International Marketing Mix and Marketing of Products

Reasons for International Market Segmentation

The goal of market segmentation is to break down the market for a product or a service into different groups of consumers who differ in their response to the firm’s marketing mix program.

That way, the firm can tailor its marketing mix to each individual segment, and, hence, do a better job in satisfying the needs of the target segments. This overall objective also applies in an international marketing context. In that sense, market segmentation is the logical outgrowth of the marketing concept.

The requirements for effective market segmentation in a domestic marketing context also apply in international market segmentation. In particular, segments ideally should possess the following set of properties:

1. Identifiable: The segments should be easy to define and to measure. This criterion can be easily met for “objective” country traits such as socioeconomic variables (e.g., gender and age). However, identifying segment membership based on values or lifestyle indicators is usually much harder.
   
   
2. Sizable: The segments should be large enough to be worth going after. Note that modern technologies such as flexible manufacturing enable companies to relax this criterion. In fact, many segments that might be considered too small in a single-country context become attractive once they are lumped together across borders.
   
   
3. Accessible: The segments should also be easy to reach through promotional and distributional efforts. Differences in the quality of the distribution (e.g., road conditions and storage facilities) and media infrastructure (e.g., internet penetration) imply that a given segment might be hard to reach in some countries and easy to target in other marketplaces.
   
   
4. Stability: If target markets change their composition or behavior over time, marketing efforts devised for these targets are less likely to succeed.
   
   
5. Responsive: For market segmentation to be meaningful, it is important that the segments respond differently from each other to differentiated marketing mixes.
   
   
6. Actionable. Segments are actionable if the marketing mix necessary to address their needs is consistent with the goals and the core competencies of the company.

Let us now consider the main reasons why international marketers implement international market segmentation.

• Country Screening
• Global Marketing Research
• Entry Decisions
• Positioning Strategy
• Resource Allocation
• Marketing Mix Policy

Country Screening

Companies usually do a preliminary screening of countries before identifying attractive market opportunities for their product or service. For preliminary screening, market analysts rely on a few indicators for which information can easily be gathered from secondary data sources. At this stage, the international market analyst might classify countries in two or three piles. Countries that meet all criteria will be grouped in the “Go” pile for further consideration at the next stage.

Countries that fail to meet most of the criteria will enter the “No Go” pile. The third set includes countries that meet some of the criteria but not all of them. They may become of interest in the future but probably not in the short term.

Companies will use different sets of criteria to screen countries, depending on the nature of the product. Cultural similarity to the domestic market is one criterion on which companies often rely. Other popular screening criteria include market attractiveness in terms of economic prosperity (e.g., per capita GNP), geographic proximity, and the country’s economic infrastructure.

Global Marketing Research

Country segmentation also plays a role in global marketing research. Companies increasingly make an effort to design products or services that meet the needs of customers in different countries. Certain features might need to be added or altered, but the core product is largely common across countries.

Other aspects of the marketing mix program such as the communication strategy might also be similar. The benefits of a standardization approach often outweigh the possible drawbacks. Still, to successfully adopt this approach, companies need to do sufficient market research. Given the sheer number of countries in which many companies operate, doing market research in each one of them is often inefficient. Especially at the early stage, companies are likely to focus on a select few countries. The key question, then, is which countries to choose.

One approach is to start grouping prospective markets into clusters of homogeneous countries. Out of each group, one prototypical member is chosen. Research efforts will be concentrated on each of the key members, at least initially. Presumably, research findings for the selected key member countries can then be projected to other countries belonging to its cluster.

For example, to develop LEGO Friends, an offering aimed at girls 5 and up, the Danish toymaker conducted research in Germany, Korea, the United Kingdom, and the United States. The key goal of the research was to understand what would make LEGO play more appealing to young girls.

Entry Decisions

When a product or service does well in one country, firms often hope to replicate their success story in other countries. Entering new markets involves major resource commitments. When launching a new product or service, the company must decide on the sequence of countries to enter. Segmentation

of countries could support the selection process. The underlying logic is that the penetration patterns (e.g., rapid vs. slow penetration) for the new product are likely to show parallels across countries when the demand (e.g., culture) and supply (e.g., regulations) are similar in these countries.

