International 7 PRODUCT MIX PLANNING CONTENTS 7.0 Aims and Objectives7.1 Introduction7.2 Product Strategies7.2.1 Local/National Products7.2.2 International Products and International Bra
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7 PRODUCT MIX PLANNING
CONTENTS
7.0 Aims and Objectives7.1 Introduction7.2 Product Strategies7.2.1 Local/National Products7.2.2 International Products and International Brands7.3 International Product Planning
7.3.1 Product Objectives7.3.2 International Product Life Cycle7.3.3 New Products in International Marketing7.3.4 Product Segmentation
7.3.5 Product Positioning7.4 Product Adoption and Standardisation7.4.1 Product Adoption
7.4.2 Standardisation7.5 International Product Marketing7.6 Marketing of Services
7.6.1 Importance of Services7.7 International Branding and Packaging Decisions7.7.1 Perspectives on International Branding7.7.2 Factors of International Branding Strategy7.7.3 Dynamics of International Brand Architecture7.7.4 International Packaging
7.7.5 Design Requirements around the Globe7.7.6 Future Direction and Application of Packaging Requirements7.8 Let us Sum up
7.9 Lesson End Activity7.10 Keywords
7.11 Questions for Discussion7.12 Suggested Readings
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7.0 AIMS AND OBJECTIVES
After studying this lesson, you will be able to:
Describe product strategy and planning keeping in view the objectives of international
marketing
Distinguish between national and international product
Take decisions related to branding and packaging for international market
7.1 INTRODUCTION
You want to buy a washing machine for domestic use How do you go about it? You first
want to survey the market for which you go through the advertisements and identify
various shops from where you can buy the washing machine When you go to the market,
you indulge in window-shopping to identify various kinds of washing machines available
in the market You ask your neighbours, peers, colleagues and friends about the best
washing machine keeping in view the affordable price, which you can buy
The shopkeepers, on the other hand, has positioned the washing machines in showrooms
to make it look attractive He has organised demonstrations of the washing machine to
ensure customer satisfaction for buyers Some shopkeepers participate in trade fairs
where these washing machines are displayed Other clever ones put their slightly older
stock on sale to attract the customers This is the way product positioning and product
adoption is carried out
The customer is also very keen to find the life-cycle of this machine He wants to have
a durable and robust washing machine so that he does not have to change it every now
and then For the MNCs that produce washing machines go in for international product
life-cycle and developing countries have followed suit to get the best producing technology
for washing machines This is how the cycle continues and the customer gets the best
that they want for their delight
7.2 PRODUCT STRATEGIES
A product can be defined in terms of its tangible, physical attributes — such things as
weight, dimensions and materials Thus, an automobile could be defined as 3,000 pounds
of metal or plastic, measuring 190" long, 75" wide and 59" high However, any description
limited to physical attributes gives an incomplete account of the benefits a product provides
At a minimum, car buyers expect an automobile to provide safe, comfortable
transportation, which derive from physical features such as air bags and adjustable seats
However, marketers cannot ignore status, mystique and other intangible product attributes
that a particular model of automobile may provide Indeed, major segments of the auto
market are developed around these intangible attributes
Similarly, Harley-Davidson riders’ get much more than basic transportation from their
beloved “hogs” The Harley is a recreational product: even people who ride their Harleys
to work are riding because it is a form of recreation The motorcycle, in low-income
countries, is a form of transportation Clearly, there is a literal world of difference between
the need served by a motorcycle to the recreational rider and the rider who is using the
motorcycle as a form of transportation Some companies like Harley are focused on the
recreational riders and to the basic transportation market Harley, however, focuses on
needs Harley is a luxury brand: expensive, exclusive, and special Harley-Davidson is
selling a social and personal experience The Harley has a unique sound and feel It is a
Trang 3Honda is an example of an activity-based strategy company: if you can power it with amotor, Honda will make it, from 50 to 5000 cc, from a few hundred dollars to $ 75,000dollars, from the transportation market in the developing world to the recreation market
Many countries find that, as result of expanding existing businesses or acquiring a newbusiness, they have products for sale in a single national market For example, KraftFoods, at one time, found itself in the chewing gum business in France, the ice-creambusiness in Brazil, and the pasta business in Italy Although each of these unrelatedbusinesses was, in isolation, quite profitable, the scale of each was too small to justifyheavy expenditures on R&D, let alone marketing The basic question regarding anyproduct is whether it has the potential for expansion into other markets The answer willdepend on the company’s goals and objectives and on perceptions of opportunity.Managers run the risk of committing two types of errors regarding product decisions ininternational marketing One error is to fall victim to the “not invented here” (NH)syndrome, ignoring product decisions made by subsidiary or affiliate managers Managerswho behave in this way are essentially abandoning any effort to leverage product policyoutside the home-country market The other error has been to impose product decisionpolicy on all affiliate companies on the assumption that what is right for customers in thehome market must also be right for customers everywhere German Car maker,Volkswagen A.G., has learned the consequences of this latter error; VW saw its position
