Research " An Empirical Investigation of International Consumer Market Segmentation Decisions " pdf

According to the dissertation model, the three steps comprising a firm’s international segmentation strategy decision-making are: 1 determining which country or region to enter by evalua

An Empirical Investigation of International

Consumer Market Segmentation Decisions

The George Washington University

in Partial Fulfillment of the Requirements

for the Degree of Doctor of Philosophy

Directed by Salah S Hassan, Ph.D

Associate Professor of Global Marketing The George Washington University

April 30, 2001 Washington, DC

Copyright 2001 by Craft, Stephen Harold All rights reserved

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PHÊ n

PH.D PROGRAM

REPORT ON FINAL DOCTORAL DISSERTATION EXAMINATION

The undersigned Committee has examined Mr Stephen H Craft, a candidate for the Doctor of Philosophy degree, on his dissertation entitled: "An Empirical

Investigation of International Consumer Market Segmentation Decisions." The

Committee has found the candidate’s work to be acceptable and recommends to the Board of Trustees that he be granted the Doctor of Philosophy degree on

August 31, 2001

Professor of

Robert F Dyer

Bre a fe ay ⁄ eat Professor

227245 Kho Global Marketing

Marilyn L Liebrenz-~Himes

Strategic Management and

Doctoral Studies, presiding

April 30, 2001

Master of Business Administration

George Washington University, 1994

A Dissertation Submitted to the School of Business

and Public Management of the George Washington University

in Partial Fulfillment of the Requirements for the

Degree of Doctor of Philosophy

Segmentation is the process of dividing market participants into groups that share attitudes or behavioral propensities toward a product or service in order to target that group with customized marketing campaigns Identifying and targeting appropriate

customer segments is a critical step for a firm just entering international markets as well as for established international marketers

This dissertation presents a three-step model that has empirically proven to be an accurate normative representation of the international consumer marketing segmentation decision-making process According to the dissertation model, the three steps comprising

a firm’s international segmentation strategy decision-making are: 1) determining which country or region to enter by evaluating country attractiveness; 2) determining which consumer segments to serve within the target country or region by evaluating within- country segment bases; and, 3) determining whether the segments will be managed on a local, regional, or global bases The data does support the model as an accurate normative depiction of the best practices of firms involved in international segmentation This model was developed for the dissertation and is unique to the current research

The central premise tested in the current research is whether utilization of the model elements positively contributes to the successful performance of the firm’s

segmentation strategy The dissertation data was gathered from key informants at 63

a study participant as part of the data gathering process

Two of the model decision elements, evaluating within-country segment bases and

scale of segment management, have been shown to positively contribute to segmentation

strategy performance based upon the dissertation data In addition, specific within-

country segment bases market potential, culture, and socio-economic level have all been demonstrated to be significantly related to segmentation strategy performance Manage each country as a separate market as a scale of segment management has proven to be significantly related to segmentation strategy performance These findings represent a new and unique contribution to the understanding of international segmentation as well as

offering support for a number of future research efforts.

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Acknowledgemerts . o2 cẰSsà~ CHAPTER Ă: INTRODDUCTION

Statement ofÊPurpose

Research Questions

Contributiron of Research

Relation to the Field/Theory

Study Design se Organization ofthe Dissertation

Chapter Summary

CHAPTER 2: LITERATURE REVIEW ơ—

International Segmentation: Decision Process International Segmentation: Country Attractiveness Factors - International Segmentation: Within-Country Market Segment Bases

Scope of Globalization/Scale of Segment Management

Internationalization of the Firm

Connecting the Segmentation Decision Process to Successfil Market Performance

Conceptual Model

Management Decision Making

Chapter Commentary and Summary

CHAPTER 3: QUALITATIVE METHODOLOGY and STUDY RESULTS

Qualitative Methodology

Qualitative Study Participating Organizations

Study Findings

Qualitative Study Findings in Summary

Chapter Summary

CHAPTER 4: HYPOTHESES, VARIABLES and MODEL, OPERATIONALILZATION

Hypotheses 2

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CHAPTER 5: METHODOLOGY .- - -. .-

Design Sampling Frame . . -~~-<S+S<s Sample Size and Statistical Power

The Survey Instrument

Factor AnalÌySIS .- -.- {cẰ{sẰẶ Analysis and Results

Delimitations Lee Limitations | 2.2200 0 ccc cece cee ce eee eee ee cee cee cee eee eeeees CHAPTER 6: DISCUSSION AND IMPLICATIONS .-

Support Support Support Support for the Model

for Country Attractiveness Factors

for Within-Country Segment Bases

for Scale of Segment Management

Contributions of the Current Research

Extensions and Future Research

Chapter )UmmnarV

Dissertation Summary

AUTHOR NOTE ồÕÕÕẼẼÕẼŸÃẼÃ

APPENDICES 3.A Listing of Qualhtative Study Participants

vn Í th th Ca MN Ww Om MOO w > ow Depth Interview Protocol

Pretest Protocol

Pretest Participants

Text of Expert Panel E-mail

Expert Panel Findings

Questionnaire

Correlation Matrix for Factor Analysis

Communalities

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FIGURE 2.1 Two-Step International Segmentation Decision Model 15 FIGURE 2.2 Three-Step International Segmentation Decision Model 16 FIGURE 2.3 International Market Segmentation Decision Model (Dissertation) 18

