Global Market Segmentation Analysis

Introduction

With the advent of globalization, geographical boundaries are slowly dissolving, leading to great integration of markets around the world. Increasing market size is leading to increased competition and a need for more efficient utilization of marketing resources. Towards reaching this end, there is an expanding interest in identifying actionable “global” segments. Market segmentation is the process of dividing a large market into subsets of customers with common characteristics or common needs. The segmentation process aims at identifying people or firms who would be realistic candidates for the product or service in the marketing context (Smith, 1990). With respect to the segment chosen, to uncover these attributes and benefits, a company might do a category scan, exploratory research, personality assessment, social values analysis, emotional exploration, or some combination of all five. After marketers discover what motivates consumers and the perception of their products or services and those of competitors, they can create a list of potential positioning themes. Marketers then choose a message strategy that puts the product or service in the most positive light. From this point, advertising and marketing communications branch out (Kress and Snyder, 1994). There is no reason to limit the basis for segmentation to only one type of variable when many criteria actually determine buyers’ responses to the selling proposition. A segmentation scheme based on multiple dimensions, using separate segmentation schemes for each one, is often more useful and more flexible for planning marketing strategy and executing marketing tactics (Michman and Mazzee, 2003). Effective market segmentation requires a sufficient number of customers, resources to meet the needs of the segment, and the ability to reach these customers (Michman and Mazze, 2003). Thus, marketers may consider different segmentations on a sample of buyers using different bases such as: stated needs, benefits, and amount spent in the category. Market segmentation has taken on an increasingly important role in business strategy development. The top management is becoming more dependent on segmentation research during the strategic planning process. Thesis Statement: Global market segmentation, through the use of global level geographic, demographic and socio-psychological data, throws light on global similarities and local differences and offers the key to global marketing success

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Definition of International Marketing and Global Marketing

International marketing can be defined as the process of segmenting world markets based on geopolitical variables (i.e. country segments). This used to be the traditional method of segmentation used by multinational companies. This approach has three potential limitations: it is based on country variables, and not on consumer behavioral patterns, it assumes total homogeneity of the country segment and it overlooks the existence of homogeneous consumer segments that exist across national boundaries. Global marketing refers to the strategy of using a common marketing plan and program for all countries in which a company operates, thus selling the product or services the same way everywhere in the world. A global segment can be viewed as a market segment whose profile is consistent across different countries and which responds in the same manner to a global marketing mix strategy.

Levitt wrote a trail blazing article in 1983 on the subject of globalization. According to him technology has facilitated common tastes and common demands, thus ‘homogenizing markets everywhere’. Technological advances have resulted in the creation of global markets and globally standardized products. Such global markets provide opportunity for organizations to reap economies of scale in production, distribution and marketing (Keegan, 1999). Homogenization of the markets also meant the end of multinational companies and the beginning of global companies (Jain, 1989). The differences between the two are as follows: The multinational corporation operates in a number of countries taking into consideration local preferences and demand making use of geographic segmentation. The global corporation operates as if the entire world is a single homogenized market, a single segment. This means selling standard products everywhere and selling them in the same way. Such standardization of products means achieving economies of scale and reduction of production costs. Such a strategy leads to achieving efficiency in production, distribution and marketing. Levitt has cited the examples of global successes achieved by organizations such as McDonalds, Coca-Cola, Pepsi, Sony, Levi and Revlon (Kermally, 2003).

“The marketer should stop thinking of his customers as part of some massively homogeneous market. He must start thinking of them as numerous small islands of distinctiveness, each of which requires its own unique strategies in product policy, in promotional strategy, in pricing, in distribution methods, and in direct selling techniques” (Levitt, 1974).

Globalization of markets does not mean the end of choice or market segments. Levitt argued that the global phenomenon meant the beginning of price competition for quality products aimed at larger global segments (Kermally, 2003). According to some writers, organizations such as McDonalds and Coca-Cola which are quoted by Levitt in his article, succeeded because they introduced an element of localization in their market and product mix. These organizations have followed ‘global localization’ strategies as opposed to pure global strategy as advocated by Levitt. Global localization or micro-marketing refers to the customization of marketing mix variables at the local level (Montgomery, 1997). Acting locally involves adapting sales promotion, distribution and customer service.

