Global Marketing - Segmentation, Targeting, and Positioning - Essay Example

Test II-Global Marketing Test II-Global Marketing Segmentation, Targeting and Positioning The concepts of market segmentation, targeting, positioning and differentiation are very important for the achievement of the broader marketing strategies. According to Lynn (2011), segmentation refers to the process of identifying unique customer needs and preferences, sub-dividing the market into smaller manageable segments with homogeneous customer needs and characteristics. Havaldar (2005) observes that target marketing stems directly from the market segmentation process. Market targeting is therefore the process of evaluating the identified market segments, selecting one or more attractive market segments and deciding on the appropriate and effective market strategies to implement in these segments. The next step following target marketing is positioning, which refers to the process of creating a brand image, in consumers’ minds, that is unique, distinct and clearly different from that offered by competitors. Successfully positioning relies on the development of effective differentiation strategies. Differentiation is an aspect of marketing that entails development of unique strategies, which are difficult for competitors to imitate. Market Segmentation and International Application There are several bases and approaches to market segmentation (Lynn, 2011). Firstly, marketers may use demographic variables including income, age, gender and education level. Secondly, marketers may use psychological variables including values, opinions, attitudes and interests. Thirdly, behavioral variables such as channel usage, brand preference, purchase frequency and media habits may also be used. Fourthly, segmentation may also be based on geographic variables including nation, state, region or neighborhood type. Dibb (1999) observes that apart from these variables, marketing experts also determines the attractiveness of the various market segments in relation to the responsiveness of customers to the marketing strategies, accessibility of the segments in terms of product distribution and communication, size and stability of the segment. Havaldar (2005) observes that market segmentation process involves three key steps namely market research, segment analysis and creation of segment profiles. Market research involves collection of relevant and appropriate information about the market. Typical information collected includes buyer purchase considerations, current and future market needs, competitor information and customer buying behavior. Once market data is collected, Havaldar argues that it is necessary to analyze and refine this information using analysis tools such as factor and cluster analysis to identify mutually exclusive and homogenous market segments. Finally, Havaldar asserts that marketers should endeavor to create unique market profiles and segments based on product application, product volume requirements, segment location, industry description and its related policies, purchasing factors, personal features of buyers and their specific buying behavior. Global and international marketers are able to take advantage of the concept of market segmentation thus benefiting from standardization. International market segmentation enables marketers to leverage economies of scale and achieve positioning consistency. Global marketing requires marketers to adjust the various bases of segmentation to suit the international context. Czikota & IIkka (2012) explores the various bases for international segmentation, which include environmental variables and marketing management variables. Environmental segmentation bases include technological, political, economical and cultural variables while marketing management bases include product, promotion, pricing and distribution variables. Czikota & IIkka (2012) observes that a change in segmentation strategy in the global market is necessary because of emerging unique segments fueled by technological advancement, increased international travel and continued financial integration and interdependence. Czikota & IIkka (2012), further, notes that the media evolution has significantly caused a shift in customer attitudes and values. Additionally, international segmentation requires detailed analysis of the international market segments to understand differential needs in terms of marketing mix strategies. Finally, variety in the international market segment sizes calls for effective market research and careful segmentation. Target Marketing Strategic Options Undifferentiated marketing strategy Undifferentiated marketing strategy refers to a situation where a firm does not engage in market segmentation. The firm employs a single marketing mix strategy, which targets all the customers or segments in the market. Marketers who employ this strategy perceive the market to be a single whole market with no significant market segments and therefore implement a standardized marketing mix. Havaldar (2005) observes that while this may be cost-effective, firms that rely on this strategy are likely to loose their market share to competitors. General Motors (GM) is an automobile company, which has successfully implemented the undifferentiated marketing strategy. GM’s president, Mr. Sloan subdivided the market based on prices they were willing to pay and implemented a strategy that would develop the different vehicles they were willing and able to buy. The company therefore developed too many motor vehicle models that were meant to address each need of the potential customers. Differentiated Marketing Strategy Differentiated Marketing Strategy involves the use of different marketing strategies for different market segments. After evaluating the available segments, a firm decides to venture in