EIGURE 2.4 Conceptual Measurement Model 40

FIGURE 4.1 Measurement Framework .- 65

Summary of Country Attractiveness Factors

Summary of Within-Country Segment Bases Summary of Scale of Segment Management Summary of Respondents’ Utilization of Decision Steps Performance Dimensions Identified by Respondents Country Attractiveness Factors

Within-Country Segment Bases Scale of Segment Management

Performance Dimensions

Summary of Variables Characteristics of Key Informants Summary of Convenience Sample KMO and Bartlett’s Test for Country Attractiveness Factors

KMO and Bartlett’s Test for Within-Country Segment Bases

Country Attractiveness Rotated Factor Loadings Reliability of Country Attractiveness Factors Within-County Segment Bases Rotated Factor Loading Reliability of Within-Country Segment Bases Factors Regression Model for Equation 1

Regression Model for Equation 2 Summary of Equations and Hypotheses Tests

As solitary as the research process seems at times, in retrospect the level of support with which I have been blessed is overwhelming The successful completion of this

research is truly a team accomplishment

First, I would like to thank my wife Carla for her tireless support of my research as well as every facet of our life together I simply would not be the man I am today without her I would also like to thank my daughters Arden and Marley for providing much needed time away from my research to enjoy being a Dad

I would like to thank my parents, James and Barbara Craft, for not giving up ona son who showed less than stellar promise in his early academic career I owe a big thanks

to my sisters Suzanne Craft and Mary Cooper, my brother-in-law Glenn Cooper, and my

niece Anna Cooper and nephew Trace Cooper for years of love and support

I own a considerable thanks to my dissertation committee I wish to thank Salah S Hassan of The George Washington University for being my friend, co-author, advisor and advocate for these six years in the doctoral program and for directing this dissertation My internal committee members are Robert F Dyer and Amy K Smith of The George

Washington University I owe Amy special thanks for her tireless hours of help and

coaching with the analytical portion of this research My outside review committee

members are Marilyn Liebrenz-Himes and Jennifer J Griffin of The George Washington University as well as Michael R Czinkota of Georgetown University

I owe a debt of gratitude to my many colleagues and friends in the doctoral

program at The George Washington University for helping to shape my thinking and hone

my research through hours of formal and informal sharing of information and experiences

In particular, I want to thank Melissa St James for her assistance in helping to gather the data upon which this research is based

Thanks to my many students at The George Washington University, The University

of Maryland, College Park and at Towson University for allowing me to do what I love

Many thanks to my colleagues at Towson University for placing their bets on and hiring an ABD

Finally, thanks to the faculty and staff in the School of Business and Public

Management at The George Washington University for welcoming an ‘industry guy’ who decided he wanted to teach I could not have asked for a better or more nurturing

environment to begin my academic career

defends itself against

the risk of being read.”

- Winston Churchill

Introduction

The forces of globalization have inspired many firms to look to international

markets for growth opportunities Emerging worldwide market opportunities hold the promise of impressive profits for firms that are able to successfully compete internationally According to the World Trade Organization (WTO), the value of merchandise exports in world commerce grew 6% over the 1990’s to $5,729 billion (WTO 2001) The actual value of market opportunities at stake has been estimated

to be even larger, approaching $21 trillion (Fraser and Oppenheim 1997) Froma

marketing perspective, the move toward international markets means that firms will

be serving a greater diversity of customers than ever before

A firm wishing to take advantage of the opportunities available in the

international market is immediately faced with a number of decisions What

countries or regions represent appropriate markets to enter and penetrate? Who

within the country are the potential customers? How should the products be

customized to each market? For example, Coors Brewing International sought to introduce its Coors Light brand to the UK by bringing the brand into Scotland in

1999 Scotland is a traditional beer drinking region Coors was able to reposition

the product to appeal to the Scottish sensibilities of the 18 - 24 year old male ‘beer drinking-yet health conscience’ market segment by building upon the brand’s Rocky Mountain heritage Coors Brewing hopes to position Coors Light as a beer

designed for the Scottish drinker but with an American heritage (Marketing Week

1999) In contrast, Bass Brewers introduced Asahi, Japan’s number one beer, into

the UK in 1999 specifically by not repositioning the product Bass Brewers are

targeting an internationally savvy consumer segment who are open to world

products A large part of the brand’s appeal is that the product has remained

unchanged from the Japanese product (Marketing 1999) Although Coors and Bass

are taking different approaches to their international market expansions, they share

an important focus upon positioning their brand relative to an international or global

market segment “Firms focusing on a global market segment often can effectively

use the same capabilities and skills to target that segment throughout the world”

(Craig and Douglas 2000, 10)

