Measuring Marketing

Chapter 24 Segment Profitability

Measurement Need

Customer segmentation describes the process of organizing the market into smaller groups of customers who share common characteristics and/or have similar needs, to which marketing then tailors its solution and communications. Marketers need to pay close attention to the segment’s profitability, not just the top line revenues it generates.

Solution

Segment profitabilityi measures whether a customer segment is profitable. Three formulas are used, and each contributes to understanding segment profitability overall:ii

$1.C_{nm}=\left\{D_s\times S_s\times \left(P_{pu}\text{x}M\right)\right\}-E_m$

where:

Cnm = net marketing contribution

Ds = segment demand

Ss = segment share

Ppu = price per unit

M = percentage margin ...