2013-Monitor-Customer Segmentation Training Module

Copyright © 2013 by Monitor Company Group, L.P.

No part of this publication may be reproduced— without the permission of Monitor Company Group, L.P.

This document provides an outline of a presentation and is incomplete without the accompanying oral commentary and discussion.

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Customer Segmentation - Approach & ApplicationsAssociate Training Module2013

John Gregg,The Monitor Company Group

2Copyright © 2012 Monitor Company Group, L.P. — Confidential — LAX

2

• The customer segmentation concept

• Applications

• Customer segmentation steps

• segment customers

• choose target segments

• create value propositions for target segments

• determine profit potential of serving target segments with value propositions

• Examples

• needs-based

• behavioral

• Key takeaways

Agenda


3

Agenda


• Applications


• segment customers

• choose target segments

• create value propositions for target segments

• determine profit potential of serving target segments with value propositions

• Examples

• needs-based

• behavioural

• Key takeaways


4

CompetitorsCustomers

• Identify cost reduction opportunities

Customer segmentation is a key tool in the process of customer analysis; enabling the thedevelopment of strategies to connect with them

Cost Capabilities

Strategic Purpose:

Tools:

•To identify revenue and profit maximizing strategies

•To achieve differentiation and to preempt competitors’ moves

•To determine the strategies that fit best with a company’s core competencies

Context – Fit within the 4Cs strategy paradigm

•Customer Segmentation

•Key Purchase Criteria (Using conjoint analysis to map the customer’s decision journey/path to purchase and importance of the factors considered at each step on the path

•Corporate/product/brand positioning (e.g. Multi-dimensional scaling)

•Determine most attractive segments

•Value Proposition Development

•Customer Retention and Loyalty

•Customer Acquisition


5

*In some cases, there will be only one target segment

Customer segmentation is a process of identifying homogeneous groups of customers. Once customers have been segmented, a company chooses target segments and approaches each segment with a value proposition that meets the segment’s needs.

•Each customer segment describes a homogeneous group of customers

Segment customers(existing and potential)

Choose target segments*

Create value propositionfor each target segment

Determine profit potential

•Target segments are the most attractive customer segments for a given company to focus on

•A value proposition is the combination of product, service, and delivery offered to the customer

•The potential profit from serving the target segments with proposed value propositions must be determined

The Process


6

Customer segmentation is valuable because all customers are not created equal.

•Each customer segment has a unique set of needs and requires its own value proposition

•The profit potential differs by customer segment

Customer segmentation helps companies focus scarce resources where they can be most leveraged

Why Do Customer Segmentation?


7


• Applications


– segment customers

– choose target segments

– create value propositions for target segments

– determine profit potential of serving target

segments with value propositions

• Examples

– needs-based

– behavioral

• Key takeaways

Agenda


8

Customer segmentation is useful for both customer

retention and customer acquisition.

Segment customers

Choose target segments

Create value proposition for each target segment

Retain target

customers

Acquire target

customers

Retention and Acquisition


9

Monitor caseteams have used customer segmentation to:

• Identify gaps or redundancies in the product portfolio

• Screen out unacceptable new products

• Choose product features

• Determine product pricing

• Establish appropriate service options

• Determine optimal distribution strategy

• Advise on advertising strategy

Applications (1 of 2)


10

•A large European beer manufacturer was faced with increasing

competition and low market growth. Monitor used segmentation

to identify product portfolio gaps and determine optimal

positioning for new and existing brands. This resulted in an 8%

market share increase.

•An international cosmetics company wanted to identify

opportunities in the high growth skin care market. A Monitor

team identified unmet consumer needs for anti-aging creams

and proposed an optimal strategy for targeting the appropriate

customers. This resulted in approximately $145MM in value

creation.

