CHAPTER 7

SEGMENTATION, TARGETING, AND POSITIONING

SUMMARY

The global environment must be analyzed before a company pursues expansion into new geographic markets. Through global market segmentation, a company can identify and group customers or countries according to common needs and wants. Demographic segmentation can be based on country income and population, age, ethnic heritage, or other variables. Psychographic segmentation groups people according to attitudes, values, and lifestyles. BSB’s Global Scan, DMBB’s Euroconsumer Study, and Young & Rubicam’s 4Cs are examples of proprietary psychographic segmentation studies prepared by advertising agencies for their global clients. Behavioral characteristics such as user status and usage rate are segmentation variables. Segmentation can also be based on the benefits buyers seek.

After marketers have identified segments, the next step is targeting: The identified groups are evaluated and compared, and one or more segments with the greatest potential is selected from them. The groups are evaluated on the basis of several factors, including segment size and growth potential, competition, compatibility and feasibility. After evaluating the identified segments, marketers must decide on an appropriate targeting strategy. The three basic categories of global target marketing strategies are standardized marketing, concentrated (niche) marketing, and differentiated (multisegment) marketing.

Positioning a product or brand in the minds of targeted customers can be accomplished in various ways. Attribute or benefit, quality and price, use or user, and a company’s competition can all serve as the basis for a strong positioning strategy. In global marketing global consumer culture positioning (GCCP), foreign consumer culture positioning (FCCP), and local consumer culture positioning (LCCP) are additional strategic options.

OVERVIEW

MTV's worldwide success is a convincing example of the power of superior global market segmentation and targeting. Market segmentation represents an effort to identify and categorize groups of customers and countries according to common characteristics. Targeting is the process of evaluating the segments and focusing marketing efforts on a country, region, or group of people that has significant potential to respond. Such targeting reflects the reality that a company should identify those consumers it can reach most effectively and efficiently. Finally, proper positioning is required to influence perceptions of target customers. Global markets can be segmented according to buyer category, gender, age, and other criteria. These activities serve as the link between market needs and wants and specific decisions on

152

the part of company management to develop products that meet the specific needs of one or more segments. Segmentation, targeting, and positioning are all examined in this chapter.

What is global market segmentation?

GLOBAL MARKET SEGMENTATION Global market segmentation identifies specific segments of potential customers with homogeneous attributes who exhibit similar responses to a marketing mix.

Theodore Levitt said that consumers in different countries seek variety, and new segmentswill emerge in multiple national markets (e.g., Ethnic food such as pizza is in demand worldwide).

This trend, pluralization of consumption and segment simultaneity, allows marketersto pursue segments globally.

However, even if pizza-loving consumers are found in many countries, they are not eating the exact same thing(e.g., Dominos in France serves pizza with goat cheese and strips of pork.). Samli contrasts “conventional” versus “unconventional wisdom” in global market segmentation; conventional wisdom: Europeans like soccer but Americans do not; unconventional wisdom: the “global jock” segment exists everywhere.`

Global market segmentation is used to identify, define, understand and respond to customer wants and needs on a worldwide, rather than strictly local, basis.

Global marketers must decide to pursue a standardized or adapted marketing mix.

The process of market segmentation begins with the choice of one or more variables to use as a basis for grouping customers. Common variables include demographics (including income and population),psychographics (values, attitudes, and lifestyles), behavioral characteristics, and benefits.

It is also possible to cluster different national markets in terms of their environments—the presence or absence of government regulation in a particular industry—to establish groupings.

THE REST OF THE STORYThe Youth of the World Proclaim, “We Want Our MTV!”

153

Within six years of its launch, MTV had penetrated 50 million U.S. households. Today, MTV has 16 local feeds in Europe with coverage stretching from Ireland to Russia. The local feeds are important, because 70 percent of revenues come from local advertisers. Local ad revenues stem from MTV's commitment to introduce local music groups. The blend of global and local elements in proportions that reflect local preferences is especially clear in Asia.

Q: How has MTV met with success in Japan?

