International market segmentation and KFC's entry into China

¶ … Segmenting International Markets

Companies that operate internationally will also segment the market internationally. International segmentation is undertaken by companies identifying groups of consumers with common traits or characteristics, which may traverse national borders (Kotler & Keller, 2011). One of the most basic methods of segmenting international markets is through regional, or national, segments based on social or cultural differences. For example, when KFC first entered the Chinese market the market was perceived as a similar market to other Asian countries, is that the company failed to succeed due to different case. When the company realized that Chinese consumers did not like skin on the fried chicken, and adjusted the product for this market they became more successful (Gereffi & Christian, 2010). Different consumer tastes which impact on the way product is made, presented or sold are only one potential source of international segmentation, other influences may include political, legal or financial differences. For example, markets may be segmented by similar legal requirements, trade barriers, economic development stages, as well as elements which may, or may not be present in the market infrastructure, such as communication channels, the availability of strategic partners, and logistics providers (Kotler & Keller, 2011).

This first stage of segmentation looks at the macro environmental factors within the different consumer marketplaces, which may then be further, segmented through other potential influences, such as the demographic profiles of the potential consumers, such as gender, age, occupation, social class etc. Influences on the market may also be drawn from psychological similarities, such as values etc., which may include cultural differences, such as those seen in Hofstede's cultural dimensions (Hofstede, 2003), or the case of KFC as seen above, but may also be more personal, such as use on environmentalism, personal responsibility etc. The way in which the product is used may also be a source of segmentation, for example heavy users, occasional users, or non-users (Kotler & Keller, 2011).

Question 2; Types of Consumer Products

Consumer products may be divided into different types of categories, one approach is to categories products by the type of product, for example durable or consumable, or by the type of product. However, within the marketing environment one of the most common is the division into four groups referring to the way in which it is purchased, with the four categories being convenience products, shopping products, specialty products, and unsought offerings.

Convenience products are goods which make it convenient for consumers, and generally include products which appeal to the mass market and purchased on a frequent basis (Hooley et al., 2007). For example, convenience products may frequently purchased food items such as bread and milk, as well as frequent purchases such as cleaning products, and personal care products. Consumers will not put a great deal of thought into the purchase of these items, but they may develop a taste or preference for specific brands, so marketing will be aimed at creating loyalty rather than the sale of a single item. Furthermore, there are likely to make large efforts in order to gain small savings (Hooley et al., 2007). From a marketing perspective, the price of these items is low, with low levels of profit for each sale, so marketers will seek to ensure they gain high volume sales (Nellis & Parker, 2006).

Shopping products of those items which consumers will spend more time when considering before they purchase, and compared to convenience products they will be purchased frequently (Hooley et al., 2007). Shopping products will include items such as clothing, furniture, and household electronics (Hooley et al., 2007). When purchasing shopping products, consumers are likely to undertake a more considered purchase process compared to convenience products, putting more time and effort into finding out about the products before they are purchased, and making comparisons between different products and different suppliers (Hooley et al., 2007). When marketing these types of products, companies may increase the emphasis on differentiation, and companies are likely to be more selective in choosing where and how the products should be sold. The marketing process is also likely to focus on smaller target markets, with proportionately larger marketing budgets per item, due to the high level of profit per item (Kotler & Keller, 2011).

Specialty products include products which have relatively high prices, and may be purchased more selectively than shopping products. Products within this category include high end automobiles, celebrity endorsed fragrances, and expensive champagne (Hooley et al., 2007). In many instances consumers making purchases will already have decided on the product or brand they wish to purchase, influenced by perceptions of the product and brand, as well as potential experience of the brand. For example, Porsche are very well-known for the loyalty that customers have, they do not just by sports cars, and they go out to buy a Porsche. From a marketing perspective the target markets will be very small and defined, and the selling of the products will be characterized by significant levels of differentiation and exclusivity (Hooley et al., 2007). A common attribute of many specialty products is the way that individuals make the purchase will associate the brand or product with personal attributes such as social status and achievement (Kotler & Keller, 2011).

The fourth category of unsought products are those items which people do not usually express a desire to purchase, often because they are simply not needed, or only have very specific requirements for an common usage. For example, a funeral service is an unsought service (Hooley et al., 2007). Marketing of the services will usually involve increasing public awareness that the product or service exists, so that when it is needed consumers will know where to purchase it.

Question 4; Quality at an Airline

JetBlu is an airline that sought to different itself in terms of it service; bringing a human quality to air travel (Bodine, Bernoff, & Manning, 2012). The measurement of quality is undertaken from the perspective of the customer, and to undertake this JeyBlu defined three areas of measurement; perceptions, descriptions, and outcome (Bodine et al., 2012). Perceptions deal with the way that the customers perceive the service they receive. Description describes what actually happens, and outcome is the result and what customers may do as a result. The main tool is an email survey form that is sent out to passengers to gathers feedback (Bodine et al., 2012). Although many questions have closed answers the firm also found they could stimulate more answers that gave important insight with the use of open questions. The survey results are then correlated with the operational data from the flights, and then assessed what customers say they may do in the future (Bodine et al., 2012). The company can use the results to assess the quality of the service, not only how it is perceived, but how it will impact on potential future purchases, identifying areas where there is a need to improve (Bodine et al., 2012).

Part 2 - Beauty Balm

Question 1

In the Beauty Balm case Clinique is undertaking a cannibalization development strategy, as the product is one that will take sales from other product categories (Kotler & Keller, 2011). It may also be argued that this is a new product category; combining products that were once sold separately, and as such it may also be seen as a form of disruptive innovation, as it has the potential to change the marketplace and change what products are being sold and how consumer problems are being resolved through the use of the different product. (Mintzberg et al., 2011)

Question 2

To assess the potential profit from the new product it is necessary to look at the costs and contribution of the new product, and then deduct the contribution that will be lost as a result of cannibalization (lost sales from other products).

First we look at the sales that will be generated and calculate the profit after variable and fixed costs for the new product

Table 1; Revenue and profit for new product

Revenue per unit

10

Variable cost

6

Contribution per unit

4

Expected sales

3,000,000

Total contribution received

12,000,000

Less fixed costs

2,000,000

Profit

10,000,000

The next stage is to calculate the profit contribution that will be lost due to the cannibalization of sales.

Table 2; lost revenue

Revenue per unit

8

Variable cost

3

Contribution per unit

5

Expected sales lost

5,000,000

Contribution lost

25,000,000

Deducting the 25 million from the ten million leaves a loss of 15 million; this means the firm would make a net loss due to the cannibalization, the product is replacing one where there is both a higher contribution margin and higher sales.