Lecture 9 International market selection International market selection

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Lecture 9 International market selection

Lecture 9 International market selection

International market selection One of the central features of international business is the international

International market selection One of the central features of international business is the international market selection (IMS) process employed by firms to pick those foreign countries or regions that will form a firm's geographic target markets. Definition: • International market selection (IMS) is the process of – opportunities evaluation – leading to the choice of foreign markets in which to compete. Source: Albaum & Duerr (2011)

International market selection Reasons for identifying right market: • This decision influences the nature

International market selection Reasons for identifying right market: • This decision influences the nature of foreign marketing programme in the selected countries • Geographic location of selected markets affects the firm’s ability to coordinate foreign operations. • IMS - The most important factor of success or failure

Potential determinants of the firm’s choice of foreign markets

Potential determinants of the firm’s choice of foreign markets

Process of International market selection Step 1 Step 2 Step 3 Step 4 Hollensen‘s

Process of International market selection Step 1 Step 2 Step 3 Step 4 Hollensen‘s research (2007) on the internationalization process has come down to four steps in international market segmentation:

Firm Small and medium Vs. Large Scale Enterprise • SMEs simply responds to an

Firm Small and medium Vs. Large Scale Enterprise • SMEs simply responds to an opportunity in a given market. IMS is based on following criteria: 1. Low psychic and cultural distance 2. Low geographic distance • Basically they are pulled out to international market by their large customers and their international network. • LSEs with existing operation in many countries decide in which of them to introduce new product. • LSEs can be more proactive because they have access to more accurate information in the form of primary data

Global Market Segmentation Defined as the process of identifying specific segments whether they be

Global Market Segmentation Defined as the process of identifying specific segments whether they be country groups or individual consumer groups of potential customers with homogeneous attributes who are likely to exhibit similar responses to a company’s marketing mix. Segmenting Consumer Markets: • Geographical segmentation • Demographic segmentation • Psychographic segmentation • Behavioral segmentation

Advantages of Segmentation 1. The process of breaking up a homogeneous market into heterogeneous

Advantages of Segmentation 1. The process of breaking up a homogeneous market into heterogeneous segments forces the marketer to analyse and consider both the needs of the market and the company’s ability to competently serve those needs 2. Competitor offerings and marketing positioning must also be analysed in this context so the company must consider what its competitive advantages and disadvantages are, helping it to clarify its own positioning strategy 3. Limited resources are used to best advantage, targeted at those segments that offer the best potential.

Contrasting Views of Global Segmentation Conventional Wisdom Assumes heterogeneity between countries • Assumes homogeneity

Contrasting Views of Global Segmentation Conventional Wisdom Assumes heterogeneity between countries • Assumes homogeneity within a country • Focuses on macro level of cultural differences • Relies on clustering of national markets • Less emphasis on within country segments Unconventional Wisdom Assumes emergence of segments that transcend national boundaries • Recognizes existence of within country differences • Emphasizes micro level differences • Segments micro markets within and between countries

Step 1 and step 2: Criteria for effective market segmentation Segments ideally should be

Step 1 and step 2: Criteria for effective market segmentation Segments ideally should be the following set of properties: • Identifiable( measurable): per capita income • Substantiality/profitability: the degree to which segments are sufficiently large and/or profitable for e. g. market size • Accessible: the degree to which the resulting segments can be effectively reached and served for e. g. road conditions, internet access, storage • Stable: socio-political factors • Actionability: make things happen for e. g. sufficient resources to formulate effective marketing programmes

Basis of International Market Segmentation

Basis of International Market Segmentation

1. General characteristics Geographic location: • Critical in terms of segmenting world markets •

1. General characteristics Geographic location: • Critical in terms of segmenting world markets • For e. g. Scandinavian countries or middle eastern countries can be clustered together according to their geographic proximity Language: • Mirror of the culture where it provides automatic insight into the relevant culture • For e. g. advertising must be translated and business negotiations must often be conducted through expensive interpreters

2. General characteristics Political factors: • The degree of control that the central government

2. General characteristics Political factors: • The degree of control that the central government have could be the general criterion for segmentation • For e. g. many of the world market might be difficult to enter for the chemical manufacturing co. due to government regulation Demography: • Necessary to analyses population characteristics • For example the baby food manufacturer will look for the country where the population of the children is more. Economy: • Certain specific consumption patterns emerges on the basis of level of economic development. • For example the market for electrical dishwashers might not be good in Nepal because of poor economic development