in the US import market erode from leader to also ran over the past two decades.Although the company once sold more cars in the United States than all other foreignautomakers combined, today VW has less than a 2 per cent market share in the UnitedStates One industry observer sums up the company’s main mistake this way: “Up tonow Volkswagen has thought that what works in Germany should work in the UnitedStates.” Volkswagen recently opened a design studio in Los Angeles, hoping to becomebetter attuned to the tastes of American car buyers
7.2.1 Local/National Products
A national product is one that, in the context of a particular company, is offered in asingle national market Sometimes national products appear when a global companycaters to the needs and preferences of particular country markets For example, Coca-Cola developed a non-carbonated, ginseng-flavoured beverage for sale only in Japanand a yellow, carbonated flavoured drink called Pasturina to compete with Peru’s favouritesoft drink, Inca Cola Similarly, Sony and other Japanese consumer electronics companiesproduce a variety of products that are not sold outside of Japan The reason: Japaneseconsumers have a seemingly insatiable appetite for electronic gadgets One recent
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example is Casio’s 16,000-yen ($155) Can-Tele, a television in a beer can, with a
one-inch screen It is designed to fit in an automobile drink holder Also, there is Sony’s Uka
LaLa, a desktop speaker system designed to work with Walkman and Discman portable
music players
Such examples notwithstanding there are several reasons why national products—even
those that are quite profitable—may represent a substantial opportunity cost to a company
First, the existence of a single national business does not provide an opportunity to develop
and utilise international leverage from headquarters in marketing, R&D and production
Second, the local product does not allow for the transfer and application of experience
gained in one market to other markets One of the major tools available to the multicountry
marketer is comparative analysis By definition, single country marketers cannot avail
themselves of this tool A third shortcoming that a single country product has is the lack
of transferability of managerial expertise acquired in the single product area Managers
who gain experience with a local product is sold Similarly, any manager coming from
outside the market in which the single product is sold will lack experience in the single
product business For these reasons, purely local products should generally be viewed as
less attractive than products with international potential
7.2.2 International Products and International Brands
International or regional products are offered in multinational, regional markets The
classic international product is the Euro product, offered throughout Europe but not in
the rest of the world The Renault is a Euro product: offered in every EU market, it is
clearly an international product; however, unlike the Toyota, for example, it is not a
international product
International products are offered in international markets They are international and
multi-regional A true international product is offered in the Triad, in every world region,
and in countries at every stage of development Some international products are designed
to meet the needs of an international market; others are designed to meet the needs of a
national market but also, happily, meet the needs of a international market
Note that a product is not a brand For example, a portable personal sound or personal
stereos are a category of international product; Sony is a international brand An
international brand, like a national brand, is a symbol about which customers have beliefs
or perceptions Many companies, including Sony, make personal stereos Sony created
the category more than 10 years ago, when it introduced the Walkman It is important to
understand that marketers must create international brands; an international brand name
can be used as an umbrella for introducing new products Although, Sony, as noted
above, markets a number of local products, the company also has the steller track record
both as in international brand and as a manufacturer of international products
7.3 INTERNATIONAL PRODUCT PLANNING
International product planning involves determining which products to introduce into which
countries; what modifications to make in the products; what new products to add; what
brand names to use; what package designs to use; what guarantees and warranties to
give; what after sales services to offer; and finally, when to enter the market All these
are crucial decisions requiring a variety of informational inputs Basic to these decisions
are three other considerations (1) product objectives, (2) coordination of product planning
activities between headquarters and subsidiary, and (3) foreign collaboration
The process of product planning in the international context is diagrammed in Figure 7.1
A company interested in an international market should first define its business intent
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Marketing Management
based on the objectives of both the corporation and the host country The product objectives
