Segmentation In The Process Of Profitability And Distribution Of Consumers

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• Segments: Collections of consumers (within segment sim as possible, between segments dif as possible)
• Segmentation: process of dividing market into groups based on important consumer characteristics
• Targeting: process of evaluating attractiveness of segments and selecting one or more segments to enter
• Positioning: strategies that firms develop and implement to ensure differences occupy distinct and important position in the minds of consumers
• For effective segmentation: o 1. Measurability, Accessibility, Profitability
• Hierachical clustering o Pros: can visualize process of clustering. intuitive. no need to know # of clusters ex ante. o Cons: not very efficient or stable when data size is large
• K means o Pros: Efficient when data size is large o Cons: have to know k beforehand, convergence to local optima, depends on metric used
• 4 Positioning Strategies o 1. Product Quality 2. Class of Users 3. Owning the category 4. Against a competitor
• 3 Positioning Traps o 1. Positioning on unimportant attributes 2. with wrong attibutes 3. positioning on someone else’s benefits
• Economic value: Final number value (cost saving etc)
• Functional Value: based on attibutes o Fishbiens (Attitudek=sumattioni bi xik
• Psychological: How customer feels when using product
• Golden Formula o Price=marginal cost+ [1/(e-1)]*marginal cost o e = elasticity, high elasticity low price, low elasticity high price
• Price elasticity = %change in q demanded/% change in price o low elasticity is steeper
• Examples of real pricing o 1. Prestige Pricing (Stella) o 2. Intel Chip o 3. Theaters will charge premium on 2D movies in order to lower cost of 3D movie tickets
• Under oligopoly, simple price cometption leads to price = marginal cost
• Consumers are heterogeneous in their willingness to pay
• To discount, simply multiply the rate time the last day
• If probability (discount rate) is high assume cooperation
• A strategy profile is a subgame-perfect equilibrium. if for every node x of the game tree, the mover at x best-responds to the opponent’s strategy conditional on reaching x
• Coase conjecture: pricing HWP vs. LWP
• Market skimming pricing: setting a high price for new products to maximize revenue from the target segment
• Market Penetration pricing: Setting a low price to attract a large number of buyers before any competitor enters
• Style is a basic and distinctive mode of expression
• Fashion is a popular style in a given field
• Fads result in a temporary period of unusually high sales driven by consumer enthusiasm
• Bass Model: shows that there are two types of consumers: o Innovators: no influence from peers, imitators: influenced from WOM o n(t) = [p+qF(t)][1-F(t)]N
• n(t) is sales period at t, F(t) is the fraction of consumers who have bought the product by period t, N is size of market
• p= innovation q=imitation
• Product line: group of closely related products, sold to same customer groups marketed through same outlets or within same price ranges
• Product mix: set of all product lines and items that particular seller offers for sale
• Product line length o Filling (adding more to current range) – extra profits o Stretching
• Downward to plug market
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