Quiz 3 - Ch.4, Global Market Planning, Intl. Mkt

Global Market Segmentation

• Segmentation is an important strategic tool in international marketing.

  • The scope and bases of segmentation define if a firm is international or global.

  • An international firm mainly uses national boundaries to define market segments.

  • A global firm views the whole world as a market, and segment it based on viable segmentation bases.

• Three approaches to segmentation:

  • Macro- segmentation

  • Micro- segmentation

  • Hybrid approach

Macro-segmentation (country-based segmentation)

• Identifies clusters of countries that demand similar products using geographic, demographic and socioeconomic variables:

  • E.g., location, GNP per capita, population size or family size.

• Advantages

  • Centralize business operations.

  • Save on production, sales, logistics and support functions.

• Disadvantages

  • Ignore consumer differences within each country and among country markets in a cluster.

  • Fail to acknowledge segments that go beyond the borders of a geographic region.

Macro-segmentation (country-based segmentation) CONT.

• Groups consumers based on common characteristics using behavioral, demographic, geographic, or psychographic variables.

• Behavioral

  • Benefits sought from the product | How often the product is used (usage rate) | Usage situation (daily use, holiday use, etc.) | Buyer’s status and loyalty to product (nonuser, potential user, first-time users, regular user)

• Demographic

  • Age/generation, Income, Gender, Family life cycle, Ethnicity, Family size, Occupation, Education, Nationality, Religion, and Social class

• Geographic

  • Region (continent, country, state, neighborhood), Size of city or town, Population density and Climate

• Psychographic

  • Activities, Interests, Opinions,Values, Attitudes, Lifestyle

Hybrid Segmentation

• Groups consumers based on similarities across world market.

• Combines the benefits of macro- and micro-segmentation:

  • Some segments identified in a micro-segmentation may have the same characteristics on a global scale such as:

• Global Teen

  • Young people between ages of 12 and 19.

• Global Elite

  • Affluent consumers who have the money to spend on prestigious products with an image of exclusivity, including

  • Older individuals who have accumulated wealth over the course of a long career, including movie stars, musicians, athletes.

  • People who have achieved financial success at a relatively young age.

Country Market Selection

• The process for evaluating foreign markets for potential entry typically consists of three stages:

  • Preliminary screening

    • Potential countries are evaluated on macro-level indicators (e.g., CAGE analysis)

  • In-depth screening

    • Criteria specific to market success for the industry and product are identified and evaluated. • E.g., success factors for toothpaste include consumer demand, consumer access to supply, and competition

  • Final selection

    • Evaluate and rank-ordering of the potential countries on the basis of corporate resources, objectives and strategies.

Preliminary screening

• CAGE analysis evaluates countries in terms of the “distance” between target and home countries.

• The greater the distance or difference, the more risk exists and the less opportunity there is for success.

• Attributes create distance include:

  • Cultural distance:

    • Different languages

    • Different ethnicities; lack of connective ethnic or social networks

    • Different religions

    • Different social norms

CAGE anal. Cultural distance

• Cultural distance:

  • Different languages

  • Different ethnicities; lack of connective ethnic or social networks

  • Different religions

  • Different social norms

CAGE anal. Administrative distance

• Absence of colonial ties | Absence of shared monetary or political association

• Political hostility | Government policies

• Institutional weakness

CAGE anal. Geographic distance

• Physical remoteness | Lack of a common border | Lack of sea or river access

• Weak transportation or communication links

• Differences in climates

CAGE anal. Economic distance

• Differences in consumer incomes

• Differences in costs and quality of:

• Natural, financial, or human resources

• Infrastructure, intermediate inputs, information or knowledge

Distance affect different industries in different ways

• E.G. electricity is highly sensitive to administrative and geographic factors but not all cultural factors

• Industries or products affected by distance:

  • Cultural distance

    • Tv shows, foods, cars electrical appliances, or wines

  • Administrative distance

    • Electricity, drugs, farming, mass transportation, aerospace, telecommunications, oil, mining, and infrastructure.

  • Geographic distance

    • Cement, glass, fruit, financial services, and other types of services.

  • Economic distance

    • Cars, mobile phones, insurance, home appliances

Country Assessment - Factor rating method

Evaluates and compare multiple countries based on weighted average scores.

• Step 1 - Identify key factors or criteria that influence market attractiveness

• Step 2 - Assign a weight to each factor based on its relative significant (sum of weights = 100%)

• Step 3 - Assign a rate to each country for every factor, typically on a 10-point scale.

  • The scoring should be based on research, expert insights, and industry data

• Step 4 - Calculate the weighted average score for each country (sum of all weight*rate)

• Step 5 - Rank the countries based on their scores and select the most attractive markets.

Target Market Selection

Developing a global presence takes time and requires substantial resources. Hence, companies exercise strategic discipline in choosing the markets they serve:

• Ideally, the pace of international expansion is dictated by customer demand.

• Strategic decisions: Where to enter:

• Standalone Attractive Markets

  • Large market | Significant potential for growth | Less competitive market | Government incentives

• Globally Strategic Markets

• Must-win markets - Potential source of major profits

  • E.g., wealthy and high purchasing power markets.

• Home countries of global customers

• Home markets and important foreign markets of global competitors

  • This is where innovations are likely to first appear.

• Lead market characterized by demanding customers who push for quality and innovation.

  • It may also be trendsetting markets. E.g., Japan (plastics, electronics), Italy (textiles, clothing), France (wine).

Strategic decisions:

• When to enter - Is there a first-mover advantage?

  • Many companies that entered China in anticipation of its membership in the WTO have learned that early commitment to even the most promising long-term market makes earning a satisfactory return on invested capital difficult.

• How to enter, 5 common international expansion entry modes

  1. Exporting

  2. Licensing and Franchising

  3. Partnering and Strategic alliance

  4. Acquisition

  5. Greenfield venture