Monitor ’s customer segmentation work has brought significant results for

many clients. Examples of our work include:

Applications (2 of 2)


11


• Applications







• Examples

– needs-based

– behavioral

• Key takeaways

Agenda


12

• Choose

segmentation

method

(needs-based,

behavioral, or

demographic)

based on

underlying issues

Process:

Tips:

• Choose target

segments based on

attractiveness and

ability to serve in a

differentiated way (in

some cases, there

will be only one target

segment)

• Create value

propositions

based on

customer needs

(each target

segment requires

its own value

proposition)

• Determine the

revenue and cost

impacts of

offering the

proposed value

propositions to

the target

segments

• Segments should be

– meaningful

– MECE (only one

segment per

customer)

– measurable

– substantial

– actionable

• Attractiveness is

based on profit

potential (revenue

potential and cost to

serve)

• Ability to serve in a

differentiated way

recognizes both the

client’s and the

competitors’ core

competencies as well

as regulatory factors

• Each value

proposition

should address:

– product

– service

– distribution

• Profit potential

should include

profit as well as

“hidden costs”

(e.g., increased

training and

marketing costs

for new products)

Segment customers

(existing and

potential)

Choose target

segments*

Create value

proposition for each

target segment

Determine profit

potential

*In some cases, there will be only one target segment

Customer Segmentation Steps


13


• Applications







• Examples

– needs-based

– behavioral

• Key takeaways

Agenda


14

• Customer needs

(e.g., preferences

for low price vs.

high service)

– psycho-

graphics

– attitudes

Needs-based Behavioral Demographic

Type of data

used to

segment:

Examples: • Value high service

over low price

• Value low price over

high convenience

• Value brand name

over low price

• Buy on sale only vs.

at full price

• Behaviors (e.g.,

purchasing

patterns, usage

patterns)

• Use ATM vs. use

branch

• Shop weekly vs.

monthly for

groceries

• Drink coffee vs. do

not drink coffee

• Demographics

(e.g., age, income,

home ownership)

• Young vs. old

• High income vs. low

income

• Home owners vs.

renters

There are three main types of segmentation:

Segmentation Methods


15

• Primary research

necessary


Segmentation

process:

Usefulness in

creating value

propositions:

• High (shows

causation)

• Descriptive and

actionable

(describes

customers and

drivers of

purchase)


necessary only if

behavioral data not

available from

client database

• Moderate (shows

correlation, not

causation)

• Descriptive, not

actionable (describes

purchasing behavior,

but does not address

drivers or purchase)

• No primary research

necessary

• Demographic data

sometimes readily

available from client

• Low (occasionally

shows correlation,

never causation)



customers but does

not address drivers of

purchase)

Needs-based segmentation is the most time consuming to execute, but also

the most valuable. Most of Monitor ’s work involves needs-based

segmentation.

Comparison of Segmentation Methods


16

• Make a complete list

of potential customer

and non-customer

needs

– focus groups or a

small number of

unprompted

customer

interviews

– brainstorming

– previous client

work or Monitor

research

Create a needs list Collect data

Conduct Factor/

Cluster analysis to

determine statistical

segments

Steps: • Ask a representative

sample of customers

and non-customers

a battery of

questions designed

to gauge their needs

concerning a

product/service

• Customers and

non-customers are

placed into

segments based

on their responses

to the key

variables that drive

purchase behavior

Defining customer groups in a needs-based segmentation begins

with identifying the likely customer and non-customer needs.

Needs-Based Segmentation


17

• The Monitor Research and Data Analysis Group in Shanghai, Boston and/or

London should be contacted when running a needs-based segmentation to

ensure proper, statistically valid analysis.

• These tools could generate a number of statistically valid answers. In that

case, the segmentation options must then be screened using business

judgement.

Factor Analysis and Cluster Analysis are statistical tools used to

determine appropriate needs-based customer segments.

Factor/Cluster Analysis


18

There are two methodologies for segmenting a database of

behavioral or demographic information.

