Using examples of your choice, explain the importance of segmentation as a marketing tool. Discuss its effectiveness in the context of a developing country of your choice.

 

 Scheme: Doyle, P.and Stern P (2004)

Success is to gain competitive advantage. As Porter pompously puts it (Porter, 1985), the crucial strategic questions here are: where in an industry to compete and which segments to focus on for a sustainable advantage. Porter’s focus is outward, he wants a company to find segments which match its capabilities rather than creating capabilities that match customer needs.

How segmentation does create a competitive advantage for a firm? Reduces rivalry because there should be fewer competitors in any given segment and this should cut downward pricing pressures. It reduces pressure from substitutes, because specific segments will not see a rival product as a substitute. Furthermore, it allows a firm to become the product of choice in a segment, even if the firm is quite small. Also, the firm may transform into the recognized expert on a segment, which may pay dividends for years in terms of lower product development costs.

Black & Decker for example provides an illustrative demonstration of this hybrid global market segmentation strategy (Farley, 1986). Black & Decker is established in 50 countries and manufactures in 25 plants, 16 of which are outside the USA. In most of the cases has a very high level of brand awareness worldwide, sometimes in the 80-90 percent range. According to Black & Decker the potential economies of scale and cost savings of globalization of its product mix across hybrid market segmentation were considerable. But a lot of issues had to be overcome: Different countries have major different safety and industry standards that make complete standardization impossible. European and American consumers have extremely different responses to product design. Consumers prefer to use the products in different ways in different countries. As an example, Europeans are more power-oriented in their electric tools than Americans (Farley, 1986, p. 69).

The rule contemporarily prevailing in Black & Decker is that any new product must be prepared for a world market. People in the organization are forced to think “world product” first; anything else has to be justified (Lambin, 1997).

It is well known that firms in mass markets mostly compete on price. Demand for products that are clearly differentiated from competition and that offer a particular value to customers can sustain a higher price level and higher margins. The only precondition for providing such value added is detailed knowledge about customers’ preferences. These specific preferences will probably diverse in the total market, but fairly homogenous within clear segments.

As an example, in Apple’s iMac we will recognize the leader among the competitors in the design, publishing and education segments.  The key point of differentiation is its looks. As Steve Jobs, Chief executive at Apple, explains, ‘if you look at it, our industry has done a pretty poor job of listening to its customers in the consumer market. The industry sold big, ugly beige…boxes that took up desks and everything else.’ The result was the colourful, curvaceous all-in-one iMac. No consumer could mistake the distinctive design of the new product. As a result more than 2 million units have been sold and Apple’s market share in the USA has risen to 11 per cent.  Apple had to create a Competitive advantage and succeed it.

A firm wants to develop customers in the segments that are most profitable by giving the customers in those segments what they want and communicating with them, in language that they can understand that we have done so. If we are able to do this in a way that keeps customers whom we do not want to attract from seeing or hearing our communications and thus staying away, so much the better. That is why Yavitz and Newman in another context have called “the right person and the right carrot”. So, we need to be after the correct segment of customers and the correct offering. This is the most attractive method for developing competitive advantage - doing something better than the competition by using the segmentation as a major marketing tool.

Segmentation effects in Bangladesh

Multinational businesses have historically treated consumers in a foreign market as one large segment, without analyzing the key cultural and ethical issues that may be specific to each sub-group. At the same time others have focused on each particular market ignoring the similarities among these markets that may be useful to marketers. Earlier studies focusing in segmenting international developing countries markets have used macro-environmental variables to define international or regional markets.

The levels of income, geographical location/proximity, political system ideologies, culture, language and religious similarities have all been used as bases for clustering and identifying market segments (Kahle, 1986; Amine and Cavusgil, 1990; Malhotra et al., 1998; Hofstede, 1991). Researchers have proposed that multinational firms need to conduct their segmentation at a micro level or based on consumer behavior related variables such as psychological, values, lifestyle, situational, personality, and moral development. The specific bases provide a better insight on the extent to which a multinational corporation (MNC) needs to standardize its marketing efforts (Malhotra et al., 1998; Souiden, 2002).