It is important, though, to realize that a host of factors make or break the success of a new product launch. Tabasco sauce is very popular in many Asian countries like Japan with a strong liking for spicy dishes. Hence, McIlhenny, the Louisiana-based maker of Tabasco sauce, might view entering Vietnam and India, two of the emerging markets in Asia with a palate for hot food, as the logical next step for its expansion strategy in Asia. Other factors, however, such as buying power, import restrictions, or the shoddy state of the distribution and media infrastructure could lessen the appeal of these markets.

Positioning Strategy

Segmentation decisions will also influence the company’s product positioning strategy. Once the firm has selected the target segments, management needs to develop a positioning strategy that will resonate with consumers in the chosen segments. Basically, the company must decide on how it wants to position its products or services in the mind of the prospective target customers.

Environmental changes or shifting consumer preferences often force a firm to rethink its positioning strategy. Cathay Pacific’s repositioning strategy in the mid-1990s is a good example. The Hong Kong-based airline carrier realised that its product offerings failed to adequately meet the needs of its Asian clients, who represent 80% of its customer base. To better satisfy this target segment, the airline repositioned itself in the fall of 1994 to become the preferred airline among Asian travelers. To that end, Cathay wanted to project an Asian personality with a personal touch.

Cathay now offers a wide variety of Asian meals and entertainment. Other measures include a new logo (by some people referred to as a shark-fin), new colors, repainted exteriors, and redesigned cabins and ticket counters. To communicate these changes to the public, Cathay launched a heavy advertising campaign with the slogan “The Heart of Asia.”

Resource Allocation

Market segmentation will also be useful in deciding how to allocate the com- pany’s scarce marketing resources across different countries. Exhibit 6.1 shows how one firm clusters countries using two criteria for its instant coffee brand: per capita coffee consumption and the market share of in-home soluble coffee of overall coffee consumption.

Countries where the share of instant coffee is more than 50% are classified as leader markets; countries where R&G coffee is dominant are classified as challenger markets. Developed markets are those with an annual per capita consumption of more than 360 cups. Countries below the 360-cup cutoff are developing markets from the firm’s perspective. A representation such as the one shown in Exhibit 6.1 offers guidance for a multinational company (MNC) in formulating its strategic objectives and allocating resources across groups of countries in a given region or worldwide.

For instance, managers could decide to concentrate marketing resources in countries that have a low market share but a high per capita consumption to bolster their firm’s market share. Alternatively, resources could be allocated to countries where the firm has a strong competitive position but still fairly low coffee consumption. At the same time, managers would probably ponder cutting resources in markets with low coffee consumption and where Nestlé’s market share is weak.

A more generalized approach of segmentation-for-resource allocation purposes is the BCG growth-share matrix in an international context (see Exhibit 6.2).

In this framework, countries are grouped based on two dimensions: (1) the growth potential of the business in the country (e.g., five-year predicted future growth) and (2) the company’s competitive position in the country (e.g., market share). This results in four possible country clusters depending on the relative growth (low vs. high) and the company’s competitive strength (low vs. high). Just as with the standard BCG framework, such groupings can be used to guide marketing resource allocation decisions across countries.

Marketing Mix Policy

In domestic marketing, segmentation and positioning decisions dictate a firm’s marketing mix policy. By the same token, country segmentation guides the global marketer’s mix decisions. A persistent problem faced by international marketers is how to strike the balance between standardisation and customization. International market segmentation could shed some light on this issue.

Countries belonging to the same segment might lend themselves to a standardized marketing mix strategy. The same product design, an identical pricing policy, similar advertising messages and media, and the same distribution channels could be used in these markets. Of course, marketers need to be very careful when contemplating such moves. There should be a clear linkage between the segmentation bases and the target customers’ responsiveness to any of these marketing mix instruments.

