International market segmentation: issues and perspectives

Abstract

With the increasing globalization of the business world, international segmentation becomes an ever more important concept in marketing. The globalization forces now at work push many companies to extend or reorganize their marketing strategies across borders and target international segments of consumers. It is the purpose of this paper to review the international market segmentation literature and to identify its future prospects and threats. We critically assess the current status of international market segmentation research and provide a systematic overview of 25 previous empirical studies with respect to the samples used for segmentation, segmentation bases and methods, geographic configuration of segments, and validation efforts. We discuss a number of conceptual and methodological issues that deserve more attention if international market segmentation is to fulfill its high potential. The conceptual issues include construct equivalence of the segmentation basis used, level of aggregation in the segmentation process, and choice of the segmentation basis. The methodological issues include measure equivalence and sample equivalence of the segmentation basis, segmentation methods employed, and whether national sample sizes should be proportional to population sizes. We describe a case study to illustrate and integrate the various issues and conclude with suggestions for future research to stimulate further advances in the area.

Introduction

International market segmentation has become an important issue in developing, positioning, and selling products across national borders. It helps companies to target potential customers at the international-segment level and to obtain an appropriate positioning across borders. A key challenge for companies is to effectively deal with the structure of heterogeneity in consumer needs and wants across borders and to target segments of consumers in different countries. These segments reflect geographic groupings or groups of individuals and consist of potential consumers who are likely to exhibit similar responses to marketing efforts.

A natural form of international segmentation is to adopt a multi-domestic strategy where each country represents a separate segment (Jeannet & Hennessey, 1998). A multi-domestic strategy amounts to selection of countries on the basis of their local advantages. Traditionally, multinational companies implemented such multi-domestic strategies by tailoring national brands to the needs shared by groups of consumers in the same country. In such an approach no coordination is required between countries, products are produced locally and are tailored to satisfy local needs. Distinct advertising, distribution, and pricing strategies are developed for targeting consumers in each country, and competition is managed at a national level. Competitive moves are conducted on a country-to-country basis and do not take the developments in other countries into account. Thus, in segmenting their markets, firms operating according to a multi-domestic approach can suffice with the standard segmentation techniques that are developed for domestic markets (Jeannet & Hennessey, 1998).

International segmentation becomes a particularly challenging issue when companies adopt a global or pan-regional strategy, that is, a strategy integrated across national borders. In many industries, national borders are becoming less and less important as an organizing principle for international activities, rendering multi-domestic strategies less relevant (Yip, 1995). Developments accelerating this trend include regional unification, shifts to open economies, global investment, manufacturing, and production strategies, expansion of world travel, rapid increase in education, literacy levels, and urbanization among developing countries, convergence of purchasing power, life-styles and tastes, advances in information and communication technologies, the emergence of global media, and the increasing flow of information, labor, money, and technology across borders Gielens & Dekimpe, 2001, Hassan & Katsanis, 1994, Hassan & Kaynak, 1994, Parker & Tavassoli, 2000, Yip, 1995. Many global companies such as Coca-Cola, McDonald's, Sony, British Airways, Ikea, Toyota, and Levi-Strauss have successfully integrated their international strategies. The forces that are now at work drive many companies to extend their operations abroad and target international market segments. By globalizing their strategies, such companies benefit from several advantages, including cost reductions through economies of scale, improved quality of products, and increased bargaining and competitive power Levitt, 1983, Yip, 1995.

Still, companies cannot serve the entire heterogeneous population of (a region of) the world with fully standardized marketing strategies. Many companies recognize that groups of consumers in different countries often have more in common with one another than with other consumers in the same country. Hence, they choose to serve segments that transcend national borders (Hassan & Katsanis, 1994). International segmentation aids the firm in structuring the heterogeneity that exists among consumers and nations and helps to identify segments that can be targeted in an effective and efficient way. As argued by Walters (1997, pp. 165–166):

When significant heterogeneity characterizes the international market context, tools are needed which can assist in the identification of underlying patterns of similarity which can provide a platform for global integration at the strategic and operational levels. The segmentation construct offers great promise in this respect…. Segmentation is therefore particularly important in enterprises that wish to develop and implement successful global marketing strategies.

International segmentation offers a solution to the standardization versus adaptation debate in that it creates the conceptual framework for offering products and/or marketing programs that are standardized across countries by targeting the same consumer segment(s) in different countries (Verhage, Dahringer, & Cundiff, 1989). When using a similar marketing strategy in multiple countries, economies of scale will lead to a reduction in the average costs of production, advertising, and distribution. If, at the same time, consumers in the targeted segments share the same needs, such strategies can also be highly effective (Yip, 1995). Hence, international segmentation combines the benefits of standardization (e.g., lower costs, better quality) with the benefits of adaptation (e.g., close to needs of consumers).

Despite the obvious importance of international market segmentation for marketing as a discipline in general and international marketing in particular, it has received relatively little attention in the literature. In a review of about 900 articles on international marketing, it was found that just over 1% (11 papers) dealt directly with international market segmentation (Aulakh & Kotabe, 1993). A similar observation applies to international versus domestic market segmentation: “Segmentation is a central issue in domestic marketing strategy. Yet, in international markets, it has received little attention” (Douglas & Craig, 1992, p. 312). One exception is the review by Walters (1997), which focuses especially on the process and international business aspects of international segmentation. We expand upon this work by providing an in-depth treatment of the key conceptual and methodological issues one should address when doing international segmentation research. Our point of departure is a systematic overview of previous empirical international segmentation studies. These studies are subsequently related to the various issues raised in international market segmentation. These conceptual and methodological issues deserve more attention if international market segmentation is to fulfill its potential. We bring these issues together and apply them in an illustrative case study involving an international segmentation challenge faced by one of the largest global consumer packaged good companies. We conclude with suggestions for future research on international market segmentation.