Segmentation Methods in International Marketing

The general criteria for segmenting a market is of two categories: characteristics of the customers or customers’ behavior related to the product. Customer characteristics include such things as their geographic location, their lifestyles, their education, their income, and size of their household. Product related behavior includes such factors as the nature of the customers’ use of the product or service (heavy user, light user, or nonuser), the benefits they sought in the purchase (economy, quick dependable service, or warranties), or their loyalty to the product or service (strong loyalty, limited loyalty, or no loyalty). After segmenting the market, it is important to focus on the nature of products or services (Kress and Snyder, 1994). Three groups of customer characteristics are generally used as bases for segmenting consumer markets: geographics, demographics, and psychographics.

  • Geographics: This characteristic group divides the market using either some official unit (states, regions, cities, zip codes, or census tracts) or some unofficial unit related to such things as climate or culture (western, southern, etc.). These bases are fairly easy to use and quantify (Kress and Snyder, 1994).
  • Demographics: Statistics about specific populations are frequently used as the bases for segments. This includes such criteria as age, sex, marital status, income, size of household, race, and religion. The primary benefit from using demographics is that such information is usually closely associated with consumer wants and product usage and easy to acquire (Kress and Snyder, 1994).
  • Psychographics: Segments can be developed based on such characteristics as social class, lifestyle, type of personality, or attitudes. For example, social class is closely associated with types of cars purchased, home furnishings, and types of reading materials. Psychographic studies sometimes include bases of product usage, demographics, and other variables such as product attributes, lifestyle variables along with the psychological variables that include self-image, personality, and attitudes. Statistical techniques such as multiple-regression analysis, factor analysis, cluster analysis, multidimensional scaling, perceptual mapping, and multiple-discriminant analysis provide greater precision than previously available in using these data (Michman and Mazzee, 2003). The use of probability samples provides a database that is satisfactory for deriving statistically significant results related to a market.

Lifestyles are used increasingly as the bases for segmenting markets, largely because of the acceptance of the VALS (Values and Lifestyles) classification developed in 1978 by the Stanford Research Institute (SRI) and continuously revised with changing times. VALS categorized consumers in the United States by their values, beliefs, and lifestyles rather than by traditional demographic variables. In 1988, VALS2 was introduced which is a more refined psychographic segmentation tool. The VALS2 typology classifies the American population into eight distinctive market segments. Revisions were made to include the aging of the baby boomers, the greater diversity of ethnic groups, and greater media choices such as TV and interactive media (Kress and Snyder, 1994) and. The VALS2 typology explains why and how consumers make purchase decisions. The two primary dimensions used to segment the population in VALS2 are an individual’s resources and self-orientation. There are 8 segments identified in VALS and VALS2. These segments are based on two broad characteristics of consumers: their resources (income, education, health, self-confidence, energy level, and intelligence) and their self-orientation (principle oriented, status oriented, and action oriented). A series of VALS-related questions are given to product users or potential users and their replies determine which VALS category they most closely match. Other commercial segmentation services such as PRIZM developed by Claritas Corp. and Clusterplus from the Donnelly Company are also available for a fee. The major shortcoming of most commercially developed segmentation tools (VALS included) is that they are tied to general consumer characteristics rather than product usage characteristics, which means the resulting segments may not be very useful for a specific product or service.

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The ACORN system is a method of mapping geographically the concentrations of particular types of people. The assumption is that the demographic/socio economic characteristics of people can be correlated to the housing characteristics of a particular area. The ACORN classifications are derived using a multi-variable statistical treatment of census of population data and are divided into ACORN groups and sub divided into ACORN types. ACORN classification consists of six categories, seventeen groups and fifty four types. ACORN is a neighborhood segmentation analysis tool. An ACORN classification accurately predicts buying trends, media types and content preferences, promotional partnerships, and other essential marketing strategies. Individual classification titles in Acorn include: affluent families, upscale households, up and coming singles, retirement styles, young mobile adults, city dwellers, factory and farm communities, downtown residents, and non residential neighborhoods.

