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INTERNATIONAL CUSTOMER SEGMENTATION: Critically evaluate the perceived segmentation strategy of an organization of your choice, which operates on an international scale. (The organization must be specified, but remember this is an academic essay and not merely a case study. If it is a large, complex organization with many different types of products/services, you can just focus on one brand)

The aim of this essay is to critically evaluate the international customer segmentation strategy of Haier Group, starting with a brief introductory summary of Haier’s background, initial development in China and an insight into Haier’s international marketing activities, followed by Haier’s international customer segmentation strategies orientation and its segmentation strategic approach. Haier’s collaborative arrangement and corporate culture in which relate to segmentation strategies will be examined at the end.

In the last two decades, the impact of globalization provides China opportunities to be a major player on the global scale. Chinese companies have started to create truly international brand, the most successful one is Haier Group, it is the largest manufacturer of “white electric appliances” in China, and the fifth largest in the world. With annual sales of RMB 71.1 billion   (￡5.1 billion), the Qingdao-based Company manufactures 13,000 different products range from refrigerator group, washer group, air conditioner group and other wide range of electronic groups, it employs over 30,000 people, and sells its products in 160 countries (Haier, 2007).

Haier was originally founded in Qingdao, Shangdong Province in China in1984, initially named as Qingdao refrigerator Plant, founded by non-government group. It was a state owned small factory with about 600 employees. However, Haier did not obtain any investment from the state as other state-owned enterprises had done at that time (Chen, Jin, He and Yao, 2006).
According to SAP (2003), Haier incorporated as a group company in December 1991. The company had a defining moment at the beginning of operations, when the chief executive officer (CEO) Mr. Zhang picked up a sledgehammer and began to smash newly assembled refrigerators - to prove that poor quality home electronic products would no longer be tolerated. Haier’s early focus on quality was the core strategy in Chinese market; it also contributed to the company’s rapid growth. Sales had increased an average of 73.8% per year from 1984 to 2002 (Haier, 2007).

Jobber (2001) argues undifferentiated marketing strategy can occur by fault, a company who practice with the strategy may link to lack of marketing orientation and customer knowledge. Moreover ‘‘undifferentiated marketing strategy is more convenient for managers since they have to develop only a single product’’ (Jobber, 2001 p204). He also suggests that a company starts with undifferentiated marketing strategy, normally will move to one of the next three target marketing strategies: differentiated, focused and customized marketing. However, here Jobber did not clearly analysis whether the undifferentiated marketing is suitable for MNEs to develop only one type of product in the global scale, or a typical region. In this case, the undifferentiated marketing strategy was the main factor drove other home-based electronic companies to lose market share in China.#p#分頁標題#e#

In contrast, Haier’s early focus on quality was the core customer strategy in Chinese market as well as in East Asia (Interbrand, 2007). It differentiated marketing strategy through high quality has made a huge success in China. By 1991, Haier had became China’s leading refrigerator manufacturer, and started to diversify its products to air conditioner and washing machine (Wu, 2005). In 1998, Haier gained about a 30% share of Chinese market and sales revenue reached RMB 12.8 billion (￡1.1 billion ). It then also developed its products to the ‘’ black good’’ sectors such as televisions and personal computers (Haier, 2007).

However, margins on domestic sales were shirking, as competition has been increased since 1998, meanwhile the Chinese government’s ‘’open door’’ policy was well distributed and developed. At that time, other domestic home-based electronic manufacture also started to focus on quality rather than segmented Chinese market into pieces. However, there were only few home manufactures competed in China, ‘’everyone had piece of cake to taste’’. The pressure from local firms and multinational enterprises (MNEs) in China forced Haier to cut price at 10% to 15% annually (Interbrand, 2007). In this critical environment, Haier started to bet its future on global sales, and this became the initial reason to go global, and the company’s products are now sold in 50,000 retail outlets worldwide (Haier, 2007). Nowadays, there is still a lot of argument on Chinese ‘http://www.400190.com/Thesis_Writing/Marketing/open door’ policy, it either help Chinese economic and local business to growth internationally or create difficulty for China to go abroad.

Haier started to bet its future on global scale in the late 20 centers. It segmented its overseas subsidiaries into five large regions: the US, Europe, the Middle East, South East Asia and East Asia and tries to balance the viability and the legitimacy at a regional level, the structure of Haier is more likely to Chakravarthy and Perlmutter’s (1985, cited Hogdett & Luthans, 2003) definition of the regiocentrism organization.