A: Introduced into Japan in 1992, MTV Japan showed limited success in 1992, MTV Japan was relaunched with an emphasis on extensive audience research and a new focus on local music and artists. Today, MTV Asia reaches 125 million households. In 2003, a new “gain market scale” strategy was unveiled. The plan is to develop programming that can cross borders, regions and go global. New programming costs between $200,000 and $350,000 per 30-minute episode. The hope is to develop shows that have appeal no matter where the viewers live.

Demographic Segmentation Demographic segmentation is based on measurable characteristics of populations: income, population size, age distribution, gender, education, and occupation.

Global demographic trends—fewer married couples, smaller family size, changing roles of women, higher incomes and living standards---contribute to market segments. Some key demographic facts and trends include:

A widening age gap exists between the older population in the West and the working age population in t developing countries.

EU consumers aged 16-and-under nearly equal the number of consumers over 60. Asia has 500 million consumers 16 and under. Half of Japan’s population will be age 50 or older by 2025 Combined buying power for African-, Hispanic-, and Asian- Americans is $1 trillion a

year.

These statistics provide insights for scanning the globe for opportunities; managers at global companies will have to adjust marketing strategies to respond to the aging of the population.

Demographic changes can create opportunities for marketing innovation (e.g., France’s Carrefour began hypermarkets in 1963 based on a demographic shift).

Segmenting Global Markets by Income and Population

154

When a company plans for global market expansion, it finds that income is a valuable segmentation variable consisting of those both willing and able to buy.

For low unit cost items like cigarettes, population is often a more valuable segmentation variable than income.

While 75 percent of world GNP comes from the Triad, only 13 percent of the world’s population lives in the Triad.

Segmenting by income reaches the most affluent markets---the EU, North America, and Japan, but omits 90 percent of the world’s population

GNP and other income measures converted to dollars should be calculated according to purchasing power or through direct comparisons of actual prices for a given product.

For example, while the U.S. ranks eighth in per capita income, its standard of living—what money can buy—is second only to Luxembourg's.

Because the U.S. market is enormous (e.g., more than $10.5 trillion in 2003 national income, a population of 288 million, and per capita income of $37,000), non-U.S. companies target U.S. consumers.

Despite high per capita incomes, other industrialized countries are small in terms of total annual income (e.g., Sweden’s per capita GNP is $260,615, but its population of 9 million makes national income only about $240 billion).

Differences between income and standard of living are more pronounced in less- developed countries (e.g., A mud house in Tanzania has items purchased on a per capita income of $275).

The standard of living in low-income countries is higher than income data suggests (e.g., Industrialized countries use national income for the goods/services that are free in poor countries).

A projection of economic growth trends to the year 2010 shows the United States, Japan, and Germany in the top three positions.(Table 7-4)

Because of high real income growth and low population growth, China could become a leading economic power.

155

Population is less concentrated than income, but pattern of concentration still exists; the ten most populous countries account for 52 percent of the world's population (Table 7-5).

Concentrated income in the high-income and large-population countries means that acompany can be global by targeting buyers in ten or fewer countries. Global population will double during the lifetime of the students using this textbook; at present, world population is at 6.4 billion and will reach 12 billion by mid-century.. For low-priced products, population is more important than income for market potential (e.g., P&G targets China, because 100 million Chinese can spend 14 cents for a pouch of shampoo).

McDonald’s shows the significance of both income and population (e.g., 80% of McDonald’s restaurants are located in nine countries which generate 75% of the company’s total revenues).

There are large, fast-growing, high-income segments in countries like China and India (e.g., an estimated 100 million Indians are "upper-middle-class," with average incomes of over $1,400).

The lesson is to guard from being blinded by averages and not to assume homogeneity.

Age Segmentation

Age is a useful demographic variable in global marketing; one global segment is global teens—ages 12 to19.

Shared interest in fashion, music, and lifestyle exhibits remarkably consistent consumption behavior across borders for name brands, novelty, entertainment, and image-oriented products.

This segment is attractive both in terms of its size (about 1.3 billion) and its multi- dollar purchasing power; Coca-Cola, Benetton, Swatch and Sony pursue the global teenage segment.

