Segmenting International Markets

Introduction

The concept of market segmentation is quite important in international business. The segmentation of an international market essentially involves the division of a rather broad market as targeted by the organisation into various small manageable groups that have seemingly common interests, needs or priorities. The idea behind market segmentation is to separate the target market into small units that can be reached easily based on their interests, priorities and needs. Companies often need to create products that can appeal to a given market, and segmentation allows them to address the needs of all their customers more specifically. For an international business, segmentation may not simply involve the determination of geographical location, income level and age of the consumers. With regard to a new country, there is the consideration of national cultural dimensions that distinguish customers from those in other countries. With the current state of globalization, companies may be tempted to presume that other countries are similar to the US. However, this is rather untrue, especially if considering countries that have significant variations in cultural dimensions when compared to the United States. Thus, it is important to consider these variations and approach a new foreign market as an individual target market while taking into account its own market segments. Hereby, some of the key tasks that a company must be willing to undertake would be the analysis of the market with regard to its cultural differences and similarities with their domestic market, identification of the specific threats and opportunities, and analysis of organisational capacity with respect to the new market. This paper critically analyses the key tasks that must be considered in segmenting the international market for Wal-Mart enter the Chinese market.

 

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Key Tasks of an International Market Segmentation

In the retail industry, the main business of a company such as Wal-Mart Inc. is to handle the end consumers. In fact, the company must be prepared to have dealings with these consumers if it intends to actually prosper within its new market (Iyer 2014). However, it can be noted that it is not an easy task to enter China based on how unique and specific the Chinese nation is, especially with regard to culture and business. Having decided to penetrate into China, the first step that the company has to take is to understand the Chinese culture before considering the Chinese market and its own organisational capacity. 

Understanding the Cultural Differences and Similarities

Cultural dimensions help companies to define the specific factors that distinguish a given country from others, thereby enabling them to grasp the specific considerations that they must make when entering the new market. Hofstede’s cultural dimensions are especially useful in determining how different or similar a given culture is when compared to another one (Piepenburg 2011). A country’s cultural dispensation affects a business in many ways, and for a retail chain business, the stakes are even higher. However, this can be understood when taking into consideration cultural dimensions at hand. The first one is Power Distance which mainly concerns the way people in a given culture respond to authority (Trompenaars & Hampden-Turner 2012). It can be noted that countries with high power distance often have power consolidated at the top. Within the retail industry, this would mean that the parents would be the best targets for marketing since they are the executives in the family setting and their choices are final and thus accepted by every family member. Therefore, a company in such country has to know how to capture the interest and attention of these powerful individuals in order to increase their potential for market dominance. Information on power distance is often readily available in studies conducted on national cultures based on the cultural dimensions model of the country risk analysis.

Individualism on the other hand concerns things people within the country value more, whether these are their personal interests or those of a larger group. Countries that have higher level of individualism often tend to have consumers that make decisions based on the impact on their lives and not on that of others (Piepenburg 2011). Thus, it would imply that they are only interested in what the company in question can do for them as individuals. In such countries, consumers do not pay attention to the technicalities of the organisation but rather to the effectiveness, affordability and significance of the products or services on offer. In such countries, companies are better segmenting the market based on the interests and abilities of the consumers (Baumuller 2006).

Other important cultural dimensions include masculinity, uncertainty avoidance, short-term orientations versus long-term orientations and restraint versus indulgence. In fact, each of these dimensions affect the consumers’ response to the company’s marketing in one way or another. Consequently, it is important for the company to understand the country’s position with respect to each cultural dimension before creating a market strategy and market segments (Neelankavil & Rai 2014). It would be rather inconsequential, for example, to target customers based on their views on corporate social responsibilities in a country where there is a clear emphasis on individualism. The reason that customers in such country are mainly interested in what the company can do for them and not in what it has been doing for rhinos in Africa among other things. However, the Chinese are however more collectivist than individualist and are thus likely to be interested in what the company has in terms of CSR.

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Identifying Specific Threats and Opportunities in the Chinese Retail Industry

Like in any other business, the threats and opportunities presented within the Chinese retail industry are very significant for Wal-Mart because they determine the company’s potential within the new market. Before entering a new market, it is important to understand what the company can do to improve its position. Market segmentation is a marketing strategy aimed at optimising market awareness and customer loyalty by attracting customers through their needs, interests and expectations within a given industry (Porter 2008). Apparently, this means that Wal-Mart will have to take some time to study the threats and opportunities in the Chinese retail industry with respect to its anticipated activities within the country. Therefore, this will entail the careful study on the Chinese retail industry for a given period of time before reaching relevant conclusions on what threats the industry presents and what opportunities can be drawn as well. The idea here is to find a means of positioning the company in a way that is favourable within the Chinese retail industry, thereby allowing it to actually compete within the market (Porter 2008).

