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Global Marketing

Tenth Edition

Chapter 7

Segmentation, Targeting, and Positioning

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Learning Objectives

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

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

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

7.4 Compare and contrast the three main target market strategy options.

7.5 Describe the various positioning options available to global marketers.

Global Market Segmentation (1 of 2)

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 four decades ago stating that consumers seek variety and new segments will appear in many national markets. e.g., sushi, pizza

Global market segmentation is based on the premise that companies should attempt to identify consumers in different countries who share similar needs and desires. Of course, the fact that significant numbers of pizza-loving consumers are found in many countries does not mean that they are eating the exact same thing. In France, for example, Domino’s serves pizza with goat cheese and strips of pork fat known as lardoons. In Taiwan, toppings include squid, crab, shrimp, and pineapple; Brazilians can order their pies with mashed bananas and cinnamon. As Patrick Doyle, executive vice president of Domino’s international division, explains, “Pizza is beautifully adaptable to consumer needs around the world, simply by changing the toppings.”

Global Market Segmentation (2 of 2)

Types of segmentation methods

Demographic segmentation

Psychographic segmentation

Behavior segmentation

Benefit segmentation

Demographic Segmentation (1 of 2)

Based on measurable population characteristics

Age

Income

Gender

Age distribution

Education

Occupation

Generally, national income is the most important variable

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 (2 of 2)

600 million S E Asian consumers, 70% under age 40

India has the youngest demographic profile among the world’s large nations; 2/3 are younger than 35

Half of Japanese will be 50+ years. by 2025

E U consumers under 16 almost as large as over 60

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 $3.5 trillion

U S is home to 28.4 million foreign-born with income of $233b

Statistics such as these can provide valuable insights to marketers who are scanning the globe for opportunities. As noted in Chapter 4, for example, Disney hopes to capitalize on the huge number of young people—and their parents’ rising incomes—in India as a means to extend its brand. 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. For example, consumer products companies will need to convene focus groups consisting of people age 50 years or older who are nearing retirement. These same companies will also have to target Brazil, Mexico, Vietnam, and other developing-country markets to achieve their growth objectives in the years to come.

Income & Population Segmentation

2/3 world G N I in the Triad, 12% of 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

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.

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 (PPP; i.e., what the currency will buy in the country of issue) or through direct comparisons of actual prices for a given product. This approach provides an actual comparison of the standards of living in the countries of the world.

Purchasing Power Parity

G D P converted to U.S. currency should be calculated by P P P

P P P is what the currency will buy in the country of issue

Industrialized countries paid for goods and services that are free in poor countries

Chinese per capita income $8,250; P P P adjusts to $15,500

10 most populous countries have 60% of world income

5 most populous countries have 46% of that

China and India, World’s Largest Countries

1.3 billion population each

High income, fast growing high-income segments in both

C P G companies are targeting India where the middle class of 300 million but not all own cars, computers, washing machines

Mass marketing is problematic due to regional differences of language, culture, history

Market Segments by Income & Population

Global Teens-12 and 19 year. 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

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, desires, and fantasies (for name-brand, novelty, entertainment, trendy, and image-oriented products), makes it possible to reach the global teen segment with a unified marketing program.

This segment is attractive both in terms of its size (approximately 1.3 billion people) and its multi-billion-dollar purchasing power. According to London-based trend consultancy LS:NGlobal, the U.S. teen market represents roughly $200 billion in annual buying power; the United Kingdom’s 7.5 million teens spend more than $10 billion each year. Coca-Cola, Benetton, Swatch, and Sony are some of the companies pursuing the global teen segment. 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. Meanwhile, satellites are beaming Western programming and commercials to millions of viewers in China, India, and other emerging markets.

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 (see 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 relatively young age. China is home to 18,000 such individuals, which means it ranks number 2 overall worldwide. This segment of the Chinese population is expected to grow 40 percent in the next 5 years.

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 focused on women

Levi Strauss opened Levi’s for Girls in Paris

In 2015, Nike generated $5.7 billion in global sales of women’s shoes and apparel. Nike executives believe the company’s global women’s business is poised for big growth, with sales expected to increase to $11 billion by 2020. The recent growth in this segment is due in large part to women’s increased interest in fitness and the athleisure trend. Nike’s recent advertising campaign, keyed to the theme #betterforit, encouraged women to share their fitness goals on social media.

If Levi’s for Girls succeeds in France, similar stores will be opened in other European countries.

