While segmenting is the process of identifying groups of consumers with similar wants and needs, targeting refers to evaluating and comparing the identified groups and then selecting one or more of them with the highest potential. A review of the literature on global market segmentation and targeting24 reveals that companies take three distinct strategic approaches.25These approaches are now outlined.
4.3.1 Targeting Approaches
Some companies adopt a countries-as-segments strategy, whereby either each country becomes a separate segment or several export countries are put together into groups. How to assess such country segments and ultimately target one or more countries has been described in Chap.2(Assessing Global Market Opportunities).
While an advantage of this strategy is the readily available secondary data at the country level, the resulting country segments may not be homogeneous with respect to customer needs and preferences.26
Alternatively, companies can adopt a segments-within-countries strategy, targeting different customer groups in different country markets. Segmentation and targeting takes place within countries, but no attempt is made to coordinate segmentation across countries. This can lead to a proliferation of segmentation schemes and result in increased complexity and cost, particularly when a large number of countries is served.
23Keegan and Schlegelmilch (2001).
24Hassan and Craft (2011, 2005), Hassan et al. (2003), Hassan and Samli (1994), Kale and Sudharshan (1987), Steenkamp and Ter Hofstede (2002) and Walters (1997).
25Diamantopoulos et al. (2014).
26Hassan and Craft (2011), Helsen et al. (1993), Hofstede et al. (1999).
Lastly, companies may identify global segments as target markets, i.e., they identify similar customer groups across countries. It is evident from the above discussion of different segmentation approaches that identifying, let alone serving,
“true” global segments can be time-consuming and costly, and requires consider-able effort on the part of a corporation.27 However, targeting global market segments has advantages. For example, while a particular segment within a single-country market might be too small, even a narrow segment may be served profitably if the segment exists in several countries.28
It is important to note that the three global segmentation and targeting strategies are not mutually exclusive. Companies serving a large number of international markets may, for example, treat some small countries as separate segments, develop tailor-made segmentation schemes for some major markets, and simultaneously pursue certain global segments across their country portfolio. Thus, different segmentation strategies may co-exist within the same company.29
4.3.2 Assessing Target Segments
Independent of the approach a company takes in its segmentation and targeting efforts, the main criteria for assessing global target markets are largely the same as in any given domestic market. Particularly important are the current size of the segment, its growth potential, the strength of the competition within the segment, the compatibility with the company’s overall objectives and the feasibility of successfully reaching a designated target.30
An interesting way to target the most promising customers is proposed by the consulting firm Bain.31The consultants advise companies to target customers who are most attracted to their offerings and who are likely to recommend a product or a brand to their friends or colleagues. This “Design Target” is considered the core target segment of customers that the company can serve better than its competitors.
The target segment is said to be so satisfied with the company’s offerings that they become loyal and spread the word to other potential customers. Although the design target segment may not be large enough in itself for the company to target profitably, its word-of-mouth potential and loyalty make it worthwhile to identify and keep satisfied.
Companies can identify the design target by simply asking current customers how likely they are to recommend the company’s offerings. Depending on their answers, customers fall into one of the three following categories: promoters, who are a company’s most loyal customers and avidly talk up its offerings; passives,
27Craft (2004).
28Porter (1986).
29Diamantopoulos et al. (2014).
30Keegan and Schlegelmilch (2001).
31Markey et al. (2007).
who are neither beneficial nor detrimental to the growth of a company’s customer base; and detractors, who are dissatisfied customers and also express their dissatis-faction to other potential customers. Introducing profitability as an additional criterion, Bain proposes the grid shown in Fig.4.2.
According to Bain, a company’s promoters will spur its growth, while detractors will deter it. By subtracting the percentage of detractors from the percentage of promoters, one obtains what Bain has coined as the Net Promoter Score, which correlates highly with a company’s growth prospects and future profitability.32
4.3.3 Selecting Target Segments
When selecting one or more target segments, companies have to settle somewhere betweenmass marketing and targeting a segment of one. As customers have distinct needs and wants, each individual customer can be viewed as a separate market segment. This has been the norm for craftsmen who produce unique items of clothing or furniture as well as for many producers of specialized machinery that are designed and built to the specifications of individual customers. However, the notion of a segment of one has attracted fresh interest in the context of mass customization.
Advances in IT and manufacturing technologies have made it possible to personalize the way individual customers are addressed, to capture each individual
Fig. 4.2 Targeting the most loyal customers. Source: Markey, R., Ott, J., & du Toit, G. (2007).
Winning New Customers using Loyalty-based Segmentation. Strategy & Leadership, 35(3), 34
32Markey et al. (2007).
customer’s unique requirements, and to configure distinct products for each indi-vidual customer. A popular example of a company that pioneered this approach is Dell, who was one of the first producers to configure each PC to the unique requirements of each and every customer. Since then, the internet has become awash with companies that offer customized products ranging from bikes, and safety belts to chocolates, fat-loss programs or even baby pacifiers (i.e., dummies—for British babies). Firms that allow their customers to play an impor-tant part in the creation of products according to their own personal taste achieve a higher preference fit and increase the perceived economic value of the product for their customers.33
Mass marketing, also known as undifferentiated marketing, represents the other end of the spectrum. Here, a company targets the entire market, disregarding differences among market segments and concentrating on their commonalities.
While this makes segmentation superfluous, there are situations where undifferen-tiated marketing with a standardized product lowers the cost to such an extent that the offer becomes attractive to a large number of customers.
Most companies opt for a level of segmentation that lies somewhere between mass marketing and the segment of one. Indeed, for most large MNCs, differentiated marketing is the norm. The Volkswagen Group, for example, has a portfolio of diverse brands to serve rather different target segments. Besides VW, this includes such diverse brands as Bentley, Lamborghini, Porsche, Audi, SEAT and Skoda and others. The target segments served with these brands cut across country boundaries but are also able to take advantage of historically rooted country-specific preferences, such as SEAT in Spain and Skoda in the Czech Republic.
Other approaches are known as niche or concentrated marketing, where a company attempts to capture a large proportion of one or a few smaller market segments of niches. Companies pursuing such strategies usually obtain a high degree of market knowledge through this concentrated strategy. Closely connected to niche marketing is the term micromarketing, where companies tailor their marketing programs to narrowly defined segments. A major disadvantage of any kind of niche strategy, concentration strategy or micromarketing strategy is the company’s high dependence on the selected niche.
A common problem faced by companies pursuing differentiated or niche strategies in different countries is the varying sizes and importance of segments.
For example, a segment that is large and growing in one market may be small and stagnant in another. Worse still, a segment which is important in one country may simply not exist in another. This is depicted in Fig.4.3, where the circles represent segments and the rectangles the positioning of competing products. A marketer who positions a brand in the “casual” but “distinctive” space in country A is likely to encounter problems with this positioning is country B, as this segment simply does not exist in this market.
33Franke et al. (2010).