Hill (2005) examines that most of MNEs earn the bulk of their revenues either within their home country or by selling in nearby locales, expanding business overseas only ‘’a small piece of cake’’. In this case, MNEs should focus on their home country rather than focusing more on global. In contrast, Griffin and pustay (2002) argues that MNEs do not necessarily have to put a large percentage of operation on home country, this depends on the MNEs’ strategies, products types and global influences, evidence e.g. Japanese car companies and American fast-food express.

To be successful, MNEs need to create specific strategies for each region or nation in order to meet customers’ needs, not worldwide; in particularly they need to be responsive to local consumers as opposed to being global in nature and uniform throughout. In other words, ‘’very few products or services can satisfy all customers in a market. Not all customers want or are prepared to pay for the same things (Jobber, 2001 p185)’’.#p#分頁標題#e#

Haier’s early focuses on quality have become the core strategy in Chinese market, at that time, most of home electronic products had advertized poor quality but low price image in people’s mind. Haier became a ‘dark horse’ has changed people’s view, and the only quality strategy guide it to success, gaining a great competitive advantage; followed by this, in order to build its competitive advantage in a long term, Haier developed its marketing strategy into another area – customer service, it tended to become a most efficiency and effective firm in China (Haier, 2007); this strategy has also well distributed into other regions smoothly, nowadays, Brand image link with quality and great service have helped Haier become the most profitable and largest home electronic manufacture in China.
Parasuraman (1991) explains that service quality gaps change can change consumer expectations immediately. With the concept of “customers as the foundation of growth” (Rice, 1997), Haier provides a one-stop star service to its customers (Haier, 2007). ‘’In a joint survey conducted by the China Consumer Association and the China Enterprise Research Centre of Tsinghua University on China’s domestic durable commodities for 2003 and 2004, eight of Haier’s product categories were ranked No. 1 for customer satisfaction and overall satisfaction’’ (Haier Group, 2005). However, Zhang (2005) argues although a good knowledge of understanding the ‘’service quality gap’’ might create a good company image, the company would go to failure without latest or advanced technological support, e.g. China Mobile’s early strategy was based on top service which linked with lacking funding on technological development and R&D.
In addition to achieve high quality home appliances image, Haier is also paid great attention on offering best-of-breed service solutions to its customers (Palepu, Khanna and Vargas 2005). In China, the U.S. and westerner regions Haier’s service system runs throughout the production process from product design, production, manufacturing, to pre-sale, under sales and after sales service, evaluation customer satisfaction and critically analyzing customer feedback has became the core theme for its customer service strategy. Since 2002, Haier has successfully established a network of over 5,000 domestic professional service suppliers to deliver timely customized service (Haier, 2007).
Additionally, in order to build an excellent relationship with Chinese society. Haier’s ethics in marketing strategy through against ‘’sweatshop’’ labor, developing its recycle plant due to huge environment issue in most of Chinese industries and establishing education fund in China. As Dibb (2001) points out ‘’ an organization’s obligation to maximize its positive impact and minimize its negative impact on society’’ (Dibb, 2001 p766) is the best way to build a corporate social responsibility image for its society#p#分頁標題#e#

Although Haier’s differentiated marketing strategy through offering high quality product had became successful in China, this not means it will success in else where. For instance, in the U.S. where is a high quality product market environment, Haier would not grow healthy by doing the undifferentiated strategy as it has practiced in China. Yeung (2005) examines there are a lot of  Chinese enterprises tend to first export to developing countries, which have competitive markets but no strong dominant competitors. However, Haier determined to focus on the developed markets, Haier believes that it has the best ability to meet customers’ satisfaction.

According to Ramo (2007), Chinese products are often associated with low cost and low quality, Chinese enterprises face great difficulty to change the low-quality image of Chinese products in the minds of western customers and create a lower brand image that is not able to accept by consumers. Ghauri and Cateora (2006) argues that country of origin impact customer behaviors, customer perceptions differ greatly in regard to where is a product made from, consumer’s negative perception of a product will create ‘’perceived risk’’.

