Market Segmentation Strategies for Business Growth

This assignment requires students to analyze market segmentation strategies and their importance in business growth. Students need to identify different types of market segmentation, explain the concept of PESTLE analysis, and provide examples of market segmentation in various industries. The assignment also asks students to reference relevant books and journals on the topic.

Strategic Marketing

EXECUTIVE SUMMARY
This study covers Strategies of marketing to gain competitive advantage that is achieved by
various strategies like focusing on smaller segment ,differentiating companies product with
other and cost leadership. There are various things that can be found out from the study like
economical and political condition of Iceland , legal and technological environment of Iceland
are identified . Social factors of business environment are analysed that has make this study more
practical rather than theoretical. Also a briefing is done on market entry option from that it can
be identified that any organisation which has to enter new market have different options like a
firm can enter in new market through merger and acquisition by increasing its scale of business ,
through licensing by allowing licence to licensee or through outsourcing by taking contract from
outside supplier.

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................2
INTRODUCTION...........................................................................................................................1
PESTLE ..........................................................................................................................................1
MARKET ENTRY OPTIONS .......................................................................................................3
MARKET SEGMENTATION........................................................................................................6
PORTER'S GENERIC STRATEGY...............................................................................................7
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Strategic marketing defined as company's capability to introduce such a strategy or
product in the market that makes it different from others or competitors to gain competitive
advantage, so that it can offer something better than its competitors. The present study is about
McDonald which is an American company offer fast food worldwide in most of the
countries .thus this study is about McDonald is launching its branch in Iceland and initially
decided to offer Apple pie to its customers. A detailed study is done on PESTLE analysis of
business environment of Iceland. A briefing is done on market entry option in the target market
that is markets of Iceland also market segmentation is explained in detail along with target
customers. In addition to this, strategic marketing is explained with porter's generic strategies
which makes a company's product different from others, it includes cost leadership, focus on
target market and differentiation.(Cooke, Freisthler and Mulholland, 2018).
PESTLE
Here PESTLE analysis of business environment of Iceland is done for introducing its fast
food product and initially it is offering apple pie so it is necessary to analyse each factor of
macro environment to identify its negative and positive aspects of the business environment.
Political environment -If government interference is more in business of Iceland then it
will be difficult for McDonald to introduce its product. For ex. If government of Iceland
increases tax revenue then price of the apple pie will increase and customer will move to another
food shops also changing trade policies like increase in restriction on import ,restriction on
liberalisation will stop McDonald to open its branch in Iceland. On the other hand if government
of Iceland have liberal trade policies then it will not suffer from trade restriction and can boost its
sale in the market of Iceland and also if it decreases its tax revenue, it would be easy for
McDonald to target customers.(Cooke, Freisthler and Mulholland, 2018).
Furthermore, if there is involvement of corrupted political parties with the substitute
firms of McDonald which can stop it to enter into markets of Iceland on the other hand if there is
less possibility of having firm joined with corrupted political parties and having lawful business
environment then McDonald can launch its product without any hesitation.
Economic factors-Economic factors of business environment of Iceland includes interest
rate, economic growth, deflation rate, income of the consumer, unemployment rate etc. if
economy of Iceland is suffering from increase in inflation rate then there will be an increase in
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prices of product which will lead to increase in the price of food items of McDonald , (Daniel
and et.al., 2018).That will make it difficult to open its branch in Iceland on the other hand if there
no inflation in the economy, is stable then prices will remain stable ,ultimately McDonald can
take advantage of stabled economy.
Social factors- Norms, values, culture, attitude, demographics, lifestyle is an important
part of every society where an organisation is carrying its business operation. If people of Iceland
have perception that Apple pie is not good for health and it can increase obesity as it contains
refined flour then McDonald can not offer its product in the market of Iceland on the other hand
if they had positive attitude towards fast food it becomes easy for McDonald to introduce its
branch in Iceland also age distribution affects the business environment of Iceland if major
population is above 40 or 50 years then McDonald can not generate more revenue as people
above 40 are more health concious on the other hand if it has large population of children and
adults below 25 or 30 who are nowadays attracted towards fast food then McDonald can increase
its revenue in the markets of Iceland.(Daniel and et.al., 2018).