of a company would flow from the definition of its business Ultimately, the offeringshould provide satisfaction to the customer, which would be reflected in the realisation ofthe goals of both the corporation and the host country
a less developed country would be to seek faster economic growth, to build a balancedindustrial sector, to create employment opportunities, and to earn foreign exchange Onthe other hand, the objectives of an oil-rich country might be to provide a modern livingstandard to its masses in a short time without disrupting the cultural structure of itssociety and/or to diversify its economy to reduce its dependence on oil over the long-term
Obviously, the objectives of the host country and the company are poles apart In anyemerging market worldwide, however, no company can hope to succeed without aligningitself with the national concerns of the host country There are no models to use inseeking a description of such an alignment Conceptually, however, a macro analysis of
a country’s socio-economic perspectives should provide insights into its different concernsand problems The company can then figure out if its business would help the country inany way, directly or indirectly The business definition should then be developed accordingly.For example, shortage of foreign exchange might be a big problem for a country Amultinational marketer’s willingness to pursue a major effort of export promotion in thecountry would amount to an objective in line with the country’s need On the other hand,
a company simply interested in manufacturing and selling such consumer goods as toiletriesand canned foods, in a nation that is interested in establishing a basic infrastructure forindustrial development in the country, may not be serving the national interest
The definition of product objectives should emerge from the business definition Productobjectives can be defined in physical or marketing terms “We sell instant coffee” is anexample of defining objectives in physical terms In marketing terms, the objectivestatement would emphasise the satisfaction of a customer need The latter method ispreferred because it reinforces the marketing concept
To illustrate the point, assume that the RCA is interested in establishing a plant formanufacturing consumer electronics in Egypt The product objectives may be defined inthe following manner:
RCA corporate objective: Earn a minimum of 25 per cent return on investment in
any developing country
Egypt’s national concerns: Create employment opportunities and build up faltering
foreign exchange balances
Business definition: Establish a large consumer electronics plant in Egypt to
compete effectively in the Middle-east
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Product definition: Meet the electronic home entertainment needs of the masses.
The perspectives of international product planning can be categorised between issues of
day-to-day concern on the one hand and strategic issues on the other The day-to-day
issues arise in implementing decisions already made For example, following up on the
RCA example, an issue may arise concerning the need for extra precautions to be taken
to protect working televisions from dust This issue applies only to the Middle-east market
where the climate requires that windows be open all the time and where the winds carry
a lot of dust into the houses Local managers would handle the issue appropriately If any
specific technological help were needed, it would be sought from the parent corporation
on an ad hoc basis
Strategic issues require major commitments which must be taken up with the parent
corporation For example, using the RCA illustration, the question might be raised whether
colour picture tubes for TV sets should be imported from RCA in the United States or
from a relatively new Japanese subsidiary located in Egypt Another strategic question
could arise with reference to trading with a country that is not on friendly terms with the
United States Let us assume that Egypt does a lot of trade with Uganda Assume
further that the United States has a trade embargo against Uganda Will it be all right for
the RCA subsidiary in Egypt to export electronic goods to Uganda in view of the US
government’s trade embargo? Strategic questions cannot be handled by subsidiary
management alone and must be referred to the parent organisation
It is difficult to accumulate an inventory of decisions to label as day-to-day or strategic
It all depends on the individual situation The subsidiary management must decide if the
matter involved is strategic enough to require input from or a decision by the parent At
the risk of overgeneralization, an issue/matter/decision can be considered strategic:
If the United States government comes into the picture
If substantial investment needs to be made
If previously agreed upon arrangement would be overturned by a decision
If long-term financial interests of the parent are affected
If the host government appears to be imposing regulations that might affect the
long-term survival of the company
If technical problems have arisen that cannot be handled locally
If certain accusations have been made against the subsidiary that could flare up in
labour trouble or have other ramifications
In addition to ad hoc problems, which may be day-to-day or strategic, the parent may
require a periodic review of the subsidiary’s plants Product planning for established
product lines and plans for the development and marketing of new product lines would
then be prepared by each host country/geographic area and separately submitted to
corporate management for approval
7.3.2 International Product Life Cycle
Another reason for modifying a product is to cope with the limited International Product
Life Cycle (IPLC) of the good Ford Motor, for example, was extremely profitable in
