Term Paper on "Global Market Segments"

Term Paper 12 pages (3788 words) Sources: 24 Style: APA

[EXCERPT] . . . .

Global Market Segments

The widespread of the globalisation phenomenon forced more and more companies to compete on global level. The segmentation of global markets is a great challenge for any corporation, but it is essential as it is correlated to the marketing strategy, namely the product positioning (Hassan & Craft, 2005). However, companies must take under consideration the local content of each market. Thus, brands may be global, but the marketing activity has to be adapted to each region, age segment or gender in order to truly understand the consumers (Barron & Hollingshead, 2004).

Geographically, the main global segments can be defined as follows:

High-income, developed countries with subsegments: U.S.&Canada, Europe, Australia and Asia-Pacific.

Mid-income emerging markets, with subsegments: South America, Central and Eastern Europe, Asia-Pacific and emerging African countries.

Low-income underdeveloped countries, with subsegments: Asia-Pacific, Africa and South America.

The usage of income, as social component, together with the geographical distribution makes the segmentation to be more meaningful for global brands positioning.

From the demographic point-of-view, the segmentation can be on gender - male/female; age - old individuals (over 65 years old)/seniors (45-65 years old)/mature (25-45 years old)/young and teens (15-25)/children (0-15 years old); ethnic group - Caucasian/Asian/African-American or European/African/Native Americans. This last segmentation is likely to change from one region to another, depending on each region ethnic mix.

2. International licence case study

International licensing is one of the many ways of internationalization. It is a way that is characterized by low foreign market commitment, low control over the overseas operation and rather low gains, because in this case the gains are proportional to the risks (Anderson & Gatignon, 1986).

The risks of doing business abroad are related to the lack of knowledge about the foreign markets, also known as the "liability of foreignness" (Zaheer, 1995). Therefore, in the beginning of the internationalization process, companies tend to enter foreign markets through ways that help them reduce these risks, such as: joint-ventures, international license, franchising or the acquisition of an already existing company.

The suggestion of whether to take advantage of the licence proposal coming from the company in Osaka, Japan depends on the specific characteristics of XYZ Manufacturing Company of Buffalo, New York. Thus, if XYZ doesn't have international experience, but is exploring the possibility of extending its operations abroad, this could be a good opportunity to gain some insight of doing business overseas. Conversely, if XYZ is not interested in international operations, 5% of the factory price of all products sold with its patent in Japan may not be worth the effort, especially when there's the risk of exposing the patents and know-how to a market that is famous for its copy-cat habits. Another scenario would be if XYZ is interested in servicing those markets itself. This third option is more compatible with an international joint-venture or acquisition of an already existing company in the Japanese market, where the degree of control over the overseas operations is larger. In this case, the international licence option is not as good as the other two.

3. Six attributes that distinguish GSP's from traditional joint ventures

G.S.P. joint venture surged in 2002 as a response to the need to support the existing requirements for rolled steel of the automotive industry. The venture was created as a Michigan Minority Business Enterprise.

Unlike the traditional joint ventures, this type of venture has strict ownership specifications, such as the fact that at least 51% has to be managed by minority members with U.S. citizenship or permanent residence (1). Ethnic minority enterprises are considered to have a significant positive contribution on the economic activity, namely on the small business-related one (Ram, 1997). Also, the presence of such firms intensifies the local competition (Ram et.al., 2000).

A minority business enterprise must have a useful business function (2). This implies that this type of business have to support the minority community as a number one priority. Thus, transferring funds to a non-minority business is not considered a useful business function. The security regime specifies that all of these that constitute control or ownership of the corporation are to be held by minority members (3). Moreover, such securities that are held in a trust or by a guardian for a minor are not considered to be held by minority members (4). The minority owners have to be in charge of every day major decisions and they have to be able to determine the direction of management policies in the company (5). Additionally, if the non-minority members of the company are responsible for the firm's activity disproportionably to their participation -49% at most - then the company is not considered to be a MBE.

These characteristics make the MBE to be a particular type of joint venture with specific characteristics, different from the traditional joint-venture.

4. The relevance of barriers of entry to global marketing

The 5 forces in Porter's model are:

Supplier power - a powerful supplier can influence the producing industry by elevating materials' prices to capture higher profits.

Threat of substitutes - substitutes can influence the product's price elasticity in the way that as the number of substitutes increases the product's demand is more elastic because this implies that customers have more options.

Buyer power - a powerful buyer can influence the producing industry by setting the price level.

Rivalry - high rivalry implies that companies are striving to gain competitive advantages over other firms in the industry.

Barriers to entry - the existence of such barriers reduces the possibility of companies entering or exiting a given market. Barriers can be set by companies or governments, which is why they can be of non-tariff or tariff kind.

On a global scale, non-tariff barriers are likely to affect small companies' possibility to engage in international operations. In fact, studies have suggested that this may be one of the main reasons to explain the low internationalization of this type of companies (Leonidou, 2004). Tariff barriers are usually imposed by governments to protect the local markets and those are more popular in developing countries.

A new type of barrier has developed along the spread of globalization process: the global multiculturalism. Companies that compete globally are usually faced with difficulties coming from cultural heterogeneity despite the product homogeneity (Naresh et.al., 1998), and this increases the complexity of international marketing activities.

5. Local, national, international, and global product or brand

Brand management complexity has increased in the last years and it ranges from local brand level to global. The degree of brand development depends on how firms expand internationally and the type of organization they adopt while doing so (Craig & Nijssen, 2001).

Some companies created global brands, while expanding to international markets, such as Coca-Cola and Nike. Global brands exist in different countries and different cultures. Managing global brands is not an easy task given that the corporate social responsibility (CSR) and social reporting reach a global dimension. However, studies show that global companies don't allocate the right amount of effort to the importance of these features, risking to compromise their impact on the business's social results (Knox et.al., 2005).

International brands exist in many countries, but they are not popular among many cultures, such as Chevrolet. The brand is well-known outside America, but is most within the continent, and not as popular in the European countries for instance.

The national brands are quite popular among one nation, but the national cultural content is so strong that if fails to reach consumers outside national boundaries. The following products can be quoted as national: Budweiser, Crest or State Farm Insurance.

Finally, local brands are popular in a restricted region within the national boundaries. These brands cover products that have a strong local content. Companies as Nestle or Unilever often create products that target the local public. Acquiring local companies is part of their internationalization strategy. For instance, Nestle bought Green's to make its presence on the Australian market more visible. Green's has two brands: Supercoat and Poppin that have a strong local content.

6. Alternative approaches to global pricing

Setting prices globally is a very difficult task because this is the only marketing mix component that generates revenues. The other 3 component generate costs.

Thus, a company has three alternative approaches:

Have the same price in every country

Adopt the prices to the local customer's buying power

Use the same cost mark-up everywhere

Global pricing strategy has to take under consideration the type of product the company sells - good or service and the product's price positioning - low/medium/high price. For instance, having the same price in every country may not be very easy given that, especially in the service industry, price perception varies across market segments (Erramilli, 1992). Thus, in one part of the world, a product may be perceived as medium priced and in another part of the world, it could be perceived as high priced. Following this argument, it can be concluded that market segmentation is crucial for companies that want to adopt a standard price for… READ MORE

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