Professional Documents
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International Journal of Retail & Distribution Management, Vol. 22 No. 1, 1994, pp. 38-48 MCB University Press, 0959-0552
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have become highly fragmented [10,14,15,16]. And third, differences in the types of retail outlets serving such markets have proliferated in terms of product/services offered, size, and brands/lines. Today when buying groceries, customers can choose between convenience stores, up-scale speciality stores (Byerlys, Waitrose), no-frills discount box stores (Texas T, Aldi), hypermarkets (Havant, Auchan), conventional supermarkets (Asda, Food Giant), superstores, combination stores, futurestores, membership warehouse clubs, and others[10,15,17]. Collectively, the above factors indicate that the future success for specific food retailers, whether operating in existing or new markets, will require a keen understanding of segmentation strategies, target selection and positioning (or re-positioning). At a minimum, this understanding is predicated on knowledge about consumers and their needs and the characteristics of competition and competitive structure within the selected markets. The section below discusses existing research and some issues associated with retail market segmentation, following which the research methodology and empirical results are presented and discussed.
studies. Furthermore, little is known (in the published literature) on how the translation from marketing segmentation to marketing actions occurs. This is a major drawback[2] because significant problems with market segmentation arise when a firm proceeds from an abstract conceptualization to a specific case application. As such, a meaningful pragmatic market segmentation study requires translation of results into practical and actionable guidelines.
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combining segmentation analyses with competitor analysis as a means to improve target market selection decisions and/or positioning (repositioning) strategies. Additionally, accumulation of knowledge based on successful segmentation studies seems to be of particular importance for the research and practice of retail marketing management. The use of syndicated databases has emerged as a valuable research design alternative in segmentation studies for three reasons. First, data collection is relatively inexpensive. Second, large representative samples can be obtained quickly, even on precise geographic areas. Third, data accuracy, including recency, has been vastly improved due to advances in information and communication systems technologies. Furthermore, systems such as point-of-sale scanning and electronic data interchange (EDI)[20] promise even better data collection opportunities for syndicated suppliers in the future.
G
features differ greatly across segments and across segmentation bases. The authors concluded that further study of patronage influences across customer segments is warranted and that additional clustering variables should be used to refine segments and provide a better understanding of patronage behaviour influences. In many instances, researchers have failed to incorporate the marketing environment (especially the competitive structure) into their segmentation analysis. It is also not surprising that articles which review literature on retailing strategy have recommended that competitive analysis be incorporated with market segmentation as input to strategy formulation[25,27,28]. Because target market strategy and market positioning for a retail organization depend on an analysis of both customer segments and competitors (in addition to several other factors[1,6]) an integration of market segmentation analysis with competitive structure analysis can provide a very effective framework through which the dynamics of a retailing situation and its environments can be understood[25]. Typically, one would presume that competitor analysis would follow market segmentation; however, at least one study has incorporated competitor analysis as an input to segmentation[25]. The present study demonstrates the usefulness of combining market segmentation with competitive analysis, consequently it presents a very useful managerial picture of the marketplace, especially for highly competitive retail markets including those served by supermarket and grocery-food stores. An explication of the relationship between market segments and competitive analysis is undoubtedly necessary to bring about more actionable retailing applications. The authors examined this relationship through a large-scale market segmentation study sponsored by a large regional supermarket chain and partially supported by a nationally syndicated marketing research firm, Donnelly Marketing Information Services (DMIS). The specific objectives of the research were to: G determine market segments of customers based on geodemographic factors for a specific large metropolitan area (population > 2.2 million people); G determine and analyse the competitive structure of major competing supermarket retail chains for the specified metropolitan area as per the results of the segmentation analysis;
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develop managerial recommendations and discuss strategic options for competing supermarket retail chains based on the above analysis.
10k
Subjects (10,000)
1 Segment formation
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Cluster analysis
Cluster "validation" : Discriminant analysis Analysis of customer attractiveness index Market segmentation and competitive set analysis
reflected each retail chains percentage of customers in each market segment in relation to the percentage of the market in that segment. Therefore, the overall competitive analysis involved a comparison of an average index (discussed later) for each retail chain within each segment. Figure 1 presents an overview of the data analysis.