Europe during the 1980s, but those earnings disappeared by the early 1990s because
Ford did not develop new, competitive products This is in contrast to Coca-Cola of
Japan, which introduces an average of one new soft drink per month and has the
competition scurrying to keep up Gillette, which has been particularly effective in combining
Trang 75 years The other is a short life cycle that lasts much less Many companies arediscovering that by shortening the IPLC and offering new product adaptations, they areable to capture and retain large market share This is typically done by offering a newproduct and then modifying it and bringing out a new version before the competition caneffectively combat the first offering For example, a company will offer a notebookcomputer with a 30-megabyte internal memory Then within 6 months the company willcome out with a 60-megabyte internal memory and a built in modem Six months laterthe firm will offer still another version of the product with additional features In eachcase the competition is left scurrying to keep up As long as the firm can continue thisadaptation strategy, it can outmode the old product (and those of competitors as well)and maintain market position At some point the competition may gain the advantage byoffering a product that revolutionizes the field, but as long as a product improvementstrategy remains viable, the firm will continue to be the product leader, and this strategy
is being implemented by MNEs throughout the world (Figure 7.1)
Extended Life Cycle Short Life
Cycles
Time Sales
Source: International Business, A Strategic Management Approach; Alan M Rugman, Richard M Hodgetts.
Figure 7.1: International Product Life Cycles7.3.3 New Products in International Marketing
In today’s dynamic, competitive market environment, many companies realize thatcontinuous development and introduction of new products are keys to survival and growth.Which companies excel at these activities? Gary Reiner, a new-product specialist withthe Boston Consulting Group, has compiled the following list: Honda, Compaq, Motorola,Canon, Boeing, Merck, Microsoft, Intel and Toyota One common characteristic: theyare international companies that pursue opportunities in international markets in whichcompetition is fierce, thus ensuring that new products will be world class Othercharacteristics noted by Reiner are as follows:
1 They focus on one or only a few businesses
2 Senior management is actively involved in defining and improving the productdevelopment process
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3 They have the ability to recruit and retain the best and the brightest people in their
fields
4 They understand that speed in bringing new products to market reinforces product
quality
What is a new product? Newness can be assessed in the context of the product itself,
the organisation and the market The product may be an entirely new invention or
innovation, for example, the Video Cassette Recorder (VCR) or the compact disc It
may be a line extension (a modification of an existing product) such as Diet Coke
Newness may also be organisational, as when a company acquires an already existing
product with which it has no previous experience Finally, an existing product that is not
new to a company may be new to a particular market
Identifying New Product Ideas
The starting point for an effective worldwide new-product programme is an information
system that seeks new-product ideas from all potentially useful sources and channels
Those ideas relevant to the company undergo screening at decision centres within the
organisation There are many sources of new product ideas, including customers, suppliers,
competitors, company salespeople, distributors and agents, subsidiary executives,
headquarters executives, documentary sources (for example, information service reports
and publications), and finally, actual first-hand observation of the market environment
The value of first-hand market observation as a source of new product ideas is illustrated
by troll dolls which were originally popular in the United States during the 1960s While
travelling in Denmark in 1982, Steven Stark, a United States marketing executive,
discovered that trolls had never gone out of style in that country Stark and his wife
licensed the Danish designs and began to manufacture them in the United States; by
1992, company sales had reached the $150 million mark
The International New Product Department
As previously noted, a high volume of information flow is required to scan adequately for
newproduct opportunities and considerable effort is subsequently required to screen
these opportunities to identify candidates for product development An organisational
design for addressing these requirements is a new product department The function of
such a department is fourfold (1) to ensure that all relevant information sources are
continuously tapped for new product ideas (2) to screen these ideas to identify candidates
for investigation (3) to investigate and analyse selected new product ideas (4) to ensure
that the organisation commits resources to the most likely new product candidates and is
continuously involved in an orderly programme of new product introduction and
development on a world-wide basis
With the enormous number of possible new products, most companies establish screening
grids to focus on those ideas that are most appropriate for investigation The following
questions are relevant to this task:
1 How big is the market for this product at various prices?
2 What are the likely competitive moves in response to our activity with this product?
3 Can we market the product through our existing structure? If not, what changes
and what costs will be required to make the changes?