3. General characteristics Industrial structure: Characteristics of business population One country may have small

3. General characteristics Industrial structure: Characteristics of business population One country may have small retailers while other may rely on large number of department stores for retail distribution. Technology: The degree of technological advancement For example the software company planning to enter into international market may wish to segment on the basis of no. of PCs per thousand of the population Social organization: Nuclear vs joint family Socio economic grouping as economic tools In America six classification category: Upper upper, lower upper, upper middle, lower middle, upper lower and lower

4. General characteristics Religion • Major factor in marketing • For e. g. ,

4. General characteristics Religion • Major factor in marketing • For e. g. , tradition of giving present at Christmas • In Islam, Koran provide guidance for a whole range of human activities including economic activity Education • Level of literacy in developing countries are low as a result the promotional tools varies. More visual materials.

5. Specific characteristics

5. Specific characteristics

Step 3: Screening of markets/countries • Step 3: Screening of markets/countries Purpose - Identify

Step 3: Screening of markets/countries • Step 3: Screening of markets/countries Purpose - Identify prime markets • Stage 3. 1 Preliminary Screening (based on external screening criteria) • Stage 3. 2 Fine-grained Screening (firm’s competitive power) The Business Environment Risk Index (BERI) is a useful tool for coarse-grained, macro-oriented screening of international markets • Hollensen (2011)

Stage 3. 1 Preliminary Screening Number of markets is reduced by coarse grained, macro

Stage 3. 1 Preliminary Screening Number of markets is reduced by coarse grained, macro oriented screening methods based on criteria such as: • Restriction on export of goods from one country to another • Cars owned per 1000 of the population • Gross national product per capita

International Monetary Fund (2015) 1. Qatar 132, 870 2. Luxembourg 99, 506 37. Czech

International Monetary Fund (2015) 1. Qatar 132, 870 2. Luxembourg 99, 506 37. Czech Republic 122. India 32, 076 6, 187

3. United States 797 38. Czech Republic 485 160. India 32

3. United States 797 38. Czech Republic 485 160. India 32

Stage 3. 1: Preliminary screening Criteria included in the overall BERI index: • Economic

Stage 3. 1: Preliminary screening Criteria included in the overall BERI index: • Economic Political stability • Growth Currency convertibility • Labor cost/ productivity • Short-term credit • Long-term loans/venture capital • Attitudes towards the foreign investor and profits • Nationalization • Monetary inflation • Enforceability of contracts • Bureaucratic delays • Communications: phone, internet access. • Local management • Professional services

Stage 3. 1: Preliminary screening BERI Index rating 0= unacceptable 1= poor 2= average

Stage 3. 1: Preliminary screening BERI Index rating 0= unacceptable 1= poor 2= average condition 3= above average conditions 4= superior conditions • Total points greater than 80 – favorable environment for • • investors, advanced economy 70 -79 – not so favorable but still an advanced economy 55 -69 – an immature economy with investment potential 40 -54 – a high risk country probably an LDC. Quality of management has to be superior to realize potential Less than 40 – very high risk. Would only commit capital if there were some extraordinary justification.

Stage 3. 1: Preliminary Screening

Stage 3. 1: Preliminary Screening

Stage 3. 2 Fine-grained Screening BERI index • focuses only on the political risk

Stage 3. 2 Fine-grained Screening BERI index • focuses only on the political risk of entering new markets, • therefore the approach that includes the competences of the firm is needed. Powerful aid to the identification of the ‘best opportunity’ target country is the application of • Market, country attractiveness • Competitive strength matrix

Stage 3. 2 Fine-grained Screening 1. Dimensions of market/country attractiveness • • • Market

Stage 3. 2 Fine-grained Screening 1. Dimensions of market/country attractiveness • • • Market size Market growth Buying power of customers Market seasons Average industry margin Competitive conditions Market prohibitive conditions Government regulations Infrastructure Economic and political stability Psychic distance

Stage 3. 2 Fine-grained Screening 2. Dimensions of competitive strength: • Market share •

Stage 3. 2 Fine-grained Screening 2. Dimensions of competitive strength: • Market share • Marketing ability and capacity • Products to fit market demands • Price • • Contribution margin Image Technology position Product quality Market support Quality of distributors Financial resources Access to distribution channels

Questionnaire for locating countries on a market attractiveness Weighting: 100%=critical s. f. 80%=Prerequisite s.

