Marketing Reading

Sunil  Gupta

Other Teaching and Training Material | 2014

Marketing Reading: Segmentation and Targeting

Abstract

This Reading introduces two of the integral parts of any marketing strategy: segmentation and targeting. It covers, first, all of the methods, techniques, and variables with which a business first uncovers the full range of its potential customers and then distinguishes between them. It then takes up how a company judges the potential of each market segment, selects the segments worth pursuing, and designs marketing programs to serve them. The Reading includes two interactive illustrations. Both drive the students to think more carefully about segmentation and targeting. The first, "Segmenting the Dog Food Market," shows how successfully marketing a product consumed by dogs depends on first understanding and segmenting their owners. The second, "Segmenting the Market for Early Pregnancy Test Devices," shows how the most important category for segmentation is not demographic or geographic, but concerned rather with consumer psychology and motivation. The Reading also includes a six-part video mini-case study on how GE Healthcare developed and applied segmentation for its Imaging Systems business.

Keywords: behavioral segmentation; Conjoint Analysis; demographic segmentation; geographic segmentation; market opportunities; Market segmentation; marketing; marketing strategy; psychographic segmentation; unethical marketing practices; United States;

Language: English

Format: Print

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Citation:

Gupta, Sunil. "Marketing Reading: Segmentation and Targeting." Core Curriculum Readings Series. Boston: Harvard Business Publishing 8219, 2014.

By October 2017, Procter & Gamble’s skincare brand Olay has been struggling with declining sales for several years. The team has tried many remedies, but none has returned the brand to growth. As pressure grows from Olay’s competitors, including hundreds of new direct-to-consumer brands catering to millennial women, North American Skin Care General Manager Chris Heiert must identify a winning marketing strategy that will appeal to women of all ages.

Customer defection threatens many industries, prompting companies to deploy targeted, proactive customer retention programs and offers. A conventional approach has been to target customers either based on their predicted churn probability or their responsiveness to a retention offer. However, both approaches ignore that some customers contribute more to the profitability of retention campaigns than others. This study addresses this problem by defining a profit-based loss function to predict, for each customer, the financial impact of a retention intervention. This profit-based loss function aligns the objective of the estimation algorithm with the managerial goal of maximizing the campaign profit. It ensures (1) that customers are ranked based on the incremental impact of the intervention on churn and post-campaign cash flows, after accounting for the cost of the intervention, and (2) that the model minimizes the cost of prediction errors by penalizing customers based on their expected profit lift. Finally, it provides a method to optimize the size of the retention campaign. Two field experiments affirm that our approach leads to significantly more profitable campaigns than competing models.

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Marketing Reading: Segmentation and Targeting

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