS), loyalty
 Processes: systems to link customer data to all aspects of firm

 Compensation (Enterprise car rental)
 Scorecards and dashboards
(Kohli and Jaworski 1993)

© Palmatier 43
Example: Sainsbury’s (UK)
 UK’s second largest supermarket
 By talking to customers, realized that customers’ purchase

decisions were based on three key factors: product quality,
ease of shopping, and access to multichannel interfaces
 Invested in R&D, store location, and IT infrastructure
© Palmatier 44
Firms are Shifting Toward a Customer-Centric
Structure
“So rather than relying on a structure focused on the company’s
discrete product lines, Intel's reorganization will bring together
engineers, software writers, and marketers into five market-focused
units: corporate computing, the digital home, mobile computing, health
care, and channel products—PCs for small manufacturers.”
(BusinessWeek).
CEO CEO
Product Customer
Analog Semiconductors Digital Signal Processors Wireless Devices

Government Large Enterprise Consumer
Sales Sales Sales Sales Sales Sales
Marketing Marketing Marketing Marketing Marketing Marketing
R&D R&D R&D R&D R&D R&D
Accounting Accounting Accounting Accounting Accounting Accounting
Operation Operation Operation Operation Operation Operation
© Palmatier (Lee, Sridhar, Palmatier, and Henderson 2015) 45

Trend of Customer-Centric Structures in the
Fortune 500 Firms
100
86
80 83 83
80 81
Number of Firms
76
74 74
72
67
60 64
61
57
40 51% Growth
20
0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Year

How and When Does a Customer-Centric
Structure Payoff
Competitive Environment
Competitors’
Competitive Industry
Customer-Centric
Intensity Profitability
Structure
(⎼) (⎼) (+)

Mediating Mechanisms
Firm Outcome
Customer
Satisfaction
Customer- (+)
Centric Firm
Structure Performance
Coordinating
(+) Costs

Dynamic Effects of Customer-Centric
Restructuring on Firm Performance
Firm Performance
Improvement
Drop Time
t0 t1 t2 t3 t4
Pre-restructuring Restructuring Customer-Centric Customer-Centric
Period Period Learning Stage (H6) Pay-Off Stage (H7)
On average, firms that switched to a customer-centric structure initially perform

worse than before the restructuring (customer-centric learning stage), but after
about 9 or 10 quarters, their performance exceeds pre-restructuring levels
(customer-centric pay-off stage)
© Palmatier (Lee, Sridhar, and Palmatier 2015) 48

Agenda
 Introduction


 Takeaways
 Examples/Case
© Palmatier 49
Marketing Principle #1: All Customers Differ
 Managing Customer Heterogeneity
Inputs (3Cs) Managing Customer Heterogeneity Outputs (STP)
All Potential Customers Industry Segmentation

• Needs • Customer segments
• Demographics Approaches & Processes • Needs, demographics, and
• Size, growth, perceptions Segmenting, targeting, and positioning opportunity of each segment
(STP)
Perceptual/positional maps
Customer-centric view Target Segment
Your Company • Detailed needs, demographics,
• Strengths and weaknesses and value of target segment(s)
• Opportunities and threats Analyses • Discriminant function
Factor analysis • Relative perceptions
Cluster analysis
GE matrix Positioning Statement
Your Competitors Discriminant analysis
• Who (target segments)
Classification
• Strengths and weaknesses • What needs/benefits
• Opportunities and threats • Why (relative advantage &
support)
© Palmatier 50
Inputs to the Managing Customer
Heterogeneity Framework
1. All potential customers -- needs, desires, and preferences
across customers in an industry, geographic region,
market segment, or product category
2. Your company -- an inventory of the company’s strengths,
weaknesses, opportunities, and threats (SWOT analysis)
3. Your competitors -- an inventory of your competitor’s
strengths, weaknesses, opportunities, and threats (SWOT
analysis)
© Palmatier 51
DAT 2.3 SWOT and 3C Analyses

