Chapter 7 Segmentation, Targeting, and Positioning

Market Segmentation Represents an effort to identify and categorize groups of customers and countries according to common characteristics The first few slides are added to ensure that the students have an understanding of the basic terms that will be discussed in the chaper.

Targeting The process of evaluating segments and focusing marketing efforts on a country, region, or group of people that has significant potential to respond

Global Market Segmentation Defined as the process of identifying specific segments—whether they be country groups or individual consumer groups—of potential customers with homogeneous attributes who are likely to exhibit similar responses to a company’s marketing mix. As noted in earlier chapters, two decades ago Professor Theodore Levitt advanced the thesis that consumers in different countries increasingly seek variety, and that the same new segments are likely to show up in multiple national markets. Thus, ethnic or regional foods such as sushi, falafel, or pizza might be in demand anywhere in the world. 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. A. Coskun Samli has developed a useful approach to global market segmentation that compares and contrasts “conventional” versus “unconventional” wisdom. This is shown on the next slide

Alternative Beverages Fruit Juices/ Smoothies International Marketing Mix Decisions Strategic Alternatives in international and global marketing mix decisions. Managerial issues Identifying the competitors in national markets Canned Soda Bottled Waters Iced Teas Alternative Beverages Cola Ginger Ale Diet Soda Fruit Juices/ Smoothies

International Marketing Mix Decisions Strategic Alternatives in international and global marketing mix decisions. Managerial issues Identifying the competitors in national markets Bottled Drinks Freshly Squeezed Fruit Juice Flavored Mineral Waters Beer Milk Orange Lemon/Lime Cola Coffee & tea with milk

International Marketing Mix Decisions Strategic Alternatives in international and global marketing mix decisions. Managerial issues Example: Soft drinks in Japan

International Marketing Mix Decisions Strategic Alternatives in international and global marketing mix decisions. Managerial issues Example: Beer, Ireland Customer Usage Patterns Daily Life Rhythms Usage Scenarios Cultural Conventions and Practices Desired Customer Benefits Product Symbolism Price Sensitivity Role Perceptions and Expectations Socio-Cultural Values

International Marketing Mix Decisions Strategic Alternatives in international and global marketing mix decisions. Managerial issues Example positioning: Peugeot 106 FRANCE GERMANY SIZE OF SMALL CAR MARKET 59% 40% 18% POSITIONING Family Car Urban Car Wide Space Small Ecological TARGET Middle Income Households 20-30 yr. Olds The Wife’s Car PORTUGAL

International Marketing Mix Decisions Strategic Alternatives in international and global marketing mix decisions. Managerial issues Example positioning: Peugeot 106

International Marketing Mix Decisions Strategic Alternatives in international and global marketing mix decisions. Managerial issues Example positioning: AlkaSeltzer

Contrasting views of global segmentation Conventional Wisdom Assumes heterogeneity between countries Assumes homogeneity within a country Focuses on macro level cultural differences Relies on clustering of national markets Less emphasis on within-country segments Unconventional Wisdom Assumes emergence of segments that transcend national boundaries Recognizes existence of within-country differences Emphasizes micro-level differences Segments micro markets within and between countries

Global Market Segmentation Demographics Psychographics Behavioral Characteristics Benefits sought Today, global companies (and the research and advertising agencies that serve them) use market segmentation to identify, define, understand, and respond to customer wants and needs on a worldwide, rather than strictly local, basis. As we have noted many times in this book, global marketers must determine whether a standarized or adapted marketing mix is required to best serve those wants and needs. By performing market segmentation, marketers can generate the insights needed 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. This slide shows the most common segmentation categories. The following slides will discuss them more deeply.

Demographic Segmentation Income Populations Age distribution Gender Education Occupation Most Popular Bases & Easiest to Measure What are the trends?

International Tourism Marketing Why do we need to globally advertise? What are the differences between national tourists and international tourists?

Who is traveling to Turkey?

International visitors… stay longer than domestic visitors. have more paid vacation so travel more. spend more than domestic visitors. help balance domestic tourism swings. have fairly high disposable income. are not climate dependent. book further in advance.

International visitors… book out-of-the-way places. want to see the “American way of life”. enhance the experience of domestic visitors. add to the federal, state, and local tax base. give jobs to many residents. often travel in our off-seasons. offer a pathway to world peace.

Demographic facts and trends A widening age gap exists between the older populations in the West and the large working-age populations in developing countries In the European Union, the number of consumers aged 16 and under is rapidly approaching the number of consumers aged 60-plus Asia is home to 500 million consumers aged 16 and under Half of Japan’s population will be age 50 or older by 2025

Demographic facts and trends America’s three main ethnic groups—African/Black Americans, Hispanic Americans, and Asian Americans—represent a combined annual buying power of $1 trillion The United States is home to 28.4 million foreign-born residents with a combined income of $233 billion By 2030, 20 percent of the U.S. population—70 million Americans—will be 65 or older versus 13 percent (36 million) today India has the youngest demographic profile among the world’s large nations: More than half its population is under the age of 25

Segmenting by Income and Population Income is a valuable segmentation variable 75% of world GNP is generated in the Triad 13% of the world’s population is in the Triad Do not read into the numbers Some services are free in developing nations so there is more purchasing power For products whose price is low enough population is amore important variable

