One of the important decisions to be made in international business is the market coverage strategy. Like other strategic decisions, this is also determined by consideration of external and internal factors.
A company should decide whether it should concentrate on one or a few markets or should spread over all the markets (or the major part of it). If it decides for all the markets then it has to take the next decision whether the whole market be reached with a single marketing mix or whether each of the different markets be reached with a separate marketing mix.
There are, thus, three alternate market coverage strategies namely,
1. Concentrated marketing strategy
2. Undifferentiated marketing strategy
3. Differentiated marketing strategy.
The concentrated marketing approach is based on a decision to achieve a maximum penetration in one or more segments to the exclusion of the rest of the market. Instead of spreading itself thinly in many parts of the world, it decides to concentrate its forces on a few clearly defined areas. The company may be able to attain a strong position in this market by concentrating its resources and competencies over it. As Stanton observes, a small firm limited resources might compete effectively in one or two market segments, whereas the same firm would be buried if it aimed for the market. By employing the strategy of market segmentation, a company can design products that really match the markets demands.
Companies with ethnocentric may sometimes adopt a concentrated marketing strategy in respect of the foreign markets by the product extension strategy, i.e. the company may concentrate on those foreign market / markets or segments where it can sell the same products as sold in the home market.
Concentrated marketing may sometimes go well with polycentric orientation also.
The advantages of concentrated marketing have already been indicated above. The major disadvantages of it are the risks of keeping all the eggs in one basket.
The concentrated marketing strategy sometimes takes the form of niche marketing i.e. concentrating on a market segment that is not satisfactorily served or which is ignored by the major players. Such a strategy avoids a direct and immediate competition with major firms. There may also be niche markets with virtually no competition.
Market niching is a strategy very successfully employed by many Japanese companies in the foreign market. This was in fact a foreign market entry strategy resorted to in the past by several large Japanese companies of today. After consolidating its position in the niche market and after gaining experience and resources, a company may enter other segments and may even become a major player in due course.
A number of Indian companies have also niching as a foreign entry strategy. For example, in the US toothpaste market, dominated by large multinationals, Balsara identified a niche for a herbal dental product. Similarly the Vicco identified a niche in the overseas market for a sugar free toothpaste (ViccoSF). Several Indian companies have found a niche in the ethnic population abroad.
Iin many cases the nicher achieves high margin whereas the mass marketer achieves a high volume. The main reason is that the market nicher ends up knowing the target customer group so well that it meets their needs better than other firms that are casually selling to this niche. As a result, the nicher can charge a substantial mark up over costs because of added value.
While selecting a niche, the firm should ensure that:
1. The niche should be of sufficient size to be profitable and it has growth potential.
2. There is no much competition and that it is not of interest to major competitors.
3. The firm has the capabilities to serve the segments so well that it will have an edge over other firms.
4. The firm will be capable of defending its domain.
Nichers have three tasks: creating niches, expanding niches and protecting niches.
When a niche proves to be very profitable it is likely to attract a lot of competition both from small and large firms. A nicher should, therefore, try to maintain its dominance by innovation and maximum customer satisfaction.
Niching has become so popular that many large firms are adopting this strategy. A number of them like Johnson & Johnson, EG &G and Illinois Tool works have set up business units or companies to serve niches.