more than one market segment, while using a different and unique set of marketing mix strategies. Havaldar (2005) observes that while this may lead to increased operational costs, the marketing objective is to take advantage of increased sales volume and market share position. IBM is an example of a company, which has successfully implemented the differentiated marketing strategy. Traditionally a hardware developer, IBM has differentiated itself by targeting newer market segments. The company now targets other segments such as software and system integration and consultancy services hence attracting new sets of customers. The IBM Company plans to advance product differentiation through its strategy and transformation (S&T) product, which combines IBM’s competence in management consultancy with technology-driven transformations thus successfully differentiating from competitors. Concentrated Marketing Strategy According to Havaldar (2005), concentrated strategy refers to attempts made by companies to focus all their marketing and financial resources on a single or limited number of market segments. Using this strategy, marketers employ a narrow product line, superior product and service quality, premium product prices and selective distribution and promotion strategy to achieve their marketing objectives. Havaldar argues that concentrated strategy is effective to small and medium companies, which have limited financial resources. However, he notes that this strategy is risky, especially when the market segment becomes unattractive or when it attracts more efficient competitors. Rolls Royce is an example of an automobile company, which has successfully implemented the concentrated marketing strategy. Since its establishment in 1904, the company has concentrated on production of luxury, high-quality and premium vehicles targeting the premium UK market segment. References Dibb, S. (1999). Criteria Guiding Segmentation Implementation: Reviewing the Evidence. `` ``` Journal of Strategic Marketing! (1999): 107—129. Dickson, P.R. & Ginter, J. L. Market Segmentation, Product Differentiation, and Marketing ` ` ` Strategy. Journal of Marketing (April 1987): 1—10. Czikota, M. & IIkka,R. (2012). International Marketing. USA : Cengage Learning Havaldar, K.K. (2005).Industrial Marketing: Text and Cases. : Tata McGraw-Hill Education Lynn, M. (2011). Segmenting and targeting your market: Strategies and limitations. Retrieved ` on 8 May 2014 from Cornell University, SHA School site: ` http://scholarship.sha.cornell.edu/articles/243 Importing, Exporting and Sourcing Government and Import Restrictions Importing and exporting are two major entry strategies in the international markets. Most governments prefer and encourage exports while discouraging imports. The main reason is that imports and exports significantly affect the gross domestic product (GDP) and entire economic performance. From an economic point of view, increase in imports over exports affects the net cash outflow from one country to another (Schmidt, Mack & Barbara 2008). Increase in imports over exports widens a countries trade gap or deficit in comparisons with other countries. In addition, more imports than exports result to a negative net export, which significantly decreases the country’s GDP level, employment level, investment, government spending and consumption. Moreover, a downwards shift in the level of GDP also affects the price level negatively. In order to discourage exports and market entry, the government uses several strategies including import taxes and tariffs and import quotas. Import taxes and tariffs Governments also rely on import taxes and tariffs to restrict imports. Tariffs are administered in form of a percentage of total imports into a country. The tariff charges in the US are collected through the customs agency. According to Schmidt, Mack & Barbara (2008), the objective of tariff administration is to increase the cost of imports, which ultimately increases prices of foreign commodities compared to local goods. The rationale behind this strategy is that consumers who are price sensitive will prefer local goods as compared to foreign goods hence successfully restricting imports. Import quotas Governments use import quotas to limit the amount of goods imported by a firm within a specified period. According to Lutz (2007), a company may choose to implement absolute or tariff rate quotas (TRQ). Quotas implemented by an exporting country are referred to as voluntary export restraints (VERs). Lutz observes that governments administer absolute quotas in an attempt to protect domestic markets and monopolies from direct impacts of international competitive firms. Absolute quotas restrain imports by making it illegal to exceed the agreed import limit. However, Lutz argues that quotas harm consumers because they limit supply of goods thus leading to higher prices. He further notes that local firms and their exporting partners are able to gain from quotas in terms of increased prices and profits. At the same time, Lutz observes that quotas may affect quality of products leading to a shift in profits thus harming the foreign firm. According to Skully (2007), the TRQ comprise two significant operational levels. Firms are allowed to import a specified amount of goods in a specified period at a lower tariff rate. A higher tariff rate is then implemented once the specified a firm exceeds the specified import limits. Skully (2007) observes that the main difference between TRQ and absolute quota is that the former allows room for more imports than the stated limit, although this may be uneconomical, while the later makes it legally impossible to exceed the stated import limit. Global Sourcing Global sourcing, like exporting and importing, is another international market entry strategy. Lussier (2011) defines global