MKT3004 ANALYTICAL TECHNIQUES FOR MARKETING

Cluster Analysis
Segmentation for Student Food Shopper

Atiqah Ismail
Newcastle University Business School 2012

2012

Cluster Analysis

1. INTRODUCTION
The aim of this study is to employ cluster analysis to identify segments of student food shoppers. Cluster analysis classifies objects into groups on the basis of the similarity of the characteristics they possess. Two student segments were identified and profiled on the basis of different importance factors for supermarket features and nominal measures of shopping behaviour of students. The identification of segments will provide implications for marketers that the student market should not be treated as a mass market, segments enable relevant marketing strategies to be geared and targeted to each segments efficiently and effectively based on segment profiles.

This essay has been organised in the following way. The following section, Section 2, outlines the theory of cluster analysis. Section 3 reviews an application of cluster analysis by Dobson and Ness (2009). Section 4 describes the clustering methods and processes employed in this study. Subsequently, Section 5 will explain the results of cluster analysis. Section 6 will assess the marketing implications of the results. Finally, Section 7 will conclude with a summary and evaluation of the study, and future research recommendations.

Atiqah Ismail

Analytical Techniques for Marketing

2012

2012

Cluster Analysis

2. THEORY
2.1. Objectives of Cluster Analysis Cluster analysis is a classification tool which aim is to assign objects into groups on the basis of their numerical measures. It identifies and classifies objects into groups based on the similarity of their characteristics, by minimizing within-group variance and maximizing between-group variance, so that objects within a group are as similar as possible, and as dissimilar as possible from objects belonging to other groups. Cluster analysis is used to determine the number of clusters, and to identify the membership and profile characteristics of each cluster.

2.2. Data Requirements Cluster analysis can be applied to both metric and non-metric data. The measurement properties of the data are important to determine transformation method for clustering. Similarity measures are used for non-metric data, while distance measures are used for metric data. However, this study focuses on distance measurement.

2.3. Data Measurement Distance measurement is the measurement of distances. Cluster analysis requires distance measurements between object-to-object and group-to-group. Object-to-object distance measures the distance between objects. The most used object-to-object measurement is the Euclidean distance, however there are also alternatives such as the city block metric distance and the Mahalanobis distance. Group-to-group distance measures the distances between different groups of objects. The group average method is regarded as the superior method of group-to-group distances (Ness, 2011a), among other alternative techniques are, the nearest neighbour, furthest neighbour and centroid method.

2.4. Main Theoretical Approaches Two main theoretical approaches to cluster analysis are the hierarchical technique and the optimisation technique.

Atiqah Ismail

Analytical Techniques for Marketing

2012

2012

Cluster Analysis

The hierarchical technique agglomerates ungrouped objects into a sequentially smaller number of clusters, based on objects that are most similar or nearest. The researcher will decide on the appropriate number of cluster based on the researchers own judgement, with the aid of summaries presented by the agglomeration schedule, dendogram or the Gower diagram. The agglomeration schedule is judged to be the most reliable (Ness, 2011a), it can be used alongside with the Gower diagram to decide the number of clusters.

The optimisation technique is a non-hierarchical clustering (K-means) technique, which reassigns objects from an originally assigned cluster into another cluster. The relocation criterion is based on the relationship between variances within group (W) and between groups (B), so that total grouped data variance (T) is defined as: T = W + B

Thus, the criteria can either minimise W or maximise B, given T is fixed.

Atiqah Ismail

Analytical Techniques for Marketing

2012

2012

Cluster Analysis

3. APPLICATION TO MARKETING
This section will review an article by Dobson and Ness (2009) which applied cluster analysis to their study to explore the existence of student segments. Their study aims to identify the dimensions underlying students attitudes to food shopping and students attitudes to time, and to subsequently use these dimensions to identify and profile student segments. The study employed questionnaires on full-time Newcastle University undergraduates of 18-25 years. The survey yielded 744 valid responses.

The questionnaire was designed to include nominal measures of food shopping behaviour, a 23-item five-point agreement scale relating to statements about students attitudes to food shopping (1 = strongly disagree, 5 = strongly agree), a 27-item five-point agreement scale relating to statements about students attitudes to time (1 = strongly disagree, 5 = strongly agree) and a nominal measures of students characteristics (gender, accommodation type, faculty of study and ethnic origin).

