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Market-Based Management, 6e (Best)

Chapter 5 Market Segmentation and Segmentation Strategies

1) The purpose of needs-based segmentation is to offer product benefits that satisfy the needs of target
customers.
Answer: TRUE
Page Ref: 159
Difficulty: Easy

2) Both consumers and businesses have market needs, and the factors influencing their needs are
essentially the same.
Answer: FALSE
Page Ref: 159
AACSB: Analytic Skills
Difficulty: Medium

3) The primary forces that shape the needs of consumers are demographic influences, lifestyle
influences, and usage behaviors.
Answer: TRUE
Page Ref: 159
Difficulty: Easy

4) Lifestyle forces that shape customer needs and market demand include how the product is used, when
it is used, and how much it is used.
Answer: FALSE
Page Ref: 160
Difficulty: Easy

5) Business sophistication, growth orientation, innovativeness, technology, and decision making are all
examples of firm demographic forces that can have a profound impact on consumer needs.
Answer: FALSE
Page Ref: 161
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Difficulty: Easy

6) The best way to identify groups of similar customers is to segment customers on the basis of
demographics, lifestyles, and usage behaviors.
Answer: FALSE
Page Ref: 163
AACSB: Analytic Skills
Difficulty: Medium

7) The benefit of needs-based market segmentation is that it allows us to identify in advance the
individual customers who would fall into each segment.
Answer: FALSE
Page Ref: 165
AACSB: Analytic Skills
Difficulty: Medium

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8) Common to most assessments of segment attractiveness are measurements of market demand,
competitive intensity, and market access.
Answer: TRUE
Page Ref: 166
Difficulty: Easy

9) A key benefit of market segmentation is identifying segments that should not be pursued.
Answer: TRUE
Page Ref: 167
Difficulty: Easy

10) For a segment marketing mix strategy to be successful, the strategy needs to include only certain
elements of the marketing mix.
Answer: FALSE
Page Ref: 172
AACSB: Analytic Skills
Difficulty: Medium

11) When pursuing a large-segment strategy, a business presents a generic value proposition built
around the core customer need and the business's generic positioning strategy to the entire market.
Answer: FALSE
Page Ref: 173
Difficulty: Easy

12) When a market is segmented and marketing resources are limited, a business could elect to pursue a
large-segment strategy.
Answer: TRUE
Page Ref: 174
Difficulty: Easy

13) In order to implement a mass-personalization strategy, a business's database marketing system must
be able to track individual customers and their buying history.
Answer: TRUE
Page Ref: 183
AACSB: Analytic Skills
Difficulty: Medium

14) The ultimate goal of a customer relationship management is to build one-on-one customized
relationships between a business and individual customers.
Answer: TRUE
Page Ref: 186
Difficulty: Easy

15) In customer relationship management, every interaction with a customer or potential customer is
known as a storyboard.
Answer: FALSE
Page Ref: 186
Difficulty: Easy

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16) In the context of market segmentation, interests, opinions, and leisure pursuits of consumers are
related to ________ segmentation.
A) demographic
B) psychographic
C) usage behavior
D) firmographic
E) geographic
Answer: B
Page Ref: 157
Difficulty: Easy

17) Which of the following statements is true of customer needs?

A) Satisfying customer needs is the first step in successful market segmentation.
B) All potential customers have the same needs.
C) Solving customer problems requires knowing the identity of target customers.
D) A business with a strong market orientation rarely divides its served market into customer segments.
E) The factors influencing the needs of both consumers and businesses are the same.
Answer: C
Page Ref: 159
AACSB: Analytic Skills
Difficulty: Medium

18) Which of the following is a demographic force that shapes consumer needs?
A) marital status
B) attitudes
C) interests
D) political views
E) quantity used
Answer: A
Page Ref: 159
Difficulty: Easy

19) Which of the following is a lifestyle influence that shapes customer needs?
A) income
B) age
C) education
D) occupation
E) interests
Answer: E
Page Ref: 159
Difficulty: Easy

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20) Differences in values, attitudes, and interests are examples of ________ forces shaping consumer
needs.
A) demographic
B) lifestyle
C) usage behavior
D) geographic
E) firmographic
Answer: B
Page Ref: 160
Difficulty: Easy

21) Number of employees, sales volume, number of locations, years in business, and financial situation
are all examples of ________ forces shaping business market needs.
A) demographic
B) firm demographic
C) company culture
D) usage behavior
E) lifestyle
Answer: B
Page Ref: 161
Difficulty: Easy

22) Which of the following is a part of a company's culture?

