IIML/PGPABM/2013-14

Market Segmentation in Agriculture Input Marketing

Prof. Sanjeev Kapoor

Segmentation?

Segmentation involves identification of groups (segments) of buyers that differ in their requirements or buying process, in terms of satisfying their needs

The members of each of the groups have similar requirements, and therefore, each segment is homogenous.

Segmentation why?

Assumptions and pre-requisite for segmentation are: - markets are not homogenous in terms of needs

- most companies are not in a position to cater to all the needs of all the markets

Segmentation why?

Segmentation is a part of firm growth strategy - Horizontal growth (selling same products to more number of existing or new customers) - Vertical growth (selling more products to existing customers)

Growth strategies
Products Existing
Sell more products to existing types of customers (Market penetration)

Markets

Modified
Modify current products and sell more to existing customers (Product modification)

New
Design new products that will appeal to existing customers (New product development) Design new products for prospects in new geographic areas. Design new products to sell to new customers (Diversification)

Enter and sell products in other geographic areas (Geographic expansion) Sell existing products to new types of customers (Segment invasion)

Offer and sell modified products to new geographical markets. Offer and sell modified products to new types of customers

Market?

Before talking about process of market segmentation, it is important to understand the term market How can we define market?

Dimension of market
A
Physical Attributes

C
Qualitative Factors

B Behavioral Characteristics

One can define the market based on series of dimensions within each of these three components

Physical attributes

Dimension 1: Size - Number of units sold - Rupees sales volume - % market share Dimension 2: Geographical location - Physical boundaries - Rupees sales by region, district, area - Location attributes

Physical attributes

Dimension 3: Demographic features - Income - Sex - Age - Education - main occupation (farming, dairy) - Land holding status (small or large) - Irrigation potential

Physical attributes

Examples of each of the three dimensional factor suggest a high degree of quantification There is no role of subjective judgments in describing these dimensions Agribusiness managers feel most comfortable in viewing market exclusively within this context

Behavioral characteristics

Dimension 1: When purchases are made? - Month, Week, Season Dimension 2: How purchases are made? - Impulse - Brand loyalty - Direct request - Frequency of purchases - Scale of each purchase

Behavioral characteristics

Dimension 3: Purchasing Influences - Who use product - Who buys product - Who influences - Buying decisions Dimension 4: Reasons for purchasing - Utility value - Status - Collective Compulsion - Interlinking with other transactions - convenience - ease of application

Behavioral characteristics

Dimension 5: Reasons for not purchasing - lack of other complementary resources - lack of financial resources - lack of awareness about the effectiveness of input - lack of knowledge about use of input - no access for the input These behavioral dimensions are both subjective and objectives in measurement

Qualitative factors

Dimensions

1. Risk takers or risk averters 2. Favorable versus unfavorable attitude towards brand 3. Firm versus indefinite intention to purchase soon

These factors are largely based on subjective measures and expressed in relative term These dimensions suggest attitudinal characteristics of customers

Understanding market (7 O approach)

Issues to be considered for understanding market: - Who constitutes the market? - What does the market buy? - Why does the market buy? - Who participates in the market? - How does the market buy? - When does the market buy? - Where does the market buy? Occupants Objects Objectives Organizations Operations Occasion Outlets

Who constitutes the market?

Understanding farmers in terms of: - size of land holdings - cropping pattern - Availability of irrigation - current usage of different inputs - Risk bearing availability - Education & awareness - Innovators/laggards Understanding of occupants (farmers) helps in segmentation, Targeting and Positioning (STP) of the product.

What does the market buy?

Understanding the portfolio of the products (agri-inputs): - What are the different agri-inputs presently available in the market by different companies - What are the different attributes of these products? - What are the unmet needs of the farmers? It would help in understanding competition in the market Helps in new product development or product refinement

Why does the market buy?

What is the basic motive of the farmers to buy a particular input? - increasing production/income? - Food security - Status symbol - Group pressure - cheap (less price) Why does the market not buy? (constraints) Helps in understanding farmers buying behavior Helps in designing the communication for the farmers Pricing policy for the agri-input

Who participates in the market?

Who uses the product and who buys the product? - Customer v/s user - Individual farmer or cooperative society or producer company or SHG - Who influences the use of agri-input? - Retail sale v/s institutional sale Helps in channel design for the input Helps in understanding the transaction cost both for farmer and supplier

How does the market buy?

How purchases are made? - impulse - brand loyalty - Frequency of purchase - Volume of transaction - cash or credit transaction - credit interlinking Helps in packaging, inventory of product at dealer level, designing terms and conditions with dealer (cash v/s credit sale).

When does the market buy?

When purchases are made? - season - month/week/day - time of day Helps in production and distribution scheduling of the input Working hours of store

Where does the market buy?

Density of dealers/retailers in the market Characteristics of the prominent dealers/retailers in terms of - social and economic background - availability of different agri-inputs - availability of complementary products - availability of after sales services - providing product knowledge Helps in selecting the channel partners

Steps in Segmentation Process

1 Needs-Based Segmentation 2 Segment Identification Group customers into segments based on similar needs/ benefits sought or constraints faced by customer in consumption of an input. For each segment, determine which demographics, lifestyles, and usage behaviors make the segment distinct and identifiable (actionable).

Assess Segment Attractiveness Using predetermined segment attractiveness criteria, determine the overall attractiveness of each segment. Evaluate Segment Profitability Determine segment profitability (net marketing contribution). Segment Positioning For each segment, create a "value proposition" and product-price positioning strategy based on that segment's unique customer needs and characteristics. Segment "Acid Test" Marketing-Mix Strategy Test the attractiveness of each segment's positioning strategy. Expand segment positioning strategy to include all aspects of the marketing mix: product, price, promotion, place, and people.

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