Technological Factors- Nowadays in every business area there is an increase in need of
innovation, automation and newness , every field of business require research and development
to get into touch with new things. So the more automation McDonald has in its business
operation the faster it can serve to its customer. If its food is prepared by chefs rather than using
machines it will decrease the speed of offering food to customer that will throw negative image
of its customer service in the eyes of customers(Danso, A. and et.al., 2019). On the other hand
McDonald here is launching apple pie initially , so it should have to maintain quality of its
product along with adding new things into it to change its taste time to time because people like
to prefer new taste and new thing with the passage of time. (Ernst and Dolnicar, 2018).
Environmental factors – There are various environmental factors that can affect
business environment of Iceland such as climate, weather, global warming, pollution etc. If
McDonald is using such an ingredient in its food that can harm human body then it can not
survive in long run, on the other hand if it is using healthy stuff in its food items then it means it
is contributing in CSR activity and it can survive in long run in new markets of Iceland. Another
factor can be climate , temperature of Iceland is mostly low that can become hurdle in
transportation of raw material of preparing food and other ancillaries of McDonald in winters
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also there are chances of snow storms that can restrict McDonald to stop its services for the
couple of days.(Danso and et.al., 2019).
Legal factors- Any organisation carrying a business in any of the geographical region
have to abide by some rules and regulation. Similarly, if McDonald wants to carry its business in
Iceland have to follow rules and orders given by government and court respectively. There are
laws regarding patent right, copyright, consumer protection which every company has to follow
. If McDonald does not follow those rules then it will not be able to carry its business in Iceland.
Also, if it is doing any unfair trade practice, hoarding or any unethical activity then it can be
banned by the government of Iceland (Gray, 2018).
MARKET ENTRY OPTIONS
Strategic alliances are very common and the most effective ways to bring the two or more
companies potential together and use the scare resources. Strategic alliances is a agreement
between parties willing to expand there business enterprises which agree upon the companies
objective and bind through legal partnership entity, agency or corporate affiliation come together
to share their assets and evaluating their best use(Gray, 2018). Not only companies are
interested in assets but also consolidate to share expertise, technological support and also the
skilled personnels. As McDonald is planning to enter into Iceland, it has various options through
which enterprise can meet with its expansion goal.
The major strategic alliances are as follows-
11 Merger and acquisition11 Foreign Direct Investment11 Franchising11 Licensing11 Outsourcing
1.Merger and acquisition-
Merger is the process by which two companies merge together to become a single entity
which includes consolidation of assets and liabilities. The two merging company have a legal
agreement sharing their assets, techniques, labour, capital. There is purchase of assets and
management by the purchasing company of McDonald. (Horstmann and Markusen, 2018).
Advantage-
 Merger and acquisition improves market reach and industry visibility.
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 Merger gives the McDonald an advantage to become stable and earn the least minimum
profit.
Disadvantage-
 There can be some factors from any of the company which can have adverse effect on the
merging companies.
 The purchasing company that is McDonald can have reduction in goodwill by acquiring
sick company.
2.Foreign Direct Investment-
FDI is the form of strategic alliance in which a company invest in the foreign companies.
The FDI can be done in McDonald through investing the capital in the another company in
Iceland and also by providing management and technological support to them.(Horstmann and
Markusen, 2018).
Advantage-
 by investing in Iceland there is same production cost to the company and the increased
sale rate.
 With the flow of technological support from McDonald there can be technological
advancement in the new company.
Disadvantage-
 The fund invested by McDonald ,if not used effectively can be wasted and company may
suffer loss.
 In case of subsidiary and holding company the major control goes in the hands of holding
company.
3.Franchising-
Franchising is a marketing strategy by which one company licences the other company there
technical know-how, procedures, intellectual property, brand and rights to sale its branded
product and services.(Liu and et.al., 2019.)
Advantage-
 As the McDonald company have to bear a low cost of opening a new store in Iceland
through franchising.
 The liabilities risk for the McDonald is lower in this alliance.
Disadvantage-
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 As the franchising company is new to the business there is a risk for the McDonald
company for the quality and consistency of his product.
 The distance between the companies make it difficult for the McDonald to have a check
on working of the franchising company(Liu and et.al., 2019).
4.Licensing -
Licensing is an agreement between two parties for use of ones intellectual property by renting or
leasing their property. Licensing includes the use of patents, inventions, ideas,
processes ,copyrights and trademarks of McDonald.
Advantage-
 When in some countries there are barriers to invest in the foreign market the licensing is
the effective way to invest in Iceland.
 It helps in establishing the business overseas by providing capital.
Disadvantage-
 After licensing agreement there is no control on the product and services usage and
control over know how is lost in Iceland(Liu and et.al., 2019).