A) number of employees
B) years in business
C) innovativeness
D) number of locations
E) sales volume
Answer: C
Page Ref: 161
Difficulty: Easy

23) Growth-oriented entrepreneurs differ from cost-focused sustainers in that growth-oriented

entrepreneurs ________.
A) are more interested in maintaining the status quo at the lowest cost
B) have a lower level of formal education at the leadership level
C) are less likely to have a working financial plan
D) are confused by value-added solutions
E) are more sophisticated in their operations
Answer: E
Page Ref: 162-163
AACSB: Analytic Skills
Difficulty: Medium

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24) Which of the following is a characteristic of cost-focused sustainers?
A) They have a high level of formal education at the leadership level.
B) They look for new ways to invest and grow their business.
C) They have a very high revenue per customer.
D) They are willing to buy value-added solutions.
E) They have a limited or no financial plan.
Answer: E
Page Ref: 163
Difficulty: Easy

25) S.K Investment Group is a firm based in Chicago that provides financial services to its clients. The
marketing department of the firm segments its market based on the amount invested, frequency of
transactions, and type of investments purchased. The firm creates 5 meaningful categories for each of
the 3 variables. Calculate the possible market segments for S.K Investment Group.
A) 642
B) 590
C) 324
D) 278
E) 125
Answer: E
Page Ref: 163
AACSB: Analytic Skills
Difficulty: Medium

26) Which of the following is true of needs-based market segments?

A) Relevant demographics that cause differences in needs include investments, size of investment
portfolio, and portfolio diversification.
B) To make the segments actionable, the observable demographics and behaviors have to be determined.
C) The main advantage is that individual customers who fall into each segment can be identified.
D) The main disadvantage is that the segments are not directly based on specific customer needs.
E) The usage behaviors that cause differences in needs include income and assets.
Answer: B
Page Ref: 165
AACSB: Analytic Skills
Difficulty: Medium

27) Which of the following steps in the segmentation process involves determining the demographics,
lifestyles, and usage behaviors that make one segment meaningfully different from another?
A) segment strategy "acid test"
B) segment positioning
C) segment attractiveness
D) segment profitability
E) segment identification
Answer: E
Page Ref: 165
Difficulty: Easy

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28) Which of the following forces that shape segment attractiveness include market size, growth rate,
and growth potential?
A) competitive intensity
B) market access
C) market demand
D) profitability
E) feasibility
Answer: C
Page Ref: 166
Difficulty: Easy

29) Karen is interested in assessing a market segment's attractiveness by analyzing the market demand.
Which of the following would be a variable should she assess?
A) number of companies
B) ease of entry
C) customer familiarity with her company
D) market size
E) access to channels that reach target customers
Answer: D
Page Ref: 166
AACSB: Analytic Skills
Difficulty: Easy

30) Which of the following market segments is most likely to be considered attractive by a firm?
A) a market segment with many substitute products
B) a market segment with limited product differentiation
C) a market segment with low barriers to competitor entry
D) a market segment with high price competition
E) a market segment with cost-effective access to customers
Answer: E
Page Ref: 167
AACSB: Analytic Skills
Difficulty: Medium

31) Which of the following is used to determine a segment's marketing profitability?

A) customer retention index
B) net profit (after taxes)
C) gross profit
D) net marketing contribution
E) gross revenue
Answer: D
Page Ref: 168
Difficulty: Easy

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32) A(n) ________ includes all the key elements of the situation and the benefits the target customer is
looking for in a given purchase.
A) acid test
B) value proposition
C) storyboard
D) Pareto chart
E) marketing mix strategy
Answer: B
Page Ref: 170
Difficulty: Easy

33) Kate owns a women's fashion apparel manufacturing firm. She has determined that the customers
for her business' products can be segmented into three distinct segments differing in primary needs,
demographics, lifestyle, and purchase behaviors. She now wants to develop a value proposition that
delivers value to target customers in each segment. Which stage of the needs-based market segmentation
process does this represent?
A) segment identification
B) segment attractiveness
C) segment profitability
D) segment positioning
E) segment marketing mix strategy
Answer: D
Page Ref: 170
AACSB: Analytic Skills
Difficulty: Medium

