Market Selection & Segmentation 1

Market definition and segmentation
necessary if growth within the country is to be maximized. The ability to be culturally sensi-
tive to the market, to its values and norms, and to develop an approach with these sensitivi-
ties in mind is a major step toward getting things done right.
Finally, it must be realized that the international business is a start-up and should not
be expected to be driven in the exact same way or have the same challenges as the larger
parent company.
Have realistic expectations

In an international expansion there arises the pressure of time-to-market. However, the
scope and importance to the company of replicating itself in foreign markets is great, and
allowing adequate time to conduct proper diligence and in-depth analysis prior to making a
decision to expand is crucial to being successful.
While time-to-market is important, some flexibility in the timeline should be built in to deal
with unexpected delays or other issues that could arise. After all, ‘getting it done right is
more important than getting it done fast!’
Source: Adapted from Crowley (2006). Reprinted with permission from Direct Selling News.
Market definition is not a mechanical exercise, but a crucial and complex component of
export marketing strategy. Correct market definition is obviously crucial for the measure-
ment of share and other indicators of performance, for the specification of target customers
and their needs, and for the recognition of important competitors.
Issues of market definition lead inevitably into issues of market segmentation. Given the
heterogeneity of most markets, segmentation means breaking down the market for a par-
ticular product or service into segments of customers that differ in terms of their response
to marketing strategies. More formally, market segmentation is the process of classifying
customers into homogeneous groups with similar demand and/or preferences (Bruning et
al., 2009, p. 1500). In the context of international markets, segmentation can be viewed
Copyright © 2016. Pearson Education Limited. All rights reserved.
as a process whereby unique customer groups can be identified, whether they are coun-
try-based or individual consumer-based groups (Bruning et al., 2009, p. 1500). The goal
of such segmentation is to identify those persons who show similar behaviors, and thus are
more likely to react uniformly to marketing stimuli such as promotion, price, sales tech-
niques, etc. (Griffith, 2010, p. 59). By doing so, the firm can tailor its marketing policies to
the need of each specific segment, hoping to obtain greater profits than are possible by fol-
lowing a uniform strategy aimed at the entire market. For example, on the basis of language
only, there are French, German, and Italian-based segments in Switzerland. As another
example, consider the United States where ethnic background is the basis for many poten-
tial segments in different areas of the country including Hispanic, Irish, African–American,
Chinese, Italian, Korean, and other Southeast Asian areas. Yet another example comes from
China, within which there are wide differences. For China, it should be recognized that it
is several fragmented, regional markets that can be further broken down into niche mar-
kets based on cities, rural versus urban, types of people, and income levels (Andruss, 2001,
p. 11). A growing segment within China is the more than 400 million young people aged
5 through 24 (Gong et al., 2004). These youths have power and influence over personal
199
Albaum, G., Duerr, E., & Josiassen, A. (2016). International marketing and export management. Retrieved from http://ebookcentral.proquest.com
Created from hud on 2020-03-11 07:27:39.
Chapter 5 Market selection: definition and strategies
and household purchases. One other characteristic to consider is accessibility. China’s rural
dwellers are not easily accessed. Trying to take advantage of segmentation on these bases
would, at best, be extremely difficult.
So-called niche firms that are internationally oriented do not follow the usual segmen-
tation, targeting, and positioning (STP) process. Rather, they largely depend on resource-
based advantages, products that are of high quality (based perhaps on tradition, chance, or
production philosophy), and long-term personal relationships and commitment in develop-
ing their niche strategies (Toften and Hammervoll, 2009, p. 1388).
A major strength of market segmentation is that it can generate specialization. At the
same time, segmentation involves costs, risks, and possible weaknesses in some cases, espe-
cially where accessibility is not easy.
In export marketing a common way of defining and describing markets is in terms of
export countries. This is only one level out of an immense number of potential market
levels. To be of value, analysis of market behavior should be conducted at multi-levels
including such dimensions as channels, customer segments, or use occasions as well as the
geographic dimension. Market definitions are often made on the basis of only one dimen-
sion (e.g., customer groups) which may be in conflict with definitions based on other
dimensions (e.g., product function). Competitors also define markets, and their definitions
often may not coincide with each other. Ignoring competitors’ definitions may result in both
lost opportunities and bases for future competitive action.
An analysis of marketing a product or service should be undertaken within every rele-
vant market segment and at higher levels of analysis across market segments, markets, and
countries. Evaluating the company’s performance or potential for a given product within
the boundaries of a market segment provides an indication of the interrelationship among
the products offered by a number of competitors. At this level of analysis interest is centered
on the individual customer. The single market segment’s perception is important to mar-
keters for determining market boundaries. A narrow definition can satisfy the short-term,
tactical concerns of the marketing mix.
Product mix (i.e., structural pattern of imports) may also define markets. Green and
Srivastava (1985) used cluster analysis to group 80 nations on the basis of their imports
(18 product categories, two-digit SITC, were used), and concluded that there are dangers in
segmenting international markets on single geographic or demographic bases. The result-

