Product and service adaptation

Marketing Policies

• Same products sold everywhere the same way = (full) standardization = global strategy

• Adapt to local conditions = adaptation = multidomestic strategy

Benefits from Standardization

• lower costs

• improved quality

• enhanced customer preference

• increased competitive leverage

• global customers and suppliers

Lower Costs

• Experience curve

• Bargaining power

• Economies of scale

Economies of Scale

• in manufacturing

• in research and development

• in advertising– scale economies in advertising– media overlaps– pan-European events

Price/fit Tradeoff

• Customers are willing to sacrifice perfect fit for price (Levitt 1983)

– Italian washing machines– Japanese cars in US– but Whirlpool and Maytag in Europe

• Improved quality

• Enhanced customer preference– better service to global customers– greater recognition, authority, and credibility of

the product/brand• increasingly the case as customers travel

• Increased competitive leverage– prevents imitation– Greater bargaining power

– Global customers and suppliers

Benefits of standardization are reduced by…

• Transportation costs

• Government barriers

• Currency risk

• Management costs

• Intercountry taste differences

Benefits of standardization are reduced by government barriers

• Tax discrimination

• Foreign exchange risk

• Trade barriers• Standards and regulations

Benefits of standardization are reduced by management costs

• Increased coordination costs

• Information loss

• Loss of local motivation

Benefits of standardization are reduced by differences in consumer

tastes

Consumer taste homogeneity– Uniformity (same consumption patterns

across countries)

– Vs. Interpenetration (more common segments across countries)

Interpenetration

Croissants Muesli Eggs & Bacon

France 90% 5% 5%

Switzerland 10% 85% 5%

UK 5% 10% 85%

Uniformity?

• Emergence of global products

• But still major differences across Europe for some products

– cigarettes

– Alcohol

Annual per-capita cigarette consumption 2004 (000)

0,866

0,905

1,23

1,373

1,446

2,058

2,068

2,209

2,274

2,354

2,693

3,131

0 1 2 3 4

U.K.

France

U.S.

Germany

China

Russia

Czech Republic

South Korea

Spain

Japan

Bulgaria

Greece

Adult alcohol intake per year(litres of pure alcohol)

4.74.84.8

6.48.4

9.49.4

10.411.411.511.711.811.811.912.1

13.614.1

9.8

0 2 4 6 8 10 12 14 16

United StatesNorwayIceland

SwedenFinland

ItalyBritain

NetherlandsGreece

SpainIreland

BelgiumGermany

SwitzerlandAustria

DenmarkPortugal

France

88.470.469.1

66.964.163.4

43.539.838.437.3

34.730

26.520.1

0 20 40 60 80

IrelandGreece

United KingdomSpain

PortugalBelgium

ItalyAustria

NetherlandsGermany

FranceFinland

DenmarkSweden

Consumption of beer outside the home(% of total)

Drinking occasions for beer

0

10

20

30

40

50

60

70

80

90

Netherlands Greece Ireland

Lunch

Afternoon

Dinner

Evening

Convergence?

• Yes for some products, no for others

Annual per-capita cigarette consumption

-40

-42

-34

-17

4

75

9

3

13

-12

14

15%Greece 2,719 3,131

Bulgaria 2,371 2,693

Japan 2,668 2,354

Spain 2,019 2,274

South Korea 2,150 2,209

Czech Republic 1,890 2,068

Russia 1,177 2,058

China 1,397 1,446

Germany 1,646 1,373

U.S. 1,858 1,230

France 1,556 905

U.K. 1,448 866

Country 1994 2004 Percentage Change

Note: Consumption defined by duty-paid sales; actual consumption can be higher.

Source: ERC Group

0 4 8 12 16 20

Netherlands

France

Denmark

Germany

Spain

Belgium

Luxembourg

Greece

Portugal

United Kingdom

Italy

Ireland1987

1994

Evolution of Yogurt Consumption(Kg per capita)

• Less adaptation needed for producer than for consumer goods, yet still differences

(earth moving equipment)

• In general, any product/service transferred to a foreign country will be “reconstructed” locally

“wine and cheese parties”

melons in Japan

Whyat needs to be adapted? Marketing Adaptation Checklist

1. product/service

2. price

3. promotion

4. distribution

1. Why Product/Service adaptation?

• Conditions of use (size, features)– population density, weather

• Preferences (taste, smell)

• Habits and values– social class, religion

Why product/service adaptation? (2)

• Economic conditions– stage of development– degree of competition

• Standards and regulations– admissible ingredients and techniques

2. Price Adaptations

• product positioning (elasticity of demand)

• competition

• government regulation

Automobile Price Differences in the EU

Small Segment Medium Segment Large Segment

Opel Corsa 24.0% VW Golf 43.5% BMW 318I 12.0%

Ford Fiesta 44.7% Opel Astra 26.0% Audi A4 13.0%

Renault Clio 33.8% Ford Escort/ Orion 33.8% Ford Mondeo 58.5%

Peugeot 106 21.1% Renault Mégane 27.9% Opel Vectra 18.2%

VW Polo 36.7% Peugeot 306 46.2% VW Passat 36.4%

Source: European Commission

3. Promotion adaptations

• Brand

• Advertising

Global or Local Brand?

