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Market segmentation and industry changes

Market segmentation and industry changes

Introduction.

            Pfizer Inc. animal health products company provides cattle ranchers with high quality health products to enable them get the maximum output from their animals.  Such products include medications, antibiotics and vaccines.  These products are manufactured through a combination of long periods of research and use of modern technology, to make sure they attain the highest standards.  In fact, of all the animal health companies that are present in Australia, Pfizer Inc. animal health products company invests the highest funds to research.  The company currently uses herd size as a basis of classifying ranchers and has three categories that the ranchers fall under (Hutt & Speh 1999: 531-543).  The three categories are hobbyists, traditionalists and the business segment category.

Evaluation of the size segment approach

            The size segment approach classifies ranchers into three groups; hobbyists, traditionalists and business segment.  This approach classifies ranchers on the basis of herd size.  On the basis of herd size, other characteristics in these groups are analyzed.  These characteristics include dependence on the cattle for survival, average age of ranchers in these categories, their education level, the average period that they have engaged in this business, and the percentage of time that they spend with their cattle.

            Hobbyists are observed to rely on the cattle as a part time occupation.  This is the reason that income from ranching is only a small proportion of their average income.  Some keep cattle as a hobby while others do so because they grew up around cattle.  Their average age is 50 and most of them are not very highly educated.  This is evident in that only 15% of them hold college degrees.  They are people who have kept cattle for a long time, 26 years, and spend half of the time they have, 51%, catering for the cattle business.

            Traditionalists are seen to rely on the cattle as a full time occupation.  Unlike the hobbyists, these ranchers earn their livelihood from the cattle business.  Their average age is around the same as the hobbyists’, 51.  Most of them are also better educated than the hobbyists and 26% of them hold college degrees.  They are people who have kept cattle for a longer time than the hobbyists, 26 years, and spend most of the time they have, 70%, catering for the cattle business.

            The business segment are mostly run by corporations and families.  Their average age is slightly older than hobbyists’ and traditionalists, 53.  Most of them have education levels that are higher than those of hobbyists, but lower than traditionalists’, since 22% of them hold college degrees.  They are people who have kept cattle for the longest time of all the three categories, 26 years, and spend the most time, 70%, catering for the cattle business.

            The hobbyists are observed to be the most common ranchers since their proportion in the national inventory is 50% while the traditionalists are second most common ranchers at 36%.  The least common ranchers are the business segment at only 14%.  This approach observes hobbyists as the ranchers who keep the least number of cattle since their average number is below a hundred.  Traditionalists keep an average of between a hundred and five hundred while the business segment keeps the most cattle, at an average of over five hundred.

            This approach is moderately realistic since most of the people assume that, the more a person relies on a business for survival, the more the person will guard and take care of it.  The hobbyists, traditionalists and business segment are observed to rely on their cattle for survival, in that order.  The hobbyists are seen to rely on them, the least and the business segment, the most.     This approach therefore assumes that the hobbyists are expected to purchase animal products such as medications, antibiotics and vaccines, the least, since they have other businesses to cater for and cattle is not their main source of livelihood.  Traditionalists on the other hand are expected to purchase animal products in moderation while the business segment is assumed to take care of their cattle very well, since they rely on the cattle to keep them in business.

            The approach is also realistic in terms of number of cattle the three categories keep. Hobbyists, traditionalists and the business segment is seen to own numbers of cattle, in a consistent way with their requirements on them for survival.

            However, the assumption that people care for their animals according to the level of dependence of them, is not consistent with the practical situation.  It is a theory that is not practical on the ground, as the research found out.  There were many factors that are present that determine the level of care that ranchers give to their animals.  The most common feature in all the three categories was that the ranchers aimed at producing the most output from the least inputs (Hutt & Speh 1999: 531-543).  The variations were that some managed their grasslands in efforts to increase output as opposed to purchasing medications, antibiotics and vaccines to improve quality of the carcass.  Others put in minimum efforts in health of their cattle due to uncertainty of benefits of medication.  Others focused on improving genetics of their herds through artificial insemination.  Most ranchers also tended to believe what their local veterinarian’s told them, more than what the sales representatives advised them.  Some kept records while others did not see the need.

