Market Segmentation

Business Challenge

Market segmentation is a typical analysis that allows companies to better understand their customer base. By broadly dividing a company's customers into segments, a company can understand and market to particular varieties of customers. 

According to the Bureau of Labor Statistics, California has approximately 3,700 food and beverage manufacturers in 2015.[1]. Due to the highly competitive nature of this industry, manufacturers have to face to issues of boosting sales and increasing customer loyalty by novel means. One of the world's largest beverage providers wanted to segment its key customer markets to better understand its customers to guide decision making and ultimately drive sales.

SFLs Approach

SFL worked with customer to build a hierarchal clustering model to classify customers and market with the data of purchase history and demographics, such as age, sex, education level, income level, occupation and so on. SFL used hierarchal customer segmentation with daisy and flashclust method in R, which is a small but fast implementation of hierarchal clustering was use. From here, SFL determined the optimal number of clusters and profiled each cluster in terms of expenditure and beverage preferences. 

Business Value

The hierarchal analysis allowed the beverage provider have a better understanding of their customers demographics and target markets. For example, in developed countries, more and more customers switch from soft drinks to healthier alternatives such as juices, teas, coffee, water mixers etc. Developing nations, on the other hand, offer tremendous potential in terms of volume growth of soft drink. In addition, SFL helped them generate their market base understanding in terms of revenue share, which assisted to plan their strategic plan for coming years.