Global Products

Chap

ter

12

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

OutlineThe pros and cons of global product standardizationLocalization vs Adaptation Global product linesDeveloping global new productsGlobal brands and brand equityThe pros and cons of global brandingCounterfeit productsTakeaways.

Product standardizationAlthough there is increasing demand for local variety as economic growth takes place and as anti-globalization sentiment spreads, global products and brands are usually standardized in some ways.

Global product examplesGillette razor bladesSony television setsBenetton sweaters

Regional products and brands are unique to a particular trading regionHonda’s European car model “Concerto”P& G’s Ariel and Vizir in Europe

• Cost Reduction• Improved Quality• Enhanced Customer Preference• Global Customers• Global Segments

• Off-Target• Lack of Uniqueness• Vulnerability to Trade Barriers• Strong Local Competitors

DISADVANTAGESADVANTAGES

Standardization Pros and Cons

Localization vs AdaptationLOCALIZATION: THIS REFERS TO THE CHANGES

REQUIRED FOR A PRODUCT OR SERVICE TO FUNCTION IN A NEW COUNTRY (EX: FAX MACHINES FITTED WITH NEW TYPES OF TELEPHONE JACKS FOR USE IN A FOREIGN COUNTRY). LOCALIZATON AVOIDS HAVING POTENTIAL CUSTOMERS REJECT A PRODUCT OUTRIGHT.

ADAPTATION: WHEN PRODUCTS ARE CHANGED TO MATCH CUSTOMER TASTES OR PREFERENCES. ADAPTATION GIVES CUSTOMERS A POSITIVE REASON FOR CHOOSING A GIVEN PRODUCT.

NOTE: A standardized product still needs to be localized to function properly.

PREFER

REJECT

Line shows likelihood of

Purchase

Uniform Localized Adapted

+

-

Uniform vs Adapted Product

Fully standardizedFully adapted

Incremental manufacturing cost

Combined costs Cost of

lost sales

Optimal Level of Standardization

• 100% standardization is rare

• Usually starts with a core product as the foundation

• Various features are added, these may differ according to the country market

• Can also involve modular design, where various features are packaged as modules, different assembly combinations in different markets

What to Standardize?

•Insufficient Market ResearchSimilarities among customers are assumed, not proven

•OverstandardizationStandardization compromises the positioning strategy

•Poor Follow-UpFollow ups need to be implemented if a campaign is to succeed

•Narrow Vision Goals should not be narrow and inflexible

•Rigid ImplementationSome flexibility in implementation needs to be retained by local units

Pitfalls of Standardization

History

Different local products were well established before standardization was feasible

M&A (Mergers & Acquisitions)

Complete integration is often difficult in M&A cases

Preferences

Differences in preferences force product line customization

Capacity

Global product lines need large production capacity

Channels

Channel loyalties makes it difficult to drop local products.

Why do Global Product Lines Differ?

EUROPE

ASIA

LATIN AMERICA

NORTH AMERICA

Honda City

Honda Element

Honda Fit

Honda Stream

Honda’s Non-Global Car Models

EUROPE

ASIA

LATIN AMERICA

NORTH AMERICA

Goodyear Eagle F1

Goodyear Eagle F1

Goodyear Eagle F1

Goodyear Eagle F1

Goodyear’s Globally Uniform Tires

Developing New Global ProductsFive Stages of the New Product Development Process

Idea GenerationLocal subsidiaries are likely to have some ideas from their

respective markets and new technology is a common source of new product ideas

Preliminary ScreeningThe most immediate evaluation of an idea is whether it is

compatible with the company objectives, strategies, and resources.

Concept ResearchFocus Groups offer the development team a chance to hear

spontaneous reactions to a new concept and hear suggestions for improvement.

Developing New Global ProductsFive Stages (cont’d)

Concept TestingA more formal approach to selecting product attributes is

using techniques such as trade-off analysis or conjoint analysisSales Forecast

The appropriate sales forecast approach is based on the product life cycle (see Ch.4)

Test MarketingOnce the sales forecast looks promising, the new product is

usually placed in production and test marketed.

Idea generation

(leading markets)

Preliminary screening

Concept research

(focus groups, concept testing)

Sales forecasting

Test marketing

Number of surviving

new product

ideas

“64 ideas make one successful product”

Because new product development is so uncertain, many firms practice “TARGET POSITIONING”.

Step 1: Track which of the competitors’ new products appeal to consumers and find what features are desired.

Step 2: Reverse engineer the competitive success products.Step 3: Develop own “me-too” version.Step 4: Add new features to provide differentiation and a

superior offering.

Note: Firms cannot let competitors stay unchallenged. Ex. Nokia lost a big chunk of its leading market share in cell-phones when the company decided not to follow the trend into the so-called clamshell phone models with lids.

Target Positioning

TARGET BRAND

PRODUCT SPECIFICATION

LO END

HI END

LO PRICE PRICE POSITION HI PRICE

Target Positioning:The Diagonal for “Me-too” Offerings

Relative advantage – how much better is the new product?

Compatibility – can the product be used in terms of local infrastructure & customs?

