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Products and Services for Consumers

McGraw-Hill/IrwinInternational Marketing, 13/e

© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.

Chapter

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Chapter Learning Objectives

• The importance of offering a product suitable for the intended market

• The relationship between product acceptance and the market into which it is introduced

• The importance of quality and how quality is defined• Country-of-origin effects on product image• Physical, mandatory, and cultural requirements for product

adaptation• The need to view all attributes of a product in order to overcome

resistance to acceptance

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Global PerspectiveHong Kong – Disney Rolls the Dice Again

• Tokyo Disneyland – successful – Modest money through licensing• EuroDisney 1992 – disaster – bigger share and greater control• Hong Kong Disneyland 2006 – 80% Government investement• The opportunities and challenges for international marketers of

consumer goods and services today is great and diverse.• Lack of distinction between products and services led to new terms

- Market offerings- Business-to-consumer marketing

• Domestic vs. Multi-domestic “which product/service to sell?”• Quality products and services that meet the needs and wants of

consumers at an affordable price should be the goal of any marketing firm.

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Quality

• The power in the marketplace is shifting from a sellers’ to a customer’s market (more competition and more choices)

• Increased customer knowledge – the cheapest & highest quality• The customer defines quality• The cost and quality of a product are among the most important

criteria by which purchases are made

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Quality Defined

• Quality can be defined on two dimensions:- Market-perceived quality- Performance quality

• e.g. airline’s delivery of quality ( quality conformance - safe flight& landing vs. cost, seating , check-in, staff performance etc.)

• Most consumers expect performance quality to be a given• When all products meet performance quality, the chosen product is

the one that meets market perceived quality attributes.• In many industries quality is measured by objective third parties

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Maintaining Quality

• Damage in the distribution chain for many global brands where production is distant from the market and control is lost

- Russian Red October chocolate vs. foreign brands.

• Quality is not just desirable, it is essential for success in today’s competitive global market

• The decision to standardize or adapt a product is crucial in delivering quality

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Physical or Mandatory Requirements and Adaptation

• Product homologation – From packaging changes to total redesign

The changes mandated by local products and service standards.• Product adaptation dictated by the following requirements:

- Legal, Economic, Political, Technological, Climate- Electrolux cold-wash- only washing machine in Asia- Lehar-Pepsi in India when government opposed foreign investments- Products with genetically modified contents are banned in EU- WHO regulating the high carcinogen American cigarettes marketing- Regulation on videogames content - Reduced units/pack in low-income countries e.g. razor blades- GM cars sold to the Middle East to fit for the hot and dusty climate

• The less developed a market is, the more adaptation is needed

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Green Marketing and Product Development

• Critical issues affecting product development:- Control of the packaging component of solid waste- Consumer demand for environmentally friendly products – e.g.

biodegradable& nonpolluting detergents, Aerosols and Ozone

• European Commission guidelines for ecolabeling – a cradle-to grave-approach. Hoover tripled the market share in Germany

• Laws to control solid waste – P&G Lenor plastic refill pouch

Green marketing is a term used to define concern with the environmental consequences of a variety of marketing activities.

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Products and Culture

• A product is the sum of the physical and psychological satisfactions it provides the user. Example a Car:

- Primary function- moving from point A to B- Psychological attributes – color, size, design, brand, price

• The need for cultural adaptation is often necessary, affected by how the product conforms with: Norms- Values- Behavior patterns

- e.g. Coke Light instead of Diet Coke in Japan- Some financial services in Muslim countries- Dishwashers new to Japanese kitchens- American leader in instant cake mixes going to Britain & Japan- Shiseido Japanese cosmetics in the US market- Harry Potter in Japan – Education not just entertainment

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Innovative Products and Adaptation

• Determining the degree of newness as perceived by the intended market whatever its PLC stage in the home country

• Diffusion - The process by which innovation spreads- PlayStation 2 launched in US after six months from its launch in

Japan

• The product effect on the established patterns of consumption and behavior e.g. the fancy iced cake mix affected 2 important aspects of consumer behavior : the difficult to believe& acquisition of a new idea that is not a slight to domestic integrity

• Foreign marketing goal: gaining the largest number of consumers in the market in the shortest span of time

- Probable rate of acceptance – time and committed resources?

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Diffusion of Innovations

• Crucial elements in the diffusion of new ideas:- An innovation- Which is communicated through certain channels- Over time- Among the members of a social system

• The element of time e.g microwave 20y, modern math 5y, KG 50y• Variables affecting the rate of diffusion of an object:

- The degree of perceived newness – innovations could be disruptive- The perceived attributes of the innovation- The method used to communicate the idea

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Five Characteristics of an Innovation

Analyzing the 5 characteristics of an innovation can assist in determining the rate of acceptance or resistance of the market to a product

1. Relative advantage- marginal value relative to the old product

2. Compatibility- with culture, values, norms, etc.

3. Complexity- degree associated with product use

4. Trialability- degree of associated economic/social risks

5. Observability- ease of communicating the product’s benefits

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Production of Innovations

• Inventiveness of companies and countries• Internet users: 160 mil Americans vs. 62 mil Japanese• Expenditures: US. twice the R&D spending as does Japan leading

to 3 times the patents granted to US firms • Japanese solutions: lack of marketing& entrepreneurship training

- American-style education programs- American design centers

• New ideas come from a growing variety of sources, countries, acquisitions, and even global collaborations e.g. Ford Taurus a European design

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Analyzing Product Components for Adaptation

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Analyzing Product Components for Adaptation

• Core component:- Nestle cereals in Japan with seaweed, carrot and zucchini- Household cleanser with citrus fragrance in Japan- Rubbermaid problem with baby furniture in Europe

• Packaging component:- Country of origin labeling for food products- (GM) Frankenfood- Diet Coke should be prescribed by a doctor in Brazil!!!- Do they sell ground-up babies in Africa?!- Do Germans sell cereals for animals in China?!- Unilever sells Sunsilk in tiny plastic single use bags in India- P&G can’t sell diapers wrapped in pink in China- Different metric systems- high humidity needs heavy packaging

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Analyzing Product Components for Adaptation

• Support services component:- Literacy rates and products’ instructions- Vaseline intensive care lotion in Africa absorbed or soaks into - Videotapes to sell Brazilian military tanks to third world- A customer service agent in a call center in India handles a

complaint with an angry American customer in Chicago!!!!!

