Monday, May 9, 2011

Market Segmentation in Singapore politics


On the eve of Polling Day on May 6, 2011, I predicted that Prime Minister Lee Hsien Loong and his team would win 70% of the votes cast. The PM had apologised for the failures of the government in not building sufficient HDB flats to stop the rapid rise of housing, the Orchard Road floods, the escape of a terrorist from detention and some of his ministers had apologised too. Some cynics think that this strategy was to get sympathy votes but I believe the PM was sincere. No government is perfect.

"Do you agree?" I asked Julia. She shook her head. "But he would win," she said. "The Reform Party could not even afford to put up their party posters in the neighbourhood."
"Didn't you see the posters of the Reform Party on the main road?" I asked.
"Yes, but only on the main road and nowhere in the neighbourhood."
"I fear that the PAP would be wiped out in this election," I could feel the general frigid atmosphere whenever I surveyed some of my clients as to whether they would vote for the PAP. The massive crowds at the Worker's Party and other opposition rallies were better than rock star concerts were well photographed by the Press and shown in the internet. One of the opposition's new candidates was young female in a group fighting the established Minister Mentor Goh Chok Tong who also had an equivalent young female in his group. However, the opposition young female was able to speak very well in public and the press had given her favourable coverage unlike the PAP's young lady candidate. Sometimes it appeared to me that the press was pro-opposition and the reporters were fanning the cries of the "non-silent majority" for voices to be heard to blow away the "arrogance" of the PAP government. A government that had performed very well for Singapore's development in social and economic areas when you compare to other governments in other countries like Taiwan where legislators were telecast live showing how they fought each other during Parliamentary sessions.

The opposition parties alleged that ministers replied to the public unsympathetically when small disasters like the Orchard flooding occurred.

This 2011 election was for a generation that "forget whence we came from," according to MM Lee Kuan Yew. The hardships, high unemployment rate, lack of public safety and racial riots were forgotten as the Y-generation enjoys the fruits of success of Singapore being a first world country and wants more goodies without having to work hard. 5-day week even for civil servants, 4 months of paid maternal leave. An internet forum writer replied that his generation does not forget owing to many reminders during school days but he or she does not want to go back to "whence we came from."

Unbelievable housing benefits not present when I started working in the 1970s as follows:

SINGAPOREANS EARNING LESS THAN $8,000 BUYING RESALE HDB FLAT IN THE OPEN MARKET
$30,000 to $40,000 subsidy to buy a resale flat if your household income is less than $8,000 per month (to be increased to $10,000 as a result of the feedback and unhappiness about the rise in public housing during the elections).

SINGAPOREANS EARNING LESS THAN $8,000 BUYING NEW HDB FLAT (BUILT TO ORDER) FOR THE FIRST TIME
No subsidies if the Singaporean household purchases a new HDB flat which looks much better than a condo in the same locality but cost 10-30% cheaper for Singaporeans only. These flats are known as Built To Order (BTO) flats and will take time to be completed since property is inelastic.

The opposition had asked for lower prices for new HDB flats and more help for those affected by the high prices.

According to the Minister Mr Mah Bow Tan, increasing the household income ceiling for buyers of new HDB flat from $8,000 to $10,000 would make it eligible for 50% of those who currently buy resale flats to switch to buying the new HDB flats. He said this would lead to a decrease in demand and therefore value of resale flats. Therefore present owners of HDB resale flats would have capital depreciation instead of "asset enhancement." So, another market segment is affected when the government changes housing policies.

SINGAPOREANS EARNING LESS THAN $10,000 TO BUY NEW FLATS BUILT BY PRIVATE DEVELOPER'S
Or purchase of an executive condo (EC) or design, build and sell scheme (DBSS) flat with similar $30,000 to $40,000 and no resale levy for Singaporeans earning less than $10,000 per month. This scheme caters to the "sandwiched middle class" who can't afford private property. The ECs have condo facilities and if it is bought to live in rather than speculate, it is value for money since $30,000 to $40,000 subsidies are given by the government to buy the EC and live a lifestyle of private condo owners. ECs are not built by the HDB and are said to be much better designed by private developers. After selling, the HDB and Town Councils will manage them. There will be not be a condo management committee unlike private condos.

SINGAPOREANS EARNING LESS THAN $5,000 BUYING A NEW 2- OR 3-ROOM HDB FLAT
In addition to the $30,000 to $40,000 subsidy, an ADDITIONAL HOUSING GRANT (AHG) and another SPECIAL HOUSING GRANT (SHG).

SINGAPOREANS GET TWO CONCESSIONARY LOANS TO BUY NEW HDB FLATS. Lower interest rates. They can get more concessionary loans but must sell back the flat to the HDB at posted prices (below market prices). Obviously nobody does that.

SENIOR CITIZENS WITH NO INCOME LIVING IN 3-ROOM HDB FLATS
Lease-buy back scheme. The government buys back the HDB apartment (tail end of the lease of 30 years), gives $5,000 cash upfront and then another $5,000 for the purchase of a CPF Life Annuity. This annuity provides an estimated $300-500 monthly income for life. Subletting the whole flat (and staying with the family), subletting a room, downgrading or cashing out are areas where the senior citizens can earn income.

So it seems all market segments in Singapore are politically covered by the PAP. The opposition's complaint was that the prices of the HDB flats have shot up and the mortgage payment is now 30 years. To me, it is better to have 30 years to reduce the monthly mortgage payments freeing cash for other expenditure.

Well, the PAP got 60% of the vote, down from the previous election. PM Lee got 69.3%. My prediction was not spot on but was close.

