MARKETING ....Tailoring Your Approach to Consumers in Different Countries
Bottom
Line: Appealing to the cultural and economic specifics of a foreign
market is the key to getting consumers to shop more frequently and spend more.
In an
era when having a global presence is vitally important, mounting evidence suggests that companies that expand into foreign
countries need to adjust their operations and products to account for cultural
differences. A nation’s culture informs how consumers perceive products,
when and where they shop, and how much they’re willing to spend. Deeply
ingrained cultural viewpoints and customs also influence individuals’
inclination to embrace innovative products, trust foreign brands, and rely on
word of mouth.
The
Dutch clothing retailer C&A provides a cautionary tale: After having a British presence for more than half a
century, the firm had to shutter all its stores in the U.K. in 2000 as a result
of having standardized its apparel in 1997. In effect, it refused to bend to
particular cultural idiosyncrasies, and the taste of U.K. consumers clashed too
markedly with the preferences of the rest of continental Europe for sales to
flourish.
A
new study empirically examines how the cultures and economies
of different countries affect the frequency of consumer purchases and how much
money shoppers contribute to a multinational firm’s revenue. The authors use a
recently developed metric called customer lifetime value (CLV) to measure and
predict the profitability of consumers who reside in different countries.
Since
its introduction, the CLV metric has been applied to companies operating in
several industries, including catalog retailers, newspaper subscription services, on-demand streaming media platforms, and IT and consulting. To compute CLV, a company measures how often a customer
makes a purchase and compares how much he or she spends to the marketing costs
incurred by the firm.
Using data from a global fashion retailer
with a presence in multiple countries, the authors analyzed consumer-level
transaction data for a random group of 30,000 customers in 30 countries from
2008 through 2013. The nations in the study represented many cultures and
stages of economic development. The data set gave the authors access to
customers’ demographic backgrounds, shopping behavior, and participation in
loyalty card programs, as well as the types of products they bought and the
returns they made. The firm also provided information on its advertising costs,
including campaigns for email, telephone, and catalogs.
The
researchers further applied a framework that breaks down national culture according to
several factors, including the importance of individualism and collectivism,
the likelihood that consumers will avoid or make risky purchases, and the level
of indulgence or restraint embedded in a particular society. The model also
accounts for national differences in the types of products and services people
buy most, their degree of loyalty to brands they know, their tendency to
embrace new technologies, and their use of media.
By combining these sources of data on
consumer spending habits and countries’ societal and economic characteristics,
the authors discovered several interesting wrinkles that marketers should
consider when targeting foreign consumers.
For example, consumers in countries that rank
high on individualism — societies such as the U.S. and Australia, in which
people strive to stand out from the crowd and in which they think primarily of
themselves when buying products — tend to be far more likely to shop in various
channels (retail stores, online, and catalog) and return items that don’t meet
their expectations. Because they’re generally more interested in chasing the
latest trend than staying true to a particular brand, however, they hop from
store to store (or website to website) to find the best deal; as a result,
loyalty cards are far less effective than they are elsewhere in getting
customers to shop repeatedly with a specific company. This suggests that firms
operating in individualist nations should allocate resources there to improving
their multichannel approach, implement a lenient return policy, and minimize
rewards programs.
In contrast, in collectivist countries such
as Portugal, Mexico, and Turkey, people tend to follow the wisdom of crowds and
value a product or brand’s long-term reputation, rather than its novelty.
Consumers in these countries typically buy things for their families rather
than just for themselves. As a result, the authors found, they are more likely
to buy multiple items from different departments of a trusted retailer, and
they like to see or feel the products in person, eschewing catalogs and the
Internet. In these ways, they’re remarkably similar to consumers in “indulgent”
societies, which tend to be found in North and South America and Western
Europe, who seek the instant gratification that comes from experiencing or
testing an item in a store and who enjoy the freedom of trying out a wide range
of products.
Indeed,
the authors provide several equations — which are a bit too technical to lay
out here, but which can be found in the full version of the paper — that should enable managers to calculate the relative
importance of the various factors that drive foreign consumers’ purchase
frequency and contribution to their company’s revenue.
The overall takeaway, however, is that firms
must analyze several aspects of a country’s culture and not adopt a one-size-fits-all
strategy or an inflexible approach. For instance, managers might expect
consumers in China to buy products more frequently than those in other
countries, via different channels, because of their relatively high level of
disposable income and widespread tech adoption. But as the researchers point
out, China has a predominantly collectivist culture, which dampens enthusiasm
for trying out untested products or shopping in nontraditional ways.
“Therefore, even if firms plan to invest
across channels because of a growing economy or increased Internet usage, this
strategy might not work because of the differential behavior of consumers,” the
authors write.
Source: “National Culture,
Economy, and Customer Lifetime Value: Assessing the Relative Impact of the
Drivers of Customer Lifetime Value for a Global Retailer,” by V. Kumar and Anita Pansari (both of Georgia State
University),Journal of International Marketing, March 2016, vol. 24, no.
1
Matt Palmquist
Matt
Palmquist is a freelance business journalist based in Oakland, Calif.
http://www.strategy-business.com/blog/Tailoring-Your-Approach-to-Consumers-in-Different-Countries?gko=bcea6
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