MKTG MGMT Concept 2 Flash Cards

Vocabulary flashcards covering key terms from lecture notes on segmentation, targeting, and customer lifetime value (CLV).

Targeting

The strategic process of selecting specific market segments to serve with tailored marketing mixes.

Market Segmentation

Dividing a broad market into smaller groups of consumers with similar needs, characteristics, or behaviors.

Segmentation Bases

Criteria used to group consumers, including geographic, demographic, psychographic, behavioral, and benefits sought.

Geographic Segmentation

Grouping customers by physical location such as country, state, or region.

Demographic Segmentation

Segmenting markets by measurable population characteristics like age, gender, occupation, or education.

Psychographic Segmentation

Dividing the market based on lifestyle, interests, opinions, values, and aspirations.

Behavioral Segmentation

Grouping consumers according to usage rate, purchase frequency, recency, or brand loyalty.

Benefits-Sought Segmentation

Classifying customers by the specific value, quality, or prestige benefits they seek from a product.

Firmographic Segmentation

For B2B markets, segmenting by industry, company size, or organizational structure (public/private).

Buying Approach

B2B segmentation variable describing how a firm purchases—centralized vs. team-based decision making.

Customer Heterogeneity

Differences among customers that create varied needs and preferences within a market.

Resource Allocation

Distributing marketing budgets and efforts to segments that offer the highest return.

Clustering Tools

Analytical techniques (e.g., k-means) used to uncover natural customer segments from data.

Cascade Analysis

A step-by-step method for evaluating the size and attractiveness of potential market segments (bodies, beliefs, behaviors, bucks).

Market Sizing

Estimating the number of potential buyers (bodies), their behavior, and the money (bucks) available.

RFM (Recency, Frequency, Monetary Value)

A behavioral framework for evaluating existing customers based on how recently and often they purchase and how much they spend.

Customer Lifetime Value (CLV)

The net present value of all future margins generated by a customer minus acquisition cost.

Acquisition Cost (AC)

The spending required to attract and convert a new customer.

Margin (m)

Annual profit earned from a customer after variable costs are deducted.

Discount Rate (i)

The required rate of return used to convert future cash flows into present value terms.

Retention Rate (r)

Percentage of customers who stay with the firm from one period to the next.

Churn Rate

The proportion of customers lost in a period; calculated as 1 – retention rate.

Present Value of a Perpetuity

Formula PV = Cash Flow / i, used when cash flows continue indefinitely.

Simple Lifetime Value Formula

LV = m / i – AC, assuming 100% retention (no churn).

Retention-Adjusted LV Formula

LV = m × r / (1 + i – r) – AC, accounts for customer attrition.

Expected Customer Lifetime (ELife)

Average years a customer remains, calculated as 1 / (1 – r).

Retention-Based Business

A firm whose profitability relies heavily on keeping existing customers over time.

Referrals

New customers brought in by satisfied existing customers, lowering acquisition costs.

Cross-Selling

Encouraging customers to buy additional, different products from the company.

Up-Selling

Motivating customers to purchase higher-priced or more profitable versions of a product.

Price Sensitivity

The degree to which a customer's purchase behavior changes with price fluctuations.

Subscription Model

Revenue model where customers pay recurring fees (e.g., Netflix) for continuous access.

Hook and Line Pricing

Strategy of selling a core product at low price and complementary products (e.g., ink) at higher margins.

Complementary Products

Goods whose sales are interlinked, such as razors and blades, often used in cross-selling.

What are the benefits for customers by segmenting the market?

• Tailored products and services

• Relevant marketing offers

• Personalized experience

• Convenience and time savings

What are the benefits for firmsby segmenting the market?

• Finding market opportunities

• Responding to customer heterogeneity

• Improved resource allocation

• Increased marketing efficiency

What is the summary/basis for segmentation?

To identify groups similar to each other.

What are the 3 segments to select from?

New markets, market sizing, existing customers

Why does retention lead to profit?

Current customers are willing to spend more, have lower service/acquisition costs, and likely to give referrals.

Switching Cost

Cost of moving from one product to another.

• Can be financial, mental, physical, etc.

When estimating the value of a customer, what should be considered?

• Waiting for the margins

• Probability of even receiving the margins

Break-Even Volume Formula

= Ad or Product Cost * # in Sample / Margin Cost

Break-Even Rate Formula

= Break-Even Volume / Total Sales (# Total Sample)