Market segmentation

Entering international markets

Ana Colovic

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 Market screening techniques
• Choosing which market to enter is a key
strategic decision.

• Correct market definition is crucial for the

measurement of share and other indicators of
performance, for the specification of target
customers and their needs and for the
recognition of important competitors.

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 Identifying appropriate
markets
• Screening countries against a series of factors. Key
areas of interest are:
– Market size (population, age structure, levels of domestic
production and imports, number of firms serving the market…)
– Structure of the population (age groups, geographical
distribution, population density…)
– Economic development
– Income and wealth (GDP, GDP per capita)
– Business environment (religious or cultural norms, laws, tariffs)
– Storage and transport facilities
– Political considerations
– Local competition

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 Identifying appropriate
markets (2)
• Field work
– When it is difficult to measure a market’s size and
characteristics from published data
– Where consumer attitudes and behaviour cannot
otherwise be assessed.
• Market attractiveness indexes
– Countries are ranked according to a number of
points (GDP, rates of ownership of consumer
durables, socio-demographic variables)
– Problem: deciding the weights to attach to each
variable
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 Market segmentation
• Market definition leads into issues of market
segmentation.
• Segmentation means breaking down the market for a
particular product or service into segments of
customers that differ in terms of their response to
marketing strategies. It means breaking down the total
market into self-contained and relatively homogeneous
subgroups of consumers, each possessing its own
special requirements and characteristics.
• For example, on the basis of language, there are
French, German and Italian-based segments in
Switzerland.
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 Lifestyle (psychographic)
segmentation
• Segmentation according to economic or demographic
variables assumes that most of the consumers within
the economic or demographic category concerned
behave in a similar manner.
• Consumer attitudes, perspectives and purchasing
behaviour can differ remarkably within market groups
possessing nearly identical demographic
characteristics.
• The incorporation into the analysis of a psychosocial
dimension to reflect consumer lifestyles, personality
types, interests, leisure activities, perspectives and
opinions sharpens the firm’s targeting.
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 Psychographics
• The term ‘psychographics’ refers to the
systematic study of consumer lifestyles,
attitudes, interests, opinions and prejudices
as they affect purchasing behaviours.
• Psychographics seeks to sketch profiles of
particular consumer groups and identify
demands for certain products from key
variables that characterize consumer types.

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 Lifestyle
• Lifestyle is the consequence of many
interacting variables: income, upbringing,
experiences, relationships with others,
cultural influences…
• It involves a pattern of living habits, leisure
pursuits, types of entertainment purchased,
degree of involvement with the community
and so on.

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 Lifestyle (2)
• The aim of studying lifestyles is to identify in
consumers certain common characteristics such as:
– whether they are motivated by materialistic or non-materialistic
drivers;
– the extent to which their main concern is merely to exist and survive
rather than engage in luxury;
– whether their outlook is ‘conservative and traditional’ or whether they
are ‘innovative and adventurous’;
– The degree of logic and rationality they apply to purchasing decisions;
– Whether they are ‘inner directed’ (i.e. concerned with personal
growth, individual freedom and human relations) or ‘outer directed’
materialists who gain their greater satisfaction from physical
consumption of goods;
– Attitudes towards home, family, security and the status quo

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 Problems with psychographic
segmentation
• Psychographic segmentation rests on the assumption
that consumers have stable values, beliefs and
attitudes that are not subject to sudden and
unpredictable change. This is not always true.
• Psychosocial categorizations are highly subjective
and open to numerous interpretations (for example,
what exactly is meant by ‘sophisticated’, ‘reflective’,
…)
• Psychographic analysis can be a waste of money (if a
wide range of types of consumers use the product).

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Entering international markets
• The firm needs to consider carefully all
the available options, costs, possible
loss of control and risk involved.
• The market entry methods have to
relate to the company’s overall strategy,
goals and the time periods in which it
wishes its objectives to be achieved.

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 Options
• Aquisitions
• Exporting
• Use of agents and/or distributors
• Joint ventures with foreign firms
• Licensing and franchising
• Management contracts
• Contract manufacturing
• Establishment of foreign branches and/or subsidiaries
(including FDI in manufacturing plant)
• Direct marketing via the Internet

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 Agents and distributors
• Distributors purchase a supplying firm’s
products
• Agents find clients for the supplying
firms and then ‘drop out’
• Distributors typically demand exclusivity
• Agents usually operate on a
commission basis

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 Joint ventures
• A joint venture is a collaborative arrangement between
unrelated parties that exchange or combine various
resources while remaining separate and independent legal
entities.
• JVs are increasingly popular as a means for entering foreign
markets
• Advantages: can be quickly entered into and abandoned;
enable the sharing of costs, can be used to establish
bridgeheads in a foreign market prior to major marketing
efforts by individual participants.
• Problems: disagreements over organization, control, goals,
pricing policy, confidentiality of information, need to share
intellectual property…
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 Licensing and franchising
• Firms that possess patented inventions,
registered trade marks or specialist know-how
that can be kept confidential may decide to
license foreign firms to make and market their
products.
• With a franchise agreement a foreign firm
adopts the franchisor’s entire business format
in the local market - its name, trade marks,
business methods, layout of premises, etc.

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 Management contracts
• A firm in one country provides a team of
expert managers to an enterprise in another
for a fixed period under contract.
• Typically the team will install a new system,
train local personnel and then hand over the
entire system to local control. This procedure
is known as turnkey agreement.

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 Contract manufacturing
• The firm places orders with local business for
the production of goods, which it then sells
locally or exports.
• Advantages: not having to invest large sums
of money in capital equipment; easy
withdrawal from high-risk markets; avoidance
of involvement in industrial relations with local
workforces.
• Problems: difficult to monitor and maintain
quality levels, protect intellectual property;
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 Establishing branches and
subsidiaries
• A branch is a direct extension of the parent firm into a
foreign country (so that the parent is legally
responsible for all the branch’s debts and activities).
• A subsidiary is seen in law as a separate business
from the firm that owns it. It is responsible for its own
debts and is subject to exactly the same taxes,
auditing, registration and accounting regulations as
any other local business.
• A marketing subsidiary can monitor trends on a
continuous basis, provide after-sales service, deal
with local advertising and research agencies, arrange
for transport, distribution, warehousing etc.
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 International marketing
through the Internet
• E-commerce
• It is very successful in business-to-
business markets
• Traffic sustaining factors: speed,
graphics, interactivity, consistency and
user-friendly design, cookies, creativity
and contents, links.

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