REPORT

Marketing 327.202 Wintersemester 2011/2012

International market segmentation at the example of the Wrth Group

Mentor Mag. Leonhard Kehl Institute for Marketing Karl-Franzens University Graz

Written by Aneta Nikcevic 1112831 Miroslav Grbic 1112820

Graz, December 2011

Table of Contents

List of figures ....................................................................................................................... 4 List of abbreviations ............................................................................................................ 5 1 Basic principles of international marketing ............................................................... 6 1.1 1.2 1.3 2 Background of international marketing ................................................................ 6 Marketing as a part of international marketing ..................................................... 6 International marketing ......................................................................................... 7

Environment and international marketing ................................................................ 8 2.1 2.2 2.3 Marketing Environment ........................................................................................ 8 Microenvironment ................................................................................................. 9 Macroenvironment .............................................................................................. 11 2.3.1 Demographic forces ................................................................................ 11 2.3.2 Economic forces ...................................................................................... 12 2.3.3 The political and legal forces .................................................................. 13 2.3.4 Socio-cultural forces ............................................................................... 13 2.3.5 Technological forces ............................................................................... 13

Expansion strategies ................................................................................................... 14 3.1 3.2 Pioneer strategy ................................................................................................... 14 Follower strategy ................................................................................................ 15

Market entry strategies .............................................................................................. 15 4.1 4.2 4.3 4.4 Export .................................................................................................................. 16 Licensing ............................................................................................................. 17 Joint ventures ...................................................................................................... 18 Direct investment ................................................................................................ 18

International market segmentation at the example of the Wrth Group ............. 18 5.1 5.2 5.3 5.4 Description of the company ................................................................................ 18 Task 1 .................................................................................................................. 20 Task 2 .................................................................................................................. 20 Task 3 .................................................................................................................. 21

International marketing in context of Business-to-Customer marketing ............. 21 6.1 6.2 International marketing and B2C ........................................................................ 21 Company example McDonalds ........................................................................ 22

REFERENCES .................................................................................................................. 23

List of figures
Figure 1: Marketing Environment.........................................................................................9 Figure 2: Five forces analysis...............................................................................................10 Figure 3: Economic environment.........................................................................................12 Figure 4: Waterfall and sprinkler strategy...........................................................................14 Figure 5: Direct export16 Figure 6: Indirect export.17 Figure 7: Market classification19 Figure 8: Market classification by Wrth Group............................................................19

List of abbreviations

USP.....................................................................................Unique selling proposition etc. .......................................................................................et cetera; and so on UAE....United Arab Emirates GDPGross domestic product IMF.International monetary fund B2C.Business-to-customer

Error! Use the Home tab to apply berschrift 1 to the text that you want to appear here. Error! Use the Home tab to apply berschrift 1 to the text that you want to appear here.

1 Basic principles of international marketing

1.1 Background of international marketing

Nowadays business world is affected by changes that occur constantly whether these changes are positive for example new opportunities and chances or negative like dangers, threats or influences from inside but also from the outside that cannot be detected immediately. The cause of these turbulences is globalization. The globalization itself is not an easy term to define but roughly and shortly it is a process of overcoming the already existing boundaries between countries. This process has the most influence on the economy, because it changes the markets and on the one hand offers new opportunities but on the other hand is very risky. It includes constant enforcement of the competitiveness on the market. New opportunities include penetrating on a completely new market in other country, and selling products or providing services to different customers. Although this might sound very attractive and also very easy, the main point is the word difference. To manage the overcoming the differences between countries a large amount of resources must be invested, but there is no guarantee of success.