4 Given estimates of potential demand for this product at specified prices with
estimated levels of competition, can we source the product at a cost that will yield
an adequate profit?
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5 Does this product fit our strategic development plan?
a Is the product consistent with our overall goals and objectives?
b Is the product consistent with our available resources?
c Is the product consistent with our management structure?
d Does the product have adequate international potential?
Testing New Products in National Markets
The major lesson of new product introduction outside the home market has been thatwhenever a product interacts with human, mechanical, or chemical elements, there isthe potential for a surprising and unexpected incompatibility Since virtually every productmatches this description, it is important to test a product under actual market conditionsbefore proceeding with full-scale introduction A test does not necessarily involve a fullscale test marketing effort It may simply involves observing the actual use of the product
in the target market
Failure to access actual use conditions can lead to big surprises, as in the case of SingerSewing machines sold in African markets These machines, manufactured in Scotland
by Singer, were slightly redesigned by Scottish engineers The location of a small bolt onthe product’s base was changed; the change had no effect on product performance butdid save a few pennies per unit in manufacturing costs Unfortunately, when the modifiedmachine reached Africa, it was discovered that this small change was disastrous forproduct sales The Scottish engineers did not take into account the fact that, in Africa, it
is customary for women to transport any bundle or load including sewing machines ontheir heads The relocated bolt was positioned at exactly the place where head metmachine for proper balance; since the sewing machines were no longer transportable,demand decreased substantially
The product is the most important element of a marketing programme Internationalmarketers face the challenge of formulating a coherent international product strategyfor their companies Product strategy requires an evaluation of the basic needs andconditions of use in the company’s existing and proposed markets Whenever possible,opportunities to market international products should be given precedence overopportunities to market local or international products The same positioning and marketingapproaches can be used with international brands such as Coca-Cola
Marketers must consider four factors when designing products for international markets;preferences, costs, regulations and compatibility Attitudes toward a product’s country
of origin must also be taken into account Five strategic alternatives are open to companiespursuing geographic expansion: product/communications extension; product extension/communications adaptation; product adaptation/communications extension; dualadaptation; and product invention International competition has created pressure oncompanies to excel at product development There are different definitions of whatconstitutes a new product; the most difficult type of new product launch is clearly oneinvolving an entirely new product in a market in which a company has little or no experience.Successful international product launches requires leverage An organisation mustaccumulate and disseminate knowledge concerning past practices both successful andunsuccessful Opportunities for comparative analysis further enhance the effectiveness
of marketing planning activities within the international system
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Box 7.1: Cola majors plan Rs 1000 cr Investment to hike capacity
With the heat wave continuing and summer just half gone, if early trends are to be believed,
carbonated soft drinks never had a better season than the present Bottles are being sold
almost as fast as they are being filled
Is this a result of aggressive advertising? Unlikely Industry sources admit that after the
cricket world cup, cola majors had throttled back their television advertising and have
concentrated more on far cheaper ground activities And to justify their talk of “immense
growth potential” for the Indian market, both PepsiCo and Coca Cola are putting their
money where their mouths are
According to officials in both the companies, while PepsiCo is spending $70 million in
expanding their bottling facilities, Coca-Cola is spending close to $200 million over the next
two years boosting their facilities All told, both companies are investing over Rs 1,000
crore in the next two years Initial growth figures for this summer seem to justify the
confidence displayed by both the companies Cola consumption has grown by an estimated
55 per cent this summer as against 25 per cent last summer
Per capita consumption, measured by the number of eight-ounce servings consumed every
year, has risen from 6 to 9.5 servings per annum From 350 million crates sold last year (each
crate is calculated as consisting of 24 eight-ounce servings), estimates are pegging that 500
million crates will be sold in 2003, making the market worth Rs 7,000 crore
Despite this estimated growth figure, both PepsiCo and Coca-Cola admit that this is among
the lowest carbonated soft drink consumption figures in the world An average Mexican
consumes fifteen times more carbonated soft drinks, and even in Sri Lanka the number is
pegged at 12.5 servings per capita per annum In India, consumption figures are also skewed
towards metropolitan areas In Delhi for example, the number is conservatively estimated at
50 servings per capita per annum
However, according to Coca-Cola deputy president Sanjiv Gupta, the growth so far this
summer has come from rural India
He believes that there has been a paradigm shift in consumption, particularly given the
increased focus on the chhota (200 ml) bottle “Our strategy of affordability has worked
very well, and we hope to pump prime business by further growth in the rural markets,” he
said
Even though both companies were loathe to give further concrete details, the Hindustan
Times has learnt that huge investments are being made by both the companies in their
distribution networks and cold chains After being badly hit by the truckers strike, both are
expanding their own truck fleets as well as investments in fridges and retailer training
Source: Hindustan Times, New Delhi, June 12, 2003.
