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Market segmentation strategy: the city archetype approach

Cities are bigger than ever and there are more of them than ever before, holding more consumers and more demand for products and services.

Overview

What’s more, the local competition in these countries is much more sophisticated.  They know where to focus and are more agile than their large global counterparts. Some companies, like Procter & Gamble, have had to scale back their growth ambitions in emerging markets in the past, overwhelmed by the local variations in consumer preferences, channel structures and routes to market that create significant complexity and cost. As Paul Polman, Unilever’s CEO, said: “Most of our competitors in the emerging markets are regional players.” Clearly growth has become more elusive than ever. And ultimately, the old school way of targeting customers is unsustainable.

But with urbanization a growing trend around the world, there’s a new form of segmentation that allows companies to act locally without losing large-scale delivery. Using a city archetype approach can enable companies to capture these opportunities without adding complexity or cost. How? By capturing the similarities between different types of cities and reaching out to consumers through digital channels to become truly super global and super local.

What is the city but the people? True, the people are the city.
From Coriolanus by William Shakespeare

Consumer goods companies spent decades evolving from local players with a strong regional touch to global powerhouses. One particular vein that promised to yield astounding growth over the years: emerging markets. But now those markets have softened and will continue to decline into 2016.

Background

If you don’t win in cities, you don’t win
Why are urban areas so critical to the growth of consumer goods companies? Because they are growing in size and stature. Here are some of the statistics that underline the importance of cities:

Consider this: Diageo could address 70 percent of the spirits market in Brazil by operating in just 60 of the 1000 city clusters.That’s because cities have a disproportionate share of growth, wealth and consumers and are increasing in importance. Urbanization is impacting shopping habits, consumption patterns, customer needs and route to market. Because of their pull in terms of demographic weight and buying power, consumer goods companies need to use cities as a basis for grouping markets instead of using the old geographic models, using the common characteristics of often far-flung locations instead of geographic proximity.

Analysis

Creating the urban archetype
By creating city archetypes, consumer goods companies can drive the efficiency and scale needed to profitably grow in an increasingly complex environment. How to begin the process? By looking at commonalities. Not all cities are alike. But given global macro trends, they’re not all that different either.

Trends like globalized media consumption that stretches across borders so that a customer in São Paulo is as likely to know about popular programming as one in San Francisco. And population mobility where consumer targets are more likely to be familiar with London and La Paz. The characteristics companies should look for in order to pool into archetypes: population concentration, evolving customer base, distribution network complexity, and differentiated consumer demand.

Recommendations

Savvy in the City
Tackling the world through the lens of a city archetype helps confirm efficiency and scalability. But what are the steps to help change from geographical pooling to one that leverages urban archetypes?

Develop a playbook: To get savvy about city archetypes, consumer goods companies need to first develop a playbook to guide efforts. That starts with the definition of four-to-five city archetypes that groups locations by common success criteria. One such example: Adidas. As part of a city archetype strategy, the company is focusing on six key global cities: Los Angeles, New York, London, Paris, Shanghai and Tokyo. Across all of them, the apparel manufacturer and retailer will invest a disproportionate amount of budget in talent marketing.

Another example: Unilever. The company introduced a new framework, “Win in Many Indias,” that reorganizes its go-to-market strategy. Instead of operating a few traditional sales branches, now the consumer goods powerhouse features 14 clusters to serve its consumers.

Define the approach: Define the specific approach required for each archetype, including marketing mix, sales organization and route to market, and the capabilities required to enable this. Analytics can be used to analyze each archetype and prioritize them based on the opportunity each represents. One Brazilian ice cream manufacturer used geo marketing to identify attractive outlets in Sao Paulo not sufficiently served. By focusing their efforts on the city, the company increased the number of outlets served by 30 percent and increased sales by more than 60 percent—all whilst reducing cost to serve by 15 percent.

Pilot archetypes: Pilot the approach in one to two select cities and rapidly operationalize to prove the concept. Refine and scale the capabilities to develop the city playbook for each archetype: a handbook for how to win in each unique location, tailored to local sensitivities, but powered by global capabilities.

Continuously evaluate urban growth areas to ensure that you continue to invest in the right locations, and are deploying the right strategies to meet growing demand. 

Summary

Beyond city archetypes
Naturally, city archetypes aren’t the only game in town for Consumer Goods players. Markets can also be approached by region or by consumer archetypes (similar to more traditional market segmentation strategies that focus purely on consumer demographics, psychographics and behaviors rather than the broader commercial environment). Here are a few examples of consumer archetypes that can be used in combination with city or regional archetypes to target specific groups of people:

  • Over 50: addressing aging populations with health and products for those near to or in their retirement years.

  • Health conscious: For people interested in organic and health and wellness categories.

  • Super premium: Wealthy consumers in both developed and emerging markets.