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9.2. Steps in Marketing Strategy

Using SWOT analysis described in Chap. 2 to clarify the internal management resources of a company (its strengths and weaknesses) and the external management environment (opportunities and threats), steps in marketing strategy can help determine a company's direction as it invests in new management resources. In this step, companies create management strategies; however, it requires a more detailed analysis to move to the execution phase of specific product development and distribution channel creation.

Table 9.1 Product and market matrix

Product

Market

Existing

New

Existing

(1) Market penetration

(2) Market development

New

(3) Product development

(4) Diversification

We now introduce Ansoff's product market matrix, a valuable tool to create strategies on the basis of market and customer relationships. The matrix divides both products and markets into the “existing” and “new,” and indicates the direction in which companies can achieve growth. The first area is “market penetration,” in which companies target existing markets with existing products. Other areas to which a company's business domain may expand to include “product development,” in which a company develops new products for existing markets, “market development,” in which a company brings existing products to new markets, and “diversification,” in which a company pioneers new products for new markets (Table 9.1).

An implementation of the product/market matrix to a global business, considering their entry into new countries or regions, naturally leads to “market development” or “diversification” as options to companies. In Chap. 2, we discussed Ghemawat's CAGE frameworks and the AAA as frameworks used when considering global strategy. According to the CAGE framework, the distance between a company's home country and a target country can be considered from four different aspects: cultural, administrative, geographical, and economic. Using AAA, companies can select the optimal direction from among adaptation (to the target country), aggregation (across the globe), and arbitrage (which takes advantage of distances). Aggregation refers to market development that uses existing products to go after new markets, while adaptation corresponds to diversification, in which product development is conducted to match new market conditions. An example of arbitrage is the offshore development of software in countries with low wages. Arbitrage is a methodology of supplying products and services, and it is not directly related to marketing, which is related with customer interactions.

Gathering and analyzing market information, followed by validating the consistency of that information with a company's products, are critical in setting marketing strategy. In the process of global business expansion, data collection and analysis are particularly important. Choosing to develop new markets with existing products or diversify markets through new product development will depend on the target market's acceptability of a company's products. Note that large countries such as China and India comprise a range of markets. The CAGE framework in Chap. 2 is used in this chapter on a country-by-country basis, but, for example, China shows vast regional divergence in living conditions in the country, with regions along the coast showing a significantly different level of economic development compared with western regions. English and Hindi are the two official languages spoken in India, even though each region has its own dialect, with the company comprising more than 20 quasi-official languages. Each Indian state has an independent bureaucracy, with tariffs levied on the distribution of goods across state borders and

Table 9.2 Example of market segmentation

Variables

Segment example

1. Geographical variables

Kanto, Kansai

Region

Cold/hot, seasons

Climate

Urban, suburban, rural

Population density

2. Demographic variables

Teens, youth, middle-aged, seniors

Age

Male, female

Gender

Married, unmarried

Family composition

+JPY 30 million

Income

Blue-collar, white-collar

Work

3. Psychological variables

Enjoys sports, outdoors

Lifestyle

Enjoys new things, conservative

Personality

4. Behavioral variables

Economical, functional, prestige

Sought-after benefits

Non-user, light user, heavy user

Usage

Source: Adapted from Diamond Inc. (2002) chart on p. 55

different regulations imposed on companies. Thus, we see that distances exist among various aspects of the CAGE framework even within a single country, and each country may have a variety of markets.

Therefore, a marketing strategy must be selected by first segmenting and then targeting markets. Market segmentation can be conducted in many ways, as indicated in Table 9.2. The first type is segmentation using geographical variables. Climate and lifestyle vary by area. The same applies to language, as seen in the case of India. Attributes of population segmentation such as gender, age, or income levels are also important. For products that target the youth or the elderly, a change in specifications may be necessary. In addition, companies should consider segmentation by household income levels when considering the establishment of businesses in emerging countries. The “good enough” product market in China and India, explained later in greater detail, targets the rapidly growing middle classes in these countries. When examining China's disposable income distribution, it is observed that the top 10 % have an average annual income of approximately USD 32,000, while the lower 10 % have an average income of only USD 950—a disparity of more than 30 times. Newly developing nations, such as China, generally have large wage disparities, thus increasing the importance of segmentation by income level and the creation of a marketing plan that sets specific targets.

In addition, market segmentation and targeting can be conducted using psychological variables such as lifestyle, and behavioral variables such as product usage. Geographical characteristics and population attributes can be understood using existing statistical data and figures from survey companies; however, companies must also conduct their own market research to understand consumers' psychological and behavioral variables. Rogers' diffusion model of innovation (Rogers 2007) is often used to classify consumer personalities. Sociologist Everett M. Rogers researched the diffusion process of new products and services and classified users into several groups in the following order of adoption: innovators (those who are first to adopt), early adopters, early majority, and laggards. There is a wide chasm between innovators and early adopters, and for high-tech products, crossing this chasm in marketing is crucial (Moore 2002). Thus, understanding the psychological attributes of target customers is critical when introducing innovative products into a market.

We now summarize the steps in marketing strategy. First, companies must collect market information and analyze it, by considering the strengths and weaknesses of their products, as well as the consistency of their products with market characteristics in light of relevant data. Companies should align their goals with a management strategy and direction for global businesses, as shown in the CAGE and AAA frameworks. Ansoff's product/market matrix is effective to match products and markets. In deciding whether to target new markets in line with the strengths of a company's products (market development), or to develop new products that meet local needs in global markets where the company already has business operations (diversification), companies must perform SWOT analysis that consider both internal management resources and external business environments. Creation of a marketing strategy is the goal of this step, and the strategy must be decided upon in the process of matching products and markets.

 
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