Segmenting international industrial markets

Segmenting International Industrial Markets

Newell E. Chiesl, Ph.D. Indiana State University

and

Steven W. Lamb, Ph.D. Indiana State University

INTRODUCTION

Attention has been recently given to the statement that "Internation- al marketing is a two-way street" (Stanton 1981). For many years the United States had enjoyed a favorable balance of trade, but unfortu- nately this trend has been completely reversed (U.S. Census, 1980). Many large inroads are being made by foreign competition in the United States (e.g., Canon, Datsun, Honda, Nikon, Sony, and Toyota). The adverse affects of this past competition in the U.S. have been deep and perhaps permanent (Hall 1980, Yahn 1978). Future Japanese competi tion in other markets is also likely to be devastating (Weigner 1980, _ _ 1980).

This article will provide a potential basis for identifying market segments in foreign countries through the use of a multivariate proce dure which determines if buyer attitudes concerning the supplier are a function of specific foreign corporation demographics.

B a c k g r o u n d

Since its beginnings (Smith 1956), the segmenting of markets has continued to be a widely discussed concept in marketing literature (Michman, Gable, Gross 1977). Simply stated, market segmentation is the division of a heterogeneous market into smaller homogeneous

�9 1983, Academy of Marketing Science, Journal of the Academy of Marke ring Science Summer, 1983, Vol. 11, No. 3, 250-258

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251 SEGMENTING INTERNATIONAL INDUSTRIAL MARKETS

segments. Sophisticated approaches have evolved stressing quantita- tive techniques. For example, Claycamp and Massy (1968) have developed a multistage mathematical model encompassing the full range of segmentation possibilities. Later research conducted by Wind (1978) presented a thorough examination of the recent status and advances in market segmentation. Current market segmentation research involving new statistical approaches, such as multivariate routines (MacLachlan and Johannson, 1981), are becoming more perva- sive in the literature.

Although industrial market segmentation studies have similarly evolved in the literature, industrial behavior is distinctive of consumer behavior and possesses its own unique characteristics. The salient characteristics, noted by Sheth (1973), is the nature of the joint decision- making process of industrial buyer behavior. Webster and Wind (1972) similarly comment on the "buying center" of individuals in organiza- tions. This interaction of people in the organization with different authority and responsibility in the decision-making process causes the segmenting of industrial markets to be a more complex process than the segmenting of consumer markets.

Nonetheless, segmentation studies continue to offer several unique advantages inherent in the analysis of markets (Yankelovich 1964). For all the apparent advantages in using segmentation, Wind and Cardozo (1974) conclude that industrial marketers typically fail to employ market segmentation as a foundation for planning and control of marketing programs. Choffray and Lilien's (1980) remedy for this failure is to have industrial marketers implement a strategy to:

Concentrate communication efforts on those categories of individuals most often involved in the purchasing process in the largest micro-segments...

Predict the structure of the adoption process for a specific firm on the basis of its external characteristics...

Select communication vehicles.

Studies in the specific area of international industrial segmentation are truly limited. In one of the few studies applicable, Johnson and Flodhammar (1980) present some factors to consider in industrial market segementation. In their research of Swedish firms, they observed the need for market segmentation is greater when: (1) the product assortment is heterogeneous, (2) the customers differ on buying strategy, (3) the market is heterogenous, and (4) the environment is rapidly changing.

CHIESL AND LAMB 252

In order to determine if industrial marketing segmentation is feasible within an international market, one could determine whether or not buyer attitudes toward the supplier are a function of the demographics. Researchers and marketing practitioners alike are convinced that attitude or similar pshychological constructs exert important influences on buyer choice behavior. Furthermore, while the vast majority of reported research and resulting theory deals directly with consumer buying situations, there is a growing awareness that subjective factors such as perception and attitude play a significant role in the supplier selection process of the industrial buyer (Shoaf 1959, Webster and Wind 1972). Ernest Dichter (1973) has also reported that industrial buying decisions are a function of a set of emotional factors and attitudes which are similar to the "only human" factors that motivate the consumer market's housewife.

