CONCEPT OF SEGMENTATION STRATEGIES OF FOOD INDUSTRY COMPANIES IN POLAND

Joanna Szwacka
Department of Agrarian Policy and Marketing, Warsaw Agricultural University, Poland

ABSTRACT

The paper contains the concept of strategic segmentation decisions on food market in Poland. Criteria of segmentation variable selection on food market and methods of research in this range were formulated. In addition, the hierarchy of segmentation criteria for selected product markets in dependences on degree of market saturation and product specific were established. These activities determine the base of the choice of market segments. Proposed diagnosis determines the base of decision undertaking in selection range and differentiating of marketing tools by food industry companies.

Key words: segmentation, hierarchy of segmentation criteria, TGI, psychographic profiles of consumers, mass marketing, diversified marketing.

INTRODUCTION

The changes occurring in the patterns of human behaviour determine the formation of segmentation policy for food industry companies in Poland. Because of increasing role of segmentation procedures in strategic marketing decisions, it is necessary to take adequate methodological approach.

The aim of this article is to establish the hierarchy of segmentation criteria and the implications of marketing strategy of the companies producing dairy, meat and oil.

Special attention turned on differentiation of marketing mix strategy from regard on firm size and consumers’ preferences. The author present the application new approach, which consists in a complementary utilisation of quantitative and qualitative methods for the evaluation of behaviour, patterns of food buyers. The indices of income elasticity defined the saturation of the demand for food, the range of qualitative changes and the degree of substitution within each product category. For the establishment of segmentation variables and psychographic profiles of food products consumers the results of one-source studies (Target Group Index) were used.

SEGMENTATION PROCEDURES ON FOOD MARKET

In selection of segmentation criteria on food market have been used both procedure a’ priori, as also leaning procedure on empirical research [2]. Procedure a’ priori relies on earlier selection of segmentation criteria. It is useful if identifying potential buyer on the base of description variables is possible. Behavioural procedure takes into consideration reasons of buying, so called patterns of human behaviour. This procedure will demand defining clear aims and firm strategy and checking through the research. Especially takes into consideration identification of market niches.

In practice of segmentation activity of Polish food industry companies, both procedures are used, because of their complementary. Description approach is more well-founded when consumers’ needs are more homogenic (basic products). When the consumer needs and preferences are more differentiated (luxury food products) behavioural procedure is used more often. The author reminds that every segmentation activity may have unique character. Effective segmentation results in precisely defining target market by firm basing on measurability, availability, constancy, relative homogeneity and sensibility of selected segments on marketing activities [4].

METHODOLOGY OF SEGMENTATION RESEARCH

Taking into consideration complexity segmentation research it is necessary to use various methods, including both qualitative and quantitative aspects, especially econometric discrimination methods of finite sets [1] and one-source studies [5] etc. In this paper, the saturation level of demand for food based on the econometric studies is presented [3]. For the establishment of segmentation variables and psychographic profiles of food products purchasers, the results of one-source studies (Target Group Index – TGI) were used [5].

In this paper, the author concentrates mainly on analysis cyclical study TGI, determining standard tool to defining target groups, products and services. Furthermore, it is rich source of information concerns of consumers’ behaviour changes on food market. Because of retrospective character TGI, results of its research are crucial in diagnosis presented topic.

METHODOLOGICAL SOLUTIONS USED IN POLISH TGI

The first part of research realized with face-to-face method includes detailed questions concerning readings of press, general questions of listening to the radio and watching TV rating and wide gathering of questions concerning of person’s profile. Basic features of these solutions are:

• continued measurement on all weekdays (readers’ behaviour are measured on the base of independent stochastic sample representative for examined population),

• applying in press‘ research methodological model Recent Reading widely used in Europe.

The second part of research – questionnaire filled individually by respondents, contains detailed questions relating consumption over 320 categories of products and services, over 4000 of brands and 160 questions relating to lifestyles.

Method of research: the most important feature and simultaneously advantage of research is its one – source data completing is connected with gathering the full information relating brands’ consumption and media perception from the same participants of research.