ing 12 clusters that were identified are not to be viewed as definitive in their own right,
but as indicative of complex interactions that occur which help to determine the relative
magnitude of different national markets for individual product categories. The findings and
techniques used in this study are appropriate for direct investment and associated market-
ing activities as well as for export market segmentation. For example, countries that import
relatively large amounts of a product and which possess a sufficiently large market may
represent candidates for direct investment or strategic alliances. Similarly, large countries
that might be excluding a product by restrictions (e.g., Mexico’s past behavior) may also be
potential candidates for direct investment or a strategic alliance.
At higher levels of market segmentation the analysis tends to ignore the individual cus-
tomer and focuses more on the performance of each product in its relevant market seg-
ment. A broader definition of a market then results in a dilution of effort and competence
in the business’s current activities. Defining product markets and country markets gives rise
to the selection of the most attractive combinations of products and markets and thus to
resource allocation of a portfolio of strategic elements. The broader definition of the market
200
reflects long-term, strategic planning concerns, including changes in technology, price rela-
tionships, potential substitute products, potential ‘new’ markets, and so on. In identifying
new opportunities or competitive threats, the market definition must not only reflect the
served market, for example the customers to whom the business directs its marketing effort,
but also those portions of the unserved market that in the long run are critical for the com-
petitive success of the company.
Export market segmentation

The issues of segmentation are at least as important, and often more important, for export
markets as for domestic markets. Because of differences in the economic, cultural and
political environments between countries, international markets tend to be more hetero-
geneous than domestic markets. The range of income levels and the diversity of lifestyles
and of social behavior are likely to be significantly greater when considering the world as
opposed to a national market. The existence of such heterogeneity provides substantial
potentials for identifying different segments.
Given limited financial and organizational resources, the export firm should try
to identify the most attractive market segments that it can serve in terms of segment
preferences, patterns of competition, and company strengths. This offers several benefits
including better market opportunities in terms of competitive positioning, tailoring
marketing programs to meet the needs of different customer segments, and clearer criteria
in allocating marketing funds to the different segments in line with their likely levels of
purchase response. But in identifying market segments these benefits have to be greater
than the costs of reaching them with the company’s marketing strategies.
The success of any market segmentation scheme depends heavily on the choice of varia-
bles by which to perform the segmentation (Souiden, 2002). There are many possible ways
to segment on a worldwide or regional basis, and applying mixed criteria can create the
most meaningful segments. For example, in selling sowing machines the use of the level
of economic development (measured by, say, GNP or GDP per capita) as a base for coun-
try segmentation could identify export markets with high purchasing power but with no
or, at most, insignificant agricultural sectors. Thus, more complex and combined measures
have to be used, including, for example, the importance and composition of the agricultural
sectors, purchasing powers, education levels, level of technology, buying decision criteria,
and so forth.
It is important to note that any decision to segment on a particular basis should be evalu-
ated in terms of the following characteristics.
Measurability
Measurability is the degree to which segments can be identified and to which the size and
purchasing power of the segments can be measured. In export marketing management,
important qualitative indicators such as cultural characteristics are intuitively appealing
bases for country segmentation, but difficult to use due to conceptual and measurement
problems. Suppose a clothing manufacturer from Hong Kong wanted to export to the Euro-
pean Union countries and was interested in the following two segments based on age:
16–24 years, 25–40 years. The company must be able to identify which potential consumers
belong in each group and must be able to measure the size and, say, income of each group.
If these age categories do not correspond to those used in the various countries, which may
201
differ among themselves, then it would be difficult to assess the size and purchasing power
of each group.
Accessibility
Accessibility is the degree to which the resulting segments can be effectively reached
and served. In the case of China, for example, not only is it difficult to access per se its
rural segment, but the composition of it also changes as there is migration from the
country to the cities, particularly of younger people. Such migration is a characteristic
of Asia in general. In export marketing, communication problems pose distinct difficul-
ties in reaching the end user (often also the foreign distributor) because of inadequate
language skills, nationalistic attitudes, the difficulties for an exporter in understanding
foreign media systems (structure and format), and so on. Continuing with the Hong
Kong clothing company manufacturer, are there media that can be used to reach the
two segments efficiently and effectively? It is very unlikely there are print or broadcast
media that are read or listened to by only members of the segments. Thus, some promo-
tion – or information providing – cost would be wasted. Moreover, there are differences
in the segments between the countries.
Profitability
Profitability is the degree to which the resulting segments are large and/or profitable
enough to be worth considering for separate marketing attention. In export marketing
there can be excessively high costs involved in segmenting markets because of necessary
adaptation to local markets’ specific needs and demands. Market conditional factors such as
the imposition of tariffs or taxes on certain goods create a basis for product modifications.
Product conditional factors, such as specific legal restrictions (patent agreements, qual-
ity standards, and controls) may also influence product specification and costs. The com-
pany has to realize that segmental export marketing is expensive, and there is a trade-off
between profits and costs. If costs of export tend to be high, the segments may be approach-
able by investment or strategic alliance. For the Hong Kong manufacturer one question here
is whether the two age segments in the European countries are large enough to warrant
spending funds to market its product line.
Actionability
Actionability is the degree to which effective programs can be formulated for attracting and
serving the segments. Segments that are measurable, accessible, and potentially profitable
are ‘worthless’ as segments unless marketing programs can be developed and implemented
for each of them. In addition, to be effective the segments need to respond differentially to
marketing efforts. The Hong Kong clothing manufacturer needs to assess whether it has the
resources and organization capable of developing and implementing the needed marketing
program(s) for the segments. Profitability will depend in part on how responsive the two
segments are to the company’s marketing efforts.
Bases of segmentation
A classification scheme of various bases for export market segmentation is shown in
Table 5.2. It is evident that the relevance of any particular criteria for segmentation will
depend on the specific market situation and company characteristics, and the suggested
202
Table 5.2 Bases for export market segmentation

