Chapter 17 Outline

Market Segmentation

Market segmentation refers to identifying distinct groups of consumers whose purchasing behavior differs from others in important ways. Markets can be segmented in numerous ways: by geography, demography (sex, age, income, race, education level, etc.), social-cultural factors (social class, values, religion, lifestyle choices), and psychological factors (personality). Because different segments exhibit different patterns of purchasing behavior, firms often adjust their marketing mix from segment to segment. Thus, the precise design of a product, the pricing strategy, the distribution channels used and the choice of communication strategy may all be varied from segment to segment. The goal is to optimize the fit between the purchasing behavior of consumers in a given segment and the marketing mix, thereby maximizing sales to that segment. Automobile companies, for example, use a different marketing mix to sell cars to different socioeconomic segments. Thus, Toyota uses its Lexus division to sell high-priced luxury cars to high-income consumers, while selling its entry-level models, such as the Toyota Corolla, to lower-income consumers. Similarly, personal computer manufacturers will offer different computer models, embodying different combinations of product attributes and price points, precisely to appeal to consumers from different market segments (e.g., business users and home users).

When managers in an international business consider market segmentation in foreign countries, they need to be cognizant of two main issues--the differences between countries in the structure of market segments, and the existence of segments that transcend national borders. The structure of market segments may differ significantly from country to country. An important market segment in a foreign country may have no parallel in the firm's home country, and vice versa. The firm may have to develop a unique marketing mix to appeal to the unique purchasing behavior of a unique segment in a given country. For example, a research project published in 1998 identified a segment of consumers in China in the 45-to-55 age range that has few parallels in other countries.⁵ This group came of age during China's violent and repressive Cultural Revolution in the late 1960s and early 1970s. The values of this group have been shaped by their experiences during the Cultural Revolution. They tend to be highly sensitive to price and respond negatively to new products and most forms of marketing. The existence of this group implies that firms doing business in China may need to customize their marketing mix to address the unique values and purchasing behavior of the group. The existence of such a unique segment constrains the ability of firms to standardize their global marketing strategy.

In contrast, the existence of market segments that transcend national borders clearly enhances the ability of an international business to view the global marketplace as a single entity and pursue a global strategy, selling a standardized product worldwide, and using the same basic marketing mix to help position and sell that product in a variety of national markets. For a segment to transcend national borders, consumers in that segment must have some compelling similarities along important dimensions--such as age, values, lifestyle choices--and those similarities must translate into similar purchasing behavior. Although such segments exist in certain industrial markets, they are rare in consumer markets. However, one emerging global segment that is attracting the attention of international marketers of consumer goods is the so-called global-teen segment. As noted in the Management Focus on MTV, the global media are paving the way for a global teen segment. Evidence that such a segment exists comes from a study of the cultural attitudes and purchasing behavior of more than 6,500 teenagers in 26 countries.⁶ The findings suggest that teens around the world are increasingly living parallel lives that share many common values. It follows that they are likely to purchase the same kind of consumer goods and for the same reasons. Even here though, marketing specialists argue that some customization in the marketing mix to account for differences across countries is required.