CHARACTERISTIC OF SAMPLE SELECTION

TGI project is realized on personal stochastic sample selected from PESEL base. The sample is representative for population of Poland in age 15-75. In the first phase, there are selected localities, from which persons are drawn lots. To attempt obligatory, enter all cities over 100 thousands inhabitants, from remaining localities draws lots oneself required number. In the second phase of sample selection, from already selected localities persons are drawn lots on base of General Electronic Population Register System. People are drawn lots after previous division of population on eight layers from regard on sex and categories of age. In the third phase, respondents are qualified for subsamples because of the time of performed research. In the part concerned media research TGI is applied daily mode of realization. This solution permits to control steady distribution of sample and its structure because of sex and age of person.

TGI contains over 4000 brands of products belonging to over 320 categories of products and services grouped in:

• Food,

• Drinks,

• Sweetness,

• Cosmetics,

• Pharmaceutical and hygienic products,

• Cleanness products,

• Auto-moto,

• Tobacco,

• Liquor,

• Banks,

• Insurances,

• Finance,

• Holidays,

• Entertainment and rest Clothing,

• Equipment of household,

• Transportation, communication,

• Telecommunication,

• Live styles,

• Customs connected with watching television stations – and with listening of the most popular radio-station, frequency of contact with billboards and cinema advertising.

ANALYSIS OF PARAMETRIC SEGMENTATION

There is possibility to describe market and its segments on the base of the most important segmentation variables:

• demographic: age, number of persons in household, education, income;

• geographical: region, province, class of size of locality;

• psychographic: live styles, opinions, interests, activity, behavioural values (status of user, frequency of product usage, brand loyalty);

• mediagraphic: the level of media interest, preferences in media selection (magazines, radio and television stations).

TGI segmentation is realised taking into consideration product or consumer. In a traditional way, target market is described using demographic variables. Defining in this way target market has not common needs. From communicational point of view, the group has to be coherent internally. Therefore, more and more often firms in their strategic decision use so-called psychographic segmentation. It is close to well-known in Europe marketing tools as for instance: VALS or hailing from it segmentation 4C. As the result of these convergences one can find out, which ones are specific Polish elements of general psychographic profiles [5].

Target Group Index divides population of Poland into six segments:

• Embittered – these people in general are older and passive. They are concentrated at first on own safety. The patterns they realize through hard holding tradition come true of convictions and of rules and avoidance of novelty. They have low purchasing power, but are faithful one’s own to favourite brands.

• Settled down – their main feature is going behind the rest. They want to feel safe and their opinions and customs reflect majority points of view. They accept traditional and appreciated systems of values (church, family, state), like national products and most well-known brands.

• Fulfilled – these people are active, having wide interests. They have covered their basic needs and would like to fulfil their plans. They place great importance to moral, aesthetical, social values. They prefer brands, which in their meaning contribute immediately or indirectly to improvement of world. They treat quality not as expression their status, but as good taste.

• Seeking – they are rather young people. They do not have yet stable system of convictions and values. They treat their lives as great adventure by seeking challenges. They like brands underlining their individuality.

• Aspirating – in general people for whom practical success is tantamount with making good impression on everybody. Lack of successes they make up superficial signs of external status. They want to be admired and try to attract attention of environment. They like brands, which in general opinion express material status. They are influenced by advertising.

• Chaotic – they are not satisfied from one’s own live situation, but they have no ideas how to improve it. One’s own chance they see in sudden smile of fate, e.g. in risky games. They are disloyal to brands, and their interests can be conquered with promotion.

SELECTION CRITERIA OF REPRESENTATIVES TO SEGMENTATION RESEARCH

As the author said above, in the diagnosis of segmentation, Target Group Index research plays crucial role because of the increasing competitiveness on the food market in Poland. Companies ought to take up more selective segmentation decisions, concentrated on niches. The results of TGI are the reach source of information about changes occurring in the food consumers’ behaviour patterns. In the author’s publications, the results of TGI were used for the establishment of segmentation variables and psychographic profiles of food products buyers. On this base, the hierarchy of segmentation criteria and the proposals of marketing mix strategies were formulated for food industry companies. The results of TGI are complementary source of information to the indices of income elasticity of the demand based on econometric analysis [3, 6]. On account of accessibility with given data the research involves years 1998–2002 (as the process of segmentation research driven through Agency SMG/KRC has initiated in Poland in 1998 year). Three branches were chosen to research: dairy, meat and oil.

The author took into consideration following criteria:

1. degree of branch development including differentiation of production level and capital concentration;

2. level of market saturation with given product category;

3. level of product processing including:

• traditional products (low degree of processing),

• products of new generation (high degree of processing).

