International market segmentation

As the business world becomes more globalized, International Market

Segmentation (IMS) has emerged as an important issue in developing, positioning,
and selling products across national boundaries. International market segmentation
can be defined as the process of identifying specific segments - country groups or
individual consumer groups across countries - of potential customers with
homogeneous attributes who are likely to exhibit similar buying behavior.

International market segmentation refers to the process of dividing its total

international market into one or more parts (segments or sub-markets) each of
which tends to be homogeneous in all significant aspects. In other words,
international market segmentation is the process of identifying groups or set of
potential customers at international level who exhibit similar buying behavior.
Through international market segmentation, similarities and differences among
potential buyers in foreign markets can be identified and grouped

Objectives of Marketing Segmentation.

 The purpose of segmentation is to determine differences among buyers
which may be consequential in choosing away them or marketing to them.
 To spot and to compare market opportunities by examining the needs of
each segment and how far these needs are being tried to be satisfied.
 To use his knowledge of the marketing response differences of various
customers, he may decide how much marketing funds may be allocated to
different segments.
 To make suitable adjustments of his product’s and marketing appeals.
Instead of one marketing programme aimed at to draw in all potential buyers
the sellers can create separate marketing programme and as to meet the
needs of different buyers.
 To identify the taste and buying motive of the target consumers
 Grouping of customers on the basis of their common characteristics such as
behavior, income, age, geography etc.
 To make Consumer oriented approach for the firm
 To define marketing strategies, targets and goals of the firm.
Importance of Market Segmentation.
 Market segmentation minimizes aggregation of risk.
 Market segmentation helps know company strengths and opportunities.
 Market segmentation provides opportunities to expand market.
 Market segmentation creates innovations.
 Market segmentation creates gains to consumer.
 To understand Customers
 To maximize product potential
 To improve distribution network
 To gain new clients

Merits of Market Segmentation

 The company can spot and compare marketing opportunities. Company can
examine the needs of each segment and determine to what extent the current
offerings satisfies these needs segments which have low level of satisfaction
from current offerings represent excellent opportunities for the marketers.
 With the help of knowledge about different segments, the marketer can
better allocate the total marketing budget. Differences in customer response
to different marketing tools serve as the basis for deciding on the allocation
of market funds to different market groups.
 The marketer can modify his product/service and marketing appeals to suit
the target segment.
 Segmentation facilitates setting up of realistic selling targets and priorities.
 Management can identify new profitable segments which deserve special
attention.
 It is possible to deal with competition more effectively by using resources
more effectively
 Increase the focus of a firm
 Increase in competitiveness
 Market expansion
 Customer retention
 Increase in brand loyalty
 Profitability increase
 Better Communication
 Demerits of Market Segmentation

 Too small Segments

 Misinterpretation of consumers
 Higher stock holding costs
 Increase in cost due to variations of the product
 Research and development and production cost might be high as a result of
marketing several different product variations and different market
segments.
 Promotional costs high as different advertisements and promotions might be
needed for different segments.
 Larger inventory has to be maintained by both the manufacturer and the
distributors.
 When characteristics of a market change, investment may already might
become useless.

Bases of International Market Segmentation

Markets may be segmented according to several criteria such as geographic,
demographic (including national income, size of population), psychographic
(values, attitude and lifestyle), behavioral characteristics and benefits sought.

1. Geographic Segmentation  ( Climate zone, Region, State, District, Rural

Area) – In this type of segmentation, the market is divided into different
geographical units such as nation’s, states, regions, provinces and cities. The
company can operate in one or few geographical areas or operate in all but pay
attention to local variations in geographical needs and preferences.
When a company does business in more than one country, there are two
approaches to the market. Target market can be identified as :
i. All consumers within the borders of a country.
ii. Global market segments – all consumers with the same needs and wants in
groups of country markets.

Most international marketers have traditionally viewed each country as a single

market segment unique to that country.
This approach has three limitations :
I. It is based on country variables and not on consumer behavior patterns.
II. It assumes total homogeneity of the country segment.
III. It overlooks the existence of homogeneous consumer segments that exist
across national boundaries. Global segmentation identifies group of consumers
with similar needs and wants in multiple country markets. These may come from
different countries, have different backgrounds, and speak different languages, but
they do have commodities – they have similar sets of needs for a product.
Consumer in global market segment share common characteristics that make them
a relatively homogeneous group of buyers.