34) ________ are tools that marketing managers use to assess the merits of a proposed marketing
communication and the strategy behind it.
A) Touch points
B) Value propositions
C) Storyboards
D) Strategy functions
E) Remote segments
Answer: C
Page Ref: 171
Difficulty: Easy

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35) McEwan and Co., a commercial real estate brokerage firm, creates four storyboards, each of which
delineates a different value proposition and segment positioning strategy. The firm recruits a group of
executives from different industries, and assigns them to one of the four segments. The executives are
asked to critique each segment's storyboard and select the one that most appeals to them. The firm aims
to assess its understanding of segment needs and its ability to translate that understanding into a value
proposition. In this example, which of the following methods is McEwan and Co. using?
A) the emphatic method
B) segment attractiveness test
C) marketing mix strategy test
D) mass-market strategy test
E) segment strategy "acid test"
Answer: E
Page Ref: 172
AACSB: Analytic Skills
Difficulty: Medium

36) When differences in customer needs are small or demographics are not distinctive, a business may
elect to use a ________ strategy.
A) small-segment
B) vertical integration
C) horizontal integration
D) mass-market
E) niche-segment
Answer: D
Page Ref: 173
AACSB: Analytic Skills
Difficulty: Easy

37) A(n) ________ strategy presents a generic value proposition built around the core customer need
and the business's generic positioning strategy.
A) mass-market
B) large-segment
C) adjacent-segment
D) multi-segment
E) niche-segment
Answer: A
Page Ref: 173
Difficulty: Easy

38) A business could elect to pursue a large-segment strategy when ________.

A) it wants to provide customized products
B) a market is segmented and marketing resources are limited
C) demographics are not distinctive
D) differences in customer needs are small
E) it wants to carve out a niche within a segment using a highly refined marketing effort directed at an
overlooked group of customers
Answer: B
Page Ref: 174
Difficulty: Easy

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39) A large-segment strategy differs from a mass-market strategy in that a large-segment strategy
________.
A) addresses one set of core customer needs
B) has no segment focus
C) is used when demographics are not distinctive
D) is used when differences in customer needs are small
E) allows customers to build their own products
Answer: A
Page Ref: 175
AACSB: Analytic Skills
Difficulty: Medium

40) Dynamo Inc., a motor company, started by selling sturdy, affordable, low-maintenance motorcycles
in the U.S. Initially the firm pursued a single-segment focus, and targeted the middle-income group.
When the company reached the point of full market penetration of the middle-income group, it marketed
to a closely related attractive segment by introducing a line of luxury motorcycles for the high-income
group of consumers. Which of the following type of market segmentation strategy does Dynamo Inc.
use when it targets the high-income group of consumers?
A) multi-segment strategy
B) adjacent-segment strategy
C) mass-customization strategy
D) niche-segment strategy
E) mass-market strategy
Answer: B
Page Ref: 175
AACSB: Reflective Thinking
Difficulty: Hard

41) Vermont Home Builders conducted a study of the customers in the housing sector, which revealed
that there are seven kinds of buyers, each a little different and each differently profitable. Vermont
Home Builders decided to focus their attention on the three most profitable segments. In this example,
Vermont Home Builders uses which of the following market segmentation strategies?
A) mass-market strategy
B) niche-segment strategy
C) adjacent-segment strategy
D) multi-segment strategy
E) subsegment strategy
Answer: D
Page Ref: 176
AACSB: Reflective Thinking
Difficulty: Medium

10
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42) Niche-segment strategies differ from mass-market strategy in that niche-market strategies ________.
A) address one set of core customer needs of a large market segment
B) have no segment focus
C) are used when demographics are not distinctive
D) are used when the company markets to a closely related attractive segment first
E) involve highly refined marketing effort directed at an overlooked, small group of customers
Answer: E
Page Ref: 179
AACSB: Analytic Skills
Difficulty: Medium

43) Which of the following segmentation strategies involves using a highly refined marketing effort
directed at an overlooked, small group of target customers?
A) a mass-market strategy
B) an adjacent-segment strategy
C) a multi-segment strategy
D) a large-segment strategy
E) a niche-segment strategy
Answer: E
Page Ref: 179
AACSB: Analytic Skills
Difficulty: Medium