Haier started a strategy as acquiring household name brands in the U.S. as part of Haier stated tactic to leaving its ‘’made in China’’ label behind and have Haier brands be positioned as local in the U.S. (Zhang, 2005). In order to create customer awareness and make the brand global, for example, Haier also began sponsoring an Australian basketball team known as the Melbourne Haier Tigers. In 2005, Haier spent about 10% of revenue in global branding and marketing, more than double the industry average (Haier, 2007).

Adaptation to the developed markets with excellent customer satisfaction knowledge was the key success for Haier. At the beginning it did not have enough employees with an international perspective to expand globally. As Kotler (2003) defines, the first challenge when MNEs develop its business cross abroad is to adjust to the local taste; this is also related to local culture as well. Unlike the traditional Chinese approach to send Chinese employees to the target countries, Haier began by recruiting local people who have similar working experience in top brands and putting them in the key positions to get market intelligence, develop sales and distribute channels, more importantly by building relationship with those customers. Because by hiring local people with local backgrounds, experiences are the basis to satisfy the needs of the local customers (Zhang, 2005).

Like all MNEs, communication issues relate to culture gap is actually the huge challenge for Haier when it expands business overseas, and success could not be achieved without employing locals as it mentioned above. A lack of communication can negatively influence international business development, in particularly it impact relationship with customers. For instance, managers from the Chinese and American sides of Haier USA both reported a certain degree of difficulty in communication. According to the U.S. general manager, ‘’due to language barrier, it was very difficult to perform a ‘brainstorming’ exercise in which new ideas or suggestions may be generated as a result of discussions and debate’’(Haier, 2007).#p#分頁標題#e#

As Porter explains (1987) that advantages come from effective deployment of a set of interrelated activities such as designing, marketing, delivering and other supporting activities, which constitute the value chain of a firm and determine the relative position of cost and differentiation compared with competitors. It is important to keep customers’ demands in mind all the time and try to establish a superior combination of attributes of core products or platforms that customers really value.

In regard to product differentiation, Wilson (2004) points out, there are two kinds of advantages that can be valued and recognized by customers. The first is to provide quality product with lower price, the second is to provide the products which delivery differentiation in functional aspect. Haier has achieved both delivering quality differentiated products with lower price in the U.S. market. It has paid close attention to consumer needs in overseas markets and willing to make small production modifications to please customers.（本文由留學生代寫essay專家組整理提供）

For instance, the R&D people were required to talk directly with customers, or even with the sales people in chain stores to find out the special needs, then came back and designed products (Haier, 2007). Competing with big brands required Haier to focus on developing innovative products. Haier’s market research resulted in simple innovation such as a freezer with a separate compartment to keep ice cream at slightly warmer temperature, making it softer and easier to serve (SAP, 2003).

In 2000, Haier Europe began coordinating sales and marketing of Haier products in 13 specific European countries with the products all especially designed for the European market (Haier Group, 2005). Haier has successfully achieved its goal through combining focused marketing strategy with customized marketing strategy in the Europe. 

Technological innovation is a key to maintaining a firm’s competitiveness (Wilson, 2004). There has been a lack of technological competence or resources for most Chinese enterprises (Dunning, 1993). This was the case with Haier which has been mostly overcome. Nevertheless, alone with other Chinese ‘’white goods’’ manufactures, Haier began by using foreign technology in products and remained highly dependant on foreign key components and technology (Haier, 2007).

The first and most important theme of marketing is to satisfy customers’ needs by providing the right product or service at the right price, time and place (Forsyth, 1990).  The marketing mix has played an important role in the process of marketing management (Jeannet & Hennessey, 2004)

However, large appliance manufactures are not always flexible; therefore the response to the market is usually slow (Dunning, 1993). The combination of understanding the consumers’ specific needs, designing and producing goods locally, in particularly with speedy response to customers’ feedback has helped Haier to satisfy customer demand in the quickest manner (Wu 2005).#p#分頁標題#e#

According to SAP (2003), Haier developed a strategy to grow internationally, which was coupled with implementation of lead supply chain processes to achieve high throughput with minimal cost. Beginning its business reengineering with centralization of order handing in 1998, unlike others only focused on quality superior, the company shifted from make-to-stock to make-to-order production module; it learned from the Japanese experience module it implemented just-in-time inventory management; and shortened cycle times. These production line innovations have lead Haier succeed in the U.S.

