Market segmentation Entering international markets

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Market segmentationEntering international markets

• Ana Colovic

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Market screening techniques

• Choosing which market to enter is a key strategic
  decision.
• Correct market definition is crucial for the
  measurement of share and other indicators of
  performance, for the specification of target
  customers and their needs and for the recognition
  of important competitors.

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Identifying appropriate markets

• Screening countries against a series of factors.
  Key areas of interest are
• Market size (population, age structure, levels of
  domestic production and imports, number of firms
  serving the market)
• Structure of the population (age groups,
  geographical distribution, population density)
• Economic development
• Income and wealth (GDP, GDP per capita)
• Business environment (religious or cultural
  norms, laws, tariffs)
• Storage and transport facilities
• Political considerations
• Local competition

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Identifying appropriate markets (2)

• Field work
• When it is difficult to measure a markets size
  and characteristics from published data
• Where consumer attitudes and behaviour cannot
  otherwise be assessed.
• Market attractiveness indexes
• Countries are ranked according to a number of
  points (GDP, rates of ownership of consumer
  durables, socio-demographic variables)
• Problem deciding the weights to attach to each
  variable

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Market segmentation

• Market definition leads into issues of market
  segmentation.
• Segmentation means breaking down the market for a
  particular product or service into segments of
  customers that differ in terms of their response
  to marketing strategies. It means breaking down
  the total market into self-contained and
  relatively homogeneous subgroups of consumers,
  each possessing its own special requirements and
  characteristics.
• For example, on the basis of language, there are
  French, German and Italian-based segments in
  Switzerland.

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Lifestyle (psychographic) segmentation

• Segmentation according to economic or demographic
  variables assumes that most of the consumers
  within the economic or demographic category
  concerned behave in a similar manner.
• Consumer attitudes, perspectives and purchasing
  behaviour can differ remarkably within market
  groups possessing nearly identical demographic
  characteristics.
• The incorporation into the analysis of a
  psychosocial dimension to reflect consumer
  lifestyles, personality types, interests, leisure
  activities, perspectives and opinions sharpens
  the firms targeting.

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Psychographics

• The term psychographics refers to the
  systematic study of consumer lifestyles,
  attitudes, interests, opinions and prejudices as
  they affect purchasing behaviours.
• Psychographics seeks to sketch profiles of
  particular consumer groups and identify demands
  for certain products from key variables that
  characterize consumer types.

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Lifestyle

• Lifestyle is the consequence of many interacting
  variables income, upbringing, experiences,
  relationships with others, cultural influences
• It involves a pattern of living habits, leisure
  pursuits, types of entertainment purchased,
  degree of involvement with the community and so
  on.

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Lifestyle (2)

• The aim of studying lifestyles is to identify in
  consumers certain common characteristics such as
  
• whether they are motivated by materialistic or
  non-materialistic drivers
• the extent to which their main concern is merely
  to exist and survive rather than engage in
  luxury
• whether their outlook is conservative and
  traditional or whether they are innovative and
  adventurous
• The degree of logic and rationality they apply to
  purchasing decisions
• Whether they are inner directed (i.e. concerned
  with personal growth, individual freedom and
  human relations) or outer directed materialists
  who gain their greater satisfaction from physical
  consumption of goods
• Attitudes towards home, family, security and the
  status quo

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Problems with psychographic segmentation

• Psychographic segmentation rests on the
  assumption that consumers have stable values,
  beliefs and attitudes that are not subject to
  sudden and unpredictable change. This is not
  always true.
• Psychosocial categorizations are highly
  subjective and open to numerous interpretations
  (for example, what exactly is meant by
  sophisticated, reflective,)
• Psychographic analysis can be a waste of money
  (if a wide range of types of consumers use the
  product).

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Entering international markets

• The firm needs to consider carefully all the
  available options, costs, possible loss of
  control and risk involved.
• The market entry methods have to relate to the
  companys overall strategy, goals and the time
  periods in which it wishes its objectives to be
  achieved.

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Options

• Aquisitions
• Exporting
• Use of agents and/or distributors
• Joint ventures with foreign firms
• Licensing and franchising
• Management contracts
• Contract manufacturing
• Establishment of foreign branches and/or
  subsidiaries (including FDI in manufacturing
  plant)
• Direct marketing via the Internet

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Agents and distributors

• Distributors purchase a supplying firms products
• Agents find clients for the supplying firms and
  then drop out
• Distributors typically demand exclusivity
• Agents usually operate on a commission basis

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Joint ventures

• A joint venture is a collaborative arrangement
  between unrelated parties that exchange or
  combine various resources while remaining
  separate and independent legal entities.
• JVs are increasingly popular as a means for
  entering foreign markets
• Advantages can be quickly entered into and
  abandoned enable the sharing of costs, can be
  used to establish bridgeheads in a foreign market
  prior to major marketing efforts by individual
  participants.
• Problems disagreements over organization,
  control, goals, pricing policy, confidentiality
  of information, need to share intellectual
  property

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Licensing and franchising

• Firms that possess patented inventions,
  registered trade marks or specialist know-how
  that can be kept confidential may decide to
  license foreign firms to make and market their
  products.
• With a franchise agreement a foreign firm adopts
  the franchisors entire business format in the
  local market - its name, trade marks, business
  methods, layout of premises, etc.

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Management contracts

• A firm in one country provides a team of expert
  managers to an enterprise in another for a fixed
  period under contract.
• Typically the team will install a new system,
  train local personnel and then hand over the
  entire system to local control. This procedure is
  known as turnkey agreement.

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Contract manufacturing

• The firm places orders with local business for
  the production of goods, which it then sells
  locally or exports.
• Advantages not having to invest large sums of
  money in capital equipment easy withdrawal from
  high-risk markets avoidance of involvement in
  industrial relations with local workforces.
• Problems difficult to monitor and maintain
  quality levels, protect intellectual property

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Establishing branches and subsidiaries

• A branch is a direct extension of the parent firm
  into a foreign country (so that the parent is
  legally responsible for all the branchs debts
  and activities).
• A subsidiary is seen in law as a separate
  business from the firm that owns it. It is
  responsible for its own debts and is subject to
  exactly the same taxes, auditing, registration
  and accounting regulations as any other local
  business.
• A marketing subsidiary can monitor trends on a
  continuous basis, provide after-sales service,
  deal with local advertising and research
  agencies, arrange for transport, distribution,
  warehousing etc.

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International marketing through the Internet

• E-commerce
• It is very successful in business-to-business
  markets
• Traffic sustaining factors speed, graphics,
  interactivity, consistency and user-friendly
  design, cookies, creativity and contents, links.