Mosaic is a geodemographic segmentation system developed by Experian and marketed in over twenty countries worldwide. The basic premise of geodemographic segmentation is that people tend to gravitate towards communities with other people of similar backgrounds, interests, and means. Mosaic is linked to the systems in other nations through the Global Mosaic (Thomas, 1995). Global Mosaic is a system which links the segmentation models of a number of countries covering Europe, North America, and the Asia-Pacific region. Consisting of 10 segments, the system allows for cross-national analysis and program execution. The group categories of variables included in the creation of the Mosaic typology is as follows: age, sex, race, ethnicity, educational attainment, educational enrollment, marital status, place of birth, etc. The resulting segmentation system consists of sixty segments which are presented as twelve separate groups (Thomas, 1995).

Segmentation can also include Family Life Cycle which is made up of 9 stages: bachelor stage, newly married couples, Full Nest I (youngest child under 6), Full Nest II (youngest child is older than 6), Full Nest III (older children), Empty Nest I (family income at peak), Empty Nest II (head of household has retired); Solitary Survivor in Labor Force and The Retired Solitary Survivor (medical expenses).

Another popular lifestyle model is the “sagacity lifestyle model” which identifies four main stages in a typical lifestyle: Dependent, Pre-family, Family and Late (parents with children who have left home, or older childless couples). Each group is then further subdivided according to income and occupation (Davis et al, 1998).

TGI (Target Group Index) is a global network of single-source market research surveys providing invaluable, comparable consumer insights for over 50 countries across 6 continents. This includes full information on age, sex, social grade, region, and household income, working status, marital status, terminal education age, household characteristics, home ownership and employment status. TGI has created a life stage classification based on the stage that an individual has reached in his or her life reflected both by their age, and the composition of their household. This takes the form of a twelve segment classification and when social grading (ABC1/C2DE) is included it creates twenty-four segment classifications (Kress and Synder, 1994). Once a market segment has been identified and measured, the next factor is whether it is accessible. The market segment should be reachable through distribution, pricing, or promotion efforts. Finally, the market segment should favorably respond to a specialized need or benefit for that segment (Davis et al, 1998).

  • Product- or Service-Related Behavior: This approach segments consumers on their attitudes towards, or usage of, the product or service. Because this approach is tied directly to consumer involvement with the product or service, many marketers feel it is the most useful segmentation approach.
  • Usage: This involves such factors as usage rate (frequent or light user), reason for usage (flower purchases for holidays, weddings, or anniversaries or air travel for business, vacations, or family crises), or amount used or consumed (heavy consumer, moderate consumer, or light consumer) (Kress and Snyder, 1994).
  • Attitude: Consumers are grouped according to the nature of their experiences with the product or service (enamored, satisfied, apprehensive, or negative).
  • Loyalty: The purchasers of products or services are segmented according to their loyalty to a brand, a store, or some other general category. For example, soft drink consumers can be segmented according to the nature of their loyalty to a particular brand: hard core (always buy same brand), reluctant switcher (some brand loyalty), and maverick (no brand loyalty). Buyers can also be segmented on the basis of their national loyalty (always buys an American product).
  • Benefits Sought: This should seemingly be the most valuable basis for grouping consumers since it attempts to uncover the primary reasons consumers purchase a product or service, and then classifies each person according to those benefits. For example, the toothpaste market has been segmented using these benefits: economy (low price), cosmetic (clean teeth), social (good breath), taste, and preventive (gum protection and cavity prevention). Two drawbacks of segmenting markets solely on the basis of the benefits sought are that consumers may seek different benefits at different times and consumers may not really understand what motivates them, or they might not be truthful in describing the benefits most important to them (Kress and Snyder, 1994).

