Market segmentation in global business

By Joseph Akyeampong Esq

Not many people in Ghana will remember the short span of the South African retail shop, PEP STORES when it set up in Ghana. The lightning speed with which PEP Stores collapsed could be attributed to the failure of its owners in properly doing an appraisal of consumer tastes and preferences to determine if the goods that were offered to Ghanaian consumers would be in conformity with local tastes and preferences. It is remarkable to mention that in the South African home state of PEP Stores, the merchandise which was stocked in its shops particularly catered to the needs and preferences of the lower segment of the population who were receptive to it.

It is important to state that the era of globalisation with the establishment of global businesses worldwide has eventually contributed to an increase in the standard of living especially in lower- and middle-income developing countries. In Ghana for example, many global restaurant chains like KFC, Vida e Caffe and others have been established. Furthermore, the introduction of many vehicle brands, computers and several household equipment all attest to the increasing trajectory of globalisation.

In line with this trend, there is the advocacy for the mass production of goods based on standardisation to minimise production costs and also make available a large variety of goods to consumers around the world. A major drawback to this scenario is the failure to take into consideration differences in tastes and preferences of consumers across the world.

One of the early advocates of standardisation of products in global trade is Theodore Levitt, the US academic who in an article in the Harvard Business Review in 1993 touted the standardisation of products across global markets for their obvious advantages. Levitt posited that the advent of technology has substantially aided communication, product development and travel leading to the need to manufacture goods on a large scale based on standardisation for sale in global markets. This according to him would ensure cost minimisation. He advocated for the commonality of preferences leading to standardisation of products manufacturing. The drawback of Levitt’s hypothesis discounted consumer preferences across national boundaries and also cultural influences in consumer tastes and preferences.

It has been established that, inasmuch as technology has revolutionised the increased production of goods and services leading to the wide availability of goods and services with an increased standard of living across countries, the side stepping of the critical ingredients of consumer tastes and preferences based on cultural, ethnic and religious differences pertaining across the world does not make the standardisation of the production of goods and services sustainable according to Levitt.

While Levitt’s postulations might be true with regard to the production of industrial and bulky goods like steel, cement, chemicals and some consumer goods, that may not be the case with a large variety of consumer goods and particularly menu served in restaurants and fast food joints. It has also been held by scholars that even though tastes and preferences may be converging among consumers in advanced economies due to the modernisation of transportation and technological systems with the prospect of the gradual evolution of a global culture, it is agreed that this might be sometime in coming.

The necessity for the segmentation of global markets

Even though Levitt’s postulation of standardisation of products to aid global consumption may be applicable in certain circumstances with the prospect of the convergence of a global culture, leading to the global recognition of some popular brands like Coca Cola, KFC, McDonalds etc there is the imperative for the recognition of local tastes and preferences by international businesses operating away from their home states.

The need for market segmentation by international businesses of their products should be informed by cultural differences, demographic factors, religion, purchasing power, quality and product attributes etc. For example, McDonalds restaurants in Saudi Arabia and muslim majority countries have different product offerings than what is offered in majority non-muslim countries. In the US, Toyota has customised its Lexus vehicles with specifications to cater for upmarket American customers. Similarly, movies and entertainment companies operating in countries with large youthful populations can easily modify their contents to suit the preferences of the captive youthful populations bearing in mind their rapid assimilation of global cultural influences.

The recognition by international businesses of differences across global markets relating to consumer preferences based on purchasing power, cultural and religious influences and other benchmarks influence international businesses in the conception of product design, pricing and the appropriate marketing strategy to be employed in getting products to consumers to elicit maximum patronage of the product or service. A successful determination of the appropriate market segment and the deployment of the requisite marketing strategy eventually inures to the profitability of the business.

Market segmentation across multiple countries

It is important to emphasise that in the efforts by international businesses to segment the markets in which they operate to determine the appropriate product offerings to the market and the accompanying marketing strategy, due recognition must be given to some peculiarities characterising the markets. The first is to recognise the different market segments in a particular country and also the existence of common peculiarities among consumers across countries. When a country is recognised as having different market segments, it is easy for the international business to introduce multiple products across the particular segments in the country. Another strategy with market segmentation is where an international business identifies a market segment in a particular country with that segment straddling across several countries. This is known as inter-market segment. Deciding on the appropriate market segmentation by an international business in focusing on the inter-market segment or in focusing on the unique market segments in particular countries requires the deployment of the requisite marketing tools in reaching the targeted populations with the product offerings.

Some particular factors influencing market segmentation

Even though Theo Levitt’s preference for standardisation of the production of goods and services as the ideal to aid mass consumption across global markets leading to an increased standard of living, the reality is not the case. This is due to several factors influencing consumer preferences on account of religious, cultural, economic factors etc. Besides the particular preferences and peculiarities influencing consumer tastes across different markets leading to market segmentation, there are some imperative factors influencing market segmentation in international business. Some of these factors according to Profs Charles Hill and Thomas Hult, acknowledged scholars in international business are product attitudes, cultural differences, economic development and product and technical standards.

With product attributes, they postulate that high quality goods with assured quality of use like BMW cars are more attractive to consumers in high income economies while simple cars with the normal operational attributes and accessories are more receptive to consumers in low income countries. Also, market segmentation based on product quality in different countries could be attributed to the technical standards prevailing in particular countries which assesses the suitability of goods to be marketed and sold in the country.

The writer is a lawyer with specialisation in international business law.

Email:   [email protected]

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