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Case 0 33 34 22 31 39 26 8 15 13 30 42 23 41 21 27 37 28 11 16 18 19 9 6 12 3 4 2 1 5 45 47 44 36 43 46 32 40 38 14 7 10 17 25 29 24 35 20
Rescaled distance 10 15
20
25
Actual group 1
Predicted group membership 1 2 3 4 12 (100) 0 (0) 0 (0) 0 (0) 0 (0) 13 (100) 0 (0) 0 (0) 0 (0) 0 (0) 17 (100) 0 (0) 0 (0) 0 (0) 0 (0) 5 (100)
Number of cases 12 13 17 5
Cluster 3
2 3 4
Cluster 1
Percent of grouped cases correctly classified: 100.00 per cent Numers in parentheses are percentages
Cluster 2
the cluster analysis clearly indicate that these four segments/ clusters are quite distinct, cohesive and compact. All basic demographic information was used in profiling the four retail market segments (see Table III) and a descriptive interpretation of these four market segments, together with descriptive labels for each group, is based on average demographic scores as given below. Segment 1. established wealthy G highest socio-economic status index (SESI); G highest income; G professionally employed; G white-collar workers; G highest incidence of two-worker families; G highly educated; G married couples; G highest incidence of households with children; G highest incidence of home ownerships; G low mobility (longer length of residence). Segment 2. mobile professionals G above average SESI; G average income; G above average education; G white-collar professional workers; G highest incidence of multiple family residences; G high mobility (shortest length of residence); G fewer families with children; G highest incidence of senior citizens (aged 65+).
Variables
White collar (%) 66.00 58.35 44.00 35.62 Female householder (%) 13.87 32.81 22.00 42.04 Black and Spanish householder (%) 6.73 9.84 8.75 81.00 Asian householder (%) 1.67 2.04 0.70 0.70 Married couples (%) 76.51 42.66 66.00 39.74 Household with children (%) 51.63 23.60 41.06 46.58 Two-worker families (%) 61.78 46.92 50.96 38.84 Median household incomes ($) 41,137 20,761 22,366 13,807 Single-family homes (%) 92.28 51.91 88.71 61.00 Median education (yrs) 13.42 12.25 11.56 10.28 Median age (yrs) 39.93 42.40 43.67 40.26 Length of residence (yrs) 7.80 5.62 8.72 7.22 Note: All variables are statistically significant at p < 0.01 except median age
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Segment Variable Occupation Professional (%) White collar (%) Blue collar (%) Unskilled (%) Household composition Female householder (%) Black householder (%) Spanish householder (%) Asian householder (%) Householder age 65+ (%) Married couples (%) Household with children (%) Two workers (%) SESI Income 0 to 25K (%) 25K to 50K (%) 50K to 75K (%) 75K + (%) 5.15 49.05 32.62 13.22 (5.17) (25.24) (15.61) (17.31) 53.69 39.61 5.83 0.87 (23.71) (18.32) (5.03) (1.02) 48.32 45.32 5.89 0.47 (19.48) (14.35) (4.92) (0.63) 84.94 13.72 1.24 0.08 (6.28) (5.35) (0.90) (0.08) 13.87 4.20 2.52 1.67 10.86 76.51 51.62 61.78 75.83 (3.06) (3.79) (0.98) (0.73) (4.72) (4.59) (7.69) (3.57) (11.47) 32.81 5.82 4.02 2.04 25.42 42.66 23.60 46.92 50.85 (6.88) (2.89) (1.79) (1.25) (11.55) (11.23) (5.93) (9.31) (15.89) 22.00 4.01 4.74 0.70 23.03 65.97 41.06 50.96 42.65 (5.59) (2.76) (11.56) (0.77) (6.20) (6.22) (7.85) (4.73) (13.70) 42.04 64.58 16.36 0.70 21.04 39.74 46.58 38.84 20.40 (8.83) (31.47) (26.68) (0.57) (4.41) (11.86) (6.27) (5.79) (4.16) 32.05 65.98 22.95 2.97 (11.84) (11.83) (9.56) (1.04) 23.93 58.35 24.88 3.87 (8.56) (10.62) (8.24) (1.35) 16.13 43.95 37.96 5.31 (6.78) (11.09) (8.88) (1.67) 10.48 35.62 38.28 8.02 (1.55) (5.09) (5.72) (0.98) 1 2 3 4
Median household income ($) 41,137.50(11,634.59) Housing Single family homes (%) Multifamily homes (%) Education High-school graduate (%) Some college (%) College graduate (%) Median number of years completed Age 0 to 5 years (%) 0 to 17 years (%) 18 to 34 years (%) 35 to 54 years (%) 55 to 64 years (%) 65 + years (%) Median age (yrs) Length of residence (years) 5.65 21.32 36.30 18.01 10.64 9.33 39.92 7.80 (1.10) (3.69) (4.85) (3.43) (2.72) (3.01) (4.18) (2.16) 34.23 20.41 27.07 13.42 (8.64) (2.57) (13.72) (1.05) 92.28 7.72 (4.54) (4.54)
13,807.20 (1,876.28)
51.91 47.86
(20.11) (20.38)
88.71 11.25
(6.06) (6.08)
61.00 39.00
(21.74) (21.74)
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average SESI; average income; average education; high incidence of married couples; high incidence of two-worker families; home owners; families with children; very low mobility (longest length of residence).
