Article 35

Segmenting Global Markets: Look Before You Leap

Before implementing a global market segmentation strategy, it’s critical to understand both local and global issues.

By V. Kumar and Anish Nagpal

“I am a citizen, not of Athens or Greece, but of the world.”

Today we live in a global marketplace that makes So-crates’ famous words more valid than ever before. As youread this article, you may be sitting on a chair from Paris,wearing a shirt made in Britain, and using a computer,without which you are handicapped, that probably wasmade in Taiwan. Have you ever wondered why and howthis happens?

Global marketing refers to marketing activities of com-panies that emphasize four activities: (1 ) cost efficienciesresulting from reduced duplication of efforts; (2) opportu-nities to transfer products, brands, and ideas across sub-sidiaries in different countries; (3) emergence of globalcustomers, such as global teenagers or the global elite;and (4) better links between national marketing infrastruc-tures, which paves the way for a global marketing infra-structure that results in better management and reducedcosts.

As the business world becomes more globalized, globalmarket segmentation (GMS) has emerged as an importantissue in developing, positioning, and selling productsacross national boundaries. Consider the global segmentbased on demographics, global teenagers. The sharing ofuniversal needs and desires for branded, entertaining,trendy, and image-oriented products makes it possible toreach the global teen segment with a unified marketing pro-gram. For example, Reebok used a global advertisementcampaign to launch its Instapump line of sneakers in theUnited States, Germany, Japan, and 137 other countriesworldwide.

WHAT IS GMS?Global market segmentation can be defined as the pro-

cess of identifying specific segments—country groups or in-dividual consumer groups across countries—of potentialcustomers with homogeneous attributes who are likely toexhibit similar buying behavior.

The study of GMS is interesting and important for threereasons. First of all, considering the world as a market, dif-ferent products are in different stages of the product life cy-cle at any given time. Researchers can segment the marketbased on this information, but the membership of the coun-tries in each segment is fleeting. This makes it difficult to re-evaluate and update the membership of each segment.

Second, with the advent of the Internet, product infor-mation is disseminated very rapidly and in unequal propor-tions across different countries. The dynamic nature of thisenvironment warrants a continuous examination of the sta-bility of the segment membership. Third, the goal of GMSis to break down the world market for a product or a serviceinto different groups of countries/consumers that differ intheir response to the firm’s marketing mix program. Thatway, the firm can tailor its marketing mix to each individualsegment.

Targeted segments in GMS should possess some of thefollowing properties:

Measurability. The segments should be easy to define andmeasure. Objective country traits such as socioeconomicvariables (e.g., per capita income) can easily be gauged,but the size of the segments based on culture or lifestyles ismuch harder to measure. Thus, a larger scale survey may berequired for segmenting global markets depending uponthe basis of GMS.

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Article 35. Segmenting Global Markets: Look Before You Leap

Size. Segments should be large enough to be worth goingafter. Britain and Hong Kong can be grouped together in thesame segment, because of previous British supremacy inHong Kong, but their population sizes differ.

Accessibility. The segments should be easy to reach via themedia. Because of its sheer size, China seems to be an at-tractive market. However, because of its largely rural pop-ulation, it has less access to technology.

Actionability. Effective marketing programs (the four Ps)should be easy to develop. If segments do not respond dif-ferently to the firm’s marketing mix, there is no need to seg-ment the markets. Certain legal issues need to beconsidered before implementing an advertisement cam-paign. For example, many countries, such as India, do notallow direct slandering of the competitor’s products.

Competitive Intensity. The segments should not be pre-empted by the firm’s competition. In fact, in global market-ing, small companies often prefer entry of less competitivemarkets and use this as one of the segmentation criteriawhen assessing international markets.

Growth Potential. A high return on investment should be at-tainable. Typically, marketers face a trade-off betweencompetitive intensity and growth potential. Currently, LatinAmerican markets have good growth potential, but the in-stability of local currencies causes major problems.

Companies typically employ the following six-step pro-cess for implementing GMS:

• Identify purpose (by introducing a new or existingproduct and choosing appropriate marketing mix pro-grams in groups of countries)

• Select segmentation criteria (traditional vs. emerging)• Collect relevant information• Segment the countries/consumers according to criteria• Reevaluate the fit of the segment after implementation

of the intended program• Update/reassign segment membershipAn interesting aspect of the GMS process is the need to

constantly reevaluate segment membership. The process ofassigning membership to countries into a segment could be

done using traditional procedures, or by evaluating thecountries by using emerging techniques.

TRADITIONAL SEGMENTATION BASES

The choice of the segmentation basis is the most crucialfactor in an international segmentation study. That a seg-mentation approach is essential in international markets isno longer questioned. Rather, the basis for segmentationbecomes the focus. For example, for its Lexus brand, Toy-ota would segment the market based upon household in-come. On the other hand, if Marlboro were planning tointroduce a new brand of cigarettes, it would segment themarket based on population.

