Reading week 6

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Nov 24, 2024

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Week 6 The benefits of standardizing vs. adapting a product need to be weighed A recurrent theme in global marketing is whether companies should aim for a standardized or country tailored product strategy. Standardization means offering a uniform product on a regional or worldwide basis. A uniform product policy capitalizes on the commonalities in customers’ needs across countries. The goal is to minimize cost. (may lead to lower prices) The process of changing the products in those areas where the firm has no discretion is known as localization. (food requirement, safety). Adaptation or customization refers to changes made to suit local customer tastes (flavor) and preferences (packaging forms and sizes). Standardization has a product-driven orientation – economies of scale via large scale manufacturing and or marketing – customization is inspired by a market-driven mindset. (It increase customer satisfaction by adapting your products to local needs and preferences) Forces that favor a standardized product strategy: 1) Common customer needs. For many product categories, consumer needs are very similar across countries. (suitcase, courier services, bags and watches). 2) Global customers In business-to-business marketing, the shift toward globalization means that a significant part of the business of many companies comes from Multinational corporations that are essentially global customers. 3) Scale economies Cost savings from scale economies. Sourcing efficiencies + lower R&D 4) Time to market In scores of industries, being innovative is not enough to be competitive. Companies must also seek ways to shorten the time to bring new product projects to the market. (especially true with short life cycle product). 5) Regional Market agreements. Ex: single European market encourages companies to launch regional products or redesign existing products as pan-regional brands.

Forces that push toward product adaptation include: 1) Consumer preferences By tailoring its products or service to local preferences, a firm does a better job of satisfying its local customers. Ex: Oreo (less sugar or taste) 2) Cultural differences 3) Strong local competitors In markets with strong local players, the pressure to customize products is usually intense. If companies fail to adapt their products, local consumers are likely to favor local brands that are more in line with their preferences. 4) Managerial motivation One challenge multinationals face is keeping highly talented local managers. 5) Environmental conditions Local circumstances (climate and infrastructure) are another factor that can encourage companies to adapt their products or services. Are the costs of adaptation worth it? § To assess whether the extra costs of adapting a product to a local market would be “worth it,” an incremental break-even analysis can be useful § This analysis tells you how many additional units you would have to sell to make the costs of adaptation worthwhile. IBEA is centers around the question: what should be the extra sales to justify the costs of adapting the product or service for the host market? Profit in Brazil under standardization = (price – VC) x sales – FC Under customization add: -Fixed Adaptation costs. Modular product design: the best of both worlds The issue should not be a phrased as an either-or-dilemma. Instead, product managers should look at it in terms of degree of customization. A modular product design strategy is a strategy that allows firms to modify their products while keeping many of the benefits flowing from a uniform product policy. ( EX: LEGO) One variation of the modular approach is the core product design strategy. This approach starts with the design of a mostly uniform core product or platform. Attachments are added to the core product to match local market needs. Savings are mainly achieved by standardizing the core product, leading to lower production and sourcing costs. In many cases it also lead to reduced production cycle times.

The balancing act between standardization and adaption is very tricky. One scholar describes over standardization as one of the five pitfalls global markets could run into. Too much standardization stifles initiative and experimentation at the local subsidiary level. However, one should not forget that there is also a risk of over customization. By adapting too much to the local market conditions, an import runs the risk of losing that cachet and simply becoming a me-too brand, barely differentiated from local brand. Sometimes product innovation (rather than adaptation) is necessary Developing new products is a time-consuming and costly endeavor, with tremendous challenges. Identifying new product ideas Companies can tap into any of the so-called 4 Cs: company, customers, competition and collaborators (distribution channels and suppliers). Obviously, many successful new products originally started at the R&D labs. Other internal sources include sales-people, employees, and market researchers. Screening Clearly not all new product ideas are winners. Once new product ideas have been identified, they need to be screened. The filtering process can take the form of a formal scoring model. According to the NewProd model, the most important success factor is product advantage (superiority to competing products, higher quality, and unique features, followed by a good fit between the project requirements and the company’s resources/skills and customer needs. 1) Competitive activity was negatively correlated with new product success. 2) Being first in the market (pioneer entry) was an important success factor 3) Product ideas derived from the market place were much more likely to be successful than ideas that came from technical work or in-house labs. - Consumer acceptance is greater when the product is introduced by a brand with more market power and when marketed as a brand extension. - There is a U-shaped relation between newness and consumer acceptance. Products with incremental or major newness are more successful than products of medium newness. - New product acceptance is also highly influenced by the competitive environment; it is higher in less concentrated, less heavily promoted, and less advertised categories with more intense innovation rivalry. - Competitive conduct (price competition), however is more important than competitive structure (market concentration). Further, the firm’s brand reputation and product newness can buffer against negative competitive effects.