44) HomeVenture Inc. manufactures and sells a line of furniture under the brand name Elegant Lines.
The firm has a 3 percent share of the U.S. furniture market, and competes with industry giants who have
large economies of scale and marketing resources. However, Elegant Lines holds 65 percent of the
overlooked "customized art furniture" segment, specializing in very expensive custom-designed,
furniture. Each of the Elegant Lines furniture pieces is a unique piece of art. What type of market
segmentation strategy is HomeVenture Inc. pursuing?
A) a mass-segment strategy
B) a niche-segment strategy
C) a large-segment strategy
D) a market-development strategy
E) a mass-market strategy
Answer: B
Page Ref: 179
AACSB: Reflective Thinking
Difficulty: Hard

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45) David has determined that there are meaningful differences in customer needs within the health
supplements market segment in the U.S., that are not being met by the current segmentation strategy
used by the businesses in the sector. What market segmentation strategy would be appropriate for David
to use to capitalize on this opportunity?
A) mass-market strategy
B) market penetration strategy
C) subsegment strategy
D) large-market strategy
E) undifferentiated strategy
Answer: C
Page Ref: 179
AACSB: Analytic Skills
Difficulty: Medium

46) Which of the following is true about customer relationship marketing?

A) It is more focused on what happens before a customer is acquired.
B) It aims to develop a short-term customer relationship to lower the cost of marketing.
C) It has the same meaning as customer relationship management.
D) It is a high-level program for developing ongoing individualized relationships with certain customers
when both company and customer value are very high.
E) It is a range of one-on-one relationship marketing programs based on the level of company and
customer value.
Answer: E
Page Ref: 182
AACSB: Analytic Skills
Difficulty: Medium

47) Which of the following is a customer relationship marketing strategy?

A) mass-market strategy
B) mass-customization strategy
C) core-segment strategy
D) sub-segment strategy
E) decentralization strategy
Answer: B
Page Ref: 182
AACSB: Analytic Skills
Difficulty: Easy

48) Which of the following is true about database marketing?

A) It is at the core of customer relationship marketing.
B) It assumes that all customers have the same needs.
C) It avoids building a more personal relationship between the business and the customer.
D) It treats all customers as the same, instead of assuming that each customer is unique.
E) It prioritizes creating efficiency through technological advances over building customer relationships.
Answer: A
Page Ref: 183
AACSB: Analytic Skills
Difficulty: Medium

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49) The rapid growth of database marketing technologies has lured many businesses down a side road
where technology is seen as the solution instead of a tool for building a solution. Without a solid
commitment to serving individual customer needs, these businesses can fall into a ________.
A) reverse marketing trap
B) technology trap
C) customization trap
D) downward spiral
E) price trap
Answer: B
Page Ref: 183
Difficulty: Easy

50) The first level of customer relationship marketing is a ________ strategy that recognizes individual
customers by name and buying behavior.
A) mass-personalization
B) decentralization
C) mass-market
D) core-segment
E) sub-segment
Answer: A
Page Ref: 183
Difficulty: Easy

51) Which of the following customer relationship marketing strategies allows customers to become their
own individual market segments?
A) mass-personalization
B) core-segment strategy
C) decentralization
D) mass-customization
E) database marketing
Answer: D
Page Ref: 184
AACSB: Analytic Skills
Difficulty: Easy

52) MyStyle Clothes Inc. is a women's fashion apparel firm that allows its customers to personalize their
clothes. MyStyle Clothes Inc. has a web site where customers can choose from a range of fabrics, colors,
buttons, fits, and designs to create clothes. Customers can place orders with their measurements, and the
clothes are manufactured according to the customer's specifications and sent to her by courier. In this
example, MyStyle Clothes Inc. uses which of the following strategies?
A) mass-personalization
B) mass-customization
C) customer relationship management
D) sub-segment
E) multi-segment
Answer: B
Page Ref: 184
AACSB: Analytic Skills
Difficulty: Medium

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53) Mass-customization differs from mass-personalization in that mass-customization ________.
A) is a customer relationship marketing strategy
B) assumes that all customers have the same needs
C) allows each customer to build a custom product to meet that customer's specific needs
D) involves pursuing a large-segment strategy
E) recognizes individual customers by name, needs, and buying behavior.
Answer: C
Page Ref: 183-184
AACSB: Analytic Skills
Difficulty: Medium

54) In the context of customer relationship management, every interaction with a customer or a potential
customer is a(n) ________.
A) value proposition
B) irrelevant cost
C) service contact
D) touch point
E) sales contact
Answer: D
Page Ref: 186
AACSB: Analytic Skills
Difficulty: Easy

