Success Story- Market Segmentation
Publication date: 2006
SUCCESS STORY Market Segmentation Helping Target the Right Programs to the Right Clients A pharmacy in rural Ghana promotes family planning with a poster on the door. The unmet need for modern contra- ception in Ghana is estimated to be as high as 34 percent. To help develop a strategy for reducing this figure, market segmentation analysis has been used to identify which age groups and geographic groups have the highest unmet need. This publication was produced for review by the United States Agency for International Development. It was prepared by the DELIVER project. In 2001, the Interim Working Group on Commodity Security es- timated that public-sector family planning programs in the devel- oping world were U.S.$24 million shy of meeting contraceptive demand and that steady funding increases would be needed to avoid a potential shortfall of U.S.$210 million by 2015. Initial advocacy efforts to address the widening funding gap were primarily focused on donors. But much greater attention is now being paid to a whole-market approach that emphasizes a ra- tional balance between the roles of the public sector, nongov- ernmental organizations, social marketing companies, and the private sector in providing contraceptives to clients. DELIVER’s work on market segmentation is helping countries identify which types of family planning providers can best meet the needs of different population groups, especially to ensure that public- sector programs successfully concentrate on the most eco- nomically vulnerable contraceptive users. Market Segmentation Analysis: How? Market segmentation analysis involves dividing a country’s cur- rent and potential contraceptive users into subgroups, each of which has specific characteristics and family planning needs. This helps contraceptive providers develop different strategies for marketing commodities and service delivery. The subgroups can reflect a combination of socioeconomic factors. Usually, they are based on people’s ability to purchase contraceptives and their probable willingness to spend personal funds on fam- ily planning. “The family planning market can be segmented in a variety of ways, and there is no best approach,” explained David Sarley, DELIVER’s Deputy Director for Resource Mobilization. Sarley partnered with Commercial Marketing Strategies in 2003 to as- sess Bangladesh’s contraceptive market. “In the case of Bang- ladesh, we used cross-tabulation to segment the family planning market, primarily along socioeconomic and geographic lines,” Sarley added. Lacking access to information on actual house- hold expenditures in Bangladesh, the research team sought to classify people’s standard of living on the basis of their ownership of certain household items, including a fan, television, and car; dwelling features that are related to wealth status, such as materials used in their resi- dence for flooring, walls, and roofing; type of drinking water source; type of toilet facilities; and other characteristics, such as electricity in the home. These data were obtained from the Demographic and Health Surveys and applied to an asset-based wealth index developed by ORC Macro and the World Bank. This method of analysis ultimately enabled the team to divide the country’s married women of reproductive age into five evenly sized socioeconomic groups (quintiles), from poorest (Q1) to wealthi- est (Q5). When a clear picture of wealth distribution in a country is available, it is possible to do the type of follow-on analysis illustrated in figure 1. Among other things, the graph shows that roughly 42 percent of rural women from higher economic quintiles (with greater purchasing power) still access free and subsidized oral contraceptives from public-sector sources. Market Segmentation Analysis: Why? “A market segmentation study is not an attempt to explain why things are the way they are, but rather it is a tool that fits into the policymaking process,” said Raja Rao, DELIVER’s Policy Advisor. Market segmentation studies are generally conducted as part of developing a comprehensive strategy to attain contraceptive security in a country, which is said to exist when people are able to choose, obtain, and use quality contraceptives whenever they need them. A key to contraceptive security is the long-term financial sustainability of family planning pro- grams, including the private sector (also referred to as the unsubsidized commercial sector), social marketing, government, and nongovernmental organizations (NGOs). Con- traceptive security can be improved by reducing duplication of effort among the different types of providers, such as cases in which wealthier ru- ral contraceptive users in Bangladesh, Bolivia, and Nicaragua appeared as likely to access free commodities from the public sector as they were to purchase them from nongovernmental or commercial distributors. Figure 1: Oral Contraceptive Sources Accessed by Bangladeshi Women (by Economic Quintile) SUCCESS STORY 2 Although a common motivation for market seg- mentation analysis