The results of research show that dairy and oil industries are characterized with relatively high level of concentration, where about 70% of market control five greatest firms.

The results received for meat industry show low level of production and capital concentration, but sudden increase was observed at the end of 90. Therefore, nowadays four firms reached 56% of market share. This tendency is connected with consolidation and capital concentration at rising participation of foreign investors. This situation doubtless favours development of investment, to accelerating the rate of productive potential modernization and in consequence new technology introduction. These processes influence on intensification of food products innovation, dynamic development of high-processed food and convenient food or production of multiple food, etc.

Taking into consideration selected branches, the author has chosen representatives to segmentation research. In dairy industry, the author selected the following segments to analyse:

• yoghurt and milk – drink,
• milk – dessert,
• creamy and blue cheese and butter.

The results of research show that the highest income elasticity (1.0 and above 1.0) is obtained for drinks and milk – desserts and blue cheese. The author qualified this category as luxury products. The relatively low level of elasticity coefficients (from 0.5 to 0.6) is observed for yoghurt, creamy cheese, butter and described as necessities. On the base of econometric results, the author can say that for luxury products the level of needs saturation is lower then for necessities [3]. The situation observed on Polish food market shows relatively high level of diversification consumers’ behaviour patterns.

In the framework of meat industry, the author has included to segmentation research the following categories:

• pork, beef and veal,
• high quality smoked meats and remaining.

The results of income elasticity show that there is a wide differentiation within categories. The author can say that veal and high quality smoked meats are still luxury products for Polish consumers. Income elasticity obtained for them is near one and shows the low level of needs saturation. The relatively high level of needs saturation the author estimated for pork and beef, receiving income elasticity about 0.5. Therefore, the demand for these products in Poland is fulfilled.

As representatives for oil industry the author has chosen two products:

• margarine for frying,
• margarine for pastries lubrication.

The reader can see [3], that this category shows relatively highest level of market saturation, although there is a large scale of demand differentiation between urban and rural consumers. Obtained results of research show relatively higher degree of market saturation for urban consumers.

The results of representatives’ selection are the base for evaluation the hierarchy of segmentation criteria and formation of marketing mix strategy for companies producing dairy, meat and oil.

HIERARCHY OF SEGMENTATION CRITERIA ON SELECTED PRODUCT MARKET

In this part of the paper, the author has presented the hierarchy of segmentation criteria and the author determines the correlation among them on the base of market saturation and product specific. Selection of segmentation criteria is the base for undertaking of effective strategies, better marketing budgets allocation at the firms’ target market. The results of segmentation analysis point the priority of age, income and of high quality orientation on the new generation products market [6]. Young people create the market, where the most important changes in consumers’ behaviour patterns are observed. On the traditional dairy product market (necessities), is pointed the priority of age and place of residence. It is observed distinct extension of segment in the demographic context. It is expressed in structural changes and promoting of consumption traditional dairy products in little cities and in villages.

Similar tendency as on traditional dairy market exists on oil market, where priority in selecting segmentation variables has place of residence. There is observed increasing demand for oil products in little cities and in villages.

The results of my research point out rising role of brands and consumers loyalty on dairy and oil market. This tendency is especially noted in relation to luxury products where consumers are oriented on high quality brands [3]. On necessities market we can observe certain symptoms of formation of consumers’ relation with product brand. the author thinks it belongs to greater elasticity of substitution within each product category on this market.

In analysed period the author observed essential correlation between demographic and psychographic consumers’ profiles. The most important role in creating changes of food consumers’ behaviour patterns has two segments: namely “seeking” (young, creative people) and “embittered” (traditionalists). The results of analysis show increasing tendency for these segments (figures 1-4). The highest increase is noted for segment “seeking” (especially dairy new generation products) – figures 1-2. Simultaneously high increase is noted for segment “embittered” as well as on traditional dairy and oil products (figures 1-3).

Red-letter period in development of consumption for analysed segments was year 2000, since when the distinct rise stepped out. This situation is probably created by new brands development in the condition of competition increasing on food market. This tendency is especially related to segment of “embittered”. It is worth to say that “embittered” follows “seeking” with large delay in generating demand for new product brand.