1.2 Marketing as a part of international marketing

First of all, in order to define the concept and principles of international marketing, it is necessary to consider the marketing, as the part of it. Marketing is the process of building profitable customer relationships by creating value for customer and capturing value in return.1

Kotler, P. / Armstrong, G.: Principles of Marketing

Error! Use the Home tab to apply berschrift 1 to the text that you want to appear here. Error! Use the Home tab to apply berschrift 1 to the text that you want to appear here. It is easy to see that the focus point of marketing is customers. Therefore, the company should first decide who the customers are. It is important to concentrate on one certain group, in order to develop the right strategy to meet their demand. Also important is the benefit that the company's product or service brings to the customers, because this is what makes one company different and more attractive than the others. This benefit is the value from the definition above that has to be developed. Furthermore there are lots of other decisions, but mostly they are all included in Marketing Mix, which is constructed of 4P's decisions or rather decisions about product, price, place and promotion. Most of the time and importance takes building good relationships, not only with customers but also with other partners.

1.3 International marketing

Simply put, international marketing has been developed from the marketing and international business or rather international operations. Theories of international trade form the basis of the international marketing and they also provide an answer to the question why countries trade with each other. International trade is part of international business which includes all business activities and operations between two or more or also within two or more countries. Countries trade with each other because they differ in physical, geographical, political, economical, legal, technological and cultural characteristics. Due to differences in the efficiency of performing specific activities, countries trade those goods and services produced more efficiently than in other countries, and in exchange receive the goods and services that other countries produced more efficiently. The company performs international marketing by directing products or services to customers in more than one country. This includes making one or more marketing mix decisions across national boundaries or outside you own domestic market. Marketing mix involves decisions about product, price, place and promotion. This is important to coordinate business activities for more successful internationalization and integration on foreign market. Because of the differences between countries each company willing to perform international marketing has to collect a lot of information which means to invest a lot of

Error! Use the Home tab to apply berschrift 1 to the text that you want to appear here. Error! Use the Home tab to apply berschrift 1 to the text that you want to appear here. money in research of the markets. Afterwards it has to manage to include the information in the most effective and profitable way to make properly and successfully decisions.

2 Environment and international marketing

International marketing is a very complex structure, because there are many elements that have an influence on it. Since this art of marketing deals in a lot larger business environment, company has to overview each part of it to see, where can be made some changes, where are potentially dangers, or where can company has its own influence, controlling some major activities or persons. In order to do this, the definitions of each field are necessary.

2.1 Marketing Environment

A company's marketing environment consists of the actors and forces outside marketing that affect marketing management's ability to build and maintain successful relationships with target customers.2

Kotler, P. / Armstrong, G.: Principles of Marketing

Error! Use the Home tab to apply berschrift 1 to the text that you want to appear here. Error! Use the Home tab to apply berschrift 1 to the text that you want to appear here.
Macroenvironment (demographic, economic, natural, technological, political and cultural forces ) Microenvironment (suppliers, distributors, customers, competition, etc.)

Internal Environment (resources, goals, values, culture)

Figure 1: Marketing Environment

Source: http://marketingteacher.com/lesson-store/lesson-marketing-environment.html

Some of these actors and forces can be controlled or they can be used in order to gain more information for improving marketing activities, but some of them cannot be controlled, and therefore it is company's duty to adapt and integrate to new market conditions. The company exists in the internal environment, which includes resources (labor power, money, materials, machines, time etc.), goals, values and culture of the company. These elements can be changed and manipulated to optimize the adaption and coordination for next steps of company's expand or entry on the new market.

2.2 Microenvironment

The company's microenvironment includes all of the actors close to the company that affect positively or negatively, its ability to create value for and relationships with its customers.3

Kotler, P. / Armstrong, G.: Principles of Marketing

Error! Use the Home tab to apply berschrift 1 to the text that you want to appear here. Error! Use the Home tab to apply berschrift 1 to the text that you want to appear here.

Microenvironment and its actors are directly connected to the company and its business operations, and therefore they altogether have an influence on the organization directly. Some of these actors are suppliers, distributors, marketing intermediaries, customers, competition, stakeholders and publics (banks, government, media etc.). It is easy to see, that these actors and forces are external to the company itself, but some of them are closer to the activities, that the firm performs than others, for example suppliers or distributors. They are however very important because they have the most directly influence on the company's business (supply of materials, distribution of finished goods to customers), therefore it is very important that company considers these factors, and develop good strategy and relationships towards them.
Potential entrants (Threat of entrants)

Suppliers (Bargaining power)

Competitive Rivalry

Buyers (Bargaining power)

Substitutes (Threat of entrants)

Figure 2: Five forces analysis

Source: Adapted from M. E. Porter, Competitive Strategy, Free Press, 1980, p. 4.

