NOTE TO CHEGG EXPERTS: This requires the use of R-code Bank Marketing Segmentati
ID: 3771388 • Letter: N
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NOTE TO CHEGG EXPERTS: This requires the use of R-code
Bank Marketing Segmentation Case Study Analysis goal: Who is the best target for a cross-sell/up-sell campaign? A consumer bank wants to segment its customers based on historic usage patterns to identify those who might benefit from new product offerings. Analysis plan: 1. Perform cluster analysis. 2. Select the number of segments to create. 3. Interpret the segments. 4. Deploy the segmentation rules with scoring code. A consumer bank sought to identify customers for a particular type of campaign. Some customers might prefer an offer of a low-interest loan whereas others might prefer more convenience in online banking opportunities. In order to identify customer usage patterns, the bank decides to segment its customers based on historic data about products that they hold. Segmentation was to be used for improving contact strategies in the Marketing Department. A sample of 100 active consumer customers was selected. An active consumer customer was defined as an individual or household with at least one checking account and at least one transaction on the account during a three-month study period. All transactions during the threemonth study period were recorded and classified into one of four activity categories: traditional banking methods (TBM) automatic teller machine (ATM) point of sale (POS) customer service (CSC) A three-month activity profile for each customer was developed by combining historic activity averages with observed activity during the study period. Historically, for one CSC transaction, an average customer would conduct two POS transactions, three ATM transactions, and ten TBM transactions. Each customer was assigned this initial profile at the beginning of the study period. The initial profile was updated by adding the total number of transactions in each activity category over the entire three-month study period. The BANK data set contains 100 three month activity profiles. This case study describes the creation of customer activity segments based on the BANK data set. Name Model Role Measurement Level Description ID ID Nominal Customer ID CNT_TBM Input Interval Traditional bank method transaction count CNT_ATM Input Interval ATM transaction count CNT_POS Input Interval Point-of-sale transaction count CNT_CSC Input Interval Customer service transaction count CNT_TOT Input Interval Total transaction count Produce summary statistics and histograms (R function hist()) for all these variables. Since all variables are counts, they are highly skewed. It is better to develop segments based on the relative proportions of transactions across the four categories. Transform the raw data using the logit transformation: category logit score= log(transaction count in category/ transaction count out of category) For example, transform ATM transaction count in R-Code: atm=log(CNT_ATM/(CNT_TOTCNT_ATM)). Produce summary statistics and histograms for these transformed variables to see if they are still skewed. Limit the number of clusters (or segments) to 4 or 5 and see if you can interpret them.
ID CNT_TBM CNT_ATM CNT_POS CNT_CSC CNT_TOT 41360 34 3 3 9 49 52094 44 17 5 18 84 57340 122 26 32 36 216 76885 42 3 6 1 52 89150 20 15 2 2 39 94512 83 20 49 3 155 96396 33 9 49 17 108 98062 22 5 9 1 37 122779 21 27 2 1 51 125838 127 3 2 3 135 137317 52 20 2 11 85 147896 101 40 8 1 150 150206 156 52 80 4 292 160501 31 32 42 12 117 176820 107 3 2 1 113 187784 54 14 7 24 99 189200 92 3 2 2 99 198327 44 27 17 3 91 200237 146 3 2 1 152 207980 39 5 2 4 50 227355 180 3 2 10 195 228317 46 14 2 1 63 228906 25 3 2 1 31 229984 15 3 2 1 21 241022 13 3 2 1 19 253260 65 3 2 1 71 257910 35 3 2 1 41 261717 11 5 2 1 19 266600 15 3 2 1 21 269176 107 78 22 7 214 273510 110 15 6 21 152 302929 13 3 2 1 19 311940 16 15 16 1 48 341023 55 21 2 1 79 347091 17 14 7 1 39 375426 32 3 2 3 40 388852 18 3 2 1 24 404194 73 11 37 6 127 414364 49 11 2 1 63 417191 122 25 19 7 173 417996 133 27 7 1 168 420459 25 3 2 1 31 427493 27 31 39 52 149 434975 19 3 2 1 25 441474 19 3 2 1 25 469447 11 9 2 1 23 484515 59 36 2 10 107 489111 118 3 2 2 125 494168 199 3 2 1 205 504965 38 12 2 1 53 529476 76 3 2 1 82 548357 15 8 3 1 27 559012 76 3 2 1 82 599726 51 10 50 9 120 600359 112 24 28 5 169 629637 11 4 2 1 18 638213 166 14 6 3 189 641370 49 3 2 5 59 667651 93 22 27 3 145 696561 42 3 2 1 48 716261 60 46 2 1 109 755205 33 29 4 1 67 765932 186 50 12 18 266 766047 96 8 10 5 119 767265 12 6 2 1 21 772700 23 4 2 1 30 776709 40 3 2 1 46 778879 16 37 9 1 63 780357 51 24 2 1 78 785401 20 11 2 2 35 794342 191 21 2 11 225 803963 27 7 2 1 37 816976 14 5 2 1 22 858113 10 4 2 1 17 872299 119 13 17 15 164 891864 117 12 2 1 132 893304 14 11 3 1 29 899736 38 25 14 2 79 904410 16 4 2 1 23 942859 14 5 2 1 22 948961 211 21 4 1 237 964154 94 17 56 12 179 987437 17 3 2 1 23 993476 11 6 2 1 20 995997 188 5 2 2 197 997417 97 17 8 24 146 999996 25 85 15 6 131 1042998 17 3 2 2 24 1064704 1024 3 2 33 1062 1064731 20 37 2 2 61 1067051 79 18 2 5 104 1079463 12 3 2 1 18 1081759 53 21 23 55 152 1085242 94 7 2 1 104 1090812 227 28 76 26 357 1104403 49 3 2 1 55 1110480 190 3 2 11 206 1121453 25 11 24 26 86 1126673 51 19 2 8 80Explanation / Answer