It must be appreciated that it is these threats and opportunities that will decide how the company will penetrate into China and thus what market it will be able to successfully target. Threats and opportunities of a given country can be easily established by conducting a SWOT analysis of that country with specific considerations for the industry at hand. In this case, the main threat of the Chinese market with regards to the retail industry would be the competition. In fact, there are far too many local competitors within the Chinese retail industry that is why Wal-Mart will have to work twice as hard to gain some market share here. However, the company’s greatest opportunity would be the distribution of the Chinese population, with the country having such a high concentration of people within urban areas. The company can thus benefit from this to attract the urbanites into their wave of convenient and affordable shopping with major discounts for bulk buyers. 

Analysing the Organisational Capacity

It is really important for the organisation to understand its potential as well as its real capacity at the time of entry into the new market. The reason is that Wal-Mart will only be able to plan and actualize its goals if it knows how far it have come and how much more it needs to grow in order to be accepted and prosper within the new market (Iyer 2014). Wal-Mart, for example, already has the advantage of brand recognition in the US, but it may not be as extensive in China. Thus, the company has to determine how much it is able to do in order to enter the Chinese market. The main considerations with regard to this task include understanding of how much the company is willing to invest in marketing within the new market. In fact, some companies penetrate into a new market with the goal of market domination but are unable to accomplish this task due to restrained financial capabilities. On the other hand, other companies are able to achieve their goals with small budgets. The difference is in knowing what the company can do and giving preference to smart goals rather than planning beyond the organisational capacity. It is important that this kind of information is readily available to the company through their marketing and accounting departments. Wal-Mart is a large company with a significant amount of capital at their disposal. However, this may not be indicative of their marketing allocation; thus, there is the need to really understand how much the company can do within its set financial limits. The more marketing money the company has, the smaller market segments it can create and pursue.

Significance of Market Research in This Context

When a company conducts a market research, it is able to capture elements of the market that are specific to its operations. Apparently, this means that besides the generalized information that is available on the internet, the company will be able to get a lot of relevant insights into the market in question (Gotz & Mann 2006). Although this may be expensive and time-consuming, in most cases, it is successful. Thus, market research can be considered significant in this case taking into account the company’s information needs. The need to understand the cultural differences and similarities requires the company to thoroughly examine the nation in question and grasp its cultural contexts with regard to the company’s operations. Thus, rather than utilizing cultural analyses of China that are offered in the internet, Wal-Mart is likely to gain some accurate insights into the Chinese people by studying them directly and only using the secondary sources as guides and models for their market research. In this case, a direct research will ensure that the company’s tasks and activities within the new market are drawn from real knowledge and not unfounded hypotheses.

While identifying specific threats and opportunities, it is important to note that the company is actually seeking a way of growing its business and surviving within the Chinese market. It means that the business, in this case Wal-Mart, needs the right strategies which can be received from accurate and detailed information on the Chinese business situation. A market research will aid the company significantly in providing not just accurate and relevant information but also current information that can then be used to aid the marketers in forming the marketing strategies that it needs and that can work for it at the present time. In this case, real research is considerably useful based on its applicability and reliability when making such major decisions within the new market.

It can also be noted that market research allows the company to get a glimpse of its potential competitors and understand the situation on the grounds of a more objective perspective (Gotz & Mann 2006). Since Wal-Mart will still be an outsider in the industry, the company is able to appreciate the position of the competitors, their tactics and even the strategies that they are using in the market. Without market research, the company is likely to be dependent on third party analyses or on the information offered by these competitors. These options may be useful but their accuracy is seldom guaranteed compared to when a market research is conducted. Thus, Wal-Mart is more likely to understand competition if it conducts a market research on the Chinese retail industry as opposed to utilizing currently available information. 

Conclusion

International market segmentation is not an easy process as one may assume when segmenting a domestic market. First, the company in question must fully understand the cultural situation of the market that it seeks to enter. Before dividing a market based on interests, needs and priorities, it is important to understand the general orientation of the given society towards these interests, needs and priorities. For example, before positioning a company in the affordable category, it is important to determine how the society values saving, discounts and cheap goods and services. It may be difficult to appeal to a population that associates high costs with good quality when the marketing communication is about low prices that the company has to offer. The company has to identify the specific threats and opportunities in that new country and analyse its own capabilities with respect to the new business venture. In order to do this successfully, the company should conduct an extensive market research to obtain accurate and current information.