From the chart of five forces analysis it is easy to see that this analysis answers some of the key questions and implications concerning microenvironment and competitive

environment. As it has already been mentioned the globalization is marked as a process of constant simulation of the competitiveness. These competitive markets do not include only 10

Error! Use the Home tab to apply berschrift 1 to the text that you want to appear here. Error! Use the Home tab to apply berschrift 1 to the text that you want to appear here. international business operations, but also activities within firm and in its closer environment. On one company, with its USP many factors can have a huge impact, and in the end effect cause a slowly vanish from the market. At the same time company cannot directly influence one of these factors, it can only try to improve its organisation, strategy and marketing mix.

2.3 Macroenvironment

The macroenvironment consists of broader forces that affect the actors in the microenvironment.4

These forces are demographic, economic, natural, technological, political and cultural forces, specific for every area. Since they cannot simply be changed, anyone that intends to enter the market has to invest a lot of resources to manage the process of coordination and integration in the new setting of business activities and organization for each area.

2.3.1 Demographic forces

Demography: The study of human populations in terms of size, density, location, age, gender, race, occupation and other statistics. Changes in demographics- in the nature of human populations- mean changes in markets. So they are very important to marketers.5 Since the customers relationships are the most important for one company, information about customers needs, habits, nature and also their environment are in the focus, because based on good customer research company can optimize its adapting process, and improve its products and/or services in order to meet the demand, and to be attractive. Today the world is facing constant migrations, because there are a lot of
4 5

Kotler, P. / Armstrong, G.: Principles of Marketing Kotler, P. / Armstrong, G.: Principles of Marketing

11

Error! Use the Home tab to apply berschrift 1 to the text that you want to appear here. Error! Use the Home tab to apply berschrift 1 to the text that you want to appear here. chances in every part of the world, and people are ready to go for them. Also the fact, that nowadays people are more and more informed, because of the internet, and also more educated, their customer behavior is much more complex, and if there is no attention paid on these facts, it can result in huge problems for the company.

2.3.2 Economic forces Economical environment: Factors that can affect consumer buying power and spending patterns.
6

Elements of economical environment can easily influence demand, costs, prices and profits. These elements have the most immediate impact.

Income

Level of unemployement

GDP per capita

Economic environment

Inflation rate

Interest rate

Figure 3: Economic environment

Changes in world economy can have the most impact on the company that performs international marketing, but it is also important to understand and analyze changes in the domestic economy, because they can impact the company in short-time.

Kotler, P. / Armstrong, G.: Principles of Marketing

12

Error! Use the Home tab to apply berschrift 1 to the text that you want to appear here. Error! Use the Home tab to apply berschrift 1 to the text that you want to appear here. 2.3.3 The political and legal forces Marketing decisions are strongly affected by developments in the political environment. The political environment consists of laws, government agencies, and pressure groups that influence or limit various organizations and individuals in a given society.7 Political environment sets the conditions of the business. So the prime concern of the company would be these forces, because they have direct impact on the business activities and cannot be optimized. However, companies involved in international marketing are faced with the additional concern of international political changes. So, in conclusion independent from the question does the company operate only on domestic market, or on international market these political forces have to be completely understood.

2.3.4 Socio-cultural forces The cultural environment is made up of institutions and other forces that affect a society's basic values, perception, preferences, and behaviors.8 This can be perhaps defined as the most complex element of the macroenvironment because it is manifesting in changing tastes and priorities due to beliefs, values and attitudes. It can be distinguished between core cultural values, that are very difficult to change for example those introduced from religion, education, family or other institutions and secondary cultural values that are not so strong and can be adapted for example opinions about working women.

