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Global consumer segmentation versus local market orientation: empirical findings.

Ugur Yavas, Professor of Marketing, East Tennessee State University, Johnson City, TN, U.S.A. Bronislaw J. Verhage, Professor of Marketing, Georgia State University, Atlanta, GA, U.S.A. Robert T. Green, Professor of Marketing, University of Texas at Austin, Austin, TX, U.S.A.

Introduction

The relative efficacy of a global marketing strategy vis-a-vis a tailored marketing strategy remains one of the hotly debated issues of international marketing. As is the case in any debate, polarizing arguments in favor of (or against) each abound. Proponents of a global strategy point to the increasing homogenization of customer tastes and preferences and suggest that significant economies of scale can be attained by marketing standardized products world wide (Levitt 1983). Critics, on the other hand, dismiss the potential of a global strategy and underscore economic, cultural and other environmental differences among nations as impediments to its implementation. They argue that tailoring strategy to reflect country-market differences will generate improved response (Kotler 1986).

Often overlooked in this fierce debate is a middle ground approach that takes into account not only differences or similarities among markets but both. As Quelch and Hoff (1986) point out, the real issue is not whether to standardize but rather how to tailor the global marketing strategy. Indeed, reliance on a global strategy can result in missing out on important target markets and inappropriate positioning. Likewise customizing marketing strategy to individual countries implies loss of potential economies of scale as well as opportunities for exploiting product ideas on a wider scale (Whitelock and Chung 1989).

The recent genre of writings suggest that global and tailored strategies are not necessarily mutually exclusive and that they can be used in tandem to reap the maximum benefits. In this vein, Jain (1989) and Kale and Sudharshan (1987) propose an intermarket segmentation approach to world markets and point to the feasibility of identifying homogenous segments that transcend national boundaries. Once identified these so-called strategically equivalent segments (Kale and Sudharshan 1987) can be reached via global marketing strategies aimed at different cross-national segments (Verhage, Dahringer and Cundiff 1989). The idea of reconciling the different viewpoints of global and tailored marketing strategies is intuitively appealing and certainly represents a significant forward link in the design of multinational marketing strategies. However, empirical support to the viability of this middle ground approach is scanty and evidence to its efficacy comes mainly in the form of anecdotes (Ohmae 1985, Whitelock 1987).

The study reported here is intended to partially fill in this void. Specifically, consumers in six countries including the United States, Mexico, The Netherlands, Turkey, Thailand and Saudi Arabia were studied for intermarket segmentation on the basis of two criteria, perceived risk and brand loyalty (Kreutzer 1988). Consumers were questioned about their degree of perceived risk and brand loyalty for two products, bath soap and toothpaste. These products were chosen since they are widely available in different brands and are purchased on a frequent basis by the consumers in these countries. It was maintained that if the consumers in these countries are not sufficiently similar regarding the effects of risk perception on brand loyalty, the underlying rationale for a single global marketing strategy at least within the context of products surveyed here would disappear. On the contrary, such a circumstance would render the middle ground approach viable.

Method

Because the primary purpose of the study was to identify cross-national segments on the basis of behavioral measures, data were collected from demographically parallel samples of consumers. This was done by controlling for sex, social class and rural-urban residency across samples. In each country upper-middle income women residing in major urban centers were targeted. Use of comparable sub groups in each country allowed the researchers to ascribe the differences among the samples to the behavioral measures (i.e. levels of brand loyalty and perceived risk) rather than to sample characteristics. Exhibit 1 reports sampling-related aspects of the surveys conducted in each country.

Cunningham's (1967) two-item scale that has been widely used in a number of studies both in the United States and elsewhere (Guseman 1981, Schaninger 1976, Green, Strazzieri, Saegert and Hoover 1980, Yavas and Tuncalp 1985) provided the basis for risk measurement. A combined measure of perceived risk was obtained by summing the respondents' answers to the two scales. Possible risk scores ranged from a high perceived risk level of 8 to a low of 2.