 McDonald losses control over the marketing strategy and manufacturing process.
5.Outsourcing-
Outsourcing is the delegation of the work to some outsider which work for another
company. Outsourcing involves operational and manufacturing facilities.
Advantage-
 Outsourcing helps in focusing on core functions of McDonald.
 There is scope of new ideas and skills by outsourcing.
Disadvantage-
 The outsourcing company can lose control over the outsourced work
 McDonald can lose its sensitive data. As the part of the company data is to be shared to
the outsourced company.
McDonald should adopt the franchising strategic alliance as it is a effective way to
combine with the new opportunities and developing the company beyond the countries
boundaries. McDonald can franchise its store to another company in Iceland so that there can be
expansion of its business. Through franchising McDonald can open a new store in Iceland with
low cost of establishment also through franchising there will not be any necessity to study and
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evaluate the surroundings in which the store is to be opened, the franchising company is very
well known about the surroundings work environment and the customer's behaviour of Iceland.
McDonald will have low risk of being liable for the various liabilities which are usually
complementary to the enterprises. The liabilities and the expenses are to be borne by the
franchising company in Iceland(O’Hare, Stewart and McColl, 2018).Franchising may open the
door to the Iceland where McDonald company could not reach on own on, franchising creates as
base for the company. McDonald has to provide the technical, know-how, policies and
procedures also the infrastructure details of its previous running stores so that the new store will
also provide with the same services.
MARKET SEGMENTATION
Market segmentation can be defined as dividing a large market into smaller segments
based on different factors like age , occupation , income , education level, geographical condition
etc. These segments have those potential customers having similar response towards product and
strategies of a company and this segment of potential consumer is known as target market.
Types of market segmentation
Customer can be targeted on the basis of different types of segments which are as follows-
 Geographic segmentation- It is the subset of demographics, in this market segmentation
is done on the basis of geographical boundaries , as customers have needs and
preferences according to their geographical location as every geographical location have
different climate .the climate of Iceland is mostly cold so people there prefer to eat hot
stuff so McDonald can introduce its products in Iceland easily.(O’Hare, Stewart and
McColl, 2018).
 Demographic segmentation- Market segmentation can also done on the basis of
demographics like nationality , size, race , income, education knowledge etc. If people of
Iceland is willing to spend more in food items then it can be a good sign for McDonald to
offer its food in Iceland. If people in Iceland having full knowledge about company and
its product and on the other hand McDonald has a good brand image then consumer will
attract towards its outlet(O’Hare, Stewart and McColl, 2018).
 Firmographic segmentation- Firmographic is similar as demographic the single
difference is that demographic looks at individual and firmographic looks at organisation
it includes things like size of the company , number of the employees etc. McDonald can
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initially start its work on small scale in Iceland but subsequently it can increase its
business as per increase in demand of potential consumers, because every business
involved risk and here McDonald is introducing new branch in Iceland, a new country
for McDonald, so it involves more risk even if it has a good brand image.
 Behavioural segmentation- As per this segmentation market is segmented according to
behaviour and decision making power of the consumer(Racz and et.al., 2018). For ex. if
decision in families in Iceland are not taken by parents and they are allowing their
children to eat fast food, then McDonald can do market segmentation by considering this
behaviour pattern and decision making.
 Psychographic segmentation- This segmentation is based on personality , lifestyle ,
opinion and values . Large market like McDonald can use psychographic segmentation
by sorting its customers categories of people who loves eating fast food.
PORTER'S GENERIC STRATEGY
Michel Porter has given three strategies to gain competitive advantage. Competitive
advantage means company is offering a unique product or strategy so that its competitor can not
copy its product because of product's uniqueness or it can be defined as addition of value to a
product so that customers can be influenced to purchase its product instead of competitor's.(Racz
and et.al., 2018).
 Cost leadership – Strategy in which company aims at achieving the lowest cost of the
product in the market with maintaining its quality, this strategy is important because
every organisation wants to increase its profit and at the same time wants to reduce its
cost.This strategy needs more cooperation between functional areas of business. To
become a lowest cost producer, a company needs to gain higher level of productivity,
optimum utilisation of capacity, using bargaining power to negotiate prices to purchase
raw material, using lean production method, using effective technology in the process of
production. If a firm is making optimum utilisation of its capacity and human resource
then it will reduce wastage of resources that can ultimately reduce the cost of firm. Also
if firm has bargaining power to negotiate the lowest price at the time of purchasing raw
material then it can reduce price of its product(Racz and et.al., 2018).