Psychographic Segmentation

Based on attitudes, values, and lifestyle

Lifestyle surveys

S R I International’s Values and Life Styles, V A L S & V A L S 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

Big Data and Data Mining

Facebook & other tech firms mine social media

Analytics include qualitative and quantiative techniques

Retailers embed F B‘s pixel code in their Web sites

F B Consumer Insight‘s categories: Shopping Mavens, Fashion Enthusiasts, Opportunistic Shoppers, etc.

Behavior Segmentation

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

Usage rates: heavy, medium, light, non-user

User status: potential, non-users, ex-users, regulars, first-timers, users of competitor’s products

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

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.

And, as you learned in Case 6-1 about the music business, 5 percent of recording artists account for 95 percent of all artist-related Facebook engagement. So, one challenge facing an emerging or “undiscovered” artist seeking to build his or her career in the music industry is how to increase audience size on Facebook, Twitter, and other online platforms—maybe drop a new single every month to generate online buzz?

Benefit Segmentation

Benefit segmentation focuses on the value equation

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

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. 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. are African-Americans, Asian-Americans, and Hispanic Americans

Subdivide Asians further: Thai, Vietnamese, & Chinese Americans

Hispanic Americans

55 million Hispanic Americans (17% of total pop.) with $2 trillion annual buying power

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

In many countries, the population includes ethnic groups of significant size. In the United States, for example, the three major ethnic segments are 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 of these groups speaks a different language.

From a marketing point of view, the various Hispanic American segments represent a 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. Almost two decades ago, companies based in Mexico began zeroing in on opportunities to the north. Three Mexican retailers—Famsa, Grupo Gigant SA, and Grupo Comercial Chedraui SA—all opened stores in the United States. As Famsa President Humberto Garza Valdez explained at the grand opening of a store in San Fernando, California, “We’re not coming to the U.S. to face big companies like Circuit City or Best Buy. Our focus is the Hispanic market.”

Assessing Market Potential (1 of 2)

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

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 (2 of 2)

Current size of the segment and growth potential

Single market segment may be small but if in several countries may hold potential

Potential competition

May avoid markets with strong competition unless vulnerable because of price or quality

Market Size: As noted earlier, one of the advantages of targeting a market segment globally is that although the segment in a single-country market might be small, even a narrow segment can be served profitably if that same segment exists in several countries. The billion-plus members of the global MTV Generation are a case in point. Moreover, by virtue of its size and purchasing power, the global teen segment is extremely attractive to consumer goods companies. 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, even though they are home to only 25 percent of the population.

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, it is possible for a market newcomer to make significant inroads. Over the past several decades, for example, Japanese companies in a variety of industries have 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 profiles were quite different from those of the hard-core Harley-Davidson rider.

Feasibility and Compatibility (1 of 2)

Negative Factors

Regulatory factors

Marketing issues like distribution

Adaptation?

Import restrictions, high tariffs, strong home-country currency

Sourcing? Local or import?

Segment compatible with the brand, goals, competitive advantage source?

Feasibility and Compatibility (2 of 2)

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?

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

Figure 7-1 Screening Criteria for Market Segments

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 (1 of 2)

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?

9 Questions for Creating a Product-Market Profile (2 of 2)

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?

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

Table 7-7, the 2012 Product-Market Grid for Lexus, shows which models are available in selected country markets

The I S model is available in all countries but the H S is only in North America

Target Market Strategy Options (1 of 2)

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

Target Market Strategy Options (2 of 2)

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

Multisegment targeting

Two or more distinct markets

Wider market coverage

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

Concentrated: A niche is simply a single segment of the global market. In cosmetics, Estee 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.

Differentiated: Danone SA, the French foods company, targets consumers in developed countries with premium brands like Evian, Badoit mineral waters, and Dannon and Activia yogurts.

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. . Currently, Procter & Gamble also markets Envy, Rush, and other Gucci fragrances as a licensee of the Italian fashion house.

Positioning (1 of 3)

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

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 (2 of 3)

Attribute or Benefit

Economy

Reliability

Durability

B M W: The Ultimate Driving Machine or

Visa: It’s Everywhere You Want To Be

Quality and Price

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

Stella Artois beer: Reassuringly Expensive

Positioning (3 of 3)

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

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

Local consumer culture positioning

Identifies with local cultural meanings

Consumed by local people

Locally produced for local people

Used frequently fo