Little, if any, research on the attitudes of industrial buyers toward international sources of supply has been reported. In fact, little research exists concerning the segmentation of industrial markets. The following section presents a methodology the authors used to determine whether or not specific attitudes toward an international industrial supplier were a function of the demographics of the suppliers.

METHODOLOGY

A random sample of 241 companies was drawn from the Japanese Company Handbook (1979). A packet addressed to the director of purchasing was mailed to each company. The director of purchasing was singled-out due to the inreasing role of the director in the purchasing of industrial products {Lehmann and O'Shaughnessy 1974, O'Shaugnhessy and Lehmann 1975, Upah and Bird 1980).

The packet contained a cover letter that requested the respondent's cooperation and guaranteed individual confidentiality. Also included was an addressed, stamped envelope to facilitate the return of the questionnaire. Completed questionnaires from 123 companies (51%) were returned. All the instructions as well as the questions were written in beth English and Japanese.

Even though a 51 percent response rate was considered quite high for this type of study, the possibility of nonresponse bias was not ignored. Budgetary constraints prohibited the preferred method of subsampling the nonresponders via telephone calls to discover differences between


responders and nonresponders (Ognibene 1971). Instead, an adaptation of the trend method was followed. This technique relies on the assumption that late returns more closely resemble nonresponses than do early returns (Barnette 1950, Lehman 1963, Ognibene 1971). Thus examining any changes in the results of a mail survey over incoming waves of responses can enable the research to make inferences regarding responses which would have been made after some cut off date. In this case three waves of responses were received and a chi-square analysis was performed to detect any differences among the waves. Testing at the .05 level indicated significant differences among the waves for only one of the 24 questions. Since this difference was not higher than what would have been indicated by simple probability, the assumption that little or no nonresponse bias exists has been made.

The research designed and developed for this study was a priority segmentation model (Wind 1978). The model utilized a questionnaire containing 24 Likert-type statements which were selected to measure six dimensions of attitude toward the United States (Chiesl and Knight 1982). These dimensions were chosen to represent U.S. marketing research efforts, certain U.S. institutions, and the traditional elements of the marketing mix: product, price, promotion, and distribution.

In order to determine whether or not the Japanese attitudes concerning the six major dimensions are a function of specific demographics, sixty separate MANOVA (Multiple Analysis of Variance) procedures were run. For example, the first MANOVA used as the set of dependent variables were those statements pertaining to the Japanese attitude toward the level and quality of the United States market research in Japan while the categorical demographic variable was the level of the respondent's company profits. There was a total of ten demographic independent variables of interest which when coupled with the six sets of attitudinal variables in all possible pairwise combinations allowed the possibility of running sixty one-way MANOVAS. The alpha level for any single MANOVA was set at .005 since the probability of a Type I error would be unreasonably high for any greater level of alpha for the entire set of sixty MANOVA procedures taken together. If any of the MANOVA procedures would result in the rejection of the Null hypothesis, then a search for that statement or combination of statements within that attitudinal dimension which are signifcantly affected by the specific demographic would ensue. Finally after identifying the attitudinal variables which are affected by the specific demographic, one would identify the level of attitudinal differences within the demographic and then formulate the marketing strategy accordingly.

CHIESL AND LAMB 254

RESULTS

The results of the sixty MANOVAS are presented in Table 1. The level of significance is calculated from the Pillais Test where each of the six attitudinal dimensions are run against each of the ten demographics. From the results it is obvious there is little, if any, correlation between the specific demographics and the Japanese attitude towards U.S. suppliers. In this instance one would have to conclude that attitudes towards U.S. suppliers are homogeneous across these ten demographics.

The authors then ran tw~way MANOVAS against the six attitudinal dimensions. In other words, each of the six attitudinal dimensions was used as the criterion variable run against every possible pairwise combination of the six demographic variables. This resulted in 270 tw~way MANOVAS none of which had levels of alpha below .01.

IMPLICATION FOR MARKETERS

This article has attempted (1) to identify potential Japanese industrial market segments and (2) dependent upon the outcome of the makeup of the segments, to suggest to U.S. businesses a strategy for the industrial markets in Japan.

