SMU MBA ASSIGNMENTS

Answer : International market segmentation

 

About forty years ago, segmentation was viewed as an imperfection in market structure rather than as a more precise adjustment to consumer or user requirements. From this time, the benefits of adapting marketing resources to the heterogeneous needs and wants of customers is recognized. Nowadays, in the context of globalization, the focus has shifted towards looking for similarities and the search for ‘global segments’. As a result of these changes, Hassan and Katsanis defined ‘(global) market segmentation’ as follows:

“Global market segmentation is the process of identifying specific segments, whether they be country groups or individual customer groups, of potential customers with homogeneous attributes who are likely to exhibit similar behaviour” (Hassan & Katsanis, 1991).

 

This trend of globalizing economies raised a new question: how should a company segment a global/international market? Segmentation of a international market implied the addition of another, country specific, dimension.

 

In domestic markets customer characteristics such as age, sex, social class, etc. and attitudes toward a certain product or brand are often used as bases for segmentation. In international markets an extra dimension has to be considered, i.e. country characteristics. For instance, every country has its own specific social, cultural, economic, technological, political, legal and environmental characteristics affecting marketing strategies and customer/market responses.

 

The different perceptions and approaches of multinational companies determined their segmentation approach. Besides the shift from looking for differences towards the focus on similarities mentioned above, one can observe the influence of the internationalizing environment and the evolvement of global strategies.

 

Frank, Massy and Wind proposed three approaches to international market segmentation (Frank, Massy & Wind, 1972):

–   Approaching each country as a individual segment;

–   Approaching groups of countries with similar characteristics as individual segments;

–   Approaching the entire world as one segment.

 

In their approaches they do not take into account that there may be groups of customers in different countries that are alike and can form one cross-national segment. However, this is recognized by Hassan and Katsanis who identified three main segmentation methods (Hassan & Katsanis, 1991):

 

–    The ‘country cluster’ segmentation strategy;

–    The ‘cross-national’ segmentation strategy;

–    The ‘world segment’ strategy.

 

In the remaining part of this paragraph the following segmentation strategies will be discussed:

 

1.  ‘Local’ segmentation strategy;

2.  ‘Country cluster’ segmentation strategy;

3.  ‘Cross-national’ segmentation strategy;

4.  ‘World segment’ strategy.

 

The ‘local’ segmentation strategy

When the ‘local’ segmentation strategy is used, every single country is viewed as a separate market with its own unique characteristics, making adaption of marketing necessary. No relation with other countries/markets is made, neither in the field of segmentation, nor in the organizational field of responsibilities and strategy.

 

At first sight, this segmentation strategy leaves little room for standardization of the international marketing strategy.

                                                        

The ‘country cluster’ segmentation strategy

Sethi & Holton (1973) propose a method for clustering countries. They mention that as companies grow, the ‘every country is different approach’ might turn out to be less usable and a grouping device might increasingly necessary. They recognize the possibilities standardization offers as part of a global strategy.

 

‘The Middle East’ or the developed countries’ are often used by managers to address specific groups of countries. Sethi and Holton, however, question the way country groups are identified. They propose a two-step method. In the first step variables that could describe countries are grouped in clusters which must have ‘within group’ similarities and ‘between group’ differences. The second step is comparing and grouping the countries based on variable cluster score, that is clustering the countries based on the variables distinguished in step one.

 

Frank, Massy and Wind (1972) proposed a slight modification towards a ‘Cross national’ segmentation strategy. In two steps they identify segments of both countries and customers.

First, individual or groups of countries are identified. This composition of so-called ‘macro-segments’ enables an initial screening and selection of countries, which on the basis of national market characteristics, legal and political constraints, provide potentially attractive market opportunities. The analysis of buying patterns is limited to only these macro-segments which passed this initial screening. Then within each macro-segment the market can be subdivided based on customer characteristics such as social classes, age, sex, etc. The appropriate bases for segmentation may be the same across all macro-segments, but may also differ from macro-segment to macro-segment. In the first case segments are similar and thereby form an adaption to the international environment and homogenization of customers preferences.

 

It should be noted that defining segments in this way ignores the differences that exist between countries in terms of possible micro-segments. The next approach pays attention to this problem.

 

The ‘cross-national’ segmentation strategy

 

Jain (Jain, 1984) defined market segmentation as a technique of dividing different countries into homogeneous groups, hereby focusing on country segmentation.

Jain also provided a number of steps that should be followed in order to gain insight into the segmentation criteria suitable for classifying world markets:

 

1.  Develop a market taxonomy for classifying the world market.

2.  Segment all countries into homogeneous groups having common characteristics with      reference to the dimensions of the market taxonomy.

3.  Determine theoretically the most efficient method of serving each group.

4.  Choose the group where the marketer’s own perspective (its product/service, strengths, etc.) is in line with the requirements of the group.

5.  Adjust this ideal classification to the constraints of the real world (f.e. legal and political      restrictions).

 

This country approach incorrectly assumes that countries are indivisible. According to Jain, this imperfection can be solved by making use of so-called ‘inter-country’ segments. These segments are formed by groups of customers who are alike and can be identified in several different countries. These similar segments in different countries may be combined to form one viable inter-market/country segment.

 

To identify these inter-country segments, the following three steps can be used:

 

1.  Select countries.

2.  Select in-country segments.

3.  Select inter-country segments.

 

The first two steps are discussed earlier, but the third step, search for comparable in-country segments across boundaries which can form one inter-country segment, is new.

 

Note that Jain’s approach is still very country oriented. The following approach of Kreutzer is more focused on customer similarities across boundaries.

 

In 1988, Kreutzer was one of the first to argue that segmentation should be incorporated in the process of standardizing marketing programs and marketing processes (Kreutzer, 1988). He argues that before it is possible to determine a company’s or product’s standardization potential, a standardization-oriented segmentation has to be accomplished. This segmentation centres on the tracking down of the target group to be handled by standardized marketing. Segmentation has to answer two important questions:

 

1.  Which countries, already handled and/or potentially interested, show the conditions for   global marketing (standardization)?

2.  Of these, are there, trans-nationally, customers who are comparably structured with respect to their expectations of consumption and use and/or habits?

 

In terms of Kreutzer, this means starting with country segmentation, followed by the stage of customer segmentation. Trans-nationally homogeneous target groups are formed and handled trans-nationally with the same marketing concept. Kreutzer noted that trans-national does not necessarily mean global, but rather a large regional unit, for example Europe.

 

Now the focus is completely on identifying similarities in order to gain from standardization and a global marketing strategy. However, adaption to present differences should not totally be forgotten. Because, although a global market exists, a company, in order to survive global competition, needs to target its products at specific segments within different countries.

 

The ‘world segment’ strategy

It was Levitt who basically initiated the ‘world segment’ strategy (Levitt, 1983). The idea that customers were becoming more and more homogeneous across the globe, made him define one world segment, consisting of customers wanting products and services of low price and high quality. Levitt assumed that differences in perceived preferences for specific product or service features were not of influence on the customer’s buying behaviour when a standardized high quality/low priced product is offered.

 

In this view we can recognize the one extreme of the globalization-localization continuum, i.e. a completely standardized, global marketing strategy.

Q5.         What are the factors that affect the pricing strategy of an international firm? What different pricing strategies can the firms adopt?

 

6.            What are star export houses? Mention the various special strategic packages for status holders.