2.3.5 Technological forces Technology is a relevant variable, because it has affected the innovation and development of new products, services, ways of supply and distribution. It is a major driver of

globalization, since it is vital for competitive benefits, that make one company different, better and more attractive. Technological environment offers many opportunities and chances for achieving new values and improving USP, and therefore is very important for the company especially in the area of international marketing, because it can ease ways of
7 8

Kotler, P. / Armstrong, G.: Principles of Marketing Kotler, P. / Armstrong, G.: Principles of Marketing

13

Error! Use the Home tab to apply berschrift 1 to the text that you want to appear here. Error! Use the Home tab to apply berschrift 1 to the text that you want to appear here. winning customers, developing relationships with them, introducing new products and/ or services.

3 Expansion strategies
In making decisions about coming in a new market or spreading the business, it is very important to plan when and how to do this, to review advantages and disadvantages of each possible way to realize it. Decisions about timing include choice between pioneer strategy or follower strategy.

Figure 4: Waterfall and sprinkler strategy

Source:http://www.dhl.com/en/mail/mail_essentials/dm_guide/international_direct_marketing/internationaliz ation_strategies.html

3.1 Pioneer strategy

Pioneer strategy means being first on the market. Of course that being first has its advantages, since it allows to company to create the market and sell its products on its own, and therefore to provide a significant market-share. It is possible to realize closer customer relationships, and since the company is the first on the market, it will offer USP to customers. Of course there is also a possiblity to increase barriers for new entrants. But

14

Error! Use the Home tab to apply berschrift 1 to the text that you want to appear here. Error! Use the Home tab to apply berschrift 1 to the text that you want to appear here. pioneer strategy brings on the other hand a lot of risk, because of the uncertainty in the completely new environment.

3.2 Follower strategy

Follower strategy simply means that the company is not the first on the market, it follows the leaders in the already stable market, using opportunities made by them and therefore there is no need for huge investments in marketing. There is already available information, but the problem may be caused by barriers, that have been set up by leaders on market. The second question, which has to be elaborated, is how to expand on the market. There are two main strategies -waterfall and sprinkler strategy and each one have its advantages and disadvantages.

Waterfall strategy means that the products are launched in a few regions, initially (gradually), so market will be entered step by step. Because of this gradually entrance there are no high costs or risk and also the coordination of markets is easy to perform. But on the other hand, since this strategy takes time there is a danger of competition. Sprinkler strategy represents entry in all markets simultaneously. Advantages result from exploitation of economies of scale and possibility to create market barriers, but it also involves high risks and costs, and lower level of coordination.

4 Market entry strategies

There is variety of possible forms of entry on a new market. To decide and choose one particular form, it is necessary to analyze all opportunities but also threats of an entire new market where company wants to spread its business, in order to follow the most suitable entry strategy to achieve a success. Market entry strategies are: Export ( direct or indirect) Licensing Joint ventures

15

Error! Use the Home tab to apply berschrift 1 to the text that you want to appear here. Error! Use the Home tab to apply berschrift 1 to the text that you want to appear here. Direct investments

4.1 Export
Direct Export means selling products or providing services directly to customer. Advantages of direct export are keeping all the profits, because there are no intermediaries. Also the company knows exactly who are the customers, customer relationships are stronger, since the customers also know from whom are they buying. And there is also a higher level of control over all transactions and operations between company and customers. On the other hand this type of export takes a lot of resources (time, money, staff and energy), there is also a higher degree of responsibility and possible higher costs if something goes wrong.

Company

Products Services

Customers

Figure 5: Direct export

Indirect export means selling products by an intermediary. The company does not sell the product direct to customer; it sells it to intermediary, which afterwards sells the product to the end consumer.

16

Error! Use the Home tab to apply berschrift 1 to the text that you want to appear here. Error! Use the Home tab to apply berschrift 1 to the text that you want to appear here.

Company

Products

Intermediary

Customer

Figure 6: Indirect Export

Intermediary can be settled in the domestic or foreign country. With indirect exporting there is no such a high degree of responsibility and it saves resources and allows the company to concentrate on the domestic market. But profits are lower, because intermediary takes a part of them, there is a really low level of control and also the company does not really know who the customers are.

