978-0134129945 Chapter 7 Lecture Note Part 1

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CHAPTER 7

SEGMENTATION, TARGETING, AND POSITIONING

SUMMARY

A. The global environment must be analyzed before a company pursues expansion into new

geographic markets. Through global market segmentation, a company can identify and

group customers or countries according to common needs and wants. Demographic

segmentation can be based on country income and population, age, ethnic heritage, or

other variables. Psychographic segmentation groups people according to attitudes,

interests, opinions, and lifestyles. Behavioral segmentation utilizes user status and

usage rate as segmentation variables. Benefits segmentation is based on the benefit

buyers seek. Global teens and global elites are two examples of global market

segments.

B. After marketers have identified segments, the next step is targeting: The identified

groups are evaluated and compared, and one or more segments with the greatest potential

is selected from them. The groups are evaluated on the basis of several factors, including

segment size and growth potential, competition, and compatibility and feasibility. Target

market assessment also entails a thorough understanding of the product-market in

question and determining marketing model drivers and enabling conditions in the

countries under study. The timing of market entry should take into account whether a

first-mover advantage is likely to be gained. After evaluating the identified segments,

marketers must decide on an appropriate targeting strategy. The three basic categories of

global target marketing strategies are standardized global marketing, niche marketing,

and differentiated multisegment marketing.

C. Positioning a product or brand to differentiate it in the minds of target customers can be

accomplished in various ways: positioning by attribute or benefit, positioning by

quality/price, positioning by use or user, and positioning by competition. In global

marketing global consumer culture positioning (GCCP), foreign consumer culture

positioning (FCCP), and local consumer culture positioning (LCCP) are additional

strategic options in global marketing.

LEARNING OBJECTIVES

1 Identify the variables that global marketers can use to segment global markets and give an

example of each

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

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

4 Compare and contrast the three main target market strategy options

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5 Describe the various positioning options available to global marketers

OVERVIEW

The efforts by global companies to connect with wealthy Chinese consumers highlight the

importance of skillful global market segmentation and targeting.

Market segmentation represents an effort to identify and categorize groups of customers and

countries according to common characteristics. Targeting is the process of evaluating the

segments and focusing marketing efforts on a country, region, or group of people that has

significant potential to respond. Such targeting reflects the reality that a company should identify

those consumers it can reach most effectively, efficiently, and profitably. Finally, proper

positioning is required to differentiate the product or brand in the minds of target customers.

Global markets can be segmented according to buyer category (e.g., consumer, enterprise, and

government), gender, age, income, and a number of other criteria. Segmentation and targeting

are two separate but closely related go-to-market activities. These activities serve as the link

between market needs and wants and tactical decisions by managers to develop marketing

programs and value propositions that meet the specific needs of one or more segments.

Segmentation, targeting, and positioning are all examined in this chapter.

ANNOTATED LECTURE/OUTLINE

GLOBAL MARKET SEGMENTATION

Global market segmentation has been defined as the process of identifying specific segments—

whether they be country or individual consumer groups—of potential customers with

homogeneous attributes who are likely to exhibit similar responses to a marketing mix.

Professor Theodore Levitt advanced the thesis that consumers in different countries increasingly

seek variety, and that the new segments will emerge in multiple national markets (e.g., Ethnic

food such as pizza and sushi are in demand worldwide). Levitt suggested that this trend, known

variously as the pluralization of consumption and segment simultaneity, provides an opportunity

for marketers to pursue one or more segments on a global scale.

Global market segmentation is based on the premise that companies should attempt to identify

consumers in different countries who share similar needs and desires. However, the fact that

significant numbers of pizza-loving consumers are found in many countries, they are not eating

the exact same thing (e.g., Dominos in France, serves pizza with goat cheese and strips of port

fat know as lardoons. In Taiwan, toppings include squid, crab, shrimp, and pineapple).