General market indicators Specific product indicators
Country market level Demographic and population Economic and legal constraints
characteristics
Socio-economic characteristics Market conditions
Political characteristics Product-bound culture and lifestyle
characteristics
Cultural characteristics
Customer market level Demographic characteristics: Behavioral characteristics:
age, gender, life cycle, religion, consumption and use patterns,
nationality, etc. attitudes, loyalty patterns,
benefits sought, etc.
Socio-economic characteristics:
income, occupation, education,
etc.
Psychographic characteristics:
personality, attitudes, lifestyles
criteria are only possible elements to be considered. Two types of segmentation varia-
bles are distinguished – general market indicators and specific product indicators – and
these are viewed from both country and customer market levels. General market indi-
cators are those that do not vary across purchase situations, whereas specific product
indicators vary with the individual purchase situation or particular product.
It is clear that there are many different bases upon which international markets can be
segmented. In addition to ‘specific’ segmentation (i.e., for a product class or for a com-
pany), many schema have been proposed that are more general in nature. One example is
a study of consumers in 20 countries on four continents by Dubois et al. (2005), in which
they proposed international segmentation based on attitudes toward luxury and luxury
products. Three segments emerged: elitist, democratic, and distant. The elitist attitude pro-
poses a traditional view of luxury as appropriate for a small elite group. Few people should
own luxury products, and it is these products that allow elitists to separate themselves from
others. In contrast, the democratic attitude views luxury as available to a larger audience.
Everyone should have access to luxury goods. There are no specific restrictions from the
democratic segment. Finally, the distance segment believes that luxury is a different world
to which they do not belong. Among the three segments, the distance segment is most likely
to view luxury as useless and too expensive.
Consumers in the developing countries of Saudi Arabia, Oman, and Kuwait were studied
to assess whether meaningful segments could be based on ethical beliefs, Machiavellian-
ism, ethical orientation, opportunism, and trust (Al-Khatib et al., 2005). Three segments
were identified. Principled Purchasers tended to be less Machiavellianistic, less opportun-
istic, more trusting of others, less relativistic, and perceived questionable actions in a neg-
ative light. Suspicious Shoppers were less trusting, tended to proceed with caution in their
dealings, were somewhat opportunistic, but placed a high emphasis on ethical behavior.
Finally, the Corrupt Consumers were not trusting, were Machiavellianistic, took advantage
of opportunities, were not ethically oriented, and were more likely to act in an unethical
manner. Obviously, a company must alter its approach to relationships when dealing with
203
these different types of people. Whether these types of consumer exist in other countries is
a question that companies need to answer if they want to segment on the basis of ethicality.
The advertising agency Backer, Spielvogel Bates Worldwide identified five distinct con-
sumer segments globally, based on studying 15,000 adults in 14 countries on five conti-
nents. The research they conducted found global similarities in values, attitudes, and actual
purchasing patterns. The consumers were then defined by demographics. The first group,
called strivers, has a median age of 31 and leads active lives. They are under stress most of
the time and prefer products and services that are sources of instant gratification. Another
group, achievers, is also young but its members have already found the success they seek.
They are affluent, assertive, and society’s opinion and style leaders. Achievers value status
and quality in the brands they buy, and are largely responsible for setting trends. The pres-
sured are mainly women, in every age group, who find it extremely difficult to manage all
the problems in their lives. They have little time for enjoyment. A fourth segment are older
consumers who live comfortably, the adapters. They recognize and respect new ideas with-
out losing sight of their own values. They are willing to try new products that enrich their
lives. Finally, traditionals embody the oldest values of their countries and cultures. They are
resistant to change, and they are content with the familiar products.
Values have been used to define other broad schemes for consumer segmentation.
Although these typically have been developed based on consumers in one country they
are purported to be applicable to consumers in all countries. In fact, values tend to reveal
cross-cultural differences. One approach to the use of values as a segmentation tool in
international marketing involves using the List of Values (LOV), which measures eight val-
ues that people feel are relevant to them (Kahle et al., 1987). These values are a sense of
belonging, fun and enjoyment, warm relationships, self-fulfillment, being well-respected,
a sense of accomplishment, security, and self-respect. Specific application areas for this
schema, as well as others, include environmental scanning, product introduction and posi-
tioning, and advertising. Studies have been done in many nations of the world in Europe,
North America, South America, and Asia (Kahle et al., 1999; Albaum et al., 2010). A similar
schema based on values is shown in Exhibit 5.3.
Exhibit 5.3 Core values segmentation