CHAID - an analytical tool that uses

the Chi-Square statistic to find the

drivers of a dependent variable80/20

Process:

Statistical

validity:

Drawbacks:

• Divide customers according to their

profitability.

• Hypothesize as to the variables that

drive profitability. Combine variables to

create segments.

• Low

• Iterative, manual process

• Requires solid intuition

• Risks leaving out important

variables

• Does not address causation

• Choose dependent variable (e.g.,

profit), hypothesize as to the

segmentation variables, collect data on

variables, run CHAID, reality check

results, and create segments based on

the CHAID

• High

• Process requires contacting the

Monitor Research and Data

Analysis Group for software/

statistical expertise in conducting

CHAID analysis

Behavioral and Demographic Segmentation


19

• CHAID analysis determines and ranks all of the statistically significant drivers of a

chosen dependent variable (e.g., profit, retention, productivity)

• Specifically, it groups independent variables into subgroups

– independent variables are categorized according to their statistical significance

(e.g., store location, age)

– CHAID identifies interactions/effects between variables

– CHAID yields subgroups which are statistically significant and MECE

CHAID is a statistically robust method used to segment a

demographic or behavioral database.

CHAID


20

• Meaningful - there should be enough differentiation among segments such that each

segments seems unique

• MECE Analysis (Mutually Exclusive, Completely Exhaustive) - each customer should

belong to one, and only one, segment

• Measurable - clearly defined with a market share that can be quantified

• Substantial - there should be enough volume in a segment to merit analysis

• Actionable - we should be able to design a value proposition for each segment

Regardless of the type of segmentation used, the customer groups

determined by the segmentation process must have the following

characteristics:

Segmentation Requirements


21


• Applications







• Examples

– needs-based

– behavioral

• Key takeaways

Agenda


22

Note: me cases, there will be only one target segment

The target segments should be chosen based on their attractiveness to a

given company and that company’s ability to serve the target segments in a

differentiated way.

Attractiveness

(profit potential)

Ability to serve in a

differentiated way

Revenue potential Cost to serve

Client’s core

capabilities vs.

competitors’

External factors

• Size

• Growth potential

• Buyer power

• Product

requirements

• Price sensitivity

• Advertising

requirements

• Channel preference

• Service

requirements

• Strategic objectives

• Ability to leverage:

– technology

– costs

– skills

– existing

resources

• Existing market

perceptions

• Existing base in

segment

• Legal restrictions

• Regulatory

requirements

Target Segment Selection


23

Develop

Capabilities

to Serve this

Segment

Target this

Segment

Avoid this

Segment

Adjust Value

Proposition to

Improve

Attractiveness of

this SegmentLow

Low

High

High

Ability to Serve Segment in a

Differentiated Way

(Lever = Capabilities)

Target Segment Selection Matrix


24


• Applications







• Examples

– needs-based

– behavioral

• Key takeaways

Agenda


25

• Features

• Price

• Quality

• Brand

• Positioning

• Promotion/

advertising

Product Service Distribution

• Before sale

• During sale

• After sale

• Delivery channels

• Speed

After customers have been segmented and the most attractive segments

have been chosen, a customized value proposition should be created for

each target segment by trading off among the following elements:

Actions should leverage strengths and optimize resources with

the goal of increasing market share of the target segments

Value Proposition Development


26


• Applications







• Examples

– needs-based

– behavioral

• Key takeaways

Agenda


27

Once the value propositions have been established, the potential

profit to be gained from providing them to the target segments

should be quantified.

Determine profit

potential

Calculate revenue

increase

Calculate cost

to serve

Current

customersNew customers

Current

customersNew customers

Profit Potential Quantification


28


• Applications







• Examples

– needs-based

– behavioral

• Key takeaways

Agenda


29

*Disguised client case

Smith’s Fashion Center is a large discount women’s retailer in the Northeast

that wants to understand its customer base to determine expansion options.