4.2 Licensing
A license is an agreement or a contract between licensor permitting the use of its trademark, copyright, patent, know-how, designs, intellectual property, trade secrets or any other services to a licensee. In case of international marketing a license is the international company and licensee is a company abroad, which pays a percentage of the profits from products or services sold under license to the international company (licensor). One popular form of licensing is franchising, where the company sets a name of brand and business system in the domestic market, but then franchises its system in foreign countries. Licensing as form of market entry is less risky, and allows to companies to test the foreign market without spending too much money. But the licensor does not have high level of control over operations and license returns may not be so attractive.

17

Error! Use the Home tab to apply berschrift 1 to the text that you want to appear here. Error! Use the Home tab to apply berschrift 1 to the text that you want to appear here.

4.3 Joint ventures

Joint ventures are defined as any united undertaking, where two or more companies share all their resources to achieve a collective goal. Regarding to international

marketing this means that foreign and local investors join together and create joint venture. So, basically joint ventures are one form of partnership, which means there are more resources available (more capital, know-how, capacity). Also important is that the risks and costs are shared among the partners. Disadvantages of this form of market entry are possibility of different goals or influences of different environments where the partners operate.

4.4 Direct investment

Direct investment includes buying facilities or any other investment in a foreign country in order to start business activities (production or providing of services). This is the quickest way to enter the foreign market, to gain local customer relationships, adapt to new environment and to have a control over business. However it is also risky, because of political, economical, socio-cultural forces in the foreign country that cannot be optimized, therefore it requires more investments (time, money, research, education etc.).

5 International market segmentation at the example of the Wrth Group

5.1 Description of the company
The Wrth Group is primarily a classic direct marketing company which works in assembly and connecting material and offers approximately 50,000 different high-quality products for assembly, maintenance, and repair under their own brand and available from stock. The customers of the Wrth Group are production plants, craft producers, and noncommercial companies. The Wrth Group consists of over 259 independent companies in 79 countries and has more than 1.5 million customers worldwide. 9

See Assignments_VU Marketing_20111010

18

Error! Use the Home tab to apply berschrift 1 to the text that you want to appear here. Error! Use the Home tab to apply berschrift 1 to the text that you want to appear here.

Figure 7: Market classification

Source: Assignments_VU Marketing_20111010

Figure 8: Market classification by Wrth Group

Source: Assignments_VU Marketing_20111010

These two figures show the classification of countries and regions into the different types of markets for Wrth Group. Core markets are generally worked, promising markets are worked in the future, and opportunity markets are worked sporadically. Markets which are not worked are called abstinence markets.10

10

See Assignments_VU Marketing_20111010

19

Error! Use the Home tab to apply berschrift 1 to the text that you want to appear here. Error! Use the Home tab to apply berschrift 1 to the text that you want to appear here.

5.2 Task 1
Using the example of the Middle East (Dubai, Iran, United Arab Emirates), explain which indicators were used to classify it as an abstinence market in the first place. Middle East (Dubai, Iran, United Arab Emirates) is described as an abstinence market due to high market barriers and low market attractiveness.

Socio-cultural and political differences Except in the free trade zones, the UAE requires at least 51% local citizen ownership in all businesses operating in the country as part of its attempt to place Emiratis into leadership positions

Plenty of opened and still active construction projects

5.3 Task 2
Which market and economic indicators have induced the new classification (abstinence market - promising market) of this region?

UAE oil reserves are ranked as the world's sixth-largest and it possesses one of the

most developed economies It it has a high GDP per capita Relatively high Human Development Index The UAE is classified as a high-income developing economy by the IMF Human rights are legally protected The UAEs liberal climate towards foreign cooperation, investment and modernization has prompted extensive diplomatic and commercial relations with other countries Standards of healthcare are considered to be generally high in the United Arab Emirates The UAE has been spending billions of dollars on infrastructure

20

Error! Use the Home tab to apply berschrift 1 to the text that you want to appear here. Error! Use the Home tab to apply berschrift 1 to the text that you want to appear here.