Examination of the strategy for Coors and Bass demonstrates the

multifaceted nature of international segmentation In each case, the company had

made a strategic customer segmentation decision to enter the UK having chosen

among other foreign markets Once the decision to enter the UK had been made,

Coors identified a specific consumer segment using demographic, psychographic

and lifestyle variables Coors then adapted an existing product to target that

segment Similar to Coors, Bass identified a specific consumer segment within the

UK using psychographic and lifestyle variables However, Bass introduced an

existing standardized product to target that segment In each case, a similar set of

segmentation decision steps (i.e., country selection and consumer selection) were

used to make the segmentation decision; however, the resulting strategies are quite

different

The results for Coors have been modest growth with only a slight market

penetration for the Coors product as of 2000 However, the sales of Asahi in

Europe have grown from 161,800 cases in 1999 to an estimated 400,000 cases in

2001, representing an increase of 247% Bass has followed-up on the success of

Asahi in Europe by launching Asahi Super Malt and Asahi Super Dry products in

2000 For both Coors and Bass, international segmentation is seen as an important

driver of market success, and there are clear performance implications for

segmentation decisions What makes one product launch successful and another

less so? What are the performance implications of customer target selections?

What criteria are appropriate when selecting a target segment? These are among the

questions addressed in this dissertation

International market segmentation is an increasingly important priority in

both the academic and practitioner research agendas Market segmentation has long

been a staple of domestic marketing strategy Segmentation is the process of

dividing market participants into groups that share attitudes or behavioral

propensities toward a product or service in order to target that group with

customized marketing campaigns Targeting a receptive customer segment offers

greater efficiency and is more cost effective than targeting an undifferentiated

market (Hassan and Katsanis 1991, Kotler 1994) The literature on domestic

customer segmentation in the US is well-developed

The increasing importance of international market segmentation is due in

part to the greater diversity of customers that a firm encounters when operating in

world markets In addition, the globalization of brand images and promotional

media are increasingly leaving firms with no choice but to identify and target global

customer segments The priority of international market segmentation is clearly

demonstrated by the Marketing Science Institute’s (MSD) ranking of marketing

research priorities International market segmentation and cross-cultural marketing

issues are consistently ranked among the top research priorities by MSI based upon

the input of marketing and non-marketing executives (Marketing Science Institute

Research Priorities 1996-1998 and 1998-2000)

Although segmentation research is no less essential to international

marketing strategy, international market segmentation strategy decision-making is

not a well researched topic Although some of the concepts from domestic

segmentation might be applicable to the international arena, the introduction of

country variables such as language and culture and the greater diversity of within-

country segment bases separates international market segmentation as a clearly

distinct area of inquiry Numerous research articles have appeared which advocate

utilizing segmentation in international markets, yet few have attempted to

empirically examine the decision process involved in developing an international

market segmentation strategy or the success of international market segmentation

strategies once implemented

The traditional international market segmentation approach has focused

upon countries as markets based upon geopolitical and economic variables — country

attractiveness factors Alternatively, some current approaches emphasize the

integration of behavioral and lifestyle variables in defining segment bases that

transcend national boundaries (Crawford, Garland and Ganesh 1988, Dawar and

Parker 1994) Yet a third approach calls for the use of multi-step models that

integrate country attractiveness factors with segment bases (Wind and Douglas

1972, Helsen, Jedidi and DeSarbo 1993, ter Hofstede, Steenkamp and Wedel 1999)

This multi-step approach is the subject of the proposed research

Much of the extant literature in international market segmentation is focused

upon some particular segment/product combination leading to results that are

difficult to generalize to other circumstances In addition, the international market

segmentation literature has focused upon country attractiveness criteria (Buzzell

1968, Helsen, Jedidi and DeSarbo 1993, Nachum 1994) and segment bases

(Crawford, Garland and Ganesh 1988, Hassan and Katsanis 1991, Dawar and

Parker 1994) as drivers in defining segments Several authors have presented

general conceptual models that propose specific segment/product relationships

(Domzal and Unger 1987, Kale and Sudharshan 1987, Douglas and Craig 1989, Jain

1989) While researchers have been successful in identifying specific customer

segments for a limited defined purpose, relatively little of the available empirical

research offers any insight into international market segmentation strategy decisions,

nor does it examine or evaluate the assertion in the academic and practitioner

literature that international market segmentation strategy will positively contribute

to actual market success once implemented Douglas and Craig observe “strategy

issues appear to be a sadly neglected area in international marketing” (1992, 311)

Although a firm will ultimately need to identify and target a particular

segment for a particular product, examining segmentation decisions independent of

any particular segment/product combination is an essential step in our understanding

of international market segmentation strategy because the international segmentation decision process is assumed to be universal (Wind and Douglas 1972, Kale and