is to facilitate strategy mak- ing for a better match between programs and users, the more specific purposes for these studies still vary. “A study should respond to the needs of client countries and, admittedly, does not always provide data that lead to a viable solution,” suggested Rao. Several recent analy- ses illustrate the range of client country needs— • Facing a progressive phaseout of USAID support for contraceptive procurement, a 2005 market segmentation study was com- pleted to help the Bolivian government un- derstand how it can best target public provision of services and commodities to reach those most in need, while ensuring that proper incentives are created for NGOs and the private sector to participate as well. The analysis highlighted the importance of ensuring that poorer rural women have ac- cess to publicly provided injectable methods, which are not available in private rural phar- macies. Additionally, the study highlights the replacement of long-term methods with in- jections, over time, and the potential market of users interested in long-term methods. • In Ghana, where most segments of the popu- lation cannot be expected realistically to pay private-sector contraceptive prices, one goal of a 2005 market segmentation study was to identify age groups and geographic groups suffering high levels of unmet need for family planning services and commodities. • In addition to examining contraceptive use, the authors of the 2003 market segmenta- tion study in Bangladesh examined people’s ability and willingness to pay for family planning services, primarily as a tool for de- termining how contraceptives can best be priced and marketed. • With insufficient funding to meet country- wide contraceptive needs, Romania (see text box) used market segmentation analy- sis to plan the targeted expansion of public family planning services primarily by provid- ing free supplies to the rural poor. Newly trained family planning doctors provided free supplies to the rural poor. Romania Using Market Segmentation to Inform Program Planning In the early 1990s, Romania had one of the highest abortion rates in Europe, contributing to high mater- nal mortality rates as well. This not only represented a significant public health problem but also was seen as an impediment to the country’s accession to the European Union. Embarking on an ambitious pro- gram to expand family planning coverage, the Ro- manian government was faced with a problem. While there was a clear necessity for free public- sector contraceptives, public resources were not sufficient to fund the needs of the whole country. The POLICY II project conducted a market segmentation analysis that showed that considerable levels of un- met need for modern contraceptives prevailed throughout Romania, but a much larger percentage of potential family planning users in urban areas than in rural areas were likely to be both willing and able to pay commercial contraceptive prices. In in- terpreting these results, DELIVER consultants ad- vised that free public supplies should be targeted at rural family planning clinics and a number of de- pressed urban centers, and that the private sector should meet family planning needs in other urban centers. Doctors in the specified locations were trained in family planning provision, a public information and education campaign was initiated, and a corre- sponding commodity distribution system was put into place. As a result, the contraceptive prevalence rate (the percentage of women in union, ages 15–49, who are using or whose partners are using a mod- ern form of contraception) has continued to grow in Romania, increasing from 13.9 percent in 1993 to 38.2 percent in 2004. Between the first quarter of 2002 and the third quarter of 2002, the number of oral pill users rose from 223,000 to 264,000 in the private sector. And, growth was even more spec- tacular in the public sector during the same period, increasing from 8,000 to 74,000. SUCCESS STORY 3 In thinking about the numerous ways data from market segmentation analyses have been used in different environments, Rao offered another idea. “There’s also a sense of equity. Those who can pay for contraceptives should pay, es- pecially because it enhances the public sector’s ability to provide free or highly subsidized sup- plies to the poorest users,” he said. “In Nicaragua, it became clear through analysis of the results of the market segmentation study that NGOs have an enormous opportunity to capture current users of public-sector facilities who have the ability to pay for services. Also, the Nicaraguan Social Security Institute, which covers a significant proportion of women of re- productive age in the formal sector, could ex- tend the benefit package to include family planning and, thereby, reduce the burden of the Ministry of Health, which is providing contracep- tion free of charge to anyone seeking services,” pointed out Wendy Abramson, the DELIVER Latin America and Caribbean (LAC) Regional Contraceptive Security Initiative Coordinator. By redistributing family planning services