Cluster analysis was employed to group students into homogenous groups based on their attitudes to shopping and attitudes to times. Factor analysis was initially performed to produce factor scores to provide a basis for cluster analysis. Factor analysis produce six factors for attitudes to shopping (enjoyment-fun, convenience, event-methodical, enjoymentvalue seeking, event-relaxed, apathy-impatience) and seven factors for attitude to time (timepressure, succession-planner, present-traditional, past-secure, future, past-traditional, presentplanner), and are used respectively as the target variables for cluster analysis.

Nominal cluster identity was used for cluster profile analysis. Dobson and Ness then used average factor scores, shopping behaviour and demographic characteristics to establish cluster profiles. Two-stage process was used to the factor scores for students attitudes to shopping and attitudes to times. Stage 1 employed a hierarchical technique which suggested 2-4 clusters as an appropriate number of clusters from the agglomeration schedule. Stage 2 employed the K-means optimisation. However, consideration over cluster-size, the descriptive ANOVA and desire for parsimony Dobson and Ness chose a three-cluster solution. Cluster 1 comprising of 33%; Cluster 2, 31% and Cluster 3, 36% of the sample. Cluster profiles were developed indicated by descriptive profiles of average factor scores for attitudes to shopping and attitudes to times.

Atiqah Ismail

Analytical Techniques for Marketing

2012

2012

Cluster Analysis

Cluster 1 was defined as hedonistic, succession-planning females, this cluster shops more frequently, enjoys shopping and are not convenience-event value-seekers. They are relatively financially-secure and may respond to offers linked to higher quality-premium food and cross-selling offers. Cluster 2, futuristic, spontaneous male convenience seekers, do not enjoy shopping, but prioritises convenience. They shop relatively less-frequent and appear to be both present and future-oriented; they live for today but also plan daily. They may respond to offers related to bulk purchase of convenience food. Cluster 3, methodical, value-seeking, apathetic, time-pressured females, are apathetic-impatient, value-seeking shoppers and are the most time-pressured. They emphasise regular, methodical shopping and are distinguished by their emphasis on past-traditional values. They may be attracted to discounters and online shopping.

The application of cluster analysis has contributed to the establishment of meaningful and actionable student segments based on measures associated with scales for shopping behaviour and students characteristics. The contribution creates a reliable foundation for segmentation, targeting and positioning of students by food retailers.

Atiqah Ismail

Analytical Techniques for Marketing

2012

2012

Cluster Analysis

4. METHOD
This study employed a questionnaire designed to include nominal measures of shopping behaviour, a scale of students attitudes to the importance of supermarket features, and nominal measures of students characteristics. The survey adopted face-to-face interviews with full-time undergraduate Newcastle University students. A convenience quota sampling method was used to approximate student representation by gender and faculty. Subsequently the survey yielded 731 valid responses.

Factor analysis was previously applied to the data in the form of fourteen five-point scales concerned with measuring the importance of supermarket store features (1 = Not at all important, 5 = Very important) with 708 valid responses. Factor analysis employed principal components with Varimax rotation using extraction criterion to derive factors with eigenvalues greater than one. The analysis produced a 5-factor solution, defined as Economy, Payment facilities, Range and quality product, Friendly staff, and Accessibility. For details of the five factors see Appendix 2 (Ness, 2011b).

The five-factor scores are subsequently used as target variables for cluster analysis. Cluster analysis employs transformation method of between-group linkage and squared Euclidean distance. Cluster analysis involves a two-stage process. The first stage employs hierarchical clustering to identify the appropriate number of clusters, where the agglomeration schedule suggested a possibility of two-cluster and five-cluster solution (see Table 2, Appendix 3; in Ness, 2011b). The second stage employs the K-means optimization method to obtain cluster profiles. Descriptive ANOVA was employed to test the significant difference between final cluster centres of each factors average score. The analysis was conducted using IBM SPSS 19.0 (SPSS, 2008).

Atiqah Ismail

Analytical Techniques for Marketing

2012

2012

Cluster Analysis

5. RESULTS
Descriptive ANOVA test revealed significant difference between final cluster centres of each factors average score, except that of Range and quality products (see Appendix B) under null hypothesis that the final cluster centre values are equal, against the alternative hypothesis that they are not equal, at a 5% significance level. Hence, alternative solution was chosen based on the consideration of feasible relative cluster size (Ness, 2011a, p. 27) and the desire for parsimony; a two-cluster solution was chosen. The two-cluster solution comprises of 38% (Cluster 1) and 62% (Cluster 2) of the student sample. Sections 5.1 and 5.2 will explain profiling of the two clusters using factor scores and nominal measures.

