Segmenting the Target Country Market

Only after carefully defining the foreign target market—the prospective household consumers or industrial/government users of the candidate product—can managers design the most appropriate marketing plan. The target market may be conceived as the total market covering all possible consumers/users throughout the target country or, alternatively, as part of the total market that includes only a particular group of consumers/users. We refer to the first concept as market aggregation, and to the second as market segmentation.

1. Concept of Market Segmentation

The concept of market segmentation derives from the proposition that consumers/users in a country market have different needs and preferences, which in turn create differences in demand for a candidate product. Mean­ingful segmentation, therefore, is feasible for a given country market only when consumer/user needs and preferences are truly heterogeneous with respect to a candidate product. Futhermore, it must be possible to classify heterogeneous consumers/users into homogeneous segments, and these seg­ments must vary significantly in their responses to the candidate product and/or other marketing mix policies. Finally, at least one segment must have a big enough sales potential to justify a special marketing mix.

In segmenting a target country market, managers may be raising several questions. Is there an identifiable group of consumers/users that offers a special opportunity for my product? If the answer is yes, it may be possible to obtain a competitive niche in the country market, especially if the seg­ment in question is ignored or poorly served by competitors. This search for an opportunity segment is a continuation of the target market selection model presented in Figure 7 in Chapter 2. After identifying an opportunity segment, managers can raise a follow-on question: What particular mix of marketing policies (including the possible development of a new product) addressed to that segment will be most cost-effective? The answer to that question relates to a third question, namely, Will a segmentation strategy be more cost-cffcctivc than an aggregate marketing strategy?

Generally speaking, the scope for segmentation is greater in large- country markets than in small-country markets; in high-income, technologi­cally sophisticated markets than in low-income, low-technology markets; and for highly differentiated products than for standard or commoditylike products. But segmentation may be profitable in any heterogeneous market, as for instance in developing countries, where consumers fall into distinc­tive income groups with different patterns of consumption, store patronage, responsiveness to advertising, and other buying behavior.

2. The Choice of Segmentation Criteria

The key criterion of market segmentation is the response of consumers/ users to the candidate product and its pricing, promotion, distribution, and logistics. But it is seldom possible for managers to obtain reliable direct measurements of response functions, although they should try to do so. Instead, other variables are used as segmentation criteria, on the assump­tion that they are highly correlated with market response variables. These substitute criteria fall into two broad categories: general criteria and situation-specific criteria.

For consumer goods, general criteria include attributes relating to geo­graphical location, socioeconomic status (such as age, sex, income, educa­tion, family size, and occupation), culture (such as language, race, religion, customs, and attitudes toward foreigners and foreign-made products), and psychology (such as personality and lifestyle). General criteria used for industrial goods include industry classification, customer size, nature of operations, buying organization, geographical location, and private versus public sector identity. One general criterion peculiar to international mar­keting is buyer attitudes toward foreign-made products.

Situation-specific criteria pertain to buyer behavior with respect to the candidate product. For consumer goods, they include attitudes toward and impressions of the product, benefits sought, purchase motivations, purchase occasions, usage rates, and brand loyalty. Situation-specific criteria com­monly used for segmenting industrial-goods markets are product require­ments, usage rates, benefits sought, purchase motivations, and buying practices.

The foregoing criteria are useful in segmenting country markets only to the extent that they correlate with market responses to the candidate prod­uct and other mix elements. Even situation-specific criteria may fail to distinguish different needs and preferences. For example, “heavy users” of a product may not always seek benefits different from “light users.” Of fundamental importance, therefore, is the choice of the segmentation crite­ria. Sophisticated techniques, such as multidimensional scaling and factor analysis, have been used to derive segmentation variables from consumer/ user survey data. But for the most part, such data are not available to international managers, who must instead rely mainly on judgment for criteria selection. To partly overcome the weakness of “a priori” segmenta­tion criteria, managers should use several criteria for grouping consumers/ users.

3. Market Segmentation Strategy

Even though a foreign country market can be segmented, it by no means follows that managers should adopt a segmentation strategy rather than an aggregate-market strategy. The advantages of a segmentation strategy need to be weighed against its possible disadvantages. A major obstacle to seg­mentation strategies is the need for large amounts of information to identify and measure market segments. High research costs can be a severe con­straint for a smaller company. Also, in deciding to serve a single segment instead of the total market, a company may give up volume sales and thereby lose economies of scale in production and marketing.

The main advantage of a market segmentation strategy is greater mar­keting effectiveness. Managers are able to design a marketing program that is responsive to the needs and preferences of a certain group of customers. This strategy may offer a company an opportunity to become the market leader in a target segment rather than a market follower in the aggregate country market. In sum, a market segmentation strategy is most attractive when it promises to achieve greater satisfaction of customer needs and, at the same time, better utilization of a company’s scarce resources than an aggregate-market strategy. For then it will be a company’s most cost- effective foreign marketing plan. A final point: identification and measure­ment of market segments must be a continuing activity, because segments, like other market phenomena, are almost certain to change over time.

Source: Root Franklin R. (1998), Entry Strategies for International Markets, Jossey-Bass; 2nd edition.