In this study great care was taken to assure the representativeness of the sample. Likewise, the same attention was given to the representa- tion of sample respondents. Both the sample and the sample returns closely resembled the actual population universe. In other words, the sample was a microcosm of Japanese businesses.

Stressing the sample representativeness is of critical importance, given the results section which did not indicate any statistical significant differences in the potential determination of market segments. The evidence simply states there are no identifiable market segments in Japan for US. businessme~ However, this fact is very significant when one inductively analyzes the nature of the statement. In the study, ten different demographic profiles were given for the Japanese Corporation (see Table 1). Certainly, by simple probability one of the ten demographics would have nearly approached being statistically significant, but this wasn't in evidence. Therefore, the null hypothesis is accepted, and to repeat, Japanese purchasing agents are homogeneous and no identifiable segments exist for U.S. marketers.


Although potential segments were not determined an effective strategy can still be offered. Choffray and Lilien in their text (1980) have written,

Once markets have been segmented, companies can elect to follow any of three strategies:

Undifferentiated marketing, that is, present one product to the market and support it with the same mix of promotional activities in all segments;

Concentrated marketing, that is, aim at a single market segment with considerable potential and develop a product and communication mix adapted to the needs of that segment;

Differential marketing, that is, develop a mix of products and communication strategies that aim at different segments of the market.

Therefore, given the present conditions it is recommended that U.S. sellers adopt an undifferentiation strategy and apply the same marketing mix across all segments.

Future research should be directed (1) toward uncovering the reason for the uniformity of Japanese attitudes toward the United States, and (2) adjusting our (U.S.) marketing efforts to yield more favorable results in Japan.

CHIESL AND LAMB 256

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REFERENCES

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Chiesl, Newell E. and Lawrence L. Knight (1981), "Japanese Buyers' Attitudes Toward U.S. Supply Sources," Industrial Marketing Management, 10" (October), 243-251.

Choffray, Jean-Marie and Gary L. Lilien (1980), "Industrial Market Segmentation by the Structure of the Purchasing Process," Industrial Marketing Management, 9 (September), 331-342.

Choffray, Jean-Marie and Gary L. Lilien (1980), Market Planning for New Industrial Products. New York: Ronald Press Publication.

Claycamp, Henry J. and William F. Massy (1968), "A Theory of Market Segmenta- tion," V (November), 388-94.

Dichter, Ernest (1973), "Industrial Buying Is Dead on Some 'Only Human' Emotional Factors that Motivate Consumer Market's Housewife," Industrial Marketing, (February), 14-18.

Hall, Bob (1980), "Charting Japan's Growth in the U,S. Auto Market," Automotive News, (February 25), 2.

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Japan Company Handbook (1979), First Half Edition, Tokyo: Toyo Keizai Shinposa, Ltd.

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Lehman, Edward C. (1963), "Tests of Signifcance and Partial Returns to Mail Question- naires," Rural Sociology, 28 (September), 284-9.

Lehmann, Donald R. and John O'Shaughnessy (1974), "Differences in Attribute Impor- tance for Different Industrial Products," Journal ofMarke ting, Vol. 38 (April), 36-42.

MacLaehlan, Douglas L. and Johny K. Johansson (1981), "Market Segmentation with Multivariate Aid," Journal of Marketing, 45 (Winter), 74-84.

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CHIESL AND LAMB 258

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ABOUT THE AUTHORS

NEWELL CHIESL is a Professor at Indiana State University. He received his B~. and M~B~. from Northern Illinois University and his PhJ). from North Texas State. He has been active in civic and community work. He has published in the Journal of the Academy of Marketing Science, ABSEL Proceedings, Industrial Marketing Man- agement, Proceedings of the Midwest Marketing Conference, Technolo- gical Horizons in Education, and other publications.

STEVEN LAMB is Professor of Business Statistics, Indiana State Uni- versity. He received his BJk. from Hastings College and his PhJ:). from Kansas State University. He has published in Journal of Experimental Learning and Simulation, Academy of Marketing Science Proceedings, Southern Journal of Agricultural Economics, and Southern Manage- ment Association Proceedings.

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Segmenting international industrial markets