Global media such as MTV and the Internet reach this segment.

Another global segment is the global elite: older, affluent, well traveled consumers with money to spend on prestigious products with an image of exclusivity.

This segment includes older individuals, movie stars, musicians, elite athletes and

156

other who have achieved financial success.

Gender Segmentation

Segmenting by gender makes sense for many companies; less obvious is the need to ensure that opportunities for sharpening the focus on the needs and wants of one gender are not unnoticed.

While some companies—fashion designers —market primarily or exclusively to women, others offer different product lines for both genders (e.g., Nike believes its global women's business will see growth).

Psychographic Segmentation

Psychographic segmentation involves grouping people in terms of attitudes, values, and lifestyles.

Data are obtained from questionnaires that require respondents to indicate the extent to which they agree or disagree with statements. Psychographics is associated with SRI International, a market research organization whose VALS and VALS 2 research analyses consumers.

Porsche AG, the German sports carmaker, turned to psychographics after sales declined from 50,000 units in 1986 to 14,000 in 1993.

A psychographic study showed that Porsche buyers constitute five distinct categories; Porsche used the profiles to develop targeted advertising, and sales improved nearly 50 percent. Psychographic profiles are available from many sources; SRI International conducted psychographic analyses of the Japanese market. Another firm DMBB focused on Europe and produced a study entitled “The Euroconsumer: Marketing Myth or Cultural Certainty?” identifying four lifestyle groups:

Successful Idealists—those with professional and material success with a commitment to abstract or socially responsible ideals.

Affluent Materialists---status-conscious “up and comers” who use conspicuous consumption to communicate their success. Comfortable Belongers---conservative and most comfortable with the familiar. Disaffected Survivors---lacking power and influence, this segment offers little hope for upward mobility.

157

DMBB completed a psychographic profile of the Russian market, based on outlook, behavior, and openness to Western products.

Categories include kuptsy, Cossacks, students, business executives, and “Russian Souls" who prefer Russian products and look down on mass-produced, inferior goods (e.g., they prefer Russian-made jeans).

The segmentation and targeting approach can vary from country to country; Levi Strauss in Europe is relying heavily on gender segmentation.

The CEO believes that a psychographic segmentation strategy will revitalize the jeans brand in its home market with “fashionistas,” trendy teens, middle-aged men, and budget shoppers.

Likewise Sony Electronics undertook a reorganization of its marketing function according to consumer segments. Table 7-7.

Behavior Segmentation

What is behavior segmentation?

Behavior segmentation focuses on whether people buy and use a product, how often, and how much they use.

Consumers are categorized by usage rates—heavy, medium, light, and non-user or user status: potential users, non-users, ex-users, regulars, first-timers, and users of competitors' products.

Marketers refer to the 80/20 rule which suggests that 80 percent of a company’s revenues come from 20 percent of a firm’s products or customers: nine countries generate 80 percent of McDonald’s profits.

For example, Russians have heavy vodka consumption and prefer domestic brands. Smirnoff, produced in the West, began producing in St. Petersburg to appear local.

Yet, even as marketers adjust their strategies, young Russians are turning to beer, with expenditures for beer surpassing vodka for the first time in 2002, with local brands favored. Benefit Segmentation

158

What is benefit segmentation?

Global benefit segmentation focuses on the numerator of the value equation— the B in V = B/P.

This approach addresses the problem a product solves, the benefit it offers, or the issue it addresses, regardless of geography.

Consumers care about whitening, sensitive teeth, gum disease, and other dental issues, so toothpastes meet different perceived needs. Ethnic Segmentation

What are the three major ethnic segments in the U.S.?

In many countries, the population includes ethnic groups of significant size: The U.S. has three major ethnic segments: African Americans, Asian Americans, and Hispanic Americans.

Each segment forms a subset (e.g., Asian Americans include Thais, Vietnamese, Japanese, and Chinese, each of who speaks a different language).

By contrast Hispanic Americans, Mexican-, Puerto Rican-, and Cuban Americans all speak Spanish; numbering 35 million in 2000, they work hard, and have a strong family and religious orientation.