Per Capita Income

10 Most Populous Countries

Segmenting by Population “Urban India is getting saturated. In the cities, everyone who can afford a television has one. If you want to maintain high growth, you have to penetrate into rural India.” - K. Ramachandran, Chief Executive Philips Electronics India

Age Segmentation Global Teens – young people between the ages of 12 and 19 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 brands, novelty, entertainment, trendy, and image-oriented products), make it possible to reach the global teen segment with a unified marketing program. This segment is attractive both in terms of its size (about 1.3 billion) and its multi-billion dollar purchasing power. Coca-Cola, Benetton, Swatch, and Sony are some of the companies pursuing the global teenage segment. The global elite is normally associated with older individuals who have accumulated wealth over the course of a long career, it also includes movie stars, musicians, elite athletes, and others who have achieved great financial success at a relatively young age.

Psychographic Segmentation Grouping people according to attitudes, value, and lifestyles SRI International and VALS 2 Porshe 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 Data are obtained from questionnaires that require respondents to indicate the extent to which they agree or disagree with a series of statements. Psychographics is primarily associated with SRI International, a market research organization whose original VALS and updated VALS 2 analyses of consumers are widely known.

Global Segmentation Global Scan Strivers Median age of 31; hectic lives. Driven to achieve success. Materialistic pleasure seekers; time & money in short supply. Achievers Older than strivers; affluent; assertive. Upwardly mobile, having already attained success. Status-conscious, value quality. Pressured Women of all ages; financial and family pressures; overwhelming life problems Adapters Older people; content with their lives. Maintain values while keeping an open mind about change. Traditionals Rooted to the past; clings to cultural heritage and values.

Psychographic Segmentation The Euroconsumer: Successful Idealist – Comprises from 5% to 20% of the population., consists of persons who have achieved professional and material success while maintaining commitment to abstract or socially responsible ideals Affluent Materialist – Status-conscious ‘up-and-comers’ – many of whom are business professionals – use conspicuous consumption to communicate their success to others The following characteristics come from a research team at D’arcy Massius Benton & Bowles. They focused on Europe and produced a 15-country study entitled: “The Euroconsumer: Marketing Myth or Cultural Certainty?” They identified four lifestyle groups which are highlighted on the next two slides.

Psychographic Segmentation The Euroconsumer: Comfortable Belongers – Comprising from 25% to 50% of a country’s population, they are conservative and most comfortable with the familiar. They are content with the comfort 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. They are concentrated in high-crime urban inner city neighborhoods. Despite a lack of social status, their attitudes nevertheless tend to affect the rest of society

Psychographic Segmentation

Young & Rubicam’s Cross-Cultural Consumer Characterizations (4Cs) Constrained Resigned poor Struggling poor Middle majority Mainstreamers Aspirers Succeeders Innovators Transitionals Reformers

Behavior Segmentation How much they use it How often they use it User status Law of disproportionality/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.

Benefit Segmentation Benefit segmentation focuses on the value equation Value = Benefits / Price Based on understanding the problem a product solves, the benefit it offers, or the issue it addresses

Ethnic Segmentation The population of many countries includes ethnic groups of significant size 3 main groups in the US include: African-Americans, Asian-Americans, and Hispanic Americans Mexican households in California have after-tax income of $100 billion, half the total of all Mexican Americans. The number of Hispanic teens is projected to swell from 12 percent of the U.S. teen population to 18 percent in the next decade. 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.

Assessing Market Potential Be mindful of the pitfalls Tendency to overstate the size and short-term attractiveness of individual country markets The company doesn’t 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 Three basic criteria Current size of the segment and anticipated growth potential Competition Compatibility with the company’s overall objectives/feasibility of reaching a designated target

Framework for Selecting Target Markets Demographic information is a starting point but not the decision factor Product-Market must be considered Market defined by product category Marketing model drivers must be considered Factors required for a business to take root and grow Are there any enabling conditions present? Conditions whose presence or absence will determine success of the marketing model 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?

Example: “To young, active soft-drink consumers who have little time for sleep, Mountain Dew is the soft drink that gives you more energy than any other brand because it has the highest level of caffeine. With Mountain Dew, you can stay alert and keep going even when you haven’t been able to get a good night’s sleep.”

9 Questions 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? 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?

Target Market Strategy Options Standardized global marketing Mass marketing on a global scale Undifferentiated target marketing Concentrated global marketing Niche marketing Single segment of global market Differentiated global marketing Multi-segment targeting Two or more distinct markets

Positioning 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

What is Nokia’s position in different markets?

Positioning Strategies Global consumer culture positioning Identifies the brand as a symbol of a particular global culture or segment Foreign consumer culture positioning Associates the brand’s users, use occasions, or product origins with a foreign country or culture

Positioning Strategies iPod positioned to the global consumer culture as both a high-tech and high touch product.

Looking Ahead Chapter 8 Importing, Exporting and Sourcing

Current Segment Size and Growth Is the market segment currently large enough to present a company with the opportunity to make a profit? If the answer is ‘no’, does it have significant growth potential to make it attractive in terms of a company’s long-term strategy? Return

Potential Competition Is there strong competition in the market segment currently? Is the competition vulnerable in terms of price or quality? Return

Feasibility and Compatibility 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? Is it advisable to source locally? Would it make sense to source products in the country for export elsewhere in the region? Return