Segmentation Strategy
Effective Segmentation
What makes a segmentation analysis valuable? Market segmentation research includes more "art" (although no less "science") than other types of market research. This is the case because analysis often turns up two or more different sets of segments, that is two or more different ways of dividing the market. For example, one analysis might subdivide a segment; another might not recognize that division.
In these circumstances, what counts is a segmentation scheme that the firm can implement to create real marketing advantages. Which scheme is best depends not just on which provides the best description of the market, but also on the company's strengths and marketing goals:
• For example, a company that is relatively large in its market might view a segment constituting 10% of the market as too small to serve as the foundation for a marketing strategy, no matter how desirable that segment is. A smaller firm in the same market, however, might see pursuit of the same segment as an exceptionally fruitful strategy.
Thus, the best segmentation analysis is the one that is most useful.
Deciding what Data Inputs to Use: Prior to carrying out a segmentation study, a firm should carefully consider what data inputs to use to ensure that the different segments identified can be targeted for actual marketing. If segments cannot be targeted, the most descriptive segmentation scheme may not be very useful.
SOM: In our segmentation projects, we have used a neural network based method that allows a computer to "learn" the structure of the market. The specific type of network used is called a "Self-Organizing Map" or SOM. SOMs have important advantages over other more traditional segmentation techniques:
• SOMs show how many segments naturally exist in the market and how they are related to one another, rather than requiring the analyst to make assumptions about how many segments there are.
• In our experience, the segments SOMs identify often are more distinct than those identified by cluster analysis, the most common type of segmentation analysis. We have seen this difference in studies where we used both techniques to analyze the same data.
The following are the discussions:
DISCUSSION 1
"Segmentation at the Grocery Store" Please respond to the following:
A) Pick an aisle in a grocery store; for example, the cereal or snack aisle, or a specific food (yogurt or baby food, etc.). Analyze the segments that are targeted and be detailed in your response. Provide your rationale with your answer.
B) Using the same product category, predict what products in your category will be replaced with new products and new segments. Provide a rationale for your choice.
THE following is a CASE STUDY FOR DISCUSSION 2 from my professor, to answer if necessary please do your own research and apply reference if applicable.
NOTE TO PROFESSOR SGUPTA20: If you think this is not the case that belong to discussion 2 below, please let me know to contact my professor. To be honest, I just copy/paste and I did not read it due to my limit it time. Thank you!
CASE STUDY: Marketing in BRIC - Brazil Russia India China
In several respects, China and Brazil present two very different patterns of consumer behavior in BRIC countries and other emerging markets. Chinese demonstrate a strong inclination to delay current consumption in favor of saving for the future. Brazilians, on the other hand, put a higher priority on living for the present by devoting a considerably larger share of income to discretionary spending. On average, Chinese report saving 31 percent of income. Brazilians report saving a relatively modest 10 percent, the lowest level of the four BRIC countries.
Differences in saving and spending behavior across the BRIC and other emerging market countries go deeper than average overall savings rates. In Brazil and Egypt, 52 percent and 72 percent of survey respondents, respectively, indicated they were not able to set aside any income for savings. By contrast, in India, which has a relatively low GDP per capita, only 2 percent of respondents reported not saving.
China emerged as the only country where monthly savings amounts continue to rise with higher monthly household income levels, rather than leveling off as they appear to in Brazil, India and Russia. The Credit Suisse Report notes that China's steady savings propensity translates to "much better relative growth prospects" for the "savings-related sector." The savings-related sector can include larger purchases of useful and discretionary goods and services, such as housing, education, transportation, durable household goods and vacations.
It should be noted that Brazil's relatively strong preference for spending versus saving is probably also partly a product of the very high, rapidly rising inflation rates that plagued economic growth and development in many Latin America countries in the past. This inflationary economic environment trained many Latin American consumers to spend their money as quickly as they earned it to avoid having inflation reduce its value to nearly nothing in a manner of months, days or even hours during the worst periods.