Promotions Opportunity Analysis A promotions opportunity analysis is the process by which marketers identify target audiences for the goods and services produced by the company. There are two objectives. 1. Determine which promotional opportunities exist for the company. 2. Identify the characteristics of each target audience so consumers can be reached with coherent advertising and marketing communications messages. There are five steps in developing a promotions opportunity analysis. As shown in Figure 4.1, they are: 1. Conducting a communications marketing analysis. 2. Establishing objectives. 3. Creating a budget. 4. Preparing a promotional strategy. 5. Matching tactics with the strategy. Communication Market Analysis Communication market analysis is the process of discovering the organization’s strengths and weaknesses in the area of marketing communication, and combining that information with an analysis of opportunities and threats that are present in the firm’s external environment. This includes examining five areas: 1. Competitors. 2. Opportunities 3. Target markets 4. Customers 5. Product positioning Competitors The analysis identifies major competitors. The objective is to discover who the competition 68 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall is, and what they are doing in the areas of advertising and communication. • Make a list of all of the competing firms. • Collect secondary data, from statements made by competitors about themselves in: advertisements, promotional materials, annual reports, a prospectus for a publicly held corporation, and Web sites. • Study what other people are saying about the competition. • Analyze the competition using primary research, such as a store visit. Opportunities Watch carefully for new marketing opportunities by examining all of the data and information about the market that is available. As shown in Figure 4.1, some questions that are helpful in conducting an opportunity analysis are: • Are there customers that the competition is ignoring or not serving? • Which markets are heavily saturated and have intense competition? • Are the benefits of our goods and services being clearly articulated to our customers? • Are there opportunities to build relationships with customers using a slightly different marketing approach? • Are there opportunities that are not being pursued, or is our brand positioned with a cluster of other companies in such a manner that it cannot stand out? Target Markets Target markets are often carefully specified as part of the market segmentation process, which is discussed in detail later in this chapter. Customers There are three types of customers that should be studied: 1. Current company customers. 2. The competition’s customers. 3. Potential new customers. Product Positioning Positioning is the perception created in the consumer’s mind regarding the nature of a company and its products relative to the competition. Positioning is created by: • The quality of products being sold • Prices being charged • Methods of distribution • Image • Communication tactics 69 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Various product positioning strategies are shown in Figure 4.3 Establishing Marketing Communication Objectives As noted in Figure 4.4, the most common marketing communications objectives that firms establish are: • Develop brand awareness • Increase product/service category demand • Change customer beliefs or attitudes • Enhance purchase actions • Encourage repeat purchases • Build customer traffic • Enhance firm image • Increase market share • Increase sales • Reinforce purchase decisions Benchmark measures, which consider a starting point in relation to a degree of change following a campaign, are useful to IMC programs Establishing a Communications Budget Budgeting Assumptions There are several important budgeting items to consider, including: • Promotional goals • Threshold effects, which occur when enough attention is captured to increase sales • Carry-over effects, which mean the consumer remembers the product or company when it is time to buy • Wear-out effects, which means an ad can become old or boring • Decay effects, when a company stops advertising, consumers forget the brand or the company • Random events, which can disrupt any advertising or promotional campaign at any time. The Sales-Response Function Curve, Figure 4.5, displays many of these effects. The decay effects model is displayed in Figure 4.6. The concave downward function indicates when further advertising expenditures result in diminishing returns. A marginal analysis indicates when further advertising expenditures adversely affect revenues and profits. 70 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Types of Budgets The various types of budgets are listed in Figure 4.7. 1. Percentage of Sales Method a. Sales from the previous year b. Anticipated sales for the next year 2. Meet-the-Competition Method 3. “What We Can Afford” Method 4. Objective and Task Method 5. Payout Planning 6. Quantitative Models The first three are self-explanatory. The Objective and Task method lists the costs associated with reaching a marketing objective. It is more difficult but may be useful to more accurately allocate funding. The Payout Planning methods establishes a ratio of advertising to sales or market share. It indicates the often the results of advertising are cumulative over time. Quantitative Models are simulations of relationships between advertising and sales or profits. They may be difficult to create accurately. Budgeting Expenditures In terms of budget expenditures: • Media advertising normally accounts for 40% of a communications budget • Trade promotions receive about 25% • Consumer promotions are given on average about 25% • The