2. Demographic Segmentation ( Age, Sex, Family size, Religion,

Community , Language, Occupation , Income, Education level, Social
status, Generation) – It is based on measurable characteristics of population
such as age, gender, income, education and occupation. These variables are the
most popular bases for distinguishing customer groups for segmentation. One
of the reasons for such type of segmentation is that the consumer wants,
preferences, and usage rates are often associated with demographic variables.
Further these variables are easier to measure.
For most consumer and industrial products, national income and per capita
income constitute the single most important segmentation variable and
indicator of market potential. This enables the companies to cluster countries
into segments of high, middle and low income and then target the country
which had the desired income level.

3. Psychographic Segmentation (Personality traits, Attitudes, Lifestyle,

Value) – In psychographic segmentation, buyers are divided into different
groups on the basis of attitudes, values, lifestyles or personality. People within
the same demographic group can exhibit very different psychographic profiles.

4. Behavior Segmentation ( Brand loyalty, Consumer status, Usage rate,

readiness to purchase) – Behavior Segmentation focuses on whether or not
people buy and use a product as well as how often, and how much they use it.
Behavioral variables such as occasions, user status, usage rate, loyalty status,
and buyer readiness stage enables the companies to segment the market
accordingly.
Buyers can be distinguished according to the occasion for which they need to
purchase a product or use a product. Occasion segmentation can help a firm
expand product usage. Heavy users are often a very small percentage of the
market but account for a high percentage of total consumption.
Markets can also be segmented into non-users, ex-users, potential users, first
time users and regular users of a product. The company’s market position will
 also influence it’s focus. Market leaders will focus on attracting potential users,
whereas smaller firms will try to attract current clients of the market leaders.

5. Benefit Segmentation – Markets could also be classified according to the

benefits the consumer seeks from a particular product.

Conclusion
Knowing which segment dominant in a country helps the marketing efforts and
enables advertiser’s to tailor their message to those parts of the population most
likely to buy them.

Properties of Targeted Segments in International Market

Segmentation
1) Measurability: The segments should be easy to define and measure.
Objective country traits such as socioeconomic variables (e.g., per capita
income) can easily be gauged, but the size of the segments based on culture
or lifestyles is much harder to measure. Thus, a larger scale survey may be
required for segmenting global markets depending upon the basis of IMS.

2) Size: Segments should be large enough to be worth going after. Britain and
Hong Kong can be grouped together in the same segment, because of
previous British supremacy in Hong Kong, but their population sizes differ.

3) Accessibility: The segments should be easy to reach via the media. Because
of its sheer size, China seems to be attractive market. However, because of
its largely rural population, it has less access to technology.

4) Stable: 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: Effective marketing programs (the four Ps) should be easy to

develop. If segments do not respond differently to the firm's marketing mix,
 there is no need to segment the markets. Certain legal issues need to be
considered before implementing an advertisement campaign. For example,
many countries, such as India, do not allow direct slandering of the
competitor's products.

Process of International Market Segmentation

1) Determine the need of the segment

What are the needs of the customers and how can you group customers based on
their needs? You have to think of this in terms of consumption by customers or
what would each of your customers like to have.

For example – In a region, there are many normal restaurants but there is no Italian
restaurant or there is no fast food chain. So, you came to know the NEED of
consumers in that specific region.

2) Identifying the segment

Once you know the need of the customers, you need to identify that “who” will be
the customers to choose your product over other offerings. Quite simply, you have
to decide which type of segmentation you are going to use in this case. Is it going
to be geographic, demographic, psychographic or what? The 1st step gives you a
mass of crowd, and in the 2nd step, you have to differentiate the people from
within that crowd.
Taking the same above example of Italian restaurant – The target will be children,
youngsters and middle aged people. Italian food is generally not preferred by old
age people who prefer food which can be easily chewed (that’s what I feel at least.
Let’s see if I have teeth by the time I am 60). So you know the segment now.

