Global Segmentation and Positioning Chapter 11 © 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Outline The Managerial Context Micro-Segmentation Macro-segmentation Targeting Segments Global Product Positioning Global S-T-P Strategies Takeaways.

The Global Marketer’s Mindset The typical context for globalized marketing is not the usual “close to customer” mindset. Rather, the point is usually to coordinate marketing activities across a wide variety of markets where the firm does business. A top-down approach easily leads to insensitivity towards local customers and local requirements, and conflicts with local subsidiaries.

1.Selling orientation – sell what we make, the product line is given. 2.Standardization of products as much as possible. 3.Coordination via new reporting lines to make sure everyone is on board. 4.Centralization of the marketing effort to make sure all speak the same language. The Global Marketer: Customer-oriented?

The Global Marketer’s Mindset Because of the natural inclination to ignore local variations in customer preferences and local requirements, global marketing can easily lead to mis- positioned products and inappropriate promotional appeals. It can also, of course, lead to local resistance and animosity, not good considering anti-globalization and anti-Americanism sentiments. The key is to strike the optimal balance between local adaptation and global efficiency.

Segmentation-Targeting-Positioning The typical way of approaching global marketing strategy is similar to the so-called S-T-P framework: 1. Segmentation – the splitting up of the total market into segments of more homogeneous subgroups. 2. Targeting – the selection of which one(s) of these subgroups the company should market its product to. 3. Positioning – exactly how the company should present the product to the target market(s) so its perception is most advantageous relative to competition.

Two-Stage Global Segmentation It is common to distinguish two stages of global segmentation 1. Macro-segmentation – the division of a number of countries into subgroups of more similar clusters 2. Micro-segmentation – the identification of local segments which are similar across the countries in a cluster. The micro-segmentation techniques used in domestic markets are also useful in global segmentation.

TYPICAL SEGMENTATION CRITERIA Economic - the most basic local segmentation criterion is still economic development Demographic - the age and family structure in different countries play an important role in determining global segments Culture - people care about their identify even though a lot has been said in the media about the emergence of global segments of people Benefits - the most clear cut segmentation criteria focus on the benefits sought Lifestyle – consumers start developing their own lifestyle with buying behavior involving more than simple necessities Micro-Segmentation

WHICH CRITERIA SHOULD YOU USE TO SPLIT UP THE MARKET? Useful segmentation criteria must accomplish three goals: 1.Should show us what influences the segment’s buying behavior, both consumption level and choice between competing brands 2.Should be reflected in published data so that the size of the segment can be calculated 3.Should help identify the media through which marketers can communicate with the segment Micro-Segmentation

WHEN DO YOU HAVE A GOOD SEGMENTATION SCHEME? Useful market segments possess these characteristics: IDENTIFIABLE – what distinguishes them? MEASURABLE – how many belong to each segment? REACHABLE – how to distribute to, communicate to, each segment? ABLE TO BUY – can they afford it? WILLING TO BUY – do they want it? Micro-Segmentation

MACROSEGMENTATION – clustering of countries on the basis of common characteristics deemed to be important for marketing purposes, e.g. data on: Population size Population character Disposable income levels Educational background Primary languages Level of development Rate of growth in GNP Infrastructure Political affiliation Macro-Segmentation

Typical Macro-Segmentation Criteria

0.9.8, SOT UKI NOR SWE DEN FIN SWI AUS NET GER NEZ BEL AUT COL CHI VEN SPA BRA PER MEX PUE FRA ITA ARG PHI THI ISR JAP MAC IND PAK Factor VI Religion TUR Protestant Catholic Factor III Standard of Living Macro-Segmentation on Standard of Living and Religion

Macro-Segmentation on “Think” and “Feel” Dimensions

TRADITIONALIST18% HOMEBODY14% RATIONALIST23% PLEASURIST17% STRIVER15% TRENDSETTER13% 6 PAN-EUROPEAN LIFESTYLE SEGMENTS Relative size of segments in percent, of the European Market, as developed by the RISC research agency Macro-Segmentation Based on Lifestyle

Targeting Segments The choice of which countries and which segment(s) to target involves an analysis of projected profitability over the planning horizon. The basic computation involves forecasting sales in a segment and the market share that the firm can expect to achieve. These techniques were covered in the forecasting chapter (no.4). Predicting competitive reactions is also necessary, especially if the target segment is likely to be brand loyal. The choice of target countries should also consider the tradeoff between focus and diversification.

