PORTFOLIO-BASED SEGMENTATION AND CONSUMER BEHAVIOR Empirical Evidence and Methodological Issues Jonas Gunnarsson Akademisk avhandling Som for aylaggande ay ekonomie doktorsexamen yid Handelshogskolan i Stockholm framlagges for offentlig granskning fredagen den 12 februari, 1999, kl. 13.15 i sal Torsten, HandelshOgsko1an, Syeavagen 65, Stockholm. PORTFOLIO-BASED SEGMENTATION AND CONSUMER BEHAVIOR Empirical Evidence and Methodological Issues ~ STOCKHOLM SCHOOL OF ECONOMICS 'V EFl, THE ECONOMIC RESEARCH INSTITUTE EFlMission EFl, the Economic Research Institute at the Stockholm School ofEconomics, is a scientific institution which works independently ofeconomic, political and sectional interests. It con­ ducts theoretical and empirical research in management and economic sciences, including selected related disciplines. The Institute encourages and assists in the publication and distribution of its research findings and is also involved in the doctoral education at the Stockholm School ofEconomics. EFl selects its projects based on the need for theoretical or practical development of a research domain, on methodological interests, and on the generality ofa problem. Research Organization The research activities are organized in twenty Research Centers within eight Research Areas. Center Directors are professors at the Stockholm School ofEconomics. 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Director: Associate ProfBo Sellstedt, Adress Efl, Box 6501, S-113 83 Stockholm, Sweden· Internet: www.hhs.se/efi/ Telephone: +46(0)8-736 90 00 • Fax: +46(0)8-31 62 70 • E-mail [email protected] Internetwww.hhs.se/efi/ PORTFOLIO-BASED SEGMENTATIONAND CONSUMER BEHAVIOR Empirical Evidence and Methodological Issues Jonas Gunnarsson f!ll STOCKHOLM SCHOOL OF ECONOMICS ~'7 EFl, THE ECONOMIC RESEARCH INSTITUTE A Dissertation for the Degree ofDoctor ofPhilosophy, Ph. D. (Business Administration) Stockholm School ofEconomics 1999 © EFl, the author and acknowledged publishing houses 1999 ISBN 91-7258-503-X Keywords: Cognitive processes Household portfolios Intertemporal consumer choice Longitudinal studies Marriage & family Saving behavior Segmentation Cover layout: Hilkan Solberg, Mediaproduktion AB Printed by: Elanders Gotab, Stockholm, 1999 Distributed by: EFl, The Economic Research Institute Stockholm School ofEconomics p.a. Box 6501, SE-II3 83 Stockholm, Sweden Acknowledgements This dissertation deals with how and why people save, and in particular how different groups ofhouseholds differ in the ways they construct their portfolios. This is what I label portfolio-based segmentation and explore from different angles. Marketing research in consumer behavior with regard to savings has only relatively recently gained momentum, and I hope that the dissertation will be a useful contribution to this field ofresearch. An effort such as this dissertation, which stretches over a period offive years, has naturally benefited from the support of a great many people. All of them deserve their due. But first and foremost I would like to thank those closest to me: mom, dad, Asa and Sara, for their belief in me and just for being there for the past halfdecade. This work would of course not have been possible without the generous fi­ nancial aid given by external sponsors. These are Sparbanken's Research Foun­ dation, Stahle's Research Fund and the Trygg-Hansa Research Foundation. And in conjunction with financing, a tip of the hat to the financial whiz Rune Cas­ tenas. A word about my supervisors. Richard Wahlund first brought me into the re­ search world, supporting me and co-authoring several articles with me. He has always been encouraging and let me gain confidence in my own ability as a re­ searcher when I learnt the ropes ofthis trade. Karl-Erik Warneryd has also been a great source of knowledge, inspiration and encouragement over the years. Claes-Robert Julander, former director of the FDR, created the characteristic Foundation atmosphere ofcuriosity, open debate, and support ofnew ideas that is so attractive. Anne-Marie Palsson has been a continuous reminder of a useful different perspective on portfolio behavior from what I had at the SSE. I spent the fall of 1994 as a guest researcher at the CentER for Economic Re­ search at the University of Tilburg. I am very thankful to