The use of fuelwood market segmentation and product differentiation to assess opportunities and value: A Nicaraguan case study

• Published in: Energy for sustainable development Vol. 18; pp. 58 - 66
• Main Authors: Baker, K., Bull, G.Q., LeMay, V.M.
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier Inc 01.02.2014; Elsevier
• Subjects: Applied sciences; Case studies; Economic data; Energy; Energy economics; Exact sciences and technology; Fuelwood; General, economic and professional studies; Livelihoods; Market segmentation; Natural energy; Nicaragua; Product differentiation; Smallholders; Central America; Nicaragua; America; Market segmentation; Nicaragua; Fuelwood; Smallholders; Product differentiation; Livelihoods; Supply demand balance; Segmentation; Interspecific comparison; Markets; Differentiation
• ISSN: 0973-0826
• DOI: 10.1016/j.esd.2013.10.004

Fuelwood is generally assumed to be a commodity in the development literature, thus overlooking the possibility of catering to niche markets that could potentially be served more efficiently. Identifying and better catering to niche market segments through product differentiation can play an important role in increasing the income of those involved in the fuelwood supply chain. The objective of this paper was to evaluate the role of market segmentation and product differentiation within the fuelwood industry and how it affects both market opportunities and value. This is illustrated using a case study of the largest fuelwood consuming cottage industry in the department of Madríz, Nicaragua. Semi-structured interviews were conducted with 21 fuelwood consuming business owners to obtain information on 1) the business itself and their fuelwood purchasing preferences; and 2) questions relating to fuelwood demand and prices. This information was complimented with the measurement of fuelwood purchasing units and logs in order to calculate solid wood volumes and product segment characteristics. We found that bakeries consumed four differentiated fuelwood products, mostly defined by the small-end diameter of the logs, each of which was valued differently. Differences in fuelwood product preferences were found when the market was segmented by municipality and by the number of wood-fired ovens operated by individual bakeries. This study highlights the existence of product differentiation within the fuelwood market and the potential of identifying niche markets to help fuelwood producers increase their income. Although traditionally assumed to be a commodity, different fuelwood consumers value different characteristics and attributes in fuelwood and are willing to pay different prices based on this differentiation. Taking this into account was important for determining market value. Such considerations should be taken into account when evaluating market opportunities and value within fuelwood markets, particularly in a developing country context. •We evaluated the presence of product differentiation in a fuelwood market in Nicaragua.•We used product differentiation to estimate the size of market demand.•We segmented the fuelwood market based on consumer’s fuelwood preferences•Four differentiated fuelwood products were identifies and priced according to log diameter.•Greater product differentiation is associated with larger levels of fuelwood demand.