sourcing as a strategic option where firms are able to source or take advantage of economic and production resources across the world. Lussier (2011) observes that managers in the global markets prefer the global sourcing strategy because it enables them to identify supplies across the world that can provide cost-effective and high quality factors of production such as specialized labor, raw materials, capital and entrepreneurship. Similarly, this strategy enables global marketers to identify strategic and cost-effective locations for performing their production, manufacturing and assembly functions. For instance, US multinational corporations have been able to take advantage of the free trade promoted by the incorporation of NAFTA to source for cheap labor in Mexico through labor-intensive production plants. There are several factors influencing a country’s decision to implement the global sourcing strategy. A study conducted by Trent and Monzcka (2003) explores six important success factors for global sourcing. Firstly, they argue that a company must have a dynamic and competitive business plan that supports the process of global sourcing. Secondly, they assert that firms must have a centralized decision making process to allow for effective standardization of the sourcing process, supplier and stakeholder involvement in decision-making. Thirdly, the firm must have the necessary resources, tools including staff expertise, and financial resources to implement this strategy. Fourthly, firms’ decisions to implement global sourcing depend on availability of adequate and reliable information for negotiating in the global market. Fifthly, managers should have the right experience in sourcing and retaining appropriate suppliers in the global market. Sixthly, firms are influenced to search for global suppliers due to the low total costs and low inventory costs available in the global market. References Lussier, R. (2011). Management Fundamentals: Concepts, Applications, Skill Development. ` USA: Cengage Learning Lutz, S.(2007). Import quotas and voluntary export restraints. In W.A. Kerr & D.G. James. ` (Eds.), Handbook on International Trade Policy (248-257). UK: Edward Elgar ` Publishing Schmidt, S., Mack, S. & Barbara, B. (2008). American Government and Politics Today 2009-` 2010 Edition .USA: Cengage Learning Skully, D. (2007). Tariff Rate Quotas. In W.A. Kerr & D.G. James. (Eds.), Handbook on ` International Trade Policy (258-270). UK: Edward Elgar Publishing Trent R.J., Monzcka R.M., 2003, Understanding integrated global sourcing, International ` Journal of Physical Distribution & Logistics Management, 33 (7): 607-629. Global Market Entry Strategies: Licensing, Investment and Strategic Alliances Licensing According to Gillespie & David (2010), licensing is a legal arrangement between two companies thus granting the rights to use, produce, or distribute industrial property rights (copyrighted, trademarked or patented) for a product, technology or process upon payment of loyalty fees. Several advantages accrue from a licensing arrangement. Gillespie & David (2010) observes that a company, which does not have enough resources and expertise to compete in the global market, can take advantage of licensing arrangements to raise income from its novel products, process and technology. Additionally, companies may use licensing agreements to expand into less competitive market segments while directing a lot of effort and financial resources in more attractive and competitive market segments. According to Walter and Tracy (1988), companies that resort to licensing as a market entry strategy, are able to avoid import regulatory restrictions, high transport and logistic costs. They also observe that compared to foreign direct investment, licensing arrangements do not require huge fixed investments and expose firms to less political and environmental risks. However, Walter and Tracy (1988), argues that licensing arrangements may also present several challenges for companies planning to engage in global markets. Firstly, licensing the licensor has no control over the marketing and trade activities of the licensee in the foreign market. Secondly, exclusive licensing arrangements create opportunity costs since they prevent the licensor to serve the same market as the licensee through a different market entry mode. Thirdly, licensing arrangements may result into stiff competition in the licensors market segments or local market. The license arrangement may be exclusive, this giving the licensee the full rights for distribution of patented, copyrighted or trademarked products in a specified geographical area, or non-exclusive, implying that the distributor will have to compete with other licensed dealers in the same product, process or technology. Investment as an Entry Strategy Joint ventures A joint venture and, or ownership equity stake refers to a contractual arrangement where a foreign firm enters into an agreement with a local firm to explore opportunities together in the target market (Trost, 2013). Depending on the nature of the contractual arrangement, the foreign company may hold a major, minor or equal stake in the business enterprise. According to Walter and Tracy (1988), Joint ventures offer several advantages to the foreign company. Firstly, this strategy is effective in developing countries, which have protectionism policies that discourage direct investments. Secondly, joint ventures allow the foreign firms to share the political and financial risks of investing in a foreign market through capital contribution. Thirdly, foreign companies are able to take advantage of the knowledge and experience possessed by the local firm. However, despite these advantages, joint ventures also have a number of disadvantages. Joint ventures dilute the foreign firms control over the