Bangladesh, a country with a total area of 55,126 square miles, is one of the most densely populated, and the least developed agricultural countries in the world. In 2000, the total population was 116 million and per capita GDP was a mere of $US215. Only 13 percent of the population live in urban areas, and 76 percent depend on agriculture for their livelihood. Comparing to most other lesser developed countries, however, Bangladesh is religiously, ethnically, linguistically, and socially extremely homogenous (Kochanek, 1993).

Han et al. (1994) empirically focused how the choice of a survey mode affected respondents attribute ratings of products made in different countries, their attitudes toward products, and their intent to purchase them. To this end, Han et al. (1994) conducted three surveys that used different modes with samples drawn from the same population group. This study found significant interactions between the survey and products country of origin.

 

Bangladeshi consumers deal electronic products from Japan, Germany and the USA most favourably. Food products from the USA, Germany and England were ranked as Bangladeshi consumers top/best choices. Fashion merchandise from the USA, Germany and England tied for first rank as the top three choices in this product category, where as Italy and Japan were placed as second and Sweden as third. Bangladeshi consumers ranked the USA, Germany and England as first, and Italy, Japan and Sweden as their second and Korea as their third choices as to household goods. Products in general from the USA, Germany and Japan were tied for first rank, England as second and Sweden as third.

Bangladeshi consumers, in every product class as well as for products in general, view products from their own country and India least favourably. It is interesting to mention that some of the Indian products imported into Bangladesh were manufactured under a licence of a western or Japanese company. Bangladeshi consumers evaluated these products in a negative way because the particular products carried Indian labelling on them. One of the possible reasons for a low product quality rating for Indian products may be attributable to the fact that India and Bangladesh have been at odds politically with each other in the past, hence the poor evaluation of Indian products.

It was discovered that the products which originated from advanced developed countries were perceived to be associated with very similar attributes such as very good quality, reliability, performance and good workmanship, and the products originating from developing countries of the South were perceived to be less desirable . There are certain managerial implications of these findings. As practiced in other developing countries, products coming from less wealthy countries need to be targeted at low and medium income earners whereas those products coming from western Europe, Japan and North America will appropriately be targeted at “new rich” consumer markets. In a study conducted by Kaynak and Kara (1998), it was discovered that Azeri companies appropriately targeted Russian and Chinese products at low-income group consumers, Turkish products at middle-income and Japanese, western European and US products to up-scale consumer segments.

All too often Bangladeshi importers planning to source products overseas fail to account for all of the factors that could affect demand level for their products. To make imported products more acceptable by Bangladeshi consumers, a number of steps need to be taken by distributors and importers. First of all, how would companies build consumer confidence in businesses? Second, how can companies get government supervision of companies so that they serve the needs of consumers in a better way. Finally, what can Bangladeshi companies themselves do in the area of conformance with product quality expectations of consumers, supply of more and reliable information to consumers and creating consumer oriented companies. Also, consumer confidences in locally produced products over foreign ones need to be established. Of course, there is a need for concerted promotional campaigns for the purpose of educating the public about the virtues and distinguishing features of domestic products over imported ones. The only way to do this is improving domestic product attributes to make them as equally acceptable and desirable as the foreign made products.

Conclusion

International segmentation studies have applied a wide range of segmentation bases and have provided preliminary data of consumer segments that exist in different countries. The globalization forces now at work push many companies to extend or reorganize their marketing strategies across borders and target international segments of consumers.

It was one of the purposes to review a piece of the international market segmentation literature and to mention the segmentation as a marketing tool. I tried to describe the case study of Bangladesh in short, to illustrate and integrate the various issues and conclude with suggestions for future research to stimulate further advances concerning the segmentation process in this beautiful country.

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