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A. Coskun Samli has developed a useful approach to global market segmentation that compares

and contrasts “conventional” versus “unconventional wisdom”.

For example, conventional wisdom might assume that, consumers in Europe and Latin America

are interested in World Cup soccer while those in America are not. Unconventional wisdom

would note that the “global jock” segment exists in many countries, including the United States.

CONTRASTING VIEWS OF GLOBAL SEGMENTATION

(Learning Objective #1)

Global marketers must determine whether a standardized or adapted marketing mix is required to

best serve consumers’ wants and needs. By performing market segmentation, marketers can

generate the insights need to devise the most effective approach.

The process of global market segmentation begins with the choice of one or more variables to

use as a basis for grouping customers.

Common variables include demographics (including income and population), psychographics

(values, attitudes, and lifestyles), behavioral characteristics, and benefits sought.

It is also possible to cluster different national markets in terms of their environments—for

example the presence or absence of government regulation in a particular industry—to establish

groupings.

Demographic Segmentation

Demographic segmentation is based on measurable characteristics of populations, such as

income, population size, 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.

Several key demographic facts and trends from around the world:

Asia has 500 million consumers 16 and under.

India has the youngest demographic profile among the world’s large nations. More than

half its population is younger than 25; the number of young people below the age of 14 is

greater than the entire U.S. population.

In the EU, the number of consumers aged 16-and-under is rapidly approaching the

number of consumers 60 and older.

Half of Japan’s population will be age 50 or older by 2025

By 2030, 20 percent of the U.S. population—70 million Americans—will be 65 years old

versus 13 percent (36 million) today.

America’s three main ethnic groups- African/Black Americans, Hispanic Americans, and

Asian Americans – represent a combined annual buying power of $ 3.5 Trillion.

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The United States is home to 28.4 million foreign-born residents with a combined income

of $ 233 billion.

Statistics such as these can provide valuable insights to marketers who are scanning the globe for

opportunities.

Managers at global companies must be alert to the possibility that marketing strategies will have

to be adjusted in response to the aging of the population and other demographic trends.

Demographic changes can create opportunities for marketing innovations (e.g., France’s

Carrefour began hypermarkets in 1963 based on a demographic shift).

Segmenting Global Markets by Income and Population

When a company charts a plan for global market expansion, it often finds that income is a

valuable segmentation variable. After all, a market consists of those who are willing and able to

buy.

For low cost items such as soft drinks and candy, population is often a more valuable

segmentation variable than income. For a vast range of industrial and consumer products offered

in global markets today, income is a valuable and important macro indicator of market potential.

About two-thirds of the worlds GNI is generated by the Triad; only 12 percent of the world’s

population is located in the Triad countries.

The concentration of wealth in a handful of industrialized countries has significant implications

for global marketers. After segmenting in terms of a single demographic variable – income- a

company can reach the most affluent markets by targeting fewer than 20 nations; half the EU,

North America, and Japan. But by doing so, however, the marketers are not reaching almost 90

percent of the world’s population!

GNI and other income measures converted to dollars should be calculated according to

purchasing power parities or through direct comparisons of actual prices for a given product

(Table 7-1).

For example, while the U.S. ranks ninth in per capita income, it ranks sixth in terms of standard

of living – as measured by what money can buy.

Because the U.S. market is enormous (about $16.7 trillion in national income, a population that

passed 300 million in 2006), non-U.S. companies target U.S. consumers.

Despite comparable per capita incomes, other industrialized countries are small in terms of total

annual income (Table 7-2).

In Sweden, for example, per capita GNI is $ 61,760; however, Sweden’s smaller population—9.4

million—means that in relative terms, its market is limited.

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Differences between income and standard of living are more pronounced in less-developed

countries (for example, a visit to a mud house in Tanzania will reveal many of the things that an

annual per capita income of $630 can buy: an iron bed frame, a corrugated metal roof, beer and

soft drinks, bicycles).