among various sectors and providers, countries can be more efficient, as well as effective, at getting contraceptive products to the most vulnerable groups. Market Segmentation Analysis: Using the Results A common result of market segmentation analy- sis has been greater recognition by the public, nongovernmental organizations, and private sectors of the value of using a whole-market approach to fulfill a country’s demand for family planning. “Analysis has been a useful tool for bringing the three sectors together, sometimes for the first time,” said Sarley. “Our work in Bangladesh allowed the different partners to develop a better appreciation of what each one had to offer.” This work, as in Romania, showed that more users could be reached through ra- tional sharing of the contraceptive market among all family planning providers. “Market segmentation studies in Latin America, including, most recently, those conducted in Nicaragua and in Bolivia, have resulted in con- crete action planning on the part of national contraceptive security committees to con- sciously analyze and plan for targeted interven- tions by each of the sectors involved. For example, results gleaned from the studies in Nicaragua and Bolivia have led ministries of health, social security institutes, and NGOs to focus their services on both selected popula- tions as well as geographic areas and method mix,” pointed out Nora Quesada, the DELIVER LAC Regional Director. In a number of countries, whole-market groups have been created as a subsection of already- existing contraceptive security committees. Whole-market groups can foster the develop- ment of a coordinated response to meeting cli- ent contraceptive needs. Experience in a number of countries has shown that it is chal- lenging to ensure that public and social market- ing programs do not crowd out the private sector, and that better coordination can reap benefits for all partners— • More effective targeting of public contracep- tives in Romania has resulted in significant increases in coverage in rural areas and as- sociated increases in contraceptive use. Improvements in public-sector provision has created a halo effect, sparking markedly higher sales in the private sector by increasing public awareness about product availability. • A Hungarian pharmaceutical company, Gideon Richter, is providing low-cost oral contraceptives in the Ukraine that, analysis suggests, are affordable even to rural women in poorer segments. Discussions with the Ministry of Health and other part- ners are focusing on how to ensure that public subsidies do not erode this market segment to avoid putting a greater burden on the public sector. • Tremendous progress has been made in Bangladesh but establishing a whole-market group has been difficult. Turnover of senior civil servants at the Ministry of Health has meant that the private and nongovernmental sectors frequently need to work with new partners to demonstrate that a whole- SUCCESS STORY 4 market approach is mutually beneficial to the public and private sectors. Effective col- laboration is often hindered by fear that the private sector will take over the role of the public sector. • In Ghana, the presentation of a market segmentation analysis to the multisector contraceptive security coordinating commit- tee resulted in the creation of a whole- market working group. For the first time, the providers (the public, private, and social marketing sectors) have established a regu- lar forum to discuss how to best serve dif- ferent socioeconomic groups. The Ghana Social Marketing Foundation, for example, has identified a new market opportunity for oral pills and injectables at a price well be- low the private sector but high enough to recover all costs. The Ghana Ministry of Health has also begun implementing a pol- icy to raise the unit prices of public-sector contraceptives to correspond to the ability of clients to pay while preserving an exemption policy for the very poor. • In Nicaragua, the Contraceptive Security Subcommittee on Market Segmentation has been working with various stakeholders, in- cluding the Ministry of Health and the Social Security Institute, to better identify how gov- ernment can provide an essential package of contraceptives while allowing both NGOs, not-for-profits, and the private commercial sector to provide differentiated products to those with an ability to pay. Want More Information? To find a section devoted to market segmenta- tion, go to the Commodity Security page of DELIVER’s web site (www.deliver.jsi.com). SUCCESS STORY 5 The author’s views expressed in this publication do not necessarily reflect the views of the United States Agency for International Development or the United States Government. DELIVER John Snow, Inc. 1616 North Ft. Myer Drive, 11th Floor Arlington, VA 22209 USA Tel: 703-528-7474 Fax: 703-528-7480 www.deliver.jsi.com Market Segmentation Analysis: How? Market Segmentation Analysis: Why? Romania Using Market Segmentation to Inform Program Planning Market Segmentation Analysis: Using the Results Want More Information?