            All these factors affect sales revenues for Pfizer Inc. animal health products company, yet are ignored by the segment classification.  Different factors determine the level of care farmers provide to their cattle, and these factors cut across all segments, especially for the traditionalists and the hobbyists.  The business segment had a weakness of lack of thorough knowledge of the herd, due to the large size.  It is therefore not prudent to classify the ranchers merely by the herd size, yet that alone, does not determine the level at which they take care of their cattle health needs.  There is need for a different approach that would take all these factors into consideration when classifying them.

The new segmentation approach.

            There are several factors that should be considered in the creation of the new classification approach.  As earlier stated, the most common feature in all the three categories was that the ranchers aimed at producing the most output from the least inputs.  Another basic thing to note is that the new classification approach should reflect the care that ranchers offer their cattle, with respect to purchase of health products.  The first factor to consider is the attitude that the ranchers have towards benefits of such products.  In this case various approaches that ranchers take, to ensure the health well-being of their cattle, are analyzed.  For example, some ranchers manage their grasslands, in efforts to increase output, as opposed to purchasing medications, antibiotics and vaccines which improve quality of the carcass.  This approach obviously reduces the revenues attributable to Pfizer Inc. animal health products company.

             Others put in minimum efforts to the health of their cattle, due to uncertainty of benefits of medication.  Their philosophy has been ‘If you don’t need it, don’t do it’.  This attitude hurts both Pfizer Inc, due to reduction in sales, and the rancher, due to compromise on the health of the cattle.  Others focus improving genetics of their herds through artificial insemination.  These too, minimise revenues, by ignoring medication.  These ranchers should be advised on the benefits of medication in addition to breeding.  Since most ranchers also tended to believe what their local veterinarian’s told them, more than what the sales representatives advised them, there is need to build trust for sales representatives so that they are viewed as credible, as local veterinarians.

            Another factor that should be considered is the proportion of ranchers who kept records.  There is need to encourage ranchers to keep records since that is the best way of ensuring that they monitored the health of their animals and the effects that the medication has on their health.  Some ranchers in the business segment even went as far as taking their calves to test stations.  These ranchers know their benefits and require low levels of advice on herd health, as compared to the farmers who do not keep records.

            The new segmentation approach would consider all these factors, since they affect the amounts of revenues that Pfizer Inc receives from sales.  I would propose to have three classes, just like in the herd size approach.  These classes would rate the farmers on the basis of overall health care they give their animals.  Class1, would be the the ranchers who are most dedicated in healthcare of their animals, and class 3 would be the ranchers who give the least healthcare.      The purpose of this form of classification would be to address the needs of these classes, since they all have diverse needs.  The ranks would be given on the basis of an index, which measures ranchers’ commitment to healthcare of their animals.  It would be a qualitative measure of how ranchers view healthcare and it would be measured through questionnaires and interviews.  The index would be on a scale of 1-10, with 10 as the highest score.

            Class 1 would have farmers who are most aware of healthcare benefits to their herd.  These farmers would be buying essential medication and have thorough knowledge on new products in the market.  They would also be keeping records on their herd since they know its benefits.  These are the farmers who would have scored 8 and above in the index.  Pfizer Inc would be informing this category on new products in the market.

            The second category would be class 2 and would have ranchers who have average knowledge of  healthcare benefits to their herd.  These farmers would be buying essential medication at times, and have average knowledge on new products in the market.  They would also be keeping records, occasionally, on their herd since they have limited knowledge on its benefits.  These are the farmers who would have scored between 4 and 7 in the index.  Pfizer Inc would be giving advice to this category through sales representatives and seminars to inform them on new products in the market.

            The third category would be class 3 and would have ranchers who have no knowledge of healthcare benefits to their herd.  These farmers would not be buying essential medication, and would have no knowledge on new products in the market.  They would not be keeping records on their herd since they do not have knowledge on its benefits.  These are the farmers who would have scored 3 and below, in the index.  Pfizer Inc would concentrate the most on this category, and would be giving advice through frequent seminars and available sales representatives, to inform them on all healthcare issues and their benefits.  This is the most viable class, since there is high potential to change ranchers’ attitude and influence them to buy more products.

Impact of industry changes.