Targeting Segments Diversification versus Focus Strategy Diversification Strategy In developing a global strategy, some companies make a conscious effort to be a player in different countries and different market segments. Difficulties in one market segment or country can be offset by gains elsewhere. Focus Strategy Markets and segments can be given more attention and markets positions fortified. This is particularly advantageous when the country or segment competitive rivalry is intense (see hyper-competition in chapter 2, for example).

Diversification vs Focus

Global Product Positioning Product Positioning involves using the marketing mix (the 4Ps) to present the product to the selected target market(s) so that it is perceived in the most favorable way relative to preferences and competition. To identify the optimal position, global marketing draws on the same techniques as domestic marketers in mapping out a visual representation of how the customers view the competing brands on the market. This visual mapping is usually called “perceptual space” or, more commonly, the “product space.”

Mercury Cougar Ford Mustang Plymouth Barracuda AMC Javelin SPORTY LUXURIOUS Jaguar Sedan Ford Thunderbird V8 Buick Le Sabre Lincoln Continental Chrysler Imperial Chevrolet Corvair Ford Falcon Ideal point for subject I Ideal point for subject J U.S. Product Space of Autos 1968

Salient Attributes - data on what attributes a customer looks for in a product Evoked Set - identifying what brands are considered by the buyer Attribute Ratings - how the individual rates the brands in the evoked set on salient attributes Preferences - how the brands rank in terms of overall preferences Four sets of data to construct the product space Global Product Positioning

Oldsmobil e Cadillac Mercedes Buick Has a touch of class. Distinguished looking BMW Pontiac Plymouth VW Porsche Ford Sporty looking. Fun to drive. Appeals to older people Conservative looking Very practical. Gives good gas mileage. Toyota Datsun Chevrole t Dodge Chrysler Lincoln Product Space with Segment Sizes

Global Product Positioning THERE ARE THREE DIFFERENT EFFECTS ON BUYERS WHEN A GLOBALLY STANDARDIZED PRODUCT OR BRAND IS INTRODUCED ON A LOCAL MARKET: 1. THE NEW BRAND SIMPLY TARGETS ONE UNTAPPED SEGMENT. 2. THE PRODUCT SPACE IS ALTERED, BY ADDING DIMENSIONS OR EXTENDING ENDPOINTS. 3. BUYER PREFERENCES ARE CHANGED. IN PRACTICE, ALL THREE PROCESSES ARE OFTEN AT WORK SIMULTANEOUSLY.

Global Product Positioning IT IS RARE THAT CUSTOMERS’ PERCEPTIONS REMAIN UNCHANGED WHEN A GLOBALLY STANDARDIZED PRODUCT ENTERS THE MARKET. EXTENDED PRODUCT SPACE THIS OCCURSWHEN GLOBALLY STANDARDIZED PRODUCTS OFFER MORE OF THE SALIENT FEATURES DESIRED. THE NEW FEATURES TEND TO ENLARGE THE SPACE WHICH DEFINE THE PRODUCT. (EX: MORE MEMORY IN PCs) ADDED DIMENSIONS THIS OCCURS WHEN THE GLOBALLY STANDARDIZED PRODUCT OFFERS IMPORTANT NEW FEATURES (EX: CAMERA ON A CELL-PHONE)