Methods of Global Segmentation

Levitt (1983) attributed the convergence of consumer markets worldwide due to technological advances in the fields of communication, transportation and travel. He termed this phenomenon as the ‘proletarianization” of world consumer markets. He actually is describing a ‘world’ segment that would demand low-price and high quality. This increase in market homogeneity on a global scale was caused by what Levitt (1983) referred to as “segment simultaneity” or the appearance of similar market segments in different countries at the same time. This appears to be the beginning of the concept of global segmentation, on a limited basis. Hassan and Kaynak define global market segmentation as the process of identifying specific segments, whether they are country groups or individual consumer groups, of potential consumers with homogeneous attributes who are likely to exhibit similar buying behavior. The existence of global consumer segments that are measurable and reachable must be considered as a prerequisite for the successful execution of any global marketing strategy.

Porter (1986) in his work on global marketing strategy pointed out that both identification of target segments within countries and physical product configuration would assist in the determination of global marketing strategies. He however did not define specific segments. Sheth (1986) built a segmentation model based on both the similarities and differences of market needs and market resources (Hassan and Kaynak, 1994). Other authors (Kotler, 1986; Wind, 1986) have taken the approach of ‘country segments’ i.e. countries as a specific market segment on their own. For example, Kotler challenged the concept of a world segment and developed a ‘customization index’. He based this on the identification of countries and their dissimilarities on the following factors: products, buyers, and environmental factors (Hassan and Kaynak, 1994). He argued that each element of the marketing mix must be matched against a specific target country. This ensures that specific differences would be identified in advance, and thus, built into new product design. Wind (1986) also discussed the cluster of countries concept in his research. He felt that specific groups of countries may or may not possess similarities that are reachable through a single strategy. His clustering approach seemed to offer a balance between pure standardization and pure adaptation. A study by Huszagh, Fox and Day (1986) indicates the existence of segments across countries or country clusters. An area closely related to country clusters is that of regional markets like the European Commission. Daniels (1987) has proposed the use of cross-national strategies as way of identifying market regions.

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Hassan and Kaynak (1994) list the following global segments:

  • World Segment (Levitt, 1983): Low price and high quality part of a homogenous market
  • Specialty product and market segments (Sheth, 1986): Products adapted to local market; different segments across different markets; product modified from country to country.
  • Country segments (Kotler, 1986): Individual countries represent separate segments.
  • Country groupings or clusters (Porter, 1986; Wind, 1986 (Huszagh, Fox, and Day, 1986): Identification of country groupings with similar demographic, cultural, and buyer behavior similarities
  • Regional segments (Daniels, 1987): identification of regions with similar characteristics for economies of scale – similar to clustering.
  • Psychographic segments (Domzal and Unger, 1987): Segmentation across countries based on lifestyle factors and product benefits
  • Cultural Segments (Whitelock, 1987): Identification of similar cultural values and attributes across country boundaries.
  • Strategically equivalent segments (Kale and Sudharshan, 1987): Segmentation to respond to a specific marketing mix
  • Pro-trade segments (Crawford, Garland and Ganesh, 1988): Segmentation on the basis of attitudes toward imports in developed and developing countries.
  • Two-Stage Segments (Kreutzer, 1988): Stage 1 – segment by environmental indicators
  • Stage 2 – further segment by buyer behavior indicators.
  • Attitude Clusters (Verhage, Dahringer and Cundiff, 1989): Similar consumer attitudes for specific products across countries.

The technological capabilities to gather and manage massive amounts of data on customers and potential customers, along with the availability of many more targeted communications capabilities, ensure that there will be increasing demand for much more and much finer identification of target markets in most product and service categories. The massive use of the Internet and digitalization of information has opened up greater possibilities for target marketing. Reliable and accountable data for many countries across the world is provided by the GMID. Euromonitor’s Global Market Information Database (GMID) is an integrated database that provides a lot of information about countries, markets and companies. The information provided by GMID includes all regions of the world. The components of the GMID are country data, Consumer Lifestyles Analysis, Consumer Lifestyles Data, Market Sizes, Forecasts, Companies & Brands, Information Sources and Major Market Profiles, Market Analysis and Retail Trade International. This information can be used for global segmentation.