final 3-5% goes to other expenses. • There are variances from industry to industry • Business-to-business firms have allocations, which are not the same as consumer-oriented firms and also vary by industry Figure 4.8 is a graphic breakdown of marketing expenditures. Figure 4.9 shows those expenditures in other countries. Figure 4.10 breaks down advertising expenditures by media. Figure 4.11 breaks them down by industry. Preparing Promotional Strategies Strategies are sweeping guidelines concerning the essence of the company’s marketing efforts. Strategies provide the long-term direction for all marketing activities. Matching Tactics with Strategies 71 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Tactics are the things companies do to support overall promotional strategies. Tactics include promotional campaigns designed around themes, which are based on strategic objectives. Methods used in tactical campaigns include: • Advertisements based on the major theme or a subtheme • Personal selling enticements (bonuses and prizes for sales reps) • Sales promotions (posters, point-of-purchase displays, end-of-aisle displays, freestanding displays) • Special product packaging and labeling • Price changes Besides the methods of communicating with consumers and sales reps that offer the products, companies are able to add other enticements. The items that may be included in tactical efforts include: • Coupons • Gift certificates • Purchase bonuses (a second product attached to a first) • Special containers (e.g., holiday decanters or soft-drink glasses) • Contests and prizes • Rebates • Volume discounts (larger sized packages, buy one, get one free promotions, etc.) Market Segmentation Market segmentation is the process of identifying purchasing groups based on their needs, attitudes, and interests. A market segment is a set of businesses or group of individual consumers with distinct characteristics. Some of the advantages of market segmentation are listed in Figure 4.12. For a market segment to be considered a viable target for a specific marketing communications campaign, it should meet the following tests: • The individuals or businesses within the market segment should be similar in nature, having similar needs, attitudes, interests, and opinions. This means persons or businesses within the segment are homogenous. • The market segment differs from the population as a whole. Segments are distinct from other segments and the general population. • The market segment must be large enough to be financially viable to target with a separate marketing campaign. • The market segment must be reachable through some type of media or marketing communications method. Market segments occur in two general areas: consumer markets and business-to-business markets. 72 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Market Segmentation by Consumer Groups Figure 4.13 displays the methods of segmenting the consumer market, including: • Demographics (gender, age, income, ethnic groups) • Psychographics • Generations • Geographic area • Geodemographics • Benefits • Usage Segments Based on Demographics Gender Males and females purchase differing products, buy similar products with different features (e.g., deodorants for women versus men), buy the same products for dissimilar reasons (stereos, televisions), and buy the same products after being influenced by different kinds of appeals through different media. Age Children, young adults, middle-aged grown-ups, and senior citizens are all targeted by different types of marketing campaigns. Often age-related factors are combined with other demographics such as gender. Children have a major impact on the purchasing decisions their parents make. Another age-based demographic group, which appeals to many firms, is seniors, defined as individuals over the age of 55. Income Spending is normally directed at three large categories of goods: necessities, sundries, and luxuries. The amount of goods in each category a consumer will purchase is highly dependent on their income. Ethnic Groups The three major ethnic groups in the United States are African Americans, Hispanics, and Asian Americans. Although different in many ways, there are several common threads among these ethnic groups. They all tend to be more brand loyal than their white counterparts. They value quality and are willing to pay a higher price for quality and brand identity. They value relationships with companies and are loyal to the companies that make the effort to establish a connection with them. Ethnic marketing is similar in some ways to global marketing. It is important to present one overall message that is then tailored to fit the needs and values of various groups. Psychographics Psychographics emerge from patterns of responses, which reveal a person’s attitudes, interests, and opinions (AIO). 