55) Which of the following would be considered an indirect customer touch point?
A) in-store interactions
B) news articles
C) return counters
D) voice mail systems
E) service calls
Answer: B
Page Ref: 187
AACSB: Analytic Skills
Difficulty: Easy

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56) Name and describe the seven key steps in a needs-based market segmentation process.
Answer:
(1) Needs-Based Segmentation — Group customers into segments based on similar needs and benefits
sought by customers in solving a particular consumption problem.
(2) Segment Identification — For each needs-based segment, determine which demographics, lifestyles,
and usage behaviors make the segment distinct and identifiable (actionable).
(3) Segment Attractiveness — Using predetermined segment attractiveness criteria determine the overall
attractiveness of each segment. Common to most assessments would be measurements of market
growth, competitive intensity and market access.
(4) Segment Profitability — Determine segment profitability (net market contribution).
(5) Segment Positioning — For each segment, create a "value proposition" and product-price positioning
strategy based on that segment's unique customer needs and characteristics.
(6) Segment Strategy "Acid Test" — Create “segment storyboards” to test the attractiveness of each
segment's positioning strategy.
(7) Marketing Mix Strategy — Expand segment positioning strategy to include all aspects of the
marketing mix: product, price, promotion and place.
Page Ref: 164
Difficulty: Easy

57) Compare and contrast the three types of customer relationship marketing strategies.
Answer: The three types of customer relationship marketing strategies are mass-personalization, mass-
customization, and customer relationship management. In each strategy, each customer is treated as
unique and the goal is to build a more personal relationship between the business and the customer. The
only difference in these customer relationship marketing programs is the level of company effort and
customer benefit. As a result, it is necessary to have enough customer data to identify this customer
individually by name, needs, buying behavior and individual product preferences. The level of customer
data required in the database depends on the customer relationship strategy to be used.
(1) Mass personalization — The first level of customer relationship marketing that recognizes individual
customers by name and buying behavior. This means the business recognizes the customer by name,
buying behavior, and segment needs. The database will contain information used to build personalized
marketing communications for targeted customers. The goal is to personalize the customer interaction
between the company's products and services, extending benefits to target customers based on the
company's opportunity to grow customer loyalty, and customer profitability.
(2) Mass customization — Some customers within a segment are willing to pay more for extra benefits,
however, it is difficult to offer customers in the same segment different product-price configurations.
Mass customization allows for this because the marketing mix is customized to a level of customer
product preferences, extended services and process. Mass customization allows each customer to build a
custom product to meet his or her specific needs, personal constraints, and price considerations.
Customers build the product around their needs and the company delivers it to their specification.
(3) Customer relationship management — When the potential exists for high levels of both customer
value and company value, a customer relationship management program could be justified. The ultimate
goal is to build one-on-one customized relationships between a business and individual customers. There
are several steps involved in building a successful customer relationship program from qualifying
potential customers, understanding their needs, preferences, and usage behaviors, building customized
solutions for them and tracking experiences to ensure high levels of customer satisfaction and loyalty.

Page Ref: 183-187

AACSB: Analytic Skills
Difficulty: Medium

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MINI-CASE

FunTime Inc., is an American toy manufacturing firm, with its headquarters in New York. The firm
specializes in manufacturing educational toys for children. The table given below shows the educational
toys market segment performance for FunTime Inc.

Educational Toys
Segment Performance
Market Application (millions)
Market Demand (units) 200
Market Share 25%
Unit Volume 50
Average Net Price per Unit $10.00
Sales Revenues $500
Percent Margin 40%
Gross Profit $200
Marketing & Sales Expenses (%
sales) 25%
Marketing & Sales Expenses $125

58) Mini-Case Question. What is the net marketing contribution of FunTime Inc?
A) $70 million
B) $120 million
C) $18 million
D) $75 million
E) $190 million
Answer: D
Page Ref: 170
AACSB: Analytic Skills
Difficulty: Hard

59) Mini-Case Question. What is the marketing ROI for FunTime Inc.?
A) 60%
B) 40%
C) 25%
D) 200%
E) 65%
Answer: A
Page Ref: 170
AACSB: Analytic Skills
Difficulty: Hard

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60) Mini-Case Question. What is the marketing ROS for FunTime Inc.?
A) 27.5%
B) 50%
C) 10%
D) 15%
E) 52%
Answer: D
Page Ref: 170
AACSB: Analytic Skills
Difficulty: Hard

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Copyright © 2013 Pearson Education, Inc.