Explain the criteria that global marketers use to choose specific markets to target.

Learning Objectives

Identify the variables that global marketers can use to segment global markets and give an example of each.

Understand how global marketers use a product-market grid to make targeting decisions.

Compare and contrast the three main target market strategy options.

Describe the various positioning options available to global marketers.

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Global Market Segmentation

The process of dividing the world market into distinct subsets of customers that have similar needs (for example, country groups or individual interest groups).

Pluralization of Consumption or segment simultaneity theory was advanced by Professor Theodore Levitt 4 decades ago stating that consumers seek variety and new segments will appear in many national markets. i.e., sushi, pizza

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Global Market Segmentation

Types of segmentation methods

Demographic segmentation

Psychographic segmentation

Behavior segmentation

Benefit segmentation

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Geographic Segmentation

Dividing the world into geographic subgroups

The advantage of geography is proximity

However, just because people are in close proximity does not mean they are similar

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Demographic Segmentation

Based on measurable population characteristics

Age

Income

Gender

Age distribution

Education

Occupation

Generally, national income is the most important variable

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Demographic segmentation is based on measurable characteristics of populations, such as income, population, age distribution, gender, education, and occupation. A number of global demographic trends—fewer married couples, smaller family size, changing roles of women, higher incomes and living standards, for example—have contributed to the emergence of global market segments.

Demographic Segmentation

500 million Asian consumers aged 16 and younger

India has the youngest demographic profile among the world’s large nations; half are younger than 25, 14 yr. olds & younger equal the entire U.S. population

Half of Japanese will be 50+ yrs. by 2025

20% of Americans (70 million) will be 65+ by 2030

U.S. Ethnic groups—African/Black, Hispanics, & Asian Americans have a combined annual buying power of $233 billion

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Income & Population Segmentation

2/3 world GNI in the Triad, 12% o population

Don’t use income as the only variable for assessing market opportunity

Use Purchasing Power Parity

Do not read into the numbers

Some services are free in developing nations so there is more purchasing power

For products with low enough price, population is a more important variable

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Ideally, gross domestic product (GDP) and other measures of national income converted to U.S. dollars should be calculated on the basis of purchasing power parities (i.e., what the currency will buy in the country of issue) or through direct comparisons of actual prices for a given product. This would provide an actual comparison of the standards of living in the countries of the world.

Market Segments by Income & Population

Global Teens-12 and 19 yr. olds

“A group of teenagers randomly chosen from different parts of the world will share many of the same tastes.”

Global Elite–affluent consumers who are well traveled and have the money to spend on prestigious products with an image of exclusivity

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Gender Segmentation

Gender segmentation is an obvious choice for some companies

Fashion designers & cosmetic companies focus on women but may also offer men’s products

Nike is opening shops for women

Levi Strauss opened Levis for Girls in Paris

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Psychographic Segmentation

Based on attitudes, values and lifestyle

Lifestyle surveys

SRI International’s Values and Life Styles, VALS & VALS 2

Porsche example

Top Guns (27%): Ambition, power, control

Elitists (24%): Old money, car is just a car

Proud Patrons (23%): Car is reward for hard work

Bon Vivants (17%): Car is for excitement, adventure

Fantasists (9%): Car is form of escape

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Euroconsumers

The Euroconsumer:

Successful Idealists–5% to 20% of the population; consists of persons who have achieved professional and material success while maintaining commitment to abstract or socially responsible ideals

Affluent Materialists–Status-conscious ‘up-and-comers’– many of whom are business professionals – use conspicuous consumption to communicate their success to others

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Euroconsumers

Comfortable Belongers

25% to 50% of a country’s population

conservative

most comfortable with the familiar

content with the comfort of home, family, friends, and community

Disaffected Survivors

lack power and affluence

harbor little hope for upward mobility

tend to be either resentful or resigned

concentrated in high-crime urban inner city

attitudes tend to affect the rest of society

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Behavior Segmentation

Focus on whether people purchase a product or not, how much, and how often they use it

User status

80/2 Rule or Law of Disproportionality or Pareto’s Law–80% of a company’s revenues are accounted for by 20% of the customers

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Behavior segmentation focuses on whether or not people buy and use a product, as well as how often, and how much they use or consume. Consumers can be categorized in terms of usage rates: for example, heavy, medium, light, and non-user. Consumers can also be segmented according to user status: potential users, non-users, ex-users, regulars, first-timers, and users of competitors’ products. Nine country markets generate about 80 percent of McDonald’s revenues. This situation presents McDonald’s executives with strategy alternatives: Should the company pursue growth in the handful of countries where it is already well known and popular? Or, should it focus on expansion and growth opportunities in the scores of countries that, as yet, contribute little to revenues and profits?