• Cost of creating and maintaining global brand?

• Scale economies in global brand?

• Value association with global vs. local brand?

• Cultural and legal hindrances with global brand?

Some Brands do not Transfer

• Pschitt• Sissy• Toyota MR2• Chevrolet Nova• American Motors Matador• Mitsubishi Pajero• Air• Mymorning Water• Creap• Clairol Mist Stick

Brands of 6 MNCs in 67 countries

Brands found in 50% or more countries

Brands marketed in only one country

Company Total no. of brands

Number % of total Number % of total

Colgate 163 6 4 59 36 Kraft GF 238 6 3 104 44 Nestlé 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 1792 68 4 784 44

"Our company's product/service brand(s) are more local than pan-European"

0

1

2

3

4

5

6

7

NowIn 5-10 yearsEuropean-based

firmsSubsidiaries of

U.S.-based firmsAll firms

European Firms Are Integrating Across the Continent

Key: 7…Agree strongly

…

…

…

…

…

1…Disagree strongly

3.52.8 2.6

1.9

3.42.6

Country of Origin Effects

Apparent country of origin affects reputation

Germany = Robust

France = Luxury

Italy = Design

Finland = Pure

Advertising

• Response to advertising• Response to message• Media availability• Advertising restrictions

Response to Message

• Silent language– color– numbers– symbols

• Spoken language– perceptual gaps– encoding/decoding gaps

EncoderSender

Culture Choice of words

Choice of symbols

Meaning

Seller’s field of experience

Seller in country A

Decoder Receiver

CultureChoice of wordsChoice of symbols Understanding

Buyer in country B

Message

Medium

Share of advertising revenue by support, 2003

0% 10% 20% 30% 40% 50%

Others　 　

Magazines

Radio

Television　

Newspapers　

China　

United States 　

0 20 40 60 80 100 120

Tota

lre

venu

es

(b$) 　　

　

Distribution

• Channels– availability

– cost

– regulations

Store Density per 1000 inhabitants

2,21

5,30 5,61

6,49

8,94

11,1111,48

Russia UK France Brazil US India China

Top 5 Chains Share in Supermarkets – 2004

2%

2%

9%

41,40%

45%

62%

74,30%

88%

India

China

Russia

Brazil

US

France

UK

Canada

Vending machines

Japan: 1 for every 25 persons

US: 1 for every 40 persons

China: 1 for every 26,000 people

Three points to keep in mind

• Price-Fit tradeoff• Core vs. peripheral

standardization• Selective standardization

1. Price/fit Tradeoff

Customers are willing to sacrifice perfect fit for price (Levitt 1983)

– Italian washing machines– Japanese cars in US – but Whirlpool and Maytag in Europe

2. Product/service Core and Peripheral Elements

McDonald’s– core: clean, family, fast

– non-core: menus

McDonald’s Menu Adaptation • Norway: McLaks, grilled salmon sandwich with dill sauce on a

whole-grain bun• Canada: Cheese vegetable, pepperoni and deluxe pizza• France: Wine• Uruguay: McHuevo, a hamburger with a poached egg on top,

and McQueso, a toasted cheese sandwich• Netherlands: Groenteburger, vegetable burger• Germany: Frankfurters, tortellini and a cold four-course meal• Greece and Italy: Salad bar• Thailand: Samurai Pork Burger, marinated with teriyaki sauce,

and palm-fruit sundae• Singapore: Vanilla ice cream swirled with chocolate and

strawberry and spiced for Singaporean tastes• Philipines: McSpaghetti, a sweet tomato and meat sauce with

frankfurter bits• Japan: Chicken Tatsuta sandwich, fried chicken spiced with

soy sauce and ginger served with cabbage and mustard mayonaise

3. Optimal standardization almost never full standardization and

varies...

• across products

• across elements of the marketing mix

• across areas

• across time

Standardization of the Marketing mix Sample: 31 companies

Positioning

Product

Brand

Packaging

Advertising

Price

Salespromotion

PR

Distribution

1 2 3 4 5

No standardizationStandardized

concept and execution

Core Standardization

Y = Standardized element Bacardi

Gervais Danone

American Express

Henkel Pritt

Levi 501s

Samsonite Johnie Walker

Benetton Swatch

Product

- Positioning Y Y Y Y Y Y Y

- Brand name Y Y Y Y Y Y Y Y Y

- Core product Y Y Y Y Y Y Y Y Y

- Ingredients Y Y Y Y Y

Advertising

TV spots

- Concept Y Y Y Y Y Y

- Execution Y Y Y Y Y Y

Print

- Concept Y Y Y Y Y

- Execution Y Y

Packaging

- Design Y Y Y

- Size Y

Price Y Y

Salespromotion

PR

Salesconcept (distribution)

Y

Conclusion

• One must search for the proper balance between full adaptation and full standardization

• Decision must be on a case-by-case basis

• Implementation difficulties should be taken into account