international market. Secondly, it becomes difficult to reach consensus on the appropriate marketing strategy for serving the foreign market. Strategic Alliance/ Ownership/ equity stake A strategic alliance involves a partnership between two firms who combine resources together to develop a collaboration that exceeds the limits of a joint venture arrangement. This entry strategy is usually characterized by equity acquisitions by one firm or another. Each partner to the strategic alliance brings in its knowledge and expertise for mutual benefits of the alliance. The strategic alliance may be based on key competence in distribution, technology transfer or production technology. Walter and Tracy (1988) observe that strategic alliances are difficult to manage compared to joint ventures due to existence of equal ownership stakes. Furthermore, changing needs and expectations of the partners may threaten the viability of a strategic alliance. Finally, many argue that strategic alliances may not survive in the long run because the new relationships and connections may necessitate formation of an entirely new company. Market Expansion Strategies for US Firms The US multinational enterprises have significantly pioneered in the foreign markets using foreign direct investments (FDI). Hanson, Raymond and Matthew (2001) observe that US firms use FDI initiatives to capital, technology and management capabilities across different international markets. However, US companies employ a wide range of strategies while serving their global markets. For instance, Dow Chemical replicates the US based production facilities to serve new local markets. On the other hand, Ford and GM have successfully opened production facilities in Thailand and Brazil to produce vehicles serving regional markets such as South America and Asia. In contrast, Intel has fragmented its foreign production operations in three ways. It performs its R&D operations in the US, its fabrication plants are based in Israel and Ireland while the plants for assembly of the Microchip are based in Philippines and Costa Rica. Lastly, but not the least, IBM performs wholesale trade in its foreign markets. The company imports commodities manufactured elsewhere and distributes them in their foreign markets. References Gillespie, K. & David, H.H. (2010). Global Marketing. USA: Cengage Learning Hanson, G.H., Raymond, J.M. & Matthew, J.S. (2001). Expansion Strategies of U.S. ` Multinational Firms. Washington, D.C., The Brookings Trade Forum 2001 Trost, T. (2013).Joint Ventures: The Benefits and Perils - Why Some Are Successful and Others ` Fail. Munich, Germany: GRIN Verlag Walter, I. & Tracy, M. (1988). Handbook of International Management. Ed. New York: John ` Wiley & Sons Brand and Product Decisions Branding decisions The branding decision involves an understanding of how to manage the various levels of brands to accomplish organizational goals and strategies while retaining brand equity in the long-run (Hasanali, Paige & Rachele, 2005). According to Kapferer (2008), the main challenge facing companies in the global economy is striking a balance between local brands, international brands and global brands. He argues that local brands relates to local strategies employed by a firm in order to create and capture value in the local market segments while the goal of international and global brands is to gain a cutting edge over rivals through reduced operation costs. Kapferer (2008) observes that local brands lack ambition, are too dispersed, lack sufficient innovation, and they are self-restricting in terms of expansion of product line and expansion across geographical regions. Tonnis (2007) argues that with the growing level of internationalization and global market integration, firms need to embrace strong brand identities, which can be transferred to international markets. International branding therefore entails creating brands that are not restricted in terms of geographical reach and product line expansion. An established international brand becomes important in launching a new product or extending a product line to consumers within a different culture and country. However, international branding still remains a challenging concept in the sense that it is not easy to develop a standardized product that appeals to the international market due to the country-specific and regional differences. Brand and product differentiation therefore becomes a key competitive in development and implementation of a global branding strategy. Gelder (2005) observes that brands in the global markets are influenced by several factors including brand perception, recognition, internal and external environmental factors. Gelder suggests the need for global brand managers to engage in extensive market research on the various factors affecting global brands, regional and global differences in customer preferences and brand expressions and the various factors causing divergence in global policies and marketing strategies. He asserts that this understanding would be fundamental in creating a strong global strategy that would enhance brand extension, harmony, rejuvenation and strategic alliances across the globe. According to Wright (2006), brand leverage refers to marketing attempts to harness or harvest brand image and knowledge created in the minds of the consumers. Brand leverage is achieved through association, where a firm associates itself with an established brand in an effort to reap from the increased brand awareness. A firm may engage in a licensing arrangement to sue images of an established brand as a way of harnessing value through positive associations. A firm may also harness brand value created by other firms through corporate sponsorship. For instance, by sponsoring the New Zealand rugby team, Adidas was able to access and reap from new corporate