Launching a new product is not an easy task, and many things can go wrong As
demonstrated by Unilever, the Anglo-Dutch multinational giant heavily promoted its new
detergent called Persil Power in the United Kingdom and Omo Power elsewhere The
launch was a Europe wide extravaganza
Proctor & Gamble’s researcher, however, noticed the new detergent’s pinkish granules
and found that they contained manganese The substance can clean clothes quite well
— perhaps too well Eventually, the substance will tear holes in clothes P&G subsequently
released its lab tests as well as pictures of clothes damaged by the new Persil Power
The independent Netherlands-based consumer organisation also confirmed that the
detergent weakened fibres and that cotton clothes lost much of their normal strength
Unilever claimed that the British Textile Technology Group (BTTG), an independent lab,
found no physical damage on garments But BTTG subsequently stated that its favourable
report was only preliminary and that the report did not contain fabric safety data Although
Trang 11Even though Unilever officials spent three years testing the detergent in the lab and withconsumers, the product was tested neither sufficiently nor appropriately After initiallythreatening to file a lawsuit against P&G, Unilever had to instead change the formulaand the instructions for its use.
7.3.4 Product Segmentation
Market segmentation is an acceptable concept to which marketers and academics allover the world like to pay great deal of attention Without market segmentation theproduct cannot be marketed in a big way This phenomena probably derives from anassumption that by going abroad, geographic segmentations have been implemented butgeographic segmentation is often over emphasised and is usually inappropriate Marketersfail to appreciate that the purpose of segmentation is to satisfy consumer needs moreprecisely — not to segment the market just for the sake of segmentation
Another mistake which business people make in foreign countries is attempting to capturethe total market at once The resulting disappointment in the market performancedemonstrates that two major problems have been overlooked Firstly, consumers in aforeign country are unlikely to be homogeneous Marketers must distinguish ruralconsumers from urban consumers In India, it is essential to segment Indian consumers.The needs or urban rich and the rural poor are entirely different, 76 per cent population
of India is rural and only 24 per cent urban out of which only one per cent is the affluentsociety
Japanese firms usually fix targets carefully avoiding head-to-head competition with major
US manufacturers in mature industries Starting at the low end of product spectrum, aJapanese firm establishes a reputation for product excellence and eventually getscustomers to trade up over time This strategy has worked exceedingly well in theautomobile and consumer electronics industries Japanese computer makers have usedthe same market strategy in breaking into the world computer market especially the US.Japanese firms market commodity products such as personal computers, disc drives,printers and other peripherals before attempting to trade up with their customers to thelarger systems, which have the highest profit margins
The most important reason behind the utilisation of market segmentation is markethomogeneity/heterogeneity Based on national boundaries, homogeneity can be vertical(homogeneous in one country) or horizontal (homogeneous across the countries).Therefore, two countries exhibiting a lack of homogeneity within their borders may still
be homogeneous horizontally when a particular segment of one country is similar to anequivalent segment of another country This is what Hassan and Katsanis call globalmarket segment and they derive it through “the process of identifying specific segmentswhether they be country groups or individual consumer groups of potential consumerswith homogeneous attributes who are likely to exhibit similar buying behaviour”
7.3.5 Product Positioning
Product positioning is a marketing strategy that attempts to occupy an appealing space inconsumers’ mind in relation to the spaces occupied by other competitive products Themind is like a computer in that it has slots and each bit of information is placed andretained in the proper slot The mind screens and accepts information according to priorexperience