Sudharshan 1987) “One of the major problems confronting the international

marketing manager faced with the breadth and diversity of international markets is

how to identify potential target segments, and what information to collect for this

purpose” (Wind and Douglas 1972, 24) Although the literature contains some

analyses of possible customer segments, there is still no strategy formulation or

performance guide to aid managers in the process of systematically identifying

international market segments Armed with an understanding of the ‘best practices’

of effective international market segmentation decision-making practice, the

manager will be better able to evaluate the attractiveness of potential target

segments Understanding international market segmentation decisions will be

insightful for industries and firms just entering the international arena Finally,

understanding international market segmentation decision-making and its link to

market performance will provide managers with a cross-industry benchmark by

which to assess the performance of their own market segmentation strategy In

summary, the problem directly addressed in the current research is that no empirical

study has been published which equips researchers or managers to evaluate the

impact of international consumer segmentation decisions and choice of decision

criteria on the market success of an international segmentation strategy

Statement of Purpose

The purpose of this study is to 1) test a model of international consumer

market segmentation strategy that proposes a three-step decision-making process

including evaluation of country attractiveness factors, within-country segment bases, and the scale of segment management; and, 2) relate the model, each model element,

and the selection criteria to the performance of the firm’s market segmentation

strategy in international markets

Research Questions

In order to test the international market segmentation decision process, the

current research addressed the following research questions:

How does the degree of utilization of country attractiveness factors in a firm’s

international market segmentation decision process relate to the performance of the

firm’s international consumer segmentation strategy?

Which country attractiveness factors offer the greatest contribution to the

performance of the firm’s international consumer segmentation strategy?

How does the degree of utilization of within-country segment bases in a firm’s

international market segmentation decision process relate to the performance of the

firm’s international consumer segmentation strategy?

Which within-country segment bases offer the greatest contribution to the

performance of the firm’s international consumer segmentation strategy?

How does the degree of utilization of decisions regarding scale of segment

management in a firm’s international market segmentation decision process relate to

the performance of the firm’s international consumer segmentation strategy?

Which scale of segment management option offers the greatest contribution to the

performance of the firm’s international consumer segmentation strategy?

Contribution of Present Research Study

The contributions of the current research to the literature and the field are

twofold First, this dissertation presents an integrated model of the international

market segmentation strategy decision process based upon the literature Second,

this dissertation seeks to determine what role each model element and each decision

factor plays in the market success of real firms’ international consumer market

segmentation strategy This research is unique in its examination of

outcome/performance measures in relation to international market segmentation

Strategy decisions In addition, this research will offer insight into international

market segmentation strategy decision-making and provide much needed

operationalizations for important segmentation constructs

The contributions of the current research to the practitioner community are

threefold First, the research provides important insight to the firm’s international

market segmentation strategy decision-making by identifying the critical steps in the

integrated decision process and relating those steps to market performance The

research allows the firm to direct managerial focus to those parts of the decision

process with the greatest potential to impact performance For example, in the

cases where a firm is only utilizing country attractiveness factors in their

international market segmentation strategy decision, the results of the research

clearly demonstrate the advantage of expanding the decision process to include

within-country segment bases Second, the research demonstrates a clear

connection between segmentation decisions and market performance thereby

providing a benchmark for managers to assess the performance of their own

international market segmentation strategy Third, the research allows for the

identification of country attractiveness factors or within-country segment bases that

perform well across industries Anecdotally, managers who were contacted for the

qualitative phase of this study expressed a strong interest in the outcome of the

current quantitative study One manager noted: “we are very interested in what is

happening in other industries relative to targeting international consumers because

there is so little data available.” Most of the participants in the current quantitative

study have expressed an interest in the results of the study by requesting summaries

Clearly the proposed research represents a valuable contribution to practitioners

Relation to the Field/Theory

The current research falls within what Sheth, Gardner, and Garrett (1988)

term the managerial school of marketing thought that is notable for its focus on the

role of the seller The managerial school is the dominant school of marketing

thought Segmentation strategy has its theoretical roots in industrial organizational

economics and price theory/price discrimination (Wind and Douglas 1972) Price

discrimination suggests that with marketing budgets as a constraint upon strategy,

segmentation allows the firm to seek the efficiency of a smaller niche market with

fewer competitors (Rumelt, Schendel and Teece 1994) By demonstrating a

connection between the international market segmentation decision process and

segmentation strategy performance, the current research supports the contention in

price discrimination theory that successfully focusing upon a segmented or niche

market leads to higher performance through greater efficiency

Study Design

The current research consists of a qualitative study followed by a survey of

organizations involved in marketing to consumers in international markets The unit

of analysis for the study is the firm or the strategy making unit if distinct within the

firm The independent variables, country attractiveness factors, segment bases, and

scale of segment management, are defined generally as the decision elements relating

to the country, segment, or scale which collectively compose a firm’s international

consumer segmentation strategy The issue is both the specific decision elements

employed and the degree to which country, segment, and scale decision elements are factored into the decision process The dependent variable, success of segmentation

strategy, is defined generally as the degree to which the firm’s international

consumer market segmentation strategy (based upon the decisions outlined above)

meets the firm’s expectations for contribution to actual market performance

Specific issues of construct operationalization and measurement are addressed in

detail in chapter 4 on methodology

The current research focused exclusively upon consumer markets for goods

and services and not upon business-to-business or institutional buyers The reason

for focusing upon consumer markets is twofold First, although important

commonalties exist, business-to-consumer and business-to-business marketing

practices are distinct in the area of segmentation, and it would be difficult to

examine both ina single study Second, segmentation technique is better developed

in business-to-consumer marketing versus business-to-business and is more likely to

yield a clear decision process However, it is important to note that a great deal of

the findings from the current research might be applicable to the business-to-

business market once extended in future research efforts

Organization of this Dissertation

The first critical step in the research process was to develop a model of

international consumer segmentation strategy decisions based upon the literature A

review of relevant literature in international market segmentation is presented in