Brand loyalty was measured according to the proportion of purchases method (Mowen 1987) which measures loyalty on the basis of a person's purchase TABULAR DATA OMITTED history of a brand. In this study, following the procedure used by Saegert, Hoover and Hilger (1985), a three-point brand loyalty measure was devised. A score of three (3) was given if the last three purchases of the respondent were of the same brand; a score of two (2) if two of the last three purchases were of the same brand; and a score of one (1) was assigned if all three purchases were of different brands. The questionnaire was originally prepared in English and then translated into Arabic, Spanish, Turkish, Thai and Dutch by using the backtranslation method (Douglas and Craig 1983).

Results

Country means on perceived risk and brand loyalty for bath soap and toothpaste are presented in Table 1. As can be seen from the table, consumers in the six countries studied differ not only in the degree of risk they perceive but also in the level of brand loyalty. This holds true for both products.

These behavioral differences suggest that in marketing these products a global marketing approach which requires similarity among nation-markets will not likely be effective. Having ruled out a single global marketing strategy, the next phase of analysis aimed at examining the efficacy of tailoring global strategies to cross-national segments.

To address this issue the entire sample of respondents were grouped into clusters derived from the risk and loyalty measures. This was achieved via the SAS Fastclus algorithm (Sarle 1983). Fastclus is an effective method for finding initial seeds with a standard iterative algorithm for minimizing the sum of squared distances from the cluster means. It is particularly efficient in disjoint clustering of large data sets as is the case in this study (Spath 1980). The TABULAR DATA OMITTED procedure resulted in the optimal number of four clusters (pseudo -- F = 343.61; expected |r.sup.2~ = 0.57893).

As shown in Table 2, mean risk scores across clusters ranged from a high of 6.67 to a low of 3.21 in the case of bath soap and from a high of 6.49 to a low of 3.21 in the case of toothpaste. Similarly, brand loyalty measures for both products demonstrated across-cluster variations. For instance, consumers forming cluster 3 exhibited the highest levels of brand loyalty for both products whereas those in cluster 2 had the lowest loyalty. An interesting observation that can be made from a comparison of country means reported in Table 1 with the cluster means reported in Table 2 is that range of variation in the case of clusters is greater than that of the countries.

Table 3 presents some insights into the composition of clusters by country. As can be seen from the table, countries were not evenly spread over the clusters (|chi.sup.2~ = 111; p<0.00001) which would be expected if no relationship existed. In fact, varying numbers of consumers from all six countries were found to fall in TABULAR DATA OMITTED TABULAR DATA OMITTED many of the clusters clearly suggesting the existence of different cross-national segments.

Cluster 1, which includes the largest proportion of consumers, consists of substantial numbers of consumers from Mexico, The Netherlands, and Saudi Arabia.

Cluster 2, on the other hand, consists of large percentages of consumers from the United States, Mexico and Turkey. This cluster exhibits a relatively low level of risk and brand loyalty on both products.

Cluster 3 is the smallest cluster. It is rather evenly dispersed across nations: between 14 and 19% of the consumers from the six countries fall in this cluster. It shows moderate levels of risk and loyalty for bath soap, and very high levels of both for toothpaste.

Finally, cluster 4 contains the largest percentage of consumers from the U.S. and Thailand, one-third of the Saudi Arabian sample and only about 6% of the Mexican sample. This consumer segment is characterized by relatively high perceived risk for both bath soap and toothpaste, very little brand loyalty for bath soap and little brand loyalty for toothpaste.

Summary and Conclusions

The tremendous opportunities provided by expansion into international markets and the accelerated trend towards the globalization of markets brought about heightened interest in an age-old marketing debate, to what extent, and under what conditions, a marketing strategy can and should be standardized across national boundaries. The premise of this article is that neither a totally standardized global nor a completely tailored country-specific strategy are the optimum approaches. Instead, it is posited that these two strategies are not always mutually exclusive and that it is possible to tailor standardized strategies for different world wide segments that exist cross-nationally (within countries).

The results of the study reported here clearly indicate that consumers in the six countries surveyed do differ in their risk perception and brand loyalties for both bath soap and toothpaste. The results, however, also demonstrate the existence of consumer segments which transcend national boundaries. Hence segmentation as proposed here is feasible. Thus marketers could adopt a modified global marketing approach and market the same product in a similar fashion cross-nationally to segments that bridge nations. For instance, it appears that toothpaste marketers aiming at global consumer segments (i.e. clusters) 1 and 3 could benefit from strategies that would enhance consumer commitment to their brands with possible reductions in consumers' risk perceptions. Similar tactics might prove useful for toothpaste marketers aiming at global consumer segments 2 and 4.

