CPP Customer Segmentation Techniques 3 — Questions and Answers
Question 1: Which of the following is an example of a fencing mechanism used to enforce price segmentation?
- Offering a uniform price to all customers
- Requiring proof of student status to access a discounted price (Correct answer)
- Reducing price for all customers during a recession
- Setting a single MSRP across all channels
Correct answer: Requiring proof of student status to access a discounted price
Fences are conditions customers must meet to access a lower price tier, such as proving student status, which prevents higher-willingness-to-pay customers from self-selecting into the discount.
Question 2: A software company charges small businesses $50/month and enterprises $500/month for the same core product. This pricing strategy relies on which segmentation principle?
- Cost-plus pricing by segment
- Third-degree price discrimination (Correct answer)
- Penetration pricing
- Competitive parity pricing
Correct answer: Third-degree price discrimination
Third-degree price discrimination involves charging different prices to identifiable customer groups (e.g., SMB vs. enterprise) based on their different price elasticities.
Question 3: What does the concept of 'segment attractiveness' primarily evaluate when prioritizing which customer segments to target?
- Only the size of the segment
- Size, growth rate, profitability, and competitive intensity (Correct answer)
- The segment's geographic concentration
- The segment's brand loyalty score only
Correct answer: Size, growth rate, profitability, and competitive intensity
Segment attractiveness is a multi-factor assessment including size, growth potential, profitability, competitive intensity, and alignment with the company's capabilities.
Question 4: In value-based segmentation, which customer group should typically receive the highest price?
- The largest customer segment by volume
- The segment with the highest cost to serve
- The segment that derives the greatest economic value from the product (Correct answer)
- The segment with the lowest price sensitivity index
Correct answer: The segment that derives the greatest economic value from the product
Value-based pricing targets each segment at a price aligned with the economic value it receives; the segment extracting the most value can justifiably be charged the most.
Question 5: A company segments its market by ZIP code to offer different pricing in regions with higher average incomes. What type of segmentation is this?
- Psychographic segmentation
- Firmographic segmentation
- Geodemographic segmentation (Correct answer)
- Behavioral segmentation
Correct answer: Geodemographic segmentation
Geodemographic segmentation combines geographic location with demographic factors (like income) to identify segments with distinct purchasing power and willingness to pay.
Question 6: Which metric is most useful for assessing the long-term profitability potential of a customer segment?
- Average order value
- Customer Lifetime Value (CLV) (Correct answer)
- Net Promoter Score (NPS)
- Market share by segment
Correct answer: Customer Lifetime Value (CLV)
Customer Lifetime Value (CLV) captures the total net profit a company expects from a segment over the entire relationship, making it the best indicator of long-term profitability.
Question 7: When a hotel charges leisure travelers less than business travelers for the same room, which fence is most commonly used to separate the segments?
- Purchase channel restriction
- Saturday-night stay requirement (Correct answer)
- Loyalty program membership
- Advance purchase discount only
Correct answer: Saturday-night stay requirement
A Saturday-night stay requirement is a classic fence that separates price-sensitive leisure travelers (who can stay weekends) from business travelers (who typically cannot).
CPP Customer Segmentation Techniques 3
Which of the following is an example of a fencing mechanism used to enforce price segmentation?