            The suggested approach capitalises on the weaknesses inherent in the present cattle industry.  The major problem that ranchers face is producing low quality products, leading to decrease of prices, which hurts them.  According to the US criteria for judging quality of carcasses, only 25% of cattle meet the necessary standards.  These are grades 1 and 2, and factors assessed are juiciness, tenderness, fats and flavouring.

            This approach identifies problems that lead to poor quality products and advises ranchers, on the basis of their information of the same.  Ranchers with full information are assisted in knowing the new products in the market, while ranchers in class 2 and 3 are assisted in knowing the benefits of animal health.  They are also assisted in knowing the importance of keeping records and the benefits and implications of not giving their cows, the necessary medication, antibiotics and vaccines.  They are given this information according to the knowledge they currently have and subsequently, Pfizer Inc concentrates more on class 3 than class 2.

            When ranchers are shown the importance of all these practices, it is likely that their products will improve in quality, which will lead to rise in prices.  Effective record keeping will help in monitoring progress in all the three classes of ranchers, which will enable ranchers in class 2 and 3 to proceed to the class above.  When there is full information in the market, Pfizer Inc will naturally sell more products and make higher profits.

            The implication of these industry changes have an adverse effect to Pfizer Inc.  This is because poor animal prices have made ranchers indifferent, and they do not see any benefits that medication will serve to their cattle.  Some view the problems they experience as caused by factors not related to medication, and hence health products to their animals will not solve their problems.  Others are disappointed that all products fetch the same price regardless of record keeping and medication, therefore seeing no use in them.  All these perceptions drain revenue from Pfizer Inc and it is on the basis of this that classes are formed.

Evaluation of research and market segmentation

            The research is effective in providing information on market segmentation of beef producers.  It provides an insight into other factors, besides the herd size, that affect the quality of output.  It also provides us with an insight on the various attitudes that are present among ranchers, that cut across traditionalists, hobbyists and the business segment.  These include common aims such as production of the most output from the least input.

            It also includes different attitudes relating to benefits of health products.  For example, some ranchers manage their grasslands, in efforts to increase output as opposed to purchasing medications.  They view saving money on animal feeds as having greater benefits than buying good quality animal product.  Others put in minimum efforts in the health of their cattle, due to uncertainty of benefits of medication.   Other ranchers focus improving genetics of their herds through artificial insemination.  Record keeping is also viewed differently by these classes of ranchers.

            The research shows the new forms of segmentations that are present among ranchers, in addition to the previous herd size segmentation.  It provides us with a means of classifying these new segments and addressing their concerns, as stated above.  The most important point, however, is that the research introduces new segments that cut across the previous ones, and thus forces us to come to with new forms of segmentation.

Marketing strategy

            In implementing the new segmentation approach into a marketing strategy, the first step is the  issuance of questionnaires to determine the ranchers’ attitude to animal health.  This would use stratified random sampling and the ranchers would be subjected to interviews afterwards to get more information from them.  The second step would be to formulate an index, which takes all these factors into consideration and rating the farmers.  The third step would be to inform farmers on the results and organising seminars to enlighten them on benefits of animal health products as well as inform them on new products in the market.  They would also be used as forums to enlighten ranchers of the role of sales representatives.  The seminars would be chargeable at reasonable sums so as not to discourage participation of all ranchers.  The sales representatives would also be sent to the field to create awareness on the same information.  Seminars and sales representatives would generate some income, though, the ultimate goal would be to translate the knowledge acquired into higher sales and subsequently higher profits.

Conclusion

            It is evident that there are changes in the cattle industry that necessitate the need for change in the approach of classifying ranchers on herd size.  The new approach should reflect the new changes that have been caused by differences in perception of the ranchers.  Most ranchers blame low prices on packers who have invaded the industry.  However, it is useful to note that the major contributor to low prices is low quality beef produced, that pushes consumers to pork and poultry.  Improvement in beef quality can only come about as a result of giving medications, antibiotics and vaccines, to cattle.  The new approach should help in evaluating progress as well as improving quality of meat products and increasing the profit margin for Pfizer Inc. animal health products company.

Bibliography

Hutt, M. D., Speh, 1999. T. W. Business Marketing Management: B2B. Australia: Thompson learning.