• To assess strategic marketing decisions by identifying critical internal and external
SWOT appraises the strengths, weaknesses, opportunities,
environmental factors that will contribute to the success or failure of the strategy.
and threats that affect a company’s success. The 3C • A SWOT analysis assesses the internal and external nature of the business, looking at current
analysis evaluates customers, competitors, and the and future situations.
company itself. • The 3C analysis emphasizes the need to focus on these three perspectives to gain competitive
advantages.
Inputs
• External (Environmental) Factors: relevant legal structure, competitor’s core competencies and market share, changes in customer demographics
• Internal (Company-level) Factors: core competencies, market share, competitive advantages
How It Works
© Palmatier 52
DAT 2.3 SWOT and 3C Analysis (cont.)
Description
Example
The managers of a bakery wish to open a new store in a neighborhood across town. They perform a SWOT and 3C analysis of the environment to
assess the obstacles they may face.
© Palmatier 53
Outputs of Managing Customer
Heterogeneity Framework
1. Industry Segmentation describes industry segments and includes, for each named
segment, salient purchase preferences, demographic variables, and potential demand
opportunities
 How can the marketplace be described using homogenous groups?
 What does each group of potential customers want?
2. Target Segmentation moves from the overall market landscape to the specific
segment(s) of interest, such that it extends the first output by providing a very
detailed description of each target segment.
 What set of segments will the firm pursue?
 How does the firm identify each group of target customers?
3. Positioning Statements encapsulate the three questions into one concise statement
that firms use to direct their internal and external marketing activities: who should
the firm target, what needs and benefits are being fulfilled, and why does this
offering provide a relative advantage over competitive offerings
© Palmatier 54
DAT 2.4 Discriminant and Classification Analyses

Discriminant and classification analyses are multivariate • To classify a large set of customers into small subgroups that have different
characteristics.
statistical techniques used to determine how segments of
• To predict or classify which subgroup a new customer belongs to, so as to better target
consumers differ in their characteristics.
marketing activities.
How it Works
Discriminant function analysis is commonly used to describe which predictor variables help differentiate two or more segments of customers. Let us
assume that through a prior cluster analysis, the firm has a good understanding of how many segments of customers they deal with every day. By doing
cluster analysis, the firm can also classify which segment each customer belongs to; every customer can be assigned either to the quality segment or the
value segment. However, discriminant analysis usually follows cluster analysis. Managers using discriminant analysis collect numerous variables about
customers (e.g., demographics, often used marketing channels) to describe why a customer falls in a certain segment.
Thus, the dependent variable for discriminant analysis is a categorical variable (i.e., the segment number of a customer), and the independent variables are
customer characteristics (e.g., demographics, often used marketing channels). Written as an equation, discriminant analysis is given as:
In the above equations, the firm has a total of h segments and any Yi(x) is a binary variable equal to 1 if a customer belongs to the f9ith segment, and 0
otherwise. Next, the firm uses a total of k profiling variables, and hence every x1 denotes an independent variable. The outputs of the analysis are the
weights Bh1 , which captures the influence the jth independent variable has in categorizing a customer into the fifth segment. If we have h total segments
and k total independent variables, we will have h × k total weights.
The weights can be interpreted as similar to regression weights; the higher the value of a certain weight bi , the stronger the association between the
corresponding predictor xi , and the segment membership. The real usefulness of discriminant analysis is when a firm encounters a customer on whom
they did not conduct cluster analysis. The firm observes xi , and knowing that some xi are more likely to be associated with certain membership in certain
segments lets a firm classify a customer into a segment, even without doing a cluster analysis again.
© Palmatier 55
DAT 2.4 Discriminant and Classification Analyses (cont.)
Description
Example
© Palmatier 56
Process for Managing Customer
Heterogeneity
 To convert the inputs into outputs, marketers conduct a series of process steps
1. Segmenting – To initiate the segmentation, managers need to identify the key
purchase attributes, that is the needs and desires that a potential customer
evaluates when making a purchase decision for this category
2. Targeting – The targeting process follows naturally from segmentation, to
identify which segments the firm wants to sell to, based on the attractiveness of
each segment and the firm’s competitive strength in each segment
3. Positioning – The separation between targeting and positioning is often
blurry. Many of the factors used to evaluate competitive strengths to select a
target segment also impact the difficulty of executing an effective positioning
strategy for that segment
4. Building Customer Centricity – Building a customer-centric organization is
different from executing an STP process, in that it requires a top-down,
enduring commitment from senior leaders to institute a customer-centric
philosophy across the firm’s entire organization
© Palmatier 57
Example of Managing Customer
Heterogeneity
1) Identify Customer Segments 2) Select Target Segments 3) Position Against Competitors
Who: Members of high-end, coed

gyms
Gym Socialites Gym Socialites What: Good looking but highly
functional athletic wear
Why: Highest performance
materials and design that looks
good
Who: Fashion-conscious sporting