Complexity – is it easy to use?

Trialability – is it easy to try the new product?

Observability – are the advantages obvious?

New Products’ Speed of Diffusion

Global BrandsGLOBAL BRANDS ARE BRANDS ASSOCIATED

WITH GLOBAL PRODUCTS WHICH ARE WELL KNOWN IN ALL MAJOR MARKETS OF THE WORLD.

Ex's: SONY, MERCEDES-BENZ, MICROSOFT, COCA-COLA.

THE TYPICAL MULTINATIONAL FIRM HAS A “PORTFOLIO” OF BRANDS, SOME OF WHICH ARE GLOBAL, SOME ARE REGIONAL, AND SOME LOCAL ONLY.

company total number brands found in brands marketedof brands 50% or more countries (%) in only one country (%)

Colgate 163 6 (4%) 59 (36%)Kraft GF 238 6 (3%) 104 (44%)Nestle 560 19 (4%) 250 (45%)P&G 217 18 (8%) 80 (37%)Quaker 143 2 (1%) 55 (38%)Unilever 471 17 (4%) 236 (50%)total 17921

Source: Journal of Consumer Marketing 12 no. 4 (1995)

Typical Global Brand Portfolios

Global Brand EquityBrand Equity is the value of the positive associations that

consumers have with a product’s brand name.These associations often involve emotional attachments,

affinity, positive brand image, and brand identity.They also involve cognitive factors such as familiarity,

knowledge and perceived quality, as well as social factors including peer group acceptance.

When these associations turn negative (as in anti-globalization sentiments against global brands) the brand equity can go down very quickly.

Brand Name 2001 Brand Value ($ billions)1 Coca-cola 68.92 Microsoft 65.13 IBM 52.84 GE 42.45 Nokia 356 Intel 34.77 Disney 32.68 Ford 30.19 McDonald's 25.3

10 AT&T 22.8

Source: Business Week 8/6/2001

BRAND EQUITY is sometimes measured in terms of the discounted net revenues the brand is expected to

generate over time.

Global Brand Equity

DEMAND SPILLOVER – The name is familiar because of media spillover, satellite

communications, word-of-mouth etc.

GLOBAL CUSTOMERS- People travel to many countries and multinational customers operate in many locations, making the global

brand a natural choice everywhere.

SCALE ECONOMIES – any spending on product improvements and advertising can

be leveraged across more markets.

Advantages of Global Brands

NEGATIVE SPILLOVER –Bad news travel faster across country markets

PRODUCT LINE SPILLOVER - Negative spillover affects also other products with the

same brand name.

BRAND LOYALTY – Local brand loyalties can be strong.

Disadvantages of Global Brands

1. Does the brand name make sense outside of the source country?

2. If the name suggests a country association, is the effect positive?

3. Is the name available legally in many countries?

4. Does the brand compete with other brands in the portfolio?

5. Should growth be limited to the creation of a regional brand?

Globalizing a Brand Name: Checklist

Changing a Local to a Global Brand

Changeover strategies:The fade-in/fade-out gradual option is the most common

strategyThe global brand is linked to the local brand for a time, after

which the local brand is droppedA less gradual approach, sometimes called summary axing

Simply drops the local brand name and introduces the new brandCompanies also use extensive forewarning in media

announcements to minimize changeover dissonance among loyal customers.

• COUNTERFEITS OR KNOCKOFFS ARE FAKE PRODUCTS THAT ARE DESIGNED AND LABELED SO

AS TO MISLEAD THE CUSTOMER INTO ASSUMING THAT THEY ARE “THE REAL DEAL.”

• WORLDWIDE LOSSES DUE TO COUNTERFEITING IS OVER $20 BILLION ANNUALLY

• COUNTERFEITERS OPERATE AT ALL LEVELS OF THE ECONOMY, JUST ABOUT ANY PRODUCT OR

TECHNOLOGY DEVELOPMENT IS FAIR GAME

Counterfeit Products

“SEARCH & DESTROY” – firms hire private

investigation agencies to track down fakes in stores and locate counterfeit factories

CODING DEVICES – firms encode unique signatures to products

(e.g. Levi’s micro-weave patterns, Microsoft’s Windows 95 tracking codes)

Actions Against Counterfeits

LOCALIZATION – fitting a product/service to local regulations and usage requirements

ADAPTATION – fitting the product to buyer preferences

A STANDARDIZED GLOBAL PRODUCT might not be adapted to consumer preferences but must still be localized.

Takeaway

Product standardization is never 100%, but management must select which features to keep uniform and which to

adapt to local markets.

When preferences show wide variance across countries & the feature is important, adaptation will be necessary.

Takeaway

Developing a globally standardized product requires data analysis, input from local subsidiaries, & a great deal of

managerial judgment.

New product ideas often come from leading markets; their diffusion rate is a function of fit with local infrastructure &

preferences.

Takeaway

Global brands are often the most valuable assets of a global firm.

Most companies have a portfolio of brands, & management must decide which should be

promoted as global.

Takeaway

Counterfeit products are damaging to the brand’s equity & must be controlled, often by direct intervention.

Takeaway