Individual- and country-based segmentation includesthe following categories:

Demographics. This includes measurable characteristics ofpopulation such as age, gender, income, education, andoccupation. A number of global demographic trends, suchas changing roles of women, and higher incomes and livingstandards, are driving the emergence of global segments.Sony, Reebok, Nike, Swatch, and Benetton are some firmsthat cater to the needs of global teenagers.

Culture. This covers a broad range of factors such as reli-gion, education, and language, which are easy to measure,and aesthetic preferences of the society that are muchharder to comprehend. Hofstede’s classification schemeproposes five cultural dimensions for classifying countries:Individualism vs. Collectivism, Power Distance (PD), Un-certainty Avoidance (UA), Masculinity vs. Femininity, andStrategic Orientation (long-term vs. short-term). For exam-ple, Austria, Germany, Switzerland, Italy, Great Britain,and Ireland form one cluster that is medium-high on Indi-vidualism and high on Masculinity. These cultural charac-teristics signify the preference for “high performance”products and a “successful achiever” theme in advertising.

Geography. This is based upon the world region, economicstage of development, nation, city, city size and populationdensity, climate, altitude, and sometimes, even the ZIPcode. It is easy to form country segments using regionalblocks such as NAFTA, European Union, MERCOSUR, orAsia-Pacific. However, the value of such segments mayvary depending on the need. These groupings are viable fordeveloping trade policies, but not for marketing products/services given tremendous variation in other factors.

Environment. GMS is further complicated by different polit-ical, legal, and business environments in each country.Economic indicators such as Gross Domestic Product(GDP) may be used. However, it may not be relevant to re-fer to country segments based on this criterion because acountry can move from one level of GDP to another, mak-ing this criterion obsolete.

Behavior-based segmentation includes three categories,which are shown in Exhibit 1.

E X E C U T I V E S U M M A R Y

The primary purpose of this article is to shed morelight on the more complex challenges of global mar-ket segmentation (GMS). To provide a complete un-derstanding, we discuss some of the well-knownissues in segmenting foreign markets and move on tostate the various properties of global target markets.We conclude that companies can implement GMSmost effectively by first gaining a full understandingof both local and global concerns.

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EMERGING SEGMENTATION BASESCountries also can be segmented by means of product

diffusion patterns and response elasticities. Some countriesare fast adopters of the product, whereas some countries re-quire a lag period to adopt the product. With this in mind,a firm could introduce its products in countries that are in-novators (fast adopters) and later in those countries that areimitators (lag countries).

Rather than using macro-level variables to classify coun-tries, a firm might consider segmenting markets on the basisof new-product diffusion patterns. As Exhibit 2 indicates,country segments formed on the basis of diffusion patternsmay differ by product.

This type of segmentation allows the global marketer to seg-ment countries on the basis of actual purchase patterns. Hav-ing knowledge of purchase patterns can help marketers makemode-of-entry decisions and help determine the sequence ofcountries in which the product should be introduced.

Consumers in lag countries can learn about the benefitsof the product from the experience of adopters in the leadcountry, and this learning can result in a faster diffusion ratein the lag markets. Thus, countries can be grouped accord-ing to the degree of learning they exhibit for a given leadcountry. Lag countries that exhibit strong learning ties arepotential candidates for sequential entry (using a waterfallstrategy). Entry into countries that exhibit weak learning ef-fect can be accelerated since there is not much to gain bywaiting. Here, a sprinkler strategy (simultaneous entry intothe relevant markets) would work well.

If a firm wants to introduce its innovation into a newcountry, it must be aware that the diffusion rate dependsupon the kind of innovation. The diffusion pattern of a con-tinuous innovation (one that has a majority of features incommon with earlier products plus some new features thatimprove performance or add value) is very different from adiscontinuous innovation (which is new or drastically dif-ferent from earlier forms in several relevant features or at-tributes).

In the case of continuous innovations, such as homecomputers, the introduction of a successive generation willinfluence not only its diffusion but also the diffusion of theearlier generations. In such cases, diffusion will occur morequickly since consumers have some related knowledge.Hence, when a new generation of the product is introducedin the lead market while the lag markets are still adoptingthe existing (older) generation, information on the addedbenefits of the new generation travels faster from the leadmarket to potential adopters in the lag markets. The users inthe lag markets will be familiar with the innovation and caneasily absorb the benefits of the next generation.

Another interesting way to group countries is accordingto their response elasticities. Consumers across countriesrespond in different ways when the price of the productchanges. Grocerystore scanner systems store a wealth of in-formation that can then be used to find customer buyingpatterns. If the data shows the customers are price sensitivetoward a particular product, couponing strategies can helptarget that segment, where legal.