What Tanzania’s per capita income does not reflect is the fact that instead of utility bills,

Tanzanians have the local well and the sun. Instead of nursing homes, tradition and custom

ensure that families will take care of the elderly at home. Instead of expensive doctors and

hospitals, villagers utilize the services of witch doctors and healers.

In industrialized countries, a significant portion of national income is the value of goods and

services that would be free in a poor country. Thus, the standard of living in low- and lower–

middle-income countries is often higher than the income data might suggest; in other words, the

actual purchasing power of the local currency may be higher than that implied by exchange

values.

In 2013, the 10 most populous countries in the world accounted for just over 50 percent of the

world income: the 5 most populous accounted for 40 percent. (Table 7-3)

Although, population is less concentrated than income, but pattern of concentration still exists;

the ten most populous countries account for roughly 60 percent of the world’s population.

The concentration of income in the high-income and large-population countries means that a

company can be global by targeting buyers in ten or fewer countries.

World population is now approximately 7 billion; at the present rate of growth will reach 12

billion by the middle of this century.

As mentioned, for low-priced products, population is more important than income for market

potential.

McDonald’s shows the significance of both income and population (e.g., 80% of McDonald’s

restaurants are located in nine countries, which generate 75% of the company’s total revenues).

In rapidly growing economies, marketers must take care when using income, population, and

other macro-level data during the segmentation process. Using averages alone, it is possible to

underestimate a market’s potential; fast-growing higher-income segments are present inside

countries like China and India (e.g., an estimated 10% of the Indian population are “upper–

middle-class”).

The lesson is to guard from being blinded by averages and do not assume homogeneity.

Age Segmentation

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One global segment based on demographics is global teens – young people between the ages of

12 and 19. Teens, by virtue of their shared interest in fashion, music, and a youthful lifestyle,

exhibit consumption behavior that is remarkably consistent across borders. (Exhibit 7-3)

Young consumers may not yet have conformed to cultural norms; indeed, they may be rebelling

against them. This fact, combined with shared universal wants, needs, and desires, make it

possible to reach the global teen segment with a unified marketing program. This segment is

attractive in both terms of its size (about 1.3 billion) and its multi-billion-dollar purchasing

power.

The global telecommunications revolution is a critical driving force behind the emergence of this

segment. Global media such as MTV, Facebook, and Twitter are perfect vehicles for reaching

this segment.

Another global segment is the global elite: affluent consumers who are well traveled and have

the money to spend on prestigious products with an image of exclusivity. (Exhibit 7-4)

Although this segment is often associated with older individuals who have accumulated wealth

over the course of a long career, it also includes movie stars, musicians, elite athletes,

entrepreneurs, and others who have achieved great financial success at a relative young age.

This segment’s needs and wants are spread over various product categories: durable goods

(luxury automobiles such as Rolls-Royce and Mercedes Benz), nondurables (upscale beverages

such as Cristal Champagne and Grey Goose vodka), and financial services (American Express

Platinum cards).

Gender Segmentation

For obvious reason, segmenting by gender is an approach that makes sense for many companies.

Less obvious is the need to ensure that opportunities for sharpening the focus on the needs and

wants of one gender are not unnoticed.

Although some companies—fashion designers and cosmetic companies, for example—market

primarily or exclusively to women, others offer different product lines for both genders (e.g.,

Nike believes its global women’s business will see growth).

In Europe, Levi Strauss is taking a similar approach. In 2003, the company opened its first

boutique for young women, Levi’s for Girls, in Paris.

Psychographic Segmentation

Psychographic segmentation involves grouping people in terms of their attitudes, values, and

lifestyles.

Data are obtained from questionnaires that require respondents to indicate the extent to which

they agree or disagree with a series of statements.

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Psychographics is associated with SRI International, a market research organization whose

original VALS and updated VALS 2 analyses of consumers are widely known.