Rob Alessie and Arie Kapteyn for providing that breathing space at an exciting and professional re­ search institution during times when my motivation was running low. Rob has also generously provided me with several opportunities to take part in cutting­ edge research conferences, as well as full access to CentER data. Many thanks are due to Flora Kokkinaki and Frederic Delmar for their ideas during discussions at frustrated moments. Sometimes you just need people who understand what one is going through, who love what they do and also always are willing to help in an effective and constructive manner. Finally, a big hand to the people at the Foundation for Distribution Research, who have seen me during all the ups and downs of my research process. I couldn't have done it without you. In particular I would like to thank Per and Anne for being there. I owe you, guys, you know that. Special thanks also go to Lars, Sassa and Magnus. Stockholm, December 17, 1998 Jonas Gunnarsson TABLE OF CONTENTS Chapter 1: Introduction: Dealing with Consumer Heterogeneity in Saving Behavior and Portfolio Choice by Jonas Gunnarsson PROBLEM AREA AND SYNOPSIS 2 PURPOSE OF THE THESIS 6 THE STRUCTURE OF THIS INTRODUCTORY CHAPTER 8 THE HETEROGENEITY OF SAVING AND PORTFOLIO BEHAVIOR IN RECENT ECONOMIC THOUGHT 9 FINANCIAL ECONOMICS AND HOUSEHOLD PORTFOLIO BEHAVIOR AT THE MICRO LEVEL 10 INCORPORATING HOUSEHOLD HETEROGENEITY INTO THE LIFE-CYCLEIPERMANENT INCOME-MoDEL 12 The Precautionary Motive and Buffer Stock Saving 13 Wealth Accumulation, Consumption Patterns and Occupational Classes 16 The Rich 17 CONCLUSIONS 18 Potentially Homogeneous Groups afSavers 19 Potentially Viable Explanatory Factors 20 THE HETEROGENEITY OF SAVING AND PORTFOLIO BEHAVIOR: SEGMENTATION IN FINANCIAL SERVICES MARKETS 21 INTRODUCTION 21 CLASSIFICAnON AS A THEORY-GENERATING ACTIVITy 25 SCHOOLS OF RESEARCH IN MARKET SEGMENTAnON 27 A PLETHORA OF SEGMENTATION BASES: REVIEW OF SEGMENTATION STUDIES IN FINANCIAL SERVICES MARKETING RESEARCH 28 Segmentation Studies in Financial Services Based an the Life-Cycle 29 Segmentation Studies Based on Saving Goals 32 Segmentation Studies Based on Product Class Knowledge and Involvement 33 Segmentation Studies Based on Perceived Benefits 37 Segmentation Studies Based on Financial Behaviors 39 CONCLUSIONS 41 Potentially Homogeneous Groups ofSavers 41 PotentialZv Viable Explanatory and Descriptive Factors 42 DISCUSSION: INTEGRATING THE TWO PERSPECTIVES? 43 METHODOLOGICAL ISSUES 49 CLASSIFICAnON AND CLUSTER ANALYSIS 49 USING CLUSTER ANALYSIS FOR MARKET SEGMENTATION 52 PROPOSED CLUSTERING ANALYSIS PROCEDURE 53 OVERVIEW OF THE STUDIES 57 SUMMARY OF STUDY 1 58 SUMMARY OF STlJDY 2 60 SUMMARY OF STUDY 3 63 SUMMARY OF STUDY 4 65 REFERENCES 67 Chapter 2: Household Financial Strategies in Sweden: an Exploratory Study by Jonas Gunnarsson and Richard Wahlund Reprintedjrom Journal ojEconomic Psychology vol. 18 (1997), no. 2-3, pp. 201-233. INTRODUCTION 77 PURPOSE 79 THEORETICAL BACKGROUND 79 HOUSEHOLD PORTFOLIO BEHAVIOUR AND RISK TAKING 80 THE LIFE-CYCLE HyPOTHESIS 81 METHOD 83 RESEARCH DESIGN AND DATA COLLECTION 83 QUESTIONNAIRE 84 VARIABLES IN THE CLUSTER ANALySIS 85 DATA WEIGHTING 86 CLUSTER AND FACTOR ANALYSIS TECHNIQUES EMPLOyED 86 Cluster Analysis .. , 86 Factor Analysis 88 RESULTS 88 SUMMARY OF RESULTS 90 DETAILED RESULTS 92 Liquid or Transactional Saving Forms 92 Pension-Related Saving Forms 93 Other Financial Investments 94 Loans and Credits 95 DIFFERENTIATING VARIABLES 96 Distribution ofTotal Financial Assets 96 Demographic and Socio-Economic Variables 97 Psychological Variables 99 LIFE-CYCLE EFFECTS ON FINANCIAL STRATEGIES 102 DEFINITION OF LIFE-CYCLE CATEGORIES 102 FINANCIAL STRATEGIES AND LIFE-CYCLE CATEGORIES 102 LIFE-CYCLE CATEGORIES AND FINANCIAL STRATEGIES 103 CONCLUSIONS AND DISCUSSION 104 REFERENCES 107 Chapter 3: "As Time Goes By..." Segmentation and Behavioral Stability Over Time by Jonas Gunnarsson Submitted INTRODUCTION AND PURPOSE 113 THEORETICAL BACKGROUND 114 MARKET SEGMENTATION IN RETAIL FINANCIAL SERVICES 114 THE CONCEPT OF MARKET SEGMENT STABILITY 115 EMPIRICAL EVIDENCE OF SEGMENT STABILITY IN THE FINANCIAL SERVICES MARKET .............................................................................................................................................