Questionnaire for locating countries on a market attractiveness Weighting: 100%=critical s. f. 80%=Prerequisite s. f. 60%=Important s. f. 40%= Of some importance 20%=Standard Source: Hollensen (2011)

Questionnaire for locating countries on a competitive strength matrix Weighting: 100%=critical s. f. 80%=Prerequisite

Questionnaire for locating countries on a competitive strength matrix Weighting: 100%=critical s. f. 80%=Prerequisite s. f. 60%=Important s. f. 40%= Of some importance 20%=Standard Source: Hollensen (2011)

The market attractiveness/competitive strength matrix Source: Hollensen (2011)*

The market attractiveness/competitive strength matrix Source: Hollensen (2011)*

The market attractiveness/competitive strength matrix - Categories of Markets A countries: • Primary markets

The market attractiveness/competitive strength matrix - Categories of Markets A countries: • Primary markets offering the best opportunities for long-term strategic development. • Here the company might want to establish a permanent presence and should do careful research. B countries: • Secondary markets where opportunities are there but political and economic risk is high to make long term commitments. • Market should be handled in more pragmatic way due to potential risk. C countries: • Tertiary markets with high risk. Therefore the allocation of the resources will be minimal. • Objectives in this countries will be short term and opportunistic. • No real commitment by company and no significant research will be carried out.

Step 4: Develop segments in each qualified country/across countries • Demographics popular criteria- •

Step 4: Develop segments in each qualified country/across countries • Demographics popular criteria- • easily measurable - Age, gender, occupation, population etc. • Socioeconomic variables – • Socioeconomic Strata (SES) Analysis: upper class, middle -to- upper class, middle class, lower class, poverty level:

Socioeconomic Strata (SES)

Socioeconomic Strata (SES)

Socioeconomic Strata (SES) - The major American social classes

Socioeconomic Strata (SES) - The major American social classes

International Market Segmentation Approaches 1. Standard country segmentation: • classify prospective countries geographically based

International Market Segmentation Approaches 1. Standard country segmentation: • classify prospective countries geographically based on a single dimension • E. g. per capita income 2. Aggregate segmentation: • classify based on multiple dimensions, such as socio-economic, political, etc. • criteria available from secondary sources ( world bank, UNESCO) E. g. Nestlé’s 3. Disaggregate international consumer segmentation: • Here the focus is the individual consumer. • First choose one or more segmentation bases ( lifestyle, demographic, values), then identify consumer segments in terms of consumer similarities with respect to chosen bases. Problem: targeting a geographically dispersed consumer segment can become logistical nightmare.

Source: Kotabe and Helsen (2011)

Source: Kotabe and Helsen (2011)

International Market Segmentation Approaches Two-stage international segmentation:

International Market Segmentation Approaches Two-stage international segmentation:

International market expansion strategy Two questions: 1. Should we enter markets: – incrementally? Where

International market expansion strategy Two questions: 1. Should we enter markets: – incrementally? Where firm lacks experience in foreign market and wishes to edge gradually or… – Simultaneously? entry into multiple marketsrequiring substantial and management resources 2. Will entry be concentrated or diversified across international markets?

Market expansion strategy: The ‘Waterfall’ Vs. ‘Shower’ Approaches • Waterfall approach • Based on

Market expansion strategy: The ‘Waterfall’ Vs. ‘Shower’ Approaches • Waterfall approach • Based on assumption that initially a product or technology may be so new or expensive that only the advanced countries can use it or afford it. • Overtime the price will fall until it is inexpensive enough for developing and less developed countries to buy it. • Firm may decide to enter on an incremental or experimental basis: • Entering first a single key market in order to build an experience in international operations • And then subsequently entering into other markets one after the another

Market expansion strategy: The ‘Waterfall’ Vs. ‘Shower’ Approaches • Waterfall approach • Entry on

