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.
Firms must analyze several aspects of a country’s culture and not adopt a one-size-fits-all strategy.
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