5.4 Task 3
Try to determine key figures and criteria at the country level which suggest a market entry into the United Arab Emirates.

A lot of money is spent on investments in tourism infrastructure, this opens new business oportunities Dubai for example is growing really fast that its GDP was up 17% in 2005 and the HSBC Bank estimates that there are about $42.5 billion dollars worth of projects in construction currently

The Middle East real estate industry has also attracted a lot of foreign investor interest

Although property markets worldwide have experienced a slowdown in late 2006, the Middle East real estate market is still going strong and the outlook for this sector remains positive in the mid to long term.11 So some of the criteria could be high GDP, investments in infrastructure, tourism, opening new business opportunities, attracting foreign investors, and constant strength in the mid to long term, which is a significant fact of security.

6 International marketing in context of Business-toCustomer marketing

6.1 International marketing and B2C

B2C refers to transaction that occurs between a company and an end-consumer. Therefore it includes a direct response on customer needs. In this way businesses are able to get to the client base straightforwardly, and it is possible to cut the costs, since there are no intermediaries. B2C provides more control over business operations and activities, and gives opportunity to every small business to enter the market. Referring to international marketing B2C allows it to be closer to customers, so therefore
11

http://www.investorsprovident.com/middle-east/

21

Error! Use the Home tab to apply berschrift 1 to the text that you want to appear here. Error! Use the Home tab to apply berschrift 1 to the text that you want to appear here. customers know from whom are they buying. This tightens customer relationships and provides a value to the business (USP). Since there is higher level of control and since the transactions are worked out directly, it is easy for business to get to know their customers, to research environment in foreign market, and to adapt and coordinate all business activities and operations.

6.2 Company example McDonalds

McDonalds is a people business Ray Kroc

McDonald's Corporation is the world's largest chain of fast food restaurants. McDonald's restaurants are found in 119 countries and territories around the world and serve 58 million customers each day. McDonald's operates over 31,000 restaurants worldwide, employing more than 1.5 million people. McDonald's continues to be recognized as a premier franchising company around the world. Over 75% of our restaurants worldwide are owned and operated by their Franchisees. In 1954 he found in San Bernardino, California a small but successful restaurant run by brothers Dick and Mac McDonald, and was stunned by the effectiveness of their operation. They produced a limited menu, concentrating on just a few itemsburgers, fries and beverageswhich allowed them to focus on quality at every step. Kroc pitched his vision of creating McDonalds restaurants all over the U.S. to the brothers. In 1955 he founded the McDonalds Corporation, and 5 years later bought the exclusive rights to the McDonalds name. By 1958, McDonalds had sold its 100 millionth hamburger.12 Today with the business running worldwide, McDonalds is offering a lot more to its customers. There are plenty of menus incuding not only fast food, but also salads, smoothies and fruites. And in some restaurants there are also playgrounds for children. So variety of supplies, starting from one idea, to really successful B2C international marketing company.
12

http://www.mcdonalds.com/us/en/our_story/our_history/the_ray_kroc_story.html

22

Error! Use the Home tab to apply berschrift 1 to the text that you want to appear here. Error! Use the Home tab to apply berschrift 1 to the text that you want to appear here.

REFERENCES
Kotler, B. / Armstrong, G. (2011): Principles of Marketing, 13th Ed. , Harlow Cross, F. B. / Miller, R. L.: The Legal Environment of Business Shepard, J. G.: Joint Ventures, Antitrust analysis of collaboration among competitors,

American Bar Association

http://marketingteacher.com/lesson-store/lesson-marketing-environment.html http://www.dhl.com/en/mail/mail_essentials/dm_guide/international_direct_marketing/inte rnationalization_strategies.html http://www.scribd.com/doc/2469754/Methods-of-Exporting-Direct-Indirect http://www.investorsprovident.com/middle-east/ http://www.squidoo.com/b2c-marketing http://www.mcdonalds.com/us/en/our_story/our_history/the_ray_kroc_story.html

23