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- Consumer characteristics also matter : acceptance is higher among consumers who are more predisposed to buy new products, younger consumers, and larger households. Concept testing Once the merits of a new product idea have been established in the previous stage, it must be translated into a product concept. A product concept is a fairly detailed description, verbally or sometimes visually, of the new product or service. To assess the appeal of the product concept, companies often rely on focus group discussions. Test Marketing Test marketing is essentially a field experiment where the new product is marketed in a select set of cities to assess its sales potential and score of other performance measures. It allows them to make fairly accurate projections of the market share, sales volume and penetration of the new product. Despite these merits, test markets also have several shortcomings. They are typically very time-consuming and costly. Apart from the direct costs of running the test markets, there is also the OC of lost sales that the company would have achieved during the test market period in case of a successful global rollout. It may be difficult to replicate test market conditions with the final rollout. Finally, there is also a strategic concern; test markets might alert your competitors and thereby them to preempt you. Another route that is often taken is to rely on the sales performance of the product in one country, the lead market, to project sales figures in other countries that are considered for a launching decisions. In a sense, an entire country is used as one big test market. Truly Global Market DVLP Far fewer are those companies that have managed to set up a truly global product development process (GDP) that transcends local clusters. Such companies use a network of cross-functional product dvlp teams spread across the globe. The benefits of GDP include greater engineering efficiently, access to tech expertise that is distributed internationally, design of products for more global markets and more flexible product dvlp resource allocation.  mentanational innovators. Traditionally, multinationals doing business in emerging markets should adapt global products for local tastes and budgets before introducing them in these countries. These days, companies usually established ICs in their largest markets, including the big emerging markets such as China and India.

BOP or No BOP ? Choosing the right targe market is one of the key strategic issues. The bottom of the pyramid, BOP, is defined as the 4 billion people living on less than $2.5 per day. Benefits of targeting BOP : 1) Some BOP markets are large and attractive as stand-alone entities. 2) Innovations dvlp for a BOP segments in one particular region can be leveraged in other markets, thereby creating a global opp for such innovations. 3) Some innovations that originate in BOP markets can also be launched in the MNC’s developed markets. 4) Learning experience. To excel in marketing to BOP consumers, a company needs to come up with a business model that: 1) Meets the needs and wants of these consumers 2) At a price they can afford 3) While still generating decent profits for the company Low income consumers have similar perceptions and needs as their richer neigbors. They are often attracted to international brands due to their perceived quality image. Given the low incomes in most Ems, such finely refined level of segmentation is not effective. Product Innovation Often, when first entering an EM, the multinational is reluctant to adapt its product offerings to the host market. One approach MNCs sometimes adopt is known as backward or reverse innovation: offer stripped-down version of the product that is sold in developed markets. These products are mostly appliances and electronics designed in Japan, but with fewer features and modified slightly for local customers. The line targeted upper-middle-income consumers in fast-growing developing countries. Once fallacy is the belief that products that are at or near maturity in the developed markets could act as anchors for the product policy in EMs. The underlying motivation is that the market conditions that prevailed in the developed countries when these products were first introduced are similar to the ones that exist now in the EMs. Frugal innovation: strategy that aims to address the paradox of doing more with less. The latest trend is that several innovations originally developed for EMs find an audience in the West. Article how Apple in Africa https://www.cnn.com/2018/10/10/tech/tecno-phones-africa/index.html