Chapter 2 The purpose here is to outline how the literature was used to build and

support the model The literature indicates that a model of the international market

segmentation strategy decision process must include three decision elements:

country attractiveness factors; within-country segment bases; and, the scale of

segment management The model proposes that the three decision elements taken

collectively will form a firm’s international market segmentation strategy decision

process In addition to the model, specific research hypotheses are identified

Chapter 3 is a summary report on the findings of the qualitative phase of the

research The qualitative input from high-level managers directly supports the

model presented in chapter 2 The interview protocol and a list of participating

organizations appear in the appendices

Chapter 4 outlines the model development Each critical construct is

operationalized and measures are presented Control variables are introduced and

defined in both conceptual and operational terms

Chapter 5 presents the critical steps in developing, refining, and testing the

dissertation instrument as well as some expected limitations to the proposed

research The pretest protocol and resulting survey instrument appear in the

appendices The results of each hypothesis test are presented

Chapter 6 provides a discussion of the findings and implications of the

results of the current research The results for each hypotheses test are discussed

along with implications for future research

Summary

Segmentation is a critical issue to firms marketing internationally The goal

of the current research is to examine the decision process by which firms develop

international consumer market segmentation strategies The current research

contributes to the field by presenting an integrated model of the international market

segmentation strategy decision process based upon the literature and supported by

input from practitioners In addition, the current research is making a unique

contribution by testing the model to determine whether the utilization of the decision

elements and specific factors gleaned from the literature actually impacts the market

success of a firm’s international market segmentation strategy The remaining

chapters in this dissertation outline the literature underlying the model, the

qualitative study conducted in support of the instrument development process, the

methodology and results of the current research, and the implications of the findings

Chapter 2: Literature Review

Introduction

This literature review seeks to cover recent and seminal literature that

directly relates to segmentation strategy decision-making in the international

context While international segmentation has been widely discussed, there has been surprisingly limited focus on directly addressing segmentation strategy decisions in

the international context The following is a review of the relevant literature on

international segmentation strategy decision-making, including contributions to both

country attractiveness factors and bases of segmentation as well as the closely

related concepts of the scale of segment management and scope of globalization In

addition, the theoretical link between segmentation strategy and the market

performance of segmentation will be addressed

International Segmentation: Decision Process

A distinct track of the literature in international segmentation began with

Wind and Douglas’ pioneering treatment of the international segmentation decision

process in 1972 Prior to that time, market segmentation was viewed primarily as a

domestic strategy, and the occasional mention of international segmentation in

scholarly research was cursory at best Wind and Douglas (1972) put forward the

argument that segmentation is not just equally important in the international market,

but in fact may be more important because international markets are more diverse

than domestic markets “The range of income levels, the diversity of life-styles and

of social behavior is likely to be significantly greater when considering the world as

opposed to a national market” (Wind and Douglas 1972, 17) Wind and Douglas

(1972) conclude that a firm will reap greater benefit from international segmentation because of the greater diversity that a successful international segmentation strategy

will accommodate

Wind and Douglas (1972) propose a two-step model (Figure 2.1) for

defining international market segments The first step is the “macro” segment in

which countries are classified and targeted based upon national market

characteristics or country factors While not meant to be all inclusive, the country

factors identified include: cultural and social patterns; level of economic and

technological development; and, national legal and political characteristics

The second step in the Wind and Douglas (1972) model is to analyze and

sub-divide each qualifying target country by customer characteristics Again, not

meant to be all-inclusive, they suggest the following bases for dividing customers

into segments within qualifying target countries: demographics (age, income);

socioeconomics; personality and lifestyle; brand loyalty; frequency of purchase; and,

attitude toward the brand The model proposed by Wind and Douglas (1972) is

normative in nature

Figure 2.1 Two-Step International Segmentation Decision Model

(Adapted from Wind and Douglas 1972)

Segmentation Strategy

Identify “macro”

segments of countries Identify within-country customer segments

Wind and Douglas (1972) recognize that the distinction between country

factors and customer characteristics might seem arbitrary since country factors

might actually be related to the characteristics of consumers within the country The

operational distinction is that while country factors are “common to all customers of

the given country such as national character or dominant cultural patterns,” within-

country segment bases “enable a distinction among various customers within a

country” (Wind and Douglas 1972, 18) Utilizing the definition presented allows

country factors and customer characteristics to remain operationally distinct despite

some obvious overlap For example, the general level of educational attainment

across the society might be a country factor used to identify target countries, and the

individual consumer’s level of education might be a demographic bases for sub-

dividing the market into customer segments

Wind and Douglas (1972) view the model as a two step process with a clear

temporal relationship country qualification followed by the within-country

division of customers into segments They argue that a firm will naturally seek to

economize by selecting among countries prior to examining customer behavior

within individual countries and thereby avoid the expense of researching and

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segmenting consumers in numerous countries The reasoning for thiss order is that

the cost of examining individual customers and their behavior (step two) within a

number of countries is likely to be significantly more expensive than aletermining the

attractiveness of countries (step one) Therefore, Wind and Douglas (1972) view

the international segmentation strategy process as clearly linear or hierarchical