Mexican households in California have an after-tax income of $100 billion, half the total of all Mexican Americans; from a marketing point of view, these groups offer great opportunity.

Marketers understand, that many Hispanic Americans live in two worlds; while they identify with America, there is a sense of pride associated with brands that connect to their heritage.

ASSESSING MARKET POTENTIAL AND CHOOSING TARGET MARKETSOR SEGMENTS After segmenting the market by one or more of the criteria discussed, the next step is to assess the attractiveness of the identified segments.

This is especially important when sizing up emerging country markets as potential targets: global marketers should be mindful of several potential pitfalls:

The tendency to overstate the size and short-term attractiveness of individual markets, especially when they are based on demographic data such as income and population.

159

Targeting a country because shareholders or competitors exert pressure on management not to “miss out” on a strategic opportunity.

The danger that management’s network of contacts will emerge as a primary criterion for targeting with the result of market entry based on convenience not market analysis.

Marketers can use three criteria for assessing opportunity in global target markets:

current size and anticipated growth potential competition, and compatibility with objectives feasibility of successfully reaching a designated target.

Current Segment size and growth potential Is the market segment currently large enough to make a profit? Does it have high growth potential?

A single-country market might be too small but still a profitable target if the segment is global ; the billion-plus members of the global MTV Generation constitutes a huge market.

In the case of China or India, segment size and growth potential may be assessed in a different manner; Visa’s strategy in China is to target those with a salary of $300+.

The company estimates that 60 million now fit that description, but by 2010, the number could be 200 million people.

The sports utility vehicle segment of the U.S. auto market was a growth segment from 1990 to 2000, with 3 million sold in 2000; high foreign demand led manufacturers from outside the U.S. to create SUVs.

Potential competition

A market or market segment with strong competition may be a segment to avoid; if the competition is vulnerable in terms of price or quality, the newcomer can make inroads.

Japanese companies in a variety of industries targeted the U.S. market despite the presence of entrenched domestic market leaders; Honda first marketed small- displacement dirt bikes. Canon outflanked Xerox by offering compact desktop copiers; however, there are examples of companies that failed to develop a position in the U.S.---Acer failed against Dell.

160

Feasibility and Compatibility

If a market segment is large enough, and if strong competitors are absent or vulnerable, then the final consideration is whether a company can and should target the market. Feasibility can be negatively impacted by several factors:

Regulatory hurdles may limit market access. Companies may face cultural barriers. Several years may be required to build a distribution network.

Managers must decide how well a company's product fits a market.

Does product create value? Is adaptation is required? Will restrictions, tariffs, or currency drive up the price? Is it advisable to source locally?

It is important to decide whether targeting a particular segment is compatible with the company’s goals; BMV does not have a van because it does not fit brand values.

A Framework for Selecting Target Markets

A market selection framework by market size shows China with the greatest potential. However, the competitive advantage .07 in China.

Multiplying China’s size and competitive advantage index yields a market potential of 7.

Market access considerations reduced to an index number yield 0.2 for China.

Multiplying market potential by the index terms shows that Mexico, despite its small size, holds greater export potential than China.

A company with limited resources would target Mexico because it offers the highest market potential considering a many criteria. (Table 7-9).

This framework is useful for a preliminary screening tool for inter-country comparisons, but doesn’t go enough in assessing market potential. Global expert David Arnold has developed a framework that is based on a “bottom- up” analysis, beginning at the product level.

Product-market refers to a market defined by product category; in the automotive industry, phrases such as “luxury car market” or “SUV market” refer to specific

161

product markets. (Fig. 7.2)

The framework incorporates two concepts marketing model drivers and enabling conditions:

Marketing model drivers are key elements or factors required for a business to take root in a particular country market; the drivers differ for the consumer or industrial market.

Enabling conditions are structural market characteristics whose presence or absence can determine whether the marketing model can succeed.

India does not have refrigeration in stalls; this hampers Nestle to insure that their chocolate products are in saleable condition.