Adoption of new products in international markets The speed and pattern of market penetration for a given product innovation can differ enormously between markets. It is not uncommon for new products that were phenomenally successful in other country or region turn out to be flops in other markets. In general, 3 types of factoes drive the adoption rate of new products : individual differences, personal influences and product characteristics. 1) Relative advantage. 2) Compatibility 3) Complexity 4) Triability 5) Observability Communication leading to the transfer of ideas tends to be easier when it happens between individuals who have similar cultural mindset. There will be lead countries, where it is introduced first, and lag countries that are entered late. Generally, adoption rates seem to be higher in lag countries than in the lead country. Cosmopolitans are people who look beyond their immediate social surondings, while locals are oriented more toward their immediate social system. The more cosmopolitain the country’s population is, the higher its propensity for innovation. The second country trait is labeled mobility. Mobility is the ease with which members of a social system can move around and interact with other members. The % of women in the labor forces impacts the spread of certain types of innovation. Drivers of adoption : 1) Affordability 2) Convenience and ease 3) Brand power 4) Novelty and visibility 5) Family friendly One useful metric to characterize the takeoff of new products is the time-to-takeoff, that is, the period from the launch of the new product in a particular country market to the takeoff. Takeoff marks the turning point between the introduction and the growth stages of the product life cycle. 1) Time to takeoff is declining over the years

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2) Country differences are strong 3) Both economic dvlp and cultural differences explain cross-country variations in time-to-takeoff 4) Takeoff for fun products is much faster than the product for work ( kitchen appliance) 5) The % of takeoff in a target country increases with previous takeoffs in other countries Strategies to launch a new product globally Waterfall and the sprinkler model. The first option is the global phased rollout or the waterfall model, where the company releases the new product stage-wise in its different country markets. The typical patterns is to introduce the new product first in the company’s home market. Next, the innovation is launched in other advanced markets. In the final phase, the multinational firm markets the product in less advanced countries. Process may last several decades. The prime motive for the waterfall model is that adaptations of the marketing strategy for the host market can be very time-consuming. A phased rollout is also less demanding on company resources. Sprinkler strategy : all at once Preferable when : 1) The lifecycle of the product is relatively long 2) Nonfavorable conditions govern the foreign market such as § Small market size § Small growth § High FC of entry 3) The host country market has a weak competitive climate because of such thing as § Very weak local competitors § Competitors willing to cooperate § No competitors If a country wishes to launch the product in an innovative and large market, the best countries would be Japan or US However, if a company wishes to test market the product in a small, highly innovative country, the best choice would be one of the Scandinavian countries, Suisse or Pays bas, ou Corree du Sud. International product mix scenarios § Same as in domestic market § Subset of the mix in the domestic market § Mix of non-local and local product lines § Fully localized product lines

Managing your international product mix Most companies sell a wide assortment of products. The product assortment is usually described on two dimensions: the width and the length of the product mix. The first dimension – width – refers to the collection of different product lines marketed by the firm. The second dimension – length- refers to the number of different items that the company sells within a given product line. The product mix In the host country could be : 1) An extension of the domestic line 2) A subset of the home market’s product line 3) A mixture of local and nonlocal product lines 4) A completely localized line. Small firms with a narrow product assortment usually simply extend their domestic product line. Most MNC have a product mix partially global and local. Several drivers impact the composition of a firm’s international product line. We briefly discuss the key factors: Customer Preference: In many product categories, consumer preferences may vary from country to country. Especially for Consumer pack goods, preferences of Still very localized. Marketers may add certain items to the individual country’s or region product line or fine- tune line. Price Spectrum In EM, companies often compete across the price spectrum by offering premium and budget products. Competitive climate Difference in the competitive environment often explain why a company offers certain product lines in some countries but not in others. Organizational structure Especially in MNC that are organized on a country-by-country basis, product lined may evolve to a large degree independently in the different countries History So far we’ve focused on products , but there are additional considerations for services To compete in foreign markets, service firms resort to a plethora of different strategies.

Capitalize on cultural forces in the host markets Standardize and Customize Central Role of information technology (IT) Add value by differentiation Establish global service networks Web-based Marketing services : The internet heralds changes in the marketing of international services. Services differ from goods in four respects : Intangibility Simultaneity Heterogeneity Perishability Simultaneity refers to the fact that services that are typically produced and consumer at the same time. The Web also offers solutins to overcome the simultaneity issue. The fact that services in general need to be manufactured at the point of sale makes mass production difficult. 2 important price-related areas : price transparency + group buying The internet creates price transparency for customers and distributors alike by opening a window on a company’s prices for a particular item around the world. First and foremost, It severely impairs the firm’s availability to price discriminate between countries. Price transparency might undermine consumers’ brand loyalties and make them more price conscious. + may also raise question about price unfairness

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