Potential Fashion Trend Setters Fashion Trend Setters fans
Customers What: Athletic wear as clothing
Why: Newest, coolest designs that
stand out from the crowd
Urban Athletes
Elite Athletes
Seasonal Gym
Members
© Palmatier 58
Agenda
 Introduction


 Takeaways
 Examples/Case
© Palmatier 59
Takeaways
 A foundational assumption in marketing strategy is that all customers differ in

their needs and preferences. A successful marketing strategy must manage and
exploit customer heterogeneity, because if competitors identify niches of
customers whose needs are poorly served and target them with a better offering,
the incumbent firm risks losing its best customers.
 Sources of customer heterogeneity include customers’ individual differences, life

experiences, functional needs, and self-identity or image, as well as persuasion
through marketing. These factors work together to create divergent preferences.
 The STP approach allows a firm to manage customer heterogeneity by

segmenting potential customers into relatively homogenous groups, based on
individual preferences and needs. Then the firm selects attractive segment(s) in
which it can build a strong position. Finally, the firm develops and executes a
positioning strategy that aligns all marketing activities to move the offering such
that it can match customers’ preferences.
© Palmatier 60
Takeaways
 The evolution of approaches to managing customer heterogeneity indicates that

firms have targeted smaller and smaller customer segments over time (mass
marketing  niche marketing  one-to-one marketing)
 Company and competitor strengths and weaknesses are collected in conjunction

with opportunities and threats in a classic SWOT analysis; all four factors can
inform a firm’s targeting and positioning efforts
 A customer-centric approach to managing customer heterogeneity is more

continuous and ongoing. This approach implies a company-wide philosophy that
places customers’ needs at the center of an organization’s strategic process and
uses the related insights to make decisions. The customer-centric approach
promotes internal alignment; an STP approach promotes external alignment.
Firms with customer-centric organizations develop richer customer knowledge
and greater commitment to each targeted customer segment
© Palmatier 61
Takeaways
 Factor analysis groups similar questions (purchase attributes) together

to avoid biasing further analyses; cluster analysis groups similar
customers together into segments; and classification analysis used
discriminate models to predict segment membership using only
demographic variables
 There are three key inputs and three key outputs of the framework for
managing customer heterogeneity. The three inputs reflect the 3Cs of a
situation analysis: customers (needs and desires), company, and
competitors (strengths and weaknesses). The outputs are industry
segmentation, target segments, and a positioning statement
© Palmatier 62
Agenda
 Introduction


 Takeaways
 Examples/Case
© Palmatier 63
Marketing Engineering Demo: Steps for STP
1. Check survey data (reasonable means, ranges, distributions)
2. Factor analysis to group like questions
3. Cluster analysis to segment customers
4. GE matrix to select target segment
5. Perceptual map to position
6. Discriminant analysis to find target customers
7. Classification analysis to apply discriminant function to new

list of customers
© Palmatier 64
EMBA Program Example
 You are hired to develop a marketing program to

increase enrollment in the EMBA program
 What do you do (art or science)?
 Process steps (this is like your project for class)
1. Qualitative interviews
2. Quantitative survey
3. STP analyses (cluster, discriminant, GE matrix,
positioning map)
4. Develop and implement plan (4Ps)
© Palmatier 65
Qualitative Questions: Probing for
Important Attributes
•Please discuss the process of deciding to get an

Executive MBA.
•How did you begin your search for an Executive MBA

program?
•What were important factors you considered when

deciding on a specific EMBA program, and why were
these factors important?
•What made you choose the Executive program over the

full-time program?
•Of the schools you considered, what were the most

compelling qualities of top choices?
© Palmatier 66
Segmentation Questions
• Key attributes when making a decision (needs and

benefits)
• All potential customers report on importance of
attributes
Please rate your agreement with the following
statements: Strongly Strongly
Disagree Agree construct
A low-cost MBA program is very important to me. 1 2 3 4 5 6 7 cost
It is very important that an MBA program have a rigorous curriculum. 1 2 3 4 5 6 7 rigor
An easily accessible MBA program is important to me. 1 2 3 4 5 6 7 location
convenienc
I think it is very important that an MBA program fits with my schedule. 1 2 3 4 5 6 7 e
It is very important that an MBA program is prestigious. 1 2 3 4 5 6 7 prestige
I feel it is very important that I am challenged by the coursework of an