73 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Segments Based on Generations Table 4.1 identifies the characteristics of various generational segments. The idea behind generational segments is that each generation goes through similar events that create similar viewpoints and attitudes. Segmentation by Geographic Area This method is especially useful for retailers who want to limit marketing communication programs to specific areas and for companies conducting direct mail campaigns in target areas. Geodemographic Segmentation Geodemographics combines census data with psychographic information. An example would be PRIZM (Potential Rating Index by Zip Marketing), which is a company that specializes in geodemographics. PRIZM has identified 62 different market segments in the United States. Benefit Segmentation Benefit segmentation focuses on the advantages consumers receive from a product rather than the characteristics of consumers themselves. Demographics and psychographic information can be combined with benefit information to better identify segments. Usage Segmentation The goal of usage segmentation is to seek to provide the highest level of service to a firm’s best customers although promoting the company to casual or light users. Many companies are able to identify heavy users by utilizing their own databases, using barcode scanners, point-of-sale systems, and credit/debit transaction cards data. Business-to-Business Segmentation Segmentation by Industry Many firms use the NAICS (North America Industry Classification System) code. The NAICS code is replacing the SIC (Standard Industrial Classification) coding system. Firms can target specific industries such as construction (23) or wholesale trade (42). They can also segment within a specific category. Segmentation by Size The rationale for this method is that large firms have different needs than smaller companies 74 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall and therefore should be contacted in a different manner. Segmentation by Geographic Location This approach is especially beneficial for businesses that have customers concentrated in geographic pockets such as the Silicon Valley area of California. Companies can also use geodemographics, combining geographic areas with demographic and psychographic data. Segmentation by Product Usage Business markets can be segmented by how the good or service is used. Many services (financial, transportation, shipping, etc.) have a variety of uses for distinct customers. Segmentation by Customer Value This method of segmentation is much easier for business-to-business firms to utilize than it is for consumer businesses, due to the availability of in-depth data about each business customer. A more precise value can be assigned to each individual business through sales records and other sources of data and information. International Implications Figure 4.15 identifies some of the tactics used by successful globally integrated marketing communications programs. Recognizing the many cultural nuances throughout the world is an important key for GIMC programs. A borderless marketing plan suggests that the firm is going to use the same basic marketing approach for all of its various markets. At the same time, it allows each subsidiary the freedom to determine how that marketing plan will be implemented. A successful GIMC is likely to develop local partnerships to assist in developing borderless marketing plans. Local partners can be marketing research firms or advertising firms that are familiar with the local language and culture. As with domestic markets, segmentation is critical. It is also important to conduct a welldesigned market communications analysis. Marketing managers must identify strengths and weaknesses of local competitors and places where opportunities exist. They must also develop an understanding of how their own firms are perceived in the international marketplace. A cultural assimilator can be of great help in this area. Solid communication objectives based on an effective market communication analysis will greatly improve the chances that a GIMC program will be successful. Language, culture, norms, beliefs, and laws all must be taken into consideration as the GIMC program is being developed. 75 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall IMPLICATIONS FOR BRAND AND PROMOTION MANAGERS (Note to professors -- these materials are not in the text. They provide a method for you to summarize the chapter in a different way) Recognize the connection between planning processes and evaluation processes. In other words, planning should only begin after previous efforts have been reviewed and analyzed. This would lead the account executive to ask the following questions about previous marketing communications and campaigns. • What was done right? • What was done wrong? • What are the company’s strengths and weaknesses? • Did the last campaign (or previous promotional efforts) change this company’s strengths and weaknesses? When conducting a promotions opportunity analysis, the account executive should be aware of the following items: • What the competition is doing (and plans to do, if that can be discovered) • What opportunities are present in the environment • How current company objectives can be integrated into the overall IMC approach • What kinds of promotional strategies are in place • Alternative tactics that will help support the company’s strategies As potential new market segments are being examined, consider the following criteria. • Contribution to sales • Contribution to profits, including how much should be spent in order to induce sales and revenues from the segment • Potential for growth of the segment • Potential to build company and brand loyalty in the segment • Potential for competition from other firms seeking to capture the same segment • The ability to match the firm’s message to the particular attitudes and needs of the segment • The possibility of combining segments or designing similar appeals to segments. • Other short- and long-term implications of designing promotional efforts toward the segment Appraise global markets using the same criteria as were used for local target markets.
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