The results of my research collected on meat market point out that there is no differences in demand created depending on age, income and place of residence. In addition, there is no correlation between quality and product price. At the same time the distinct rise is noted at segment of high-minded meat (veal, lamb), which has high potential and considerably lower level of need’s saturation than traditional meat market. From segmentation activity’s point of view the described market is the most questionable area. There is no correlation between quality and brand on discussed over market and lack of brand awareness (figure 4).

ESTIMATION OF MARKETING MIX STRATEGIES

The results of segmentation research are the base for choosing marketing mix strategies on food market. The most important role is played by two strategies: mass and diversified marketing. The choice of strategy option is related with firm size and specific of target market. Large food industry companies mostly use diversified marketing, placing their offer in both luxury segment and cheap brands.

The results of my research show the high effectiveness of marketing mix strategies, especially on dairy and oil market [3]. This conclusion concerns especially reach sophisticated consumers for whom the reputation and brand loyalty are very important. On the other hand small and medium food industry companies are engaged in mass marketing directed on price sensible consumers. “Price wars” with limited possibilities of product quality improving and intensifying promotional activity by companies is the effect of this.

The most important changes in 90 years in marketing mix strategies were referred to product and promotion policy. The main food industry companies’ activities were focused on innovation process creation such as new technologies, improving sensoric product value and packaging. Especially meaning in product choice plays packaging, functionality, persistence, colouring. For this reason, almost 70% of product innovation refers of packaging. Innovation influences more on luxury brand market than on cheap brand market.

Essential change was subject of promotion instruments configuration within analysed period. At present the first place in promotion policy plays sales promotion, especially so-called “bellow the line” instead of media advertising. This situation is created by open display-sale development in Poland and new challenges for promotion techniques used in large retail – nets. The special role plays the following: price promotion, testing for trade purposes, competitions and lotteries. In addition this situation creates the development of merchandising, consisted of advertising, personal selling and sales promotion.

The results of my research point increasing role of promotion in the process of brand image creation on Polish food market. The hierarchy of promotional instruments ups to the cycle phase of brand life. At the first phase, so-called launching: media – television and press at the phase of market saturation – sales promotion, loyalty programmes, publicity and sponsoring.

Nowadays brand plays strategic position on the competitive food market, improves position of food industry companies and consumers’ loyalty. The results of my research show that on Polish food market exist numerous powerful brands both on traditional and new generation, [3]. Relatively low level of brand awareness is noted at the traditional than luxury products. The situation resulted from competition among the companies on cheap brands market gives consumers opportunities to buy products cheaper because of substitution. There is observed the correlation between the price and quality accepted by consumers. The results of psychographic research are useful in creating advertising strategy, especially brand image. The negative experience concerned meat market, where the author noticed lack of brand awareness. In long time it could influence in decreasing market share of meat companies.

CONCLUSIONS

The results of the research point the adequate use of methodological approach in strategic segmentation decisions on food market. Elaboration of hierarchy segmentation criteria on dairy, oil and meat market allows on establishing the correlation among them.

In the analysed period, the author observed the correlation between the demographic and psychographic consumer’s profile. The most important role in reformulating of patterns’ behaviour on Polish food market play two segments so-called: seeking and embittered. There is observed the tendency to approaching patterns’ behaviour of small cities and villages consumers in relation to traditional food brands. It has been confirmed that the choice of marketing mix strategy is created by the size of company and quality offered to consumer.

The most important changes in marketing strategies were noted in product and promotion policy. In analysed period the new technologies were implemented which promoted the innovation processes resulting in developing assortment of new products. In promotion strategy, the special role plays so-called promotion below the line arranging in super – and hypermarkets.

REFERENCES

1. Bazarnik J. et. al., 1992. Marketing Research. Canadian Consortium of Management Schools. Economic University in Cracow, Warsaw – Cracow.

2. Kos C., Szwacka-Salmonowicz J., 1997. Marketing of food products. PWRIL, Warsaw.

3. Szwacka-Salmonowicz J., 2003.: Changes in patterns of consumer behaviour as a determinant of segmentation strategy of food industry companies in Poland. SGGW, Warsaw.

4. Szwacka-Salmonowicz J., 2005. Effectiveness of segmentation activity on food market. SGGW, Warsaw.

5. Wielkopolan B., 2001. Research TGI, that is to say mini-encyclopaedia of consumer knowledge. Media Marketing, Poland.

6. Results of segmentation research: SMG/KRC Milward Brown Company, Warsaw 2003.

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