Unit 2. Marketing Text 1 Why Segment Markets?

Henry Ford made history with his decision to mass produce the Model T Ford ad a very low price for the mass market. His famous quip, “The can have any color it wants, as long as it’s black!” clearly illustrated his marketing philosophy. A wise choice at the time, but for long. Other manufacturers, notably General Motors, began producing cars in a variety of price levels, styles, brands and colors, believing that the auto market was becoming bigger and more affluent - a segmented market. They were right. GM built a market lead over Ford that it has never relinquished.

Today, most firms pursue a market segmentation strategy. In fact, it is probably safe to say that market segmentation is one of the most visible features of the affluent society. As people increase their wealth and leisure time, they become able to enjoy a much greater variety of life-styles, and the many different products and services that go with them.

In short, market segmentation is popular because it often plays off in higher sales and profits. By designing specific products for different customer groups, the firm can more closely match the needs of its different target customers. This offers the firm some protection from competitors who are not as closely matched to these segments’ needs. Market segmentation bring other related benefits, too. It keeps the firm tuned more closely to the market and alert to new opportunities. And it encourages higher management efficiency in using the firms resources.

Logically, the concept of a market segment can be extended to the needs of individual customers or firms. In fact, the term “custom-made” refers to just this idea - creating a product or service to the specification of a particular customer. Since customized products and services are more costly to produce than standardized products, the total market that can afford to be individually served is very small. Even segmenting to larger groups can be extremely expensive.

Firms also must guard against creating too many different products or excessive or frivolous product features beyond those desired by enough customers.

Whether markets are uniform or segmented, they usually are too large for a single organization to serve effectively with its limited resources. Therefore firms select certain target markets from the segments it has identified. Marketing mix strategies are then developed to match these target market needs and also the objectives and resources of the firm.

Text 2 Organising For Nondomestic Marketing

Two dimensions of organizing are important to the international marketing manager. The first concerns the way the firm is organized for entry into its nondomestic markets and the second deals with how the firm is organized internally to achieve its marketing objectives. In domestic marketing the entry question does not exist and one is immediately concerned with the structuring of the marketing activities within the firm’s organizational chart.

Entry alternatives. Basically, firms may enter an overseas market with varying degrees of decision-making control over their total operations, including their marketing efforts. The firm that enters an overseas market by establishing a wholly owned subsidiary or by having over 50% equity obviously has the greater degree of decision-making control.

When a firm is exporting to a market, it potentially has no say on how its product or service is to be marketed, although in practice it can discontinue exporting through an uncooperative middleman. Similarly, by licensing the production of its product, the firm has only those decision-making controls that are established in the original agreement. These generally relate to quality control and the territory covered. In either instance (exporting or licensing), the international marketing manager has limited control over the marketing techniques used in overseas market.

Many firms have tended to prefer entry through the use of wholly owned subsidiaries. This entry method provides a maximum operational control and the greatest protection to a firm’s technology and the quality of product sold under its brand name. However, it also entails the greatest risk.

In more recent years, the trend has been toward entry through a joint venture agreement. Among the joint venture’s advantages is the fact that it permits sharing the risk while still obtaining a measure of control and participating in the profits in the market. Further, since a joint venture agreement if often made with an existing firm in the overseas market, the joint venture may have the additional benefits of reducing competition and gaining local market expertise and contacts. An even more recent development is the establishment of country-company partnerships.

An even more compelling factor favoring a joint venture is the foreign investment regulations that now exist in a number of countries. The market in which the firm wishes to enter may simply require the establishment of a joint venture and dictate the percentage of equity that the outside investor may hold. This directly affects the decision-making control of the international marketing manager because his ability to conduct marketing planning becomes restricted.

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