The study by Hassan and Kaynak (1994) proves that there is a relationship between strategic use of segmentation and strategic positioning. This can have “strategic marketing implications for firms; including cost efficiencies, opportunities to transfer products globally, expansion opportunities of current operation, and development of more effective brand management decisions”. The results of this study also proved the existence of global segments with different actionable implications than segments defined by clusters of homogenous countries.

For global segmentation, it is imperative to analyze all elements of commonalities and differences that exist in today’s global consumer markets. Consumption behavior on the global level is influenced by factors such as GDP, GNP per capita, life expectancy, literacy, industrialization and urbanization, advances in transportation and travel. Due to such influence, it is seen that some consumer products are widely accepted globally such as consumer electronics, automobiles, fashion, home appliances, food products and beverages. These are products that respond to the needs and wants of segments that cut across national boundaries. International firms need to identify such segments and reach them with marketing programs that will satisfy the consumers. There are likely to be some differences in culture between these segments. Success in global market segmentation efforts will be based on an eclectic perspective of both similarities and differences in evaluating global markets. Consumer markets in particular should ‘think of global similarities and adapt to local differences’ (Hassan, 1990). This is in fact the essence of global segmentation.

Limitations of Segmentation

Segmentation has not been without its limitations. A segmentation based strategy is more costly than a mass marketing approach (Art, 2004). For example, differentiation often implies new product/service offerings, several promotional campaigns, channel development and expansion, and several other additional expenses. Relatively few individuals have the understanding, expertise and authority to incorporate market segmentation technique into his marketing plan (Art, 2004). Many segmentation analyses emphasize methodological and statistical procedures over substance leading to an end product that is a complex model that can be understood only by the researcher. Yankelovich (1964) has questioned the reliability of selected bases for segmentation and posits that no method of segmentation can be assumed to be the best (Pires, 2005). Higher research ability may involve higher costs (Pires, 2005). It is sometimes argued that derived market segments are not actionable from a marketing standpoint (Pires, 2005). Segmentation is not useful when the market is very small that marketing to a portion of it cannot be profitable. Strategic changes required by market segmentation may be difficult to apply in real business situations (Pires, 2005). Storbacka (1997) warns that market segmentation is leading to fragmenting of markets and marketers are forced to move towards a time when the only relevant segment is the individual customer. Sometimes it is not possible to translate factor or cluster analysis groupings into meaningful and reachable subgroups. According to Ross (1994), the commercial emphasis and proprietorship of some of the key psychographic techniques has prevented scholarly assessment of their validity and reliability (Murphy, 2004). To overcome such limitations, psychographic segmentation is now closely linked to other techniques such as behavioral segmentation (Murphy, 2004). But behavioral segmentation that is based on past actions cannot always serve as a good predictor of future intentions especially when personal conditions, needs and circumstances change over time (Murphy, 2004). Due to these limitations, it can be deduced that the best form of market segmentation is a combination of techniques.

Conclusion

When the concept of segmentation is applied to a mass market, the forms it takes are limited only by the imagination of the segmenter and the potential and accessibility of the selected market segment. Not only can consumers be segmented by age, sex, race, income, household size, education, and other demographic or socioeconomic characteristics; they can also be segmented by where they live, their buying behavior, their self concepts, personality traits, and emotional needs, and their attitudes, interests, opinions, activities, and organizational memberships. According to Philip Kotler, marketing guru, if targeting and positioning are nailed, everything else falls into place (1972). Targeting is to know where to concentrate forces. But, deciding on the target market is difficult without segmentation. Global market segmentation is a great challenge as it requires voluminous amount of reliable and accountable geographic, demographic and socio-psychological data. But the technological advances in the realms of information technology, travel and communication are making it possible to identify market segments that transcend national and cultural boundaries on a global scale. In fact global segmentation is the most suitable technique to achieve success in the global market place.

Bibliography

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