5.1. Profiling using Factor Scores: Importance of Supermarket Features Iteration using cluster criterion provides the final cluster centres presented in Table 1. The information represents the average score for each cluster on each factor. Cluster profiles are established using the average factor scores obtained from the final cluster centres (Table 1). The analysis will use descriptive profiles due to the nature of the ANOVA test produced in the K-means procedure (see Appendix B).

Table 1 Factor

Final Cluster Centres Cluster 1 -.93275 .16476 .07388 .17430 .39555 2 .56472 -.09975 -.04473 -.10553 -.23948

Economy Payment Range and Quality of Products Friendly Staff Accessibility

Cluster 1 places below average importance on economy and an above average importance on accessibility, friendly staff and payments. Cluster 1 places most importance on accessibility and least importance on economy.

Atiqah Ismail

Analytical Techniques for Marketing

2012

2012

Cluster Analysis

Cluster 2 places above average importance on economy and below average importance on range and quality of products, payment, friendly staff and accessibility. Hence, in terms of importance, Cluster 2 places most emphasis on economy, and least emphasis on range and quality of products.

5.2. Profiling using Nominal Measures: Shopping Behaviour The cluster profiles are then extended using nominal measures of shopping behaviour. These are established from chi-square contingency tests under the null hypothesis (H0) that the (nominal) cluster identity and behavioural characteristics are independent. The test adopts a 5% significance level. The tests for cluster identity and behavioural characteristics are summarised in Table 2.

Table 2

Summary of Tests for Cluster Identity and Behavioural Characteristics Chi-square Statistic and Significance1 2 (3)= 10.19, Sig = 0.018 2 (3)= 70.045, Sig = 0.000 2 (2)= 2.696, Sig = 0.260 (2)= 8.225, Sig = 0.016
2

Behavioural Characteristic Supermarket visits Method of Travel Shopping Group Shop For Storecard Ownership Use of Budget Weekly Expenditure Note:

Null Hypothesis Reject Reject Accept Reject Reject Reject Reject

2 (1)= 5.659, Sig = 0.011 2 (1)= 32.562, Sig = 0.000 2 (2)= 36.602, Sig = 0.000

1. This information summarises Pearson Chi-square statistics from the Chi-Square Tests table in SPSS output. 2. 2 (degrees of freedom (df)) = Chi-square value, Sig = Significance statistic

Cluster identity and behavioural characteristics are associated. Students generally visit the supermarket once per week, with 72% of Cluster 1 visits the supermarket at least once per-

Atiqah Ismail

Analytical Techniques for Marketing

2012

2012

Cluster Analysis

week, while 28.2% visits two to three times per month or less. Cluster 2 generally shops at least two to three times per week, with 5% shop once per month or less often.

Cluster identity and method of travel are associated. Cluster 1 generally use own transport with 55% use other methods of transportation (on foot, public transport, other) to visit the supermarket. Cluster 2 generally travels to the supermarket on foot, with 37% use other methods of transportation (public transport, own transport, other).

Cluster identity and shopping group are independent. Hence there is no distinction between Clusters 1 and 2, where 50% of both Clusters 1and 2 go shopping with mates, with 50% shop by themselves and with partner.

Cluster identity and shop for are associated. Cluster 1 generally shop for themselves, however 60% shop for others or depends. Cluster 2 generally shops for themselves with 51% shop for others or depends.

Cluster identity and storecard ownership are associated. Cluster 1 shows an equally proportionate number of students between those who own (53%) and does not own (47%) storecards, however a slightly higher proportion owns storecards. Cluster 2 shows a significantly higher proportion of storecard ownership with only 38% do not own storecards.

Cluster identity and use of budget are associated. Cluster 1 generally does not have a budget, with 26% does. Cluster 2 shows a proportionate number of students with and without budget, but a slightly higher proportion (52%) of students do not use budget.

Cluster identity and weekly expenditure are associated. Students generally spend 16-30 a week, with 22% of Cluster 1 spends 0-15 a week, while 78% spend at least 16 per week. Only 10% of Cluster 2 spend more than 31 per week, with 90% spend between 0-30 per week.

Table 3 (see page 10) illustrates the summary of cluster profiles. For crosstab SPSS output for cluster behavioural variables used for cluster profiles, see Appendix A.