A list of the drivers of retail purchasing

behavior was made

Customers were asked ~20 questions to

record their needs

Factor/Cluster analysis was used to determine

the segments

Segment size and revenue potential were

calculated

An expansion market was chosen and the

merchandise strategy was adjusted based on

the segmentation results

Smith’s Fashion Center* - Process


30

A five segment solution was chosen from the Factor/Cluster analysis.

Female apparel shoppers

Bargains UtilityFashionPrimary motivation:

Bargains Efficiency/serviceFun

(love to shop)

Secondary motivation: High quality

bargains

Service FashionBargainsNot motivated by: Fashion

“Fashion

Forward

Shopping

Lover”

Segment name: “Fashion

Value”

“Fashion

on a

Shoestring

”

“Unfashionabl

e Bargain

Lover”

“Rich but

Unfashionable”

$950 $750$1,400Average spending

per year: $850$1,350

Smith’s Fashion Center - Segments


31

Rich but unfashionable

Unfashionable Bargain Lover

Fashion on a Shoestring

Fashion Value

Fashion ForwardShopping Lover

Percent of current customers Percent of current customer spending*0%

20%

40%

60%

80%

100%

Pe

rce

nt

of

To

tal

Smith determined that its target segments were “Fashion Value” and

“Fashion on a Shoestring”.

*In this case, spending was a good proxy for profit

Ability to serve in a

differentiated way

Smith's Fashion Center - Current Customers


32

Chosen Expansion City

Rich but Unfashionable

Unfashionable Bargain Lover

Fashion on a Shoestring

Fashion Value

Fashion Forward

Shopping Lover

Percent of population Percent of spending0%

20%

40%

60%

80%

100%

Pe

rce

nt

of

To

tal

Smith chose an expansion city with a high mix of its target segments.

Smith's Fashion Center - Expansion City Customers


33

Importance of Accessories

Fashion Forward

Shopping Lovers

Fashion

Value

Fashion

on a

Shoestring

Unfashion- able

Bargain Lover

Rich but

Unfashion-able

40%

60%

35%

15%

25%

0%

20%

40%

60%

80%

100%

Perc

ent

Sayin

g I

mpo

rtan

t to

Carr

y A

ccesso

ries

Highqualitybrands

Mediumqualitybrands

Low qualitybrands

Current mix Optimal mix0%

20%

40%

60%

80%

100%

Perc

ent

of

Respo

ndents

Purc

hasin

g B

rand

Merchandise Quality

Based on the needs of the target segments, the merchandise strategy

was adjusted to include accessories and more low quality brands.

Smith's Fashion Center - Merchandising Strategy


34


• Applications







• Examples

– needs-based

– behavioral

• Key takeaways

Agenda


35

*Disguised client case

Situation:

Complication:

Question:

Hypothesis:

•The client, Highland Hotels, has high margins and is one of

the five largest hotel/conference center chains in Europe

•The market is coming to the end of a period of rapid growth

and Highland’s relative cost position is worse than its

competitors’

•How can Highland preserve its high margins in a slowing

market where it finds itself at a cost disadvantage?

•By offering a differentiated value proposition to the most

profitable customer segment, Highland can preserve its

high margins

Monitor used customer segmentation to determine

the target segments for Highland Hotels and to

create value propositions for those target segments.

Highland Hotels* - Background


36

Monitor conducted an 80/20 behavioral/demographic

segmentation for Highland Hotels.

High profit customers were segmented based on

their behavioral and demographic characteristics

A target segment was chosen based on its

attractiveness and Highland’s ability to serve it

Customers were divided into groups based on

their profitability

The behavioral and demographic drivers of

profitability were determined

A value proposition was created for the target

segment

Highland Hotels - Process


37

Low profit

Medium profit

High profit

Customers Profit0%

20%

40%

60%

80%

100%

Pe

rce

nt

of

To

tal

One third of Highland’s customers account for

more than 60% of its total profits.