Market expansion strategy: The ‘Waterfall’ Vs. ‘Shower’ Approaches • Waterfall approach • Entry on an incremental basis into small market is preferable • Where firm lacks experience in foreign markets and wishes to edge gradually into international markets • If the firm is entering international market late and faces entrenched local competition • If the firm is small and has limited resources • If the firm is risk averse

Market expansion strategy: The ‘Waterfall’ Vs. ‘Shower’ Approaches Shower approach • Entering number of

Market expansion strategy: The ‘Waterfall’ Vs. ‘Shower’ Approaches Shower approach • Entering number of market simultaneously. • Enables firms to achieve economies of scale in production and marketing. • This is desirable if the product or service is innovative or is technologically advanced. • Should be backed by substantial financial and management resources.

Market expansion strategy: The ‘Waterfall’ Vs. ‘Shower’ Approaches Shower approach - example of Sanex

Market expansion strategy: The ‘Waterfall’ Vs. ‘Shower’ Approaches Shower approach - example of Sanex • Sanex – shower gel. • Market basis- growing shower gel market in Europe • Market expansion strategy- launch the product simultaneously on a number of European market. • Reasons for this strategy- to obtain a first mover advantage, benefit financially before other come up with a similar product

Concentration Vs. Diversification strategy Concentrate resources on limited number of similar markets? OR Diversify

Concentration Vs. Diversification strategy Concentrate resources on limited number of similar markets? OR Diversify across a number of different markets

Steps in market segmentation Market Segmentation • Identify bases for segmenting the market •

Steps in market segmentation Market Segmentation • Identify bases for segmenting the market • Develop segment profiles Target Marketing • Develop measure of segment attractiveness • Select target segments Market Positioning • Develop positioning for target segments • Develop a marketing mix for each segment

Psychographic Segmentation: BSB’s Global Scan • TARGET SCAN: 95 % of adult populations in

Psychographic Segmentation: BSB’s Global Scan • TARGET SCAN: 95 % of adult populations in 18 countries • • • Strivers: young people, driven to achieve Achievers: successful, status conscious Pressured: mostly women, lots of pressure and problems Adapters: older, content Traditionals: hodnoty, tradice, clings to past,

Steps in market segmentation

Steps in market segmentation

Targeting 9 Questions for Creating a Product Market Profile 1. Who buys our product?

Targeting 9 Questions for Creating a Product Market Profile 1. Who buys our product? 2. Who does not buy it? 3. What need or function does it serve? 4. Is there a market need that is not being met by current product/brand offerings? 5. What problem does our product solve? 6. What are customers buying to satisfy the need for which our product is targeted? 7. What price are they paying? 8. When is the product purchased? 9. Where is it purchased?

Target Market Strategy Options • Standardized global marketing • Mass marketing on a global

Target Market Strategy Options • Standardized global marketing • Mass marketing on a global scale • Undifferentiated target marketing • Standardized marketing mix • Minimal product adaptation • Intensive distribution • Lower production costs • Lower communication costs

Target Market Strategy Options Concentrated global marketing Differentiated global marketing – Niche marketing –

Target Market Strategy Options Concentrated global marketing Differentiated global marketing – Niche marketing – Multi-segment targeting – Single segment of global market – Two or more distinct markets – Wider market coverage – „Look for global depth rather than national breadth“ – Ex. : P&G markets Old Spice and Hugo Boss for Men – Ex. : Chanel, Estee Lauder

Positioning Locating a brand in consumers’ minds over and against competitors in terms of

Positioning Locating a brand in consumers’ minds over and against competitors in terms of attributes and benefits that the brand does not offer • • Attribute or Benefit Quality and Price Use or User Competition

Positioning Strategies • Global consumer culture positioning • Identifies the brand as a symbol

Positioning Strategies • Global consumer culture positioning • Identifies the brand as a symbol of a particular global culture or segment • High-touch and high-tech products • Foreign consumer culture positioning • Associates the brand’s users, use occasions, or product origins with a foreign country or culture Local consumer culture positioning • Identifies with local cultural meanings • Consumed by local people • Locally produced for local people • Used frequently for food, personal, and household nondurables

Positioning Strategies

Positioning Strategies

Source: Michael Treacy and Fred Wiersema, 1993

Source: Michael Treacy and Fred Wiersema, 1993