Atiqah Ismail

Analytical Techniques for Marketing

2012

2012

Cluster Analysis

Table 3

Summary of Cluster Profiles Cluster 1 (38%) Convenience-seeking, financially-stable, student shopper Least Some Some Some Most Cluster 2 (62%) Economy-seeking, personal student shopper

Profile Cluster composition:

Importance factors: Economy Payment Range and Quality of Products Friendly Staff Accessibility Behavioural measures: Supermarket visits At least once per week Method of Travel Shopping Group Shop For Own transport With flatmates Own self, with higher percentage shop for others and depends Own storecards. Almost proportionate, but only slightly higher proportion owns storecard No budget. Weekly Expenditure 16-30. Significantly low proportion spends 0-15 a week, while 78 spend at least 16 per week. At least once per week, with a higher percentage more often than once a week On foot With flatmates Own self Own storecard. Significantly low percentage do not own storecards No budget. Almost proportionate, with only slightly lower have budget 16-30. 90% spend between 0-30, with only 10% of Cluster 2 spend more than 31 per week Most Less Least Less Less

Storecard Ownership

Use of Budget

Atiqah Ismail

Analytical Techniques for Marketing

2012

2012

Cluster Analysis

6. MARKETING IMPLICATIONS
Cluster analysis identified two student segments. Identification of segments enables supermarkets to improve the effectiveness of targeting and positioning strategies, and to differentiate their marketing strategies to the different student segments, such as offering augmented supermarket services and promotions

Cluster 1 (convenience-seeking, financially-stable, student shopper) is distinctively least concerned with economy and is relatively more concerned with range and quality product. Hence supermarkets could augment offering to offer premium range of high-quality product. The use of own transport to visit supermarket and their less-frequent shopping imply a higher shopping volume benefited from convenience in transporting items home. Hence, supermarkets can offer larger offer pack, slightly smaller than family-pack, to suit their stocking behaviour.

Cluster 2 (economy-seeking, personal student shopper) are more financially-constrained and view shopping as a financial concern. This segment may be attracted to cost-focused offers such as discounts, price reductions, and loyalty-point card schemes. Generally, they shop for themselves, consistent with their lower spending, whilst the trouble of transporting food home by foot have resulted in more frequent smaller shopping trips. Hence, supermarkets could offer small-bundled offering like, smaller packets of essentials such as pasta, cereals and sauces, which are easier to carry considering them travelling on foot, convenient to store as they shop more frequently, and suitable for a one-person consumption.

However, there are also some aspects that are common to all students. For example, students generally shop with flatmates. Supermarket could offer products that could be purchased in bulks to cater a group or a BOGOF strategy specifically targeted to students for main household items like, dishwashing liquid, kitchen-paper or toilet-paper roll.

Atiqah Ismail

Analytical Techniques for Marketing

2012

2012

Cluster Analysis

7. SUMMARY AND CONCLUSION

The aim of this study is to use cluster analysis to segment student food shoppers. Hierarchical clustering and K-means optimisation were employed to derive cluster solution and cluster profiles, respectively. Cluster analysis enables the extension of supermarket feature importance factors with nominal students behavioural measures, allowing the identification of student segments based on their behaviour to shopping associated with supermarket features. The analysis generated two-cluster solution, Convenience-seeking, financiallystable, student shopper (Cluster 1) and Economy-seeking, personal student shopper (Cluster 2). Most students however fall into Cluster 2 implying that Cluster 1 may be a niche market; however this area could merit further research to explore whether it is a niche segment worth exploiting.

The representativeness of the findings is limited to full-time undergraduate Newcastle University students, hence it cannot be generalised to the UK student population. This suggests the need for further research to ensure consistency of student-shopper segments by reproducing this study in other universities.

There was no distinctively significant difference in terms of shopping behaviour. Crosstab findings for differences in behavioural measures between the two groups does not show very significant or distinctive differences in some shopping behaviour, such as storecard ownership, frequency of visits and budgeting. Importance features seem to provide more distinctive difference between the two groups than students shopping behaviour. This study merits further research, for example, inclusion of more behavioural variables such as gender or eating habit may perhaps contribute towards a more distinctive and actionable segmentation. Richer segmentation and targeting strategy could also be achieved through loyalty cards schemes, enabling supermarkets to track students shopping patterns, and use these data to identify opportunities for more direct marketing strategies. Clusters may also be restricted to this study as cluster interpretation is subjective and the selection of number of clusters depends on researchers choice.

Atiqah Ismail

Analytical Techniques for Marketing

2012