Highland Hotels - Customer Profitability


38

Business/leisure Leisure only Business only

$250

$75

$50

$0

$50

$100

$150

$200

$250

$300

Avera

ge A

nnu

al P

rofit

per

Custo

me

r T

ype

1-2 3-5 6-8 9-10 11+

$50

$85

$140$150

$260

$0

$50

$100

$150

$200

$250

$300

Avera

ge

Annual P

rofit

per

Cu

sto

mer

Type

Days per Year

Less than 2 days 2-4 days 4+ days

$40

$70

$130

$0

$50

$100

$150

Avera

ge A

nnu

al P

rofit

per

Custo

me

r T

ype

Occasion

Visit Frequency Length of Visit

The primary drivers of profitability are visit

frequency, length of visit, and occasion.

Highland Hotels - Profitability Drivers


39

Highland identified four types of high value

customers based on the profitability drivers.

High Profit Segments Annual Frequency Length of Stay Occasion

•“Hotel-aholics”

•“Honeymooners”

•“Hello again”

•“One-timers”

Very frequent

(9.2x)

Infrequent

(1.5x)

Frequent

(6.2x)

Infrequent

(1.3x)

Medium

(3.9 days)

Long

(10.0 days)

Short

(1.8 days)

Long

(5.4 days)

Business/leisure

Leisure

Business

Business

Highland Hotels - High Profit Segments


40

Low profit

Medium profit

High profit

One-timers

Hello again

Honeymooners

Hotel-aholics

Customers High profit customers High profit customers'

profitability

0%

20%

40%

60%

80%

100%

Pe

rce

nt

of

To

tal

Highland decided to target “hotel-aholics” because they were

the most attractive segment and a good fit with the company’s

capabilities.Ability to serve in a

differentiated way

Highland Hotels - Target Segment


41

Monitor designed a value proposition for the “hotel-

aholic” segment that differentiated Highland from its

competitors.

Priority service Special services

• Favorite room ready

• “Permanent”

electronic key

• Complimentary dry

cleaning

• Two phone lines

• Fax machine in room

• One 20 minute

complimentary call to

home

Rewards

• Frequent flier miles

• “Kids Stay Free” days

Highland Hotels - Value Proposition


42


• Applications







• Examples

– needs-based

– behavioral

• Key takeaways

Agenda


43

• There are three main types of customer segmentation: -based, behavioral and demographic.

Needs-based segmentation is the most difficult to execute, but the most valuable. Most of

Monitor ’s work involves needs-based segmentation

– needs-based segmentation involves creating a list of needs, collecting data, and conducting

Factor/Cluster analysis to identify segments

– there are two methodologies for segmenting a database of behavioral or demographic

information

the 80/20 method involves dividing customers according to their profitability,

hypothesizing as to the variables that drive profitability, and combining variables to create

segments

the CHAID method involves choosing a dependent variable, hypothesizing as to the

segmentation variables, collecting data, running the CHAID, reality checking the results,

and creating segments

• Regardless of the type of segmentation used, the resulting segments must be meaningful,

MECE, measurable, substantial, and actionable

Customer Segmentation Steps

Types of Segmentation

• Customer segmentation involves separating customers (existing and potential) into

homogeneous groups, choosing target segments (or one target segments), creating value

propositions for each target segment, and determining the profit potential of serving the target

segments with the proposed value propositions

Key Takeaways (1 of 2)


44

• Target segments are chosen based on their potential profitability and the

client’s ability to serve the segments in a differentiated way

• Determining the profit potential of serving the target segments with the

proposed value propositions consists of calculating the revenue and cost

impact of serving both current and new target customers

• The three major elements of a value proposition are product, service, and

distribution

Target Segments

Applications

• Customer segmentation, done properly, helps companies focus scarce

resources where they can be most leveraged

• Monitor uses customer segmentation for both customer retention and

customer acquisition

Key Takeaways (2 of 2)