values and market segments. Firms may also use strong brand image and equity to transfer brands into new market segments through new product development, revitalization of old products and product line extensions. Lastly, local and private brands are increasingly taking advantage of brand leverage to harness the value created by international manufacturers. Product and communication strategies Product extension Product line extension refers to the marketing strategy where a firm develops a product closely related to its existing products but targeting new market segments and satisfying different customer needs. According to Ferrell (2008), most firms prefer product extension strategy to other marketing mix strategies. He observes that most of the new products released in existing and new market segments are indeed product and brand extension. Product extensions are advantageous because they are not expensive to implement and significantly increases the firm’s market share and sales volume. In addition, product extensions enable a firm to grab market share from competitors. However, excessive product line extensions may cause a firm to divert from its core products. Product adaptation Product adaptation or modification refers to changes made in one or more attributes and aspects of a product. Modification may take Product modification or adaptation results into creation of a new product while the previous product is removed from the product line. Ferrell (2008) argues that firms encounter less risks and costs when performing product modification or adaptation. Ferrell (2008) observes that this strategy is only suitable under three main conditions. Firstly, it should be possible to modify the product. Secondly, customers should be able to experience and acknowledge the product modification. Thirdly, the modified product should be in consistent with customer expectations and create value for them. Similarly, Czinkota and IIkka(2006) observes that factors encouraging product adaptation in the global market include differing conditions of product usage, competition in the local market, differences in government regulations and differences in consumer buying behaviors. Product Invention Increased competition in the international and global market has made it increasingly important for firms to develop new products that appeal to new market segments and target new consumers. Companies, which are able to develop new, and innovative products that address the immediate needs of the target customers will be able to gain a competitive advantage. There are three main factors, which motivate product innovation including technological factors, customer factors and competitive factors. Czinkota and IIkka (2006) observe that new product developments are marred with many uncertainties, risks and high failure rates. According to Bhatia and Romit (2007), global firms are more concerned with reducing product life cycles, optimizing the cost of product innovation, improving value of new product development, improving innovation cycle and improving success rates. Strategies for Global Market Planning According to Cooper (2010), brands may use five main strategies in global market planning. Firstly, there is need for global brands to invest in a strong and consistent corporate culture and philosophy. With the growth in technology and digital social media, global firms are finding it increasingly important for international firms to create global brands that reflect their corporate culture and values. Secondly, global firms need to develop a purely global strategy with a borderless marketing strategy. Cooper observes that the growth of the digital media and increased internet connectivity makes it difficult to implement different strategies for the various international markets. Doing so would not only lead to marginalization of the brand but also create negative perceptions and brand confusions. Thirdly, there is need for global firms to develop strong and competitive global marketing teams. A strong marketing team which is involved in each stage of global market planning will not only be motivated to work hard but also act as brand ambassadors and evangelists. Fourthly, successful global market planning requires restructuring of the marketing function to achieve adaptability and flexibility for meeting the demands of the global market. Fifthly, firms need to incorporate customers as strategic partners and co-creators for a brand in the global marketers. Involving consumers in brand decisions and product developments would lead to development of a successful global plan. References Bhatia, A. & Romit, D. (2007). Globalization of product development: The inevitable next ` stage: how high-tech companies are disaggregating and globalizing their product ` development life cycle. Bangalore, India: Infosys Ltd. Cooper, L. (2010, July 1). Five strategies for a successful global brand. Marketing Week. ` Retrieved on 9 May 2014 from http://www.marketingweek.co.uk/analysis/essential-` reads/five-strategies-for-a-successful-global-brand/3015220.article Czikota, M. & IIkka,R. (2006). International Marketing. USA: Cengage Learning Ferrell, W.P. (2008). Marketing. 15th ed. USA: Cengage Learning Gelder, S.V.(2005) Global Brand Strategy: Unlocking Branding Potential Across Countries, ` Cultures & Markets. London: Kogan Page Publishers Hasanali,F., Paige, L. & Rachele, W.(2005). Branding: A Guide for Your Journey to Best-` practice Processes. USA: APQC publication Kapferer, J.(2008). The New Strategic Brand Management: Creating and Sustaining Brand ` Equity Long Term. London: Kogan Page Publishers Tonnis, R.(2007). International Branding - An Internationalization Approach on the Marketing ` Level. Munich, Germany: GRIN Verlag Wright, L.T. (2006). Consumer Empowerment. :Emerald Group Publishing Read More