Benefit Segmentation

Benefit segmentation focuses on the value equation

Value=Benefits/Price

Based on understanding the problem a product solves, the benefit it offers, or the issue it addresses

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benefit segmentation</KT> focuses on the numerator of the value equation—the B in V = B/P. This approach is based on marketers’ superior understanding of the problem a product solves, the benefit it offers, or the issue it addresses, regardless of geography. Food marketers are finding success creating products that can help parents create nutritious family meals with a minimal investment of time. Campbell Soup is making significant inroads into Japan’s $500 million soup market as time-pressed homemakers place a premium on convenience. Marketers of health and beauty aids also use benefit segmentation. Many toothpaste brands are straightforward cavity fighters, and as such they reach a very broad market. However, as consumers become more concerned about whitening, sensitive teeth, gum disease, and other oral care issues, marketers are developing new toothpaste brand extensions suited to the different sets of perceived needs.

Ethnic Segmentation

The population of many countries includes ethnic groups of significant size

Three main groups in the U.S. include African-Americans, Asian-Americans, and Hispanic Americans

Hispanic Americans

50 million Hispanic Americans (14% of total pop.) with $978 billion annual buying power

“$1 trillion Latina” 24 million Hispanic women: 42% single, 35% HOH, 54% working

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Be mindful of the pitfalls

Tendency to overstate the size and short-term attractiveness of individual country markets

The company does not want to ‘miss out’ on a strategic opportunity

Management’s network of contacts will emerge as a primary criterion for targeting

Assessing Market Potential

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After segmenting the market by one or more of the criteria just discussed, the next step is to assess the attractiveness of the identified segments. This part of the process is especially important when sizing up emerging country markets as potential targets. It is at this stage that global marketers should be mindful of several potential pitfalls associated with the market segmentation process.

Assessing Market Potential

Three basic criteria:

Current size of the segment and anticipated growth potential

Potential competition

Compatibility with company’s overall objectives and the feasibility of successfully reaching the target audience

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Criteria for Targeting

Current size of the segment and growth potential

Potential competition

Compatibility and feasibility

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Current Segment Size & Growth

Is the market segment currently large enough to present a company with the opportunity to make a profit?

If the answer is ‘no,’ does it have significant growth potential to make it attractive in terms of a company’s long-term strategy?

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India is the world’s fastest growing cell phone market. The industry is expanding at a rate of 50 percent annually, with 5 to 6 million new subscribers added every month. By mid-2008, India had 261 million cell phone users; that number approached 900 million by the end of 2011.

1.3 million cars sold annually, 3 million within 10 years, world’s largest car market.

75% of India’s population is under age 35, increasing affluent and looking for designer brands.

Even so, barriers originating in the political and regulatory environments have shackled private-sector growth. From the perspective of a consumer packaged goods company, for example, low incomes and the absence of a distribution infrastructure offset the fact that 75 percent of India’s population lives in rural areas. The appropriate decision may be to target urban areas only, even though they are home to only 25 percent of the population. Visa’s strategy in China perfectly illustrates this criterion as it relates to demographics: Visa is targeting persons with a monthly salary equivalent to $300 or more. The company estimates that currently 60 million people fit that description; by 2010, the number could include as many as 200 million people.

Potential Competition

Is there currently strong competition in the market segment?

Is the competition vulnerable in terms of price or quality?

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Only 1 % of Chinese have credit cards.

Over the past several decades, for example, Japanese companies in a variety of industries targeted the U.S. market despite the presence of entrenched domestic market leaders. Some of the newcomers proved to be extremely adept at segmenting and targeting; as a result, they made significant inroads. In the motorcycle industry, for example, Honda first created the market for small-displacement dirt bikes. The company then moved upmarket with bigger bikes targeted at casual riders whose psychographic profile was quite different than that of the hardcore Harley-Davidson rider. In document imaging, Canon outflanked Xerox by offering compact desktop copiers and targeting department managers and secretaries. Similar case studies can be found in earth-moving equipment (Komatsu versus Caterpillar), photography (Fuji versus Kodak), and numerous other industries.