Datsun 200SX Honda Accord VW Rabbit Toyota Celica ECONOMY PERFORMANCE BMW 320i Mazda Chevrolet Citation Ford Mustang Audi 4000 Chrysler K- car Overall Rating Honda Accord Extends the Product Space

Global Product Positioning WHEN PRODUCTS ARE STANDARDIZED AND NOT ADAPTED TO THE PARTICULAR MARKET, THEY ARE OFTEN “MISPOSITIONED” (NOT HITTING THE TARGET BULLSEYE). THERE ARE THREE REASONS WHY CONSUMERS MIGHT STILL BUY MISPOSITIONED PRODUCTS: BRAND IMAGE COUNTRY OF ORIGIN LOWER PRICE

Brand Image MISPOSITIONED PRODUCTS CAN BE ATTRACTIVE TO POTENTIAL CUSTOMERS BECAUSE OF BRAND IMAGE AND STATUS. GLOBAL BRANDS OFTEN DO BETTER THAN LOCAL BRANDS THAT MAY BE BETTER SUITED TO CUSTOMER NEEDS FOR THAT AND OTHER REASONS: CONSPICUOUS CONSUMPTION --LET EVERYONE SEE WHAT YOU BUY AND HOW MUCH YOU BUY. LOWER PERCEIVED RISK AND COGNITIVE DISSONANCE -- WHEN GIVING A GIFT, FOR EXAMPLE

Country-of-Origin WHERE A PRODUCT OR BRAND COMES FROM OFTEN COUNTS A GREAT DEAL WITH CONSUMERS. COUNTRY-OF-ORIGIN EFFECT DEALS WITH QUALITY PERCEPTIONS OF PRODUCTS. THIS EFFECT DIFFERS BY PRODUCT CATEGORY. ALSO, THE QUALITY LEVEL AT WHICH A COUNTRY PRODUCES IS FACTORED IN. COUNTRY-OF-ORIGIN BIAS CUSTOMERS TEND TO OVERSTATE THE POSITIVE AND NEGATIVES OF PRODUCT ATTRIBUTES AND THIS CAN CAUSE A BIAS TOWARDS PRODUCTS FROM A GIVEN COUNTRY.

Lower Price THROUGH A REDUCED PRICE, A CUSTOMER IS OFTEN INDUCED TO BUY A MISPOSITIONED BRAND BECAUSE THEY FEEL THAT THEY AR GETTING A “GOOD DEAL.” HOWEVER, THIS CAN BACKFIRE ON THE MARKETER, SINCE THE PRICE PAID GRADUALLY LOSES SALIENCE, WHILE THE LESS DESIRABLE BRAND STAYS AS A REMINDER.

Global S-T-P Strategies Market Segmentation Cases Similar Segment The target segment is the same across countries Different Segment The target segment differs across countries Product Positioning Dimensions Similar Positioning Indicates a positioning which is the same across countries Different Positioning Indicates that the positioning theme is adapted across countries.

Nike IKEA Mobile phones Honda Prelude Levi’s Volvo Pampers Similar Different SimilarDifferent Local Micro-Segment Positioning Global S-T-P Strategies

Because global marketing involves coordination of marketing across countries, the mindset of the global marketer is different from that of the typical domestic marketer. It is not as customer oriented in any one local market.. It is important to strike the right balance between a global and local orientation. Takeaway

The typical approach to global segmentation occurs in two stages: Macro-segmentation of countries in a first stage, followed by micro-segmentation where target segments in the chosen countries are identified. Takeaway

Statistically based clustering techniques can be used with trade regions to group the countries into macro- segments of markets with similar economic & cultural characteristics. Takeaway

Successful local positioning of a product or brand requires an in-depth analysis of how the local market might react to the entry of a foreign or global brand. Takeaway

Even if the target segments are the same across countries, positioning may differ. And even where the positioning is the same across countries, the segments might differ. The reasons involve differing environmental conditions surrounding product usage and different competitive situations.