Usually, it is very difficult to establish a linkage between market segments and all four elements of the marketing mix. For instance, countries with an underdeveloped phone infrastructure (e.g., India, China, and Sub-Saharan- ran Africa) are typically prime candidates for mobile phone technologies. However, many of these countries dramatically differ in terms of their price sensitivities given the wide gaps in buying power.

Therefore, treating them as one group as far as the pricing policy goes might lead to disastrous consequences. The marketing team behind the Johnnie Walker scotch brand developed a schema classifying countries as “mature” (Western countries and Japan), “developing” (e.g., Spain, Portugal, Mexico, and South Korea), or “emerging” (e.g., Brazil, Thailand, Russia, and China). Each country group is characterized by different market conditions (Exhibit 6.3). For instance, Johnnie Walker faces rising costs of doing business (due to duties increases and product piracy) in “developing” countries and grey-channel situations in “emerging” markets.

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Drivers Towards Standardization

A recurrent theme in global marketing is whether companies should aim for a standardized or country-tailored product strategy. Standardization means offering a uniform product on a regional or worldwide basis. A uniform prod- uct policy capitalizes on the commonalities in customers’ needs across coun- tries. The goal is to minimize costs. These cost savings can then be passed through to the company’s customers via lower prices.

For many product categories, firms must make changes in order to be able to sell their product in the local market. These are changes where the firm has no choice: either it meets the requirement or it cannot sell the product in that particular country. Such changes are made to meet local regulations or market conditions.

For instance, carmakers need to ensure that their cars meet the local safety requirements and environmental laws; food companies selling in the European Union (EU) need to make sure that their products do not contain any genetically modified (GM) ingredients. The process of changing the product in those areas where the firm has no discretion (the “musts”) is known as localization. Adaptation or customization refers to changes made to suit local consumer tastes (e.g., flavors) and preferences (e.g., packaging forms and sizes).

Such changes are optional—the firm could either alter its product or sell the same product as in other markets. While standardization has a product-driven orientation—economies of scale via large-scale manufacturing and/or marketing—customization is inspired by a market-driven mindset—increase customer satisfaction by adapting your products to local consumer needs and preferences.

Forces That Favor a Standardized Product Strategy

Forces that favor a standardized product strategy include:

• Common customer needs
• Global customers
• Time-to-market
• Regional market agreements

Common customer needs

For many product categories, consumer needs are very similar across countries. In some categories (e.g., luggage, courier services, and tablet computers), consumers search for the same kind of functional benefits around the world. For other products such as designer handbags and luxury watches, consumers overlap in terms of the emotional benefits being pursued.

Examples of products that clearly target a global segment are Apple’s iPhone and iPad. Apart from offering the features and benefits that competing smartphones offer, the iPhone’s emotional benefit of “coolness” is also a major reason for its popularity worldwide, especially among young audiences.

Global customers

In business-to-business marketing, the shift toward globalization means that a significant part of the business of many companies comes from MNCs that are essentially global customers. Buy-ing and sourcing decisions are commonly centralized or at the least regionalized. As a result, such customers typically demand services or products that are harmonized worldwide.

Scale economies. Cost savings from scale economies in the manufacturing and distribution of globalized products are in many cases the key drivers behind standardization moves. Savings are also often realized because of sourcing efficiencies or lowered R&D expenditures. These savings can be passed on to the company’s end customers via lower prices. Scale economies offer global competitors a tremendous competitive advantage over local or regional competitors.

In many industries, though, the “economies of scale” rationale has lost some of its allure. Production procedures such as flexible manufacturing and just-in-time (JIT) production have shifted the focus from size to timeliness. CAD/ CAM techniques allow companies to manufacture customized products in small batch sizes at reduced cost. Although size often leads to lower unit costs, the diseconomies of scale should not be overlooked. Bureaucratic bloat and employee dissatisfaction in large-scale operations often create hidden costs.