Germany’s DHL tried to enter the U.S. package-delivery market in 2003; to achieve scale, DHL acquired Airborne Express. However, management underestimated the dominance of the entrenched incumbents FedEx and UPS. DHL finally withdrew from the United States market in 2008 after losses totaled about $10 billion.

Feasibility and Compatibility

Will adaptation be required? If so, is this economically justifiable in terms of expected sales?

Will import restrictions, high tariffs, or a strong home country currency drive up the price of the product in the target market currency and effectively dampen demand?

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If a market segment is judged to be large enough, and if strong competitors are either absent or deemed to be vulnerable, then the final consideration is whether a company can and should target that market. The feasibility of targeting a particular segment can be negatively impacted by various factors. For example, significant regulatory hurdles may be present that limit market access. This issue is especially important in China today Other marketing-specific issues can arise; in India, for example, three to five years are required to build an effective distribution system for many consumer products. This fact may serve as a deterrent to foreign companies that might otherwise be attracted by the apparent potential of India’s large population.

Framework for Selecting Target Markets

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Global marketing expert David Arnold has developed a framework that goes beyond demographic data and considers other, marketing-oriented assessments of market size and growth potential. Instead of a “top-down” segmentation analysis beginning with, say, income or population data from a particular country, Arnold’s framework is based on a “bottom-up” analysis that begins at the product-market level. After marketing-model drivers and enabling conditions have been identified, the third step is for management to weigh the estimated costs associated with entering and serving the market with potential short- and long-term revenue streams. Does this segment or country market merit entry now? Or, would it be better to wait until, say, specific enabling conditions are established?

Marketing model drivers are key elements or factors required for a business to take root and grow in a particular country market environment. The drivers may differ depending on whether a company serves consumer or industrial markets. Does success hinge on establishing or leveraging a brand name? Or, is distribution or a tech-savvy sales staff the key element? Marketing executives seeking an opportunity must arrive at insights into the true driving force(s) that will affect success for their particular product-market.

Enabling conditions are structural market characteristics whose presence or absence can determine whether the marketing model can succeed. For example, in India, refrigeration is not widely available in shops and market food stalls. This creates challenges for Nestlé and Cadbury Schweppes as they attempt to capitalize on Indians’ increasing appetite for chocolate confections. Although Nestlé’s KitKat and Cadbury’s Dairy Milk bars have been reformulated to better withstand heat, the absence or rudimentary nature of refrigeration hampers the companies’ efforts to ensure their products are in saleable condition.

After marketing model drivers and enabling conditions have been identified, the third step is for management to weigh the estimated costs associated with entering and serving the market with potential short- and long-term revenue streams. Does this segment or country market merit entry now? Or, would it be better to wait until specific enabling conditions are established? The issue of timing is often framed in terms of the quest for first-mover advantage. The conventional wisdom is that the first company to enter a market has the best chance of becoming the market leader.

9 Questions for Creating a Product-Market Profile

Who buys our product?

Who does not buy it?

What need or function does it serve?

Is there a market need that is not being met by current product/brand offerings?

What problem does our product solve?

What are customers buying to satisfy the need for which our product is targeted?

What price are they paying?

When is the product purchased?

Where is it purchased

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Product-Market Decisions

Review current and potential products for best match for country markets or segments

Create a matrix with countries and products to help with analysis

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Target Market Strategy Options

Standardized Global Marketing or Undifferentiated target marketing

Mass marketing on a global scale

Standardized marketing mix

Minimal product adaptation

Intensive distribution

Lower production costs

Lower communication costs

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Target Market Strategy Options

Concentrated Global Marketing

Niche marketing

Single segment of global market

Look for global depth rather than national breadth

Ex.: Chanel, Estee Lauder

Differentiated Global Marketing

Multi-segment targeting

Two or more distinct markets

Wider market coverage

Ex.: P&G markets Old Spice and Hugo Boss for Men

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A niche is simply a single segment of the global market. In cosmetics, the House of Lauder, Chanel, and other cosmetics marketers have used this approach successfully to target the upscale, prestige segment of the market. Germany’s Winterhalter makes dishwashers for the restaurant industry only.