MBA program. 1 2 3 4 5 6 7 rigor
It is important that an MBA program is not expensive. 1 2 3 4 5 6 7 cost
I think it is very important that an MBA program be highly respected. 1 2 3 4 5 6 7 prestige
© Palmatier 67
Discriminant/Classification Questions
 Key demographics questions
What is your age? ______

Please indicate your gender: __male __female
What is your annual salary, including
bonuses and commissions in US
dollars? __$0 - $25,000
__$25,001 - $50,000
__$50,001 - $75,000
__$75,001 - $100,000
__$100,001 - $125,000
How many miles is your home from
the UW campus? _____________
How many years of work experience
do you have?
What was your undergraduate
major? ___________________
© Palmatier 68
Data Needed For Target Market Selection
 Segment Attractiveness
 Growth rate of segments
 Price sensitivity of segment
 Competitive Strength
 UW relative advantage
 Fit to UW brand image
 Where does this data come from?

 Survey
 Secondary sources
 SWOT and 3Cs
© Palmatier 69
Perceptions and Preference Questions for
Positioning Maps
• Across key attributes what do they think of you and the
competitors and preference
• Can do on all potential customers or just target
customers
Please evaluate each University’s EMBA program

(repeat for UW, Berkeley, etc):
Measure perceptions…
Strongly disagree Strongly Agree
Program is low cost 1 2 3 4 5 6 7
This is a high rigor program 1 2 3 4 5 6 7
The location is very good 1 2 3 4 5 6 7
Program is very convenient 1 2 3 4 5 6 7
Program is very prestigious 1 2 3 4 5 6 7
Measure preferences…
low high
Likelihood of selecting 1 2 3 4 5 6 7
© Palmatier 70
Segmentation: Create a Picture of Each
Cluster
Cluster 1 (“young professionals”) is

Segmentation variable
/ Cluster
Overall Cluster 1 Cluster 2 Cluster 3 concerned with cost and convenience,
and is younger with lower income and
Low cost 4.8 6.67 1.21 6.79 less job experience.
High rigor 3.28 1.33 6.93 1.29
Good location 3.2 1.33 1.21 6.79 Cluster 2 (“returning executives”) is
primarily concerned with the rigor
Very convenient 2.9 6.75 1.21 1.29 and prestige of the EMBA program.
High prestige 5.2 1.33 6.93 6.79 These customers tend to be older with
higher salaries and more work
Discriminant variable
Overall Cluster 1 Cluster 2 Cluster 3
experience.
/ Cluster
Age 29.1 23.667 35.857 27 Cluster 3 (“busy manager”) wants a
Gender 1.325 1.167 1.286 1.5 prestigious program with a close
Salary 3.9 2.833 5.214 3.5 location at a reasonable price. They’ve
Miles from Campus 7.7 3.25 13.214 6
got a little more experience and are
making a reasonable salary.
Work Experience 6.85 2.083 12.286 5.5
© Palmatier 71
Targeting Using GE Matrix
Competitive Young Returning

Busy Manager
Strength Professional Executive
Fit to UW
Horizontal Axis strengths
1.5 4.5 3
Fit to UW brand
1.5 4 4
image
Segment Young Returning

Busy Manager
Vertical Axis Attractiveness Professional Executive
Growth rate of
2 4 3
segment
High margins 2 4.5 1
Young Returning
Bubble Size Professional Executive
Busy Manager
Market Size 5 20 10
© Palmatier 72
Which Segment Should You Target?
Segment Attractiveness
Returning Executive
Young Professional
Busy Manager
Competitive Strength
© Palmatier 73
Chapter 2 Book Case: Managing Customer
Heterogeneity at DentMax
 DentMax is the market leader in digital imaging technology for dentists
 Continuously ranked first for image quality and diagnostic flexibility, but
over the past decade, has lost 10% of market share
 Problem: understand how the needs, desires, and preferences across