Finland’s Nokia relies heavily on psychographic segmentation of mobile phone users; its most

important segments are Poseurs, Trendsetters, Social Contact Seekers, and Highfliers. By

carefully studying these segments and tailoring products to each, Nokia once commanded 40

percent of the world’s market for mobile communication devices.

Porsche AG, the German sports car maker, turned to psychographics after experiencing a world-

wide sales decline from 50,000 units in 1986 to about 14,000 in 1993. A psychographic study

showed that Porsche buyers could be divided into several distinct categories: Top Guns, Proud

Patrons and Fantasists. Porsche’s U.S. sales improved nearly 50 percent after a new advertising

campaign was launched.

People of the same age don’t necessarily have the same attitudes. Sometimes it is preferable to

market to a mind-set rather than a particular age group; in such an instance, psychographic

studies can help markets arrive at a deeper understanding of consumer behavior than is possible

with traditional segmentation variables such as demographics.

Such understanding comes at a price; psychographic market profiles are available from a number

of different sources; companies may pay thousands of dollars to use these studies.

A research team at D’arcy Massius Benton & Bowles (DMBB) focused on Europe and produced

a 15-country study entitled “The Euroconsumer: Marketing Myth or Cultural Certainty?”

The researchers identified four lifestyle groups:

Successful Idealists: Comprising from 5 percent to 20 percent of the population, this

segment consist of persons who have achieved professional and material success while

maintaining commitment to abstract or socially responsible ideals.

Affluent Materialists: These status-conscious “up-and-comers” –many of whom are

business professionals- use conspicuous consumption to communicate their success to

others.

Comfortable Belongers: Comprising one-fourth to one-half of a country’s population, this

group, like Global Scan’s Adapters and Traditionals, is conservative and most

comfortable with the familiar. Belongers are content with the comforts of home, family,

friends, and community.

Disaffected Survivors: Lacking power and affluence, this segment harbors little hope for

upward mobility and tends to be either resentful or resigned.

The segmentation and targeting approach used by a company can vary from country to country.

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EMERGING MARKETS BRIEFING BOOK

Segmenting the Thai Tourism Market

The Kingdom of Thailand is known as the “Land of Smiles.” Tourism brochures are chock-full

of gorgeous images of mountains and sunny beaches. Tourism accounted for $ 31 billion in

2013, less than 10% of Thailand’s GNP.

For years there has been a dark side to Thailand’s tourist industry. Prostitution and sex tourism

flourished.

Today, government programs aim to limit the sex trade by improving the country’s transportation

infrastructure and redeveloping crowded city areas. At the same time, the Tourism Authority of

Thailand (TAT) has developed a series of promotional campaigns aiming to reposition Thailand

and change public perceptions. Now TAT is targeting two distinct segments: gay and lesbian

couples, and Muslim families.

Behavior Segmentation

Behavior segmentation focuses on whether 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: heavy, medium, light, or non-user.

Consumers can also be segmented in terms of user status: potential users, non-users, ex-users,

regulars, first-timers, and users of competitors’ products.

Marketers sometimes refer to the 80/20 rule (also known as the law of disproportionality or

Pareto’s Law) suggests that 80 percent of a company’s revenues or profits are accounted for by

20 percent of their products or customers.

Benefit Segmentation

Global benefit segmentation 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. As consumers care 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

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In many countries, the population includes ethnic groups of significant size. In the United States,

for example, there are three major ethnic segments: African/Black Americans, Asian Americans,

and Hispanic Americans. Each segment shows great diversity and can be further subdivided. For

example: Asian Americans include Thai Americans, Vietnamese Americans, and Chinese

Americans, and each group speaks a different language.

The Hispanic American segment is comprised of more than 50 million people, representing about

16 percent of the population and $978 billion in annual buying power. As a group, Hispanic

Americans are hard working and exhibit strong family and religious orientations.