 Focus- Here focus means targeting particular small segment of the market, this
segmentation can be based on two criteria that is Cost and Differentiation. Here in Cost
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focus, strategy is to seek lower cost advantage in small segment. On the other hand in
Differentiation focus best suited for McDonald as it is introducing its product in new
country and can do trial in smaller segment of Iceland so that any mishap can not damage
its strategies in whole market, and it can take initial feedback from its customers and can
improve its subsequent strategies (Widya Yudha, Tjahjono and Kolios, 2018).
 Differentiation Leadership- In this business targets larger market to gain competitive
advantage through value added product across larger segment. This strategy includes
capturing two three criteria that customer uses in the market and positioning the business
uniquely to meet those criteria and then charging premium price for that product.
There are several methods in which firm can achieve differentiation leadership like superior
product quality, branding that is strong customer recognition and brand quality, industry wide
distribution across all major channels and consistent promotional support like advertising and
sponsorship etc. this strategy is only suitable for companies which offer premium brands like
Mercedes, Apple etc.(Thun, 2018).
CONCLUSION
As per the above studies McDonald concentrates upon the political and economic
conditions of the country Iceland. If there are any political disputes and economic crises in
Iceland it can adversely effect the new McDonald store in Iceland. Further we have observed that
McDonald can opt for the contractual and franchising market entry modes to enter in the
competitive market of Iceland as it is safe to invest through the local parties of Iceland. As the
McDonald is based on food serving it includes behaviour and interest of the consumer so
McDonald can study the behaviour segmentation to keep the sale going and increase as per the
consumer needs.(Market Segmentation Different Types Explained,2019).
Furthermore, McDonald should initially focus on the cost leadership Generic strategies
which ensures that the cost of the final product contain low manufacturing cost which in turn will
make the product cheap for the customers grabbing the large amount of consumers in Iceland.
REFERENCES
Books and journals
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Cooke, A., Freisthler, B. and Mulholland, E., 2018. Examination of market segmentation among
medical marijuana dispensaries. Substance use & misuse. 53(9). pp.1463-1467.
Daniel, G. W. and et.al., 2018. Implementation of a Market Entry Reward within the United
States. The Journal of Law, Medicine & Ethics.46(1_suppl). pp.50-58.
Danso, A. and et.al., 2019. Environmental sustainability orientation, competitive strategy and
financial performance.Business Strategy and the Environment.
Ernst, D. and Dolnicar, S., 2018. How to avoid random market segmentation solutions. Journal
of Travel Research. 57(1). pp.69-82.
Farronato, C. and Fradkin, A., 2018. The welfare effects of peer entry in the accommodation
market: The case of airbnb(No. w24361). National Bureau of Economic Research.
Gray, A., 2018. NCR Manufacturing: Challenging Michael Porter’s generic strategy theories.
In The Game Changer (pp. 17-38). Routledge.
Horstmann, I. J. and Markusen, J. R., 2018. Learning to sell in new markets: A preliminary
analysis of market entry by a multinational firm. Review of International Economics. 26(5).
pp.1040-1052.
Liu, J. and et.al., 2019. Market segmentation: A multiple criteria approach combining preference
analysis and segmentation decision. Omega. 83. pp.1-13.
O’Hare, N., Stewart, A. and McColl, J., 2018. Identifying the unique characteristics of
independent fashion retailers in Scotland by utilizing Porter’s generic competitive strategy
model and the marketing mix.
Racz, L. and et.al., 2018. Extensive comparison of biodiesel production alternatives with life
cycle, PESTLE and multi-criteria decision analyses. Clean Technologies and
Environmental Policy.20(9). pp.2013-2024.
Thun, E., 2018. Innovation at the middle of the pyramid: State policy, market segmentation, and
the Chinese automotive sector. Technovation. 70. pp.7-19.
Widya Yudha, S., Tjahjono, B. and Kolios, A., 2018. A PESTLE policy mapping and
stakeholder analysis of Indonesia’s fossil fuel energy industry. Energies. 11(5). p.1272.
Zahari, A. R. and Romli, F. I., 2018. Analysis of suborbital flight operation using
PESTLE. Journal of Atmospheric and Solar-Terrestrial Physics.
Online
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Market Segmentation Different Types Explained.2019.[Online].Available
through<https://www.qualtrics.com/experience-management/brand/what-is-market-
segmentation/>
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