IMPLEMENTING GMSIt is important to consider some of the conceptual and

methodological issues so GMS can fulfill its high potential.Exhibit 3 gives a brief description of the four critical typesof equivalencies that should be taken into account whenimplementing GMS.

Construct equivalence refers to whether the segmenta-tion basis has the same meaning and is expressed similarlyin different countries and cultures. Different countries un-der study must have the same perception or use for theproduct being researched. Otherwise, comparison of databecomes meaningless. If, for example, a firm is studying thebicycle market, it must realize that, in the United States, bi-cycles are classified under the recreational-sports industry,whereas in India and China they are considered a basicmeans of transportation.

EXHIBIT 1 Traditional segmentation basis (behavior-based)

Segmentation Basis Brief Description Example

Psychographics This segment groups people in terms of their attitudes, values, and lifestyles and helps predict consumer preferences in products, services, and media.

Porsche AG divided its buyers into five distinct categories: Top Guns, Elitists, Proud Patrons, Bon Vivants, and Fantasists—each group having a particular characteristic.

Benefit This approach focuses on the problem a product solves, regardless of location. It attempts to measure consumer value systems and perceptions of various brands in a product class.

Toothpaste consumers can be segmented into Sensory, Sociable, Worrier, and Independent segments. Sociable consumers seek bright teeth; Worriers seek healthy teeth. Aqua packaging could indicate fluoride for the Worrier segment, and white (for a white smile) for the Sociable segment.

Behavior This examines whether or not people buy and use a product, as well as how often and how much. Consumers can be categorized in terms of usage rates (heavy, medium, and light).

ABB classifies customers according to their switchability criterion—oyal customers, those loyal to competitors, and those who can be lost to or won from the competition.

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Article 35. Segmenting Global Markets: Look Before You Leap

Similar activities also may have different functions in dif-ferent countries. For example, for many U.S. families, gro-cery shopping is a chore to be accomplished as efficientlyas possible. However, in India and many other countries in-teraction with vendors and local shopkeepers plays a veryimportant social function.

Construct equivalence is easier to establish for the gen-eral bases, such as geographic variables. However, forbases such as values and lifestyles, construct equivalence ismuch harder to achieve. VALS-2 identifies eight segmentsbased on two main dimensions: self-orientation and re-sources. Another VALS system was developed for Japan,presumably because the U.S.-based VALS-2 system was notappropriate for that country. Instead it identifies 10 seg-ments based on two key dimensions: life orientation and at-titudes toward social change.

Scalar equivalence means that scores from differentcountries should have the same meaning and interpreta-tion. The first aspect used to determine scalar equivalenceconcerns the specific scale or scoring procedure used to es-tablish the measure. The standard format of scales used insurvey research differs across countries. For example, in theUnited States a 5- or 7-point scale is most common. How-ever, 20-point scales are used in France.

The second aspect concerns the response to a score ob-tained in a measure. Here the question arises as to whethera score obtained in one research context has the same

meaning and interpretation in another context. For exam-ple, on an intention-to-purchase scale, does the proportionof likely buyers indicate a similar likelihood of purchasefrom one country to another, or does a position on the Lik-ert scale have the same meaning in all cultures?

Differences in response styles often result in a lack ofscalar equivalence. Some of these response styles include“extreme” responding and “social desirability” responding.Research shows Chinese respondents show a “marked de-gree of agreeability,” while Americans show a “markedwillingness to dissent.” These differences can cause prob-lems in the data-collection process, which can lead to erro-neous grouping of countries.

Measurement equivalence refers to whether the meas-ures used to operationalize the segmentation basis arecomparable across countries. For example, consider thelevel of education. The United States uses one educationalscale while in Europe the educational system is quite differ-ent, and the term “college” is not appropriate. Also, house-hold income is difficult to compare across countries owingto differences in the tax structure and purchasing power.

Some items of a segmentation basis have measurementequivalence, but the others do not. For example, researchshows that in the U.S. consumer innovativeness is ex-pressed both in terms of purchase of new products and insocial communication about new products. In France,however, the latter does not apply. Hence, only items per-taining to the person’s tendency to purchase new productshave measurement equivalence across the two countries.The researcher thus faces the dilemma of either using thesame set of items in each country (etic scale) or adaptingthe set of items to each country (emic-scale). A compromisewould be a combined emic-etic scale with some core itemscommon to all countries and some country-specific items.