Next management must weigh the costs associated with entering and serving the market with potential short- and long-term revenue streams. Does this market merit entry now?

The issue of timing is framed in terms of the quest for the first-mover advantage; the conventional wisdom is that the first company to enter a market can become the leader.

However, there are first-mover disadvantages. The first mover makes substantial investments only to find that late-arriving competitors reap the benefits. (e.g., Jollibee fast-food chain). Late movers can also develop innovative business models (e.g., Hardy wines).

One way to determine the marketing model drivers and enabling conditions is to create a product-market profile. The profile should address some or all of the following basic questions:

1. Who buys our product?2. Who does not buy it?3. What need or function does it serve?4. What problem does our product solve?5. What are customers buying to satisfy the need for which our product is

targeted?6. What price are they paying?7. When is the product purchased?8. Where is it purchased?9. Why is it purchased?

162

PRODUCT-MARKET DECISIONS

How can a company review current and potential product offerings in terms of suitability for the country market or segment?

This assessment can be performed by creating a product-market grid that maps markets as horizontal rows on a spreadsheet and products as vertical columns. Each cell represents the possible intersection of a product and market segment; Nestlé determined that a liquid chocolate confection would be one way to address India’s hot weather.

Table 7-10 shows a market/product matrix for Lexus; in 2004 Lexus offered a total of 8 different models in the U.S. as the largest market but also markets in 35 countries.

Management intends to build Lexus into a global luxury brand and sell 60,000 cars in Europe by 2010; this means that the company has to target Germany, home to Mercedes and BMW.

TARGET MARKET STRATEGY DECISION

After evaluating the segments in terms of the three criteria presented, a company decides whether to pursue the opportunity or not.

An appropriate targeting strategy must be developed: standardized, concentrated, or differentiated marketing.

Standardized global marketing

Standardized global marketing resembles mass marketing, creating the same marketing mix for a broad mass market of potential buyers.

Standardized global marketing, also known as undifferentiated target marketing, assumes that a mass market exists around the world.

Product adaptation is minimized, and intensive distribution ensures that product availability is maximized. Lower production costs and standardized communications are attractive elements (e.g., Revlon used a global theme in developing markets in Central and Eastern Europe.

163

GLOBAL MARKETING IN ACTIONTargeting Adventure Seekers with an American Classic

In 2003, Harley-Davidson celebrated its 100th anniversary with sales of $2.1 billion, 8,000 employees, worldwide, and a network of 1,300 dealerships in 48 countries. Harley's international success comes after years of neglecting overseas markets. The company was basically involved in export selling and had an underdeveloped dealer network. Print ads simply used translations of the U.S. ads. By the late 1980s, Harley recruited dealers in the important Japanese and European markets. In Japan, Harley's rugged image and high quality helped make it the best-selling imported motorcycle. Still, Harley's Japanese division worried that the tag line from the U.S. ads didn't connect with Japanese riders.

Q: How did Harley utilize the principle “think global but act local?”

A: Harley launched a Japan-only advertising campaign juxtaposing images from both Japan and the United States, such as American cyclists passing a rickshaw carrying a geisha. Since riders in Tokyo consider fashion and customized bikes essential, Harley opened stores specializing in clothes and bike accessories. Harley followed this principle in Europe as well.

Concentrated global marketing

Concentrated target marketing involves devising a marketing mix to reach niche, a single segment of the global market (e.g., In cosmetics, Chanel targets upscale market segments).

Concentrated targeting is employed by hidden champions, unknown companies who serve market niches, striving for global depth not national breadth (e.g., Germany's Winterhalter focuses on dishwashers and water conditioners for hotels and restaurants).

Differentiated global marketing

Differentiated global marketing, also known as multisegment targeting, target two or more market segments with multiple marketing mix offerings.

This strategy allows a company to achieve wider market coverage (e.g., in the sport utility vehicle segment, Rover has a $68,000 high-end Range Rover and a scaled-down version from $33,350).

164

POSITIONING

Positioning, developed by Ries and Trout, refers to locating a brand in customers' minds over and against competitors in terms of attributes and benefits that the brand does and does not offer.