From a marketing point of view, these groups offer great opportunity. Companies in a variety of

industry sectors, including food and beverages, consumer durables, and leisure and financial

services, are recognizing the need to include these segments when preparing marketing programs

for the United States.

From 1999 through 2000, new-vehicle registrations by Hispanics in the United States grew 20

percent, twice the overall national growth rate.

New segmentation approaches are being developed in response to today’s rapidly changing

business environment. For example, the widespread adoption of the Internet and other new

technologies creates a great deal of commonality among global consumers. These consumer

subcultures are comprised of people whose similar outlooks and aspirations create a shared

mind-set that transcends languages or national differences.

ASSESSING MARKET POTENTIAL AND CHOOSING TARGET MARKETS OR

SEGMENTS

(Learning Objective #2)

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.

It is at this stage that global marketers should be mindful of several potential pitfalls associated

with the market segmentation process.

1. There is a tendency to overstate the size and short-term attractiveness of individual

country markets, especially when estimates are based primarily on demographic data

such as income and population.

2. There is a tendency to target a country because shareholders or competitors exert pressure

on management not to “miss out” on a strategic opportunity.

3. There is a danger that management’s network of contacts will emerge as a primary

criterion for targeting. The result can be market entry based on convenience rather than

rigorous market analysis.

With these pitfalls in mind, marketers can utilize three basic criteria for assessing opportunity in

global target markets:

Current size of the segment and anticipated growth potential

Competition

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Compatibility with the company’s overall objectives and the feasibility of successfully

reaching a designated target market

Current Segment Size and Growth Potential

Is the market segment currently large enough to make a profit? If the answer is “no” today, does

it have significant growth potential to make it attractive in terms of a company’s long-term

strategy?

Consider these facts about India:

India is the world’s fastest-growing cell phone market. The industry is expanding at an

annual rate of 50 percent, 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. Even so, barriers originating in the political and regulatory

environments have shackled private-sector growth.

About 1.3 million cars are sold each year in India; in absolute terms, this is a relatively

small number. However, industry observers forecast that the market will expand to 3

million cars within a decade. In 2008, India overtook China as the world’s fastest-

growing car market.

Approximately 70 percent of India’s population is under the age of 35. The segment is

increasingly affluent and today young, brand-conscious consumers are buying $100

Tommy Hilfiger jeans and $690 Louis Vuitton handbags. Mohan Murjani owns the rights

to the Tommy Hilfiger brand in India.

As noted earlier, one of the advantages of targeting a market segment globally is that, while the

segment in a single-country might be small, even a narrow segment can be served profitably if

the segment exists in several countries. In the case of a huge country market such as India or

China, segment size and growth potential may be assessed in a different manner.

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.

Thanks to a combination of favorable demographics and lifestyle-related needs, the United States

has been a very attractive market for foreign automakers.

Potential Competition

A market segment or country market characterized by strong competition may be a segment to

avoid. However, if the competition is vulnerable in terms of price or quality disadvantages, the

newcomer can make inroads.

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.

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Honda first created the market for small-displacement dirt bikes. Canon outflanked Xerox by

offering compact desktop copiers. By contrast, there are also many examples of companies

whose efforts to develop a position in an attractive country market ended in failure.

Feasibility and Compatibility

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 limit market access. Other marketing issues may

arise such as in India, it takes 3 – 5 years to build a distribution system for many consumer

products.

Mangers must decide who well a company’s product or business model fits the country market in

question—or as noted—if the company does not currently offer a suitable product, can it develop

one? To make this decision, marketers must consider several criteria:

Will adaptation be required? If so, is this economically justifiable in terms of the

expected sales volume?

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?

Is it advisable to source locally? In many cases, reaching global market segments

requires considerable expenditures for distribution and travel by company

personnel. Would it make sense to source products in the country for export

elsewhere in the region?

Finally, it is important to address the question of whether targeting a particular segment is

compatible with the company’s overall goals, brand image, or established sources of competitive

advantage.

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