Variable
Cluster (segment) 2 3 1.38 1.10 0.10 3.60 1.64 1.45 0.00 4.50
Percentage of total market Mean 3.44 SD 2.07 Minimum 1.20 Maximum 8.60 Percentage of chain A Mean SD Minimum Maximum Percentage of chain B Mean SD Minimum Maximum Percentage of chain C Mean SD Minimum Maximum Percentage of chain D Mean SD Minimum Maximum 3.22 2.52 0.20 9.10
lowest SESI; very low income; less educated; lowest incidence of married couples; highest incidence of female householders with children; highest incidence of minority (Black and Spanish) families; low mobility.
Table I also shows the relative segment sizes. The sizes of these segments are not surprising and offer insight for strategic opportunities to supermarket chains. Their relative sizes may suggest, for example, that retailers might profit by taking a long, hard look at their positioning in the market and assessing what it might mean to pursue a segment to which they may appeal. Clearly segment 1 is the largest (41.3 per cent) followed by segment 3 (27.9 per cent), and segment 2 is not as large (17.9 per cent); segment 4 is the smallest market segment (12.6 per cent). While other determinants (e.g. competitive structure, image maintenance, inter-state barriers, within segment household consumption level) significantly impact target market strategy, segment profiles, including size, provide crucial information for managerial decision making.
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52 18 3 19
Competitive Analysis Table IV summarizes the basic statistics pertaining to the share of market information for all four major supermarket retail chains (labelled as chain A, B, C, and D) for all four market segments. This information is used to compute a customer attractiveness index (ratio of percentage share for a chain to the percentage of total market) for each chain within each market segment (see Figure 3). The results are indicative of the following:
Segment 4
Chain C
Note: An index of: 100 = chain's share of customers in the segment is equal to the proportion in the market >100 = chain is attracting relatively more customers from the segment <100 = chain is attracting relatively fewer customers from the segment
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While retail chain A is doing well in attracting relatively more customers in market segment 1 (in relation to the proportion of customers in the segment), retail chain B is clearly a market leader with superior performance. Retail chain Ds performance in this segment is average, but supermarket C is clearly not able to do as well (below average performance index < 100). G In segment 2, supermarket chain C has clearly the highest attractiveness index and retail chain Bs performance is less than satisfactory. While retail chains A and D do fairly well in attracting more customers in proportion to customers in the segment, retail chain C is clearly the dominant leader of this segment. G Supermarket chain As performance in segment 3 is quite good in terms of an above average (> 100) attractiveness index. However, it is retail chain D that is the dominant competitor in the segment. While retail chain Cs performance is better than As, retail chain B does quite poorly in this segment. G While no major supermarket retail chain is able to attract relatively more customers in proportion to the size of the market in segment 4, retail chain Cs performance is better than any of its competitors. Overall, the performance of all major chains in this segment is quite dismal. Of course, this should not necessarily be viewed negatively. Such interpretation is also dependent on several factors which influence the general and firmspecific attraction to this segment.
G
Retail chains B, C, and D enjoy dominant market positions in segments 1, 2, and 3, respectively. While the retail chain A appears to do well in terms of attracting customers in the three desirable segments, it has no leadership position in any of the market segments uncovered. This is perhaps indicative of a lack of focus or poor positioning by the supermarket chain. Consequently, chain A is the most vulnerable of all major chains in the competitive marketplace.
Strategic Implications This study has identified a useful methodology to uncover basic market segments and to analyse competitive positions for various supermarket chains within each of the segments. From this perspective alone, the study broadens and extends previous research in the area. Strategic implications can be derived by closely examining the following summary of the empirical findings: G There are four basic natural market segments in the specific metropolitan area. G A descriptive interpretation of these four segments indicates the presence of established wealthy, mobile professional, average middle class, and disadvantaged families. Additionally, all four market segments are quite distinct, cohesive and fairly compact submarkets. G Based on the substantiality criterion alone, the first three segments appear to be far more desirable than the fourth segment.