dentists differ in the entire industry
 Data: RFID tracking data from DENTEXPO trade show (time spent at
each booth) combined with past purchase behavior, X-ray imaging
product needs and media trust (from post-expo survey)
 Cluster analysis identified 4 clusters:
 Loyalists (12%)
 Switchables (22%)
 Generalists (49%)
 Apathetics (17%)
© Palmatier 74
Analytics Driven Case: Managing Customer
Heterogeneity at DentMax
 Targeting and Positioning for Competitive Advantage
 Loyalists – very appealing
 Value image quality and diagnostic flexibility, DentMax’s strengths  further
correspond with dentists through magazine journals, and use peer feedback
 Switchables – good option to grow market share
 Value software integration and technical assistance highly  stress these
qualities to dentists
 Care more about information from internet  use Internet marketing
 Generalists – not a good option
 Valued price and technical assistance highly  DentMax doesn’t want to
compete on these dimensions
 Apathetics – not appealing
© Palmatier 75
Readings
 STP process, analyses, and examples
 Customer Segmentation in B2B Markets (excellent overview of STP, good
for B2B, and how to pick variables)
 Positioning: The Essence of Marketing Strategy (provides guidance on
writing a positioning statement, explains perceptual maps, examples)
 Business Model Analysis for Entrepreneurs (insight into how to adapt

this process for startups)
 Marketing Strategy Book: Chapter 2
The victorious strategist only seeks battle after the victory has been
won, whereas he who is destined to defeat first fights and
afterwards looks for victory.
Sun Tzu
© Palmatier 76

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Marketing Strategy:

Based on First Principles and Data

 Approaches for Managing Customer Heterogeneity

 Framework for Managing Customer Heterogeneity

 In response, firms are targeting smaller & smaller segments

 “Big Book” catalog

 Everyone take 2 minutes to list your favorite retailer, and

 How could one retailer be the best at satisfying all of you?

 What segment is each retailer targeting?

 What are Walmart’s and Nordstrom’s target segments?

 What happened to JC Penny and Gap?

 Customer heterogeneity may be latent or hidden

Marketing principle #1: all customers differ and an effective

 Latent customer heterogeneity is defined as potential differences in

 Latent customer heterogeneity can stem from several constraints:

 Economic constraints (prohibitive prices, due to the size of the market

 In 1984, AT&T lost its U.S. government–granted monopoly, so direct

 By 1991, the company lost 83% of its sales revenue

 Deregulation of this market allowed for the entrance of many new

 Western Electric (the subsidiary of AT&T) came to an end in 1995

 Approaches for Managing Customer Heterogeneity

 Framework for Managing Customer Heterogeneity

Target Market Size

 Niche marketing era focused marketing efforts on well-defined, narrow

 One-to-one marketing era is marked by a shift towards one-to-one marketing,

 Positioning: Improve your relative advantage in the minds of your targeted

See Business Model

 Consists of dividing the market into groups of customers where:

 Customers across groups have different needs

 Needs: Needs and benefits desired by customers for your offering

 Uses one of the “Cs” as input: customers

 Descriptors: Observable customer characteristics that help you find and

1. Identify and refine “pool” of potential customers needs and descriptors

2. Collect data from random assortment of potential customers on

3. Use “needs/benefits” to segment the market into 3 to 7 homogeneous

4. Name segments (communication tool)

 Factor analysis is a data reduction technique that can be used to identify

 When to use it?

 Factor analysis groups similar questions (purchase attributes) together

Description When to Use It

Description When to Use It

a = distance from member to cluster

© Palmatier (See Data Analytic Technique 2.2 for more details) 23

 Discriminant and classification analyses are multivariate

© Palmatier (See Data Analytic Technique 2.4 for more details) 24

 A market needs to select segments to target based on certain selection criteria

 Uses all three “Cs” as input: customer, company, and competitors

 An ideal target segment should meet six criteria:

The size of each

corner of the matrix

 Process of improving your relative advantage in the minds of your targeted

 Nearly everything you do impacts your positioning

 Perceptual maps: analysis tool to aid in positioning decisions

 Repositioning: process by which a firm shifts its target market

Abercrombie & Fitch

2. What is the set of needs that the product or service fulfills?

3. Why is this product/service the best option to satisfy your needs

 This statement is the roadmap for a plethora of implementation decisions

JC Penney: For [Modern Spenders and Starting-outs in mid-income levels

1. Who are the customers?

1. Identify and refine “pool” of potential customers needs and descriptors

2. Collect data from “random” sample on importance of needs

3. Do factor analysis to combine like questions if needed