Sampling equivalence deals with problems in identifyingand operationalizing comparable populations and select-ing samples that are simultaneously representative of otherpopulations and comparable across countries. One aspect ofsampling equivalence deals with the decision-making pro-cess, which varies across countries. For example, in theUnited States, office supplies are often purchased by the office

EXHIBIT 2 Segments based upon diffusion patterns

Product Categories

Segment VCRs Cellular phones Home computers Microwave ovens CD players

1 Germany, UK, France, Sweden

Denmark, Norway Belgium, UK, Netherlands Germany, Italy, Denmark, Austria

Belgium, Nether-lands, Sweden, Austria, Finland

2 Belgium, Denmark, Spain, Austria, Finland

Finland, France France, Italy, Sweden, Norway, Austria, Germany

Belgium, UK, Netherlands, France, Spain

Spain, Denmark, Germany

3 Italy, Portugal Germany, UK, Italy, Switzerland

Spain, Portugal Norway Switzerland, Italy

Source: Kumar, V., Jaishankar Ganesh, and Raj Echambadi, "Cross-National Diffusion Research: What Do We Know and How Certain Are We?" Journal of Product Innovation Management, 15, 1998.

EXHIBIT 3 Types of equivalence

Equivalence

Construct Scalar Measurement Sampling

Are we studying the same phenomena in Brazil, India, and Britain?

Do the scores on consumers in the U.S., Argentina, and Japan have the same meaning?

Are the phenomena in France, Singapore and South Africa measured in the same way?

Are the samples used in Hong Kong, China, and Romania equivalent?

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secretary, whereas this decision is made by a middle-levelmanager or CEO in some countries.

It is also important to consider whether the sample isrepresentative of the population. In most developed coun-tries, information on potential markets and sampling framesis easily available. However, in Japan, the most popularresidential list for sample studies was made inaccessible toresearchers. Developing countries do not have extensivedatabases and so obtaining the sampling frame to suit theneeds of the research could be difficult.

Equivalence presents a dilemma in the minds of manag-ers. On one end, it would be wise to develop scales specif-ically for each culture; on the other, responses collected inthis manner may not mean the same thing. This issue canbe resolved to some extent by using a combination of itemsin the scale.

THINK GLOBALLY, ACT LOCALLYUsed effectively, segmentation allows global marketers

to take advantage of the benefits of standardization (such aseconomies of scale and consistency in positioning) whileaddressing the needs and expectations of a specific targetgroup. This approach means looking at markets on a globalor regional basis, thereby ignoring the political boundariesthat define markets in many cases.

The greatest challenge for the global marketer is thechoice of an appropriate base for segmentation. Pitfalls thathandicap global marketing programs and contribute totheir suboptimal performance include market-related rea-sons, such as insufficient research and overstandardization,as well as internal reasons, such as inflexibility in planningand implementation. If a product is launched on a broadscale without formally researching regional or local differ-ences, it may fail.

The successful global marketers will be those who canachieve a balance between the local and the regional/glo-bal concerns. Procter and Gamble’s Pampers brand suf-fered a major setback in the 1980s in Japan whencustomers favored the purchase of diapers of rival brands.

The diapers were made and sold according to a formula im-posed by Cincinnati headquarters, and Japanese consumersfound the company’s hard-sell techniques alienating. Glo-balization by design requires a balance between sensitivityto local needs and global deployment of technologies andconcepts.

GMS offers a solution to the standardization vs. adapta-tion issue because it creates the conceptual framework foroffering standardized products and marketing programs inmultiple countries by targeting the same consumer seg-ments in different countries. The formulation of a globalstrategy by a firm may result in the choice of one particularsegment across markets or multiple segments. However, inimplementing the marketing mix for maximum effect, theprinciple “Think globally, act locally” becomes a criticalrule for guiding marketing efforts.

ADDITIONAL READINGGanesh, Jaishankar, V. Kumar, and Velavan Subramaniam (1997),

“Learning Effect in Multinational Diffusion of Consumer Dura-bles: An Exploratory Investigation,” Journal of the Academy ofMarketing Science, 25 (3), 214–228.

Hofstede, Geert (1984), Culture’s Consequences: InternationalDifferences in Work-Related Values. California: Sage Publica-tions.

Kotabe, Masaaki, and Kristiaan Helsen (1998), Global MarketingManagement. New York: John Wiley & Sons Inc.

Kumar, V. (2000), International Marketing Research. New Jersey:Prentice Hall.

V. Kumar (VK) is Marvin Hurley Professor of BusinessAdministration, Melcher Faculty Scholar, Director of Mar-keting Research Studies and Director of International Busi-ness Programs at the University of Houston, Bauer Collegeof Business, Department of Marketing. He may be reachedat vkumar@uh.edu.

Anish Nagpal is a doctoral student at the University ofHouston, Bauer College of Business, Department of Mar-keting.

From Marketing Research, Spring 2001, pp. 8-13. © 2001 by the American Marketing Association. Reprinted by permission.

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