In results, Haier successfully won more than 50% of total US market, made 55,000 of the 100,000 units sold in 2005 (Haier,2007). During the innovation process, innovation should be combined with speed. For example, having noted through R&D that American customers did not like deep box freezers because stock items at the bottom were difficult to reach, Haier launched a two-level model with a drawer on the bottom within two months (Zhang, 2005). In results of this strategy, Haier has successfully built a good reputation as the company that comes closest to satisfying customers’ needs.

Wu (2005) explains that state owned factory were more like to lack of corporate culture and effective in China, moreover the corporate module was based on the traditional policies and Chinese collective culture at that time.

Corporate culture is defined as the values, beliefs, traditions, and practices that are shared by the members of an organization, learnt by new recruits, and transmitted from one generation of employees to the next (Trompenaar & Hampden-Turner, 2005), such as strategy used to recruit, compensate and retain employees. As Holden (2002) concludes that a corporate culture has a direct and significant impact on performance.

The most important influence on corporate culture is the broader social culture of nation where the firm was founded (Hill, 2005), as organizations are societies of individuals who come together to perform collective tasks. They have their own distinctive patterns of cultures. China, where Haier is from, has a deep-seated cultural code of ethics emphasizing loyalty to families to friends. Collectivism plays the most important role, which was heavily influence by Confucianism – the primacy of personal relationship and interpersonal reciprocity (Cao, 1996).

Haier believes reputation is more essential than sales volume. http://www.400190.com/Thesis_Writing/Marketing/ Quality is the core essence of a product, as reputation to a business. This reflects Confucian ethics. According to Hofstede (2005), China has the highest long term orientation of any country. This is attributable to Confucius’ regard for endurance as a virtue. At Haier, a technically acceptable product is not necessarily a qualified product; only products of customer satisfaction are qualified. Profit is not as important as reputation, as good reputation results in securing customer loyalty. This reflects the importance of long term relation in the Chinese business world.#p#分頁標題#e#

According to Hofstede (2005), the American and Chinese culture is vastly different in most important aspects, such as individualism, uncertainly avoidance, and power distance. In order to minimize culture conflicts, to develop relationship with customers, Haier employs local people to work in its foreign business, and introduce Haier corporate culture and philosophy by hiring very experienced managers or directors at local instead of sending any Chinese employees.

Additionally, Haier has established an extensive sales network around the global and corporate with many business partners. In America, Haier cooperated with top ten retailers, e.g. SEARS, HOME DEPOT, Best Buy and Wal-Mart. In the Europe, its cooperation strategy with KESA, Media Market and Carrefour also has boosted its reputation and sales rapidly (Haier, 2007).

After successfully developing its business in the U.S. and certain westerner developed markets, Haier entered into the India market through a joint venture and, establishing its own subsidiary in late 2003 (Haier, 2007). Comparing to its competitors, and local consumer behaviors, Haier adopted the strategy of pricing the products at a premium and providing additional features. The company claimed that it would provide ‘’First world technology at third world prices’’ (Haier, 2007).

Haier India CEO TK Banerjee says: “We have stuck to our premium pricing strategy. We are not interested in the numbers game and are more bothered about how consumers perceive us. We have not compromised on quality despite pressures in the marketplace. Our brand message is ‘Inspired Living.’ We also did a very simple brand communication -- which Haier is a global player. We are not ashamed of the fact that we are born in China. In fact, our strength lies in the fact that we have conquered the world (Haier Group, 2005)’’.

Kotler (2003) states it is essential for companies to adjust the marketing mix elements to each target market. An effective marketing mix must be designed to match the needs of specific target customer group and it must contribute to the creation of a competitive advantage (Jobber & Fahy, 2003). The current Haier marketing mix effectively meet the needs of the target segment – India, and also has positioned itself in the minds of Indian consumer as high quality and lower price, using best-selected ingredients from around the world.

To sum up, adaptation of marketing mix to target segmentation is essential in achieving success in the increasingly competitive international markets (Usuner, 2000).  As it mentioned in the essay, the core theme of marketing is to satisfy customers’ needs to meet high customer satisfaction by providing the right product or service at the right place, time and price. In order to do this, a company must have a good research to understand why, where, and when their products are likely to be bought into the segmentation and subsequently to produce the suitable product.  Also they need to support their product by building positive corporate social responsibility. The essay clearly analysis that Haier’s success internationally owes largely to adaptation of its product to suit the customer segmentations and satisfy the people’s needs.#p#分頁標題#e#

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