"You need not worry about that PAP would not form the government," Julia replied to my opinion that the PAP government could be wiped out this time, since there is great anti-PAP sentiments judging from the internet postings and the high turnout in opposition rallies as compared to the PAP rallies. Well, she was correct in that the PAP got 81 of the 89 seats in the Parliament. By any international standards of democracy, this is an incredibly good election performance in a fair and open election.

Singapore's Polling Day was May 7, 2011. Around 2 million voters, half of them from the younger generation voted.

P.S. Political intervention. The government introduced property cooling measures before the elections to reduce the cost of housing. These are:

1. For private properties, a Seller has to pay stamp duty of 16% during the first year of sale and lower percentages for year 2-4. This means that it is not worth speculating in private properties. This process is called "flipping."

2. Owners of private properties are NOT allowed to buy HDB resale or new flats anymore.

3. Permanent Residents (PR) who purchase HDB flats must sell off their private properties here or in their countries within a period of time or face penalties.

4. Property owners buying another property but has an existing housing loan will now only get 60% of the loan. Property owners with no housing loan gets 80%. In the past it was 90%. (I need to verify the %).

5. Commercial property buyers can only get 70% of the housing loan. (I need to verify the %). This is to discourage more demand for private properties increasing prices.

6. New HDB flat buyers (Built To Order), Executive condo and DBSS condo buyers (restricted to Singaporeans or Singapore + 1 PR as spouse) are not affected by the stamp duty on selling as the minimum occupation period is 5 years. The first-time buyer still gets the concessionary housing loans and the CPF housing grants of $30,000 or $40,000.

7. Market segmentation according to my lecturer's REA notes.
Market segmentation is a process in which a company divides the market into distinct groups of customers whose want different products or services. The intention is to identify groups of similar customers - to understand their behaviour and respond with appropriate marketing strategies.

These customer groups are as follows:
1. Geographic
2. Demographic
3. Psychological
4. Behavioural

Details of each group are as follows:
1. Geographic segment. Each locality has different groups of property buyers. Consumers in different areas show certain characteristics and behaviours. For example Districts 9, 10 and 11 are where the affluent customers are the rich and famous buying expensive ($ per sq ft) properties. Downtown Singapore has a population consisting of commercial and residential properties.

2. Demographics is the study of the population by age, gender, income and family life cycle amongst other variables. They respond to different needs and wants.
For example,

age groups - fashion or magazines for teenagers only. Toys are developed for children of certain age groups.

gender - cosmetics and clothing for women. A male lifestyle magazine covering male fashion, films, cars, sports and technology. Certain bars attract high-income female patrons who enjoy 'social drinking.'

income - I use this example of the Singapore government as regards to "affordable housing for the citizen". The low income group (earning up to $5,000) can get Additional Housing and Special Housing Grants if they buy new 2- or 3-bedroom HDB flats. This is in addition to the CPF housing grant of $30,000 or $40,000 for first-timers Singaporeans who earn less than $8,000 buying resale HDB flats. In effect, this group does not pay any cash in getting a new HDB flat.

Psychological segmentation involves the social class, lifestyle or personality characteristics.
The lifestyle, daily activities, interest, opinions and beliefs on various issues make up the characteristic of each group. For example the lifestyle segment of young professionals (able to take risk in investment) and retirees (frugal, least expensive tours). Marketers understand their lifestyle profiles to develop products and services to enhance their lifestyle.

Behavioural segmentation refers to why people buy a product or service. For example, what is the benefit they seek from the purchase and how it will enhance their overall lifestyle. For example,
1. brand loyalty (drinks only Coca Cola),
2. occasion increases the reason to buy certain products or services (Valentine's Day - buy more flowers and chocolates, Christmas Day - turkeys).
3. usage rate divides customers into the frequency of purchase. Heavy users contribute more to the company's turnover than light or medium users. No example is given by the lecturer. I will say examples of heavy users of products or services are women readers who buy and read romance novels and therefore the publisher of romance novels will ensure that more authors of romance genre are advertised and promoted than writers of scientific papers.

An example in the political area may be the "sandwiched middle class" of Singaporeans whose income have shot past the $8,000 household income ceiling. They prefer to buy new HDB flats but can't owing to their promotion in their career but private housing is out of their reach. If the government changes its policy of increasing the income ceiling to $10,000, this class will buy new HDB flats which are 10-30% cheaper than resale HDB flats on the open market and are brand new too.

My REA examination will be on May 25, 26, and 27 at 2 hours/examination. The above article may help those studying for the REA or RES examination understand the complex rules and regulations including the AHG, SHG (introduced in 2011), CPF Housing Grants, BTO, DBSS, EC, 120% Valuation Loan Limit, Minimum Sum Scheme, Additional Housing Withdrawal Limit after the age of 55 years (AHWL), Leverage Buyback Scheme (LBS), CPF Ordinary Account, Special Account and Medisave Account.

My lecturer said that there is no such thing as a Retirement Account as it is part of the Special Account but there is the mention of "Retirement Account" by the CPF board in newspapers. All of these rules and regulations will make an ordinary person go crazy trying to understand all of them and being tested. Sometimes my lecturer also can't keep up to date with the new policies.

P.S
Marketing segmentation also applies to veterinary medicine and surgery. Some pet owners prefer a practice where they see the same doctor for their pets (behavioural segmentation?). Some cannot be bothered but want a practice next door (geographical segmentation).

Some go for brand-name vets as they believe the vets there are the best money can buy (behavioral segmentation?). Some want old and experienced vets to handle their pet surgeries (psychological segmentation?). Young pet owners are internet savvy and will research their pet's problems on the internet first before seeking out a vet (demographic segmentation?)

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