3) Which segment is most attractive?

Now, we approach the targeting phase in the steps of market segmentation. Out of
the various segments you have identified via demography, geography or
psychography, you have to choose which is the most attractive segment for you.
This is a tough question to answer because one of them will be left out.

Related:   Blue Ocean strategy - Creating a niche of your own

If you are using psychographic segmentation, then you need to target

the psychology of consumers which takes time. So you will not be able to expand
faster. But if your product is basic, then you can use demographic segmentation as
the base, and expand much faster in surrounding regions. So this step involves
deciding on ALL the different types of segmentation that you can use.
Attractiveness of the firm also depends on the competition available in the
segment. If the competition is too much in a given segment, then it does not make
sense to take that segment into consideration. In fact, that segment is not attractive
at all.
Taking the above example of an Italian restaurant, the restaurant owner realizes
that he has more middle aged people and youngsters in his vicinity. So it is better
to market his store on weekends and malls where this target group is likely to go.
The middle aged people can bring children and elders as per their convenience. So
the 1st target is the middle aged group, and the 2nd target is youngsters. He is
using a combination of demographic and geographic segmentation to target middle
aged people in his region.

4) Is the segment giving profit

So, now you have different types of segmentation being analyzed for their
attractiveness. Which segment do you think will give you the maximum crowd has
been decided in the 3rd step. But which of those segments is most profitable is a
decision to be taken in the 4th step. This is also one more targeting step in the
process of segmentation.

Example – The Italian restaurant owner above decides that he is getting

fantastic profitability from the middle aged group, but he is getting poor
profitability from youngsters. Youngsters like fast food and they like socializing.
So they order very less, and spend a lot of time at the table, thereby reducing the
profitability. So what does the owner do? How does he change this mindset when
one of the segments he has identified is less profitable? Let’s find out in the 5th
step.
5) Positioning for the segment
Once you have identified the most profitable segments via the steps of market
segmentation, then you need to position your product in the mind of the
consumers. I would not dive deep into positioning here as you can read this quick
guide to positioning. The basic concept is that the firm needs to place a value on
its products.

Related:   Customer life cycle explained in 7 steps

If the firm wants a customer to buy their product, what is the value being provided
to the customer, and in his mindset, where does the customer place
the brand after purchasing the product? What was the value of the product to the
customer and how valuable does he think the brand is – that is the work of
positioning. And to complete the process of segmentation, you need to position
your product in the mind of your segments.

Example – In the above case we saw that the Italian restaurant owner was finding
youngsters unprofitable. So what does he do? How does he target that segment as
well? Simple. He starts a fast food chain right next to the Italian restaurant. What
happens is, although the area has other fast food restaurants, his restaurant is the
only one which offers good Italian cuisine and a good fast food restaurant next
door itself. So both, the middle aged target group and the youngsters can enjoy. He
has converted the profit earned from the middle aged group, into more profit, and
has achieved top of the mind positioning for all people in his region.

6) Expanding the segment

All segments need to be scalable. So, if you have found a segment, that segment
should be such that the business is able to expand with the type of segmentation
chosen. If the segment is very niche, then the business will run out of its course in
due time. Hence the expansion of the segment is the second last step of market
segmentation.

In the above example, the Italian restaurant owner has the best process in his hand
– an Italian restaurant combined with a fast food chain. He was using both
Demographic and geographic segmentation. Now he starts looking at other
geographic segments in other regions where he can establish the same concept and
expand his business. Naturally, with more expansion he will earn more profits.
7) Incorporating the segmentation into your marketing strategy
Once you have found a segment which is profitable and expandable, you need to
incorporate that segment in your marketing strategy. How do you
think McDonalds or KFC became such big chains of fast food? They had a very
clear process of segmentation because of which it became easier to find regions to
target.

With the steps of market segmentation, your segments become clear and then you
can adapt other variables of marketing strategy as per the segment being targeted.
You can modify the products, keep the optimum price, enhance the distribution
and the place and finally promote clearly and crisply to your target audience.
Business becomes simpler due to the process of market segmentation.