International segmentation has received a fair amount of attemtion in the

marketing literature since 1972 However, the first substantive addition to the

international segmentation decision model presented by Wind and Douglas (1972)

was put forward by Kale and Sudharshan (1987) Kale and Sudharshean (1987) offer

a three step international segmentation decision model The first twos steps in the

Kale and Sudharshan (1987) model are substantially duplicative of W ind and

Douglas (1972) The third step proposed by Kale and Sudharshan (1'987) is the

linking of what they call strategically equivalent segments (Figure 2.2.) Like Wind

and Douglas (1972), the model proposed by Kale and Sudharshan (1987) is

normative in nature

Figure 2.2 Three-Step International Segmentation Decisiom Model

(Adapted from Kale and Sudharshan 1987)

International Segmentation

In the Kale and Sudharshan (1987) model (Figure 2.2), the first step is to

select the appropriate countries to enter This decision is based upon factors such as

political climate and communications infrastructure Second, identify specific

customer segments to serve within each country based upon product and marketing

mix factors They refer to this step as “microsegmentation.” Finally, select common

“strategically equivalent” segments across a range of countries that may be served

with a common marketing mix Kale and Sudharshan (1987) provide a hypothetical

example of a frozen dessert The hypothetical management team starts by reducing

the number to eight qualifying countries prior to within-country behavioral analysis

Hypothetical segments in different countries may be comprised of different

consumers (teenage females in country A versus adult males in country B) yet still

be strategically equivalent if they are similar on key characteristics such as degree of

information search and desired sweetness Kale and Sudharshan (1987), like Wind

and Douglas (1972), view the segmentation decision process as linear or hierarchical

in nature Kale and Sudharshan (1987) argue that this methodology will maximize

strategic focus on cross-market homogeneity and minimize extraneous efforts to

overcome within-country heterogeneity Kale and Sudharshan (1987) conclude that

this standardization of cross-national segments allows a firm to regard national

boundaries with “honorific significance” and concentrate its efforts on serving

customer groups which respond similarly to a particular marketing mix

Douglas and Wind in 1987 take up the issue of how segments might be

linked and determine that the scale of segment management may be global, country

specific, or based upon clusters of countries with similar characteristics Although

not intended as such, Douglas and Wind’s work may be interpreted as a

reformulation of step three (as adapted from the Kale and Sudharshan model) The

reformulated decision step, selection of the level of segment management,

constitutes the third decision in the international segmentation strategy decision

synthesis /dissertation model (see figure 2.3)

Figure 2.3 International Market Segmentation Decision Model

(Synthesis / dissertation model)

International Segmentation

international segmentation decision literature In addition, chapter three highlights

the fact that practitioner input from international managers also supports the model

The synthesis model is unique to this dissertation

The dissertation model presented is a clear improvement over past attempts

to describe the decision process on three points First, the dissertation model is the

first attempt in the literature to develop a comprehensive model of the international

consumer segmentation decision process Second, the dissertation model has

brought together differing strands of the international segmentation literature to

identity segmentation strategy decision making as a process with three distinct

18

decision steps Third, unlike earlier treatments in the literature, the dissertation

model is readily operationalizeable which allows for data gathering to examine the

veracity of the model

The literature offers little discussion of the entire international segmentation

decision process and seemingly little if any attempts to empirically examine the

decision steps or the process it represents prior to the current research The bulk of

the extant literature has tended to focus upon one or more steps in the international

segmentation decision process by examining country attractiveness factors used for

target country selection, within-country customer characteristics used as a basis to

segment consumers within target countries, or the scale of segment management

These topics comprise the remainder of this chapter

International Segmentation: Country Attractiveness Factors

Following upon Wind and Douglas (1972), a number of studies sought to

classify countries based upon macro-factors Hofstede (1980) explored the

possibility of classifying countries based upon cultural factors, but he offers little

insight into consumption behavior Huszagh, Fox, and Day (1986) clustered

countries based upon economic and geographic factors but found significant

heterogeneity within the countries on issues of product acceptance There are a

number of other country classification systems suggested in the literature, including

political orientation, gross national product per capita (Keegan and Green 1997),

national income per household (Kotler 1994), the presence of strategically

equivalent segments (Kale and Sudharshan 1987), as well as geographic location,

legal/regulatory system, cultural norms and financial systems (Douglas and Wind

1987)