45

Customer Segmentation Steps Comparison of Segmentation Methods

Needs-Based Segmentation Behavioral and Demographic Segmentation

Segment customers

(existing and

potential)

Choose target

segments

Create value

proposition for

each target

segment

Determine profit

potential

• Choose

segmentation

method (needs-

based, behavioral,

or demographic)

based on

underlying issues

• Choose target

segments based on

attractiveness and

ability to serve in a

differentiated way

(in some cases,

there will be only

one target segment)

• Create value

propositions

based on

customer needs

(each target

segment requires

its own value

proposition)

• Determine the

revenue and

cost impacts of

offering the

proposed value

propositions to

the target

segments

• Segments should be– meaningful– MECE (only

one segment per customer)

– measurable– substantial– actionable

• Attractiveness is based

on profit potential

(revenue potential and

cost to serve)

• Ability to serve in a

differentiated way

recognizes both the

client’s and the

competitors’ core

competencies as well as

regulatory factors

• Each value

proposition should

address:

– product

– service

– distribution

• Profit potential

should include

profit as well as

“hidden costs”

(e.g., increased

training and

marketing costs for

new products)

Process:

Tips:

• Primary

research

necessary


Segmentation

process:

Usefulness in

creating

value

propositions:

• High (shows causation)

• Descriptive and actionable

(describes customers and

drivers of purchase)


necessary only if

behavioral data not

available from

client database

• Moderate (shows

correlation, not causation)

• Descriptive, not actionable

(describes purchasing

behavior, but does not

address drivers or

purchase)

• No primary research

necessary

• Demographic data

sometimes readily

available from client

• Low (occasionally

shows correlation, never

causation)



customers but does not

address drivers of

purchase)

• Make a complete list

of potential customer

and non-customer

needs

– focus groups

or a small

number of

unprompted

customer

interviews

– brainstorming

– previous client

work or

Monitor

research

Steps: • Ask a

representative

sample of

customers and non-

customers a battery

of questions

designed to gauge

their needs

concerning a

product/service

• Customers and non-

customers are

placed into

segments based on

their responses to

the key variables

that drive purchase

behavior

Create a needs list Collect data

Conduct Factor/

Cluster analysis to

determine

statistical

segments

CHAID - an analytical tool that uses

the Chi-Square statistic to find the

drivers of a dependent variable

80/20

Process:

Statistical

validity:

Drawbacks:

• Divide customers according

to their profitability.

• Hypothesize as to the

variables that drive

profitability. Combine

variables to create segments.

• Low

• Iterative, manual process

• Requires solid intuition

• Risks leaving out important

variables

• Does not address causation

• Choose dependent variable

(e.g., profit), hypothesize as

to the segmentation

variables, collect data on

variables, run CHAID, reality

check results, and create

segments based on the

CHAID

• High

• Process requires contacting

the Monitor Research and

Data Analysis Group in

Boston for software/

statistical expertise in

conducting CHAID analysis

Takeaway Slides (1 of 3)


46

Segmentation Requirements Target Segment Selection Matrix

Value Proposition Development Profit Potential Quantification

• Meaningful - there should be enough differentiation among

segments such that each segments seems unique

• MECE - each customer should belong to one, and only one,

segment

• Measurable - clearly defined with a market share that can be

quantified

• Substantial - there should be enough volume in a segment to

merit analysis

• Actionable - we should be able to design a value proposition

for each segment

Develop

Capabilities

to Serve this

Segment

Target

this

segment

Avoid

this

segment

Adjust Value

Proposition to

Improve

Attractiveness of

this SegmentLow

Low

High

HighAbility to Serve Segment in a

Differentiated Way

(Lever = Capabilities)