Danone SA, the French foods company, targets consumers in developed countriews with premium brands like Evian, Badoit mineral waters and Dannon and Activia yougurts.

In the cosmetics industry, Unilever NV and Cosmair Inc. pursue differentiated global marketing strategies by targeting both ends of the perfume market. Unilever targets the luxury market with Calvin Klein and Elizabeth Taylor’s Passion; Wind Song and Brut are its mass-market brands. Cosmair sells Tresnor and Giorgio Armani Gio to the upper end of the market and Gloria Vanderbilt to the lower end. Mass marketer Procter & Gamble, known for its Old Spice and Incognito brands, also embarked upon this strategy with its 1991 acquisition of Revlon’s EuroCos, marketer of Hugo Boss for men and Laura Biagiotti’s Roma perfume. In the mid-1990s, P&G launched a new prestige fragrance, Venezia, in the United States and several European countries. Conversely, in 1997 Estee Lauder acquired Sassaby Inc., owner of the mass-market Jane brand. The move marked the first move by Lauder outside the prestige segment.

Positioning

Locating a brand in consumers’ minds over and against competitors in terms of attributes and benefits that the brand does and does not offer

Attribute or Benefit

Quality and Price

Use or User

Competition

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The term positioning is attributed to marketing gurus Al Ries and Jack Trout, who first introduced it in a 1969 article published in Industrial Marketing magazine. As noted at the beginning of the chapter, positioning refers to the act of differentiating a brand in customers’ minds in relation to competitors in terms of attributes and benefits that the brand does and does not offer. Put differently, positioning is the process of developing strategies for “staking out turf” or “filling a slot” in the mind of target customers.

Positioning is frequently used in conjunction with the segmentation variables and targeting strategies discussed previously. For example, Unilever and other consumer goods companies often engage in differentiated target marketing, offering a full range of brands within a given product category. Unilever’s various detergent brands include All, Wisk, Surf, and Persil; each is positioned slightly differently. In some instances, extensions of a popular brand can also be positioned in different ways. Colgate’s Total toothpaste is positioned as the brand that addresses a full range of oral health issues, including gum disease. In most parts of the world, Total is available in several formulations, including Total Advanced Clean, Total Clean Mint Paste, and Total Whitening Paste. Effective positioning differentiates each variety from the others.

In the decades since Ries and Trout first focused attention on the importance of the concept, marketers have utilized a number of general positioning strategies. These include positioning by attribute or benefit, quality and price, use or user, or competitor. Recent research has identified three additional positioning strategies that are particularly useful in global marketing: global consumer culture positioning, local consumer culture positioning, and foreign consumer culture positioning.

Positioning

Attribute or Benefit

Economy

Reliability

Durability

BMW: The Ultimate Driving Machine or

Visa: It’s Everywhere You Want To Be

Foreign Consumer Culture Positioning: Focus on import benefits

Quality and Price

Continuum from high price/quality and high price to good value

Stella Artois beer: Reassuring Expensive

FCCP: Grey Goose (France), Ketel One (the Netherlands)

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Positioning

Use or User

Associates the brand with a user or class of users

Max Factor: The makeup that makeup artists use

Competition

Implicit or explicit reference to competition

Dove: Campaign for Real Beauty

2% of women worldwide think they are beautiful

New definition of beauty

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Positioning Strategies

Global consumer culture positioning

Identifies the brand as a symbol of a particular global culture or segment

High-touch and high-tech products

Foreign consumer culture positioning

Associates the brand’s users, use occasions, or product origins with a foreign country or culture

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Local consumer culture positioning

Identifies with local cultural meanings

Consumed by local people

Locally produced for local people

Used frequently for food, personal, and household nondurables

Ex.: Budweiser is identified with small-town America

Global consumer culture positioning:

“United Colors of Benetton” means the unity of humankind.

My First Sony: for kids with discerning parents

High-tech: MP3 players, cell phones, luxury cars, financial services, Canon cameras, Adidas.

High-touch: Nescafe coffee.

Foreign CCP:

Foster’s beer & Australia

Ikea & Sweden

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