Positioning is used with segmentation variables and targeting strategies (e.g., Unilever uses differentiated target marketing, offering many brands in a product category, positioned differently). Proctor & Gamble’s Crest is available in more than one dozen formulations (Table 7-11). Marketers have several positioning strategies: attribute or benefit, quality and price, use or user, and competitor. Recent research has identified three additional positioning strategies: global consumer culture positioning, local consumer culture positioning, and foreign consumer culture positioning.

Attribute or benefit

A frequently used positioning strategy exploits a particular product attribute, benefit, or feature.

Economy, reliability, and durability are frequently used attribute/benefit positions (e.g., Volvo is known for solid construction that offers safety in the event of a crash).

In global marketing, it may be important to communicate that a brand is imported. This approach is known as foreign consumer culture positioning (FCCP) (e.g., Visa).

Quality and price

This strategy runs from high quality/high price to good value/reasonable price (e.g., Imported vodka like Stolichnaya Gold is positioned as a super premium brand at twice the price of premium “ordinary” vodka).

Quality and price are used in conjunction with benefit/attribute positioning.

"Transformation advertising" seeks to change the experience of buying and using a product—the benefit—to justify a higher price.

Use or user

165

Another positioning strategy represents how a product is used or a class of users. For example, the success of Lord of the Rings prompted Gillette’s Duracell battery to announce that director Peter Jackson used Duracell exclusively on location. Competition

Reference to competitors can be an effective positioning strategy. (e.g., Body Shop International differentiated itself from “mainstream" cosmetics manufacturers---no animal testing.

However, competitors copied Body Shop's positioning and the company lost its distinction; now the company no longer manufactures its own products and focuses on retailing.

Global, Foreign, and Local Consumer Culture Positioning

Global consumer culture positioning (GCCP) is defined as a strategy that identifies the brand as a symbol of a particular global culture or segment.

It has proven effective for communicating with global teens, cosmopolitan elites, globe- trotting laptop warriors (e.g., Sony's brightly colored "My First Sony" line is positioned as the brand for youngsters around the globe).

Certain products lend themselves to GCCP. High-tech and high-touch products are associated with high levels of customer involvement and a shared "language".

High-tech products are sophisticated, technologically complex, and/or difficult to explain or understand. (e.g., cell phones, personal computers., audio/video components are high-tech categories with strong global positions).

High-tech global consumer positioning works well for special interest products associatedwith leisure or recreation (e.g., Fuji bicycles, Adidas sports equipment, and Canon cameras).

For high-touch product s, emotional motives rather than rational ones energize consumers.

High-touch products may represent personal indulgence, self-image, or interpersonal relationships (e.g., luxury perfume, designer fashions).

Some high-touch products are linked with the joy or pleasure found in "life's little moments."

166

A brand's GCCP is reinforced through thematic, verbal, or visual components incorporated into advertising.

Leisure, romance, and materialism are three themes that cross borders well.

Professionalism and experience are successful advertising themes for high-tech products such as global financial services.

For example, Chase Manhattan bank launched a $75 million global ad campaign with the theme "Profit from experience." Products can be positioned globally as both high-tech and high-touch when they satisfy rational criteria and evoking an emotional response (e.g., Nokia, the cell phone leader, combines technical performance with fashion).

The use of English in advertising and labeling globally achieves GCCP (e.g., Benetton's tag line "United Colors of Benetton" appears in English in all advertising).

Brand symbols reinforce a GCCP because they are not associated with a specific country culture (e.g., the Nike swoosh)

Another option is foreign consumer culture positioning (FCCP), associating users, use occasions, or production origins with a foreign country or culture (e.g., the name "Haägen-Dazs" implies Scandinavia though the ice cream is American).

Local consumer culture positioning (LCCP) associates the brand with local cultural meanings and norms, local consumption, or local production (e.g., LCCP is seen in Budweiser's U.S. ads featuring Clydesdale horses, associated with rural America).Coca cola in India positioned as Thanda Matlab Coca Cola

167