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Marketing Consumer Services Globally

• Consumer services characteristics:- Intangibility – insurance, dry cleaning, hotel accommodation etc.- Inseparability – its creation can’t be separated from its consumption- Heterogeneity – individually produced thus unique- Perishability – once created must be consumed, can’t be stored

• A service can be marketed both as an industrial (business-to-business) or a consumer service

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Services Opportunities in Global Markets

• Tourism• Transportation• Financial services• Education• Communications• Entertainment• Information• Health care

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Barriers to Entering Global Markets for Consumer Services

• Protectionism – The EU; at least 50% of entertainment air time is devoted to European works this will significantly impact US film industry – Though Vivendi purchased Universal Studios

• Restrictions on transborder data flows – (income, spending preferences, debt repayment histories, medical conditions, employment data) The EU commission requires individual consent

• Protection of intellectual property – pirated trademarks, copyrights, and patents – TRIPs; its enforcement is difficult without the full cooperation of the host countries

• Cultural barriers and adaptation- Mac happy face in Poland – Grading class participation is nonsense

in Japan – Japanese take short vacations – Tipping in US &Germany

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Brands in International Markets

• Very important• Most valuable resource a company has

A global brand is defined as the worldwide use of a name, term, sign, symbol, design, or combination thereof intended to identify goods or services of one seller and to differentiate them from those of competitors.

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Top Twenty BrandsRank 2005/2004 2005 Brand Value

(millions)2004 Brand Value (millions)

Change (%)

Country of Ownership

1/1 Coca Cola $67,525 $67, 394 0% U.S.

2/2 Microsoft 59,941 61,732 -2 U.S.

3/3 IBM 53,376 53, 791 -1 U.S.

4/4 GE 46, 996 44,111 7 U.S.

5/5 Intel 35,588 33,499 6 U.S.

6/8 Nokia 26,452 24,041 10 Finland

7/6 Disney 26,441 27,113 -2 U.S.

8/7 McDonalds 26,041 25,001 4 U.S.

9/9 Toyota 24,837 22,673 10 Japan

10/10 Marlboro 21,139 22,128 -4 U.S.

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Top Twenty Brands (continued)Rank 2005/2004 2005 Brand Value

(millions)2004 Brand Value (millions)

Change (%)

Country of Ownership

11/11 Mercedes-Benz

$20,006 $21,331 -6 Germany

12/13 Citi 19,967 19,971 0 U.S.

13/12 HP 18,559 17,683 5 U.S.

14/14 Am Ex 18,534 16,723 5 U.S.

15/15 Gillette 17,534 16,723 5 U.S.

16/17 BMW 17,126 15,886 8 Germany

17/16 Cisco 16,592 15,948 4 U.S.

18/44 L Vuitton 16,077 NA NA France

19/18 Honda 15,788 14,874 6 Japan

20/21 Samsung 14,956 12,553 19 S. Korea

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Global Brands

• To globalize or not to globalize that’s the question!!!• The Internet and other technologies accelerate the pace of the

globalization of brands• Ideally gives the company a uniform worldwide image that

enhances efficiency when launching other products• Balance the benefits of a global brand against the risk of loosing

the benefits of a well established brand• When global brand is unknown buying a local brand could be

effective – e.g Unilever Biopan washing powder in Hungary• Ability to translate • Mars in UK – M&Ms vs. Treets and Snickers vs. Marathon

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National Brands

• Acquiring national brand names• Using global brand names• Nestle preferring brands to be local, people to be regional and

technology to be global• Unilever Omo and Pollena 2000 in Poland• Nationalistic pride impact on brands - India• Use global brands where possible and national brands where

necessary

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Country-of-Origin Effect and Global Brands

• Consumers have broad but somewhat vague stereotypes about specific countries and specific product categories that they judge “best.”

• Ethnocentrism• Countries stereotyped on the basis of whether they are industrialized, in

the process of industrializing, or developing• The more technical the product, the less positive is the perception of one

manufactured in a less-developed or newly industrializing country• Fads often surround product from particular countries or regions

Country-of-origin effect (COE) can be defined as any influence that the country of manufacture, assembly, or design has on a consumer’s positive or negative perception of a product.

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Private Brands

• Growing as challengers to manufacturers’ brands• Private labels:

- Provide the retailer with high margins- Receive preferential shelf space and in-store promotion- Are quality products at low prices

• Must be competitively priced and provide real consumer value

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Summary

• The growing globalization of markets must be balanced with the continuing need to assess all markets for those differences that might require adaptation for successful acceptance.

• In spite of the forces of homogenization, consumers also see the world of global symbols, company images, and product choice through the lens of their own local culture and its stage of development and market sophistication.

• Each product must be viewed in light of how it is perceived by each culture with which it comes in contact.

• Analyzing a product as an innovation and using the Product Component Model may provide the marketer with important leads for adaptation.