Time-to-market

In scores of industries, being innovative is not enough to be competitive. Companies must also seek ways to shorten the time to bring new product projects to the market. This is especially true for categories with shortening product life cycles. By centralizing research and consolidating NPD efforts on fewer projects, companies are often able to reduce the time-to-market cycle. For example, Procter & Gamble notes that a pan-European launch of liquid laundry detergents could be done in 10% of the time it took in the early 1980s, when marketing efforts were still very decentralized.

Regional market agreements

The formation of regional market agreements such as the Single European Market encourages companies to launch regional (e.g., pan-European) products or redesign existing products as pan-regional brands. The legislation leading to the creation of the Single European Market in January 1993 sought to remove most barriers to trade within the EU. It also provided for the harmonization of technical standards in many industries.

These moves favor pan-European product strategies. Mars, for instance, now regards Europe as one giant market. It modified the brand names for several of its products, turning them into pan-European brands. In 1990, Mars rebranded the Marathon candy bar in the United Kingdom and named it Snickers, the name used in Continental Europe. In 1991, the Raider bar in Continental Europe was renamed Twix, the name used in the United Kingdom and the United States.

Forces That Push Toward Product Adaptation

• Consumer preferences
• Cultural differences
• Strong local competitors
• Managerial motivation
• Environmental conditions

Consumer preferences

In many categories, consumer taste and preferences can vary substantially across countries. By tailoring its product or service to the local preferences, a firm does a better job of satisfying its local customers.

Oreo cookies in China come in various shapes including wafers and straw-like cookies. Oreos sold in China are also less sweet as the original Oreos turned out to be too sweet for Chinese people. Fillings come in different flavors including green tea and mixed fruit (e.g., mango/orange). The firm also launched strawberry and chocolate-flavored Golden Oreos.

Chinese prefer their snacks to be more refined, cute, and delicate. There is also a growing desire for healthier snacks. To cater toward these desires for health and cuteness, Mon- delēz’s China subsidiary developed and launched Oreo Thins. These skinny Oreos have far fewer calories than classic Oreos.

Unfortunately, Oreo Thins are too fragile for the twist-lick-dunk ritual. In 2018, the China group rolled out Oreos with fairly adventurous flavors: wasabi and spicy chicken wings (see Exhibit 6.4). Oreos Mondelēz implemented all these changes to better meet the preferences of Chinese consumers.

Cultural differences

Cross-country cultural differences will often lead to product adaptations. Over the course of many decades, Sesame Street, the American children’s television series, has spawned versions in countries around the world.

Most of these international editions have created country-specific characters, often inspired by local issues: India’s Galli Galli Sim Sim focuses on boosting the literacy rate of girls, South Africa’s Kami is an HIV-positive girl whose mother died of AIDS. In some cases, the characters aim to combat cultural stereotypes.

For instance, the character of Karim, a rooster, in the Palestinian version of the series counters the image of Arabs always being late. Also, in the Middle East, the Big Bird character has been replaced by a camel named No’Man.

Strong local competitors

In markets with strong local players, the pressure to customize products is usually intense. If companies fail to adapt their products, local consumers are likely to favor local brands that are more in line with their preferences.

Managerial motivation

One challenge multinationals face is keeping highly talented local managers. By involving local managers in the prod- uct design process, tapping into their creative talent, and listening to their feedback on new product proposals, a company can foster their morale and feeling of belonging.

At the 2012 Sao Paulo Motor Show, Nissan unveiled the EXTREM, a new concept car aimed at young car enthusi- asts in Brazil. Although the design team was based in San Diego, creative time on the project was spent mostly in Brazil: Nissan considered it vitally important that design inspiration would come from Brazil itself.

Environmental conditions

Local circumstances (e.g., climate and infra- structure) are another factor that can encourage companies to adapt their products or services. To tap demand in Asian countries such as Vietnam and Indonesia, the Italian firm Piaggio adapted its scooters to the local market environment.

It improved its bikes’ engine technology for tougher road conditions in the region. In addition, in countries such as India, Indonesia, and Vietnam, motorbikes are often the family’s main means of transportation (Exhibit 6.5). To enable three or more people to ride on one bike, Piaggio lengthened the seats of its scooters.