Is it nationality, culture, or personal values that makes, say, Austria so different from China
or the Philippines? The answer is: it depends. Each of the three factors plays a role in
determining the nature and development of global consumer markets. But the relative
importance of each depends upon the product/service category the international marketer
is dealing with.
Core values are key ingredients in all of this. In a study conducted in the late 1990s Roper
Starch Worldwide interviewed 1,000 adults, residing in 35 countries (Miller, 1998). One task
was for these adults to rank 56 values in terms of the importance they hold as guiding prin-
ciples in their lives. Six global values segments were identified, residing in all 35 countries,
but to varying extents in each. The segments are:
●● Strivers: the largest group; slightly more likely to be male, and they place more emphasis
on material and professional goals than the other groups; about one in three in develop-
ing Asia and one in four in Russia and developed Asia fall in this group. ➨
204
●● Devouts: 22% of adults are in this group, which includes more women than men; tradition
and duty are very important; most common in developing Asia and the Middle Eastern
and African countries; least common in developed Asia and Europe.
●● Altruists: 18% of all adults fall into this group, with slightly more females then males; are
interested in social issues and the welfare of society; median age is 44, making this group
older; more live in Latin America and Russia than in other countries.
●● Intimates: comprising 15% of the world’s population, this group values close personal
relationships and family above all else; about equally split between the genders; one in
four Americans and Europeans fall in this group compared to just 7% in developing Asia.
●● Fun Seekers: accounts for about 12% of the world’s population, although found in
disproportionate numbers in developed Asia; the youngest group, with males comprising
about 8% points more than females.
●● Creatives: the smallest, with 10% of the world’s population; have a strong interest in
education, knowledge, and technology; more common in Latin America and Europe; has
a balanced gender mix.
Some values cut across many categories and countries, although most people tend
to fall into a particular category. People in different segments tend to engage in different
activities, buy different products and use different media for information acquisition. This, of
course, is the essence of segmentation, targeting, and positioning!
Source: Miller, 1998.
Values play a role in one other approach to segmentation, which is the approach based
on age cohorts. Environmental events experienced during one’s coming-of-age years cre-
ate values that remain relatively unchanged throughout one’s life. Such values provide a
common bond for those in that age group or cohort. Cohort analysis is known to work in
the United States, and Schewe and Meredith (2004) provide an illustration of generational
(age) cohorts in Russia and Brazil.
Is there such a thing as a global market segment? The youth segment (15–24 years of
age) provides an example. The advertising agency DMB&B studied the cultural attitudes
and consumer behavior of more than 6,500 teenagers in 26 countries (Miller, 1995). The
results indicated that in the mid-1990s teenagers throughout the world led very simi-
lar lives. In fact, they could be viewed as truly global consumers. This is a group that has
grown up with MTV. Even though teenagers appear to be a global segment, there will still
be regional and local differences that require subtle differentiations in marketing. There are
certain fundamental values that teenagers around the globe share, but opponents to the
global teenager idea argue that the cultural differences are so prominent that it is very dif-
ficult to speak in one voice throughout the world. Another example is segmentation based
on gender.
To a company, the relevance of international market segmentation is related to its
ability to contribute to company performance. In order to determine this, appropriate
measures of performance are needed. A study of 62 segmentation decision-makers in
companies marketing to consumers internationally showed that sales growth was viewed
as the most important of 16 international segmentation performance dimensions, as
205

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Market definition and segmentation

Have realistic expectations

Market definition and segmentation

segmenting international markets on single geographic or demographic bases. The result-

Export market segmentation

Table 5.2 Bases for export market segmentation

Exhibit 5.3 Core values segmentation

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