• Features

• Price

• Quality

• Brand

• Positioning

• Promotion/

advertising

Product Service Distribution

• Before sale

• During sale

• After sale

• Delivery

channels

• Speed

Actions should leverage strengths and optimize

resources with the goal of increasing market share of

the target segments

Determine profit

potential

Calculate revenue

increaseCalculate cost to serve

Current

customers

New

customers

Current

customers

New

customers



47

Low price High quality Fast delivery0%

20%

40%

60%

80%

100%

Impo

rta

nce /

Eff

ectiven

ess

Client

Competitor

Comb Chart

Attractiveness

A

B

C

Target

segmentSegment

Financial

Attractiveness

Ease of Implementation

Hi

Lo

Low price

High quality

Fast delivery

A B C D

Segment Needs

Segment

Segment Share

Total market = $

Com

petito

rs (

% o

f T

ota

l S

ale

s)

Client

A B C D0%

20%

40%

60%

80%

100%

Segment (% of Total Sales)

$ $ $ $ $

Satisfaction Over Time

Pe

rce

nt o

f R

ep

lies

100%

Time

Good

Okay

Bad

Value Proposition

Segment A

Segment B

Segment C

Segment D

Product Service Channel

Customer Retention

Cu

sto

me

r va

lue

Time

Acquis

itio

n

Cost

Size of

segment

Segment D

Segment C

Segment B

Segment A

Customers Sales Profits0%

20%

40%

60%

80%

100%

Pe

rce

nt

Revenue and Profit

# $$

C



Question: What growth opportunities will the following market and channel segments bring to your company in the next three years?

Class 3 Large urban public hospitals

County hospitals

Grass root healthcarecenters (e.g. CHC)

Hospitals in low-tiercities and rural areas

Private hospitals/clinics

Very Large

Very Large

Very Large

Very Large

Very Large

Limited

Limited

Limited

Limited

Limited

Chinese Firm MNC

Type of Market-Channel Segment 1 Chinese versus multi-national (MNC) Firm Responses

Our survey of device firm managers, found large hospitals in focus cities are seen to provide the greatest opportunities to 2015

Source: 2012 Monitor Company: China Medical Devices Industry Survey: N = 160Research Method: Quantitative On Line SurveySurvey Participants: Chinese Firm 42%; Multi-National Corporation (MNC) 58%: CEO/MD 37%; VP/Director:39%; Senior Manager/Business Unit Director: 24%


Impact ongrowthDriver

Changingpatient population

Accessto care

Economic growth

Commentary

• The patient base is expanding due to:- an aging population, as the population aged 50+ is expected to

increase from 26% in 2012 to 32% in 2020

- increasing incidence / prevalence rates brought by changing

lifestyles, e.g., prevalence rate of cancer in urban China increased

from 25% to 36% since 2002

• Access to care in China is fueled by:- expanded insurance coverage

- public & private healthcare investment

- urban population growth

• China remains one of the world’s fastest growing major economies- China has achieved GDP growth of ~9% p.a. for the past 30+ years

Source: Monitor Analysis

Underlying market growth is attributable to an aging population, increasingrates of disease incidence and prevalence, and rapid increases in wealth


Differences in physician and patient education drives varying adoption ratesof medical devices across product categories and city tiers

Development stages,select medical devices

Source: Monitor Interviews and analysis

Introductionstage

Expansionstage

Maturestage

Deviceadoptionin China

30

40

50

60

Tier 3City

Tier 2City

Tier 1City

Device penetration rates,by city tierPercent

70

Introduction-Expansionstage products

Mature stage products

Device development stage

Professional medical education by suppliers could accelerate adoption curves for newer products

2 Awareness & adoption rates

Mature productsinclude various

catheters,needles, etc.

Newer productsinclude various

stents, ports, etc.


China remains a challenging, yet potentially very attractive market to the world’s medical device manufacturers

Thank You Questions?

John Gregg

Director,

Monitor Company Group

[email protected]


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2013-Monitor-Customer Segmentation Training Module

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