Since any strategic option depends on clear positioning against competitors and customer groups, the present approach of integrating competitive analysis with market segmentation is a necessary first step to achieving a better understanding of the retailing environment and formulating effective marketing strategies. Overall, the findings suggest that many supermarket retailers must attract customers from different and often incompatible market segments. However, to compete successfully in the retail food business in the 1990s, grocers will need to identify and pursue specific customer segments and, consequently, position themselves against competitors and customer groups. Since customer groups (segments) differ, it should be obvious that different marketing strategies will be needed by the same supermarket chain if it elects to go after more than one target segment. Perhaps these conclusions can be made more specific by the following discussion of strategic implications for one retail chain, supermarket A, which enjoyed no market leadership position. Refinement of market segmentation scheme. The segmentation information from the study can augment any judgemental or a priori segmentation scheme developed earlier by the companys management team. Clearly, the retailing organization may wish to re-examine its earlier approaches to market segmentation. Selection of target markets. The company needs to re-examine the strategic positioning options in each of the three desirable segments. A prioritization for the three segments is a necessary first step and should be based on factors such as size of segments (both current and potential), expected growth rate, nature and extent of competition within each segment, availability of marketing resources, a match between the companys capability/capacity with the target customers needs/preferences, and stability of market segments. Further marketing research and a careful cost-benefit analysis are an integral part of target market selection process.
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Development of positioning strategy. This step will ensure that retail chain A will integrate marketing and management activities to optimize its strategic position in a given market. Since this chain enjoys no dominant position in any of the market segments, it is perhaps most critical that it develops a positioning strategy for the selected target market(s). The key to this strategic positioning is to focus on a selected target market by using a strategy of differential advantage. This will require that this retail chain be cognizant of current and future customer needs, wants, preferences and shopping habits in addition to keeping a close watch on how competitors are developing alternative means of satisfying the same customer groups. This is important, especially in mature markets where significant growth can be achieved only through geographic expansion or gaining shares from entrenched competitors.
based on any type of measure may not be stable over time[4,29]. Consequently, new updated analyses should be conducted periodically over time to address segment stability concerns. Finally, any generalizations made for areas other than those studied in this investigation should be made with some caution.
Conclusion
Depending on the strategic retailing objectives, the approach demonstrated here offers a logical way to understand the dynamics of retail markets and to analyse strategic options for supermarket chains. Much of retailing has become international in character[30,31], and many retailers have evolved into widely diversified companies, often away from both their core business and their domestic markets; this phenomenon has been well documented[32-35]. From this perspective alone, the approach presented here is directly applicable to retailing elsewhere in the USA and other countries, especially Europe where, with the inauguration of the single European Market, the retail environment is expected to become increasingly competitive in the near future. While retailing activity varies widely between the countries (e.g. in Germany the mail order retailers are relatively strong because of the restrictions placed on the store-based retailers; in France, the hypermarket is a well developed trading format along with mail order), many retailing organizations such as Aldi, Burtons, Next and TSB have demonstrated that effective target market segmentation leads to success[6]. Because of market restrictions and reduced domestic growth opportunities, retailing companies will continue to expand outside their home countries (e.g. Ahold will continue to expand outside The Netherlands, British retail companies have already gathered nearly $3.9 billion worth of American acquisitions between 1984 and 1989). It has been documented that countries with a similar social and cultural environment along with a comparable state of economic development would make ideal targets for expansion [36,37]. The growing interest among large US supermarket chains in expansion overseas is another major change affecting retailing in many Western countries today. Clearly, the approach presented here can be valuable in understanding the emerging dynamic retail markets and in analysing strategic options for competitive retailing organizations in the USA, Europe, and several other countries.
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In summary, this article reports on a market segmentation and competitive analysis approach and research methodology for major supermarket chains competing in a large metropolitan area. The distinguishing feature of the study is to demonstrate a practical procedure for market segmentation and competitive analysis. The approach demonstrates the usefulness of integrating competitive analysis with market segmentation to improve strategic decision making in a highly competitive retail business. The methodology is general enough that it can easily be adapted to other retailing contexts and situations.
10.
11.
12.
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