Consumer Spending in BRIC Countries and Other Emerging Markets
The Credit Suisse Consumption Map breaks consumer spending down into 3 categories of purchases: 1) Essential goods and services; 2) Useful goods and services; and 3) Discretionary goods and services. As analyzed by Credit Suisse, essential goods and services include food, household and communication items like meat and dairy products, bottled water and mobile phones. Useful goods and services encompass property, healthcare, education, computers and vehicles. Discretionary goods and services consist of brand name clothing, vacations and smart phones.
The share of consumer spending devoted to discretionary and useful goods and services tends to increase as incomes rise and countries achieve higher levels of development.
Essential Goods and Services: Food Expenditures
Food items are fundamental staples of the essential goods and services consumption category. It's a bit difficult to reconcile the report's data on consumers' food spending, though differences appear to at least partly be a function of timing and the impact of high economic growth rates. Credit Suisse's own Emerging Consumer Survey data from 2011 put consumers' food purchases in China and India at roughly 19 percent and 23 percent of total monthly spending, respectively.
According to a compilation of somewhat older global data presented in the report's Figure 4, consumers in both China and India devoted more than 30 percent of household expenditures to food purchases as of 2008.
Consumers in Brazil and Russia spend about 17 percent and 34 percent of income, respectively, on food according to Credit Suisse statistics. In Egypt, Indonesia and Saudi Arabia, food accounts for around 40 percent, 29 percent and 24 percent of monthly consumer spending, respectively.
The available comparative data and inherent uncertainty about the reliability of consumer data from developing markets suggests that there could be considerable margin for error in these figures. It seems likely that the above data may understate the burden of high food expenditures for low income consumers in the event of discrepancies.
Protein consumption is another interesting piece of data about consumer's food spending in the BRIC countries and other emerging markets. Across all countries, protein consumption as a share of total diet increases rapidly at the lowest income levels and tends to level off fairly quickly. In the case of Brazil, China, Indonesia and Russia, protein consumption looks to remain relatively steady once average household income levels reach the equivalent of $2,000 to $3,000 per month at purchasing power parity (PPP).
As the share of household spending devoted to food purchases increases, food prices have greater impact on living standards, poverty rates, economic development and domestic politics. High food prices and expenditures have played a part in fostering civil unrest in Egypt and other Arab countries in recent weeks and raising concerns about a possible food crisis in developing countries as world food prices reached their highest levels on record in January, 2011.
Useful Goods and Services: Housing and Property Purchases
Despite the lingering issues with the world economy, consumer confidence across the BRIC countries and certain other emerging markets is strong in the wake and on-going expectation of high rates of economic growth, rising incomes and improving living standards.
In China and Brazil, close to 20 percent of consumers earning the equivalent of $2,000 ($US, PPP) or less per month plan to purchase a property within the next two years. For Chinese consumers earning more than the $2,000 monthly threshold, the percentage of consumers expecting to buy property rises to 30 percent. In India, 18 percent of consumers who earn $1,000 to $2,000 ($US, PPP) per month plan to purchase property within two years. Indonesians have a fairly large appetite for property purchases even relative to consumers in their official BRIC counterparts. In the next two years, 24 percent, 36 percent and 56 percent of Indonesian consumers in the three respective income brackets plan to buy property.
Rapid economic growth in China and other countries has had a tendency to quickly drive up real estate prices and raises concerns about the potential for property bubbles when prices reach the point that they are no longer supported by underlying economic fundamentals. In China's case, high personal savings rates provide at least some reassurance that inflated real estate prices are less likely to lead to the extent of financial damage they have in many developed countries in recent years.
DISCUSSION 2
"Making Waves" Please respond to the following
A) From the case study, assess the challenges of marketing in a Third World country and propose how to address the challenges.
B) From the case study, develop a marketing strategy that will encourage the villagers to pay for a Water Harvester.