Marketers should also consider the size of the market as indicated by segmentation. For example, although The Netherlands' per capita income (around $10,000) is five times as high as Mexico's, the absolute size of the Mexican market (80 million people with a GNP of $164 billion) makes it a more attractive target market than The Netherlands (with 16 million people and a GNP of $133 billion), especially for marketers of convenience goods. Here, a company may wish to focus more heavily on cluster 1 as opposed to cluster 3, based on the size of the potential target market.

The fact that behaviors of global consumer segments vary across product categories is important for two reasons. First, it lends credence to Kale and Sudharshan's (1987) observation that the intermarket segmentation method is product class specific. Second, it underscores the need for further research. Besides extension of the research into other product classes, replication studies in other countries would provide additional insights.

References

Cunningham, S.M. (1967), "The Major Dimensions of Perceived Risk," in Risk Taking and Information Handling in Consumer Behavior (Boston: Harvard University Press), pp. 82-108.

Douglas, S.P. and C.S. Craig (1983), International Marketing Research (Englewood Cliffs, New Jersey: Prentice-Hall, Inc.).

Green, R.T., A. Strazzieri, J. Saegert and R.J. Hoover (1980), "Perceived Risk: An Internationally Valid Concept?" Paper presented at the Academy of International Business Annual Meeting (New Orleans).

Guseman, S.D. (1981), "Risk Perception and Risk Reduction in Consumer Services," In Marketing of Services (Chicago: American Marketing Association), pp. 200-204.

Jain, S.C. (1989), "Standardization of International Marketing Strategy: Some Research Hypotheses," Journal of Marketing (January), pp. 70-79.

Kale, S.H. and D. Sudharshan (1987), "A Strategic Approach to International Segmentation," International Marketing Review (Summer), pp. 60-70.

Kotler, P. (1986), "Global Standardization-Courting Danger," The Journal of Consumer Marketing (Spring), pp. 13-15.

Kreutzer, R.T. (1988), "Marketing Mix Standardization: An Integrated Approach in Global Marketing, European Journal of Marketing (No. 10), pp. 19-30.

Levitt, T. (1983), "The Globalization of Markets," Harvard Business Review (May-June), pp. 92-102.

Mowen, J.C. (1987), Consumer Behavior (New York: MacMillan Publishing Company).

Ohmae, K. (1985), Triad Power: The Coming Shape of Global Competition (New York: The Free Press).

Quelch, J.A. and E.J. Hoff (1986), "Customizing Global Marketing," Harvard Business Review (May-June), pp. 59-68.

Saegert, J., R.J. Hoover and M.T. Hilger (1985), "Characteristics of Mexican American Consumers," Journal of Consumer Research (June), pp. 104-109.

Sarle, W.S. (1983), "The Cubic Clustering Criterion," SAS Technical Report, A-108 (Cary: SAS Institute, Inc.).

Schaninger, C.M. (1976), "Perceived Risk and Personality," Journal of Consumer Research (September), pp. 95-100.

Spath, H. (1980), Cluster Analysis Algorithms, (Chichester: Ellis Horwood).

Verhage, B.J., L.D. Dahringer and E.W. Cundiff (1989), "Will a Global Marketing Strategy Work? An Energy Conservation Perspective," Journal of the Academy of Marketing Science (No. 2), pp. 129-136.

Whitelock, J. and D. Chung (1989), "Cross-Cultural Advertising: An Empirical Study," International Journal of Advertising (No. 4), pp. 291-310.

Whitelock, J.M. (1987), "Global Marketing and the Case for International Product Standardization," European Journal of Marketing (No. 9), pp. 32-44.

Yavas, U. and S. Tuncalp (1985), "Saudi Arabia: Perceived Risk in Buying Made-in-Germany Label," Management International Review (No. 4), pp. 58-65.
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Author:Yavas, Ugur; Verhage, Bronislaw J.; Green, Robert T.
Publication:Management International Review
Date:Jul 1, 1992
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