Helsen, Jedidi, and DeSarbo (1993) examine the speed and pattern of

diffusion within target countries They suggest diffusion as the critical country

classification factor to assess target country attractiveness The authors find that the segments formed by evaluating diffusion patterns are not the same as the segments

formed by examining traditional macro-country attractiveness factors Helsen,

Jedidi, and DeSarbo (1993) argue based upon an empirical study that the speed and

pattern of diffusion might be an appropriate indicator of country attractiveness for

some product categories

Luqmani, Yavas, and Quraeshi (1994) examine two specific macro/cultural

factors: time-saving orientation and desire for comfort They seek to connect these

criteria to consumer preferences and shopping habits The authors offer no

empirical support for these assertions Dawar and Parker (1994) examine the

degree to which a country devotes resources to retailing activities They hope to

demonstrate that the degree of retail involvement will be a superior predictor of

consumption patterns and therefore is an appropriate indicator of country

attractiveness The empirical findings in Dawar and Parker’s (1994) analysis offer

some limited support for country classification based upon retail involvement

As the preceding discussion highlights, a number of authors have suggested

factors for determining which countries a firm should enter (see Table 2.1) There is

little agreement, however, as to which country factors are best suited to identify

attractive target countries There is nonetheless a great deal of agreement that

qualifying countries based upon attractiveness factors is an important step in

developing an international segmentation strategy Consistent with the preceding

discussion, the following proposition can be made:

Proposition I: The inclusion of country attractiveness factors in the

international segmentation decision will positively impact the success and

performance of the firm’s international segmentation strategy In addition,

specific country attractiveness factors may impact performance to varying

degrees

However, country attractiveness factors alone provide little insight into within-

country heterogeneity among consumers — the very heart of domestic segmentation

strategy In a recent study, ter Hofstede, Steenkamp, and Wedel (1999) empirically

verify that a segmentation model can integrate both country factors and consumer

characteristics to better form segments which share consumption patterns versus

traditional models employing country factors alone However, the study stops well

short of addressing the nature of the segmentation decision-making or the

contribution of segmentation decision criteria to performance The ter Hofstede,

Steenkamp, and Wedel (1999) findings reinforce within-country examination of

market segment bases as a key second step in the international segmentation

strategy decision process As distinct from prior research, the use of country

attractiveness factors in the current study is to examine both the degree to which

their inclusion as a step in the segmentation decision process is related to the

successful performance of a firm’s international segmentation strategy and the

relative contribution of each factor to performance

Table 2.1 Summary of Country Attractive Factors

economic development Huszagh, Fox & Day 1986

Wind & Douglas 1972 national income per household Kotler 1994

technological development Wind & Douglas 1972

legal/regulatory Douglas & Wind 1987

Wind & Douglas 1972

Huszagh, Fox & Day 1986

Samli & Hill 1998

ethnic identity Samli & Hill 1998

demographics Wind & Douglas 1972

political/form of government Kale & Sudharshan 1987

Keegan & Green 1997 Wind & Douglas 1972

International Segmentation: Within-Country Market Segment Bases

The second decision in the international market segmentation decision model

(dissertation model Figure 2.3) is identifying the bases upon which to segment

consumers within each country The bases for segmentation refer to the one or

more underlying factors upon which markets are divided into segments Wind and

Douglas (1972) recognize the opportunity for international segment bases to borrow

heavily from developments in domestic segmentation Kotler (1994) describes the

bases of segmentation as falling into one of four general categoriess geographic,

demographic, psychographic, and behavioristic Within this frame=work, segment

variables can be customer specific, such as demographic, psychogrraphic,

mediagraphic, socioeconomic, personality, lifestyle or attitude Segment bases can

also be situation-specific, such as product usage, purchase patterns, benefits sought,

convenience orientation, or reactions to specific media (Dickson asnd Ginter 1987;

Wind 1978; Luqmani, Yavas, and Quraeshi 1994)

Baalbaki and Malhotra (1993) divide the bases for internatzonal

segmentation into two categories They conclude that factors such as geography,

politics, and culture are environmental and therefore distinct from managerial factors

such as product characteristics and price They provide an extensivve listing of

segment criteria gleaned from the literature

In the international segmentation literature, Domzal and Umger (1987)

suggest that market segments be identified across countries and regions based upon

psychographic and lifestyle analyses This is similar to the segmentzation methods

utilized domestically, such as the Stanford Research Institute’s Values and Lifestyles

(VALS) segmentation system which categorizes the US populatiom into nine

psychographic segments (Kotler 1994) Crawford, Garland, and Gianesh (1988)

suggest segmenting on the basis of attitudes toward imported prodwicts and country

of origin factors They distinguish between developed economies aand newly

developing economies which may lean toward protectionism Vertmage, Dahringer,

and Cundiff (1989) conclude that global segments must be based upon consumer

attitude They limit the applicability of their research findings to specific products

which share a commonality of consumer attitude across countries

Like Crawford, Garland, and Ganesh (1988), Samli and Hill (1998)

distinguish between bases for segmenting the markets of developed versus

developing countries They contend that demographic, geographic, behavioral,

lifestyle, attitudes, taste or predisposition are appropriate bases for segmenting

consumers within developed countries The authors identify ethnic and racial

identity, as well as geography, as being useful in segmenting consumers within

developing countries The authors find evidence that these bases will allow a firm to

find important similarities in segments across countries

While the international segmentation literature offers little consensus as to

which bases of segmentation are preferred, there is nearly universal agreement that

defining within-country segments is a critical decision step in developing a firm’s

international segmentation strategy Consistent with the preceding discussion, the

following proposition can be made:

Proposition II: The inclusion of within-country segment bases in the

international segmentation decision will positively impact the success and

performance of the firm’s international segmentation strategy In addition,

specific within-country segment bases may impact performance to varying

degrees

The use of segment bases in this dissertation is to examine both the degree to which

their inclusion as a step in the segmentation decision process is related to the

successful performance of a firm’s international segmentation strategy and the

relative contribution of specific segment bases to performance Table 2.2

summarizes the within-country segment bases identified and their source within the

Wind & Douglas 1972

attitude toward imports Crawford, Garland & Ganesh 1988 frequency of purchase Wind & Douglas 1972

product acceptance Huszagh, Fox & Day 1986

attitude toward brand Samli & Hill 1998

Verhage, Dahringer & Cundiff 1989 Wind & Douglas 1972

Wind & Douglas 1972

ethnic identity Samli & Hill 1998

Wind & Douglas 1972

Hofstede 1980 Wind & Douglas 1972

Scope of Globalization/Scale of Segment Management

The third step in the international market segmentation decision model

(dissertation model Figure 2.3) is the level or scale of segmentation management

The scale of segmentation management refers to the level at which a firm will

manage its segments (i.e., multi-local, regional or global) A closely related issue to

the scale of segment management is the scope of globalization The scope of

globalization refers to the degree to which a firm might standardize its products and

marketing programs across a large part of the world as opposed to adapting,

customizing, or localizing its products and programs to each country in which the

firm operates (Hassan and Blackwell 1994) Speaking to the issue of

standardization versus adaptation, Solberg (2000) states: “even though many

researchers have addressed the issue, it still remains an under researched field of

international marketing (96).” The scale of segment management and the scope of

globalization are closely related because segmentation is frequently identified as a

compromise or hybrid strategy in the standardization versus adaptation debate

The globalization discussion was significantly energized by Theodore Levitt

in a persuasive and influential 1983 article in which he frames the debate over the

appropriate scope of globalization He draws the distinction between the

multinational corporation which customizes its products and marketing campaigns

to each country served and the global corporation which produces universal

products for a world-wide consumer or global segment He proposes that through

technology and a desire for modemization, “the world’s needs and desires have been

irrevocably homogenized (Levitt 1983, 93),” giving rise to world-wide or global

customer segments He goes on to define the key to competitive success in this new

market as the “search for sales opportunities in similar segments across the globe in

order to achieve the economies of scale necessary to compete” (Levitt 1983, 94)

Like Wind and Douglas (1972) and Kale and Sudharshan (1987), Levitt recognizes

a clear connection between international segmentation strategy and firm

performance

Levitt (1983) argues that a customer segment is seldom unique to a country

and has close approximations in many parts of the globe due to the homogenizing

effects of technology and the universally shared characteristic of scarcity It is

exactly this commonality of scarcity that he suggests is the key to a firm’s

international marketing success In short, a firm that can produce a higher quality

product and sell it for a lower price (due to the economies of scale available through

nearly complete world-wide or regional product and program standardization) to a

global segment will out-compete a comparably lower quality or higher priced

product that is customized to any particular country

In contrast to Levitt’s (1983) emphasis on standardization to a world-wide

global segment, Kotler (1986) and Sheth (1986) both propose a narrow scale of

segment management by advocating adaptation of products and marketing programs

on a country by country or multi-local basis Specifically, Sheth (1986) argues that

the increase in global competition and global products is due to systemic changes in

the business environment and is not an indication of increased commonality or

homogeneity of needs generally Sheth (1986), specifically linking the scope of

globalization and the scale of segment management, argues that a global segment

would need to exist and reach significant size in order for global standardization to

become viable Kotler (1986) concedes that global standardization is possible with a

few limited products where needs are similar However, he argues that most (80%)

of US exports would need to be adapted across a broad range of characteristics for

each target country following a multi-local segmentation strategy Kotler (1986)

concurs with Sheth (1986) that segment size will be a critical factor in determining

the viability of an international segment

Porter (1986) and Daniels (1987) acknowledge the emergence of a

homogeneity of needs internationally, but they disagree with Levitt’s (1983)

conclusion that firms should necessarily standardize their products and marketing

programs to a global customer segment However, both authors concede that

selective standardization of certain operations may be used to gain strategic

advantage Porter (1986) suggests a continuum of segmentation schemes ranging

from total country adaptation (multi-local) to total world-wide standardization

depending upon the product and competitive factors Daniels (1987) concludes that

hybrid strategies of standardization and adaptation will result from a firm’s need to

balance the impediments of country differences and resistance by local management

against the potential strategic gains of serving global segments

Huszagh, Fox, and Day (1986) examined the feasibility of standardization to

a global segment as described by Levitt Their research suggests that regional

segmentation is a viable strategy for similar markets with similar product

acceptance They conclude that standardization to a regional or global customer

segment is feasible with certain product categories (consumer non-durable) and

suggest clustering countries based upon the similarity of target customer groups

within the countries

Douglas and Wind (1987) address the extent of homogeneity of needs in the

global marketplace They suggest that neither standardization to a global segment